Bernanke’s Head Fake Sends Stocks Soaring

Fed chairman Ben Bernanke shocked the world on Wednesday when he announced there would be no change in the Fed’s $85 billion-per-month asset purchase program dubbed QE. The announcement sparked a buying frenzy on Wall Street where all three major indices shot to record highs. The Dow Jones Industrial Average (DJIA) climbed 146 points to 15,676 while the S & P 500 logged another 38 points to 1,725 on the day. Bonds and gold also rallied big on the news with the yield on the benchmark 10-year US Treasury dipping sharply to 2.69 percent (from 2.85 percent the day before) while gold rose more than 4.1 percent to $1,364. The US dollar was hammered savagely on the news, dropping to a seven-month low against a basket of major currencies. According to Reuters, the buck “saw its biggest one-day slide in more than two months” and “has fallen to levels not seen since well before Fed Chief Ben Bernanke first floated the idea of reducing the stimulus in May.”

Bernanke attempted to justify his reversal (some are calling it a “head fake”) on continuing weakness in the economy, particularly high unemployment and tightening in the financial markets. He also implied he was worried about the possibility of a government shutdown and the impact that would have on the anemic recovery.

While Bernanke presented a rational defense for his pet program, he was not convincing. The truth is, the Princeton professor is out on a limb and doesn’t know how to get down. That’s why he didn’t trim his bond buying by even a measly $5 billion per month, because he’s afraid the announcement would trigger a selloff that would unravel his $2.8 trillion reflation effort. So he decided to stand pat and do nothing.

But standing pat is not a long-term option, eventually the Fed will have to end the program and wind down its balance sheet. Investors know this, which is why Thursday’s giddiness quickly morphed into somber reflection and head scratching on Friday. Everyone wants to know “what’s next”, especially since QE’s impact is diminishing, financial markets are getting frothy, and improvements in the economy are marginal at best. Can the Fed really inflate its balance sheet by another 1 or $2 trillion hoping that the economy picks up in the meantime, or will Bernanke simply call it quits and let the chips fall where they may? Who really knows? This is the problem with unconventional policies; it’s impossible to predict the downside risks because they’re, well, unconventional, and haven’t been thoroughly tested before.

In the case of QE, we can see now that Bernanke forged ahead without developing a coherent exit strategy. That’s a big no-no; you never want to paint yourself into a corner especially when trillions of dollars and the stability of the financial system are at stake. But that’s where Bernanke finds himself today four years after embarking on a policy path that has boosted corporate profits to all-time highs, widened income inequality to levels not seen since the Gilded Age, and pushed Dow Jones Industrial Average up by 146% since its March 2009 low.

And that’s what made QE such an irresistible policy, because the upside rewards were so great. QE created a vehicle for transferring incalculable wealth to the investor class while concealing its real purpose behind public relations blather about lowering unemployment and strengthening the recovery.

As we have pointed out before in this column, QE has no effect on unemployment. The swapping of Treasuries for bank reserves does not create a transmission mechanism for increasing demand that leads to additional hiring. As Lee Adler of the Wall Street Examiner says:

“Job growth has not accelerated as a response to the flood of money printing…The growth rates were actually stronger before the Fed started pumping money into the economy in November when it settled its first MBS purchases in QE3…Money printing works to inflate asset prices, but it does nothing to stimulate job growth…

House prices and stock prices have inflated, thanks to too many dollars chasing too few assets. But job growth has been slow–steady, but slow, growing at slightly above the rate of population growth…..” (“Here’s How BLS Data Proves QE Has Had Zero Effect As Jobs Growth Plods Along”, Wall Street Examiner)

QE does not lower long-term interest rates either, in fact, long-term rates have edged higher during QE1, QE2 and now QE3. (Presently, rates are a full percentage point above what they were when the program was first announced on 13 September 2012) Similarly, rates should fall again when Bernanke finally settles on an exit strategy and stock holders pile back into Treasuries acknowledging the feeble state of the economy. Long-term yields will fall because the demand for funds remains weak. When the demand for money is weak, the price of money decreases which means that rates fall. It’s another sign that we are in a Depression. Now check this out from Reuters:

“Since the bottom of the recession just over four years ago, commercial bank loans and leases have grown 4.0 percent, one of the weakest post-recession recoveries in terms of borrowing since the 1960s, according to Paul Kasriel, the former chief economist of Northern Trust Company. For comparison, over the same period after the July 1990-March 1991 recession, loans and leases grew over four times faster…..” (“Time to taper? Not if you look at bank loans”, Reuters)

Once again, credit expansion is weak, because the economy is still on the ropes.

Consumers and households aren’t borrowing because they are still deleveraging from the big bust of ’08 that wiped out their home equity and a good part of their retirement savings. They’re not borrowing because their wages have stagnated and their income is falling. Also, they’re not borrowing because they’ve lost confidence in the institutions which they used to think were governed by regulations and the rule of law. They know now that that’s not how things work, so they have become more cautious in their spending.

QE doesn’t even increase inflation which is why the Fed is still unable to hit its target rate of 2 percent. The fact that inflation has stayed so low (The Consumer Price Index was up just 0.1% in August) while stock prices have more than doubled at the same time, proves that Bernanke’s nearly $3 trillion in liquidity has not “trickled down” to the real economy at all. The injections have merely boosted profits on inflated asset prices for financial parasites and speculators.

Even hedge fund managers like Duquesne Capital’s Stanley Druckenmiller are now willing to admit that QE is a farce. Here’s what Druckenmiller said in an interview with CNBC following Bernanke’s announcement on Wednesday:

“This is fantastic for every rich person. This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”

Indeed, while the dwindling middle class faces deeper budget cuts and tattered safety net programs, the rich have never had it so good. And much of the credit goes to Ben Bernanke and his bond buying program, QE.

As economist Anthony Randazzo of the Reason Foundation wrote last year QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality.” (“Druckenmiller: Fed robbing poor to pay rich”, CNBC)

Government-Organized Crime

In government, failure is success. That’s what I call DiLorenzo’s First Law of Government. When the welfare state bureaucracy fails to reduce poverty, it is rewarded with more tax dollars and more responsibilities. When the government schools fail to educate children, they are rewarded with more tax dollars and more power to meddle in education. When NASA blows up a space shuttle, it is rewarded with a large budget increase (unlike a private airline which would probably go bankrupt). And when the Fed caused the worst depression since the Great Depression in 2007, it was rewarded with a vast expansion of its powers.

DiLorenzo’s Second Law of Government is that politicians will rarely, if ever, assume responsibility for any of the problems that they cause with bad policies. No one group in society is more irresponsible than politicians. There are a few exceptions, but in general they will always blame capitalism for our economic problems even when capitalism is not even the economic system that we live under (economic fascism or crony capitalism would be more accurate). Nothing is more irresponsible than knowingly destroying what’s left of our engine of economic growth with more and more governmental central planning, even if it is given the laughable name of “public interest regulation.”

DiLorenzo’s Third Law of Government is that, with few exceptions, politicians are habitual liars. The so-called “watchdog media” is more appropriately labeled the “lapdog media,” for pointing out the lies of politicians is the best way to end one’s career as a journalist. Do this, and your sources of information will cut you off.

One of the biggest governmental lies is that financial markets are unregulated and in dire need of more central planning by government. Laissez-faire is said to have caused the “Great Recession.” Fed bureaucrats have lobbied for some kind of Super Regulatory Authority to supposedly remedy this problem. This is all a lie because according to one of the Fed’s own publications (“The Federal Reserve System: Purposes and Functions”), the Fed already has “supervisory and regulatory authority” over the following partial list of activities: bank holding companies, state-chartered banks, foreign branches of member banks, edge and agreement corporations, U.S. state-licensed bank branches, agencies and representative offices of foreign banks, nonbanking activities of foreign banks, national banks, savings banks, nonbank subsidiaries of bank holding companies, thrift holding companies, financial reporting procedures of banks, accounting policies of banks, business “continuity” in case of economic emergencies, consumer protection laws, securities dealings of banks, information technology used by banks, foreign investment by banks, foreign lending by banks, branch banking, bank mergers and acquisitions, who may own a bank, capital “adequacy standards,” extensions of credit for the purchase of securities, equal opportunity lending, mortgage disclosure information, reserve requirements, electronic funds transfers, interbank liabilities, Community Reinvestment Act sub-prime lending “demands,” all international banking operations, consumer leasing, privacy of consumer financial information, payments on demand deposits, “fair credit” reporting, transactions between member banks and their affiliates, truth in lending, and truth in savings.

In addition, the Fed also engages in legalized price fixing of interest rates and creates price inflation and boom-and-bust cycles with its “open market operations.” In addition, financial markets are just as heavily regulated by the Securities and Exchange Commission, Comptroller of the Currency, Office of Thrift Supervision, and dozens of state government regulatory agencies. All of this is the Washington, D.C. definition of “laissez-faire” in financial markets.

DiLorenzo’s Fourth Law of Government is that politicians will only take the advice of their legions of academic advisors if the advice promises to increase the state’s power, wealth, and influence even if the politicians know that the advice is bad for the rest of society. The academics happily play along with this corrupt game because it also increases their notoriety and wealth. A glaring example of this phenomenon is the fact that, in the aftermath of the onset of the “Great Recession” there was almost no discussion at all by government officials, the media, or op-ed writers about the vast literature of economics that documents the gross failures of government regulation over the past century to promote “the public interest.”

There has always been some kind of government regulation of economic activity in America, but the federal regulatory state got its first big boost with an 1877 Supreme Court case known as Munn v. Illinois. The two Munn brothers owned a grain storage business and the powerful farm lobby in their state wanted to essentially steal their property by having the state legislature impose price ceilings on grain storage. Such laws had previously been ruled unconstitutional as a violation of the Contract Clause of the U.S. Constitution. But the plunder-seeking farmers prevailed, and it was hailed by statists everywhere as a victory for “the public interest.” Thus, the very first major example of “public interest regulation” was unequivocally an act of legal plunder that benefited a very narrow special interest at the expense of the public, which would have benefited more from a free market.

Either because of ignorance or corruption (or both), the statist academics of the time sang the “public interest” tune with regards to regulation, creating the myth that markets always “fail” and that the remedy is benevolent and wise government regulation in the public interest. The academics did this despite the fact that there was glaring evidence all around them that regulation was always and everywhere a special-interest phenomenon, as indeed almost all governmental activity is.

As historian Gabriel Kolko wrote in his 1963 book, The Triumph of Conservatism, big business in the early twentieth century sought government regulation because the regulation “was invariably controlled by leaders of the regulated industry, and directed toward ends they deemed acceptable or desirable.” Government regulation has generally served to further the very economic interests that are being regulated. Chicago School economists labeled this phenomenon the “capture theory of regulation.”

Most academic economists, seduced by the prestige, employment, and money that came from being governmental advisors, ignored all of this reality and instead spent roughly fifty years—from the pre-World War I years to the 1960s—inventing myriad factually emptytheories of “market failure.” A popular book at the time was entitled Anatomy of Market Failure, by Francis Bator. This literature was (and is) based on the fraudulent technique of comparing real-world markets to an unobtainable, theoretical, Utopian ideal (“perfect competition”) and then condemning the real world for being “imperfect,” all the whileassuming that the politics of government regulation would perfectly “correct” these imperfections. Economist Harold Demsetz labeled this charade “the Nirvana Fallacy.” Comparing real-world markets to “Nirvana” will always cause one to conclude that markets are “imperfect” by comparison. The market failure theorists never once compared government to Nirvana to subject interventionism to the same criteria. The Austrian School of economics is the only school of thought within the economics profession that never participated in this farce.

To its credit, the Chicago School of economics joined with the Austrians in exposing many of the market failure/regulation—is-always-good fallacies. Hundreds of journal articles and books were published that rediscovered the old truth that “as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit,” as Nobel laureate George Stigler wrote in 1971.

