Saturday, December 13, 2008

Madoff Case Proves Danger of Trusting Government

Bernard L. Madoff's Ponzi Scheme Loses $50 Billion of Investors Money

. . . And Illustrates How Government Regulation Creates/Enables Financial Fraud

Ambulance-chasers who exploit this financial-fraud train-wreck for a power-grab to increase the government regulatory burden fail to understand history and human nature.

Ivar Kreuger "The Match King" created a post-WWI, massive, international Ponzi scheme including mortgage/asset-backed securities that finally imploded during the Great Depression. (hat tip: Energyecon)

  • Regulators created the Securities Act of 1933, the Securities Exchange Act of 1934, and the Section 4 Securities and Exchange Commission (SEC) as more "never again" empty promises that were supposed to prevent another Kreuger but failed to prevent Enron, Madoff, etc.
  • Regulators created the 1934 SEC and Glass-Steagall Act of 1933 to prevent more financial fraud/collapses but failed to prevent Madoff even during the red flags (or whistleblower Harry Markopolos' complaints dropped in the SEC's lap) in 1992 and 1999 (before the alleged deregulations of pro-regulation George W. Bush (pro-SOX, pro-TARP)).
  • Regulators created the post-Enron Sarbanes-Oxley Act of 2002 (SarbOx or SOX) as another "never again" empty promise that failed to prevent Madoff or any of the housing/financial-bubble fraud or the current global financial crisis.
  • Regulators not only failed to stop Madoff but instead the SEC lavished him with a special privilege named after him, the "Madoff Exception" (hat tip: Trader Walt):
    Madoff Exception mentioned in: "Regulation SHO, Rule 202T – Temporary Rule related to Establishment of a Pilot Program"

    "The SEC’s Short Sale Rule (Exchange Act Rule 10a-1) states that a listed security must be sold short at a plus tick price or at a zero-plus tick with two exceptions (the equalizing exemption (Exchange Act Rule 10a-1(e)(5)) and the Madoff exception). Rule 2O2T is a temporary rule that creates procedures for the Commission to establish a Pilot Program to analyze the necessity and effectiveness of current tick test restrictions. The Pilot Program established will exclude designated securities from the requirements of the tick test (or any other SRO-specific price test) from May 2, 2005 until April 28, 2006." (CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION MEMORANDUM, MR-05-6, 4/27/05)
The SEC's Madoff Exception is a classic example of how government creates/enables fraud by granting ANTI-free-market, ANTI-competitive powers to special interests, even criminals.

Madoff paid political contributions to officials including (home of Wall Street) New York Senators Chuck Schumer and Hillary Clinton.

"SEC Official Married into Madoff Family"
"Madoff boasted of his 'very close' relationship with a SEC regulator, chuckling as he said, 'in fact, my niece even married one.'" Former SEC assistant director of the Office of Compliance Inspections and Examinations Eric Swanson married Madoff's compliance lawyer, niece Shana Madoff.

The SEC then insulted the American public by, after the SEC shepherded the fraud's "stunning . . . duration" through 2 decades of inaction or rewarding Madoff, boasting that it was moving "quickly and decisively":
"Our complaint alleges a stunning fraud -- both in terms of scope and duration," said Scott Friestad, the SEC's deputy enforcer. "We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors." ("Bernard
Madoff arrested over alleged $50 billion fraud," Edith Honan and Dan Wilchins, Reuters, 12/12/08
)
Why Government Regulations Fail To Do What They Promise:

When the Insider Trader IS the Government Regulator: HUD/Feds Knew Subprime Mortgage Danger 1 1/2 Years Ago [2005/2006].

Federal Reserve Blind to Housing Bubble: BLS OER V. Case Shiller HPI.

Did Government Create Mortgage Securities Mess? Is It about To Repeat Its Mistake?

SEC NRSRO Causes Asset Mispricing?

New Deal, Sarbanes Oxley (SOX), Homeland Security, Resolution Trust Corps (RTC) Recidivism: Financial Regulation Stupidity Roundup.

FDIC Fails. WaMu Bank Refuses to Cash Federal Check.

