Banking idiocy.

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Banking idiocy.

Postby chrismb » Thu May 03, 2012 7:35 am

Thought you might like to read a speech given by the Governor of the Bank of England yesterday. (I've uploaded a copy, so ephemeral internet links to it don't fail in the future):

20120502_BoE_speech567.pdf
(39.84 KiB) Downloaded 149 times


So, the bit that stuck my goat was this bit;

"Let me start by pointing out what did not go wrong. In the five years before the onset of the crisis, across the
industrialised world growth was steady and both unemployment and inflation were low and stable."


Growth was steady, eh!? By what properly employed, diagnostic metrics can this be considered 'correct'. This is like saying in the 5 years before 'Enron', nothing went wrong with the company and it had years of stable success!!

I mean, he even goes on in the next para and [correctly] says;

"Strikingly, most of that increase in
lending wasn’t to families or businesses, but to other parts of the financial system. To finance this, banks
were borrowing large amounts themselves. And this was their Achilles’ heel. By the end of 2006, some
banks had borrowed as much as £50 for every pound provided by their own shareholders."


...maybe we can revisit that 'what did NOT go wrong' paragraph again!!!....

This is completely ridiculous. Like saying nothing goes wrong with a Ponzi scheme, until everyone cashes in their investments!!!


**** OK, so, just for a giggle, this was my OWN probing that I did of the BoE around the time the global market had softened before the main 'whallops' hit UK banking (after the run on the Northern Rock). (FYI; British money is like a cheque from the BoE and it says "I promise to pay the bearer, on demand, the sum of *X* pounds")

> -----Original Message-----
> From: chris bradley
> To: Enquiries
> Subject: 'I promise to pay the bearer'
>
> I would like to know how you would pay me if I send in one
> of your banknotes for settlement.
>
> I understand that you no longer have enough precious metals
> to actually pay the existing sterling value of issued
> banknotes, which are only promisary cheques against you.
>
> Please advise me how I go about obliging you to settle up a
> banknote.
> best regards,


> From: Enquiries <Enquiries@bankofengland.co.uk>
> Subject: RE: 'I promise to pay the bearer'
> To: chris bradley
>
> Hello Chris
>
> Thank you for your enquiry.
>
> Since its foundation in 1694 the Bank of England has issued
> notes promising to pay the bearer a sum of money. For much
> of its history the promise could be made good by the Bank
> paying out gold in exchange for its notes. The link with
> gold helped to maintain the value of the notes, although the
> link was sometimes suspended, for example in wartime.
>
> The link with gold was finally broken in 1931 and since
> that time there has been no other asset into which holders
> have the right to convert Bank of England notes. They can
> only be exchanged for other Bank of England notes. Nowadays
> public faith in the pound is maintained in a different way -
> through the Bank of England's operation of monetary
> policy, the object of which, by statute, is price stability:
>
> With kind regards
>
> Public Information & Enquiries Group


> From: chris bradley <chris_macdonaldbradley@yahoo.co.uk>
> Subject: RE: 'I promise to pay the bearer'
> To: Enquiries@bankofengland.co.uk
>
> Thank you for your reply
> in which you have indicated that public faith in
> sterling is maintained by price stability and that there is
> no longer any need for supporting assets to maintain the
> currency.
>
> Can you please clarify to me what the actual difference is
> between the Bank of England and a bankrupt/insolvent entity,
> excepting for where statute artificially specifies a
> difference? Would I be correct in saying that a
> bankrupt/insolvent entity is one who does not have
> supporting assets equivalent to held/issued credit, a
> position you appear to confirm is also the case for the Bank
> of England.
>
> best regards,


I don't recall receiving a reply to the last one ....
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Re: Banking idiocy.

Postby Doug Coulter » Thu May 03, 2012 10:20 am

LMAO, you're a little late to this party, and no, it isn't just BOE, though UK is in many ways worse off than some others re solvency. No major currency has been metal backed for a long time - we quit in '71 here.
In fact, no government worldwide has actually paid off any deficit since WWII (except Norway). We're all just rolling it over - borrowing anew to pay the old bills, plus some to deficit spend now. In the US it's 40% borrowed for government spending, in this case from our federal reserve mostly, who isn't actually a federal entity any more than Fedex is. It's owned by a banking cartel, ownership membership is a secret.
Every dollar created is debt back to these guys. By definition this means it can never be paid back - if each dollar is created as a debt with interest, there will never be enough of them to pay that debt. It's so screwed up that one of our presidents said, before I was born - if people really knew and understood how this works, there would be a revolution tomorrow. And people are finding out and understanding.
WIMPY copy.jpg


What can I say? All the investment boards I inhabit have been talking about this since about '08 at the latest. We're in this state, in global finance:
wileycoyote-06.jpg
Fine if you don't look down.


I forget the exact world GDP (largely a spun, made up number anyway) but banks have sold dark-pool, unregulated insurance to one another to the tune of a few hundred trillion, and a lot of that paper is "bad", needs to be paid off, and can't be - even theoretically. We could let some large institutions fail, of course, but no government is - they are all 100% owned by those institutions, so we bail them out even as it drives the world into chaos, and costs more to the taxpayers than letting them fail. It's just a question how long the piper can be distracted and kept at bay. Which is one reason I'm doing all this self-sufficient stuff - bad things are getting ready to go down. Well, actually, they have already - but see the coyote above.

