The next World War

This is not a catchy title aimed at getting your attention. This is what our governments are planning if not by choice then by necessity.

(NB) Some of you have complained that the first iteration of this post was too disjointed. I am now altering it to highlight some of the relationships that have been discussed in previous posts in an attempt to connect the dots for those that have not followed my posts previously.

Mike Shedlock puts out a great summary of the illegal shenanigans our governments are tolerating and or colluding in and outlines the basis for what should be public outrage but is not… yet. Mike Shedlock does not go as far as predicting a global conflict. I do. Here’s why:

The defining characteristic of fiat money is inflation. One of the characteristics of inflation is that it brings forward and compresses in time the demand and production cycles.

Thus towards the end of the inflationary dynamic, you have excessive industrial capacity thus low pricing power.

Keep that in mind.

The only reason the West will engineer a war is because the coffers are empty. I know that alarmists have been jumping up and down for decades claiming that the coffers are empty. But they have been and still are empty. The difference is that for as long as a government is able to generate inflation, then you can borrow and spend thus maintaining the appearance of solvency (think of the pension trust fund that has been spent for example). However, inflation has a mathematical limit. Essentially, when interest rates are approaching zero and your entire issue of government securities goes towards servicing the debt, you no longer can borrow.

Printing money is a solution IF the money circulates. But if it doesn’t, then all you are doing is destroying the currency.

http://research.stlouisfed.org/fred2/series/MULT

Keep that in mind too.

Now!

One of the more insidious characteristics of deflationary recessions is that as unemployment rises, social costs go through the roof. However, government tax revenue drops dramatically (because of forced liquidation of which more later).

So, governments have to cut back on social expenditure just at the time that unemployment is rising.The other characteristic of deflation is that it forces a liquidation of assets thereby decreasing nominal earnings and the nominal value of balance sheets. The direct result is that all pyramid schemes and illegal finance arrangements are blown out of the water.

Therefore, we will have rising unemployment and a reduction of social expenditure at a time when many politicians and select members of the business elite will be implicated in scandal after scandal; and trust me, we are not done finding out about illegal or criminal practices. I know this because as the beneficial effect of inflation pumping wanes, government has a vested interest in aiding, abetting and colluding in criminal action (Fannie Mae… Goldman Sachs).

http://globaleconomicanalysis.blogspot.com/2009/10/where-hell-is-outrage.html

http://market-ticker.org/archives/1514-Tying-It-Together-Massive,-Pernicious-Fraud.html

The unemployed, the retired and the students will not take well to the new juncture and civil disorder will follow in short order.Civil disorder means that governments will fall.Politicians in the West are not about to relinquish power and they are certainly not about to admit that they are no better than your garden variety Mugabe.

Before enough unemployed will be roaming the streets looking for some politician to lynch, we’ll have us a world war.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6QpSf.s4NaA

It’s been done before for exactly the same reasons. There is absolutely no reason why it should not be done again.

We don’t need resources. We need to destroy plenty of infrastructure so that we may restart the inflation dynamic. No inflation = government default

Forward this post to anyone and everyone on your mailing list. You are the only ones that can prevent the next world war by forcing accountability and legal consequences on our politicians.

– ADDENDUM MARCH 11TH, 2012 –

As I go over posts written over the past few years, I realize that till very recently I have made use of the words “inflation” and “deflation” in erroneous thus ambiguous ways.

Inflation of course, is the expansion of the monetary base and credit. Deflation is the contrary.

Till very recently, whenever I mentioned “inflation” I meant the expansion of the monetary base and credit. So that is correct. However, whenever I mentioned “deflation” I meant the nominal decrease in asset prices thus in balance sheet.

You will forgive me as I am new at this writing stuff.

Below is the link to as well as the entire text of Mike Shedlock’s post

http://globaleconomicanalysis.blogspot.com/2009/10/where-hell-is-outrage.html

Where The Hell Is The Outrage?

The number of articles and opinions on Goldman Sachs earnings, bonuses, and influence pedaling over the past several days is quite stunning.

Many have pointed out the problems; few have expressed outrage over what is happening in general, not just at Goldman Sachs. Let’s take a look.

My take is at the end.

Letting The Dice Roll

Rolfe Winkler at Contingent Capital is writing Letting Goldman Roll The Dice.

Is Goldman really such an indispensable financial intermediary? One look at the firm’s revenue breakdown shows that it’s more casino than anything else, and some of the markets it makes still put the economy in danger.

Goldman, in other words, generates most of its revenue trading its own money and earning vigorish on customer transactions. It’s a hybrid hedge fund and bookie, with an investment bank and asset management business thrown in for good measure.

With that in mind, one is left to wonder whether Goldman was really worth saving last year. What have taxpayers received for the $50 billion worth of cash and guarantees, for giving Goldman access to the Federal Reserve as its lender of last resort?