Abolish the Federal Reserve Central Bank: Declararation of Financial Independence.

Detroit Big 3 Bailout Misses Supply-Demand Big Picture

Rescue Chrysler/GM = Kill Ford

Auto Dealerships Offering Buy-One-Car-Get-A-Second-Car-Free Expose Bailout's Folly


The people crying that the automobile industry is X-million jobs or X-percent of the economy should have bought a controlling interest in GM a decade ago and reformed it, instead of trying to rob the public today.

The odds that every single job would evaporate are remote.

There are 2 basic possibilities:

1. If bankruptcies collapsed production below demand, other companies would hire new employees or contract new parts suppliers to pick up the slack. Jobs could shift to a remaining US legacy company (Ford?-which said it does not need the bailout), or Toyota (in America), or new electric vehicle (EV) startup companies such as Tesla Motors, or new industries not anticipated by the Luddites.

2. If current capacity/supply/production is higher than demand, then a reduction in production is welcome and a reduction in producers is understandable (actually, even with higher production, it is better to make more things with less labor—have you noticed that 98% of Americans are not farmers (not in an agricultural job of the labor force)?). Treating the current automaker size or number as a static, sacred, magic number is ridiculous. People allege that autos and “related” companies take-up 1/7 of the economy—but trying to freeze that number in a dynamic economy can damage you and the whole country if the proper, wealth-maximizing proportion is only 1/21 of the economy (1/3 of the current size).

Weeks of public debate overlook the main point:

GM exists to provide cars to consumers, not jobs/health-care/pensions to employees.

If we have an automobile oversupply (do not need new cars):

  • Making more unwanted cars is a waste of resources, including unnecessary pollution and oil depletion for the workers to drive to work to waste resources.
  • Any car sale that the government guarantees for Chrysler or GM probably steals that car sale from Ford.
  • Any Chrysler or GM job the government saves probably takes a job away from a Ford worker.
Automobile Oversupply Indicators:

We already have an oversupply. Why build more? Why bailout Chrysler/GM by killing Ford?

If Detroit had a solid plan to make and sell good cars at a good price, it would attract private investors (dismiss the "only government can do it" ploy and look at the dollar amount of money on the sidelines that pumps even a +1% stock-market rally).

Imagine if Detroit’s auto executives and the United Auto Workers (UAW) union spent as much time trying to build good cars as they spend trying to break into your bank account for a bailout.

Thursday, December 11, 2008

Big Lie of "Credit Crunch"

Market Says We Need LESS Credit but Government Continues Its Force-Feeding to Cram Debt Down Your Throat

The Wall Steet Journal's 12/11/08 "Freight Haulers Slam on the Brakes --Expecting the Weakest Year in Three Decades, Truck, Rail and Ocean Shipping Firms Are Cutting Back" (hat tip: CR):

“In a normal year, Gordon Trucking Inc. might replace 20% of its fleet of 1,500 big rigs with new trucks. But given the bleak outlook for the freight business, the Pacific, Wash., hauler doesn't intend to buy a single new truck next year.”

“’We're settling in for nuclear winter in the first half of 2009,’ says Steve Gordon, operating chief for the company, which hauls everything from paper products to electronics.”

"Some industry executives and analysts predict that 2009 could be the worst year for freight-transportation volume in three decades or more." (emphasis added)

Less VOLUME is less DEMAND.
  • The companies do not NEED more trucks.
  • The companies do not NEED more credit to buy trucks.

Business-investment increases typically signal economic recovery but the current investment reduction is healthy because demand for trucks is less.

  • The problem of business overinvestment (overcapacity) is solved by less investment.
  • The problem of overconsumption is solved by less consumption.

American consumers apparently do not need to replace their 30" TVs with 35" TVs after all.

Government/media propaganda about “lack” of credit is false.

We need LESS credit SUPPLY because we have LESS credit DEMAND--as in truck companies needing less credit because they need fewer trucks because they have less freight to move.

This is not rocket science.

We DO need transparency and price discovery, which is the exact solution that the government bailouts are designed to prevent.

