Posts Tagged ‘tim geithner’
An audit of the Federal Reserve has revealed that the privately owned Federal Reserve secretly doled out more than $16 trillion in zero interest loans to some of the largest financial institutions and corporations in the United States and throughout the world. The non-partisan, investigative arm of Congress also determined that the Federal Reserve acted illegally. In fact, according to the report, the Federal Reserve knew their financial transactions were illegal and provided conflict of interest waivers to its employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans. The report is evidence that reveals major securities fraud in the embezzlement of $16 trillion by the Federal Reserve. Securities fraud and embezzlement are both felony criminal offenses.
Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted. Embezzlement is performed in a manner that is premeditated, systematic and/or methodical, with the explicit intent to conceal the activities from other individuals, usually because it is being done without their knowledge or consent. U.S. Code TITLE 18 > PART I > CHAPTER 31 – EMBEZZLEMENT AND THEFT § 644. Banker receiving unauthorized deposit of public money
Whoever, not being an authorized depositary of public moneys, knowingly receives from any disbursing officer, or collector of internal revenue, or other agent of the United States, any public money on deposit, or by way of loan or accommodation, with or without interest, or otherwise than in payment of a debt against the United States, or uses, transfers, converts, appropriates, or applies any portion of the public money for any purpose not prescribed by law is guilty of embezzlement and shall be fined under this title or not more than the amount so embezzled, whichever is greater, or imprisoned not more than ten years, or both; but if the amount embezzled does not exceed $1,000, he shall be fined not more than $1,000 or imprisoned not more than one year, or both.
$16 trillion is 10 times more than what the U.S. Congress authorized and Bush ($700 billion) and Obama ( $787 billion) signed off on. The Federal Reserve was only authorized by Congress to disburse $1.487 trillion in federal tax dollars in bailouts. The Federal Reserve embezzled another $14.5 trillion.
The Congressional report determined that the Fed secretly hide most of the embezzled money into their own banks. The rest the Fed unilaterally transfered trillions of dollars to foreign banks and corporations from South Korea to Scotland. Foreign banks and corporations which the Federal Reserve bankers had a personal financial interest or stake in.
The report reveals that the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in federal money from the Fed – conflict of interest. Moreover, JP Morgan Chase served as one of the clearing banks (money laundering banks) for the Fed’s emergency loans programs (aka – embezzlement schemes).
In another disturbing finding, the Government Accountability Office said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given federal funds. One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it would have exposed the Fed’s conflict of interest and major securities fraud in the embezzlement of $16 trillion.
The investigation also revealed that the Fed outsourced most of its embezzling to private contractors, many of which were rewarded with extremely low-interest and then-secret loans.
The Fed outsourced virtually all of the operations of their $16 trillion embezzlement scheme to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. For their part the same firms also received trillions of dollars in Fed loans at near-zero interest rates. Morgan Stanley helped the Federal Reserve banker launder embezzled $trillions into AIG.
A more detailed Government Accountability Office investigation into corruption charges, securities fraud, embezzlement, money-laundering and conflicts of interest at the Fed was due on Oct. 18. The Sanders Report on the GAO Audit on Major Conflicts of Interest at the Federal Reserve
Did you know that the $14.5 trillion the Federal Reserve embezzled (US Congress only authorized $1.487 trillion) could pay the entire U.S. national debt – $14.346 trillion. To avert default the U.S. government need only to seize the assets of the Federal Reserve banks (the big six U.S. banks collectively hold about $9.399 trillion in assets) and get back the $trillions that the Federal Reserve illegally embezzled and money laundered to their foreign banks and corporations.
The U.S. government can recover $trillions from the Federal Reserve and their banks through asset forfeiture. Asset forfeiture is confiscation, by the State, of assets which are either (a) the alleged proceeds of crime or (b) the alleged instrumentalities of crime, and more recently, alleged terrorism. Proceeds of crime means any economic advantage derived from or obtained directly or indirectly from a criminal offense or criminal offenses. Crimes committed by the Federal Reserve banks against the United States and its people include; conflict of interest, securities fraud, embezzlement, fraud, money laundering, hoarding, profiteering, larceny, racketeering . . .
In 1982, a criminal forfeiture provision was enacted as part of the Racketeering Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, which provided for the forfeiture of all property over which the RICO organization exercised an influence.
The Money Laundering Control Act of 1986 added new felony provisions at 18 U.S.C. § 1956 for the laundering of the proceeds of certain defined “specified unlawful activity,” as well as prohibiting structuring transactions under 31 U.S.C. § 5324 (with the intent to evade certain reporting requirements). The law also added civil and criminal forfeiture provisions at 18 U.S.C. §§ 981 and 982 for confiscating the property involved in money laundering.
