Perspectives on the global economic meltdown- (Nov 28 2010)

VikramS · Post by **VikramS** » 02 Mar 2011 09:12

devesh:

Asset backed securities have been around for a long time, and have worked fine.

The problem with the mortgage derivatives (CDO, CDO^2) was that they underestimated the degree of fraud in the trenches. Once it hit, the correlation was extreme, and that slicing and dicing did not help. Everything went down the drain.

However, slicing and dicing does help, if you do not have these abnormal correlations. It is a simple case of hedging your bets and diversifying in a different context.

I do agree with you that the need for creating such complex instruments is hard to understand. Eventually it all boils down to very low interest rates resulting in a race for yield. And once a certain psychology becomes entrenched it is very hard to break it; people took on a huge amount of risk for 20-30 basis points. They never really understood the risks they were accepting simply because everyone else was doing it.

BTW I hope you understand the distinction between the banks which were coming up with the products and the customers who were actually buying them. The customers were essentially money managers who were investing. The banks themselves go stuck with so much crap; they did not see it coming either.

VikramS · Post by **VikramS** » 02 Mar 2011 09:20

Hari Seldon jee: I agree when it comes to public unions being the newest Mafia. Unions were originally created to give workers a voice and some power in the scheme of things. Initially their focus was to improve working conditions (very noble).. Then the state specified what the working conditions should be. However if the state-employees who are supposed to be enforcing those laws form a union, the irony becomes obvious.

The problem with Public Unions is that the people who decide what they will be paid are those who are elected by the support of the unions. It is not a fair, unbiased negotiation but a mutually beneficial, symbiotic arrangement where the politicians and unions scratch each other backs. The only problem is that the politician aint footing the bill; it is the tax-payer. Supposedly the tax-payer is being represented by the Politician, but in the real world it does not work that way. Public employee unions, have become an organized kick-back ring. In the private sector such kickback arrangements are illegal. There is rampant abuse especially when it comes to accumulation of retirement benefits.

svinayak · Post by **svinayak** » 02 Mar 2011 09:37

Rajat Gupta, former Goldman Sachs director, faces SEC accusations
Los Angeles Times - Nathaniel Popper - ‎1 hour ago‎
The SEC says Rajat Gupta used his corporate board positions to supply confidential information to hedge fund manager Raj Rajaratnam, who is set to go on trial on insider trading allegations. By Nathaniel Popper, Los Angeles Times Rajat Gupta's storied ...

http://news.google.com/news/more?pz=1&c ... 6bMYTw8duM

Arjun · Post by **Arjun** » 02 Mar 2011 09:45

Neshant wrote:My favourite video, please everyone give it a listen :

Neshant, The only point the video makes is that the Fed is a cartel, because it is oriented towards protecting the banking system.

Not sure if you have studied finance at all as part of your education - but in case you think the above is something that is peculiar to the US banking system - you can't be more wrong !!! As example, the RBI's objectives in India from a banking perspective are to protect the interests of consumers (ie depositors), as well as to protect the banking system as a whole because of what is termed as 'systemic risk' to the economy due to the banking system. So for example if a major bank were to start failing, (say SBI or ICICI) the RBI would most definitely move towards asking for government money to bail the banks out. The situation in China or any other economy for that matter - is no different.

While the video spends a lot of time emphasizing that the Fed is a cartel of banks no different from a 'banana-cartel', the guy missed pointing out that the failure of banana firms does not constitute a systemic risk to the economy - hence the case for banking to be treated differently.

If you don't believe in the 'systemic risk' theory (inspite of that being the accepted view in all academic circles), please make that clear - and maybe one can have a more targeted discussion.

somnath · Post by **somnath** » 02 Mar 2011 10:13

^^^The conversation around leverage is interesting..Not just here, where most posters (or rather the more prolific ones) dont seem to understand beyond the rhetoric, but world over...Intrinsically, the institution that is most "leveraged" in a classical sense is a bank, much more than the most agreessive hedge fund..Why? Simple? For every dollar of lending that the bank does, it needs to keep its own "equity" capital of 10 cents (broadly)....

There has been quite a bit of discussion around the degree of leverage in banks, and capital requirements across the board have been made tighter...But can it go dramatically higher, ie, can leverage be much lesser?
Lets o a thought experiment...Lets say banks need to maintain 1:1 capital, ie, for every dollar of lending, they need a dollar of capital..In other words, banks lend out only its own capital..Fine...What does it do to the cost of borrowing? Shareholders of the bank who are contributing its equity can invest in the bank or invest in Apple Inc..the expected Return on Equity on Apple is (say) 15%...For the shareholders to invest in the bank, the latter too needs to make at least 15%? Which means that the "safest" lending, or one with near zero risk of default, that the bank can do needs to be priced @ 15%...Translated, that means US govies (around 1-2 years - typical commercial bank lending tenor) will need to be yielding 15%. And Apple and Microsoft can borrow @ 17-18%....Tata Motors would borrow (offshore) @ 22-23%! the SME down the street will get his loan priced @ 30%...What does that do to productive business? Or inflation? Or general level of prosperity?

Again, like everything else barring sex,leverage too has its uses..Even extreme leverage, as in hedge funds..The question is of risk managing the leverage at a systemic level..The big issue in the current crisis is that institutions that are "too big to fail", ie those who failure takes the system down, were doing stuff that had a reasonable chance of failing...And regulators sort of allowed that - remember Gordon Brown's "light touch regultion"? As Taleb says, if a hedge fund fails, no one notices, but Citibank fails is a national crisis..Of course he forgets LTCM conveniently, but then even LTCM caused nothing more than a minor storm in a tea cup in final analsysis..In essence though, Taleb is right...

Which is where the RBI did a fantastic job - keeping the risk taking away from banks...There were institutions that did fairly adventurous leveraged stuff, but they were all in the "NBFC" space..Failure of a few didnt impact the system...

I can say the same thing about derivatives - obvioulsy people here who are ranting against them in general have perhaps never dealt with derivatives in any form..But the derivatives markets provide the most efficient price disovery mechanisms to all asset markets across the board - commodities, fx, equities...In the best of times, CDOs/MBSs were only one part of the market...Drerivatives have their uses,,I would go as far as to say that markets and real economy cannot function without them (few people will rememeber undha-bandha or badla in BSE - what were they but derivatives with Indian names?).............

devesh · Post by **devesh** » 02 Mar 2011 10:35

wow, so much technicalities, and in depth studies of the banking mobster class. very amusing, indeed. somnath, Vikram: you guys are right. the finance mobsters are just too complicated and sophisticated for us pea-brained peasants to understand.

but the truth still stands that the whole financial system is a massive fraud. it's a giant black hole that is sucking in scarce resources in terms f capital without any productive returns to the real economy.

there is no need to confuse oneself with the technical detail. it is a classic tool to scatter the focus away from the main points. it was a technique that was used very well by J.M. Keynes in his General Theory. the modern Banksters are essentially using the Keynesian strategy of creating complicated sounding names and processes to confuse the general populace.

VikramS · Post by **VikramS** » 02 Mar 2011 22:34

devesh:
There is a saying that do not throw the baby with the bath-water.

What the TBTF banks did was unacceptable. That they are getting away with it also not nice.

