Tag Archives: banksters

A little anti-bankster populism

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Moveyourmoney.info is apparently a grassroots movement to inspire people to withdraw their savings from the powerful mega-banks and to deposit it in local institutions. The premise is that the big boys blew the bubble and that the little guys sat out the craziness.

It is true that the largest banks are some of the highest-leveraged, that they have benefitted the most from government and central bank actions, and that many of their executives are nefarious bastards, but it is by no means a given that community banks are safer. In fact, these are being put down by the FDIC at the rate of several a week (the announcements come out late on Fridays). Check out this list of Texas ratios here before deciding to trust any bank. It is just the nature of fractional reserve lending that virtually all modern banks operate from the get-go in a state of insolvency, since they lend out money that they do not have. This is the very source of the inflation/deflation (or “boom-bust” or “business”) cycle.

It is not right, but certain institutions like JP Morgan will be the very last to disappear, since the government and Federal Reserve were created by big banks, for big banks. In fact, I would consider JP Morgan to be the safest place to stash cash in the US aside from a Treasury-only money market fund or Treasury Direct. If JP Morgan goes under, that means the government won’t be far behind. Don’t hold your breath. Anyway, this video makes for good holiday viewing:

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For more on fractional reserve lending, central banks and moral hazard see:

In praise of bank runs; the only regulator we need

A crash course on the banking cartel

Greenspan was framed! Blame bankers’ moral hazard, not their lackey.

The “other side” of the deflation trade

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Graphite here. I remain an ardent deflationist and continue to see strong risks of a continued collapse in asset values in world real estate and equity markets. That said, one key practice in speculation, no matter how strong one’s conviction in a particular trade, is to understand the other side of that trade and how the market could move against your position.

This can sometimes present a challenge for deflationists because so much of the opposing camp is composed of die-hard Panglossian buy-and-holders betting on a V-shaped recovery, rounded out with a few gold bugs who present little or no argument other than that the Bernanke Fed will embark on a suicidal campaign of massive money printing.

Although Marc Faber has issued calls for hyperinflation before, the discussion in the video below represents a much more measured discussion of a serious alternative to the near-term bearish case for stocks and the economy:

“My sense is that — here I’m talking about the economy — that the economy, near term, can recover, and maybe the recovery will be somewhat lengthier than expected a crack-up boom, because the first stimulus package in the U.S. probably will be followed by a second one, and money printing will lead to even more money printing next year. So it can last, say, 12 to 18 months, and then we will get another set of problems ….”

Faber goes on to recommend buying financial stocks, on the expectation that the banks will continue to get free money from the government and parlay that largess into significant profits. His long-term view remains as bearish as ever, but he presents an important alternative perspective on how soon the economic calamity will arrive and what form it will take.

That said, I think Faber is wrong that the market will continue to enthusiastically take up the Fed’s offers of liquidity and use them to fuel speculation for very much longer. No one is laboring under the delusion that the garbage stocks like AIG, FNM, and FRE which have led this last leg upward are worth anything more than zero — and while from a contrarian perspective that could indicate that there is room remaining for investors to develop an even more desperate belief in a new bull market, I think it is much more likely a manifestation of the new trend toward skepticism which will come to permeate the entire market as the bear runs its course.

Whatever your perspective, it’s always fun to see Marc Faber’s characteristic chuckle at the suggestion that our wise overseers will competently steer us through the crisis.

That great economist, Ben S. Bernanke

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For your amusement, here’s Bernanke a couple of years ago doing his best to downplay our problems:

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To the dismay of many a fair-minded observer, Bernanke the Fool has been nominated for another term as Fed chairman. My comment is, so long as there is a Fed, who cares who runs it? The chairman, like the US President, is nothing but a figurehead. He provides lip service for policies that exclusively benefit the cartel of big banks.  Thus it has been since the Morgan, Schiff, Warburg and Rockefeller syndicates conspired in 1913 to draft the Federal Reserve Act and ram it through Congress two days before Christmas.