Saturday, December 6, 2008

Obama=Bush: Infrastructure Alternative-Energy Bubble Economics

Obama Essentially Pledges To Be Bush’s 3rd Term and Perpetuate Bushonomics "Guns & Butter" Bubble Economy

Barack “Bubbles” Obama follows his bellicose, chest-thumping "We will kill bin Laden. We will crush Al Qaeda" announcements to escalate the “Global War on Terror” and order his own troop surge in Afghanistan and raise a massive "civilian national security force that’s just as powerful, just as strong, just as well-funded [as the military]" with a hundreds-of-billions-of-dollars deficit-spending “infrastructure” stimulus to perpetuate the ponzi bubble economy at all costs and bury you in hyper-debt.

Old Wine in New Bubble:

Obama Incubates a New Host for the Ponzi Parasite

Do you believe “it’s different this time” as long as we say “infrastructure” and “alternative energy”?

Bubbles Obama seems intent on copying FDR’s folly of wasting scarce resources on parks and wall murals while people starved.

The New Deal failed to end the Great Depression.

The Greaty Society failed to end poverty.

Entombing Japan in concrete failed to end Japan's 1990s "lost decade" (more like 2 lost decades now).

Why would anyone believe today's Keynesian stimulus-addicts who promise, "but this time it's different"?

Obama's concrete will build America's mausoleum.

  • The solution to a debt crisis is NOT a spending spree.
  • The solution to a debt problem is NOT more debt.
  • The solution to a bubble is NOT another bubble.
Is spending less money, both as an individual and as a nation, such a crime that Obama will destroy America’s finances to avoid the “horror” of spending less?

Monday, November 24, 2008

Consumer Credit Hits Record HIGH, Belying “Credit Crunch”

The “Credit Crunch” that Wasn’t

US total consumer credit hits record HIGH after a year of the so-called “credit crunch,” according to the Federal Reserve’s latest provisional figures released November 7, 2008.

The graph shows that 3rd-quarter 2008 total US consumer credit grew 3.7% above 3rd-quarter 2007, when the “credit crisis” began.

Not only did consumer credit not shrink, it grew.

September 2008 consumer credit is higher than the same month of any year prior, higher than the housing-bubble peak.

Index of US total consumer credit, growth year-over-year (YoY), September-September:

1998 = 1.00
1999 = 1.08
2000 = 1.19
2001 = 1.30
2002 = 1.40
2003 = 1.47
2004 = 1.54
2005 = 1.62
2006 = 1.69
2007 = 1.79
2008 = 1.85

Consumer credit expanded to 4 TIMES the Fed’s claimed 2% per year target for core inflation, which, after 10 years, would be a 2008 index of only 1.22.

A 2% growth rate will not double the initial amount until 36 years yet consumer credit nearly doubled in 10 years and continued its nearly relentless expansion during a year of what was supposed to be the worst credit crunch in memory.

----------
Update

Latest figures show total outstanding US consumer credit of $2.564T (2/09) at less than 1% from the highest point in history set at $2.583T (9/08) during the so-called "credit crunch," higher than any month before the so-called "credit crisis" began at $2.481T (8/07), and higher than any month during the massive credit boom.

8/07 "Credit Crunch" allegedly begins
2/09 Total outstanding US consumer credit is 3.3% higher than 8/07

Lending Keeps Growing, Growing, Growing

Total credit of all commercial banks (TOTBKCR), percent growth, Year over Year (YoY), remains well above 0 at about 2.5% growth (similar to the 1990s and 2001 recessions):



Total credit of all commercial banks (TOTBKCR), absolute levels show recent volatility but so far remain well above the pre-"Credit Crunch" levels of the massive global credit bubble:

Fed TOTBKCR

Even if consumer or bank credit does decline, does it decline by more than government debt increased or by more than money increased?

----------

The notion that we lack credit now is madness.

I explained over a year ago that we have
no credit-supply crunch, but we do have a number of other crunches that policymakers ignore or misread.

The government continues its
misguided bailouts and hyper-debt policies.

What This Means for Inflation Vs. Deflation

Tuesday, November 4, 2008

How To Vote Today: Last-Minute Information

Bi-Partisan Threats to You

What to do when both major candidates make a mockery of “change” and “reform.”