However the TBTF are just a part of a system which includes politicians, the trade cartels, the unions (even public employee unions) etc. The good thing about the US is that they do make it a point to cleanse the system. What the Fed has done is BOUGHT time. Instead of just shutting everything down and restarting from a scratch, they have provided a support. Now it is up to the politicians and the bankers to make the changes to reduce systemic risk.

There is a start being made: All the major banks including JPM, GS, and yours truly MS' have shut down their prop desks, the once which took the big risk. JPM has even shut down its commodity trading desk. Citibank let go of its most profitable oil trading group. AIG and Citibank have been selling assets, even their most profitable once to create a capital cushion.

There is talk of more accountability of compensation
http://www.marketwatch.com/story/sec-pr ... 2011-03-02

Things are changing slowly; true no one is being hung (yet).

Also there is a notion that all the money which was lost in the housing crash went to the bankers, which could not be furthest from the truth. The bankers took a cut of the pie. They would do a $1B deal and keep $30-40M as their cut. The money went to all the individual Americans who sold their homes, took home equity loans etc. We see very few complaints about them though in the media; the folks who were doing all the fake mortgages etc.

As I have said before, there is absolutely no point of living life all D&G. Life is too small to be lived that way. From the Indian POV, it should continue to limit the integration with the global economy, and especially hot money till the mess clears up. Focus on organic growth with help where needed. For us as investors, there is no point complaining about a system we can not control. Just keep one leg out of the door. These days you can buy protection (using options) which is not expensive and will save you in case of a systemic crash. Do that, sleep well, and enjoy the boom while it lasts. Nothing is permanent. Even the most disciplined systems (say the Germans) face threats due to factors outside their control. Spain was running a budget surplus but is now a part of the PIIGS. Heck even the US was running a budget surplus in the Clinton days!

So enjoy what you have, while it lasts. Keep at least 10-20% of your net worth in hard assets which will protect you when the sky falls. But do not fall so much in love with them to forget about everything else.

RoyG · Post by **RoyG** » 02 Mar 2011 23:46

Neshant, may I have your email adress?

VikramS · Post by **VikramS** » 03 Mar 2011 00:28

http://online.wsj.com/article/SB1000142 ... stpop_read

Interesting article on how the role of the USD will gradually decrease.

I think he brings up some very valid points. I guess the big wild-card is Euro. If it can truly result in a viable Euro-bond market then it can be a major issue for the USD dominance. Over the longer term of course it is China and her ability to transition to a less controlled economy.

Neshant · Post by **Neshant** » 03 Mar 2011 23:08

Or perhaps, your newly acquired gold bug status means that right now you are unable to think beyond the Flight From Fiat (TM).

Con man terminology like cloud computing, financing & high rolling does not work on me. I'm too aware of the scams that suckers fall for.

If all you are saying that the Fed is running a Ponzi scheme, then I have no disagreement with you. What I may disagree is how is it going to end...

You contradict yourself. You talk about a genuine recovery and then talk about the system being a a ponzi scheme. The idea of a genuine recovery and a ponzi scheme cannot co-exist in the same sentence.

A ponzi scheme ends one way only - in disaster - proving the whole recovery claim to be BS. You are talking out 2 sides of your mouth. My view is that you are coming round to the understanding that the useless middleman industry/Fed has just created the illusion of a recovery by money printing, stock market rigging, running up even more debt and scamming and now you are back tracking.

Perhaps you can enlighten me on how you think a ponzi scheme will end if not in disaster. Surely you don't think it will end well or do you?

But all the other stuff (invention, productivity etc.) has me confused.

That's why I was recommending you read the book How an Economy Grows and Why it Crashes. It will help you through your confusion.

Valuations between Paper (Fiat) and Hard (Gold) swing in multi-decade cycles.

There's no cycle. Its simply a mistrust of the fraud of the useless paper monetary system that people are walking up to and the destruction of the productive/real economy by the useless middleman industry. There would be no other reason to own gold otherwise.

1. Please go and read up on the amount of foreign revenue for S&P 500 companies. Perhaps then you will change the tune about international growth being tangential to the profitability of US corporations.

The bulk of productivity/profitability gain is to the benefit of the foreign country, NOT the US. It is only tangental to US corporations assuming they can even sell stuff into that market. Even if one ignores the "growth" of foreign earnings due to the deliberate destruction of the US dollar's (read savers) value
as Uncle Ben is attempting and one assumes a growth rate of 7.5% per year on the figures below, it amounts to a mere 150 billion increase. A ridiculously small amount given that the budget deficit this year alone is running at 1.7 trillion!

S&P 2007 data (millions) :
Foreign Reported $2,074,923 (45.84%)
Domestic Reported $$2,451,928 43.55% (56.45%)

By the way, these are sales not profits. Profits are but a fraction of the above numbers.

The stock market is not rising on anything other than a combo of money printing, running up debt, stock market rigging and good old fashioned scamming by the USELESS MIDDLEMAN INDUSTRY. Damn I love that phrase.

The gain recognized by a Chinese becoming more productive also comes back to US corporations.

No it does not. It largely stays with the Chinese, until US starts destroying its currency or defaulting on its T-bills. Yea then it might come back to the US while simultaneously destroying global trade and those US corporations along with it. Personally I'm convinced there is no intention to pay off the debt at the current value of the dollar. Suckers will be needed in vast numbers to eat the loss.

2. Genetically modified crops have been around for decades. The problem is not their availability but their acceptance.

They are already in use in North America and will eventually descimate any non-GMO producer through its productivity - yield per acre at ultra low costs. In any case, genetics is an industry still in incubation waiting for its time to emerge.

That is if the useless middleman industry does not continue to siphon off much needed funds from productive society which might otherwise be going into genetics.

Fifteen years ago, I needed access to the CM5s to do what I can now do with literally pennies.

Mainframes are ancient history. Industry has ALREADY transitioned back in the 90s. It cannot be used as an excuse as to why the stock market is rising forever. The fact that you cannot name a SINGLE productive industry since 2000 that has created jobs on a mass scale is telling. Anytime you don't see a productive industry and debt, 'recovery' talk is growing... beware.

4. Calling Madoff a middleman is like calling your Doctor a Middleman. What is the logic of calling a money manager a middleman? He is just doing (or pretending to do) something you want others to handle.

A middleman is someone who is supposed to provide a useful service for a fee. A useless middleman is one which drains you of your wealth through scams. The useless middleman industry which includes the federal reserve is just a Bernard Madoff with a printing press. Once you cut through the jargon and jive talk it is plain to see. There is no demand to be scammed so there is no demand for the useless middleman industry. It exists through its own efforts at promoting its parasiticism on productive society.

5. Have you ever run a business? Do you have any exposure to Profit-Center in the companies you work at?

Your point being... ?

Neshant · Post by **Neshant** » 03 Mar 2011 23:08

RoyG wrote:Neshant, may I have your email adress?

Why?

ramana · Post by **ramana** » 04 Mar 2011 01:56

Anyone noticed the Repubs who rant about teacher and other labor unions don't have word agaisnt NFL player or owner unions!

Neshant · Post by **Neshant** » 04 Mar 2011 06:54

ramana wrote:Anyone noticed the Repubs who rant about teacher and other labor unions don't have word agaisnt NFL player or owner unions!

I don't see the connection. Teachers and (public sector) labor unions have their salaries, pensions and even losses in their pension plans from gambling on the stock market paid for by the taxpayer. They bribe politicians to keep their payouts high. There is nobody negotiating on behalf of the taxpayer when it comes time to raise their luxurious salaries & pensions or employment stability on the backs of people working in the private sector through taxation.

