One of the hardest things to deal with in the current economic depression is the disgusting hypocrisy of the U.S. congress, the new president, and the members of the Federal Reserve System. It is one thing to be told, as we all are, that we must hand over fat wads of our hard-earned money to these warmongering and thieving snakes or face jail terms, but one feels a whole new level of revulsion when these people make statements to the effect that they, and they alone, are in a position to "save the economy" by "creating jobs." These statements are made by people who have done virtually everything in their power to destroy the American economy over the last few decades, but who have now proclaimed themselves to be our saviors. Only the most naïve and unlearned among us could possibly be falling for the idea that a bunch of self-serving politicians, bureaucrats and bankers are going to "save" us from problems they have caused.
On its face, the idea that politicians, bureaucrats, and bankers could "save" the economy is laughable. These are people, after all, who live exclusively at our expense. That is, these are people whose entire livelihoods are dependent upon taking money away from productive people and spending it on themselves and their favorite wasteful projects. It's true that they do not all share the same ideas about how to spend the money they take from us. Some prefer to use it to blow up innocent people in foreign lands, while others simply want to take our hard-earned money without our consent and hand it over to other people. The bankers, on the other hand, merely content themselves with printing vast amounts of new money out of thin air that they either hand over to the Treasury Department, or gift to their other banker-buddies to lend out at a profit at our expense. Nevertheless, it should be crystal clear that these people do not actually produce anything themselves (except the bankers, who are very skilled counterfeiters of money). They take money from us through taxation and inflation, (and threaten us with severe punishments if we refuse to obey), and then spend every last penny of it – and more – on war, socialized boondoggles, and welfare. These are the people who would have us believe that they can "save" the economy? How exactly would they accomplish such a thing? More taxes, more idiotic socialized projects, more war, and more newly-printed green paper? Do these actions really seem likely to produce a vibrant and healthy economy, or do they seem more like the actions undertaken by the Supreme Soviet of the U.S.S.R.?
They would also very much like for us to believe that they are the only people in the world capable of "creating jobs" in the United States. A more ridiculous idea would be hard to find. Again, these people are only in the business of taking money from productive people, and either wasting it entirely (e.g., war), keeping it themselves, or giving it to other people (e.g., entitlement programs, foreign aid, and paychecks for bureaucrats). As such, any actions undertaken by these people will necessarily depend for funding upon those who are forced to pay taxes; namely, the increasingly-dwindling group of productive people who have not yet lost their jobs in the private sector. Does it really seem possible that this sort of parasitism on the productive people of the United States really can create jobs that produce the things that people actually want? If socialized job creation is the only way out of this economic quagmire, as the politicians would have us believe, then why don't they socialize the entire economy? If it were indeed the case that the federal government can "create" productive jobs better than the private sector, then why don't they take over all aspects of the American economy, and we can all live happily ever-after in a brave, new, socialized America where everyone is enslaved, I mean employed, by the State.
And don't think for a moment that the politicians and bureaucrats are themselves going to help the productive people shoulder this onerous tax burden. On the contrary, politicians and bureaucrats do not actually pay taxes.
The heads of the government have simply chosen a complex and misleading accounting device to make it appear that he pays taxes in the same way as any other men making the same income. The UN's arrangement, whereby all its employees are exempt from any income taxation, is far more candid."
Hence, while Mr. Obama is fond of telling us that "we" are going to have to get out of this recession together, what he really means is that those of us who are employed in productive private lines of work in this country are going to have to hand over more and more of our hard-earned money to those people in this country who pay no taxes at all; namely, men like Mr. Obama himself and the rest of the fat, parasitic political and bureaucratic class that infests this country.
Some of the more shameless of the political class in America or their academic lackeys, have even tried to convince us that the trillions of dollars they are wasting in Iraq and Afghanistan are going to help us get out of this depression. They have been taking taxpayers'money and blowing it up in these two dreadfully poor countries year after year, and they would like for us to believe that this senseless destruction of wealth is going to make America richer. Often known as "Military Keynesians," this group is perhaps more aptly described as the "kill ourselves rich" crowd. It doesn't take a rocket scientist to realize that neither you nor I are made better off when the federal government steals our money, hands it over to Lockheed Martin to purchase bombs, and then uses those bombs to blow up Pakistani civilians. The only people who benefit from this forceful expropriation of our money and indifferent murder are the merchants of death occupying lucrative posts at Lockheed, Blackwater and the Pentagon.
What the political and bureaucratic classes are actually accomplishing very well, however, is creating a veritable army of angry men whose lives have been destroyed by the federal government. Many have lost their jobs, thanks to the collapse of the largest artificial economic boom in American history – a boom that was directly caused by the actions of the federal government and the Fed. In addition, thanks to years of merciless and ceaseless money creation by the Fed, this army of men has found that their savings purchase fewer and fewer goods over time. This depreciation of the dollar will inexorably increase astronomically over the next few years as the massive amount of new money the Fed and treasury have already jointly printed, and are planning to print over the coming months and years, floods the system.
This army of angry men has very little to be optimistic about in the near future. At best, they might be able to keep their present jobs in the private sector – shouldering a heavier and heavier portion of the tax burden that funds the congress and president's wars and socialization schemes, while the value of their savings continues to erode into dust. Those who have lost their jobs might be permitted to work on Mr. Obama's "public works" projects, and thereby become virtual slaves to the whims of the political and bureaucratic classes. Many others will simply find it easier to start sucking at the state's teat in the form of unemployment insurance or food stamps, et cetera, and thereby lose all respect for themselves. One thing is certain for every member of this army of angry men, though; every single one of them will now find it very difficult, if not impossible, to carve out a living for himself, on his own terms, and without being at the complete mercy of politicians, bureaucrats, and bankers he has never even met. The age of the independent, responsible, and free American citizen is now dead.
The hour is fast approaching when each and every one of us will have to decide for ourselves whether we will try to fight this devastating government machine, or join it.
Tuesday, February 10, 2009
Sunday, January 18, 2009
دعاء افتتاح القمة العربية
اللهم ثبتنا على كراسينا ! وبارك لنا فيها ! واجعلها الوارث منا ! واجعل ثأرنا على شعبنا ! وانصرنا على من عارضنا ! ولا تجعل مصيبتنا في حُكمنا! ولا تجعل راحة الشعب أكبر همنا ولا مبلغ عِلمنا ! ولا الانقلاب العسكري مصيرنا! واجعل القصر الرئاسي هو دارنا ومستقرنا ! -------------------- اللهم إنا نسألك فترة ممتدة ! وهجمة مُرتدة ! والصبر على المعارضة ! والنصر على الشعب ! ونسألك الحُسن لكن لا نسألك الخاتمة أبداً ! اللهم ارزقنا معونة لا نسرق بعدها أبدا ! اللهم لا تفتح أبواب خزائننا لغيرنا ! اللهم أعطنا كلمة السر لحسابات الحكام السابقين لنا في بنوك سويسرا ! --------------------- اللهم وفق أمريكا لما فيه خيرنا ! اللهم اغفر لـ (جورج بوش) فإنه لا يعلم أننا لا نعلم ! اللهم وفقه لما فيه 99% من أصوات الناخبين ! اللهم نجهِ من أي إعصار أو كارثة طبيعية لأننا سنلوص مع شعوبنا من غيره ! اللهم عليك بشعبي، أما أعدائي فأنا سأتفاوض معهم ! --------------------- اللهم ارزقنا حب أمريكا ! وحب من يُحب أمريكا ! وحب ما يُقربنا إلى حب أمريكا ! ------------------ اللهم أمركني ولا تأفغني ! اللهم برطني ولا تصوملني ! اللهم فرنسني ولا تسودني ! اللهم ألمني ولا تؤلبني ! ------------------ اللهم أني أبرأ إليك من الاستعانة في حكم شعبي بأحد ! ولا حتى بصديق، ولا برأي الجمهور ! اللهم أني أعوذ بك من كرسي يُخلع ! ومن شعب لا يُقمع ! ومن صحيفة لا تُمنع ! ومن خطاب لا يُسمع ! ومن مواطن لا يُخدع ! وأعوذ بك من أن أجلس على الكرسي ثم أقوم أو أ ُقام عنه ! ------------------------- اللهم ثبتني على الكرسي تثبيتا ! و شتت المعارضة تشتيتا ! ولا تبق منهم شيطاناً ولا عفريتا ! اللهم آآآآآآآآمييييييييين
Thursday, January 1, 2009
The Crisis For Dummies
The 2007–2008 financial crisis had its genesis in the United States housing markets, but it rapidly spread to other economies, first to the United Kingdom, but then almost everywhere else, including such unlikely spots as Iceland whose banking system collapsed.Because events in the United States triggered the crisis, this essay will concentrate on the US causes although they had their many counterparts elsewhere.
