Where is all that money the banks took? Hiding in Plain Sight

Posted on March 15, 2013 by Neil Garfield

You’ll probably never get to this point in litigation but if you do, you’ll be glad you read this. Obviously there is a lot of talk about where all the money went. Right off the top the banks took some 20%+ off of the money that investors gave them to invest in mortgages. That is $2.6 trillion alone off of the $13 trillion in “mortgages” that were mostly defective or fabricated. Then add their profit from insurance and credit default swaps which might amount to on a nominal basis several times the original $13 trillion invested and we get an idea of how much money is being withheld from world economies including the United States.

The answer is that they are hiding it in plain sight and in conjunction with legitimate investments from many other investors and entities. They are putting it in the stock market, mostly, causing it to rise without reason, and to a lesser extent they are putting it into bonds. If someday someone traces the first dollar in from investors all the way through the convoluted fabricated system of what the banks called securitization and the rest of us know was a PONZI scheme, you’ll find it right in front of you listed in the Wall Street Journal.

And if you Google it, you’ll see that BofA’s security analysts agree that the Dow Jones Average and other equity indexes are not reflecting true economic activity. They didn’t get the memo to shut up and sit down. That is what happens when you are too big to fail — you are also too big to manage, too big to jail and too big to regulate. The complicity of regulators, auditing firms and others in this mess has yet to be determined but it seems likely that there will be suits and prosecutions against the auditing firms for taking management’s word for the data rather than testing it the way any first course in auditing 101 would teach future CPA’s. I do know, because I taught auditing classes when I was getting my MBA.

Where is the money that the bankers siphoned out of our economy? Hiding in plain sight in the equity markets. With societies in chaos and economies in tailspins around the world, somehow the equity indexes are reaching record highs and profits are being recorded that are clearly not conforming to economic activity that in some countries is at a virtual standstill or even declining.

Yet the equity markets supposedly are a measure of future earnings which magically appear, justifying the increase in stock prices. If I stole a few trillion dollars and I needed a place to hide it, I would invest it relentlessly in the equity markets and to a lesser degree into debt instruments.

The increase in the DJIA represents trillions in wealth increase — or it represents a deposit of ill-gotten wealth generated by the Wall Street banks and their co-venturers. With GDP so fragile around the world my conclusion is that economic activity around the world is not reflecting any support for the increase in expectations and increase in stock prices.

The banks cornered the market on money and had to decide where they were going to hide ill-gotten profits that most people don’t understand, know about or care about. The obvious answer was, when they were holding trillions of dollars, where the dollar was in possible jeopardy, was to put the money in equities on a slowly increasing relentless purchase of stocks and bonds.

Stocks are measured in numbers of shares rather than strictly dollar denominated accounts. This allows the holders of equities to sell in any marketplace converting the investment into any currency of their choice, potentially avoiding the negative impact of a sudden devaluation of the type that made George Soros so rich.

Undoubtedly this logic has not escaped other legitimate investors and investment managers. Thus the bull market effects produced by the underlying floor of bankers’ purchases of equities is hidden under an increase in legitimate buying. It is a perfect plan as long as receivers are not appointed over the mega banks and dollars are traced to their origin and destination.

If things seem upside down when you turn on the news, now you know why. It is still hard for people to wrap their head around this proposition. All anecdotal evidence which is now so extensive that it almost qualifies as a scientific survey, points to at least 2/3 of all mortgages being fatally defective as perfected liens, unreported compensation on loans (that the banks say were charged against investors) is present in nearly all loans of every kind where a claim of securitization is present, and bank profits and capital have continued to rise even though as intermediaries, they should be making less money because there is less economic activity in a recession or stagnant economy.

That money in the mega banks is our money — taxpayers, shareholders of insurance companies, shareholders of guarantors and co-obligors, investors who advanced the money the homeowners who put up their homes as collateral on non-existent or defective transactions in which the loan and property were intentionally inflated in value. The extra money in those deals were funneled into off shore accounts and transactions that were never taxed by agreement with the jurisdiction in which the the transactions were cited as taking place even though it all happened in the good old USA. I have seen the document where Bermuda accepted the jurisdiction over the transaction and agreed not to tax it.

