Ziad K. Abdelnour's Blog, page 2
June 24, 2013
June 15, 2013
Wall Street, K Street - Understanding the Politics of Money
It looks like hypocrisy abounds today on both sides of the aisle in Washington DC and on the media company propaganda channels as well.
As the national debt soared from $10.6 trillion on the day Obama took office to over $17 trillion today, I still hear the liberal media blame the debt on the Bush tax cuts and the Bush wars. If the Bush tax cuts were so horrific, why did Obama and his minions just make 98% of these tax cuts permanent? Obama’s defense budgets have been larger than Bush’s and he doubled down on our miserable failure in Afghanistan. You don’t hear a peep from the liberals about the warmongering Barack Obama who has kill lists and unleashes predator drones, killing women and children across the globe. Liberals pretend to be concerned about the welfare of the citizens, but continue to support a President that uses executive orders to imprison citizens indefinitely without charges, has expanded surveillance on citizens, has kept Guantanamo open, signs the continuation of the Patriot Act, and proposes overturning the Second Amendment by executive order. They shriek about the evils of an unregulated Wall Street, while remaining silent as Obama hasn’t prosecuted a single banker for the greatest financial fraud in world history. You don’t hear a peep about Jon Corzine, who stole $1.2 billion from the accounts of farmers and ranchers. Liberals talk about regulation and then stand idly by while Wall Street lobbyists wrote the Dodd Frank law and insurance and drug company lobbyists wrote the Obamacare law. Liberal hypocrisy knows no bounds and is only matched by Neo-Con hypocrisy.
The Neo-Con controlled Republican Party is a pathetic joke. They have the guts to declare themselves the party of fiscal responsibility, after Bush’s eight year reign of error. He and his fiscally responsible party were handed a budget in surplus and managed to add $4.9 trillion to the national debt by waging undeclared wars, encouraging Wall Street to create the biggest fraudulent financial bubble in history, creating a new $16 trillion unfunded entitlement (Medicare Part D), cutting taxes without paying for them, and creating a massive new government agency (DHS) to take away our liberties and freedom. Federal government spending grew from $1.9 trillion to $3.0 trillion under Bush and the Republicans. Does that sound fiscally responsible? Does anyone believe the Republican Party is serious about cutting anything? Tough guy Republicans like Big Chris Christie preach fiscal responsibility when going to war with teachers’ unions, but he squeals like a pig when a $60 billion pork filled, unpaid for, Sandy Relief bill is held up in Congress. The courageous fiscally responsible Congress critters passed the entire pork filled, unfunded, bloated, vote buying joke. It included $28 billion to mitigate future disasters, $3 billion to repair or replace Federal assets, and $6 billion for transportation projects completely unrelated to Sandy damage. The hypocrisy of politicians who proclaim the $50 billion of 2013 fiscal cliff tax revenue as deficit cutting, and then immediately piss it away by paying people to rebuild their houses yards from the Atlantic Ocean while funding billions of non-disaster related projects is disgusting to behold. There is nothing like compromise to add another $60 billion to the national debt.
Our entire economic and political system is a farce. The American people are being played by the powerful interests that provide them with an illusion of choice. Both parties serve the interests of their masters and the fiscal cliff show and debt ceiling show are a form of reality TV to keep the masses alarmed, fearful, and believing there is actually a difference between the policies of the ruling class. The funniest part this fiscal fiasco farce is watching the reaction of the sheep who believed Obama and the mainstream media storyline. Obama was able to raise the published top rate on people making over $400,000. The newly defined “rich” laughed heartily as they know only fools pay anywhere near the top rate. The rich just call their tax advisor and instruct them to use one of the thousands of tax loopholes in the 75,000 page IRS tax code to “legally” avoid the new Obama rates. Meanwhile, both parties and their mainstream media mouthpieces downplayed the 2% payroll tax increase on every working American. The joke is on the American people as the rich will ante up maybe $50 billion of taxes in 2013, while the working middle class will be skewered for $125 billion. How’s that “Tax the Rich” slogan working out for you?
So when you see the cut in your take home pay, just comfort yourself knowing that JP Morgan, Citigroup, GE and hundreds of mega-corporations were able to retain their tax breaks. As they have done for decades, Congress and the President agreed to address spending cuts at a future date. Of course, a government spending cut isn’t actually a cut. It’s a lower increase than their previous projection. Nothing is ever cut in Washington DC. The austerity storyline is a lie. Not a dime has been cut from the Federal budget. Intellectually dishonest ideologues try to peddle the wind down of the Obama $800 billion porkulus program as a cut in Federal spending. They sold this Keynesian “shovel ready” crap to a gullible public as stimulus to jumpstart the economy. Federal spending was $3.0 trillion before the Obama stimulus. After the two year stimulus was pissed away without helping the economy one iota, the baseline should have been back in the $3.2 trillion range. Instead, FY13 Federal spending will be $3.8 trillion. This hasn’t kept liberal ideologues like Krugman and his minions in the mainstream media from blaming crazy Tea Party Republicans for inflicting horrendous austerity measures on the poor and disadvantaged.
It is unfortunately a fact today that the country has been blessed with two of the worst presidents in U.S. history over the last twelve years. Obama and the current Congress are spending at a level of 24% of GDP versus the 18% of GDP when Clinton left office. This amounts to a nose bleed altitude $950 billion higher than the level headed Clinton was spending in his final year in office.
The Op-eds in liberal rags across the land decry the lack of civility in Washington DC and plead for politicians on both sides of the aisle to come together and compromise for the good of the country. This line of bullshit would be laughable if it wasn’t so wretched in its falsity. Compromise is what has left this country with a $16.4 trillion national debt, $200 trillion of unfunded liabilities, and $1 trillion deficits as far as the eye can see. Democrats have compromised and let the Republicans create a warfare state. Republicans have compromised and let Democrats create a welfare state. The two headed monster living in the swamps of Washington DC just voted to increase taxes on all Americans. They voted to hand criminal Wall Street banks $700 billion. They voted to pass the Patriot Act. They voted to pass the NDAA. They’ve allowed the President to wage undeclared wars in Iraq, Afghanistan, Libya, and now maybe Syria and Iran. They voted for a $663 billion Defense bill that includes tens of billions the Secretary of Defense doesn’t even want. The last thing this country needs is more compromise. We can’t afford any more compromise. The hypocrisy of pandering deceitful politicians is boundless and shows utter contempt for the intelligence of the American populace.
I could have shown quotes from George W. Bush during the 2000 Presidential campaign talking about a non-interventionist foreign policy and no need for the U.S. to get involved in nation building and then proceeding to pre-emptively attack sovereign countries while wasting trillions and impoverishing unborn generations trying to create “democracy” in the Middle East at the point of a gun as a cover to protect “our” oil. The point is that we are being given the illusion of choice.
Let’s face it....The American Dream is dead. We’ve allowed a rich, privileged, elite few to achieve hegemony over our economic and political system with their control of the media and manipulation of our financial markets. They will collapse the country because they will never be satisfied with the amount of wealth and power they’ve accumulated.
Now that you know the whole story, what are you going to do about it? Time will tell....
As the national debt soared from $10.6 trillion on the day Obama took office to over $17 trillion today, I still hear the liberal media blame the debt on the Bush tax cuts and the Bush wars. If the Bush tax cuts were so horrific, why did Obama and his minions just make 98% of these tax cuts permanent? Obama’s defense budgets have been larger than Bush’s and he doubled down on our miserable failure in Afghanistan. You don’t hear a peep from the liberals about the warmongering Barack Obama who has kill lists and unleashes predator drones, killing women and children across the globe. Liberals pretend to be concerned about the welfare of the citizens, but continue to support a President that uses executive orders to imprison citizens indefinitely without charges, has expanded surveillance on citizens, has kept Guantanamo open, signs the continuation of the Patriot Act, and proposes overturning the Second Amendment by executive order. They shriek about the evils of an unregulated Wall Street, while remaining silent as Obama hasn’t prosecuted a single banker for the greatest financial fraud in world history. You don’t hear a peep about Jon Corzine, who stole $1.2 billion from the accounts of farmers and ranchers. Liberals talk about regulation and then stand idly by while Wall Street lobbyists wrote the Dodd Frank law and insurance and drug company lobbyists wrote the Obamacare law. Liberal hypocrisy knows no bounds and is only matched by Neo-Con hypocrisy.
The Neo-Con controlled Republican Party is a pathetic joke. They have the guts to declare themselves the party of fiscal responsibility, after Bush’s eight year reign of error. He and his fiscally responsible party were handed a budget in surplus and managed to add $4.9 trillion to the national debt by waging undeclared wars, encouraging Wall Street to create the biggest fraudulent financial bubble in history, creating a new $16 trillion unfunded entitlement (Medicare Part D), cutting taxes without paying for them, and creating a massive new government agency (DHS) to take away our liberties and freedom. Federal government spending grew from $1.9 trillion to $3.0 trillion under Bush and the Republicans. Does that sound fiscally responsible? Does anyone believe the Republican Party is serious about cutting anything? Tough guy Republicans like Big Chris Christie preach fiscal responsibility when going to war with teachers’ unions, but he squeals like a pig when a $60 billion pork filled, unpaid for, Sandy Relief bill is held up in Congress. The courageous fiscally responsible Congress critters passed the entire pork filled, unfunded, bloated, vote buying joke. It included $28 billion to mitigate future disasters, $3 billion to repair or replace Federal assets, and $6 billion for transportation projects completely unrelated to Sandy damage. The hypocrisy of politicians who proclaim the $50 billion of 2013 fiscal cliff tax revenue as deficit cutting, and then immediately piss it away by paying people to rebuild their houses yards from the Atlantic Ocean while funding billions of non-disaster related projects is disgusting to behold. There is nothing like compromise to add another $60 billion to the national debt.
Our entire economic and political system is a farce. The American people are being played by the powerful interests that provide them with an illusion of choice. Both parties serve the interests of their masters and the fiscal cliff show and debt ceiling show are a form of reality TV to keep the masses alarmed, fearful, and believing there is actually a difference between the policies of the ruling class. The funniest part this fiscal fiasco farce is watching the reaction of the sheep who believed Obama and the mainstream media storyline. Obama was able to raise the published top rate on people making over $400,000. The newly defined “rich” laughed heartily as they know only fools pay anywhere near the top rate. The rich just call their tax advisor and instruct them to use one of the thousands of tax loopholes in the 75,000 page IRS tax code to “legally” avoid the new Obama rates. Meanwhile, both parties and their mainstream media mouthpieces downplayed the 2% payroll tax increase on every working American. The joke is on the American people as the rich will ante up maybe $50 billion of taxes in 2013, while the working middle class will be skewered for $125 billion. How’s that “Tax the Rich” slogan working out for you?
So when you see the cut in your take home pay, just comfort yourself knowing that JP Morgan, Citigroup, GE and hundreds of mega-corporations were able to retain their tax breaks. As they have done for decades, Congress and the President agreed to address spending cuts at a future date. Of course, a government spending cut isn’t actually a cut. It’s a lower increase than their previous projection. Nothing is ever cut in Washington DC. The austerity storyline is a lie. Not a dime has been cut from the Federal budget. Intellectually dishonest ideologues try to peddle the wind down of the Obama $800 billion porkulus program as a cut in Federal spending. They sold this Keynesian “shovel ready” crap to a gullible public as stimulus to jumpstart the economy. Federal spending was $3.0 trillion before the Obama stimulus. After the two year stimulus was pissed away without helping the economy one iota, the baseline should have been back in the $3.2 trillion range. Instead, FY13 Federal spending will be $3.8 trillion. This hasn’t kept liberal ideologues like Krugman and his minions in the mainstream media from blaming crazy Tea Party Republicans for inflicting horrendous austerity measures on the poor and disadvantaged.
It is unfortunately a fact today that the country has been blessed with two of the worst presidents in U.S. history over the last twelve years. Obama and the current Congress are spending at a level of 24% of GDP versus the 18% of GDP when Clinton left office. This amounts to a nose bleed altitude $950 billion higher than the level headed Clinton was spending in his final year in office.
