Saturday, December 31, 2011
Here is the highly edited CNN interview, where it appears Ron just has a hissy.
Here is the actual interview
Friday, December 30, 2011
Wednesday, December 28, 2011
'via Blog this'
I don't know who this guy is, but I agree with most of what he is saying here.
He has a series of 13 videos dealing with issues of the role of civil government, the defense issues, when is taxation moral and immoral, and lots of good stuff. He is pretty solid in most of the things he says.
I just listed the first video, but once you listen, you can get all of them:
Tuesday, December 27, 2011
Monday, December 26, 2011
If I wrote it, this would be how it reads. Thank God I did not.
I'm on my own.
No one looks out for me or protects me.
I experience a continual sense of need. Nothing's quite right.
I'm always restless. I'm easily frustrated and often disappointed.
It's a jungle — I feel overwhelmed. It's a desert — I'm thirsty.
My soul feels broken, twisted, and stuck. I can't fix myself.
I stumble down some dark paths.
Still, I insist: I want to do what I want, when I want, how I want.
But life's confusing. Why don't things ever really work out?
I'm haunted by emptiness and futility — shadows of death.
I fear the big hurt and final loss.
Death is waiting for me at the end of every road,
but I'd rather not think about that.
I spend my life protecting myself. Bad things can happen.
I find no lasting comfort.
I'm alone ... facing everything that could hurt me.
Are my friends really friends?
Other people use me for their own ends.
I can't really trust anyone. No one has my back.
No one is really for me — except me.
And I'm so much all about ME, sometimes it's sickening.
I belong to no one except myself.
My cup is never quite full enough. I'm left empty.
Disappointment follows me all the days of my life.
Will I just be obliterated into nothingness?
Will I be alone forever, homeless, free-falling into void?
Sartre said, "Hell is other people."
I have to add, "Hell is also myself."
It's a living death,
and then I die.
Sunday, December 25, 2011
Raw footage shows Ron Paul DIDN'T storm out of CNN interview over racist newsletters... the interview was simply done | Mail Online
'via Blog this'
Saturday, December 24, 2011
TOM THE DANCING BUG: So... You've Been Indefinitely Detained! Helpful Information From Your U.S. Government! - Boing Boing
'via Blog this'
Friday, December 23, 2011
Wednesday, December 21, 2011
Tuesday, December 20, 2011
WOW! This is just ASTOUNDING as a speech. Biting, contemptuous, dismissive, and a verbal slap in the face to the eurocrat weenies.
John Galt is not a fictional character, it seems.
I would be willing to run this guy for president of the USA. Can someone find a birth certificate?
Friday, December 16, 2011
The growth of the M2 money supply slumped to 12.7pc in November, the lowest in 10 years. New lending fell 5pc on a month-to-month basis. The central bank has begun to reverse its tightening policy as inflation subsides, cutting the reserve requirement for lenders for the first time since 2008 to ease liquidity strains."
'via Blog this'
Thursday, December 15, 2011
Paul Ryan’s Medicare reform is radical right-wing social engineering;
I apologize for saying that, and no one should quote what I said because I was wrong;
actually, what I said was right all along but nobody understood me.
Winnowing the Field - The Editors - National Review Online:
'via Blog this'
It is positively breath-taking.
Jim Puplava: Joining me as my special guest on the program today is Ann Barnhardt, formerly of Barnhardt Capital Management. And Ann, you were a commodity broker for eight years and then you formed your own independent brokerage for six years. A couple of weeks ago you made the painful decision to shut your doors because you felt your clients’ money and positions were no longer safe. What led you to draw those conclusions?
Ann Barnhardt: Well, obviously, it was the MF global collapse and more specifically the fall out after the MF Global collapse and the reaction by the CFTC, the SEC and most especially by the Chicago Mercantile Exchange [the “Merc”]. The actions, specifically by the Merc after the MF Global collapse were unprecedented, unfathomable and completely and totally intolerable. The Merc itself basically did the equivalent of sticking a nine millimeter in their mouth and pulling the trigger by not stepping forward, backstopping the MF Global client accounts and at the very least, the Merc should have allowed the MF Global customers to liquidate their accounts and then transfer to other firms. What the Merc did was the worst possible thing—they froze those people out of their accounts and didn’t allow them to liquidate while the markets continued to trade. And I cannot over-emphasize the importance of that, the risk that those people were exposed to in the cattle business (and my forte is cattle. I am actually a cash cattle person. My brokerage business was geared almost exclusively towards livestock and grade. I have a lot of contacts in the cattle industry who didn’t necessarily do their futures business with me but were contacts of mine who did do business through brokers that cleared through MF) who lost tens of thousands of dollars on hedge positions that they wanted to get out of but could not get out of in the week and a half after the MF Global collapse.
This has never happened before. This was a complete breach of fiduciary duty by the Chicago Mercantile Exchange itself to the point that it literally has destroyed the entire paradigm. I got to the point where I could no longer tell my clients that their free cash customer funds, not even exposed to the market place—just their cash sitting in their account, non-margined—was not safe. I couldn’t tell them that their money was safe. At that point it was morally incumbent upon me to get my client out of this completely dysfunctional, basically destroyed marketplace. Get them off of those railroad tracks and get them away from the risk. Now, I didn’t clear through MF, but with the European collapse and knowing what we know about how these financial entities are leveraged in European paper and the cascading nature of all of this I had to act before the proverbial poop hit the fan because if you sit around and you wait until after the poop hits the fan it is too late. You wouldn’t get anybody out. To me, it wasn’t really a painful decision. It was a complete no brainer.
Jim Puplava: In the past, when firms went under customer funds were intact and the exchanges would step in, as you mentioned earlier, to backstop everything to keep customers 100% liquid. And normally, a quick transfer from the bankrupt firm, the bankrupt firm would be immediately replaced. Why do you think they did not allow that to happen this time?
Ann Barnhardt: You tell me. I will use the word again, it is suicidal. What they did was suicidal. So you are absolutely right. Up until last month on Friday, October 31st, the customer segregation of funds rule was utterly sacrosanct. Even when Refco imploded and imploded quite dramatically in 2005, no customer funds were gone. It was on the prop trading side of the company but the customer funds were there, were accounted for, and it is the onus of the Mercantile Exchange to audit these FCMs [Futures Commission Merchant]. MF Global was under the auspices and under the supervision, of the auditing supervision, of the CME. And I believe that MF was audited not just annually, but quarterly. Also, there is the question of how in the world can the Merc miss the margin being posted. The Merc is supposed to be moving equity and doing margin wire transfers twice a day every day. How could those customer funds be “missing”. They aren’t missing. They were stolen. They were stolen by Jon Corzine and his cadre of associates at MF Global. So yes, again, to your listeners who may not fully appreciate the gravity of this, this has never, ever happened before. Nothing even close to this has ever even happened before and it is the function of the Mercantile Exchange itself—the reason why the exchanges exist is that they stand in the middle of every transaction and they act as the de facto counterparty to every single transaction so that, for example, my clients never had to worry about the credit worthiness of the other individual, whoever it might be, who is on the other side of any trade that they did.
