good question....
be sure to click on the vid of yesterday's testimony in front of CONgress to see the arrogance on display wrt 'transparency' as to how our money is being spent, er lent:
market-ticker.org!.html
Gee, you think the American people might be upset about where the $1.2 trillion dollars that The Fed has spent went, all in secret?
That's the gist of it, if you don't have six minutes to watch.
Now look CONgress. I wish to bring back to the forefront the following, which contrary to some assertions is not some "subversive nonsense", but rather is part of our founding documents (specifically, The Declaration of Independence):
"That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — 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."
And suffer we have.
We have sat through your ignorance, willful blindness or blatant corruption while:
* We were told that The EESA/TARP was necessary to "stabilize the financial system" and would "fix the banks". THEN we find out that after the TARP Citibank not only went "to the well" twice, once more than it was supposed to be able to, but also had over $300 billion of its debt - nearly half of the TARP all on its own - guaranteed by executive fiat. In addition we found out tonight that Bank of America is "negotiating" for ADDITIONAL federal assistance in its "digestion" of Merrill Lynch - a merger it voluntarily engaged in, and "there is a solution needed for Citibank." In short - we and you were lied to and now you propose to release the second half of the $700 billion TARP TO THE LIARS even though you know we were all lied to.
* We were told that The EESA/TARP was going to buy bad assets. Not a day beyond its passage Henry Paulson shelved that and decides to buy stock and inject capital on terms that were almost literally a gift, and the banks immediately used a huge part of that money to pay bonuses! Treasury's Kashkari admitted under oath that this plan was being put together before the vote approving the EESA/TARP was taken in The House and yet The House was not told, nor were The American People, that the plans had changed BEFORE the vote. In short we were robbed to the tune of $350 billion under false and fraudulent pretense and you did nothing about it.
* You were told repeatedly that the EESA/TARP would not work. Not only by me (I also offered an alternative that would have worked), but over one hundred degreed economists sent you a document saying so. The American People rejected the EESA/TARP by anywhere from 100:1 to 300:1 in phone calls, letters and faxes to your offices. YOU PASSED IT ANYWAY.
* We learned that The EESA/TARP did not work. Stabilize the financial markets? Improve lending to Main Street and Consumers? THE DOW FELL BY OVER 2,500 POINTS IMMEDIATELY SUBSEQUENT TO YOUR PASSAGE OF THE BILL, LITERALLY TO THE MINUTE - STRAIGHT DOWN! Improve lending? Where? Name your area of lending, it has tightened since the EESA/TARP was passed. You were told by Paulson and Bernanke that this would happen if you didn't pass the bill. You passed it, it happened anyway. YOU WERE LIED TO AND SO WERE WE. Where is the accountability for these falsehoods and their impact on Americans' 401ks, IRAs and Pensions? Over $800 billion in pension assets has been vaporized in the last four months as a direct and proximate cause of your actions, along with trillions in general stock market value, a large amount of which is in 401ks and IRAs. You effectively allowed Bernanke and Paulson to incinerate this wealth from us and did nothing about it.
* Henry Paulson and Ben Bernanke both came to Congress and spun tall tales about the economy, about housing, about credit, about inflation. Yet you continued to allow Paulson to operate Treasury and you continue to allow Bernanke and his pals to run a PRIVATE BANK that has granted ITSELF effective plenary authority to do ANYTHING THEY WANT, including things that The Federal Reserve Act clearly does not permit, such as buying Fannie and Freddie debt even though those firms DO NOT have explicit federal government guarantees as required by the law.
* The Federal Reserve has expanded its balance sheet by over one trillion dollars for which we, the taxpayers, are ultimately responsible. This is clearly unlawful as all revenue bills must originate in the House per our Constitution; there was in fact no bill passed to authorize any of this expansion at all! The Fed has traveled dramatically beyond its statutory and lawful authority and you have done nothing about it.
