WAVE GOODBYE TO THE DOLLAR

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Jun 112011

BEN BERNANKE’S speech on Tuesday got all the attention, but the speech later that day by Bill Dudley, head of the New York Fed, is more intriguing. In it he analyses the macroeconomic origins of the global imbalances that precipitated the crisis and prescribes the policy path forward.

He does so in logical, crisp and accessible language. Mr Dudley is, however, still a central banker, which means he must be translated, especially when it comes to the delicate subject of the dollar. In a nutshell, Mr Dudley tells us that aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies (EMEs) cooperate and let their exchange rates appreciate (i.e. let the dollar fall), but absent such cooperation, don’t expect the Fed to change course.

Mr Dudley starts with some striking statistics. EMEs now account for 38% of world GDP, up from 23% in 1990, and 59% of world growth in the 2000s, up from 25% in the 1980s. Since 2007, the BRICS’ GDP has risen 31%; the G7’s, just 1%.

He retells the familiar story of how global imbalances bred the financial crisis, but with a twist. In the past, the Federal Reserve and Mr Bernanke (here and here) have denied culpability for the credit bubble, blaming instead the influx of excess savings from EMEs into developed-world assets. Mr Dudley, in effect, says both bear the blame:

[T]he combination of rapid gains in production capacity and relatively repressed consumption in the EME world helped foster a global deficiency of demand relative to supply. In these circumstances, the United States and many other industrialized economies had to sustain domestic demand at elevated levels in order to achieve “full employment” and prevent deflation. For the United States, the consequence was elevated consumption facilitated by asset price inflation, easy underwriting standards for credit and structural budget deficits.

Read This, Then Sell The Dollar – Economist

Easy Money for the Banksters

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Jun 042011

A newly-released study from the Congressional Research Service bolsters claims that the nation’s largest banks profited off the Federal Reserve’s financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates.

The report reinforces long-held beliefs that the banking system in essence engaged in taxpayer-financed arbitrage: They got money for free, then lent it back to Uncle Sam while collecting juicy returns. Left out of the equation are the millions of everyday borrowers, like households and small businesses, who were unable to secure loans needed to tide them over until the crisis ended.

The Fed released records under pressure in December and March that showed the extent of its largesse. The CRS study shows for the first time how some of the most sophisticated financial firms could have taken the Fed’s money and flipped easy profits simply by lending it back to another arm of the government.

The report was requested by Sen. Bernie Sanders (I-Vt.), who likened the crisis-era emergency loans to “direct corporate welfare to big banks,” in a statement. The cash likely was lent back to Uncle Sam in the form of Treasuries and other debt “instead of using the Fed loans to reinvest in the economy,” Sanders added.

In all, more than $3 trillion was lent to financial institutions from the Fed, and terms were generous. Junk-rated securities were pledged as collateral for taxpayer-backed loans. The Fed did not provide conditions for how the money was to be used.

As part of one Fed program, on 33 separate occasions, nine firms were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities for four-week intervals, paying one-time fees that amounted to the minuscule rate of 0.0078 percent.

Guest Post: Congressional Research Service Confirms Big Banks Borrowed Cash For Next To Nothing, Then Lent It Back to the Federal Government at Much Higher Rates

The End of QE2 Is Going to Be a Disaster

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May 152011

The end of the second round of quantitative easing (QE2) is going to be a complete disaster for the paper markets — specifically commodities, stocks, and then finally bonds, in that order, with losses of 20% to 50% by the end of October. The only thing that will arrest the plunge will be QE3, although we should remain alert to the likelihood that it will be named something else in an attempt to obscure what it really is. Perhaps it will be known as the “Muni Asset Trust Term Liquidity Facility” or the “American Prime Purchase Program,” but whatever it is called, it will involve hundreds of billions of thin-air dollars being printed and dumped into the financial system.

A Premature Victory Lap

Ben Bernanke recently stood at a lectern and announced to the assembled audience that the Fed’s recent policies could be credited with elevated stock prices and an improved employment statistic while somehow keeping inflation low.

It was his own version of a “mission accomplished” speech, just like the one G. W. Bush gave. Similarly, it does not mark the end of significant difficulties, but the probable beginning of a very long period of treacherous economic and financial disruption.

Here’s one recent version of how the Fed’s actions are being interpreted, courtesy of Bloomberg:

Bernanke’s QE2 Averts Deflation, Spurs Rally, Expands Credit

Ben S. Bernanke’s $600 billion strike against deflation is paying off, as stock and debt markets rise, bank lending grows and economists forecast faster growth.

The Standard & Poor’s 500 Index has gained 13.5 percent since the Federal Reserve chairman announced on Nov. 3 the plan to buy Treasuries through its so-called quantitative easing policy. Government bond yields show investors expect consumer prices to rise in line with historical averages. The riskiest companies are obtaining credit at the cheapest borrowing costs ever and Fed data show that commercial and industrial loans outstanding are rising for the first time since 2008.

“Looking at market indicators, you have to be convinced it’s been a success,” said Bradley Tank, chief investment officer for fixed-income in Chicago at Neuberger Berman Fixed Income LLC, which oversees about $83 billion. “When you get into periods of aggressive central bank easing, and we’re clearly in the most aggressive period of easing that we’ve ever seen, the markets tend to lead the real economy.”

A rising stock market, low inflation expectations, and lots and lots of cheap credit for even the riskiest companies. What’s not to like?

The main problem is that this is all an illusion.
The End of QE2 Is Going to Be a Disaster – Chris Martenson, Minyanville

At a time when corporate profits are through the roof, the Dow is flirting with 12,000, Wall Street paychecks are fat again, and big corporations are sitting on more than $1 trillion in cash, you’d expect jobs be coming back. But you’d be wrong.

The U.S. economy added just 36,000 jobs in January, according to today’s report from the Bureau of Labor Statistics. Remember, 125,000 are needed just to keep up with the increase in the population of Americans wanting and needing work. And 300,000 a month are needed — continuously, for five years — if we’re to get back to anything like the employment we had before the Great Recession.