The Op-eds in liberal rags across the land decry the lack of civility in Washington DC and plead for politicians on both sides of the aisle to come together and compromise for the good of the country. This line of bullshit would be laughable if it wasn’t so wretched in its falsity. Compromise is what has left this country with a $16.4 trillion national debt, $200 trillion of unfunded liabilities, and $1 trillion deficits as far as the eye can see. Democrats have compromised and let the Republicans create a warfare state. Republicans have compromised and let Democrats create a welfare state. The two headed monster living in the swamps of Washington DC just voted to increase taxes on all Americans. They voted to hand criminal Wall Street banks $700 billion. They voted to pass the Patriot Act. They voted to pass the NDAA. They’ve allowed the President to wage undeclared wars in Iraq, Afghanistan, Libya, and now maybe Syria and Iran. They voted for a $663 billion Defense bill that includes tens of billions the Secretary of Defense doesn’t even want. The last thing this country needs is more compromise. We can’t afford any more compromise. The hypocrisy of pandering deceitful politicians is boundless and shows utter contempt for the intelligence of the American populace.
I could have shown quotes from George W. Bush during the 2000 Presidential campaign talking about a non-interventionist foreign policy and no need for the U.S. to get involved in nation building and then proceeding to pre-emptively attack sovereign countries while wasting trillions and impoverishing unborn generations trying to create “democracy” in the Middle East at the point of a gun as a cover to protect “our” oil. The point is that we are being given the illusion of choice.
Let’s face it....The American Dream is dead. We’ve allowed a rich, privileged, elite few to achieve hegemony over our economic and political system with their control of the media and manipulation of our financial markets. They will collapse the country because they will never be satisfied with the amount of wealth and power they’ve accumulated.
Now that you know the whole story, what are you going to do about it? Time will tell....
June 13, 2013
Is this Capitalism?
I believe there is nothing normal about what Ben Bernanke and the Federal government have done post the 2008 crisis and continue to do today.
The Greenspan led Federal Reserve created two epic bubbles in the space of six years which burst and have done irreparable harm to the net worth of the middle class. Rather than learn the lesson of how much damage to the lives of average Americans has been caused by creating cheap easy money out of thin air, our Ivy League self-proclaimed expert on the Great Depression, Ben Bernanke, has ramped up the cheap easy money machine to hyper-speed. There is nothing normal about the path this man has chosen. His strategy has revealed the true nature of the Federal Reserve and their purpose – to protect and enrich the financial elites that manipulate this country for their own purposes.
Despite the mistruths spoken by Bernanke and his cadre of banker coconspirators, he can never reverse what he has done. Frankly, I believe the country will not return to normalcy in our lifetimes. Bernanke is conducting a mad experiment and we are the rats in his maze. His only hope is to retire before it blows up in his face. Just as Greenspan inflated the housing bubble and exited stage left, Bernanke is inflating a debt bubble, stock bubble, bond bubble and attempting to re-inflate the housing bubble just in time for another Ivy League Keynesian academic, Janet Yellen, to step into the banker’s box. This genius thinks Bernanke has been too tight with monetary policy. It seems inflated egos are common among Ivy League economist central bankers who think they can pull levers and push buttons to control the economy…. Insanity at its best.
The gradual slide towards our national bankruptcy of wealth, spirit, freedom, self-respect, morality, personal responsibility, and common sense began in 1913 with the secretive creation of the Federal Reserve and the imposition of a personal income tax. Pandora’s Box was opened in this fateful year and the horrors of currency debasement and ever increasing taxation were thrust upon the American people by a small but powerful cadre of unscrupulous financial elite and the corrupt politicians that do their bidding in Washington D.C. The powerful men who thrust these evils upon our country set in motion a chain of events and actions that will undoubtedly result in the fall of the great American Empire, just as previous empires have fallen due to the corruption of its leaders and depravity of its people. Creating a private central bank, controlled by the Wall Street cabal, and allowing the government to syphon the earnings of workers through increased taxation has allowed politicians the ability to spend, borrow, and print money at an ever increasing rate in order to get themselves re-elected and benefit the cronies, hucksters and bankers that pay the biggest bribes. None of this benefit the average American, who sees their purchasing power systematically inflated and taxed away. This is not capitalism and it is not a coincidence that war and inflation have been the hallmarks of the last century.
When I critically scrutinize the economic, political, financial, and social landscape at this point in history, I come to the inescapable conclusion that our country and world are headed into the abyss. This is most certainly a minority viewpoint. The majority of people in this country are still oblivious to the disaster that will arrive over the next decade. Poor souls.
The unsustainability of our economic system built upon assumptions of exponential growth, ever expanding debt, increasing consumer spending, unlimited supplies of cheap easy to access oil, impossible to honor entitlement promises, and a dash of mass delusion should be apparent to even the dullest of government public school educated drones inhabiting this country.
It is sad to see that the citizens of this country have allowed those in control of the government and media to convince them the situation confronting us is just a normal cyclical variation that will be alleviated by tweaking existing economic policies and trusting that Ben Bernanke will pull the right monetary levers to get us back on course. The stress inflicted on their brains in the last thirteen years of bubbles and wars has clearly made the average person incapable of distinguishing between normality and abnormality. What they need is a rude awakening and I am afraid they will get it sooner than later.
Frankly, you have to be really blind or just plain stupid to convince yourself that everything that has happened since 1996 is normal. Every fact supports the reality that we’ve entered a period of extreme abnormality and our response as a nation thus far has insured that a disaster of even far greater magnitude is just over the horizon. Anyone with an ounce of common sense realizes the social mood is deteriorating rapidly. We are in the midst of a Crisis period that will result in earth shattering change, but the masses want things to go back to normal and don’t want to face the facts. The dissonance created by reality versus their wishes will resolve itself when the next financial collapse makes 2008 look like a walk in the park.
Sticking your head in the sand will not make reality go away. The existing social, political, and financial order will be swept away. What it is replaced by is up to us. The choice is ours. What are you going to do about it?
The Greenspan led Federal Reserve created two epic bubbles in the space of six years which burst and have done irreparable harm to the net worth of the middle class. Rather than learn the lesson of how much damage to the lives of average Americans has been caused by creating cheap easy money out of thin air, our Ivy League self-proclaimed expert on the Great Depression, Ben Bernanke, has ramped up the cheap easy money machine to hyper-speed. There is nothing normal about the path this man has chosen. His strategy has revealed the true nature of the Federal Reserve and their purpose – to protect and enrich the financial elites that manipulate this country for their own purposes.
Despite the mistruths spoken by Bernanke and his cadre of banker coconspirators, he can never reverse what he has done. Frankly, I believe the country will not return to normalcy in our lifetimes. Bernanke is conducting a mad experiment and we are the rats in his maze. His only hope is to retire before it blows up in his face. Just as Greenspan inflated the housing bubble and exited stage left, Bernanke is inflating a debt bubble, stock bubble, bond bubble and attempting to re-inflate the housing bubble just in time for another Ivy League Keynesian academic, Janet Yellen, to step into the banker’s box. This genius thinks Bernanke has been too tight with monetary policy. It seems inflated egos are common among Ivy League economist central bankers who think they can pull levers and push buttons to control the economy…. Insanity at its best.
The gradual slide towards our national bankruptcy of wealth, spirit, freedom, self-respect, morality, personal responsibility, and common sense began in 1913 with the secretive creation of the Federal Reserve and the imposition of a personal income tax. Pandora’s Box was opened in this fateful year and the horrors of currency debasement and ever increasing taxation were thrust upon the American people by a small but powerful cadre of unscrupulous financial elite and the corrupt politicians that do their bidding in Washington D.C. The powerful men who thrust these evils upon our country set in motion a chain of events and actions that will undoubtedly result in the fall of the great American Empire, just as previous empires have fallen due to the corruption of its leaders and depravity of its people. Creating a private central bank, controlled by the Wall Street cabal, and allowing the government to syphon the earnings of workers through increased taxation has allowed politicians the ability to spend, borrow, and print money at an ever increasing rate in order to get themselves re-elected and benefit the cronies, hucksters and bankers that pay the biggest bribes. None of this benefit the average American, who sees their purchasing power systematically inflated and taxed away. This is not capitalism and it is not a coincidence that war and inflation have been the hallmarks of the last century.
When I critically scrutinize the economic, political, financial, and social landscape at this point in history, I come to the inescapable conclusion that our country and world are headed into the abyss. This is most certainly a minority viewpoint. The majority of people in this country are still oblivious to the disaster that will arrive over the next decade. Poor souls.
The unsustainability of our economic system built upon assumptions of exponential growth, ever expanding debt, increasing consumer spending, unlimited supplies of cheap easy to access oil, impossible to honor entitlement promises, and a dash of mass delusion should be apparent to even the dullest of government public school educated drones inhabiting this country.
It is sad to see that the citizens of this country have allowed those in control of the government and media to convince them the situation confronting us is just a normal cyclical variation that will be alleviated by tweaking existing economic policies and trusting that Ben Bernanke will pull the right monetary levers to get us back on course. The stress inflicted on their brains in the last thirteen years of bubbles and wars has clearly made the average person incapable of distinguishing between normality and abnormality. What they need is a rude awakening and I am afraid they will get it sooner than later.
Frankly, you have to be really blind or just plain stupid to convince yourself that everything that has happened since 1996 is normal. Every fact supports the reality that we’ve entered a period of extreme abnormality and our response as a nation thus far has insured that a disaster of even far greater magnitude is just over the horizon. Anyone with an ounce of common sense realizes the social mood is deteriorating rapidly. We are in the midst of a Crisis period that will result in earth shattering change, but the masses want things to go back to normal and don’t want to face the facts. The dissonance created by reality versus their wishes will resolve itself when the next financial collapse makes 2008 look like a walk in the park.
Sticking your head in the sand will not make reality go away. The existing social, political, and financial order will be swept away. What it is replaced by is up to us. The choice is ours. What are you going to do about it?
June 11, 2013
America... Tear down the wall before it's too late.
I am afraid America makes less sense every day.
Little children are randomly slaughtered in their schoolrooms. Predator drones roam the skies over foreign countries exterminating bad guys, along with innocent women and children (collateral damage when it occurs in a foreign country). Drugged up mentally ill kids with no hope and no future live lives of secluded quiet desperation until they snap. Ignorant, government educated, welfare dependent drones with no self respect or respect for others, assault, kill and rob within their government created urban ghettoes. Sociopaths who committed the largest financial crime in world history walk free and continue to occupy executive suites in luxury office towers in downtown NYC, collecting millions in bonuses as compensation for crushing the American middle class. Academics, whose theories have been thoroughly disproven, continue to steer our economy into an iceberg while accelerating the money printing and debt issuance that will sink our ship of state. Corrupt, bought off politicians pander to the lowest common denominator as their votes are only dependent upon who contributed the most to their election campaigns, which never end. Delusional, materialistic, narcissistic, math challenged consumers (formerly known as citizens - live for today, enslave themselves in debt, vote themselves more entitlements, and care not for future generations.
We have increasingly foresworn the concept of citizenship and replaced it with the me-first culture of entitlement. We are no longer members of a community with civic values. We have become predators, parasites, consumers, contributing nothing to those around us except carbon dioxide and the bills and responsibilities for our mess. The alienation and isolation created by our sprawling, automobile dependent, technology obsessed, government controlled, debt financed society has spread like a cancerous tumor, slowly killing our country. We are a society of paradoxes. We have many connections, but "connect" with fewer and fewer. We communicate with many more people but seem to communicate only rarely. We use earbuds, IPods and other devices to shut off reality, then feel exasperation when we sense that no one understands us. We give up our privacy voluntarily, forgetting the proper boundaries between the public and private, then feign outrage when the government surveills us. We rush to judge and condemn others mercilessly, yet our new national pastime is the search for the approval of others, to be "liked" on Facebook. We demand genuineness in others yet employ public relations specialists and technology gurus to scrub our Internet reputations. We communicate with abandon, then feel shame when we realize we can neither choose our audience nor compel its approval of us.
