Those ‘give ‘em what they want’ Methods

Markets. The restlessness on display of people, in markets. Amidst the moral hazards. With warnings of worldwide “fragility” in financial systems. With worries about the solvency of Greece involving high deficits, fake budget figures, and low growth. And now worries about Hungary. And then maybe Spain?

It should be about more than just warnings concerning the economies of the world. It is more about real people. It was ten years ago, on the eve of the new millennium, in a tradition of the 50th year (the Jubilee Year) — as quoted in Leviticus where those enslaved because of debts are freed, lands lost because of debt are returned, and community torn by inequality is restored — that Pope John Paul, Bono, Bob Geldof, Muhammad Ali, Quincy Jones, and Youssou N’dour called for debt forgiveness for Third World nations.

After five years on the job, at 6 p.m. on Friday the 13th, in September 2008, Timothy Geithner as the president of the New York Federal Reserve summoned the heads of major Wall Street firms to a meeting in Lower Manhattan to review their financial exposures to a collapse of Lehman Brothers, and to work out contingency plans over the possibility that on Monday, September 15th, the government would need to orchestrate an orderly liquidation of Lehman Brothers, and stabilize the financial markets, according to the New York Times. The journalist at the time seemed to have smelled something. The meetings which involving the top executives from Goldman Sachs, Morgan Stanley, J P Morgan Chase, Citigroup and other financial companies, had continued through that weekend as Henry Paulson and Timothy Geithner first proposed that corporations voluntarily step in and rescue Lehman Brothers. It was how capitalism and markets were supposed to work.

Vikas Baijaj of the The New York Times had reported that same weekend American International Group and Merrill Lynch might be in need of billions of dollars in capital to strengthen their businesses, facing a similar crisis. The world now knows of the spreading troubles and growing concern about the collapse of big financial institutions. And the systemic risk.

Too big to fail. Systemic risk when deliberately borrowing more money than someone can afford to repay. The moral hazards of credit derivatives. With warning of the potential for economic meltdown. In the late 1990s, Brooksley Born, as head of the Commodity Futures Trading Commission, tried to convince the country’s key economic power-brokers to take actions that could have helped avert the crisis. “We didn’t truly know the dangers of the market, because it was a dark market,” said Ms. Born.

Counting the cost. Of systemic risk. The missing transparency. What is the extent of our power to regulate, in an era of aggressive expansion? After living the good life? Before the good life crashed, who was going to complain about the missing regulation? After a $38 million investigation, Judge James Perk unsealed a 2200 page report about balance sheet manipulations at Lehman Brothers which discussed the failure of Ernst & Young to abide by the Generally Accepted Accounting Principles. Ernst & Young seemed to have abided by the “give ‘em what they want’ method of accounting. After all, Lehman Brothers had been paying for the report.

On those moral hazards. In public service and to public policy concerns over moral hazards in private business. In big government, in bed with its sponsors. Some economists argue against debt forgiveness on the basis that debt forgiveness would motivate countries to default on debt obligations. Debt forgiveness for pretend banks instead of Third World nations — who would have ever thought. Printing up new currency and demanding reserves be held in what had become pretend banks.

As for public policy concerning the ongoing pay of chief executive officers, government has not stopped the derivatives? What had happened to the world of credit derivatives? It still was here, without reserves backing the financial vehicles? What had happened to the systemic risk? This week in testimony before the Financial Crisis Inquiry Commission, Warren Bufffet was asked by a panel member, Brooksley Born, the former chair of the Commodity Futures Trading Commission, if the derivative market was “still a time bomb ticking away.”

“I would say so,” he said.

After all of the working groups and government-sponsored investment efforts. Of the total $30 trillion funded world-wide bailouts and stimulants, American sources had funded up to $20 trillion dollars, through markets from “direct lending and indirect backstops” with the litany of bailouts, stimulus, conduits, mortgage freezes, and foreclosure programs. According to the New1 York Times, the derivatives market in 2007 was $531 trillion, up from $106 trillion in 2002. And the same people were in charge? While global central banks and government agencies continued policy of creating credit. Cheap money. Where were interest rates set — the Federal Reserve Bank policy that was responsible for this mess? And it has been 5 months since the Financial Crisis Inquiry Commission got underway. Where was our own spotlight being shed by the commission on lustration of capitalism?

Following the collapse of communism, the word was “lustrace.” Considering sanctions or penalties designed to purge former party members, or really evil informants, or all the collaborators. Those in various degree of secret service to the system. Instead of letting power stay with the same suspects. The word was LUSTRACE— following the collapse of communism, in the post Berlin Wall days of Czechoslovakia or East Germany. In nations which never had reconciled what had happened since Hitler had come to power. In the days after the Berlin Wall fell, when those in power during Soviet Administrations stayed in power. As the invisible ink became visible, buying up properties. The proponents of the laws of lustrace said that it existed to prevent members of the old regime from exploiting their old advantage in the system and regaining influence. It was an attempt at reducing systemic risk in public service.

Systemic risk with public monies. Systemic risk in public service and to public policy concerns over moral hazards. This was a larger story than the destruction done in one day on September 11, 2001.

Some economists argue against debt forgiveness on the basis that debt forgiveness would motivate countries to deliberately borrow more than they can afford, with recurrence of a default on their debts. Moral hazards and public policy concerns over ongoing pay of chief executive officers — and to their cronies, like Timothy Geithner.

