Having Failed, The Federal Reserve does Charity!

Having Failed, The Federal Reserve does Charity!

BOSTON — Economists do not tend to be social activists. And that is especially true if they work for the Federal Reserve, let alone run one of its 12 regional banks.  - NY Times 1-20-14 - The Boston Fed's Latest Role, Community Organizer


By J.M. Hamilton ( 1-25-14)

It’s an interesting dichotomy.  On one hand we have the financial elite in Davos Switzerland stating that 2014 will be yet another banner year for stocks and the Wall Street cartel; and on the other hand, Main Street knows that 2014 will be yet another sub-par year – this will make six consecutive sub-par years -  for business fundamentals, top line business growth, and a struggling economy, stuck in “nascent recovery mode.”

At the root of this riddle wrapped in a paradox stands the Federal Reserve, who’s unprecedented bond and MBS buying, and balance sheet expansion, has mainly helped the scoundrels who put the country into its current predicament.  Namely, the Wall Street cartel, shadow banking, private equity, and of course politicians too, of both political parties, have benefited immensely by the Fed’s Quantitative Easing (QE).  For politicians, QE allows them to dispense with the need to govern altogether, and allows for 24/7/365 fund raising and campaigning.  Heh, if the Fed is going to print money to pay the nation’s bills, and keep the bond vigilantes at bay, what’s a politician to do, but party!

One private equity executive called the manna/liquidity raining down from the Fed to be “biblical.” 

The Federal Reserve has “bazookaed” $85 billion dollars a month into the banks, and in a brazen act of propriety recently cut that amount to $75 billion.  In doing QE, the Fed pumped the stock market back to life, financed a Wall Street raid on any and all speculative commodities and currencies not nailed to the floor, as well as, allowed the international banking cartel to continue to grow and expand the uncollateralized derivatives and swaps market that brought the world to its current predicament (the derivatives market is little more than a ticking time bomb of despair, consisting of what Mr. Warren Buffett once referred to as financial weapons of mass destruction).   

All of the Fed’s actions have made the rich richer, and the poor poorer. 

Why? 

Quite simply, the Fed gives away free money to the Cartel with no strings, caveats or conditions attached (e.g. X% of Fed largess will be lent out to the public, or will go to refinance or forgive debt on underwater mortgages).  How simple this would be, and yet, the Fed has failed to back quid pro quo demands on the Cartel, since the crisis began.

The Fed likes to pay lip service to its mandate however, which is maximum employment and price stability; but the Fed’s true master is the Cartel, who owns the politicians, who in turn dutifully appoint and approve the Fed Chairperson of the Cartel's choosing, presently Ms. Yellen.  Ms. Yellen is one of the key authors of the Fed’s unprecedented actions, and is keenly aware that her policies have not helped the vast majority of Americans.  Indeed, her policies have harmed them.  Unconvincingly – like Messrs. Bernanke and Geithner before her-  Ms. Yellen tells those who will listen that the Fed’s ongoing bailout of Wall Street banks was really done to help Main Street.

This blog correctly called Ms. Yellen’s handy-work, “trickle down monetary policy.”  We know this to be true because Ms. Yellen basically calls it the same, as quoted in the New York Times, we get the following:

In her confirmation testimony, Ms. Yellen stressed that the Fed’s extraordinary measures were bolstering growth, even if the pace of the economy’s expansion had been frustratingly sluggish at times. She also said that the Fed’s policies had helped not only Wall Street, but Main Street.

The bank’s stimulus campaign has “made a meaningful contribution to economic growth,” Ms. Yellen said. “The ripple effects go through the economy and bring benefits to, I would say, all Americans.”

Ripple effects(?)... try getting a loan at the bank with "ripple effects" as collateral.

