Posts Tagged ‘Bailout’
Rule of law no more

One of the bedrocks of our affluent way of life is the rule of law. Absent that I suspect we would not have had  the massive increase in living standards and length of life over the last couple of hundred years. Without it we will not maintain our current lifestyle or average length of life, let alone improve it.

Make no mistake, our actual life as well as way of life is threatened whenever the rule of law is abrogated. When a cavalier attitude to the removal of rights becomes established, we will soon have no rights. Having no rights we will soon have nothing. Not even our health.

Our rights and the rule of law are being undermined as never before, at least without armed conquest. There is an international tide to the affairs of man. No nation is an island, just as no man stands truly alone. We are all embedded within a world, within geographic, social and economic systems. There is a physical reality to our existence. Changes in one area flow to others. To know what may come to be in your country look at what as and is happening elsewhere.

A Russian aware of the French Revolution may not have been so surprised at the blood baths entailed in his own progressive revolution. Similarly someone in China aware of the millions killed in the Russian revolution may have had an inkling of that millions could be killed in their own great leap forward. Similarly a Cambodian knowing what happened under Mao could have guessed at the possibility of Cambodian killing fields under Pol Pot. Be aware of what has and is happening around you. It may not just save your wealth, but your life.

Do not be insular in your outlook. Even in liberal Western democracies the tides of socialism, fascism and political correctness flow across countries. Activist judges cite international precedent. Governments sign international treaties and then legislate for them without adequate consultation. Vested interests bribe, flatter or otherwise charm politicians into removing some of your rights to increase their wealth and power. It has always been thus. Accept it, so you can fight it. It’s time for some of that eternal vigilance to come into play.

That’s why this type of report from the US is so alarming:

Mr. Ernest Perce V., was assaulted by a Muslim while participating in a Halloween parade. Along with a Zombie Pope, Ernest was costumed as Zombie Muhammad. The assault was caught on video, the Muslim man admitted to his crime and charges were filed in what should have been an open-and-shut case. That’s not what happened, though…. What transpired next was surreal. The (Muslim) Judge not only ruled in favor of the defendant, but called Mr. Perce a name and told him that if he were in a Muslim country, he’d be put to death.

The linked report also notes that the judge refused to allow the video to be admitted and that a Police Officer who was at the scene also testified on Mr. Perce’s behalf, which the Judge also dismissed.

With precedents like that, can we be so sure this chap in the UK is wrong:

Extremist Mohammed Abdin Jailed for Eight Months Over Threat to Machine Gun Police “In 10 or 15 years time when we rule, I’m going to hunt you down and then I’m going to kill you.

“I’m going to burn you to death ……. you are going to die”.

This is not a post on the demographic death spiral of much of the Western world. Everyone can extrapolate what happens if one cultural population segment has lots of children and the others do not. At least in a multicultural rather than assimilation framework. Multiculturalism being one of those ideologies that flowed across much of the Western world.   The results have been fairly consistent. Areas where non-Muslims go at their peril, where firemen and ambulance officers are stoned.

As for the rule of law, what was once inconceivable and would have been viewed with horror becomes commonplace:

  • Sharia courts operating in Britain: Five sharia courts have been set up in London, Birmingham, Bradford and Manchester and Nuneaton, Warwickshire. The government has quietly sanctioned that their rulings are enforceable with the full power of the judicial system, through the county courts or High Court.
  • EU judges want Sharia law applied in British courts: Judges could be forced to bow to Sharia law in some divorce cases heard in Britain. An EU plan calls for family courts across Europe to hear cases using the laws of whichever country the couple involved have close links to.

The law like the police can switch from protecting our way of life to persecuting it. That’s one of the reasons to prefer conservative to progressive judges. A glance at history is more than enough to demonstrate this:

While the part played by the Ministry of Justice in the extermination of Poles and Jews was small compared to the mass extermination of millions by the SS and Gestapo in concentration camps, nevertheless the courts contributed greatly to the “final solution” of the problem.

Posner is a wise man:

Perhaps in the fullness of time the growing of marijuana plants, the “manipulation” of financial markets, the bribery of foreign government officials, the facilitating of the suicide by the terminally ill, and the violation of arcane regulations governing the financing of political campaigns will come to be no more appropriate objects of criminal punishment than “dishonoring the race.” Perhaps not; but [the story of the German judges] can in any event help us to see that judges should not be eager enlisters in popular movements of the day, or allow themselves to become so immersed in a professional culture that they are oblivious to the human consequences of their decisions.”

Well if prosecutions are anything to go by “manipulating” the markets is already not viewed as an appropriate object of criminal punishment. But selective application of the law is a tool of tyranny. The little person, who is not sufficiently well connected or has not hired the right lobbyists or donated to the right campaigns gets prosecuted. The too big to fail banks get government backstops while its executives reap their bonuses and salaries vastly in excess of their contribution to the economies value-add. What will this do for our commonweal?