There are at least three long-standing background influences that contributed to the financial debacle that dominated the US economy in 2008:
1- For almost 100 years, the US government has not felt constrained to match its expenditure with its revenue. This policy was given intellectual justification by the writings of John Maynard Keynes who argued in the 1930s that, during periods of slow economic growth, active and purposeful government policies would allow the economy to spend its way out of recession. It was simply a matter of time before citizens aped the financial habits of their governments by living beyond their means.
2-The Federal Reserve System (the Fed — created in 1913) has accommodated government's policy of spending to excess by inflating the money supply and keeping interest rates artificially low. Today's dollar will buy what in 1913 would cost less than a nickel. This easy-money policy has not only led to inflation but has resulted in investments taking place that would not be justified had the money supply been constrained, and had interest rates more clearly reflected economic reality.
3- Since the 1960s, politicians parroting the suspect theories of Keynes have fed the public's naïve belief that government can provide ever-increasing living standards by means of its monetary and fiscal policies. Pulling a fiscal lever here and pushing a monetary button there meant that constraints on spending were old fashioned, and living standards would forever improve. The limitations imposed by the laws of economics had been repealed if you voted for politicians who promised to provide you with something for nothing. Fiscal prudence was simply a capitalist lie.
It is against this long term, more philosophic backdrop, that the following, more immediate issues, assumed greater importance.
4- Households collectively made little attempt to save for the future. The United States, in particular, borrowed from China, Japan, and Middle Eastern countries to finance its spending addictions. Financial responsibility was considered an old-fashioned, or even an irrelevant, virtue, and people were led to believe that government could, by waving its magic wand, provide improved housing without the pain of saving or foregoing immediate consumption.
5- The acquisition of a house was viewed by many buyers not so much as having somewhere to live but as a painless way to make money. House prices, they naively believed, would always continue to increase in value while the relative burden of mortgages would continue to fall. Not only that, but as house values increased, a house could be used as collateral for a further loan. The financial equivalent of turning sea water into gold had been created. So long as house prices increased, borrowers were in financial heaven. When house prices fell, the earth opened up under the feet of lenders.
6- Government-sponsored entities like Fannie Mae and Freddie Mac subsidized mortgages for people who, under more-prudent rules of borrowing, would never have qualified for a loan from a conservative banking institution. Congressman Barney Frank in 2003 stated in a moment of candor, "I want to roll the dice a little bit more in this situation toward subsidized housing." Well he certainly did, at the same time accepting with gratitude campaign contributions from Fannie and Freddie.
7- The egalitarian policies of government through such legislation as the Community Reinvestment Act of 1977 "persuaded" lenders, Mafioso style, to lend to low-income borrowers, against their better judgment. Government lawyers made it clear that the consequences of failing to meet politically imposed targets and quotas could be dire.
8- It was a matter of time before a substantial minority of borrowers could not or would not service their mortgages. Partly because astute people predicted this, well-known names in the financial world began to package, or sponsor, mortgage and other debts such as credit-card balances into what were called structured-investment vehicles (SIV), dubbed "financial weapons of mass destruction" by Warren Buffet. So complicated were the terms contained in such instruments that many legal minds and the credit-rating agencies were baffled as to exactly what they meant and where the ultimate risk lay. Banks and others could benefit by lending to people who could not afford to pay interest, far less capital, provided they were able to sell the SIVs to gullible investors. Money managers naively bought such investments for pension funds, money market funds, and (even more surprisingly) for their firms' own accounts. This was the primrose path to unlimited housing ownership, with no painful cash deposit, and no adverse consequences to the first lenders.
9- So long as (a) the value of housing increased, (b) borrowers paid on time, and (c) confidence remained in the credibility of SIVs, everything was hunky-dory. Unfortunately, all three cratered about the same time; house values stagnated or fell as supply exceeded demand; when values stuttered, so did borrowers repayments, and confidence plunged. Borrowers, having promised to pay and having offered security for their promises, were failing to pay because their security had declined in value. They repudiated their debts, and the burden fell on hapless financial institutions. Populist politicians rarely blamed the borrowers, because there are so many of them and they vote; instead they blamed greedy capitalists, speculators, short sellers, anyone except the debtors, and the imprudent economic policies of the US government.
10- As events began to unravel in mid-2008, well-established firms like Lehman Brothers, went to the wall. Others like Bear Stearns and Merrill Lynch were sold at knockdown prices. Yet others, like insurance giant AIG, were effectively nationalized.Meanwhile, the stock-market value of banks and other financial institutions took a nosedive. For example, Citibank stock price fell by 79% between October 2008 and October 2009. The broader stock-market indices like the Dow Jones also plummeted by around 40%. The US government had no systematic policy, and rules were made up as more and more bad news emerged, especially about jobs. Citibank had a labor force of 375,000 in 2007; in November 2008, it was announced that 53,000 jobs would go by the first quarter of 2009. Senior government officials were like shipwrecked sailors (and were spending money like drunken sailors) paddling like mad but with little idea of where they were going, or why. The only consistent rule was that something had to be done, and the US government must be the action party.
It is difficult not to recall the words of Herbert Spencer: "The ultimate result of shielding man from the effects of folly is to people the world with fools."
The financial crisis of 2007–2008 was a Ponzi scheme writ large. A Ponzi scheme, or chain letter, initially succeeds but eventually collapses, just as imprudent loans may at first succeed in their objectives but eventually the laws of economics come into play and expose the futility of the whole exercise. A pyramid scheme is always unsustainable for the simple reason that it is based on faulty principles and built on flawed foundations. Until too late, no one in authority (regulators, risk managers, senior bank executives, credit-rating agencies, investment analysts) asked the key question, namely, how on earth was it possible in the long term to make profits by lending money to people whose chances of paying it back were practically nil?The issue was simply swept under the carpet because loans to deadbeats provided a better short-term return than did lower-risk debt instruments.
In summary, the essence of the subprime crisis is that money was lent (often through the agency of questionable mortgage brokers) at very low interest rates (courtesy of the Fed) to hundreds of thousands of people (all they needed was a credit score and a pulse) who could not afford to pay it back; and it was backed by collateral (a house) that was not properly valued.
Such assets, accurately described as "liar loans," were then packaged into opaque securities, known as structured-investment vehicles (sponsored but not guaranteed by a respected and well-known name), which very few people understood. They were sold on to pension funds, banks, and others whose gullible investment managers also did not understand them and failed to carry out the rigorous analysis that their clients had a right to to expect.