In other words, today’s employment report should be sending alarm bells all over official Washington. Granted, unusually bad weather may have accounted for some of the reluctance of employers to hire in January. But even considering the weather, the economy is still terribly sick. (Technical note: The official rate of unemployment fell to 9 percent from 9.4 percent, but that’s because more workers have left the labor market, too discouraged to continue looking for work. The official rate reflects how many people are actively looking for work.)

We have two economies. The first is in recovery. The second remains in a continuous depression.

The first is a professional, college-educated, high-wage economy centered in New York and Washington, that’s living well off of global corporate profits. Corporations continue to make money by selling abroad from their foreign operations while cutting costs (especially labor) here at home. Wall Street is making money by taking the Fed’s free money and speculating with it. The richest 10 percent of Americans, holding 90 percent of all financial assets, are riding the wave. And their upscale spending has given high-end retailers and producers a bounce.

The second is most of the rest of America, and it’s still struggling with a mountain of debt, declining home prices, and job losses. In coming months most Americans will also be contending with sharply rising prices of food and fuel.

Our representatives in Washington see and hear mostly the first economy. The business press reports mainly on the first economy. Corporate and Wall Street economists are concerned largely with the first economy.

But the second economy will determine our politics in 2012 and beyond.

And not even the first can be sustained permanently on its own. Corporate profits cannot continue to rise on the basis of foreign sales (which are slowing as Europe adopts austerity and China raises interest rates), the purchases of the richest 10 percent of Americans (which are dependent on a rising stock market), and cost-cutting measures at home (which are necessarily limited). Without a strong and broadly-based middle-class recovery, America’s big money economy will fall in on itself. A major stock market “correction” is a certainty.

Robert Reich is the author of Aftershock: The Next Economy and America’s Future, now in bookstores. This post originally appeared at RobertReich.org.

The Jobs Report & America’s Two Economies – Robert Reich, Huffington Post

The Poverty Of Ambition: Why The West Is Losing To China And India

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Jan 012011

The last 10 years have been the worst for Western civilization since the 1930s. At the onset of the new millennium North America, Europe and Oceania stood at the cutting edge of the future, with new technologies and a lion’s share of the world’s GDP. At its end, most of these economies limped, while economic power – and all the influence it can buy politically – had shifted to China, India and other developing countries.

This past decade China’s economic growth rate, at 10% per annum, grew to five times that U.S.; the gap was even more disparate between China and the slower-growing E.U., Yet periods of slow economic growth occur throughout history — recall the 1970s — and economies recover. The bigger problem facing Western countries, then, is a metaphysical one — a malady that the British writer Austin Williams has dubbed “the poverty of ambition.”

This lack of ambition plagues virtually every Western country. The ability to act has become shackled by a profound pessimism that according to a recent Gallup survey

Attitudes have consequences. The rising stars of the non-Western world — from the United Arab Emirates to Singapore and China — are building cities with startling new architecture and bold infrastructure. Their entrepreneurs are expanding their operations across the planet. contrasts with the optimism found not only in rising states like China, India and Brazil, but also deeply impoverished places like Bangladesh.

Of course, you can chortle at the outrageous overbuilding in places like Dubai, but the Western world might do better to appreciate the scope of their ambition. Indeed, for years New York’s Empire State building, erected during the Depression, was derided as ”the empty state building.” Today it’s visionary developers like Iraqi-born Istabraq Janabi who are planning unlikely new structures even in troubled places like Ramadi, Iraq.

The difference in ambition can be seen clearly at airports, which now serve as the entry halls of the global economy. A traveler to John F. Kennedy Airport, Heathrow, Charles De Gualle LAX or Dulles passes through decayed remnants of fading late 20th century buildings and technology. In contrast, airports in Dubai, Hong Kong and Singapore offer clean, ultra-modern facilities with often impressive design.

The West’s retreat from space exploration further underscores its metaphysical poverty. Today, Europe and the U.S., the world’s historic leader in the field, are cutting back on plans to explore the cosmos, which has included a manned operation to the moon. President Obama wants NASA to focus more on issues regarding climate change instead. In contrast, the rising countries of Asia, notably China and India, have begun plans for manned flights to the moon and beyond.

This divergence is not about resources; it is about the growing conviction in the West that moving forward is an illusion or, as the British academic John Gray’s puts it, “progress is a myth.” Victorian empire-makers and intellectuals, like their republican American successors, believed perhaps naively in the potential of humanity, economic and technological progress. Today our intellectual and political classes have gone to the other extreme.

The West’s politics are in the grips of two profoundly retrograde mentalities. One, a small-minded conservatism, harks back to the “golden” age of the 1950s when Western power faced only a flawed Soviet challenge. The idealistic but flawed commitment to imposing democracy by force of the Bush years has faded; it has been replaced by an obsession with taming a bloated public sector. While this focus may be justified, it is fundamentally more reactive than proscriptive.

The Left, which once portrayed itself as the bastion of scientific rationalism, increasingly embraces neo-druidism, a secular form of nature worship. This tendency’s roots can be traced back to the “Limits to Growth” ideology of the early 1970s which projected, mostly mistakenly, that the planet was about to run out of everything from food to oil. Concerns over climate change have transformed this dismal sentiment into a theology, with carbon emissions treated as a form of original sin.

The anti-progress nature of the new Left is unmistakable. Rather than seek ways to control climate change, suggests The Guardian’s George Monbiot, environmentalism is engaged in “a battle to redefine humanity.” Monbiot believes the era of economic growth needs to come to an inevitable denouement; that “the age of heroism” will be followed by the decline of the “expanders” and the rise of the “restrainers.”

Europe, particularly the U.K., suffers acutely from metaphysical angst. Once touted as the new great power by its leaders and their American claque, the E.U. is quickly dissolving along cultural and historical lines; this is especially evident in the division between the resilient countries of the north (something like the Hansa trading states of the late Middle Ages) and the weaker countries along the periphery. For the most part, Europe no longer seems capable of doing much more than finding ways to control an unaffordable welfare state without tearing about its social net. The once cherished notion of a multi-racial “new” Europe largely has dissolved as immigration has devolved from a source of demographic and cultural salvation to a widely perceived threat to the E.U.’s economic and social health as well as security.

