Posts Tagged ‘Bailouts’
Splendid links

A mixed bag of material I’ve wanted to write on, but have not had time:

GAO: Almost Half of Bailed Banks Repaid the Government With Money “From Other Federal Programs”:  The Government Accountability Office continues its subtle war on the talking point used by Treasury that “TARP made money”. Here’s the GAO, with a report out today.

As of January 31, 2012, 341 institutions had exited CPP, almost half by repaying CPP with funds from other federal programs. Institutions continue to exit CPP, but the number of institutions missing scheduled dividend or interest payments has increased.

A bit of humor from which the chart at the top of the post was taken:

Meeting Of Central Bankers, “Godfather” Style: One of the best scenes in the original Godfather movie was the meeting of the heads of the Five Families when Don Corleone attempts to settle the war… right before the scene starts, the camera pans the front of a large, stone building. That building was the Federal Reserve Bank of New York (h/t Dan)… reconstruct the scene and substitute the heads of the Five Families with the heads of some central banks and finance ministries.

Not sure why this its not front page news:

9/11 Commissioner and Co-Chair of Congressional Inquiry into 9/11 Say in Sworn Declarations that Saudi Government Linked to 9/11 Attacks:  Two Senators with Access to Classified Information Say Saudi Government Backed 9/11 Attack

Two former senators – one a 9/11 Commissioner, the other the co-chair of the joint Congressional inquiry into 9/11 – state in sworn declarations that the Saudi government backed the 9/11 attack.

Another profound post by John Robb:

 Are You Robust or Resilient? To make this easier, let’s start with a fun example. In the second installment of the excellent Terminator movie series, Arnold Schwarzenegger was cast as a robot called a Terminator. This robot was what we could call a robust system. A robust system is able to absorb a terrific amount of damage before it fails.

In the movie, the Terminator faced off against a new superior series of robot, the liquid metal T-1000. In contrast to Arnold’s robust robot, the liquid metal T-1000 was a resilient system. This meant that if the T-1000 was blown apart, the parts could and would quickly reassemble themselves back into a fully functional version of itself.

Roger Scruton hits the nail on the head:

 The nation state is the best guarantor of democracy, freedom and human rights: Recent attempts to transcend the nation state by creating some kind of transnational political order have ended up either as totalitarian dictatorships like the former Soviet Union, or as unaccountable bureaucracies, like the European Union. In spite of this, the idea of the nation is under attack—either despised as an atavistic form of social unity, or even condemned as a cause of war and conflict, to be broken down and replaced by more enlightened and more universal forms of jurisdiction

Europe’s been living in the bezzle and now reality is asserting itself:

 Wolf Richter: Deep Trouble at the Core of the Eurozone: In France, new vehicle registrations have been plunging. Already down 17.8% in December and 20.7% in January compared to prior year, they sank 20.2% in February. Year to date, the results were even worse than they appear. With 43 selling days in 2012, against 41 in 2011, sales per selling day were down 24.2%. French automakers suffered the most. In February, PSA Peugeot Citroën was down 29.2% and Renault 28.5%.

China is also wobbling:

World Bank warns: China is a ticking time bomb: The World Bank warns that China’s corrupt state-owned companies have created a Chinese Super Rich class aligning communist party bosses and corporate executives.

And neither has any interest in the World Bank’s call for reforming their incestuous economic system — which is exactly the same problem with America’s conspiracy between our Super Rich, Wall Street CEOs and Washington politicians.

The numbers may be dated, but explanation will still hold. Given the number of sovereign defaults we have coming up we probably should understand this stuff:

How gross and net CDS notionals really work: According to the DTCC, there is $75bn gross notional outstanding for CDS contracts referencing Greece. However, on a net basis this figure reduces substantially to $3.7bn.

Interesting video:

Michael Hudson: A Planned Economy for the 1%

Psychopaths will not be restricted to Wall Street:

One Out Of Every Ten Wall Street Employees Is A Psychopath, Say Researchers

It’s the proportion that counts. But this does not change the fact you are probably better off with psychopaths employed in the private sector than government. While wall street bankers may have done much damage, the likes of Stalin puts them into perspective.

Greek bailout

Well we have long said there was no way on earth people were going to be paid back the full value of their loans to Greece. Indeed, the same goes for much of the developed world. Too much debt is too much debt. The question was and remains, who bears the losses. Under capitalism it is supposed to be those who took the risks and enjoyed the rewards. At the moment it appears to be the taxpayer and ordinary citizens.