According to the Legislative Guide to the United Nations Convention against Transnational Organized Crime and the Protocols Thereto, “Criminalizing the conduct from which substantial illicit profits are made does not adequately punish or deter organized criminal groups. Even if arrested and convicted, some of these offenders will be able to enjoy their illegal gains for their personal use and for maintaining the operations of their criminal enterprises. Despite some sanctions, the perception would still remain that crime pays. . . . Practical measures to keep offenders from profiting from their crimes are necessary. One of the most important ways to do this is to ensure that States have strong confiscation regimes”
Top 10 Banks in the United States
As of Mar. 31, 2010.
Source: Federal Reserve System, National Information Center.
According to United States Code, TITLE 12 CHAPTER 3 SUBCHAPTER IX § 341. Second. states that the U.S. Federal Reserve Banks can be dissolved today by “forfeiture of franchise for violation of law.” Securities fraud and embezzlement by the Federal Reserve Bank is cause for immediate forfeiture and imprisonment of the Federal Reserve and its bankers.
List of banks involved in the $16 trillion + securities fraud and embezzlement
The Federal Reserve Bank of New York provides an up to date list of “Primary Dealers” obligated to implement the Federal Reserve fraud and embezzlement scheme. http://www.newyorkfed.org/markets/pridealers_current.html
“Primary dealers serve as trading counterparties of the New York Fed in its implementation of (Fed) monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed‘s trading desk with market information and analysis (non-public stock market information – aka insider trading) helpful in the formulation and implementation of monetary policy (so that the Fed can profit from this insider information). Primary dealers are also required to participate in all auctions of U.S. government debt (acquiring wealth generated from the transactions of the illicit funds – aka money laundering for the Fed) and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders. (the New York Fed is stating who they are working for – on behalf of its foreign official account- holders)”
List of Primary Dealers (Fed’s money laundering banks. Listed in alphabetical order only.)
Bank of Nova Scotia, New York Agency (the third largest bank in Canada. Opened New York Agency in 1907)
BMO Capital Markets Corp. (the fourth largest Canadian bank)
BNP Paribas Securities Corp. (Paris, France)
Barclays Capital Inc. (London, United Kingdom)
Cantor Fitzgerald & Co. (United States)
Citigroup Global Markets Inc. (CIA drug money laundering bank, United States)
Credit Suisse Securities (USA) LLC (Zurich, Switzerland)
Daiwa Capital Markets America Inc. (Tokyo, Japan)
Deutsche Bank Securities Inc. (Frankfurt, Germany.)
Goldman, Sachs & Co. (United States)
HSBC Securities (USA) Inc. (founded in Hong Kong, headquarters London, United Kingdom)
Jefferies & Company, Inc. (United States)
J.P. Morgan Securities LLC (United States)
Merrill Lynch, Pierce, Fenner & Smith Incorporated (United States)
Mizuho Securities USA Inc. (Tokyo, Japan)
Morgan Stanley & Co. LLC (United States)
Nomura Securities International, Inc. (Tokyo, Japan)
RBC Capital Markets, LLC (a Canadian investment bank, part of Royal Bank of Canada)
RBS Securities Inc. (Royal Bank of Scotland Group)
SG Americas Securities, LLC (United States)
UBS Securities LLC. (Zürich & Basel, Switzerland. Rothschild controlled. The Rothschild family hold the popes purse strings from this bank – the keys of the Vatican is a predominate part of their logo.)
All of the above named banks (includes both U.S. and foreign banks) money launder the over $16 trillion (U.S) that the Federal Reserve embezzled. These banks money launder the Fed embezzled U.S. Tax Dollars in three steps:
1) the illicit funds are introduced into the financial system by “placement”,
2) the “Primary Dealers” carrying out complex financial transactions in order to camouflage the illicit funds (“layering”), and
3) they acquire wealth generated from the transactions (loans, mortgages, stock market trading) of the illicit funds (“integration”).
All listed banks are controlled by the European Central Bank (Rothschild family) which controls it all for the Vatican, which is headed by the Nazi German Pope. All are working to enslave the World under a New World Order, aka Fourth Reich, aka Fourth unHoly Roman Empire.