Barack Obama married into the infamous Chicago political machine (his wife Michelle was a Mayor Richard M. Daly staffer), built his career on corporate-welfare tax subsidies (the Annenberg Foundation, Chicago Annenberg Challenge (CAC), pushed the risky mortgages that contributed to the current global financial crisis, put former Freddie Mac chief executive and corporate lobbyist in his inner circle (vice-president (VP) selection advisor James A. "Jim" Johnson), picked a Republican John McCain clone for his VP (Joe Biden, an elderly, entrenched, establishment figure with some foreign-policy credentials), pushes Republican Mitt Romney’s health-care socialization, pushes his cousin George Bush’s tax cuts for "95%" (instead of "100%"), pushes his cousin George Bush’s wars in Afghanistan and the global war, and Obama thinks your biggest problem is that he has not been regulating you enough while he rejected regulations on himself and evaded federal campaign finance regulations (one rule for you, a different rule for him).

John McCain is one of the Keating Five scandal from the housing bubble and Savings & Loan (S&L) banking bailout of 20 years ago, sat and watched it happen all over again with the current mortgage/banking/financial crisis, picked a vice-presidential (VP) candidate (Sarah Palin) who rode the gravy train as mayor by hiring a lobbying firm to funnel your money to her small Alaska town of Wasilla (why not go all the way and pick "bubbles are for bathtubs" Kendra Todd as your VP?), talked about fiscal discipline and balanced budgets while he spent like a drunken sailor on the budget-busting $700 Billion Wall Street bailout—and the only thing that happened after he raced to DC to ram the bailout through is that his (and Obama’s) Senate larded the bill with even more pork (including rum, racetracks, and tax breaks for wooden arrow shafts), attacks Obama for being a socialist while comrade McCain pledges to socialize American housing by having the federal government go around the country buying houses--spending another $300 Billion of your money on bad mortgages, and he admitted he knows little about economics (neither does Obama) but that does not stop him from monkeying around with your economy, from the vast economic regulation of campaign-finance "reform" to the 2008 bailouts and nationalizations that will reverberate in your wallet for decades.

Libertarian candidate Bob Barr at least had the common sense and fortitude to take a stand and properly declare the McCain-Obama corporate payoff as “the bailout from hell."

It looks like people are even voting for Ron Paul (who warned us of Fannie Mae and the housing bubble at least as early as 2002) as a write-in candidate (check your local laws), where Ron Paul this morning won 7% in Hart’s Location, NH (AP, 11/4/08).

Tuesday, October 14, 2008

Financial Bailout, Hyper-Debt, Preemptive War, Bankruptcy


Dark Helmet: "Light speed is too slow... We're gonna have to go right to... LUDICROUS SPEED!"

(The video is down farther.)



"In order to provide broad access to liquidity and funding to financial institutions, the Bank of England (BoE), the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank (SNB) are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets. . . ."

"Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets." ( Board of Governors of the Federal Reserve System press release, 10/13/08 )



Into the Hyper-Space of Hyper-Credit and Hyper-Debt: The Great Global Monetary Easing

Our global leaders' complete abdication of responsible finance has been planned at least for months. Not satisfied with the $516 Trillion in derivatives in the world (several times larger than total world GDP, which itself would be more properly called GDC for Consumption), Morgan Stanley's London co-chief economist Joachim Fels said back in March 2008:

"We're inching closer to the great global monetary easing."

German Totalitarianism Ascendant

NPR's appallingly biased coverage labeled the stock market's long overdue move downward toward realistic pricing as "irrational" (implying that the "mark to fantasy" bubble pricing was normal). Abandoning any shred of journalistic scrutiny, NPR obediently and unquestioningly repeated the world governments' spin that they "have no choice but to intervene for the good of the world economy."

Perhaps the translators butchered the language of Goethe but German Chancellor Angela Merkel issued this chilling declaration:

"In a social market economy, the duty of the state is to have control. The state is the guardian of order."

"An offer you can't refuse": Bailout Mafia force companies to take bailout.