This kind of research was expanded over the years to show that large corporations often support and lobby for onerous government “safety” and environmental regulations because they understand that the regulations will be so costly to enforce that they will likely bankrupt their smaller competitors while deterring others from entering the market in the first place. Businesses long ago discovered that the only way to have a long-lasting cartel is to have the cartel agreement enforced by the government. Privately-enforced cartels always break down because of cheating by the cartel members. The railroad and trucking industries were cartelized by the federal Interstate Commerce Commission (ICC) for many decades, for example. The ICC set monopolistic prices in these industries and prohibited genuine competition. The Civil Aeronautics Board (CAB) cartelized the airline industry by prohibiting price competition until it was deregulated in the late 1970s. There was vigorous competition in the electric power industry in the U.S. until it was ended by government regulation in the early twentieth century by the creation of monopoly franchises by state and local governments. AT&T enjoyed a government-sanctioned monopoly for many decades as well.

During the period of history when government-sanctioned monopoly was increasingly the norm, the Fed was created to facilitate the creation of a banking industry cartel. As Murray Rothbard wrote in A History of Money and Banking in the United States,

the financial elites of this country … were responsible for putting through the Federal Reserve System, as a govemmentally created and sanctioned cartel device to enable the nation’s banks to inflate the money supply … without suffering quick retribution from depositors or note holders demanding cash.

In other words, giving the Fed more regulatory authority is not unlike giving an alcoholic another bottle of whisky, a murderer another gun, or a bank robber a ski mask. It is bound to make things worse, not better.

Source:  Thomas J. DiLorenzo  |  Excerpt from the book:   

Washington Thinks You Are Stupid

There’s the old saying that if the government fears the people, there is liberty, but if the people fear the government there is tyranny. The criminals in Washington not only do not fear us, they do not respect us. Washington looks upon Americans as stupid sheeple.

Washington believes that it can tell the population anything and the people will believe it. For example, the official line is that the recession that began in December 2007 ended in June 2009. Many Americans believe this even thought they have not personally experienced economic recovery. Indeed, they are sinking further into poverty and near poverty.

And don’t forget those nonexistent weapons of mass destruction that Saddam Hussein was alleged by Washington to possess. Or the Gulf of Tonkin fake event when Washington claimed that its warship was attacked by North Vietnam. Really, the list of official lies is very long. Anyone who believes anything that Washington says is too naive to be let out of the house alone. But Americans believe the lies, because that is what they think patriotism requires.

Relying on the proven gullibility of the bulk of the US population, Washington claims to have uncovered an al Qaeda plot to attack US embassies across North Africa and the Middle East. To foil the plot, Washington closed 19 embassies for the past week-end and for this week also.

Washington has not explained how closing the embassies foils the plot. If al Qaeda wants to blow up the embassies, it can blow them up whether they are open or closed.

If al Qaeda wants to kill the embassy personnel, they can kill them at home or on the way to work or later in the embassies when the alert passes.

I only check in with the presstitute media in order to ascertain whether my current estimate of their prostitution for Washington is accurate. Possibly I missed some expression of skepticism about the latest terrorist threat. But I did hear NPR’s account. Back in the Reagan years, NPR was an independent voice. Today it is part of the presstitute media. NPR lies for Washington with the best of them.

The US media has ignored the obvious fact that as soon as the American population, Congress, and Washington’s puppet allies, such as Germany, made an issue over the NSA’s clearly unconstitutional and totally illegal universal spying, the Obama regime pushed the Fear Button and hyped a new terror plot in order to shut up critics and bring Congress and Germany back in line.

Washington proclaimed that a “threat” was discovered that al Qaeda–an organization that Washington is using in Washington’s effort to overthrow the Assad government in Syria and one that is enriched by US military contracts to affiliated groups in Afghanistan–was going to blow up US embassies in the Middle East and North Africa. Washington did not explain why al Qaeda, a recipient of Washington’s largess, was going to turn off the money spigot by attacking US embassies.

I am surprised that bombs haven’t been set off in the embassies in order to prove the value of the National Stasi Agency’s spying, thereby shaming those in Congress and among the puppet states in Europe who object to the spying.

Once you give a moment’s thought to Washington’s claim, you see that Washington is proving its impotence by hyping such non-existent threats. Officially, the US has been at war with al Qaeda since October 7, 2001. The “superpower” has been battling a few thousand lightly armed al Qaeda for almost 12 years, and what is the result?

Despite Washington’s claims to have killed al Qaeda’s top leaders, including Osama bin Laden himself, Washington has lost the war. Al Qaeda has grown so powerful that it not only fights in Syria, with Washington’s help, against Assad, but also has prevented the US military from occupying Afghanistan. Moreover, in addition to al Qaeda’s military success against the “superpower” and the chaos that al Qaeda continues to produce in Iraq, al Qaeda now is so powerful that it can shut down US embassies all across the Middle East and North Africa. The “threat” which was supposed to boost the NSA’s position actually proves Washington’s powerlessness.

We an only pray that soon al Qaeda shuts down Washington itself. Imagine the sense of American liberation if Washington simply was shut down, or even better if Washington could be put under Punjab’s magic blanket and disappeared. For the 99 percent, and the rest of the world, Washington is nothing but an oppressor.

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.

Source: Paul Craig Roberts

2/3 of Americans to Lose Everything

A record breaking stock market is distorting a frightening reality: The U.S. is being eaten alive by a horrific cancer that will ultimately destroy the economy and impoverish the vast majority of its citizens.

That’s according to Peter Schiff, the best-selling author and CEO of Euro Pacific Capital, who delivered his harsh warning to investors in a recent interview on Fox Business.

“I think we are heading for a worse economic crisis than we had in 2007,”  Schiff said. “You’re going to have a collapse in the dollar…a huge spike in interest rates… and our whole economy, which is built on the foundation of cheap money, is going to topple when you pull the rug out from under it.”

Schiff says that, despite “phony” signs of an economic recovery, the cancer destroying America stems from a lethal concoction of our $16 trillion federal debt and the Fed’s never ending money printing.

Currently, Bernanke and company is buying $1 trillion of Treasury and mortgage bonds a year. That’s about $85 billion per month against a budget deficit that is about the same level.

According to Schiff, these numbers are unsustainable. And the Fed has no credible “exit strategy.”

Eventually interest rates will rise… and when they do, Schiff says, stocks will tank and bonds dip to nothing. Massive new tax hikes will be imposed and programs and entitlements will be cut to the bone.

“The crisis is imminent,” Schiff said. “I don’t think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems.”

“We’re broke,” Schiff added. “We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out.”

Schiff points out that the market gains experienced recently, with the Dow first topping 14,000 on its way to setting record highs, are giving investors a false sense of security.

“It’s not that the stock market is gaining value… it’s that our money is losing value. And so if you have a debased currency… a devalued currency, the price of everything goes up. Stocks are no exception,” he said.

“The Fed knows that the U.S. economy is not recovering,” he noted. “It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode.”

A noted economist, Schiff has been a fierce critic of the Fed and its policies for years. And his warnings have proven to be prophetic.

In August 2006, when the Dow was hitting new highs nearly every day,  Schiff said in an interview: “The United States is like the Titanic, and I’m here with the lifeboat trying to get people to leave the ship… I see a real financial crisis coming for the United States.”

Just over a year later, the meltdown that became the Great Recession began, just as Schiff predicted.

He also predicted the subprime mortgage bubble burst, nearly a year before the real estate market fully crashed.

His recent warnings, however, have been even more alarming. Will they also prove to be true?

In his most recent book,  ,  Schiff writes that when the “real crash” comes, “it will be worse than the Great Depression.” Unemployment will skyrocket, credit will dry up, and worse, the dollar will collapse completely, “wiping out all savings and sending consumer prices into the stratosphere.”

Schiff estimates this “cancer” could consume a trillion dollars from consumers this year.

“Today we’re the world’s greatest debtor nation. Companies, homeowners and banks are so highly leveraged, rising interest rates will be devastating.”

According to polls, the average American is indeed sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming — yet only 15% feel prepared for such a deeply troubling event.

Is Devastation The Ultimate Cure?

Despite its bleak outlook,  Schiff’s book has become a real wake-up call for millions of readers.

While Schiff’s predictions can be grim, he also offers step-by-step solutions that average Americans can follow to protect their wealth, investments and savings.

According to Schiff,  “the crash and what follows” can be beneficial. But only for those who understand beforehand what is happening and have time to prepare for the devastation.

“All we can do now is prepare for the crash,” Schiff said. “If we brace ourselves properly and control the impact, we will survive it.”

Source: Money Morning Staff Report  |  LewRockwell.com

As Corporate Profits Reach Record Levels, Their Effective Tax Rates Decrease

American citizens are paying an increasingly higher percentage of taxes as effective corporate tax rates fall during a period of soaring profits.  The key word here is effective, as in taxes actually paid by corporations to the federal treasury. (Advocates for cutting corporate tax rates cite the official government levies, not what corporations actually pay for the right to do business as US companies.)

What this means in plain English is that you and I are paying more to the government, on a relative basis, than big business, a lot more.

Long-time friend of BuzzFlash, Pulitzer Prize winning economic reporter David Cay Johnston explains how we are being hoodwinked by the “America can only remain competitive with lower official corporate tax code” arguments (made by DC politicians “rented” by corporations, according to Johnston):

Individual income tax payments have been rising fast since the economy began to recover, even though wages have hardly budged. But the same isn’t true for taxes for most corporations.

For the vast majority of America’s 5.8 million corporations, profits soared in 2010 — up 53 percent compared to 2009 — when the recession official ended at mid-year. Despite skyrocketing profits, however, their corporate income tax bills actually shrank by $1.9 billion, or 2.6 percent.

In an article in the National Memo entitled “Corporate Tax Rates Plummet As Profits Soar,” Johnston elaborates:

The effective tax rate paid by 99.95 percent of companies fell to 15.9 percent in the robustly profitable year of 2010, from 24.9 percent in the half-recession year 2009.

Those figures do not count the 2,772 companies that dominate the American economy. These giant firms, with an average of $23 billion in assets, own 81 percent of all business assets in America.

Their combined profits soared 45.2 percent to a new record in 2010, but their taxes rose just 14.8 percent, new IRS data show. Profits growing three times faster than taxes means their effective tax rates fell.

In 2010 these corporate giants paid just 16.7 percent of their profits in taxes, down from 21.1 percent in 2009. The official tax rate is 35 percent.

The Washington Chamber of Commerce meme is that corporations are being kept from helping to expand the US economy by high taxes that make them non-competitive in the world market.  However, the stock market continues to flirt with record highs because big businesses are making big profits, distributing them to shareholders and in the form of executive compensation.  The excess profits are generally not being spent to expand plants or staff in the US because individual Americans — squeezed between relatively stagnant wages (adjusted for inflation) and an increasing percentage of the tax burden (as compared to companies) — can’t afford to increase consumption.  So the Chamber of Commerce meme is malarkey.

Many of the largest corporations sit on their profits (Apple being a prime example of this) or throw a bone of investment to the American economy for public relations purposes.

US corporations, in general, don’t need lower tax rates; they need to pay higher actual taxes given that the biggest of them don’t pay anywhere near their IRS codified tax percentage.

Johnston is not optimistic that the burden will start shifting from individual citizens to big business anytime soon.  As he writes in his recent article:

Going forward, the Obama administration predicts that Washington will rely more on individual income taxes and less on corporate taxes.

Between fiscal 2010 and fiscal 2018, individual income taxes will rise from 41.5 percent of federal revenues to 49.8 percent, an increase of 8.3 percentage points, the president’s proposed fiscal 2014 budget shows. Corporate income taxes – assuming current statutory rates – are expected to grow by only 2.4 percentage points from 8.9 percent in 2010 to 11.3 percent of federal revenues in 2018.

What this amounts to is corporations, as a result of their bought and paid for elected officials in DC, are skimming from the Sunday donation plate as others put in their hard-earned dollars to pay the price for the infrastructure that allows US-based corporations to flourish.

It is vital to never forget one important fact.  Although, the mainstream corporate media covers the economy as if it were one monolithic force, it is not.

The rich are richer than ever now.  Their economy is growing more gluttonous by leaps and bounds as the working and middle class, in essence, subsidize them with tax loopholes.

Johnston explains the revolving door and politician for rent game in DC:

Those rents – er, donations and perks – also ensure that those appointed to regulatory agency boards do well after they leave office, provided they have been good servants to corporate interests. Tricks like making customers paytaxes to monopolies that are exempt from the corporate income tax are one way that those appointed to regulatory boards will do well when they leave the government payroll, as my book The Fine Print revealed.