Such defeatism usually has less success in the United States. But America’s “progressive” left increasingly resembles its European cousins. Obama’s science advisor, John Holdren, has been a long-time advocate of the idea of “de-development,” the purposeful slowing of growth in advanced countries in order to protect the environment. The critical infrastructure needed to accommodate upward of another 100 million Americans — new dams in the west, intelligent development of our vast natural gas reserves and building new cities, airports and ports – are not at the center of either party’s platforms. These could be financed largely with private sources, given the right incentives.

Read it all: Poverty of Ambition: Why the West Is Losing to China – Joel Kotkin, Forbes

The financial sector is trying to get politicians to siphon off money from labor and industry to pay bankers. This will impede capital formation and living standards.

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Dec 192010

10.

1. A recent article of yours, “Schemes of the Rich and Greedy,” cites the bailouts in Europe among such schemes. What are the main faults with bailouts, and for whom are they designed?

The financial sector is trying to get politicians to siphon off money from labor and industry to pay bankers. This will impede capital formation and living standards.

The banks misrepresented the real value of balance sheet and hence what they really were owed under actual market conditions. Now that they have taken the money and run, the «real» economy is being told to pay the off their bad loans. The arrogance of this demand prompted Angela Merkel to ask why governments – meaning «taxpayers» – should pay for bad bank loans and corrupt financial dealing.

Nice try if bankers can get away with it! But I’m glad to see Germany opposing the EU proposal to double its bailout fund.

Financial Interests Dictate Sovereign Policy Michael Hudson

The QE Failure

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Oct 242010

The world seems full of smoke ahead of a world currency war. The weapon of choice is quantitative easing, a.k.a. QE. If you print a trillion, I’ll print a trillion. Of course, he and she will too. No change in exchange rates after a trillion? Let’s do it again, QE2. If you listen to people like Geithner, the end of the world is quite near. Rich people everywhere are buying gold for a little peace of mind, not just the Chinese. They are literally trucking it by the ton or two home. When currency values vanish in a QE melee, at least the rich have the gold to stay rich.

If you listen to American pundits, politicians or government officials, it’s all China’s fault. China is far from perfect. Its currency policy certainly isn’t. But it is not the cause for the world’s ills. The U.S. is by far the biggest source of uncertainty and the initiator of the QE war. Its elite created the biggest financial bubble since 1929, even removing regulations designed to prevent it, and left the U.S. economy in shambles after its burst. The same people want to find a quick cure to hold onto their power. Unfortunately, there is no quick cure.

The U.S. has cut interest rates to zero and run up the budget deficit to 10 percent of GDP. It’s a shock-and-awe Keneysian policy. But, after a few quarters of strong growth, the economy is turning down again, and the unemployment remains close to 10 percent. And this figure would be much higher, close to 20 percent like Spain’s, if it included the underemployed and those who have stopped looking for work.

The stimulus has failed.

QE: The Numberless Oblivion Andy Xie, Caixin.

War leads to prosperity!…Think again.

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Sep 122010

The Nobel Prize committee has never withdrawn a prize. It might want to consider it. In Tuesday’s New York Times, prizewinner in economics, Paul Krugman reveals either that he knows nothing about economics…or that there is nothing worth knowing in it. We’re beginning to think it’s the latter.

“From an economic point of view,” he writes, “World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Deficit spending created an economic boom – and the boom laid the foundation for long-run prosperity….”

In the 1938 US elections, voters showed what they thought of the New Deal; Democrats lost 70 seats in the House. Then as now, the public had lost faith in public spending, says Krugman. Nearly two out of three of those polled said they were opposed to stimulus efforts. Roosevelt buckled under the pressure; he drew back from further spending to fight the slump.

Thank God for WWII! No one opposes military spending in time of war. Krugman made his position clear in 2008 in his New York Times blog.

“The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression.”

According to this line of thinking, the best form of stimulus spending is money spent on the military. It creates consumer demand without creating consumer supply. Consumer prices rise; people spend. The slump is soon over.

But if WWII helped the US economy, think what it must have done for Japan; proportionally, its stimulus efforts dwarfed those of the US…and began much earlier. Just this week, Ichiro Ozawa, running for prime minister of Japan, vowed to take “every measure” to lower the yen and promised a stimulus package more than twice as big as the current program. He was just following in the footsteps of Japan’s leaders from the ’30s. It was “economic security” they said they were after. And they thought they could get it by central planning and government spending. Military spending rose from 31% of the budget in the early ’30s to nearly 50% five years later. By the early ’40s it was around 70% and nearly 100% later on. Deficits and debt soared.

Did that create a boom? You bet it did. Japan was the first nation to get out of the global slump. It boomed…and boomed…and ka-boomed. When it came to warships, planes, and soldiers, Japan was soon among the richest nations in the world. Yes, Americans had more electric fans, automobiles, central heating, aspirin, ice cream, and the rest of the paraphernalia of civilized life at the time. In the mid-’30s, the US produced 40 times as many autos per person as did Japan. Even during the Great Depression, the US out-produced Japan by a factor of 7 and its workers earned 10-times as much money.

Economists can’t even measure real prosperity, let alone fiddle it. So they put on the GDP and employment numbers the way a bald man puts on a cheap wig. It makes him look ridiculous and fraudulent, but it’s the best he can do. Unemployment disappears in a war economy. Japan put a million men in uniform. Two million more were part-time reservists. Those who weren’t in the army were put to work building tanks and planes. By 1941, Japan could produce 10,000 planes a year. If you were a swallow you wouldn’t want to build your nest in Japan’s factory chimneys; they belched smoke night and day.

And talk about fiscal stimulus! Krugman would have loved it – stimulus unfettered by real money or even a casual regard for real prosperity. Takahashi Korekiyo was known as the “Japanese Keynes.” Gillian Tett notes in The Financial Times that he was assassinated in 1936 after he came to his senses and tried to bring state finances under control. He was done in by army officers who did not want the stimulus to stop. Not that we’re being judgmental about it. As far as we know, the quality of central banking could probably be improved by an occasional assassination.