Although this is my opinion for general information purposes, I feel comfortable sharing it with the public  because I have enough facts from current events and enough experience from my own past experience on Wall Street to be confident that the above rendition is true. Once again I remind readers that the legal consequence of these practices might vary from state to state and even between judges in the same district. Federal and State courts are likely to treat these presentations differently as well.

And just because you are right, doesn’t mean you can prove it or win. So it is imperative that you consult with an attorney who knows all the facts of your case, is familiar with securitization and is licensed in the jurisdiction in which your property or domicile is located.

Premarkets: Dow defies gravity, S&P nears record
http://money.cnn.com/2013/03/15/investing/premarkets/

Senate “Whale” Report Reveals JP Morgan as a Lying, Scheming Rogue Trader (Quelle Surprise!)
http://www.nakedcapitalism.com/2013/03/senate-whale-report-reveals-jp-morgan-as-a-lying-scheming-rogue-trader-quelle-surprise.html

Goldman partner Barg moves to New York from Asia in new role
http://www.reuters.com/article/2013/03/15/us-goldman-barg-idUSBRE92E0CS20130315

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , | 37 Comments »

Big Banks Headed For Break-Up

Posted on March 14, 2013 by Neil Garfield
“What policy makers are starting to realize is that the absence of prosecutions and regulatory action against these banks has produced a profound loss of confidence not only in the financial markets but in the leader of the financial markets (the United States) to control itself and its own participants in finance. It’s not just fair to enforce existing laws and regulations against the banks who so flagrantly violated them and nearly destroyed all the economies of the world, it’s the only practical thing to do.” — Neil F Garfield, livinglies.me
If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 (East Coast) and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comment: There is an old expression that says “At the end of the day, everybody knows everything.” The question of course is how long is the “day.” In this case the day for the bank appears to be about 10-12 years. The foibles of their masters, the conduct of their policies, and the arrogance of their behavior has led them into the position where the once unthinkable break-up of the bank oligopoly and their control, over our government is coming to a close.

The titans of Wall Street have thus far avoided criminal prosecution because of the misguided assumption — promulgated by Wall Street itself — that such prosecutions would destroy the economic systems all over the world (remember when Detroit arrogance reached its peak with “what’s good for GM is good for the country?”). But the Dallas Fed are joining the ranks of of once lone voices like Simon Johnson stating that Too Big to Fail is not a sustainable model and that it distorts the markets, the marketplace and our society.

It is virtually certain now that the mega banks are going to literally be cut down to size and that some form of Glass-Steagel will be revived. As that day nears, the images and facts pouring out onto the public and the danger to the American taxpayer facing deficits caused by the banks in part because they siphoned out the life-blood of liquidity from the American marketplace will overwhelm the last vestiges of resistance and the same lobbyists who were the king makers will be the kiss of death for re-election of any public official.

As they are cut down, the accounting and auditing will start and it will take years to complete. What will emerge is a pattern of theft, deceit, fraud, forgery, perjury and other crimes that are most easily seen in the residential foreclosures that now appear to be mostly illusions that have caused nightmare scenarios for millions of Americans and people in other countries. Those illusions though are still with us and they are still taken as real by many in all branches of government. The thought that the borrower should never have been foreclosed and that the amount demanded of them was wrong is not accepted yet. But it will be because of arithmetic.

Investment banks sold worthless bonds issued by empty creatures that existed only on paper without any assets, money or value of any kind. The banks then funded mortgages of increasingly obvious toxicity to people who might have been able to afford a normal mortgage or who couldn’t afford a mortgage at all but were assured by the banks that the deal was solid. Both investors and homeowners were taken to the cleaners. Neither of them has been addressed in any bailout or restitution.

It is the bailout or restitution to the investors and homeowners that is the key to rejuvenating our economy. Trust in the system and wealth in the middle class is the only historical reference point for a successful society. All the rest crumbled. As the banks are taken apart, the privilege of using “off-balance sheet” transactions will be revealed as a free pass to steal money from investors. The banks took the money from investors and used a large part of it to gamble. Then they covered their tracks with lies about the quality of loans whose nominal rates of interest were skyrocketing through previous laws against usury.