If you want metal backed money - you'll have to make your own, buy metal. They're cheap now due to manipulation as every central bank in the world is scrambling to get more at low prices before the house of cards comes crashing down, thinking that might be their life raft. Have my doubts on that. Even gold won't save you when trust is completely, utterly demolished - there has to be stuff to buy with it from people who haven't yet completely rejected this ridiculous scheme and so still make stuff/services.

While I don't expect mad max or hyperinflation right off - the junk on the horizon sure doesn't look like good weather, either. The only hope of governments "When things get tough, CB's have to lie" is inflating away a lot of this debt - say 95% of it or so, so you can expect your purchasing power to be reduced accordingly, especially since wages are going down, not up. Every paper currency (all of them) is in a race to the bottom, making it fun to look at the race, but not the destination. For example, that US "recovery"? See this chart of our markets in bucks, or vs gold - all the while the buck, euro, and pound (and a few others) really haven't changed exchange rates much at all vs each other - it's universal.
20120221_dow1_0.png


So, that more than doubling since march '09 is a complete illusion, see?

The "crisis" was the early first storm wall of a hurricane. We've been living in the eye for awhile, and here comes the other, stronger, storm-wall.
The inflation policies are governments not knowing what to do now that they cannot, even if they want to - keep all the social promises they've made, not even close, it's just a matter of how each collapses. The politicians are all terrified - which is part of the reason it's getting hard to find good ones to do those jobs - look at the situation here and there. We've got a stuffed-shirt total shark running to take over from our small time corrupt Chicago gangster. France? Will Merkel survive in Germany? No, the people will try to vote for "everything should be normal and the government should continue to deficit spend to give me goodies" but they're about to find out you can't actually get prosperity by voting in a new batch 'o clowns who are just forced to further devalue the currency.

So, buckle your seatbelts - this ride is not going to smooth out, it's going to get a lot rougher. Banks are actually more levered up than they were before the crisis - order of 30 or 100 to one (meaning in effect, they've used the same collateral that many times to borrow against) and even LTRO over that, which takes toilet paper collateral for low rate real Euros, is failing as there's a shortage of toilet paper.

Some front row seats:
http://www.zerohedge.com/
http://www.pmbug.com/
http://seekingalpha.com/

(All of which I sometimes write for)

As Hugh Hendry says - you can't make up how bad it is. You're on one of the major hot seats, since the corruption and lack of regulation in UK has caused the bulk of this bad stuff and shady dealings to move to London, where it's allowed (only place on earth you can sell insurance on finance with NOTHING to back it up, or use the same gold as collateral 100 times at a time). The momentum and existing debt no one wants to admit will never be paid is now unstoppable, and has been for at least a few years. The only thing anyone can do, other than waste time rioting - is get ready and enjoy the show as it all collapses.

Humans will pull out of this - someday. But right now, it's damn dire, and there is no solution evident that will even maintain the status quo, though those in power (not just the names you know) are kicking that can down the road as far as they can before they run out of road, or the can erodes to nothingness - the latter is the likely end game. A VERY deep depression as major systems fail, but aren't allowed to die, yet.

As a trader, I can make money on moves of either direction - all I need is motion I can predict. The macro view is all totally down and bad, but with rays of hope (mostly all false) sometimes making things appear to go up.

But - inflation is about to get serious. Interestingly, two silver dimes from awhile back will STILL buy a gallon of gasoline. 20 cents - but silver...That's how far our own currency has fallen in value - gasoline was 20c a gallon when those coins were minted ('60 or so), and it's still 20c in them...paper is not doing as well, eh? So, paper has lost value 1::20 since 1960 alone...

This is how they can rip us all off without explicitly raising taxes, we're being boiled like frogs and are too numb to realize the water's getting to hot to live in.
LobsterBeck.jpg

The banks have it made - when they make money, they keep it. When they lose money - through their own imprudent deals, we pay them back via bailouts usually called something else these days.
That's the underlying unjust issue, the one people who don't understand dimly realize isn't fair to them. Why not bail US out instead? We don't own the politicians. They do.
It's all leading here:
Fas.png


But no worries. From that very speech:
Next year, the responsibility for
regulating banks will return to the Bank of England.


We're going to let them be regulated - by the very entity that needs the regulation - a private cabal of banks that run the world but get to call themselves official government banks - but aren't accountable for ANYTHING. Essentially every dime of existing money is owed to them by convention, with interest so it can't ever be paid, but they intend to collect...and need to. Surely it will all be fine.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Re: Banking idiocy.

Postby chrismb » Thu May 03, 2012 10:58 am

It's not me that's late to this party!! :? That speech was made last night.

I've send a follow-up email to BoE, to push the point. See if I get a response this time....
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Re: Banking idiocy.

Postby Doug Coulter » Thu May 03, 2012 11:35 am

I meant (sorry if not clear) the party of "it's all hosed, banks and govs are corrupt and there's no obvious way to fix it that doesn't result in screwing everyone", which has been going on since '07 or so. This is just one new brick in that wall - I see things like this every day for years and years. I have to (unfortunately) watch it all to be good at trading.