Takahashi wasn’t the first. Before him Junnosuke Inoue had held out for the gold standard and balanced budgets. He was out of office by 1931 and out of luck in 1932, when he was murdered. The gold-backed yen was abolished the day he left office. Then, public spending, deficits, central planning, debt, and inflation ran wild. By 1939, the Japanese were spending $5 million a day on their war with China – a huge sum for the Japanese at the time.

Was the economy improved by all this spending? No, it was perverted…hammered into a grotesque imposter – a parody of a real economy. Most of the nation’s resources were put to work building things almost no one wanted. Then, after the attack on Pearl Harbor, the stimulus efforts were redoubled. Rations were reduced further. Working hours were extended. What few consumer items were available were three times as expensive at the end of the war as they had been when it began. Men were conscripted into factories and the army. Women were expected not only to make the tanks, but to join the home-guard and prepare themselves to repulse the American invaders with sharpened bamboo sticks. What a marvelous economy – operating at full capacity and full employment until General MacArthur finally put it out of its misery.

You say Obama; I say Ozawa! You say boom; I say ka-boom!

By Bill Bonner

Let Them Eat Credit

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Aug 292010

By most counts, the U.S. economy started growing in the middle of last year. For many Americans, though, it does not feel as if the Great Recession has ended—unemployment and underemployment are still alarmingly high, and job growth is weak. Many causes have been suggested for both the economic collapse and mediocre recovery, but one that is hardly ever mentioned is income inequality. This is a mistake. Growing income inequality in the United States and the policy responses it has spawned have done tremendous damage to our economy. And because we continue to ignore this underlying problem, the risks of our policies leading to another calamity will not go away, no matter what we do to reform the financial sector.

Since 1968, income inequality has been steadily increasing in the United States. I am not referring to the Croesus-like income of a John Paulsen, the hedge fund manager who in 2008 netted over $3 billion, about 75,000 times the average household income. I refer to a more worrying everyday phenomenon that confronts most Americans, the disparity in income growth rates between a manager at the local supermarket and the typical factory worker or office assistant. Since the 1970s, the wages of the former, typically workers at the 90th percentile of the wage distribution in the United States, have grown much faster than the wages of the latter, the typical median worker. Or consider the table below, which shows that the wages of occupation groups that are paid more than the national average in 2002 have grown much faster since then than the wages of occupation groups below the average:

The Inequality Gap Is Ruining the American Economy—and Bernanke Is Just Making it Worse Raghuram G. Rajan

Senate Leaves Credit-Starved Small Biz Hanging – Los Angeles Times

Small businesses desperate for government help getting loans will have to wait at least until September before Congress moves on long-awaited legislation to pay for higher loan guarantees, lower fees and other breaks.

As the Senate adjourned for its summer recess this week, a key bill to spur lending to small businesses remained stuck in a partisan stalemate.

As a result, the next month or more may be angst-ridden for many business owners. Nationwide, 995 government-backed small business loans that have been given initial approval since last spring are now stuck in limbo until Congress acts.

The Committee to Defraud the World

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Aug 012010

To say now that ‘No one knew’ or ‘I was mistaken’ or ‘I was just doing as I was told’ is another in a series of lies and deceptions that have supported one of the greatest frauds in the history of the world.

But this is not history. This episode of fraud is still playing itself out now. And to fail to understand the depth and breadth of this madness is to place oneself in peril, and in the power of those who are twisting the Western economic and political system even now to satisfy their lust for wealth and power. You are only successful if you can keep what you kill.

Glass-Steagall fell after a decade long campaign involving hundreds of millions in lobbyist money spread lavishly around the Congress, led by Sanford Weil of Citibank, supported by key banking and political figures in the Congress and at the Fed. It involved Senator Phil Gramm, who helped to put a stake in the heart of the financial regulatory process under the Reagan free markets banner, and who recently said the problem is that the middle class were a bunch of whiners. As did his wife Wendy, who as the chairperson of the CFTC had exempted Enron from regulatory oversight, and then left to take a position there on its board of directors.

Like the Mortgage Backed Securities scandal it involved surprisingly few principal players, like Alan Greenspan and Robert Rubin, who used their power and influence to silence and ostracize critics, and promote a climate of reckless disregard for the public trust under the meme of ‘efficient markets’ and deregulation. This might have been an innocent policy error if it did not involve premeditated theft on a massive scale, followed by cover ups, denials, and a control fraud that exists even today.

But it also involved literally thousands of collaborators and enablers, from mainstream media people, economists, analysts, and other thought leaders to politicians and regulators who saw that it was to their advantage to at least passively support this scheme which they knew very well was a fairy tale, a fraud, class warfare by a new name, but were able to hide their own guilty consciences behind self-serving rationalization and the shield of plausible deniability.

History, and hopefully the justice system, will sort this all out. It is difficult, even now, to get one’s mind around the enormity of it. This is its most powerful weapon. Who could be such monsters, so amoral, so destructively sociopathic? Future generations will regard it as an episode of madness, driven by a few people in a tight circle of self-reinforcing thought, people with remarkably similar cultural and educational backgrounds, driven by a consuming lust for power, that were able to dupe and delude an entire nation made vulnerable by propaganda, a co-opted press, and apathy.

In the meanwhile all the great mass of people can do is to watch, and wait, and seek to protect themselves from these ravening wolves grown increasingly desperate, as their arrogance comes to a tragic fall. They can vote out incumbents, but the parties choose the candidates, and too often they resemble competing crime families of special interests more than pillars of a representative government, saying one thing to get elected and doing another thing once in office.

This is the approach of trouble when hubris is at its height, and the few feel they have everything to gain and nothing to lose, if only they can gain more power, and necessarily become more ruthless. They are trapped in a cycle of fear and greed. The fear provokes the lies and the cover ups, but the greed promotes the extension of the fraud and the theft, requiring even more lies and cover ups. The operative word is ‘over reach,’ in a classic late stage Ponzi scheme. This will undoubtedly add to the confusion as the truth is assaulted by the big lie.