Saving Goldman was largely about saving the derivatives market, which is so big and unstable that the death of one counterparty could mean the death of all. With big commercial banks like JPMorgan Chase in deep, saving the derivatives business was as much about protecting depositors and maintaining the integrity of the payment system as it was derivatives themselves.

To Goldman’s credit, they’ve rebuilt their capital levels faster than anyone. Their leverage ratio has fallen from 35 to 16 in less than two years, despite pressure from equity analysts to juice returns by deploying “excess capital”. But at $50 billion, the bank’s mark-to-myth, or level 3, assets remain as high as its tangible common equity, the cushion it has to absorb losses.

Wall Street and its protectors at the Fed and Treasury tell us the bailout was necessary to protect the financial system, to protect Main Street. That may be. But Main Street still owns much of the risk while Wall Street gets all of the profit.

Geithner’s Appointment Book

The New York Times is taking A Look Inside Geithner’s Appointment Book

As Treasury secretary in the aftermath of last fall’s Wall Street meltdown, Timothy F. Geithner needs to keep in touch with the nation’s top bankers. But it seems that he connects with some financial chiefs much more often than others.

An analysis of Mr. Geithner’s calendars, which the Associated Press obtained through the Freedom of Information Act, shows that Mr. Geithner had contact with top executives at Citigroup, Goldman Sachs and JPMorgan Chase more than 80 times during his first seven months at Treasury — while the heads of Bank of America and Morgan Stanley appeared on his calendars a total of just six times.

The Associated Press describes one spring evening when Mr. Geithner had a series of particularly high-powered calls:

After one hectic week in May in which the nation faced the looming bankruptcy of General Motors and the prospect that the government would take over the automaker, Mr. Geithner wrapped up his night with a series of phone calls.

First he called Lloyd Blankfein, the chairman and C.E.O. at Goldman. Then he called Jamie Dimon, the boss at JPMorgan. Obama called next, and as soon as they hung up, Mr. Geithner was back on the phone with Mr. Dimon.

Gee what might those calls have been about? Derivative bets on GM by any chance?

How Goldman Sachs Leveraged $70 Billion In Government Money

Jesse’s Café Américain is reporting How Goldman Sachs Leveraged $70 Billion In Government Money.

Guess which two Wall Street banks were acting as informal agents of the government in order to support the bond and stock markets and reinflate them?

Two big banks that are showing record trading profits, and a small group of enablers and assistants.

Exchange Stabilization Fund – wise, its a near layup when the US fronts you the money and then works with you to take the markets higher. Especially when it is on thin volumes based on ‘news’ which you help to create and control via frequent calls to young Tim who is your coordinator, in addition to all your other well-placed backchannel sources. You get a heads up, you use the futures to prop the markets. You need some good news, some can be arranged. Just like the good old days when Timmy was riding herd on the NY Fed desk.

All for the good of the country. And if you happen to make a billion per month in trading profits, well, that is the price of freedom for a job well done.

Max Keiser On Fraud

Robert Parsons: Is this froth and no substance or is there something to this?

Max Keiser: The word is not froth the word is fraud. JPMorgan, Goldman Sachs, Citigroup, are all engaged in accounting fraud. They are not realizing losses on trillions of dollars worth of bad debts on their books, giving themselves big bonuses this year, deferring losses to next year ….”

Part One

Part Two

The Goldman Tithe

Joe Peyronnin at The Huffington Post is writing Tithe Goldman Tithe

So Goldman Sachs is now concerned its company has a perception problem? They are even going to undertake a huge public relations offensive to turn things around? Well they sure have plenty of money to throw at this problem.

For sure, Goldman Sachs bankers work hard at creating value for their customers and shareholders. And their success should be rewarded. But a report that the firm had set aside about $20 billion for employee bonuses has caused a backlash. Critics say that Goldman Sachs is just back to its old money making ways.

Sadly Goldman Sachs doesn’t really care what Main Street thinks. Rather they are concerned what Congress or the U.S. Government might do.

The projected 2009 Goldman Sachs bonus pool will be around $20 billion, a near record amount. Therefore the average pay out per employee could be more than the $661,490 given in 2007. Memo to Goldman Sachs: most Americans don’t make that much in a lifetime of working.

This year Goldman Sachs should tithe. Take 10% right off the top of the bonus pool, or $2 billion, and donate it to rebuilding New Orleans and the Gulf Coast of Mississippi and Alabama. Tap into their own brainpower to develop a plan to target the money on specific worthwhile projects so it does not get diverted to corrupt contractors and politicians. For starters, money could be used to rebuild the 9th ward of New Orleans, and devastated sections of Biloxi and Bay St. Louis, Mississippi.