Read the entire article HERE.
by Bud Conrad
October 17, 2011
Foreign central banks buy US Treasury and Agency debt through accounts at the Federal Reserve, where it is held in custody. Without these central banks buying our debt, the US federal government would have to find a new source of funds or the result could be higher interest rates. Looking at the data on a monthly basis (and then multiplied by 12 to give the annual rate), here is the dramatic picture of how foreign central-bank purchases of our debt have shifted, from buying $500 billion to selling off $1 trillion. At this rate of selling over several months, interest rates would go higher – if other things were equal. Of course, things are not equal because the Fed has been forcing rates lower with its massive QE2 and other programs. QE 2 was $600 billion over nine months, or an annualized rate of $800 billion per year. Since foreigners are selling off our government debt, Fed purchases of government debt are even more necessary.
(Click on image to enlarge)
Here are the data on the amount of Treasuries purchased in the last quarter of the year at an annualized rate: Foreigners have decreased their holdings for the first time since 2007.
(Click on image to enlarge)
Here’s another chart worth considering. This is a comparison to the ten-year Treasury, with the purchases of Treasuries inverted.
(Click on image to enlarge)
In my latest article in The Casey Report on interest rates, I discuss the above chart and cover the broader issues driving interest rates.
What could be the cause of all this? The Senate passed a controversial bill that threatens to punish China for “currency manipulation” which will bring mandatory tariffs. China’s opposition to the Senate action could be the power behind the big shift in direction of these custody holdings. In an election year, government action against Chinese imports may be seen as supportive for US jobs, thus garnering votes. But unintended consequences of decreasing liquidity in the credit markets will put pressure on financial markets. The movement shown in these charts could be the result of China’s reaction to some of those anticipated policies. We can’t tell what country is doing the selling until two months have gone by and the TIC data are published. In some senses, it doesn’t matter which country is behind the shift. If rates begin to rise rapidly, even in the face of continued Fed manipulation, it could call into question confidence in the Fed’s ability to keep supporting the economy. The rate on the ten-year Treasuries jumped from 1.8% to 2.2% in the last week. Foreign selling of this magnitude is dangerous for the dollar, and it could be very bad for US interest rates.
[Whether this shift is temporary or a long-term reversal remains to be seen – but the end of the US dollar as the world’s reserve currency is all but certain. How can one prepare for such a life-changing move? Listen to the audio recordings of the recently held Casey Research/Sprott Summit, When Money Dies, to gain insights and actionable advice from experts including Adam Fergusson and Doug Casey on how you can not just survive what’s coming, but thrive. Order your set today.]
Additional Links and Reads
Banking Corporatism in 1912 (Ludwig von Mises Institute)
The Mises Institute dug up a great cartoon from 1912, representing what would happen to the US with the creation of a central bank. The picture says it all. That’s essentially what did happen.
Kinder Morgan to Buy El Paso for $21.1 Billion (Bloomberg)
In the biggest energy transaction of the year thus far, Kinder Morgan purchased El Paso Corp. to form the country’s largest national gas pipeline network. The natural gas market is an interesting beast. On the one hand, natural gas prices are dirt cheap. On the other, they can’t say low forever, but as Doug Casey says just because something is inevitable doesn’t mean that it’s imminent. There are some who have given up on investing in natural gas, while others are willing to put big bucks into it.
What I find interesting about the whole field is that involves so much hard science. Whether the general economy will go up or down is the realm of economics – not exactly a science. And of course, the economy will affect oil and gas prices, but natural gas requires making estimates of scientific facts. How much gas is left in the ground? What are the well decline rates? How damaging are fracking chemicals? While in economics we can argue back and forth without getting anywhere, these questions will have clear answers in the future. Someone will be right, and someone will be wrong.
The second table of results from this poll, copied below, showed some particularly noteworthy findings which I’ve discussed before. This table represents only workers and the unemployed who are searching for a job. At the top of the unemployment pile are workers aged 18 to 29 with 14% unemployment and 30% underemployment. That’s pretty crazy – only 56% are working full time. And of those 56%, how many do you think actually have a good, career-track job versus something like flipping burgers?
This relates to today’s intro. If one graduated college in 1998, one could get a job at Goldman Sachs. Graduate ten years later, and one will be lucky to find a position as an assistant accounting clerk with the exact same qualifications.
Read the entire article HERE.
by Tyler Durden
08/03/2011 14:50 -0400
The Treasury’s Borrowing Advisory Committee, chaired by such luminaries as JPMorgan and Goldman Sachs, which according to some (and by some we mean anyone who cares about such things) is the brains behind the decision-making process of US debt issuance has released its quarterly minutes, in which it has issued one of the most stark warnings about the fate of the US Dollar to date. While it is now a daily occurrence for China and Russia to bash the dollar, for the most part still powerless to provide an alternative (but rapidly gaining), the same warning coming from Jamie and Lloyd has to be taken far, far more seriously. Which is precisely what happened today. As Bloomberg reports, “The Treasury Borrowing Advisory Committee… said the outperformance of haven currencies and those from emerging nations has aided in the debasement of the dollar’s reserve status, according to comments included in discussion charts presented ahead of the quarterly refunding. The Treasury published the documents today. “The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one committee member said. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.””