For those who worry about the deficit while at the same time remain loyal to their largest banking contributors, they are standing with one foot upon the other. They can’t move and eventually they will fall. The American public may not be filled with PhD economists, but they know theft when it is revealed and they know what should happen to the thief and the compatriots of the thief.

For the moment we are still rocketing along the path of assuming the home loans, student loans, credit cards, auto loans, furniture loans et al were valid loans wherein the lenders had a risk of loss and actually suffered a loss resulting from the non payment by the borrower. As the information spreads about what really happened with all consumer debt, housing included, the people will understand that their debts were paid off by the investment banks, the insurance, companies and the counterparties on hedge products like credit default swaps.

A creditor is entitled to be repaid the money loaned. But if they have been repaid, the fact that the borrower didn’t pay it does not create a fact pattern under which the current law allows the creditor to seek additional payment from the borrower when their receivable account is zero. Yet it is possible that the parties who paid off the debt might be entitled to contribution from the borrower — if they didn’t waive that right when they entered into the insurance or hedge contract with the investment banks. Even so, the mortgage lien would be eviscerated. And the debt open to discussion because the insurers and counterparties did in fact agree not to pursue any remedies against the borrowers. It’s all part of the cover-up so the transactions look like civil matters instead of criminal matters.

Thus far, we have allowed windfall after windfall to the banks who never had any risk of loss and who received federal bailouts, insurance, and proceeds of credit default swaps and multiple sales of the same loan — all without crediting the investors who advanced all the money that was used in the mortgage maelstrom.

The practical significance of this is simple: the money given to the banks went into a black hole and may never be seen again. The money given BACK to (restitution) investors will result in fixing at least partly the imbalance caused by the bank theft. It will also decrease the loss suffered by the lenders in the loans marked as home loans, auto loans, student loans etc. This in turn reduces the amount owed by the borrower. Their is no “reduction” of principal there is merely a “deduction” or “correction” to reflect payments received by the investors or their agents.

The practical significance of this is that money, wealth and income will be  channeled back to the those who are in the middle class or who belong there but for the trickery of the banks and the economy starts to hum a little better than before.

It all starts with abandoning the Too Big To Fail hypothesis. What policy makers are starting to realize is that the absence of prosecutions and regulatory action against these banks has produced a profound loss of confidence not only in the financial markets but in the leader of the financial markets to control itself and its own participants in finance. It’s not just fair to enforce existing laws and regulations against the banks who so flagrantly violated them and nearly destroyed all the economies of the world, it’s the only practical thing to do.

Big Banks Have a Big Problem
http://economix.blogs.nytimes.com/2013/03/14/big-banks-have-a-big-problem/

We The Taxpayers Are On The Hook For Mortgages, Student Loans, Banks
http://lonelyconservative.com/2013/03/we-the-taxpayers-are-on-the-hook-for-mortgages-student-loans-banks/

Documentary Co-Produced by Broker Exposes Foreclosure Devastation, Housing System Flaws, in Low-Income Hispanic Neighborhood of Phoenix
http://rismedia.com/2013-03-13/documentary-co-produced-by-broker-exposes-foreclosure-devastation-housing-system-flaws-in-low-income-hispanic-neighborhood-of-phoenix/

Housing advocates accuse Wells Fargo of damaging communities through foreclosures
http://www.scpr.org/blogs/economy/2013/03/13/12908/housing-advocates-accuse-well-fargo-damaging-commu/

 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud, Student Loans | Tagged: , , , , , , , , , , , , | 18 Comments »

Mortgage Meltdown Recovery: Economics, Waste, Imbalance, and Unbalanced Economists

Posted on May 24, 2008 by Neil Garfield

ECONOMICS: How Economists downplay substitution on the supply side, and discount American Innovation, American Ingenuity and American Temerity. Bad policy from flawed measurements. Flawed Measurements from biased, agenda-based ideology.

“The central problem confronting the new President is not the political issues of conflicting ideology nor the “choices” presented by well-intentioned economists; the real issue is leadership in seeing what economists call “waste” and imbalance” as opportunity.”

Empty steel and auto-making plants have an unequalled opportunity of leveraging an existing infrastructure to manufacture wind generators, new concept products and most importantly cars that are far ahead of the curve and exactly what consumers want.

