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Genesis Posts: 71416 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/765-Wh....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-02-03 08:57:13
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Jfree Posts: 356 Incept: 2008-01-26 Left Coast
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As always Gen....spot on.
2009-02-03 09:08:00
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Geo-chuck Posts: 20 Incept: 2009-01-07 Tucson AZ
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I agree. Adam Smith's economics would classify banking as "Unproductive Labor". But only "Productive Labor" is good for a society as a whole.
2009-02-03 09:26:52
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Offshoreman Posts: 87 Incept: 2008-10-22 
Austin, Tx
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One of my favorites now. It seems to me that if you get a sheepskin from an Ivy league school, you have destined yourself to spectacular failure in business or life. And Gen you need a crackpipe smiley, Potheads rarely are destructive. Heck I would let a Pothead run our country over some of these Ivy league Morons we have now.
2009-02-03 09:30:54
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Waas Posts: 789 Incept: 2007-09-05
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Why don't people get this? Well said and masterfully laid out. It seems apparent we not going to let our flawed system go down without throwing everything actually productive we have at it. When I talked to my Congressman he was so aloof I was in shock. He simply was not very intelligent, or didn't see me as someone who could help him so he blew me off. Multiply that apathy by 435 and these are the people making the decisions.
2009-02-03 09:30:57
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Tesla Posts: 8174 Incept: 2008-04-03 
Delaware
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This would be a good start: http://emac.blogs.foxbusiness.com/2009/0.... First of a series on the Crackdown on Wall Street With the economy in a national nervous breakdown, with global losses mounting into the trillions of dollars, a top Wall Street executive in an interview echoes the Street’s water cooler talk when he asks: “Where are the smartest guys in the room being hauled off in handcuffs?” Specifically, executives say the markets have only seen high-profile perp walks in two cases, the two Bear Stearns hedge fund managers charged with securities fraud, and the two Credit Suisse brokers also charged with securities fraud in selling auction rate securities linked to subprime loans. “We saw more executives hauled off at about this time during the accounting scandals [earlier this decade], WorldCom’s Bernie Ebbers, Enron’s [Ken] Lay and [Jeffrey] Skilling, Tyco’s Dennis Kozlowski,” one investor complains, in what’s likely an overstatement. But top law enforcement officials have news for the markets. The perp walks are coming–in fact expect 2009 to be a bonanza year for arrests, a Justice Dept. official says. Law enforcement officials say the bursting of the world’s biggest bubble has created a very crowded scene of the crime. Reason for the delay: X-raying the bursting of the world’s biggest bubble in order to find out who to charge has proven to be devilishly more complex, more variegated, and involve bigger sums than ever before, says David Cardona, 52, head of the FBI’s criminal division in New York City, in an interview. What should send a chill up Wall Street’s spine is the fact that the FBI is “looking at all market participants from top to bottom who helped construct” potentially fraudulent loans and asset-backed securities, wherever the evidence leads the agents, says Cardona, a veteran agent widely respected in the bureau for being a smart, savvy straight-shooter. (Though given the massive Wall Street layoffs and the empty offices, the probes could prove to be a chill looking for a spine to shiver up, to quote former South Africa official Helen Suzman). Will These Frauds Escape? However, interviews with Wall Street executives show a deep concern that the biggest frauds of all may escape–not predatory loans, but predatory securitizations. It’s the predatory securitizations that are the most complicated, with agents expert in terrorist and al Qaeda financing now working these cases. Cardona notes that the FBI has fully staffed both these investigation areas, adding that terrorism remains the worst threat to the US economy, with white collar frauds second. Cardona, who came to the FBI’s New York office in May 2007 after running the bureau’s Miami office, is now riding herd on 400 agents who, overall, handle criminal cases. Terrorist financing agents are well-equipped and needed on fraudulent securitizations more than ever. That’s because tracking the purblind pools in securitization financing is similar to prowling through hawala financing, where money changes hands through an anonymous money transfer network in the usury-forbidden world of Muslim finance throughout the Middle East, Africa and Asia. Fallout Grows The International Monetary Fund now says the cost of this bubble potentially surmounts $2.2 tn, with financial companies the world over taking $975 bn in profit hits to date. The $305 bn in profits earned by the top nine investment banks over the last three years has been easily vaporized by $323 bn in writedowns taken over the last year or so. Top