Why Do We Take This Crap!

Last night I heard the CEO of GM, Fritz Henderson say that they “need to balance the balance sheets”, so 3,000 people are going to loose their jobs.

What did we give GM money for?

In this economy loosing one's job means, loosing one’s home, cars, perhaps the splitting up of families as they are dispersed to whomever can care for them; or for some it will be homelessness, or even death. And we sit here and say, “Oh, okay. That’s the way it is.” and go on Twiittering and Facebooking about buying pastries or deciding whether to go out or Tivo tonight.”

“Balancing the sheets” is corpo-speak for paying off the investors.

We have come to the point where money counts for more than the quality of human life, or even life itself. We accept that because the investor gave money that they are more deserving than those who have given commitment and time.

Bunk! Your job is not a risk venture.

But that is what GM has done! Turned jobs into a risk venture by making workers suffer a higher risk than the investors. Let the investors take the hit, not the workers. They knew and even considered the risks when they gave up money in hopes of making a more money without effort. A promise of return based on a façade of credit derived from an economy of aggregate (non-existent) currency and fractional loaning. Have you ever considered taking a job to be a risk venture? No! You trade your time and skills in return for money. The investors are the ones who took knowing took on a venture involving risk, managed on a shaky paradigm of greed pandering to a false consumer ideology. And they did it smugly knowing that people they would never meet or face might have to pay the price of abject hardship because they took too much risk.

And why should we just sit back and say this is the way it is.

In case you have been living in a cave for the last nine months, we have bailed out those investors; not only with our current tax dollars, but with our future economy.

So, it’s in our right to stand up and say

, “No don’t let GM off the hook. Let the risk-venture capitalists suffer the risk they paid lip service to. It’s our money and it’s our future. Let those who put in an honest day’s work off the hook. Let those who take risks, bear the costs of their risks.” Contact your representative and the President and tell him you are informed and will not stand this.

Are we a nation of cash flow or people?

What is more important to you?

Money or the quality of life for 3,000 people.? Think about it and answer as if you had to sit with one of those 3,000 people and their families and tell them this is the way it is. Don’t answer lightly just because you are spared that confrontation, as, apparently Fritz Henderson is spared.

You can go back to Twittering now.

Slap in the Face to Joe Main Street

The Morgan Stanley - Citi Merger

If ever there was a merger that proves that we have become a country "of the investor, by the investor, and for the investor," it's the Citi/Morgan Stanley merger. I suspect that Abe Lincoln would feel as I do that this is a perversion of what he meant during his famous Gettysburg address**

New Release available soon on Amazon.com.

Availble here now!
Keep in mind that Citi has been claiming injury by the mortgage crisis to which it was a huge contributor in creating. This merger will create the largest brokerage on the planet with $1.7 trillion in "client" assets.

Say that aloud: "one point seven trillion dollars in client assets" That means that while on Main Street U.S.A unemployment is climbing and most of us are making decisions to pay the utilities or buy groceries at times, investors still have, and must be hoarding $1.7 trillion dollars. This probably a pretty good indication as to where the $350 billion of the $700 billion Bailout Funds have gone.

Now if you read the news blurbs, they indicate that this merger will service 1.6 million households "globally" That word globally is important because thought 6.8 million sounds impressive, it means that this merger will only be beneficial to .024 percent of the world population it is serving. That's two percent of one percent. That means that less than one percent of the world population.

It also means that these few investors hold assets that are nearly four times our national debt of $455 billion. The paradigm of the current administration has place our country in debt to line the pockets of a very few investors. It also means that these few investors and we are only talking about the clients of the Citi/Morgan Stanley merger, hold assets that are 42 times the trade deficit the country currently faces. That means if we were to ask Citi/Morgan Stanley's clients to pay off the deficit, they would still have $1.66 trillion. Say that aloud. one point six trillion dollars

The reason this last factoid is important is because this trade deficit was created in large part by large manufacturing off shoring it's workforce in order to reduce overhead and line the pockets of investors. Although, if you were to listen to them, it was to survive. Of course, survival really was dependent on huge profit returns to investors, despite the impact on Joe Main Street jobs. The irony of this being missed by large manufacturing in their greed is that as you move your workforce offshore, jobs drop off and when jobs drop off, so does your consumer base, which is exactly what we are seeing in this new recession: A middle class no longer able to forward the economy by keeping cash flow moving. In other words, a middle class no longer able to function as a middle class

When are we going to finally realize that whatever we do to improve the economy, we need to move away from the supply side paradigm of pandering to the investors. We need to bring back jobs and build an economy based on products and Joe Main Street.


