naked capitalism Tue 2009-09-22 11:32 EDT

Guest Post: If Credit is Not Created Out of Excess Reserves, What Does That Mean?

George Washington

We've all been taught that banks first build up deposits, and then extend credit and loan out their excess reserves. But critics of the current banking system claim that this is not true, and that the order is actually reversed...Steve Keen explained that 25 years of research shows that creation of debt by banks precedes creation of government money, and that debt money is created first and precedes creation of credit money...monetary reformers like Ellen Brown argue that the entire banking system is based upon a fraud. Specifically, she and other monetary reformers argue that the banks have intentionally spread the false reserves-and-credit first, loans-and-debt later story to confuse people into thinking that the banks are better capitalized than they really are and that the Federal Reserve is keeping better oversight than it really is...Monetary reformers argue that the government should take the power of money creation back from the private banks and the Federal Reserve system.

created; credit; excess reserves; Guest Post; meaning; naked capitalism.

Taibblog Sun 2009-09-20 09:51 EDT

Will Obama listen to ex-Fed chief Paul Volcker's warnings?

Matt Taibbi

So former Fed chief Paul Volcker yesterday was spouting off about how nuts it is that certain ``too big to fail'' commercial banks that receive mountains of public money are allowed to run around acting like high-risk hedge funds...This would be meaningful if the Economic Recovery Board that Volcker runs for Obama were actually a chief policymaking center for the president. But the reality is that the Volcker group is a kind of show-pony the Obama administration kept on as a way to give consolation jobs to the more progressive economic advisers who led them through the campaign season, people like University of Chicago professor Austan Goolsbee...Obama did a bit of a bait-and-switch, hiring progressives to run his campaign and jettisoning them once he got into office. I hear about this phenomenon from different corners of the policymaking universe, from health care to defense and intelligence spending. But my sense is that the switch was most violent in the realm of economic policy...

ex-Fed chief Paul Volcker's warnings; Obama listen; Taibblog.

The IRA Analyst Thu 2009-09-17 10:22 EDT

Back to Basis for Securitization and Structured Credit: Interview With Ann Rutledge

To get some further insight into the world of securitization and cash flows, we spoke last week to Ann Rutledge of RR Consulting...The difference between a futures contract for T-bonds and a credit default swap is that the former is a real contract for a real deliverable, whereas the CDS trades against what people think is the cash basis, but there is no cash market price to discipline and validate that derivative market. Rutledge: a contract or structure without a cash basis should not be allowed at all. You cannot have a derivative that is honest and fair to all market participants without a true cash basis. ...derivatives markets such as CDS and CDOs that have no cash basis tend to magnify speculative excesses, while derivative markets where there is a visible cash basis market to discipline investor behavior seem less unstable in terms of systemic risk. Rutledge: If the cash market were visible and could be examined by all participants, then it would give away the ability of the dealer banks to tax participants in the market and extract these abnormal returns. So how do we fix the problem... Rutledge: These originators play this game over and over again and they don't get caught, in part because we do not have a common, standardized set of definitions for governing the most basic aspects of the securitization process. The buyers don't do the work and the accounting framework is a counterparty-oriented framework, not one that is focused on the underlying assets. So banks like Countrywide and WaMu originated and sold some truly hideous structures during the bubble, but the buyers only diligence was reliance upon recourse to these banks. It costs maybe 50bp for a buyer to get the data and grind the numbers to really diligence a securitization based on cash flows, even a complex CDO. But the cost to the buyer and the system of not doing the diligence is an order or magnitude bigger. If the Congress, the SEC and the FASB, and the financial regulators only do one thing this year when it comes to reforming the world of structured credit, then it should be to impose by law and regulation common standards for the definitions used in the marketplace.

Ann Rutledge; basis; interview; IRA Analyst; securitizations; structured credit.

Jesse's Café Américain Thu 2009-09-17 09:39 EDT

"It has now become clear that this was no ordinary crash."

Jesse

Here is an informative piece on the banking crisis in Iceland...in all banking collapses of this sort, fraud and duplicity are always at the heart of it, as larceny is in most great fortunes through history. Investigating Icelandic banking collapse, Icelandic economist Jon Danielsson believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatize the banks in the early 1990s...the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree...Central banking IS an old boy's network. It is the best and biggest network of all. In this one, you actually get to print money...

becomes clear; Jesse's Café Américain; ordinary crash.

naked capitalism Sun 2009-09-13 15:59 EDT

Another Lehman Mess: No One Can Run the Software

Lehman's global derivatives book included contracts with a notional face value of $39,000bn and deals with 8,000 different counterparties when it went bust. The derivatives business was actually split into multiple strands, backed up by between 20 and 30 different systems. Once it went bankrupt, the staff who supported these systems "evaporated"...The more time goes by, the less insight remains in terms of the people who staffed those systems...Many previously hidden costs of running a derivatives business, including technology support of multiple disjointed systems, can no longer be discounted.