The corporate giants quietly lobby for laws and regulatory rules that get little to no attention in the mainstream news.

GE spent $39.3 million just on Washington lobbying in 2010, more than $73,000 per senator and representative.

ExxonMobil has spent on average almost $23 million annually lobbying Washington in 2008 through 2010. Walmart has spent between $6.2 million and $7.8 million lobbying Washington each year since 2008.

Lobbyists for these and other corporations have lawmakers on speed dial. As for you, just try to get a face-to-face appointment with your senator or representative.

Many years ago, the late US Senator Paul Simon (D-Illinois) announced that he was not going to run again.  I was with him at an event and asked him why he had decided not to seek another term.  His answer was telling.

“Mark,” he said (to the best of my memory), “I spend 70% of my time fundraising and 30% of my time legislating. There’s nothing I can do. You get elected to a six-year term and immediately your staff has you fundraising for the next election.  If some interest gives my campaign $20,000, my staff is going to make sure I answer if they call.  If a guy in a union with a lunchbucket calls, he’ll get routed to an intern.  I’ve tried to change that, but it just seems to end up returning to the fundraising scramble and attention to the big givers. I’m just sick of the little guy or woman not being able to get through to me.”

Simon was the last of a generation and retired with dignity. (He died in 2003.)

Now you can probably count on one hand the number of senators who don’t wear a “for rent” sign on them.

And corporations continue to see their effective percentage of tax liability shrink as we continue to see ours rise.

Source: Truthout

The Big Plunge

What’s Really Driving The Crashing Markets?

Normally, stocks don’t fall off a cliff unless the economic data suddenly turns south or there are signs of an emerging crisis, like a run on the shadow banking system or threat to Middle East oil supplies. But neither of these played a part in this week’s equities massacre where the Dow Jones Industrial Average (DJIA) plunged 560-plus points in just two sessions and indices around the globe dipped deep into the red. What triggered this week’s selloff was an announcement from the Federal Reserve that it was planning to scale down it’s asset purchases (QE) in the latter part of 2013, and probably end the program sometime in the middle of 2014. Here’s the offending paragraph in the FOMC’s statement that lit the fuse:

“If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program.” (FOMC)

Now–unless you think that Fed chairman Ben Bernanke is a complete idiot–then you can assume that he knew what the reaction on Wall Street would be. After all, stock prices have more than doubled in the last 4 years mainly due to the Fed’s lavish liquidity spree. So any announcement that the program is “going away” was sure to send traders racing for the exits. Which it did. Traders were not having a “hissy fit” as many in the financial media have said. They were acting rationally. Absent the Fed’s turbo-charged monetary stimulus, stocks will go down, there’s no question about it. Current prices do not reflect fundamentals nor do they reflect the true health of the economy. They reflect a couple trillion dollars worth of UST and MBS purchases that have goosed stock prices dramatically. Traders know this, which is why they cashed in and walked away when Bernanke announced the prospective end of the program. They acted rationally.

But why would Bernanke want to throw a bucket of cold water on the markets now? Is it because he really believes that the economy is gaining momentum and the labor market is steadily improving?

Hell no, that’s pure baloney. Again, Bernanke is not a moron. He sees what everyone else sees, that the headline unemployment number (7.6%) is rubbish that doesn’t reveal the rot beneath the surface; the abysmal participation rate, the sharp uptick in part-time workers, and the lousy starvation-wage positions that have replaced the good paying jobs. Trust me on this; Bernanke knows how to read a freaking jobs report. He knows the economy is crap and that people still can’t find work. Just look at this clip from the SF Fed’s own report on the condition of the economy. It will help you see that Bernanke really doesn’t believe the green shoots hype at all:

“Federal fiscal policy during the recession was abnormally expansionary by historical standards. However, over the past 2½ years it has become unusually contractionary as a result of several deficit reduction measures passed by Congress. During the next three years, we estimate that federal budgetary policy could restrain economic growth by as much as 1 percentage point annually beyond the normal fiscal drag that occurs during recoveries….

CBO projections and our estimate based on the countercyclical history of fiscal policy suggest that federal budget trends will weigh on growth much more severely over the next three years. The federal deficit is projected to decline faster than normal over the next three years, largely because tax revenue is projected to rise faster than usual. …The rapid decline in the federal deficit implies a drag on real GDP growth about 1 percentage point per year larger than the normal drag from fiscal policy during recoveries.” (“Fiscal Headwinds: Is the Other Shoe About to Drop?”, FRBSF)

See? So things are bad and they’re going to get worse. This isn’t a secret. Fiscal policy is DESIGNED to make things worse. It’s deliberate! It’s all there in black and white, read it again.

So what’s really going on here? Why is Bernanke pretending that the future is looking so rosy, when the exact opposite is closer to the truth? Why is he announcing the end of a program that may never end? Just look at the rate of inflation, fer chrissakes! We are in a deflationary cycle. Inflation has been dropping for 3 straight months and–according to Bloomberg–” is at 53-year low, the lowest inflation since JFK was in office.” That means that the Fed will not hit its 2.5% inflation target and the bond buying will continue indefinitely. Guaranteed. Now, no matter how stupid or incompetent you may feel Bernanke is, I assure you, the Fed watches inflation like a hawk, and when the arrow starts to point down, they do everything in their power to get things going in the right direction again. They are always looking for the sweet spot because that’s the rate at which their constituents can rake in the biggest profits. In other words, they take inflation (or deflation) seriously.

But if that’s so, then why did Bernanke hardly mention inflation in the FOMC’s announcement?

He didn’t mention it because he’s trying to buffalo investors into thinking that QE is going to end sometime in the near future. But how can he end it, after all, unemployment is still high (and likely to go higher when the budget cuts kick in), GDP and output are weak, wages are flatlining, capital investment is non existent, corporations and financial institutions have money piled up around their eyeballs with nothing to invest in, middle class households have seen nearly half their wealth wiped out in the last five years, and the banks have a couple trillion more in deposits than loans because no one in their right mind is borrowing money in the middle of an effing Depression. If any of this sounds like an economic rebound, then maybe Bernanke is actually telling the truth and really plans to terminate QE next year. But I think that’s pretty bad bet, all things considered.

So let’s cut to the chase: The reason Pavlov Bernanke took away the punch bowl on Thursday and put markets into a tailspin, was because stocks are overheating and because his goofy printing operations have generated all kinds of risky behavior. Keep in mind, that it was Bernanke who said that he thought that goosing stock prices would create the “wealth effect” that would lead to a broader recovery in the real economy. Just as it was Bernanke who signaled that he would keep stocks from breaking lower. (The “Bernanke Put”). In other words, investors have just been following their Master’s lead, which is why they loaded up on stocks to begin with. And that’s why junk bond yields dropped to record lows. And that’s why margin debt climbed to record highs. And that’s why all the big corporations have been buying back their own shares hand over fist. And that’s why the financial markets are riddled with bubbles. It’s because Bernanke tacitly implied that he would support rising stock prices with lavish infusions of funny money NO MATTER WHAT.

Well, guess what? Now Bernanke is worried. He’s worried that the real economy is still in the doldrums while bubbles are popping up everywhere in the financial markets; in stocks and bonds, CLOs, CDOs, MBS and every other dodgy debt instrument, derivative or swap. It’s all getting very frothy thanks to the Bernanke.

So, how does the Fed chair intend to “contain” the emergent asset bubble until he retires at the end of the year and returns to blissful academia?

He’s going to keep doing what he’s doing right now; cherry-picking the data so he can rattle Wall Street’s cage every so often and keep stocks from zooming too far into the stratosphere. That’s the plan. Of course, he could just tell the truth–that QE has been great for Wall Street but done jack for anyone else. But I wouldn’t count on that.

Time To Buy A House? Not On Your Life!

Soon the Foreclosure Floodgates Will Open and Prices Will Plunge…

Anyone who buys a house in today’s market should be aware of the risks. They should know that current prices are not supported by fundamentals, but by unprecedented manipulation by the Fed, the Obama administration, Wall Street Private Equity investors, and the nation’s biggest banks. If any of these main-players withdraws or even reduces their support for the market (in other words, if the banks release more of their distressed inventory, if rates rise, if PE firms buy fewer homes, or if the Congress curtails current mortgage modification programs), housing prices will fall. Given the increasing volatility in global stock and bond markets in recent weeks–which is likely to intensify as the Fed  implements its exit strategy from QE– interest rates will continue to fluctuate putting downward pressure on housing sales and prices. The impact the Fed’s policy will have on markets and the economy is unknown. The Central Bank is in uncharted water. That makes it a particularly bad time to buy a home. Caveat emptor.

When we say that fundamentals are weak, it means that the factors that typically drive the market are not strong enough to boost sales or push up prices. In a normal market, “first-time homebuyers” and “move up” buyers would represent the vast majority of sales. In today’s market, these two “demand cohorts” are actually quite weak, which is to say that current prices are not sustainable. Consider this: According to Lender Processing Services (LPS) Mortgage Monitor for April, there are  “4,699,000, or 9.76% of home loans delinquent or in foreclosure as of April 30th”…” (“Mortgage Delinquencies Down….But a Record 843 Days to Foreclose“, Naked Capitalism)

So, nearly 5 million homes are either seriously delinquent or in some stage of foreclosure. This unseen backlog of distressed homes makes up the so called “shadow inventory” which is still big enough to send prices plunging if even a small portion was released onto the market.   In other words, supply vastly exceeds demand in real terms. Now check this out from Zillow:

“13 million homeowners with a mortgage remain underwater. Moreover, the effective negative equity rate nationally —where the loan-to-value ratio is more than 80%, making it difficult for a homeowner to afford the down payment on another home — is 43.6% of homeowners with a mortgage.” (Zillow)

This might sound a bit confusing, but it’s crucial to understanding what’s really going on. While many people know that 13 million homeowners are underwater on their mortgages,  they probably don’t know that nearly half (43.6%) of the potential “move up” buyers (who represent the bulk of organic sales) don’t have enough equity in their homes to buy another house.  Think about that. Like we said,  housing sales depend almost entirely on two groups of buyers; firsttime homebuyers and move up buyers. Unfortunately, the number of potential move up buyers has been effectively cut in half.  It’s simply impossible for prices to keep rising with so many move up buyers on the ropes.

So, if “repeat” buyers cannot support current prices, then what about the other “demand cohort”,  that is, firsttime home buyers?

It looks like demand is weak there, too. According to housing analyst Mark Hanson: “First-timer home volume hit a fresh 4-year lows last month and distressed sales 6-year lows”.

So, no help there either. Firsttime homebuyers are vanishing due to a number of factors, the biggest of which is the $1 trillion in student loans which is preventing debt-hobbled young people from filling the ranks of the firsttime homebuyers. Given the onerous nature of these loans, which cannot be discharged through bankruptcy, many of these people will never own a home which, of course, means that demand will continue to weaken, sales will drop and prices will fall.

The banks have countered this weakness in demand by withholding distressed inventory. According to Realty Trac, foreclosures are down 33 percent in May year-over-year. There’s no reason for this reduction in foreclosures because there are nearly 5 million homes that are either seriously delinquent or in some stage of foreclosure. The banks are simply manipulating distressed supply to push up prices and avoid losses. To better understand what the banks are up to, check out this article on Marketwatch666:

“As of April, the average seriously delinquent homeowner has not paid on their mortgage for 503 days, and that the typical home in foreclosure has been delinquent for 843 days; in general, those who are seriously delinquent (more than 90 days past due) are not being foreclosed on, and those who are in the foreclosure process are not having their homes seized. Since this metric seems to be increasing an average of ten days a month, and new foreclosure starts are being added each month which should be bringing the average days down, we can only conclude that the foreclosure process is damn near frozen.” (“Mortgage Delinquencies Down….But a Record 843 Days to Foreclose“, Naked Capitalism)

“843 days”! That’s a new record, which means that the banks are actually dragging the process out longer today then ever before. This has had profound effect on prices which have soared by more than 10 percent in the last 12 months creating the illusion of a sustainable recovery.  Keep in mind, that the banks have little choice in the matter. They are still sitting on  more-than one trillion dollars worth of  non performing loans leftover from the recession.  If they simply dumped their backlog of distressed homes onto the market all at once, the deluge would push prices below their 2009-lows leaving bank balance sheets in tatters. That’s the scenario they want to avoid at all costs.   Now get a load of this article in last week’s Reuters:

“Well over a million U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday.