Now, for every buyer there is a seller and it is a one-for-one, zero-sum game; but to ensure the credit worthiness and the integrity of the market, the function of the Mercantile Exchange itself is to stand in the middle of every transaction and be the guarantor. So a year ago when Terry Duffy held a press conference [watch it here] and said never in the history of the Mercantile Exchange has a customer ever, ever lost funds resulting from the collapse of a firm, he was telling the truth a year ago. Everything changed on Halloween of this year though. And that's why I had to shut the doors of my brokerage because I could not in good conscience continue forward knowing that the Mercantile Exchange was no longer going to fulfill their fiduciary duty.
Jim Puplava: In the futures market, which is highly leveraged, if you open up a futures contract you are usually leveraged 10-to-1, so they require an exceptional firm base on which to function. And the major integrity of the whole system is the segregation of customer funds. That was breached by MF Global. And let’s not sugar coat this, Ann, basically management stole all of the non-margin cash, invested it in highly speculative securities and what has astonished me has been the reaction of the exchange and regulators—where is the investigation into Jon Corzine?
Ann Barnhardt: Well that is the point of this. We are now living in a lawless, Marxist, Communist, usurped, what used to be a representative republic but is no more. This is no longer a nation of laws. This has now transformed into a nation of men. It doesn’t matter what crime you commit. In the case of Jon Corzine, this man has stolen in excess of a billion dollars. I think by the time it is all panned out it is going to be closer to $3 billion of customer funds that he stole. Why did he do it? Is he stupid? Well, of course he’s not stupid. This is a former head of Goldman Sachs. This man doesn’t have a low IQ per se. Why in the world would a man wake up in the morning one day and say you know what, I think I am going to steal all the customer seg funds in this FCM that I’m running, which is the biggest FCM in the country. Yeah, that sounds like a good plan. No. Why would a man like that even engage in a nefarious plot like this? Because he knew going into it he could get away with it. And the reason he could get away with it is he is in tight with the Obama regime. He is one of Obama’s highest fundraisers. Earlier this year Jon Corzine had a fundraiser dinner at his New York City apartment for Barack Obama where it was charged at $35,000 a plate. Okay? He bundled high six figures for Obama in one evening! He is a crony of the regime. This is Marxist Communism. There is no rule of law. And these people, these poor MF customers are just sitting out here helpless to do anything because there is no law enforcement because this is no longer a nation of laws. The rule of law no longer exists. There is no longer justice in this nation. And no nation, no culture, no society can survive if there isn’t a foundation of justice. That is why we are teetering on the precipice of collapse and I foresee civil war coming within the next several years.
Jim Puplava: You know, we had Gerald Celente on this program and he had an account with Lynn-Waldok, which was eventually taken over by MF Global, and he's been trading futures in gold. He had a plan when he built up enough he would eventually take delivery. Well, they stopped him out of his trade, sequestered his margin (or his cash) and forced him out of a trade and closed his account.
[Click here to listen to Gerald Celente's MF Global experience]
So what you are talking about—because the exchange did not backstop and then froze customer accounts—is they forced, would you say, millions if not hundreds of millions of dollars of losses on these customers?
Ann Barnhardt: Absolutely. If we are talking several billion in customer seg funds then the losses that were incurred could easily by the customers in that week, week and a half that they were frozen out could easily, easily get into the hundreds of millions it might even breach into the low billions. No question about that. And yeah, and even with options. You know, I talked to cattleman who have put options on as hedges to put a floor underneath the price of the cattle in case—so imagine this, you buy a put option four months ago, you pay the premium. You post that money. Then this happens, you are frozen out of your account. Your account gets transferred to another firm, without your consent. By the way, none of the customers were allowed any input into this. Their accounts were just sent to RJ O’Brien and other firms like that without their consent. And then once the positions were transferred, even if it was a risk limited position like a long put option, then the new clearing firm called them the next morning after the trade settled and said there was no equity in your account because all that money got stolen. So you are going to have to pay the premium for this put option again. So it's doubling the cost essentially for a lot of these people out here who are dealing in what is supposed to be the very risk limited paradigm of long options. The entire situation could not have been handled any worse. In fact, I would take it a step further. It was handled so poorly I can’t imagine that these people are that stupid at the Merc and at the CFTC and so forth. I can’t believe that the bankruptcy trustee is that stupid. This almost seems like it was so bad that it had to have been nefarious.
Jim Puplava: You know, Ann. You believe that MF Global is just the tip of the iceberg. That there is massive industry exposure to European sovereign debt. In fact, the day you and I are doing this interview the Fed just engineered a major swap with central banks. It was a central bank love fest on Wednesday of group money printing. That tells me that central banks acting in unison the way they did shows they are afraid that there's something big out there that is about to happen and that they are trying to maybe plug a hole in the dyke.
Ann Barnhardt: Well, if anybody out there understands fourth grade arithmetic you know from metaphysical certitude that Europe is done. Europe is mathematically impossible. It cannot be saved. You want to make a start. You even want to make a start at trying to bail out Europe we are talking $25 trillion just to start. And it would then—if you were going to bail out the entirety of Europe—you would now be talking about hundreds of trillions of dollars. Okay, people, there isn’t that much wealth or money on the surface of the earth. The total gross domestic product of the entire planet earth is I think just under $70 trillion. And we are talking about in excess of $100 trillion to bail out Europe? This is now mathematically impossible. These people have so leveraged themselves and so leveraged these governments in these countries giving their brain dead citizenry free hand outs and entitlements that it is now mathematically impossible to save the paradigm. It's not a matter of if the global financial system is going to collapse. Oh, it's going to collapse. You better trust and understand that. It's just a matter of when. And these piddling little maneuvers that these people are making that the Fed is doing. Oh, we are going to give Europe some money. Okay. What I saw this morning, what the Fed is getting ready to do in terms of Europe, is keep Europe going for another seven days. Well, fantastic. Thanks for that. That is literally the brain dead mindset of these politicians. All they are doing is looking to kick the can down the road. At first it was kick the can down another 10, 12 years. Then it is kick the can down the road for another year. And then it was well, let’s kick the can down the road for another few months. Now we're literally to the point where all we can do is kick the can down the road for a matter of a few days. It's not going to make it. I will be very surprised if we make it until Christmas.
Jim Puplava: You know, one would have thought Ann, after the 30 to 40:1 leverage leading up to the financial crisis of 2008, pre-Lehman, that financial firms would have learned. And especially a guy like Jon Corzine that saw Goldman have exposure to AIG with $13 billion in credit default swaps which we bailed him out 100 cents on the dollar. Apparently, this lesson was not learned at MF Global because the leverage, what was the figure? I think it was 100:1—it was just astounding.
