I'm Not the Only Cynic - Congress and the Fed Work for the Banks

Here's and interesting summary of the recent financial disaster, explained clearly and naming some of the players. And yes, we were all a part of it.

The video was created April 7, 2010. There are two versions. The First is the "Long" version of about 13 minutes. The Second a shorter version, of 7 minutes. Watching these videos, you can see the source of some of the current congressional interest in politicizing the Fed. Unfortunately for us, the taxpayers and citizens of the U.S., the solutions proposed would simply pass the baton to the President and to Congress. And, given all the evidence of the financial crises, in these matters our Congress, which was also complicit, cannot be trusted either!

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Sorry for the gap

I'm back.

I'll begin posting here on a regular basis. Lot's has happened and I wanted a breather to see how the economy and so on would stabilize. It was like a "data storm" out there and I came to the conclusion that I and just about everyone was in info overload.

Now that things have stabilized, and the volleys have returned to the normal political polarization, I think it is time to begin some analysis of events.

Health care, the economy, our politicians, my home state of Illinois, all will be discussed here.

Have a great day and I'll be posting in a day or two.

Norm

Looking Back on Fannie and Freddie and How We Got Here

The Government's Retort

In November 2008, one of our self esteemed bankers made a statement saying we don't need three automakers. See:

http://foreverthecynic.blogspot.com/2008/11/quote-from-banker.html

Well, the government has made its own statement. According to the Wall Street Journal on May 11, an administration official made this comment about shutting out the creditors in the Chrysler bankruptcy crisis: "You don't need banks and bondholders to make cars."

According to the article "..Chrysler's suppliers, dealers and unionized workers are critical to its survival -- and so is Fiat, which will contribute high-efficiency engines and foreign distribution [however] the creditors were expendable". The article went on to say that "Pulling a trick from the hedge-fund playbook, the government used its leverage as the sole willing lender to Chrysler, either in bankruptcy court or out, to extract deep concessions from some of the country's biggest banks".

So what goes around, comes around!

OMB Plays with the Numbers

The rise in Federal deficits have been fingered as one of the culprits in the financial "crises" gripping the U.S.

China gave Pres. Obama a shot across the bow when, on March 14 it was reported that the Chinese Prime Minister, speaking ahead of a meeting of finance ministers and bankers in London in preparation for next month’s G-20 summit, said that he was “worried” about China’s holdings of US Treasury bonds. Mr. Wen’s exact words were “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our Assets.“ In other words, Mr. Obama, don’t mess with the value of the dollar and don’t do things to debase the US currency, like printing tons of money and running up huge deficits.

I prepared this from Congress’ Office of Management and Budget data dated January 2009, so it is already out of date. The Congress likes to play “funny numbers”, so their “official” deficit projections are lower, because they subtract the surpluses growing in the Social Security fund (which they will spend) and the “net cash flow” of the Postal Service. Yep, you read that right! The Congress is running the Post Office as a cash cow, even though they officially say it is not an arm of the US Government. So now you know why there is a push to increase the Postal Rate!

I also need to point out that this is the "growth" of the deficit, currently at $5.4 Trillion. The deficit will increase by about 233% by 2019!

Update Mid March, 2009 - Homeowner Defaults Increase

If anyone was wondering, I haven't gone away!

I've been catching up on "business" and dealing with issues out there in the "real" world.

I also wanted to give the economy and our new congress and President some time to allow the "dust to settle". There has been more info available in the popular press than has been possible to digest, and it does take some time to establish new "programs".

Bailout of banks, bankers and investment houses continue, but homeowners, the source of the problem, have seen little assistance or relief. So mortgage defaults continue.
I am not entering the debate about whom deserves or doesn't deserve government bailout money. It is apparent that a lot of people were greedy, a lot of people made mistakes or were simply stupid, and a lot of people perpetrated various frauds. The question I have is, where and how is the best way to spend this money. It will and is being spent, afterall.

I am looking at this from the perspective of spending as little as possible to resolve the problem. We have about 7.3 million homeowners who have defaulted or are at risk of default. If these people were given a stipend by the government which was applied against their mortgages, this money would be passed to the banks who would be forced to lower the balance on their mortgages, it would find its way to those who hold the notes, etc. and should stabilize the system.

