Fraud and Complicity Are Now the Lifeblood of the Status Quo (Banality of Financial Evil, Part 2)
The status quo would collapse were systemic fraud and complicity banished. Rather than the acts of evil conspirators, they have become the foundation of the U.S. economy and financial system.
Though fraud and complicity are presented in the mainstream media as isolated conspiracies outside the status quo, the truth is that the status quo is now entirely dependent on fraud and complicity for its very survival. Every level of the status quo would immediately implode were fraud and complicity suddenly withdrawn from the system.
How is this true? let me count the ways.
1. The mortgage market. As I reported recently in this Daily Finance story, the private market for mortgage-backed securities is dead. Now that we all understand the entire mortgage is not just riddled with fraud and misrepresentation of risk, but it is entirely dependent on fraud and misrepresentation of risk to function, no one is willing to touch any of this debt--except if it is guaranteed by the Federal government (and thus by its taxpayers).
Now that the systemic fraud and misrepresentation of risk have been exposed, the $10 trillion mortgage market has ceased to function except as a dumping ground where private players can dump 100% of their losses on the taxpayers (profits were privatized, losses are socialized).
2. Foreclosures and our Banana Republic system of "law". There are two sets of laws (and two sets of books) in status quo America: one set of laws for "too big to fail" banks and Wall Street, and one for the rest of us peons.
3. Housing and commercial real estate (CRE). Does anyone seriously think housing is recovering from organic demand? Does anyone seriously think housing wouldn’t fall off a cliff if the Central State withdrew its collusive propping-up of the real estate market?
The financialized American economy and Central State are now totally dependent on a steady flow of lies and propaganda for their very survival. Were the truth told, the status quo would collapse in a foul, rotten heap.
Google’s famous "don’t be evil" is reversed in the American Central State and financial "industry": be evil, because everyone else is evil, too. In other words, lying, fraud, embezzlement, mispresentation of risk, material misrepresentation of facts, the cloaking of truth with half-truths, the replacement of statements of fact with propaganda and spin: these are not the work of a scattered handful of sociopaths: they represent the very essence and heart of the entire status quo.
Hannah Arendt coined the phrase the banality of evil to capture the essence of the Nazi regime in Germany: doing evil wasn’t abnormal, it was normal. Doing evil wasn’t an outlier of sociopaths, it was the everyday "job" of millions of people, Nazi Party members or not.
Not naming evil is the key to normalizing evil. Evil must first and foremost be derealized (a key concept in the Survival+ critique), detached from our realization and awareness by naming it something innocuous.
Normalization of the unthinkable comes easily when money, status, power, and jobs are at stake…. Intellectuals will be dredged up to justify their (actions). The rationalizations are hoary with age: government knows best, ours is a strictly defensive effort, or, if it wasn’t me somebody else would do it. There is also the retreat to ignorance, real, cultivated, or feigned.
Can any of the tens of thousands of people working on Wall Street or in the bowels of the Federal Reserve, Treasury, Pentagon, etc. truthfully claim they "didn’t know it was wrong" to mislead the citizenry, the soldiers, the investors and the buyers of their fraud? On the contrary, every one of those tens of thousands of worker bees and managers knows full well the institution they toil for is doing evil simply by hiding the truth of its operations.
The entire status quo of the American Empire is built on lies. Now the dependence on lies, fraud and misrepresentaion is complete; Wall…
Bloomberg reports this morning that Treasury is gently letting the Volcker Rule (limiting proprietary trading for big banks) slip — Secretary Geithner would grant greater discretion to regulators which, in today’s context, most likely means not make the restriction effective.
This step is consistent with the broader assessment of the Volcker Rules that Peter Boone and I have in The New Republic (print and on-line): the underlying principles are sound, but the Rules have not been well-designed, and top people in the administration show little sign of wanting to make them effective. This dimension of financial reform does not appear to be headed anywhere meaningful – and the main issues (bank size, capital, and derivatives) are not yet seriously on the table.
