Posts Tagged ‘Financial’
Eye of the Fiscal Hurricane
If predictors are accurate, we’re going to be in a world of hurt in the coming years. Sub-prime loans were not the only “funny paper” passing through our banks this decade. They also issued bonds on “Option ARM” (Adjustable-rate mortgage), Alt-A (alternate “A” credit rating) as well as plain ol’ prime mortgage loans (“Prime” = Credit Score > 650). Once these begin to default we could once again see trillions of dollars erased from the economy. Only this time the US will be unable to beg China for the money.
We’re not out of the woods yet.
Dow Overvalued
Zero Hedge gives us yet more evidence that the Dow is overvalued: industry insiders are selling stock 82 times faster than they’re buying it.
In the most recent data set, $11.6 million in stock was purchased by insiders, while a whopping $957 million was sold. And somehow pundits are still spinning this mass orchestrated sell into the bid by those in the know as a bull market.
For significant holders of stock, now might be the time to unload.
Too big
I know I’m somewhat late to this party, but I wanted to point out to all who are still unaware that the ‘too big to fail’ banks which caused our late crisis are even bigger.
JP Morgan, AIG, Citigroup, Goldman, and Bank of America were the winners of Geithner-Paulson’s free money giveaway (with Lehman a bad loser), and together they have swallowed the hundreds of small and medium banks that have failed since. They now present an even bigger and more systemic risk, should they choose to gamble away their money once again.
Despite repeated calls from almost every respected economist (notably Joseph Stiglitz) that these banks are a menace, Lords Geithner and Bernanke have done nothing to restrict their size – indeed, they have made them impossibly more dangerous and lucrative.
Furthermore, none of the incentives which led to such reckless gambling (ludicrous bonus packages, easy credit, low intrest, short-term rewards) have been addressed, and instead have been reinforced.
The next bailout will have to be 700 trillion instead of a mere 700 billion.
Failed Bank Fridays!
I missed the last three failed bank Fridays, so here are all seventeen that failed in the past three weeks in a row. As always, from the FDIC:
| Pacific Coast National Bank | San Clemente | CA | 57914 | November 13, 2009 | November 18, 2009 |
| Orion Bank | Naples | FL | 22427 | November 13, 2009 | November 17, 2009 |
| Century Bank, F.S.B. | Sarasota | FL | 32267 | November 13, 2009 | November 18, 2009 |
| United Commercial Bank | San Francisco | CA | 32469 | November 6, 2009 | November 9, 2009 |
| Gateway Bank of St. Louis | St. Louis | MO | 19450 | November 6, 2009 | November 9, 2009 |
| Prosperan Bank | Oakdale | MN | 35074 | November 6, 2009 | November 9, 2009 |
| Home Federal Savings Bank | Detroit | MI | 30329 | November 6, 2009 | November 9, 2009 |
| United Security Bank | Sparta | GA | 22286 | November 6, 2009 | November 9, 2009 |
| North Houston Bank | Houston | TX | 18776 | October 30, 2009 | November 3, 2009 |
| Madisonville State Bank | Madisonville | TX | 33782 | October 30, 2009 | November 3, 2009 |
| Citizens National Bank | Teague | TX | 25222 | October 30, 2009 | November 3, 2009 |
| Park National Bank | Chicago | IL | 11677 | October 30, 2009 | November 3, 2009 |
| Pacific National Bank | San Francisco | CA | 30006 | October 30, 2009 | November 3, 2009 |
| California National Bank | Los Angeles | CA | 34659 | October 30, 2009 | November 3, 2009 |
| San Diego National Bank | San Diego | CA | 23594 | October 30, 2009 | November 3, 2009 |
| Community Bank of Lemont | Lemont | IL | 35291 | October 30, 2009 | November 3, 2009 |
| Bank USA, N.A. | Phoenix | AZ | 32218 | October 30, 2009 |
The 9/12 Protests As They Should Have Been
The Huffington Post has got the scoop on the recent protests that erupted outside the American Banker’s Association in Chicago yesterday. Unlike the “9/12 Tea Party” protests last month, however, these outraged citizens saw very little mainstream coverage. CNN merely reprinted a Reuters dispatch which quoted none of the protesters but plenty of the meeting’s attendees, all of whom professed their unequivocal innocence. Fox News, unsurprisingly, had very little to say on the matter. Even the New York Times could not be bothered to toss the story a brief. In all, the mainstream reaction to these demonstrations stands in pitiful contrast to the 24-hour live feed which blared into millions of homes on September 12th.