The government oppression and never ending wars waged by the American Empire around the world have created a society built upon fear of disapproval and loathing of rejection. We are a "soft" nation, a "soft" people, and all this dysfunction is rooted in psychological, collective dysfunctions. This nation can be brought to its knees if its enemies can merely "shut us down" and make us feel uncomfortable. Removing our creature comforts -- the technology which feeds our need to "keep up," to be "plugged in," -- which have become a form of mental addiction to many in our educated classes leaves too many of our opinion leaders and elected leaders vulnerable to pressures. We fear adversity, shun responsibility, yet root for sports teams and stars -- others -- who embody these values. We are a lazy nation. Work has become something for other people to do.
Since 1979, Total Credit Market Debt in the United States has risen from $4.3 trillion to $55.3 trillion, a 1,286% increase in 33 years. Over this same time frame total wages and salaries have risen from $1.3 trillion to $6.9 trillion, a 531% increase. GDP has grown from $2.6 trillion to $15.8 trillion, a 608% increase. Luckily for the oligarchs, the math challenged masses don’t understand that 375% of the increase in GDP is strictly due to Federal Reserve created inflation, as the U.S. dollar has lost 68% of its purchasing power since 1979. This GDP growth was driven by debt, with consumer expenditures rising from 61% of GDP in 1979 to 71% of GDP today. In the one hundred years since the creation of the Federal Reserve the country’s population has tripled, while our public debt and unfunded liabilities have risen from $2 billion to over $200 trillion, a ten million percent increase. The masses have been programmed and conditioned to love their debt servitude and yearn for more debt to fix an economic system that collapsed due to excessive debt. The cadre of ruling elite are obliging by creating debt at hyper speed levels. The corporate media, Wall Street shysters and low-life captured politicians assure the sheep-like masses that this is normal and beneficial to their interests, as the sheep are sheared and led to slaughter.
Just a cursory examination of our society reveals a population of salivating consumers (dogs) who can be stimulated to buy the latest iPhone or techno-gadget with a simple Madison Avenue advertising campaign (bell). Everyone has seen the videos of the masses lining up like cattle on Black Friday, stampeding through aisles, and fighting each other like their the entertainment at Michael Vick’s house on a Saturday night. All the mega-corporate retailers and the corporate media have to do is ring a bell (SALE) and the dogs start salivating. Product placement, Hollywood star endorsements and influential people using a product immediately convince the easily manipulated dogs to salivate and purchase the products. The difference is that these dogs have credit cards issued by the Wall Street banks and funded by the Federal Reserve with dollars created out of thin air. We are inundated with millions of TV, newspaper, radio, billboard, and internet advertisements designed to make us salivate (spend).
In reality our “technological progress” has done nothing more than create a humorless, shallow, superficial world of alienation and egocentric desires. Just as in Huxley’s Brave New World, science and technology have not been used to seek truth and advance our culture. They have been used by the State to censor, control, and monitor the citizens. They use technology as a means to create electronic entertainment machines that generate both harmless leisure and the high levels of consumption and production that are the basis of societal stability and state designed happiness. When those in control talk about progress, they mean greater control over our lives. When the consumption of material goods isn’t enough to fill the holes within our souls, our owners are quick to prescribe a pill to smooth over those feelings of unease and discontent.”In America the government controlled drug industry has thousands of pills to treat every ailment or unhappy thought that might ail you. Just don’t try and treat yourself with an unapproved natural or banned substance. The threat of imprisonment always lurks in the shadows. They just want us to be interchangeable bricks in the wall.
We glorify technology even though it encourages the building of brick walls, creating a self-imposed isolation from society. The traditional family unit has been discarded, with 50% of marriages ending in divorce and 43% of all children born out of wedlock. Millions of families are dysfunctional, with parents too busy with their careers and acquiring material possessions, to bother with raising their children in a loving nurturing way. One in ten American adults choose to escape their man made cells with prescription anti-depressants. Almost one in four women in their 40s and 50s are popping pills to escape their depressing lives. The wealthy think medicating their kids, spoiling them with toys, gadgets and cars, and occupying their days with organized sports and activities passes for involved parenting. Poor urban children are lucky if they ever lay eyes on their father. Ignorance, violence, and dependency are a given for most of these kids. And all of these children are matriculated into the government run schools whose sole purpose is to teach kids what to think, rather than how to think. Indeed, the recent emphasis on testing and performance seems to be at the expense of actual teaching of critical, analytical thinking. Our owners need to keep us “happy” and focused on feelings, material possessions, and an infinite number of distractions, so they can retain control and continue their pillaging of the national wealth.
Our leaders have attempted to design their own Brave New World, retaining control by making America’s citizens so contented and superficially fulfilled that they no longer care about their personal freedoms, liberties and civic responsibilities. The consequences of increasing state power are a loss of dignity, morals, values, and emotions. We are losing our humanity. Decades of media propaganda, public education mind control, and peddling of debt convinced the majority that happiness meant immediate gratification of our desires for food, sex, drugs, clothes, iGadgets, and all the other consumer crap made in corporate sponsored slave labor factories across Asia. These delusional hallucinations of happiness are the prison walls we’ve built brick by brick.
It took the intellectuals and progressives that wield power across the land only moments to hijack the feelings of sorrow and pain sweeping the nation, to misdirect attention from the mental illnesses caused by the society they’ve created, towards the false storyline that gun violence is sweeping the land. In reality, violent crime has been falling for over a decade as gun sales have soared. The homicide rate in this country is the lowest since 1964, with the vast majority of homicides occurring in the urban kill zones created by the five decade long progressive war on poverty. The truth is of no interest to those brandishing power. After decades of conditioning, the masses are psychologically captive to the messages designed to make them salivate. They will be compelled to think, feel and act as instructed by the Alphas. There will be calls for more police, despite the fact that police rarely stop a crime. With all of their armaments, technology, high powered weaponry, and political clout, they can be counted on to arrive five minutes after the tragedy is over. But they are brilliant in luring clueless Muslim teenagers into terrorist plots, picking the target, providing the fake bombs, and taking credit for foiling the plots they created. More union police officers will increase our safety as much as more union teachers have made our kids smarter. This tragedy will be used by the propagandists to impose further restrictions upon those who choose personal responsibility and self-reliance over dependency and trust in the efficiency and fairness of our benevolent government overlords.
I mourn for the children being raised in a society run by evil psychopathic liars that use the power of propaganda and the tools of debt to control and manipulate its citizens. I mourn for unborn generations that will be forced to confront the dreadful depraved chaos created by our culture of egocentric greed and narcissism. The things we value in this culture – accumulating wealth, outward beauty, acquisition of material possessions, instant gratification, access to debt, government control, and curing our ills with drugs – are driving us insane. Who is really abnormal in a profoundly abnormal society? The 'new normal' is anything but. Believing that possessions, more laws or another medication will truly make us happy -- or safe -- is insane. Popping a pill, buying a new iPhone, or passing another law will not cure the disease that permeates this nation. We need to recapture the humanity, civic pride and self-responsibility that built this country. Only an awakened populace can change our course.
George Orwell was afraid that what we fear would ruin us. The oligarchs have pushed the Orwell vision to its sustainable limit. The avarice and greed of these invisible power brokers has devoured the vast resources of the nation. These psychopaths weren’t satisfied with siphoning off most of the wealth of the country. They wanted it all and wrecked the global economy in their odious pursuit of mammon. We are now in the death throes of the most decadent, delusional, debt engendered era in the long history of mankind. Those in power realize it is slipping away. Their “solutions” reflect an air of desperation. Their propaganda efforts have been redoubled. As more middle class workers lose their jobs, more young people graduate from college with tens of thousands in student loan debt and a future of dramatically reduced expectations, and more people are driven beyond their breaking point, this materialistic shroud of happiness will be torn asunder. Anger is building like a lava dome within a volcano. A critical thinking minority are questioning the motives of those in power. There is already a palpable degradation in behavior, a rise in passive-aggressive behavior as people try to respond rationally, to compensate for what they sense has been lost to the unfairness, hypocrisy and shallowness of the society and system around them. The unsustainability of our economic paradigm is certain. The seeds of revolution are being sown. Our society is only fantasy. The wall is too high. It will be up to an irate tireless minority of freedom minded citizens to tear down the wall. The alternative is to allow the worms to eat into our brains. Each of us must answer a simple question. Are you just another brick in the wall?
The oligarchs will not give up without a fight. Their realization that the Brave New World method of controlling the masses has run its course has convinced them to shift their methods towards Orwell’s 1984 tactics.
What are you doing to counter these growing threats in the making?
You’d better wake up to reality.
Little children are randomly slaughtered in their schoolrooms. Predator drones roam the skies over foreign countries exterminating bad guys, along with innocent women and children (collateral damage when it occurs in a foreign country). Drugged up mentally ill kids with no hope and no future live lives of secluded quiet desperation until they snap. Ignorant, government educated, welfare dependent drones with no self respect or respect for others, assault, kill and rob within their government created urban ghettoes. Sociopaths who committed the largest financial crime in world history walk free and continue to occupy executive suites in luxury office towers in downtown NYC, collecting millions in bonuses as compensation for crushing the American middle class. Academics, whose theories have been thoroughly disproven, continue to steer our economy into an iceberg while accelerating the money printing and debt issuance that will sink our ship of state. Corrupt, bought off politicians pander to the lowest common denominator as their votes are only dependent upon who contributed the most to their election campaigns, which never end. Delusional, materialistic, narcissistic, math challenged consumers (formerly known as citizens - live for today, enslave themselves in debt, vote themselves more entitlements, and care not for future generations.
We have increasingly foresworn the concept of citizenship and replaced it with the me-first culture of entitlement. We are no longer members of a community with civic values. We have become predators, parasites, consumers, contributing nothing to those around us except carbon dioxide and the bills and responsibilities for our mess. The alienation and isolation created by our sprawling, automobile dependent, technology obsessed, government controlled, debt financed society has spread like a cancerous tumor, slowly killing our country. We are a society of paradoxes. We have many connections, but "connect" with fewer and fewer. We communicate with many more people but seem to communicate only rarely. We use earbuds, IPods and other devices to shut off reality, then feel exasperation when we sense that no one understands us. We give up our privacy voluntarily, forgetting the proper boundaries between the public and private, then feign outrage when the government surveills us. We rush to judge and condemn others mercilessly, yet our new national pastime is the search for the approval of others, to be "liked" on Facebook. We demand genuineness in others yet employ public relations specialists and technology gurus to scrub our Internet reputations. We communicate with abandon, then feel shame when we realize we can neither choose our audience nor compel its approval of us.
The government oppression and never ending wars waged by the American Empire around the world have created a society built upon fear of disapproval and loathing of rejection. We are a "soft" nation, a "soft" people, and all this dysfunction is rooted in psychological, collective dysfunctions. This nation can be brought to its knees if its enemies can merely "shut us down" and make us feel uncomfortable. Removing our creature comforts -- the technology which feeds our need to "keep up," to be "plugged in," -- which have become a form of mental addiction to many in our educated classes leaves too many of our opinion leaders and elected leaders vulnerable to pressures. We fear adversity, shun responsibility, yet root for sports teams and stars -- others -- who embody these values. We are a lazy nation. Work has become something for other people to do.
Since 1979, Total Credit Market Debt in the United States has risen from $4.3 trillion to $55.3 trillion, a 1,286% increase in 33 years. Over this same time frame total wages and salaries have risen from $1.3 trillion to $6.9 trillion, a 531% increase. GDP has grown from $2.6 trillion to $15.8 trillion, a 608% increase. Luckily for the oligarchs, the math challenged masses don’t understand that 375% of the increase in GDP is strictly due to Federal Reserve created inflation, as the U.S. dollar has lost 68% of its purchasing power since 1979. This GDP growth was driven by debt, with consumer expenditures rising from 61% of GDP in 1979 to 71% of GDP today. In the one hundred years since the creation of the Federal Reserve the country’s population has tripled, while our public debt and unfunded liabilities have risen from $2 billion to over $200 trillion, a ten million percent increase. The masses have been programmed and conditioned to love their debt servitude and yearn for more debt to fix an economic system that collapsed due to excessive debt. The cadre of ruling elite are obliging by creating debt at hyper speed levels. The corporate media, Wall Street shysters and low-life captured politicians assure the sheep-like masses that this is normal and beneficial to their interests, as the sheep are sheared and led to slaughter.