Some 1.7 million borrowers have missed several payments on mortgages backed by the U.S. government, the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development said in a joint report.

These loan delinquencies represent a “shadow inventory” of homes that could hit the market if foreclosed on, which would need be managed by government-run Fannie Mae (FNMA.OB) or Freddie Mac (FMCC.OB), or some other federal housing agency.” (“Shadow’ homes could burden U.S. housing agencies”, Reuters)

Actually, the numbers are much larger that Reuters indicates, but it’s good to see someone in the MSM finally acknowledging the magnitude of the problem.

It would be interesting to know how many of these 1.7 million non-performing loans were shunted off to Fannie and Freddie in 2009 and 2010 by cagey banksters who knew that they were essentially worthless.  We’ll probably never know for sure. The fact is, the vast majority of toxic mortgages weren’t created by the GSE’s but by crooked bankers who pooled the dreck into private label securities and sold them to gullible investors around the world.  Now, much of that securitized sewage is festering on the Fed’s bloated balance sheet. The Fed has replaced the shadow banking system as the place where bad loans go to die.   Here’s more from Reuters:

“Once seized, these so-called real estate owned properties, or REOs, present significant financial challenges to these government agencies, the report said.

“Not only are current REO inventory levels elevated … they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on,” the report stated….

The report said the shadow inventory, which is made up of loans that have been delinquent for at least 90 days, is more than seven times the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own.” (Reuters)

So, the number of seriously delinquent mortgages IS MORE THAN SEVEN TIMES  the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own?!? What the hell kind of shell-game are these guys playing?  Do you get the impression, dear reader, that the government is pulling the wool over your eyes? 7X is a bit more than a rounding error, I’d say.

Okay, so the government has been fudging the numbers to make things look better than they really are. (What a surprise) But why would the GSE’s try to hide what’s going on, after all, Fannie and Freddie have implicit government guarantees, so they don’t really have to worry about falling prices.  And, as far as the red ink, well, Uncle Sugar will take care of that, right?

Not exactly. It looks to me like Fannie and Freddie are tailoring their policies to meet the needs of the banks.  As Reuters reluctantly admits, “Even a fraction of the shadow inventory falling into foreclosure could considerably swell … inventories of REO properties.”

It’s simple, really; more foreclosures mean lower prices. Lower prices, in turn, mean heavier losses for the banks. That’s why Fannie and Freddie are playing hide-n-seek; it’s another giveaway to the banks.

Reuters again: “Fannie Mae and Freddie Mac owned about 158,000 REO properties at the end of September 2012, while HUD had about 37,000.” (Reuters)

Huh?  The author has already admitted that the real number is at least 7 times that amount (“Well over a million.”), so why the sudden reversal? Is he trying to downplay the bad news to slip it past his editor?

Many of the experts still anticipate between 3 to 6 million foreclosures in the next few years, so it is doubtful that the current strategy will work. Eventually, the floodgates will open, distressed supply will be released, and prices will drop.

And distressed inventory is just one of many headwinds facing the housing industry today. There’s also this: “Rising Prices Lead to Fewer Investor Purchases, Longer Holding Times“, DS News:

“Close to half—48 percent—of the investors surveyed in May said they will purchase fewer properties in the next 12 months than they did in the past year.” (DS News)

And this from CNN Money:

“Say goodbye to ultra-low mortgage rates.

In the past month, rates have been on the rise and they are expected to continue to climb. This week, the average rate on a 30-year fixed-rate mortgage jumped another 10 percentage points to 4.07% and are up from 3.3% in early May, according to mortgage giant Freddie Mac.

“It’s unlikely that rates will ever be that low again,” said Doug Duncan, Fannie Mae’s chief economist. “Those who didn’t take advantage of record-low rates have missed the boat — at least for now.” (“ CNN Money)

And this:

Application Volume Stumbles, Sales to Suffer, OC Housing News

“Mortgage application data for May lends credence to analysts’ predictions of a slowdown in the year’s second half, Capital Economics says in its latest US Housing Data Response.  According to Capital Economics’ data—compiled from statistics offered by the Mortgage Bankers Association (MBA)—total mortgage application volume fell 2.0 percent from April to May, the first monthly drop since February and the biggest decline since January.”  (“Application Volume Stumbles, Sales to Suffer“, OC Housing News)

And, finally, this from BusinessWeek:

“Hedge fund manager Bruce Rose was among the first investors to coax institutional money into the mom and pop business of single-family home rentals, raising $450 million last year from Oaktree Capital Group LLC.

Now, with house prices climbing at the fastest pace in seven years and investors swamping the rental market, Rose says it no longer makes sense to be a buyer.

“We just don’t see the returns there that are adequate to incentivize us to continue to invest….There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”  (“Carrington Stops Buying U.S. Rentals as Blackstone Adding“,  BusinessWeek)

I could go on, but why bother? You get the point. The fact is, is that this is a uniquely bad time to buy a house.  There’s too much uncertainty about rates, inventory, demand and investors. The risks far outweigh the rewards. Anxious buyers should hold-their-horses and wait for the market to normalize instead of chaining themselves to sinking asset that will cost them a bundle.  Remember, patience is a virtue. It can also save you a lot of dough.

Turkey – Epicenter of Police State Violence

For over two weeks, daily anti-government protests rocked Turkey. Police attacked peaceful demonstrators intermittently. They’ve done so brutally. Turkey’s notorious for police state viciousness.

It’s a democracy in name only. Prime Minister Erdogan is thuggish, authoritarian, hardline and despotic.

Turkey’s one of 28 NATO countries. Erdogan partners with Washington’s imperial wars. He’s unapologetic about neoliberal harshness. More on that below.

He’s been prime minister for over 10 years. Why Turks put up with him they’ll have to explain. Growing opposition demands he resign. New elections are wanted. Erdogan refuses to call them. If protests continue and grow, parliament may overrule him.

On June 11, Russia Today headlined “Turkish police oust Taksim protesters with tear gas as Erdogan cheers removal of ‘rags,’ ” saying:

“Hundreds of Turkish police clashed with protesters in Istanbul.” Doing so followed removal of barricades and banners. Erdogan’s tactics are polarizing. He called peaceful demonstrators thugs, looters, revolutionaries, marauders and extremists.

RT correspondent Ashraf El Sabbagh said “(t)here are serious clashes in the small streets surrounding (Taksim). They are running after each other tossing stones, bottles and smoke grenades. It’s a meat grinder in there.”

On June 12, RT headlined “Istanbul warzone: Thousands of protesters try to reclaim Taksim Square,” saying:

Riot police attacked protesters viciously. Clashes were fierce. “Thick smoke blankets the square. Turkish police are driving thousands into narrow side streets.”

Bystanders are attacked. Tear gas, rubber bullets, pepper spray, and water cannons target indiscriminately. A man in a wheelchair was struck. British journalist Neil Clark said “(i)f you’re in NATO, you can get away with murder.”

America, Britain, France, and most other NATO countries operate like Turkey. Dissent is verboten. Democracy exists in name only. Some NATO members are worse than others. America’s by far the worst.

Turkish protests appear to have legs. The more brutality Erdogan orders, the larger crowds grow. Growing popular sentiment opposes him. On June 11, dozens of Turkish lawyers joined protesters. They came to defend those arrested.

Police attacked them viciously. They did so in front of Caglayan Courthouse. Witnesses called what happened brutal. Lawyer Fatma Elif Koru explained, saying:

“We were just gathering to make a press statement about Gezi Park and then the police attacked. It was very brutal. Now 49 lawyer friends are in custody and many are injured.”

“They even kicked their heads. The lawyers were on the ground. They were hitting us they were pushing. They built a circle around us and then they attacked.”

On June 11, hundreds of police encircled Taksim Square. They fired rubber bullets and tear gas. They ripped down banners calling for Erdogan’s resignation.

Later on Tuesday, dozens more lawyers were arrested. Since protests began, thousands were arrested. Thousands more were injured.

On June 12, brutal attacks continued. More arrests followed. Erdogan’s uncompromising. He announced an “end to tolerance.” None existed before his pronouncement.

He dismissively ignores criticism. He governs by what he says goes. “If you call this roughness,” he said, “I’m sorry, but this Tayyip Erdogan will not change.”

His comment replicated Margaret Thatcher once saying “The lady’s not for turning.” Saying it defined her ideological harshness.

She was unapologetic. She was unforgiving. She was unprincipled. She was despised for good reason. Millions of Brits suffered from the neoliberal flimflam she endorsed.

Erdogan matches her and more. He’s way over-the-top. He reflects power politics’ dark side. He doesn’t know when to quit. He called peaceful demonstrators “a handful of plunderers.”

They’re “manipulated” to protest, he claims. He won’t let them dictate policy, he said. They’re the “greatest threat to the society.”

“For those who want to continue with the incidents,” he said, (i)t’s over. As of now, we have no tolerance for them. Not only will we end the actions, we will be at the necks of the provocateurs and terrorists and no one will get away with it. I am sorry, but Gezi Park is for taking promenades, not for occupation.”

A previous article called Turkey more police state than democracy. Press freedom is compromised. Censorship is standard practice. Dissent is verboten. Challenging government authority is called terrorism.

No country imprisons more journalists than Turkey. Television channels largely ignored protests. A bureau chief was arrested for airing what authorities wanted suppressed.

On June 11, TV channels broadcast a staged incident. Viewers saw half a dozen “demonstrators” throw molotov cocktails at police. They advanced on police lines provocatively.

They held a flag of a fringe left-wing party. It was a thinly veiled stunt. It’s commonly used during protests. America and other Western countries feature them. Doing so lets authorities claim peaceful demonstrators are violent.

So-called protesters were undercover cops. Their mock attack was staged. Expect more like it if protests continue. Expect greater violence ahead. It’s already brutal and increasing.

Instead of engaging protesters responsibly, Erdogan wants them crushed. Thousands have been arrested and/or injured. Despots operate this way.

Can Oz is an Istanbul publisher. His London Guardian op-ed headlined “I can never trust the Turkish police and government again.” Why before he’ll have to explain.

Longstanding Turkish policy is brutal. Now it’s more public, widespread and visible.

“For years I did not speak up enough, but no more,” said Oz. “I could lose everything, but I cannot live a dishonorable life any longer.”

“I am scared. With every speech that prime minister Recep Tayyip Erdogan gives, I feel the hatred and disgust against me and young people of my generation increase.”

“All we are after is a bit of freedom, a bit of space to live and a few trees.”

“(O)ver the past few days, I have witnessed so many lies from the police and government that I don’t think I can ever trust them again. I have spent days with the protesters – withstanding another gas attack, cheering, singing chants and sharing food in the park – and I haven’t encountered any signs of weapons or violence on their behalf.”

Oz said he received hate mail and death threats. Participating in “passive resistance” leaves him vulnerable.

For years he feared expressing his views publicly. He failed to criticize political wrongdoing he witnessed.

He’ll no longer stay silent, he said. He listed five demands he and other protesters want:

(1) They want Gezi Park left unchanged.

(2) They want arrested protesters released.

(3) They want police brutality ended. They want responsible officials prosecuted.

(4) They want the right to protest publicly.

(5) They want Erdogan-ordered violence stopped. They want him held accountable for his actions.

Oz is a large Turkish publisher. He’s unaffected by neoliberal harshness. Most Turks want relief. Erdogan spurns popular interests. He’s beholden solely to wealth, power and privilege.

Turkish workers and youths demand social justice. Young ones are especially outraged. Their living standards significantly eroded.

They’ve tasted neoliberal harshness far too long. They know nothing else. Their ability to make ends meet troubles them. Their futures are seriously compromised. They want something better. They deserve it. Perhaps now’s their chance for change.

Turkey’s economic model features capitalism’s dark side. It includes economic freedom as a be-all-and-end-all, unrestrained profit-making, privatizations, cheap labor, deregulation, corporate-friendly tax cuts, marginalized worker rights, and speculative capital inflows.

Economic conditions are inherently unstable. Turkey suffers rolling recessions, crisis conditions, and fragile largely jobless recoveries. It’s increasingly dependent on imports of resources and capital goods.

