Saturday, August 31, 2013

¿Communista?



¿Communista?

 

"Conservatives pride themselves on resisting change, which is as it should be. But intelligent deference to tradition and stability can evolve into intellectual sloth and moral fanaticism, as when conservatives simply decline to look up from dogma because the effort to raise their heads and reconsider is too great."     -W.F.B.

By J.M. Hamilton  8-31-13


I remember it well.  I was getting my hair cut in a South Texas barbershop and we were discussing the issues of the day.  When the red head cutting my hair turned to me, batted her baby blues, and asked, "You need to meet my brother, he's a member of the John Birch society.  Would you like his phone number?"


Oh baby, talk dirty to me.

It was the early eighties and W.F.B. was in his ascendency.  Seemingly, Ronald Reagan was brought to power by National Review.  That, and Mr. Buckley's shear force of will.  The apostates and the “Birchers” had been driven from the Republican temple by the man with the golden tongue; and many were attracted to the Party by the shear athleticism of Mr. Buckley's intellect.

And there was something more, something singular – at least for me, the promise and allure of upward mobility that capitalism appeared to offer all Americans.

Sundays were great.  Sundays - after sleeping through church service in the back pew - meant Firing Line.  Almost as interesting as W.F.B.'s arguments - it was a challenge just to attempt to keep up with him - was his willingness to bring liberals, Dems, and nearly anybody else on the show, who had the testicular or ovarian fortitude to appear.  Mr. Buckley was as iconoclastic as he was iconic. 

Ultimately, what was so appealing about Mr. Buckley, however, was he often argued from the moral high ground.  His near fundamentalist belief in capitalism - the unlimited opportunity capitalism seemed to afford the U.S. and its adherents - and his faith in his own Catholic upbringing  - were undeniable.  That didn't mean he was a slave to orthodoxy, and the pillar of the conservative movement certainly had a libertarian streak a mile wide.  By way of example, he opposed President Bush's (W) war in Iraq, and he was against the war on drugs.  Clearly, this was a free-thinking conservative.  A statement that is clearly oxymoronic today.

If Mr. Buckley was doctrinaire anywhere, it was in his firm opposition to the gangsters who ran the former Soviet Union.  Perhaps it was the USSR's attack on personal freedoms, the near universal poverty of it's citizens (except for communist party cadres), the socialism and slavery that often accompanies a command economy, or it's goal of global hegemony.  Of course, Mr. Buckley shared similar concerns about the growth in the U.S. government... clearly there was angst expressed about the growing welfare state, particularly as it applied to the general public.  National Review went after the socialist inclinations within this country.

The intellectualism that Mr. Buckley brought to the party was only eclipsed some thirty year's later, at the tail end of the Bush Administration (W.), by the party's decline, characterized by: a lack of leadership, a dearth of fresh ideas, anti- intellectualism, xenophobia, moral turpitude, and a slavish devotion to party orthodoxy.

This decline is best exemplified by today's House of Representatives and the candidates the GOP put up for the last presidential election.


Presently, we see a House of Representative that is dominated by the Republican Party, propelled there by gerrymandered redistricting.  That the GOP could not win the Presidency or the Senate in 2012, during the heart of the Great Recession, speaks volumes about the decline of the Party, and it’s lack of national appeal.  Today, the House does not rule, but rather, obstructs and views this a progress; and the leadership, offers no alternative to the administration’s guidance, but for the nihilism afforded by Ayn Randians, misguided and misled Tea Partiers, and the GOP establishment (terrified by the extremist).   Supposedly the brightest ideas coming out of the House these days is the desire to shut down the Federal government, and impeach the President.  The House is allowed to play this game because the Federal Reserve has printed trillions to keep the nation afloat and bailout the Wall Street banking cartel; in short, while the GOP fiddles, D.C. and the nation burns in a ocean of liquidity.

My piece Dumbed Down Madness described in great detail how the GOP leadership advocates higher education for themselves and the elite; but believe it’s a waste of time – and completely corrupting - for the 99%.  As the GOP guts public education, and offers no alternatives to spiraling higher education costs, it proposes to allow banks to charge higher interest rates on student loans.  For many, it’s very clear that the Party prefers an under-educated and dumbed down electorate.  Unlike Mr. Buckley, today, very few right-leaning political pundits would allow Democrats, liberal guests, or competing ideas on their shows.  Today’s GOP, seemingly, doesn’t believe it’s the responsibility of the Party to educate the public on the issues of the day – as Firing Line did; but rather, the Party’s role is to dictate party orthodoxy. 

Standing completely alone among the GOP, is Senator McCain, who shows us what the GOP could be, if it was not dominated by demagogues, and paid for by right wing industrialist and oil oligarchsMr. McCain’s recent performance is independent, intelligent and thoughtful; Mr. McCain’s policies and proposed legislation clearly show the path out of the wilderness, by embracing the middle class, adopting pro-middle class growth policies, and employment opportunities; but don’t look for the radicals in the Party to embrace such precepts.

The Party and the House are both divided about immigration reform, quite possibly for fear of snatching victory from the jaws of defeat, changing the homogenous complexion of their base, and due to the absolute terror of potentially affording a victory to this administration.  This single issue quite possibly demonstrates why the public opinion of the House is at an all time low.  My guess is these guys and gals will easily take their approval rating down into the single digits.  In the early 80’s National Review and other conservative journals of opinion referred to a “liberal crack-up” … today, we are witnessing nothing short of the GOP’s self-immolation.