In the recent Senate Banking hearings on the Volcker Rules, John Reed – former head of Citibank – was adamant that the Volcker Rules made sense and could be made to work. His point is that the executives know who is taking risk with the bank’s balance sheet – it’s a well-defined group within any bank with its own (speculative) culture – and this should be discontinued for banks that are in any sense too big to fail.
You really do not want high octane speculators at the heart of this country’s largest banks. Make banking boring, Reed argues with conviction.
The first priority of Central Bankers in any crisis is to buy time by any method available. By now, it should be perfectly clear that Central Bankers are willing to unconstitutionally usurp authority in an effort to buy that time.
Hussman: "The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner’s actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.
Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve."
Fed Uncertainty Principle
Long before that, and even before such blatant abuses occurred, I predicted such happenings in the Fed Uncertainty Principle, written April 3, 2008.
Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
Ironically, after being lied to for years by the likes of Bernanke and the BOE, the Central Bankers act shocked at proposals like "Audit The Fed".
With that backdrop, let’s now look at shenanigans, lies, and manipulations by the Bank of England.
Bank of England Props Up RBS, HBOS at Height of Crisis
We’ve just interviewed Janet Tavakoli for our first episode of The Keiser Report. If you don’t know her, you should. She wrote a fantastic book, Dear Mr. Buffett. Max and I are on our second read of it. You really must get this book if you want to understand derivatives from one of the foremost experts on it who writes in plain English about how these financial tools became instruments for widespread fraud that then led to financial crisis. She also gives loads of positive advice and insight.
Here is a summary she provided for MaxKeiser.com on where she thinks we are today two years since the crisis began:
"Regarding the outlook, my analysis is grim. I am not a doomsayer, I follow the cash, and so far, I’ve been correct, and the government has been wrong. Here’s the situation. We are at greater risk of a total meltdown due to a deflationary collapse than we were in 2007. After the greatest Ponzi scheme in the history of the capital markets, we’ve seen history’s greatest fiscal and monetary expansion, but it hasn’t worked. Debt levels of consumers and business exceed the capacity to repay."
Travakoli makes six points about deflation. I concur with all of them. Here are three of them.
Our fundamental financial and economic problems, i.e. overleveraging, lack of transparency, have not been solved.
Since 2008, capacity utilization has plummeted; businesses have no pricing power; U.S. lost 6.7 million jobs but numbers are underreported; personal income tax receipts are down 21%; corporate tax receipts are down 58%; U.S. deficit will exceed $1.8 trillion; govt. spending is now 185% of tax receipts; 13% of mortgages are seriously delinquent and/or in foreclosure; huge decrease in personal net worth; 15 million mortgages exceed the home value. We’re on a massive debt spending spree.
Income on all levels is not sufficient to make debt payments.
Inquiring minds will certainly want to play the videos where she also addresses the role of derivatives.
Janet Tavakoli Part 1
Janet Tavakoli Part 2
By the way, the reason we are worse off than in 2007 is…
It seems a given now that the U.S. dollar is doomed to either slow depreciation or devaluation. Perhaps--but the consensus seems too easy. Yes, money supply and liquidity have exploded as the Fed and Treasury fight deflation, and yes, history suggests expanding the money supply debases the currency.
That the dollar has been debased is clear enough if we measure the dollar’s value in gold. Priced in gold, the dollar has lost over 2/3 of its value in a mere decade. Courtesy of contributor Harun I., here is a chart of gold:
Where it took less than $300 to buy an ounce of gold in 2001, it now costs about $1,000. Thus the dollar has lost 70% of its purchasing power when priced in gold.
Correspondent Jim S. observed that this depreciation has been a trend for the entire 20th century:
At the barbershop, the barber asked me if the dollar was at risk of failing. The dollar is not at risk of being wiped out, IT ALREADY HAS BEEN WIPED OUT, and the world is moving on. From 1789 to 1912, the dollar appreciated a full 11%. From 1912 to 2001, it has lost 95% of its value under the fractional reserve banking system of the Fed Reserve, massively overleveraged further since the inventive application of credit derivatives since the ‘90s.