What will it do for our national wealth is a silly question. Perhaps I should ask if you are feeling wealthy? Are you confident you can look after yourself and your loved ones? Or are you now dependent on noblesse oblige by our political masters? What will happen to you when reality intrudes and your government is forced to live within its means, perhaps cutting expenditure in half? This may happen before or after an inflationary episode. It may happen while financial repression is in full force  – mandating returns on savings at less than the rate of inflation.

We have seen how strongly our governments will fight to maintain the fiction that they are solvent, that their citizens will get what they have been promised. They are lying. The only way this will happen is if there are technological black swans. We will post more on the potential of 3D printing, biotechnology and nanotechnology to radically change our and our governments finances. The Singularity may happen. But it is not sensible to bet the farm on a hope and a prayer. Especially not while undermining the core components of capitalism. Capitalism being our only hope of maintaining the exponential rate of technological progress necessary to generate the productivity increases required to maintain our lifestyles while reducing total debt.

Overriding established rights through bailouts, be they of General Motors or Greece is inimical to capitalism. Bond holders should wear the risks, for both good and ill. It is illegitimate to create a special class of bondholder, just because you can. The European central bank is undermining the very markets it needs if Europe is to prosper.

The people of Greece will experience an unpleasant enough time as reality punctuates the great lie, without also being looted by international financiers first. European banks made bad investments in Greek bonds. They should suffer the associated losses. These losses can flow through to bondholders and shareholders in those banks. They should wear the cost before taxpayers and those living off their more prudently invested savings.

Only in this way can the legitimacy of our system be demonstrated. The unintended consequence of all the quantitative easing and interventions is to strip our system of its legitimacy. This will be used to attack the legitimacy of capitalism. Desperate times will make people more susceptible to the siren song of the potential despot. Frustration will create more true believers. Many of us will suffer and die as a consequence. It must be stopped. We must return a more truthful, free way of life. We must do it with love and compassion, but without the compulsion of the socialist state. Only that way can we reap the way of life we want.

 
Crony Capitalism

In banking perceptions can create their own reality. A panic can cause a run that will make any bank insolvent without the assistance of others. That’s the downside of lending long and borrowing short. So it’s interesting that the following Money Morning post is getting another airing, courtesy of Naked Capitalism.

Key passages include:

NAB and Westpac’s Secret Bailout Revealed

I’m talking about the near collapse of the Australian banking system in 2008. I’m talking about the likelihood of two Australian banks collapsing in 2008 if they hadn’t secured a secret loan from the US Federal Reserve.

The fact that National Australia Bank [ASX: NAB] had to borrow USD$4.5 billion from the US Federal Reserve during 2008 and 2009.

And Westpac Banking Corp [ASX: WBC] needed USD$1.09 billion in January of 2008 and 2009.

It wasn’t Westpac’s US office that needed the dosh, it was Westpac in Australia that needed it. It shows you that without the direct financial support of the US Federal Reserve Westpac and NAB would have been toast.

Westpac and NAB needed the loans because they were on the verge of going belly up. It’s that simple. If they hadn’t gotten secret loans from the US Fed they would undoubtedly have needed secret loans from the RBA.

Fortunately for the RBA, the Fed opened the door and this allowed Aussie central bankers and bankers to claim that the Aussie banks hadn’t received a bailout.

And it must now make the Reserve Bank of Australia (RBA) feel foolish, considering in September 2008, just before NAB sought the Fed’s help, the RBA wrote:

“The Australian financial system has coped better with the recent turmoil than many other financial systems. The banking system is soundly capitalised, it has only limited exposure to sub-prime related assets, and it continues to record strong profitability and has low levels or problem loans. The large Australian banks all have high credit ratings and they have been able to continue to tap both domestic and offshore capital markets on a regular basis.”

Tapping “offshore capital markets” obviously included the US Fed.

So we wonder, how much did the Reserve Bank of Australia know about this? While it was talking up the strength of the Australian banking system did it know that two of the four Australian banking pillars were desperately seeking loans from the US Fed?

Or, like you, was the RBA in the dark? And what about the Australian Prudential Regulation Authority (APRA)? We’ve been told they’ve done all manner of stress tests and the banks passed with flying colours.

Read the whole thing.

One of the commentators to the post points out that:

The banks were presented with the cheapest source of funds that they would see in their lifetimes and some took advantage.

If so they were not the only ones to do so:

The Real Housewives of Wall Street

Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?

Don’t you just love the whiff of crony capitalism in the morning? It sure beats the odour of the Occupy Wall Street camps. Although there is something honest about a good old fashioned cesspit.

Australia recently failed our test of its power to resist crony capitalism and allowed covered bonds. Covered bonds give their owner the right to collateral that covers the bond. Collateral that previously would have been used to reimburse depositors if the bank got into trouble. At the same time it moved to allow covered bonds, the government made permanent its “temporary” guaranty of deposits. In other words, the taxpayer will have to make up the money going to the covered bondholders.

Bank bailouts tend to mean bailing out of bondholders as the depositors are already covered. Australia’s wonderful government has locked taxpayers into effectively bailing out bondholders without their even knowing it. Nice.

