WE DON’T NEED BIG BANKS THAT ESCAPE REGULATION

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

EDITOR’S NOTE: FLOYD NORRIS in the article appearing in today’s New York Times points out what we have been saying here for three years. We have the mid-size and smaller institutions — about 7,000 in number —- unlike most other countries, that can easily pick up where the big banks fail or go broke. The only issue I have with this is that it doesn’t go far enough.

If we continue to allow megabanks to operate internationally on a scale that rivals previous historical empires, we are basically handing over the sovereignty of all nations to the bankers. We already see the issues of preemption, removal and remand just in state and federal court litigation. These megabanks, whose power has been consolidated rather than broken up, are now in position to literally hold the world hostage.

The economies of scale and the catalyst for liquidity has been completely debunked as arguments for their existence. Nothing in costs more to the consumer than banking at a big bank. Despite their incredibly high and unnecessary fees, most of which are hidden deep on the end of month statement that nobody looks at anymore, they still managed to go broke. And they broke our financial system and the budgets of virtually every governmental agency, large or small, in the nation.

As for liquidity, the money that was supposed to fuel a recovery has simply stayed in the pockets of the bankers who spend their time figuring out ways to take fees out of it rather than employing the capital for productive purposes. Thus we have the illusion of the movement of money, from which Wall Street can take its fees, creating, for the first time, an incentive for Wall Street to keep the cow in the yard, so they can keep milking it.

In the name of Capitalism we have strayed from it and now we have some hybrid economy composed of broken social programs that are coming to an end because the money has run out and fascism where the corporate interests are in reality the ones in control regardless of what government thinks or does. I don’t know if there is time to avoid the debacle of 2011. But if we don’t start right now addressing the fact that Wall Street is not working in accordance with the rationale for its very existence, then we have no chance of avoiding the rash of defaults on bonds issued by state and local governments, starting in June, 2011 when the stimulus money runs out.

Those defaults on municipal bonds may well be the final nails in the coffin of the U.S. dollar as the world’s reserve currency, assuming that the end is not already inevitable. Think about it: instead of trading for dollars, the world starts using some other currency and dumping dollars to get the currency that is in use as reserve currency(ies). So France buys oil from the Saudis not by first trading francs or Euros for dollars, but by dumping all its dollars and to get the new reserve currency. The price of fuel here goes through the roof exceeding the $6-$8 per gallon now paid in Europe and other parts of the world, and with it the price of everything goes up — and that’s just one slice of the inflationary pie waiting to be thrown in our collective face.

It does not appear that anyone in government who wants to do the right thing has enough power to make it happen. So the above scenario seem unavoidable unless people wake up and get upset about the prospect of their dollars becoming nearly worthless. But human nature being what it is, the highest probability is that we will mostly stick with the proposition that it could never get that bad because it never did before. So we wait until the SHOCK happens (see Naomi Klein’s book, the SHOCK DOCTRINE) and then we react — but by then the damage is done.

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Major Banks Need Midsize Ones

By FLOYD NORRIS

If big banks start failing again, what will replace them?

In the United States and Europe, that is a question with unsatisfactory answers in the aftermath of the financial crisis.

To put it in sports terms, there was nobody on the bench waiting for a chance to become a star. One result is that even after a crisis in which it was every country for itself, banking is becoming more internationalized than ever.

It was not always such in the United States. After the previous big financial crisis in the early 1980s, which centered on bad loans made to Latin American countries, there were major regional banks that — because of luck or wisdom — had not made the same mistakes.

Charlotte, N.C., became an international financial center. NationsBank, which began life as North Carolina National Bank, took over Bank of America. The name stayed, but the company was very different.

To some extent, the availability of a bench stemmed from a long-held suspicion of banking in the United States. Americans feared big banks long after President Andrew Jackson abolished the Bank of the United States. For most of the 20th century, banks operated in only one state. In some, Illinois most prominently, banks could have only one office.

When barriers to interstate banking fell, there were many players able to grow into major institutions.

But those days seem to be gone. The banks with the ability and desire to snap up significant banks now seem to be at least as likely to be based outside the United States as inside.

If the previous crisis was largely caused by ill-advised international lending, this one was homegrown. The lending excesses centered on home mortgages, an area in which nearly every bank took part. When things blew up, there were few banks that could escape unscathed.

Still, some did better than others. JPMorgan Chase seems to have made fewer bad loans, although it has major headaches stemming from its acquisition of the assets of Washington Mutual, one of the largest irresponsible players.

Bank of America might be a shining star if it had restrained its own acquisitive instincts. Instead, it first rescued, then acquired Countrywide, which may have made more bad mortgage loans than any other lender.

Then, as the crisis grew, it picked up Merrill Lynch, an investment bank that had not figured out what you would think was something that any small-town retailer would know: If no one is buying what you are selling, there may be a problem with your product. So it bought its own products — mortgage securitizations — and kept the fees rolling. Unsurprisingly, it, or more accurately Bank of America, ended up losing money on the purchases.

All three acquisitions were encouraged by regulators, who wanted bigger institutions to buy — or at least take over with government help — smaller troubled institutions. Alas, neither the government nor the bigger banks understood the scale of the problem until it was too late. Nor did either bankers or regulators understand just how unrealistic were bank capital calculations.