Youth unemployment tops 22%. It’s rising. It’s socially and economically unstable. It’s untenable. It’s fuel for public rage.

When well-connected private debtors are troubled or go bankrupt, their losses are socialized. Turkey’s next crisis is certain. It’s only a matter of when.

Ordinary people are hardest hit. Youths most of all. Growing numbers have no viable futures. Profits matter more than public needs. Insecurity haunts an entire generation.

Turkish neoliberalism replicates what’s ongoing throughout Europe, America, Israel and elsewhere. Anger swells up and explodes.

The common thread is democracy in name only, inequality, political corruption, unemployment, growing poverty, insecurity, and corporate priorities over social justice.

Turkey has a long history of rebellion. Turks know what’s going on in troubled EU countries. They’ve seen it throughout the Middle East.

People only take so much before reacting. Protesting is fashionable to do. It’s unifying and energizing. It remains to be seen where things go.

Ban Ki-moon reacted as expected. He urged “calm” and “dialogue.” He ignored police brutality. It didn’t surprise. He fronts for power. He’s mindless of public needs.

He turns a blind eye to horrendous imperial crimes. He’s secretary-general because Washington installed him. White House spokesman Jay Carney also urged both sides to show restraint.

Washington supports its ally. Police brutality is commonplace in America. Thuggish cops attack peaceful protesters violently. It’s common practice. It replicates what’s ongoing in Turkey.

America’s a democracy in name only. Imperial and corporate priorities alone matter. It’s true throughout Europe, Israel and Turkey.

Unchallenged power matters most. Erdogan matches the worst of a bad lot. Turks see him for what he is. Tinpot despots can’t hide.

Turkey’s military remains a wild card. Maybe it’ll intervene. It’s done it before. It may again. If not generals, perhaps party leaders or political opposition.

Erdogan remains defiant. He looks like damaged goods. He’s vulnerable if internal interests react. He heads Turkey’s Justice and Development Party (AKP). It may decide to cut its losses and replace him.

Stephen Lendman lives in Chicago. He can be reached at .

His new book is titled “Banker Occupation: Waging Financial War on Humanity.”

http://www.claritypress.com/LendmanII.html

Visit his blog site at sjlendman.blogspot.com.

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

The Real Numbers: Half of America In Poverty — And It’s Creeping Toward 75%

The Census Bureau has reported that one out of six Americans lives in poverty. A shocking figure. But it’s actually much worse. Inequality is spreading like a shadowy disease through our country, infecting more and more households, and leaving a shrinking number of financially secure families to maintain the charade of prosperity.

1. Almost half of Americans had NO assets in 2009

Analysis of  Economic Policy Institute data shows that Mitt Romney’s famous  , the alleged ‘takers,’ have taken nothing. Their debt exceeded their assets in 2009.

2. It’s Even Worse 3 Years Later

Since the recession, the disparities have continued to grow. An  OECD report states that “inequality has increased by more over the past three years to the end of 2010 than in the previous twelve,” with the U.S. experiencing one of the widest gaps among OECD countries. The 30-year  decline in wages has worsened since the recession, as low-wage jobs have  replaced formerly secure middle-income positions.

3. Based on wage figures, over half of Americans are now IN poverty.

According to IRS data, the average household in the bottom 50% brings in about $18,000 per year. That’s less than the  poverty line for a family of three ($19,000) or a family of four ($23,000).

Census income figures are about 25% higher, because they include unemployment compensation, workers’ compensation, Social Security, Supplemental Security Income, public assistance, veterans’ payments, and various other monetary sources. Based on this supplemental income, the average household in the bottom 50% brings in about $25,000, which is just above the $23,000 poverty line for a family of four.

4. Based on wage figures, 75% of Americans are NEAR poverty.

According to IRS data, the average household in the bottom 75% earns about $31,000 per year. To be eligible for food assistance, a family can earn up to 130% of the federal poverty line, or about $30,000 for a family of four.

Again, Census income figures are about 25% higher because of  SNAP reporting requirements, bringing average household income for the bottom 75% to about $39,000.

Incredibly, Congress is trying to  cut food assistance. Republican Congressman Stephen Fincher of Tennessee referred to food stamps as “stealing.” He added a Biblical quote: “The one who is unwilling to work shall not eat.” A recent  jobs hearing in Washington was attended by  one Congressman.

5. Putting it in Perspective

Inequality is at its ugliest for the hungriest people. While food support was being targeted for cuts, just  20 rich Americans made as much from their 2012 investments as the entire  2012 SNAP (food assistance) budget, which serves 47 million people.

And as Congress continues to cut life-sustaining programs, its members should note that their 400 friends on the Forbes list made more from their stock market gains last year than the total amount of the  food, housing, andeducation budgets combined.

Mr. Fincher should think about the tax breaks that allow this to happen, and then tell us who’s stealing from whom.

Paul Buchheit teaches economic inequality at DePaul University. He is the founder and developer of the Web sites UsAgainstGreed.org,PayUpNow.org and RappingHistory.org, and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached at.

Source: AlterNet

America’s Bubble Economy Is Going To Become An Economic Black Hole

What is going to happen when the greatest economic bubble in the history of the world pops?  Themainstream media never talks about that.  They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to.  And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay.  Sadly, that is not the case at all.  Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy.  You can see this when you step back and take a longer-term view of things.  Over the past decade, we have added more than 10 trillion dollars to the national debt.  But most Americans have shown very little concern as the balance on our national credit card has soared from 6 trillion dollars to nearly 17 trillion dollars.  Meanwhile, Wall Street has been transformed into the biggest casino on the planet, and much of the new money that the Federal Reserve has been recklessly printing up has gone into stocks.  But the Dow does not keep setting new records because the underlying economic fundamentals are good.  Rather, the reckless euphoria that we are seeing in the financial markets right now reminds me very much of 1929.  Margin debt is absolutely soaring, and every time that happens a crash rapidly follows.  But this time when a crash happens it could very well be unlike anything that we have ever seen before.  The top 25 U.S. banks havemore than 212 trillion dollars of exposure to derivatives combined, and when that house of cards comes crashing down there is no way that anyone will be able to prop it back up.  After all, U.S. GDP for an entire year is only a bit more than 15 trillion dollars.

But most Americans are only focused on the short-term because the mainstream media is only focused on the short-term.  Things are good this week and things were good last week, so there is nothing to worry about, right?

Unfortunately, economic reality is not going to change even if all of us try to ignore it.  Those that are willing to take an honest look at what is coming down the road are very troubled.  For example, Bill Gross of PIMCO says that his firm sees “bubbles everywhere”…

We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions.

And unfortunately, it is not just the United States that has a bubble economy.  In fact, the gigantic financial bubble over in Japan may burst before our own financial bubble does.  The following is from a recent article by Graham Summers…

First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size.

For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally.

So if Japanese bonds begin to implode, this means that:

1)   The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).

2)   The second largest economy in the world will collapse (along with the impact on global exports).

Both of these are truly epic problems for the financial system.

And of course the entire global financial system is a giant bundle of debt, risk and leverage at this point.  We have never seen anything like this in world history.  When you step back and take a good, hard look at the numbers, they truly are staggering.  The following statistics are from one of my previous articles entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“…

-$70,000,000,000,000 – The approximate size of total world GDP.

-$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

-$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States.  But those banks only have total assets of about 8.9 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

-$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

The financial meltdown that happened back in 2008 should have been a wake up call for the nations of the world.  They should have corrected the mistakes that happened so that nothing like that would ever happen again.  Unfortunately, nothing was fixed.  Instead, our politicians and the central bankers became obsessed with reinflating the system.  They piled up even more debt, recklessly printed tons of money and kicked the can down the road for a few years.  In the process, they made our long-term problems even worse.  The following is a recent quote from John Williams of shadowstats.com…

The economic and systemic solvency crises of the last eight years continue. There never was an actual recovery following the economic downturn that began in 2006 and collapsed into 2008 and 2009. What followed was a protracted period of business stagnation that began to turn down anew in second- and third-quarter 2012. The official recovery seen in GDP has been a statistical illusion generated by the use of understated inflation in calculating key economic series (see Public Comment on Inflation). Nonetheless, given the nature of official reporting, the renewed downturn likely will gain recognition as the second-dip in a double- or multiple-dip recession.

What continues to unfold in the systemic and economic crises is just an ongoing part of the 2008 turmoil. All the extraordinary actions and interventions bought a little time, but they did not resolve the various crises. That the crises continue can be seen in deteriorating economic activity and in the panicked actions by the Federal Reserve, where it proactively is monetizing U.S. Treasury debt at a pace suggestive of a Treasury that is unable to borrow otherwise.

And there are already lots of signs that the next economic downturn is rapidly approaching.

For example, corporate revenues are falling at Wal-Mart, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM.

Would revenues at Wal-Mart be falling if the economy was getting better?

U.S. jobless claims hit a six week high last week.  We aren’t in the danger zone yet, but once they hit 400,000 that will be a major red flag.

And even though we are still in the “good times” relatively speaking, the federal government is already talking about tightening welfare programs.  In fact, there are proposals in Congress right now to make significant cuts to the food stamp program.

If food stamps and other welfare programs get cut, that is going to make a lot of people very, very angry.  And that anger and frustration will get even worse when the next economic downturn strikes and millions of people start losing their jobs and their homes.

What we are witnessing right now is the calm before the storm.  Let us hope that it lasts for as long as possible so that we can have more time to prepare.

Unfortunately, this bubble of false hope will not last forever.  At some point it will end, and then the pain will begin.

Source: The Economic Collapse

Eroding Freedom In America

US democracy is illusory. America never was beautiful. It’s not the land of the free and home of the brave. It wasn’t created that way. More than ever, it’s not now.

Freedom is a four-letter word. It’s fast disappearing. It’s an endangered species. Wealth, power and privilege alone matter. America’s war on terror priorities advance them.

International, constitutional and US statute laws are spurned. Rogue state ruthlessness replaced them. Boston’s unprecedented lockdown suggests what’s coming. It covered a two hundred square mile area. An important threshold was crossed.

Martial law terrorized city residents. Constitutional rights were suspended. Perhaps it was prelude to what’s coming. It can happen anywhere across America. It can show up nationwide.

Thousands of heavily armed militarized police, National Guard troops, FBI Swat teams, Bureau of Alcohol, Tobacco, Firearms and Explosives operatives, Drug Enforcement Administration agents, and perhaps other federal, state and local enforcers showed what full-blown tyranny looks like.

Defying public diktats risked arrest or getting shot. Helicopters hovered low over neighborhoods. House-to-house searches ordered pajama-clad families outside.

Without probable cause, some were handcuffed and/or placed face down on sidewalks. Others were publicly strip-searched. Imagine what’s coming next time. Freedom in America’s on the chopping block for elimination.

What’s ongoing already includes:

• numerous police state laws;

• waging war on humanity;

• indefinite detentions without evidence, charges or trials;

• forced disappearances;

• targeted assassinations;

• torture and other forms of abuse;

• Big Brother surveillance;

• warrantless searches;

• other privacy invasions;

• false flag national security abuses;

• war on terror fear-mongering;

• military commission trials, including for US citizens;

• domestic military force deployments;

• secret FEMA concentration camps;

• racial profiling and persecution;

• militarized local police;

• criminalizing whistleblowers; and

• targeting non-believers for supporting right over wrong.

Tyranny isn’t in the eye of the beholder. It’s escalating in plane sight. It’s just a matter of time until it’s full-blown. Washington’s bipartisan criminal class plans it.

It’s hard-right, unbridled, reactionary, and pro-corporate. It’s anti-democratic, anti-dissent, anti-freedom, anti-civil and human rights, anti-social justice, anti-environmental sanity, and anti-government of, by and for everyone.

It’s dangerous living in America at the wrong time. Supporting right over wrong is threatened. Anyone can be targeted for any reason or none at all. Guilt by accusation is policy. Diktat authority has final say.

The National Coalition to Protect Civil Freedoms (NCPCF) includes national and local organizations. Its mission is:

“To educate the public about the erosion of civil and political freedoms in the society, and the abuses of prisoners within the US criminal justice system especially after 9/11, and to advocate for the preservation of those freedoms and to defend those rights according to the US Constitution, the Universal Declaration of Human Rights and its related UN Conventions, and the Geneva Conventions.”