The last vestiges of polite society are often shed as the downfall reaches it final conclusion, at the end, when all is revealed, at last. And so there will be great danger.

Jesse’ s Cafe http://jessescrossroadscafe.blogspot.com/2010/07/committee-to-defraud-world.html

Bad Meat

Secularized Lending, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Global Economy, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The Judeo-Christian Political Coalition, The New American Socialism, The Sorry State Of American Manufacturing, The Suffering Poor, The Summers Exit Watch, Time For A New Third Party No Responses »

Jun 192010

MAD MEAT! How Securitized Lending Collapsed the Financial System, Eric Von Berg (a commercial property mortgage banker and was the President of the California Mortgage Bankers Association during the heat of the market who has been watching “Regulatory Reform” as a member of the Commercial Board of Governors of the Mortgage Bankers Association of America). This is an absolutely must read! It has a few pages of set up to a fable of sorts, but when you get to page 6 of the slide presentation, it becomes laser sharp and funny. To wit:

The disclosures were typically so numerous and far fetched that the real risks were overlooked…

Sponsor Disclosure. Sponsor has various conflicts of interest. Not printed: We set up a book making operation taking bets on whether you will get sick and die from this product. Are we also making bets? “You betcha!” Which side are we betting on? According to the SEC, we are allowed to tell you, “None of your business!”

Hat Tip to Naked Capitalism

Jun 052010

I’ve seen some eye-poppin’, credulity-stretchin’ accounts in my time. The report “The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis,” just released by the Congressional Budget Office, ranks with the most extreme. It claims that the budgetary cost (which corresponds roughly to expected losses) of the Fed rescue facilities launched during the financial crisis is approximately $21 billion. Moreover, its peculiar formulation (”fair value subsidies”) conveys the misleading impression that this was the extent of the central bank’s support to the financial services industry.

In a (weak) defense to the CBO, my understanding (and readers are welcome to correct me) is that the office is tasked to execute analyses as they are framed. In other words, if the CBO is asked to opine on a particular matter, it has to deal with only the questions posed to it. It is not permitted to tweak the inquiry or broaden the focus to provide more insight.

The closest thing to a statement of scope and objectives comes in the Preface and it is remarkably thin. The most important remark:

The report also presents estimates of the risk-adjusted (or fair-value) subsidies that the Federal Reserve provided to financial institutions through its emergency programs.

CBO Issues Fed-Flattering Propaganda

“Of Rats and Sinking Ships”

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Apr 102010

Larry Summers is reportedly leaving later this year, and Andrew Cockburn reports that Rahm Emanuel, Obama’s acutely verbal Chief of Staff is said to be looking for other employment, preferably a high paying job on Wall Street with little work and enormous perks and privileges.

This is the sort of thing that one would expect to be happening at the end of the first term of a President, five years into the job. Perhaps that event is being moved up because Obama is likely to be a one term president, in one of the most spectacular flame outs from high, and in retrospect misplaced, expectations since the Segway.

Obama was clearly the wrong man for the job. He might have been the kind of reformer for the good times, when you really do not need him, dedicated to getting the various squabbling parties to hold hands and sing Kumbaya. Unfortunately, a crisis demands leadership, and Obama is all fluff in that department. Leaders lead, they do not hold other people up as the leaders, and take them to task for their failure to do the risky things when their leader hides behind a non-existent consensus. I hate to say this, but both Clinton and W were far superior leaders, unfortunately with deeply flawed visions and moral compasses.

The Democrats are most likely looking at a November massacre in the election, unless some event occurs to pull the nation together such as an externally focused crisis.

The problem of course is that if one looks at the alternatives, there are none too attractive in the Republican Party which is also deeply tarnished with the financial corruption that actually came to full flower under their stewardship with George W. And part of the reason that legislation for reform languishes is that the Republicans are openly in the camp of the corporatocracy, and obstructing any nascent reform attempts from a small core of independent minded legislators.

Is it time for a Third Party as some have suggested? Maybe, although it seems more likely to me that it will take a much greater degree of pain and collapse for America to wake up and reform its system, from the Media to Washington to Wall Street. Splinter parties at the extremes appear probable in the short term.

And then who knows what might be slouching towards Pennsylvania Avenue, its moment come round at last?

http://jessescrossroadscafe.blogspot.com/2010/04/failed-presidency-and-country-adrift.html

Howdy, Neighbor!

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Apr 102010

When asked what advice he would give to residents of Ashtabula County Ohio because of cutbacks in official law enforcement budgets, Judge Alfred Mackey said they should:

“arm themselves. Be very careful, be vigilant, get in touch with your neighbors, because we’re going to have to look after each other.”

http://jessescrossroadscafe.blogspot.com/2010/04/ohio-judge-tells-residents-to-arm.html

There is a thesis that the banks are in control of the Fed and as a result have gained control over the issuance of the currency of the United States. This thesis is based on the fact that the shares of the Federal Reserve Bank are held by these private banks. Does that mean that the private banks own the Fed?

The short answer is yes, but it is a hollow ownership with very restricted rights. This ownership basically exists to give credence to the claim that the fed is independent. It is appropriately described as follows in the Fed’s own publication “Federal Reserve System Purposes & Functions”:

The holding of this stock, however, does not carry with it the control and financial interest conveyed to holders of common stock in for-profit organizations. It is merely a legal obligation of Federal Reserve membership, and the stock may not be sold or pledged as collateral for loans. Member banks receive a 6 percent dividend annually on their stock. (p. 12)

This is exactly the manner in which Special Purpose Vehicles (or Special Purpose Entities) are created in the corporate world. There is usually a promoter who does not wish to be seen to own an entity but who wishes to derive some benefit from the existence of such an entity. Usually, overt ownership would adversely impact the presentation of the promoter’s financial reporting.

The authorities and regulators, including the Fed, are very aware of these Special Purpose structures, as is the accounting profession. Rules have been devised and implemented to assess any such arrangement in order to establish its true nature. It is therefore appropriate to assess the Fed’s independence — or, alternatively, interdependence — according to the very rules that it uses to assess Special Purpose Entities. First, let’s draw the simple ownership structure.