There are a few well understood lessons from the debacle:

¶It is bad to have banks that are too big to fail. They may coin profits in good times, but the government is left with the bill in bad times.

¶Regulation matters. Banks in countries with good regulation fared the best. Canada has only a few major banks, but they did not get caught up in the credit bubble and are now able to buy American banks. Toronto Dominion ranked seventh in United States deposits in mid-2009, the most recent figures available, before it agreed to buy Chrysler Financial last week.

The Bank of Montreal has agreed to buy Wisconsin-based Marshall & Ilsley, which ranked 25th in 2009. Spain had a property bubble, and has many smaller banks in trouble, but strict rules kept the big Spanish banks from making the same errors that others made. They appear to be healthy.

¶Capital is crucial and so is liquidity. Regulators knew that banks were creating financial instruments whose primary purpose was to increase reported capital in dubious ways, but they did nothing about it. They completely ignored liquidity until they saw a “well-capitalized” Lehman Brothers collapse. Now regulators are phasing in tougher rules, but they fear acting too quickly because bank lending is needed now more than ever.

¶It can be suicidal for a country to have a financial sector that is too large, as Iceland and Ireland learned.

But there is one lesson that has been overlooked: Just as big league baseball teams need a farm system to provide replacements for players who age or are injured, a banking system needs a second tier of institutions that can step in and become major league banks if necessary.

Part of the problem in Europe now is that there was no second tier available in many countries. Virtually all the banks in Ireland made the same mistakes, and there were no available replacements.

In 1994, which is not that long ago, the 10 largest banks had about a quarter of all bank deposits in the United States. Now the top 10 have more than half of the deposits. In 1994, the next 30 on the list — No. 11 through No. 40, collectively had more deposits than the top 10. Now they have much less than half.

In 1994, there was one foreign-owned institution in the top 25. That was Banco Santander of Spain, at No. 14. By 2009, there were eight.

There is nothing wrong with foreign-owned banks, even if their number does come as a surprise in a country that was seen by everyone as the financial leader. But the sheer number of them is an indication of just how thin the homegrown farm system has become in the United States.

That is not an easy issue to deal with. But as the country recovers from the last crisis, regulators would do well to look to the second tier, and do all they can to assure those banks are both healthy and ready to rise if needed when the next crisis arrives.

We have learned that it is risky to have banks that are too big to fail. We need to understand that is it also risky not to have banks that are big enough to pick up the pieces when the too-big banks do fail.

38 Responses

  1. From the “BLT” or “The Blog of Legal Times”

    December 29, 2010
    DOJ Calls on SEC, CFTC to Make Derivatives Rules More Strict
    The Justice Department has called on the Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission to make some of their rules dealing with over-the-counter derivatives more stringent, arguing that the rules don’t go far enough to keep groups of major market players from banding together to control derivatives exchanges.

    In separate comment papers sent to each agency today, Christine Varney, who heads the Justice Department’s Antitrust Division, says that DOJ supports the rules proposed by the SEC and the CFTC to limit to 20% the amount that individual derivatives dealers can own of security-based swap execution facilities and national securities exchanges.

    But Varney goes on to say that the proposed rules don’t do enough to limit the amount that a small group of entities can own in aggregate. She wrote that it would be possible for as few as three entities to control a majority of the SEF or exchange and for as few as five to own them outright.

    In both comment papers, Varney compares that possibility to three or five of the nation’s largest airlines controlling all landing rights at every U.S. airport. “The big carriers could use this control to disadvantage smaller carriers by restricting landing rights or raising their rivals’ costs to access the airports.”

    In the case of SEFs and exchanges, Varney wrote, “[M]ajor dealers might use their control of a SEF or Exchange to exclude rivals, limit pre-and post-trade transparency, decline to trade certain contracts to disadvantage rivals, or try to evade exchange-trading requirements. In the Department’s view, limiting both individual ownership shares and the aggregate shares held by major dealers would be the most effective structural approach to protecting competition in the derivatives markets.”

    Varney recommended that both the SEC and the CFTC include caps on the aggregate amount of an SEF or exchange that can be owned.

    In the comment paper sent to the SEC, Varney wrote that the Justice Department supports the proposed rule requiring that at least 50% of the members of a SEF/exchange’s board of directors and executive and membership committees be independent. Varney wrote that DOJ also supports the proposed SEC rule requiring that 100% of a SEF or exchange’s nominating and regulatory oversight committees be independent.

    In the case of the governance rules proposed by the CFTC, Varney wrote that the proposed rules are “modest” at best. Under the CFTC’s proposed rule, while regulatory committees must be 100% independent, boards of directors and executive and membership committees have to be only 35% independent.

    “Under this arrangement, enumerated entities could both control a [designed contract market or swap execution facility] voting equity, and through a majority presence on the board, its management decisions,” Varney wrote.

    Regulation my eye! They need jail time!

  2. Here’s a petition for people to start signing to do just that > http://www.ipetitions.com/petition/alter-and-abolish/

  3. ANONYMOUS,
    It’s provided for in our County’s Founding Document “the Declaration of Independence”

    “That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

  4. DyingTruth,

    How do you plan to do that??

