The Daily Reckoning
A Citibank branch is seen in Washington, D.C. Despite all the problems caused by financial derivatives, Citibank is creating a new one for financial crisis insurance. (Jim Young/Reuters)
Worse than the US budget: the shadow financial industrial governmental complex
This was a surprising concept to come across in the Wall Street Journa l… the “shadow government, the financial industrial complex.” Yet, what sounds at first like conspiracy theorizing is actually a sound criticism of the fact that the US government has basically ignored the lessons of the financial crisis and is more or less gearing up for a round two.
Despite entering into the first downturn so recently, and currently watching the Greek meltdown unfold, the US economy is still a mess. Worse still, the financial system has only grown larger, more complex and interconnected, and increasingly risk-seeking in different and dangerously innovative ways.
As described by the Wall Street Journal:
“Our budget deficit is a problem, but it’s not the core issue.
“Our shadow government, the financial industrial complex, is our potential Greece. High unemployment lingers, higher interest rates are on the horizon and U.S. aid to the mortgage markets is coming to an end. Government guarantees in the markets will be withdrawn leaving them exposed to the whims of confidence.
“Amid that uncertain state, Wall Street is chugging along as if the last few years were merely a blip. At Citigroup Inc., the financial innovators are readying a new, complex derivative that would act as kind of financial crisis insurance. Citigroup believes the derivative, dubbed CLX, won’t put Citi or taxpayers at risk, but they concede the contracts aren’t foolproof, a story we’ve heard before.”
Leave it to Wall Street, still reeling from the fallout of an economic disaster largely brought about by synthetic financial instruments, to continue expanding its arsenal. Worried about problems with complex and nearly-foolproof mortgage and other derivatives? Don’t be. Now Citi’s put into place vastly more sophisticated financial crisis insurance derivatives. Bring ‘em on!
Confidence inspiring … indeed.
Read the full story in the Wall Street Journal’s coverage of how the Greek debt fiasco shows how little has been done to prevent the next crisis.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Whistler village (seen here in a 2008 photo) is the ski resort hosting glamorous Alpine events at the Olympics. But the indebted resort is scheduled for a foreclosure auction during the last days of the Olympics. (Jonathan Hayward/The Canadian Press/AP/File))
Even in the heart of the Olympics, a foreclosure
Smack dab in the middle of the Olympics the wheels of foreclosure were turning at the exclusive Whistler Blackcomb resort, the home of this year’s ski events. However, the resort’s management Intrawest, and its owner, Fortress Investment Group, have been able to delay the actual foreclosure auction until February 26th, still two days prior to the closing ceremony, and still plenty embarrassing.
According to The Globe and Mail:
“Fortress and Intrawest have been in talks with lenders since missing the final payment on a $1.4-billion (U.S.) loan late last year.
“The tension is heightened by the fact that one of the big creditors is the estate of bankruptcy Lehman Bros. Holdings Inc. Given that Lehman is liquidating, the former bank can’t be very generous with time, making it more difficult to find a fix for Fortress and Intrawest.
“The timing of the auction — set for the middle of the Olympics which are being held in part on Intrawest’s Whistler hill — was widely viewed as a pressure tactic and a message to Intrawest and Fortress: Bring us a deal we like, fast.”
Of course, from the above, the crown jewel of this gold medal worthy debacle is the involvement of a currently liquidating Lehman Brothers. You would have thought Fortress would have seen this one coming.
You can read more details on the rapidly unfolding story in The Globe and Mail’s coverage of Intrawest getting more time from bankers.
Speaking of Vancouver… the Agora Financial Investment Symposium will be held in that fine city July 20-23, 2010. It’s been Agora Financial’s most important event every year for over a decade. This year promises to be no different. We’ve already locked in many speakers you won’t want to miss. You can learn more about the event and also register here.
A man stands in front of a bank and reads newspaper headlines about Greece's financial crisis, in central Athens on Thursday. Greece's Socialist government is mulling further austerity measures to deal with the's country's acute debt crisis, despite increasing opposition from powerful labor unions. (DIMITRI MESSINIS/AP)
How your US taxes could be bailing out Greece
It sounds far-fetched but, as Dr. Ron Paul highlights in his weekly column, Americans have no insight into the operations of the Federal Reserve. Therefore, the Fed can covertly funnel US funds to wherever it decides. This could include, for example, Greece, as it inches ever closer to default.
