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.

Treasury to Sell 7.7 Billion Shares of Citi

Remember when all the banks fell apart, and our government gave them a bunch of our money? Well, in the process we bought 7.7 billion shares (a 27% stake) of Citigroup, Inc., that the Treasury is now planning on selling back to the market.

SAN FRANCISCO (MarketWatch) -- Citigroup Inc. shares fell 2.4% Monday as investors unloaded the stock following news that the Treasury Department will begin to unwind its sizeable stake in the banking giant this year.

The Treasury said it plans to sell 7.7 billion shares of Citi (C 4.16, -0.02, -0.48%) it owns as a result of the financial bailout over the course of 2010 subject to market conditions.

"Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion," it said in a statement.

Treasury said it intends to initiate its disposal of the common shares pursuant to a pre-arranged written trading plan.

The Treasury bought the shares when the stock was at $3.25. Many analysts say we should have begun the sell off in October, when the stock was around $5 per share. Today, it is at $4.17, still a nice $7 billion profit if we sell now.

My only question is: what are they waiting for?

No-Win Situation

When it becomes obvious the game is rigged, people stop playing by the rules.

Hoskins told News 5's Courtis Fuller that he issued the bank an ultimatum.

"I'll tear it down before I let you take it," Hoskins told them.

And that's exactly what Hoskins did

The Moscow man used a bulldozer two weeks ago to level the home he'd built, and the sprawling country home is now rubble, buried under a coating of snow.

When the state fails to provide justice, Americans take it into their own hands.

It isn't pretty, but stories like this will become more common as Americans lose faith in their institutions.

[via VoxDay]

It's Bubble Time

Here we go again:

In the last eight months, the Dow Jones Industrial Average has risen from its March 6 low of 6470 to over 10290 today, a gain of roughly 59%. The Nasdaq Composite Index and the S&P 500 Index have likewise increased about 71% and 65%, respectively, since early March. Are we looking at the restoration of legitimate values or the emergence of disastrous new asset price bubbles?

The answer would seem to lie in whether the Fed's money machine is fueling an illusory recovery that is only manifested in financial markets as opposed to the general economy. The FOMC's own report acknowledges that economic activity remains weak, household spending is constrained, and businesses are still cutting back on fixed investment and staffing.

The Fed's 0% interest loans to banks are contributing to yet another massive bubble, though instead of real estate, this time its the stock market.

The game is rigged to blow, get out while you can.

[via WSJ]

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.