Monday, April 25, 2011
Beyond ForeclosureGate: It Gets Uglier
The ForeclosureGate scandal poses a threat to Wall Street, the big banks, and the political establishment. If the public ever gets a complete picture of the personal, financial, and legal assault on citizens at their most vulnerable, the outrage will be endless.
Foreclosure practices lift the veil on a broader set of interlocking efforts to exploit those hardest hit by the endless economic hard times, citizens who become financially desperate due medical conditions. A 2007 study found that medical expenses or income losses related to medical crises among bankruptcy filers or family members triggered 62% of bankruptcies. There is no underground conspiracy. The facts are in plain sight.
ForeclosureGate represents the sum total illegal and unethical lending and collections activities during the real estate bubble. It continues today. Law professor and law school dean Christopher L. Peterson describes the contractual language for the sixty million contracts between borrowers and lenders as fictional since the boilerplate language names a universal surrogate as creditor (Mortgage Electronic Registration System), not the actual creditor. Other aspects of ForeclosureGate harmed homeowners but the contractual problems that the lenders created on their own pose the greatest threats.
When the Massachusetts Supreme Court upheld a lower court ruling that the actual creditor must named in the mortgage agreement (a legal requirement that the banks forgot to meet in their contracts), there was consternation on Wall Street. What would happen if a class action lawsuit challenged these flawed mortgages? Isn’t the Massachusetts decision the latest of many attacking the legal basis of the shoddy business practices and boilerplate industry contracts? What if homeowners started walking away from their underwater mortgages based on the legally flawed contracts? If there were a viable prospect of a class action suit against financial institutions threatening to invalidate these contracts, wouldn’t that crash the stock values of the big banks and some Wall Street firms?
The big banks and their partners on Wall Street need a preemptive strike to derail the legal process that threatens their existence. They may get a temporary reprieve through pending consent decrees from the United States Department of Justice and consortia of state attorney’s general. If that protection fails, big money will make every effort to buy a bill from Congress that absolves them retroactively, en masse. The consent decree might cost them a few billion dollars. That’s much better than owing the trillions in lost home values due to their contrived real estate bubble and stork market crash.
As bad as this is, it gets worse.
Beyond ForeclosureGate
The surface scandal is about fraudulent business practices and a systematic assault on homeowners by lenders, servicers, and the legal system. A much broader picture must be viewed in order to understand the utter contempt that the ruling elite has toward citizens and the depraved tactics used to express that contempt, all to serve endless desire to accumulate more money and power.
The set up began when we heard about the ownership society in the 2004 presidential election. President Bush defined ownership as taking the government out of our lives so more people could own homes and control their destinies. The foundation was home ownership. As Bush said on the campaign trail, “We’re creating a home — an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.”1
Then Federal Reserve Chairman Alan Greenspan was uncharacteristically coherent when he laid the foundation for the swindle earlier that year. Greenspan told the Credit Union National Association that the fixed rate mortgage was “an expensive way of financing a home.” He was clear when he advised lenders that, “consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”2
The Chairman of the Federal Reserve and the president ratified the real estate bubble, already underway at the time, as political and financial doctrine. The advice was clear. Get an ARM, own your piece of the American Dream and spend that equity. Housing prices never go down, right?
Freddie Mack, Fannie Mae, Wall Street and the big banks provided the back room. Mortgage Backed Securities (MBS) derivatives were vastly expanded. This made it easy for more homebuyers to qualify for mortgages they might not otherwise get, credit standards dropped. Those with good credit saw an array of tantalizing zero interest loans and other mortgage products to maximize available cash and feed the stock market.
It was all good until it wasn’t.
The real scandal is the unfathomable loss of wealth and opportunities by the vast majority of citizens and the vicious attack on the most vulnerable citizens as a part that process. The attack continues and is worthy of review.
Foreclosure and Bankruptcy
Foreclosure is the down side of the ownership society. When you’re sold a bill of goods, a property that you were told you were qualified to buy, and you lose it, you are evicted from ownership island.
Before Congress passed the 2005 bankruptcy reform act, homeowners could avert foreclosure in many states by filing for bankruptcy. Not just anyone could qualify. The process of qualifying was difficult and, oftentimes humiliating. But homes were saved and families were preserved with a chance to start over.
A myth emerged of the bankruptcy abuser, a high-class sort of welfare cheat. These reckless people worked the system to rack up large debts that were subsequently wiped clean through bankruptcy. The alleged abuse of the system became the excuse for a major overhaul of bankruptcy law. The legislation passed the Senate with 74 yes votes and soon became law.
The changes since the 2005 legislation provide substantial benefits to creditors. Morgan et al. summarized the direct benefits to creditors in a forthcoming publication in the New York Fed’s Economic Policy Review. Before bankruptcy reform, the filer of a bankruptcy claim used to determine Chapter 7 or 13 filing status. That makes a difference in the amount and type of debt relief. The legislation imposes means test that determines precisely which chapter (7 or 13) filers must use. Significantly, chanter 13 filers retain more debt from medical and other unsecured credit.
Legal costs ranged from $600 to $1500 before bankruptcy reform. Legal fees now range between $2800 and $3700. Previously, there was no requirement for credit counseling prior to filing.
Filers must now document approved credit counseling six months before filing or face dismissal of their case (Morgan et al.). This counseling requirement can lead to unwarranted dismissals or inordinate delays in filing at a time when filers need relief.
Under the old law, only bankruptcy trustees appointed by the federal court could file claims of abuse by the filer. Under the new legislation, anyone can file a claim of bankruptcy abuse, which can lead to a dismissal of the cause. This is a huge benefit to lenders who wanted to keep citizens from realizing debt relief.
The Real Benefit for Big Money – Delayed Bankruptcy Filings
The new law makes it harder to file a claim, doubles costs, and gives the creditors a say in claiming fraud on the part of those who file claims. Significant delays in filing for bankruptcy became the norm.
From “Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors,” Lawless et al., American Bankruptcy Law Journal, Vol 82, 2008.
Time is money for loan servicers. A long delay before a bankruptcy filing, allows servicers the opportunity to add on special fees, many of which the borrower can’t comprehend. One thorough study showed that many of these fees were questionable. The longer it takes, the greater the revenue opportunities. Delay benefits creditors since loan payments continue at their original level.
What happened to those big spending, reckless bankruptcy abusers that were the rationale for the 2005 reforms? The following graph from the Consumer Bankruptcy Project shows that there is virtually no difference between the incomes of filers before and after bankruptcy reform. The majority of filers made between ten and forty thousand dollars a year before reform. That has remained virtually unchanged. The big spending abusers were and remain a mythical construct; the centerpiece of a diversion strategy to keep attention away from this never-ending gift to creditors.
From “Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors,” Lawless et al., American Bankruptcy Law Journal, Vol 82, 2008.
These newly empowered creditors were the same creditors who hired debt collectors to try and frighten people out of their filings. A major study found that 24% of filers reported that debt collectors told deliberate lies to avoid bankruptcy. They heard that filing for bankruptcy would lead to jail, job loss, or an IRS audit. Some were told that it was illegal to file for bankruptcy.3
The deck was stacked early against citizens and protection from creditors disappeared under the new law. The creditors, who so recklessly precipitated the economic collapse, came out on top. They were free to profit in any way they could from their new market,
What Causes Bankruptcy – Financial Shocks from Medical Expenses
Prior to the new law, the major cause of bankruptcy stemmed from medical care expenses and the resulting disruptions to families. Rather than the mythical big spender contrived by Congress, for nearly half of filers, major medical expenses, family tragedies, were the tipping point to a loss of financial viability.
