SW Richmond

The Coming Consequences of Banking Fraud

Excellent, Mr. Kim, I have nothing to add. Thank you so much for putting this together.

Will the Market Crash?

'Actually, even under the previous "mark to market" rule, commercial banks were allowed to mark assets that they were allegedly keeping "for investment" and "not for sale" to imaginary values.

This was a huge hole in the rules, through which a great deal of mischief was wrought.'


Everyone's gonna hate me for this, but this situation is an inescapable consequence of fractional reserve banking. Leverage is how bubbles are blown. Asset values can only be so grossly inflated over such a short time frame (a few years) where credit is being created out of thin air. Fractional-reserve acolytes say that it's not fraud, since the 'loan' is balanced on the books by the value of the 'asset', yet anyone can clearly see how, when lending stops, asset values fall to more realistic levels. This is the reason for the Fed's obsession to 'reignite lending'. Reinflating asset prices via phony leveraged credit is the only way to make the banks look solvent.

FDIC is out of money, and Sheila Bair is quaking in her panties. I apologize for the visual.

The phrase 'reignite lending' means the same thing as 'reblow the bubble.' Reblow the bubble or bye bye banks. Re-leveraging our way out of a de-leveraging has always worked for the Fed in the past. This time the systemic losses ($4 Trillion) are just too great.

The only way to keep the system inflated is with newly printed FRN's. Now that Bernanke has failed to extend QE, that program will end in September. The markets are already interpreting that as a withdrawal of liquidity, and thus the next leg down.

www.youtube.com/watch?...

Wall Street Breakfast: Must-Know News

Difficult to imagine that the President of the New York Fed knew nothing about the Lewis/Bernanke/Paulson pressure, terms of the deal, etc. I think we need to empanel a Grand Jury and invite these criminals to either take the fifth, narc on one another, or invoke some imaginary privilege.

Paulson: "Executive Privilege / National Security"
Bernanke: "Trade Secrets"
Lewis: "I'm the Fall Guy"
Geithner: "My software at the Fed didn't tell me what to do."


On Apr 24 12:35 PM Cetin Hakimoglu wrote:

> Maybe he knew nothing. Maybe this finger pointing is unjustified.
>

Wall Street Breakfast: Must-Know News

Next question: TurboTax Timmy was president of the New York Fed during the time in question. What did he know, and when did he know it?

Wall Street Breakfast: Must-Know News

"...talks between Bank of America and the Fed and Treasury..."

Yes they were "talking", but after Lewis asked for something in writing they also told Lewis that they didn't want to create a "discloseable event". Given this testimony from Lewis under oath and the discussed desire for non-disclosure of the information to shareholders, this activity seems to rise from "talks" to the level of "conspiracy."

Grand Jury, please.

Massive Bank Shareholder Dilution Ahead

More:

delong.typepad.com/sdj...

"Silvio Gesell and Stamped Money: Another Thing Fisher and Wicksell Knew that Modern Economists Have Forgotten"

The article includes an extended quote about Gesell written by my favorite person from all of history (gag), Keynes:

"[H]e had carried his theory far enough to lead him to a practical recommendation, which may carry with it the essence of what is needed... the prime necessity is to reduce the money-rate of interest, and this, he pointed out, can be effected by causing money to incur carrying-costs just like other stocks of barren goods. This led him to the famous prescription of 'stamped' money, with which his name is chiefly associated and which has received the blessing of Professor Irving Fisher.... [C]urrency...would only retain their value by being stamped each month, like an insurance card, with stamps purchased at a post office. The cost of the stamps... should be roughly equal to the excess of the money-rate of interest (apart from the stamps) over the marginal efficiency of capital corresponding to a rate of new investment compatible with full employment. The actual charge suggested by Gesell was 1 per mil. per week, equivalent to 5.2 per cent per annum.... The idea behind stamped money is sound..."


This is just another illustration of the fact that monetarists view money only as a medium of exchange, but NOT as a store of value. That is the reason why they advocate printing "to replace money that been lost from the system" and continue to assert that this printing is not a destructive act.