In 2001, a dollar index of $1.2 (as charted by the Dollar Index) existed and now it is at about .76. This recent drop results in a dollar loss greater than 95% from the 1912 value. The dollar HAS been destroyed in the proper historical perspective!
A world-wide move underway, recognizing that the dollar is now unsustainable as a reserve currency, to a new form of reserve currency/currencies, will take some time, and, our dollar will remain as the reserve currency for a while as something new emerges. Regional currencies may evolve in the meantime: Yuan? AMERO? EURO? A worldwide, single, unified currency is too utopian for applicability.
Regional currencies have yet to be proved sustainable either. We are in limbo with a sinking dollar. Geopolitical instability of increasing scope, including at least cultural and resource wars, are in the offing before anything gets settled. Remember the ‘100 years war’?
Indeed, debased currencies and the evaporation of…
The Treasury, responding to the growing pain in the commercial real-estate industry, released new tax rules that make it easier for distressed property owners to restructure loans that were packaged by Wall Street firms and sold as securities.
Most in the real-estate industry, which lobbied intensely for the move, applauded the action. But some warned it has opened a Pandora’s box, especially for servicers of the securities who will likely come under new pressure from borrowers and competing classes of investors.
The move is the first round of "additional guidance" the Treasury is weighing to stave off what many fear will be a commercial real-estate crisis, according to people familiar with the matter.
But some investors holding CMBS bonds are watching nervously because loan modifications, known as "mods," mightn’t always be in their best interest. CMBS have junior and senior pieces, and the senior holders may be in a better position, when a borrower defaults, to foreclose and liquidate the property rather than modify the loan. Junior holders, on the other hand, might benefit from a mod because they mightn’t get their money back in a forced sale.
"The biggest concern is that the guidance could open the floodgate for everyone to try to get some sort of loan modifications," said Aaron Bryson, a CMBS analyst at Barclays Capital. "There is a tremendous burden on the servicers to uphold their end of the bargain."
The move by the Treasury reflects the deep concern in government and industry circles over the problems looming in the $6.5 trillion market for commercial real estate. Just as the U.S. economy is struggling to regain its footing, defaults are mounting because of credit-market turmoil, along with declining property cash flows and plunging property values.
Previously, because of tax laws, servicers would not modify terms unless someone fell behind on payments. Now, many who can afford to pay will seek relief. As a result, servicers will have a more difficult time of deciding who is solvent and who is not, and what the right thing to do in picking winners and losers between junior and senior holders.
That the Treasury has to change such rules on the fly shows their
Remember that we were told when AIG (and the banks) were bailed out that "the taxpayer is unlikely to lose any money, and may even make a profit." Bernanke said this, Hank Paulson of Treasury said this, indeed, it was the mantra of the administration.
It was also untrue:
The prospects of recovery of capital and a return on the equity investment to the taxpayer ARE HIGHLY SPECULATIVE.
Crossed out by hand. The final presentation of this to The American People was missing this key disclosure.
The FDIC has repeatedly stressed that "nobody has ever lost a penny of insured deposits", to wit:
Finally, Mr. Evans’ suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC. This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments.
I am confident in the strength of the FDIC’s resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will.
Note that bolded text.
See, this is the second lie. Yes, the FDIC is required to follow the "least cost resolution" process, but what’s being left out is that the FDIC (along with OTS and OCC) are also required to follow "Prompt Corrective Action" which serves as a means of preventing losses from happening in the first place.
Yet the history of this crisis proves without a doubt that "Prompt Corrective Action" has been resoundingly, repeatedly and intentionally ignored.
The FDIC’s SACRED PLEDGE required it to demand that Prompt Corrective Action be followed and accurate MARKS be
As we said, we would be taking a closer look behind the headline GDP numbers recently released. The advantage of procrastination is that eventually a capable person will chart up the data which you have been studying. So thank you to ContraryInvestor for his excellent charts. His site is among the best, and we read it regularly.