NFL players are private sector. They are paid only as much as people want to pay to see them. If nobody wanted to see them, they would lose their jobs. What are owner unions? If you mean private sector unions, the employer will lock horns with these unions when it comes to issues of salary/benefits increases. Unlike public sector unions where its a one way street, the employer will not just take a hit to his profit margin by raising their salary or giving them benefits or a pension without a fight. That is true bargaining.

Neshant · Post by **Neshant** » 04 Mar 2011 10:08

somnath wrote:near zero risk of default, that the bank can do needs to be priced @ 15%...Translated, that means US govies (around 1-2 years - typical commercial bank lending tenor) will need to be yielding 15%. And Apple and Microsoft can borrow @ 17-18%....Tata Motors would borrow (offshore) @ 22-23%! the SME down the street will get his loan priced @ 30%...What does that do to productive business? Or inflation? Or general level of prosperity?

Common sense will tell you prosperity does not come out of a printing press.

Leverage is nothing more than counterfeiting of money and passing on the risk/loss to a person who expended great effort to EARN that money in a productive industry. No fancy explaination is going to disguise that. If counterfeiting money was good, we should all be doing it!

I too could claim the interest payments on my credit card is ridiculously high and start printing out money on my printer to ease the payments I have to make. After all, why should i pay 15% interest when I can pay 0% interest by just printing off the difference. Except everytime I do that, someone else who had to work hard to earn that money gets ripped off.

Capital which is another name for savings is derived from self-sacrifice and under-consumption. Its not something that comes out of a printing press courtesy of some self-proclaimed wise oracle who thinks he knows what's best for the economy. Really he's just gaming the system and ripping off the productive for his cronies who are gambling with the saver's money and passing on the loss.

It is the person who saved his money that should be the one lending it out and he alone should bare the risk and reap the rewards. It is the market that should decide interest rates and if its an interest rate of 99% on every dollar lent, then that's what the market has deemed the risk of an investment to be. No saver would ever be lending out his savings to some guy looking to buy a house with no income, no job, no documents. Yet this is what 'experts' were doing since it wasn't their money.

Neshant · Post by **Neshant** » 04 Mar 2011 10:23

Arjun wrote:While the video spends a lot of time emphasizing that the Fed is a cartel of banks no different from a 'banana-cartel', the guy missed pointing out that the failure of banana firms does not constitute a systemic risk to the economy - hence the case for banking to be treated differently.
.

I don't think you understood the point of the video - which is to point out that systemic risk COMES from the Federal Reserve. The federal reserve exist to promote the monopoly of its cronies - the commercial banks which are gambling with the hard earned wealth of the productive economy and ripping it off. They don't prevent systemic risk they are the CAUSE of it when their gambling bets with saver's money turn sour.

The federal reserve are the commercial banks and the commercial banks are the federal reserve. It is the same coin with 2 faces.

How you could have watched the video and not understood this basic point baffles me. I consider this video to be the most concise, clearest and simplest explaination of the scam that is the federal reserve. So i'm shocked that it went right over your head.

Arjun · Post by **Arjun** » 04 Mar 2011 12:21

Neshant wrote:I don't think you understood the point of the video - which is to point out that systemic risk COMES from the Federal Reserve. The federal reserve exist to promote the monopoly of its cronies - the commercial banks which are gambling with the hard earned wealth of the productive economy and ripping it off. They don't prevent systemic risk they are the CAUSE of it when their gambling bets with saver's money turn sour.

The federal reserve are the commercial banks and the commercial banks are the federal reserve. It is the same coin with 2 faces.

How you could have watched the video and not understood this basic point baffles me. I consider this video to be the most concise, clearest and simplest explaination of the scam that is the federal reserve. So i'm shocked that it went right over your head.

Neshant, looks like my post went way over your head !!

The video may very well have been trying to make the point you mention, but (a) uses language and analogies that seem to be aimed at a second grader or someone expected to have no knowledge of financial and business basics and (b) does not really make any effective point that would satisfy anybody with some knowledge of the system.

Firstly, he brings about the analogy between Fed as a banking cartel 'no different from a banana cartel'. Now this might score heavily with second graders, but anybody who has some knowledge of economics / finance would know that there needs to be a distinction between protection of banks and protection of banana firms. The first does have huge systemic consequences and the second does not. Given that this guy failed to bring up this elementary distinction - I wouldn't rate his rant very highly.

Secondly, he makes a fuss about the banks having shareholding in the Fed - when he himself states that the ownership does not traslate to rights to control the Fed's Board....the only reason ownership of any firm matters is because this right to participate in the governance of the firm. Now, in the Fed's case it is governed by a Board of Governers who are appointed by the President and these gentlemen are not controlled by the banks !!!

He talks about the Fed going back to the government and taxpayer money to bail out large banks - this is exactly what the central bank of any country (including India )would do, in case it ever came to a case of a major bank of the country failing.

What one can fault the Fed with - is that they were somewhat lax with regulations that could have prevented the massive risk -taking by banks in the 2002 - '07 period. The correct response to that would be to come up with suggestions on what kind of regulations need to be in place (some like Volckers law etc have started to be put in place already , post the crisis) - rather than some foolhardy rant on 'bloodsucking' banks. Please focus on what the regulatory structure needs to be - and this discussion would be productive, otherwise you are being just as NON-PRODUCTIVE as what you make out the 'blood sucking' bankers to be !!!

Hari Seldon · Post by **Hari Seldon** » 04 Mar 2011 13:44

ramana wrote:Anyone noticed the Repubs who rant about teacher and other labor unions don't have word agaisnt NFL player or owner unions!

There is a world of difference between public sector unions and private sector unions. There wouldn't be if American states, like GM, were constitutionally able to file for bankruptcy and thereby annulment of previous contract obligations including union contracts. To that extent the repubs are fine.

What foxes me is the persistent ideo-illogical repub insistence that the low taxes mantra apply even to the super rich, that the rule of law stop at the doorsteps of wall st fraud-mongering, that transparency and accountability stop at the doorsteps of the fed, that TBTF not be dismantled piece by piece pronto, that ....and so on.

How weird that yankee netas are oh-so-willing and loud to be seen taking crystal clear stands on on non-issues like gay marriage and abortion and avoid direct questions on bailouts/TBTF/campaign finance/ etc etc, eh?

And so on and on.

Of course, I continue to hope that the yanks will again blaze a trail and get a handle on this rot. And actually reverse it, maybe. And install hope and precedent in the rest of the world. And thereby actually live upto their lofty exceptionalism and manifesto-ed destiny rhetoric. Etc etc.

svinayak · Post by **svinayak** » 04 Mar 2011 14:15

http://livinglies.wordpress.com/2011/03 ... nd-abroad/

Broke Town, U.S.A.
By ROGER LOWENSTEIN

EDITORIAL NOTE: IT DOESN’T HAVE TO BE THIS WAY
These budgetary cracks throughout our system were caused primarily by one thing — the Wall Street securitization scheme that was fake from the start. The result was the illusion of growing towns — with growth that could be sustained — growing population — when the population wasn’t growing — and governments losing money by starting projects to accommodate the projections of new demographics while at the same time headed off a revenue cliff because tax revenues were about to plummet. Add to that the direct losses to pension systems and operating accounts of state and local governments from the purchase of worthless mortgage bonds and you have the prescription for disaster that is playing out before our eyes.