As for moral turpitude, look no further than the House’sFinancial Service Committee.  This Committee has grown to sixty-one members, which is fourteen percent of the legislative body.  The prime purpose of sitting on this committee is to do the Wall Street bank’s bidding, in exchange for campaign contributions.  The nation’s dirty little secret is the biggest “welfare queen” around, a term that originated with Presidential Candidate Ronald Reagan, is the Wall Street banking cartel.  With trillions awarded in bailout funds, Federal Reserve bond purchasing and interest rate suppression, tax breaks, and watered down rules and regs: the Republicans use to call such government favors “socialism,” or if they were feeling particularly provocative, “communism.”  In fact, the GOP still calls public handouts “socialism, or communism,” when the government provides assistance to the 99%; however, when the House Financial Services Committee affords welfare to the affluent and uber wealthy, well that’s business as usual, or communism by any other name.  One more interesting fact, from 1980 through 2010 (largely a period of Republican rule), Federal outlays per annum have grown from just under a trillion dollars to just under six trillion dollars… a 500% increase.  Meanwhile, the yawning abyss of the GOP created national debt grows ever wider.  Perhaps that’s by design, since the GOP’s banker pals profit immensely from the national debt.

Of course, our Republican packed Supreme Court believes cash equals freedom of speech; and we wonder why the Cartel seems to always get away with an ever growing rap sheet, where another fine – without admission of guilt – is just the cost of doing business.

Republicans like to insist any proposed financial regulation (including an enfeebled Dodd-Frank), be accompanied by cost benefit analysis, showing that the new reform will not have adverse impact upon the banks.  On the surface not a bad concept, but in practice, it’s just another roadblock for badly needed reform.  However, where’s the GOP when it comes to insisting that the publicly traded monopolies, cartels, and M&A activity go through similar cost – benefit rigor?  Arguably, if the government should have to demonstrate the efficacy of proposed rules and regs, why should not monopolies and cartels – given their government granted privilege of minting monopolistic profits (taxes upon the citizenry) in exchange for campaign contributions – have to undergo an annual cost-benefits analysis/review?  Such analysis might be useful in demonstrating that the cartel or monopoly doesn’t work at cross purposes with the public good, soak the consumer, or strangle economic opportunity and nascent recoveries (such is the recent history of Big Oil).

But don’t look for the communists in the House to rein in free-market crushing cartels and monopolies anytime soon; nor will the House slow same down long enough to make them validate and justify their impact upon the United States, via the same financial analysis imposed upon Federal regulators.

As for the capitalist panacea Mr. Buckley so convincingly promised… well, it appears to have stalled.  Upward mobility is more rigid in America than in the land of royalty and aristocracy, Great Britain. 

Thanks to Mr. Buckley and President Reagan, the gangsters who ran the former Soviet Union are all gone now, replaced by a lone KGB operative; but the banksters, who run Amerika, are alive and well, and they demand tribute from Comrade Hensarling’s Committee.

As for myself…   although the Birchers were tempting, like the sophistry afforded by the Tea Party, I passed.  Alas, there is no Mr. Buckley to drive the philistines away from contaminating decency, and polluting common sense and good government; there is no Mr. Buckley to crush failed ideology, ground lockstep Republican Party orthodoxy, and offer up an enlightened moral high ground.

And it is the nation, indeed the world, who suffers for it.

Copyright JM Hamilton Publishing 2013

Dumbed Down Madness: You see, there’s that annoying thing for the GOP, and the plutocracy that pulls it strings, called democracy.

Dumbed Down Madness


“We have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men. “    – George Orwell

By J.M. Hamilton (4-20-12)

Question:    When did the Republican Party begin to advocate “dumbing down” and turning off on higher education?

Answer:   The GOP embraced this concept with the realization that those fortunate enough to enjoy a higher education were fleeing their Party, and migrating to the opposition by a considerable margin.

We get the following from the April 1st New York Times, in a story by Mr. Thomas Edsall, The Politics of Going to College:

“In 1984, those with college and advanced degrees made up 35.3 percent of the electorate. Reagan’s strongest margins were among the college educated, who backed him over Walter F. Mondale by a crushing 62.7-36.9 margin. Among all those with both college and advanced degrees, Reagan won 58.7 percent, a landslide margin.

Jump to 2008. Even though those with college degrees made up 27.9 percent of the population that year, they cast 45 percent of the presidential vote. These voters register and go to the polls in substantially higher numbers than the less well educated.

By 2008, the Republican advantage of the early 1980s among voters with a college degree or higher had disappeared. Barack Obama carried this demographic with 54.1 percent. He beat McCain 50-48 among those with bachelor’s degrees, and by a decisive 58-40 among the 17 percent of the 2008 electorate with post-graduate degrees.”

But the bad news for Republicans doesn’t stop there, women are amassing college degrees and embracing knowledge in greater numbers then men; and as we all know, per recent polls, women favor President Obama, over the presumed Republican nominee, by a double-digit margin.

The Republican Party is, of course, a two trick pony: But President Obama has shown the GOP how to conduct foreign policy and eliminate thugs and villains (with stealth and special forces; and not with Republican favored cost inefficient and amoral defense policies, such as: ready to use standing armies; invasion, occupation, nation building; and redundant budget breaking military departments and weapon systems).  As for the economy (the Republican Party’s second trick – and a really nasty one at that), it is possibly on the mend under a Democratic administration, despite enormous economic and fiscal head winds – see the “PS” below.  With a monopoly constrained economy possibly perking up, the GOP – via Rick Santorum – trotted out the only issues that still divide Americans, forty to fifty year old social issues.  And in the process this regressive may have fired up his base, but he ran off the majority of women voters and gave independents serious pause and second thoughts.  No wonder the GOP, in recent weeks, had done everything in its power to shelve Mr. Santorum’s campaign.