The Consumer Bankruptcy Project audited a representative sample of bankruptcy filers in 2001. The audit found that 46% cited a “major medical cause” for bankruptcy. This includes the direct cost of uncovered medical bills for major illness or injury, lost work due to the same, and the need to mortgage the family home to cover medical costs.
Did Congress review this data? Were they intent on making it harder to file bankruptcy as a result of illness? When bankruptcy is delayed or simply not attainable, less money is available for needed medical care. Were the members supporting bankruptcy reform indifferent to the suffering compounded by their thoughtless legislation?
The situation is worse now. A comprehensive survey of those who filed bankruptcy in 2007 showed the increasing desperation of those faced with medical problems. When individuals or family members are in dire need of medical care, do they just sit home and suffer?
From “Medical Bankruptcy in the United States, 2007: Results of a National Study,” Himmelstein et al., American Journal of Medicine, 2009:04.
The results of this survey show that two thirds of bankruptcies result from medical care that they can’t afford or losses in income from medically required leave. Where are the big spending cheats?
Nihilists at the Helm
The big banks, Wall Street, the politicians they own, and the Federal Reserve Board created the real estate bubble in bad faith.
They knew or should have known:
- that the real estate bubble was unsustainable;
- when the bubble deflated, many homeowners would hit a financial wall; and, that
- when homeowners hit the wall, to maintain viability for their families, they would need relief of some sort.
What did the nihilists of the financial elite and their hit men walking the halls of power do with all this knowledge? They went ahead with the real estate bubble, fostered it, deregulated meaningful controls on the financial industry, and crafted a new bankruptcy law to stick it to filers. They knew or should have know that data from 2001 showed a very high rate of filings due to the financial stress of medical care and crises. Did they care? Do they care now? Has anything been done to correct this injustice?
While citizens suffer in financial distress, often due to illness, at the behest of influential bankers and investors, the Department of Justice crafts a settlement with lenders and their representatives to relieve them of the stern justice due for their specific crimes and the larger horrors they visit upon citizens, all in the name of short term profit.
We are most emphatically not a nation of laws. We are a nation where the law is used by a very few for their own purposes, without regard for the well being of the nation or its citizens. We are a lawless nation.
- “Remarks to the National Association of Home Builders in Columbus, Ohio.” [↩]
- “M. Collins, Money Party to Citizens – Drop Dead!, Scoop.” [↩]
- Lawless, et al. “Did the Bankruptcy Reform Fail? An Empirical Study,” American Bankruptcy Law Journal, Vol 82, 2008.October 2008. [↩]
Why Bank and Debt Crises are Helping the Gold and Silver Prices
The result is that when their greed went too far and the banking system was threatened with collapse, they had to be bailed out by their customers at the retail level, the taxpayers. Since then, they have recovered but are not vibrantly underpinning the economies in which their customers are based to promote a recovery. Still, their total thrust is for profits, meaning that there is just not enough banking support to invigorate developed world economies. Worse still, the public perception of bankers has been eroded so far, it's common to hear them described as 'banksters.'
The battle begins
The British government has just received a banking report on the reforms needed for its banking industry. In it, they have ring-fenced retail banking to ensure taxpayers will not need to bail out the banks and will avoid the most profitable risks banks take. That investment side will be separated so that should it fail then it will be allowed to collapse without impacting the nation's economy.
But have no doubt that this is not an amicable reform because it limits banks' profit opportunities and ensures they face the risks of their own actions.
But most big banks can move out of the country and minimize their overall adherence to such regulatory reforms. It is in fact a war situation, profits versus responsibilities. If they move, which makes sense from the shareholders point of view, then they will in effect have refused to face their responsibilities. If they accept these changes, they will have been forced to change by government.
Which way will this battle go? We have no doubt that bankers have to seek maximum profits in any legal way they can. It would be anti-shareholder to bow to government regulations if they don't have to. We see this battle becoming global as is the interlinked web of banking. Ireland is what happens when banks chase profits irrespective of the impact of their actions, leaving the Irish taxpayer as collateral damage. In the face of greater regulation and control from government aimed at bringing stability and lowering risks, are the banks cooperating? To date the banks have acted as follows: -
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Germany's biggest lender plans to alter the status of its main U.S. subsidiary in response to capital rules being imposed under a U.S. regulatory overhaul. The restructuring will help the subsidiary, known as Taunus Corp. shed its status as a bank holding company, which would have subjected it to the capital rules. Instead, the firm will move a U.S. banking unit out of Taunus and link it to the Frankfurt-based parent. Deutsche Bank estimated last year it might need to inject almost $20 billion into Taunus to comply with the rules.
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Overseas lenders, including Barclays Plc., are altering their U.S. holding subsidiaries because the Dodd-Frank Act of 2010 would otherwise force the divisions to comply with the same capital rules as domestic banks. Barclays said it de-registered Barclays Group U.S. as a bank-holding company, partly to sidestep the capital requirements. Non-U.S. banks were previously exempt as long as their foreign parents were regulated by a government-recognized watchdog. The U.S. bank unit holds $45.5 billion in assets and $17.7 billion in U.S. deposits. The unit counts the Federal Reserve as its primary regulator, according to the FDIC.
Why does this concern the Gold Forecaster? Because this is yet another fundamental structural reason why the gold price is rising and will continue to rise.
The loss of reputation through greed and dishonesty
But bankers are not simply ducking reformation; by their actions they are ensuring the continuous decay of trust in banking and the banking system. This 'battle' has and will continue to breed distrust in banks as they do not usually work for the advantage of their clients and depositors. The pages of the media have been replete with tales of conflict of interest, settlements out of court, of depositors being taken advantage of by their banks, by making profits out of their own customer's bank-backed ventures even when they failed. The attrition of trust in the banks has alarmed many, who are slowly becoming gold and silver investors and will continue to do so.
In the States, while we have seen a public grilling of leading bank executives, what changes have taken place to ensure it does not happen again? Has the housing market recovered from the games the bank's played with mortgages? [We have persistently said from 2007 onwards that unless the consumer/homeowners is thriving again, there is little prospect of there being a long lasting fundamentally sound recovery in the U.S.] Has the banking industry acted in concert with government to re-invigorate the economy - no! Have they made every effort to find ways to stimulate the housing market to resuscitate the consumer and get the economy back on track? No! So long as banking structures remains solely profit orientated, they will encourage investors to turn to gold and silver.
Have the criminal actions of bankers been prosecuted? Congress has issued a long-awaited report that is in the process of shocking the public and undermining even further the credibility of the banking system. Here are some comments from that report:
Lawmaker Levin, when commenting on the report at its release, accused Goldman Sachs, one of the largest U.S. banks, "of profiting at clients' expense as the mortgage market crashed in 2007. In my judgment, Goldman clearly misled their clients and they misled Congress," he said. Add this to other comments, "Blame for this mess lies everywhere -- from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild and members of Congress who failed to provide oversight. It shows without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers." The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of major financial institutions," Mr. Levin said. The report also asks federal regulators to examine its findings for violations of laws.