From Texas Straight Talk:
“Is it possible that our Federal Reserve has had some hand in bailing out Greece? The fact is, we don’t know, and current laws exempt agreements between the Fed and foreign central banks from disclosure or audit.
“Greece is only the latest in a series of countries that have faced this type of crisis in recent memory. Not too long ago the same types of fears were mounting about Dubai, and before that, Iceland. Several other countries (Spain, Portugal, Ireland, Latvia) are approaching crisis levels with public debt as well.
“Many have strong ties to Goldman Sachs and the case could easily be made that default could have serious implications for big US banking cartels. Considering the ties between the Fed and these big banks, it is not outlandish to wonder if the US taxpayer is secretly bailing out the entire world, country by country, even as our real unemployment tops 20 percent.
“Unless laws are changed to allow a complete and meaningful audit of the Federal Reserve, including its agreements with foreign central banks, we might never know if this is occurring or not.”
Not only do US citizens still have no clear picture of where bailout funds went in terms of financial institutions, we don’t even know if foreign governments have been supported through the Fed. It begs the question… how bad is the truth?
Read the full perspective from Dr. Ron Paul in his column about how US taxpayers may be bailing out Greece.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Bernanke admits truth about money. It’s just scraps of paper.
The Onion has just released the defining story of the 21st century … money is in fact nothing more than worthless scraps of paper. The realization came about at a recent Bernanke testimony before Congress.
According to the Onion:
“What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world’s largest economy.
“‘Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…’ said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. ‘You know what? It doesn’t matter. None of this—this so-called ‘money’—really matters at all.’
“‘It’s just an illusion,’ a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. ‘Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless.’”
Clearly, then panic ensued. Read all the details about the response of Congress, Obama, and the American people in the Onion’s coverage of how the US economy grinds to halt as the nation realizes that money is just a mutually shared illusion.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
The A to A of Government Inefficiency
01/14/10 Baltimore, Maryland – Hey ho…what goes?
The stock market registered a gain of 53 points on the Dow yesterday. Gold saw a modest gain too.
And the White House came right out and with a straight face said it had saved 2 million jobs. How do you like that? More than 7 million jobs have disappeared in the correction so far. But the total would have been more than 9 million, had it not been for the feds.
Let’s see, $700 billion worth of stimulus spending…hey, that’s $350,000 per job. But every dollar of deficit is actually ‘stimulus spending.’ At that rate, each job cost about $800,000. And what about all the Fed’s pump priming? What about all the loan guarantees and toxic asset purchases…and bailouts of the auto industry, AIG, the banks, mortgage holders, Fannie and Freddie…etc. etc? That’s all stimulating too, isn’t it? The total is said to be around $13 trillion, putting the cost at $65 million for each job saved.
Of course, it’s all hooey…all nonsense…all balderdash.
It makes sense to ‘save’ a job if and only if the job didn’t need saving. In other words, the jobs that are worth doing are worth saving…but they don’t need saving. Why? Because a job that is worth doing is a job people will pay for. And if they won’t…or can’t…it’s NOT worth doing.
Otherwise, the feds could have 100% employment…just as they did in the Soviet Union. Give everybody a job. What the heck, give everybody two jobs! But it only really does any good if the jobs are productive. And how can you know if they’re productive or not? You have to wait for Mr. Market to tell you. If a job is productive, people will pay for it. If not, well…the job is cut and/or the business goes bust.
Mr. Market never gets a say on government jobs, however. That’s why the feds can say any fool thing they want.
Washington, DC is full of government bureaucrats who earn 30% to 50% more than people in the private sector. In the private sector Mr. Market puts his thumb up or his thumb down. The job is saved. Or the job is cut. But here in the federal city his thumbs are in his pockets.
For example, every day, we drive by the NIH – National Institute of Health. Thousands of cars go in and out every day. The NIH was set up in 1930. It had 140 employees, which seems like more than enough. Today, it has 18,442. The same sort of employee inflation happens at every government level on practically every government project. You set up an agency or a commission. Then, you can’t get rid of it. As the saying goes, ‘nothing is more eternal than a temporary government agency.’
But are Americans any healthier thanks to the NIH’s 18,000 + employees? No one knows.