But, wait a second… Isn’t Ben Bernanke debasing the dollar precisely for the benefit of the members of the TBAC? And considering that he has done such a tremendous job, is it a little hypocritical to be taking the USD devaluation in one hand, and complaining about it with another? Perhaps someone less jaded than us can answer. As for another important question looming over the US, namely the so called imminent US downgrade, the TBAC has spoken: “None of the members thought that a downgrade was imminent.” Which means that both S&P and Fitch have now been bribed with enough peas to keep their mouths shut. The status quo wins again.
Some other interesting observations:
- Primary Dealers expect a much smaller fiscal deficit in 2011 than either the CBP or OMB, at $1358BN compared to $1480BN and $1645BN respectively. Which means, if wrong, that Dealers will be on the hook to purchase up to $300 billion more debt than currently modelled. Will they be able to handle this extra load?
- PDs expect 2011 Marketable Borrowing to be between $980 and $2055 Billion. A rather wide range
- Bills as a percentage of the portfolio have plunged to decade lows, while coupons are at decade highs
- From the previous bullet point, the PDs expect the average maturity of debt to continue to increase. We disagree considering the hundreds of billions in Bills that will have to be reissued to make up for the 2 month non-rolling fiasco
- There is $1.8 trillion in debt refinancing needs in 2011; Just over $1.4 trillion in 2012, and just under $1.1 trillion in 2013. Good luck rolling all of this debt.
The TBAC’s conclusion is actually rather spot on:
- The benefits of extension do not come for free. Historical analysis suggests that shorter term funding has at many times been both cheaper and the volatility costs have not been high
- Recent cycles of rising rates have not lasted long enough for maturity extension to pay off
- It is possible, however, that “this time is different” because
- Nominal rates are much closer to the zero bound than previous periods
- Deficits are very high historically and rising interest expense less acceptable
- Concentrated foreign ownership creates less reliable demand
- The benefits of funding attributable to being the reserve currency may be fading
- While this presentation has focused exclusively on average maturity, a topic for future study is the impact of the distribution of maturities on total interest expense
That indeed would be an interesting analysis
Full must read presentation:
Read the entire article HERE.
By Neil Irwin
July 21, 2011
For instance, William C. Dudley, the president of the Federal Reserve Bank of New York who was a senior official there in 2008, owned stock of American International Group before the Fed bailed out the giant insurance firm. The GAO report did not mention him by name, but Sen. Bernie Sanders (I-Vt.), who spearheaded the audit, identified Dudley as the unnamed official described in the report.
Lawyers at the New York Fed allowed Dudley to continue owning the shares while working on issues relating to the bailout. They concluded that for him to sell the shares immediately after the central bank bailed out the firm would be more ethically problematic than simply holding onto them and selling at a later date.
Dudley “held shares in these companies as part of his personal portfolio that predated his service at the New York Fed,” a spokesman for the central bank said. “A waiver was granted allowing him to hold these shares based in part on the judgement that had he sold these shares immediately after the interventions it would have the appearance of a conflict.”
The GAO report did not condemn the Fed’s actions, it simply illuminated them. Dudley has subsequently sold all the shares on dates agreed to with the bank’s ethics officers, the spokesman said.
The GAO also recommended that the Fed make clearer and more rigorous its policies for hiring independent contractors to manage investment programs. During the crisis, the New York Fed hired outside firms to manage many of its special lending programs, such as one designed to backstop the market for short-term corporate loans, without holding a normal bidding process for the contracts.
The report also found that lines of authority between the Fed’s Board of Governors in Washington and the 12 regional Fed banks around the country were sometimes muddled during the crisis. For example, it was not always clear where authority resided on questions of what collateral would be adequate for an emergency loan.
The report was the latest to detail aspects of the Fed’s actions during the financial crisis that were shrouded in mystery at the time. Another provision in last year’s Dodd-Frank Wall Street regulatory overhaul, also instigated by Sanders, required the disclosure of what individual banks and other entities received loans from the Fed.
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” Sanders said in a statement. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”
The Fed’s general counsel, Scott Alvarez, said in a letter responding to the GAO’s audit that officials will “strongly consider” the recommendations.