Now here's the shocker that came out last week; The Federal Reserve said it has taken enforcement action against 10 banks over "a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions." The banks are Bank of America, Citigroup, Ally Financial, the HSBC North America unit of HSBC Holdings, J.P. Morgan Chase, MetLife, PNC Financial Services, SunTrust Banks, U.S. Bancorp and Wells Fargo.
In addition to the actions against the banking organizations, the Federal Reserve announced formal enforcement actions against Lender Processing Services, Inc., a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc., which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions.
We are of the opinion that there is little chance of bankers moving away from the profit motive or of lawmakers enforcing social responsibility on bankers.
What is remarkable in the last few years has been the increasing visibility of the actions of bankers and the very public loss of reputation. How long will it take for developed world investors to turn away from their financial systems as Indian investors have done for so many decades and use cash and gold and property in an 'alternative' financial system? Or are they too locked-in to escape?
Gold and silver cannot be dishonest
Yes, they are both metals that in so many cases are mined to be put back underground and earn no income, but they are instruments that have avoided the investment warfare that is common in the banking system and monetary system as we are seeing from the Levin report. Let's not say this is just the U.S., --it's global, wherever there is a banking system.
Note what income depositors receive after bank charges and deduct inflation to see 'real' interest rates. The saver is losing hands down, yet the bank can use his money up to sixteen times in ventures of their choosing that will usually make hefty profits. The realization of the paucity of bank deposits as investments has not caught on and banks have ways to ensure that even passing temporary deposits are available for their use. Perhaps Abraham Lincoln was wrong in that you can 'fool all the people, all of the time.' If investors had, had gold, it would be somewhere north of $10,000 by now.
In India, cash and gold yield income in the hands of its owners. Their activities escape corrupt bankers and government officials and corrupt lawmakers. They must laugh when they read reports such as the above and say, 'haven't you learned yet?' Not only does gold provide for private commercial deals of many kinds, it increases in price. Their total return on gold has been nearly 500% in the last 11 years. What's been the return on the broad spectrum of developed world investments, including bank deposits? Who cares that there is no annual income on gold and silver, there's an incredible total return? They would laugh at the concept of getting small 'real interest' returns from their investment in banks.
Most importantly, gold and silver bullion, by itself, are places to escape dishonesty and all the common, unethical, core practices of the financial system. Precious metals don't lie, cannot be unethical, do not have conflicts of interest but are respected by all their investors, whatever the state of these investor's own morality.
So long as this situation persists in the banking world, gold and silver will be bought as long-term money and honest investments.
Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com
Will governments confiscate gold?
However, the situation today is very different from that of 78 years ago. At that time, gold was the primary currency, the dollar being tied to it at $20.67 per ounce. But today, the Fed and European central banks strongly deny that gold has any monetary role at all, and argue instead that it’s just a hangover from the past: “that barbarous relic” as Keynes called it. Its confiscation would be an embarrassing admission that gold, after all, is money.
Nevertheless, as paper currencies continue to lose credibility, the temptation for any government to seize its citizens’ gold to enhance official holdings must be growing. Americans today, however, are unlikely to meekly accept confiscation the way they did under Roosevelt. And nowadays, you may be American, but your gold is not necessarily held at an American bank: it is just as likely to be in London, Zurich or Hong Kong.
The wording of a compulsory order is all-important. Confiscation requires the gold itself to be surrendered, which presumably would be the objective if a government is to add to official holdings. If gold ownership is merely banned, it is a different matter. A bullion bank holding gold in an unallocated account would almost certainly be unable to deliver physical gold if required to do so by the American government, but it would be able to close out the account for cash. And there is the thorny question of derivatives, which hardly existed in the 1930s. All futures and options trading would cease, and contracts for forward delivery would be cancelled, possibly with serious financial consequences.
The international nature of gold would probably require all G10 or even G20 members to agree to similar actions against their own citizens. It seems unlikely that all governments would agree to this, unless they all had their backs hard against the wall. Switzerland, an associate member of the G10, would almost certainly face a referendum and be unable to comply. The G20 also includes China, India, Saudi Arabia and Russia. It is extremely unlikely that these countries will be prepared to confiscate their citizens’ gold to appease the Americans.
Just the mention of these names alerts us to the dangers of a confiscatory move by the US. It would make the Chinese and Indian middle classes instantly wealthier than the average American, measured by gold ownership – an interesting thought when paper currencies are losing credibility. On balance, a repeat of the Roosevelt confiscation seems unlikely. But there is one thing we can be certain of, and that is that the risk of silver confiscation is more remote, so perhaps that is the safer metal to own.
Home of the Brave
Activist Post
The Economists concede that economics is an inexact science. What does that mean? Perhaps it means their economic forecast is better than yours or mine. Recently, economic indicators have been rising and people have their fingers crossed. Economists have given us reason to hope that the job market will improve and that the stock market will continue on a steady climb. Yet, the newspapers continue to report more layoffs and more jobs going overseas.
Meanwhile, our economy is getting more and more complex. We associate complexity with progress for some ungodly reason. The following problems, however, have become inherent in our economy. What does that mean? It means they will be around for a while:
Needless poverty, unemployment, inflation, the threat of depression, taxes, crimes related to profit (sale of illicit drugs, stolen IDs, muggings, bribery, con artists, etc.), conflict of interest, endless red tape, a staggering national debt plus a widening budget deficit, 48 out of 50 states in debt, cities in debt, counties in debt, skyrocketing personal debts, 50% of Americans unhappy at their work, saving for retirement and our children's education, health being a matter of wealth, competing in the "rat race", the need for insurance, being a nation of litigation, being subject to the tremors on Wall Street, fear of downsizing and automation, fear of more Enrons, outsourcing, bankruptcies, crippling strikes, materialism, corruption, welfare, social security, sacrificing quality and safety in our products for the sake of profit, the social problem of the "haves" vs. the "havenots" and the inevitable family quarrels over money.
Have we become gluttons for punishment? My college professor once said, "You can get used to hanging if you live long enough!"
We Americans love our freedom; yet, we have allowed the use of money to completely dominate our way of life. Indeed, we are no longer a free people. We are 7.4 trillion dollars in debt. We live in fear of depression, inflation, inadequate medical coverage and losing our jobs. Our freedom is at stake if not our very survival. Yet, we put our collective heads in the sand.
Yes, there is something we can do. We can look into ourselves for an answer. We may find that we have the strength to carry out our internal economic affairs without the need to use money. Yes, we will still need to use money when dealing with other countries.
There is no question that a way of life without money will alleviate if not completely eliminate all of the previously mentioned problems. Yet, we scoff at the idea. We are totally convinced that money is a necessity. We cannot imagine life without money. Perhaps the time has come to think otherwise. It is completely obvious our present economy no longer satisfies our present day needs.
As individuals, we will gain complete economic freedom. In return, a way of life without money demands only that we, as individuals, do the work we love to do. It is a win/win situation. Let us consider the following arguments:
Can we learn to distribute our goods and services according to need (on an ongoing basis) rather than by the ability to pay? Why not? Poverty and materialism will be eliminated! Our sense of value will change. Wealth will no longer be a status symbol. A man will be judged by what he is; not by what he has. He will be judged by his achievements, leadership, ideas, artistic endeavours or athletic prowess; not by the size of his wallet.