* The Federal Reserve, Treasury's Office Of Thrift Supervision (OTS) and Office of Controller Of The Currency (OCC) willfully and intentionally circumvented all reserve requirements, created off-balance sheet vehicles to further pervert leverage ratios and ignored regulations intended to prevent concentration of risk. You, for your part, have willfully looked the other way while these institutions took actions that were and are the proximate cause of the present economic crisis, instead of using your legislative power to put a stop to it. Then you compounded your error in the EESA/TARP by permitting Bernanke to set the reserve ratio to ZERO (hidden in the "interest on reserves" provision) which if exercised will remove the last "safety" from our monetary and banking system, virtually guaranteeing its destruction.
* Henry Paulson became personally responsible for this mess in that he came to Congress and the SEC not once but twice in 2000 and 2004 to ask that leverage limits (similar to reserve requirements in commercial banks) be removed on Investment Banks. In 2000 he was sent away. In 2004 the request was approved. Every firm that has detonated - Fannie, Freddie, AIG, Bear Stearns and Lehman - had twice or more the former lawful leverage limit when they blew up. All of them. Why, given this FACT, did you listen to ANYTHING that Paulson has subsequently said? YOU KNEW HE WAS RESPONSIBLE FOR THIS MESS IN THE FIRST PLACE! Would you employ the Fox who just ate two chickens to guard the rest of them? ARE YOU - EVERY ONE OF YOU - CERTIFIABLY INSANE?
* It is now clear that The Fed attempted to blow a new bubble in the financial space after the housing bubble started to collapse in late 2007. They did the same thing they did in 1987 and 2001 - they "pumped liquidity" by manipulating their lending programs and thus the Fed Funds and Discount rates. This was an intentional act. The consequence was a new bubble, but they couldn't control where it went, and it went INTO OIL AND OTHER COMMODITIES. THE FED was responsible for the gas price rise and it was no accident - their policies were intentionally crafted to produce a new bubble, and they did. Where is the accountability and why did YOU allow this assault upon all Americans?
* The banks are not carrying "hard to value" assets - these assets are in fact worth much less than claimed and in many cases zero, and there will be no real recovery of value. If these "assets" were really worth more than the banks are claiming someone would gladly buy them at an enormous discount. The fact is that there are no buyers because these so-called "assets" are in fact worth as much as used toilet paper - that is, they in many cases have negative value (they stink!) We have been lied to repeatedly about this fact and you have refused to call anyone out on any of it.
* You expect us to accept a new Treasury Secretary (after the old one who was responsible for a big part of our economic mess) who despite being told in writing annually by the IMF that he was responsible for both halves of FICA and Medicare did not pay for four years - tens of thousands of dollars. He was eventually audited and caught for two of them - the IRS did not look at the other two years and he did not confess. It was not until he was tapped to be Treasury Secretary that he admitted to and paid the back taxes. Are you really going to confirm a new head of the IRS who's PERSONAL MORAL CODE on taxation appears to be "Cheat on your taxes and pay only if audited and caught - and then only to the extent you are caught", but expect that WE THE PEOPLE will simply pay what we owe? I predict a dramatic increase in unlawful tax avoidance if you confirm Geithner. Can the US afford mass tax protests?
Suffer?
We The People of the United States have lived through twenty years of monetary fraud, avarice, theft and outright assault. The monetary policies of both The Executive (Treasury) and The Fed have been to blow bubble after bubble, submit fraudulent budgets and borrow without limit, irrespective of ability to pay, and worse, urge Americans to do the same thing!
Then, exploiting these exhortations, the bankers have swooped in and preyed upon the lack of understanding of fundamental mathematics among Americans, selling them unsound loans - "Option ARM" and "Subprime" mortgages, "Rollover" car loans that are instantly upside down by thousands and credit cards with 30% "default" rates triggered if you are one hour late with a payment - on your water bill. They then "securitized" all this debt - debt they knew in advance could not be paid - and sold it off to unsuspecting suckers all over the world who were also duped through the issuance of bogus ratings that were literally "bought and paid for." Every bit of this was and is bogus and yet you have done nothing to put a stop to any of it.