Read the entire article HERE.
by Lance Roberts
June 6, 2011
The media has been replete lately with a variety of different government officials saying that there will not be a third round of Quantitative Easing. Even the great Ben Bernanke himself on April 27th spoke against the possibility of QE 3. This isn’t surprising, of course, because in order for something like QE to have the most effect it needs to be, well, a surprise.
However, I am throwing down the gauntlet and making the call – there will be Quantitative Easing, and a big one most likely, by the end of summer. There I said it; of course, I have actually been saying this for the last couple of months and it doesn’t take much of a real genius to figure it out considering that we are heading into a presidential election year. However, it most likely won’t be called QE 3 since the term QE is now politically and socially almost taboo.
The Whitehouse Effect
So why does QE play such an important role for Obama going into an election? No president has ever been reelected to office when unemployment is above 8%, much less 9%. With the unemployed labor pool at very high levels, poor sales being the biggest concern for small business owners (according to the most recent NFIB survey) and wages failing to keep up with a rising cost of living there is no incremental demand on businesses to create new jobs. Since small businesses have 6 applicants for every 1 job opening, are are the primary creators of 70% of the jobs in the country, there is no pressure for wage increases. Without rising incremental demand from consumers, because 1 in 5 are underwater or delinquent on their mortgage, are unemployed or on food stamps, there is no reason for small business to expand production or manufacturing. While the Federal Reserve has been worried lately about commodity price inflation – the real threat to the economy is wage deflation as it bites into the basic economic cycle of a supply/demand economy.
However, it isn’t just the unemployed that will kill Obama at the polls. Without another round of QE, and most likely soon, the economy will be headed for extremely low or potentially even negative growth. When round one of QE finished in the summer of 2010 the economy slid form 3.1% annualized growth to 1.7%. This shock to the system immediately launched the Fed into overdrive to start QE 2. Today we are heading into the summer with a 1.8% annualized growth rate, likely to be revised down a notch, and as QE 2 winds up entirely at the end of June we are likely to see a slide to below 1%. This will most likely get a very late night phone call placed to Mr. Bernanke from the Whitehouse as the average American votes psychological and emotionally.
In the last election the average American overwhelmingly voted an inexperienced and unproven individual with great oratory skills and personality into the highest office in the country on the back of a Pepsi slogan – “Hope and Change”. Unfortunately today, 70% of the population, according to a recent Gallop poll, have lost the “Hope” part of the equation as they still “feel” like we are in a recession or depression. That’s right, they “feel” like things are not good which is an emotional bias; and they will vote the same way.
Furthermore, as the economy slides, so does the stock market as prices are adjusted to reflect what the future profitability of companies may look like. With the market currently expensively valued and analysts still predicting higher profit margins in the coming months – anything that creates stress on corporate profitability, like a weakening economy, will cause a correction in asset prices to reflect new estimations. As always, the market, because it is driven by human psychology (fear and greed) in the short term will overshoot on the upside as well as on the downside. Therefore, another nail in Obama’s reelection coffin will be if the stock market has declined by 20% going into campaign mode. Remember, it was just earlier this year during his State of the Union address that he specifically stated that under his watch the economy had recovered along with the stock market. People are emotionally affected by the value of the stock market – the “wealth effect” is a driver of consumer behavior. When Ben Bernanke launched QE 2 he even added a third mandate to the Fed to include not only full employment and price stability but also asset inflation to create a wealth effect. Without that wealth effect going into the polls – voters are very likely to pull the lever for “Change”.
How To Play It
Beginning back on April 25th we began writing about reducing allocations to risk based assets (read: equities and commodities) going into the summer months and the end of QE 2. As shown in the chart when QE 1 ended last year there was a fairly substantial decline in the markets of almost 20% as the economy began to slow down. Having only that precedent to work off of we should remain cautious and reduce allocations of invested dollars in all risk based categories rather than rotate sectors. I say this because rotating from Technology to Utilities may provide outperformance in the portfolio – during a market correction it will only mean that you will lose less money. Moving into cash and fixed income for the summer months as QE ends has yielded a net positive return to date.
Furthermore, this strategy now sets up the individual investor for part two of the strategy which is having dry powder available to buy back into equity exposure when QE 3 is announced. The market has now been trained, like Pavlov’s dogs, to respond to the QE call. When Ben Bernanke and friends ring the dinner bell the dogs will come running and having cash on the sidelines protected from the summer sell off certainly provides an opportunity to be the “strong hand” buying from “weak hands” at that point.
Remember, being cautious is more important than losing money. The media is constantly telling people to chase stocks which have been one of the, if not the, poorest performing asset class over the last decade. You can always make up a lost opportunity – it is nearly impossible to make up lost capital.