This blog also noted, in a piece entitled, The Leviathan is Vertically Integrated, that the Fed has created a perverse incentive for Davos' attendees, captains of industry, and assorted masters and mistresses of the universe, not to hire Americans.  That is, as long as employment remains high, the Fed will keep pumping money into the Wall Street cartel and hence, the stock market.  So Wall Street, Shadow Banking and Private Equity, vertically integrated throughout the economy, has an incentive not to hire, so as to keep Fed largess flowing.  There's a catch, however.  As the pool of Americans seeking employment shrinks, because many have given up looking, the rate of unemployment – despite a lack of hiring – naturally declines anyway, all other variables being equal.   So now the Fed must come up with a new reason to continue its ongoing gift to the plutocracy, this new reason falling under the guise of “price stability” is called “deflation.”  

Yes, the threat of deflation may be the new reason that the fire hose of liquidity remains cranked full throttle.  The reality is that anyone who buys gas, food at the grocery store, or pays for their children’s college tuition, knows that the only thing that is deflating is the dollar’s purchasing power.  The cost of everything else is going through the roof, or simply does not respond to the laws of supply and demand, with much of the world economy now dominated by monopolies and oligopolies.  It's just one more way the American public is being "scrod" by Fed policy, it's called inflation.

Another irony in all this is that the party in power, the Democratic Party, is also an unintended – or perhaps intended – beneficiary of Fed policy.  We know this to be so, since American workers who remain unemployed are often dependent upon the state for care and basic needs.   

And who is the unemployed's champion, and who are the unemployed likely to vote for?  Through no fault of the unemployed, that would be conveniently enough, the Democratic Party.

So now, not only do we have the elite, and the Wall Street cartel perversely cheering for higher unemployment – so that the Fed keeps the printing presses smoking - but the more folks who are unemployed and wards of the state directly benefits the political party who controls the White House and the U.S. Senate, the Democratic Party.   

Conspiracy theory, random event, unintended consequence, or just the facts Ma'am(?)… who’s to say.  With the GOP increasingly out of touch, and rapidly becoming a fringe political movement incapable of winning a national election, clearly more and more voters are turning to the Democratic Party, with their hopes, their dreams, and for their daily bread.  Democracy abhors a vacuum.  (Full disclosure, J.M.H. was a life long Republican, until the complete debacle occurred that was the Bush (W) administration; it was then, that I switched over to the Democratic Party, starting in 2008.  Unfortunately, when it comes to the executive branch, I believe, we clearly live in a one party state.  Witness President Obama's adoption, and enhancement, of many of the previous administration's unconstitutional policies.)

And the final twist in this story…. The final insult to injury…. The Fed now has turned to charity, in the hopes of atoning for Fed Policy.  One of the greatest champions of recent Fed Policy is now working with businesses to gather funds to help those in need.   

Sounds like the Fed has a guilty conscience.

If the Fed really wanted to help Americans, the American economy, and drive top line growth and business fundamentals, it would loan money directly into the hands of American homeowners (at the same record low interest rates afforded banks), and not just those who are underwater or upside down on their mortgages, but anyone allowing the Fed to take a perfected interest in their home equity (to assure Fed repayment).  That’s right, the Fed could help Americans pay down their mortgages, or right side underwater mortgages, which the Cartel, Freddie and Fannie have repeatedly refused to do.  If the Fed were to give homeowners a hand up, this would give American homeowners more discretionary income, drive greater spending throughout the economy and aggregate demand, and turn our perennial “nascent recovery” into a full blown economic miracle.  The Fed is already financing the American housing market by purchasing billions in MBS monthly, from the Cartel. 

Pre-crisis MBS became known as post-crisis "toxic assets."  It wasn't until the Fed began buying toxic assets that they became known simply as MBS (mortgage backed securities), once again.

This proposal would merely cut out the middleman, the Wall Street cartel.  This proposal would allow the Fed to take an interest in an appreciating asset, home recovery prices, instead of the Fed owning a depreciating asset in a rising interest rate environment, MBS (some of which are locked in at record low interest rates).

I'm sure brighter folks than J.M.H. have thought of this solution... but such a proposal runs counter to the interests of the plutocracy and the Cartel, and the few who profit from a majority encumbered by debt.