Subsequently, Goldman Sachs should donate 10% of their bonus pool each year to a particular cause, helping injured and needy US military veterans, underwriting national after school programs designed to keep kids off the streets and out of trouble, curing diseases and the list goes on.

The US taxpayers supported the financial community when its collapse was imminent. Now it is time for financial institutions to help their country in its time of need.

Goldman’s Public Relations Bind

The New York Times says Bonuses Put Goldman in Public Relations Bind

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Goldman executives are perplexed by the resentment directed at their bank and contend the criticism is unjustified. But they find themselves in the uncomfortable position of defending Goldman’s blowout profits and the outsize paydays that are the hallmark of its success.

For Goldman employees, it is almost as if the financial crisis never happened. Only months after paying back billions of taxpayer dollars, Goldman Sachs is on pace to pay annual bonuses that will rival the record payouts that it made in 2007, at the height of the bubble. In the last nine months, the bank set aside about $16.7 billion for compensation — on track to pay each of its 31,700 employees close to $700,000 this year. Top producers are expecting multimillion-dollar paydays.

Goldman employees reaped rewards that most people can only dream about. Goldman paid out $4.82 billion in bonuses last year, awarding 953 employees at least $1 million each and 78 executives $5 million or more. The rewards for 2009 will be far greater.

Goldman executives know they have a public opinion problem, and they are trying to figure out what to do about it — as long as it does not involve actually cutting pay.

Another Goldman Executive Named To Key Government Post

Glenn Greewald writing for Salon notes Another Goldman executive named to key government post as its profits skyrocket.

Apparently, the U.S. government didn’t have enough Goldman Sachs executives in key financial and regulatory positions so Goldman Exec Named First COO of SEC Enforcement.
In October of last year, a Goldman Sachs Vice President, Neel Kashkari, was named by former Goldman CEO and then-Treasury Secretary Hank Pauslon to oversee the$700 billion TARP bailout. In January of this year, Tim Geithner hired a former Goldman Sachs lobbyist, Mark Patterson, to be his top aide and Chief of Staff. In March, President Obama nominated Goldman Sachs executive Gary Gensler to head the Commodity Futures Trading Commission, which regulates futures markets, even though (or “because”) Gensler confessed to lax regulation during the Clinton administration over the very derivative instruments that caused the financial crisis. In April, Goldman hired as its top lobbyist Michael Paese, the top aide to Rep. Barney Frank on the House Financial Services Committee which Frank chairs.

According to ABC News in October, 2008, Goldman “spent more than $43 million dollars on lobbying and campaign contributions to cultivate friends and buy influence in Washington, D.C. since 1989” and their “bankers have been the country’s top political campaign contributors this year.” “They are almost in a class by themselves,” said Sheila Krumholz, the executive director for the Center for Responsive Politics. As Michael Moore has been pointing out, Goldman was the number one source of funding for the Obama 2008 presidential campaign. The bailout of AIG — which resulted in massive federal government monies to Goldman — was engineered at a meeting between Paulson, Geithner and Goldman CEO Lloyd Blankfein. Last year, Goldman paid top Obama economics adviser Larry Summers $135,000 for a one-day visit to Goldman.

That the administration continues, so brazenly, to place Goldman Sachs executives in the very government positions with the greatest power over the financial industry illustrates how little effort is devoted to hiding what is really taking place.

Adam Storch COO of the SEC

The Business Insider has posted an image and qualifications of Adam Storch, 29-Year-Old Goldman Guy Who Is Now COO Of The SEC

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Storch graduated from SUNY Buffalo. During college he did a stint as a summer intern at Neuberger Berman and worked at Deloitte & Touche for two years after graduating.

Storch then went to NYU’s Stern School of Business. This lead to a job at Goldman, where he worked for the last five years.

Derivatives Bill’s Loophole May Exempt Most Firms

Gary Gensler, Chairman of the Commodity Futures Trading Commission says Derivatives Bill’s Loophole May Exempt Most Firms.

Legislation by Representative Barney Frank to tighten derivatives regulation contains an exemption that may let most financial firms escape new collateral and disclosure rules, the head of the Commodity Futures Trading Commission said.

A plan offered by the Obama administration would subject all swaps dealers and “major market participants” to new regulations for capital, business conduct, record-keeping and reporting. Frank’s version would exempt corporations from that definition if they use derivatives for “risk management” purposes.

“It is clearly the weakest of all the proposals I’ve seen to date,” said Christopher Whalen, managing director of Institutional Risk Analytics in Torrance, California, in an interview before the hearing. Whalen, who has testified before Congress on derivatives regulation, is an independent bank analyst. “Frank’s committee seems to be intent on gutting any meaningful reform.”