  5. DyingTruth

    I agree completely & I have NO suggestion as to the REAL PROBS of OUR country & PLANET, our gov will hold out all REAL change till their death, its already to late to save the republic as it stands-fuc them – “STARVE THE MONKEYS” & hope for a rapid collapse [ Rapid to leave infrastructure intact for you & I as much as possible for us to rebuild ] out of the ashes WE WILL RISE TO THE CHALLENGE & OVER COME THE OBSTACLES after the fall of the MONKEYS.

  6. ANONYMOUS,
    Government is not going to stop anything until ABOLISH THEM!!!!

    It’s that simple either you want to keep our overgrown brat of a government or you don’t.

  7. Regarging MERS and its issues. Mike Taibi explains it in his Rolling Stones Article.

    No Judge in his/her right mind would think that the typical borrower knew what he/she was signing in regards to MERS. So that makes that void. Plus no borrower knew what MERS was gonna commit such chaos?

    http://www.rollingstone.com/politics/blogs/taibblog/an-extremely-long-metaphor-to-explain-mortgage-chaos-20110101

  8. Does anyone understand this ACT? A blog i saw is using this as a defense or cram down tool.

    http://www.truthsetsusfree.com/HJR192.htm

  9. DyingTruth,

    With new home buyers, and rising stock market due to Quantitative Easing — all is made to appear as if we are recovering from financial crisis – and government can continue to ignore bank and foreclosure fraud. But, new home purchases are not what they would like them to be and stock market rise is artificial.

    Agree — you have been talking about government for some time. Not saying otherwise.

    If government would stop propping up stock market – and let economy show it’s true self, the government would be forced to do something about the foreclosure fraud because it would be the only sensible way to jump start the economy.
    But, government continues to cover up it’s bad decisions made at the onset of the financial crisis. Blame the people – and cover up the bank fraud — that was the (wrong) decision.

  10. MERS Attack Again!

    The fact is a nominal interest MERS is misbehaving, and acts beyond the rules of procedures in transferring interests in title. Its wrongful conduct is clearly set forth in procedure set forth in a one action state or civil laws in a foreclosure state.

    It’s none the less meaningless in either jurisdiction. MERS is a Nominal interest that we know and as such does serve its purpose. Therein is the argument not against MERs but against its manipulative acts endured prior to effecting an assignment?

    A nominal bid price or nominal anything is just that – insignificant for any meaning or purposeful other than as alleged and for the object of that purpose. (The FED’s testimony before the grand jury will cite the same language, so please don’t mis interpret it as gibberish).

    MERS is acting as a successor as was elected to do so by the maker of the note. The borrower has acknowledged such in its execution of the deed of trust.

    Counsel shall consider it okay you see, “if” your client did execute the note and mortgage with MERS listed therein.

    MERS is potentially working for you and I say that for a number of reasons. This is the reason I cite that I did not use them when I was a lender. Mortgage Guarantee used CitiFinancial for a warehouse line and they did not use MERS either; in open and notorious manner. MERS is an assignee by acknowledgement or by recorded assignment.

    Too many attorneys let this one slip away.

    MERS web site refers to this as a (1) MERS to MERS or (2) Non MERS to MERS. See for yourself! Under both scenarios there is an advantage to the consumer in every foreclosure sufficient to gain a reversal or rescission if arguments are brought in proper jurisdiction. The advantage to the borrower fades if you’re not playing the cards right.

    MERS registers a promissory note for what purposes?
    Answer: A successor’s rights to the security as a nominal interest.

    MERS registers a promissory note and for the benefits of whom?
    Answer: The benefit of the securities holder’s.

    MERS is alleged therefore to be acting in what capacity?
    Answer: Custodian for the security.

    MERS is therefore acting as which party in interest?
    Answer: The Beneficiary, “is therefore”

    MERS is not the beneficiary for a deed but for the stock certificates called Pass- through Trust Preferred Certificates. See the pooling and servicing agreements (if you must). Nor is MERS the Beneficiary for the lien or encumbrance and this is the most critical point to get across in the court room.

    This is why nothing is ever recorded in MERS name but only relies on MERS as a party to the assignment. It’s a sustainable fact due to “divesture” of the promissory note. This is the mockery of the California, Oregon, Washington, Arizona and Rhode Island one action state non judicial process.

    It is not for pejorative meaning when I say; let the ignorant leave the court as entered, ignorant. What you do not know in a non-judicial matter is for you and that party to get right as the State is sure as Hell not going to get involved in a “private parties dispute raising questions of one rights and where no government state or federal actor is involved.

    Isn’t that right FDIC?

    See the Boyko decision as the court misses this opportunity to drop the hammer for good on parties of interest acting as successors by its manipulation of a nominal interest under the guise of Duetsche Bank. Now we are getting into FTC country folks.

    You must recreate the general ledger or this is no hope of demonstrating this point to a competent court. The transfer at sale to the investor, the capitalization of the trust and divestment of the note for security will not fail you in your ability to raise a defense and overcome a theft of your home. ‘

    To this I shall testify for counsel. ©

    M.Soliman
    expert.witness@live.com

  11. WIN – ATTACK THE HOLD CO REVERSE REPURCHASE AGREEMENT

    Many attorneys fail in understanding the significance of a reverse repurchase agreement. It is the purchase of an asset with a simultaneous agreement to resell the asset on a given date at a specified price.

    The result is simply a loan at a prescribed rate for a predetermined period while holding the asset as collateral. This can have catastrophic fall out as for liability for the successors as is the case of One West Bank and Chase, the suitor for IndyMac Bank and Washington Mutual.