And what did the reactionary Mr. Santorum have up his sleeve next…  the disenfranchisement of women, or perhaps he wanted to bring back the poll tax?

Americans, the educated and uneducated, Republican and Democrat, actually agree on a great deal.  Americans, red and blue, all want a healthy economy, fiscally sound Federal and State governments, good roads and bridges, a responsible military defense, and last but certainly not least, an affordable and decent education for their children and grand children.  And of course, there is America’s love affair with entitlement spending.  To which the astute and wise Barney Frank recently commented in New York Magazine:  “Yeah, they want more from government, but they don’t want to pay for it.”

Today’s Republican leadership isn’t interested in what unites us, however.  No, the GOP, in its present incarnation, is only interested in their core constituency, the one percent; and of course, amassing and maintaining power at your expense, trashing government (via “borrow and spend” policies), taking away private and public benefits and democratic power from the ninety-nine – to be redistributed to the one percent, and maintaining a dysfunctional tax system that benefits their core constituency.  Of course, key to their success is maintaining their base within the ninety-nine percent – you see, there’s that annoying thing for the GOP, and the plutocracy that pulls it strings, called democracy.

The economic ruin created by three decades of Republican Party’s laissez faire ideology – if Japan is any example – will take decades to heal.  But as mentioned in our last editorial, the presumptive GOP nominee, “Mr. Severe,” wants to continue this failed doctrine, so that his buddies in Private Equity can continue to raid and loot businesses and short their tax payments, globally.  Again, at your expense.

To continue their failed policies the GOP will continue to push fear, specious declamation, and disinformation; but in order for this to work it must prey upon an under-educated electorate.  Ipso facto, with educated citizens fleeing the Party in droves, the Republican’s core has become, in some instances:  the cerebrally enfeebled, the frightened, and under educated Americans.  All of which might explain the dearth of fresh ideas, and the uniformity of opinions coming out of the Party.

Of course, going back to the Greeks, the whole premise supporting democracy, as a form of government, is that an educated and informed public will make up the constituency.

No wonder Mr. Santorum, and Mr. Severe, do not want you to enjoy a higher education…. Because, gosh darn it, you just might begin to engage in some critical thinking and analysis on your own, instead of buying into the GOP’s failed fables and fear.

As noted in the aforementioned Times piece:

“President Obama once said he wants everybody in America to go to college. What a snob,” Santorum told a Tea Party meeting in Troy, Mich., on Feb. 25. “I understand why he wants you to go to college. He wants to remake you in his image.”

What both GOP candidates fail to mention at the same time they are trashing higher education is that they themselves, both Messrs. Romney and Santorum, are products of higher education and in possession of rather distinguished degrees.  My guess is neither of these men would have made it quite as far in life without their education; that is to say, neither appears overly gifted with natural talent, mental or physical.  Nor has either candidate mentioned the general but often direct correlation between a higher education and income.

And only somebody with fiscally and morally bankrupt economic and foreign policies would resort to sophistry, and equate education with snobbery.  Those affected by snobbery are everywhere these days, including demagogues, the religiously and socially intolerant, and the under-educated (call it reverse snobbery if you will, but it’s all the same, it stems from pride).

But that’s what today’s Republican Party has become, a toxic, bile filled bag, spewing anger, animosity, and discord (just observe the Senate minority leadership).  For the good of the nation, let’s hope this current brand of GOP leadership stays in the minority.

And the truly sad part in all this?  This nation needs a strong, rationale, and dare I say it – highly educated – Republican Party to keep the Democratic Party’s worst impulses in check.

But for the moment, if you happen to be highly educated – or just like to keep up on current events, engage in learning for your own betterment, or even perhaps like to think for one’s self (shucks, maybe your just curious) – than per the GOP, you are defective, obviously an elitist, and quite possibly a threat to the Republican Party’s hopes to retake the White House.

We should heed well Mr. Santorum’s advice and continue to let him and the plutocracy call the shots, after all look what it has yielded: their enrichment and our enslavement.

(What’s that?  Doubt you’re enslaved?  Look at the never ending rounds of bank bailouts at taxpayer expense – both front and back door; rising gas prices at the pump – when this nation has all but achieved energy independence under the Obama administration; and the declining purchasing power of the dollar.  These are all examples of taxes upon your wallet that you have little or no say over, but must contend with and navigate daily.  But unlike the President, the Congress or the Senate, you can’t vote for the CEO – or the CEO’s pay package – at Goldman Sachs, Exxon, or Citi…not even if you’re a stockholder.)

It is so much better to deny learning, keep your blinders on, and embrace ignorance and bliss, so that you can be more easily exploited by the plutocracy that has hijacked the GOP, and thanks to the Supreme Court, the democratic process itself.