The draft would ease trading and clearing requirements for derivatives dealers such as Morgan Stanley and Goldman Sachs Group Inc., compared with the administration’s proposal.

The Rich Have Stolen the Economy

Paul Craig Roberts, writing for CounterPunch says From Offshoring Jobs to Bailing Out Bankers The Rich Have Stolen the Economy.

Bloomberg reports that Treasury Secretary Timothy Geithner’s closest aides earned millions of dollars a year working for Goldman Sachs, Citigroup and other Wall Street firms. Bloomberg adds that none of these aides faced Senate confirmation. Yet, they are overseeing the handout of hundreds of billions of dollars of taxpayer funds to their former employers.

The gifts of billions of dollars of taxpayers’ money provided the banks with an abundance of low cost capital that has boosted the banks’ profits, while the taxpayers who provided the capital are increasingly unemployed and homeless.

Except for the banksters and the offshoring CEOs, there is no source of consumer demand to drive the US economy.

The political system is unresponsive to the American people. It is monopolized by a few powerful interest groups that control campaign contributions. Interest groups have exercised their power to monopolize the economy for the benefit of themselves, the American people be damned.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.

Tenacious Goldman

Here is one more article, from July, courtesy of New York Magazine: Tenacious G

On the weekend of September 12, 2008, as the financial system shuddered and appeared to be on the verge of lurching to a halt, two Goldman Sachs men, former CEO Hank Paulson and current CEO Lloyd Blankfein, huddled with other banking heads at the Federal Reserve Bank of New York to consider how to stave off disaster. Bear Stearns was dead. Merrill Lynch, run by another former Goldman man, John Thain, was in desperate need of a savior. And now Lehman Brothers was on the brink. As secretary of the Treasury, Paulson asked the banks to come up with a private-funding solution for Lehman before it imploded from lack of cash. But all the banks had been scrambling for cash reserves or strategic mergers to buffer against a rapid freeze in lending. No one was able, or willing, to help. And Paulson, a free-market purist, had made one thing clear up front: The government would not bail out the firm. Lehman Brothers, a longtime Goldman rival, prepared to declare bankruptcy, ending its 158-year run on Wall Street.

By Sunday night, Paulson realized he had an even bigger problem: the insurance giant AIG. AIG had sold billions in credit-default swaps to several major banks, what amounted to unregulated insurance on risky subprime-mortgage investments, the very ones that were bringing down the economy.

Hank Paulson and then–New York Fed chief Tim Geithner called an emergency meeting for the following Monday morning at the Federal Reserve Bank, ostensibly to discuss whether a private banking syndicate could be established to save AIG—one in which Goldman Sachs and JPMorgan Chase, two of the ailing insurance giant’s clients, would play prominent roles.

At the meeting, it was hard to discern where concerns over AIG’s collapse ended and concern for Goldman Sachs began: Among the 40 or so people in attendance, Goldman Sachs was on every side of the large conference table, with “triple” the number of representatives as other banks, says another person who was there. The entourage was led by the bank’s top brass: CEO Blankfein, co-chief operating officer Jon Winkelried, investment-banking head David Solomon, and its top merchant-banking executive Richard Friedman—all of whom had worked closely with Hank Paulson two years prior. By contrast, JPMorgan CEO Jamie Dimon did not attend.

The Goldman domination of the meetings might not have raised eyebrows if a private solution had been forthcoming. But on Tuesday, Paulson reversed course and announced that the government would step in and save AIG, spending $85 billion in government money to buy a majority stake.

Of the $52 billion paid to AIG’s counterparties, Goldman Sachs was the biggest recipient: $13 billion, the entire balance of its claim. The amount was surprising: Banks like Merrill Lynch that had bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar in deals moderated by New York’s insurance regulator. Eric Dinallo, the former New York State insurance commissioner, who was at the AIG meetings, characterizes the decision this way: AIG’s counterparties, Goldman being the most prominent, “got to collect on an insurance policy without having the loss.”

Somehow not recognizing (or perhaps not caring about) the brewing backlash, Paulson continued to appoint Goldman Sachs alumni to positions of power after the AIG decision—he named Edward C. Forst, a former head of Goldman’s investment-management division, to help draft the $700 billion Toxic Asset Relief Program (of which $10 billion went to Goldman Sachs), and then Neel Kashkari, a former Goldman V.P., as the TARP manager. And of course Edward Liddy, former Goldman board member, was already serving as the new CEO of AIG. Suddenly, everywhere you looked, men who had passed through the Goldman gauntlet of loyalty and rewards were now in key positions overseeing the rescue of the financial system. The company was earning its nickname: “Government Sachs.”

Both Rogers and Paulson (who’s publishing a book this fall that will presumably attempt to justify his decisions and save his damaged legacy) have argued that the AIG decision was about saving the system as a whole, not Goldman in particular.