    Look at the magnitude of the opportunity attorneys are allowing to escape their defenses and or rest upon the floor when counsel elects to bring its claims in a action for purposes of halting a foreclosure.

    1) As mentioned herein and above a reverse repurchase is simply a loan at a prescribed rate for a predetermined period while holding the asset as collateral over a period of time.

    2) That period of time is now extended due to the controversy and foreclosure defenses that have taken place.

    3) Carl Icahn wrote the book (as we say) on purchasing assets on the cheap and selling them at a premium. These failed bank assets are going down at bargain basement prices WITH A HUGE RISK BEING TAKEN . . . and that’s a function of the liquidation of failed institutions by the FDIC, such as IndyMac Bank. It alone does not gather much momentum for borrower’s defenses.
    4) If the “unwinding of these loans result in a triggering repeal of the tax incentives underlying IRS code and rules for recognition (see treatment of SFAS 140 and definition of sale at time the loan was transferred into a security) it will eat the majority of profits the successor will likely have earned.

    5) There is the motivation for a successor to fight you!

    6) If, however the repurchase is viewed as an “open market” happen chance event at auction, like in a trustee sale, the successor bank takes home a windfall of profit having set its mark upon establishing a bid price at trustee sale.

    Consider this a “foot” in the proverbial door where the fraud aspects attorneys are clinging too will never stick.

    Barking off about a RICO or PONZI is like the fear experienced by a very upset pride of wild African lions upon being confronted by a loud barking pit-bull.

    If you’re lost to the fact that the lenders you’re going against DO NOT EXIST as you think, then keep calling the Judges incompetent.

    They have to know and we look stupid here, Counsel!
    I can’t speak to any “Experts” other than those I work close with and who elect not to publish. But here are directories and names given tha must bring you up to speed from experiences going up against these vehicles of disengagement and opine towards cutting off the lender successor where it hurts.

    This pursuit for all or nothing profit is winning so far where the successors in repurchases orchestrate a reversal subsequent to the purchase in a foreclosure sale.

    The foreclosure sale brought by a successor with no condition precedent who relies on Robo sig’s and Hobo cig’s; So what? Did we not waste away a year or precious lost time arguing the MERS debacle?

    THEY DO IT BECAUSE OF THIS REASON MORE THAN EVER. *** TO ORCHESTRATE A RIGHT OF FORECLOSURE AS A SUCCESSOR IN INTEREST *** FOR A BENFICARY WHO HAS CHARGED THE ASSET TO A ZERO BASIS!

    If they succeed as they do they win Big . . . get it BIG! And the homeowner had them on the ropes ….there for a knock out!

    Want to confirm this fact . . . go as high up the IRS ladder as you can and someone will eventually. Better yet subpoena their auditors!

    But it is a reality to be understood by competent counsel

    Once again, any interest in the asset is not sufficient to foreclose. Upon its election to hold out for a foreclosure sale and emerging as the highest bidder, the successors fail’s to perfect its interest.

    Perhaps this is why the FDIC Repudiatory power allow for avoidance of declaratory claims for relief and injunctive remedies ….Its favors its chance’s by bringing a unlawful sale and takes the risk by going to sale without perfecting, barring the correct repurchase of the asset method and potentially triggering recognition.

    If done correctly the asset it purchases from the FDIC is simply a loan financed at a prescribed rate for a predetermined period while holding the asset as collateral. It’s six of one and worth the chance in a confused judicial system..

    To this I will testify for I was once one of them!

    Your chance to take out the beneficiary claim is brought before the sale against an overly confident successor who rather do thing’s the easy way and for a whole lot of profit based on a derivatives or even casino mentality.

    M.Soliman
    Expert.witness@live.com

  12. M.Soliman
    Expert.witness@live.com

    Successor to HoldCo – – -the new FDIC problems for the future generation’s to deal with.

    I’d wish you good luck, but you would not know what to do with it! -Alec Baldwin Glenn Gerry Glenn Ross.

  13. ANONYMOUS,
    Other than taxes, do you know why else the Gov wants new owners in all our houses???

  14. THE A MAN,
    It’s funny you should mention Germany, because that’s exactly what IS happening to us. Just as it happened with Russia as well and now China is being put in the position that we were once in. It’s a vicious cycle.

  15. ANONYMOUS,
    What are you talking about? Your summarizing what I’ve been partially for how long? I’ve been saying that they went for the cheese and got caught in the mousetrap. Yes, they most likely do not have the mental capacity to actually put laws in place in attempts to legitimize their actions, but we all know that they don’t write legislation the lobbyists do. You were wondering where the money goes, I was suggesting where you might find out. But honestly it’s most likely all going to the IMF or at least ending up there because of the massive debt which they have fabricated and inflated with the helpful stupidity of Odrama, the Dumbocrats and the Retardicans which is being used as the same kind of mechanism in the same way they pumped all our homes full of debt with unrealistic terms of repayment, so that they can all be seized.

    How are people fighting back? I have yet to see any evidence of this. People are still in a constant state of shock and disbelief. I have yet to hear suggestions other than my own from anyone about a plan that provides a logical solution preventing the Gov from doing anymore damage and restoring the order of We the People. And I have yet to hear the opinions and/or suggestions of all the regular readers, which I do value but have yet to receive. Instead everyone just keeps complaining about the same occurrences which have been repeating themselves for how long? Even a groundhog could figure out that day after each day the Gov’s continue to F&#% up and make things worse until we snap out of it and step up to intervene and revoke all delegated authority.