Massive Bank Shareholder Dilution Ahead

Mr. Shaw,

I'm glad the information is of use to you. It is extremely scary stuff, made even scarier by the matter-of-fact manner in which it is proposed by adherents. This willingness to do anything imaginable and many things unimaginable is why I have been, and remain, firmly in the inflation / currency destruction camp.

Massive Bank Shareholder Dilution Ahead

There's this too:

www.nytimes.com/2009/0...

"Economic View

It May Be Time for the Fed to Go Negative
By N. GREGORY MANKIW
Published: April 18, 2009"

Massive Bank Shareholder Dilution Ahead

Mr Shaw,

Proposed, never implemented. Wired Magazine - Cash and the Carry Tax.

www.wired.com/politics...

Massive Bank Shareholder Dilution Ahead

"We’ve been saying for several months that we are in a government policy driven market, and an environment of high uncertainty with sudden and arbitrary rules changes — hardly the conditions for the faint of heart or financially conservative to be engaged in risk taking."

Risk taking indeed. This Fed is trying to force money into risk. I avoid the markets for this and many other reasons, such as hot-money volatility.

Your thoughts on negative interest rates are also very very timely. One of the proposed responses to deflation in an earlier era was a "cash tax", in which money velocity was forced higher by turning cash into a hot potato which had to be returned to a federal bank every so often to be date-stamped. If the date had expired, the bank was to seize the cash and give you back less as punishment for not spending it.

This Fed will ruthlessly pursue inflation. Many will point out that all the policies thus far instituted have failed to cause inflation. We ain't done yet.

The Road to Economic Hell

plumstupid wrote:

"Until and unless people begin acting responsibly, and that's to say without indifference, there must be an agreed upon set of behaviors."

Until we stop protecting people from the consequences of their own irresponsible acts, people will act irresponsibly. In fact, by subsidizing irresponsible behavior, we guarantee a never-ending supply of it.

The Road to Economic Hell

mac.barron:
"For the anti-Obamaites the best hope might be that the government keeps overreaching. Eventually, when things deteriorate enough, huge federal debt and lack of tax revenue will literally force a huge reduction in government funded corporate welfare AND entitlement programs for those addicted to the system."

In my darker moments I indulge this fantasy. The delusions of socialist grandeur are too great for the dems to ignore, and I believe they are accelerating the day of judgment for USD. There is no money for any of this foolishness, certainly not for national health care, but they're going ahead with it anyway because they have the house, senate and white house. Sometimes I am genuinely not sure if resistance is warranted, since their current efforts actually hasten the arrival of reality.

For what it's worth, I opposed Bush all along the path, to no avail. Sometimes it's tempting to simply stand aside and watch, when you know they won't listen to you anyway, when you're not rich enough to compete with big money lobbyists, and when you know that your only chance to regain lost liberty and reform the corrupt system will be during a systemic breakdown that could just as easily "go the wrong way". There will be a critical period when these things will be decided.

U.S. Debt Watch: Paths to Repudiation

The debt situation is the only one that anyone interested in fundamentals need pay attention to. Thanks for the article.

constructe,

I believe the reason there has been no commitment to any "plan" is because no actual solution exists. As soon as any "plan" is committed to by DC, the markets will pick it apart and tank. The only play for DC is to keep hope alive by continuing to act like they're working up a good plan. The markets are tiring of this, yet it remains the only play for DC.

There is no good plan. There isn't enough real capital in the world to save us. The author correctly points out that there are many paths to default and they need not be exclusive. He also correctly points out that the creditors will be "making most of the concessions", as in "taking the haircuts", as in "seeing their capital destroyed."

This is precisely why physical assets trump paper assets in this environment. Holding paper assets makes you a creditor.

Bond Expert: Monday Outlook

"One would think that demand for the safety of government debt should increase as the discussions are more than a tacit admission that Citibank is insolvent."

Market recognition of USD dilution threat?

Why Friday Was Such a Critical Day for Bank Stocks

I have some strong sentiments regarding JPM due to its derivative book, which I urge all of you to examine as closely as you can. Even at "estimated" 85% netting, $87 Trillion is nothing to sneeze at.

pdf warning:
www.occ.treas.gov/ftp/...