executives including Countrywide Financial’s Angelo Mozilo, former Merrill Lynch’s E. Stanley O’Neal, Citigroup’s Robert Rubin, Citigroup’s Charles O. Prince, all have walked out the door with lavish compensation packages built on fake profits earned during the bubble years. Meanwhile, the bubble has caused the US to launch an estimated $8.4 tn in new facilities to deal with the crisis. That includes the Federal Reserve’s credit facilities, and the US Treasury its $700 bn TARP program, with to date 355 banks getting TARP funding, including seven private banks. It also includes the guarantees the US government has now given in the way of backstops to $427 bn in bad assets at places like Bank of America, Citigroup and American International Group. And the Federal Reserve, now the world’s largest junk investor, has taken on about $81.5 bn in bad securities from Bear Stearns and AIG on its own books. Also, the US government is set to debut an enormous $819 bn fiscal spending package to rescue the US economy from potentially the deepest downturn since the Great Depression. And the US government may now set up a mega Bad Bank, a colossal dumpster, for the bad bank assets backed by subprime loans sliced and diced in Wall Street’s CDO deli machine. The mortgage-backed bonds that were really only so much baloney, despite being rubberstamped by the credit rating agencies as triple-A, credit ratings agencies called the market’s “astrologers” by Janet Tavakoli, the structured finance specialist and author of “Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street” (2009). Ironically, Wall Street’s compulsive financial engineering was supposed to limit the risk of financial contagion, but it didn’t work as the subprime crisis went viral and sickened all asset classes around the world. Now some Justice Dept. officials fear that the federal bailout of the financial industry “may itself become a problem because it contains inadequate controls to deter fraud,” a top official warns. The Perp Walks Are Coming With the markets complacent for more than eight years, “what is happening now is the equivalent of turning the lights on in the kitchen and finding an avalanche of ****roaches,” says a Wall Street executive. The magnitude of the bubble means the fraud cases are more sweeping than ever, from the small-bore mortgage loan frauds, or “white collar street crimes” as former Attorney General Michael Mukasey calls them, to Ponzi scams to hedge fund investigations to accounting frauds to structured finance and derivatives frauds. The last are “very complicated,” the “most complicated I’ve ever personally seen,” says the FBI’s Cardona in an interview. Overall, FBI Director Robert Mueller has testified that the FBI has already launched 24 investigations into major Wall Street firms and investment banks, including Bear Stearns, Credit Suisse, Fannie Mae, Freddie Mac, Lehman Brothers, and American International Group. The number is thought to have since grown to 26. Just the FBI mortgage loan fraud caseload alone has more than doubled in three years, to about 1,700. About 200 FBI agents are assigned to these cases, up from 120 a year ago. The Securities & Exchange Commission has more than 50 pending civil investigations in the subprime area. Meanwhile, Ponzi scams are surfacing fast and furiously, beyond the alleged $50 bn scam run by Bernard Madoff, as well as the three alleged Ponzi schemes run by Arthur Nadel, Nicholas Cosmo and Joseph Forte. “It’s only natural,” the FBI’s Cardona says, that with the bursting of the biggest bubble the world has ever seen, for the markets to now see a wave of Ponzi scams. The SEC brought at least 23 Ponzi cases last year, up from 15 in 2007, with four already in the month of January alone. The Commodity Futures Trading Commission prosecuted 15 Ponzi schemes in 2008 and expects that number to increase this year. And hedge funds remain squarely in the bulls’ eye. The Hardest to Catch of All But when it comes to potentially the most pervasive frauds of all, it could take years to catch all of the crooks, officials say. Not predatory lending, but predatory securitizations. Namely, the asset-backed bonds cooked up in Wall Street’s “financial meth labs,” structured finance expert Tavakoli notes in her new book, its byzantine CDO factories that pumped out bad bonds that have melted down savings accounts world wide and are just pure “hot molten evil,” as one investor calls them. “It seems to me that some investment banks knowingly participated in predatory securitizations,” says Tavakoli in her book. But although these securitizations are as transparent as a bucket of molasses, Wall Street executives who have worked on these deals and demand anonymity say there might be a way to catch the bad guys behind them. ---------- "Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." Samuel Adams I'd rather die on my feet than live on my knees. - Emiliano Zapata
2009-02-03 09:31:36
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Themortgagedude Posts: 3930 Incept: 2007-12-17
saint louis
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So if you don't grow it, mine it or manufacture it you're not producing something of value for the economy? Well that leads me to think that we've been in a period of say 30 years of declining production in US. Thus should we think that our standard of living may decline to that of those times when we produced a similar amount per person? The sheep won't like that.