Similarly, they say, when it came to AIG, the firm was “prudent” in hedging its bets, buying credit-default swaps from Bank of America, JPMorgan, Société Générale and other banks in case AIG failed to pay the money it owed Goldman—in effect, hedging its hedge against the mortgage market. Goldman Sachs had no “material exposure” to AIG, they argue. One senior executive goes so far as to suggest the firm might even have benefited from AIG’s demise. “We might have done very well,” he says, “but I wouldn’t be so presumptuous as to say that. Who knows?”

Not a single Wall Street executive I spoke with, including several Goldman Sachs alumni, believe those hedges would have survived an overall collapse of the financial system. A large loss would have been inevitable as lending evaporated, and Goldman Sachs would have struggled to shrink the company to a fraction of its size overnight. But the most glaring argument against Goldman is Goldman’s own: If AIG’s biggest and most important bank customer was hedged against losses in AIG, as it claims, why did the government need to pay Goldman Sachs the full $13 billion?

Lost in the haze of Goldman’s recent record profits is the fact that the firm nearly went under even after the AIG bailout last fall. As the market continued to plunge and Goldman’s stock price nose-dived, people inside the firm “were freaking out,” says a former Goldman executive who maintains close ties to the company.

Salvation came on November 25, a few days after Goldman’s stock price plunged to $52 a share, down from the year’s high of $200 and the lowest price the company had seen since it went public. Again, the white knight was the government. It turned out that Goldman’s conversion to a garden-variety bank-holding company offered an amazing advantage: Goldman now had access to incredibly cheap money. Exploiting its new status, Goldman became the first financial institution to sell $5 billion in government-backed bonds through the Federal Deposit Insurance Corporation, which allowed Goldman to start doing deals when the markets were at a near standstill.

Those FDIC notes they got were lifesaving because they couldn’t issue any debt. If it had gone on another week or two, Goldman would have failed, they would have gone the way of Lehman, and you’d be talking about Lloyd the way you talk about [Lehman CEO] Dick Fuld.”

Even Goldman alumni were struck by the company’s shameless posture in ramping up the leverage again so soon after the government bailouts. “It’s a statement of arrogance,” says one former executive.

Goldman claims that there is a Chinese Wall between the advisory business and the trading business. “There are rules and laws regarding information sharing, and we scrupulously follow them,” says a company spokesman.

But two former clients told me they had observed firsthand how Goldman traded against their interests to improve its own bottom line—one who didn’t like it, the other accepting it with a shrug and saying, admiringly, that Goldman’s ability to convince the world that it is a “client-oriented” business was its most masterful PR coup.

Goldman’s profiting from this ethical gray area was exemplified by the real-estate market and the subprime-mortgage collapse: Goldman Sachs sold subprime-mortgage investments to its clients for years, but then in 2006 began trading against subprime on its own balance sheet without informing its clients, a hedge that ultimately let it profit when the real-estate market cratered. For some, this was a prescient call; for others, a glaring conflict of interest and inherently dishonest, since the firm let its clients take the fall.

Earlier this month, Goldman had an ex-employee arrested for allegedly stealing computer codes that could be used, as the prosecutor noted, “to manipulate markets in unfair ways.” Some hedge-fund traders and financial bloggers have speculated that Goldman itself could have been using the codes for the same purpose.

Now attention is turning to Goldman’s dominance of trading on the New York Stock Exchange—as the exchange’s biggest high-speed program trader as well as a provider of liquidity to other traders—and whether that ubiquity has afforded the firm undue advantage. If Goldman’s database knows nearly every trade that is about to be made, sophisticated computer codes could, theoretically, instantly execute fail-safe trades on Goldman’s behalf milliseconds beforehand. This, some are insisting, is where the company is manipulating the markets and making hundreds of millions of dollars a day.

The New York Magazine article is 8 pages long and well worth a read in entirety.

My Take

As long as the playing field is level, corporations are entitled to make what they can and do with the profits what they want, and that includes granting whatever bonuses a corporation wants.

Let’s see how level the playing field was and still is.

AIG

Goldman Sachs makes the case that it was hedged so it deserved not to lose anything. However, as the New York magazine points out, the odds are high that those hedges were worthless because of the sheer amount of leverage and counterparty risk. Yet, Goldman received $13 billion, the entire balance of its claim on AIG while “Banks like Merrill Lynch that bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar.

Every financial institution involved should return every cent of that money because they all would have failed without government (taxpayer) handouts.

GM

It is incredibly peculiar that in “one hectic week in May in which the nation faced the looming bankruptcy of General Motors and the prospect that the government would take over the automaker, Mr. Geithner wrapped up his night with a series of phone calls” to JPMorgan and Goldman Sachs.