Globally, the banks have "assets" eg, debt owed them, of around 100 times the GDP of earth. It can't be paid, even in theory, but they are calling all these worthless "Assets" good at face value and using them for collateral to borrow even more from we, the people (effectively). This is several generations worth of growth and income - all gone poof, but not yet reported honestly, hence the wiley coyote picture - as soon as the first guy looks down, it's all over.
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Re: Banking idiocy.

Postby chrismb » Thu May 03, 2012 12:04 pm

Doug Coulter wrote:I meant (sorry if not clear) the party of "it's all hosed, banks and govs are corrupt and there's no obvious way to fix it that doesn't result in screwing everyone"
Sure. I was just wondering how this speech from the BoE Governor told his audience anything they didn't know...


The thing I can't help conclude is that it is all 'magic' money in any case. I mean, what's the closest a Gov could get to simply saying 'we hereby close all debts - financial reboot!' and things still work?

Sure, there will be problems. Investors with cash in the bank would see precious little of it as the banks spontaneously implode. But the only argument for not doing this kind of thing is the claim 'the nation needs banks'! As Mervyn King said in that speech;

Banks are a vital part of our economy.
They run the payment system, allowing us to pay our bills and receive our wages.


Are they? I have my cash in a Building Society, who have to have assets [saver's cash] to 75% of what they lend [mainly to buy property, but they do personal loans too]. What's wrong with this model for running the nations payments systems?

It's not like it was really 'the bank's' money to lend in the first place - if someone wants a loan, a commercial bank simply writes out a chitty for the loaner to go get cash off the Bank of England, while the commercial bank collects it on the BoE's behalf, and pockets the difference of the interest between the rate it charges and the interbank rate it is charged. So the way I see it is that it's up to the BoE if it wants to write that off, as the commercial bank didn't put anything in in the first place.

Have I got that wrong? Or am I calling the 'Emperor's clothes' here?

The 'big debt' is mainly all the interbank stuff now - as you say 100x the actual assets. Fine, so just say 'Enough. By law - now all gone back to zero. Problem gone!'. If we have a spontaneous global default where everyone defaults uniformly, what's the catch? It's not like houses will spontaneously vanish, or cars on HP will, or the cash in your pocket disappears. I mean, WHAT would actually happen under a global default apart from a lot of angry bankers, and some wealthy investors for whom that cash was pin-money anyway?
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Re: Banking idiocy.

Postby Doug Coulter » Thu May 03, 2012 4:05 pm

Well, that speech probably got fairly wide dissemination so it probably told some people who didn't already know something.

My contention is that no, we don't need the huge banks, hell, paypal isn't even a bank and it would do for what that banker said about banks...calling yourself essential is to be expected, but not believed.

A debt jubilee sounds good at first, but the implications can be very nasty. Suppose someone owes *you* money and their debt is "reset" - you're hurting. Or your pension plan (basically owes you money and can't pay it unless the people they loaned it to pay them back)...not all investors in debt deserve a screwing, just a lot of them. We should all do like the swiss - they don't have a corporate legal veil for their bankers, they are personally liable if things go wrong, which is why they are strong. The "give a shit" factor is high. There's a link a page or two from the end of "the daily link" with Kyle Bass that tells the story of what's going on a lot better than I am now, and it's all factual. You should check that out as homework.

The big issue is this "dark pool" insurance paper banks have all sold one another and to various "whale" investors. What might have a prayer of working if done very carefully is to declare that illegal and void.
But, again, a lot of innocents own this stuff, not just banks and trading houses. And calling it void would create intense turmoil. Suppose you owned something risky - and you bought some of this insurance on it so as to decrease your risk (at a cost to the buyer and pure easy money to the seller of insurance if they don't have to pay). If the insurance goes away (something the ECB tried by banning short selling etc for awhile) then there might not be any reason to own that risk anymore, and whoever needs to sell that risk, say, your employer, can't borrow anymore and goes broke, and you (innocent we assume) lose a job. It's all pretty tied up together, pretty hard to tease it all apart. When the ECB banned this for awhile, everything tanked - as the stuff had been usable for collateral, but only if insured. So, if people couldn't hedge their risks, they just took their risk off the table instead. The CB's are SO DUMB they didn't realize this and blamed the wrong scapegoat.

All this bad "insurance paper" is why credit locked up totally at the beginning of the current depression. Since it's all "dark" no one knew how much bad paper their trading partners had sold, and could only go by how much they themselves had sold - knew it was very bad, and assumed everyone else was as bad (likely). So all interbank lending died quick.

And since your central bank, and ours - are NOT in any way governed by our governments - they are private huge money interests - the fox owns the henhouse, and in the end, all money is owed back to them, no way they're going to consider a jubilee.

Dunno how it is in the UK, but most of the "honest money" out there in our markets is retirement funds...who would lose nearly all value in such an event. Remember, they are "big banks" in a sense themselves, and very tied into all this. But I'd see nothing wrong with Citi, BAC, Goldman, JPM etc going bankrupt themselves and failing to pay their obligations. It would hurt like hell for a lotta people, but that's going to happen anyway and how bad it's going to be only gets worse the longer we wait.

Right now, banks are allowed to not "mark to market" all this bad debt, and are still using known bad "assets" as collateral for loans they take from the CBs. That's what LTRO was about over there. Here it's just an FASB Ruling.