---------- "These are interesting times. We don't trust the government, we don't trust the legal system, we don't trust the media, and we don't trust each other! We've undermined all authority, and with it, the basis for replacing it! It's like a six-year-old's dream come true!"
2009-02-03 09:35:00
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Lemonaid Posts: 4780 Incept: 2008-01-20
Detroit Metro Online
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Themortgagedude, No, we can continue selling each other chinese **** on credit in perpetuity. ---------- "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." Ludwig von Mises Last modified:
2009-02-03 09:42:38 by lemonaid
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Ruffcut Posts: 2193 Incept: 2007-07-07 Mushagain Online
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True dat. The investors are also to blame. Assuming CEO's were responsible for solid and balanced growth throughout the corporation. Board of directors were impressed with the abilities of these financial gurus, playing with numbers and getting the share price to rise. The CEO's first job is to increase the value of the corporation for its investors. My engineer father-in-law, in the last years, hated the top brass becoming more finance heads than well rounded creative business men. They would walk into the R and D division, cut out engineers and scientists that were working for the companies future, and tell the remainder to do more with less. They could improve the current snapshot of the bottom line and wanted to be treated and be paid like rockstars. I don't think there is anything wrong with their education, but having only a finance background left them unqualified to properly grow a corporation. Now most the board rooms are filled with them and they have nothing left in their magic bag of tricks. ---------- Support locally, and **** off globally!
2009-02-03 09:46:21
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Scrood Posts: 1999 Incept: 2008-05-17
Green Shoots! Online
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Back in the early 90s, my Engineering profs were very upset that the BofD had too many bean counters and not enough engineers...not much has changed over the past two decades, eh?
---------- When the **** hits the fan I'll be sitting on the can When the whip comes down
2009-02-03 09:57:49
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Statusquojoe Posts: 2397 Incept: 2008-11-20
Land of the fees Home of the slaves.
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I think our financial gurus being jealous of the MTV age, took Dire Straights far too seriously, Quote:That ain't workin' that's the way you do it 
---------- "In short, you are the definition of moral hazard." Senator Bunning to Bernanke
2009-02-03 10:02:41
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Tesla Posts: 8174 Incept: 2008-04-03
Delaware
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Ruffcuts - what you describe is what emasculated and eviserated Bell Labs in the 80s.
---------- "Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." Samuel Adams I'd rather die on my feet than live on my knees. - Emiliano Zapata
2009-02-03 10:08:48
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Acgreyhound Posts: 4985 Incept: 2007-08-20
Worcester, MA Online
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Only disagreement: "those paraded on CNBS and publicly humiliated". Don't think so - these ****ers have no shame!
---------- a/k/a Angry Douche
2009-02-03 10:09:35
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Krzelune Posts: 2078 Incept: 2007-10-08
DFW
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Corporations are run by humans and follow human nature. It is human nature to get the most gain from the least pain. Financial service and legislative rent-seeking offered a quick and easy way to make money with little percieved pain. This is a result of the socialization of our societies governmnet, education and culture. This is not much different than the housewife that purchases a steam cleaner on sale at Wal Mart for $100.00 and returns it the next week after the sale is over for $150.00. It's free money.... until it all blows up. At this point, it will take a depression event to change this mindset IMHO.