Ann Barnhardt: The only lesson that these criminal degenerates learned from the 2008 situation was that they could do anything they want and that pimp daddy government would bail them out. You have to understand, people like Jon Corzine, these are evil, evil people. He went into MF Global looking to rape that company personally for his own good. And that's what the motivation of a lot of these people are. You have to get your heads around this. You have to get your heads around the fact that there are truly evil people in the world who do not give a crap about anyone or anything except themselves, their own personal wealth and their own personal power. And they would sell their grandmother to the Nazis for a nickel without hesitation if they thought they could get away with it. It's the same with people like Jon Corzine, and then we have talked about the fact that Jon Corzine is tied into the Obama regime. And we now know that the government is absolutely stuffed to the gills almost exclusively with this same type of moral degenerate culture. These people that are in the government—not just the Congress and Executive Branch but also in the bureaucracy—they are in it for themselves. They are in it for the money. And two weeks ago when we had the 60 minutes exposé on the insider trading, those of us who have been in the business have known intuitively that that was going on for a very, very long time. We knew that there was front running going on by politicians. A great example of this is someone like Harry Reid. When he entered Congress, Harry Reid had a low six-figure net worth. He now has an eight-figure net worth. And he's never done anything except be a United States Senator. The salary I think of which is something like $170,000 a year. How does that happen? How does a man with $170,000 a year salaried position go from having a six-figure net worth to an eight-figure net worth? That doesn’t make any sense unless he is doing nefarious, illegal, insider trading type deals.
It is obvious what's been going on. You have to start acknowledging these people for what they are, and that is moral degenerates who are basically sociopaths and psychopaths. Meaning they don’t feel any sympathy or empathy for other human beings. The only thing they care about is themselves. They will do anything. They will steal. They will lie. They will cheat. They will lie to your face. They will look in the camera with this tremendous earnestness and lie with fork tongues through their teeth in order to advance their wealth and power. And if we, as a people, don’t get real about this, if we keep having these Pollyanna visions that these people are all on our side and they are really looking out for us. And they are doing the best they can. We will be cork screwed into the ground and this nation will be reduced to a smoldering rubble. You've got to wake up.
Jim Puplava: I would like to go back to MF Global for a second. There is something even worse as you look into the details—it's been hinted and that there could be possible clawbacks. I’m wondering if you might explain that possibility and what a clawback means for, let’s say you had an account at MF Global and, I don’t know, you didn’t feel comfortable with the commodities market—the volatility. So you pulled the money out. There is a possibility they can go after you.
Ann Barnhardt: Oh, absolutely. Clawback is a fairly common tactic in bankruptcies. And what it is is looking at the bankrupt entity and looking at the money that went out of that entity in the time period immediately preceding the collapse. And I don’t know what time frame they would look at MF. I don’t know if it would be 30 days or 60 days or 90 days—I have no idea. But the trustee has in the last two weeks said that yes, clawback is on the table. So what that means is, let’s say for example, you are a savvy individual and you are a good steward of your money. And you are doing business with a firm that clears through MF Global. You are looking at MF Global’s publicly available bond yields. And you see in the six weeks before the collapse that their bond yields spiked parabolically [see chart here]. They went from 6% to 18%. That is a sure, sure sign of massive trouble. And so being an intelligent, informed, aware person who is a good steward of their wealth, what do you do? You say I’m getting out of this company. I am getting my money out of MF Global because something bad is about to happen looking at these bond yields. You can also do the same thing looking at the stock price. You could do the same thing looking at downgrades by the ratings agencies. There's all kinds of ways that you can come to these conclusions.
The other thing is if you're a hedger. If you are a bonafide hedger—if you had positions on and the market moves in favor of your hedge position on the futures side, you don’t leave that equity sitting in your account. What your broker like me does is they wire that money home because you are using that money probably to either offset a cash transaction or to pay down a revolving line of credit. You're not getting any interest on your money sitting at MF Global so you might as well get that equity out of there, send it home and pay down your line of credit so you are not paying interest on that money. So there would organically have been lots and lots of money flowing out of that company in the period immediately before the collapse. Either due to natural hedges, organic in and out functions or due to intelligent people looking at the bond yields and saying uh oh we better get out of here. The bankruptcy trustee can legally claw that money back. Say okay, I am going to go and I am going to dive into your pocket now. And I am going to claw back your money which you, in your responsibility and in your good stewardship pulled out of a company that you knew to be in trouble. Oh yeah, so these MF customers will essentially be raped three times—they will have their cash stolen out of their accounts, they were then locked out of their position so they couldn’t trade and were fully exposed to market risk, paralyzed, unable to do anything for excess of a week. And then, number three rape, is having the bankruptcy trustee come back and literally seize money out of your own personal checking accounts and business accounts and so forth. And clawing it back to feed this bankrupt entity. And you know what the cherry on top of the sundae of all this is? And this is what blows my mind—the bankruptcy trustee, right now, as this is being recorded on the 30th of November. The bankruptcy trustee is still allowing MF Global to trade proprietarily for itself, for the company proper.
It is unbelievable. The rule of law is dead in this country.
Jim Puplava: You know, adding to this just prior to that was the restructuring of Greek debt, where the derivatives association announced that it was a voluntary restructuring so therefore the bankers didn’t have to pay out on credit default swaps. So what you have here, Ann, I believe is a system where the government is protecting the too-big-to-fail at the expense of the customers. And with it, the rule of law is thrown out to protect Wall Street, what does that say about the integrity of the system? It is no wonder people are losing faith.
Ann Barnhardt: There is no integrity in the system. And let’s make it simple—it is not just about the government protecting the “too big to fail banks". It is about criminal oligarchs as individuals protecting each other. They don’t give a crap about the customers of JP Morgan or you know, Citi or Goldman or anything. What they care about is each other. The Obama regime is protecting Jon Corzine proper, the individual. Because he is one of them. He is one of these criminal oligarchs. And for your listeners who may not remember, Jon Corzine is a former congressman. But immediately preceding MF Global he was the Governor of New Jersey and he just cork screwed Jersey into the ground. It is Chris Christy who beat Jon Corzine to become the governor of New Jersey. So yes, this Republican, Chris Christy, was elected in New Jersey—uber liberal, blue state New Jersey—because Corzine financially destroyed this state. And again, this guy Corzine is former head of Goldman. He is not stupid. You have to stop thinking that these people are just misguided or that there is some sort of a difference of opinion on economic theory. These people are nefariously trying to destroy everything in this country. It's called the Cloward-Piven strategy. Go in and destroy and collapse the entire economy, everything and then rebuild a new Marxist, Socialist, fascist state out of the burning rubble of this destruction. This is intentional. This is nefarious. This is not a function of incompetence. It's a function of malice of forethought and conscientious theft and destruction.
Jim Puplava: What would you advice? I am a long term believer in the bull market in commodities, but how do you play commodities when the futures market is no longer secure? And what does this do to the proper functioning of the markets? In other words, now that you've closed your firm because you don’t believe in the integrity of the system and we just listed a series of reasons why—not honoring contracts, appropriating funds, not allowing trades to go off. Not one investigation, in fact, this goes even further than that. We had Bill Black on the program recently, who helped make prosecutions in the S&L scandal. And at that time, 2,000 individuals went to jail. There has not been one criminal charge brought by the justice department since the 2008 crisis. So given that this is where we are, what do you advise and what will you do personally?