How Much And When?
So, now we know that the Whitehouse needs QE 3 the most right now but how big might it be. QE 1 was $1.25 Trillion coming off the lows of the market in 2009. QE 2 was $600 Billion in the 3rd quarter of 2010 but really had very little effect relative to the effects received from QE 1. I have spoken in the past about the “Diminishing Return” syndrome that would come with each successive QE program. In order for QE to have any real “bang for the buck” this time around it will have to be big, really big, like $2 Trillion in total. However, not only that, but it will also prove ineffective unless it is combined with a serious attempt at mortgage equity write downs, which will have to be combined with guarantees for the second lien holders, mortgage fraud forgiveness for the banks, further tax cuts and credits for small businesses and some real regulation for the banking industry to restore faith in the stability of the financial system. (As a side note – I am really against bailing out homeowners and banks as it is a process fraught with peril and another article for another day.)
This is what it will take to kick start the markets again and boost asset prices, jolt the economy back to 2.5% growth and keep the big “O” in office for another four years – maybe, and that is a big maybe at this point. It will also just “kick the can” down the street for another brief period in time until we all realize that we are in a balance sheet recession and until the total amount of debt, which the majority of it belongs to households, is reduced to a sustainable level, savings rise to historical levels which can sustain growth and the consumer is able to start creating the incremental demand needed for businesses to grow – we are going to be stuck in this cycle for quite a long and frustrating time.
By BEN WHITE
5/17/11 9:39 AM EDT
Updated: 5/17/11 4:25 PM EDT
The U.S. hit its debt ceiling on Monday, and there’s no deal on the horizon to raise it ahead of the August drop-dead deadline. But Treasury Secretary Timothy Geithner is done issuing dire warnings — for now.
In remarks at the Harvard Club of New York on Tuesday, Geithner shifted his message back toward discussing how to reduce the deficit.
He said the debt limit is “about the past,” a tone shift that was not meant to downplay the potentially disastrous impact a debt default could have.
Instead, the message reflects a desire to make it clear that raising the ceiling simply honors commitments the government has already made and is not connected to decisions about future spending.
The time has come to make tough choices about federal spending, Geithner said, and not get mired in a debate about funds that past Congresses and administrations have already committed and spent.
The change in tone also reflects a belief within Treasury that Geithner has pulled all the emergency levers he can to give Congress until early August to raise the debt limit without putting the nation into default.
Treasury has begun borrowing from federal pension plans and curtailing certain efforts to assist states to keep making interest payments on outstanding federal debt — efforts Geithner said will be effective only through Aug. 2.
Though similar measures have been used in the past, the debt ceiling was always raised in time to avoid default or even the appearance of default. Treasury interest rates have not risen significantly in recent weeks, indicating the market believes a deal will be made. If one isn’t, it could damage global financial markets and drive up the cost of borrowing for the government and private citizens.
Republican congressional leaders, especially House Speaker John Boehner, are demanding cuts of at least $2 trillion in return for an increase of $2 trillion in the debt ceiling without raising taxes. Democrats say they would never accept such a formula.
The rhetoric has been similarly heated in the past prior to forging a deal. And the political party in the White House often rings alarm bells for raising the debt limit. In 1983, President Ronald Reagan sent a letter to the Democratic-controlled Senate warning of the catastrophic consequences if the debt ceiling were not raised. Eventually, it was.
If somehow the expected endgame — a last-minute, pre-summer recess agreement — does not occur, administration officials are not backing off from their predictions of the devastating impact of a default.
Geithner reiterated his warnings in a letter to Colorado Sen. Michael Bennet in which he said missing the Aug. 2 deadline “would inflict catastrophic, far-reaching damage on our nation’s economy, significantly reducing growth and increasing unemployment.”
Read the entire article HERE.
Posted: Apr 20 2011
By: Dan Norcini
There is only one way to describe what is occurring to the US Dollar; its future as the global reserve currency is in serious danger of disappearing forever. Under the “leadership” of the US Federal Reserve, and thanks also to the reckless and incredibly short-sighted spending occuring at the Federal level, the Dollar has run out of friends.
It’s decline this morning has opened the door for gold to push past $1500 and silver into what looks to me like the beginning of a “MELT UP” mode. It has also send further speculative money flows into the commodity sector with the result that the CCI, the Continuous Commodity Index, is within a whisker of matching its all time high.
What many of us have feared could happen but were hoping to see avoided, is becoming increasingly likely the further the Dollar descends into this abyss. As a citizen of my nation who cares deeply for its future for the sake of my own children, I am both disgusted and grieved at what those who were charged with preserving the integrity of its currency have done to our birthright.