In the 1990s, the key economic power-brokers of the United States “were totally opposed to it (regulation),” Brooksley Born said. “That puzzled me—what was it that was in this market that had to be hidden?”

As Under Secretary of the Treasury for International Affairs (1998–2001), Timothy Geithner had worked for Treasury Secretaries Robert Rubin and Lawrence Summers. Where reportedly, Summers was his mentor, other sources called him a Rubin protégé — the key economic power-brokers of the 1990s. There was no lustrace, on Wall Street or Washington following the total collapse of the investment banking world.

Of all the bad mores. Of the financial rescue of banks. Of institutions, and not people. With little more than
just debt forgiveness for those five investment banks, but all the other financial institutions in the United States. And derivatives still are a perfect way of getting rich, while avoiding taxes and government regulations, in a volatile global market. Derivatives still remain a lucrative business, with all of the Generally Accepted Accounting Principles. At Ernst and Young. Those terrorists operating within the system who affect my safety inside my own home.

After wide and “robust discussions,” G20 ministers heard this weekend French delegates strongly defending the credibility of the Euro after its recent plunge to a four-year low. In a change of tone from the document produced by G20 finance ministers six weeks ago — the concluding communiqué introduced a call on world governments to put their fiscal houses in order. With differences over how quickly to rein in public spending, Treasury Secretary Timothy Geithner warned at the G20 meeting that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.”

I wonder from what Geithner these days has begun “to insulate himself? With the Financial Crisis Inquiry Commission underway, according to a January 2010 Bloomberg piece by Hugh Son, the Federal Reserve of New York, under the leadership of Timothy Geithner, told AIG to withhold documents and delay disclosures of details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails over a five month span starting in November 2008 between the company and its regulator show.

In November 2008, the New York Fed had taken over negotiations between AIG and the banks as losses on contracts tied to subprime home loans threatened to swamp AIG, weeks after its taxpayer-funded rescue. The New York Fed ordered the crippled AIG not to negotiate for discounts in settling the credit derivative swaps, crossing out the reference to discussion of a discount of up to $13 billion that tax payers funded, according to the e-mails. AIG excluded the language when an SEC filing was made public on December 24, 2008. This was the backdoor bailout of Goldman Sachs and more than a dozen banks which were owed $62.1 billion of the credit derivatives. A news account reported that a REGULATOR decided that Goldman Sachs and more than a dozen banks would be fully repaid; was this actually a New York Fed official — the New York Fed — deciding that AIG could not discount anything, all to the benefit of Goldman Sachs?

At the time, Geithner “was recused from working on issues involving specific companies, including AIG.” In a separate statement, a spin doctor said that Geithner, after his nomination for Treasury secretary on Nov. 24, 2008, “began to insulate himself weeks earlier in anticipation of his nomination.” Let me see……Former New York Federal Reserve Board member Timothy Geithner who worked at the New York Federal reserve through the Bush years. In a January 2010 statement, a spokesperson said that Geithner, after his nomination for Treasury secretary on Nov. 24, 2008,“began to insulate himself weeks earlier in anticipation of his nomination.” From the New York Federal Reserve Board.

In a world where governments levy taxes not to finance its operations, but to give value to its fiat money as sovereign credit instruments, Timothy Geithner expressed at the conclusion of this week’s G20 meeting concern over the confidence in the system. Whereas French Finance Minister Christine Lagarde said yesterday that budget consolidation is “priority No. 1” for most G-20 members. He has seen what had happened in 5 months to the currency. His own currency.

In the United Kingdom, government was actually discussing increasing taxes and cutting spending. Canada this week ACTUALLY raised interest rates. Senior Hungarian government official Peter Szijjarto said Friday the previous government had manipulated budget figures and lied about the state of the economy, leading to a new question if Hungary was June’s candidate to replace Greece in the fiscal peril of 2010.

There would be a massacre in bond markets when interest rates rise, and where there will be no safety in stocks. After all the money which has poured into the perceived safety of bonds.

The rules all changed in September 2008, with government intervention into private enterprise, which was not enough to halt the unraveling of the financial system, not back up by reserves. For the day the losses would come. The clear and present danger, when markets were no longer free. Because political leaders just quit doing what they had always done. Regulating. Detached leaders trying to get re-elected, unable to get a handle on the grieving process of loss. Unable to regulate. In denial over the global economic imbalances.

In a world still trying to deal with loss, the G20 met with noble intentions to grapple with the harsh reality of the depth of the public debt morass, with all of the communal consequences, including risk of global instability.

In once free markets, which were allowed to pursue truth in valuations, what would happen to currency? In the New World Order? To freedom? To all freedom? After the Ponzi schemes called derivatives still were supported by governments. As economies stressed, and became the cause of new wars. When the “law of force” meets the “force of law.”

Director of currency research at GFT Forex in New York, Kathy Lien, said: “You won’t see major players be blatant about increasing their gold exposure and reducing their euro exposure. But it is a trend we’ve been witnessing in the past few months.” In Russia. in Iran. And with those Euro holding in China under review.
According to data on the Russian central bank website, the central bank of Russia trimmed its currency reserves by $6.6 billion in May, increasing its gold reserves by $1.8 billion. With more signs of shifting movement lately of euros and into gold –In an unconfirmed report — an Iranian news agency reported last week that Iran had begun switching €45 billion of its foreign-currency reserves into gold and dollars.

It is all about currency. And bonds. When there was no place to hide. What makes the Dow 10,000 this month look better than the Dow in February 1996 when it was at 6500? When there was a lot less stress in the world over currencies.