P.S.
 “During times of universal deceit, telling the truth becomes a revolutionary act.”
–      George Orwell

Interesting how yesterday’s toxic assets, CDO’s and MBS, have earned renewed cache from their creators the banks, as well as hedge funds, mutual funds, private equity, and wealthy investors.  The fix must be in… therefore, don’t count on seeing any universally restructured mortgages, debt forgiveness on same, or a spirited economic recovery anytime soon.  This same cadre – populated and managed as often as not by GOP heavy hitters – has done everything in its power to run President Obama out of power, via capital strike, commodity speculation and manipulation (read: inflation), and with a little help from Big Oil, sending gas prices at the pump ever higher. A President Romney would only encourage this group, and embrace the very policies that trashed this nation and Europe in 2008 to the present day. 

Copyright JM Hamilton Publishing 2013

Saturday, August 17, 2013

“How many yachts can you water-ski behind? How much is enough…”

Sorry, Wrong Number!

By J.M. Hamilton (3-26-11)
 
“How many yachts can you water-ski behind?  How much is enough…”
 
-  Charlie Sheen (aka Bud Fox), from the movie, Wall Street

History repeats.  In 1974, the U.S. department of justice saw fit to break up the AT&T monopoly (aka Ma Bell), via an anti-trust law suit, into seven regional holding companies.  The break up did not last.  This week AT&T announced it would buy T-Mobile for a tidy $39 billion, which will essentially create a duopoly in U.S. wireless communications with its sister Bell Company, Verizon.  There will be the usual regulatory scrutiny, perhaps a spin off or two to protect the consumer, and the usual arguments will be made in favor of the merger, like achieving “economies of scale” and “synergy” (read: pink slips).   There will be some chest thumping and grand standing in congress, a little noise, and then in all probability the merger will go through.  

The consumer will not be protected, however, and the costs of the merger will be passed along to the cellular customers in the form of higher monthly fees, poorer service, and less innovation and possible cut backs in R&D.  Management and congressmen, exempted from insider trading laws, will grow richer, and the employees at the combination – those lucky enough to retain their jobs – well, they’ll just have to work a little harder.  

Meanwhile, our government regulatory authorities (Justice, the SEC, and the FTC, Et Al.) will be kept on a very short leash, indeed, starved for funding by their handlers, the plutocracy.  Can one envision a time when this script won’t play out?   Not anytime soon. 

Witness the pending play, rehearsed so many times before, as big oil, in all probability, gets called to take the stand for the umpteenth time before congress to explain why gas prices are soaring.  If called upon, Big Oil, of course, will blame OPEC and trouble in the middle-east, but assure congress that the industry is competitive and properly functioning.   Not to hear Mr. Stephen Schork tell it, on a recent Bloomberg Surveillance broadcast with Messrs. Prewitt and Keene.  Mr. Schork, an expert on energy matters, and an investor and speculator, informs us that 19 of 20 barrels of sweet crude sitting in Cushing are owned by speculators; moreover, thanks to the oil rich shale of Canada, the oil sitting in reserve in Cushing could be replaced six times over.  Per Mr. Schork, the NYMEX futures market is “corrupted.”  As Mr. Keene notes, speculators are moving the price of oil; and therefore, the price at the pump.  It sure wouldn’t be market forces, but what market forces truly exist in an industry dominated by monopoly and cartels?   Meanwhile the consumer will get soaked (not with inexpensive oil, however), and the newly minted nascent recovery, financed and sponsored by the Fed and QE2, will take it on the chin.

So when will the consumer prevail, and corporations fight the urge to merge?  Possibly, maybe someday soon, when the monopolies themselves realize that they are literally financially disemboweling the consumer, world markets, and cutting into one another’s profits; then maybe, monopolies will fully appreciate the instability myopic and unmitigated greed creates.

When gas prices spike, it eliminates consumer discretionary spending that could go into other businesses, or monopolies, goods and services; that is to say, when Exxon Mobil has a record quarter, the AT&T’s of the world suffer because the consumer has less money to spend on cellular services (not to mention the overall drag on the economy, which may compound into recession).  

The extent to which a business (say AT&T) is harmed by the gouging another monopoly  (say Exxon Mobil) executes upon the American consumer, depends upon where AT&T’s goods and services fall within the consumer’s, or market place’s, hierarchy of needs.   Sooner or later business and monopolies, of all shapes and stripes, are not going to appreciate the Wall Street banking cartel and the oil oligarchy taking out the U.S. economy and cutting into their profits.  Of course, many businesses and monopolies, apparently, did not get overly upset that Big Oil price increases set the U.S. economy up for failure, and the Wall Street banking disaster finished the job in 2008, because there’s always world markets to exploit and sell to. 

But a very unfunny thing happened to the “globalization paradigm” in the last thirty days: namely, a quake, a tsunami, and a presently unfolding nuclear disaster, just north of Tokyo – Japan.
This blog, from time to time, has taken a crack at Apple, who many of us love and adore, because of their cool products, and their cultivated anti-establishment – snarky- image.  Apple is perceived to be the anti-Microsoft.   

The reality, however, as this blog has documented, is that Apple utilizes Chinese “labor,” and Japanese manufacturing to mitigate product cost and maximize profit.  In short, Apple is about as establishment as it gets.  Last we read, Apple had north of fifty billion in cash sitting on their balance sheet, courtesy – to some degree –  of the fine purveyors of Chinese labor, Foxconn (see this blog for details).  I bring up Apple, because in many respects Apple symbolizes globalization.  Apple designs and engineers products here in the states, but outsources the manufacturing of product components and product assembly to the Pacific Rim.  And the mark-up on Apple products is extraordinary because of the slave labor involved.  The reality is Apple could manufacture and assemble in the U.S. and still make exceptional profit and returns, albeit less than they are making now.