Yes, everything will be free according to need. All the necessities and common luxuries will be available on a help yourself basis at the local store. Surely, this country is capable of supplying the necessities and common luxuries for everyone in this country many times over.
The more "expensive" items, such as housing, cars, boats, etc. would be provided for on a priority basis. For example, the homeless would be given housing ahead of those living in crowded quarters. How will this priority be established? Perhaps a local board elected by the people in the neighborhood such as a school board. Or perhaps the school boards could absorb this responsibility in addition to their present duties.
Since cooperation will replace competition, can government, industry and the people learn to work together as a team to meet the economic needs of our nation as well as each individual? Again, why not? Yes, competition is great; but cooperation is even better. Cooperation avoids duplication of effort. Wouldn't it be more efficient to have everybody freely working together, sharing ideas, thoughts and technical knowledge? Patents and industrial secrets would be a thing of the past. Competition, however, will still be around. Individuals will still compete with their co-workers in ideas, achievements, leadership and getting promotions.
For example, Ford, Chrysler & GM would work together to build automobiles that are truly safe and efficient and environmentally friendly. Perhaps, with everyone working together, we can invent a car engine that would eliminate the need to import oil from the Middle East. (Note: Ford, Chrysler & GM would gradually become one entity.)
Unfortunately, what immediately jumps into the minds of most people is: "It simply won't work!" The idea of a way of life without money is then dismissed without further thought. After all, what motivation is there for people to work if there is no paycheck? How can we possibly satisfy the labor needs of our nation? The following reasons are offered why people would be completely happy working in a way of life without money:
Today, only 50% of Americans enjoy their work. That will change. In a way of life without money, we will all be free to do the work we want to do or even love to do without any economic fear. We will be free to pursue our passion or as Joseph Campbell suggests we "follow our bliss".
Cooperation will replace wasteful competition. We will all work together as a team. Work will become a way to help people, to meet people or to be part of something meaningful. It is a proven fact that people like to help one another. An esprit de corps will naturally build up and make work more enjoyable. Even the most menial task becomes easier when people work together. Yes, work will become more of a "togetherness" thing.
The profit motive will no longer be a hindrance to efficiency. There will be no need to sacrifice quality and safety in our products for the sake of profit. We will, like in the olden days, take pride in our work.
Yes, there is very likely to be a shortage of people volunteering to do the more menial tasks. One option is to offer "perks". A perk can be of various forms such as front row season tickets to the opera or to his or her favorite sports team. Can you imagine an NBA basketball game where the celebrities are sitting in the back rows while the dishwashers and janitors are at courtside? (My apologies to Spike Lee & Jack Nicholson!) Or the perk could be the latest model boat or sports car which would not be immediately available to the public. Another option is to draft everyone once in their lifetime, to do a half year or so stint at a menial task. Perhaps a humbling experience is in order for all of us. It might serve us well in the area of character building.
Also, consider the fact that perhaps millions of people will be freed from jobs associated with the use of money. Millions more that are now unemployed or on welfare will also be available to help fill the labor needs of our country. Thus, we will have the work force necessary to do the work which is not economically feasible in our present economy such as cleaning our environment (land, sea & air), conservation, recycling, humanitarian work, research in medicine, education, science & space and now we can include national security.
Perhaps the most difficult problem is in the administration of a way of life without money. Can we learn to determine our economic needs, allocate our resources from the federal on down to the neighborhood levels? Perhaps some sort of economic bodies must be created to coordinate, monitor and carryout our economic needs. These economic bodies would exist similar to our governments, one for the federal, one for each state and one for each local level.
Yes, in order to administrate a way of life without money, economic bodies, boards or councils or whatever you wish to call them would be created to absorb economic responsibility from our various governments. They will interact and cooperate with one another to meet the economic needs of our country and of each individual. They will be empowered by Congress to tend to the economic needs of its constituents. Thus, a balance of power will be safely maintained.
Our federal needs, which would be similar to the federal budget we have today, will be resolved by an economic body comprised of representatives of the various branches of government, our industrial & labor resources, research (in medicine, education, science & space), our environment, conservation, importing & exporting, and now, national security and whatever facet of our way of life should be represented. This economic body will arrange for the labor and material resources necessary to meet the economic needs of our nation.
Similarly, the same will occur at the state and local levels. The economic body at the local levels will be responsible for providing services to the people in the neighborhood. If the labor needs cannot be met with volunteer workers, "perks" must be offered. Also, the economic body at the local levels will be responsible for keeping the stores stocked with food, clothing and the common luxuries which will be available free. Thus, the economic needs of the nation right on down to the neighborhood levels would be determined and satisfied by these economic bodies.
How much economic responsibility will these new bodies absorb from our federal, state and local governments? How much will be shared? Can a balance of power be maintained? At any rate, our federal, state and local governments will be relieved of considerable amount of economic responsibility. Thus, our various governments will be free to catch up on all the other domestic and foreign issues that face us.
Yes, we will still import and export goods with foreign countries as our needs dictate; but what money will be used in place of the almighty dollar? Would the dollar have any value if everything is free in the USA? Would that be a problem? We would, however, still be able to use the currency of the country we are doing business with. For example, if we export goods to Germany, we would accept marks or euros in payment. The euros would then be deposited in our national treasury for future use. The money could then be used to import goods or perhaps send Americans overseas on vacation.
Yes, a way of life without money could be compared to the kibbutz which now exist in Israel. Can you picture the USA as one big kibbutz? However, ownership of property will remain the same as it is today. Our government will remain the same. Our free enterprise system will remain in place as it is today. There will be no need for money or any substitute for money since everything will be free.
The advantages of a way of life without money stagger the imagination; but they are real and cannot be disputed. Perhaps it is time for us to grab the brass ring?
"The Human Race has improved everything except the Human Race." Adlai Stevenson
John Steinvold is a retired engineer from Long Island, NY, with the bad habit of believing a better world is possible. This article first appeared on Athenaeum Library of Philosophy.
Watchdog Finds "Unacceptable Risk" in Treasury's Oversight of Bailout Law Firms
Neil Barofsky has stepped down from his post as the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), following a two-and-a-half-year tenure in which he frequently butted heads with the Treasury officials responsible for overseeing the government’s bailout programs. But even without Barofsky at the helm, the SIGTARP presses on in its efforts to make Treasury’s bailout programs more transparent and fair to the American taxpayer.
This morning, the SIGTARP released a new audit report that was requested by Senator Tom Coburn (R-OK) on Treasury’s process for procuring professional services under the TARP. POGO has been following this issue closely throughout the course of the bailout to ensure that the government is taking adequate steps to protect taxpayers from conflicts of interest and wasteful spending tied to the work performed by outside firms (for more background, check out Scott’s testimony last fall before the Congressional Oversight Panel).
As part of its audit, the SIGTARP took a look at Treasury’s contracts with five law firms that had received more than $27 million in legal fees as of last December. The report released today describes Treasury’s contract with one of these firms, Venable LLP, and its process for reviewing and approving Venable’s fee bills.