A pox on these scurrilous men who have sold out our nation for political expediency. Their only loyalty is to their own pocketbooks and their crony pals who could give a rat’s ass what happens to the nation as long as they can profit from it all. This plague of locusts is stripping us bare.
Click charts to enlarge in PDF format with commentary from Trader Dan Norcini
For further market analysis and commentary, please see Trader Dan’s website at www.traderdan.net
Read the original article HERE.
The Housing CPI lottery – How the Bureau of Labor and Statistics Helps the Federal Reserve Ignore the Most Important Budget Item For Americans
Dr. Housing Bubble
April 13, 2011
The way housing is measured through the Bureau of Labor and Statistics (BLS) is troubling because it completely understates what is really happening with actual home values. For many years, especially during the bubble I drew attention to this thorn of a fact because many in high places were pointing to the CPI as being stable and actually reflecting reality. The Federal Reserve prides itself with being masters of price stability. But what if you are not measuring what you claim to be measuring? That is what started to happen in 1983 when it came to housing. In 1983 the BLS shifted the way it calculated the housing portion of the CPI by using an owner’s equivalent of rent. In other words, how much would you get if you rent your house out. This flawed methodology has come back to bite us in many ways but was completely intentional. It is no coincidence that only one year before in 1982 the Garn–St. Germain Depository Institutions Act of 1982 was passed and this allowed for adjustable rate mortgages (ARMs) that understated the monthly payment but allowed home prices to inflate. By calculating a rental equivalent the BLS understated inflation for many years, especially during the bubble years. Part of this is cynical in nature to slam those on fixed incomes like Social Security that actually depend on cost of living adjustments. If inflation doesn’t exist, then no cost of living adjustments. The wealthy do not rely on these little items so it is inconsequential but the majority of American families do depend on this data being accurate. Let us take a look at how flawed this measure is.
The BLS Measure of Housing
Source: The Mess that Greenspan Made
The above chart highlights the massive disconnect between the CPI and actual home values. You see that in the 1980s we did suffer a minor housing bubble which led to the savings and loans crisis. Yet that was small relative to what we faced a decade later starting in 1997. From 1997 to 2007 the CPI completely missed the once in a lifetime housing bubble. How did this happen? Well think about what the owner’s equivalent of rent (OER) measures. It basically measures what you would pay in rent for the home you are living in. Well this completely misses the fact that ARMs in the flavor of option ARMs for example actually allowed people to pay $500,000 for a tiny cardboard box that would rent for $1,000 or less. The real price of the home with a 30 year fixed mortgage actually carries a much higher cost, possibly of $3,000 to $4,000 a month. This is why price-to-rent ratios absolutely matter. If our central bank is going to make decade long monetary changes they should be using metrics that actually measure reality instead of some biased approach.
I decided to breakout the CPI housing component and measure it against the Case-Shiller 20 City Home Price Index. Now keep in mind what each of these items is focusing on. The Case-Shiller Index measures repeat home sales for the same home. This is one of the most accurate ways of measuring home prices in my opinion because you are looking at the same home over time. The blue line looks at the CPI housing component. It is important to note that housing makes up over 40 percent of the index so slight changes here impact the entire weighting of the CPI.
You can see for yourself that from 2001 the Case-Shiller was showing annual home price changes of 10 to over 15 percent! Yet the CPI never registered an annual increase of higher than 5 percent! In fact in many years it was registering annual changes of 2 or 3 percent which is completely absurd. Yet rents over this time did run sideways because people who pay rent actually use real world wages and in the real world, incomes went stagnant. Plus, why would you rent when anyone can play the housing lottery? Go in with nothing down and see what happens. The only reason the actual price of the home soared was the introduction of toxic mortgages with high leverage, the Federal Reserve artificially holding interest rates low, and a basic sense of graft and speculation throughout the entire country.
Now we already know what happened. But what is interesting is what is now happening. Rents initially started falling as the recession started which is to be expected. But rents seem to be ebbing higher right now even as home prices fall. Why is that?
-1. As more people lose their homes, they are seeking the only option they may have and that is a rental.
-2. Many cannot afford to buy and the only option available is government backed loans that at the very least, look at income which has been stagnant.
-3. You may have people making a more intentional decision to rent instead of buying because of the pain that occurred with the current housing market.