But now, and this scenario is by no means limited to Apple, we hear there are going to be disruptions in the supply chain for the I-pad, because some components are manufactured in Japan, and the Japanese manufacturing facilities have either been washed away or are uninhabitable due to radiation.   Therefore, Apple cannot meet demand, which might turn off consumers, impatiently, awaiting product, and harm Apple’s bottom line and image.   If and when Apple gets production up to speed, consumers may want to run a Geiger counter over the I-pad to insure its safety, but that would go for all Japanese products, post-crisis.

The bottom line and the lesson on Japan:  Apple and other multi-nationals can no longer take for granted any given market, or country, to produce a revenue stream or a supply of products; and more importantly, it can ill afford to allow other multi-nationals or monopolies to trash a major world economy, like the U.S., as it may need that market again, either as a manufacturing, service, or revenue source.  Good corporate governance and risk management dictates peripheral vision into economic and political areas beyond a corporation’s next quarterly financial statement. 
 
Does the Japanese disaster spell the end of globalization, or put another way, the end of labor, regulatory, and tax arbitrage?  

Not hardly, but it may make monopolies and multi-nationals reconsider their recent disdain for U.S. labor, and more greatly value the relative stability of the U.S. economy (still plugging along at roughly 25% of world GDP).  If nothing else, multi-nationals and monopolies will be forced to hedge, that is Japan illustrates that they can no longer count on the stability of all developed or emerging markets and economies running in tandem all the time, neither as a source of revenue or supply.  Instead, they will have to reconsider America (indeed, all markets), and this means they can no longer  allow their brother monopolies, Banking and Big Oil, to prey upon the American consumer to the detriment of their financial statements, management bonuses and earnings, and their stockholders (not necessarily in that order).

In the near future, we may see a whole new side to the Apple’s of the world.  Instead of passively allowing Wall Street banks and Big Oil to trash the U.S. or world economy, upon which they depend, Apple, or like companies, may actually be on the forefront of advocating real and true bank regulatory reform (the antithesis of Dodd-Frank), and perhaps insist upon the break-up of the Big Oil monopolies, or be a leading advocate for alternative energy development.   All the better to insure plenty of discretionary income and employment for their consumers, and healthy markets for their own products and services. 

An enlightened and wiser Mr. Gecko may have responded to Bud Fox with, “Greed is good,” particularly when greed is channeled for the betterment of society, the American consumer/labor, and corporate bottom lines (they are mutually inclusive).  Mr. Gecko also advised Bud to read Sun Tzu: “Every battle is won, before it is fought.”

FINALLY, Hats off to President Obama for obtaining quick UN and European support for taking out Colonel Khadafy.   Too bad, the Arab League is above the fray.  American interests are being well represented by President Obama.  Even more kudos and accolades will, undoubtedly, be heaped upon Mr. Obama with a quick and early American exit, after the Colonel takes a dirt nap.  President Obama, and his Secretary of State, may very well be showing Americans the benchmark in how foreign policy and the use of force should be conducted.  Too bad his predecessor, President Bush, didn’t conduct our foreign affairs in a similar fashion in Afghanistan and Iraq.

P.S. 8-17-13:  Hats off to the administration for blocking the US Air and American Airlines merger The proposed merger was anti-competitive, anti-free market, and pro-monopoly.  The proposed merger would have killed jobs and management, harmed air travel consumers, hiked up air fares, and further consolidated a cartel in air travel.  This administration has shown guts in blocking some M&A, such as US Air/American and AT&T and T-Mobile; it should do so more often.  In order for capitalism to triumph over monopoly, socialism, and socialism by private proxy, competition must prevail.  Adam Smith wouldn't have it any other way.

Copyright JM Hamilton Publishing 2013

Sunday, August 11, 2013

London Calling



London Calling


“The most effective way to destroy people is to deny and obliterate their own understanding of their history.”  - George Orwell

By J.M. Hamilton (2-3-12)

Let’s face it.  As much as central banks, and their bankers, like to say they’re looking out for the public, their core constituency and the masters they serve are the Banking Cartel.  The Feds mandate is stable prices and maximum employment; but a closer look at the Fed’s policies and its results reveals the opposite has in fact happened, since the crisis in 2008, to the benefit of Wall Street (the 1%) and to the detriment of the public (the 99%). 

And to show you what I mean, the Chancellor of the Exchequer, George Osborne, was making the rounds at Davos and lobbying on behalf of both his country’s interests and the Banking Cartel’s position: namely, the Volcker Rule must be abolished or significantly watered down.  At issue the Volcker Rule requires that U.S. banks not gamble with public/taxpayer money, and the same rule also means that same should no longer hold foreign debt, at least not to gamble with.  (Sovereign debt is no longer what it once was, bulletproof, and in more than an uncomfortable number of European instances as of late, it has become highly speculative.)   Mr. Osborne, or perhaps it’s Sir Osborne, hails from the U.K. and more precisely London. 

London, of course, is where all that is “whack” (please excuse the slang) goes down in world financial affairs. 

“But J.M.,” you reply, “you’re kidding…. Wall Street is the epicenter of all things financial, both catastrophic and magnificent.”  

Not any longer.  And here’s why.