Europeans Push Bush Doctrine of Preemptive War on Savers

The "crisis" does NOT justify the planned government ownership of companies, even if we accept the premise that people spend more carefully when they are not sure of price accuracy (which simply will not do, according to the bailout mongers):
"Free To Choose": Sovkhozy Shares or Kolkhozy Shares?
  • If I had wanted to buy stocks, I would have bought them. I do not need Bush and Merkel hacking into my E*trade account to buy stock for me.
  • George Bush, Barack Obama, John McCain, Barney Frank, Gordon Brown, and Angela Merkel ran the global financial system into the ground and now they fancy themselves to be "masters of the universe" who can outsmart the market by actively trading and timing stock picks. I would ask if you are ready to bet your own money on their abilities but the bailout means that you already are betting your own money on their stock wizardry.
  • The completely unnecessary expansion of government ownership will leave the stock market comprised of 2 components, the sovkhozy (government owned shares), and the kolkhozy (ostensibly non-state shares but yoked to the "public good" of governments' hyper-debt policy).
Repeat Soviets' Price Policy, Repeat Soviets' Fate: Fantasy to Oblivion

The bailouts completely cut the economy loose from its moorings and cast you adrift in a sea of unknown values. Ludwig von Mises wisely predicted that the Soviet Union would collapse because its centrally-planned fantasy prices destroyed the information about value that market prices provide to you throughout your day, whether it is to buy a soda or a house.

Once the bailouts' unlimited liquidity (cash, credit, and debt) and unlimited insurance (increasing bad risks by hiding their costs) destroy price accuracy, wealth destruction and malinvestment will run rampant (as they did in the Soviet Union).

If you think a free-market bubble correction is risky, wait until you have experienced the government's continued enforcement of "mark to fantasy," Ponzi-scheme, bubble price-fixing.

Friday, October 10, 2008

Bank Wall Street Bailout Unnecessary: You Lose

Government Prevents the Solution: The dirty secret is that we still have super-lax credit, but the government prefers mega-super-lax credit, which is why the federal government nationalized GSEs Fannie Mae and Freddie Mac to stop a prudent deleveraging runoff--effectively making that smart market solution illegal until 2010--and instead ordered those 2 GSEs combined to buy $40 Billion of "toxic waste" mortgages per month (hat tip: Mish) to add to the bailout's and the Fed's desperate attempts to pump-up the mega-bubble at your expense.

Why are there no lemon laws against bad legislation?

Why did the public buy the bailout?

Saturday, September 6, 2008

Abolish the Federal Reserve Central Bank: Declaration of Financial Independence

The US Federal Reserve central bank does the OPPOSITE of fundamental central-banking principles.

A central bank should:

The Fed’s repudiation and violation of basic best practices for central banking and economics mark the Fed as a failure even by the standards of central banking, and mark the Fed as one of the greatest dangers to a healthy economy.

Inflation creates profit opportunities for a favored few speculators in churning and pump-and-dump schemes that put average people on the hamster wheel of trying to earn X% just to break even after inflation, fees, commissions, market risk, political risk, and taxes. However, the average Joe and Jane’s financial and political independence requires stable money, as defined by stable prices of 0% change over the business cycle. An American should be able to stick his/her nest egg under his/her mattress (the assets insured by homeowner’s insurance if desired, no FDIC needed), and a $100 bill should be worth a $100 even 50 years later. That system would avoid the information asymmetry, risk, moral hazard, malinvestment, and wealth destruction of unnecessary middlemen and would achieve predictable stability for long-term planning in the rational-actor school of economics.

Be a signer of the Declaration. Put your John Hancock in comments.

Misleading GAO Report of Corporate Taxes Paid

The vast majority (2/3 to 3/4) of BIG US corporations DO pay taxes, contrary to 'glass half-empty' impressions given by recent media headlines. ("Most Corporations Don't Pay Income Taxes: GAO" Congressional Quarterly CQPolitics CQ Today Online News Richard Rubin 8/12/08)

The United States Government Accountability Office (GAO) released Tax Administration: Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005, GAO-08-957, July 24, 2008.

GAO graph Figure 1 shows that most large US-controlled corporations (USCC) did report tax liabilities.