Government encouraged all of this by supporting affordable housing (which was politically correct) and accusing banks of redlining (failing to lend to poor and black people in the same proportion as they lent to the rich and white). When the borrower, already maxed out on his credit cards, predictably failed to make payments, the scale of the problems eventually became apparent to somnolent regulators and financial institutions. Confidence and trust evaporated, because no one knew which institutions held suspect securities, how much the losses were, and who was ultimately safe. A financial system built on debt and excessive leverage was a financial system built on sand.
The errors and fallacies that weave and surround this awful catalog of errors could have largely been avoided by paying attention to a single sentence. written by Henry Hazlitt over 60 years ago:
"The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups"
There are at least three long-standing background influences that contributed to the financial debacle that dominated the US economy in 2008:
1- For almost 100 years, the US government has not felt constrained to match its expenditure with its revenue. This policy was given intellectual justification by the writings of John Maynard Keynes who argued in the 1930s that, during periods of slow economic growth, active and purposeful government policies would allow the economy to spend its way out of recession. It was simply a matter of time before citizens aped the financial habits of their governments by living beyond their means.
2-The Federal Reserve System (the Fed — created in 1913) has accommodated government's policy of spending to excess by inflating the money supply and keeping interest rates artificially low. Today's dollar will buy what in 1913 would cost less than a nickel. This easy-money policy has not only led to inflation but has resulted in investments taking place that would not be justified had the money supply been constrained, and had interest rates more clearly reflected economic reality.
3- Since the 1960s, politicians parroting the suspect theories of Keynes have fed the public's naïve belief that government can provide ever-increasing living standards by means of its monetary and fiscal policies. Pulling a fiscal lever here and pushing a monetary button there meant that constraints on spending were old fashioned, and living standards would forever improve. The limitations imposed by the laws of economics had been repealed if you voted for politicians who promised to provide you with something for nothing. Fiscal prudence was simply a capitalist lie.
It is against this long term, more philosophic backdrop, that the following, more immediate issues, assumed greater importance.
4- Households collectively made little attempt to save for the future. The United States, in particular, borrowed from China, Japan, and Middle Eastern countries to finance its spending addictions. Financial responsibility was considered an old-fashioned, or even an irrelevant, virtue, and people were led to believe that government could, by waving its magic wand, provide improved housing without the pain of saving or foregoing immediate consumption.
5- The acquisition of a house was viewed by many buyers not so much as having somewhere to live but as a painless way to make money. House prices, they naively believed, would always continue to increase in value while the relative burden of mortgages would continue to fall. Not only that, but as house values increased, a house could be used as collateral for a further loan. The financial equivalent of turning sea water into gold had been created. So long as house prices increased, borrowers were in financial heaven. When house prices fell, the earth opened up under the feet of lenders.
6- Government-sponsored entities like Fannie Mae and Freddie Mac subsidized mortgages for people who, under more-prudent rules of borrowing, would never have qualified for a loan from a conservative banking institution. Congressman Barney Frank in 2003 stated in a moment of candor, "I want to roll the dice a little bit more in this situation toward subsidized housing." Well he certainly did, at the same time accepting with gratitude campaign contributions from Fannie and Freddie.
7- The egalitarian policies of government through such legislation as the Community Reinvestment Act of 1977 "persuaded" lenders, Mafioso style, to lend to low-income borrowers, against their better judgment. Government lawyers made it clear that the consequences of failing to meet politically imposed targets and quotas could be dire.
8- It was a matter of time before a substantial minority of borrowers could not or would not service their mortgages. Partly because astute people predicted this, well-known names in the financial world began to package, or sponsor, mortgage and other debts such as credit-card balances into what were called structured-investment vehicles (SIV), dubbed "financial weapons of mass destruction" by Warren Buffet. So complicated were the terms contained in such instruments that many legal minds and the credit-rating agencies were baffled as to exactly what they meant and where the ultimate risk lay. Banks and others could benefit by lending to people who could not afford to pay interest, far less capital, provided they were able to sell the SIVs to gullible investors. Money managers naively bought such investments for pension funds, money market funds, and (even more surprisingly) for their firms' own accounts. This was the primrose path to unlimited housing ownership, with no painful cash deposit, and no adverse consequences to the first lenders.
9- So long as (a) the value of housing increased, (b) borrowers paid on time, and (c) confidence remained in the credibility of SIVs, everything was hunky-dory. Unfortunately, all three cratered about the same time; house values stagnated or fell as supply exceeded demand; when values stuttered, so did borrowers repayments, and confidence plunged. Borrowers, having promised to pay and having offered security for their promises, were failing to pay because their security had declined in value. They repudiated their debts, and the burden fell on hapless financial institutions. Populist politicians rarely blamed the borrowers, because there are so many of them and they vote; instead they blamed greedy capitalists, speculators, short sellers, anyone except the debtors, and the imprudent economic policies of the US government.
10- As events began to unravel in mid-2008, well-established firms like Lehman Brothers, went to the wall. Others like Bear Stearns and Merrill Lynch were sold at knockdown prices. Yet others, like insurance giant AIG, were effectively nationalized.Meanwhile, the stock-market value of banks and other financial institutions took a nosedive. For example, Citibank stock price fell by 79% between October 2008 and October 2009. The broader stock-market indices like the Dow Jones also plummeted by around 40%. The US government had no systematic policy, and rules were made up as more and more bad news emerged, especially about jobs. Citibank had a labor force of 375,000 in 2007; in November 2008, it was announced that 53,000 jobs would go by the first quarter of 2009. Senior government officials were like shipwrecked sailors (and were spending money like drunken sailors) paddling like mad but with little idea of where they were going, or why. The only consistent rule was that something had to be done, and the US government must be the action party.
It is difficult not to recall the words of Herbert Spencer: "The ultimate result of shielding man from the effects of folly is to people the world with fools."
The financial crisis of 2007–2008 was a Ponzi scheme writ large. A Ponzi scheme, or chain letter, initially succeeds but eventually collapses, just as imprudent loans may at first succeed in their objectives but eventually the laws of economics come into play and expose the futility of the whole exercise. A pyramid scheme is always unsustainable for the simple reason that it is based on faulty principles and built on flawed foundations. Until too late, no one in authority (regulators, risk managers, senior bank executives, credit-rating agencies, investment analysts) asked the key question, namely, how on earth was it possible in the long term to make profits by lending money to people whose chances of paying it back were practically nil?The issue was simply swept under the carpet because loans to deadbeats provided a better short-term return than did lower-risk debt instruments.
In summary, the essence of the subprime crisis is that money was lent (often through the agency of questionable mortgage brokers) at very low interest rates (courtesy of the Fed) to hundreds of thousands of people (all they needed was a credit score and a pulse) who could not afford to pay it back; and it was backed by collateral (a house) that was not properly valued.
Such assets, accurately described as "liar loans," were then packaged into opaque securities, known as structured-investment vehicles (sponsored but not guaranteed by a respected and well-known name), which very few people understood. They were sold on to pension funds, banks, and others whose gullible investment managers also did not understand them and failed to carry out the rigorous analysis that their clients had a right to to expect.
Government encouraged all of this by supporting affordable housing (which was politically correct) and accusing banks of redlining (failing to lend to poor and black people in the same proportion as they lent to the rich and white). When the borrower, already maxed out on his credit cards, predictably failed to make payments, the scale of the problems eventually became apparent to somnolent regulators and financial institutions. Confidence and trust evaporated, because no one knew which institutions held suspect securities, how much the losses were, and who was ultimately safe. A financial system built on debt and excessive leverage was a financial system built on sand.