2009-02-03 10:09:50
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Scrood Posts: 1999 Incept: 2008-05-17
Green Shoots! Online
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They might feel an 80 mph Converse Chuck Taylor in the back of the head...
---------- When the **** hits the fan I'll be sitting on the can When the whip comes down
2009-02-03 10:11:08
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Mezzmor Posts: 507 Incept: 2008-10-09
Orlando, FL
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Karl, I don't know if you remember the scam that Lucent ran for a while, in 1998 where if you were an ISP, they didn't care if you had money or not, they wanted you to just take delivery of a 5E and a Stinger and as long as you filed as a telecom company they would make it work. I remember going to that do and pony show and selling LU the next day. I think they ran their own financing schemes out of desperation - they had a RIDICULOUS glut of equipment that they manufactured with zero buyers - and combine with their channel stuffing shenanigans up to that point they were already a dead duck. Lucent bought up the two companies I bought the most equipment from - Livingston (PortMasters) and Ascend (Pipeline ISDN Customer Premises Routers). The entire company was a scam from the day AT&T spun it off.
2009-02-03 11:08:18
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Genesis Posts: 71416 Incept: 2007-06-26
KD^2
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Of course I did Mezz. We crammed over a half-million worth of Ascend's **** back down their throat (it WAS ****) and defected to Livingston, then BOTH ****ing firms ended up owned by Lucent. You think I rant good NOW? I should have taped the phone calls with Morey Ejebat over at Ascend. That douche got to hear my FULL fury. Their selling option-ARMs on their own gear was what killed them; Winstar geared up on their back and when they blew Lucent went with them. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2009-02-03 11:10:31 by genesis
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Creditcalmass Posts: 1145 Incept: 2008-06-04 4 train, NY Online
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That S&P downgrade/creditwatch action affected almost 2.8 trillion dollars in securities . . . jesus.
2009-02-03 11:46:07
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Stuki Posts: 30 Incept: 2009-01-29
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“But when I take that jet engine and turn it into a discounted cash flow and then slice and dice it into tranches and sell it off into the marketplace via my "financial wizards" I am consigned to get less in total than if I just sold the engine outright.” Anyone making an expensive capital good like jet engines, have to deal with wide fluctuations in demand, and hence sales. And hence, earnings. As long as you can’t write off both previous and future losses going out forever in both directions against current year earnings in a bumper year; for tax purposes if nothing else, earnings smoothing adds value to the jet engine maker. And that could well include slicing revenue streams into pieces that can be combined at behest of a tax planner. Of course societal / total value is lost by having to hire and feed people with nothing more productive to do than try to outmaneuver the taxman, but if the taxers in charge were that enlightened, we wouldn’t be in our current bind to begin with. One reason for finance guys’ boardroom ascent is, their divisions have been delivering the biggest wham to the bottom line for a long, long time. Partially that is due to over rosy models, but that is unavoidable. The guy with the rosiest view of the future is willing to sell his ‘product’ the cheapest, hence will win the bid. Over time, first the pessimists, then the realists are squeezed out. Until only Mozilo is left standing. Again, there would be a whole lot less demand for their product if it wasn’t for activity taxation in the first place. But the main reason is built into the fracres ‘system’ of banking in the first place. As long as, for every dollar I have, that dollar somehow, magically, becomes able to buy more stuff if I hand it over to financial system actors than if I don’t, the financial sector will continue to manufacture relative purchasing power. While the banks may well not produce any value per se, they can sure as heck produce a lot of dollars. Which to the economy at large is undifferentiable from any other dollars. Here, as in the scenario above, the bank with the rosiest projections would, in a state of nature, drive out everyone else, until we end up with a system with no real reserves whatsoever. To combat this, regulators have to keep devising reserve rules and how to account for reserve rules of increasing complexity, as they’re locked in a game of cat and mouse with banks. Which again spills over into the ‘real’, ‘productive’ economy since claims on it is what, in the end, serves as most of the underlying reserves in the first place. Which again puts the impetus on corporate finance guys to figure out how ‘their’ specific business should arrange their financing to get as many dollars for their collateral as possible. Not doing so would prove competitive suicide. And, ultimately useless and value destroying as this sort of thing is at the societal level, it becomes devilishly complex in a complex economy; requiring highly educated and motivated (Read well paid) people to get ‘right’. Now, also remember that, by law, treasuries are as good as cash as a base for reserves to lend against. And look at the expansion of US debt since the Reagan/Thatcher boom started. Fracres has allowed an enormous rise in government’s stash of dollars, without reducing the private sector’s stash by the same amount; in effect putting an enormous amount of new dollars into circulation. At the banks. Which have naturally led them to search for ways to lend them out to a real economy that doesn’t somehow contain more stuff just because of this dollar creation alchemy. Which, as we have seen, has done wonders to juice asset prices. Which again, has placed increased relative importance on ‘monetizing’ these rising prices with regards to companies’ bottom line vis a vis the boring old productive process efficiency improvements that used to matter the most as earnings drivers. Which again, of course, has meant the guys best versed in obtaining capital by financial means, have seen their relative contribution to the bottom line grow vs the production guys. Which, in the end, has had an effect on boardroom composition. As well as relative remuneration across the economy. And then this has had an influence on what fields of study ambitious young people want to get into. Which again helps determine what programs Universities decide to direct their efforts towards. Until we, in the end, are stuck in a country where no one does anything but work in banks and for the government; crossing our fingers that the foreigners we rely on to make all our real goods will forever remain willing to throw away their productive lives in exchange for promissory notes from a population of people who have long since lost the realistic ability to promise anything at all. I know you don’t have the world of patience with calls for sound money, and it may well be that it is unrealistic, and that the fiduciary enforcement by pitchfork approach might, in the real world, be the preferred approach to minimize financial system self dealing, but I somehow doubt it. The guys who can ‘create’ the most dollars for a given underlying, will be the guys able to purchase the most real assets, regulatory concessions included. I doubt that will ever change, although the occasional lynching when things get really bad might slow things down a bit. But for a more permanent fix, there’s nothing like taking away the ability to create their own dollars from the moneycrats in the first place.
2009-02-03 14:55:16
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Genesis Posts: 71416 Incept: 2007-06-26
KD^2
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Quote:I know you don’t have the world of patience with calls for sound money, and it may well be that it is unrealistic, and that the fiduciary enforcement by pitchfork approach might, in the real world, be the preferred approach to minimize financial system self dealing, but I somehow doubt it. That is because so-called "sound money" existed in both 1873 and 1929 and did nothing to prevent the identical problem we have now. If you wish to propose to ban fractional lending then you will have effectively banned lending entirely, because interest rates in such a system will be, assuming you can get rid of all slippage and back-office costs (hah!) roughly five times what they are now. This makes all but trade credit totally inaccessible in terms of cost and so severely-disadvantages trade credit by other than the direct seller of goods that it becomes inaccessible. The problem with people who wish to argue this course of action is that they have refused to study history and reconcile their proclaimed "fix" with the fact that their "dreamland" was in fact around for nearly all of this nation's history (and prior to it!) and yet it did not stop any of the speculative credit bubbles over time. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2009-02-03 15:05:23 by genesis
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Wheatjerry Posts: 269 Incept: 2008-12-10
Houston
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So when are you going to put all of these Tickers into a book, Gen?? Guaranteed to make it on the NY Times bestseller list and reach a lot more people...maybe then we wouldn't have so many jackasses in charge of everything. I know I'd read a Ticker or two every night before bed.