Fully aware of the mathematics of the matter - that if GDP growth is 3% but debt growth is 6% the law of exponents says that eventually the game of musical chairs will end in tears both The Executive and The Fed have desperately tried to blow bubble after bubble, knowing full well that when the last bubble bursts an enormous deflationary credit collapse must and will come crashing down upon the economy just as it did in 1929 and 1873, bankrupting tens of millions of Americans, throwing millions out of their homes and destroying hundreds of thousands of businesses.
THAT DAY HAS NOW ARRIVED AND INSTEAD OF ACCEPTING THEIR JUST PROPORTION OF THE DAMAGE THEY ARE CRAVENLY APPEARING IN FRONT OF CONGRESS AND DEMANDING TO BE SAVED, COMPLETE WITH THEIR LEARJETS, HOMES IN THE HAMPTONS AND YACHTS WHILE EVERYONE ELSE LITERALLY BURNS IN HELL, THREATENING ECONOMIC NUCLEAR WAR IF YOU REFUSE THEIR BIDDING - AND YOU HAVE SAID "YES" INSTEAD OF JAILING THE LOT OF THEM FOR EXTORTION!
The necessary GDP adjustment - a moderate recession - should have been taken in 1987. It was not, and instead a bubble was intentionally blown. We got the Internet Bubble.
The necessary GDP adjustment - now about 10%, or a mild depression - should have been taken in 2000. It was not, and instead an even bigger bubble was intentionally blown. We got the Housing Bubble.
The necessary GDP adjustment - now about 20%, or a moderate depression, should have been taken in the summer of 2007. Alarmed by the mathematics, Bernanke attempted to blow an even bigger bubble with the discount and interest rate cuts, plus manipulation of reserves and 23A exemptions. The money went into commodities but the bubble was very small and short-lived because the mathematical limits of debt in the system had been reached and by the summer of 2008 this became evident with the failure of Fannie, Freddie, Bear Stearns, Lehman and AIG, along with a collapse in the commodity, stock and credit markets.
We are now up to a near-30% necessary correction in GDP, a SEVERE DEPRESSION, as a direct and proximate consequence of the actions taken by you, Henry Paulson, Ben Bernanke and Alan Greenspan over the previous twenty years and, more recently, the previous eighteen months.
Fully fifty percent of the damage that HAS TO be taken was ADDED TO THE SYSTEM as a DIRECT CONSEQUENCE of your and their actions over the last year and a half!
If you do not immediately halt the path we are on, there is a grave risk that the United States will suffer an economic collapse.
We simply cannot print or borrow our way out of this mess; the mathematics of the matter cannot be argued with. Prudent Americans who are not in debt will not take on debt to over-consume any longer, and those who are not prudent are unable to borrow to over-consume as the ability to foist off securitized toilet paper on suckers by the banks has permanently ended.
THE MUSIC HAS STOPPED AND THERE ARE NOT ENOUGH CHAIRS.
China is aware of what has happened and we need them to finance our massive Federal Debt. You do not dare ignore this issue, for they can - and may - force it any time they'd like.
"Errors made in US economic policy-making, financial supervision and markets are the ultimate causes of the crisis," said Zhang Jianhua, research head at the People's Bank of China, in an opinion piece carried by the People's Daily.
Some observers in the West are blaming China and other nations' high savings rate and trade surplus for fuelling excess consumption and asset bubbles in the United States, he said.
"Such views are ridiculous and irresponsible in the extreme," Mr Zhang wrote in the harshly worded piece in the Communist Party's mouthpiece.
CONgress, you must stop the madness and you must do it now.
To avoid this impending disaster, you must:
1. Refuse to authorize the remaining $350 billion in the EESA/TARP. That bill was an act of outright theft, it could not have worked in its original form, it definitely didn't work in its modified form, and there is no defense for continuing the charade.
2. Force, either by demand or if ignored by regulation, the full disclosure of all Federal Reserve "assets", from where they came, the prices paid, and the terms, and demand that all "in extremis" programs end ninety days hence. If the Fed doesn't like this de-authorize The Federal Reserve Act and replace them. I am well-aware that this will cause the collapse of a significant number of banks. We will deal with that momentarily.
