Pensions Commit Fraud, Want Bailout

Jim promised to pay Paul $5,000. Jim also promised to pay Peggy $5,000. Paul and Peggy go to Jim's office to collect their money. Unfortunately, Jim only has $5,000 total, which won't be enough. Jim is now shit out of luck.

That is, unless Jim is an underfunded union pension.

Our government, in its infinite wisdom, is now planning on bailing out the Jim's of the world, by giving our tax dollars to the underfunded pensions that promised out more money than they took in.

Many if not all of the pensions looking for a handout were set up in a way that they would never be able to meet their obligations. They simply promised too much money to retirees, and collected too little money from those who were still working. Usually when you do that, it's called "fraud" and it's illegal. When unions do it, however, they get $165 billion dollars to cover the financial hole left by their shady accounting, if the unions' congressional lapdogs get their way.

What is the point of working hard and paying taxes, if those tax dollars are simply given to crooks and liars?

Fannie and Freddie Still Bleeding

The financial disaster isn't over yet.

The government-sponsored enterprises [Fannie Mae and Freddie Mac], now in conservatorship, have already cost the government about $145 billion.

And there's no limit to how much more they can ask for for the next two years!

Fannie Mae lost $11.5 billion in the first quarter while Freddie Mac lost more than $6.7 billion. After posting those massive losses, they asked for a combined additional sum of nearly $20 billion in government assistance.

"Are they losing money as a matter of policy or are they losing it as bad judgment?" asks Dean Baker, co-director of the Center for Economic and Policy Research, who calls the Fannie and Freddie the elephant in the bailout room.

Baker and Fusion IQ's Barry Ritholtz are convinced the government is effectively sponsoring a backdoor bailout of the banks via the GSEs. "This is a conscious, willful decision," says Ritholtz, author of The Big Picture blog and Bailout Nation. "Fannie And Freddie act as a conduit for taking all this junk off the banks' balance sheets."

Banks made billions by creating, selling, and risk swapping trillions in bad mortgages, and now American taxpayers are on the hook for the worst of the losses, in addition to saving the bad banks with bailouts.

This is the greatest scam ever perpetrated.

Debt is the New Wealth

This is what happens when you have a debt based economy.

According to the chart, out of the bottom 90 percent of Americans, 73.4% of whatever wealth they were able to accumulate is through debt. In comparsion, the top 1 percent only uses 5.4% in terms of debt, and the next 9 percent's total is 21.3%.

As the banks and hedge funds steal our money and we see our paychecks stagnate or disappear, the banks and hedge funds are happy to loan our money back to us, with interest.

[via jblanch3]

Real Solutions for Financial Reform

Doug Holtz-Eakin, economist and former Director of the Congressional Budget Office, shares his thoughts on banking reform.

Real solutions for real problems

The biggest threat to regulatory reform is always the lobbying of the financial services sectors to preserve their status. This time, Congress must rise above the lobbying scrum and deal with three big problems.

First, it must create a firm commitment to a bankruptcy procedure. Using a panel of bankruptcy judges to trigger resolution would be best.

If the Treasury Department, the FDIC or a systemic-risk council decides that traditional bankruptcy could be too disruptive, it should trigger a “speed bankruptcy” — in which equity holders are wiped out and debt is swapped for equity so bondholders become the new owners.

Second, provide consumer protection by building on the experience of the Federal Trade Commission. It has a specialized staff of lawyers and economists who understand the complex nature of credit products. Congress should augment FTC resources and emphasize investigation of true cases of fraudulent and deceptive practices.

Third, deal with the housing government-sponsored enterprises. The goal should be steadily to reduce the dependence of the mortgage market on the federal government.

Congress should slim down Fannie Mae and Freddie Mac’s role by removing their affordable housing mission, unwinding the retained portfolios and toughening the regulatory oversight of their guarantee and securitization lines.

I like the way this guy thinks. Now it's up to Congress to pass it, without getting caught up in partisan bickering. I'm not holding my breath.

Financial Reform

The latest plan out of the Senate Banking Commitee includes a $50 billion bailout fund to handle failed banks. Chris Dodd claims the fund will be used to liquidate bank assets in the event of a failure.