Vallejo, a city about 25 miles north of San Francisco, offers a sneak preview of what could be the latest version of economic disaster. When the foreclosure wave hit, local tax revenue evaporated. The city managers couldn’t make their budget and eliminated financing for the local museum, the symphony and the senior center. The city begged the public-employee unions for pay cuts — all to no avail. In May 2008, Vallejo filed for bankruptcy. The filing drew little national attention; most people were too busy watching banks fail to worry about cities. But while the banks have largely recovered, Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city’s firehouses were closed. Last summer, a fire ravaged a house in one of the city’s better neighborhoods; one of the firetrucks came from another town, 15 miles away. Is this America’s future?

Cities across America are facing dire financial distress. Meredith Whitney, a banking analyst turned independent adviser who correctly predicted the banking meltdown, has issued an Armageddon-like prediction of mass municipal defaults. Others — notably Newt Gingrich — have suggested that state governments as well as cities should be allowed to file for bankruptcy. Congress held a hearing to examine the idea.

These forecasts of apocalypse have touched a nerve. Americans, still reeling from the devastating impact of the mortgage debacle, are fearful that the next economic disaster is only a matter of time. To anyone reading the headlines of budget deficits and staggering pension liabilities, it takes little imagination to conclude that the next big one will be government itself. The problems of cities are everywhere. The city council of Harrisburg, the capital of Pennsylvania, has enlisted a big New York law firm to explore bankruptcy as a means of restructuring a crushing debt. Central Falls, R.I., is in receivership. Hamtramck, Mich., a small city within Detroit’s borders, says it could run out of money next month. Hamtramck has only 90 employees, yet it is saddled with the pensions and health care obligations of 252 retirees. Detroit itself is at risk. Large deficits will mean closing about half of the city’s schools and will push high-school class sizes to 60 students.
These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40 cities with as much debt as Detroit to reach even $100 billion.)

Neshant · Post by **Neshant** » 04 Mar 2011 19:03

Arjun wrote:Firstly, he brings about the analogy between Fed as a banking cartel 'no different from a banana cartel'. The first does have huge systemic consequences and the second does not. Given that this guy failed to bring up this elementary distinction - I wouldn't rate his rant very highly.

As I said, the video went right over your head and it shows.

His analogy of a cartel structure is to show that govt has been co-opted into the process of enforcing a monopoly to the detriment of productive society. That a banking cartel's existance poses a greater risk than a banana cartel is MORE not less reason it should not exist in the first place. His point is that the federal reserve is the CAUSE not the cure to systemic risk and its existance is parasitic on productive society. All cartels that exist on the backs of society are bad with the federal reseve being the worst of them all.

the firm. Now, in the Fed's case it is governed by a Board of Governers who are appointed by the President and these gentlemen are not controlled by the banks !!!

Herein lies another point which went over your head.

The video points out that there exists a revolving door between govt and banking crooks. Election campains are funded by these crooks and large media brought onboard to promote the exposure of select politicians with the expectation that they return the favor by being compliant.

When the chairman of the federal reserve is selected shortly after the election, the president does not look through his diary to find the most honest man he knows. A list of 3 candidates is put in front of him by the previous fed chairman (all banking crooks) and he picks one from that list of 3. A clueless guy like Obama falls right into compliance mode and that's why he gets to be president. A person like Ron Paul who is an independant thinker is kept well at bay from the presidency because he has a mind of his own and sees right through the scam. It is no co-incidence that the federal reserve chairman comes from the crooked banking industry and so does the treasury secretary and so called "financial advisor" cronies that surround the president. None of these fools represent the interest of the productive economy or the taxpayer.

Many positions of govt (especially so called financial regulatory positions) are packed with ex-employees of financial companies. Goldman Sachs had the govt position for financial fraud investigation packed with its ex-employee which I found most amusing.

If you did some basic research, you'd realise all of the above.

He talks about the Fed going back to the government and taxpayer money to bail out large banks

Again you don't seem to understand the scam of a private banking cartel privatizing gains and socialising losses which to me indicates you did not understand even the basic message of the video.

What one can fault the Fed with - is that they were somewhat lax with regulations that could have prevented the massive risk

The purpose of the federal reserve is to ensure the monopoly of the parasitic commercial banking cartel it represents period.

The charade that it exists to protect the public is just that - a chrade. Ben Bernanke does not have a clue what the market price of oranges nor bananas nor housing is. His fiddling around with interest rates and money printing is to benefit the commercial banking cartel he represents and is the CAUSE of the financial disaster which is still unfolding. His counterfeiting money, running up debt, stock market rigging and scamming behind a wall of secrecy will be the CAUSE of the destruction of living standards.

The correct response to that would be to come up with suggestions on what kind of regulations need to be in place

Wrong, the correct response would be to shut down the federal reserve (which is really nothing more than a money counterfeiting operation) and return the power of money to the people who earn it. The useless middleman industry which the fed embodies and which lives a parasitic existance off productive society needs to be cut out of the picture.

To have the same goons (ex-employees of financial companies) who have infested their way into govt regulatory positions pretend to be regulating risk when they exist to promote it and steal the wealth of the productive is nonsense. To have the system over-run with lobbyists from the useless middleman industry that is banking & financing isn't going to solve anything either as politicians are easily bribed.

Despite all the regulation in the face of BLATANT fraud, there isn't a single banking crook who has gone to jail and there won't be any. So quit dreaming.

Neshant · Post by **Neshant** » 04 Mar 2011 19:36

The supply of suckers are running low. Vast numbers of suckers are needed to have money confiscated from them and handed over to the useless middleman industry, public sector unions..etc.

so either its going to be more taxation and inflation to rob the productive or pensions are going to have to implode.

----

Economists: State, local pension funds understate shortfall by $1.5 trillion or more

The pension funds for state and local workers in the United States are understating the amount they will owe workers by $1.5 trillion or more, according to some economists who have studied the issue, meaning that the benefits are much costlier than many governments and taxpayers thought.

http://www.washingtonpost.com/wp-dyn/co ... 02918.html

devesh · Post by **devesh** » 04 Mar 2011 19:38

ramana: NFL is a private sector union. the money involved is private money. both losses and profits are privatized. and the public taxpayer doesn't pay for the NFL salaries. lot of difference between public labor unions and NFL unions.

also, every now and then we should focus on the big picture and future scenarios on this forum.
in US, i think the commodity inflation will spark a double dip. lot of possibility for another round of stagflation, with even higher inflation than the 70's. oil has gone up from around $2.90/gallon in Jersey just a month ago, to around $3.30/gallon right now. there is a very good chance it will hit $4.00/gallon before summer. it is impossible for such a rapid rise in oil to not reflect in general prices.

as for the states and cities' budget crises, bankruptcy will increasingly become an attractive option. there is no way that people are going to accept any more taxes, when incomes are falling and inflation is on the rise. also, Meredith Whitney has a pretty good track record with these predictions. i would listen to what she is saying.

Hari Seldon · Post by **Hari Seldon** » 04 Mar 2011 20:56

devesh ji,

also, every now and then we should focus on the big picture and future scenarios on this forum.

My thoughts precisely.

Kindly pick up, layout and lead some topics of such nature. Am sure interest will sustain. TIA.