** "Of the people, by the people and for the people"

Collapse or Bush's Dying Swan Song...

...to big finance?

Conrad Lawrence

Anybody notice how these bailout payouts seem to happen on Sunday. Is collapse really imminent or is this part of the Bush Administration’s dying Swan Song to big finance?

This morning we woke to hear the now familiar cry that the government is going to give $25 bln to Citibank who just last week reported to it's employees that it financially health in order to keep it from failing. They don't give us any money figures so we can see or understand this cry of "bank failure," to understand who, besides investors, are at risks.

Given that it seems as if we have had a government that kowtows to big business I wonder what's going on. What does this matter of collapse mean. I am left with the feeling that Citi will put 53,000 people on the street and take money from you and me as taxpayers rather than tell shareholders that they will have to take a loss.

These clandestine weekend actions do nothing to alleviate these fears So what is the economic disposition of Citi? Can it service it's depositors? Can it meet it's debt obligations? I don't know and I looked. I went to Citi's web site, clicked on the link set to show their 2nd quarterly earnings and was met with an "error 404 page not found" message. If all is as they say, why would they hide this information
Available online in the Whimsical Surreality Gallery -- Click here.

We know that Citi can't keep it's shareholders happy. That's all we hear about in the news. Other than that whether or not it can cover it's depositors (main street) and debts. As a past corporate banker, I know that big banks use us (main street) for our deposits to generate capital for their loan and investment banks.

So, why can't us depositors be afforded the right of seeing the numbers ourselves?

A big picture showing of numbers would be pretty simple. What is a bank's assets vs it's liabilities, less those liabilities that are dividend payouts. As long as it can cover the accounts of depositors and loan debt, I feel it's fair to tell the shareholders to bite the bullet. After all they are the only ones entering this financial relationship realizing they were taking a risk.


When Chase took over Wamu, Washington Mutual still showed a positive asset balance of $309 billion dollars. They only problem was that their stock share value was plunging. Seems as if Chase leveraged the fear of financial crisis to implement a merger that the Treasury and Justice Departments had denied in the past as diminishing banking competitiveness.

So? What are the numbers? Why can't I find them and why as a taxpayer who will suffer the impact of this bailout, can't I be afforded the information to understand what is happening?

Nobel Winning Economist is Terrified....

...of "The mentality that what's good for Goldman Sachs is good for all Americans.

by

Conrad Lawrence

As an economist Nobel winning economist, Paul Krugman is s amazed. As a citizen he's terrified.
"The problems are bigger than we grasped," Krugman explained to Renee Montagne of NPR's Morning Edition. "No one understood how vulnerable this 21st Century structure really is." He was, of course, referring to the credit based economy that this country has adopted and described the meltdown as being created by greed followed by fear. Greedmanifested by rushing into a housing bubble to make money, despite nearly a decade of warnings. Panic when it fell apart. (More Below)
Click on image for more info
And like Guy Cecala, who publishes an industry newsletter called Inside Mortgage Finance, Krugman is worried that the current bailout will not fix the crisis. He claims that things will get substantially worse; things will spiral down. A lot of people who are middle class will no longer be middle class. Not sure where Krugman's been the last year. Both Cecala and Krugman indicate that the problem with the bail out is that it does nothing to keep homeowners in their homes. Cecala describes two plans meant to infuse money at the level of the homeowner to keep the current loan cycle pumping, much like the Alternative Bailout Plan described to the side. He asks if you take homes off line, how will that help the housing market, a component everyone agrees is needed for sustained growth out of this crisis. Krugman see issues with the top down approach of the bail out by giving money to banks and further leaving them go unregulated.