Overall, the SIGTARP found that Treasury’s lax oversight of its contracts with Venable and other firms had created an “unacceptable risk” that taxpayers are overpaying for legal services related to the bailout. Here are a few highlights:
Insufficient requirements for submitting and reviewing Venable’s bills
Three of the five task orders awarded to Venable were labor-hour task orders. According to the Federal Acquisition Regulation (FAR), this type of contract can only be used if: (1) the contractor’s accounting system is adequate for determining costs applicable to the contract; and (2) government surveillance during contract performance provides reasonable assurance that efficient methods and effective cost controls are used.
However, the contract with Venable—overseen by Treasury’s Office of Financial Services (OFS)—did not contain sufficiently detailed requirements or instructions on how the firm should prepare its fee bills. In addition, all three of the OFS Contracting Officer’s Technical Representatives (COTRs) interviewed by SIGTARP stated that there were no written standards for reviewing invoices.
Venable’s costs called into question
Many of Venable’s charges were “block billed,” meaning that a single charge included several different tasks without specifying the time required to complete each task. For example:
03/23/09 PARTICIPATE IN CALL WITH ALL PARTICIPANTS TO REVIEW CITI PROGRAM STRUCTURE AND RELATED ISSUES; PARTICIPATE IN CALLS WITH GM AND CHRYSLER COUNSEL TO REVIEW SPECIFIC COMMENTS TO LOAN DOCUMENTS; WORK RE ANALYSIS AND REVIEW OF REQUESTED CHANGES; RELATED TELEPHONE CONFERENCES AND E-MAILS. (10.8 HOURS)
In other cases, there were vague or inadequate descriptions of Venable’s work, such as “REVIEW AND REVISE TRANSACTION DOCUMENTS; CONFERENCE CALLS; INTERNAL CONFERENCES. (6.2 hours).”
SIGTARP also questioned many of Venable’s administrative charges, such as preparing fee bills, reviewing OFS contract and task orders, and addressing conflict-of-interest issues. SIGTARP determined that OFS should have denied many of these types of charges.
Recommendations for improving contracting processes
The SIGTARP recommended that OFS adopt standards similar to those used by the FDIC and other agencies regarding legal fee bills prepared by law firms. The audit report also recommended that OFS provide specific invoice review procedures for the COTRs, and review previously paid bills to determine if there were any unreasonable or unallowable charges.
Although Treasury disagreed with the SIGTARP’s statement about the “unacceptable risk” posed to taxpayers, OFS has already taken steps to implement the recommendations by providing more specific instructions to the legal contractors who submit invoices and the COTRs who review them, meeting with FDIC officials to discuss best practices, and scheduling a meeting with Venable to discuss the SIGTARP’s findings.
Treasury’s contracts with the bailout law firms have long been a source of controversy. BailoutSleuth repeatedly criticized Treasury for not providing enough transparency in its contracts. The Washington Independent pointed out that one of the bailout law firms, Simpson Thacher & Bartlett, had a long history of working for TARP recipients, raising serious questions about conflicts of interest. And at the Congressional Oversight Panel’s recent hearing on Treasury’s bailout contracting, Treasury refused to allow one of the bailout law firms to publicly testify, citing concerns about attorney-client privilege.
Michael Smallberg is a POGO Investigator.
UPDATE: A Treasury spokesperson emailed to remind us of other watchdogs' findings related to Treasury's contracting procedures. The Congressional Oversight Panel has stated that Treasury's procedures for post-award contract and agreement management "follow well-established norms for monitoring contract performance." The Government Accountability Office (GAO) has also said: "One year after implementation, OFS had put in place an appropriate infrastructure to manage and monitor its network of financial agents and contractors, as well as a system to oversee conflicts of interest that may arise with financial agents or contractors seeking or performing work under TARP. OFS has continued to make management and oversight enhancements."
The only change Obama brought us was more corruption [Reader Post]
In the WSJ former AIG CEO Hank Greenberg recently posed a question:
The recently released list of businesses bailed out by the Federal Reserve was not as surprising to me as it was to many members of the general public.
What is clear from the list is that the notion of equal protection ensconced in the Constitution was missing in September 2008. Rather than trying to spread both the burden and benefit of the bailout evenly among members of the U.S. financial services industry, key decision makers at the Fed and Treasury arbitrarily determined which companies should become wards of the federal government (AIG) and which should be permitted to live on (Goldman Sachs and Morgan Stanley). Goldman Sachs was permitted to live by enjoying markedly lower interest rates and access to credit facilities amounting over time to approximately $600 billion.
Federal decision makers had six months following the Bear Stearns collapse in early 2008 to formulate an effective response to foreseeable liquidity difficulties in the U.S. financial-services industry. Instead, the bailout turned out to be a rush for funds that benefited some and punished others. Goldman Sachs, Morgan Stanley and others were permitted to become bank holding companies and have access to cheap federal funds, while AIG was denied this opportunity for reasons never fully explained. It is important that an independent body is convened to seek reasons for these actions.
The answer is simple. Robert Rubin.
Arguably no one Robert Rubin has benefited more from the “platinum revolving door” than Robert Rubin. Rubin, Treasury Secretary under Bill Clinton, spent 26 years at Goldman Sachs and another 9 years at Gitigroup. Rubin took more than $126 million while Citigroup was going down the toilet. He and Jamie Gorelick both seem to prosper no matter how much destruction accompanies them.
As Treasury Secretary, Rubin once intervened in a Mexican financial turmoil with an interesting motive:
Another momentous event in Goldman’s history was the Mexican bailout of 1995. Rubin drew criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key holder. On November 22, 1994, the Mexican Bolsa stock market had admitted Goldman Sachs and one other firm to operate on that market. The 1994 economic crisis in Mexico threatened to wipe out the value of Mexico’s bonds held by Goldman Sachs.
How convenient.
In 1998 Travelers (insurance) merged with Citicorp (banking). Glass-Steagall had kept banking and insurance separate since 1933. Sanford Weill of Citicorp and John Reed of Travelers wanted Glass-Steagall dismantled or they would have had to spin off the insurance business. To help with the deconstruction of Glass-Steagall, Weill and Reed enlisted the help of one Robert Rubin.
The goal is to use your government position to advance the interests of your future employer, and Orszag and Rubin’s actions in the government and then at Citigroup provide stunning examples. As Bill Clinton’s treasury secretary, Rubin presided over the dismantling of Glass-Steagall, the legislation that would have prohibited the creation of the too-big-to-fail Citigroup. He was rewarded with a $15-million-a-year job at Citigroup, where he became a leader in the bank’s aggressive move into high-risk ventures.
Lefties are quick to blame Republicans for the repeal of Glass-Stegall but it was engineered by Robert Rubin and friends.
Those who had hoped for “Hope and Change” got precious little of that “change” when it comes to monetary matters. They’re all Rubinites:
It’s not unlike what happened after the collapse of the failed economy in the Soviet Union. The corrupt and inept communist bosses who were tossed out of power ended up back on top by stealing their way into ownership positions in the economy’s newly privatized companies.
Similarly, delivering the exact opposite of “change,” President-elect Barack Obama is putting some of the nation’s most notorious foxes in charge of guarding the chicken coop by way of a proposed economic team that Jackie Calmes, The New York Times correspondent on national economic policy, calls “a virtual Rubin constellation.”