Anyone with a rudimentary knowledge of accounting principles would know that ownership of an entity without control over that entity requires further investigation. Consolidation of a group of companies can become complex when ownership and control are split. The GAAP (Generally Accepted Accounting Principles) method in this case disregards ownership and focuses on control.

For example, a right to appoint the majority of the board of directors even in the absence of ownership would trigger a consolidation of that entity. Thus the controller and the entity would be seen as part of a group and collectively as a single interdependent consolidated entity. It follows that the simple structure of the Federal Reserve Banks drawn above is a split structure, where “ownership” is of limited significance and “control” must be established. Control will tell us whether the entities are independent or interdependent.

All regulation targets “control,” not just the legal form of ownership. Accounting principles of consolidation have evolved from Special Purpose Vehicles, to Special Purpose Entities, and very lately — with the revision in June 2009 for implementation in January 2010 of Financial Accounting Standard 46(R) (“FIN 46(R)”) — they have evolved into the concept of a “Variable Interest Entity.”

In effect, the test of whether one organization is a “Variable Interest Entity” controlled by another organization is similar to a DNA test to determine whether two people are members of the same family. FIN 46 (R) defines a “variable interest” as follows:

The enterprise with a variable interest or interests that provide the enterprise with a controlling financial interest in a variable interest entity will have both of the following characteristics:

a. The power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance

b. The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. (par. 1A)[1]

The first test is to check for “the power to direct the activities.” Who exactly holds that power?

Here we turn to the Federal Reserve Act, which instructs the Regional Federal Reserve Banks to each elect their own board of directors, of which the chairman and vice chairman of the regional board will be appointed by the Board of Governors of the Federal Reserve System. The regional boards must have nine directors in three classes of three each (A, B and C directors): three A directors chosen by the stockholders; three B directors to represent the “public”; and three C directors to be appointed by the Board of Governors of the Federal Reserve System. The Board of Governors of the Federal Reserve System will appoint the chairman and vice chairman from the ranks of the three C directors.

The Board of Governors of the Federal Reserve System seems to have powers that could indicate “control,” including the appointment of the power positions of chairman and vice chairman. However, we must also ask whether the regional boards have the independent powers normally associated with ownership and control, or if their powers are restricted and controlled in any manner.

The answer again lies in the Federal Reserve Act:

Said board of directors shall administer the affairs of said bank fairly and impartially and without discrimination in favor of or against any member bank or banks and may, subject to the provisions of law and the orders of the Board of Governors of the Federal Reserve System, extend to each member bank such discounts, advancements, and accommodations as may be safely and reasonably made with due regard for the claims and demands of other member banks, the maintenance of sound credit conditions, and the accommodation of commerce, industry, and agriculture. The Board of Governors of the Federal Reserve System may prescribe regulations further defining within the limitations of this Act the conditions under which discounts, advancements, and the accommodations may be extended to member banks. (section 3, par.

The regional boards are limited in their ability to perform the primary functions of the Regional Federal Reserve Bank by the terms of the act and by the control of the Board of Governors of the Federal Reserve System. It is clear from the Federal Reserve Act that control does not rest in the Regional Federal Reserve Boards, nor are they independent, but they take instruction and are controlled by the Board of Governors of the Federal Reserve System.

It is now appropriate to update the simplified structure drawn above, in order to add these two steps of control.

The question of who has control is not yet resolved; the nature of the Board of Governors of the Federal Reserve System must be investigated next. Is the Board of Governors of the Federal Reserve System an independent body or beholden to another entity?

The “Purposes & Functions” document describes the nature of the Board of Governors of the Federal Reserve System:

The Board of Governors of the Federal Reserve System is a federal government agency. The Board is composed of seven members, who are appointed by the President of the United States and confirmed by the U.S. Senate.

The Chairman and the Vice Chairman of the Board are also appointed by the President and confirmed by the Senate. The nominees to these posts must already be members of the Board or must be simultaneously appointed to the Board. (p. 4)

The Board of Governors of the Federal Reserve System is a federal government agency. The power to appoint its members, chairman, and vice chairman is vested in the president of the United States, with the Senate having a veto power over any appointment.

The first requirement for a “variable interest,” “the power to direct the activities” is fulfilled: the federal government at the presidential level holds “the power to direct activities.”

The final version of the structure of control is as follows:

The next requirement that must be met for a “variable interest” is either an “obligation to absorb losses” or a “right to receive benefits.”

I would argue that the Fed’s right to create currency, together with the vested interests of federal government, are more than sufficient to infer an “obligation to absorb losses.” The Federal Reserve Act adds a complication to this argument by holding the shareholders responsible to the extent of their stockholding for the liabilities of the Regional Federal Reserve Banks. However, the “obligation to absorb losses” is not a requirement that needs to be met so long as the alternative, the “right to receive benefits” requirement, is met. Since the obligation is not clear cut, it is better to concentrate on the right. Note that neither the obligation nor the right need to be absolute.

Again we can turn to the two sources, the Federal Reserve Act and the Fed publication “Federal Reserve System Purposes & Functions” for guidance.

Federal Reserve Act:

Dividends and Surplus Fund of Reserve Banks

(a)

After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock.

The entitlement to dividends under subparagraph (A) shall be cumulative.

That portion of net earnings of each Federal reserve bank which remains after dividend claims under subparagraph (1)(A) have been fully met shall be deposited in the surplus fund of the bank.

(b) Transfer for fiscal year 2000.

The Federal reserve banks shall transfer from the surplus funds of such banks to the Board of Governors of the Federal Reserve System for transfer to the Secretary of the Treasury for deposit in the general fund of the Treasury, a total amount of $3,752,000,000 in fiscal year 2000.

Of the total amount required to be paid by the Federal reserve banks under paragraph (1) for fiscal year 2000, the Board shall determine the amount each such bank shall pay in such fiscal year.

During fiscal year 2000, no Federal reserve bank may replenish such bank’s surplus fund by the amount of any transfer by such bank under paragraph (1). (section 7)

“Federal Reserve System Purposes & Functions”:

The income of the Federal Reserve System is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. Other major sources of income are the interest on foreign currency investments held by the System; interest on loans to depository institutions; and fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations.