Phoenix Motors Cars and other new entrants into the race for longer range high speed all-electric vehicles that can be recharged in minutes on the road, or with a few solar panels during the day at home have taken the ultimate risk and ultimate plunge and are doing very well in their development stage vehicles.

Too much wheat? Create incentives to find other uses. Of course we can help feed the world, but there are hundreds of other uses to produce energy, manufacture goods, create new products for building materials and dozens of possibilities that are probably lingering in the heads of some farmers right now. Those expensive subsidies could be turning a profit for government and farmers and provide an opportunity for small farmers to make money no matter how much surplus wheat is grown.

Subsidies: Whether it is for individuals going through rough times, businesses going through rough times, businesses being incentivized, there is an important element of risk that is being reduced for the recipients. This reduction of risk is worth a great deal of “value” to the recipients. What are they paying for it? If it is individual there are all kinds of community service that can be worked into almost anyone’s schedule. If it is a business, this value can be passed on to consumers in reduced prices or greater benefits. The point here is not to prescribe specific methods of payments but only to say that ANYONE who gets a benefit from the government should be paying for it through taxes, giving back to the community or providing financial or non-financial benefits to the marketplace and society. 

That corn is being diverted to production of ethanol is a political pandering of the worst sort. What politicians and economists have both missed completely is not just that there are much better energy efficient alternative products from which to refine ethanol (cane sugar, cellulose, wheat etc) but that since we are able to produce so much corn, we can lower its price, keep the farmers happy and substitute uses such that farmers are making a good rate of return on VOLUME.  This brings down food costs which increase the opportunities for consumers to pay their bills, save money and thus provide the capital that is currently being “borrowed” from other countries by issuance of increasingly worthless American paper, once called money.

Economists fail to recognize on the supply side that certain substitutions will routinely provide segments or tranches of demand for products wherein the exchange value might be low but the use value may be high. Taken collectively, this represents opportunity for even the smallest farmers and manufacturers.

Corn is a bastardized example of this process and a poor model, mostly because business schools, media and modern economists are not teaching substitution as a general application. They teach substitution only on the demand side where the inventiveness of the American consumer to adapt to changing quality and prices is assumed but the ingenuity and inventiveness of the American producer is dismissed.

Too much interest expense? This curse dating back to the early 1970’s has robbed the country and its citizens of much needed capital for savings, investment and consumption of goods and services that drive our economy. Government’s complicity in making legal (usurious rates and fees) what was always illegal and even criminal needs reversal.

Current plans to reduce mortgage payments and mortgage interest to the teaser rates that were forced down the throats of unsuspecting borrowers using the money from unsuspecting investors, reducing credit card interest and fees, banning payday loans that roll over into 450% loans etc.,. are all steps in the right direction of redirecting capital to where it needs to go without robbing the capitalists from receiving a fair return.

Reasonable minds may differ but they can come to agreement on a fair rate of return which maintains financial market liqudiidty without windfall profits to credit card issuers, payday lenders, oil companies, health-care, health insurance and drug companies.

These are the things that central bankers and investors around the world are watching and waiting for and it is only through aggressive innovation, which requires aggressive, innovative education techniques, that good old American ingenuity will once again save the day and the dollar.

Filed under: bubble, Bush, CDO, community banks, CORRUPTION, credit unions, currency, education, EMS, energy, Eviction, foreclosure, foreign relations, GTC | Honor, healthcare, inflation, interest rates, Investor, Mortgage, Obama, oil, politics, securities fraud | Tagged: , , , , , , , , , | 1 Comment »

Bankruptcy: Chapter 13, RISING PRICES and Foreclosure Defense

Posted on May 12, 2008 by Neil Garfield

OBAMANOMICS VS NO ECONOMICS AT ALL

the government is charged with reporting on inflation when it has a vested interest in keep the reported inflation low both for political and financial reasons

The job of the Petitioner in bankruptcy to get a modification of the Chapter 13 plan is therefore double-whacked because of (1) a presumption against him which requires him to show a significant change in circumstances and (2) inaccurate government statistics which call you a liar when you say your basic expenses have shot up 25% just because of inflation.