The errors and fallacies that weave and surround this awful catalog of errors could have largely been avoided by paying attention to a single sentence. written by Henry Hazlitt over 60 years ago:
"The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups"
Wednesday, December 24, 2008
The Other Madoffs
One ingredient was financial intelligence. Madoff had buckets of it. Early in his career, he was the real deal, an actual innovator. He combined this with an amazing lack of conscience, for his scam was rooted most fundamentally in lying and stealing. The difference between him and all who came before was his grand scale, the grandest scale imaginable.The puzzle is not to explain business failures. Those are part of the normal course of life, and the sign of a healthy economy. The puzzle is to explain the “cluster of errors” that appears at the beginning of a recession. How could so many have been so wrong about so much at the same time? The business cycle is a system-wide failure, not merely the mistaken judgment of a few.So it is with Modoff’s scheme. The mystery isn’t how one person was able to fool a few. The scheme in which yesterday’s “investors” are paid off with the money of today’s victims is known in all places and probably all times – and it always goes belly up to the originator’s complete disgrace. It is a classic example of how moral laws are self-enforcing in the world of economics.The critical difference this time is that Madoff ran his scheme during an economic boom, a time when people’s normal sense of incredulity is put on the shelf. This is part of the grave cultural distortion introduced by funny money.
Money is the most widely demanded good in society, and the Fed is making new quantities of it not as a reflection of new real wealth, but purely as an administrative decree.There is a sense in which funny money literally drives everyone crazy, leading to what is sometimes called the “madness of crowds.With artificial stimulation from the credit machine, multitudes are willing to believe in something that cannot possibly be true. In Madoff’s case, it was that he could, even in falling markets, earn 15-20% a year without risk.Why not? Most everyone believed in some version of the myth. We believed that house prices would go up and up despite the reality that houses are physical things that deteriorate from the instant they are finished, just like cars or computers or anything else. Why did we believe this about houses? Again, you have to look to the fraudulent money system to see why.And we believed that we could all become millionaires by putting our money in the stocks of companies that weren’t actually earning money or paying dividends, companies whose wealth was entirely based on infusions of cash from the stock market which in turn were based on the belief that others would buy the stocks and so on. In other words, we believed that something out of nothing was possible, and anyone who didn’t believe it was a chump. It’s exactly what people believed during the other great inflations of history.What’s more, we believed that buying these stocks constituted not consumption, but savings for the future. In fact, people routinely attacked official savings data on grounds that they did not include what people were “saving” in terms of their stock market accounts. In a similar way, people were measuring our national wealth not in terms of accumulated capital, but rather through consumption data, as if granite kitchen counters in bigger houses were a measure of wealth instead of the opposite: the depletion of wealth.The left is big on attacking the salaries of investment bankers, and they were indeed outlandish. But these too represented not a unique problem, but more evidence of inflationary finance.
In a bubble economy, the money chases what is most fashionable, and financial services qualified. So the salaries were market. What was wildly distorted was the market itself.Now let’s talk about government finance during these years. The market tried to correct itself from 1999-2001, but the U.S. government wouldn’t tolerate it. Instead, it used every sign of downturn as an excuse to keep the illusion going, creating billions and billions in new dollars. The Fed drove interest rates lower and lower despite the non-existence of savings available to back them up.(Low interest rates in a sound money system are a reflection of accumulated capital and deferred consumption. When you see the Fed pushing them down during a boom, it is creating a dangerous mirage.)Did anyone stop and wonder where the government was getting all this money to pump up the system?
We are talking about human nature: the desire to believe in things that do not exist. The government was happy to fuel this sense because it gave the Fed, its connected industries, and the state more power and more money in the short term.
Madoff’s scheme played into the belief that wealth was not something to work for, but something to scheme for. It could be generated by playing your cards right, hooking into the right networks, and finding the right “investments.” The people with whom he dealt had, it turns out, some internal sense that there was something a little bit shady about the whole operation. But they dispensed with this sense when the fat checks arrived, and concluded that whatever was making this perpetual motion machine operate, it did work.But listen: the government right now is using the same tactic to convince you that it is saving you from the recession. The whole scheme partakes of the same sense of denying reality that characterized Madoff’s scheme. And I’m not just talking about Social Security, which is almost an exact replica of the Ponzi version, except that at least Charles Ponzi didn’t force people to give him money. I’m speaking of something broader. The entire financial system that is propped up by the Treasury and the Fed is based on the same idea: that something out of nothing is possible.
So they will jail Madoff. Wall Street would flog him if it could. He is disgraced for all of history. But meanwhile, the likes of Bush, Bernanke, Paulson, Obama, and all the rest are still riding high, even though their scheme is far larger and more egregious.Most of us like to believe that we wouldn’t have been tricked by Madoff. But are you being tricked by the elites who claim that they can conjure up a trillion dollars to stabilize our economy by clicking a few buttons on a computer screen? Most people are. Certainly the press seems to have bought it. Many people were outwitted by Madoff. Many more people are today being outwitted by the government and its central bank. And it will all end in disgrace and disaster, only on a far, far grander scale.
Money is the most widely demanded good in society, and the Fed is making new quantities of it not as a reflection of new real wealth, but purely as an administrative decree.There is a sense in which funny money literally drives everyone crazy, leading to what is sometimes called the “madness of crowds.With artificial stimulation from the credit machine, multitudes are willing to believe in something that cannot possibly be true. In Madoff’s case, it was that he could, even in falling markets, earn 15-20% a year without risk.Why not? Most everyone believed in some version of the myth. We believed that house prices would go up and up despite the reality that houses are physical things that deteriorate from the instant they are finished, just like cars or computers or anything else. Why did we believe this about houses? Again, you have to look to the fraudulent money system to see why.And we believed that we could all become millionaires by putting our money in the stocks of companies that weren’t actually earning money or paying dividends, companies whose wealth was entirely based on infusions of cash from the stock market which in turn were based on the belief that others would buy the stocks and so on. In other words, we believed that something out of nothing was possible, and anyone who didn’t believe it was a chump. It’s exactly what people believed during the other great inflations of history.What’s more, we believed that buying these stocks constituted not consumption, but savings for the future. In fact, people routinely attacked official savings data on grounds that they did not include what people were “saving” in terms of their stock market accounts. In a similar way, people were measuring our national wealth not in terms of accumulated capital, but rather through consumption data, as if granite kitchen counters in bigger houses were a measure of wealth instead of the opposite: the depletion of wealth.The left is big on attacking the salaries of investment bankers, and they were indeed outlandish. But these too represented not a unique problem, but more evidence of inflationary finance.
In a bubble economy, the money chases what is most fashionable, and financial services qualified. So the salaries were market. What was wildly distorted was the market itself.Now let’s talk about government finance during these years. The market tried to correct itself from 1999-2001, but the U.S. government wouldn’t tolerate it. Instead, it used every sign of downturn as an excuse to keep the illusion going, creating billions and billions in new dollars. The Fed drove interest rates lower and lower despite the non-existence of savings available to back them up.(Low interest rates in a sound money system are a reflection of accumulated capital and deferred consumption. When you see the Fed pushing them down during a boom, it is creating a dangerous mirage.)Did anyone stop and wonder where the government was getting all this money to pump up the system?
We are talking about human nature: the desire to believe in things that do not exist. The government was happy to fuel this sense because it gave the Fed, its connected industries, and the state more power and more money in the short term.
Madoff’s scheme played into the belief that wealth was not something to work for, but something to scheme for. It could be generated by playing your cards right, hooking into the right networks, and finding the right “investments.” The people with whom he dealt had, it turns out, some internal sense that there was something a little bit shady about the whole operation. But they dispensed with this sense when the fat checks arrived, and concluded that whatever was making this perpetual motion machine operate, it did work.But listen: the government right now is using the same tactic to convince you that it is saving you from the recession. The whole scheme partakes of the same sense of denying reality that characterized Madoff’s scheme. And I’m not just talking about Social Security, which is almost an exact replica of the Ponzi version, except that at least Charles Ponzi didn’t force people to give him money. I’m speaking of something broader. The entire financial system that is propped up by the Treasury and the Fed is based on the same idea: that something out of nothing is possible.