    OPIONIONS & SUGGESTIONS PLEASE
    because it’s beginning to look like a waste of time waiting around for you guys.

  16. July 31, 2010
    Four Deformations of the ApocalypseBy DAVID STOCKMAN
    IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase.

    More fundamentally, Mr. McConnell’s stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy. Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes.

    This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one.

    The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit — the combined shortfall on our trade in goods, services and income — has reached nearly $8 trillion. That’s borrowed prosperity on an epic scale.

    It is also an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves. Just let the free market set currency exchange rates, he said, and trade deficits will self-correct.

    It may be true that governments, because they intervene in foreign exchange markets, have never completely allowed their currencies to float freely. But that does not absolve Friedman’s $8 trillion error. Once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.

    In fact, since chronic current-account deficits result from a nation spending more than it earns, stringent domestic belt-tightening is the only cure. When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative was to make up for the trade shortfall by paying out reserves, and this would cause immediate economic pain — from high interest rates, for example. But now there is no discipline, only global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve.

    The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.

    In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration’s hastily prepared fiscal blueprint, however, was no match for the primordial forces — the welfare state and the warfare state — that drive the federal spending machine.

    Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the knife most of the domestic budget — entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans’ fiscal religion.

    Through the 1984 election, the old guard earnestly tried to control the deficit, rolling back about 40 percent of the original Reagan tax cuts. But when, in the following years, the Federal Reserve chairman, Paul Volcker, finally crushed inflation, enabling a solid economic rebound, the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts.

    By fiscal year 2009, the tax-cutters had reduced federal revenues to 15 percent of gross domestic product, lower than they had been since the 1940s. Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending cuts, too — signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.

    The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector. Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.

    But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.

    The fourth destructive change has been the hollowing out of the larger American economy. Having lived beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore. In the past decade, the number of high-value jobs in goods production and in service categories like trade, transportation, information technology and the professions has shrunk by 12 percent, to 68 million from 77 million. The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000 is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.

    It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.

    The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing — as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.

    David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, is working on a book about the financial crisis.

  17. Reagan insider: ‘GOP destroyed U.S. economy’
    Commentary: How: Gold. Tax cuts. Debts. Wars. Fat Cats. Class gap. No fiscal discipline
    By Paul B. Farrell, MarketWatch
    ARROYO GRANDE, Calif. (MarketWatch) — “How my G.O.P. destroyed the U.S. economy.” Yes, that is exactly what David Stockman, President Ronald Reagan’s director of the Office of Management and Budget, wrote in a recent New York Times op-ed piece, “Four Deformations of the Apocalypse.”

    Get it? Not “destroying.” The GOP has already “destroyed” the U.S. economy, setting up an “American Apocalypse.”

    Jobs recovery could take yearsIn the wake of Friday’s disappointing jobs report, Neal Lipschutz and Phil Izzo discuss new predictions that it could be many years before the nation’s unemployment rate reaches pre-recession levels.
    Yes, Stockman is equally damning of the Democrats’ Keynesian policies. But what this indictment by a party insider — someone so close to the development of the Reaganomics ideology — says about America, helps all of us better understand how America’s toxic partisan-politics “holy war” is destroying not just the economy and capitalism, but the America dream. And unless this war stops soon, both parties will succeed in their collective death wish.

    But why focus on Stockman’s message? It’s already lost in the 24/7 news cycle. Why? We need some introspection. Ask yourself: How did the great nation of America lose its moral compass and drift so far off course, to where our very survival is threatened?

    We’ve arrived at a historic turning point as a nation that no longer needs outside enemies to destroy us, we are committing suicide. Democracy. Capitalism. The American dream. All dying. Why? Because of the economic decisions of the GOP the past 40 years, says this leading Reagan Republican.

    Please listen with an open mind, no matter your party affiliation: This makes for a powerful history lesson, because it exposes how both parties are responsible for destroying the U.S. economy. Listen closely:

    Reagan Republican: the GOP should file for bankruptcy
    Stockman rushes into the ring swinging like a boxer: “If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt … will soon reach $18 trillion.” It screams “out for austerity and sacrifice.” But instead, the GOP insists “that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase.”

    In the past 40 years Republican ideology has gone from solid principles to hype and slogans. Stockman says: “Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses too.”

    No more. Today there’s a “new catechism” that’s “little more than money printing and deficit finance, vulgar Keynesianism robed in the ideological vestments of the prosperous classes” making a mockery of GOP ideals. Worse, it has resulted in “serial financial bubbles and Wall Street depredations that have crippled our economy.” Yes, GOP ideals backfired, crippling our economy.

    Stockman’s indictment warns that the Republican party’s “new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one:”

    Stage 1. Nixon irresponsible, dumps gold, U.S starts spending binge
    Richard Nixon’s gold policies get Stockman’s first assault, for defaulting “on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world.” So for the past 40 years, America’s been living “beyond our means as a nation” on “borrowed prosperity on an epic scale … an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves.”

    Remember Friedman: “Just let the free market set currency exchange rates, he said, and trade deficits will self-correct.” Friedman was wrong by trillions. And unfortunately “once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.”