As reported in Bloomberg this week in a piece entitled, Goldman Sachs among Banks Lobbying to Exempt Half the Swaps from Dodd-Frank, penned by Ms. Silla Brush, we learn that the majority of swaps are now transacted overseas, possibly in the hopes of skirting future swaps regulation under Dodd Frank.  And where exactly is “overseas?”  Per Ms. Brush, “New York-based Goldman Sachs’s largest counterparty for credit derivatives on the eve of the credit crisis in June 2008 was Deutsche Bank AG (DB)’s London branch; its third-largest interest-rate derivatives counterparty was JPMorgan’s London branch; and its largest counterparty for currency products was Royal Bank of Scotland Plc’s London branch, according to a 2010 report from the Financial Crisis Inquiry Commission, a U.S. panel that investigated the crisis.”

So London appears to be the prime destination for the derivatives trade, which are rogue insurance products that the American taxpayer reinsures, and the Banking Cartel profits from; that is to say, the banks keep the premiums, and you, Dear Ninety-Nine, pay for the losses when things go bust.  To drive my point on “The City” a little further, please recall it was London that housed Mr. Joseph Cassano and the fabled AIG Financial Products Unit.  This was the unit that was taken down by Goldman Sachs in 2008, and demonstrated to the world what systematic risk truly was… a lesson that we are still learning to this very day. 

It has been rumored and speculated that some of the $1.2 billion in missing MF Global client money has vanished around London environs, quite possible pledged as collateral in Repo transactions.   Repos are the very same accounting transactions that are said to have fooled business partners, lenders, exchanges, and regulators, when both Lehman Brothers and MF Global went down. (Repos can be off balance sheet transactions.)  Repos involve transferring risky assets, for some period of time, off one’s financial statements and sending them quite often to London, where for a fee, the client is given cash or more warmly received/perceived assets. 

Sort of a duplicitous accounting bait and switch…. if you will. 

Depending upon the duration of the transaction, and the maturation date of the instrument, and with proper timing, a Repo may even be posted as sales revenue.

Repos are nasty enough, but what happens next to the collateral in London is altogether insane, because under British law, rules and regs, the collateral can be pledged and re-pledged, used and reused, in a process called Rehypothecation.   Reusing collateral, again and again, is risky enough in good times, but throw into the mix some volatility, add a dash of uncertainty, with equal measures panic and default, and poof, collateral/client money all gone.  Rehypothecation is, conveniently, an off balance sheet transaction.

Ultimately, where I’m going with this is…. U.S. bank regulation in today’s global economy is only as strong as its weakest link.  And the weakest link in the financial world today, the king daddy of systematic risk, and moral hazard, is London.  There’s a reason why so many banks set up shop there, and so many derivative/swaps counterparties operate in London.  It’s called regulatory capture and regulatory arbitrage, or London by any other name. 

If U.S. lawmakers and policymakers want to avoid a repeat of the mother of all financial crises, then pressure must be brought to bear, and applied directly to London’s financial district.  Perhaps the tables should be turned and Mr. Geithner should be lobbying Mr. Osbourne for U.K. banking regulatory reform?

On a historical note, the nickname for London at one time was “Old Smoke,” perhaps the new nickname should be “Old Smoke and Mirrors.”

And going full circle back to the topic of central banks, Mr. Randall Forsyth, of Barron’s Magazine, paraphrased Ms. Stephanie Pomboy this week as stating (he also detected a similar note from Mr. Bill Gross of PIMCO fame):  “…the ‘transmission’ for monetary policy is broken. Easy Fed policy lifts prices but, owing to consumers’ reluctance or inability to borrow, doesn’t translate into spending increases.” 

Which is a nice way of saying Fed policy is great at servicing the Cartel, but the Cartel no longer serves the American public, no, in fact, the Cartel serves, you guessed it, only themselves.  But what else would one expect from an oligopoly?  Ms. Pomboy goes on to note: “That suggests the counter-intuitive conclusion: expansionary monetary policy could be restraining the economy."  I believe what these three wise persons are driving at is that the paltry less than one percent interest the Fed pays out (the Fed can get away with this because the Euro is trashed, and the Fed is monetizing U.S. debt) is providing zero relief for consumers, savers, or the economy, because the banks are not lending the money out…. No Wall Street is either investing in commodities, the stock market, T-Bills, or the carry trade (or in the case of European banks, placing the money back into central banks or sovereign debt).  Meanwhile retirees and savers are not earning a dime in interest income, and are being squeezed hard by fiscal austerity, higher headline inflation, and declining property values.  

Nor are the Fed’s policies exactly good for corporations or multi-nationals, who would like to see: wealthier consumers, an increase in consumer spending, a resulting rise in top line growth, and an increase in profits.

It seems that Wall Street banks don’t want to soil themselves with untidy residential lending, and they have been off loading illiquid and impaired CDOs and MBS onto the Fed’s and the nation’s balance sheets ever since the 2008 crisis began.  The Fed into the breach, once again, to bail out the Cartel, but Mr. and Mrs. John Q. Public will just have to cope.  Of course the near zero percent interest rate the Fed charges banks, also enables the Leviathan to hold illiquid and damaged assets on their financial statements, such as CDOs and MBS.  That is until, the Fed can take it off their hands.

After all with essentially free money, courtesy of the Fed, the banks have no incentive to mark residential mortgages to market, which would spur refinancing, begin the residential housing recovery in earnest, and ignite the economy.

Why oh why would the Cartel want to refinance mortgages and kick start a U.S. economic recovery?  After all, Wall Street banks have a Democratic President they need to run out of office.