The U.S. economic engine of growth is the American consumer.   Americans are not looking for Fed charity, but rather, a hand up (and JOBS)... not dissimilar to the hand up afforded to the plutocracy for the last five to six years.

Copyright JM Hamilton Publishing 2014

The Last of the Neocons…?

The Last of the Neocons…?

“I never doubted Obama’s support for the troops, only his support for their mission,” Gates writes.

By J.M. Hamilton (1-12-14)

Before Mr. Gates, and his new book, Duty, becomes a footnote in history, we should take a moment to recognize the hubris surrounding a passing tribe of faux-warriors, known as the neocons.  They have not gone gently into that good night, and arguably have helped bankrupt the nation in two pointless nation building exercises, during the last decade:  Iraq and Afghanistan.  With thousands of U.S. war dead, and trillions in U.S. dollars wasted, the neocons still believe that America should rule the world, and that there is no problem on earth that can’t be solved with a predator drone, by spying on America and the world, or an amphibious assault.  The neocon thought process can be best characterized as:  shoot and spy first, and think of an exit strategy later, but only after a long and costly nation building exercise fails, yet again. 

It appears completely lost on neocons, the ability to learn from history and prior failed nation building exercises, such as Vietnam.  Then again, the neocon – wrapped in the flag and patriotic language – really aren’t about spreading democracy, freedom and liberation, or even protecting America; but rather, I am absolutely convinced, many of this tribe are more interested in seeing the stock value of the defense industry, like Halliburton, soar. 

Why else would they have to lie, repeatedly, to drag this country into war, again and again.

I’ve always had a special empathy for the men and women who serve this country; the demographics on the enlisted ranks would undoubtedly show that many of our troops come from very humble means and beginnings, much like my father.  My dad joined the U.S.A.F.’ enlisted ranks, as America entered into Vietnam.  It was his way of avoiding the draft, by joining the branch of the military least likely to see combat.  He rose up through the enlisted ranks, obtained a college degree through the GI bill, went to officers training school, and rose up through the officer ranks all over again, obtaining the rank of colonel before retiring.  That Wisconsin farm boy did all right for himself.  Always very frugal and generally good with investments, he died a paper millionaire in 2001, at the age of 58.  Dad, of Prussian patrimony, dressed up well in public and on the base, but in private, was a little high strung.  I guess thirty-five years of active duty service – during the height of the cold-war - will put an edge on just about any soldier. 

Former Secretary of Defense, Mr. Gates, was often portrayed as the model of civility, but in his new book he explodes and rages at President Obama for his failure to believe in the war in Afghanistan, and in particular, the parade of cheerleaders for that war, known at the joint chiefs and the respective heads of command for those two wars.  Seems that President Obama has read his history, and apparently knows that dealing with a highly corrupt regime in Afghanistan, in a narco-terrorist state, is going to end very badly for America.  Afghanistan is known as the graveyard of empires, just ask the British, or more recently, the Russians.

Living under my dad’s command for the first 21 years of my life, like many military brats, I felt like – to a far lesser degree - I served, too.  For while I remember many aspects of my childhood fondly, underneath the veneer of the American dream was some dysfunction… not unlike the military industrial and intelligence complex (MIIC) today.  The MIIC, and our intelligence community, with redundant branches, redundant weapons systems and departments, billions in cost over runs, outdated weapons systems geared for the last war, and always conveniently dubious accounting, consumes half the Federal budget’s discretionary spending.  In fact, at their height, the wars in Iraq and Afghanistan grew so expensive that their budget went offline or outside the U.S. Federal budget. (Note: The Pentagon has not been audited accurately in two decades.)

And if a President Romney had had his way, like the locusts in private equity, the MIIC budget would have consumed even more.

Fortunately for the men and women who serve, and all Americans, neocons, like Mr. Gates, and an adventurist foreign policy, much like the dinosaur, seems to be a passing thing.  Liz Cheney and her recent political campaign provides us with another example.  Like her famous father, Ms. Cheney campaigned in the Wyoming U.S. Senate race, among other things, for greater military spending, more failed nation building, and unlike her famous father - trashed her lesbian-sister; and then, quietly withdrew this week from her race, now that the writing was on the wall.  Her campaign was doomed.