Homeowners with ARM financing on their homes are triple whacked when the resets kick in. Those people in bankruptcy already should tell their lawyers to file an adversary proceeding based upon violations of TILA and RESPA. There are a number of steps you need to follow (see many posts and links on this blog) before you can file suit.

BKR attorneys are struggling with clients who are complaining that their payment plan is being negatively impacted by the surge in the cost of living. This surge has been understated by, for example, publication of the Consumer Price Index and other indices that are used to set increases in government and pension benefits like social security.

Thus the government is charged with reporting on inflation when it has a vested interest in keep the reported inflation low both for political and financial reasons. If they report it accurately, the government expenses will go up. Up until now, the fact that this was at the expense of the recipients of those benefits (which they paid into and are now being short-changed) has been felt, talked about but largely ignored. That too is coming up front and center. McCain’s statement “I’m not very good on economics” better change to “I just studied up on economics and it is very interesting, Here is what I learned.”

When inflation was comparatively low, even though understated. there wasn’t much conflict. Now, however, the basket of items used for the CPI is literaly out of touch with the real life experience of most Americans — something that Obama has started talking about and which McCain unfortunately doesn’t seem to know or care to know. 

The job of the Petitioner in bankruptcy to get a modification of the Chapter 13 plan is therefore double-whacked because of (1) a presumption against him which requires him to show a significant change in circumstances and (2) inaccurate government statistics which call you a liar when you say your basic expenses have shot up 25% just because of inflation. 

Homeowners with ARM financing on their homes are triple whacked when the resets kick in. Those people in bankruptcy already should tell their lawyers to file an adversary proceeding based upon violations of TILA and RESPA. There are a number of steps you need to follow (see many posts and links on this blog) before you can file suit.

MOST BANKRUPTCY LAWYERS ARE LARGELY UNFAMILIAR WITH TILA, RESPA AND OTHER CONSUMER PROTECTIONS AND THUS MISSING THE LARGEST POTENTIAL BENEFITS TO THEIR CLIENTS. If YOUR lawyer does not know this field then get help elsewhere. For example: http://www.repairyourloan.com, where you can get help on all the steps before filing suit and even get a referral to someone who can assist your attorney in filing the adversary proceeding. 

From another site where the attorneys appear to be knowledgeable but I know nothing about them —-

Rising prices give rise to chapter 13 plan modifications

By Andy Miofsky, Illinois Bankruptcy Attorney on May 11, 2008 in Bankruptcy Practice and Procedure, Chapter 13 Bankruptcy, Illinois

What do rising gas and food prices have in common? They both eat up a substantial part of your monthly budget. And if you filed chapter 13 within the past few years, you submitted a plan of monthly payments based on a budget before gas and some food prices doubled. It may be time to modify that old plan. How so, follow this.

Your Schedule J lists your projected monthly expenses. Your monthly plan payment is calculated based as a factor of those expenses. It may be possible to file an amended Schedule J to account for today’s increased costs. As your expenses rise, your monthly disposable income decreases and your monthly plan payment may decrease as well. So, instead of paying money to your unsecured creditors, you might be able to free up some cash to use for your personal monthly expenses.

Your bankruptcy attorney can advise you whether you qualify for a lower payment. Dial that number before the cost of a phone call goes up

Filed under: bubble, CDO, CORRUPTION, credit unions, currency, education, Eviction, foreclosure, GTC | Honor, inflation, interest rates, McCain, Mortgage, Obama, politics | Tagged: , , , , , , , , , | Leave a comment »

Obamanomics: Free Trade and Bank regulation

Posted on March 4, 2008 by Neil Garfield

Obama’s message of inclusion and practicality presents a fresh face and a valid approach. He seeks commonality rather than differences and guides the process toward a consensus rather than either force-feeding poorly vetted solutions or stonewalling perfectly workable solutions. Neither his presence nor his approach create knee jerk ideological objections in most circles. He presents an opportunity that might not show up again for a long time.

Obama’s history shows that he is less interested in specific plans made in advance and based upon assumptions than in real solutions based upon consensus of the parties who know how their own interests will be effected. In short, he understands that commerce, economics, politics and policies are processes rather than events. for those who seek concrete details on the outcome of the processes before they begin, Obama refuses to commit — because to do so, would be to presume to force others into an apparent consensus rather than a real one.