[Listen to Bill Black's tell-all interview on why no one has gone to jail]
Ann Barnhardt: Well get the hell out. Get out of all paper and it's not just the commodities markets. This is going to cascade through everything. It is going to get into the equities. It is going to get into 401ks and IRAs, it is going to get into pension plans and so on and so forth. Total systemic collapse. Get out! I don’t know how I can be anymore plain about this. I say this over and over and over again and then I get scads of emails saying, well I can’t get out of my 401k. Yes, you can. Yes, you can. Take the penalty and get the hell out of there. What would you rather do? Would you rather pay the 10% penalty or would you rather have it all go up in smoke? Because that's what we're staring down the barrel of. Number two, we seem to have this backwards. In terms of what I do, cattle and grain specifically, the futures markets are the derivatives. The futures markets are derived from the actual cash commodity market. Now, I am blessed because my area of expertise is actually in the physical cash market, actual cattle on the hoof. So I have a consulting firm and I'll continue to teach cattlemen how to trade actual physical cattle. But, yeah, to all the people out there listening—you are going to have to get away from paper and get back into physical commodities, the real deal. Anything that is on paper anything that involves a promise or a commitment is no longer valid because as we said there isn’t a rule of law anymore. People can steal from you. Your money can be confiscated. And think how easy now it is to confiscate people’s wealth. Most of our wealth in this society exists as zeroes and ones on a computer server. It takes no effort whatsoever to steal zeros and ones on a computer server. So what I have been telling people is you need to get into physical commodities. And the rule of thumb is if you can stand in front of it with an assault rifle and physically protect it, then it's real—it's a real commodity. That includes food, that includes water, that includes long guns and ammunition. That includes fuel. That includes precious metals—gold and silver coinage. Most especially silver coinage because silver is the metal of barter and transaction and currency. Gold is the storage metal because it's so valuable per ounce. And also, silver is extremely undervalued relative to gold because that market has been synthetically suppressed for the last several years by again, these nefarious actors. So yeah, reallocate into physical commodities.
Jim Puplava: How do you know that somebody like just as we saw in 2008 or recently with MF Global—that is somebody like a Goldman, a JP Morgan that is writing credit default swaps on European debt—how do you know if you have an account with this group that they pledge your assets for collateral or they comingle them with the firm’s assets and then what do you do?
Ann Barnhardt: Oh, exactly. Corzine isn’t alone in this. The reason the MF Global situation happened the way it did is as we eluded to earlier because Corzine had that company just suicidally leveraged. He took those customer funds and then leveraged it into European, sovereign, junk paper at about 100:1 ratio. Massive. Massive leverage. That is why his collateral call was the first one to come and why it took him out because he was so heavily leveraged. Don’t kid yourself. These other entities are doing the same thing. It is just that they are not as heavily leveraged as Corzine was. So yes, the entire paradigm is no longer trust worthy. There is no meaningful government or industry wide regulation and I have been saying this for years. That regulation in the financial industry in the United States both government based and private regulation—private industry regulation—is a monstrous, monstrous joke. The top tier of those organizations are evil, nefarious people. The mid level are halfway stupid, halfway evil who again, are just there to collect their salary paycheck and will say and do anything that they are told and who really don’t understand the business that they are trying to regulate. And then the lower level, the grunts, the actual auditors who go out on site, a lot of those people are super incompetent, affirmative action hires. And yes, I said it and I am not ashamed of it. They are affirmative action hires. They have no business being there doing what they are doing. They are also hiring a lot of kids 15 minutes out of college who are literally reading off the script and couldn’t audit a company if their life depended on it.
So what they do is they send these incompetent people out into the field and into lower management. And then when the poop hits the fan, they blame them. It is absolutely evil and it is a complete joke. And Madoff was the first proof of that. There have been other ponzi schemes since Madoff happened that haven’t gotten as much notoriety, but there was a big one in the futures industry that all of the FCMs were invested in. And the regulatory body of the futures industry the NFA, they audited that Ponzi scheme, they totally missed it. They even admitted that they signed off on it because they really didn’t understand what they were doing. I mean, that is the level of incompetence and evil that we are talking about in terms of these regulatory bodies. The only way to fix this is to shut the whole damn thing down and start from scratch. I am personally looking in the next decade for the emergence of a new exchange within the United States [that is, a replacement of the Chicago Mercantile Exhange]. Word on the street is it might happen in Dallas and I would be fully in favor of that. Start over from scratch.
Jim Puplava: Alright. Well the message: get physical and protect yourself. We have been speaking with Ann Barnhardt, formerly of Barnhardt Capital Management. Ann, I want to thank you for coming on the program and sharing your thoughts.
Ann Barnhardt: Thank you for having me, it's been a pleasure.
Audio of interview
Transcript for Ann Barnhardt Interview | FINANCIAL SENSE:
'via Blog this'
Wednesday, December 14, 2011
Friday, December 09, 2011
Tuesday, December 06, 2011
The ideal government of all reflective men, from Aristotle onward, is one which lets the individual alone – one which barely escapes being no government at all.
Sunday, December 04, 2011
Wednesday, November 30, 2011
Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.
Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.
“If you have a bazooka, and people know you have it, you’re not likely to take it out,” he said.
On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.
A Different Message
At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.
Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.
After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.
Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.
The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.
There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.
And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.
At the time, rumors about Fannie and Freddie were tearing through the markets. The government-chartered firms’ mandate, which continues today, is to buy mortgages from banks and repackage them into securities either for their own portfolios or to sell to others. The banks can then use the proceeds from those transactions to write new mortgages.
By mid-2008, delinquencies and foreclosures were soaring, and the GSEs set aside billions of dollars against future losses. In the first six months of 2008, they racked up net losses of $5.46 billion as they slashed dividends and marked down the values of their huge inventories of mortgage-backed securities.
On Wall Street, confusion reigned. UBS AG analyst Eric Wasserstrom on July 10 cut his share price target on Freddie to $10 from $28. The next day, Citigroup Inc. (C) analyst Bradley Ball reiterated a “buy” recommendation on the two GSEs. On July 12, the Times of London, without citing a source, reported that Paulson was contemplating a $15 billion capital injection into the firms.
At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs’ shares were rallying, with Fannie Mae’s nearly doubling in four days.
William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.
“You just never ever do that as a government regulator -- transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”
Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.
“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”
A Lawyer’s Advice
The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.
Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. The takeover was effective Sept. 6, a Saturday, and the companies’ stock prices dropped below $1 the following Monday, from $14.13 for Fannie Mae and $8.75 for Freddie Mac (FMCC) on the day of the meeting. Various classes of preferred shares lost upwards of 85 percent of their value.