Just a cursory examination of our society reveals a population of salivating consumers (dogs) who can be stimulated to buy the latest iPhone or techno-gadget with a simple Madison Avenue advertising campaign (bell). Everyone has seen the videos of the masses lining up like cattle on Black Friday, stampeding through aisles, and fighting each other like their the entertainment at Michael Vick’s house on a Saturday night. All the mega-corporate retailers and the corporate media have to do is ring a bell (SALE) and the dogs start salivating. Product placement, Hollywood star endorsements and influential people using a product immediately convince the easily manipulated dogs to salivate and purchase the products. The difference is that these dogs have credit cards issued by the Wall Street banks and funded by the Federal Reserve with dollars created out of thin air. We are inundated with millions of TV, newspaper, radio, billboard, and internet advertisements designed to make us salivate (spend).
In reality our “technological progress” has done nothing more than create a humorless, shallow, superficial world of alienation and egocentric desires. Just as in Huxley’s Brave New World, science and technology have not been used to seek truth and advance our culture. They have been used by the State to censor, control, and monitor the citizens. They use technology as a means to create electronic entertainment machines that generate both harmless leisure and the high levels of consumption and production that are the basis of societal stability and state designed happiness. When those in control talk about progress, they mean greater control over our lives. When the consumption of material goods isn’t enough to fill the holes within our souls, our owners are quick to prescribe a pill to smooth over those feelings of unease and discontent.”In America the government controlled drug industry has thousands of pills to treat every ailment or unhappy thought that might ail you. Just don’t try and treat yourself with an unapproved natural or banned substance. The threat of imprisonment always lurks in the shadows. They just want us to be interchangeable bricks in the wall.
We glorify technology even though it encourages the building of brick walls, creating a self-imposed isolation from society. The traditional family unit has been discarded, with 50% of marriages ending in divorce and 43% of all children born out of wedlock. Millions of families are dysfunctional, with parents too busy with their careers and acquiring material possessions, to bother with raising their children in a loving nurturing way. One in ten American adults choose to escape their man made cells with prescription anti-depressants. Almost one in four women in their 40s and 50s are popping pills to escape their depressing lives. The wealthy think medicating their kids, spoiling them with toys, gadgets and cars, and occupying their days with organized sports and activities passes for involved parenting. Poor urban children are lucky if they ever lay eyes on their father. Ignorance, violence, and dependency are a given for most of these kids. And all of these children are matriculated into the government run schools whose sole purpose is to teach kids what to think, rather than how to think. Indeed, the recent emphasis on testing and performance seems to be at the expense of actual teaching of critical, analytical thinking. Our owners need to keep us “happy” and focused on feelings, material possessions, and an infinite number of distractions, so they can retain control and continue their pillaging of the national wealth.
Our leaders have attempted to design their own Brave New World, retaining control by making America’s citizens so contented and superficially fulfilled that they no longer care about their personal freedoms, liberties and civic responsibilities. The consequences of increasing state power are a loss of dignity, morals, values, and emotions. We are losing our humanity. Decades of media propaganda, public education mind control, and peddling of debt convinced the majority that happiness meant immediate gratification of our desires for food, sex, drugs, clothes, iGadgets, and all the other consumer crap made in corporate sponsored slave labor factories across Asia. These delusional hallucinations of happiness are the prison walls we’ve built brick by brick.
It took the intellectuals and progressives that wield power across the land only moments to hijack the feelings of sorrow and pain sweeping the nation, to misdirect attention from the mental illnesses caused by the society they’ve created, towards the false storyline that gun violence is sweeping the land. In reality, violent crime has been falling for over a decade as gun sales have soared. The homicide rate in this country is the lowest since 1964, with the vast majority of homicides occurring in the urban kill zones created by the five decade long progressive war on poverty. The truth is of no interest to those brandishing power. After decades of conditioning, the masses are psychologically captive to the messages designed to make them salivate. They will be compelled to think, feel and act as instructed by the Alphas. There will be calls for more police, despite the fact that police rarely stop a crime. With all of their armaments, technology, high powered weaponry, and political clout, they can be counted on to arrive five minutes after the tragedy is over. But they are brilliant in luring clueless Muslim teenagers into terrorist plots, picking the target, providing the fake bombs, and taking credit for foiling the plots they created. More union police officers will increase our safety as much as more union teachers have made our kids smarter. This tragedy will be used by the propagandists to impose further restrictions upon those who choose personal responsibility and self-reliance over dependency and trust in the efficiency and fairness of our benevolent government overlords.
I mourn for the children being raised in a society run by evil psychopathic liars that use the power of propaganda and the tools of debt to control and manipulate its citizens. I mourn for unborn generations that will be forced to confront the dreadful depraved chaos created by our culture of egocentric greed and narcissism. The things we value in this culture – accumulating wealth, outward beauty, acquisition of material possessions, instant gratification, access to debt, government control, and curing our ills with drugs – are driving us insane. Who is really abnormal in a profoundly abnormal society? The 'new normal' is anything but. Believing that possessions, more laws or another medication will truly make us happy -- or safe -- is insane. Popping a pill, buying a new iPhone, or passing another law will not cure the disease that permeates this nation. We need to recapture the humanity, civic pride and self-responsibility that built this country. Only an awakened populace can change our course.
George Orwell was afraid that what we fear would ruin us. The oligarchs have pushed the Orwell vision to its sustainable limit. The avarice and greed of these invisible power brokers has devoured the vast resources of the nation. These psychopaths weren’t satisfied with siphoning off most of the wealth of the country. They wanted it all and wrecked the global economy in their odious pursuit of mammon. We are now in the death throes of the most decadent, delusional, debt engendered era in the long history of mankind. Those in power realize it is slipping away. Their “solutions” reflect an air of desperation. Their propaganda efforts have been redoubled. As more middle class workers lose their jobs, more young people graduate from college with tens of thousands in student loan debt and a future of dramatically reduced expectations, and more people are driven beyond their breaking point, this materialistic shroud of happiness will be torn asunder. Anger is building like a lava dome within a volcano. A critical thinking minority are questioning the motives of those in power. There is already a palpable degradation in behavior, a rise in passive-aggressive behavior as people try to respond rationally, to compensate for what they sense has been lost to the unfairness, hypocrisy and shallowness of the society and system around them. The unsustainability of our economic paradigm is certain. The seeds of revolution are being sown. Our society is only fantasy. The wall is too high. It will be up to an irate tireless minority of freedom minded citizens to tear down the wall. The alternative is to allow the worms to eat into our brains. Each of us must answer a simple question. Are you just another brick in the wall?
The oligarchs will not give up without a fight. Their realization that the Brave New World method of controlling the masses has run its course has convinced them to shift their methods towards Orwell’s 1984 tactics.
What are you doing to counter these growing threats in the making?
You’d better wake up to reality.
Will the Internet ever change the face of Finance?
I certainly hope so....We don’t need giant banks as small banks do much more lending than big banks.
It is a fact that smaller banks are stepping in today to fill the lending void left by the giant banks’ still much hesitant to make loans. The only reason I believe that smaller banks haven’t been able to expand and thrive is that the too-big-to-fail banks - fully backed by the might, faith and power of Big Brother - have decreased competition.
As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.....Indeed; at a recent congressional hearing on small business and the economic recovery economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, recently told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks…
It is a fact that the importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks and the smartest finance people out there all agree that the big banks aren’t really focusing as much on the lending business as smaller banks.
Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks’ own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions. They are only loaning to the biggest players and those who don’t really need credit in the first place.
Many community banks have thrived on the other hand because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms. Their business model is based on an important economic explanation of the role of financial intermediaries–to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.
A small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks.....Plus the fact that the “too big to fails” are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.
So who really needs these giant gamblers such as JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley?
I believe the Internet is coming to a point where it will one day soon render all traditional banks unnecessary and I hope it will happen sooner than later.
The big banks do very little traditional banking anyway and most of their business is from financial speculation. For example, less than 10% of Bank of America’s assets come from traditional banking deposits. So a shutdown by banks is really far from cataclysmic.
While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm.
There was a time when banks were the obvious place to go if you needed a loan, whether as an individual or business. However, with the economic difficulties of the past few years, they have become increasingly reticent about handing over any of their cash, despite Government intervention.
Thankfully a new way of borrowing money has come to the fore — peer-to-peer lending — and it offers an opportunity for both borrowers and investors alike.
Peer-to-peer lending appeals to lots of people. Americans already lend more than $89 billion to friends and family every year, according to Federal Reserve estimates. Nearly 75 percent of Brits said they’d consider using a peer-to-peer website to borrow or lend, and some estimates suggest the global market for peer-to-peer lending will grow to more than $10 billion by 2015.
While cutting out the middleman may be instinctively attractive to many people, it can have an economic advantage too. Compared to credit cards, peer-to-peer lending offers borrowers really attractive interest rates—often half what they might expect to pay Visa or MasterCard.
And peer loans are often structured more fairly. A debt can be paid off in installments, unlike with credit cards, which can trap borrowers under debt that snowballs every month. For lenders too, these loans offer a higher rate of return than what they can earn on savings accounts. Interest is after all key to small lenders.
It is that goal—getting capital to people who need it at reasonable rates—that creates a strong sense of purpose and community in social lending. The sites promote personal ties between lenders and borrowers. And with the global reach of the Internet, borrowers no longer need to know someone with money to secure a loan. By the same token, lenders often feel they’re helping a real person get through a bad patch or realize a dream.
Traditional bankers have a hard time seeing it that way. For them, “Why would anyone lend money to strangers?” The banking establishment, after all, considers itself expert at evaluating the risks involved in lending money. But banks also have a vested interest in remaining the middleman, and they’ve never been quick to adapt to change. The success of the online bank ING Direct, which caught brick-and-mortar banks unprepared, and say peer-to-peer lenders may have a similar effect.
So let’s ask once again the question from a different perspective: Why do we need banks – what are they for?
Loosely speaking, banks [through the Federal Reserve system] make money. Banks are not the only entities that do this, but they are the ones whose purpose it is to do this.
The other thing that banks (but again, not only banks) do, is to record and execute monetary transactions. In return for transaction fees, they hold and manipulate the data relating to people’s accounts with them. We are all either debtors or creditors of banks and we need to have accounts at banks because the trust system that banks represent is the required medium for nearly all financial transactions. When I transfer a sum of money to you, I simply instruct my bank to initiate a sequence of entries in its books and those of your bank.
Which brings us to Bitcoin
Launched a couple of years ago and still in its infancy, it calls itself a peer-to-peer virtual currency.
This means that instead of a bank, the collective network of users maintains a complete encrypted record of bitcoin (“BTC”) transactions and how many BTC each user has.
Payments involve a public-private key exchange so that only valid identities can participate and each BTC can only be transmitted once. Because both parties have the complete data set, no external trust system is required. It’s a mechanism that removes the need for us to transact through banks.
The BTC system, like any other currency, allows credit creation through fractional reserve banking. The BTC money supply could therefore exceed the number of BTCs in issue. However, without a BTC central bank, the imprudent lender may well go bust. It will be interesting to see how regulators deal with mainstream banks that acquire significant assets and liabilities in BTC. They might outlaw the BTC operations of regulated entities, but could they really close down an unregulated global user network?
There are some fascinating possibilities here that would create not just a digital currency but a digital currency exchange as well as.
So why on earth do we need banks at all? Banks are lenders. They provide credit. Everything else is “window dressing”.
You think banks provide safety? Wrong. That is the government and FDIC…. So why do you go to a bank? Because your brain has been trained to believe that you can trust them. You assume that their risk management is better than yours, and therefore will protect your money and enhance its value.
What if that assumption is wrong? What if we cannot trust banks to protect and enhance our assets? We would be left with one function for banks: lending money or providing credit. If we could replace that credit function, or if we believed that our own risk management was better than the bank’s, then we could do without banks.
I sincerely hope and strongly believe that one day technology and the internet is going to provide this.