Remember that a corporation might not have a profit every year. Note the graph's correlation to the 2001 recession.

45.1% of large USCC reported tax liabilities in all of the 8 years studied 1998-2005.

97.3% of large USCC reported tax liabilities at some time during the 8 years studied 1998-2005.

Remember that "corporations" include "pass-through" corporations such as "S corporations," Real Estate Investment Trusts (REIT), and Regulated Investment Companies (RIC). These pass-through corporations are not supposed to pay "corporate" taxes because they usually end with zero "corporate" profits because the profits pass through to the owners' individual income taxes. Taxes are paid on profits but the taxes on the profits show up on "individual" taxes rather than "corporate" taxes. "No corporate tax liability reported" might be misleading if the corporation owner paid the taxes as individual income.

Remember that Section 501(c)(3) corporations are non-profit. These non-profit corporations are not supposed to pay taxes because they are not supposed to have taxable profits. The government created the explosion of these no-tax corporations by requiring/encouraging people to create them to comply with government regulations and/or qualify for government grants.

Every "loophole" is there because a Congressperson put it there.

Thursday, July 17, 2008

FDIC Fails. WaMu Bank Refuses to Cash Federal Check Backed by US Treasury?

The FDIC (Federal Deposit Insurance Corporation) fails across the board.

FDIC's Bovenzi cannot understand why people hesitate to take the government's Monopoly-money IOUs, lamenting that he is "deeply troubled by reports that there are financial institutions that are refusing to honor or are placing excessive holds on IndyMac Federal checks."

So much for the "full faith and credit" of the US government.
-

Sunday, July 13, 2008

FannieMae FreddieMac $5Trillion Bailout for Insolvency Crisis

Bernanke and Paulson Declare US Economy Doubleplusgood

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry "Hank" Paulson have tried to jawbone the financial bubble along with denials of recession and with pollyanish predictions of second-half recovery (if we are not in recession, recover from what?--oh yes, the "slowdown"). The "nothing to see here" denials continue despite all evidence to the contrary and even as they beg for expansive new powers.

"Speeches by Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and JPMorgan Chase & Co. Chief Executive Jamie Dimon gave the market some reassurance about the financial sector. . . . The market was relieved to hear Bernanke say in a speech the central bank might extend its lending efforts to investment banks . . . Dimon said "the future is very, very bright," but that "I do think we have some very serious issues to face." . . . Paulson, meanwhile, made an upbeat assessment of the government's efforts to prevent the volume of mortgage foreclosures that touched off the credit crisis last year, although he also said he expects foreclosures to continue. . . . The Treasury secretary also said he was pleased at steps taken by Freddie Mac and Fannie Mae to raise money: "Fresh capital will strengthen their balance sheets and allow them to provide additional mortgage capital, as they balance their responsibilities to their mission and to their shareholders." . . . All that helped stocks stage a late-afternoon rebound after choppy trading throughout most of the session." ("Dow ends up 152 on decline in oil, Bernanke talk," Boston.com Associated Press (AP), 7/8/08)

Ignore That Iceberg, Crashing Sound, and the Water around Your Ankles

The Fed et al. are trying to keep the music playing and delay deflation long enough for insiders to dump their toxic waste onto the American taxpayer through the Term Auction Facility (TAF), Fannie Mae (Federal National Mortgage Association, FNMA), Freddie Mac (Federal Home Loan Mortgage Corporation, FHLMC), etc.

Government tactics are akin to getting Titanic's first-class passengers into the lifeboats, while coaxing average families out of the lifeboats by telling them that the ship is merely undergoing a temporary structural adjustment in a new flotation paradigm.

Bernanke and Paulson continued the farce in 7/11/08 Congressional testimony as a $5 Trillion insolvency crisis over Fannie Mae and Freddie Mac (which they had ignored for years) reminds us that the LAST people we want in charge of financial accounting are government.