Oh, and guess what? You know who decides if all that credit insurance has to pay? A consortium of the big banks themselves! ISDA. Who has already failed to declare a "credit event" on things like Greece, because it would hurt their members.

Big private (but publicly known) banks own governments in fee simple via lobbying and such. The big secret banks (that own BOE, our Fed, the ECB, etc) own everything by fiat - 100% of all the money ever "created" is owed to them with interest - and cannot be paid by definition - to get the interest, you'd have to borrow more money from them, at interest. This complete world takeover actually happened around 1913...

You might look up some names like Rothschild, Bilderburg etc. They made their world domination plan public quite a long time ago, and haven't veered from their course since they won, and make no bones about it, and yes, still exist. You'll find a ton of tinfoil hat conspiracy theory around it, but there really is an issue under there.

"I care not about how laws are made or by who as long as I control the money" - Rothschild, a couple centuries back. Did you know they funded both sides of every war since Napoleon? And having privileged knowledge of that kind of thing quicker than the other players makes them able to trade futures a hell of a lot more profitably than those of us who do it honestly - if you know who's going to war with who, and who is winning first, it's easy to make winning bets. And hold both winner and loser liable to pay you back, or threaten to crash them financially. It's the history behind the one we get taught.

I'll admit, I'm one of the 1% - there are after all quite a lot of us. But from my pov, it's the .01 or less percent that still rule the roost, and I'm as insignificant on that scale as the poorest homeless guy.
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Re: Banking idiocy.

Postby chrismb » Thu May 03, 2012 5:32 pm

Doug Coulter wrote:Suppose someone owes *you* money and their debt is "reset" - you're hurting.

I'm not a bank. I'm talking about debts to banks/trading companies/financial markets, &c..

Or your pension plan (basically owes you money and can't pay it unless the people they loaned it to pay them back)

Should be invested in companies. Those companies won't vanish into thin air just because something is written down on a piece of paper!


...not all investors in debt deserve a screwing,

I don't believe there would be any case of a 'wrongful investment' that cannot be recovered. 'Debts' that I am suggesting to be written off are NOT the ones where investment scammers owe their investors a return of money for their dodgy dealings. Each and every investor would then be free to pursue the 'fund managers' who took their cash to make an 'investment' and get it back. That money must have gone somewhere, and if that trail terminates in a mis-sold or misrepresented transaction, then the one(s) selling that transaction make the refund, or get locked up in a debtors prison.

But, again, a lot of innocents own this stuff, not just banks and trading houses. And calling it void would create intense turmoil.


I'd challenge you to give me one case example, however you make it up, where all these financial transactions cannot be un-stitched and remedied back to the ones who conducted the 'fraud'.

Suppose you owned something risky - and you bought some of this insurance on it so as to decrease your risk (at a cost to the buyer and pure easy money to the seller of insurance if they don't have to pay). If the insurance goes away (something the ECB tried by banning short selling etc for awhile) then there might not be any reason to own that risk anymore, and whoever needs to sell that risk, say, your employer, can't borrow anymore and goes broke, and you (innocent we assume) lose a job.


Not sure what 'insurance goes away' means. If no-one is prepared to cover a given risk, then, yes, it can mean a business can no longer operate. That already happens here in UK - e.g. public events organisers are screwed to the bone on insurance premiums for imaginary risks by the underwriters.

Dunno how it is in the UK, but most of the "honest money" out there in our markets is retirement funds...who would lose nearly all value in such an event.

Don't see why. The investments should be in solid stuff. If the cash has been put into a dodgy fund unwittingly, the pension fund should go back and ask where its money has gone, and get it back. Follow the money, it will be in someone's hands somewhere who should not have gotten it. If those people have spent it already (on something legitimate) and they can't pay it back, then send them to the workhouse until they pay it back.

Simple.

I can't think of a case that is unresolvable. If a fund managers accounts are not transparent enough to see where the trail of money goes to recover it, then they need to go to jail for false accounting - they are liable for the amounts and, again, to the workhouse with them.
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Re: Banking idiocy.

Postby Doug Coulter » Thu May 03, 2012 8:39 pm

You sure are willing to confuse "should" with "actually is", here. And it's only your definition of "should" at that, not the actual legal definition of say, the responsibility of a fiduciary, which is to generate the best risk-adjusted return possible for the client's money, given the best *available* information.

Corporations are legally people. Try and untangle that one (we should, I agree, but...). Their officers and workers are protected by law from most penalties and suits - else no one would ever start one, it's risky.

Companies often vanish because of what's on a sheet of paper, if that paper is their balance sheet. It's astonishing that when credit froze up, companies you'd think were the most profitable rackets on earth all needed emergency funds just to make payroll that week. Verizon, McDonalds, Disney...General Electric...very good "investments in solid companies" that almost went poof. Like Bear Stearns and Lehman brothers actually did in one day. The Fed had to be sued to release that information, and the list was 10's of thousands of "solid" companies, many redacted for "national security reasons".

The day before they went, Lehman's bonds (debt to investors) was trading at 98c on the dollar. The next day, it was down to 2c on the dollar. Go see that Kyle Bass video and learn some things.
As your ECB guy Junckers says - when times are tough, governments and central bankers must tell lies - or be accused of being pro-cyclical and making things worse.