But how much money would it take? Or, how far could a trillion dollars, which is the amount routinely used as fodder for the pigs at the toughs, go? I'll round up the number of mortgages to 10 million. Well, one Trillion dollars = $1,000,000,000,000. If I were to divide that by 10 million distressed mortgages (10,000,000) I would have $100,000 per mortgage.

So which has been more effective? Throwing several trillion dollars at the banks and investmenr bankers, or throwing $50,000 at each distressed homeowner? We could bail out 10 million homeowners and the entire banking system directly tied to these failed mortgages, using "only" one-half trillion dollars, which is $500 billion.

So now you know why am so cynical about our politicians. They could get the job done and they should know what I know. But they don't operate accordingly. So looking beyond all the rhetoric of the politicians and their media pundits, who is really being served? I'll let you draw your own conclusions.

Note: one trillion is a really big number. How big? Let's do a little arithmetic and answer the question "how many seconds is a trillion?" There are 365 days each year, 24 hours each day, 60 minutes each hour and 60 seconds each minute. So a year is 365 x 24 x 60 x 60 seconds = 31,536,000 seconds. If I divide 1 trillion by the number of seconds in a year, I'll know how many years contain 1 trillion seconds. The answer is 31,709 years.

Illinoise, Land of Larceny

I received a telephone call from an associate in Austria this week. I hadn’t spoken with this individual for a few years, and the last time, Roman was in Houston. So it was a pleasant surprise to hear from him. He asked me if I had purchased the Senate seat, and I responded that I understood it was for sale on E-bay and I couldn’t afford the $99 million price tag. We both laughed, but for me it was a bitter one.

Here in Illinois, everything is for sale and the politicians have made betraying the public trust an art form. Chicago’s Mayor Daley is a great example. He sells everything he can to private interests, from airport parking concessions, entire airports and even toll bridges. He moves parks from the public domain to special groups. He commandeered a lakefront airport and bulldozed it. He has made Navy Pier the number one tourist attraction in the state but if you are trapped in Chicago with its decrepit public transportation system and high taxes, you pay and you pay. Routinely the city is the most expensive place in the US to purchase gasoline. It has one of the highest sales taxes. In the last 10 years the city collected $182 million in parking tickets and is currently owed about $40 million in tickes due over two years, according to Chigago's Revenue Department Director Bea Reyna-Hickey.

This is essentially another form of taxation of its citizens. Chicago is surrounded by tollways to trap the wayward traveler and fleece his pockets. We hardly go into the city anymore because there are so many automobiles and so few unrestricted driving areas, that it is difficult to find a place to park. My spouse drove in once to meet a friend for dinner; the tab for that soiree , including tolls, gasoline parking and dinner was over $100. She said she won’t do that again. So we now take the train and only on very special occasions.

We have a long line of crooks and cronies in Illinois, followed by the incompetent. Even our Senator Dick Durbin is attempting to get convicted felon former Governor George Ryan out of prison. Under Ryan, the state was for sale to anyone and everyone. Unqualified people got licenses to drive trucks and there were the deaths of innocents on the roads as a result. That’s the way business is done here. The politicians routinely betray the public trust. We the citizens, after all, are subservient to them.

These same politicians routinely float bonds (take out loans) to pay the retirement benefits for their municipal and state workers, because they have spent every nickel and haven't properly funded the pensions of transit workers, teachers, firemen, policemen, etc. So their way of dealing with this is to "pay forward" the debt to the next generation. And the citizens sit around and there is no outrage. We are sheep or perhaps simply stupid. Or both??

Meanwhile, the Illinois Lottery, which was passed by law to fund education in the state, is ups for sale, too! Even with the lottery, Illinois is ranked 49th out of 50 states in the amount of money provided by the state for education. So much for taking care of the children.

It is unfortunate that we have to live here. But that may change. There are limits and this area has reached mine. I am about ready to gag!

I have associates in Louisiana who have complained for years about graft, corruption and incompetence in that state. I have told them that they have nothing compared to Illinois. They now finally believe me.

At one time Illinois was considered a land of gangsters. Now it is simply a laughing stock, with incompetents in various political offices and many crooked politicians.

Illinois, R.I.P.