Civil liberties are threatened, it warns. Public safety at the expense of freedom assures neither.

Post-9/11, thought crime prosecutions followed. Individuals and groups were targeted for “their beliefs, thoughts, or associations.”

Doing so violates constitutional protections. First Amendment freedoms are compromised. They’re fundamental. Without them, all others are at risk.

They include free speech, a free press, free thought, culture and intellectual inquiry, assembly, freedom to practice the religion of one’s choice, and to petition government for redress of grievances.

The Bill of Rights Defense Committee (BORDC) “defend(s) the rule of law and rights and liberties challenged by overbroad national security and counter-terrorism policies.”

It “support(s) an ideologically, ethnically, geographically, and generationally diverse grassroots movement to protect and restore these principles by encouraging widespread civic participation; educating people about the significance of our rights; and cultivating grassroots networks to convert concern, outrage, and fear into debate and action.”

Its “Campaign for the Constitution” headlines: “Building a Movement. Restoring Rights. Reclaiming Our Constitution.” At issue is restoring lost rights. Bipartisan complicity compromised them en route to eliminating them altogether.

Rule of law protections “withered under warrantless surveillance, rampant racial and religious profiling, and torture – and even human experimentation – with impunity.”

The ACLU highlights lost digital age civil liberties. New technologies compromised existing protections. Post-9/11, they’ve undergone serious erosion.

Web site visits are tracked. Cell phones log our movements. Emails and social network communications are monitored and stored. Warrantless spying is policy.

“Things we once thought could only happen in far-away enemy states or distant dystopias are suddenly happening here in America” said ACLU.

Privacy laws haven’t kept up with technology. War on terror priorities matter most.

Protecting civil liberties in the digital age requires “ensur(ing) that expressive, associational, and privacy rights are strengthened rather than compromised by new technology.”

It’s also about “protect(ing) these core democratic rights against intrusive corporate and government practices that rely on new technology to invade these rights.”

They’re being systematically destroyed. According to the Center for Constitutional Rights (CCR), Washington “consistently (doesn’t) recognize the protections afforded by the US Constitution and international law, and in doing so, it has failed in its responsibility to maintain a democratic society that is both open to, and accountable to, the people.”

Government is shrouded in secrecy. Checks and balances no longer matter. Bill of Rights freedoms are fading. They’re fundamental in democratic societies.

War on terror priorities breached First, Fourth, Fifth and Sixth Amendment freedoms. At issue are search and surveillance authority, indefinitely detaining citizens and non-citizens uncharged, and undermining free expression, due process, and equal protection.

Washington’s criminal class is bipartisan. Ahead expect much worse. Old time radio listeners recall a memorable Jack Benny skit. “Your money or your life,” a robber asked?

After a pause, he was asked again. He responded saying “I’m thinking it over.”

Today no one’s asked. It isn’t either-or. It’s both.

A Final Comment

Fixing America’s dysfunctional system demands fundamental change. It starts by reforming the nation’s sham electoral process. Throwing out bums assures new ones.

Both major parties are two sides of the same coin. Not a dime’s worth of difference separates them. Secrecy and back room deals substitute for a free, fair and open process. Duopoly power rules.

Party bosses chose candidates. Big money owns them. Voters have no say. They get the best democracy money can buy. It happens every time.

The entire process was constitutionally flawed by design. Over time, things got worse. Bipartisan politics serves serves wealth, power, and privilege. Popular interests go begging.

Money power runs America. It games the system. It does so destructively. Controlling money, credit and debt for private enrichment assures speculation, booms, busts, inflation, deflation, instability, crisis, recessions and depressions.

It assures transferring enormous amounts of wealth from ordinary people to corporate giants and super-rich elites already with too much.

Washington is Wall Street occupied territory. What financial giants want, they get. They’re waging financial war on humanity. They’re more powerful than standing armies.

Economies are strip-mined for profit. Communities are laid waste. Ordinary people are impoverished and left out. Vital needs go begging.

Money power in private hands and democracy can’t co-exist. Complicit politicians betray the public trust. They do so for benefits they derive.

Social injustice defines official policy. Class war rages more than ever. America’s on a fast track toward tyranny. Stopping it requires free, fair and open elections. It’s also about returning money to public hands where it belongs.

Stephen Lendman lives in Chicago. He can be reached at .

His new book is titled “Banker Occupation: Waging Financial War on Humanity.”

http://www.claritypress.com/LendmanII.html

Visit his blog site at sjlendman.blogspot.com.

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

http://www.progressiveradionetwork.com/the-progressive-news-hour

 

Source: ICH

Farm Supports And Social Welfare

The planting season is in full swing as is the transfer of subsidies to big agriculture and social welfare food stamps. Which has more worth, paying the Monsanto and property tax bill or running a public assistance program that allows for the buying of lottery tickets? Well, if you are Congress, both have benefit, but mostly for their political value.Why are food stamps part of the Farm Bill? Nancy Marshall-Genzer makes a shrewd observation.

“There’s been an explosive expansion of the food stamp program. To understand why, you have to go back to the ’90s and President Clinton’s welfare reform, which trimmed welfare rolls. To help those cut off, Congress and President Bush made it easier to qualify for food stamps. That was in 2002. Since then, the food stamp program has more than doubled.

That’s about one in seven Americans. Many of them lost their jobs during the great recession. But why is the food stamp program in the farm bill, anyway? Like most things in Washington, it all boils down to politics.

Chad Hart is an economist at Iowa State. He says farm-state legislators needed a way to connect with more urban members of Congress, so the city slickers would support farm subsidies.”

Is it necessary to expand exponentially the Supplemental Nutrition Assistance Program (SNAP), to relieve starvation when a “Happy Meal” can be purchased at every turn? Yet the socialization culture boasts of the dietary benefits of being on the government dole, as the urban society continues to consume every cuisine of fast foods.

The Washington Times notes that under the Food stamp president: Enrollment up 70 percent under Obama and that present legislation “allow for those with higher incomes to take food stamps — the logic being that helping people before they reach crisis financial level will actually stimulate the economy.”

What did people do for food before the era of the “Great Society”? Farming was a way of life for rural America from the inception of the country. In spite of struggling out a livelihood from an often-harsh pastoral environment, agriculture capacity grew into the breadbasket of the world. Today, the gentleman farmer needs to master the skills of trading future contracts and applications for assistance.

A starting point for subsidies “can supplement a farmer’s income and as well as provide funds for rental payments for land and assistance when the market price of a crop is low. Farm subsidies also play a role in the cost and availability of certain agricultural commodities.”

1. Contact the Farm Service Agency office in your state
2. Determine which farm subsidy you will apply for
3. Find out what type of government subsidized crop and animal insurance is available in your area
4. Determine if your farm is eligible for the Direct Payment subsidy program
5. Ask about the special loan programs the federal government has available for new farmers and ranchers who have been in business for at least three years but less than ten years

Farming as a productive enterprise is rapidly becoming big business. The family farm is no longer an independent endeavor based upon market prices and ingenious management. The quasi-government debt and subsidy cycle, demands a public partnership with federal and state agencies that distort production and consumer prices at every level. Economy of scale seems to be the only path left to plow the fertile fields of government subsidies.

The corporate agriculture conglomerates have become integral constituents of the seed, fertilizer and chemical industry. Both collaborators hire their political lobbyists to expand financial supports, resistive food labeling disclosures and apply economic pressure to stamp out holistic food competition.

The taxpayer should be concerned over the institutionalization and dependency of the SNAP mentality that eats at the fabric of a viable market economy. However, even more diabolical is the destructive subsidization of farming that dramatically benefits corporatist agriculture at the expense of organic agrarian alternatives.

US News takes the position that the Farm Bill’s Corporate Welfare Is Unacceptable.

“Under current law, businesses that produce commodity crops-corn, soy, cotton, or wheat for example-receive a variety of federal supports. One of these, direct payments, provides a per-acreage subsidy for certain farmland owners, regardless of prices, crop yield, or profitability. As a result some farm businesses making hundreds of thousands or even millions of dollars each year also receive a generous annual check from the federal government even if they don’t grow a crop.

Federal crop insurance is out of control. In fiscal year 2012, the total cost of the crop insurance program set a new record at $14 billion-$3 billion more than FY2011. And here’s the kicker-2012 was a year of near record profits for agriculture, even before crop insurance payouts, despite and in part because of the drought many parts of the country experienced this past summer. In every state, participants in the crop insurance program have received more in claims payments than in premium dollars put in over the past 15 years. And remember, for every $1 in premiums, agribusinesses only chip in 38 cents to insure their own crops while taxpayers pick up the remaining 62 cents. That is not insurance or a safety-net, that’s a hand out.”

A comprehensive overhaul of government agriculture policy may not seem very probable from a political will perspective. Nevertheless, the gravy train of public money cannot be a substitute for tilling the soil and weeding the crops. When government legislation attempts to maintain an inexpensive retail food price with public grants, loans and subsidies, the true cost of national nourishment is unsustainable.

The urbanization of the political electorate dictates that the bottom feeders expect their groceries be delivered from a full service supermarket. As any rural resident knows, the nature of the land has its own set of rules and demands. Famine and undernourishment applies to much more than the food supply. It resides in the destructive and distorted government protection racket that leaves the public with a deep hunger in their belly.

The Global Elite Are Very Clearly Telling Us That They Plan To Raid Our Bank Accounts

Don’t be surprised when the global elite confiscate money from your bank account one day.  They are already very clearly telling you that they are going to do it.  Dutch Finance Minister Jeroen Dijsselbloem is the president of the Eurogroup – an organization of eurozone finance ministers that was instrumental in putting together the Cyprus “deal” – and he has said publicly that what has just happened in Cyprus will serve as a blueprint for future bank bailouts.  What that means is that when the chips are down, they are going to come after YOUR money.  So why should anyone put a large amount of money in the bank at this point?  Perhaps you can make one or two percent on your money if you shop around for a really good deal, but there is also a chance that 40 percent (or more) of your money will be confiscated if the bank fails.  And considering the fact that there are vast numbers of banks all over the United States and Europe that are teetering on the verge of insolvency, why would anyone want to take such a risk?  What the global elite have done is that they have messed around with the fundamental trust that people have in the banking system.  In order for any financial system to work, people must have faith in the safety and security of that financial system.  People put their money in the bank because they think that it will be safe there.  If you take away that feeling of safety, you jeopardize the entire system.

So exactly how did the big banks in Cyprus get into so much trouble?  Well, they have been doing exactly what hundreds of other large banks all over the U.S. and Europe have been doing.  They have been gambling with our money.  In particular, the big banks in Cyprus made huge bets on Greek sovereign debt which ended up failing.

But what happened in Cyprus is just the tip of the iceberg.  All over the planet major financial institutions are being incredibly reckless with client money.  They are leveraged to the hilt and they have transformed the global financial system into a gigantic casino.

If they win on their bets, they become fabulously wealthy.

If they lose on their bets, they know that the politicians won’t let the banks fail.  They know that they will get bailed out one way or another.

And who pays?

We do.

Either our tax dollars are used to fund a government-sponsored bailout, or as we have just witnessed in Cyprus, money is directly confiscated from our bank accounts.

And then the game begins again.

People need to understand that the precedent that has just been set in Cyprus is a game changer.

The next time that a major bank fails in Greece or Italy or Spain (or in the United States for that matter), the precedent that has been set in Cyprus will be looked to as a “template” for how to handle the situation.

Eurogroup president Jeroen Dijsselbloem has even publicly admitted that what just happened in Cyprus will serve as a model for future bank bailouts.  Just check out what he said a few days ago…

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders”

Dijsselbloem insists that this will cause people “to think about the risks” before they put their money somewhere…

“It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them.”

Well, as depositors in Cyprus just found out, there is a risk that you could lose 40 percent (and that is the best case scenario) of your money if you put it in the bank.

Why would anyone want to take that risk – especially in a nation that is already experiencing very serious financial troubles such as Greece, Italy or Spain?

As if that was not enough, Dijsselbloem later went in front of the Dutch parliament and publicly defended a wealth tax like the one that was just imposed in Cyprus.