The biggest issue here was the sale of something a lot like insurance by companies not able to pay out if a whole bunch of payout was required. This was legal, which shouldn't have been (there's that word again, but should and are mean really different things). This insurance - bundled with very risky investments - allowed those to be rated highly (low risk) (the ratings agencies are a big part of the failures here - and our government and yours has initiated legal action against two ratings agencies, but not for over-rating these bad investments, but for downgrading the governments themselves, which richly deserved the downgrades. S&P and Egan Jones are the "culprits" in telling the truth here. Get it yet?), and sold to people who had rules about taking risks despite the risk on the underlying instrument.

For the companies selling this insurance, it seemed like "money for nothing" as they didn't expect say, home prices to ever go down en masse. But they did. Classic "blowoff top" any trader knows well. There are two keys here, CDO's (collateralized debt obligations) which are essentially groups of mortgages or other debt bundled and changed into interest paying bonds, and CDS, or Credit Default Swaps, which are the aforementioned "insurance" but due to a missing law about this - not regulated as insurance, and in fact, a lot of both of those weren't traded openly, but "man to man" with no records or transparency - which is still the case. Attempts to change that law have been voted down by people owned by the banking system - your and our politicians. Our so-called financial reform after that lobbyist-driven watering down is actually a relaxation on what existed already! They're so corrupt it's crazy and no longer even attempting to hide it. Unlike say, life insurance, I can even buy a CDS on some risk I don't even own. Think what your life expectancy would be if everyone could buy life insurance on you without your knowledge or consent...

So, here's the setup. Banks can sell a mortgage to a CDO bundler within minutes of making the loan, and at a guaranteed profit. This shouldn't be possible FWIW, but it's possible and legal. So, the bank no longer has any reason whatever to care if it'll ever be paid - they got the money and ran already. Of course, a lot of people who shouldn't have took out loans, since the banks no longer cared, and people always are greedy and shortsighted. Had there been loan standards enforced, the rest of the system would probably have been fine - so who is to blame here? There seems plenty go around, from the greedy investors who wanted as much of this high paying low risk investment as they could get, to the banks facilitating it - to people taking loans there was no way they could pay back. I know one such person who did it on purpose, figuring it was their once chance to have a nice life for a couple years, and it was better than being dirt poor their entire life.

Some one misused the definition of "diversification" to set up a system where one of these CDO bonds was actually tiny bits of thousands of mortgages - not all of even one, for "safety". Since people used to always pay for their homes (and could because they wouldn't be granted a loan otherwise) these were considered safer than safe - AAA ratings. Solid investments by all the rules, in other words. Some that were only AA rated, had CDS added to them to "guarantee" they'd pay off even if there were some defaults. The investment houses had no obvious reason to not sell insurance against something that never happened - they didn't realize that "too good to be true" always is, like I do. Further, once you match up a CDO with a CDS (which makes it more expensive), it's STILL the highest paying lowest risk thing out there - and people with fiduciary responsibilities would be fired - or jailed - if they refused to consider investing clients money in the best stuff out there - or they'd simply lose all their clients. It's a competitive world. And no one can surely predict the future, so there will always be times you lose money in investing (in nominal terms, much less real value terms). You can't say that shouldn't be possible, it's the very nature of capitalism. Which is bad, but not as bad as everything else ever tried.

Part of the lowering of our loan standards was mandated by the government, with the idea of giving our poorer minorities a better shot at home ownership - a stake in the system seemed a good idea at the time (and still is, but it has to be earned to be real). Most of this mandated loosening was done by our "left" though there's plenty blame to go around - when it comes to corruption and regulatory capture, there's no political party loyalty. Once fannie and freddie started making chancy loans, everyone else had to, or lose market share - letting one guy (in this case government agencies) do it means everyone else MUST do it or just go out of business, which of course, results in malfeasance suits for corporate leaders that can pierce the "corporate veil" - and no one wants to go to jail or lose a billion dollar suit just because they refused to pick what was universally considered to be low hanging fruit.

Now, I'm using home mortgages as the example, but this extended to all sorts of other loans.

Further, once you've got something "good" and further have "insured it" it becomes usable as collateral - thereby creating the possibility of leverage. (eg you can then borrow the money you spent to buy thing 1 and use it to buy a thing2, and wash/rinse/repeat until for every dollar you've put in, you've bought 100 worth of investments) Leverage gained this way and others has resulted in banks "assets" being many times the size of the GDP of the country they are in - too big to bail, in other words. Iceland was smart, with trillions of dollars of liabilities they let the banks fail, and now are doing better than almost anyone else after a short period of being pariahs in the business for not bailing out their banks (which by extension meant bailing out other banks theres owed money to). Luckily, that didn't take down the system like dominoes, quite, but you're paying for it one way or another, as am I.