A complete list of those at the Eton Park meeting isn’t publicly available. A Treasury Department roster of those expected to attend, obtained by Bloomberg News under the Freedom of Information Act, includes Ripplewood Holdings LLC CEO Timothy Collins, who says, through a spokesman, that he didn’t participate.
At least one fund manager who wasn’t listed in the FOIA document, Daniel Stern of Reservoir Capital Group, did attend, says the manager who described the meeting.
The gathering comprised some of Wall Street’s most storied investors. Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. Singh, a former head of Goldman’s proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd.
Lone Pine’s Mandel worked as a retail analyst at Goldman before joining Julian Robertson’s Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November.
One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.
Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP (BX) in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc. (EVR); and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government’s Automotive Task Force.
Another person in attendance: Michele Davis, then-assistant secretary for public affairs at the Treasury Department, who now represents Paulson as a managing partner at public relations firm Brunswick Group Inc. In an e-mail response to Bloomberg Markets, she referred all questions to Paulson’s book on the financial crisis, “On the Brink” (Business Plus, 2010), which makes no mention of the Eton Park meeting.
Paulson is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations.
Eton Park’s Mindich, Lone Pine’s Mandel, TPG-Axon’s Singh and Och-Ziff (OZM)’s Och all declined to comment through spokesmen. Reservoir’s Stern didn’t return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further.
Brosens confirmed in an e-mail that he had attended and said he couldn’t recall details. A spokesman for Rattner acknowledged he attended and said he didn’t trade in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.
A Blackstone spokesman confirmed in an e-mail that GSO’s Goodman attended the meeting. Blackstone doesn’t believe market- sensitive information was discussed, and in any event Blackstone didn’t take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote.
Strong Short Interest
Records show that many investors were betting against Fannie Mae and Freddie Mac at the time. According to Data Explorers Ltd., a London-based research firm, short interest in Fannie Mae shares rose sharply in July, to 163 million shares on July 14 from 86.3 million shares on July 9.
Short Interest continued to rise, to 240 million shares, on the day of the Eton Park meeting; it hit 262 million on July 24, its high for the year. Freddie Mac’s short interest showed a similar trajectory.
Revelations about the meeting come at a sensitive time.
“The optics are awful; there’s no doubt about it,” says professor Larry Ribstein of the University of Illinois College of Law in Champaign. “Everyone knows that insider trading is a huge issue.”
Rajat Gupta, the former head of McKinsey & Co. who was a member of Goldman’s board, was indicted by a federal grand jury on Oct. 26 for disclosing nonpublic information on Goldman and other companies to Raj Rajaratnam, a hedge-fund manager who earlier in October was sentenced to 11 years in prison for profiting from inside information provided by a web of industry insiders, including Gupta.
Gupta has pleaded not guilty.
Several U.S. agencies face increased scrutiny in Congress for possible improper disclosures or ties to hedge funds. Senators are looking into whether the U.S. Department of Education divulged nonpublic details about new rules being considered to regulate for-profit educational institutions to outsiders, including Steven Eisman, former managing director of FrontPoint Partners LLC, who held short positions in the sector.
Education Department spokesman Justin Hamilton denies any impropriety. Eisman hasn’t been accused of any wrongdoing.
In October, Republican Senator Charles Grassley of Iowa asked hedge-fund manager Philip Falcone for copies of all communications between his Harbinger Capital Partners and the Department of Commerce, the Federal Communications Commission and the White House. Grassley is looking into whether Falcone improperly sought to influence regulators and the White House while seeking approvals for LightSquared Inc., the company constructing a broadband wireless network his fund is bankrolling.
Robin Roger, general counsel for the fund’s management firm, says any assertion that the fund or LightSquared tried to improperly influence regulators is unfounded.
For government officials, the leaking of market-sensitive information, even if inadvertent, represents an ethical minefield.
“There’s a lot of government information out there, and the hedge funds are trying to get it,” says Richard Painter, a law professor at the University of Minnesota who advised the Bush administration on Paulson’s sale of his Goldman stock when he became Treasury secretary. “It’s a huge problem that has to be addressed.”
The rules for what can or cannot be disclosed by government officials are often either unclear or nonexistent.
“The bottom line is that senior-level people in Washington, in the name of keeping in touch with their stakeholders, are tipping their hands,” says Adam Zagorin, a senior fellow at the Project on Government Oversight, a Washington watchdog group. “You can’t prosecute them for insider trading if they didn’t trade the shares. You may not be able to even reprimand them. What the hell are the rules?”
An official such as Paulson has no legal obligation to keep material nonpublic information to himself, says Phillip Kaplan, partner for litigation at Manatt Phelps & Phillips LLP, where he specializes in securities and class-action cases.
“I don’t think a government person is liable,” he says. “He didn’t profit from the information or trade on it.”
In the rapidly evolving world of insider-trading prosecutions, that could change, says the University of Illinois’s Ribstein, adding that the U.S. Securities and Exchange Commission is taking a broader view of what constitutes insider trading. SEC Enforcement Director Robert Khuzami, who can bring only civil cases, and the Justice Department, which can mount criminal prosecutions, have cast their net wide, Ribstein says.
Small Players Sued
In addition to going after big names like Rajaratnam and Gupta, the authorities are suing and indicting smaller players who might not have been prosecuted in the past, like accountants and analysts at so-called expert networks, who sell their expertise to hedge funds.
The University of Missouri’s Black says there’s no question that the plan to take over Fannie and Freddie -- however uncertain -- was material nonpublic information that could not be lawfully traded on. “What Paulson said put those managers in an untenable position,” he says. “They were exposed to all kinds of liabilities.”
The situation also generates some sympathy for Paulson.
“It seems to me, you’ve got to cut the guy some slack, even if he tipped his hand,” says William Poole, a former president of the Federal Reserve Bank of St. Louis. “How do you prepare the market for the fact that policy has changed without triggering the very crisis that you’re trying to avoid? What is he supposed to say without misleading these people?”
Poole says government officials need to communicate with industry participants in order to gain insights into market conditions and gauge likely reaction to interventions.
Black says the Eton Park meeting was the wrong way to communicate to the markets.
“Wink, wink, nod, nod is no way to approach sensitive information,” he says.
Paulson often contacted Wall Street participants throughout his tenure, according to his calendar. On that July trip to New York alone, he talked to Lehman Brothers Holdings Inc. CEO Richard Fuld, Washington Mutual Inc. CEO Kerry Killinger and Citigroup senior adviser Rubin.
Morgan Stanley and BlackRock Inc. both helped the Federal Reserve and OCC prepare the reports on Fannie Mae and Freddie Mac that Paulson told the New York Times would instill confidence the morning of the Eton Park meeting.
‘Unsafe and Unsound’
Paulson learned by mid-August that the Federal Reserve had found the GSEs “unsafe and unsound,” he told the Financial Crisis Inquiry Commission, which was appointed by President Barack Obama and Congress to probe the causes of the financial collapse.
“We’d been prepared for bad news, but the extent of the problems was startling,” he wrote in “On the Brink.”