If you are retired and living off a fixed income, on state welfare or amongst the poorest members of society then you will be forced to suffer in order to make international bond holders good. The consequences for democracy and social stability of such measures is predictable. The question is simply what proportion of the nations assets will be looted before:

  • The government is overthrown.
  • Despotism established.
  • Both of the above, possibly more than once.

Make no mistake, the current process is not long compatible with democracy. At least not democracy in the traditional Western as opposed Eastern European “Democratic Peoples Republic of …” sense. It is inconceivable that a democracy would voluntarily acquiesce to:

It’s Official – Greece Unveils The Negative Salary, And A Whole New Meaning For “Pay To Play”: Beginning this month some Greeks will have to pay for the privilege of having a job. From the Press Project:

Salary cutbacks (called “unified payroll”) for contract workers at the public sector set to be finalized today. Cuts to be valid retroactively since november 2011. Expected result: Up to 64.000 people will work without salary this month, or even be asked to return money. Amongst them 21.000 teachers, 13.000 municipal employees and 30.000 civil servants.

But the Greek economy is uncompetitive. The Greeks are lucky to be getting anything. But what exactly are they getting:

Scandal: Greece To Receive “Negative” Cash From “Second Bailout” As It Funds Insolvent European Banks: It turns out that not only will Greece not see a single penny from the Second Greek bailout, whose entire Use of Proceeds will be limited to funding debt interest and maturity payments, but the country will actually have to fund said escrow! You read that right: the Greek bailout #2 is nothing but a Greek-funded bailout of Europe’s insolvent banks… and the Greek constitution is about to be changed to reflect this!

The smoking gun quote:

 The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.

As for the priority of payments – it is more than clear:

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.

So there you have it: the Second Greek bailout is nothing but the first Greek bailout of Europe’s banks! And the Greek constitution is about to be changed to reflect that.

Congratulations Greece – you just got royally raped by your own unelected rulers and you didn’t even know it.

It is worth reminding ourselves of where the money from the previous bailouts went:

Where Does The Greek Bailout Money Go? In the end less than 19 cents of the bailout are going to allow Greece to continue its overspending. About 23 cents goes to Greek institutions, though at this point, all of that is held by the ECB, so it is not fully benefiting Greece.

18 cents are going to the ECB directly and 40 cents are going to banks and insurance companies outside of Greece. So at least 58 cents of every bailout Euro is going outside of Greece, and depending on how you treat the repo agreements, that number could easily be 70 cents.

Graphically it is illustrated as:

There is only one destination this path leads and it is not pleasant. Either a revolution of the left or the right. Both pointing to evil capitalists. But bailing out bondholders is not capitalism. Letting those who took the risks, benefited from the rewards, suffer the consequences of their poor investment choice is capitalism.  This fact needs to be screamed from the rooftops by all right thinking people. All it takes for evil to triumph is for the good to remain silent.

Do not remain silent. Evil will exploit your silence and blood will again flow in the name of fighting injustice. Do not wait before voicing your opinion. By then it may be fatal to do so. Once some things are set in motion they can consume all who are too close.

We have always had the means for mass violence. In Rwanda the machete was a weapon of mass destruction. But technology is now providing the means for unprecedented repression of the many by the few.

Again Greece is pointing the way. 43% of the population now support parties based on the ideology that killed over 100 million. Nice.

Paul Mason of BBC on How Austerity is Reducing Greece to Developing Country Status: Communists, Trotskyists and other extreme-left groups are polling at 43%. That’s a strikingly high number. This plus the level of dissent on the street suggests Greece is on its way out of the eurozone. But will the technocrats prevail? As Michael Hudson has stressed here and in other commentary, the banks are succeeding in stripping Greece of assets, an operation that used to be possible only via military force

In the video he talks about people getting Euro 350 electricity bill per month, most of which is tax. The person only earns Euro 400 per month. If you do not pay it then you get your electricity cut off. As a resident of Australia I have been horrified at how much my electricity bill has risen. Looks like there is plenty more scope. Although our price rises are the effects of green not Austerity taxes. Those will come later.

The outcomes for Greece and of what is occurring elsewhere can be contrasted with Iceland:

Icelandic Anger Brings Debt Forgiveness in Best Recovery Story: Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.

Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”

What are the chances that your government will follow the Iceland precedent rather than bailout bondholders? What has success got to do with it when there are vested interests to protect? I’d suggest you start preparing soon if you live in a nation that has experienced credit expansion to the point where people have unprecedented levels of debt. It matters not if it is secured against assets, as those assets are inflated. Inflated assets are assets that do not generate a return sufficient to justify their price. Capital gain does not count, when a bubble deflates capital gains turn into capital losses.