When one gets a sense of who these protesters are and what drove them into the street, the reason for a lack of discussion becomes clear. This demonstration did not occur within controlled paramters; its organizer, National People’s Action, has made no direct campaign contributions, and their stated aims, in contrast to the Fox News 9/12 Movement, are antithetical to the aims of our corporate industry.
Instead of agitating against a health-care public option (opposition to which has benefited our insurance industry enormously), this group seeks strong regulation of the financial instruments which threw them into poverty – CDOs, CDSs, etc. The current proposal to achieve this end creates a “Consumer Finance Protection Agency” (or CPFA) in a highly-contentious bill which is now on the senate floor and is being vigorously opposed by the financial establishment.
As Esther Kaplan reports in The Nation:
“‘We had this image of big bankers sipping martinis and saying, ‘Did we really get away with this?'” said lead organizer George Goehl, director of National People’s Action. “Then two months ago we found out the American Bankers Association was having its annual meeting here in Chicago.” The ABA, not so incidentally, has fiercely fought against new regulations on the banking industry, and is lobbying hard now against the CFPA.
This is something to watch for, much more so than the protests last month, as yesterday’s demonstration reflects, so far as one can tell, a genuine outrage over the status quo. Yesterday’s protest was small (estimates of just under 1,000 people), but one would like to think a small demonstration against a real grievance would carry more weight than a large, manufactured demonstration over a non-existent one. It will be interesting to see whether similar demonstrations crop up, or, starved for lack of media attention, this CPFA movement dies down. We know which option our bankers prefer!
Goldman and The Government: Strange Bedfellows
The Huffington Post gives us a nice preview of an insider report in the upcoming issue of Vanity Fair, detailing the secret meetings between Goldman Sachs and the US Treasury at the height of last year’s stock market crash.
Here is a nice little Q&A with the author, Andy Sorkin, to get you warmed up. Look out for this article.
This Week in Failed Banks
From the FDIC:
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Gross Deceptive Product
Dissident economist Joseph Stiglitz writes a fantastic op-ed in a recent issue of The Guardian about the number-twisting that goes into our GDP figures. The article is well worth reading, as it challenges many of our basic assumptions regarding such concepts as “economic health”, “vitality”, and “well-being”.
Stiglitz argues persuasively that “GDP maximization” is often at odds with what most would consider a basic standard of living. Clean air laws, water purity acts, food safety guidelines and a host of other legislation technically reduce our GDP, but they also make our lives incomparably better. By taking GDP as a paramount indicator of economic health, Stiglitz contends, many economists neglect their citizens’ standard of living.
Stiglitz also mentions a lack of any measure of income inequality in GDP statistics – an important point, as our income disparity is now the greatest it has been since the gilded gilt of the 1920s.
And we cannot forget the massive role of government in our recent GDP figures. The value of government spending is inherently unmeasurable – we must simply take their word that the money they spent was on items of value (and not, say, financial executive compensation). As Stiglitz mentions:
In the last 60 years, the share of government output in GDP has increased from 21.4% to 38.6% in the US, from 27.6% to 52.7% in France, from 34.2% to 47.6% in the UK, and from 30.4% to 44.0% in Germany. So what was a relatively minor problem has now become a major one.