---------- In times of change, the Patriot is a scarce man; brave, hated and scorned. When his cause succeeds, however, the timid join him, for then it costs nothing to be a Patriot. -Mark Twain
2009-02-03 15:10:05
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Stuki Posts: 30 Incept: 2009-01-29
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"That is because so-called "sound money" existed in both 1873 and 1929 and did nothing to prevent the identical problem we have now." Booms and busts will always happen, at least for as long as peoples expectations tend to move somewhat in sync. The difference between sound money and fracres, is that first access to funds, if such a thing exists at all, in a fracres 'system' is not distributed evenly or randomly over the population (i.e. anyone with a shovel can dig for gold; no banking license required), but rather systematically concentrated in the financial, and in reality government, sectors. Which, in effect, ends up subsidizing these sectors with productive inputs taken from other parts of the economy. Which again, of course, allows them to grow relatively bigger than what would otherwise be the case. I'm not sure I follow your 5 times the cost of loans reasoning, but to the extent loans in specie would be more expensive, the above subsidy provides at least part of the explanation. Any 'problem' arising from the remainder, would be 'solved' by lower equilibrium prices on the assets people seeks loans for in the first place; specifically by taking away the additional demand arising from banking sector 'manufactured' dollars. Exactly why this would be problematic is beyond me. If harder to get loans makes it easier to save and buy... But to not get too far off topic and into political wars, my main points in the long tirade above was 1) activity taxes, and even more so progressive ones, enable financial wizards to create value for their employers, even if not for society as a whole; which is what matters for decision making and boardroom presence. 2)Fracres, by allowing an increase in total demand to arise from the mere act of pulling a dollar out of the mattress and handing it to a Citibank teller, inevitably causes some of that excess to remain in said tellers hands. Asymmetrically enriching those with a banking license, and so the banking sector as a whole, relative to the rest of the economy. And combined, these two _will_ increase the allure of the financial sector, and hence the demand, and as a result, over time, supply, of financial education. It's not just that the old academies are populated exclusively by a bunch of toffs who don't feel like turning wrenches.
2009-02-03 16:48:01
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Genesis Posts: 71416 Incept: 2007-06-26
KD^2
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Answer the question. we had two financial collapses at least as bad as this one on your 'sound money.' What would you change specifically from what we have now - be SPECIFIC. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-02-03 16:53:55
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Stuki Posts: 30 Incept: 2009-01-29
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Just prior to 1873, there was a horse epidemic so destructive the trains stopped running and even cavalry fought on foot. While $150 / barrel oil was a bit of a real shock this time too, it wasn't that bad. Real shocks can cause economic downturns. not much anyone can do about that. Imagine oil availability so low our troops are all forced to be foot soldiers. No financial 'system' is likely to beat that one, no matter how clever. In addition, silver was demonetized in 1873, taking a huge chunk out of the nation's money supply, and overnight rendering investments in many silver mines worthless, and a bunch of miners and those in industries supporting them unemployed. So, yes, it is possible to screw up monetary management even without fractional reserves, but that does not mean one has to. Remember also that in 1873 communications were slow, meaning markets took longer to adjust. The world's gold deposits were not nearly as well categorized. In fact, we just came off a huge inflation due to the California gold finds and subsequent gold rush. A gold standard today is unlikely to face similar stresses, unless someone discovers meteors of gold and finds a cheap way to get them here or something. More likely, a current day gold standard would enjoy a fairly stable inflation, much more predictable for all involved than Benny B's fickle hand, that's for sure. By 1929, we no longer had sound money. Or let me first give my definition of sound money: 1 to 1 relationship between cash in circulation and specie in the fed's vault at all times. In the 1920's this was no longer true. Instead, according to Rothbard, the Fed was actively inflating, at least partially to help Britain get back on the gold standard at pre WW1 parities. And with the direct link to specie gone, margin lending was rampant in the 20's. So I can't see why you insist on implicating sound money in that disaster, either. What I personally, specifically, would change from what we have now, is demand specie gold as payment for all dealings with the government. Taxes, tariffs, levies etc. And then let people use whatever the heck they wanted to conduct trade between themselves. Then shrink government to such a level that there would be much less incentive to conduct one's own trade in whatever was required for government levies. In other words, let free competition have a realistic shot in coinage as everywhere else.
2009-02-03 19:05:41
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Sunriser1 Posts: 1879 Incept: 2007-10-30
lake tahoe nevada
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"Stars in my eyes or fraud in my heart" I will have to steal that one from you KD. ---------- "CHAPTER 9" Last modified:
2009-02-03 19:12:49 by sunriser1
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