Sound farfetched? It is not. In fact, the financial world has been evolving in this direction for a while. We just chose not to pay attention.
Today, you can open an E*Trade account and do all your brokerage online for less cost than going through a bank. You can transfer money using Paypal. You can trade currencies through endless online options from EasyForex and SaxoBank for experts to eToro for novices. Think you need advice on investments or consumption patterns and fees? Forget your banker and try Seeking Alpha or Mint.com.
Which brings us back to lending. There are numerous efforts around Peer to Peer lending from Zopa to Prosper. There are other nascent efforts around commercial lending (which anyway the banks are not doing now). Essentially, startups can use the web to provide risk management tools and investment opportunities that disintermediate banks and thereby make credit available to borrowers.
One of the things that got banks in trouble with mortgages was that they were divorced from their borrowers. The FDIC has a long procedure around “Know Your Customer” regulations, but banks do not really know them or their customers’ creditworthiness. They were buying sliced and diced mortgage paper at a distance (which is why some community banks are in better shape – they really knew their customers).
Banks use technology for risk management and asset allocation. Why can’t we put those tools in consumers’ or business’ hands? Are banks really experts? Are they bigger experts than crowd-sourced wisdom on creditworthiness or risk management? I seriously doubt it.
One of the other roles banks play is they intermediate between the government (Treasury) and consumers and businesses to keep liquidity flowing in a risk-managed way....but in the age of the internet, why can’t consumers buy currencies directly from governments/central bank or currency trading platforms and access that liquidity directly? Businesses could as well. It is just a technology question. As always in creative destruction, it will happen from the bottom. Tools like Peer to Peer lending will grow up and become full-fledged lending platforms with appropriate risk management that might disintermediate obsolete banks entirely.
The banks have simply become a filter that robs us consumers of 90% of our money.....Let’s get rid of them once and for all.
If we cut out the giant banks as financial middleman, we might have a much more efficient economy, pay less in interest, fees and penalties, and restore a functioning political system and the rule of law.
The rise of peer-to-peer lenders such as Zopa and Funding Circle – which directly match up firms in need of cash with investors – and so-called crowd-funding, where small amounts are raised from a large number of funders, will hopefully challenge the nation’s major financial institutions forever.
I see major opportunity knocking for finance..... Hopefully, the growth of peer-to-peer lenders and those involved in crowd-funding will help solve the problems we have with lending for small and medium enterprises once and for all… The banking middlemen may in time become surplus links in the chain.
IT has changed every other industry like film, music and even football clubs so why not Finance?
While Big Brother is hostile to any challenge to the hegemony of the big banks, I think it is high time for a revolution in finance.
Just like Junk bonds changed the landscape of finance in the ‘80s... I am looking forward for the Internet and the smartest people behind it to do the same - the sooner the better - before big banks now controlling over 70% of the country’s assets end up one day controlling all.
After all, if government backed Wall Street is granted a monopoly on the use of money to achieve their goals, history shows that power is always abused..... Every single time.
What do you say?
It is a fact that smaller banks are stepping in today to fill the lending void left by the giant banks’ still much hesitant to make loans. The only reason I believe that smaller banks haven’t been able to expand and thrive is that the too-big-to-fail banks - fully backed by the might, faith and power of Big Brother - have decreased competition.
As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.....Indeed; at a recent congressional hearing on small business and the economic recovery economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, recently told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks…
It is a fact that the importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks and the smartest finance people out there all agree that the big banks aren’t really focusing as much on the lending business as smaller banks.
Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks’ own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions. They are only loaning to the biggest players and those who don’t really need credit in the first place.
Many community banks have thrived on the other hand because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms. Their business model is based on an important economic explanation of the role of financial intermediaries–to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.
A small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks.....Plus the fact that the “too big to fails” are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.
So who really needs these giant gamblers such as JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley?
I believe the Internet is coming to a point where it will one day soon render all traditional banks unnecessary and I hope it will happen sooner than later.
The big banks do very little traditional banking anyway and most of their business is from financial speculation. For example, less than 10% of Bank of America’s assets come from traditional banking deposits. So a shutdown by banks is really far from cataclysmic.
While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm.
There was a time when banks were the obvious place to go if you needed a loan, whether as an individual or business. However, with the economic difficulties of the past few years, they have become increasingly reticent about handing over any of their cash, despite Government intervention.
Thankfully a new way of borrowing money has come to the fore — peer-to-peer lending — and it offers an opportunity for both borrowers and investors alike.
Peer-to-peer lending appeals to lots of people. Americans already lend more than $89 billion to friends and family every year, according to Federal Reserve estimates. Nearly 75 percent of Brits said they’d consider using a peer-to-peer website to borrow or lend, and some estimates suggest the global market for peer-to-peer lending will grow to more than $10 billion by 2015.
While cutting out the middleman may be instinctively attractive to many people, it can have an economic advantage too. Compared to credit cards, peer-to-peer lending offers borrowers really attractive interest rates—often half what they might expect to pay Visa or MasterCard.
And peer loans are often structured more fairly. A debt can be paid off in installments, unlike with credit cards, which can trap borrowers under debt that snowballs every month. For lenders too, these loans offer a higher rate of return than what they can earn on savings accounts. Interest is after all key to small lenders.
It is that goal—getting capital to people who need it at reasonable rates—that creates a strong sense of purpose and community in social lending. The sites promote personal ties between lenders and borrowers. And with the global reach of the Internet, borrowers no longer need to know someone with money to secure a loan. By the same token, lenders often feel they’re helping a real person get through a bad patch or realize a dream.
Traditional bankers have a hard time seeing it that way. For them, “Why would anyone lend money to strangers?” The banking establishment, after all, considers itself expert at evaluating the risks involved in lending money. But banks also have a vested interest in remaining the middleman, and they’ve never been quick to adapt to change. The success of the online bank ING Direct, which caught brick-and-mortar banks unprepared, and say peer-to-peer lenders may have a similar effect.
So let’s ask once again the question from a different perspective: Why do we need banks – what are they for?
Loosely speaking, banks [through the Federal Reserve system] make money. Banks are not the only entities that do this, but they are the ones whose purpose it is to do this.
The other thing that banks (but again, not only banks) do, is to record and execute monetary transactions. In return for transaction fees, they hold and manipulate the data relating to people’s accounts with them. We are all either debtors or creditors of banks and we need to have accounts at banks because the trust system that banks represent is the required medium for nearly all financial transactions. When I transfer a sum of money to you, I simply instruct my bank to initiate a sequence of entries in its books and those of your bank.
Which brings us to Bitcoin
Launched a couple of years ago and still in its infancy, it calls itself a peer-to-peer virtual currency.
This means that instead of a bank, the collective network of users maintains a complete encrypted record of bitcoin (“BTC”) transactions and how many BTC each user has.
Payments involve a public-private key exchange so that only valid identities can participate and each BTC can only be transmitted once. Because both parties have the complete data set, no external trust system is required. It’s a mechanism that removes the need for us to transact through banks.
The BTC system, like any other currency, allows credit creation through fractional reserve banking. The BTC money supply could therefore exceed the number of BTCs in issue. However, without a BTC central bank, the imprudent lender may well go bust. It will be interesting to see how regulators deal with mainstream banks that acquire significant assets and liabilities in BTC. They might outlaw the BTC operations of regulated entities, but could they really close down an unregulated global user network?
There are some fascinating possibilities here that would create not just a digital currency but a digital currency exchange as well as.
So why on earth do we need banks at all? Banks are lenders. They provide credit. Everything else is “window dressing”.
You think banks provide safety? Wrong. That is the government and FDIC…. So why do you go to a bank? Because your brain has been trained to believe that you can trust them. You assume that their risk management is better than yours, and therefore will protect your money and enhance its value.
What if that assumption is wrong? What if we cannot trust banks to protect and enhance our assets? We would be left with one function for banks: lending money or providing credit. If we could replace that credit function, or if we believed that our own risk management was better than the bank’s, then we could do without banks.
I sincerely hope and strongly believe that one day technology and the internet is going to provide this.
Sound farfetched? It is not. In fact, the financial world has been evolving in this direction for a while. We just chose not to pay attention.
Today, you can open an E*Trade account and do all your brokerage online for less cost than going through a bank. You can transfer money using Paypal. You can trade currencies through endless online options from EasyForex and SaxoBank for experts to eToro for novices. Think you need advice on investments or consumption patterns and fees? Forget your banker and try Seeking Alpha or Mint.com.
Which brings us back to lending. There are numerous efforts around Peer to Peer lending from Zopa to Prosper. There are other nascent efforts around commercial lending (which anyway the banks are not doing now). Essentially, startups can use the web to provide risk management tools and investment opportunities that disintermediate banks and thereby make credit available to borrowers.
One of the things that got banks in trouble with mortgages was that they were divorced from their borrowers. The FDIC has a long procedure around “Know Your Customer” regulations, but banks do not really know them or their customers’ creditworthiness. They were buying sliced and diced mortgage paper at a distance (which is why some community banks are in better shape – they really knew their customers).
Banks use technology for risk management and asset allocation. Why can’t we put those tools in consumers’ or business’ hands? Are banks really experts? Are they bigger experts than crowd-sourced wisdom on creditworthiness or risk management? I seriously doubt it.
One of the other roles banks play is they intermediate between the government (Treasury) and consumers and businesses to keep liquidity flowing in a risk-managed way....but in the age of the internet, why can’t consumers buy currencies directly from governments/central bank or currency trading platforms and access that liquidity directly? Businesses could as well. It is just a technology question. As always in creative destruction, it will happen from the bottom. Tools like Peer to Peer lending will grow up and become full-fledged lending platforms with appropriate risk management that might disintermediate obsolete banks entirely.
The banks have simply become a filter that robs us consumers of 90% of our money.....Let’s get rid of them once and for all.
If we cut out the giant banks as financial middleman, we might have a much more efficient economy, pay less in interest, fees and penalties, and restore a functioning political system and the rule of law.
The rise of peer-to-peer lenders such as Zopa and Funding Circle – which directly match up firms in need of cash with investors – and so-called crowd-funding, where small amounts are raised from a large number of funders, will hopefully challenge the nation’s major financial institutions forever.
I see major opportunity knocking for finance..... Hopefully, the growth of peer-to-peer lenders and those involved in crowd-funding will help solve the problems we have with lending for small and medium enterprises once and for all… The banking middlemen may in time become surplus links in the chain.
IT has changed every other industry like film, music and even football clubs so why not Finance?
While Big Brother is hostile to any challenge to the hegemony of the big banks, I think it is high time for a revolution in finance.
Just like Junk bonds changed the landscape of finance in the ‘80s... I am looking forward for the Internet and the smartest people behind it to do the same - the sooner the better - before big banks now controlling over 70% of the country’s assets end up one day controlling all.
After all, if government backed Wall Street is granted a monopoly on the use of money to achieve their goals, history shows that power is always abused..... Every single time.
What do you say?
Investing Post Crisis
The crisis of 2007 has clearly created a new financial landscape out there and most of us are looking to thrive or at least survive in this new environment in the making.
Some food for thought:
1. Nine out of 10 people in finance don’t have your best interest at heart and even worse are clueless.
2. Don’t try to predict the future but understand the facts like no one. Read, learn and start discerning facts from propaganda.
3. Saving can be as important as investing.
4. Tune out the majority of news. All baloney worth nothing but divert your attention.
5. Emotional intelligence is as important as classroom intelligence. High stakes investing has much to do with nerves of steel as market savvy.
6. Never talk about your money. Smart people know better.
7. Most financial problems are caused by debt. Debt can be only be good for you when you can borrow at insanely low interest rates.
8. Forget about past performance. Change is the only constant out there.
9. The perfect investment doesn’t exist.
Now go and make a killing...
Some food for thought:
1. Nine out of 10 people in finance don’t have your best interest at heart and even worse are clueless.
2. Don’t try to predict the future but understand the facts like no one. Read, learn and start discerning facts from propaganda.