This photo of Bernanke and Paulson in Congressional testimony (hat tip: Housing Panic) inspired the image further below:



Sunday, April 13, 2008

Margin-Requirement Change Nuked Gold/Commodities--but Say Hello to Petro-Gold


Gold/Precious Metals/Commodities Correction Followed Margin-Requirements Change to Deleverage/Deflate Commodities Markets

Gold broke above $1,000 in the middle of March and threatened to move higher, but about March 19, in the most blatant manipulation yet, the private banking partners of the Federal Reserve (including J.P. Morgan Chase and Merrill Lynch) notified customers with leveraged commodity investments that the margin requirements for the leveraged accounts were being doubled. ... This forced many investors to instantly liquidate half of their commodity holdings. Commodity prices tumbled across the board ("Market Manipulation Points to Dollar Decline," By Patrick A. Heller, Market Update, Numismaster.com, 3/31/08).
Nuking half the leveraged money out of existence by fiat might turn the clock back a month or two in prices but it will not stop the forces underway.

The artificial drop in commodities prices because of the regulatory change will give an ephemeral boost to equities (imagine if margin requirements for equities suddenly were doubled) and mislead bulls to call a bottom to the stock market.

The purpose of the commodities' margin-requirement increase might have been psychological warfare to prop up equities and discredit the bears.

However, fundamentals have not changed and commodities demand continues to grow.

New Demand: Turning Petro-Dollars into Petro-Gold

1.5 billion Muslims soon will have a new way to buy gold and short the US dollar (and any pegged curreny such as the UAE Dirham) with a shariah-compliant gold ETF, soon to be launched by Dubai Multi Commodities Centre and World Gold Council, based in Dubai, "The City of Gold."

The reputed Plunge Protection Team (PPT) continues to fight the deflationary tide.

Federal Reserve Chairman "Helicopter Ben" Bernanke is a self-described, inveterate inflationist whose only reason for getting out of bed in the morning is to inflate the credit/money supply.

He probably was hired for just this reason and he will try every trick in the book plus invent a few more (legal or not) to prop up the housing, equities, and credit bubbles.

May God have mercy on his soul.
-

Monday, March 31, 2008

New Deal, Sarbanes Oxley (SOX), Homeland Security, Resolution Trust Corporation (RTC) Recidivism: Financial Regulation Stupidity Roundup

Putting the government in charge of financial accounting is like putting the streetcorner wh*re in charge of public morals.

Brace yourself for the onslaught of misguided New Deal II, Sarbanes-Oxley (SarbOx or SOX) II, Resolution Trust Corporation (RTC) II, or Homeland Security II:

All these grandiose schemes for New Deal II, Sarbanes-Oxley (SarbOx or SOX) II, Resolution Trust Corporation (RTC) II, or Homeland Security II are stupid and dangerous for the same reasons that all the decades of prior programs FAILED TO PREVENT THE CURRENT CRISIS (When will we learn?):
Just say no.

One-year anniversary of my warning: Remember the Alamo.

-

Friday, March 28, 2008

Ex-Soviet Lectures Bernanke on Free Markets

Russia has a pro-market flat tax while the United States clings to a Marxist progressive income tax.

Former Kazakhstan central bank Governor Grigori Marchenko criticized the interventionist US Federal Reserve:

Look at the last 20 years, said Marchenko, a former central bank governor of Kazakhstan, as he ticked off the bailouts in which the U.S. central bank played a role: Continental Illinois in the 1980s; the banks involved in the Latin American debt crisis; Long-Term Capital Management; the injection of liquidity after the Internet stock bubble burst in 2000.

"Those guys who have the wrong strategies get bailed out with taxpayers' money," Marchenko said, shaking his head. "It is not fair."

(International Herald Tribune, Karina Robinson, "Kazakh banker criticizes Fed's help of troubled banks," 3/28/08)

Tell Obama, Hillary, McCain, Bush, Bernanke, Paulson, Dodd, Schumer, etc. that America should be freer than the former Soviet Union:

No bailouts, mortgage-laundering, "transfers," "transitions," "assistance," "guarantees," or any other back-door euphemism to obstruct the free-market solutions.