It was the currency, stupid. Campaign 2012 was going to be about the currency. Anger was one response. Or actual moves made to protect a currency. Because of the injustice of the bailout. And falling currency values throughout the world. When people no longer trusted government. When confidence was lost in people who messed with the system. Because of greed and power. The greed that financed political campaigns. Of Democrats and Republicans. As most of us looked on helplessly, at the elected transparent Democrats and Republicans. Or with either contempt or disgust. With a brewing restlessness on display over the greed, and the “give ‘em what they want’ method of accounting. Whereas few of those enslaved because of debts were ever freed. And more and more became Third World Nations.

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The Spill-over

That oil rig, Deepwater Horizon. And the oil spill. These gigantic mobile oil rigs. Was the story just a replay of September 2008, and TARP money? When it had reached the point where only the oil industry knew how to address the problem of the leak. The gigantic leak. A lot like that bailout put together by Henry Paulson? Or so we were told. A leak that was threatening to destroy the way of life of the coastline from Louisiana to Maine.

What was the scale of the problem? This all sounded to be the same story as the Troubled Asset Relief Program. And there would be government’s maximum exposure, like there was to financial institutions. As we still were calculating the cost of worldwide rescue of banks. Because in the New World Order, governments everywhere thought they had created the world. And leaders used television to convince the rest of us of the Truth. Showing up at every disaster. To show us who was in charge. Then having those CEOs appear to testify at a Senate Panel. Like the CEO of BP. Served up at the Senate grille. And then he was back home.

British Petroleum. A private company that all too soon could vanish, the way Arthur Anderson had. For not doing their job to professional expectations. And the people were left with mess. With a lot of former Senators, who had not been doing their job, watching from afar.

What was it about men and woman running for public office who never read the job description. Where the job description of public service, was supposed to involve looking out for the public. To bring order. Was the cause of panic and bank runs, the people who quit serving the real public? The real people.

I wanted the real world back. I wanted a president who did not sound like a plaintiff attorney making his opening argument in a products liability lawsuit. Addressing fault. While no one addressed the real damage. All these legislative lawyers who could not get a handle on the damages. I wanted a president who did not sound like a defense attorney making his closing argument, trying to limit the amount of the damage award. With all the men and women who oversaw the watchdogs in the federal government overseeing the oil industry -like the Coast Guard. Real watchdogs already in place. But leaders who needed oil money and bank moneys to get elected. To finance the commercials on television. On networks like NBC or cable TV, like my own cable company Comcast.

Versus. Owned by Comcast, with an an NHL deal, also giving Comcast part ownership of a U.S. version of NHL Network. And then there was Fox Sports. Now with 25% ownership of the Colorado Rockies. With speculation in Texas, that Fox Sports wanted to buy a share of the Texas Rangers. The team owned by creditors. In relation to troubled assets. A team which George Bush operated after he left the oil industry. Before turning to politics. How much credibility was there with all these team partners broadcasting baseball games? How much truth was left any more. In baseball? In television? In government, after the elections? Did you watch the Olympic broadcast from Beijing? How truthful was networks news on NBC about the happenings in China?

In a world with pretend banks, there was all this pretending by elected officials. By the incumbents. On television. With their votes on pretend dollars for those pretend banks that all needed rescue. To keep those bubble inflated.

And so the elections in Kentucky, Pennsylvania, Indiana. After Massachusetts elections. It was the morning after, once again, when the hot air was gone. For a while. With Democrats and Republicans unable to continue to meet the needs of customer base. Both retail and commercial. With watchdog working like Maytag repairmen? On the old commercial.

The “gang” problem had come to a neighborhood near you. When only the oil industry knew how to address the problem of the leak, and government just keep letting British Petroleum attempt to fix the problem. The gangs were in charge.

There was this ongoing failure by the government to address the U.S. financial system, in banks and in oil. With a system of government, financed by lobbyists, Congress and presidents, Republicans and Democrats, let financial institutions concoct a fix to the problem that in their greed they created? And those salaries paid to the CEOs, so far above the real working people.

In a world with street smarts, you learned eventually of all the deceit. In a world of pretend banks, no one who owned a home with a mortgage would escape the “pretend” world, with late charges and fees for late payment to the voters who had somehow been forced to save banking institutions. No one has been searching for individual wrong-doers in a world of institutional wrong dealing. When too much of their media holdings like the old brothel down the street, 100 years ago. Now with franchises everywhere.

The results of the elections last night were a lot like the investigation of Tom Petters, commented by Assistant U.S. Attorney John Marti yesterday. “”We didn’t know who were wearing the white hats and who were wearing the black hats.

Apparently government officials are having a hard time distinguishing the hat colors. About 180 Gwinnett County employees in suburban Atlanta are being asked to return thousands of dollars the county says they were overpaid 16 years ago. And to recover $76 million in over-payments, Hennepin County District Judge Janet Poston’s ordered 563 beneficiaries of a firefighter fund to repay an average of about $43,000, while 860 retired police officers or their survivors were to repay an average of $60,000 to the city.

The spills. The urgency that went with spills. And overpayment by government. Of tax dollars. Those feelings of abandonment. When no one -NO ONE- was watching out for my interests. Seeing beyond the illusions. Into the waters around the Deepwater Horizon and the after-affects of an oil spill. Government might figure it out in 16 years. Unless voters try to implement some other way to clean all of this up. How long did it take to move these gigantic mobile oil rigs?