VikramS · Post by **VikramS** » 04 Mar 2011 21:26

Neshant:

There is nothing sacred about Public Unions and there contracts. Those contracts will be renegotiated, including Pensions and retirement benefits. It takes some brave politicians to take the lead. Also note that all the D&G does not take into account the taxing power of states.

All these talk about Muni bond collapse is a bit misleading. Whitney herself has toned down her rhetoric, and gone back on some of her statements. This is because the debt servicing cost of munis is just 7% of their revenue. The local governments will cut services and jobs will be lost. But this systemic risk argument because of munis is bogus. There are bonds which will default but these are not GO or Revenue bonds but primarily private development bonds, repackaged as munis. Most of these issues are unrated and hence not owned by institutions.

My personal view is that the systemic risk will come from the collapse of the Euro.

The point which I am trying to make is that there is going to be ups and downs. Asset prices and valuations move in cycles. There is no value to not enjoy your present for something which may or may not happen in the future.

You make a link between jobs, productive jobs, asset prices, economy etc. That link is perhaps valid in a super-cycle, the secular perspective. But for most investment purposes, while the secular back-drop is important to keep in mind, you have to focus on the cyclical aspect.

I gave an example how the SPX gets 50% of its revenue from outside the US, and their profits are at near peak. (You responded with the idea that revenue != profit; not sure what you meant). You can not ignore counter-trend cyclical rallies in a secular context. The 100% rally in SPX in two years is a great example. These gains may all be a result of the Ponzi scheme and based on paper pushing, but they are there.

Since we are in such a inter-related world, the Ponzi schemes are often inter-related. In some way China too is running a Ponzi scheme where it destroying the savings of its masses by ultra-low rates (to keep currency low) and runs up huge inflation. You might be surprised to know that failed auctions of Chinese government debt are quite common (no one wants to buy the debt at those low rates).

These gains may vanish if the secular bear returns. But you can not tell when it will return. When it returns, the market will flash ample warning signs, for you to reduce exposure. And you do not know which Ponzi scheme will collapse first.

The ratio between hard assets and soft assets runs in mega-cycles. This cycle still has a few years to run. The system will be cleansed but it will take time. In the mean time enjoy as your gold and silver assets appreciate.

RoyG · Post by **RoyG** » 04 Mar 2011 21:39

Neshant wrote:
RoyG wrote:Neshant, may I have your email adress?
Why?

I have a good amount of savings and I want to get your advice on a couple things.

svinayak · Post by **svinayak** » 04 Mar 2011 21:45

Me too.

Theo_Fidel · Post by **Theo_Fidel** » 04 Mar 2011 21:52

Cartels by themselves are not bad. Civilization itself is a cartel. We have decided that the entire planet belongs to us unilaterally. All kinds of cartels are in operation in the world for the purpose of peace and economic predictability. In fact without cartels, there would, in many cases be complete anarchy. Everyone doing what ever the hell they felt like.

The problem comes when the operations of the cartel are not controlled by the interests of the many. Once the 'few' get control of a cartel that's when bad things happen.

VikramS · Post by **VikramS** » 04 Mar 2011 21:53

RoyG and Acharya:

These are a few newsletters I have found useful.

The first two are cycle driven analysts who have really nailed it (they are big gold bulls). IMHO, for most investors following the guidelines they lay out will work very well. The subs are cheap (< $200/year).
http://www.thedocument.com
http://www.smartmoneytrackerpremium.net

If nothing else go through the archives of these guys and you will learn a lot. Remember that asset prices often move in purely irrational manner, and the market can remain irrational longer than you can remain solvent. While these guys understand the big secular background, the listen to the market very carefully.

For purely stock investing (which I do not think you are looking for)
http://www.alphaprofit.com/ has a great track record

svinayak · Post by **svinayak** » 04 Mar 2011 22:46

Theo_Fidel wrote:Cartels by themselves are not bad. Civilization itself is a cartel.

Ideology of the civilization is important since it will determine how the cartel will work.

Neshant · Post by **Neshant** » 05 Mar 2011 07:07

RoyG wrote:I have a good amount of savings and I want to get your advice on a couple things.

Sorry I don't give out such advice.

If you want to know what I'm doing, I've set aside a portion of my net wealth in physical gold (15%), gold stocks (15%) and cash (70%). I've been buying physical gold since 2003/4 and dividend paying gold/silver stocks since 2009 and have not sold any. The physical gold is as insurance against currency dislocation or default and I'm not interested in doubling or tripling my money on it by cashing it in anytime soon. Quite frankly I could not care if it fell to half of what its worth tommorrow - I have no intention to sell physical gold for the next 10 years. I own more gold/gold-silver stocks than perhaps 99% of the Earth's population I'd guesstimate.

I'm not in debt and do not own much in the way of fixed assets or anything the govt can find/lay its hands on or tax if you understand what I mean. I also have high mobility should the need arise.

RoyG · Post by **RoyG** » 05 Mar 2011 07:51

^^Thanks Neshant. I actually put about 10% of my savings into physical gold, and have put 5% in gold/silver funds. About two weeks ago I made the decision to place an additional 10% of my savings into physical gold....However, about a week ago I was told to also look into silver b/c it may outperform gold in appreciation over time. I just wanted to get your opinion on holding physical silver and whether or not you hold any.

VikramS · Post by **VikramS** » 05 Mar 2011 08:10

RoyG:

Silver outperform Gold by large margins in the final parabolic stage of Precious Metal Run. Also silver has a lot more industrial usage and if the global economy is growing then the demand for silver will also grow. Just look at the charts of other metals since the lows 2 years ago (Palladium, Platinum, Coppper $PALL, $PLAT on stockcharts
http://stockcharts.com/h-sc/ui?s=$PALL& ... 6643070529).

Though I do understand the need for physical, purely from trading point of view there are other product available. Look at the chart of AGQ and SLW for a starter. Paper metal funds have the liquidity advantage. When the price truly rockets, it will start fluctuating 5-10% intra-day. While physical is good to own for the dooms-day scenario; it is not easy to cash out of it when the bubble bursts.

The two newsletters I linked earlier, talk a lot about the gold-silver cycles and how each performs in different stages. They are heavily levered to silver and related products like silver miners (SLW) and also leveraged ETFs. AGQ is up about 50% from its cycle bottom in end of January (about five weeks)
http://stockcharts.com/h-sc/ui?s=AGQ&p= ... 4198767529

And these guys literally nailed the PM entry points to within a day or two of the lows. They also stress that getting out at the end of the run is equally important.

------------------------------------------------------------------------------

Neshant: Why are you 70% in cash?

Hari Seldon · Post by **Hari Seldon** » 05 Mar 2011 10:10

Neshant: Why are you 70% in cash?

Lemme hazard a guess..... deflation play. When deflation stares at you in the face, the one asset class you want to be in is cash.

Arjun · Post by **Arjun** » 05 Mar 2011 14:16

Neshant wrote:As I said, the video went right over your head and it shows.

Can't help it if I seem to have hurt your H&D by rating the video a dud...! I find a distinct lack of rigour in the presenter's analysis - a lot of what you write in your post has no mention at all in the video (Can you show me where he even brings up the topic of systemic risk or the Fed's presidential governor appointees ?)

Added later - My earlier comments were based on Part 1 alone. I just heard out all 5 parts and Griffin I think is on somewhat surer ground when he talks about fiat money vs constitutional money, but I stand firmly by my comments on Part 1.