I’m a little bit surprised that Bernanke was nominated again, since there is such low public opinion towards him and his employer. I thought that he might be thrown to the dogs to satisfy the public’s urge for ‘change,’ but I guess the logic is that by keeping him on they can better preserve the fiction that the Fed saved the world. He is also very lucky that the nomination schedule coincided with the likely peak in Wave 2 sentiment (2nd waves are characterized by the near consensus that the old trend is back to stay, in this case, the Great American Bull Market).

Along the same line, I’m also surprised that the campaign to audit the Fed hasn’t found more support from the White House, since it would be the perfect PR opportunity for them to pretend that they were independent of the bankers. I half expect to see the audit happen, with the results decided in advance of course, something akin to past Congressional “investigations.” Maybe they will have to do something like this once mood sours again with the next wave of foreclosures, bank failures and panic selling in the markets.

The real campaign should be to end the Fed, not audit it. We already know what it does, and they are actually surprisingly transparent for such a sinister institution. It’s all right there on their website.

Will Bill Gross please shut up?

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“if we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury…” Bill Gross, September Investment Outlook

This guy continues to disgust me. If Americans before him had held the notions about markets that he does, there would be no wealth for him to manage, and he would not be a billionaire. This would be Venezuela.

Here is an excerpt from his latest bailout plea:

This rarely observed systematic debt liquidation is what confronts the U.S. and perhaps even the global financial system at the current time. Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami. Central bankers, of course, adopting the cloak and demeanor of firefighters or perhaps lifeguards, have been hard at work over the past 12 months to contain the damage. And the private market, in its attempt to anticipate a bear market bottom and snap up “bargains,” has been constructive as well. Over $400 billion in bank- and finance-related capital has been raised during the past year, a decent amount of it, by the way, having been bought by yours truly and my associates at PIMCO. Too bad for us and for everyone else who bought too soon. There are few of these deals now priced at par or above, which is bondspeak for “they are all underwater.” We, as well as our SWF and central bank counterparts, are reluctant to make additional commitments.

Step 2 on our delevering blackboard therefore has stalled and is inevitably morphing towards Step 3. Assets are still being liquidated but there is an increasing reluctance on the part of the private market to risk any more of its own capital. Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning. There may be a Jim Cramer bull market somewhere, but it’s primarily a mirage unless and until we get the entrance of new balance sheets, and a new source of liquidity willing to support asset prices. …

A Depression-era bank robber named Willie Sutton once said that the reason he robbed banks was because “that’s where the money is.” Illegal for sure, but close to an 800 SAT score for logic if you were in the business of stealing other people’s money. And now, while some will compare current government bailouts to Slick Willie, citing moral hazard, near criminal regulatory neglect, and further bailouts for Wall Street and the rich, common sense can lead to no other conclusion: if we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury – not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions. A 21st century housing-related version of the RTC such as advocated by Larry Summers amongst others could be another example of the government wallet or balance sheet that is required during rare periods when the private sector is unable or unwilling to step forward.

The bill for our collective speculative profligacy, obvious in the deflating asset markets, can be paid now or it can be paid later. Those aspiring for a perfect 800 on the Wall Street policy exam would conclude that the tab will be less if paid up front, than if swept under a rug of moral umbrage intent on seeking retribution for any and all of those responsible. Now that the Fed has spent 12 months proving that it “knows something…knows something,” it is time for the Treasury to do likewise.

Sorry, Bill, I’m not scared. Systemic debt liquidation is exactly what the country needs right now, and actions like this are exactly what laid the groundwork for this bubble, by absolving bankers and guys like you from responsibility for your actions. To repeat these mistakes on such a massive scale would distort our economy into a perverse and Orwellian system for the sole benefit of politically connected billionaires.

Is Gross really that cynical?

If he’s not cynical, he’s dumb, and I doubt any self-made billionaire investor could be this dense. As Carl Denninger points out, Gross bought much of this mortgage debt over the last 12 months, at a big discount, surely with the full intention of lobbying for a bailout of his positions (he has been using his column, media appearances, and certainly contacts in Washington to do just that). A man with this kind of character could only be rewarded with wealth and prestige in a society that has gone completely off the deep end. Time to drain and scrub the pool.