Using the American Express Card

They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made. —F. Scott Fitzgerald, The Great Gatsby

If it was not bad enough when taxpayers are liable for the recent $23.7 trillion the Fed and Treasury handed out. Now comes word that the Federal Reserve Bank is participating in the rescue of the Greek government, along with the International Monetary Fund, the Japan Central Bank and the European Central Bank. The New York Times noted today that the sovereign debt crisis came on after an admission that the level of Greek debt was much higher than previously reported, due to bad management. The value of the euro, dropping from US $1.36 on January 21st to US $1.26 by the end of last week, was eroded by the debt issues of Greece, Portugal and Spain.

With the inability of these nations to share a single treasury, tax system or budgetary authority, the euro is largely a concept. A crisis, which centered seemingly on the recognition of the illusion of the currency, when those European countries lacking a coordinated financial backing for the euro, controlled by the independent European Central Bank much like the Federal Reserve, was resolved Sunday on nearly a one trillion dollar rescue fund to deal with the European debt problems.

While Americans argue about offering health care coverage to illegal immigrants, The Federal Reserve Bank was offering more than good words to these European political problems. This news is not going to play well in Peoria.

The Love Boat

“A little nervous,” about his return. Tiger Woods was a little nervous, on how his fans would react. When he returned. Like he had many fans left. I wonder if he was “a little worried” about Elin, and how she would react when he returned.

Relevance. In the land of beauty, if not truth. Health care reform in Lala Land. Planned by community organizers. Years after the Love Boat was canceled. Someday the Love Boat had to return to land. In the world of reality TV, somehow this bill had passed.

Ah, the need for good rating, when there still was a television network to operate. In the Age of Beauty, this golfer was a real beauty. CBS would be airing much of the Masters golf tournament in April, where Tiger Woods returns to the game. “Depending on the specifics, we are interested in an extended interview without any restrictions on CBS,” said CBS Sports spokeswoman LeslieAnne Wade.

Tiger was giving a 5 minute limit this week to the Golf Channel. For an interview. Maybe like he planned to give to his old swarm of swarmy friends. ESPN took him up on the limited offer. Saying the chance to get Tiger Woods on the record answering questions for the first time was more important than a five-minute time limit, ESPN was there. Their purpose was entertainment and sports. It was what the initials stood for. Not unlike the hired help that Tiger had gone in pursuit for his entertainment. But ESPN was allowed to choose its reporter for the interview. Golf reporter Tom Rinaldi went. Hey, but ESPN made no agreement on what could or could not be asked, Rinaldi said. Woods’ representatives offered the interview to ESPN on Thursday, in response to a long-standing request for a one-on-one, said Vince Doria, the network’s senior vice president and director of news.

In response to a long-standing request for a one-on-one, said Vince Doria, ESPN senior vice president and director of news, Woods’ representatives offered an interview to ESPN on Thursday. The sleaze was still visible. Maybe that was why former White House press secretary Ari Fleischer had elected to withdraw from the paid services of Tiger Woods, according to his e-mail to the Associated Press. Perhaps he already had given enough years in his life, in service o his country, to having to address sex issues of other clients.

Ah, limited truth. Health care reform. For the uninsured. For those who try to use emergency rooms for primary care. What would be covered? Dental insurance? Were not my teeth part of my body? And what about treatment programs for addicts? Would that be covered? Funded by the working public. Why not?

The new society, modeled after the world of Europe at the start of a new century. Modeled upon the Europe that was dying. Modeled upon an urgency not unlike getting Tiger on the record answering questions for the first time. This Congress that was not unlike the last session which had passed funding for TARP legislation. Speaking of sleaze. And the $787-billion package of tax cuts and spending in the Troubled Asset Relief Program. The first Recovery Act before this one.

“A little nervous.” I think the majority of Americans this morning were, like Tiger, just a little nervous. Worried about the day the Love Boat returned to the real world. Those first days back after going through recovery. In the days of hope and change, we were all a little nervous. Over how this all would work out. With all the friendliness of those people conducting IRS audits, only this time reviewing my health care. Speaking of docs. As the Love Boat was hoping to find port. A lot seemed to have changed. At home. Since the Love Boat departed.

Don’t Ask, Don’t Tell: Politics Around the World in 2010

Perhaps to avoid protesters, representatives of the G-7 nations have gone to a city of 7,000 near the Arctic Circle to discuss, among other things, Greek debt and China’s currency. With only 300 available hotel rooms, 500 members of the global financial community, including U.S. Treasury Secretary Timothy Geithner and Britain’s Alistair Darling, gather as the euro has fallen from a mid-January $1.44 to $1.36 on February 5th, with risk of further blow up with concerns over the weak finances of other euro-zone countries of Spain and Portugal. Global warming is not on the agenda. The Greek finance minister admitted that the nation could not keep paying 10-year bonds at 3.96 percentage points more than German debt. Concern was whether Greece will be able to pass its budget, which proposes drastic cuts and huge public sector lay-offs, after riots last year and with huge national strikes scheduled for the coming months. The worries about the solvency of Greece involves high deficits, fake budget figures, and low growth.