The stealth bailout going on now works like this. Banks can borrow from the central banks for zilch (here, it's .25%) if they have "collateral". Often, this collateral is either something like a CDO and a CDS to insure it, or sovereign debt of the country, which obviously pays a lot more. That's called a carry trade (or a circle jerk, depending on your mood). In fact, LTRO was precisely that, and we're doing the same here all the time under no particular name. When our banks decided not to always buy our gov debt, but instead speculate in commodities (far higher return), to keep our country from ending up like Greece or Spain etc (the PIIGS), our fed started buying our bonds directly - in effect, printing money to buy our government debt, which is why the interest rates are so low here on that. If allowed to rise even one percent, our entire tax intake wouldn't even cover the INTEREST on all that, much less any government spending whatever - it's that bad. Our government cooks the books to make our debt/gdp ratio look like it's only 100% or so, but it's actually about 10 times worse if you cost in our social security and medical benefits and other "unfunded mandates" - our govenment long ago spent every penny of our social security "fund" and medicare tax on other stuff, they are just filing cabinets full of IOU's - and that's not even counted against our debt to get to 100% of GDP. And that's just the federal government. California has more debt than some european countries - all by itself, and has only about 10% of the money they should have in their pension funds on top of that.

You're naive about "clawing back the stolen money". In many cases, it never actually existed - and it wasn't stolen, it was just misspent. You need to study up on money as debt. Through the above loopholes, money was effectively created out of thin air by these practices - and never having been more than bits, when it went poof, it was gone as if it never was. There's nothing to recover. When everyone's home prices went up, value (fake?) was created, effectively creating money. When they went down - money went poof. Many trillions. It's not there to recover. That doesn't mean I disagree that many should go to jail, but the problem is "For what?" as they did nothing illegal - just immoral and stupid, at worst. Best laws money could buy ensured that! And we still have those laws worldwide. Part of the problem here is this is all well above the authority of any one government. The US has made a number of dodgy practices illegal - so now, they are all done in London instead. The UK refused to sign on to quite a few reforms a few months back, calling "sovereignty", so all the wrong-doing simply moved there (which is where a lot of it began, there are few or no innocents among governments here).

What I meant about insurance going away is that it simply wasn't able to be paid out when the insured-against event happened. AIG was the poster child for that one - but there are quite a lot more. They're a huge "regular" insurance company, who got into the CDS selling business at the prodding of Goldman Sachs, and thought they knew their business. But since this wasn't insurance as the law defines it, but a new "financial innovation" they didn't have to have backing assets enough to guarantee their ability to pay out. They "should" have known better, being in the business, that there can be cascading failures that are "fat risk tails". But they needed the money...it went to costs, payrolls and so on - there's nothing there to claw back. As it turns out, Goldman and their customers were prime buyers of this, so when the gov wrote a huge bailout check to AIG, they pretty much just signed it over to Goldman (who are one of the firms that made most of the money that was made from the crash). Just doing gods work (their own words) those guys.

Without getting into to much detail (have you read my other writings in this forum?) there are a ton of "solid companies" that would go out of business overnight if they lost their insurance CDS's or the ability to have them covering their own debt. No one would loan them money without it, and they need money to survive - rolling debt endlessly is a worldwide phenomenon, and there are very few companies that can actually survive on what their cash flow is - which shouldn't be, but is what is. So everyone investing in anything gets hosed, as one going down drags down the others, and you have a non-virtuous spiral down.

Which hurts everyone who works for a living, for starters, as they either lose their own jobs, or lose the incomes they generated off people who used to have jobs, so they go out of business too. You see this in countries with high unemployment already - it's a vicious circle. A consumer facing company depends on people having jobs to buy their stuff. When enough people lose their jobs, that outfit lays people off, as they don't need them to handle the reduced production demands. Then there are even fewer people to create demand,,,, and down we all go, innocent or not. Right or wrong, it's how the system is set up and how things really work these days - and there's truly no obvious way to change it all over (it'd have to be simultaneous and worldwide, which feeds into that new world order crap, which, if achieved, would result in a world dictatorship even if initially got going for good reasons; competition among governments is GOOD that way).

Don't you think if there was a simple solution, that someone would be shouting it from the rooftops? Or charging a huge consulting fee to reveal it? As you dig deep into the real data and details, you find there really isn't one here. We've already spent the money on junk and it's gone even if it was real money in the first place, and by now, it's not even in the hands of the guys we spent it with - there's nothing to get back, the world as a whole is worse than bankrupt. You can't claw back money from someone who doesn't have it!

No, your house wouldn't evaporate, but society required to keep it there - from power, fire companies, police, defense, farming, and such, yup, that can go poof, and without that, your home is not worth much - you can starve to death in it just fine, but not live.

I'm far better off than most in this, as I owned my home debt free, obviously didn't lose my skills and tools, and so on. But if I needed a job, it'd be pretty tough right now. Our unemployment is stated as about 9%, but to get that "good" a number, they are only counting as unemployed those who are collecting government unemployment checks - and calling about 50 million people who have "left the workforce" as not part of that. The real number is more like 20% if you take informal surveys.

No, fund managers cannot see where all the money they invest goes. If they did that, they'd be running those companies themselves (who won't reveal that info anyway, and they don't even know what they'll spend it on until they do), and that's not their job. The whole system is and must be based on trust that the borrower will use the borrowed money wisely (which is what all investment really is - loans given to people in the hope they'll grow enough to pay it back with interest).

But I can't answer a bunch of questions all based on your idea of "should" here - because it's purely not how things actually are, for better or worse. I can only work with reality as best as I can figure it out. And while we might largely agree on what "should" means - we don't completely agree, as we are coming from a different perspective and different specializations here - with different knowledge levels of how it actually is out there - and why it got to be this way.