The Economist has been an advocate for “free trade” based upon [1] ideology and [2] “proof” based upon measurements of commercial activity that they think demonstrates the correctness of their position. Obama starts with a different premise: [1] practicality and [2] broadening the data that is interpreted to include more human factors and more humans.

Obama’s message of inclusion and coalition is not merely a political or electoral message. It is a fundamental, artful shift in approaching commercial behavior from the standpoint of believing that all sides have a legitimate stake in the short run as well as the long term. Criticism of his economic message has focused on lack of specifics. But the truth is that nobody has real specifics because current conditions are either unprecedented or at best difficult to reconcile with historical commercial behavior.

The free market advocates, including those who wish to infuse Basel II which allows Banks more lee-way in making their own risk decisions ignore the fact that the market forces are not free unless [a] there is some referee which inhibits but does not eliminate market dominance of a single company or group preventing access to information or commerce and [b] education and information are available and delivered to level the playing field created by complexity and sophistication in the financial markets that have undermined the notion of risk analysis.

In the recent mortgage meltdown, banks and other lenders made a simple calculation: if they lent the money under circumstances where they were able to sell off the risk element, they stood to enlarge revenue and eliminate losses associated with loan defaults. Stripped of fear of loss, an infrastructure sprung out of the maze of derivative securities that enabled artificial inflation of housing prices, fees and rebates to be paid to virtually everyone in the feeding chain of building, selling real estate, selling securities, lending and investing.

The result was that another massive re-distribution of wealth occurred away from the middle class on the borrowing side, and from government funds, pension funds and other managed wealth on the investing side thus reducing their ability to engage in commercial activity that supports the U.S. economy, which is driven overwhelmingly by consumer spending and availability of capital. The risk analysis performed by poorly educated bankers playing with securities far beyond their level of sophistication has led inevitably to a bubble of unprecedented proportions. Simple stated, a $250,000 house was sold for $400,000 and the extra $150,000 was spread around like confetti.

But the other net result was the equivalent of our eating our young. Most middle class citizens are out of options to come up with money to continue their discretionary buying, and their simply is not enough money around, nor a way to channel money to the middle class that will make up the difference. The result is that the continued divide between ideologies prevents effective solutions that are sitting right on the table but ignored by the decision-makers for fear of abandoning or enraging their political base.

Obama’s message of inclusion and practicality presents a fresh face and a fresh approach. He seeks commonality rather than differences and guides the process toward a consensus rather than either force-feeding poorly vetted solutions or stonewalling perfectly workable solutions. Neither his presence nor his approach crate knee jerk ideological objections in most circles. He presents an opportunity that might not show up again for along time.

Filed under: bubble, community banks, credit unions, currency, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, Investor, Mortgage, Obama, politics, securities fraud | Tagged: , , | 2 Comments »

Economic Status report

Posted on February 26, 2008 by Neil Garfield

Back from a cross country trip for 6 weeks accumulating data “on the ground.” I am have discovered that the ripple effects of the economic mismanagement, the mortgage meltdown, the credit crisis, the housing crash, and many other factors are playing havoc not only with our current status but with our prospects. These are the things that the next President will face.
 
They are also the issues that the current administration adn the current congress face but are slow to admit, fully appreciate or address. There is nothing on the horizon that seems to indicate that these issues will be tackled any time soon.
 
The following article is at least as good as anyting I could have wirtten. Pay Special attention to the assertion that commodities are becoming the new currency. It heralds a return to an advanced hybrid barter system that can be gamed if you spend the time, but that will threaten the way of life for millions of Americans who cannot spend the time, or who don’t know where to turn for sound, truthful financial advice in the coming crash.
 
While the publications of the Handbooks is still in the works, I have decided to take a proactive role in approaching local, state and federal officials who are now concerned with inflation, large scale currency devaluation, social services, real estate and other tax revenues, and bank failures.  
 