Dijsselbloem is being widely criticized, and rightfully so.  But at least he is being more honest that many other politicians.  His predecessor as the head of the Eurogroup, Jean-Claude Juncker, once said that “you have to lie” to the people in order to keep the financial markets calm…

Mr. Dijsselbloem’s style contrasts with that of his predecessor, Jean-Claude Juncker, Luxembourg’s prime minister, who spoke in a low mumble at news conferences and was expert at sidestepping questions. Mr. Juncker once even advocated lying as a way to prevent financial markets from panicking—as they did Monday after Mr. Dijsselbloem’s comments.

“When it becomes serious, you have to lie,” Mr. Juncker said in April 2011. “If you have pre-indicated possible decisions, you are feeding speculation in the financial markets.”

But Dijsselbloem is certainly not the only one among the global elite that is admitting what is coming next.  Just check out what Joerg Kraemer, the chief economist at Commerzbank, recently told Handelsblatt about what he believes should be done in Italy…

“A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product”

Yikes!

And as I wrote about the other day, the Finance Minister of New Zealand is proposing that bank account holders in his nation should be required to “take a haircut” if any banks in his nation fail.

They are telling us what they plan to do.

They are telling us that they plan to raid all of our bank accounts when the global financial system fails.

And calling it a “haircut” does not change the fact of what it really is.  The truth is that when they confiscate money from our bank accounts it is outright theft.  Just check out what the Daily Mail had to say about the situation in Cyprus…

People who rob old ladies in the street, or hold up security vans, are branded as thieves. Yet when Germany presides over a heist of billions of pounds from private savers’ Cyprus bank accounts, to ‘save the euro’ for the hundredth time, this is claimed as high statesmanship.

It is nothing of the sort. The deal to secure a €10 billion German bailout of the bankrupt Mediterranean island is one of the nastiest and most immoral political acts of modern times.

It has struck fear into the hearts of hundreds of millions of European citizens, because it establishes a dire precedent.

And when you cause paralysis in the banking system, a once thriving economy can freeze up almost overnight.  The following is an excerpt from a report from someone that is actually living over in Cyprus…

As it stands now, nowhere in Cyprus accepts credit or debit cards anymore for fear of not being paid, it is CASH ONLY. Businesses have stopped functioning because they cannot pay employees OR pay for the stock they receive because the banks are closed. If the banks remain closed, the economy will be destroyed and STOP COMPLETELY. Looting, robberies and theft are already on the rise. If the banks open now, there will be a massive run on the bank, and the banks will FAIL loosing all of its deposits, also causing an economic crash. TONIGHT there are demonstrations at most street corners and especially at the parliament building (just 2 miles from me).

Many are thinking that the ECB and EU are allowing Cyprus to fail as a test ground for new financial standards.

Just wanted all you guys to know the real story of whats going on here. Prayers are appreciated (although this is very interesting to watch) many of my local friends have lots of money in the banks.

Would similar things happen in the United States if there was a major banking crisis someday?

That is something to think about.

In any event, the problems in the rest of Europe continue to get even worse…

-The stock market in Greece is crashing.  It is down by more than 10 percent over the past two days.

-The stock markets in Italy and Spain are experiencing huge declines as well.  Banking stocks are being hit particularly hard.

-The Bank of Spain says that the Spanish economy will sink even deeper into recession this year.

-The latest numbers from the Spanish government show that Spain’s debt problem is rapidly getting worse…

“The central government’s interest bill surged 15 percent last year to 26 billion euros, while tax receipts slumped 21 percent. The cost of servicing debt represented 30 percent of the taxes collected at the end of December, up from 20 percent a year earlier.”

-The euro took  on Thursday and the euro will likely continue to decline steadily in the weeks and months to come.

For a very long time I have been warning that the next major wave of the economic collapse is going to originate in Europe.

Hopefully people are starting to see what I am talking about.

As this point, the major banks in Europe are leveraged about 26 to 1, and that is close to the kind of leverage that Lehman Brothers had when it finally collapsed.  As a whole, European banks are drowning in debt, they are taking risks that are almost incomprehensible and now faith in those banks has been greatly undermined by what has happened in Cyprus.

Anyone that cannot see a crisis coming in Europe simply does not understand the financial world.  A moment of reckoning is rapidly approaching for Europe.  The following is from a recent article by Graham Summers…

At the end of the day, the reason Europe hasn’t been fixed is because CAPITAL SIMPLY ISN’T THERE. Europe and its alleged backstops are out of money. This includes Germany, the ECB and the mega-bailout funds such as the ESM.

Germany has already committed to bailouts that equal 5% of its GDP. The single largest transfer payment ever made by one country to another was the Marshall Plan in which the US transferred an amount equal to 5% of its GDP. Germany WILL NOT exceed this. So don’t count on more money from Germany.

The ECB is chock full of garbage debts which have been pledged as collateral for loans. If anyone of significance defaults in Europe, the ECB is insolvent. Sure it can print more money, but once the BIG collateral call hits, money printing is useless because the amount of money the ECB would have to print would implode the system.

And then of course there are the mega bailout funds such as the ESM. The only problem here is that Spain and Italy make up 30% of the ESM’s supposed “funding.” That’s right, nearly one third of the mega-bailout fund’s capital will come from countries that are bankrupt themselves.

What could go wrong?

Right now, close to half of all money that is on deposit at banks in Europe is uninsured.  As people move that uninsured money out of the banks, the amount of money that will be required to “fix the banks” will go up even higher.

It would be wise to try to avoid the big banks at this point – especially those with very large exposure to derivatives.  Any financial institution that uses customer money to make reckless bets is not to be trusted.

If you can find a small local bank or credit union to do business with you will probably be better off.

And don’t think that this kind of thing can never happen in the United States.

One of the key players that was pushing the idea of a “wealth tax” in Cyprus was the IMF.  And everyone knows that the IMF is heavily dominated by the United States.  In fact, the headquarters of the IMF is located right in the heart of Washington D.C. not too far from the White House.  When I worked in D.C. I would walk by the IMF headquarters quite a bit.

So if the United States thought that confiscating money from bank accounts was a great idea in Cyprus, why wouldn’t they implement such a thing here under similar circumstances?

The global elite are telling us what they plan to do, and the game has dramatically changed.

Move your money while you still can.

Unfortunately, it is already too late for the people of Cyprus.

 

Source: The Economic Collapse

Economics of Gun Control

Money and guns, often goes together. Sometimes used for the protection of cash, other times made on the sales and use of guns and ammo. Manufactured and sold openly, weapons of every description are a stable in the marketplace. Yet, firearms seem especially targeted for ownership extinction by law-abiding citizens. Ironically, the public purchases of personal pistols, rifles and shotguns are systematically restricted and regulated, while law enforcement officials add the latest in advanced ordinances to their arsenals. The obvious message is that the government is preparing for war against their own citizens.

The distinguished sage, Murray Rothbard, in The Economics of Gun Control, offers a historic example of government regulation for intentional consolidation designed to eliminate the mom and pop neighborhood gunsmith.

“The latest gun control proposals from the Clinton administration provide an instructive, if unwitting, lesson in the economics of government intervention. Until this year, if you wanted to become a federally licensed gun dealer, you only needed to pay $10 a year. But the “Brady Bill” raised the federal license fee to $66 a year a more than 500% increase at one blow. Even this is not enough for Secretary of the Treasury Lloyd Bentsen, who proposes to raise fees by no less than another tenfold, to $600 a year.

One fascinating aspect of this drastic rise in license fees is that Bentsen actually proclaims and welcomes its effect as a device to cartelize the retail gun industry. Thus, Bentsen, in the non sequitur of the year, complains that there are 284,000 gun dealers in the country, “31 times more gun dealers than there are McDonald’s restaurants.”

That bastion of self-defense docility, the New York Times in Gun Control as Economic Stimulus, describes the inflow of federal receipts since the selection of Barack Obama to be the head gun grabber. Well, before the Sandy Hook false flag self-justification excuse for banning numerous small arms, the trend to hoard guns and ammo became a growth industry.

“Here’s a chart showing millions of dollars of firearms and ammunition excise taxes collected at the federal level over the last decade:

Firearm and ammunition tax revenues skyrocketed for a different reason: These went up because people were simply buying more guns and ammunition, apparently because they feared Barack Obama would curb their access to deadly weapons upon taking office.”

In the consistent statist tradition of disarming the public, the haters of the Second Amendment look to curtail sales to individuals. The economics behind the U.S. gun control debate illustrates the trends for sales to government agencies as the future market for the gun industry.

“At a time when the U.S. economy is fragile, it’s more difficult to clamp down on an industry that posts annual sales of $12 billion and has been generating new, high-paying, high-skill jobs at an impressive pace. In fact, over the past two years – as U.S. unemployment has surged over eight per cent – the gun industry has created 26,000 new jobs that pay an average of $47,000 a year in salaries and benefits.

Furthermore, rather than suffering through the recession, gun sales have climbed as Americans have become more fearful of police budget cuts, rising crime, general civil unrest and, post-9/11, terrorist threats.

The fact that U.S. government agencies, spurred by new counterterrorism measures, account for 40 per cent of gun industry revenues is also a crucial consideration . . .”

Keepers of the peace have become predators of the Homeland Security society. The neutering of local authority for federal jurisdiction is the hidden result of all the latest legislation intended to unarm the public.

By now, you probably heard the account of Feds Buy Two Billion Rounds of Ammunition, as reported in Breitbart.

“It’s not the number of bullets we need to worry about but the number of feds with guns it takes to use those bullets. There are currently more than 70 different federal law enforcement agencies employing over 120,000 officers with arrest and firearms authority . . . That’s an increase of nearly 30 percent between 2004 and 2008. If the trends have continued upward at a relatively steady rate, that would put the total number of federal law enforcement officers at somewhere between 135,000 and 145,000. That’s a pretty staggering number, especially when you consider that there are only an estimated 765,000 state and local law enforcement officers. That means that about one in seven law enforcement officers in the country works directly for the federal government, not a local jurisdiction.”

The operational economics of gun control legislation has the purpose of maintaining a state controlled monopoly for firearms. One such example seen in the bill, known as the NY SAFE Act, included is a ban on any semi-automatic rifles or shotguns with “military-style” features, such as a pistol grip or a folding stock, has the goal of disarming the public. Such draconian methods drive the trade in guns underground. The black market in arms becomes the defiant mart for the new criminalization of self-protection seeking citizens.

The natural response from gun manufacturers, which are in the liberty survival business, is to boycott sales of their products to the very tyrannical government that wants to stamp out constitutional rights. Companies like Olympic Arms, LaRue Tactical, York Arms, Templar Custom and EFI, are cutting off sales to law enforcement agencies within jurisdictions that enact unconstitutional laws and regulations. A more complete list can be found in, Gun Companies Boycotting Law Enforcement In Anti-Gun States.

The federal SWAT shooters follow bureaucratic orders, as they tear down the last vestige of a free people. Curtailing or driving out of business, legitimate firearm manufacturers, wholesalers and retailers, is a part of the plan to eliminate resistance to the gun grabbing despotic regime.

Just look how far the anti gun culture politicos have gone since the Clinton era to tax gun sales out of business. Today your very own Inherent Autonomy existence is at stake from state governments as well as the federal tyrant.

Austerity USA Begins March 1st

U.S. politicians have cried wolf over austerity long enough for the public to ignore them. A perfect time, then, for politicians to actually unleash the wolves. Barring an unlikely last minute deal, here’s a short list of some of the massive, national bi-partisan-created austerity cuts, according to the New York Times

• 600,000 food stamp recipients will be cut from the program

• Massive education cuts. According to President Obama: Once these cuts take effect thousands of teachers and educators will be laid off and tens of thousands of parents will have to scramble to find child care for their kids. “

• $12 billion in Medicare cuts (more to come after 2013)

• Federal funds to state governments will be cut, creating even more deficits for states and municipalities, and thus more localized cuts (the states have already made austerity cuts of $337 billion!)

• Also, 700,000 jobs are expected to be loss, while 70,000 kids are also expected to be kicked off of Head Start

And this is just for 2013. The current plan for the austerity “sequester” cuts is $100 billion of federal cuts every year for ten years, equaling massive cuts to jobs, Medicare, education, and completely destroying federally funded social programs.

Will it actually happen this time? The New York Times reports:

In private, Capitol Hill staff members and members of Congress have admitted that there are no viable plans on the horizon to delay or offset the cuts.