The reality is that everyone's pension is invested in something. The reality is that pension funds are all allowed to not have all the money they need to meet commitments if they claim that it will be there in time to pay, via investing what they did put in wisely and profitably. And most government and private pensions have less than 25% of the money they "should" have in them now, even assuming as they do that they can make an 8% return - which used to be true in some sense, though not in "real value after inflation" which of course every government falsely reports, ours among the very best at telling lies about this. They have to, they have a vested interest in reporting low inflation, as the truth would get them all the boot - and they'd have to pay cost of living allowances much higher than they do, so they openly cook the books.
If your company had to fully vest your pension on day one - hey, you'd not have a job, they couldn't afford that and you'd never be hired at all. In fact, the huge costs for disability and unemployment insurance, due the day you hire someone here in the US, are the reason that I've never hired anyone as an employee, but only as contractors providing a "service" - and just gave them that money instead of giving it to the state. All were happy with this, except the state, of course.

Example, our BLS uses "hedonics" to compute some of the costs of living. If computers stay the same price, but get twice as fast, they count that as going to half the price, and it cancels inflation elsewhere. As does the value of housing going down - while the things people actually buy, from food to fuel to medical care, are skyrocketing. When they do, they assume you'll eat chicken instead of beef, or start taking a bike to work instead of driving - or stop getting as sick and needing care. And they are open about this total BS. Even though it's quite obvious I can't buy last year's computer at half the price at all - it's not on the shelves, and it's cost isn't just the CPU anyway...or that the cost of living has become the cost of survival. Did you suddenly get more money to spend on food because your house lost value? Not exactly. But that's how they roll the numbers. Open fraud by the government.

No pension fund or other investor can go get the money back, you must be kidding. If they invest in the wrong stuff, that's the breaks - they lose the money fair and square, and after all, when they invest shrewdly, they keep all the windfall - that's the game, and it's fair. There is no reward without risk, period. Why should there be? That's not fair to anyone. In fact, trying to reduce risk is what actually caused this - the buying and selling of "insurance" which was supposed to be done only by "the sophisticated and solid" - there's that "should" again. And while you can push risk around, you can't eliminate it, which was how they fooled themselves. There's always risk. Starting a company is risky, it might not succeed - and that might not be anyone's "fault" at all. You need money to do it and that money, no matter where it came from, is at risk. If you fail, and it was your own money, well, that's the breaks. If you borrowed money via the markets - there's no recourse by them to get it back, and assuming you've failed, you don't have it to take back anyway, it went to supplies, paychecks, rents, and so on - and all those guys are completely innocent (we assume) in your failure. This is why the markets exist. Many if not all banks won't lend money to a startup, it's risky. But some people are willing to take a large risk to get a large reward, so they'll buy your stock, or your bonds - and if you fail, that's it for that money, it's been dispersed into the system to largely honest innocent people for services rendered long since. How can that be clawed back? What if someone tried to claw back your last years worth of paychecks because of something dodgy your employer did? You wouldn't have it anyway, right? It's gone - you paid rent, or gave it to the grocer for food you've eaten and so on.

Now, we've created a situation where there IS reward without risk, if you're Too Big To Fail (TBTF). IF you make a ton of money - you keep it. If you lose enough to go out of business, the taxpayers make you whole. That's what occupy wall street would be about if they realized it. Privatize the profits, socialize the losses! However, there's still risk - if you keep doing that everyone becomes poor, even the TBTF.
Printing money doesn't create wealth - you have to create goods and services for that. Yet, here we are.
national-debt-elmo-2012.png


Start here:
viewtopic.php?f=51&t=328&start=60#p3453
And work your way to the present - you'll have much more argument ammo if you do.
Kyle tells it as it is. There's some good dry humor there if you're "in the know". And, that was done last year - everything he's predicted has come to pass...almost. In a slow motion train wreck, it's hard to predict when each individual car jumps off the track, but that's what I attempt to do as a trader, with fair success. I'm doing 20-40% a year gains on my trading, without any of this fancy derivitave stuff or options or leverage, just the old buy low, sell high (or the reverse - short high and then buy low). Nearly all my trades go about a week, more or less, a few for a few months, and a few for a couple of hours. There is zero safe out there to "invest in" right now, and for the foreseeable future. I just play the waves of emotion, the wiggles on it all, usually for a few percent gain per trade on the amount traded.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Doug Coulter
 
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Re: Banking idiocy.

Postby Doug Coulter » Thu May 03, 2012 9:06 pm

Here is a series on our PBS (klnd of like BBC, just not quite as good) about the whole deal. Some call it a whitewash (there are some odd statements by bankers defending by omission some bad things they did), and there are some errors that confuse the situation in the first couple installments. The main one is confusing selling something risky you own (which reduces your risk, as you get cash and the risk goes to the buyer) and selling something risky - like insurance, which you get money for, but take on risk. They confused CDO and CDS a couple times, but it's clear from context for me.