    And without discipline America was also encouraging “global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve.” Yes, the road to the coming apocalypse began with a Republican president listening to a misguided Nobel economist’s advice.

    Stage 2. Crushing debts from domestic excesses, war mongering
    Stockman says “the second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40% of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970.” Who’s to blame? Not big-spending Dems, says Stockman, but “from the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.”

    Back “in 1981, traditional Republicans supported tax cuts,” but Stockman makes clear, they had to be “matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration’s hastily prepared fiscal blueprint, however, was no match for the primordial forces — the welfare state and the warfare state — that drive the federal spending machine.”

    OK, stop a minute. As you absorb Stockman’s indictment of how his Republican party has “destroyed the U.S. economy,” you’re probably asking yourself why anyone should believe a traitor to the Reagan legacy. I believe party affiliation is irrelevant here. This is a crucial subject that must be explored because it further exposes a dangerous historical trend where politics is so partisan it’s having huge negative consequences.

    Yes, the GOP does have a welfare-warfare state: Stockman says “the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending, exempted from the knife most of the domestic budget — entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans’ fiscal religion.”

    When Fed chief Paul Volcker “crushed inflation” in the ’80s we got a “solid economic rebound.” But then “the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts.” By 2009, they “reduced federal revenues to 15% of gross domestic product,” lowest since the 1940s. Still today they’re irrationally demanding an extension of those “unaffordable Bush tax cuts [that] would amount to a bankruptcy filing.”

    Recently Bush made matters far worse by “rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures.” Bush also gave in “on domestic spending cuts, signing into law $420 billion in nondefense appropriations, a 65% percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.” Takes two to tango.

    Stage 3. Wall Street’s deadly ‘vast, unproductive expansion’
    Stockman continues pounding away: “The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector.” He warns that “Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation.” Wrong, not oblivious. Self-interested Republican loyalists like Paulson, Bernanke and Geithner knew exactly what they were doing.

    They wanted the economy, markets and the government to be under the absolute control of Wall Street’s too-greedy-to-fail banks. They conned Congress and the Fed into bailing out an estimated $23.7 trillion debt. Worse, they have since destroyed meaningful financial reforms. So Wall Street is now back to business as usual blowing another bigger bubble/bust cycle that will culminate in the coming “American Apocalypse.”

    Stockman refers to Wall Street’s surviving banks as “wards of the state.” Wrong, the opposite is true. Wall Street now controls Washington, and its “unproductive” trading is “extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives.” Wall Street banks like Goldman were virtually bankrupt, would have never survived without government-guaranteed deposits and “virtually free money from the Fed’s discount window to cover their bad bets.”

    Stage 4. New American Revolution class-warfare coming soon
    Finally, thanks to Republican policies that let us “live beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore,” while at home “high-value jobs in goods production … trade, transportation, information technology and the professions shrunk by 12% to 68 million from 77 million.”

    As the apocalypse draws near, Stockman sees a class-rebellion, a new revolution, a war against greed and the wealthy. Soon. The trigger will be the growing gap between economic classes: No wonder “that during the last bubble (from 2002 to 2006) the top 1% of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90% — mainly dependent on Main Street’s shrinking economy — got only 12%. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.”

    Get it? The decaying fruit of the GOP’s bad economic policies is destroying our economy.

    Warning: this black swan won’t be pretty, will shock, soon
    His bottom line: “The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing … it’s a pity that the modern Republican party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.”

    Wrong: There are far bigger things to “pity.”

    First, that most Americans, 300 million, are helpless, will do nothing, sit in the bleachers passively watching this deadly partisan game like it’s just another TV reality show.

    Second, that, unfortunately, politicians are so deep-in-the-pockets of the Wall Street conspiracy that controls Washington they are helpless and blind.

    And third, there’s a depressing sense that Stockman will be dismissed as a traitor, his message lost in the 24/7 news cycle … until the final apocalyptic event, an unpredictable black swan triggers another, bigger global meltdown, followed by a long Great Depression II and a historic class war.

    So be prepared, it will hit soon, when you least expect.

    As always, I welcome all comments at:

    providencegroup@ymail.com

  18. Parents were Legal Immigrants, Ellis Island, New York.

  19. Anonymous I agree with your analysis to Dying Truth and really cant add anything.

    Have you seen the movie

    Idiocracy. A must see.

    I believe in America and as a Kid was taught by my Immigrant Parents that America rises to the occasion and always prevails.

    Every Generation must rise against evil.

    NEVER AGAIN

  20. Thank you Anonymous and Happy New Year. I’ve seen this article.

    Greed Pride (Banksters) sins of destruction. The Banks are eventually gonna implode. Hopefully they wont take all of us down with them.

    Just like Hitler took down Germany with the help of Deutche Bank.

    NEVER AGAIN

  21. The A Man

    See post under — FORECLOSURES JUMP, MODIFICATIONS PLUMMET

  22. DyingTruth,

    You do not get it — this about control — and a government that has lost it’s own control and knows not what they do.

    It is about politicians who do not know what they are doing — but know that their only source of funding is from banks who continue to defraud the American public.

    Sad — but true. But, the people will not stand for it anymore.
    They are fighting back — and truth will prevail. Cannot hide behind temporary stimulus – it will not fix the state of the economy – and will not prevent exposure of the fraud. .