His analogy of a cartel structure is to show that govt has been co-opted into the process of enforcing a monopoly to the detriment of productive society. That a banking cartel's existance poses a greater risk than a banana cartel is MORE not less reason it should not exist in the first place. His point is that the federal reserve is the CAUSE not the cure to systemic risk and its existance is parasitic on productive society. All cartels that exist on the backs of society are bad with the federal reseve being the worst of them all.

My point is very simple. Banks, unlike banana firms and practically all other industries, have a degree of interdependance which poses a systemic risk to the industry should any one of the large ones fail. So, if the objective of the cartel or the regulator is to ensure the survival of large banks - then that is for the common good. The Fed is in line with every other banking regulator in socialising the losses of the large banks if these losses could not be funded through private shareholders. As you probably know, TARP actually made a good profit for the US government in that the government bought at historic lows and is exiting at the highs. Simultaeously, the objective of the regulator should also be to ensure that the banks do not take on unjustified risks that could potentially lead to bank failure down the road - and it is in this objective that the Fed failed.

The video points out that there exists a revolving door between govt and banking crooks. Election campains are funded by these crooks and large media brought onboard to promote the exposure of select politicians with the expectation that they return the favor by being compliant.

The video does not allude to anything of what you mention. Lets assume what you say is correct - why is this attempt to influence the regulator peculiar to the banking industry? Surely you know that in India, there is an unfolding scam on 2G auctions on the telecom side - not even heresy like in your case, but actual evidence of leading telecom firms funding and corrupting the telecom regulator and politicians ! Would you therefore classify the telecom industry as productive or an equally non-productive industry as banking??

Many positions of govt (especially so called financial regulatory positions) are packed with ex-employees of financial companies.

You want financial regulatory positions to be filled by newbies to finance ?

Or are you suggesting the person should be an academic? If he is neither, he / she is bound to have a background with financial services firms ! What makes sense is for the regulator not to subsequently join any financial services firm or have any linkage / benefit being derived from any financial services firm during and after his tenure - but does not make sense to insist on no linkages prior to the tenure.

Again you don't seem to understand the scam of a private banking cartel privatizing gains and socialising losses which to me indicates you did not understand even the basic message of the video.

Socialising losses has nothing whatsoever to do with any cartel, but everything to do with how one addresses the problem of systemic risk in the banking industry. Should one not have any TBTF banks (Both China and India certainly have some extremely large domestic TBTF banks)? Or should one ignore the systemic risks and allow a Citibank to fail for example?

Wrong, the correct response would be to shut down the federal reserve (which is really nothing more than a money counterfeiting operation) and return the power of money to the people who earn it. The useless middleman industry which the fed embodies and which lives a parasitic existance off productive society needs to be cut out of the picture.

So Devesh WAS wrong when he tried to explain that you were not necessarily against the banks but only against derivatives and leverage etc. You don't think any of banks, insurance firms and Wall Street firms should exist, or is it only the banks that get your goat !? And if these industries should not exist, how would lending, risk management, and financial markets function - or should financial markets not exist as well?

Despite all the regulation in the face of BLATANT fraud, there isn't a single banking crook who has gone to jail and there won't be any. So quit dreaming.

Why is that the fault of the government? Why have Lehman, Bear Stearns shareholders not gotten together to file cases against the former managements for running down shareholder value to zero? Why have the commercial banking shareholders not done the same against the mortgage division heads and bank CEOs who have eroded tremendous wealth? If blatant fraud was committed, it should be an open and shut case, right?

brihaspati · Post by **brihaspati** » 05 Mar 2011 21:28

http://news.sky.com/skynews/Article/201103115946007

Mr King said banks had lost the morals of other more traditional industries that "care deeply about their workforce, about their customers and, above all, are proud of their products. (With the banks) there isn't that sense of longer term relationships.

"If it's possible (for financial services firms) to make money out of gullible or unsuspecting customers, particularly institutional customers, (they think) that is perfectly acceptable."

Normally I do not venture into this subforum (because it is too close to home!). But was tempted to post the above. Throughout the forum, I come across a certain school of thought that pretends to believe in "pure profits" motivation as the god-of-all-things - something that really drives, has always driven in the past, and will continue to do so - and should always do so forever into the future - anything and everything that concerns a nation, a society, a people, and interactions between multiple such entities.
[I say pretension, because the fact is that those who propose this really do not sincerely believe so- it comes out in Freudian slips. For example if anyone says that India should imitate Pakis in sponsoring Paki underhand methods back onto the Pakis, then the slip happens in immediately claiming that India should not sink down to the level of the Pakis - which implies an inherent non-financial, non-pure-profit and ideological motivation].

The above quote was interesting for me in the sense that Mr. King is actually stating something that is completely contradictory to the pure-profits excuse. If profits are actually maximized by not caring, why should the banks care for its workforce, or have any qualms of guilt in not caring for the welfare of the gullible? My point that - those in the financial industry are well aware of the consequences of their murderous and rather sadistic behaviour in the way they destroy ordinary lives [ the vast multitude of the commons compared to the few rich who benefit from their activities] - but shout about everything is ruled by "profits" as a means of covering up their personal greed in getting a share of such "profiteering".

"Ethical" or "value" component in decisions - those that are not pure monetary profit maximization - seem to be necessary. Even for the continued survival of the profiteering prophets in business.

VikramS · Post by **VikramS** » 06 Mar 2011 01:23

brihaspati ji:

That comment about gullible institutional customers is perhaps the key to understanding the problem.

The sell-side has a well-oiled machine. Like all salesmen their job is to sell at any costs. It is supposed to be Buyer Beware. And it is true for all transactions.

When you buy a home, you get an inspection, buy title insurance, and run comps to check if the price is realistic. When you are buying a big-ticket item, you read reviews and comparison shop for the best deal. The seller will not tell you what is not wrong; it is your job to figure it out.

The problem is that on the buy-side, there are a whole bunch of follow the crowd suckers who do not do any due-diligence on their side. If anything, it is these buy-side managers who truly failed in doing their job, the gullible institutional customers. These buy-side managers are paid well above the average compensation in other professions but were not doing their job. And in the hunt for the extra 30-40 bp they took risks which were just not commiserate with the returns.

The ratings industry had a big part to play in the perpetuating the myth. However as a professional, you are supposed to know how the system works, and when it breaks. Those buy-sider managers did not do their home-work or stick with investing discipline. Perhaps all of them thought that they will get out when the going gets tough, not realizing that when everyone is getting out of the door, there are no bids left; especially on instruments when everyone was basically following the crowd.

The Goldman case is an example. Someone wants to short (Paulson) and Goldman tries to find some body else to take the other side. Internally they were not willing to take the opposite side, so their sales team find some buy-side sucker to take those positions. The problem is that while everyone is blaming Goldman, no one is talking about the complete failure of the buy-side managers to do some due diligence on what they were buying.

And frankly, it was not that hard to model these securities. I spent a few months and could do it; can not figure out why those multi-billion funds could not. Unfortunately the people who suffered are the common men who put their trust in these good for nothing buy-side managers.

brihaspati · Post by **brihaspati** » 06 Mar 2011 01:50

VikramS wrote:brihaspati ji:

That comment about gullible institutional customers is perhaps the key to understanding the problem.