Government levies taxes not to finance its operations, but to give value to its fiat money as sovereign credit instruments. This meeting was all about the value of currency. With the return of global growth, with China leading the world recovery, Timothy Geithner is expected to bring up the yuan which China has re-pegged to the dollar. By the end of Mr. Obama’s first term in office, the strength of the yuan might change world economic history. With China holding over $1.3 trillion in Treasury debt of the $2.5 trillion U. S. Treasury debt, and a weakening U.S. Dollar as Foreign Reserve Currency, there is the fear China will replace the dollar as the main foreign reserves. A unified G7 position may strengthen Geithner’s position in discussing trade with Chinese officials next summer.

James Chanos is a hedge fund investor who is warning that China’s hyper-stimulated economy, with its own surging real estate sector, buoyed by a flood of speculative capital, looks like Dubai “times 1,000 — or worse,” and is headed for a crash. Rather than the sustained boom that most economists predict, as America’s pre-eminent short-seller, Chanos suspects that Beijing is cooking its books, and faking its eye-popping growth rates of more than 8 percent. The New York Times ran a story on Chanos on January 7, 2010, which include his own record of predicting Enron’s demise, spotting problems at Tyco International, “the Boston Market restaurant chain, home builders, and some of the world’s biggest banks.” His hedge fund is Kynikos Associates.

Economic unification and continued political independence of nation states, write Floyd Norris in the New York Times, was what was fueling this crisis of identity for the European Union. It was what also was causing a lot of divorces in individual homes around the world.

With major banks on the hook for much of the debt, Greece owes the world $300 billion. Helping Greece meet Europe’s deficit rules in 2001, just after admittance to European Union, Goldman Sachs helped the Greek government hide from public view a transaction treated as a currency trade rather than a loan, as Greece quietly borrow billions. With the help from the wizards of Wall Street, Greece engaged in an effort for the past ten years to skirt European debt limits. Before Greece became the center of recent global financial anxiety, which had been predicted since at least the new year of 2009, records show that representatives from Goldman Sachs arrived in Greece in November 2009 proposing to obscure billions in debt from the European Union budget lords, aiding in search to forestall a Greek day of reckoning. he offer to the government struggling to pay its bills was rejected. In deals in Italy and in Greece, banks had previously provided funding upfront in return for rights to airport fees and lottery proceeds through 2019, with those liabilities then left off the books.

There was a monetary arms race going on. Everywhere. China’s currency reserves of $2.4 trillion is a bubble all its own, which is actually an Asia-wide phenomenon.

The reserve bubble was a monetary arms race that, for the world, was not a source of strength, though China was rescuing nations, trying to win friends among nations in need. One pundit noted that the state asset managers in China have replaced the PIMCO funds as well as the World Monetary Fund as a source of aid packages, without the prerequisites that used to come with the money. The air in the bubble, this vacuum, would eventually lead to more suffering than the people in an earthquake nation has seen in recent weeks, when the ground gives way.

Unification and continued political independence. Television with its sponsors was not doing a very good job bringing the entire story to the mass audience.

When Statistics Stole the Show

The “statistical economic recovery, with a human recession.” And so the story in February 2010.

Accumulating cash and highly liquid securities protects banks from the volatility of credit markets and prepares the bankers for stricter liquidity requirements expected from regulators, the chief executive of Wells Fargo noted during the conference call with brokers on Wednesday. Those banks had the rationale to hold back. The real worry is that WHEN INTEREST RISE, and it will happen, rising short-term rates over the life of a loan will eat away the banks’ profits, IF a bank made the loan in the first place.

The real story of the decade was the ongoing off-budget black holes in the budgets. The Iraq War has been one such ongoing black hole responsible for he eroding value of the dollar.

POST SCRIPT: The Federal Reserve would consider, it was announced on February 5, 2010 by William Dudley of the New York Federal Reserve Bank, IF interest rates spiked or the economy showed new weakness, reopening the $1.25 trillion purchase in mortgage-backed securities scheduled to end on March 31, 2010 which has been propping up the economy. Dudley said the time is right to end the program because the economy is growing, and because expanding the purchases would make it harder for the Fed to unwind its support down the road.

The meaning of the puzzle? This one piece of the puzzle suggests more Fed printing is on deck. The Federal Reserve within the first quarter of 2010 would announced that it was extending and expanding its money printing operation to support a failing economic system. As the European Union was wrestling with the economies of Poland, Ireland, Greece, and Spain, the United States was trying to finance wars overseas which have not been part of any reported deficits spending by Washington, along with dealing with the credit derivative scandal.

The Cost of Fantasy Football & Fantasy Money

Zero sums gains. When I lose, who wins?

Since 2002, my retirement accounts are worth 38% less, being in U.S. dollars, compared to a basket of currency in exchange traded funds. Where did that 38% go? By the end of October 2008, more than half of the U.S. banks were pretend banks.

With fiscal policy, American all had pretend dollars in oh so many pretend banks which were for all practical purposes, insolvent. Pretend banks, a lot like a house of cards propped up by elected officials who have postured, positioned and proffered assurances. Bankers ,who should have been out of business, making those very nice salaries. Incompetent bankers.

In November 2008, Elizabeth Moyer wrote in Forbes that fighting the financial crisis put the U.S. on the hook for some $5 trillion, perone report. The inspector general for the Troubled Asset Relief Program (TARP), Neil Barofsky, reported that since 2007 nearly $24 trillion was exposed in government money to financial institutions, after he examined the programs (50 of them) set up by the Federal Reserve as well as by the Bush and Obama administrations.