  23. Now you have banks in Supermarkets.

  24. ANONYMOUS,
    Look in the federal and state codes 2001-up that’s when everything took a sharp turn, public pensions invested heavily in Res Real Estate, judges stopped ruling for homeowners as a result, laws were put in place such as the PPIP which put rapid investment in everything the ultimate priority no matter the cost, some such codes in california actually have provisions which go something like “even if it violates the consumer’s rights” and such. You just have to look at the laws and pick up on the clues in them, they won’t spell it out for you but will reveal some of their mechanisms.

  25. usedkarguy,

    Thanks for great article.

    Here is the problem why modifications are not being done. The banks have no authority to do them — and not because of the “investors” in the dissolved REMIC trusts — but because the collection rights are elsewhere. Banks will not divulge this — and make keep securities on books until all derivative contracts are executed. But, derivatives are NOT part of the Trust — PERIOD.

    And, simply not profitable for the hedge funds/debt buyers to modify — much bigger profit on foreclosures – where collection rights are purchased for pennies on the dollar..

    Securities are not transferred by derivative swaps. Securities remain “dead” by REMIC trust “default”. And, swaps are are not part of the Trust — only derived from securities (now dead) that were derived from the loan receivable assets.

    You will find no information on the actual party that collects proceeds via a foreclosure sale. That is because it is likely a hedge fund that is deregulated and does not have to report anything. NO proceeds are passed through trustee to dissolved trust.

    All is fraudulent in foreclosure actions — and hope this is the year that this is divulged. While we know loans were not conveyed to trusts — many do not know that even if court ASSUMES they were properly conveyed — the Trust/trustee has nothing to do with removed non-performing loan collection right proceeds. This is what is happening. And, government has given it’s blessing.

    This is not being exposed — because records are NOT available due to deregulation. Only DOJs can exercise right to subpoenas.

    Happy New Year everyone!!! — make it a good one!!

  26. Speaking of escaping regulation…..

    Chase to pay $600,000 to provide “counseling” and improving “best practices” after half the state is wiped out. This is where your/my “attorney general” action is going. I’d say their “best practices” of fraud have been working quite nicely. Why ruin a good thing?

    http://azstarnet.com/business/local/article_1e403168-18be-5ff0-b73b-098e57e82b3c.html

  27. I mean really people. We’re all gonna have to step up and seize the “Deadbeat” Governments real soon, because they’re not paying back their loans which is what provides for their “worthless” employment and “free houses”. The Governments don’t actually “own” anything (Country, Borders, States, Counties, Cities etc…) themselves, they only hold them in “Trust” as fiduciaries for US the People as the Beneficiaries. That Trust is long past breached and we NEED to take affirmative action to have ALL of them removed, ALL delegated powers revoked and ALL of our willful consent withdrawn. Because they’re not going to stop themselves from selfdestructing, making us suffer the most and sacrificing everything which is not theirs to give. Prime example, look at AZ selling their capital and supreme court house to investors then leasing it back. What on earth makes you think they haven’t already made the same kind of deal for all our houses?

  28. Citigroup municipal-bond analyst George Friedlander said he hadn’t given up hope yet that concerted lobbying by states and cities could persuade Congress to renew BABs. “It’s unlikely but not impossible,” he said.

    These are high stakes for states, cities and towns, which are facing the worst economic climate since the Depression. However, the situation could be advantageous for individual investors. Envision’s Ms. Cohen is advising individual investors to take advantage of the yields in tax-free munis, focusing on issuers that are managing their budgets well.

    And once again, the INVESTORS, the elite behind the scenes, can take advantage of the downfall of municipalities, from cities, counties and states with high interest bonds that prop up the already looted and crumbling infrastructures that once was the thriving backbone of American culture.

    The investment banks who pillaged the planet will make still more money as they ride the scheme all of the way down.

    “While the end of the world scenario will be full of intense pain and suffering by all of humanity, we see areas of immense profit if investments are properly positioned prior to total collapse.”

  29. At least another person sees where the problem lies….

    Connection Between Mortgage Fraud and Underfunded Public Pensions?Posted by Dan Scarborough on December 30, 2010 at 2:25pm in Fraudulent Activity
    View Discussions
    I have a question… How many public pension programs have been “investors” in the securitized mortages that are at the base of this fraud? Phrased another way, If this whole house of cards comes tumbling down, how many of the bureaucrats who are depending on their pension funds solvency will end up persnonally “paying the piper” for simultaneously lobbying for “cadillac pensions” and not doing their jobs relative to regulating the actions of the culpits?

    Is this all intentional? Is it a calculated effort to turn the public employees of every city, state, and federal institution against the “land owners” of our nation…. Do they not see, that they will finally be the “victims” of this fraud?