So they will jail Madoff. Wall Street would flog him if it could. He is disgraced for all of history. But meanwhile, the likes of Bush, Bernanke, Paulson, Obama, and all the rest are still riding high, even though their scheme is far larger and more egregious.Most of us like to believe that we wouldn’t have been tricked by Madoff. But are you being tricked by the elites who claim that they can conjure up a trillion dollars to stabilize our economy by clicking a few buttons on a computer screen? Most people are. Certainly the press seems to have bought it. Many people were outwitted by Madoff. Many more people are today being outwitted by the government and its central bank. And it will all end in disgrace and disaster, only on a far, far grander scale.
Tuesday, December 23, 2008
اسطورة الحذاء
مت إن أردت فلن يموت إباء مادام في وجه الظلوم حذاءُماذا تفيدك أمة مسلوبـة أفعالها يوم الوغــى آراءلحِّن أغاني النصر في الزمن الـذي هزَّ الخصورَ المائساتِ غنــاءُواصنع قرارك واترك القوم الأُلــى لا تدري ما صنعت بهم هيفـــــاءُ
هذا العدوُ أمام بيتكَ واقــفٌوبراحتيهِ الموتُ والأشـلاءُفاضرب بنعلكَ كل وجهِ منافق'فالمالكيّ' ونعل بوش سـواءُ
ماذا تفيدكَ حكمةٌ في عالـم قد قال: إن يهوده حكمـاءُفابدأ بما بدأ الإلهُ ولا تكـن متهيباً، فالخائفون بـلاءُواكتب على تلك الوجوهِ مذلـة فرجالُ ذاك البرلمانِ نسـاءُصوِّب مسدسك الحذائيّ الـذي جعل القرار يصوغه الشرفاءُ
إن أصبح الرؤساء ذيلَ عدونـاخاض الحروبَ مع العدى الدهماءُعبِّر، فأصعب حكمةٍ مملـوءةبالمكرمات يقولها البسطـاءُلله أنت، أكادُ أقسم أنهلجلال فعلك ثارت الجوزاءُ
كيف استطعت وحولك الجيش الذي بنفاقه قد ضجّت الغبــراءُ؟كيف استطعت وخلفك القلب الـذي ملأت جميع عروقه البغضـاءُ؟كيف استطعت وفوقك السيف الـذي ضُربت بحد حديده الدهماءُ؟
سبحان من أحياك حتى تنتشـيمما فعلت الشمس والأنواءُلك في الفداء قصيدة أبياتهــاموزونة ما قالها الشعـراءُ
في وجهك الشرقيُّ ألف مقالـةٍ وعلى جبينك خطبةٌ عصماءُولقد كتبتُ بحبر نعلك قصة في وجه 'بوش' فصولها سـوداءُولقد عرفتَ طريق من راموا العلا فهو الذي في جانبيه دماءُفسلكته والخائنون تربصوا ماذا ستبصر مقلةٌ عمياءُ؟
جاءتك أصواتُ النفاق بخيلهـاوبرجلها، يشدو بها الجبنـاءُلا يعلمون بأن صوتك آيـةللعالمين، وأنهم أوبـاءُلو صَحْتَ لاهتز البلاطُ بأسرهوتصدّعت جدرانه الملسـاءُأوَما رأيت الراية السوداء فيظهر الجبان تهزها النكباءُ؟أو ما لمحت يد الدعيّ تصدهـاشلت يمينك أيها الحرباءُلما وقفتَ كأن بحراً هـادراًفي ساعديك وفي جبينك ماءُلما نطقتَ كأن رعدا هائـلاًفوق الحروف وتحتهن سمـاءُلما رميتَ كأن من قد عُذبـواأحياهم الله القدير، فجاءواشيء تحطم في ضميرٍ مظلـمٍكبِّر فقد تتفتت الظلمـاءُ
علّمت دجلة أن فيها موسمـاً للموت تفنى عنده الأشيــــــاءُعاهد حذاءك لن يخونك عهده واتركهمُ ليعاهدوا من شاءواإن صار لون الحقد فينا أحمـراً ماذا تفيد دوائرٌ خضـراءُ؟لا لون في وجه العدو فروِّه بدمائه، فدماؤه حمراءقد كنت غضاً أيها النمر الـذي جعل المروءة تصطفيك الباءُ
ما خفت حولك ألف وغد نـاعموالناعمات تخيفها الأسمـــاءُ
لو ضُخّ بعض دماك في أوصالنا ما كان فوق عروشنا عمـــلاءُيا سيدا عبث الزمان بتاجـه اعتق خصومك، إنهن إمـــاءُ
واصنع حذاء النصر وارمِ به الذيتلهو به وبقلبه الأهــــــــــواءُلما انحنى ظهر الظلوم تنكّسـتمليون نفس باعها الأعــــداءُوسمعت تصفيق السماء كأنمافوق السماء تجمّع الشهـــداءُقف أنت في وجه الظلوم بفـردةٍبنية، فالقاذفات هـراءُوارشق بها وبخيطها الوجه الذيغلبت عليه ملامح بلهــاءُ
أفديك من رجل تقزّم عنـده الرؤساء والكبراء والأمـــراءُأفتَيْتَ بالنعل الشريف فلم نعــد نصغي لما قد قاله العلمــاءُأحييت خالد في النفوس فصار في أعماقنا تتحرّك الهيجـاءُما كنت قبل اليوم أعلم موقنـا أن الحذاء لمن أســـــــاء دواءُ
وبأن في جوف الحذاء مسدسـاًوبأن كل رصاصنا ضوضاءُ
هذا العدوُ أمام بيتكَ واقــفٌوبراحتيهِ الموتُ والأشـلاءُفاضرب بنعلكَ كل وجهِ منافق'فالمالكيّ' ونعل بوش سـواءُ
ماذا تفيدكَ حكمةٌ في عالـم قد قال: إن يهوده حكمـاءُفابدأ بما بدأ الإلهُ ولا تكـن متهيباً، فالخائفون بـلاءُواكتب على تلك الوجوهِ مذلـة فرجالُ ذاك البرلمانِ نسـاءُصوِّب مسدسك الحذائيّ الـذي جعل القرار يصوغه الشرفاءُ
إن أصبح الرؤساء ذيلَ عدونـاخاض الحروبَ مع العدى الدهماءُعبِّر، فأصعب حكمةٍ مملـوءةبالمكرمات يقولها البسطـاءُلله أنت، أكادُ أقسم أنهلجلال فعلك ثارت الجوزاءُ
كيف استطعت وحولك الجيش الذي بنفاقه قد ضجّت الغبــراءُ؟كيف استطعت وخلفك القلب الـذي ملأت جميع عروقه البغضـاءُ؟كيف استطعت وفوقك السيف الـذي ضُربت بحد حديده الدهماءُ؟
سبحان من أحياك حتى تنتشـيمما فعلت الشمس والأنواءُلك في الفداء قصيدة أبياتهــاموزونة ما قالها الشعـراءُ
في وجهك الشرقيُّ ألف مقالـةٍ وعلى جبينك خطبةٌ عصماءُولقد كتبتُ بحبر نعلك قصة في وجه 'بوش' فصولها سـوداءُولقد عرفتَ طريق من راموا العلا فهو الذي في جانبيه دماءُفسلكته والخائنون تربصوا ماذا ستبصر مقلةٌ عمياءُ؟
جاءتك أصواتُ النفاق بخيلهـاوبرجلها، يشدو بها الجبنـاءُلا يعلمون بأن صوتك آيـةللعالمين، وأنهم أوبـاءُلو صَحْتَ لاهتز البلاطُ بأسرهوتصدّعت جدرانه الملسـاءُأوَما رأيت الراية السوداء فيظهر الجبان تهزها النكباءُ؟أو ما لمحت يد الدعيّ تصدهـاشلت يمينك أيها الحرباءُلما وقفتَ كأن بحراً هـادراًفي ساعديك وفي جبينك ماءُلما نطقتَ كأن رعدا هائـلاًفوق الحروف وتحتهن سمـاءُلما رميتَ كأن من قد عُذبـواأحياهم الله القدير، فجاءواشيء تحطم في ضميرٍ مظلـمٍكبِّر فقد تتفتت الظلمـاءُ
علّمت دجلة أن فيها موسمـاً للموت تفنى عنده الأشيــــــاءُعاهد حذاءك لن يخونك عهده واتركهمُ ليعاهدوا من شاءواإن صار لون الحقد فينا أحمـراً ماذا تفيد دوائرٌ خضـراءُ؟لا لون في وجه العدو فروِّه بدمائه، فدماؤه حمراءقد كنت غضاً أيها النمر الـذي جعل المروءة تصطفيك الباءُ
ما خفت حولك ألف وغد نـاعموالناعمات تخيفها الأسمـــاءُ
لو ضُخّ بعض دماك في أوصالنا ما كان فوق عروشنا عمـــلاءُيا سيدا عبث الزمان بتاجـه اعتق خصومك، إنهن إمـــاءُ
واصنع حذاء النصر وارمِ به الذيتلهو به وبقلبه الأهــــــــــواءُلما انحنى ظهر الظلوم تنكّسـتمليون نفس باعها الأعــــداءُوسمعت تصفيق السماء كأنمافوق السماء تجمّع الشهـــداءُقف أنت في وجه الظلوم بفـردةٍبنية، فالقاذفات هـراءُوارشق بها وبخيطها الوجه الذيغلبت عليه ملامح بلهــاءُ
أفديك من رجل تقزّم عنـده الرؤساء والكبراء والأمـــراءُأفتَيْتَ بالنعل الشريف فلم نعــد نصغي لما قد قاله العلمــاءُأحييت خالد في النفوس فصار في أعماقنا تتحرّك الهيجـاءُما كنت قبل اليوم أعلم موقنـا أن الحذاء لمن أســـــــاء دواءُ
وبأن في جوف الحذاء مسدسـاًوبأن كل رصاصنا ضوضاءُ
ما كنت أعرف للحذاء فوائـداًحتى تصدّى للذين أسـاءوا
Thursday, December 18, 2008
Madoff The American Hero