In a more recent report Scott Reamer of the Vicis Capital Hedge Fund reports American sources have funded upwards of $20 trillion dollars of the total $30 trillion funded world-wide through markets from “direct lending and indirect backstops” with the litany of bailouts, stimulus, conduits, mortgage freezes, foreclosure programs, working groups and government sponsored investment efforts, all while global central banks and government agencies are creating credit. All at the cost to currency values and the U S Dollar. It was like the invisible cost that the Goldman Sachs, the Fidelitys made each year charging me 1.5% managing my mutual fund IRA. The fees never appeared on any statement. It was all a free ride. Was this all just one big illusion?

There was still a clear and present danger to the total system. The invisible ink would soon become visible.

Systemic symptoms. When the financial system got inflammatory bowel disease. There was wonder here, like a patient with Crone’s Syndrome, accompanied by diarrhea, if things will ever be the same. Last week the Treasury Department said Thursday that the deficit for October totaled $176.4 billion. For one month!

“As growth recovers and strengthens, we’re going to bring our fiscal positions back to a sustainable balance,” was the quote from Timothy Geithner.

Fear. You carry it around on your shoulders. Everywhere. Or in your pants. “Banks bear some responsibility for the extent of the damage caused by the crisis,” Geithner said today at a small- business conference in Washington. “You carry a substantial obligation to help our communities get back on their feet.”

SOME RESPONSIBILITY
for the extent of the damage?

How big a factor is Wall Street’s greed and lack of morals? Is it morally acceptable to pay yourself $14.2 million? In 2007 the chief executive of a Standard & Poor’s 500 company on average made $14.2 million in total compensation. In 2004, the ratio of average CEO pay to the average worker was 431-to-1, compared to 107 times more in 1990. At the height of the tech bubble, the ratio of CEO compensation to the average pay of a production (i.e., non-management) worker in 2001 was 525-to-1, according to “Executive Excess,” report which was released by a liberal research groups United for a Fair Economy and the Institute for Policy Studies.

People who felt they were immortal. Pulling out all the stops in an attempt to flush the system with liquidity. Policymakers. Congressmen and Congresswomen.

There is growing distrust of America. Has the fact war debt was never on the books of the Congressional budget been heard in China? It was not well known in the United States. How could policymakers, your House of Representative who approves the budget, never have seen the cumulative imbalances building? These 435 members of Congress believed in their own illusion of greatness?

The Pew Research Center for the People & the Press is an independent, non-partisan public opinion research organization. On November 11, 2009, The Pew Research Center issued a survey indicating a glum mood of Americans, where two-thirds of the public is dissatisfied with the way things are going in the country, with fully nine-in-ten saying national economic conditions are only fair or poor, and nearly two-thirds describe their own finances that way – the most since the summer of 1992.

It seemed time for the working man and woman to take back the Democratic Farmer-Labor Party from the lobbyists and elected officials like my representative in the House of Representative who voted to support this. Betty McCollum seemed to think all of this was all just some kind of a pursuit like fantasy football.

Todd Harrison writes at his most recent pieces on MarketWatch the current course of fiscal and monetary policy is absolutely insane. Through the lens of Albert Einstein who once said that the definition of insanity was doing the same thing over and over again and expecting different results. The same thing in this case being monetary policy with interest rates below one percent.

Hyman Minsky was an economist who wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention, like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. THE ACCESS to cheap credit is still there. For some.

Some facts from 2008:

World GDP $47 trillion
World stock valuation $121 trillion
Bond market $85 trillion
Credit derivatives$473 trillion

Whatever happened to those credit derivatives? The last number I read put the credit derivatives market was $560 trillion. Are companies yet required to place reserves on credit derivatives, like the state regulated insurance industry?

On May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Because the rest of the world is unable to extricate themselves from the interwoven financial machination. In a nation where the average credit card debt is $8,300. Masking by the spending habits of a slimming margin of society, as well as by the federal government, with the populace unaware that they have been skewed, here comes the affects of a lower dollar. Down 12 percent in one year. Down 38 per cent in five years, in part to finance the war in Iraq. And now in Afghanistan. As I understand it, war debt never was on the books of the Congressional budget. While Goldman Sachs keeps manipulating markets with access to cheap money, and rewarding money managers way beyond measure. When no one questions the morality of a paycheck, Of over indulgence.

Fear. In the free world. “Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.” – Charles R. Morris

Charles R. Morris, a former banker, is the author of he Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash before the 2008 market collapse.

Hyman Minsky said euphoria ensues as people pile into a sector, with a driving demand to affect higher prices, often with borrowed money. In this case, continued cheap money. With an arrogance. With no sense of morality. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

The social engineering in September 2008 was all about government trying to keep capitalism going. Is it one big Ponzi scheme? With lobbyists playing a central role? Those derivatives, not backed up by reserves. When the laws of survival of the fittest in the market place had been always about letting systems collapse. Until there was Henry Paulson. And Congress. Democrats and Republicans. Without a clue. Or they believed in their individual greatness? In the big illusion.

Slowly China is tweaking the financial system. The one based upon the dollar. The system in which the OPEC nations along with China have seen their loss of valuation of 38 percent too. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold which used to create a built-in support for a strong dollar that in turn forced the world’s central banks to acquire and hold more dollar reserves. Making the dollar stronger. In the world before September 2008.

In July 2009, Zeng Peiyan, the head of China Center for International Economic Exchanges and the former Chinese Vice-Premier, in a speech in Beijing called for a new system to ensure the stability of the major reserve currencies, according to the China Daily. In China, Obama met with Chinese government officials who say one thing, while central bank chief Zhou Xiaochuan believed in the development of a new super-sovereign currency largely taking the place of the dollar. He actually had accountabilities for banking in China.