As an aside the economist profession ought to hang its head in shame. When some wanted an economic rationale to justify the credit expansion with all its associated excesses we trotted out the efficient markets hypothesis. Now some want to justify money printing we have a burst of coverage of modern monetary theory.

I leave the last word to Jesse:

Modern Monetary Theory Explained Simply and Questioned Again So, what is the scheme to prevent the over-printing of money in the MMT, and what recourse do the people have if this system fails?

We are grappling with this very question today with the global dollar reserve currency scheme, so it is not theoretical. Replacing a failed fiat currency with another similar system but with different denominations and names, reissuing the paper currency after it fails, is par for the course.

And I expect that to be the preferred government resolution this time as well. The only question in my mind is how draconian will they get in order to obtain the required obedience of the markets, and how far do they think their control needs to extend geographically in order to succeed?

And what would they do with countries who have things that they need, but who will not accept their monetary diktats?

Is this what we are talking about? Just give the Fed/Treasury more power, greater spans of control, and less restraint, and they will finally get it right?

Or at least right enough, because no one will be left to question it, and say it is wrong.

They say history does not repeat, but it does rhyme. Learn the rhythm. Don’t let them pervert capitalism any more, lest we all suffer the  fate of the Sabine women.

Citigroup still hiding fraud

I’m shocked, absolutely shocked that bailing out the banks, not sacking their managers or prosecuting those engaged in fraud has not stopped their bad behavior:

Citigroup Whistle-Blower Says Bank’s ‘Brute Force’ Hid Bad Loans From U.S. Sherry Hunt said her Citigroup Inc. quality-control team was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.

Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed yesterday by the U.S. Attorney’s Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims, and admitted that it certified loans for FHA backing that didn’t qualify. Hat tip: The Big Picture

Wow a $158.3 million penalty. Isn’t this like making a thief hand back only part of what they have stolen?

Citigroup has approved about 30,000 loans with a value of $4.8 billion for FHA insurance since 2004; more than 30 percent of those borrowers have quit paying, the Justice Department said in its complaint. Almost half the bank’s FHA loans originated in 2006 and 2007 have defaulted, the government said, with HUD paying out almost $200 million in insurance claims on mortgages Citigroup originated or underwrote since 2004.

If the crime pays, then it is rational to engage in it. Some people will respond to incentives. Particularly as we have eroded much of our ethical base and replaced it an “It’s not a crime if you can get away with it” attitude. This partly flows from the plethora of laws. Not just those associated with drugs. How about speeding? How about running a red light on a deserted street at 2.00am? How about driving while over the limit? What about some type of petty copyright violation? In total all these laws actually work to undermine the foundations of Western civilization. They have an emergent property quite at odds with their individual effects. It’s a bit like welfare creating welfare dependency, both for individual and corporate “beneficiaries”.

Once the “law abiding” middle class looked upon the police as a source of assistance. Now if they see a police car they often glance worryingly at the speedometer. This is a fundamental change, the ramifications of which are still working their way through our society.

Needless to say at Citibank incentives appear to have worked:

Hunt’s co-workers, instead of checking for fraud or making reports about underwriting defects to the FHA as required, argued with her over the soundness of the loans, she said. Employees who acted as “gatekeepers” applied “what they describe as ‘brute force’ to pressure Citi’s quality control managers” into downplaying defects, according to the government’s complaint.

Some colleagues had pay incentives tied to reducing the number of reported problems, and they spent hours trying to get her to relax her warnings, including those about the most basic deficiencies, Hunt said.

Sad. Particularly given recent history:

Taxpayers rescued the bank with a $45 billion bailout that same year and guaranteed more than $300 billion of its risky assets after the lender’s stability was threatened by mounting costs on soured loans. The bank lost a total of $29.3 billion in 2008 and 2009.

Lest you think it an isolated incident:

MBIA tells judge of newly uncovered Countrywide fraud database Last week Bank of America agreed to pay $1 billion to resolve the Justice Department’s claims that it defrauded the government by underwriting Federal Housing Administration mortgages to unqualified borrowers. MBIA is making similar mortgage-origination allegations about the loans underlying securities it agreed to insure. And in the process it’s demanding discovery that could be of use to all the other monolines and investors clamoring for a pound of the bank’s flesh. Can Bank of America really afford to let this case continue? Hat tip: The Big Picture

There is a post begging to be written on the role of the individual in a corrupt system, but it will have to wait for another time.