On Sept. 6, when the GSEs’ boards agreed to have their companies placed in conservatorship, full-year 2008 losses were projected to reach as much as $50 billion for Fannie Mae and $32 billion for Freddie Mac. In October 2011, the FHFA estimated the cost to taxpayers of rescuing the firms at $124 billion through 2014.
The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee.
That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer’s advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom.
How Paulson Gave Hedge Funds Advance Word - Bloomberg
The notary, 43-year-old Tracy Lawrence, was supposed to be in court at 8:30 Monday morning for her sentencing hearing. When her attorney did not hear from her for more than an hour, Sr. Deputy Attorney General Robert Giunta asked for a bench warrant to be issued for Lawrence. The judge denied the request.
Police were sent to Lawrence's house to check on her after her lawyer expressed concern for her client's well-being. They found her body inside her home.
Metro Homicide Detectives are working currently the case. It is unclear if her death was due to natural causes, or if it was a suicide.
Detectives said this afternoon that they have ruled out homicide as a cause of death.
Last Monday, Lawrence pled guilty to only one criminal charge of notary fraud.
Lawrence came forward earlier this month and admitted that she had notarized around 25,000 fraudulent documents as part of a foreclosure fraud scheme.
Title officers Gary Trafford and Geraldine Sheppard of California are allegedly behind the fraud that involved forging signatures on tens of thousands of notices of default between 2005 and 2008. The two were indicted on more than 600 charges in a 439-page indictment filed on November 16.
The Nevada Attorney General is negotiating the terms of surrender for the pair. Both are expected to surrender sometime in December.
Notary who blew whistle on foreclosure fraud found dead - My News 3 - KSNV, Las Vegas, NV
Monday, November 28, 2011
This is a recipe for disaster and tyranny. The cake seems to be baking nicely.
As an alternative, here is a proposal for State Nullification of Federal acts of intrusion:
I like it. It will make for a nice brawl, which is what politics should be:
THE STATE SOVEREIGNTY AMENDMENT (Sample)
These United States of America are a Republic of Republics deriving its authority from the consent of the governed residing within their Sovereign State. Each Sovereign State is the agent of the people thereof. The federal government formed by the compact of the United States Constitution is the agent of the Sovereign States. Federal authority shall be supreme in all areas specifically delegated to it by the Constitution. All acts or legislation enacted pursuant to the Constitution shall be the supreme law of the land. The Sovereign State reserves an equal right to judge for itself as to the constitutionality of any act of the federal government.
Section I. The Sovereign State specifically reserves the right to interpose its sovereign authority between acts of the federal government and the liberties, property, and interests of the citizens of the state, thereby nullifying federal acts judged by the state to be an unwarranted infringement upon the reserved rights of the state and the people thereof.
1. State nullification of a federal act must be approved by a convention of the state.
2. Upon passage of an act of nullification, all federal authority for the enumerated and nullified act(s) shall be suspended.
3. Upon formal acceptance of nullification by three-fourths of the conventions of the states, including the original nullifying state, the enumerated federal act(s) shall be prohibited in the United States of America or its territories.
4. Upon formal rejection of nullification by three-fourths of the conventions of the states, the enumerated federal act(s) shall be presumed to be constitutional, notwithstanding any judgment of any federal or state court.
5. Until or unless there is a formal approval or rejection by the conventions of the states, the nullified federal act(s) shall remain non-operative as to the original and any additional nullifying states. A state that in its convention ratifies a particular act of nullification shall be construed to have nullified the same act as enumerated in the initiating state’s nullification.
6. No federal elected official, agent, or any individual working within or associated with any branch of the federal government may harass or attempt to harass, intimidate, or threaten a Sovereign State or the people thereof for exercising their rights under this amendment. No federal elected official, agent, or any individual working within or associated with any branch of the federal government shall attempt to influence or use their office to attempt to influence the deliberations of the people regarding the nullification of a federal act(s) or the acceptance or rejection of a nullified federal act(s).
7. Any United States military officer, noncommissioned officer or federal official or agent who carries out or attempts to carry out any order by a federal official, officer or agent to deny or hinder the people of a Sovereign State from exercising their rights under this amendment shall be subject to the offended state’s laws and may be tried accordingly. Jurisdiction in such cases is specifically denied to all federal courts, military courts, or any other court other than the courts of the offended state.
Section II. The government and people of these United States approve the principle that any people have a right to abolish the existing government and form a new one that suits them better. This principle illustrates the American idea that government rests on the consent of the governed and that it is the right of a people to alter or abolish it at will whenever it becomes destructive of the ends for which it was established. Therefore, the right of a Sovereign State to secede peacefully from the union voluntarily created by the compact of the Constitution is hereby specifically reserved to each state.
1. An act of secession shall be executed by a convention of the people of the state.
2. The seceded state shall appoint representatives to negotiate settlement of all debts owed the federal government, the purchase of federal properties within the Sovereign State, and the removal of federal military installations and personnel.
3. Upon acceptable arrangement for the payment of sums owed the federal government, the representatives may negotiate treaties of friendship, common defense, and commercial relations. Said treaties are subject to the same constitutional ratification as other treaties.
4. Readmission of a seceded state shall follow the same constitutional requirements as for any new state.
5. No federal elected official, agent, or any individual working within or associated with any branch of the federal government shall attempt to influence the people of the Sovereign State regarding their decision to secede from, remain with, or join this union.
6. Any United States military officer, noncommissioned officer, or federal official or agent who carries out or attempts to carry out any order by a federal official, officer, or agent to deny or hinder the people of a Sovereign State from exercising their rights under this amendment shall be subject to the offended state’s laws and may be tried accordingly. Jurisdiction in such cases is specifically denied to all federal courts, military courts, or any other court other than the courts of the offended state.
7. The inalienable right of the people of each Sovereign State to govern themselves is a right that existed before this formation of the federal government, and therefore nothing in this amendment shall be interpreted in such a manner as to deem the federal government to be the donor of the rights enumerated herein.
State Sovereignty: America’s Final Solution to Tyranny by Ron Holland
Friday, November 25, 2011
I also find it sad that in America the most vigorous advocates of traditional values cheer on an encroaching state and consequent destruction of liberties in the name of security. I would have thought that HERE in the country that has been a bastion of personal liberties and petulant folk who DEMAND freedom, we would be an entire culture of Tatiana Limanovas, not just to Obama, but to the entire intrusive, freedom destroying, hegemonistic, power grabbing, "we will take care of you" DC culture.
Instead, we have PRAVDA!! PRAVDA for goosness sake!!! ......reminding us that security cannot be found by surrendering our freedoms. We may wind up preventing "crimes" but then the ultimate crime will be the state brutalizing the people it is tasked to protect.
Weird how things change, ain't it?
Dirty Dozen: Iran Claims Arrest of 12 CIA Agents
Thanksgiving and Christmas. Two distinctively pious holidays, completely corrupted, imo.