But wait, it gets darker, because, as we learned this week, there may be yet another reason why the Fed is keeping interest rates at zero percent.  Both ProPublica and NPR put out a joint piece this week, entitled Freddie Mac Bets Against Homeowners.  (Shucks, it might as well have been titled:  Taxpayer bailed out Institution $cr@ws Americans and the American Dream.) Per the article, it seems as if this GSE has taken out some sophisticated bets, which wager that much of the U.S. residential market will not be refinanced.  Of course, with the GSEs essentially controlling the nation’s residential market portfolio, it’s sort of a guaranteed win.  For Freddie that is.

And the wider the spread between the Fed’s interest rate, and the rates U.S. homeowners pay, the more money Freddie makes off its bet:  “The inverse floaters carry another risk. Freddie gets paid the difference between the high mortgages rates, such as the Silversteins are paying, and a key global interest rate that right now is very low. If that rate rises, Freddie’s profits will fall.”  

Hmmm… sounds like the Fed has yet another reason to keep interest rates low, and that’s so Freddie (and possibly other institutional investors?) can make a killing off inverse floaters, while Americans – the 99% – pray the stuttering nascent economic recovery, this time, is for real.

Isn’t that special?

So just to get this straight, the U.S. economy is being held back – homes are not being refinanced – so that taxpayer funded/taxpayer bailed out/taxpayer owned institution, named Freddie, can make profit from CDOs and the MBS the banks off loaded on to the tax payer at list price; and this same publicly owned institution, Freddie, has wagered/doubled down – through highly leveraged and speculative instruments called inverse floaters – that homeowners and the economy won’t heal, so that they can make a mint. 

Moreover, this is a bet that Freddie controls, as one of the largest suppliers and reinsurers of U.S. residential mortgages.

And who sold Freddie these exotic products?  My educated guess is the Wall Street Cartel.

Meanwhile, the Fed pledged in late January to keep interests rates at their super low values for yet another year.  Seems that the FMOC is worried, terribly worried, about the economy.

Thank you FHFA Director Edward DeMarco!   Thank you Chairman Bernanke! 

Perhaps “Old Smoke and Mirrors” isn’t so slippery after all.

P.S.

 

Mr. Krugman

http://www.nytimes.com/2013/08/09/opinion/krugman-phony-fear-factor.html?partner=rssnyt&emc=rss

 

Ms. Morgenson 

http://www.nytimes.com/2013/08/11/business/the-housing-market-is-still-missing-a-backbone.html?smid=tw-share&pagewanted=print

 

Copyright JM Hamilton Publishing 2013

Saturday, August 3, 2013

The Leviathan is Vertically Integrated


The Leviathan is Vertically Integrated

Why the Fed will keep printing money… at your expense!

By J.M. Hamilton (8-3-13)


“Vertical integration” (VI) in economic and financial parlance is when a company, in a given industry, owns the raw materials, and owns the manufacturing process, distribution, and retail.  Vertical Integration is said to give a company within an industry an economic advantage over it’s competitors; moreover, vertical integration stands up as a business model, as long as vendors in any particular phase of production provide a more costly service, vis a vis, the organization that is vertically integrated.

But enough about VI for now… we’ll get back to that in a second.  J.M.H. over the years has been a Federal Reserve (FED) watcher, and indeed, has written several pieces on the FED.  Among my more recent pieces:

Omnipotent:  In this piece, we point out that the FED has printed trillions upon trillions of dollars out of thin air, because it has a monopoly on the world’s fiat currency.  The primary affect of all this magic, since the 2008 financial crisis, is to bailout the plutocracy, the banks, and support the MIC and the NSA.  The FED also allows, to a very large degree, for our elected officials to act like rogues, campaign 24-7-365, and dispense with the need to govern altogether.  While Omnipotent did not outright say it, it certainly begged the question:  If the FED can print trillions upon trillions to bailout the Leviathan, why cannot it print trillions to bailout the abused middle class,the children born in to poverty, and the destitute and those in need?  Social spending and government support for those in need being but a fraction of welfare for the Leviathan.  My guess is the FED doesn’t print money for the poor, because it might prove that the socialism that works for the elite, also works for the poor and downtrodden, which could rend the entire economic and social structure, and the entire capitalist paradigm.

Chairman Bernanke and Trickle Down Monetary Policy:  Trickle down economics (aka supply side economics) – that is tax cuts for the wealthy, as a means of stimulating the economy – is a failure when the GOP rigs the tax code to favor the plutocracy, at the expense of the 99% (the last 35 years documents both the fallacy and the abuse of a trickle down tax code); but it’s an equally great failure when the FED utilizes trickle down monetary policy (Keynesian monetary policy run through the filter of the Wall Street Cartel), in the hopes of that a rising tide among the rich will aid and assist the middle class and the poor.  Five years later, quantitative easing (QE), and assorted FED props, has mainly papered over a global pandemic of unmitigated banker greed; and Washington, the FED, and the regulatory bodies have not done anything about reforming the cartel, but make the plutocracy richer, more entrenched, and more concentrated and powerful.

As for Addiction of Duplicities, I’ll let a single paragraph within that piece speak for itself, as to why the FED will not be shutting off an ocean of money anytime soon: 

“The Fed has been printing some eighty odd billion a month to purchase T-bills and MBS, and the reasons for this are as multivariate as a rose.  Among them: Fed purchases and balance sheet expansion keeps interest rates suppressed and allows the Wall Street banks and shadow banking to jack up the stock market to new heights (or what this blog has referred to as trickle down monetary policy); it keeps the interest on the national debt low, so that Washington can continue to live beyond its means; it keeps all those adjustable rate mortgages the banks like to sell Americans from being foreclosed upon; it allows the U.S. to export the few products it manufactures overseas at a discount (in the classic “beggar thy neighbor” approach); and of course, there are all those hundreds of billions (notional value) in credit default swaps that are betting on continued Fed interest rate suppression.”