I suspect those calls were in regards to concerns over the derivative books of JPMorgan and Goldman Sachs. It is no secret that more credit default swaps were bet on GM than there were underlying bonds.

Of course, the realm of possibilities says those calls may have been to arrange last-minute details for a group fly fishing trip to Paulson’s private island off the coat of Georgia. However, the realm of probabilities is much narrower.

Is it too much to ask the precise nature of those calls? I suppose it is.

The SEC Appointment

Is Storch really the most qualified candidate? Will a Goldman appointee overlook or squelch investigation into the practices at Goldman in favor of investigating Aunt Martha or some firms that Goldman just might want to step on?

Regardless, It sure does not hurt when you have someone at the SEC who will turn a blind eye to anything Goldman might have done wrong or is still doing wrong or alleged to be doing wrong.

There are a lot of allegations against Goldman about front running trades, naked shorting, high-speed program trading, and the sheer volume of program trading at Goldman Sachs. What are the odds any of this gets investigated, or that if is investigated any wrong-doing will be found?

Derivatives Legislation

Think any derivatives legislation will be passed that is not specifically beneficial to Goldman Sachs and JPMorgan? Think again.

Influence Pedaling

All hail “Government Sachs” the king of kings and master of the universe of influence pedaling. Salon.Com details position after position of ex-Goldman Sachs employees in positions of influence.

Yes, there is some public anger about Goldman Sachs. Sadly, much of it is misdirected towards the bonuses. The real outrage should be over the favoritism, influence pedaling, and business as usual environment in which Goldman Sachs can do what it wants, when it wants, while in a position to know in advance (and potentially trade off that knowledge) of what the government is about to do.

Where’s The Outrage?

I don’t know about you, but I am outraged.

I am outraged and not just about Goldman Sachs, but about a process that allows, even encourages political pandering, by time and time again rewarding leveraged riverboat gamblers and failed institutions and at taxpayer expense.

I am outraged that real people are suffering massively while the influence peddlers have stolen the country for their own personal benefit.

I am outraged at a political system that is totally unresponsive to the American people.

I am outraged by campaign contribution and lobbying processes that allows corporations to buy votes with donations.

I am outraged how legislators ignored the wishes of the people who clearly did not want these bailouts in the first place.

I am outraged that very little of this is in mainstream media. Why is this stuff not on the frontpage of every newspaper in the country or at least in the editorial pages?

I am outraged that the average US citizen is not aware of any of this, instead depending on CNBC, or “The View” for their interpretation of the world.

I am outraged how special interest groups have exercised their power to monopolize the economy for the benefit of themselves, US citizens be damned.

I am outraged that all these bailout programs are doing nothing to alleviate the massive consumer debt problems. Every program, virtually every program was designed to bailout lending institutions, not consumers.

I am outraged at fees charged by banks receiving bailouts.

I am outraged over government pension plans and government pay scales massively out of line with the private sector.

I am outraged that Congress and this administration thinks the solution to massive budget deficits are still higher budget deficits in excess of a trillion dollars.

I am outraged about indictments. Paulson Admitted Coercion to force a shotgun wedding between Bank of America and Merrill Lynch yet no indictments were handed out. Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis.

I am outraged that US citizens are not concerned enough and not educated enough to demand change.

I am outraged that the two party system has failed. Neither party has delivered meaningful change on budgets, on taxes, on social security, on deficit spending, on the size of government, on military spending, or fighting needless wars.

I am outraged that the Obama Administration promised changed and did not deliver. “Yes We Can” was a lie. The reality is “It’s Business As Usual, Only Worse, With Higher Deficits”.

I am outraged there is not enough outrage over this.

Where the hell is the outrage?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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12 Responses to “The next World War”

  1. Manipulators Says:

    Manipulators…

    […]The next World War « Guido's temple of the absurd[…]…

  2. impulse addon Says:

    impulse addon…

    […]The next World War « Guido's temple of the absurd[…]…

  3. Bankruptcy Blog Says:

    This is some valuable information, I just finished up my paper for school and wish i would had found this article sooner. You may have just made me a regular 🙂

  4. thorsten Says:

    Click on the following link:
    http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html
    and tell me what the solution is.
    I am with you on the point of buying physical Gold, I have been since 2003, but that doesn’t help the masses that don’t really have a pot to piss in. They need jobs and it looks to me like the new economy will be in Asia. That’s where all the big money goes, and it leaves a trail. We are out-consumed.