The finger pointing in Washington, D.C. has already reached a crescendo, with the perverted logic being that, if both parties are to blame, it’s really no one’s fault. In reality Democrats and Republicans created these “sequester” cuts, and they can just as easily undo them with a snap of the finger.

Both parties are choosing not to delete the cuts. They just don’t want political responsibility for the fallout, which many economists have predicted will push the U.S. economy over the edge into official recession.  

Obama has predictably blamed the Republicans for this mess, even though he personally began this process by creating the “deficit reduction commission” that helped shape the cuts (keep in mind there is zero debt crisis that calls for such drastic measures).

Obama could also just as easily appeal to the American public — over the heads of congressmen — to demand that the cuts be shelved forever. Instead, he’s proposing a “grand bargain” deal that he knows the Republicans won’t go for.

What’s in Obama’s grand bargain deal? :

• $130 billion in “savings” [cuts] to Social Security, by implementing a “superlative CPI”

• $35 billion in “savings” [cuts] to the retirement of federal employees

• $400 billion in health care “savings” [cuts], much of it Medicare cuts.

Obama cynically fails to mention the words Social Security or Medicare in the above plan, choosing instead to write in code (“superlative Consumer Price Index”). Obama’s plan to avoid the March 1st cuts still assumes that $500 billion in cuts will be implemented over the next ten years, as opposed to $1trillion.

But his plan is just a distraction. Obama knows his plan has no chance of being passed by March 1st. He’s falsely portraying his plan as the only alternative to the March 1st cuts, even though a far better idea — the one preferred by a vast majority of Americans — is to simply to shelve the sequester cuts forever. To not put forth this option makes Obama complicit in the cuts.

Many pundits have speculated that Congress will allow the cuts to go into effect for three weeks, since March 27th marks a fiscal deadline that will pressure Congress to maneuver anew.  This might trigger a new round of haggling over a new “grand bargain” that again targets “entitlement programs” and re-packages the massive cuts into a prettier box. The party that does the most effective finger pointing after the March 1st cuts will be in the best position to dictate matters post-March 27th, so say the pundits.

Whatever the actual result, the Democrats and Republicans share similar enough visions that massive cuts to cherished social programs appear to be inevitable. Much of the made-for-TV bickering is pure political posturing, meant to fool the working people most affected by these cuts into believing it’s “the other party” that’s responsible.

Politicians have been able to get away with this disgusting behavior because there are very few independent voices telling the truth about what’s happening. Many labor and progressive groups are consciously lying about the dynamic, placing blame squarely on the Republicans, thus allowing the Democrats not to be held accountable for their pandering to the corporate elite’s demand to use austerity to attack the social safety net. In reality both parties are jointly attacking working and poor people via austerity, on a city, state, and national level.

If Labor and community groups united in a demand of ‘No Cuts, Tax the Rich’ and organized massive mobilizations, there would be a very different public debate happening right now. It’s not too late for these groups to tear themselves from the jaws of their attackers.

Notes

http://www.nytimes.com/2013/02/24/us/politics/hard-budget-realities-as-agencies-prepare-to-detail-reductions.html?hp&_r=0
http://abcnews.go.com/Politics/video/obama-sequester-budget-cuts-slow-economy-eliminate-good-18574948
http://www.cbpp.org/cms/index.cfm?fa=view&id=711
http://www.ibtimes.com/cost-sequestration-700000-jobs-may-be-lost-across-board-budget-cuts-through-2014-gdp-growth-may-slow
http://www.huffingtonpost.com/2013/02/22/sequester-recession_n_2741558.html

http://www.economist.com/news/united-states/21572190-ships-lie-uselessly-anchor-and-lay-offs-loom-deep-congress-imposed-spending-cuts-look

There’s Still A Foreclosure Crisis

As Many as 90% of Foreclosed Properties Held Off the Market…

“I still worry about further price declines. There’s no really concrete reason for an upturn now. A recent survey of home buyers didn’t find any sudden change in optimism and there seems to be a souring on the idea of home ownership. That might reverse again as the crisis ends, but I suspect that it’s not easily reversed because the whole idea of proudly owning a home has been tarnished … That’s why I think home prices may still go down.” – Robert Shiller, co founder of S&P Case-Shiller Home Price Index

There’s an article on the AOL Real Estate blog that explains much of what is happening in today’s housing market although the piece was written back in July 2012. The article, which was written by journalist Teke Wiggen, was widely circulated when it first appeared, but has since been swept down the memory hole to make room for the nonsensical blabber about a “housing recovery”. Even so, it’s worth reviewing the content of Wiggin’s extraordinary piece since the facts are just as relevant today as when he first wrote them 7 months ago. Here’s a clip from the article titled “‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”:

“As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole.

Online foreclosure marketplace RealtyTrac recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers, the company said.

Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, which include mortgage giants Fannie Mae and Freddie Mac as well as the Federal Housing Administration.” (“‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”, AOL Real Estate)

It’s worth noting, that CoreLogic and RealtyTrac are two of the most respected names in the industry, in fact, Calculated Risk, the nation’s Number 1 economics blog, frequently uses data from CoreLogic to make its point that prices have “bottomed” and that housing is gradually recovering. Here’s more from the article:

“… if lenders turn their REO release valve to full blast, the deluge of foreclosures cascading onto the market could plunge the country into a recession, said Thomas Martin, president of consumer advocacy group Americas Watchdog.

“If they let the dam essentially break. It could be a catastrophic disaster for the U.S. economy,” he said, predicting that some major banks would fail and home prices would nosedive by 20 percent.

That doomsday scenario has many industry professionals supporting lenders’ tactics of holding onto most of their REOs. Otherwise, they would be “causing the floor to fall out from underneath the entire market,” Faranda said. He added that banks don’t have the manpower to push the paperwork required to put all their foreclosures on the market.” (“‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest”, AOL Real Estate)

So, the banks are deliberately keeping the majority of distressed homes “off market” in order to keep prices artificially high, fleece another generation of credulous buyers, and effect the appearance of a revitalised and soaring housing market. Now–tell me–which part of this equation even vaguely resembles a “free market”? It’s all central planning by a criminal bank cabal that controls all the levers of state power lock, stock and barrel.

Even so, it looks like John Q Public has swallowed this latest load of public relations malarkey judging by data that shows that sales of new and existing homes are gaining pace. Ahh, but looks can be deceiving. A closer inspection of the data suggests that it’s not Mr. Public who’s buying all those homes, but deep-pocket speculators who’ve piled into the market seeking short-term gains. Check this out from Bloomberg:

“Transactions involving investors jumped 75 percent in November from a year earlier in 25 metropolitan areas tracked by Radar Logic Inc. It’s a market that could total 12 million homes, JPMorgan analysts led by Anthony Paolone wrote in a note last month.

Blackstone, the largest U.S. private real estate owner and the only firm with more homes than Hughes, has spent $3 billion on rentals, Jonathan Gray, Blackstone’s global head of real estate said today at a Credit Suisse Financial Services Forum in Miami. Blackstone said last month it spent $2.7 billion on 17,000 properties, accelerating purchases as prices rose faster than anticipated…

The New York-based firm, which started buying single-family houses last year, has bought so quickly it’s “warehousing” more than half of the inventory as it completes purchases, renovates and rents the properties, Gray said in January…

Whether the single-family rental market grows from “a $10 to $20 billion market to a $100 to $200 billion market” will depend “on how successfully institutional investors are able to execute over the next few years,” Bordia said.” (“Billionaire Hughes Chasing Blackstone as U.S. Rental King”, Bloomberg)

Get the picture? It’s a speculator feeding frenzy featuring some of Wall Street’s biggest names all plunging into the sharkpool at the same time. The only thing missing from this bizarre mix is the traditional young couple looking to partake in the American dream by buying their first home or the move-up buyer who wants to use the equity he’s built up over the last decade to buy that 3-bedroom Tudor in the country. Normal “organic” buyers have vanished from the marketplace while ravenous speculators are grabbing everything that isn’t bolted to the floor. Naturally, that’s pushed prices higher while creating the illusion of a thriving market.

But what do these investors really have in mind? Are they planning on becoming responsible long-term landlords committed to serving the needs of the community after the devastation they caused by crashing the financial system in 2008?

In your dreams! Here’s more from Bloomberg:

“New York-based JPMorgan, whose private bank oversees $877 billion, started pooling investments from its clients in mid- 2012 into a partnership to purchase distressed properties, betting that prices will rise over the next several years and provide investors with income from renters along the way, said Lyon…

The goal is to sell the houses within three to four years in one of three ways: through an initial public offering of a real estate investment trust, a sale to an existing REIT or to an institutional buyer such as a pension fund, Lyon, who’s based in San Francisco, said. Clients will receive a share of any price appreciation depending on the size of their investment.” (“JPMorgan Joins Rental Rush For Wealthy Clients: Mortgages”, Bloomberg)

There you have it. The banks are only going to hang-around long enough to see prices surge, then they’re going to dump their inventory back on the market so Mom and Pop can see their equity go down the drain for the second time in a decade. Nice, eh? Speculators aren’t interested in building a strong and sustainable housing market, what they’re looking for is a sharp jolt to quarterly profits, so they can nab that new Maserati Gran Tourismo for those long drives to the Hamptons.

And there’s another part of this story that may seem only remotely connected to the “vanishing REO inventory”, but it has a profound effect on the market all the same, that is, the fact that the banks are still cooking the books to make it look like they’re in better shape than they really are. If these fundamentally-insolvent financial institutions had been taken over and nationalized when the government had the chance in 2009, then their stockpile of toxic assets and non performing loans would have been processed and sold via a gov entity like the Resolution Trust Corporation (RTC) which helped to liquidate bank-owned assets following the savings and loan scandal. That means, housing prices would have found a real bottom by now, and the market would be experiencing positive growth. (unlike the fake investor-fueled growth we see now) But since the TBTF zombies were propped up by trillions in public funds, bailouts, handouts, subsidies and other forms of corporate welfare, the problem persists to this day. Get a load of this from Floyd Norris at the New York Times:

“The board that sets American accounting rules moved on Wednesday to substantially reduce the use of market values in financial statements. The move, if adopted, would give banks more freedom to value financial assets as they deem appropriate.

The proposal by the Financial Accounting Standards Board, contained in what is called an exposure draft, would also end the counter intuitive practice of a bank’s profits rising simply because its credit has worsened, and then falling when the credit recovers…

Under the proposed new rules, which are unlikely to become effective before 2015, it would no longer matter whether a particular bank asset was a bond or a loan. Either way, if the bank intended to keep the asset until it was paid off, it would be carried on the books at cost, without rising or falling in value when market prices changed.” (“Proposal Gives Banks More Freedom to Value Assets”, New York Times)

How do you like that? So, the banks are not only allowed to assign fake prices to their assets, they can also report an increase in profits when their credit deteriorates. Such a deal! In other words, if a mortgage-backed security (MBS) that’s packed with subprimes and liar’s loans has plunged to $.30 cents on the dollar, Mr. Banker can keep it on the books at 100 cents on the dollar, thus, preserving the confidence of his thoroughly-hoodwinked shareholders. This is just another illustration of how the banks have corrupted the regulatory system to the point where no one has the foggiest idea of what they’re really worth.

So, how does all this accounting hanky-panky connect with the fact that the banks are keeping 90% of foreclosed properties off the market?

It just explains how regulators have teamed up with the banks to keep the “housing recovery” charade in place. If the banks were forced to write-down the losses on their stockpile of non performing loans and defunct mortgages, then more REOs would be pushed onto the market and prices would fall sharply. But because the banks are allowed to lie, the housing depression drags on. That’s not only bad for the economy, it also puts the public at risk of another crisis because, as the Wall Street Journal notes:

“… investors will remain reliant on banks’ own views of the worth of their assets. Those judgments proved seriously flawed during the financial crisis and left many with insufficient capital. Taxpayers, who as a result were called upon to bail out numerous institutions, also are left more vulnerable.” (“Banks Have Their Way With FASB”, Wall Street Journal)

Allowing the banks to lie puts everyone at greater risk. Unfortunately, that doesn’t matter to Obama and his cohorts at the Fed. They’ve done everything in their power to preserve black box banking, an opaque, criminal business model built on deception, avarice and theft, the banker’s trifecta.

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