Obama’s “choices for his top economic advisers — Timothy F. Geithner as Treasury secretary, Lawrence H. Summers as senior White House economics adviser and Peter R. Orszag as budget director — are past proteges of (former Treasury Secretary Robert) Rubin,” explains Calmes, formerly the chief political correspondent for The Wall Street Journal’s Washington bureau.
Geithner, picked to succeed Treasury secretary Henry Paulson, was Rubin’s undersecretary for international affairs at Treasury; Orszag was a dependable Rubin ally during his years at Treasury; and Summers served as deputy Treasury secretary under Rubin.
And Orszag? Following the Rubin Rule, he’s doing just fine:
On Thursday, Peter R. Orszag, President Obama’s first budget director and a protégé of Mr. Rubin, followed in his mentor’s footsteps and joined Citi’s investment banking group as a vice chairman.
Mr. Orszag, 41, is the second cabinet official to join Citi this month, and his appointment comes days after the Treasury Department’s $10.5 billion stock offering helped further extricate the bailed out bank from Washington.
snip
Inside Citigroup, the guessing games have already begun about how many zeros will appear on his paycheck — as well as the requisite jokes about whether his package would pass muster with the federal pay czar. Such a job typically pays at least $2 million to $3 million, according to bankers.
So Rubin makes Citigroup too big to fail, Orszag bails out Citigroup with our out with our money and in return Citigroup rewards them very handsomely.
Dodd-Frank is an absolute farce, thanks to these fine gentlemen:
The failure to provide serious regulation of the financial industry to avoid future downturns is documented in devastating detail in a Dec. 28 Bloomberg report by Christine Harper: “The U.S. government, promising to make the system safer, buckled under many of the financial industry’s protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives.”
Rubin wasn’t alone in pushing for the repeal of Glass -Steagall. There’s another name you might find familiar:
The reason for that failure is obvious from the president’s choice of advisers, featuring Rubin acolytes from the Clinton years. Harper writes: “While Obama vowed to change the system, he filled his economic team with people who helped create it,” referring to, among others, Timothy F. Geithner, who had gone from the Clinton Treasury Department to head the New York Fed, where he presided over the salvaging of Citigroup and AIG. As Obama’s treasury secretary, he was quick to appoint a Goldman Sachs lobbyist as his chief of staff. Geithner’s subservience to Wall Street was reinforced by White House top economic adviser Lawrence Summers, Rubin’s deputy and then replacement in the Clinton administration, who pushed through the repeal of Glass-Steagall and fought against the regulation of derivatives.
Fought against the regulation of derivatives? Anyone remember the role of derivatives in the current financial crisis?
And that guy Geithner at the Treasury? Guess what his job was while at the NY Fed.
He was supposed to keep an eye on……………guess who?
As president of the New York Federal Reserve Bank, Timothy Geithner often preached that gargantuan financial firms like Citigroup should be held to the highest regulatory standards to make sure they couldn’t take on too much risk. But when it came to supervising Citigroup in recent years, the record shows that the New York Fed eased the reins as the company blew billions on subprime mortgages and other risky deals that ultimately forced the biggest bank rescue in U.S. history. Now, the 47-year-old Geithner heads to the Senate in coming days as President-elect Barack Obama’s nominee for Treasury secretary. He’s won accolades for his expertise and work ethic, but there’s been little attention to his record as a Fed watchdog.
Geithner failed to do his job at the NY Fed and Obama rewarded that failure in making him Treasury Secretary of the United States. I am going to stick my neck out here and prognosticate that when he leaves office, Geithner will find employment immediately at….
Citigroup.
But we’re not done yet.
As a pretext for financial reform, the SEC filed fraud charges against Goldman. In the settlement that followed, Goldman paid a $550 million fine but admitted no wrongdoing. It has been noted that while this appears to be a large sum, it was but two weeks profit for Goldman.
At the American Thinker, Fred Sauer shows us just what Obama’s financial reform has brought us:
The real crime of the matter is revealed by our discovery of exactly the nature of Goldman Sachs Mysterious Business. Quite simply, the Mysterious Business is the largest highly leveraged hedge fund in the world that is run exclusively for the benefit of the employees of Goldman Sachs. All risks are absorbed by the Federal Reserve System with the U.S. taxpayers standing by at all times as ultimate guarantors.
Rubin’s handiwork opened the doors for financial disaster and his progeny continue his legacy to this day. They’ve help destroy this country while setting the stages for their respective financial futures and it all comes at our cost.
US Weapons Sales to Israel
Israel may be forgiven for failing to realize the current fiscal woes of the United States. After all, U.S. military aid to Israel not only sailed unscathed through last week's passage of the 2011 budget, but reached the record level of $3 billion.
The United States additionally provided Israel $415 million for procurement, research and development of joint U.S.-Israeli missile defense projects, including $205 million to fund Israel's newly-deployed Iron Dome system.
This anti-missile battery already has altered significantly the strategic balance in the Israeli-Palestinian conflict when Israel successfully shot down incoming rockets fired from the Gaza Strip earlier this month. With the assured diplomatic backing of the United States to prevent Israel from being held accountable by the international community for its illegal blockade, Iron Dome will embolden Israel to tighten its siege and escalate its attacks on the occupied Gaza Strip by providing its citizens with additional protection against retaliatory fire.
U.S. funding of Iron Dome is but one example of many of how U.S. weapons transfers to Israel privilege Israeli military dominance over Palestinian freedom and create perverse economic disincentives for Israel to defy U.S. policy goals such as halting Israel's colonization of Palestinian land, ending its collective punishment of Palestinians in the Gaza Strip, and negotiating in good faith a lasting peace agreement.
As long as U.S. weapons continue to flow, Israel will feel free to disregard the Obama Administration's mild blandishments and half-hearted attempts to bring Israel to the negotiating table. Unfortunately this disincentive structure is set to be reinforced over the coming years.
Under a Bush-era agreement, U.S. weapons transfers to Israel are scheduled to total $30 billion from 2009-2018, an annual average increase of 25 percent above previous levels. With this 2007 Memorandum of Understanding, the United States solidified Israel's position as the largest recipient of U.S. military aid this decade. In line with increases proposed under this arrangement, President Obama asked for a record-breaking $3.075 billion of weapons for Israel in his 2012 budget request.
A new online database—"How Many Weapons to Israel?"—casts doubt on whether the United States can afford, either morally, financially or politically, to continue transferring weapons to Israel at taxpayer expense without examining the ramifications of this policy.
From 2000-2009, the United States licensed, paid for, and delivered to Israel more than 670 million weapons and related equipment, valued at nearly $19 billion, through three main weapons transfer programs (Foreign Military Sales, Direct Commercial Sales, and Excess Defense Articles). These weapons transfer programs accounted for nearly 80 percent of the more than $24 billion in military aid appropriated to Israel during these years. The bulk of the remaining money was spent by Israel on its own domestic arms industry, a unique exemption written into law for Israel. All other countries receiving U.S. military aid are required to spend the whole sum within the United States.
Military aid to Israel ran the gamut from the patently absurd—one used food steamer valued at $2,100—to the lethal—93 F-16D fighter jets valued at a total of nearly $2.5 billion. With nearly 500 categories of weapons transferred to Israel, the United States is pervasively, intricately, and comprehensively involved in arming its military.