The sell-side has a well-oiled machine. Like all salesmen their job is to sell at any costs. It is supposed to be Buyer Beware. And it is true for all transactions. [...]

And frankly, it was not that hard to model these securities. I spent a few months and could do it; can not figure out why those multi-billion funds could not. Unfortunately the people who suffered are the common men who put their trust in these good for nothing buy-side managers.

VikramS ji,
The logic of an efficient market theoretically is wonderful. The question that he raises and perhaps does not explore fully [which would obviously question the whole current financial paradigm] is that it can look justified to take advantage of market imperfections (which includes gullible buyer-side), but is it always ethical to do so? It is justified if you accept that making profits at any cost in numerical monetary terms is the supreme value. In that case it is desirable to have as many "gullible" buyers as possible.

But is it ever possible for the "common" individual to be able to manage the expertise and qualifications/exposure/knowledge to be a "perfect" market participant? In that case will there not always be a captive pool of suckers - who are deliberately kept in the market by evolving government policy that forces minimal or zero (perhaps negative in adjusted terms) returns on their surplus disposable.

It is not so easy to predict bubbles and their bursts in sufficiently concrete terms so that people can take corrective salvation measures. Not even for the institutions. Primarily becuase they are under protocols and agreements - both inside and outside their institutions to do business in certain ways. This is all a hugely networked process. I have interacted with a certain bank from 1999, whom I had approached in order tod evelop a certain finance programme at my uni. I have seen the conservative views that force hedging calculations according to formulae devised 50 or 60 years ago, but a strange willingness to promote packages whose future trajectories they compute recklessly without having not that much cognizance of the need to upgrade their models for such products.

Some of their people came to hate me for showing the possibilities of a steep fall in certain things to come, as estimated around 2006-7. I know the type of thinking, and they also have a kind of tunnel vision led by profiteering which you are blaming on the buyer side. Ironically, the buyers and sellers are not that much different from each other - you can model them by a two state agent in a general market. As such the same thinking guides both.

Neshant · Post by **Neshant** » 06 Mar 2011 09:44

Arjun wrote:So, if the objective of the cartel or the regulator is to ensure the survival of large banks - then that is for the common good.

No it is not for the common good. It is for the good of the useless middleman industry. That is the point of the video. The sooner the parasite is removed from the host, the better for the host.

When Bernie Madoff's ponzi scheme was uncovered, the logical next step was not hand him more money to continue his operations. The logical course of action was to shut his ponzi scheme down and put him in jail before it expanded any further and destroyed the lives of more people. Claiming that uncovering a scam would put vast numbers of people at risk and the ponzi scheme should be kept going is idiotic. Eventually all ponzi schemes/scams end in disaster.

Arjun wrote:As you probably know, TARP actually made a good profit for the US government in that the government bought at historic lows and is exiting at the highs.

Wrong, The Federal Reserve lending money to its commercial banking cartel members at 0% and letting them buy govt treasury bills with that same money at 3 to 4% interest is nothing more than a RIPOFF and GIVEAWAY of taxpayer money. Bailouting, printing money, running up debt, stock market rigging and scamming is where "profits" of the useless middleman industry comes from to pay TARP. Of course, clueless people will fall for the line the useless middleman industry is "working hard" to make profits and repaying TARP when in fact they are just ripping the public off.

Money does not come out of thin air - especially not from the useless middleman industry which researches nothing, develops nothing and manufactures nothing (except scams). Productive society does not need these scammers.

Arjun wrote:Simultaeously, the objective of the regulator should also be to ensure that the banks do not take on unjustified risks that could potentially lead to bank failure down the road - and it is in this objective that the Fed failed.

The role of the fed is to ensure the monopoly of the banking cartel it represents period. Fiddling around with money printing, interest rates, bailouts..etc is geared towards that objective.

You seem to be laboring under some illusion that the federal reserve exists to be of some benefit to society. Common sense will tell you that even if they were acting in the interest of society (which they are not), they are about as clueless about the economy as the guy who was flipping houses in 2007. Is there any reason for me to believe they have any special insight into the economy when its evident in the most undenyable manner that they don't.

Uncle Ben practically slept his way into one of the biggest bubbles in history and by the time he woke up, it looked like armageddon.

The great thing about the collapse is that it exposes all the financing & high rolling jive talk coming from PhD economists, fancy pants bankers and Ben Bernanke to be a load of bullocks. Bernanke has no clue what the market price of bananas are, why assume he knows what the market price of houses or anything else should be? Yet this clueless joker is fiddling around with inflating, interest rates, printing money, running up debt and fooling around with trillions! Its mind boggling when I think of it. In any other profession, his ass would have been fired for incompetence long ago. The reality is nobody except the free market is smart enough to know the prices of things. It is the free market which should be setting interest rates and investments should be derived from savings - not some clueless joker with a printing press operating in the interest of a cartel he represents.

why is this attempt to influence the regulator peculiar to the banking industry?

For the simple reason that banking crooks have hijacked the entire govt machinery and are now holding entire nations hostage. Its really a kind of terrorism. By your own claims, banking is "unique" in that it now poses systemic risk to the entire economy. At what point do you propose this most dangerously parasitic useless middleman industry be removed from the host? The host (the productive economy) is being drained and is dying.

You want financial regulatory positions to be filled by newbies to finance ?

I don't want regulatory positions to exist at all because they are useless. Get rid of the entire useless middleman industry altogether. There is no sense in packing a regulatory position with the same scammers who are scamming productive society.

It is the saver who should lend out his hard earned money to a borrower at a mutually agreed interest rate and terms. Nobody will protect money better than the person who has worked hard to earn it. If the saver messes up, its his loss. Society is not tapped to make good his loss under any bogus systemic risk nonsense. There is to be no leverage in such a system. Having the useless middleman industry involved in the process is the best way to guarantee that profits of any venture get largely consumed by this industry while losses gets passed on to suckers - as is underway.

To start moving towards this system described above where a saver is the source of investment capital (as opposed to the scammer), there is a need to return to honest money (gold & silver). I'm also open to the concept of non-leveraged competing local currencies with legal tender status as proposed by Ron Paul. The entire risk of holding such currencies is entirely the responsibility of the people who choose to hold it as a means of storing their wealth and as a medium of exchange.

Or are you suggesting the person should be an academic?

I'm suggesting there should be noone. You need to erase the whole idea of needing some wise guru at the top to lead society to financial heaven. There is no such thing. As is already evident, guru Bernanke is a fool and as if that weren't enough, he's a thief for the useless middleman industry to boot!

So Devesh WAS wrong when he tried to explain that you were not necessarily against the banks but only against derivatives and leverage etc.

The word banks has been throughly corrupted to a point where I rather not even suggest a bank be setup for anything. These days anyone running a paper scam is a bank.

To be sure, I'm not against the utility role for banks and think it may serve a useful purpose once competing local currencies and honest money is introduced. But I rather not start on this as it will only serve as a source of confusion.

And if these industries should not exist, how would lending, risk management, and financial markets function - or should financial markets not exist as well?

The technology already exists to connect saver with enterpreneur. One does not need a multi-trillion dollar useless middleman industry scamming every step of the way and passing on their losses to productive society for investment and commerce to occur. All that's really needed is a non-profit govt clearing house where savers and investment seekers can come together with non-leveraged capital. If the saver loses his investment, that's his problem not society's and nobody is fiddling around with interest rates, printing money or price rigging like the fed to ensure its (insolvent) croney banks are making money on the backs of others.