Lehman Mess; naked capitalism; running; software.

Calculated Risk Tue 2009-09-08 14:43 EDT

Survey: ``The Anguish of Unemployment''

CalculatedRisk

Unemployment survey by the Rutgers University John J. Heldrich Center for Workforce Development: A comprehensive national survey conducted among 1,200 Americans nationwide who have been unemployed and looking for a job in the past 12 months, including 894 who are still jobless, portrays a shaken, traumatized people coping with serious financial and psychological effects from an economic downturn of epic proportion.

Anguish; Calculated Risk; survey; unemployment.

Minyanville Sat 2009-09-05 11:47 EDT

Why Hanging On to UNG Is Risky Business

People have been up in arms for months now about the troubles at the United States Natural Gas Fund LP (UNG) the ETF designed to track the price of natural gas. And as far as I can tell rightly so. ETFs were meant to be a nearly frictionless relatively simple alternative to the clunky closed-end funds (CEFs) and managed products that our parents and grandparents had to contend with. But UNG recently traded at a 19% premium to its net asset value (NAV) -- behavior far more fitting a CEF...But since hand-wringing over UNG seems to be the consensus approach, here's a contrarian thought: UNG has, to date, tracked natural gas futures (NG) fairly well.

hang; Minyanville; Risky Business; UNG.

Jesse's Café Américain Fri 2009-09-04 19:12 EDT

Hong Kong Bringing Its Gold Home From London

Jesse

"In the house of the wise are stores of precious treasure and oil, but a foolish man devours all he has." Proverbs 21:20 The People's Republic of China has been urging its citizens to convert some part of their savings into gold and silver, having recently liberalized the procedures by which individuals can obtain it. Hong Kong has built a new world class bullion vault, and is repatriating its gold reserves from the London Bullion Market Association (LBMA), where some speculate it had been committed for sale many times over. Hong Kong wishes to become its own regional Asia market maker for bullion metals. The rest of the world will rein in the Wall Street financial establishment, because the bankers have demonstrated an inability to manage their financial affairs...

Gold Home; Hong Kong Bringing; Jesse's Café Américain; LONDON.

Bruce Krasting Fri 2009-09-04 18:30 EDT

Open Letter to FHFA's New Director Edward DeMarco - A Proposal for the Agency REO/Preferred Shares

Bruce Krasting

Let me welcome you to your new responsibilities. You have a very important job. There are a significant number of people in the financial world who lie awake at night worrying about the mortgage lenders you are responsible for. Fannie Mae, Freddie Mac and the FHLBs hold or guaranty $6.3 Trillion in residential mortgages. It is simply not possible for the US to get out of the mess we are in unless these Agencies are stabilized. Should those Agencies fail, all that has been done to heal the US financial sector will have been wasted. In a significant manner, your success or failure will determine the medium term course of the US economy.

Agency REO/Preferred Shares; Bruce Krasting; FHFA's New Director Edward DeMarco; Open Letter; proposed.

ClubOrlov Wed 2009-08-26 15:33 EDT

Welcome to Fuffland!

kollapsnik

In the unfolding global financial collapse, it is not just our accounts and balance sheets that come up short, but our language as well. What do you call a bunch of liar loans packaged into toxic assets and placed on the balance sheet of the Federal Reserve as collateral for rescue loans? J,K. Galbraith has proposed the term ``Bezzle,'' taking it to mean the eternal ebb and flow of questionable transactions within an economic cycle. Rational actors cut corners during easy times when they know no-one is looking, and then play nice again when the times change and someone starts paying attention again. But I believe that the phenomenon we are observing is something different: we need a word that describes the artifacts generated in response to irrational actors... A fuffle is an artful fake, an artifact specifically made to fool, beguile, seduce, or intimidate people into paying for it. Examples include suburbans houses and associated mortgage financing, SUVs, debt-financed college education, privately funded 401k retirement plans, US Treasury securities.

ClubOrlov; Fuffland; welcome.