These weapons transfers also make the United States deeply complicit in almost every action the Israeli military takes to entrench its illegal 43-year military occupation of the Palestinian West Bank, East Jerusalem, and Gaza Strip and the apartheid policies that undergird its government's stance toward Palestinians.
From September 2000-December 2009, roughly the same period during which the United States transferred these 670 million weapons to Israel, the Israeli military killed at least 2,969 Palestinians, of whom 1,128 were children, who took no part in hostilities, according to the Israeli human rights organization B'Tselem.
For example, Israel killed 446 unarmed Palestinians, including 149 children, with missiles fired from helicopters. The Pentagon classifies the number, types, and value of missiles transferred to Israel; however, the United States gave Israel nearly 200 AH-64D Apache, Sikorsky CH-53, and Cobra helicopters from which at least some of these lethal missiles were fired. It was likely one such U.S.-supplied missile from a U.S.-supplied helicopter that Israel fired in the Jabalya refugee camp in the Gaza Strip on December 29, 2008, which killed five sisters, Jawaher (age 4), Dina (age 7), Samar (age 12), Ikram (age 14), and Tahrir Baulusha (age 17) during an attack on a nearby mosque.
Israel's misuse of U.S. weapons to commit human rights abuses like these against Palestinian civilians should trigger sanctions against, rather than increasing amounts of military aid to, Israel. The Arms Export Control Act limits the use of U.S. weapons to "internal security" and "legitimate self-defense." Israel's occupation of the Palestinian West Bank, East Jerusalem, and Gaza Strip is defined by the U.S. government as a foreign military occupation, and the killing of thousands of unarmed civilians in support of a military occupation cannot be justified as legitimate without distorting the meaning of self-defense.
In addition, the Foreign Assistance Act strictly prohibits U.S. foreign assistance to any country that "engages in a consistent pattern of gross violations of internationally recognized human rights." The State Department's recently released 2010 Country Reports on Human Rights Practices documents amply, if not comprehensively, Israel's human rights abuses of Palestinians.
As Washington now considers raising the debt ceiling and making even more substantial cuts to the 2012 budget, the moral, financial, and political costs of arming Israel can no longer be ignored.
If the Obama Admininstration is serious in its efforts to resolve the Israeli-Palestinian conflict and genuine in its stated commitment to the universality of human rights, then it must utilize the significant leverage the United States wields over Israel through its military aid program. By terminating weapons transfers to Israel at least until Israel upholds its obligations under U.S. and international law, ends its illegal military occupation of Palestinian land, and negotiates in good faith a just and lasting peace with Palestinians, the United States can create an incentive structure to achieve its frustrated policy goals.
Josh Ruebner is the National Advocacy Director of the US Campaign to End the Israeli Occupation, a national coalition of more than 350 organizations working to change U.S. policy toward Israel/Palestine to support human rights, international law, and equality. He is a former Analyst in Middle East Affairs at Congressional Research Service.
George Soros Needs to Be Indicted and Arrested on a State Level
We can not trust Eric Holder and the Obama Administration to uphold the rule of law anymore. We can not count on the states anymore either to stand up for the people against fraud brought on by the government in Washington. Where do we go from here before many people resort to an armed confrontation.What option do we have left. We tried calling our Congress critters and Senators.That has failed. We looked to our states to avert the the coming storms. Our leadership have failed us on every level.They have us sold out for morsels from Washington DC. What is our remedy before a shooting war starts on the streets of America.
Starting with Texans. We need to go back to our local Grand Juries seeking an indictment and arrest. We have to be relentless and not allow local DA to obstruct our access. Who do we start with.This needs to be done in every county in Texas..First is Texas Lt Governor David Dewhurst for violating the Logan Act.He was in a meeting with a foreign agent forming policy with out the people's consent at Bretton Woods with George Soros. This man is seeking destroying the dollar seeking to bring American to it knees. The Lt Governor has no business being there if he is going to be one of the few enabling this fraud be brought upon Texas destroying the dollar. The Lt Governor took an oath to preserve a republican form of government. His attendance to Bretton woods show he is conspiring to undermine it.
Second we indict George Soros for fraud and the act of sedition undermining the Constitution and the our Republican form of government. George Soros has warrants out for his arrest in many countries. He must be brought to justice. He must be stopped and exposed. He is scum and evil. These people must not be allowed to walk free one more day. If he does not face justice in this life. He will face the judgment seat in heaven before he get his just reward. Justice has to be put back in our hands and not put in the hands of politicians again.
To the Grammar NAZIS.Before you criticize my use of words.CLICK HERE
Deepening Economic Crisis: Inflation, Rising Interest Rates, Surge in the Price of Gold and Silver
Economic recovery does not seem to be taking effect in spite of more massive expenditures by Congress and the Fed. The IMF says financial stability has improved, but then again their vision is almost always clouded. US tax revenues are not increasing in a meaningful way, manufacturing struggles to expand and Wall Street flourishes in a cascade of mega salaries and bonuses. In another six months the US will be three years what the government, the media and Wall Street call a deep recession. We call it an inflationary depression, which has existed for 26 months. After eight years of increasing money and credit, and the creation of a real estate bubble, the Fed has been fighting off asset destruction with ever more money and credit accompanied by debt deflation. Part of the Fed’s policy has been zero interest rates, which has helped Wall Street and banking and to a limited extent real estate, but has destroyed the purchasing power of retirees and has driven funds into speculation, which in many cases has ended in ever more losses and less buying power.
The policy left conservative investors no place to turn to other than to join Wall Street and bankers in speculation, something they were not prepared for nor could they compete with. Borrowers have had a field day with virtually free money for which the result has been higher inflation and really major unemployment. You might call this the true Keynesian corporatist fascist model. This has left us with ongoing malinvestment, ridiculous illusions, which have led to the de-capitalizing of the US economy. In that process these interest free loans have given the big hitters the opportunity to enhance their fortunes at the expense of everyone else.
These rates and QE2 at least for the moment have been so powerful that deflation is nowhere in sight, except perhaps in job creation. In fact net inflation has moved up to 9-1/2% and we believe this year it will attain 14%, as government eventually admits to 5-1/2%, as we saw three years ago. If you think we are wrong look at producer prices that are up almost 11% over the past six months. Government and mainline economists are not paying attention. Either the higher costs are passed on or the profits will disappear. Just like in years past, over and over again, the excessive expansionism of monetary and fiscal policy will produce excessive inflation, more inflation than the so-called experts are anticipating.
The bailout of financial institutions by American taxpayers, both in the US, UK and Europe, won’t be allowed to happen again. In the next go-around they will go bankrupt. Those in the US and other stock markets with the exception of gold and silver shares, those in bonds, derivatives and hedge funds, will be wiped out as well. Few will be spared.
A year from this June inflation should be near 20% and that is where panic will set in. The 10-year T-note should be yielding 5-1/4% to 5-1/2% and the 30-year fixed rate mortgage should be 6-1/2% to 6-3/4%. After that interest rates and inflation will more than double, as they did in the late 1970s.