If blatant fraud was committed, it should be an open and shut case, right?

Why do you think it _isn't_ an open and shut case? After all, blatant and undenyable fraud has been committed and its pretty easy to at least convict ONE person.

Pension funds are required BY LAW to use the ratings of rating agencies to invest only in AAA rated investments. Guess what happened to grandma's pension when crooked rating agencies receiving bribes from the useless middleman industry stamped a VAST hoard of garbage mortgage tranches with AAA. Blatant fraud - easily provable - but did the CEO of any rating agency or useless middleman industry go to jail?

When the pension funds (now damn near insolvent) took the rating agencies to court, after some deliberation with the govt, the verdict handed down : Rating agencies have "freedom of speach" and the CEOs are thus not liable for prosecutiion !!!!

Don't fool yourself into thinking any regulation is going to solve anything in this corrupted system of worthless fiat paper forced on society by the useless middleman industry. Grandma will be on the streets eating dogfood soon. The only way to protect society against the useless middleman industry is with honest money which cuts them out of the picture and that is THAT.

Neshant · Post by **Neshant** » 06 Mar 2011 12:59

VikramS wrote:There is nothing sacred about Public Unions and there contracts.

By law states have to pay them. The only way out is through default by the state. Muni bond holders will lose their money should a default on debt occur. Private sector is not eager to pay lavish pensions of public sector freeloaders when majority of private sector workers have no pension whatsoever.

VikramS wrote:This is because the debt servicing cost of munis is just 7% of their revenue.

As per who's calculations? Everytime I turn around there is a pension fund tapping govt to make up for 'shortfalls'. Public sector pension funds lie to project their solvency (e.g. claim they can make 8 to 10% per year gambling in the stock market and hence they are solvent). This is to prevent the taxpayer from panicking in case the true figure of how much it will cost to make up for "shortfalls" is revealed.

There is no value to not enjoy your present for something which may or may not happen in the future.

There's no question of may. It WILL happen. Do you think there is any intent to repay all this debt that's being wracked up.

You make a link between jobs, productive jobs, asset prices, economy etc. That link is perhaps valid in a super-cycle, the secular perspective.

You keep relapsing into financing jive talk fantasy instead of looking at reality. The reality is that there has not been a single productive industry since 2000 which has created well paying jobs on a large scale. As I said, when you keep hearing green shoots & recovery talk yet don't see anything of substance powering the economy - Beware! Its another house flipping bogus economy/stock market bubble in the making. Its debt masquerading as wealth.

Falling for it once from 2002 - 2008 might be forgivable. Falling for it twice, now that's plain stupid.

you have to focus on the cyclical aspect.

You have to focus on the scamming aspect.

You can not ignore counter-trend cyclical rallies in a secular context.

The only cyclical thing going in is cyclical scamming. First from 2002 to 2008, now the same suckers are falling for it again. This time however, I expect the crash to happen sooner so you won't have long to wait.

The 100% rally in SPX in two years is a great example. These gains may all be a result of the Ponzi scheme and based on paper pushing, but they are there.

There are no gains, its just running up a mountain of debt, money printing, market rigging and destroying savers to promote a speculative bubble that will end the same way house flipping did. Its really baffling to me that you cannot connect 2 dots in your mind that some industry of substance is needed to power an economic recovery. It would appear to be a very straight foward connection to make yet you keep diving into jive talk of cylical this and that when confronted with this simple fact. You sound like this guy from back in 2006 :

http://www.youtube.com/watch?v=IU6PamCQ6zw

Too much time spent shuffling paper leads to a total disconnect from reality of how an economy grows and why it crashes. Read the book.

When it returns, the market will flash ample warning signs, for you to reduce exposure.

Even the clueless oracle at the top Bernanke claimed there was no housing bubble at the very height of the housing bubble in 2007! He was literally sitting on one of the largest time bombs in history and did not have a clue even with all the information at his disposal. What makes you think you are going to see some flashing sign? He single handedly destroyed tens of trillions of dollars on a global scale. The consequences of that lie ahead. Don't be a sucker. The market will not flash anything until you have been robbed of a good deal of your wealth.

Neshant · Post by **Neshant** » 06 Mar 2011 19:42

Richard Duncan interview

He's one of the few who did call the housing bubble. He says if the US does not come up with a new productive industry to power the economy within the next 10 years, it will be in trouble. Overall I agree with his view except the part about getting govt involved in spending a few trillion more on helping productive new industries emerge sooner. I think that's best left to private investors to find the most promising to invest in, not govt. Govt needs to stop stealing the capital of savers aka investors.

Part I:
http://www.youtube.com/watch?v=mDoovaqsScY

Part II :
http://www.youtube.com/watch?v=74GKo6PO3-I

Part III:
http://www.youtube.com/watch?v=GatydD6BTlU

His website : http://www.richardduncaneconomics.com

Arjun · Post by **Arjun** » 06 Mar 2011 21:30

Neshant wrote:Wrong, The Federal Reserve lending money to its commercial banking cartel members at 0% and letting them buy govt treasury bills with that same money at 3 to 4% interest is nothing more than a RIPOFF and GIVEAWAY of taxpayer money. Bailouting, printing money, running up debt, stock market rigging and scamming is where "profits" of the useless middleman industry comes from to pay TARP. Of course, clueless people will fall for the line the useless middleman industry is "working hard" to make profits and repaying TARP when in fact they are just ripping the public off.

Fyi, the money the US government (and therefore taxpayers) has made and lost through TARP on different sectors is publicly available, and anybody can google this up.

The latest on TARP P&L is as follows:

1) Bailout of banks: estimated profit of $ 20 Bn to government
2) Bailout of GM, Chrysler : estimated loss of $ 19 Bn
3) Bailout of AIG: estimated loss of $14 Bn
4) Fannie Mae & Freddie Mac : estimated loss of $70 Bn

What do we have here ? - the banks pulled in a profit for taxpayers & the big losers were the auto industry (a mainstay of your 'productive' economy), an insurance firm, and government-owned mortgage guarantee firms (the primary villians who caused the catastrophe in the first place).

The technology already exists to connect saver with enterpreneur. One does not need a multi-trillion dollar useless middleman industry scamming every step of the way and passing on their losses to productive society for investment and commerce to occur. All that's really needed is a non-profit govt clearing house where savers and investment seekers can come together with non-leveraged capital. If the saver loses his investment, that's his problem not society's and nobody is fiddling around with interest rates, printing money or price rigging like the fed to ensure its (insolvent) croney banks are making money on the backs of others.

I am glad we are finally getting to the heart of the matter !! The technology alternative for connecting investors and savers has been long tried by several entrepreneurs since the late nineties and - and none of them has had any signficant success whatsoever. Happy to discuss with you why the possibility of this ever succeeding is infinitesimally small.

Why do you think it _isn't_ an open and shut case? After all, blatant and undenyable fraud has been committed and its pretty easy to at least convict ONE person.

Why is it necessary for the government to do this? Why not shareholders get together and file a case?

If you are assigning blame, why not also discuss which set of animals bears the greatest burden for the recession of '09 -09 : is it the investment banks, the rating agencies, the GSEs, the mortgage originaters, the politicians who wanted to advance home ownership as a basic American right, the economists who didn't see this coming, or the Fed??