ClubOrlov Wed 2009-08-26 14:22 EDT

That Bastion of American Socialism...the United States military

kollapsnik

Over the past few months the American mainstream chatter has experienced a sudden spike in the gratuitous use of the term "Socialist." It was prompted by the attempts of the federal government to resuscitate insolvent financial institutions. These attempts included offers of guarantees to their clients, injections of large sums of borrowed public money, and granting them access to almost-free credit that was magically summoned ex nihilo by the Federal Reserve. To some observers, these attempts looked like an emergency nationalization of the finance sector was underway, prompting them to cry "Socialism!" Their cries were not as strident as one would expect, bereft of the usual disdain that normally accompanies the use of this term. Rather, it was proffered with a wan smile, because the commentators could find nothing... ``Since the end of the Civil War, Americans have become accustomed to thinking of war as something that happens elsewhere, to other people. Thus, the news that the US is bombing this or that land, for no adequate reason, killing and maiming numerous civilians, produces in us neither the normal human reaction of revulsion, nausea and disgust, nor the conviction that we must take the fight to our own monstrous leaders, lest we too become monsters. Life under domestic military occupation might bring home some welcome realizations, and start Americans down the long road of atoning for the sins of their forefathers, who have run roughshod over much of the rest of the planet for far too long.''

American social; bastion; ClubOrlov; United States military.

ClubOrlov Wed 2009-08-26 13:53 EDT

The Slope of Dysfunction

kollapsnik

(Update: click here for a special version for the Nihonjin care of Masayuki.) Perhaps you have heard of the Peak Oil theory? Most people have by now, even the people whose job used to involve denying the possibility that global crude oil production would peak any time soon. Now that everybody seems a bit more comfortable with the idea, perhaps it is time to reexamine it. Is the scenario Peak Oil theoreticians paint indeed realistic, or is it firmly grounded in wishful thinking? Here is a typical, slightly outdated Peak Oil chart. I chose it because it looks pretty and conveys the typical Peak Oil message, which is that global crude oil (and natural gas condensate) production will rise to a lofty peak sometime soon, and then drift down...

ClubOrlov; dysfunctional; Slope.

ClubOrlov Wed 2009-08-26 11:24 EDT

Definancialisation, Deglobalisation, Relocalisation

kollapsnik

This talk was presented at The New Emergency Conference in Dublin, on June 11, 2009. ``we all have to prepare for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours'' ``Most of the wealth is in very few private hands right now. Governments and the vast majority of the people only have debt. It is important to convince people who control all this wealth that they really have two choices. They can trust their investment advisers, maintain their current portfolios, and eventually lose everything. Or they can use their wealth to reengage with people and the land in new ways, in which case they stand a chance of saving something for themselves and their children. They can build and launch lifeboats, recruit crew, and set them sailing.'' 1. Good morning. The title of this talk is a bit of a mouthful, but what I want to say can be summed up in simpler words: we all have to prepare for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours. I will take as my point of departure the unfolding collapse of the global economy, and discuss what might come next. It started with the collapse of the financial markets last year, and is now resulting in unprecedented decreases in the volumes of international trade. These developments are also starting to affect the political stability of...

ClubOrlov; Definancialisation; Deglobalisation; relocalisation.

Thu 2009-07-30 00:00 EDT

Hussman Funds - The Destructive Implications of the Bailout - Understanding Equilibrium - May 18, 2009

-- ``The Treasury has issued an enormous volume of debt into the frightened hands of investors seeking default-free securities. This has allowed the Treasury to finance a massive and largely needless transfer of wealth to bank bondholders so easily over the short-term that the longer-term cost has been almost completely obscured...transferring wealth from those who did not finance reckless loans to those who did... the Treasury and Federal Reserve have crowded out more than a trillion dollars of gross investment that would have otherwise have been made by responsible people in the coming years, shifted assets to the control of those who have proven themselves to be irresponsible destroyers of capital, and have planted the seeds of inflation that will cut short any emerging recovery.''

18; 2009; Bailout; Destructive Implications; Hussman Funds; Understanding Equilibrium.

Tue 2009-06-16 00:00 EDT

The peasant mentality lives on in America

by Matt Taibbi; teabag movement; ``youre a peasant when you worship the very people who are right now, this minute, conning you and taking your shit''

America; peasant mentality lives.

Fri 2009-01-16 00:00 EST

AlterNet: The Right Wing's Latest Argument Against Public Health Care -- We'd Like It Too Much

by Lindsay Beyerstein; Cato Institute, wherein Michael F. Cannon argues that blocking Obama's health plan is the key to GOP survival...once people start getting good health care from the government at a price they can afford, they want to keep re-electing the politicians who make that possible.''

AlterNet; public health care; Right Wing's Latest Argument.