Ms. Cheney, Mr. Gates, nor the neocons, however, never mentioned the direct counterpoint to their guns and butter trade off: which is the U.S. spends more than the G-20 combined on defense and intel, and one in four U.S. children are born into poverty.  And the nation is fed up and war weary.  Neocons also conveniently, fail to mention that the only thing that is keeping this country afloat, and her creditors at bay, is the Federal Reserve, which has been printing $85 billion a month (to pay for the MIC and the NSA, and so as to cover the costs of our nation’s debt service load).  Fortunately, the lessons Mr. Gates and the neocons taught us have been hammered home, and at least for another generation, it looks like we’ll follow the admonishment of President Washington in his farewell address to the nation: Beware of foreign entanglements.

Far greater lessons, however, are also on full display.  The first being that war is big business.  Ask private equity’s Carlyle group, who has a large financial interest in making sure that the NSA continues to spy on Americans.  To insure that America stays on a war footing, and the American government continues to operate in private equity’s interests, that of raping and pillaging the American dream, PE is now buying out the military brass, and apparently, the U.S. government.  The second lesson is that the U.S. acts as the world’s policeman, not to protect America, but to protect trade routes and multi-national’s economic interests throughout the world.  Ask former German President, Horst Kohler.  If the MIIC was really about protecting America and her borders, it could do so on a far smaller budget than it presently consumes, but that wouldn’t prove profitable to Halliburton, Carlyle, and McDonnell Douglas, et al.

And the third and final lesson is that until the costs of war, nation building, and policing the world, are spread among it’s true beneficiaries, U.S. citizens will find themselves drawn into endless conflicts.  Until Sovereign nations – often oil rich monarchies, and multi-nationals – many of whom have made record profits, recently, and have mountains of cash on their balance sheets – pay for war, instead of U.S. taxpayers, than there will always be cheerleaders and neocons advocating for war.  Those cheerleaders will often be: the MIIC itself; politicians – many of whom have never seen combat; sovereign nations- with nothing at stake; and commercial interests- who often make it part of their fiduciary responsibility to avoid paying taxes.

The irony in all this... is that most neocons hail from the party of Reagan and Eisenhower.  Mr. Reagan who defeated the Soviet Union w/out ever firing a shot in anger, and President Eisenhower, who originally warned the nation about the MIIC.

President Obama, to his credit, is not buying what the cheerleaders, Mr. Gates and the neocons, are selling, and has not engaged the U.S. militarily in the world’s latest debacle, Syria.  Perhaps the lessons America has learned over time will stick?  And the nation will listen to another Founding father’s admonishment: 

"Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few."

 - President Madison

But who am I kidding, jingoist and war profiteers will always be around.  For as Plato was said to observe, “Only the dead have seen the end of war.”

Copyright JM Hamilton Publishing 2014

The Revolving Door Spins for Private Equity

The Revolving Door Spins for Private Equity

“Happy New Year”

By J.M. Hamilton (1-4-14)

What could motivate General Alexander, the present head of the NSA, to defend spying on U.S. citizens for no good reason?  The results of this spying are said to be highly questionable at best, and have now been all but declared unconstitutional by one or more Federal Judges.  A key motivating factor may be that the General is preparing to retire this Spring, and almost certainly a very financially rewarding private sector career awaits him.

Seventy percent of NSA activity is farmed out to the private sector, much of it to Booz Allen - Mr. Snowden's former employer - which is owned by private equity's Carlyle Group.  Clearly, Carlyle has a vested interest in maintaining the NSA spy apparatus that has done so much damage to U.S. world standing, and many multi-nationals global income statements.  

If I was a betting man, I'd wager that Mr. Alexander is on his way to highly lucrative career at the Carlyle Group, or one of it's subsidiaries, as a rich reward for defending the spy agency - and the billions in private sector contracts the NSA throws off.