Now we get this:

NAB eyes covered bonds issue

THE National Australia Bank is expected to become the first major bank to issue a covered bond once the government’s new changes come into place.

The Australian government is also happily subsidising its own subprime mortgage market:

Purchase Of RMBS – Program Update

To date, the AOFM has invested $12.7 billion in 45 RMBS issues. These investments have assisted 19 lenders in raising over $29 billion in funding. The RMBS issuance supported by the Program has financed mortgages over more than 150,000 residential properties across Australia.

On 5 April 2011 the Treasurer issued a Direction for the AOFM to invest up to an additional $4 billion in Australian RMBS, together with remaining capacity from the current program of about $3.5 billion.

Gosh, it looks like taxpayers could be on the hook for losses amounting to billions from RMBS and from covered bonds. Best hope Australia does not follow the US example of a large fall in house prices. We are certainly munching on our own mad meat.

 
Fraud will impoverish us all

Anatomy of Mortgage Fraud: MERS’s Smoking Gun, Part I. Contains some absolute gems:

MERS purportedly offers an alternative to paperwork, maintaining an electronic record of mortgages that are usually packaged into mortgage backed securities (MBSs)… MERS was created to run multiple frauds.

In foreclosure cases across the nation, the banks have been filing “lost note affidavits”, certifying that they cannot find the notes that are required to prove that they have the right to take away someone’s home…. By law, the notes are supposed to be at REMIC trustees, held against the MBSs sold on to investors — and must be presented to foreclose.

The real mystery is why these trustees cannot produce the notes… MERS’s instruction manual… demonstrate that failure to properly endorse the notes and transfer them to the REMIC trustee was not an occasional mistake, but rather was MERS’s business model… MERS planned from the get-go to defraud the counties, and the IRS, and the homeowners, and the buyers of the mortgage-backed securities.

In the document, MERS claims that its recommended procedures are “customary”. In fact, there are several hundred years of “custom” that requires endorsement of notes at the time of transfer, with a clear chain of title to ensure that anyone who claims to be a creditor, and who tries to seize someone’s home, has clear documentary proof of entitlement. What MERS proposes in this document is to break the chain of title, to eliminate the protection that debtors need to prevent mortgage servicers and MERS from illegally stealing their property through the use of robo-signers and the manufacture of fake documents. In other words, both law and custom were formulated to prevent the sort of foreclosure fraud that has become normal business practice — what the MERS document calls “customary”.

I do not know why MERS proposed illegal activity as a new custom.

Hat tip Market Ticker

I can’t in good conscience post any more of his report. If you are interested in the topic read the whole thing.

I guess that could explain why Marci Kaptur’s Anti-MERS Bill is the Target of Misleading PR by Title Insurance Industry

Rep. Marci Kaptur of Ohio has introduced a short bill, H.R. 6460, which would seriously restrict the operations of MERS by effectively removing Freddie, Fannie and Ginnie as users. The bill would bar the GSEs from guaranteeing or owning any mortgage that is either assigned to MERS or lists MERS as the mortgage of record. Note that those are the two roles typically set forth in the registrations at local courthouses which register mortgage in the name of MERS.

How much have the banks with their fraudulent practices cost Americans? Who knows, a lot of the human costs can’t really have a dollar figure put on them. Also the system is not fixed. The costs can not yet be calculated. We can not know. In fact we can never really know. But the recent Fed audit contains some eye popping numbers:

Consider this: the recent Fed audit revealed over $3.3 trillion in emergency assistance to the banks and other corporate behemoths during the financial crisis—no strings attached. Source: The Nation. Hat tip Naked Capitalism.

But it’s hard to grasp the enormity of a trillion. How many seconds is it:

One Trillion Seconds = 31,688 years, so 3.3 trillion seconds is 104, 570 years.

If you count one number every second it will take 104,570 years to get to 3.3 trillion. Homo sapiens apparently evolved around 120,000 years ago.

As I mentioned, the numbers don’t really mean anything. But 3.3 trillion is the middle number of those revealed in this report of the recent Fed disclosure:

The estimated $3.3 trillion in liquidity and more than $9 trillion in short-term loans and other financial arrangements dwarf the $700 billion Treasury Department bank bailout out signed into law under President George W. Bush.

The numbers are astounding. The report also states:

The Fed’s multi-trillion bailout was not limited to Wall Street and big banks, Some of the largest corporations in this country also received a multi-trillion bailout.  Among those are General Electric, to which the Fed made over $16 trillion in financing under a commercial paper funding facility alone; McDonald’s; Verizon; and Toyota.

We have posted before on the foreign component in No losses by government decree.

Honesty, trust and the rule of law are components of our economic system. Their existence is part of the reason we have been able to generate so much wealth. Without them we will be poorer. We will be impoverished. No one has a right to be affluent. Money has to be earned.  This is true for the individual as well as society.

Money might appear to grow on trees, or be simply be electronic blips in computers. But ultimately this is not real wealth. It can’t be. Absent trust its value will prove to be ephemeral. The US and the Western world are playing with fire. And in this instance Prometheus will not suffer alone.