And that’s just the NIH…where employees might conceivably be doing something worthwhile. Just for fun we went to the A-Z Index of US Government Departments and Agencies and copied some of the list. This is just the beginning of the As:
- Administration for Children and Families (ACF)
- Administration for Native Americans
- Administration on Aging (AoA)
- Administration on Developmental Disabilities
- Administrative Committee of the Federal Register
- Administrative Office of the US Courts
- Advisory Council on Historic Preservation
- African Development Foundation
- Agency for Healthcare Research and Quality (AHRQ)
- Agency for International Development
- Agency for Toxic Substances and Disease Registry
- Agricultural Marketing Service
- Agricultural Research Service
- Agriculture Department (USDA)
- Air Force
- Alabama Home Page
- Alabama State, County, and City Websites
- Alaska Home Page
- Alaska State, County, and City Websites
- Alcohol, Tobacco, Firearms, and Explosives Bureau (Justice)
- Alcohol and Tobacco Tax and Trade Bureau (Treasury)
- American Battle Monuments Commission
- American Samoa Home Page
- AMTRAK (National Railroad Passenger Corporation)
- Animal and Plant Health Inspection Service
- Appalachian Regional Commission
- Architect of the Capitol
- Architectural and Transportation Barriers Compliance Board (Access Board)
- Archives (National Archives and Records Administration)
- Arctic Research Commission
- Arthritis and Musculoskeletal Interagency Coordinating Committee
- Atlantic Fleet Forces Command
Would we be worse off if half of these people were sent home? Probably not.
But what are we ranting about? The Daily Reckoning is about money, right? It’s not about politics…
But…whoa…now politics and economics are mighty cozy with one another. A growing part of GDP comes directly from the federal government. Already, there is now more government spending than there is private investment.
And many mainstream economists are calling on the government to spend more money to fight the downturn…and ‘save jobs.’ They don’t bother to think about whether the jobs are worth saving or not. And they don’t seem to care that government spending is not the same as private spending. As the feds take over, the economy changes shape. It becomes less and less a free-market, productive, wealth enhancing economy. Instead, it becomes more and more of a centrally-planned, unproductive, wealth destroying one.
It becomes Sovietized, in other words…like Venezuela.
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Guest Bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
Greece to Make All Large Cash Transactions Illegal
Talk about making a currency less attractive. Given all the concern about weaknesses in the structure of the euro under strong economic headwinds, and its foundation in the perhaps too loosely-aligned euro area, it seems like a bad time to make using large quantities of euro cash illegal. And yet, that is exactly what Greece is going.
Embroiled in its debt crisis and looking for any avenue to bolster tax receipts it has done the unthinkable – it has made its own “legal tender” illegal for transactions over 1,500 euros. Of course, larger credit- or debit-based electronic transactions over 1,500 will still be denominated in euros. However, electronic transactions clearly require infrastructure and limit personal freedom.
From Reuters:
“From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards”
It seems wrong for the Greek state to dictate how cash euros can be used. In fact, it’s surprising that the EU-endorsed plan would allow Greece to control euro usage at that level. Several other primarily tax-related measures are included in the same plan:
* “Deposits in banks outside Greece are exempted from audits of their origin if they are repatriated within six months of the passing of the tax bill and are taxed with a 5 percent rate”
* “[in a] new tax scale, there is a shift of the burden from low and middle income to high incomes.
* “tax relief for incomes up to 40,000 (euros)”
* “Taxable income based on the new scales will include capital gains from the short-term trading of stocks”
* “Every autonomous taxation … for special professions, like engineers, architects, taxis, gas station owners and kiosks is abolished”
Despite the fact that the reform bill is a piece of an approved EU plan to help improve Greek tax revenue and reduce deficit, it seems to go too far in curtailing personal liberty. A 1,500 euro limit for cash transactions seems unreasonable on its face and it begs the question of what enforcement of the law would engender. Basically, how much is a government willing to punish its own citizens for using “too much” of their own legal tender in an otherwise legal transaction?
In fact, any cash limit other than those naturally imposed by the sheer inconvenience of carrying suitcases filled with money has a draconian feel to it. It’s especially true when combined with the obligatory repatriation of deposits described above. At some level Greece is steering its own citizens toward being excluded from participation in a market-based society unless they keep plenty of transaction-ready funds stored in Greek bank accounts.
It would be an unfortunate series of events, much like the unbalanced 2011 budget, that would lead to similar types of reform in the US. The thought of cash transaction limits alone sounds worthy of riots in the streets.
Please read more of the details in Reuters coverage of the Greek Finance Minister’s tax reform and wage policy plan.
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Guest Bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
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