After it pays its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury. About 95 percent of the Reserve Banks’ net earnings have been paid into the Treasury since the Federal Reserve System began operations in 1914. (Income and expenses of the Federal Reserve Banks from 1914 to the present are included in the Annual Report of the Board of Governors.) In 2003, the Federal Reserve paid approximately $22 billion to the Treasury. (p. 11)

The statement that “about 95% of the Reserve Banks’ net earnings have been paid into the Treasury since the Federal Reserve System began operations in 1914″ says it well enough. It is an irrefutable fact that the federal government possesses the overwhelming “right to receive benefits.”

The outright, indisputable conclusion is that the Fed, when tested against GAAP as the Fed itself uses it in the Fed’s assessments of those it regulates, is a Special Purpose Entity of the federal government (or, according to the latest definition, is a Variable Interest Entity of the federal government). The rules of consolidation therefore apply, and the Fed must be seen as controlled by federal government, making it indivisibly part of the federal government. The pretence of independence is no more that that, a pretence.

There is, however, no denying that the banks have tremendous vested interest in influencing the policies of the Fed, nor that the power being so narrowly vested in the president makes him a special target for influence. Still, the power to control the Fed is not in the hands of its “owners” but firmly in the hands of the federal government and the president of the United States.

Sarel Oberholster is a South African living in Johannesburg, Gauteng province. He is an economist by training, a specialist financial engineer by craft, and an inquisitive spirit by nature. He has been involved in banking for over 30 years. His quest for understanding complex economic phenomena is his muse for writing and he shares his insights on his blog.

Notes

[1] Financial Accounting Standards Board of the Financial Accounting Foundation; Connecticut, No 311; June 2009, Statement of Financial Accounting Standards No 167.

Originally published at Robert Reich’s Blog

For almost a year now, Democratic pollsters have been pointing out how much the public hates the bank bailout and despises Wall Street. But there was no reason for Democratic leaders in Congress or the White House to pay much attention. After all, it was a Republican president and a Republican Congress that came up with the bank bailout plan to begin with. Some stalwart Republicans had grumbled about it, of course, but Republicans have always been on the side of Wall Street and big business and weren’t likely to call for strong measures to prevent the Street from getting into trouble again.

Larry Summers and Tim Geithner scuttled Paul Volcker’s plan to separate the banks’ commercial and investment functions, and didn’t want to limit the size of banks or the risks they could take on. Summers and Geithner have wanted to get the banks back to profitability as soon as possible. And Dems in Congress have had no stomach to take on Wall Street, a major source of campaign funding.

But suddenly the winds are blowing in a different direction over the Potomac. The 2010 midterms are getting closer, and the Dems are scared. Their polls are plummeting. The upsurge in mad-as-hell populism requires that Democrats become indignant on behalf of Americans, and indignation is meaningless without a target. They can’t target big government because Republicans do that one better, especially when they’re out of power. So what’s the alternative? Wall Street.

Perhaps I’m being too cynical. Maybe the Obama and congressional Democrats are now ready to give up Wall Street trickle-down economics and focus on Main Street trickle-up. “There are two ideas of government,” said William Jennings Bryan at the Democratic National Convention in Chicago in 1896. “There are those who believe that you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.” He couldn’t have said it better.

Sic transit America?

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Jan 162010

Flagging: a US sailor stands on the flight deck of the aircraft carrier USS George Washington

If a week is a long time in politics, a decade is starting to look like an age in geopolitics. Comparing the America that began the 21st century with the America of today is to witness a country that has in some ways quite radically altered its view of itself and its relationship to the world.

In short, the metallic rust of decline has crept into the American soul. “You could argue that the first decade of the 21st century was the last decade of the American century,” says David Rothkopf, a former Clinton administration official and student of US foreign policy. “We are now entering the multipolar century.”

Self-doubt tarnishes Brand America

Bernanke Versus the Austrians

The Arrogance of Power, The Austrian School of Economics, The Consequences of Greed, The Economics of Schumpeter, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Global Economy, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism No Responses »

Dec 192009

My essay in today’s American Spectator Online looks at why Ben Bernanke should not be confirmed to a second term as Chairman of the Federal Reserve:

Two planks in Bernanke’s recovery strategy: Expand the money supply like a banana republic dictator and throw sackfuls of cash at failed companies with a proven track record of mismanaging their assets. The justification? According to the late John Maynard Keynes, this is supposed to restore the “animal spirits” of the cowed consumer, the benighted creature who foolishly imagines that after a period of prodigality and mismanagement, maybe a country should rediscover its inner Dave Ramsey.

The full essay is here.

Obama’s Big Sellout

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Dec 132009

Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers “at the expense of hardworking Americans.” Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it’s not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.

Then he got elected.

What’s taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.

How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we’ve been seeing on TV this fall who Obama really is?

Whatever the president’s real motives are, the extensive series of loophole-rich financial “reforms” that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street’s political power by institutionalizing the taxpayer’s role as a welfare provider for the financial-services industry. At one point in the debate, Obama’s top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.

How did we get here? It started just moments after the election — and almost nobody noticed.

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Why Some People Are Poorer

The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The Judeo-Christian Political Coalition, The New American Socialism, THEY ARE ALL THE SAME, Time For A New Third Party, Truth In Charity, Unindicted Co-Conspiritors, We Are All Guilty, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still! No Responses »

Dec 052009

In recent months, there has been a good deal of discussion of change in the United States. Sadly, over the last two centuries, the direction in which this country has been changing seems to be away from liberty and towards more control. The present changes are hardly unprecedented and certainly not unforeseen. In this essay I will examine two authors, Hilaire Belloc and F.A. Hayek, who present a useful analysis of our present situation.