The big story is the collapse of the US consumer, unprecedented since WW II, and possibly the Great Depression. This is apparent in the numbers despite the epic restatement of GDP having just been done by the BLS in their benchmark revisions.
If the Fed and Treasury were not actively monetizing everything in sight, we would certainly be seeing a more pronounced deflation as prices fall WITH demand. And if they continue, we may very well feel a touch of the lash of that hyperinflation that John Williams is predicting. We still think a stiff stagflation is more likely, but are allowing that the Fed and Treasury may indeed be ‘just that dumb enough’ to trigger something less probable.
Until the consumer returns to some semblance of health, there will be no sustained recovery. It really is that simple.
The Fed will have to stop artificially draining credit supply by paying such a high rate of interest on reserves. They know this. It will stimulate lending, even to less worthy borrowers. But this is not a cure. It is one of the paths to more inflation, fresh asset bubbles, and the devaluation of the dollar. And ‘stimulus’ handouts are no better. Healthcare reform is a step in the right direction. The US consumer pays far too much for the same (or less) level of care in most of the developed nations. But that is not enough.
The cure will be to increase the median wage, and to stop the transfer of the national income to fewer and fewer hands. For that is how the system is set up today. It is not the result of ‘free markets’ but a sustained transfer of wealth through regulatory and tax policies, and a pernicious corruption of the nation most significantly starting in 1980, although a case has been made for 1913.
It is an ironic echo that our current over-his-head badly advised President seeks…
It’s quite interesting indeed when both progressives and conservatives seem to be nostalgic for those good ol’ days in the 1950s, for different reasons, of course. Conservatives want to go back to the nuclear Leave It to Beaver family and what not while liberals like to talk about those 90-percent tax rates that we owe our prosperity to. Or something like that. We’ll focus on the latter for the time being.
With the "inmates running the asylum" during a holiday-shortened trading week, the upward bias to the market is set to continue. However, as I addressed last week:
"As we progress through the last two months of the year, historical tendencies suggest a bias to the upside. This is particularly the case given the weakness this past summer which has left many mutual and hedge funds trailing their benchmarks. The need to play 'catch-up' will likely create a push into larger capitalization stocks as portfolios are 'window dressed' for year end reporting.
This traditional 'Santa Claus' rally, however, does not guara...
A second day for bulls to shine despite modest end-of-day gains. Some indices did better than others. The Russell 2000 was the key performer. It finished with a MACD trigger 'buy' and looks ready to outperform the Nasdaq 100. This is an important development for bulls looking for more from other indices. A move to challenge - then break - its 200-day MA, would convert August-November action into a healthy basing action.
The Nasdaq registered higher volume accumulation as a brief sojourn below the 20-day MA was reversed. It's nicely set up for a push to new swing highs.
Some weeks when I write this article there is little new to talk about from the prior week. It’s always the Fed, global QE, China growth, election chatter, oil prices, etc. And then there are times like this in which there is so much happening that I don’t know where to start. Of course, the biggest market-moving news came the weekend before last when Paris was put face-to-face with the depths of human depravity and savagery. And yet the stock market responded with its best week of the year. As a result, the key issues dominating the front page and election chatter have moved from the economy and jobs to national security and a real war (rather than police ...
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I've decided to build our startup - Veritaseum, a peer-to-peer financial services platform, directly on top of the Bitcoin Blockchain. Many queried why I would voluntarily give up a lucrative advisory and consulting business to chase virtual coins in cyberspace. That's exactly why I decided to do it. That level of misunderstanding of what is essentially the second coming of the Internet gave me a fundamental advantage over those who had deeper connections, more capital and more firepower. I was the first mover advantage holder.
You see, Bitcoin is not about coins, currency or price pops. It is a massive computing net...
1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:
The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
I think this is the beginning of the end for the company.
My price target for the stock a year from now is $3, so I shorted more yes...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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