3. Saving can be as important as investing.
4. Tune out the majority of news. All baloney worth nothing but divert your attention.
5. Emotional intelligence is as important as classroom intelligence. High stakes investing has much to do with nerves of steel as market savvy.
6. Never talk about your money. Smart people know better.
7. Most financial problems are caused by debt. Debt can be only be good for you when you can borrow at insanely low interest rates.
8. Forget about past performance. Change is the only constant out there.
9. The perfect investment doesn’t exist.
Now go and make a killing...
May 16, 2013
Why Wealth Bashing?
It is an oft-repeated axiom that a person can learn a whole lot about a society by how it treats its poor; but just as much may be learned by looking at how that same society treats its rich. Indeed, the economic future of the poor—and our nation—will be determined in the coming decades by how we treat the people in this country who create great wealth. It will be determined by our understanding of the so-called rich and by our need to foster and protect this minority of true wealth creators.
It is an unpopular thing to say, I know. Rich people need help? Rich people need to be protected? Rich people a minority? “Give me a break,” people say. “They just seem to keep getting richer!”
I am talking here about the entrepreneur who risks all of the capital he can muster from his family and friends to build a company that fills an underserved niche in the market, provides a needed service, or develops a new technology. These are the people the plundering bureaucrats and career politicians have deemed “the rich.” These are the people they have targeted for appropriation to support their unsustainable way of life.
In their narrow view of the world, rich people become “rich” by either inheriting their money or appropriating wealth through manipulation of the system with their cronies, or are self-made entrepreneurs.
The first group is so small that they don’t really matter. The second group is easy for the bureaucrats to intimidate and the politicians to plunder with ever-widening regulations and more oppressive oversight; but, again, there are not that many people who fall into the crony-capitalist category. The overwhelming majority of people I refer to as “the rich” are independent-minded, maverick entrepreneurs and business owners who risk their own capital, sweat, and tears to provide a good or service of value to the world around them.
Regrettably, too many Americans, and far too many of the intellectuals and politicians, understand neither these people we call “the rich” nor the methods they have used to become rich in the first place. Did hedge fund managers and investment bankers game the system and walk off with a lot of money? Yes. But, again, having a lot of money no more makes you rich than growing up next door to the Greenwich Country Club gives you class. The rich are people like Bill Gates, Warren Buffett, Larry Page and Sergey Brin, and Michael Dell. They have provided value to the world and been rewarded for their efforts. They also know, better than the federal government, how they should best utilize that wealth.
Most people don’t think they actually know anyone who is truly rich. Not really. They experience them in the abstract, through magazine articles, newspaper stories, or Lifestyles of the Rich and Famous clips. They catch a glimpse into their psyches through statements they make in the media or interpretations of their latest business maneuver. They try to quantify their importance in their own lives by studying policy statements and annual reports or poring over ratings and statistics that rank their net worth and their influence; but the study and the analysis is always through the prism of someone else’s ideological lens. In that respect, our opinions about the rich are a sort of societal inkblot test, revealing more about ourselves than anything else. Our analysis of the raw data confirms our deeply held notions about the rich and, in the end, has more to do with our views on capitalism itself.
Those who are vested in the philosophy of the Left, believing capitalism creates unfair outcomes, have statistics to confirm their outlook. It seems absurd on its face that the top 1 percent of American families control 90 percent of the nation’s wealth. Wouldn’t it be possible, they ask, to contrive an economy that is just as prosperous but with a fairer distribution of wealth? Couldn’t we cap the earnings of the rich at $50 million? Or even $100 million? The defenders of capitalism and free markets on the Right say “no.” They contend that the bizarre inequalities we see are an indispensable part of the processes that create wealth. They imply that capitalism doesn’t make sense, morally or rationally, but it does make wealth. So don’t knock it, they say.
What nonsense! It has very little to do with the reality of the rich. It is really quite sad that defenders of the rich or even the rich themselves can’t come up with a better economic or moral case! Quoting Adam Smith and supply side economists just doesn’t cut it. American novelist and homespun philosopher Mark Twain reportedly noted that a person can lie with the numbers but the numbers don’t lie. The rich have most of the money. That’s why they are called “the rich.”
So who are the rich?
To begin with, you probably won’t find many rich people in the Who’s Who or Most Likely to Succeed lists compiled during their high school or college days. They probably didn’t get the highest SAT or ACT scores in high school, and they probably weren’t considered a member of the popular clique by their classmates. They are certainly not the best looking, and they probably didn’t get where they got through the force of their personalities, charisma, or celebrity. A great number of the richest among us never finished high school, and many who did manage to get into college never graduated. That’s because the rich in this country are chosen not by blood, credentials, education, or service to the establishment. The rich become rich based on their performance and their relentless desire to serve the customer. The entrepreneurial knowledge that is the crux of wealth creation has little to do with glamorous work or with the certified expertise of advanced degrees.
Great wealth rarely comes from speculating and creating nothing. The John Paulsons of the world are a very small and very lucky group. Most major wealth creation comes from doing what other people consider insufferably boring: navigating the tedious intricacies of software languages, designing more efficient garbage collection routes, or designing a system for stocking fresh products on the shelves in grocery stores is not glamorous. These people don’t immediately conjure images of mansions, limousines, and vacations in the hottest spots of the world in Gstaad, Monte Carlo, or Cabo San Lucas.
Improving the speed and efficiency of butchering livestock, customizing insurance policies, or tramping the wilderness in search of petroleum leases seem far removed from the glamorous life. Memorizing building codes, speeding up the delivery of a hot pizza, or hawking pet supplies all seem like mundane and tedious tasks, but these are all paths that individuals have taken up the mountain of accumulating wealth in America. In short, America’s best entrepreneurs usually perform work that others overlook or spurn. They do it better, faster, and at a better price than the competition. For that, they become the rich.
Because these men and women often overthrow rather than embrace established norms, the richest among us are usually considered rebels and outsiders. Often, they come from places like Omaha, Nebraska; Blackfoot, Idaho; or Mission Hills, Kansas—places usually mentioned in New York either with a condescending smirk or as the punch line of a comedy routine. From Henry Ford to Apple cofounder Steve Wozniak, much of America’s greatest wealth creators began in the “skunk works” of their trades, with their hands on the intricate machinery that would determine the fate of their companies. Bill Gates began by mastering the tedious intricacies of programming languages. Sam Walton began with a nickel-and-dime Ben Franklin variety store in Newport, Arkansas. Larry Page became the first kid in his elementary school to turn in an assignment from a word processor because his parents were both computer science professors at Michigan State University. Familiarity with the core material, the grit and grease, the petty tedium of their businesses liberates entrepreneurs from the grip of conventional methods and gives them the insight and confidence to turn their industries in new directions.
The truth is that great wealth is often created by the launching of great surprises, not by the launching of great enterprises. Unpredictability is a fundamental part of great wealth creation, and, as such, it defies every econometric model or centralized planner’s vision. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the fraternity of their peers. By their very definition, innovations cannot be planned.
From the outside looking in, one would assume that once wealth is acquired, life becomes one endless vacation full of idle play and relaxation. One would be quite wrong. The richest among us are faced with another equally daunting task once they have accumulated great wealth. Just as a pot of honey attracts flies as well as bears, it doesn’t take long for a seemingly endless stream of bureaucrats, politicians, raiders, robbers, relatives, short-sellers, long talkers, managers, missionaries, and manipulators to come calling. They all have this strange notion that they can spend your money better than you can and are somehow entitled to a portion of your money for granting you the privilege of their expertise. They are, for the most part, leeches, con artists, and moochers.
Leading entrepreneurs in general consume only a tiny portion of their holdings. They are often owners and investors. As owners, they are initially damaged the most by mismanagement or exploitation or waste of their wealth. Only the person who created the wealth has a true appreciation of its value and what it represents. As companies such as Oracle, Lotus, and Google have discovered, a software or tech stock can lose most of its worth in minutes if fashions shift or investors question management decisions.
A Harvard Business School study recently showed that even when you put “professional management” at the helm of great wealth, value is likely to grow less rapidly than if you give owners the real control. A manager of Google might benefit from turning it into his own special preserve, making self-indulgent “investments” in company planes or favored foundations that are in fact his own disguised consumption. It is only Sergey Brin and Larry Page who would see their respective wealth drop catastrophically if they began to focus less on their customers than on their own consumption. The key to their
great wealth is their resolution not to spend or abandon it, but to continue using it in the service of others. They are as much the servants to as the masters of Google.
This is the other secret of the richest among us and of capitalism itself. Under capitalism, wealth is less a stock of goods than a flow of ideas. Economist Joseph Schumpeter set the basic parameters when he declared capitalism “a form of change” that “never can be stationary.”
The landscape of capitalism may seem solid and settled and ready for seizure, but capitalism is really a mindscape. Volatile and shifting ideas, and the human beings behind them, are the source of our nation’s wealth, not heavy and entrenched establishments. There is no tax web or bureaucratic net that can catch the fleeting thoughts of the greatest entrepreneurs of our past or our future.
It is an unpopular thing to say, I know. Rich people need help? Rich people need to be protected? Rich people a minority? “Give me a break,” people say. “They just seem to keep getting richer!”
I am talking here about the entrepreneur who risks all of the capital he can muster from his family and friends to build a company that fills an underserved niche in the market, provides a needed service, or develops a new technology. These are the people the plundering bureaucrats and career politicians have deemed “the rich.” These are the people they have targeted for appropriation to support their unsustainable way of life.
In their narrow view of the world, rich people become “rich” by either inheriting their money or appropriating wealth through manipulation of the system with their cronies, or are self-made entrepreneurs.
The first group is so small that they don’t really matter. The second group is easy for the bureaucrats to intimidate and the politicians to plunder with ever-widening regulations and more oppressive oversight; but, again, there are not that many people who fall into the crony-capitalist category. The overwhelming majority of people I refer to as “the rich” are independent-minded, maverick entrepreneurs and business owners who risk their own capital, sweat, and tears to provide a good or service of value to the world around them.
Regrettably, too many Americans, and far too many of the intellectuals and politicians, understand neither these people we call “the rich” nor the methods they have used to become rich in the first place. Did hedge fund managers and investment bankers game the system and walk off with a lot of money? Yes. But, again, having a lot of money no more makes you rich than growing up next door to the Greenwich Country Club gives you class. The rich are people like Bill Gates, Warren Buffett, Larry Page and Sergey Brin, and Michael Dell. They have provided value to the world and been rewarded for their efforts. They also know, better than the federal government, how they should best utilize that wealth.
Most people don’t think they actually know anyone who is truly rich. Not really. They experience them in the abstract, through magazine articles, newspaper stories, or Lifestyles of the Rich and Famous clips. They catch a glimpse into their psyches through statements they make in the media or interpretations of their latest business maneuver. They try to quantify their importance in their own lives by studying policy statements and annual reports or poring over ratings and statistics that rank their net worth and their influence; but the study and the analysis is always through the prism of someone else’s ideological lens. In that respect, our opinions about the rich are a sort of societal inkblot test, revealing more about ourselves than anything else. Our analysis of the raw data confirms our deeply held notions about the rich and, in the end, has more to do with our views on capitalism itself.
Those who are vested in the philosophy of the Left, believing capitalism creates unfair outcomes, have statistics to confirm their outlook. It seems absurd on its face that the top 1 percent of American families control 90 percent of the nation’s wealth. Wouldn’t it be possible, they ask, to contrive an economy that is just as prosperous but with a fairer distribution of wealth? Couldn’t we cap the earnings of the rich at $50 million? Or even $100 million? The defenders of capitalism and free markets on the Right say “no.” They contend that the bizarre inequalities we see are an indispensable part of the processes that create wealth. They imply that capitalism doesn’t make sense, morally or rationally, but it does make wealth. So don’t knock it, they say.
What nonsense! It has very little to do with the reality of the rich. It is really quite sad that defenders of the rich or even the rich themselves can’t come up with a better economic or moral case! Quoting Adam Smith and supply side economists just doesn’t cut it. American novelist and homespun philosopher Mark Twain reportedly noted that a person can lie with the numbers but the numbers don’t lie. The rich have most of the money. That’s why they are called “the rich.”
So who are the rich?