Now we celebrate gluttony, football, and the beginning of a mad shopping spree, culminating in an orgy of materialism and advertisements for God-knows-what in the vain hope that diving into consumerism will give meaning to our otherwise pointless lives.
The "Occupy" crowd are gorgontually, fantasmally, epicononomously WRONG about their solutions to the problems, but they are dead on accurate in their criticisms. They are also accurate in the BASICS of how to rectify it. Just walk away. Say "no." (SCREAMING "NO!" is not inappropriate sometimes). Align with a counterculture. Think different and live different. Don't be afraid of the contemptuous dismissal of the lemmings, who allow others to think for them, form their values for them, erect codes of behavior for them, form their definition of "success" and finally force you to live your lives by proxy (watching them screw up their own lives on TV). Unplug. Drop out. Talk to your neighbors. Invite friends over for Yahtzee, or UNO, or gin rummy, or dominoes. Say "NO" to my latest lust object (for me it is a Saiga shotgun) and instead find some WORTHY charity that I can invest the time and money in.
This is something I am in the embryonic stages of forming for a New Year's Resolution for 2012. I want to do a prelim trial run by maybe actually redeeming two holidays from the clutches of those who would define them in terms of line items on a budget sheet. Thanksgiving is gone. Christmas is coming. If it really is true that the one gift beyond all value is what this thing is about, then I would like to make a stab at keeping the focus there this time.
My take on it, anyway.
The idea that these guys are objective and reasoned purveyors of the best model based on the data is laughable. It has been for a while, really, but the evidence of the fraud just keeps rolling in.
Climategate 2.0: New E-Mails Rock The Global Warming Debate - Forbes:
'via Blog this'
Thursday, November 17, 2011
We’re raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out. Today, we raise it again after seeing the remarks of Mr. Mobius, chief of the $50 billion emerging markets desk at Templeton Asset Management.
Speaking in Tokyo, he pointed to derivatives – the financial hairball of futures, options, and swaps in which nearly all the world’s major banks are tangled up.
Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. That squares with Mobius’ guess of 10 times the world’s annual GDP. “Are the derivatives regulated?” asks Mobius. “No. Are you still getting growth in derivatives? Yes.”
In other words, something along the lines of securitized mortgages is lurking out there, ready to trigger another crisis as in 2007-08.
What could it be? We’ll offer up a good guess – one the market is discounting.
Seldom does a stock index rise so much, for so little reason, as the Dow did on the open this morning: 115 Dow points on a rumor that Greece is going to get a second bailout.
Let’s step back for a moment: The Greek crisis is first and foremost about the German and French banks that were foolish enough to lend money to Greece in the first place. What sort of derivative contracts tied to Greek debt are they sitting on? What worldwide mayhem would ensue if Greece didn’t pay back 100 centimes on the euro?
That’s a rhetorical question, since the balance sheets of European banks are even more opaque than American ones. But whatever the actual answer, it’s scary enough that the European Central Bank has refused to entertain any talk about the holders of Greek sovereign debt taking a haircut – even in the form of Greece stretching out its payments.
That was the preferred solution among German leaders. But if today’s Wall Street Journal is to be believed, the ECB is about to get its way. Greece will likely get another bailout – 30 billion euros on top of the 110 billion euro bailout it got a year ago.
It will accomplish nothing. Going deeper into hock is never a good way to get out of debt. And at some point, this exercise in kicking the can has to stop. When it does, you get your next financial crisis.
And what of the derivatives sitting on the balance sheet of the Federal Reserve? Here’s another factor behind our heightened state of alert.
“Through quantitative easing efforts alone,” says Euro Pacific Capital’s Michael Pento, “Ben Bernanke has added $1.8 trillion of longer-term GSE debt and mortgage-backed securities (MBS).”
Think about that for a moment. The Fed’s entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone – junk that the banks needed to clear off their own balance sheets.
“As the size of the Fed’s balance sheet ballooned,” continues Mr. Pento, “the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.
“Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30-to-1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51-to-1! If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out.”
Mr. Pento’s and Mr. Mobius’ views line up with our own, which we laid out during interviews on our trip to China this month.
Read more: An Eye on the Next Financial Crisis http://dailyreckoning.com/an-eye-on-the-next-financial-crisis/#ixzz1dyrIZwB7
Monday, November 14, 2011
Sunday, November 13, 2011
Very encouraging article. As De Soto in The Other Path pointed out, the real economy in Latin American countries is free and often underground. Government attempts to violate the rules of free trade only have the effect of hiding the true exchange of goods and services, not regulating it.
Over 10 trillion dollars per year in the underground economy worldwide.
The author is a guy named Charles Hugh Smith.
It can be found here http://www.oftwominds.com/blognov11/collapse-of-corrupt11-11.html
We are being throttled by the Big Lie: we're told that if the predatory financial system implodes, we'll all be ruined. The opposite is true: the only way to save our economy is to let the corrupt, pathological and flawed financial system implode.
I was recently challenged by a contributor to write something positive, and so I decided to write about the single most positive outcome of the current financial crisis in Europe: the complete collapse of the corrupt, predatory, pathological global banking sector and its dealers, the central banks. Exploring why this is so reveals the insurmountable internal conflicts in our current financial system, and also illuminates the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system.
Our first stop is modern finance itself. Modern financial "products" and "instruments" are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position's yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free.
That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.
In modern finance, high-risk "investments" (wagers) with high returns can be taken on without worry because any and all risk can be hedged to zero, even in super high-risk wagers.
And since even high-risk positions can be seamlessly hedged to zero, then there is no reason not to borrow money to increase the size of your wagers: since you can't lose, then why not? Wagering in risk-free skimming with borrowed or leveraged money is simply rational.
Put these together and we see how a system based on risk-free skimming eventually leverages itself to the point that the slightest disruption can bring down the entire over-leveraged, over-extended system.
Why is this so? Every hedge has a counterparty who is supposed to pay off if the initial wager blows up. A system based on risk-free hedging is ultimately a self-organizing system which maximizes return by increasing bet sizes, leveraging/borrowing to near infinity and hedging every hedge as well as every wager.
This creates long chains of hedges and counterparties. Here's an example based on an asset we all understand, a house. Let's say someone buys a house for $1,000 down, something that was common in the housing bubble. That $1,000 is leveraged up to buy a $200,000 house via a $200,000 mortgage.
The "owner" of the house then buys a hedge to protect himself from the house losing value, so the risk is reduced to zero: if the value rises, the owner reaps the gain and if it declines, then he collects the payoff of the hedge from the counterparty, for example, a Wall Street investment firm.
The counterparty calculated the risk of real estate declining and then priced the hedge accordingly. There is some small risk that the loss will exceed the cost of the hedge, so the issuer of that hedge bundles similar bets and then buys a hedge or "insurance" from another player, who makes the same calculations of risk and return.
Meanwhile, the mortgage has been tranched (sliced into principal and interest and into various pools of risk) and bundled with other "low-risk" mortgages and sold to investors, who also buy a hedge against any loss in the tranch, for example, a credit default swap (CDS) which pays out if a borrower defaults. Those hedges are sold or "insured" with another hedges.