This is temporary in my view but could last a few years until the distressed inventory is worked out. We have never had so many people lose their homes on a nationwide scale. Right now all we are measuring is what someone would pay to rent their own home. For two full decades the entire measure was a sham and all it took was one mega housing bubble to distort the entire measure. The chart above is clear and shows home prices going down and rents slightly moving up on a nationwide basis. Yet other items like energy, food, and healthcare are eating up a larger portion of families’ disposable income. The CPI measure does not accurately reflect what is happening with housing values, even today.
The Federal Reserve prides itself with price stability. If that is the case, it needs to base decisions on metrics that actually measure what is happening in real time. That is, at one point nearly 70 percent of American households owned their home, with a mortgage mind you, yet they were using rental equivalency as a way to value a home? Those in these places will claim economists back these metrics but these are the same economists that missed the technology and housing bubbles and many who are hired by big investment banks. Two for two in that arena and not exactly unbiased.
Yet another point I would like to make is the fact that 30 to 40 percent of all purchases (depending on the market) are being conducted with FHA insured loans. These only require 3.5 percent down and the majority of these buyers are putting that amount down. Yet the real estate industry has pushed policies to keep selling fees up to 5 or 6 percent. In other words, all the tens of thousands of people buying today are starting from a negative equity position. If it costs 5 to 6 percent to sell off the top and you only put 3.5 percent down, you are in a negative equity spot. And what if home prices move lower as they are?
But let us look at another measure of housing for Los Angeles and add it to the graph above:
Look at the Home Price Index (HPI) for L.A. which is conservative but even with that, you can see that in one year the HPI for Los Angeles went up by a mind boggling 30 percent! Yet you can see the blue line CPI just moving sideways like a crab. As they say, don’t believe everything you read or hear.
Read the original article HERE.
By Matt Taibbi
Rolling Stone Magazine
February 16, 2011 9:00 AM ET
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
“Everything’s fucked up, and nobody goes to jail,” he said. “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”
I put down my notebook. “Just that?”
“That’s right,” he said, signaling to the waitress for the check. “Everything’s fucked up, and nobody goes to jail. You can end the piece right there.”
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18. Here is Matt Taibbi being interviewed on MSNBC:
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.
Invasion of the Home Snatchers
Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”
Taibblog: Commentary on politics and the economy by Matt Taibbi
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”
But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.
Just ask the people who tried to do the right thing.
Here’s how regulation of Wall Street is supposed to work. To begin with, there’s a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly “self-regulating organizations” like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called “disclosure violations” — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn’t have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney’s Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC’s director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street,” he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the “deal with it later” file. “The Philadelphia office literally did nothing with the case for a year,” Turner recalls. “Very much like the New York office with Madoff.” The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC’s punishment for Sunbeam’s CEO, Al “Chainsaw” Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap’s net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
Read the entire article HERE.
By Simon Kennedy – Jan 27, 2011 1:13 AM PT
China Investment Corp. Vice Chairman Gao Xiqing said that central banks’ quantitative easing policies are hurting the value of money just one day after the Federal Reserve maintained plans to buy $600 billion of Treasuries.
“You know money is gradually becoming not worth the paper it’s printed on,” Gao said at an event sponsored by HSBC Holdings Plc at the World Economic Forum in Davos, Switzerland today. Recent gains in commodity and food prices reflect the “long-term view” of investors that prices will accelerate, he said.
The Fed and the European Central Bank have kept their benchmark interest rates at record lows to spur their economic recoveries, triggering concern in emerging markets that the resulting flood of capital will undermine currencies such as the dollar and spark inflation.
“We’ve started collecting Zimbabwe notes,” Gao said, referring to an economy whose currency was scrapped in 2009 after inflation reached 500 billion percent. He noted investors are also discussing whether central banks will pursue more rounds of quantitative easing.
The Fed yesterday reiterated its intention to keep its benchmark “exceptionally low.”
Gao, whose sovereign wealth fund manages about $300 billion, signaled that while industrial nations are now more welcoming of China’s money following the financial crisis, their past criticisms may hurt their ability to attract it.
“People have long memories,” he said. “We have this yo- yo when being treated by a few major countries.”
“In many countries we are now treated differently,” he said. “We should be the most welcome investor.”
Inflation concerns have become a new theme in the hallways of Davos’s Congress Center as emerging markets including China tighten policy and record food prices fan social unrest in North Africa. Chinese inflation ran at 9.6 percent in December.
Inflation nevertheless is not an immediate concern and prices for securities that offer protection against it are “not up there yet,” Gao said. A record $13 billion auction of 10- year Treasury Inflation Protected Securities last week attracted lower-than-average demand.
“In shorter run, you look at the numbers and fundamentals and you think there’s some inflation pressure but it’s not something we have to worry about,” Gao said.
Read the entire article HERE.