The press...investors...regulators...they’re all howling for Bernie Madoff’s head. Of course, I wouldn’t mind if they lynched him. Still, he’s a hero to me. He’s the Rod Blogojevich of money – showing us how the system really works. He’s opened a window on the financial world...giving us all a remarkable and vivid lesson...in investing...in pyramid schemes...in the markets...and in Wall Street.
As a result of such eye-opening instruction, Bernie Madoff will save more investors more money than the SEC ever will. They’ll think twice before giving money to friends to invest for them... They raise their eyebrows and their doubts when someone promises them consistent high rates of returns.The feds are charging Madoff with running a $50 billion Ponzi scheme. Charles Ponzi took money from investors and then used their money to pay out profits to earlier investors. As long as the new money kept coming into the system, it worked like a charm. So what’s the difference between Madoff’s Ponzi scheme and the scheme run by Wall Street...in which all the investment houses, the rating agencies, the mortgage companies, Fannie Mae, Freddie Mac and the regulators themselves were complicit? As long as new money was coming into the system, who complained?
First, let’s look at what is happening on Wall Street now. Yesterday, the markets had a chance to connect the dots...to think more about what Ben Bernanke is up to...and what it will mean.You’ll recall that the Fed cut rates down to zero – effectively firing off all its monetary ammunition in one big salvo. Now, favored financial institutions – namely, the member banks of the Federal Reserve system – can borrow without paying any interest.That should get things moving, right? Well, not necessarily. Credit is frozen, not because it is too expensive...but merely because lenders are afraid they won’t get their money back. Asset prices are falling. So, the collateral that banks lent against is going down in price. Loans that looked solid six months seem dangerously leveraged today. It makes more sense just to hold onto the cash...at least it won’t declare bankruptcy or defraud you. And think about the people scammed by Bernie Madoff. How much are their loans worth? There are big names and little names on the list – including Japan’s Nomura Bank and France’s BNP Paribas. The big banks may be able to repay their debts. But what about the little fellows...the guys who put their entire net worth...perhaps a few million...with Madoff, in order to get his promised returns? That’s the problem with leverage. It works both coming and going. When an economy is growing...it acts like hot gas. Even a small amount quickly expands. But when a bubble springs a leak, the gas disappears. One man’s loss hits the balance sheets of businesses and bankers all over town. The whole system contracts. Suddenly, the whole thing is coming down like the Hindenburg. Which is exactly what is happening. Bloomberg reports that there is no sign of credit easing – despite the Fed’s efforts to give money away. Instead, everything is slowing down...shrinking...deflating:People aren’t buying new cars. So Chrysler says it will shut down its factories for a month. What began as a sleek Le Mans auto race becomes a demolition derby. Property prices in Detroit are getting wrecked. Suppliers to the auto-industry are being banged up. Unemployment in Michigan is rising to depression levels. People can’t even afford to buy the paper any more. The Detroit newspaper says that it will deliver only three times per week. There’s hardly a business or a household in the Detroit area that hasn’t been dented by the calamity. Meanwhile, California announced that it will put $3.8 billion worth of projects on hold. Goldman Sachs reports that its bonuses this year will be 80% lower than the year before. Bristol Myers says it will lay off 10% of its workforce; Yales’ endowment is down 25% and Mexico’s Cemex – one of the biggest suppliers of cement products in the world – says sales in this quarter are down 23%.And so it goes...day after day. Cutting back...reducing...downsizing....And you can imagine what this does to markets. Stocks shot up Tuesday on news of the rate cut. Wednesday, investors had time to reconsider; the Dow fell 100 points.
Now that Bernanke has run out of conventional weapons, investors are beginning to guess what happens next. In short: he’s gonna drop the big one. He’s going to go nuclear. He’s not going to stick with Keynes and Freidman, in other words; he’s gonna go Crazy.Yes, the Fed says it will now use “alternative” means of getting some juice in the economy. It will buy Treasury debt itself. This is what is known as “monetizing the debt,” or turning an increase in U.S. debt into an increase in the amount of currency in circulation. It’s a swell trick. If it works, Bernanke will be able to keep the rate of consumer price inflation above zero. He will probably try to get it well above zero – so as to encourage people to spend their money now, rather than wait for lower prices. The spending is supposed to be the magic that gets the consumer economy going again. We can look ahead and see that the Fed’s policy of going Crazy – effectively printing money – will be disastrous. I can guess, too, that gold will probably be the main – perhaps the only – beneficiary. The price of an ounce of gold rose $25 yesterday...putting it solidly in positive territory for the year. It could easily go over $2,000 before this crisis is over. But I don’t know exactly how...or when...it will happen. Right now, day after day, the dirty laundry from La Bubble Epoque is being unfolded...we never know what awful surprises we will find.
The latest reports say Madoff promised investors steady 13% returns. How could he do that? Of course, he couldn’t. Stocks have gone nowhere for the last 10 years. The average rate of return? Zero. Promising 13% was clearly a flim flam. But investors must have guessed that he was swindling his retail trading customers in order to deliver steady, above-market returns to his investment accounts. They may not have understood how it worked, but maybe they didn’t want to.