To begin with, you probably won’t find many rich people in the Who’s Who or Most Likely to Succeed lists compiled during their high school or college days. They probably didn’t get the highest SAT or ACT scores in high school, and they probably weren’t considered a member of the popular clique by their classmates. They are certainly not the best looking, and they probably didn’t get where they got through the force of their personalities, charisma, or celebrity. A great number of the richest among us never finished high school, and many who did manage to get into college never graduated. That’s because the rich in this country are chosen not by blood, credentials, education, or service to the establishment. The rich become rich based on their performance and their relentless desire to serve the customer. The entrepreneurial knowledge that is the crux of wealth creation has little to do with glamorous work or with the certified expertise of advanced degrees.
Great wealth rarely comes from speculating and creating nothing. The John Paulsons of the world are a very small and very lucky group. Most major wealth creation comes from doing what other people consider insufferably boring: navigating the tedious intricacies of software languages, designing more efficient garbage collection routes, or designing a system for stocking fresh products on the shelves in grocery stores is not glamorous. These people don’t immediately conjure images of mansions, limousines, and vacations in the hottest spots of the world in Gstaad, Monte Carlo, or Cabo San Lucas.
Improving the speed and efficiency of butchering livestock, customizing insurance policies, or tramping the wilderness in search of petroleum leases seem far removed from the glamorous life. Memorizing building codes, speeding up the delivery of a hot pizza, or hawking pet supplies all seem like mundane and tedious tasks, but these are all paths that individuals have taken up the mountain of accumulating wealth in America. In short, America’s best entrepreneurs usually perform work that others overlook or spurn. They do it better, faster, and at a better price than the competition. For that, they become the rich.
Because these men and women often overthrow rather than embrace established norms, the richest among us are usually considered rebels and outsiders. Often, they come from places like Omaha, Nebraska; Blackfoot, Idaho; or Mission Hills, Kansas—places usually mentioned in New York either with a condescending smirk or as the punch line of a comedy routine. From Henry Ford to Apple cofounder Steve Wozniak, much of America’s greatest wealth creators began in the “skunk works” of their trades, with their hands on the intricate machinery that would determine the fate of their companies. Bill Gates began by mastering the tedious intricacies of programming languages. Sam Walton began with a nickel-and-dime Ben Franklin variety store in Newport, Arkansas. Larry Page became the first kid in his elementary school to turn in an assignment from a word processor because his parents were both computer science professors at Michigan State University. Familiarity with the core material, the grit and grease, the petty tedium of their businesses liberates entrepreneurs from the grip of conventional methods and gives them the insight and confidence to turn their industries in new directions.
The truth is that great wealth is often created by the launching of great surprises, not by the launching of great enterprises. Unpredictability is a fundamental part of great wealth creation, and, as such, it defies every econometric model or centralized planner’s vision. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the fraternity of their peers. By their very definition, innovations cannot be planned.
From the outside looking in, one would assume that once wealth is acquired, life becomes one endless vacation full of idle play and relaxation. One would be quite wrong. The richest among us are faced with another equally daunting task once they have accumulated great wealth. Just as a pot of honey attracts flies as well as bears, it doesn’t take long for a seemingly endless stream of bureaucrats, politicians, raiders, robbers, relatives, short-sellers, long talkers, managers, missionaries, and manipulators to come calling. They all have this strange notion that they can spend your money better than you can and are somehow entitled to a portion of your money for granting you the privilege of their expertise. They are, for the most part, leeches, con artists, and moochers.
Leading entrepreneurs in general consume only a tiny portion of their holdings. They are often owners and investors. As owners, they are initially damaged the most by mismanagement or exploitation or waste of their wealth. Only the person who created the wealth has a true appreciation of its value and what it represents. As companies such as Oracle, Lotus, and Google have discovered, a software or tech stock can lose most of its worth in minutes if fashions shift or investors question management decisions.
A Harvard Business School study recently showed that even when you put “professional management” at the helm of great wealth, value is likely to grow less rapidly than if you give owners the real control. A manager of Google might benefit from turning it into his own special preserve, making self-indulgent “investments” in company planes or favored foundations that are in fact his own disguised consumption. It is only Sergey Brin and Larry Page who would see their respective wealth drop catastrophically if they began to focus less on their customers than on their own consumption. The key to their
great wealth is their resolution not to spend or abandon it, but to continue using it in the service of others. They are as much the servants to as the masters of Google.
This is the other secret of the richest among us and of capitalism itself. Under capitalism, wealth is less a stock of goods than a flow of ideas. Economist Joseph Schumpeter set the basic parameters when he declared capitalism “a form of change” that “never can be stationary.”
The landscape of capitalism may seem solid and settled and ready for seizure, but capitalism is really a mindscape. Volatile and shifting ideas, and the human beings behind them, are the source of our nation’s wealth, not heavy and entrenched establishments. There is no tax web or bureaucratic net that can catch the fleeting thoughts of the greatest entrepreneurs of our past or our future.
April 6, 2013
Have we learned anything from the Financial Crisis of 2007?
I would say nothing at all.... In fact, instead of changing their behavior to prevent another crisis, the Powers-that-be seem to be doubling down on the strategies that Caused the Financial Crisis in the First Place
Liberals blame deregulation and reckless Wall Street greed for the economic crisis. Conservatives blame bad government policy.
What are they doing? Well here again.... they are:
Pushing banks to make home loans to people with weaker credit (sound familiar?)
Deregulating and even promoting insane levels of derivatives (ring a bell?)
Following policies which lead to rampant inequality (that didn’t work out so well last time)
Letting white collar criminals know that they have free rein to do whatever they want, and they won’t be prosecuted (once again)
Letting the giant banks get bigger and bigger (the government helped them get big in the first place)
Bailing out the banks with hundreds of billions of dollars a year (which creates dangerous “moral hazard” – just like before the 2007 crisis – and once again destroys sovereign nations). Indeed, crony capitalism has gotten worse than ever (even though heroes have been fighting it for 100 years)
Enacting policies which suck money out of the U.S. economy … and ship it abroad (as they’ve been doing for 50-plus years now)
Enacting policies which discourage people from even trying to find work
Giving the Federal Reserve more power than ever (while a neutral government agency says that the Fed is riddled with corruption, and economists say the Fed caused many of our problems in the first place, and has too much power for the good of the economy)
Blowing insanely large speculative bubbles (when they burst in 2007, that caused the last crisis)
As to the big banks and financial institutions, looks like nothing has changed for them too as they are still engaged in the same risky behavior which got us into the 2007 crisis in the first place by:
Trading even more risky derivatives than at the height of the financial crisis
Taking insanely risky bets with the money that we deposit into our bank accounts. When some of their risky bets blow up, they will either look to the government – once again – for a bailout, or to our bank deposits
Getting back into “synthetic” financial instruments – which are even more disconnected from real assets than regular derivatives
Doing no-document mortgage loans
What could possibly go wrong?... Go figure
Liberals blame deregulation and reckless Wall Street greed for the economic crisis. Conservatives blame bad government policy.
What are they doing? Well here again.... they are:
Pushing banks to make home loans to people with weaker credit (sound familiar?)
Deregulating and even promoting insane levels of derivatives (ring a bell?)
Following policies which lead to rampant inequality (that didn’t work out so well last time)
Letting white collar criminals know that they have free rein to do whatever they want, and they won’t be prosecuted (once again)
Letting the giant banks get bigger and bigger (the government helped them get big in the first place)
Bailing out the banks with hundreds of billions of dollars a year (which creates dangerous “moral hazard” – just like before the 2007 crisis – and once again destroys sovereign nations). Indeed, crony capitalism has gotten worse than ever (even though heroes have been fighting it for 100 years)
Enacting policies which suck money out of the U.S. economy … and ship it abroad (as they’ve been doing for 50-plus years now)
Enacting policies which discourage people from even trying to find work
Giving the Federal Reserve more power than ever (while a neutral government agency says that the Fed is riddled with corruption, and economists say the Fed caused many of our problems in the first place, and has too much power for the good of the economy)
Blowing insanely large speculative bubbles (when they burst in 2007, that caused the last crisis)
As to the big banks and financial institutions, looks like nothing has changed for them too as they are still engaged in the same risky behavior which got us into the 2007 crisis in the first place by:
Trading even more risky derivatives than at the height of the financial crisis
Taking insanely risky bets with the money that we deposit into our bank accounts. When some of their risky bets blow up, they will either look to the government – once again – for a bailout, or to our bank deposits
Getting back into “synthetic” financial instruments – which are even more disconnected from real assets than regular derivatives
Doing no-document mortgage loans
What could possibly go wrong?... Go figure
February 25, 2013
How to lure more unsuspecting American dupes to buy into real estate
We are told that there are only 1.74 million homes left for sale in this country and at current sales rates we’ll run out of inventory in 4.2 months....You better buy now, before it’s too late... Stupidity has reached such a level that it’s becoming real hilarious.
We must be running out of houses I guess. We need more houses built ASAP, before this becomes a crisis. The problem with this storyline for dummies? Existing home sales are falling. Even using the NAR seasonally manipulated numbers, sales in January were lower than in November. In a country with 133 million housing units, there were 291,000 existing home sales in January. If there is an inventory shortage, why have new home sales fallen every month since May of 2012? There were a total of 10,000 completed new homes sold in December in the entire country. Housing starts plunged by 8.5% in January. Does this happen when you have a strong housing market? Do you believe the NAR inventory figure of 1.74 million homes for sale? The last time the months of supply was this low was early 2005 – during the good old days.
Let’s examine a few facts to determine the true nature of this shocking inventory shortage crap.
According to the U.S. Census Bureau:
There are 133 million housing units in the United States
There were 115 million occupied housing units in the country, with 75 million owner occupied and 40 million renter occupied.
For the math challenged this means that 13.5%, or 18 million housing units, are vacant.
Only 4.3 million are considered summer homes, and 3.9 million are available for rent. That leaves 9.8 million homes completely vacant.
The Census Bureau specifically identifies 1.6 million of these vacant housing units as up for sale.
So, with 9.8 million vacant housing units in the country and 1.6 million of these identified as for sale, the NAR and media mouthpieces have the balls to report only 1.74 million homes for sale in the entire U.S. This doesn’t even take into account the massive shadow inventory stuck in the foreclosure pipeline. Of the 75 million owner-occupied housing units in the country, 50 million have a mortgage. Of these houses, a full 10.9% are either delinquent or in the foreclosure process. This totals 5.4 million households, with 1.9 million of these households already in the foreclosure process. The number of distressed households is still double the long-term average, even with historically low mortgage rates, multiple government mortgage relief programs (HARP), and Fannie, Freddie and the FHA guaranteeing 90% of all mortgages. Do you think the NAR is including any of these 5.4 million distressed houses in their inventory numbers?
Then we have the little matter of a few home occupiers still underwater on their mortgages. After this fabulous two year housing recovery touted by shills and shysters, only 27.5% of ALL mortgage holders are underwater on their mortgage. This means 13.8 million households are in a negative equity position. Those with 5% or less equity are effectively underwater since closing costs usually exceed 6% of the house’s value. That adds another 2.2 million households to the negative equity bucket. Do you think any of these 16 million households would be selling if they could?
The negative equity position of millions of homeowners gets at the gist of the effort to re-inflate the housing bubble. By artificially pumping up home prices, the Wall Street titans and their co-conspirators at the Federal Reserve and Treasury Department are attempting to repair insolvent Wall Street bank balance sheets, lure unsuspecting dupes back into the housing market, reignite the economy through the old stand-by wealth effect, and of course enrich themselves and their crony capitalist friends. The artificial suppression of home inventory has been working wonders, as 2 million homeowners were freed from negative equity in 2012. If they can only lure enough suckers back into the pool, all will be well. Phoenix must have an inordinate number of chumps with home prices rising by 22.5% in 2012 as investors and flippers poured into the market with cheap debt and big dreams. Of course everything is relative, as prices are still down 44% from the peak and 40% of mortgages remain underwater. I strongly urge everyone without a functioning brain to pour their life savings into the Phoenix housing market. Wall Street morons say it’s a can’t miss path to riches after all.