PAUL B. FARRELL
11 reasons Bernanke’s recession lasts till 2011
Timing the next bull: Kick-start it in 2008? Or is it a long secular bear?
By Paul B. Farrell, MarketWatch

 

11 reasons Bernanke’s recession lasts till 2011
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ARROYO GRANDE, Calif. (MarketWatch) — Remember that hot 1973 Stealer’s Wheel song marking the end of the Nixon era? “‘Cause I don’t think that I can take anymore. Clowns to the left of me, jokers to the right, here I am stuck in the middle with you!”

 

It’s still a perfect metaphor. Testifying before Congress: Fed Chairman Ben Bernanke on the left. Treasury Secretary Henry Paulson on the right. The American public stuck in the middle.
 Last summer they assured us the subprime-credit crisis was “contained.” We now know that was a big lie. They knew, had the facts, early warnings, lied and are still lying. More proof? They just told Congress: “America will avoid a recession.” New data tells a different story.

Clowns to the left … jokers right … stuck in the middle … can’t take it anymore.
But we have to, we have to hang on at least 10 months more, praying they won’t do too much more damage. But I’m afraid they will: more lies, blunders and incompetence will drag out this bear. Like the song says: “Got a feeling something ain’t right.”
Read the new InvestmentNews, a professional journal for financial advisers. The lead headline grabs you: “Bad times for stocks could last many years.” A long secular bear.
Do you believe it? That’s the big question today: When’s the next bull? How long will the bear last? And forget Washington’s rhetoric about “no recession.” The truth is, you can call it a “bear,” “slow growth,” a “downturn,” a “recession” — call it whatever you want. Timing’s the real question. How long will it last? When will it bottom? 2008? 2011?
Test your timing skill. You tell us, what’ll drag this out 30 months, like in 2000-2002? Or shorten it? Here are 11 critical factors for your timing equation, things that could make this bear-recession shorter or longer. You tell us. Add a comment. What’s your prediction: How long before the next bull?
1. Stagflation: Bernanke’s no-win Achilles heel
Reading Fed-watcher William Fleckenstein’s new book, “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve,” you get the feeling that for 18 years America’s banking system was run like a “new age” hippy commune, by a Ayn Rand free spirit who believed “anything goes.”
Now the Fed’s run by a college professor and Fleckenstein says he’s “in over his head.” Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory.
In the 1970s Nixon faced a similar problem, convinced then by Fed Chairman Arthur Burns: “No one ever lost an election on account of inflation.” Wrong! Low rates generated inflation not growth. That stagflation triggered a bear/recession. Is Professor Ben trapped, repeating history?
2. Housing-credit meltdown: We’ve got a long way to go!
It’s far from over folks and still spreading: Years of inventory, foreclosures, building slowdown, risky bond insurers, weak rating agencies, funds holding bad debt, freezing exits and fuzzy math on values. Yet Bernanke and Paulson still live in a Washington bubble of wishful-thinking fantasies.
Economic realists say what’s needed is a massive $1.6 trillion demand-driven program (that’s the record cash Corporate America’s hoarding) not a dinky $160 billion supply-side “appease the voters” giveaway that ends up increasing the odds of a lengthy Nixon/Burns style bear-recession.
3. Commodities: World’s new reserve ‘currency,’ not dollars
Forget paper money and IOUs. Commodities are the world’s new “currency:” Hard stuff like oil, grains, metals, gold. And that means America is financing the growth of our enemies, surrendering our long-term economic power for short-term oil-guzzlers and plastic toys. We are responsible for making Russia and China into threatening world powers. Buffett warned us. We’re selling the farm, piece by piece.
4. Toxic derivatives: World’s $516 trillion ticking time bomb
Derivatives are great for deal-by-deal risk management in a $48 trillion GDP world. But leverage them 10 times over across the globe and we got a financial “weapon of mass economic destruction.”
Bill Gross warns that the world’s new unregulated “shadow banking system” is printing new money, now at $516 trillion, out of thin air, with no “central banks of last resort” backing up the “Frankenstein” monsters they’ve created.
5. Massive debt: Everywhere, trade, federal, states, local
America’s Comptroller General David Walker, Congress’s head accountant who is leaving his position next month, warns our government is “bankrupting America.” Using unethical accounting worse than Enron’s. Fiscal responsibility lost. He sees “striking similarities” with Rome. Both parties are gluttons in a spending orgy.
We spend-spend, load debt on future generations, then use accounting gimmicks to hide our greedy excesses: Hidden earmarks. Supplemental war appropriations. Meaningless IOUs after stealing from Social Security.