Financial Homeland Security: Obama Tries Nationalizing Power Grab, Dodd Tries To Profit from Credit Crisis

“I hope we make money off of this.”--Senator Christopher Dodd (D-CT), Chairman of the Senate Banking Committee, speaking of the Federal Reserve's Bear Stearns bailout (National Public Radio (NPR) interview, 3/26/08)

Faustian Bargain Bailouts from Obama, Bush, and Dodd

Dodd, Obama, and Bush administration Treasury Secretary Henry Paulson all agreed to use the housing/mortgage crash and credit crisis as an excuse to expand government control over the economy:

“If an investment bank is going to start acting like a bank and get backups, then I think it begs the question, obviously, then shouldn’t there be some regulation of that, American taxpayer’s money is on the line, to what extent, how are you conducting your affairs and your business.” (Dodd)

"First, if you can borrow from the government, you should be subject to government oversight and supervision." (Obama)

On the current centralizing regulation orgy in Washington DC: "This is tectonic . . . We no longer want to have a balkanized response to a national crisis." (former SEC General Counsel Ralph Ferrara, Dewey & LeBoeuf LLP)

Financial Homeland Security: Politicians are making another power grab to control your life under the guise of compassion, protection, and "stability."


An Offer You Can't Refuse

Dodd-Bush-Obama's mafia-like "favors" require life-long subjugation worse than any mortgage loanshark. Read the fine print of government "help" to see the strings attached. Government "assistance" often takes advantage of travails to prey on the weak under the guise of compassion.

Obama's national and international centralization of financial control subjects you to more, intrusive, Big Brother "supervision" even if you DO NOT borrow but rather simply because you CAN borrow--and the government might unilaterally declare you able to borrow even if you do not want the credit line.

Obama copied his cousin Bush by claiming only to "update" or "modernize" for the "21st Century."

Dodd laughably tried to claim that government action did not cause the economic problems by saying, “No one can make a case here that this happened because of overregulation," even though Not One Cent provides numerous examples of government regulation causing the current problems.

To summarize, the government tries to run the economy, creates a disaster, blames the disaster on you, claims that the disaster proves that the government wasn't running your life enough, demands that you surrender more rights to qualify for "help," and uses your misery to increase its profit and power over you.

Given that the credit bubble was government policy in the first place, when will Financial Homeland Security's Global War on Savings declare saving to be a terrorist act?

Update 10/15/08: Bailout Mafia force companies to take bailout.

Tuesday, March 25, 2008

"Too Big To Fail" Financial Suicide Terrorism

The Bear Stearns bailout by the Federal Reserve with its $29 billion loan and guarantee is one more example of the "too big too fail" bluff perpetrated on us.

The spoiled sense of entitlement to other people's money is matched by Bernanke's and the Fed's gullibility or complicity in the extortion.

Reject "The System" Trick

Bernanke and the Fed talk in circles about how the Fed does not intend to bailout certain investors but it does bailout "the system" and it might bailout certain investors while bailing out the system but that does not count as a bailout of certain investors:

"It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy." (Ben S. Bernanke, "Housing, Housing Finance, and Monetary Policy," At the Federal Reserve Bank of Kansas City's Economic Symposium, Jackson Hole, Wyoming, 8/31/07)
Do not be fooled by the claim that we "have to" save any company. There was a time when that company did not exist. The company might not be able to live without us, but history already has proved that we can live without that company.

Bernanke's Fed Punishes Commodities: Burn the Bears


Bernanke Lashes the Anti-Bubble Heretics

Federal Reserve Chairman Ben Bernanke burned stock-market short-sellers with his first Wall Street bailout in August 2007 and again on March 18, 2008 with his less-than-expected 75 basis-point (75bps) Federal Funds target interest-rate cut.

The Fed temporarily pulled the rug out from under bears who had stampeded into commodities to escape equities.

The government's surreal attempts to argue that the economy is fine contrast sharply with the harsh reality of Bernanke panicking the Fed target rate down to 2.25% (negative real interest rate) and your emergency Chinese Payday Loan known as the Bush stimulus package (falsely called a "tax rebate" check).

Suppress Dissenters who Question the Overleveraged House of Cards

Bernanke is developing a habit of sniping the shorts, akin to firing into the crowd to try to keep the growing mob from storming the barricades.