So to recap, we can see from these three articles that the FED – has unlimited power to print money by virtue of it’s monopoly, that the printing of money has mainly served the Wall Street banks and inflated the stock market and asset prices – at the expense of the middle class and poor (who said, “A Crisis is a terrible thing to waste?”), and there are still more reasons why the FED will continue to print money at any extraordinary pace. 

The fact that my arguments have been backed to a large degree by main stream economist, the financial press, and facts we see daily before our eyes, and vice versa, hopefully, further validates the arguments I’m about to make, which is don’t look for the FED to take its foot off the accelerator anytime soon.  Here’s why:

Quite simply the Wall Street cartel, shadow banking and private equity makes billions off the free cash flow the FED provides, albeit in a hyper leveraged and dangerous fashion.  The FED has a dual mandate: maximize employment and price stability.  Chairman Bernanke has all but said that as unemployment declines, and inflation rises, the FED will consider printing less money and will begin cutting back on treasury and MBS purchases.  However, the Leviathan doesn’t want the flood of currency cut off because it makes its money primarily in trading and speculation (the cartel can no longer be bothered lending to the American public or small business, it subcontracts out mortgage lending to the FED and GSEs, via MBS and CDOs; of course, nobody in the private sector will touch these instruments, unless they're guaranteed by the government). 

As a consequence, the Leviathan has no interest in seeing unemployment decline, or inflation rise; and as we all have discovered in the last decade, the cartel very well maybe rigging the system so that unemployment does not drop precipitously, and inflation – or at least CPI - is held in check.  (We also know that Private Equity, the cartel's soul-mate, has had a huge impact on exporting jobs offshore, wage stagnation, and globalization in general.)

This is no mere conspiracy theory, since the Wall Street cartel can withhold loans that grow business or residential and commercial building, often sits on interlocking boards of directors, and is vertically integrated throughout the economy. (In fact, Wall Street and the international banking cartel has undergone sizable layoffs in order to hit their financial targets, and arguably, to keep the flood of FED money coming.)  To learn what our friends have been up to, and just how vertically integrated the cartel is, observe the following:


·      The cartel is under continuing investigation, and has already been fined, for rigging Libor, an interbank lending rate that is based upon fiction, since bank’s no longer trust one another’s financial statements.  The Libor rates impacts billions, indeed trillions, of financial transactions, from adjustable rate mortgages to derivatives and swaps.



·      The Wall Street cartel is presently under investigation for rigging the swaps and derivatives market.  The embodiment of collusion is none other than the International Swaps and Derivatives Association, collusion made legal.  This organization governs an opaque market, worth 100’s of trillions in notional value, and there is not a bank, central bank, or government on the planet that can secure or reinsure this market.  And yet, the instruments of our destruction and malaise, derivatives and swaps, continues to be sold in unregulated markets, and exclusively by their purveyor, the Leviathan.  Derivatives of course, have a very real use in insuring direct counter-parties; however, the vast majority of this market consists of naked shorts, that is to say, pure speculation.  The dance that nearly destroyed the world economy continues.

Those are just some of the activities Wall Street banks have been up to lately; and let's not forget M&A activity, often driven by the Street, that invariably kills jobs through synergy, and allows CEOs to parachute out wealthy.  Despite soaring legal bills, the banks continue to report out record profits.  In fact, the banking industry is one of the largest employers in the United States, and they like it that way.  This, plus mercenary battalions of lobbyist and attorneys and boatloads of cash, allows the banks to make their thoughts and feeling known in Congress and with the regulatory bodies they've captured.  Besides high unemployment not only keeps the FED printing truck loads of currency, but it also keeps wages low and stagnating…. A boon for any major U.S. employer. 


As for vertical integration… well judging from Wall Street bank behavior, the Leviathan has locked a tentacle into nearly every facet of your life, and judging from the near record fines, often nefariously.  From a gamed commodities market to mortgage rates and derivatives contracts that are all rigged by Libor, to ripping off their clients, and interest rate suppression by the world’s central banks: Why an American would have to be very naïve to believe that the manner in which Wall Street banks behave daily isn’t impacting American business, investors, and the 99%, and in particular, their wallets and employment prospects.  Many of these banking activities are a direct and unseen tax upon your life.  

Perhaps inadvertantly, the FED has created a perverse incentive for banks, shadow banking, and private equity - and the businesses they collectively own and operate - not to hire American.  As such - isn't it time for the FED to take away this incentive?

Truly, the Leviathan is vertically integrated.  It has a tentacle in nearly every aspect of your life, from the cradle to the grave; if it could charge interest and fees on your prayers, and sell derivative bets on your prospects for heaven and hell, it would do so. 

Give them time.  

In the meantime, the only measure of the FED's success is the stock market, otherwise QE has been a failure.  Perhaps it's time to stop measuring the FED's success by a benchmark that favors so few; but that assumes the FED is independent from the Leviathan's mechanization.


Mr. Summers personifies my belief, oft stated in these pages, that we live in a one party state, where both parties have been captured by the plutocracy, and the government is merely there to do the plutocracy's bidding, at the expense of the 99%.  Many of us look forward to being convinced otherwise.

Copyright JM Hamilton Publishing 2013