Baseball91's Weblog

June 6, 2010

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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2 Comments »

  1. Comment by baseball91 — December 20, 2011 @ 3:14 PM | Reply

  2. Comment by baseball91 — December 16, 2014 @ 10:40 PM | Reply


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