 

6. America’s new ‘pushers:’ Banks feeding consumer addicts
Trader’s Daily captured it perfectly: “Never underestimate the power of the superpsycho, hyper-spending American consumer. Where there is no cash, they will sell their soul. Or just charge it. Let’s just not think about what it all means for credit-card debt down the road.”
Meanwhile, the credit meltdown is making banks desperate for money. A recent Chase credit-card commercial fuels consumer addictions: Wife wants bigger television. Husband smiles. They shop to the pounding drumbeat of Queen’s hit 80s song: “I want it all, I want it all, I want it all … and I want it now!” Tag line: “Chase what matters!” Yes, Chase debt, all you addicts. Forget saving, spend like there’s no tomorrow.
7. More wars: Pentagon predicts bigger, costlier conflicts
The Pentagon’s internal studies see a perfect storm accelerating wars worldwide: Global population growth, limited natural resources and global warming. Our war machine is exploding. The Pentagon gets over 50% in the new federal budget. We’re only 21% of the world’s GDP, yet spend 47% of the world’s total military expenditures.
Our power-hungry mindset is becoming self-destructive, suicidal. Remember Nixon strategist Kevin Phillips’ warning: “Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out.”
8. Greed: Wall Street and Corporate America’s defining ‘value’
Values start at the top. But the top won’t change for 10 months. Leadership, statesmanship and character are vanishing. Five short years ago Corporate America and the mutual fund industry were consumed by greed. How quickly we forget.
It’s worse today. We see greed consuming not just Wall Street’s clueless CEOs, but the entire industry: Outrageous bonuses of $38 billion amid mega-billion write-offs. Fire sales of billions more American equity to sovereign nations.
From the top down, greed is driving America from bubble to bubble. Wall Street’s already fueling the next bubble, trading on a volatile market.
9. Democracy failing: America now run by 35,000 lobbyists!
Forget government “of the people, by the people, and for the people.” Adam Smith’s “invisible hand” is now a small group of 35,000 highly paid, greedy lobbyists demanding handouts. They run America from the shadows, for those at the top of the economic food chain and vastly outnumber Washington’s 537 elected officials.
Nationally there’s an estimated quarter million lobbyists, with hundreds of millions of dollars to buy favors in campaign contributions. Politicians talk “change,” but America’s lobbyists will still be working for their special interest clients in 2009. And they’ll fight all “changes.”
10. America’s already in a recession, and in denial
This year’s elections will be a huge factor in lengthening the recession. Our lame-duck government will delay action on critical issues. It reminds me of my days counseling addicts and alcoholics. Change never happens until they admit they have a problem. Same here.
Paulson and Bernanke cannot admit there’s a recession. They’d have to take blame for America’s failed policies. And congressional Democrats are weak co-conspirators in this meltdown. Nobody has the guts to take responsibility. They’re all like addicts and alcoholics, in denial, giving lip-service to “change,” while they blame the other guys and support ineffectual stimulus plans.
Vote for whomever, but this lame-duck mindset plus lingering partisan rancor will push any recovery at least into 2009, probably delay the next bull till 2010 or 2011.
11. Class warfare: Superrich vs. Main Street America
No matter who wins, the presidential campaign is warning us: A major battle’s coming between “the rich and the rest;” over taxes, benefits, cuts, power.
For years the media collaborated with Wall Street and Corporate America, hyping “Ownership, the New American Dream,” where everyone benefits, shares the wealth, gains a piece-of-the-action, ownership in “The Dream” through the magic of housing, stocks, growth, profits, retirement plans. But the housing-credit contagion killed the dream.
Yes, the superrich did get richer. But “the rest” didn’t. And they’re waking up to a widening gap. A backlash is brewing and will explode … delaying a recovery and a new bull.
Clowns to the left, jokers right, we’re stuck in the middle. Can’t take it anymore? Add a timing comment. Tell us: When’s the recovery? Next bull? Late 2008? Not till 2011? End of Story

 

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