Stiglitz’s weakness, however, stems from his inability or unwillingness to mention some of the more unsavory methods of boosting reported GDP. The faults he recognizes, while nefarious, are generally well known. But our government engages in many, many other artifices in order to make our GDP numbers look better. Here I refer specifically to the practice of “product substitution” and “income imputation”.
Harper’s ran a superior article about this phenomena in its May 2008 issue. In short, the doctrine of “product substitution” states that if flank steak becomes too expensive, consumers are expected to move down to ground beef – the same product is being consumed, but in less expensive a form. In this instance, for GDP calculators, the numbers for ground beef sales are adjusted upward to correspond to what flank steak would have cost (since the two products are made of the same cow). The GDP remains the same, but standard of living obviously goes down.
Also mentioned by Harper’s, but curiously neglected by Stiglitz, is the idea of “income imputation”. Put shortly, the Bureau of Economic Analysis, unbeknown to its subjects, will impute (or add) to household incomes at its discretion. From Harper’s:
The Bureau of Economic Analysis “imputes” to nationwide personal income data (known as phantom income boosters; for example, the imputed income from living in one’s own home, or the benefit one receives from a free checking account, or the value of employer-paid health- and life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP.
I would strongly suggest reading the above Harper’s article in full – it gives a deep and terrifying account of the extent to which our government engages in daily statistical fraud. Joseph Stiglitz, valiant though his attempt may have been, unfortunately cannot give a full picture of our government’s manipulation.
The Other Side
In the spirit of fairness I feel I should give a proper display to the arguments I have heard against the ideas expressed in my previous post.
Usually when the standard “US dissident” line (that Republicans and Democrats are in fact the same party, that they constitute a modern aristocracy, that our horrific foreign policy is totally divorced of public opinion, that public opinion itself is manipulated via conglomerate control of media, that the cost of running for office ensures loyalty to corporate and imperialist interests, etc, etc.) is repeated to a person with a lucrative position within the current establishment, a smirk with the phrase “conspiracy theory” follows. However when pressed, such persons can be counted upon to employ one or several of these standard techniques:
1) “Valid points”, “Unfortunate mistakes, “Tough issues”, etc.
Often the first line of defense. I briefly mentioned this technique’s use in an earlier post, but I think it merits elaboration. Politely dismissive, these phrases can end a conversation without causing offense, and indeed, with the appearance of concession. They also encourage the belief that so-called “abuses” of the US government are isolated instances, and not symptomatic of a larger illness. There is a marked tendency describe criticisms as “issues” that are “being worked on”, never as characteristic to our system of government. The fact that these “mistakes” have continued unabated for several generations apparently escapes notice.
2) “Name one country that does it better”
“It”, of course, is never exactly specified. If you press an establishment figure (government official, investment banker, industrial engineer, etc.) for long enough, the conversation can take a combative edge, wherein they will usually offer some form of the above challenge. Their argument essentially boils down to the fact that most US citizens would rather not live anywhere else, so its government can’t be all that bad. But such claims ignore the fact that many countries have been rendered uninhabitable by US policy and many more found themselves in economic ruin by the same token. There is no denying the effect that IMF policies have had on Central and South America, and there is no getting away from the ruins of Vietnam, Iraq and Afghanistan. Central Asia is rife with US dictatorships, and Africa is currently experiencing the effects of three centuries’ enslavement, much of it at the hands of the US and Europe. Even countries lucky enough not to have come directly under the Washington Yoke (India, China, etc.) still deal with the effects of European “colonization” (that happy euphemism!) .Thus they are not much comparison.
With such a track record, it is difficult to find a country that has truly been able to adopt and keep an indigenous governmental structure with which to compare our own. History provides some help, but very little. The history of Eurasia is relatively well-documented, but west of the Atlantic we have very little. The Europeans who came to the Americas slaughtered at a far faster rate than they learned. By the time they became civilized enough to be curious of other cultures, entire civilizations had been wiped out. So we truly don’t know if a better way of doing things is possible. European civilization, and its American successor, have spread throughout the globe.