Gutted by Bush

.
Big problem with the current bail out according to Krugman is that in terms of regulating the financial industries natural tendency toward unsensible greed, the Treasury Department has been gutted by the Bush Administration. The Treasury Department, "doesn't have the deep understanding that comes from employing burearocrats who know what they are doing." The Bush Administration has systematically removed those people and Greenspan helped create a dangerous illusion of security when in fact there wasn't
enough.

Krugman feels that there is a need for regulating the banks and the financial industry and comments on where the two candidates fall in that paradigm. According to Krugman, McCain is still trying toshoe horn this bailout into his perception that
government is too big. He starts talking about earmarks which baffles Krugman since earmarks has nothing to the credit based financial crisis. Krugman feels that Obama is a regulation guy, despite not always voting for regulation, but sees him intellectually more flexible and willing to admit that it is FDR time

In a way that indicates an answer to Cecala's big question concerning a homeowner's bail out: Do we let the banks still hold the mortgages or give them over to some government entitity?

What's Missing From The Bailout

Sustainability and....

...not enough accountability.

by

Conrad Lawrence

There is some accountability in Obama's bailout plan, which is very similar to most European bailout plans. However, there is no sustainability built into either plan. Both plans bail out the banks, but since it does nothing for those who are floundering and only hopes and prays that the banks will find others not considered risks to make loans to, there is no sustainability. (More below)

The Original Design

Sustainability means making sure that the money flows in the way it was originally designed in order to make for a working economy: from the bottom up! That’s why banks make loans. The way cash flow was originally meant flow is from the depositors and loan payers up into the banks coffers. Inject money at the top, right into the bank’s coffers, and there is no assurance that money given to the banks will flow in any direction. After all, who will be left for the banks to loan to?

Currently over 100 million households in the U.S. are overextended. That's “households”, not people, which means generally two or more people per household. That accounts for approximately 200 million people. Considering that there are only 260 million people in the U.S., including children too young to take out loans, elderly past the loan securing age, and those too risky to loan to, who would be left over to take out loans promised by the current bailout; loans that are the base premise of the bailout.

What is needed for sustainability is for a plan that will insure that those currently holding debt can continue to pay their debt. Considering that the banks made those loans based on the premise that as long as debtors could pay, the banks would remain solvent, then insuring that debtors can pay would have the same effect of bailing out the banks as the current plan The difference is that instead of trickle down (injecting money at the top and let it trickle down through new loans) you would have a bottom up flow of cash. If the whole point of injecting money is to get people move cash via loans, why not just inject in at that level?

This can be done.

For a detailed explanation how, see the sidebar article Alternative Bailout. Not only can it be done, but it would re-employ some of the 103,000 people from the financial sector who lost their jobs. What could be better, cash flow at the level of eventual goal and more jobs! (See Alternative Bailout --->)

Do the banks truly need immediate rescue?

Chase reported an 84% loss in profits for 3rd Qtr 2008. Scary? They would like you to think that means they are operating in the red, but they aren't. It's true, they only made $14.7 billion in profits last quarter. Boo hoo! To put that into perspective, that more than 4 thousand times the total assets of the State of Illinois. Banks like Chase possess assets so immense that they can withstand an 84% decrease and still make money. Shareholders of Chase are gasping at this, but they are not floundering. Makes one wonder if banks like WaMu and Wachovia were really going under. Or, if their assets simply dipped enough that they became ripe for absorption. In other words, the banks have found that this crisis has given them the opportunity for the mergers that the Treasury Department and SEC denied throughout the nineties and the new millennium for fear of reducing competition. Considering that WaMu still had over $300 billion in assets when Chase took over, what criteria determined that it was in fact collapsing? It just wasn't showing the returns investors wanted?

Sustainability requires not only a change from the top down, trickle down paradigm, but a shift in realizing that as long as we try to maintain a credit based economy, we will always be at risk. According to World Banks Pacific region Vice President, Jim Adams, this is why China's economy is not as adversely effected by the Global Financial Crisis. China's banks and business are less dependent upon credit and more dependent on goods and manufacturing.