On the heels of discussion at the G20 meeting of a new world currency, Chinese Premier Wen Jiabao in April 2009 called for more surveillance of countries like the United States that issue major reserve currencies.

If you missed it, Timothy Geithner has insisted that the US Treasury has a strong dollar policy. Top story in November 2009. He said the Obama administration was committed to a strong dollar and to actions aimed at bolstering its value, giving reassurances to Asian nations last week. He comes from the world of central banks where expressions in bankspeak are neither normal or clear in normal everyday discourse. It is not clear if the strategy between the Fed and the European Central Bank is coordinated or not, or to what extent. It has been written that lectures were given President Obama and Timothy Geithner by top Chinese officials earlier in the week about the risks posed to the global economy by America’s ultra-low interest rates and soaring government deficit. The New York Times reported that Mr. Obama had NOT extracted a fresh commitment from Beijing to revise its policy of keeping the renminbi pegged at an artificially low value against the dollar soon. On Tuesday Obama “could only cite China’s ‘past statements’ in support of shifting toward market-oriented exchange rates.” Was this all an illusion? Some kind of fantasy football? Who would we start this week?

The Wall Street Journal reported on the clumsy fashion at a media “availability” where President Obama and Chinese leader Hu Jintao issued ambitious statement on cooperation but took no questions, while exhibiting body language that seemed to say they had been frustrated by the entire exercise, and they did not address each other. “Mr. Obama expressed pleasure at China’s longstanding pledge to move toward a more market-based exchange rate over time, something Mr. Hu didn’t mention.”

With the Chinese government growing restless, some day soon the federal government won’t be able to keep interest rates artificially low. The dollar’s falling sharply relative to other currencies is an ominous sign. In the marketplace people can move to a new vehicle, since Mr. Bernake has punished all savers. There is growing distrust of America both internally and externally. Mostly about this fantasy money.

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The Buck

The New World Order was here. Timothy Geithner met with Japanese Finance Minister Hirohisa Fujii this week in advance of the Asia-Pacific Economic Cooperation forum in Singapore on Thursday. On Wednesday, the dollar was trading just below 90 yen. Last month, a prominent Japanese currency strategist predicted the dollar could fall as low as 50 yen by next year. Geithner and Fujii paid lip service to the U.S.’ strong dollar policy, knowing full well that a weaker dollar is in the best interests of both countries for the time being, despite its very real and painful side effects.

Marketplace.com’s Lisa Twaronite reports quotes Bank of Tokyo-Mitsubishi UFJ strategist Naomi Fink,
“I have no doubts that Geithner defends a ‘strong dollar’ as a large economy would if it wishes to avoid flight from its assets as it increases its balance of debt. Yet like it or not, exports are actually less relevant than they were a year ago.”

“Exports comprised about 12% of the Japanese economy as of the second quarter, compared with about 16% at their peak, Fink said in an email interview. Consumption has risen to nearly 60% from about 54%, due to the reduction in exports and investment. Oil and most other commodities are traded in dollars, meaning a weaker dollar lowers Japan’s imported energy and materials costs. Naomi Fink said, ‘So perhaps the message here is that Japan should focus on domestic consumption and investment as to find a home for a greater volume of U.S. exports, thus narrowing the United States’ trade deficit?’ Fink added that in her view, it was ‘hard to see this happening,’ leaving a stronger Japanese currency as the most likely way to keep Japan from leaning on its old export crutch. ‘Japan might not wish for a weak dollar, but will probably have to bear with it, if it is to face the reality of reduced dependence on exports to the U.S.,’ said Fink. With the combination of fewer exports to the U.S. and lower oil imports and prices, the relevance of the U.S. dollar to Japanese trade has thus been reduced by default.”

“A stronger yen, while it adds to deflationary pressure here, can also help the newly Democratic Party of Japan achieve its goal of shifting the country away from a reliance on exports in favor of domestic-demand-led growth. While a weak dollar could in the long term bring down the U.S. trade deficit significantly by shifting consumption away from imports and by encouraging exports as they become cheaper on world markets, while at the same time discourage overseas investors on U.S. assets.”

The 21-member finance ministers’ meeting was the opening act for President Obama’s first state visit to Tokyo with Japanese Prime Minister Yukio Hatoyama before he heads to China. And then there was the Chinese yuan. Obama said on Monday that “currency, along with a host of other issues, will come up. I am confident that both the United States and China can arrive at a broad set of policies that encourages trade that benefits both countries, that allows ongoing economic growth.”

Economists say that Beijing artificially holds the value of the yuan down to make Chinese exports cheaper, American goods more expensive for Chinese consumers, with limited access to Chinese markets. Obama plans to raise the issue of their currency with Chinese officials in Beijing next week, a potentially disruptive topic for foreign exchange markets.

At their Pittsburgh summit in September 2009 the Group of 20 leaders aimed policies to ease the massive trade imbalance between China and the U S which has led to imbalances in the world economy by contributing to trade surpluses in China, big trade deficits in the United States, and cheap Chinese exports to the United States.

China’s relatively low-valued currency remains a focus of the financial markets. With their own high unemployment in Guandong in the important export regions from a slump in activity, there are no signs China will allow its currency to strengthen. The trade sector continues to be a drag on growth.

