by ilene - November 1st, 2010 7:48 pm
Courtesy of Ellen Brown, at Web of Debt
China may be as heavily in debt as we are. It just has a different way of keeping its books — which makes a high-profile political ad sponsored by Citizens Against Government Waste, a fiscally conservative think tank, particularly ironic. Set in a lecture hall in China in 2030, the controversial ad shows a Chinese professor lecturing on the fall of empires: Greece, Rome, Great Britain, the United States . . . .
"They all make the same mistakes," he says. "Turning their backs on the principles that made them great. America tried to spend and tax itself out of a great recession. Enormous so-called stimulus spending, massive changes to health care, government takeover of private industries, and crushing debt."
Of course, he says, because the Chinese owned the debt, they are now masters of the Americans. The students laugh. The ad concludes, "You can change the future. You have to."
James Fallows, writing in the Atlantic, remarks:
“The ad has the Chinese official saying that America collapsed because, in the midst of a recession, it relied on (a) government stimulus spending, (b) big changes in its health care systems, and (c) public intervention in major industries — all of which of course, have been crucial parts of China’s (successful) anti-recession policy.”
That is one anomaly. Another is that China has managed to keep its debt remarkably low despite decades of massive government spending. According to the IMF, China’s cumulative gross debt is only about 22% of 2010 GDP, compared to a U.S. gross debt that is 94% of 2010 GDP.
What is China’s secret? According to financial commentator Jim Jubak, it may just be “creative accounting” — the sort of accounting for which Wall Street is notorious, in which debts are swept off the books and turned into “assets.” China is able to pull this off because it does not owe its debts to foreign creditors. The banks doing the funding are state-owned, and the state can write off its own debts.
“China has a history of taking debt off its books and burying it, which should prompt us to poke and prod its numbers. If we go back to the last time China cooked the national books big time, during the Asian currency
by ilene - October 18th, 2010 1:23 pm
Courtesy of The Pragmatic Capitalist
Chris Whalen of Institutional Risk Analytics provided some recent clarity on the foreclosure crisis and its impact on the banking sector. Whalen believes the foreclosure crisis merely proves that the credit crisis never ended and that the government “bought time” for the banks. That time is now running out and the banks simply do not have the capital, the earnings or the capability to absorb the losses in the pipeline from the continuing foreclosures. Ultimately, Whalen believes restructurings are likely to occur in 2011 as the U.S. government is finally forced to deal with the banking sector as it should have in 2009.
For more from Chris Whalen see his recent must see presentation at AEI.
by ilene - October 16th, 2010 12:54 am
Here’s another great article on the frauds at the heart of the mortgage and banking sectors. – Ilene
Courtesy of Charles Hugh Smith, Of Two Minds
The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.
Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.
There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.
The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.
But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.
Could anything be sweeter for the big banks? No.
The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.
One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the "enforcer" which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.
by ilene - September 2nd, 2010 12:46 am
Courtesy of The Pragmatic Capitalist
My position over the last 2 years has been as follows: this is a Main Street debt crisis. I have been highly critical of the government’s incessant interventionist policies over the last few years largely because they ignore the actual problems at hand. First it was Mr. Bernanke saving the banks because he believed the credit crisis started with the banking sector. The great monetarist gaffe ensued. Tim Geithner piled on with the PPIP. FASB jumped on board the bank rescue plan by altering the accounting rules. And then the icing on the cake was the Recovery Act, which, in my opinion, just shoveled money into the hole that had become the output gap, without actually trying to target the real cause of the crisis – those burdened by the debt. In essence, the various bailouts primarily targeted everyone except the people who really needed it.
A year ago I posted a story citing the many reasons why we were sinking into the deflationary Japanese trap. The primary flaw with the US response to the crisis was that we never actually confronted the problem at hand. I have often cited Japanese economists such as Richard Koo who appear to have a good grasp on the problems in Japan and now in the USA. In this case, I cited Keiichiro Kobayashi who is now looking most prescient:
We continue to ignore our past and the warnings from those who have dealt with similar financial crises. Keiichiro Kobayashi, Senior Fellow at the Research Institute of Economy, Trade and Industry is the latest economist with an in-depth understanding of Japan, who says the U.S. and U.K. are making all the same mistakes:
debtis the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the “painkilling” effect wears off, US and European economies will plunge back into crisis. The crisis won’t be over until the nonperforming assets are off the balance sheets of US and European banks.”