In 1912, Hilaire Belloc published The Servile State, in which the Englishman prophesied that the world was moving to a reestablishment of slavery. This book made quite an impression on a number of thinkers, including F.A. Hayek. Hayek makes favorable mention of Belloc’s work in The Road to Serfdom, which depicts the modern world as reversing its advance from slavery to liberty.[1]

Belloc defines the Servile State as “that arrangement of society in which so considerable a number of the families and individuals are constrained by positive law to labor for the advantage of other families and individuals as to stamp the whole community with the mark of such labor.”[2] Belloc notes that “the servile condition remains … an institution of the State”[3] and that

the free man can refuse his labour and use that refusal as an instrument wherewith to bargain; while the slave has no such instrument or power to bargain at all, but is dependent for his well being upon the custom of society, backed by the regulation of such of its laws as may protect and guarantee the slave.[4]

Throughout history, until about the middle of the 18th century, mass poverty was nearly everywhere the normal condition of man. Then came capitalism. read more…

The Big Government Boss isn’t going away

A Growing List Of One Term Presidents, A Shareholder-Not Just a "Stakeholder", A State of Distress, AIG and all that....., Analysis & Commentary, “the Greenspan doctrine”, Coming Social Unrest, Commercial Real Estate Bust, Deflation-Inflation-Stagflation, Is Goldman Sachs Evil?, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, No Bank Is Indispensable, Obama's Hypocrisy, Our phony middle class, Political Chaos, Regulatory Failures, Small Business-Bedrock of America, Smaller Can Be Better, Socialism, TARP fruit loops, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Joy of Being A Bank, The New American Socialism, Unemployment Catastrophe, Unindicted Co-Conspiritors, Wage Deflation, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still! No Responses »

Nov 212009

“Hindsight is a wonderful thing,” said Timothy W. Long, the chief bank
examiner for the Office of the Comptroller of the Currency. “At the height of
the economic boom, to take an aggressive supervisory approach and tell people to
stop lending is hard to do.” Post Mortems Reveal Obvious Risks at Banks, NY Times

Morality vs. Material Interests

Analysis & Commentary, Bilderbergers 1 USA 0, The Arrogance of Power, The Financial Elite, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The New American Socialism, Time For A New Third Party, Truth In Charity, Unindicted Co-Conspiritors, We Are All Guilty, Who owns Congress-Still! No Responses »

Nov 142009

Myths of Our Times

By Paul Craig Roberts

Humanity has endeavored for millennia to control evil with morality. In the American “superpower,” this effort has collapsed and failed. Continue

One of the federal government’s most opaque methods for bailing out the banking system allowed a handful of giant institutions to save up to $25 billion on their borrowing costs, a Congressional panel estimated on Friday.

Seven companies received about 82 percent of those benefits, the panel estimated. General Electric Capital was able to reduce its borrowing costs by about $1.9 billion, while Goldman Sachs saved an estimated $606 million. The other big beneficiaries were Citigroup, Bank of America, JPMorgan Chase, Morgan Stanley and Wells Fargo & Company.

The savings came in the form of federal guarantees on more than $300 billion of bonds issued by banks and other financial institutions, and they were merely one component of a $4.3 trillion safety net of guarantees orchestrated last year by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation.

In one of the first systematic efforts to analyze the maze of guarantees and hidden subsidies, the Congressional panel that oversees the Treasury’s $700 billion rescue program said the guarantees had provided a cheap but risky tactic for fighting the financial crisis last year.

The good news for taxpayers, the panel said, is that the government has actually turned a profit thus far on the guarantees. The government has collected $9 billion in fees for guaranteeing bonds issued by the big financial institutions and a total of $17 billion in fees for all its emergency guarantees. Thus far, it has lost only about $2 million.

At the height of the financial crisis late last year, the government provided guarantees to financial institutions, from money-market funds to expanded deposit-insurance for banks and $300 billion in troubled assets held by Citigroup. By providing guarantees instead of direct loans, the Treasury could avoid spending money upfront.

But Elizabeth Warren, director of the oversight panel, warned that the guarantees also exposed taxpayers to potentially huge costs and had created new risks by encouraging financial institutions to count on future bailouts and take bigger risks.

“The guarantees, when they work, provide big market stability at very low cost,” Ms. Warren said. “But they come with a very high risk to the taxpayer and a powerful distortion of market pricing and moral hazard.”

The panel’s most striking finding was about the size of the effective subsidy that G.E. Capital and Wall Street giants like Goldman reaped in the form of below-market borrowing costs.

The panel estimated that the federal guarantees lowered those firms’ borrowing costs by about 39 percent. Using two different approaches to measure the value of the subsidy, the panel said the savings ranged from $12.8 billion to $25 billion.

The oversight panel said it found “no significant flaws” in how Treasury officials and banking regulators designed the guarantees. But Ms. Warren warned that they were a “dangerous tool,” adding that “next time we may not be so lucky.”

Big Breaks for Companies in Bailout’s Fine Print – New York Times

Entrepreneurs: The Real “Peace Prize” Winners

Small Business-Bedrock of America, Small Cap Stocks, Smaller Can Be Better, The End of American Capitalism As We Know It? - Discuss, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The New American Socialism No Responses »

Nov 072009

We live in ludicrous times of rewarding good appearance for evil action. President Obama is awarded the Nobel Peace Prize while his war efforts intensify. But those who are true promoters of peace need attention, for they will never likely receive such ostentatious recognition for their noble efforts. Such individuals are those who take risks in a world of uncertainty, and who save or borrow capital to start a business. Such entrepreneurs promote peace by serving the customer better than the next entrepreneur through voluntary transactions in the market, rather than commanding bureaucracy in government.

As part of my entrepreneurship courses, I have students who want to start their own business listen to new entrepreneurs discuss their background, their reasons for starting the business, and of their effort to establish the business. Students usually find these speakers fascinating and inspiring, but also come away with a sense of the enormous amount of effort, capital, risk, and uncertainty that is involved in starting a business. Many of these students decide they no longer want to start their own business. They realize that entrepreneurs, too, have a boss: the customer. Mises put it this way: “Ownership of the means of production is not a privilege, but a social liability.”

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Why Some People Are Poorer

Morality vs. Material Interests

Break for Companies in Bailout’s Fine Print

Entrepreneurs: The Real “Peace Prize” Winners

Analysis & Commentary