  5. thorsten Says:

    The government, and I really hate to say this, is made up of people like us. They are neither from a different planet, not are they extremely bad people, even if it seems at times like it.
    Let’s try a different angle, the lending crisis: many blame the banks for frivolous lending habits and be it as it may, it would still have to make me go to a bank, wanting to buy the house that I cannot afford, undersign terms that I cannot live up to in the future.
    How many common people have a bit of money now, because they lucked out in the real estate market? The working class never had anything to start with, it was going well for a while and now many of them will be financially back to where they started. Nothing really happened. Some got rich, many ended up poor, what is so new about that scenario?
    Today was an article in the Globe@Mail. Headline: “People, don’t buy real estate, because interest rates will not stay that low”.
    What effect do you think that’s gonna have on the common people?
    I will tell you: they are buying left, right and center. There is reports already from Toronto, Montreal and Vancouver about bidding wars.
    Pure madness in my opinion and who cares really, if many of them get caught later on with their proverbial pants down.
    To me going to the bank is like going to the used car dealership, it has never been any different.

  6. davec Says:

    Spot on. The “rage” is too busy loading weapons magazines.

    Todays video on the near riots at UCLA fulfill or foreshadow this:

    “The unemployed, the retired and the students will not take well to the new juncture and civil disorder will follow in short order.”

    These students, dazzled by the Marxist vision of collegiate degree attainment of Royalty status, just discovered that the economy driving tuition up not only means their degree future just vanished, but with them in debt they cannot now afford to pay. When the individual finds nothing to lose, violence is easy.

    • guidoamm Says:

      There are legal means to force accountability upon our elected “leaders”. But the whole thing hinges on understanding what is at the root of the problem. Most people, including finance “professionals” have no idea as to the why and how what is happening is happening. It is absurd that a very large percentage of people have no idea what a monetary system is.
      Just for laughs, go ask your bank manager what he/she thinks is our monetary system. I think that in well over 70% of the cases you’ll get blank stares. So, if the professionals have no idea what framework they evolve in, how do you think most other people may be anymore aware?

      But I want to be clear about this. A fiat monetary system is actually a fantastic construct and could be a very effective tool.

      The problem arises with fiat money in a democratic context.

      This from a previous essay:

      https://guidoromero.wordpress.com/the-problem-with-deficit-spending/

      In an ideal world, government is nothing but the sum total of the aspirations, rights, obligations, wealth and moral duties of every household in the land. Government is a household composed of members of the households of the land elected by the people of the nation in order to act first as coordinator and regulator amongst them and, second, to be their representative to other nations. Administratively, legally and morally, what is true for a household is true for government. Thus, like a household, a government can only spend money according to its revenues and, just like you and me, any expenditure in excess of revenue must be borrowed.

      So, the people of the land not only elect some of their own to become members of the government but they also agree to devote a portion of their income and wealth to finance government operations. Therefore, in its basic form government has no wealth or money and, like a child depends on its parents, it is totally dependent on the well being of the people of the nation.

      If the people prosper individually, then so does government thus the nation. And it is never the other way around. NEVER.

      The prosperity of a nation is defined by a large number of indicators such as infant mortality, average life expectancy, cultural and scientific achievements, technological innovation and of course, average income.

      This is where things become fuzzy for most people and where the reality of government deviates from the reality of the life of individuals.

      If you’ve read any of my previous essays, then you know that a political system, any political system, is inherently inflationary.

      There are exceptionally few people alive today that are born before 1913. This is a significant date only to the extent that it marks the inception of our modern monetary and banking systems. Since then, everyone in the USA, and gradually in the rest of the Western world and now, thanks to globalization the rest of the world too, has lived in a monetary system based on fractional reserve banking and fiat money. What this means, is that you, me and two generations before us have lived in an environment where prices and wages have only moved in one direction: up.

      For the vast majority of people on earth but particularly for people in the West increasing prices and wages is the natural state of the world. Few stop to think why that should be so, fewer still can contemplate a situation where prices and wages might contract.

      […]

      So, something is clearly at work here.

      That something is inflation.

      As a concept, government is great. But government is made up of people. Specifically, government is made up of politicians. It doesn’t necessarily have to be so but the very nature of politics ensures that politicians will always prevail over, say, scientists. That’s because politicians are inherently and by necessity manipulators. As a necessary precondition for success, politicians must manipulate information, resources and people in order to achieve their objectives. Thus, politicians prey on people’s sentiments and desires and, of course, in order to do so, they need money.

      However, considering the pervasiveness and ambition of politicians of all leanings, stripes and colors and considering the ambitions, not to mention the salaries, of government officials and considering the army, navy and air-force as well as all welfare programs and national infrastructure projects and all the research and development that goes on in the scientific and technological fields and the aid to poor countries and contributions to organizations such as the UN and sundry, one would be excused to wonder where all the money is coming from.

      Clearly, if government spending was anything approximating their tax revenue, boosted as it may be by the same ratio of debt imposed on common mortals such as you and me, then it is evident that things like the moon landing, star wars or the atomic bomb or the Marshall Plan might not have been possible. Hence the perception that government isn’t really anything like you and me.