Part 1
http://video.pbs.org/video/2226666502
Part 2
http://video.pbs.org/video/2226666506
Part 3
http://video.pbs.org/video/2226666502
Part 4
http://video.pbs.org/video/2229573868

These are a bit oversimplified for the masses, yet might still lose some people as the details are kind of tough and they have to assume some knowledge on your part, but the first two I've watched and they are pretty decent. It's just real hard to wrap your mind around how co-dependent the entire world has become...but once you realize that, you realize why there's no simple answer even in theory, to all this.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
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Re: Banking idiocy.

Postby chrismb » Fri May 04, 2012 2:57 pm

Doug Coulter wrote:You sure are willing to confuse "should" with "actually is", here.

You mis-undertood my original posit, then. I was just throwing up a 'shooting-the-breeze-let's-start-again' fantasy.

Starting over from a blank sheet; what should we want the financial markets to operate like?




So, here's the setup. Banks can sell a mortgage to a CDO bundler within minutes of making the loan, and at a guaranteed profit. This shouldn't be possible FWIW, but it's possible and legal.

If the bank's debt was taken on by a company who knew exactly what they were buying, then it's their money they'd have lost. If they had created an 'investment vehicle' and the investor also knew what they were buying, then its the investor's money and he can lose it if he wants! His was the choice of an investment, and if the investment goes bad... awww... poor little bity investor.... diddums...

Now if an investor bought a colateralised debt and was told it was an asset, that's a mislead sale. Simple. And the money paid to the person that sold that colateralised debt is the one that has to pay it back to the mis-lead investor.

I don't see what the complication is?

You're naive about "clawing back the stolen money". In many cases, it never actually existed - and it wasn't stolen, it was just misspent. You need to study up on money as debt.

haaaahahahaha lololol.... :lol: That's my point, Doug, that IS my point!!

If it never existed, then just unwind what didn't exist!? That'd just be a paper exercise, and no-one would lose any folding-stuff in their pockets, nor real assets to which they are entitled.

I don't need to study up on anything to know what is macroscopically right or wrong. To suggest I need to study the current financial system is like suggesting I need to study why my sports car is in the garage broken when, actually, I need to go buy a 7 seater family car anyway so the sports car was due for getting rid of. To say I need to understand why my sports-car broke before I can go buy the new family car to do the job of carting 7 people around properly seems, well, it seems like you've got too much emotionally invested in the 'status-quo'.

Through the above loopholes, money was effectively created out of thin air by these practices - and never having been more than bits, when it went poof, it was gone as if it never was. There's nothing to recover.


Right! So the only thing we need to worry about is hard earned dollars from individuals that ended up mixed in with these 'false' schemes of fake money. All that needs to be done is THEIR money is recovered from the burgeoning accounts of the rich and banking types, because that is where this real money ended up - falsely acquired.


When everyone's home prices went up, value (fake?) was created, effectively creating money. When they went down - money went poof. Many trillions. It's not there to recover. That doesn't mean I disagree that many should go to jail, but the problem is "For what?" as they did nothing illegal - just immoral and stupid, at worst.


OK, if a bank lent some guy $100k to buy a house, the bank took the risk that they might not see their money again. Basically, the bank owns a house (notwithstanding any proportion the guy put in himself - let's say he put in $20k of his own cash). The bank sells that debt to some dodgy financial place that turns it into a series of 'colateralised debt vehicles' and sells it as an 'investment' to private punters. The house goes from $100k to $10k in value. The house guy defaults. Now we have private punters who gave real cash to the dodgy financial place who mis-sold that as an 'investment'. So the dodgy place has to give that money back, it was a fraudulent sale. They can't get it back from the bank, because they knew what they were buying. If the private punter knew too, then they also should lose their cash.

Simple. I don't see the issue you're raising.

You see this in countries with high unemployment already - it's a vicious circle. A consumer facing company depends on people having jobs to buy their stuff. When enough people lose their jobs, that outfit lays people off, as they don't need them to handle the reduced production demands. Then there are even fewer people to create demand,,,, and down we all go, innocent or not. Right or wrong, it's how the system is set up and how things really work these days - and there's truly no obvious way to change it all over (it'd have to be simultaneous and worldwide, which feeds into that new world order crap, which, if achieved, would result in a world dictatorship even if initially got going for good reasons; competition among governments is GOOD that way).


Ahhh!.. NOW I see the issue you're raising: YOU think the system is too big to fail TOO!! Just like the banks encourage the politicians to think.

Why do you think this system is too big to fail, Doug?

I'm doing 20-40% a year gains on my trading, without any of this fancy derivitave stuff or options or leverage, just the old buy low, sell high (or the reverse - short high and then buy low). Nearly all my trades go about a week, more or less, a few for a few months, and a few for a couple of hours. There is zero safe out there to "invest in" right now, and for the foreseeable future. I just play the waves of emotion, the wiggles on it all, usually for a few percent gain per trade on the amount traded.


Getting a 20% return on your short-term invested cash. Where is this money coming from? Is this a fair return for a fair day's contribution to the economy? I guess you'd be very miffed if we re-organised the system so investments in stocks were investments and not just gambles by another name: An investment is where you buy a piece of a company because you want to help fund that company to do better with the cash you've given it. I think the link between buying and selling shares, and investing in businesses to help them succeed with investors cash - this was the original principle of company shares, to gain dividends through investments - where has this principle gone? Isn't the loss of this principle simply the problem.
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