3. Withdraw all debt-based support from the general economy. It is necessary that the over-encumbered go under. We have a means of dealing with this - it is called bankruptcy. Do it and get it over with. There is no alternative and stretching this out just makes it worse. If you have cancer the longer you wait the worse it is, and if you wait too long it spreads and you die. We are very close to having the economy die; there is no time for more delay.
4. Repeal the "Bankruptcy Reform" act. That was a monstrous travesty demanded by the banking lobby to enslave Americans they knew couldn't pay! Revoke that - now - so Americans can use bankruptcy - the process for those who are over-encumbered in the general public - as well.
5. Dedicate the other $350 billion that was formerly in the second half of the TARP to capitalizing new banks. We need a banking system, but we don't need the existing banks. Provide the seed capital for new banks. At a 10% reserve ratio this will provide three and one half trillion dollars of lending capacity, all unencumbered. There are competing ideas for the bank's structure; "co-ops" (much like a credit union, perhaps hundreds of new banks) sound interesting as does just setting up ten new large banks.
6. Demand that all banks return to a 10% reserve ratio here and now. No ifs, ands or buts. Period. No more sweep accounts, no more games, no more "variable reserves" set by Ben in his "sole judgment", nothing of the kind. This strictly limits bank leverage to 10:1 - as it should. Write into the law that violations of this reserve ratio are bank fraud, a felony, and that each and every officer of said bank is personally responsible for violations. Any existing bank unable or unwilling is closed immediately by the FDIC.
7. Make all bank examinations public. We back the banks with FDIC deposit insurance, we have a right to know what they're doing, how healthy they are, and what they're holding. If you want to see the cockroaches scurry shine a bright light in the room. We need lots of bright light.
8. Force all credit-default swaps and other instruments - all of them - onto a regulated exchange. Strictly limit leverage to no more than 10:1, just as is done for banks. No exceptions, with mark-to-market being required daily. We have computers; this can easily be done and must. At the same time, end all "dark pools" and other similar gimmicks. If you want to trade it you must publish your bids and offers, print the last trade price, and do it where everyone can see it. Again - only the threat of discovery through full public transparency works to keep the crooks at bay.
9. Bring all financial firms, including insurance companies, hedge funds and others, under the 10:1 leverage limits. All firms that want to do business in the United States must comply - period. No exceptions for "special" asset classes are permitted. This instantly ends the game of "infinite earnings via infinite leverage" in the Treasury Bill market, which is currently distorting that marketplace beyond all reason.
10. End all off-balance-sheet games. All assets and liabilities must be carried, valued at the market, and disclosed on-balance sheet. No exceptions. Period.
We must restore confidence in the financial system and we must do it now. It cannot happen until the bad debt is forced into the open and defaulted, leverage limits are known and enforced, and reserve requirements are mandated and supervised.
Any government agency unwilling to do this job on an immediate and comprehensive basis must be relieved of its duties and replaced, without exception. This includes but is not limited to The Federal Reserve, SEC, OTS, OCC and Treasury.
As you have now seen this mess is not local to the United States. The selloff today in the market was triggered by HSBC and Deutche Bank, both of which issued warnings that led people to believe they may have previously been less than truthful about their asset valuations. The other nations of the world, especially in Europe, are just as complicit and unwilling to face reality as we are. This disclosure caused an immediate 5% crash in the markets in Europe which then translated over here; after the market closed we learned that both Bank of America and Citibank face similar issues and they imploded, translating the damage through to Asia, which is now down about 5%. This may cycle back through to us in the morning and there is a risk of a self-reinforcing liquidation cycle that could take the DOW down two to three thousand points over the next week if you do not step in and act now.
The bottom line is that trust has not been restored or helped by the actions of the government thus far, it has been further destroyed as the LYING has not abated.
Until the LYING stops the market will NOT stop falling and YOU are responsible for refusing to put a stop to the LIES.
We must decouple and set the standard for truth, fair dealing and honesty - if not because it is the right thing to do, because it is necessary for our economic survival.