Critics of the plan believe the bankruptcy and the market are more than enough to handle a bank liquidation.

“There is no reason why a bank holding company cannot be dealt with in bankruptcy except that it inconveniences politicians,” Mr. Whalen said.

Bondholders would actually fare better under normal bankruptcy than under the Dodd bill, he said, adding: “Until the U.S. government stops behaving like a bunch of European technocrats and ends the idea of a public bailout for any bank, the cancer of ‘too big to fail’ and, behind it, political corruption and the corporate state, will grow.”

Until we let banks face the consequences of their bad decisions, they will continue to use the federal government, and by extension the American taxpayer, as their de facto insurance company.

The Lost Decade II

The Lost Decade (失われた10年 Ushinawareta Jūnen?) is the time after the Japanese American asset price bubble's collapse (崩壊, hōkai) within the Japanese American economy, which occurred gradually rather than catastrophically. It consists of the years 1991 2008 to 2000 2017.[1]

The strong economic growth of the 1980s 1990s ended abruptly at the start of the 1990s mid 2000s. In the late 1980s 1990s, early 2000s, abnormalities within the Japanese American economic system had fueled a massive wave of speculation by Japanese American and foreign companies, banks and securities companies. A combination of exceptionally high land values and exceptionally low interest rates briefly led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and mortgage backed securities.

Recognizing that Because this bubble was unsustainable, the Finance Ministry sharply raised interest rates in late 1989 mortgage delinquencies and foreclosures skyrocketed due to sub-prime mortgage rate hikes. This abruptly terminated the bubble, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks being bailed out by the government.

Michael Schuman of Time Magazine noted that banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further cuts, which led to an economist describing Japan America as a "loser's paradise," replete with bank bonuses. Schuman states that Japan's America’s economy did not begin to recover until this practice had ended. [2]

Eventually, many became unsustainable, and a wave of consolidation took place, resulting in only four national banks in Japan America. Critically for the long-term economic situation, it meant many Japanese American firms were burdened with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and has been for several years, and despite this credit is still difficult to obtain[citation needed].

This led to the phenomenon known as the "lost decade", when economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life was muted, however. Unemployment ran rather high, but not at crisis levels. This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle.

On February 9, 2009, in warning of the dire consequences facing the United States economy after its housing bubble, U.S. President Barack Obama cited the "lost decade" as a prospect the American economy faced. [5]

-Lost Decade (Japan)
From Wikipedia, the free encyclopedia

Japan went through a nearly identical asset bubble, and it's government reacted with bailouts and extremely low central bank interest rates, just like America's government. With frugality and savings, Japan managed to get through it in ten years. American's are not notorious savers of money, as we are the world's biggest debtor nation, so it will probably take us longer.

Misplaced Anger

In Chicago, protesters march on the banks:

"This is not a financial system," he said. "This is a financial disaster."

Protesters carried effigies of bank executives, including John Stumpf, chief executive of Wells Fargo, and former Bank of America Chief Executive Ken Lewis. Some clutched "Wanted" signs bearing the faces of bank executives deemed "Wall Street Robber Banker[s]." They carried signs with slogans such as "No Bonuses for Big Banks" and chanted sayings like "Bust up big banks!"

The morning protests started at the Chicago offices of Goldman Sachs. A woman on a megaphone shouted, "We're here to tell Goldman Sachs, shame on you! Shame on you for helping bring this country to the brink of a depression!" The crowd, in turn, chanted "Shame on you!" An organizer yelled a list of demands for Goldman Sachs, including that the bank support calls for a consumer-finance protection agency and that it donate the money set aside for bonuses to loan-modification programs.

What I find ludicrous about this situation is that these banks would largely have disintegrated had the government not bailed them out, so where is the anger towards the government and Federal Reserve?

The oft maligned "Tea Partiers" marched on D.C. for this reason, yet these liberal anti-corporate protesters don't see that their tax dollars are going to save the very banks they hate. But for some reason the government escapes their scorn. This is just another example of blind faith in government in the face of massive failure.