“We expect calls for yuan revaluation to be soundly rebuffed,” said Carl Weinberg, chief economist at High Frequency Economics. In the summer of 2008, before the September 2008 financial crisis blew up, China re-pegged its currency to the dollar. The key question is whether and when China will resume letting its currency strengthen. With the Chinese investment earned from exports put into U.S. government bonds, branding China a currency manipulator could anger a crucial U.S. creditor. There are no signs of any painful adjustments in the United States as to whether Mr. Obama will begin to cut spending or raise taxes to finance his goals.

Mr. Obama said say that the two countries share a common interest in delivering sustainable growth that will help rebalance the global economy. “They have a huge amount of U.S. dollars that they are holding, so our success is important to them. The flip side of that is that if we don’t solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship,” he said.

Performance Enhancement After Affects

Tsunami warnings. Times of panic. When the water recedes.

Money-market funds are no longer insured by the US Treasury. When the Reserve Primary Fund share price fell last September a bit below a dollar, the U. S. Treasury stepped in offering protection against losses, to prevent a “run” by money-market depositors. Commercial banks paid premiums for federal deposit insurance for such protection to the federal government which they are required to have. That money-market fund protection continued in the panicked climate of the last 12 months but came to a stop Friday.

On September 3, 2009, Chris Oliver wrote a piece about the biggest movement in gold which might have gone little noticed by currency traders. The Hong Kong Monetary Authority, which functions as the territory’s unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in a statement. Local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs. According to its International Reserves and Foreign Currency Liquidity statement, the Hong Kong Monetary Authority reported $63 million in physical gold reserves as of July 31, 2009, thought to be stored in London.

A newly built 3,660-square-foot depository, located at the city’s main Chek Lap Kok Airport,will serve as a “storage facility for local and overseas government institutions. The facility would support Hong Kong’s emergence as a Swiss-style trading hub for bullion and would lessen London’s status as a key settlement-and-storage center, Chris Oliver wrote. Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to Raymond Lai, finance director with the Hong Kong Airport Authority. Managing director at Scotia Capital, Sunil Kashyap, said the facility was the first with official government backing in the region. Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group, said, “Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal,” and this could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.

Management firm Value Partners planned to launch an exchange-traded gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, a local newspaper reported. Traders said the new depository facility could foster new financial products, such as exchange-traded funds based on precious metals. “Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region,” said Sunil Kashyap.

China has always shown a respect for the American dollar which comes from the history of the dollar. Now however, a larger interest is growing in China not to fall prey to wide currency fluctuations. Exports which have until now needed a reasonable balance in foreign accounts, a major share made up of the U S dollar. Paul Volcker spoke last night on the Charlie Rose show of the need in China to avoid social tension that is directly linked to currency.

The moves by the Fed last October are now starting to look a lot like a patient weened off steroids. It was not just the American electorate looking at how all the newly minted money was going to be paid for. It was either through tax increases or budget cuts. If the dollar was going to maintain any kind of value.

In the Shadows of Those Cloakrooms

Twelve months ago, there was talk of a revolution coming in the financial markets, which was financially supported by the 3500 lobbyists in Washington, for both parties. There was a new form of fascism in those stories at the time. That is if “fascism” was a word about comforts, with government offering instruction how all of us could live easier. With the help of former Goldman Sachs officers in government, government was now deciding, 12 months later, who were saved, which among us were rescued, at least amongst financial institutions. The free market had been replaced.

If the revolution in the financial markets was not enough, how did you feel as Congress was coming back from summer recess, from all the dog and pony shows, to address not the health care crisis but how, with a nation with an aging populace, to pay for health care. At a point in time when government through Medicare had not exactly been covering the cost of new technology in hospitals, was not paying a fair share. Yet health care itself had never been better.

In the debate, there are people who desire government to decide all of the issues of health care. How much to pay medical institutions, when government was not, had not been, reimbursing hospitals the true cost of taking care of patients with Medicare. Government now wanted to mandate the amount of reimbursement for all procedures, and somehow distribute the cost throughout the entire population in the form of premiums. People who thought government was honest seemed to support the concept. Did they know about the 3500 lobbyists in Washington who had been working for more than a generation to make sure the system was not fair? How had these health care reform supporters felt about the bailouts? (In the case of my Congressional Representative, Betty McCollum supported both the bailout and health care reform.)

Like in those financial bailouts, government was now deciding, if Betty McCollum got her way, who would be saved, which among us would be rescued, amongst both health care institutions, and their patients. Suddenly aware that government knew it had the power to print money, increase property taxes in the states, and if the need were come, to confiscate everything, now they would decided every health care procedure. We had yet to hear specifics how Washington would replace those Blue Cross Blue Shield claims people to make the same kind of every day decisions with all the love and care I found when I went to renew my license plate tabs.

The timing was not real good in September 2009, less than 12 months after the revolution in the financial markets. Not when this discussion seemed more like elective surgery. With a lot of swine flu around. I hoped the vote might be postponed for 6 to 12 months. Until the patients had a lot more strength. Until the president had the courage to introduce the specifics of a bill himself, with some accountability, rather than rely on Congress or the 3500 lobbyists in Washington to take the citizens to a health care destination. Congress had not done a very good job dealing with triage in the last crisis, but that might have been due to a president who just wanted to get out of office after creating the mess himself rather than actually lead.

I wonder if somewhere in those August dog and pony shows from New Hampshire to Montana, if the president heard someone ask when he might introduce the actual legislation that might work. If Congress had spent the time to approve his appointment so he had enough staff to work on a bill.