Gone in a Poof

Many people who are not rich are fearful to face the fact that we need to move away from our economy being solely based on investments and back to a product/service based economy is because their retirements are tied up in investments. Have no fear. Relax and let the market settle. It will come back, if people don't panic. I am one of those people. Four weeks ago, I was in a position to make more money in retirement than I do now by my salary. Since then, that's gone. Pfft! But, I am not going to panic, not going to liquidate my stocks and take a massive loss. No. I plan on sitting on it and pray that someone finally comes up with a bottom up cash flow sensibility to rebuild the value of my investments.

Case in Point.

I love my dad dearly though he is the epitome of the trickle down economic benefactor. Actually he’s a hybrid of Richard Nixon and Bob Dole. He is wealthy by virtue of investments, ten times more wealthy than his salary and pension could make him. I asked him how all this effected him. His answer was that it didn't really. His dividends still come, he still pays the bills, lives very comfortably and as long as he doesn't try to sell his stock, he won't take a loss. The only impact is that if his stocks never regain their value, his heirs (including me) will take a hit. Being skeptical of the credit economy, I sort have been expecting this for over a decade.

So why not give the money to those floundering in their loan payments. After all, many of them are victims of predatory lending designed to put money in the loan pool by sharks who stood to make more lucrative gains from mortgage based securities. These are lenders who actively sought to make loans they should have to puff up the pool. And these are the people that will get the money from the bailout.

We need a plan that not only helps those who need the help most, and injects cash flow where cash should flow, but assures sustainability

Duped!

By Those We Trust

Conrad Lawrence

But, we should have long since stopped trusting those we elect

This past Monday, September, 29th, I momentarily felt a sense of hope. Finally, someone was going to stop this madness; break from the trickle-down paradigm and help, economically, stimulate those who really need it, but we were duped! Twice!

It didn’t happen and it is clear that Congress never had any real intention of doing anything other than give money to those responsible and who can’t be trusted to self regulate themselves with large sums of money. To add insult on top of injury we are being duped a second time by the large financial institutes leveraging the crisis to implement mergers that would never be approved by the Treasury Department for reasons of diminishing competition.

Independent Presidential Candidate Bob Barr puts it succinctly, “We are doing precisely more of what got us into this problem by giving nearly a trillion dollars to those who got us into this problem to purchase bad debt.”

Hasn’t the last 8 years, the loss of the middle class, constant decline in jobs and untenable national debt proven the folly of giving a break, stimulus and a bailout to those at the top of the economic heap, those who are most influential

If you are not familiar with the term duped, please see the definition for the word in the side bar and the unflattering implications it has on both those we trust and ourselves.

Instead of moving us away from more of the same failing strategy, Congress only put off the bill long enough to add their own earmarks. “Earmarks” is the new politically correct term for what was once referred to as pork: a $2 million tax benefit for makers of wooden arrows for children; a $100 million tax break to benefit auto racetrack owners; $192 million in rebates on excise taxes for the Puerto Rican and Virgin Islands rum industry

Oink,

This Wall St. piggy went to market,
This creditor piggy went to mortgage backed securities
This banker piggy went to congress
This taxpayer piggy had none

Sorry if the rhyme and the onomatopoeia doesn’t ring true, but then nothing about this situation rings true; especially the Administration and it’s cronies call-out to our fears claiming we are doomed to economic melt-down. In their April 2007 issue, Vanity Fair labeled the Bush Administration as more destructive to the economy than the Hoover administration, yet Congress bought it when Bush initiated the bailout with the same apparent naivete as buying into his cry of WMDs. Like that, Bush made an urgent appealed to our fears, met by a House and Senate apparently blind to the needs of the people of this country.

Except for the dire global consequences, the BBC found the situation laughable. One of their producers even put together a medley of quotes from Bush, McCain, Paulson, and Bernanke and put it to the theme song for the children’s show, Only In America. Unlike most U.S. news outlets, the BBC is able to find a plethora of U.S. based analysts who don’t understand why the bailout isn’t a demand-side bail out. This doesn’t seem hard to do considering that on September 24th, over 200 economists signed a letter to the Speaker of the House and the Senate President pro tempore speaking against the bailout. These are not blog slouches, but economists based in highly respected institutions on the economy, such as Carnegie Mellon, Columbia University, Stanford University, MIT, UCLA.