An example that is easily understood is that due to foreclosure and lack of job creation, rents should increase 10% over the next 1-1/2 years. That is known as Homeowner’s Equivalent Rent, which is 23% of total inflation. We believe that is a conservative figure. We won’t deal with core inflation, because it is just a method of obscuring real inflation. That 10% increase would add 4% to net inflation, which is currently about 9-1/2%, not 1.9%, as your faithless government would have you believe. That would put real inflation at 5-1/2%, not to mention increased prices for fuel and food. That is why our estimates are 14% to 25% over that time frame. Don’t forget interest rates will be rising as well. This only includes QE and stimulus 1 & 2. If QE3, by that or some other euphemism occurs, which we believe has too, then 50% inflation and hyperinflation is attainable. Readers have to remember that even if oil prices stopped increasing at $120.00, and food prices stayed at 10% higher levels, it would still rob consumers of $300 billion in purchasing power. That would drop consumers as a part of GDP from 71% to 69% easily. That means GDP growth even with the Fed adding $2.5 trillion to the economy, would at best stay even and may reflect as low as a minus 6%. You have to get the feel of the dynamics of this. Raging inflation, plus perhaps hyperinflation, a falling economy and 30% to 40% unemployment, U6 was 37.6% at the top of the great depression and the birth/death ratio didn’t exist at that time. Presently wages are stagnant, and they have been so for three years. Wages will finally start to rise so you can add rising wages to the inflationary explosion.
As this transpires we have the Middle East and North Africa, which are now a frightening further calamity waiting to happen. Any further violence there could take oil to $150.00 or higher. Will there be war with Iran? Perhaps and if that develops oil could escalate to $200 to $300 a barrel. Such developments would knock the foundation out from under the entire world, except for those fortunately producing oil.
Another factor is the plight of municipalities and states in the US. We have seen a small reduction in employment in these sectors, but the biggest layoffs are yet to come, as well as more than 100 municipal bankruptcies. We will also see debt default by states in relation to their bonds and other debts. Some states, such as Illinois, New York and California could cease functioning. This is not a pretty picture.
Then we have the woeful situation in the UK and Europe, all beset with rising inflation as well. A sovereign debt crisis has been prevalent for months with Greece, Ireland, Portugal, Spain, Belgium and Italy. All are at different stages of failure and nothing has really been resolved. As we wrote months ago the cost of bailout assistance would be $4 trillion, and it was just recently that the Germans and other lenders realized that the bailout cost is insurmountable. The cost will easily bankrupt the solvent lenders. Then there are the banks, all of which are close to insolvency already, which are facing massive bond losses, which will put them out of business. These are the loans they made that they should have never made, from funds created out of thin air.
Iceland has rejected paying off British and Dutch depositors, who had funds in Icelandic banks, which went bankrupt. The depositors do not have a leg to stand on and the citizens of Iceland are correct in their refusal. It was the Icelandic bankers who screwed the depositors.
Recently Finland’s voters rejected the bailout of Greece, Ireland and Portugal and who can blame them.
Wait until Greece goes into default, then things will get real interesting.
We normally do not editorialize regarding silver and gold. As you know we have recommended being long gold and silver shares, coins and bullion since June of 2000. Now that story is getting even better. Not only has gold and silver been a safe haven asset all those years, but is finally again becoming a shelter from inflation. The US, UK and Europe are in serious financial and economic trouble. Over the past 11 years, nine major country’s currencies on average have fallen more than 20% each year versus gold and silver. That is quite an extraordinary return and from our mail our subscribers are quite happy they followed our advice. Our run, including our market shorts, has simply been unbelievable.
Silver prices are on a tear and as we write they have risen to $46.30. In spite of these price levels the mining industry is not increasing production in any meaningful way. About 70% of production comes as a by-product of other types of mining, such as copper. There are no new sizeable projects in the works, and thus it is expected that production could fall 5% annually for the next ten years. The easy finds have already been exploited and new large projects are harder to find. In fact, current mines have only been able to increase production by a paltry 2.5% or so. In 2009 Argentina was the only outstanding exception and that could be a one off occurrence.
As we write gold has broken out to $1,509.30 even as the “Plunge Protection Team” fights viciously to suppress both gold and silver prices. Despite the mantra on Wall Street and in government there is 9-1/2% inflation affecting the US economy and the professionals and the public are finally catching on. In spite of the greatest bull market in gold and silver history, they still do not get it. Less than 1% of Americans own gold and silver related assets.
The QE1 and 2 and stimulus 1 and 2 have done their damage. The inflationary results are in the pipeline. QE and stimulus being reflected this year and the results of QE2 and stimulus 2 next year. We believe we’ll see the results of QE3 the following year, 2013, but it will be called something else. A falling dollar and few buyers of US debt has again set the stage for the Fed taking down 80% or more of Treasury and Agency debt. If they do not do that the whole system will collapse. These programs are like booster rockets aiding an underlying positive fundamental condition for gold and silver. The flip side is the debasement and denigration of the US dollar. As an aside even though the ECB has just raised interest rates they and the UK will continue their own versions of QE, because if they don’t their economies will collapse. That will put even more inflation into the world financial system.
As the possibility of QE3, or its equivalent, lurks in the wings the very solvency of America hangs in the balance. Those who have studied financial and economic history know that the course that is being followed is unworkable, and that certainly includes the staff at the Fed and the Treasury Department. In fact, Mr. Bernanke pointed out that in his and Mr. Baskins’ writings in 1988 after the market collapses of 1987.
At the heart of America’s problems are the insolvency of many financial institutions and the failure of either the Fed or the Treasury to have them liquidated. What the banks have in mind is the liquidation of bad debt held in suspension over the next 50 years. Supposedly as conditions and profits increase part of those profits will be used to lower debt. The problem is that these corporations are bankrupt. There access in the creation of inside information allows them to produce illegal outsized profits, such as 90 days of propriety trading without a loss. We were traders for 25 years and know under normal legal circumstances that that is impossible.
The, of course, there are the giant profits, really theft from other investors, that are used in part to offset previous losses and provide outsized salaries and bonuses to the crooks that run these banks and brokerage firms. These results are aided by the creation of money and credit and zero interest rates. The ability to borrow money created out of thin air at almost no cost. As a result the Fed now has a balance sheet of some $3 trillion loaded with Treasuries, Agencies, toxic waste and if they decide to create more money and credit to keep the government and the economy functioning for another year that figure will become $5.5 to $6 trillion. That is some monetization. There is unfortunately no other way for the Fed to do it, when at best they can only expect 20% to 30% of buyers for Treasuries, as the dollar falls in value. The situation is dire as the US dollar has just fallen 5% versus the Mexican peso, as the Mexican economy grows 4.5% a year, inflation is 3.7% and unemployment is 5%, and they haven’t used stimulus.
What are we missing here? Nothing except the Fed and Treasury, as well as Congress and the President are out of their minds as were their predecessors. How bad is it when the largest bond fund in the world, PIMCO, not only sells all its US Treasuries and Agencies, because they see no value and then they proceed to short them? It’s certainly a sad day for the solvency of America. Who can blame PIMCO when government is projecting $1.6 trillion deficits as far as the eye can see. In addition, all the funds paid by Americans for Social Security and Medicare have been squandered by government. Now there is no way to pay the promised benefits. That is $100 trillion that has been stolen, or should we say misappropriated. It is so bad that the US government credit rating may soon be lowered. It was just 1-1/2 years ago we picked August 2011 as the possible time for a downgrading of that AAA credit rating.
The number of states in serious financial trouble has now risen to 40 and unfortunately that number is still climbing.