Read that last paragraph again. These are scarily accurate comments. While the USA claims to have many economists who understand the Japan disease and/or the Great Depression the policy actions we’ve undertaken do not appear to be in line with any understanding of this history.
by ilene - April 14th, 2010 11:51 pm
Courtesy of The Pragmatic Capitalist
Famed investor George Soros is calling for a break-up of the banking oligopoly in the United States. His recent comments were made in reference to the big four U.S. banks that have come to dominate the banking sector. CitiGroup, Bank of America, JP Morgan and Wells Fargo now dominate the overwhelming majority of the U.S. bank market.
As regular readers know, I believe this oligopoly is part of the problem and that Ben Bernanke has likely increased the potential risks in the U.S. economy by further consolidating the sector. Perhaps most important, however, is the risks these four banks (and all banks for that matter) are allowed to take. Soros is in favor of the Volcker Rule which would segregate deposits from a bank’s risk taking operations such as hedge funds and prop trading. This appears like a no-brainer after what we just experienced, but unfortunately, with consolidated banking came consolidated lobbyists and that’s a recipe for even further power over Congress. The likelihood of the Volcker Rule passing is close to nothing at this point.
Soros has made a career out of being right. I am guessing he’ll be right again about the U.S.
Read the full story at BusinessWeek.
Picture credit: Jr. Deputy Accountant
by ilene - January 21st, 2010 2:24 pm
Courtesy of John Carney at Clusterstock/The Business Insider
At the heart of Obama’s new regulatory proposal is the ‘Volcker Rule.’
Named for Paul Volcker, the new rule would bar banks from owning or investing in or sponsoring hedge funds, private equity funds or proprietary trading operations. It’s still not clear how far this goes but a complete bar on investing in hedge funds or p.e. could be a serious blow to alternative investments.
Was Obama overstating his case? Or will redemptions from banks have to begin as soon as the rule takes effect?
Here’s the full quote from Obama’s speech:
It’s for these reasons that I’m proposing a simple and common-sense reform, which we’re calling the "Volcker Rule" — after this tall guy behind me. Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.
by ilene - January 21st, 2010 1:13 pm
Pragcap turns more bearish in the face of proposed rules for reforming Wall Street. My highlights. – Ilene
Courtesy of The Pragmatic Capitalist
- President Obama isn’t taking the Scott Brown victory lightly. He has just announced some stunning measures to curb bank risk taking. The news is taking Wall Street (myself included) by surprise as stocks tank on the news. The measures appear to be an early move back towards the Glass-Steagall Act. Specifically, Obama said no banks will own hedge funds or private equity funds. The details are few at this time, but that is stunning, must sell stock news. We continue to believe the secular bear market is with us, and such policy action creates a sense of uncertainty that is simply staggering. I would use strength in the coming days and weeks of earnings season to reduce risk until some of these clouds clear. Stocks cannot and will not rise substantially when the government appears to be on the attack against Wall Street and that appears to be the only response from the White House after the Brown win. While this is likely a very positive measure in the long-run, it has the potential to cause a great deal of near-term volatility. The combination of uncertainty in the Eurozone, China’s liquidity restraints, and this new policy reform in the United States creates a three pronged reason to avoid owning stocks in the near-term. While I hate to sell into downturns it’s best to take the meager gains since the beginning of the year and look for a better entry point. Uncertainty is a markets worst friend and there is a growing abundance.
- Earnings continue to come in quite robust. Goldman Sachs crushed analysts estimates and Ebay reported a solid quarter last night. Unlike previous quarters, investors are largely ignoring the earnings
seasonas the above three macro themes dominate the headlines. A continuing concern is a lack of strong revenue growth. Corporations are still largely relying on cost cuts to generate their better than expected earnings growth.
- This morning’s data is compounding matters. Jobless claims spiked to 482K vs expectations of 440K and the Philly Fed surprised to the downside. A Labor Department analyst