      So how does government get more bang for its buck?

      Enter the banker.

      So, effectively, there is a lot of blame to go around. Most of it is due to ignorance particularly on the part of politicians whom are by and large a fairly ignorant, pompous and vane lot (especially the politician of the Latin European variety). But within the finance profession ignorance of what a monetary system is or how it should work is inexcusable.

      Anyway. Today there is only one way the common people can remonstrate forcefully and effectively. Typical of the end of the inflationary cycle, the political process has become aberrant and is thoroughly corrupted; thus it is cumbersome, wasteful and ineffective.
      What common people like you and me can do is to accumulate gold bullion. Nothing sends a clearer and more forceful signal to the authorities that you are displeased with the way things are being handled. If enough people began accumulating physical bullion, I can guarantee that governments the world over would be forced to come clean on a number of issues. And, by the way, the amount of physical bullion that exists world wide is tiny compared to the amount of money in circulation. Thus it would take a proportionally small amount of people to effect political change and virtually no loss of life or damage to property.

  7. thorsten Says:

    I am just throwing out a comment here that seems to be totally overlooked in general.
    May the above article to be true or false, I do not know. But what I do know is the following ( and please forgive me a certain inaccuracy with my numbers, but the principal is there) conundrum to persist.
    I reside in Canada, an overall rich country, as I will demonstrate:
    If you take 100 canadians, you will find
    -10, that are to old to work
    -10, that are to young to work
    -10, that are still in some form of education ( Uni/ college/trade-school)
    -10, that are busy with paternal duties
    -30, that are working for the government, agencies, newspapers, media, advertising, banks and other un-productive outfits
    -2, that are mentally ill
    -5, that are sick at any given time
    -5, that are unemployable at any given time
    that leaves 18, that actually produce anything of value.
    Now let us say my numbers are skewed and the actual amount of producing people is 28, then you will still have to ask yourselve: how is such a system ever gonna work.
    I think that this is the real issue and the powers that be know that since the 70’s. And in the 70’s the poulation was half of what it is now and production efficency has dramatically increased over the last 40 years. And so, credit was invented.
    And now, the piper has to be paid. This involves all of us, so what good is it to blame some corrupt money lenders.

    • guidoamm Says:

      The blame does not rest with the money lenders. The blame rests with government. The central bank (the Fed in the USA) is only assumed to be independent but in fact it is beholden to the politicians. To be more exact it is a symbiotic relationship. Politicians need money and bankers are only too happy to oblige.

      The rationale behind making the central bank independent rests upon the decentralization of power. However, it is clear that central banks are only independent in theory but not in practice. It is a travesty.

      So, the blame rests with government because, after all, the central bank is “government”.

  8. Social unrest… simmering nicely… « Guido's temple of the absurd Says:

    […] https://guidoromero.wordpress.com/2009/10/19/the-next-world-war/ […]

  9. guidoamm Says:

    It is unclear whether or not the tea parties are clued into this for the reasons mentioned. Tea parties certainly are clued into the fact that something is terribly wrong but I think theirs (as for most people) is more of a gut feeling. Most people including professionals are still under the impression that the state is all powerful and “owes” them support. Of course, nothing could be farther from the truth. The state is not all powerful and most of the social promises that society feels have been extracted from government over years of negotiations and/or disputes (i.e. through union negotiations, strikes or legal actions) in fact are in the interest of government to impose. I know this may appear convoluted but the reason is in fact rather simple.
    In a fiat monetary system, the existence of the system (thus the state) is predicated on inflation. Thus in a fiat monetary system, money MUST circulate; and it really matters not how and why it circulates for as long as it does. One way to force the circulation of money is to impose layers of regulation and payments so as to multiply the reasons for expenditure. The logical ramification of this dynamic is that in a fiat monetary system, the government progressively becomes a larger actor in the economy:

    http://mwhodges.home.att.net/piechart.htm

    The natural limit to this dynamic is the mathematical ability to expand the credit markets. At that point, the dynamic goes into reverse until equilibrium is reached again.

    Rick Santelli and company may be able to penetrate the shenanigans of the financial elite but all Rick is doing is battling the symptoms. The cause is the monetary system itself.

    Think about this. In the ostensibly free democratic West, the monetary system is not voted on. Our governments have imposed the monetary system upon society. Not only has government imposed the monetary system but it also retains the power to set interest rates. Everything else is a logical consequence of this simple fact.

  10. David W. Lincoln Says:

    I am curious, are the Tea Partiers clued into this? For I am thinking that Rick Santelli, and his cohorts would be able to penetrate the complexities of the financial system. For it is via those complexities that these abuses of power take place.

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