Nobody is as easy to scam as a scammer...and Madoff scammed them all. Bravo!Of course, Madoff should get the gallows; I don’t dispute it. But, often, there’s not a lot of distance between the hanged man and mob that is lynching him. The people who most want to see Bernie swing are the people who invested money with him. Most were very sophisticated investors. They knew perfectly well that there is no magic way to transform a zero-return market into a 13% return market. If they were to get 13%, they knew they had to take a big risk. In this case, the risk was that Bernie Madoff was lying. And what about the bubble economy itself? Wasn’t it nothing more than a giant pyramid scheme with a huge, huge risk attached? It promised speculators enormous profits, but how could it deliver? It paid out money from new participants to the old participants. Without new money and credit the thing would implode. As former Citigroup CEO, Chuck Prince, put it: as long as the music was playing, they had to dance. But didn’t they know the music would stop...leaving them in an awkward and embarrassing position? Wasn’t it as obvious to them as it was to us?And what about the investors? Weren’t they trying to get something for nothing out of the whole bubble economy? And the rating agencies? They must have known that sub-prime debt was dangerous. Even we knew it. Why did they give it Triple A ratings? And what about the SEC? It has thousands of smart analysts, accountants and investigators. How could they all be so stupid as to miss the biggest investment bubble in all history...right under their noses? And what about Alan Greenspan, who actually encouraged households to take out sub-prime mortgage loans?Weren’t they all in on the scam? Weren’t they all complicit? Bernie Madoff should hang. But SEC chairman Christopher Cox and former Fed chief Alan Greenspan should hang with him.
As a result of such eye-opening instruction, Bernie Madoff will save more investors more money than the SEC ever will. They’ll think twice before giving money to friends to invest for them... They raise their eyebrows and their doubts when someone promises them consistent high rates of returns.The feds are charging Madoff with running a $50 billion Ponzi scheme. Charles Ponzi took money from investors and then used their money to pay out profits to earlier investors. As long as the new money kept coming into the system, it worked like a charm. So what’s the difference between Madoff’s Ponzi scheme and the scheme run by Wall Street...in which all the investment houses, the rating agencies, the mortgage companies, Fannie Mae, Freddie Mac and the regulators themselves were complicit? As long as new money was coming into the system, who complained?
First, let’s look at what is happening on Wall Street now. Yesterday, the markets had a chance to connect the dots...to think more about what Ben Bernanke is up to...and what it will mean.You’ll recall that the Fed cut rates down to zero – effectively firing off all its monetary ammunition in one big salvo. Now, favored financial institutions – namely, the member banks of the Federal Reserve system – can borrow without paying any interest.That should get things moving, right? Well, not necessarily. Credit is frozen, not because it is too expensive...but merely because lenders are afraid they won’t get their money back. Asset prices are falling. So, the collateral that banks lent against is going down in price. Loans that looked solid six months seem dangerously leveraged today. It makes more sense just to hold onto the cash...at least it won’t declare bankruptcy or defraud you. And think about the people scammed by Bernie Madoff. How much are their loans worth? There are big names and little names on the list – including Japan’s Nomura Bank and France’s BNP Paribas. The big banks may be able to repay their debts. But what about the little fellows...the guys who put their entire net worth...perhaps a few million...with Madoff, in order to get his promised returns? That’s the problem with leverage. It works both coming and going. When an economy is growing...it acts like hot gas. Even a small amount quickly expands. But when a bubble springs a leak, the gas disappears. One man’s loss hits the balance sheets of businesses and bankers all over town. The whole system contracts. Suddenly, the whole thing is coming down like the Hindenburg. Which is exactly what is happening. Bloomberg reports that there is no sign of credit easing – despite the Fed’s efforts to give money away. Instead, everything is slowing down...shrinking...deflating:People aren’t buying new cars. So Chrysler says it will shut down its factories for a month. What began as a sleek Le Mans auto race becomes a demolition derby. Property prices in Detroit are getting wrecked. Suppliers to the auto-industry are being banged up. Unemployment in Michigan is rising to depression levels. People can’t even afford to buy the paper any more. The Detroit newspaper says that it will deliver only three times per week. There’s hardly a business or a household in the Detroit area that hasn’t been dented by the calamity. Meanwhile, California announced that it will put $3.8 billion worth of projects on hold. Goldman Sachs reports that its bonuses this year will be 80% lower than the year before. Bristol Myers says it will lay off 10% of its workforce; Yales’ endowment is down 25% and Mexico’s Cemex – one of the biggest suppliers of cement products in the world – says sales in this quarter are down 23%.And so it goes...day after day. Cutting back...reducing...downsizing....And you can imagine what this does to markets. Stocks shot up Tuesday on news of the rate cut. Wednesday, investors had time to reconsider; the Dow fell 100 points.
Now that Bernanke has run out of conventional weapons, investors are beginning to guess what happens next. In short: he’s gonna drop the big one. He’s going to go nuclear. He’s not going to stick with Keynes and Freidman, in other words; he’s gonna go Crazy.Yes, the Fed says it will now use “alternative” means of getting some juice in the economy. It will buy Treasury debt itself. This is what is known as “monetizing the debt,” or turning an increase in U.S. debt into an increase in the amount of currency in circulation. It’s a swell trick. If it works, Bernanke will be able to keep the rate of consumer price inflation above zero. He will probably try to get it well above zero – so as to encourage people to spend their money now, rather than wait for lower prices. The spending is supposed to be the magic that gets the consumer economy going again. We can look ahead and see that the Fed’s policy of going Crazy – effectively printing money – will be disastrous. I can guess, too, that gold will probably be the main – perhaps the only – beneficiary. The price of an ounce of gold rose $25 yesterday...putting it solidly in positive territory for the year. It could easily go over $2,000 before this crisis is over. But I don’t know exactly how...or when...it will happen. Right now, day after day, the dirty laundry from La Bubble Epoque is being unfolded...we never know what awful surprises we will find.
The latest reports say Madoff promised investors steady 13% returns. How could he do that? Of course, he couldn’t. Stocks have gone nowhere for the last 10 years. The average rate of return? Zero. Promising 13% was clearly a flim flam. But investors must have guessed that he was swindling his retail trading customers in order to deliver steady, above-market returns to his investment accounts. They may not have understood how it worked, but maybe they didn’t want to.
Nobody is as easy to scam as a scammer...and Madoff scammed them all. Bravo!Of course, Madoff should get the gallows; I don’t dispute it. But, often, there’s not a lot of distance between the hanged man and mob that is lynching him. The people who most want to see Bernie swing are the people who invested money with him. Most were very sophisticated investors. They knew perfectly well that there is no magic way to transform a zero-return market into a 13% return market. If they were to get 13%, they knew they had to take a big risk. In this case, the risk was that Bernie Madoff was lying. And what about the bubble economy itself? Wasn’t it nothing more than a giant pyramid scheme with a huge, huge risk attached? It promised speculators enormous profits, but how could it deliver? It paid out money from new participants to the old participants. Without new money and credit the thing would implode. As former Citigroup CEO, Chuck Prince, put it: as long as the music was playing, they had to dance. But didn’t they know the music would stop...leaving them in an awkward and embarrassing position? Wasn’t it as obvious to them as it was to us?And what about the investors? Weren’t they trying to get something for nothing out of the whole bubble economy? And the rating agencies? They must have known that sub-prime debt was dangerous. Even we knew it. Why did they give it Triple A ratings? And what about the SEC? It has thousands of smart analysts, accountants and investigators. How could they all be so stupid as to miss the biggest investment bubble in all history...right under their noses? And what about Alan Greenspan, who actually encouraged households to take out sub-prime mortgage loans?Weren’t they all in on the scam? Weren’t they all complicit? Bernie Madoff should hang. But SEC chairman Christopher Cox and former Fed chief Alan Greenspan should hang with him.
Tuesday, December 16, 2008
The Biggest Fraud Of All : U.S.Treasuries
In fact, given the hundreds of billions that Wall Street has fleeced investors for in cases of fraud that are astounding not only in dollar size, but in the duration they run for before they collapse under the weight of their bloated treasuries.