All of this debt and all of these hedges are based on a mere $1,000 of actual capital. The players who originated each hedge are similarly leveraged, because since risk can be lowered to zero, who needs capital?
So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble? The entire chain collapses. With razor-thin capital to cover any losses, then each link in the chain dissolves into insolvency if their counterparty fails to pay off.
This is how we get hundreds of trillions of dollars in "notational" derivatives: every hedged is hedged with another "instrument," "products" are bundled and insured, and so on. The system is based on the principle that risk can be reduced to zero, and so there is no need for capital.
Unfortunately, that premise is demonstrably false. Benoit Mandelbrot dismantled the notion that risk can be reduced to zero in his prescient masterpiece, The (Mis)behavior of Markets. The founder of fractal geometry showed that markets are fractal in nature, and are thus intrinsically prone to unpredictable disruptions. Simply put, risk cannot be massaged away.
Thus the fundamental premise of all modern finance is flat-out wrong, and this explains why systemic risk, rather than being eliminated, actually rises with every ratchet up in debt, leverage and counterparty hedging.
The entire global financial system is thus based on the equivalent of a perpetual motion machine: money can be borrowed or leveraged into existence in essentially unlimited quantities, and then deployed in risk-free skimming operations to harvest unlimited wealth.
What does this promise of using leveraged capital to skim risk-free fortunes do to the "real economy" of production and investment in plant and technology? It guts it. The risk of industrial Capitalism is real and cannot be hedged away; high-risk investments may blow up or they may return high yields. It literally makes no sense to risk real capital in productive Capitalism when a zero-risk skimming operation can be developed that essentially needs near-zero capital.
Thus financial capital has come to completely dominate industrial or productive capital. The pernicious consequences of this dominance have poisoned the economy and culture on multiple levels.
In the political sphere, the aggregation of hundreds of billions of dollars in skimmed profits gave Wall Street and the banking sector unlimited budgets to buy political influence. This created a monstrously pathological feedback loop: the more political influence Wall Street bought, the higher their returns on financialization skimming.
Consider housing as an example. Housing was once a simple, barely profitable long-term investment for both the buyer, who had to place substantial capital at risk (20% down payment) and the holders of mortgages, who took a modest yield for 30 years in trade for low risk.
Wall Street and the banks financialized housing via political influence. opening up a vast new territory to be exploited via skimming. Since capital wasn't necessary in no-risk skimming, then down payments were dispensed with to increase the pool of debtors, as they are the foundation of all skimming operations.
the cost of servicing that debt was manipulated via "teaser rates" and "interest only" loans, further leveraging up American home buyers' modest income streams. Mortgages were bundled, tranched and hedged, and the mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) were sold to trusting investors aroudn the world.
It was a bonanza of unprecedented wealth creation from financial skimming. $1,000 down and a few hundred dollars a month for a "teaser rate" interest-only loan was leveraged into a global chain of "products" and counterparties that could be skimmed all along the chain.
That deepened the political corruption that fed the skimming operation, and introduced the "no risk" pathology into Mainstream America. Since real estate never went down in value, then buying a second, third or fourth home on leverage was simply rational; in a Federal Reserve-controlled world of near-zero yields on cash, it was irrational not to.
But there were two intrinsic flaws in the skimming operation: while the Wall Street players were hedged (or so they reckoned), the average Americans buying homes with near-infinite leverage were not hedged. That meant that when their razor-thin capital went to zero, they were insolvent. Once they defaulted, then the income stream feeding the chain of skimming went away and the chain collapsed.
Once one counterparty failed in the chain, the entire chain collapsed as well. As Mandelbroit explained, such disruptions were an intrinsic feature of the system; though the timing of a systemic disruption could not be predicted, the fact that disruptions would occur on a regular basis could be predicted.
Some players knew this, of course, but that led to another pathology: those investment players who avoided the "no risk" skimming casino could not generate the yields being "earned" by the leveraged skimmers with legitimate investing, and so their investors abandoned them for the fully rational reason that "no risk" yields were higher elsewhere.
This too created a feedback loop, where the capital available to be leveraged grew rapidly, while the pool of capital available for "patient" risky investments in actual productive assets declined. Capital available for productive investment thus became costly and scarce, while capital available for leveraged skimming became cheap and abundant.
The Federal Reserve bankrolled the skimming to the hilt. Indeed, the entire pathology of low-interest, unlimited leverage skimming was based on the Federal Reserve's manipulation and intervention. That remains true today.
What happens when the whole chain blows up and the foundation of debt is impaired? Since the whole system is based on the debt and the income streams devoted to servicing it, the entire edifice collapses when the debt is impaired--debtors default and the system clogs with bad debt, i.e. uncollectable debt.
In a transparent Capitalist system, the debt would be written down and all the insolvent borrowers, lenders and counterparties would be wiped out. But the political corruption that enabled modern finance to poison the American economy and culture has stopped that cleansing from occurring.
Such a systemic writedown of bad debt in a system with only razor-thin capital to support a mighty edifice of leverage and debt would wipe out Wall Street and the banks and reveal the skimming operation of modern finance as an impossible perpetual motion machine rigged to enrich a thin crust of citizenry at the expense of the rest. And since they skim enough money to buy political protection, Capitalism has been strangled and tossed in a shallow grave lest it disupt the skimming and the political corruption that keeps the machine running.
What we end up with is artificial valuations, endless propaganda and a zombie economy. When borrowers are left dangling in default and the assets left on the books at full value, you end up with zombie debtors, zombie lenders, a zombie government that only has one lever to pull to keep the whole corrupt pathology going--borrow and squander more money-- and ultimately a zombie economy, drifting and decaying in a fetid pool of lies, shadow banking, ceaseless official propaganda, jury-rigged "fixes," manipulated statistics, corruption, predation, exploitation and pathology.
That's the U.S. economy, and indeed, the economies of the E.U., China and Japan in a nutshell.
The only way to clear a zombie economy is to write off uncollectable debt and liquidate all the assets, loans and hedges. That would collapse our financial system, but since it is the cause of our political and economic dysfunction, that would be the highest possible good and extremely positive.
There is a great final irony in the scare-mongering threats of the skimmers and their political toadies. If the taxpayers don't bail out the skimmers, then we'll have martial law by the weekend, the smouldering fires of Europe will rekindle into open warfare, and so on.
The irony is the propping up of a deeply, intrinsically pathological and destructive financial system is not saving the economy, it's the reason the economy is imploding. The Big Lie technique of propaganda is to reverse the polarity of reality: we are told up is down until we believe it.
We are told that liquidating the overhang of bad debt, leverage and hedges would "destroy the world as we know it." The truth is that keeping the zombie system from expiring and covering up the corruption with propaganda is what's actually destroying the world as we know it.
Thus the collapse of the current financial system of central banks, pathological Wall Street and insolvent banks would be the greatest possible good and the greatest possible positive for the global economy and its participants.