Thus, the argument that US crimes may be excused because it’s still “the best country” in which to live is a trick, designed to deflect attention from the fact that our crimes are the very cause of our high standard of living.
3) “Well, then what would you do?”
Further up the confrontation scale, this is a game wherein the establishment figure will throw various scenarios and demand to know, on the spot, how you would respond to them. If they are gracious these will be current affairs and not wholly hypothetical. For instance, “Say you’re Obama. What do you do about Afghanistan?” Invariably the answer is mocked as “unrealistic”, “idealistic”, or simply “naive”. In the Afghani example, if one were to say that we should cease combat operations, issue a heartfelt apology to the Afghan nation for 30 years of atrocities, and award reparations for the destruction we caused, the suggestion would be met with a scoff and a chuckle. Such actions would either “increase terrorism” or “reduce our national standing”.
If, again, one is asked how to deal with the Palestine-Israel question, one cannot give the simple answer that we should adhere to the UN resolution regarding the matter: Israel retreats to 1967 borders, lifts the blockade on Gaza, and allows a Palestinian state. “Impractical”, would be the standard response.
You see that whether or not a course of action is the right thing to do never occurs to them. The National Interest, apparently, is the only morality. When someone asks “what would you do in so-and-so’s place?” they should usually add “and it has to be in the interest of only the US”
A piece of errata on “national interest”: it apparently occurs only to a very few that what is said to be in the “national interest” is really only in the interest of a select group. None of our actions abroad have done anything to relieve inequality within America – if anything our foreign policy exacerbates class differences in the US. It has, however, also made a few rich industrialists orders of magnitude richer.
4) “What’s the solution?”
After the recitation of so many negative aspects of our current rulers, an irritated admission of guilt will follow, and then a demand for a master solution to all our government’s ills. I would think this is usually a last resort, for it is truly unanswerable. Our governing system is so large, so complex, and in the last analysis, so unbelievably powerful, that it is hard to imagine how such deeply entrenched issues could be solved, or even brought to light. The media is a powerful force for stupefaction. Few citizens even know of our recurring adventures abroad – far fewer care.
In the face of such odds, most are quick to assume the prospect for real reform to be hopeless, and the best one can do is get their share (usually more) of our ill-gotten riches. Many from whom I have heard these arguments do quite well at this, and have attained for themselves positions which nearly everyone would describe as success.
And I admit, there are no easy solutions, though I think a good start would be to admit what the US has done over the past decades and to acknowledge from where it derives its income. For many Americans, it is directly on the backs of the Third World
After such acknowledgment, I think it only fair to expect people not to directly participate in such horrors as they would not which visited upon themselves. Signing an order for 1500 bombs, knowing for what they will be used, is not a nice act. Direct non-participation would entail not taking a job for a corporation whom you know to perform actions undesirable for humanity, not taking a job for a government which you know has nefarious intentions at its root. There are many, many ways to eke out an existence without violating basic ethical principles. But it will not be a lucrative existence
5) “Change the system from the inside”
This happy bit of idealism is most often heard from young recruits of the establishment. They are cognizant of all of our government’s flaws and its essentially undemocratic nature, but they believe that once they attain a high enough position they can work to enact real change.
One need look no further than President Obama to see how often this turns out. It cost him $650 million to run for president. From whom do you think he had to borrow in order to finance that campaign? None other than America’s favorite street: Wall. The sad fact of the matter is that in order to attain a position of power in our Government one necessarily must be a multi-millionaire. Senate elections cost tens of millions of dollars, and a seat in the House has an ever-inflating price tag. Once you attain a position of power, you are by extension indebted to a variety of interests, all of whom treat you as a mere investment on which they expect a handsome return. I am having much difficulty in thinking of anyone who has successfully changed the US government by becoming part of it.
The Reasoned Review 