Enron, Tyco, and Worldcom are certainly the household corporate words for fraud on Wall Street. Combined, the estimated take from those three scams was a total of $121 billion in total damages.
But hedge funds are collapsing so fast that they number in the dozens every week, and fully one third of the $1.5 trillion asset class is expected to go up in smoke within the next 24 months, dwarfing the carnage of corporate fraud.
Now along comes Bernie Madoff.
Madoff's take of $50 billion demonstrates unequivocally that the entire investment industry is essentially one big confidence game, where appearances mean everything and substance is hard to come by. Listening to the petulant indignation emanating from the victims of that fraud who were "professional" investors elicits little sympathy from a public who watches helplessly as the Fed continues to pump taxpayer-backed dollars into the accounts of the biggest financial institutions. That wouldn't be so bad if we saw some of that cash making its way down into the broad economy, but so far there is absolutely zero evidence of that happening.
Madoff's fraud, improbable as it may seem, brings to mind another massive financial institution that, if the same standards of evaluation were to be applied as to Madoff, would most likely reveal another Ponzi scheme in progress.
A "Ponzi Scheme" is one where early investors are paid non-existent "profits" with the money brought in by new investors. Ponzi schemes always collapse when no more investors can be enticed into the scheme, and payouts stop. This is exactly what happened in the Madoff case, and unless I am very much mistaken, this is what is happening at the United States Treasury right now, with its accomplice, the United States Federal Reserve.
Technically, the Fed prints money when the Treasury issues it a check that it back with the sale of T-Bills. The treasury bills theoretically attract buyers because the revenue generated from taxes as a percentage of GDP are sufficient to justify the number of T-Bills in circulation. If the U.S. Economy was a corporation, T-Bills would be shares in the company, and all of the infrastructure and profit-generating businesses in the United States would be its assets, and the taxes generated across the whole operation would theoretically comprise the corporation's revenue.
In Bernie Madoff's case, the fan was hit with the proverbial excrement when he ran out of new investors, and some old investors wanted to withdraw $7 billion of their money. Bernie ran around Wall Street for a couple of weeks before he realized the jig was up, and he and his two sons concocted a strategy whereby they would turn him in, hopefully thwarting the boys being swept up in the inevitable incarcerations just on the horizon.
Now if Bernie was the United States Treasury, and his sons were the U.S. Federal Reserve, he could have simply called his boys and said, "Look boys…send over $7 billion right away, will ya?" The boys, being family, would have certainly wired the funds over to Bernie, and Bernie could go on his merry way, attracting a growing crowd of innocent (hah!) investors, and paying them off with his sons' printing press. In this case, investors would continue to pile in, and Bernie could keep writing checks to his sons and issuing shares to his victims, because at no point was anybody going to say "Whoa boys! Lets take a look at them books!"
And that's because if Bernie was the U.S. Treasury, and his sons the Fed, everybody who might want to take a peak at the balance sheets already pretty much knows what they'd find there: the ashes of the U.S. economy. Baffed out and beaten, repackaged and resold in a trillion different ways, such that there is no way the entire productivity and asset base of the United States now and for decades to come, could ever justify the trillions upon trillions of dollars worth of shares the massive Ponzi scheme that is the United States has put into circulation.
Nobody wants the illusion to end. Especially not its biggest shareholders - Japan, China and the U.K. For if their own treasuries are based substantially on the fragrant paper originated by the United States government, well then what does that say about the value of the bonds they issue to justify the quantity of their own currency in circulation?
When considered in this light, its no wonder the world's central banks act on a concerted basis to suppress the price of precious metals. For it the metals were allowed to trade freely against these currencies of falsely inflated value, then the market would quite likely demonstrate what it thinks about those currencies by trading them in for gold - a process now underway on the fringe where wise men looking through the fog of deception that is the media, are moving as nonchalantly as possible for the exits of U.S. investment
Enron, Tyco, and Worldcom are certainly the household corporate words for fraud on Wall Street. Combined, the estimated take from those three scams was a total of $121 billion in total damages.
But hedge funds are collapsing so fast that they number in the dozens every week, and fully one third of the $1.5 trillion asset class is expected to go up in smoke within the next 24 months, dwarfing the carnage of corporate fraud.
Now along comes Bernie Madoff.
Madoff's take of $50 billion demonstrates unequivocally that the entire investment industry is essentially one big confidence game, where appearances mean everything and substance is hard to come by. Listening to the petulant indignation emanating from the victims of that fraud who were "professional" investors elicits little sympathy from a public who watches helplessly as the Fed continues to pump taxpayer-backed dollars into the accounts of the biggest financial institutions. That wouldn't be so bad if we saw some of that cash making its way down into the broad economy, but so far there is absolutely zero evidence of that happening.
Madoff's fraud, improbable as it may seem, brings to mind another massive financial institution that, if the same standards of evaluation were to be applied as to Madoff, would most likely reveal another Ponzi scheme in progress.
A "Ponzi Scheme" is one where early investors are paid non-existent "profits" with the money brought in by new investors. Ponzi schemes always collapse when no more investors can be enticed into the scheme, and payouts stop. This is exactly what happened in the Madoff case, and unless I am very much mistaken, this is what is happening at the United States Treasury right now, with its accomplice, the United States Federal Reserve.
Technically, the Fed prints money when the Treasury issues it a check that it back with the sale of T-Bills. The treasury bills theoretically attract buyers because the revenue generated from taxes as a percentage of GDP are sufficient to justify the number of T-Bills in circulation. If the U.S. Economy was a corporation, T-Bills would be shares in the company, and all of the infrastructure and profit-generating businesses in the United States would be its assets, and the taxes generated across the whole operation would theoretically comprise the corporation's revenue.
In Bernie Madoff's case, the fan was hit with the proverbial excrement when he ran out of new investors, and some old investors wanted to withdraw $7 billion of their money. Bernie ran around Wall Street for a couple of weeks before he realized the jig was up, and he and his two sons concocted a strategy whereby they would turn him in, hopefully thwarting the boys being swept up in the inevitable incarcerations just on the horizon.
Now if Bernie was the United States Treasury, and his sons were the U.S. Federal Reserve, he could have simply called his boys and said, "Look boys…send over $7 billion right away, will ya?" The boys, being family, would have certainly wired the funds over to Bernie, and Bernie could go on his merry way, attracting a growing crowd of innocent (hah!) investors, and paying them off with his sons' printing press. In this case, investors would continue to pile in, and Bernie could keep writing checks to his sons and issuing shares to his victims, because at no point was anybody going to say "Whoa boys! Lets take a look at them books!"
And that's because if Bernie was the U.S. Treasury, and his sons the Fed, everybody who might want to take a peak at the balance sheets already pretty much knows what they'd find there: the ashes of the U.S. economy. Baffed out and beaten, repackaged and resold in a trillion different ways, such that there is no way the entire productivity and asset base of the United States now and for decades to come, could ever justify the trillions upon trillions of dollars worth of shares the massive Ponzi scheme that is the United States has put into circulation.
Nobody wants the illusion to end. Especially not its biggest shareholders - Japan, China and the U.K. For if their own treasuries are based substantially on the fragrant paper originated by the United States government, well then what does that say about the value of the bonds they issue to justify the quantity of their own currency in circulation?
When considered in this light, its no wonder the world's central banks act on a concerted basis to suppress the price of precious metals. For it the metals were allowed to trade freely against these currencies of falsely inflated value, then the market would quite likely demonstrate what it thinks about those currencies by trading them in for gold - a process now underway on the fringe where wise men looking through the fog of deception that is the media, are moving as nonchalantly as possible for the exits of U.S. investment
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