Despite the propaganda, hyperbole, and cheerleading from the corporate media, the fact remains that national homeowner’s equity is barely above its all-time low of 38%, down from 62% in 2000 and 70% in 1980. The NAR shills, Federal Reserve drug pushers, Wall Street shysters, and pliant media lured the middle class into the false belief that housing was an asset class that could make you rich. Homes became the major portion of middle class net worth. As prices were driven higher from 2000 through 2006, the middle class took the bait hook line and sinker and borrowed billions against their ever increasing faux housing wealth. This set up the impending collapse of middle class net worth, created by the 1%ers on Wall Street, in Washington DC, and in corporate executive suites across the land. The median American household lost 47% of its wealth between 2007 and 2010. Average household wealth, which is skewed dramatically by the richest Americans, declined by only 18%. Real estate only accounts for 30% of the net worth of the rich. For the middle 60%, housing has risen from 62% to 67% of total wealth since 1983. Middle class families’ saw their cash cushion fall from 21% in 1983 to 8% before the crash. They were convinced that living on Wall Street peddled debt was the path to prosperity. After the crash, the middle class has been left with no cash, underwater mortgages, declining real wages, less jobs, and a mountain of credit card debt. Delusions have been crushed. But an on-line degree from the University of Phoenix funded by a Federal student loan of $20,000 will surely revive the fortunes of the average unemployed middle class worker.
Despite the destruction of middle class hopes, dreams, and net worth, the ruling plutocracy has decided the best way to revive their fortunes is to lure the ignorant masses into more student loan debt, auto debt and mortgage debt.
This other house of cards and illusions cannot last as all is being revealed by the day.
Now you know what is real and what is fiction.
We must be running out of houses I guess. We need more houses built ASAP, before this becomes a crisis. The problem with this storyline for dummies? Existing home sales are falling. Even using the NAR seasonally manipulated numbers, sales in January were lower than in November. In a country with 133 million housing units, there were 291,000 existing home sales in January. If there is an inventory shortage, why have new home sales fallen every month since May of 2012? There were a total of 10,000 completed new homes sold in December in the entire country. Housing starts plunged by 8.5% in January. Does this happen when you have a strong housing market? Do you believe the NAR inventory figure of 1.74 million homes for sale? The last time the months of supply was this low was early 2005 – during the good old days.
Let’s examine a few facts to determine the true nature of this shocking inventory shortage crap.
According to the U.S. Census Bureau:
There are 133 million housing units in the United States
There were 115 million occupied housing units in the country, with 75 million owner occupied and 40 million renter occupied.
For the math challenged this means that 13.5%, or 18 million housing units, are vacant.
Only 4.3 million are considered summer homes, and 3.9 million are available for rent. That leaves 9.8 million homes completely vacant.
The Census Bureau specifically identifies 1.6 million of these vacant housing units as up for sale.
So, with 9.8 million vacant housing units in the country and 1.6 million of these identified as for sale, the NAR and media mouthpieces have the balls to report only 1.74 million homes for sale in the entire U.S. This doesn’t even take into account the massive shadow inventory stuck in the foreclosure pipeline. Of the 75 million owner-occupied housing units in the country, 50 million have a mortgage. Of these houses, a full 10.9% are either delinquent or in the foreclosure process. This totals 5.4 million households, with 1.9 million of these households already in the foreclosure process. The number of distressed households is still double the long-term average, even with historically low mortgage rates, multiple government mortgage relief programs (HARP), and Fannie, Freddie and the FHA guaranteeing 90% of all mortgages. Do you think the NAR is including any of these 5.4 million distressed houses in their inventory numbers?
Then we have the little matter of a few home occupiers still underwater on their mortgages. After this fabulous two year housing recovery touted by shills and shysters, only 27.5% of ALL mortgage holders are underwater on their mortgage. This means 13.8 million households are in a negative equity position. Those with 5% or less equity are effectively underwater since closing costs usually exceed 6% of the house’s value. That adds another 2.2 million households to the negative equity bucket. Do you think any of these 16 million households would be selling if they could?
The negative equity position of millions of homeowners gets at the gist of the effort to re-inflate the housing bubble. By artificially pumping up home prices, the Wall Street titans and their co-conspirators at the Federal Reserve and Treasury Department are attempting to repair insolvent Wall Street bank balance sheets, lure unsuspecting dupes back into the housing market, reignite the economy through the old stand-by wealth effect, and of course enrich themselves and their crony capitalist friends. The artificial suppression of home inventory has been working wonders, as 2 million homeowners were freed from negative equity in 2012. If they can only lure enough suckers back into the pool, all will be well. Phoenix must have an inordinate number of chumps with home prices rising by 22.5% in 2012 as investors and flippers poured into the market with cheap debt and big dreams. Of course everything is relative, as prices are still down 44% from the peak and 40% of mortgages remain underwater. I strongly urge everyone without a functioning brain to pour their life savings into the Phoenix housing market. Wall Street morons say it’s a can’t miss path to riches after all.
Despite the propaganda, hyperbole, and cheerleading from the corporate media, the fact remains that national homeowner’s equity is barely above its all-time low of 38%, down from 62% in 2000 and 70% in 1980. The NAR shills, Federal Reserve drug pushers, Wall Street shysters, and pliant media lured the middle class into the false belief that housing was an asset class that could make you rich. Homes became the major portion of middle class net worth. As prices were driven higher from 2000 through 2006, the middle class took the bait hook line and sinker and borrowed billions against their ever increasing faux housing wealth. This set up the impending collapse of middle class net worth, created by the 1%ers on Wall Street, in Washington DC, and in corporate executive suites across the land. The median American household lost 47% of its wealth between 2007 and 2010. Average household wealth, which is skewed dramatically by the richest Americans, declined by only 18%. Real estate only accounts for 30% of the net worth of the rich. For the middle 60%, housing has risen from 62% to 67% of total wealth since 1983. Middle class families’ saw their cash cushion fall from 21% in 1983 to 8% before the crash. They were convinced that living on Wall Street peddled debt was the path to prosperity. After the crash, the middle class has been left with no cash, underwater mortgages, declining real wages, less jobs, and a mountain of credit card debt. Delusions have been crushed. But an on-line degree from the University of Phoenix funded by a Federal student loan of $20,000 will surely revive the fortunes of the average unemployed middle class worker.
Despite the destruction of middle class hopes, dreams, and net worth, the ruling plutocracy has decided the best way to revive their fortunes is to lure the ignorant masses into more student loan debt, auto debt and mortgage debt.
This other house of cards and illusions cannot last as all is being revealed by the day.
Now you know what is real and what is fiction.
February 23, 2013
Are our Big Banks really profitable or is it all about Corporate Welfare?
What if I told you that, by my calculations, the largest U.S. banks aren’t profitable at all?
What if the billions of dollars they allegedly earn for their shareholders are almost entirely a gift from U.S. taxpayers?
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – - account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits.
In other words, the banks occupying the commanding heights of the U.S. financial industry — with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.
The money hasn’t just gone to the banks shareholders … It has also gone to line the pockets of bank management.
It is a fact that “Bailout Money” is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
Indeed...All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else.
It looks like this is the biggest transfer of wealth in history, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Nobel economist Joseph Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.
And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.
It is clear to everyone on the inside by now that the government has propped up the big banks for years through massive, never-ending bailouts and subsidies and that the big banks – including Citi, Wells, Bank of America and the rest – are actually insolvent.
Remember, the Federal Reserve has paid banks high interest rates to stash money (their “excess reserves”) with the Fed for the express purpose of preventing loans to Main Street.
And the Fed plans to throw more money at the banks when the Federal Reserve starts to tighten.
No wonder why US Federal Reserve officials fear a backlash from paying billions of dollars to commercial banks when the time comes to raise interest rates.
The growth of the Fed’s balance sheet means it could pay $50 billion -$75 billion a year in interest on bank reserves at the same time as it makes losses and has to stop sending money to the Treasury.
Now If you think of the profitability of the biggest banks, if you’re going to talk about paying them something of the order of $50 billion – isn’t this more than the entire profits of the largest banks? It is indeed.
At the moment it only pays 0.25 per cent interest on those reserves. But according to its exit strategy, published in June 2011, the Fed plans to raise interest rates before it sells assets. Interest of 2 per cent on $2.5 trillion of reserves would run to $50 billion a year.
The eventual tightening could lead to substantial amounts being transferred to commercial banks from the Fed, given the amounts of cash they have parked there. Wells Fargo has $97.1 billion sitting at the Fed, the largest amount of any bank, ahead of JPMorgan Chase at $88.6 billion and Goldman Sachs at $58.7 billion, according to a Financial Times analysis of SNL data.
Foreign banks also have a striking amount of cash at the Fed, potentially aggravating the Fed’s PR problem. Canada’s TD Bank, Germany’s Deutsche Bank and Switzerland’s UBS each have more than $12 billion at the Fed.
Analysts at Stone & McCarthy noted recently that there had been a steep increase in foreign banks placing reserves at the Fed and suggested that “US banks may have distaste for the opportunistic arbitrage”, between lower market rates and the interest on reserves, whereas overseas institutions “might not feel encumbered in the same fashion”.
And while this focuses on bailouts and subsidies to big American banks, a large percentage of the bailouts went to foreign banks too. And so did a huge portion of the money from quantitative easing.
This house of cards and illusions cannot last as all is being revealed by the day.
Now you know what is real and what is fiction.
Time to wake up next time you vote.
What if the billions of dollars they allegedly earn for their shareholders are almost entirely a gift from U.S. taxpayers?
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – - account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits.
In other words, the banks occupying the commanding heights of the U.S. financial industry — with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.
The money hasn’t just gone to the banks shareholders … It has also gone to line the pockets of bank management.
It is a fact that “Bailout Money” is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
Indeed...All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else.
It looks like this is the biggest transfer of wealth in history, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Nobel economist Joseph Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.
And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.
It is clear to everyone on the inside by now that the government has propped up the big banks for years through massive, never-ending bailouts and subsidies and that the big banks – including Citi, Wells, Bank of America and the rest – are actually insolvent.
Remember, the Federal Reserve has paid banks high interest rates to stash money (their “excess reserves”) with the Fed for the express purpose of preventing loans to Main Street.
And the Fed plans to throw more money at the banks when the Federal Reserve starts to tighten.
No wonder why US Federal Reserve officials fear a backlash from paying billions of dollars to commercial banks when the time comes to raise interest rates.
The growth of the Fed’s balance sheet means it could pay $50 billion -$75 billion a year in interest on bank reserves at the same time as it makes losses and has to stop sending money to the Treasury.
Now If you think of the profitability of the biggest banks, if you’re going to talk about paying them something of the order of $50 billion – isn’t this more than the entire profits of the largest banks? It is indeed.
At the moment it only pays 0.25 per cent interest on those reserves. But according to its exit strategy, published in June 2011, the Fed plans to raise interest rates before it sells assets. Interest of 2 per cent on $2.5 trillion of reserves would run to $50 billion a year.
The eventual tightening could lead to substantial amounts being transferred to commercial banks from the Fed, given the amounts of cash they have parked there. Wells Fargo has $97.1 billion sitting at the Fed, the largest amount of any bank, ahead of JPMorgan Chase at $88.6 billion and Goldman Sachs at $58.7 billion, according to a Financial Times analysis of SNL data.
Foreign banks also have a striking amount of cash at the Fed, potentially aggravating the Fed’s PR problem. Canada’s TD Bank, Germany’s Deutsche Bank and Switzerland’s UBS each have more than $12 billion at the Fed.
Analysts at Stone & McCarthy noted recently that there had been a steep increase in foreign banks placing reserves at the Fed and suggested that “US banks may have distaste for the opportunistic arbitrage”, between lower market rates and the interest on reserves, whereas overseas institutions “might not feel encumbered in the same fashion”.
And while this focuses on bailouts and subsidies to big American banks, a large percentage of the bailouts went to foreign banks too. And so did a huge portion of the money from quantitative easing.
This house of cards and illusions cannot last as all is being revealed by the day.
Now you know what is real and what is fiction.
Time to wake up next time you vote.