Of course, in the last Presidential election much was made of Candidate Romney's ties to private equity, and attacks from candidates from both political parties were almost sanguinary -and quite outspoken- about the industry.  It's been written that up to fifty percent of the bankruptcies that occurred on the heals of the 2008 financial crisis were directly attributable to the highly leveraged balance sheets, caused by current or prior private equity ownership.  Private equity is notorious for leveraging up companies -to pay PE executives rich rewards- and laying off workers as a means to pay down said debt; PE undoubtedly is a proponent of tax, labor, and regulatory arbitrage wearing the mask of "free trade agreements," and is a huge driver in globalization/outsourcing, both of which have a debilitating impact upon U.S. job creation and further inflame decades long U. S. wage stagnation.  Private Equity enjoys numerous tax advantages not the least of which is carried interest - which is subsidized by the remnants of the U.S. middle-class, who pay at a much higher tax rate.

General Alexander would not be the first high profile government employee, who ran directly into the arms of private equity, post-government career.  Several former U.S. Treasury Secretaries either worked for, directly or indirectly, Private Equity firms, prior to or after leaving their treasury post.  Former Treasury Secretary Geithner is just the most recent example.  It's interesting to note that rather joining the banking industry many of the nation's recent former Treasury Secretaries instead found their way to private equity (PE).  Is it a surprise?  Certainly many of Mr. Geithner's policies at Treasury, from TARP - et al. to advocacy of the Fed's quantitative easing and interest rate suppression, directly benefited PE, immensely.

The debilitating impact the PE industry has on businesses and their viability, the labor force, the economy, and even the government.... Seems completely lost on many government officials.  Many of whom hit the turnstile running for the quick riches that await on the other side, most often riches produced at the expense of the nation and her people.  Democrat or Republican, none are immune to PE's siren song; and since the election both parties have gone completely silent on the topic and the many issues surrounding PE.

Can PE and its highly deleterious impact upon the economy be reined in?  

Absolutely.  

For starters carried interest, and associated PE tax dodges should be eliminated, so the American taxpayer does not continue to subsidize an industry that operates at cross purposes with society's interests.  The amount of debt that take over targets could be saddled with, so that companies are better able to withstand the next inevitable recession w/out going bankrupt, could be capped as a ratio of total assets, or by some measure of ability to service debt load.  The capping of debt might set limits on PE executive payouts but the trade off is a financially healthier company able to withstand economic shocks, and preserve jobs and the tax base.  The government could also set caps on shipping jobs offshore, globalization, and outsourcing, as a means to pay down the highly leveraged debt.  And finally, the Sherman Antitrust Act could and should be enforced to curtail the formation of, and encourage the break up of existing, monopolies and cartels that are often a result of private equity, and banking cartel, driven M&A activity, combinations, and bankruptcies.  Monopolies and cartels -created by private equity - kill jobs, harm the tax base, crush innovation, are anti-consumer, make monopolistic profits that are a hidden tax on society, and curtail greatly stock and alternative investment opportunities as a result of eliminating competition.

Meanwhile, while the nation suffers in year five of the Great Recession, one private equity executive referred to the earnings and refinancing afforded to the PE industry as "biblical."

Liberals often receive a bum rap for being anti-business or allegedly, being against free markets; but assuredly, there is nothing pro-business or pro-free market about private equity created bankruptcies, or monopolies and cartels. 

The recent trend towards democratic populism in our society is not driven by a demand for egalitarian outcomes but rather, it is driven by society's need for egalitarian opportunities.  Private Equity, in its present incarnation, crushes opportunity.  In short, private equity and crony capitalism must be reined in so as to not reward an elite few, but instead create opportunity and rising wages for all, including the elite few.

Even under reined in circumstances, the rich would continue to grow richer, but PE's impact upon society, government, the economy and opportunity would be muted.  And that's a good thing.

Republicans were correct to attack private equity in the last election; however, the problems created by PE did not simply vanish because the election cycle ended.  Instead, they are alive and well and staring down the nation.

Copyright JM Hamilton Publishing 2014