The Stock Market will probably decline markedly if we do the right thing, but it will decline once to a fair, reasonably-leveraged value and then stop falling.
House prices will correct to sustainable valuations, defined as a median price of roughly three times the median income in a given area, but then they will stop falling. Mortgage lending will return to traditional values - 20% down required, 36% DTI. Once this has occurred foreclosures will stop as reasonable, sound lending will have been restored.
The credit markets will undergo a huge projectile vomiting episode of bad debt, but then will stabilize, as the debt in the system will be known to be good and payable.
Consumers and businesses (including banks, big and small) that are over-levered will go bankrupt, but that is inevitable anyway, and once they have, they will be once again able to borrow, earn and spend. The new banks we charter will be ready to pick up the demand for loans and deposit services, and new businesses will rise to take the place of the old.
Interest rates will rise to reflect the true risk-adjusted rate for money, both for the government and private firms.
The economy will undergo the necessary correction to GDP, and it will be both painful and hurt, but then that corrective movement will be over and we can build a 21st Century economy based on sound fundamentals, economics and financials.
Government can and indeed must provide basic shelter, food, medical care and clothing for the Americans who will be temporarily displaced by this adjustment. If we fail to do so, we risk failure of the unwritten "social contract" and mass unrest - or worse.
What if Congress fails to do these things, and instead listens to those who have been repeatedly been wrong for more than twenty years, and in fact have CAUSED this mess for their own personal profit?
The Banks, States and Industries will continue to come back for more and more money that is getting sucked into the black hole of bad debt and defaults - a spiral that will continue until The Taxpayer has effectively guaranteed it all. This is several times our current national debt; we could easily wind up with $10 or even 20 trillion dollars worth of bad debt offloaded onto the taxpayer. (We already have "said" we'll guarantee $7 trillion! We better not try to actually make good on that!)
China, Japan, Saudi Arabia and others will correctly deduce that between this debt exposure and crashing consumer spending there is no way they will ever be paid. They will cut us off. The evidence that the consumer is crashing is already evident - look at tax receipts for December - they are crashing, down precipitously. Tax receipts will fall by fifty percent and the government will effectively become insolvent.
The economy will crash as the bubble-blowing exercise has run its course and will fail. Government will have no access to external or internal funds to provide for the necessities of life for displaced Americans. There is a risk of severe social instability and potential political failure via civil insurrection. Hungry, homeless and jobless people have nothing to lose and we could see 50 million of them inside the United States within the next two or three years.
Government will be forced to dramatically cut entitlement spending to be able to continue to operate, effectively eliminating Social Security and Medicare - not by choice, but by force as these are the only programs that can be cut which will provide the necessary reduction in spending. Millions of Seniors will lose all health care access and supplemental income.
The capital markets will fail entirely. 75% of the S&P 500 and 20 of the 30 DOW Industrials will go under, along with half of the Nasdaq. The S&P 500 will trade at 100 and the DOW at 1,000. Credit markets will for all intents and purposes cease to exist; if you do not have the cash to make your purchase, whether as an individual or corporation, you will be unable to buy at all.
These are dire predictions my friends. But this is the risk we face - an event economists sometimes call "A Sudden Stop" - and if we do not act to reverse the idiotic and futile policies of the previous twenty years, as they are no longer mathematically possible to sustain, this is the America we may face in the next two to three years.
Congress, are you willing to take this risk so a bunch of rich bankers can loot and plunder America some more? Or is it time to actually listen to your constituents, tell America the truth - that we cannot spend more than we make, we never could, and we can't continue pretending we can - and take corrective action now before we go off into the abyss?
There is, of course, one other option - one that has been taken time and time again when backed into this corner. Don't think for a second that those who can think - myself included - aren't aware of this possibility, best shown in the short video below:
Don't you think, however, that being backed into that corner in a nuclear-armed world is rather foolish? I prefer my sand in the "neat" form, not turned into high-quality glass.
It is time to choose Congress, and The American People - and be held accountable for your choice. |