    For those of you who own real estated and vote in Florida, this information was just e-mailed to me:

    Top GOP Leader Signals New Taxpayer Bailout of States
    Enter Congressman John Mica (R-FL) to the rescue of overpaid, under-worked government employees! The incoming chairman of the House Transportation Committee, Mica is a powerful backer of continuing the Obama Administration’s backdoor bailout of bankrupt state governments.
    This state debt nationalization scam is officially known as Build America Bonds (BABs). Its insidious effect is to enable financially reckless states to borrow even more from bond markets rather than be forced to address their bloated budgets.
    Insolvent states such as California are enabled to pawn off their reckless decisions on American taxpayers through new markets created by these federally-backed bonds (taxpayers are on the hook for 35% of the lifetime interest payments). BABs implicit guarantee from Uncle Sam enables state governments to build their $2.8 trillion debt pyramid even higher – in concert with another $2 trillion in unfunded worker pension and health-care liabilities.
    In December, Mica told The Wall Street Journal that “I can almost guarantee” that the program for subsidized bonds will be funded next year. So the federally-guaranteed muni bond market is set to expand, big time.
    Of course, when it comes to future state government financial difficulties, many Republicans are likely to support back-door bailouts because the GOP has captured huge numbers of seats and majority control of many state legislatures (as well as governorships).
    Bottom line: There will be massive pressure for the GOP to help their newly-won states avoid the messy accountability of bankruptcy, no matter the cost. This has massive implications for hard money investments since this new debt will ultimately need to be monetized through new money printing.

  30. How can people not see the connection?

    How are regulators, who are armed with bullets the legislators and fed gives them, going to make any changes in the system, when the very bullets they are given are blanks of no power?

    How can people not see the connection between the rubber bullets that whole fiasco has been “armed” with, as not coming from sources within the American power structure who made huge profit from the deregulations?

    Why does Noel Ross have to be the one who spells out some of the pieces?

    Because the powers that be, who held the carrot through remote puppets, led the whole system like a pied piper, because it’s followers wanted the carrot too. The carrot is greed and more power. Is it ever going to be enough? No. The irony is that such grasping, preserving empire greed directives from the decade past, over ethical and moral considerations, will weaken the whole to be preyed upon by external global forces who have been waiting for this moment in global history.

    Again, so obvious is the fact, it appears they even orchestrated the architecture, which does sound crazy, but how else could such a turn in events, so easily tracked to obsessive greed, work in the favor of our global competitors in China, Russia, the Middle East, in fact the whole globe. Our only “friend” is England, and yet that’s the origin of this whole system from 3 centuries ago.

    Your regulators if not bought, are working with power deigned to make them impotent. Nice to see the very same people, a worshipped class greed in human form, back in “power”.

    Geez, man, let’s wake up here, LOL

  31. Funny thing is, after trillions found their escape velocity from the American economy, now the heavy hind sight article appears, spelling out easy enough for a chimp to see.

    So where were all the legislators and lawyers, politicians and journalists 5 and 10 years ago?

    This is the thing about Wall street and lawyers, brokers and what not, even if they are taking on tooo much gold for the Titanic to carry, the greed and self-right propels them forward.
    Witness the saddest chapter in American history, and if your not saddened by the lie we’ve become, you need to pay better attention… TEN years ago.

    Who now really knows what this snowball will devour, it’s going to devestate the American dollar globally, and it’s just starting.

    We can rwrite about it 5 years from now, and act like it’s something new, LOL. 😉

  32. I recently used your cite at a NAACP meeting here in Texas that wanted to file racial discrimination claims for the mortgage fraud I pleaded not to start a seprartion were none exist money does not have a color the powers that be could careless people of all races are losing their homes, it will a means that will final united us as a people as Martin Lurther King stated we will rise up against the nations as a people because we all now have a common clause that has humble even the most proudness soul. You play such a major role in helping us stay focus on the battle of the game and forget eveything else they throw to to side track us. I wonder if you know just how great you are Neil thank you.

  33. I make this statement because it is important to give thanks for the New Yearrs if I could have elected you for a CNN hero (which I am still fighting to do) it would serve as a example to others what it really means to help others, you may have your personal business which is understandable however its enough here to wake the dead Love you God Bless you and yours and everyone else who post comments and cases here.

  34. Happy New Year you know spiritually this is the year of awakening were people are going to reach level of awareness as never before, as a spiritualist at times I have been in doubt, more so with the present mortgage situation, fraud, assignments just to name a few all at one well beyond me however by reading this site It began to form like a puzzle piece by piece in a frog still not complete until today were the our picture and understanding of the picture strengthen my faith because now I fully understand the what, the how and the why in other words Neil I finally “get it” and now I am a force to be recoken with.

  35. HAPPY NEW YEAR EVERYONE!

  36. Regulation may matter, but with the wimpy Congress we have, I don’t think we are going to get regulation with some teeth to it. The banks will run amok as long as they can–as I have said previously many times. They must be HIGHLY regulated. In fact, if we are going to be dabbling in international banking, maybe we need international banking regulation.

    The specter of hyperinflation is the real thing to be frightened of. Take a look at the Weimar Republic in Germany 1919, they experienced hyperinflation and many, many people left Germany for the US. Of course, they had other problems with paramilitary groups on both the left and the right threatening the general populace, and the laws of their constitution being violated. Oh!, the laws of their constitution being violated, that sounds familiar. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com

  37. Happy New Year to you, A Man, Neil & everyone else! Let’s hope this year brings even more sunlight on the TBTF’s nefarious schemes. Meanwhile, here’s an interesting story & some hope. Are you in?

    http://www.zerohedge.com/article/how-bring-down-system#comment-839896

  38. HAPPY NEW YEAR TO EVERYBODY.

    Another great article

    Thank you to Neil Garfield and Crew and to the bloggers.

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