That letter can be seen at this University of Chicago link: http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

I can’t help but point out the irony that this letter was drafted and kept at the University of Chicago, the home of Milt Friedman, considered the Father of Supply Side Economics.

Everyone the BBC interviewed both domestically and abroad found it unfathomable that our government would take nearly a trillion dollars from the victims of the financial crisis mess and give it to those very people who created the problem. One valid question raised a number of times is what is going to keep large financial institutions from using this money for other financial enterprises and insure that they will actually put it back into the housing economy?

Seasoned and highly respected News Analyst Daniel Shorr has much more jaded view of the situation. He indicates that Congress never had the intention of stopping the bill, but put on a media dog and pony show to give the impression that they are actually concerned for the tax payer.

The Fallacy

Once they get the bail out, who will financial institutions lend money to? The one sentence explanation of the mission, purpose, raison d’etre for the $700 billion bailout indicates that this is so that financial institutions can once again start lending, the basis of our economy being the credit and cash flow of consumers.

Who, after this fiasco, is left to make viable application for loans? After the sub-prime crisis, all that is left is those who defaulted and those who already have property. How many of those will not be too frightened to accrue debt for several years. Think about it. With job losses (over 159,00 in September), declining wages, and those who have defaulted in mortgages, who will be left over that will not be considered a credit risk? What percentage of people who can afford to take a loan and not be considered a risk, do not currently own property? Of those who don’t have property will be willing to enter this very chaotic environment of debt? What will be the driving impetus for the loans needed to move the economy forward and the reason (think WMDs) for this bailout? Will it be the need for other big ticket items? Big screen TVs? Household appliances? Cars; in a declining economy with increasing fuel prices? How is this bailout going to be injected into the economy if there is no place to inject it?

I fear I suspect that people will be acquiring loans to pay for necessities as the economy further tanks.

The Second Dupe

The second, quiet and more pervasive dupe is the way monolithic financial institutions are using the financial crisis to institute wholesale mergers previously not allowed by the Treasury and Justice Departments.

During the eleven years I worked in what was then the third largest corporate bank in the U.S, much discussion and worry centered around mergers impeding needed competition and rampant abuse of depositors (that would be you and me) by financial institutions. Back then, many mergers were not allowed. Even in the banking industry, many felt there were too many mergers. Ironically, or maybe not so ironically, in 1998 Republican Representative Jim Leach worried that mergers might overrun regulators ability to manage large financial institutions. Even the supply-siders worried that large financial institutions without the checks and balances of competition couldn’t be trusted.

So, what’s going to be the outcome of these crisis driven mergers: Chase taking over Bears & Stearns and Wamu, while Citi and Well Fargo battle over Wachovia. Here’s the question I have. If Chase can afford to buy up debt from both Bears & Stearns and Washington Mutual and sit on it until the crisis turns around when deposits and loan payments will cover the debt, why can’t WaMu and Bears & Stearns wait it out also.

I mention this second dupe because it plays into the root paradigm that drives this crisis and prevents a real solution

The Myopeia of Greed....

…prevents legislators from seeing the obvious.
Even the staunchest of supply-siders ostensibly agree that the basis of our economy is the movement of money among what used to be our middle class. They agree that the eventual point of the bailout is to lend money to people to use, why not inject the money right at the level where you eventually want it?

Why are we injecting money at the top level to let it trickle down after years of proof that nothing ever trickles down? Why not cover the debt at the level of the people who are struggling to pay the debt. (See Alternative Bailout in the Sidebar to the right)

The Root Paradigm

Delaying the Inevetible
To say that at the root of the fallacy of the bailout is the supply-side paradigm is over simplified. It is the root, but it is pervasive. This bailout takes the stance that the status quo, our credit and investment based economy, charitably referred to as service oriented. The bailout ignores that what is really needed is a different economic paradigm which will require less short term and more long term views. Other than the movement of money, the U.S, has little of anything else backing up our economy. We have no products or materials, save housing, on which to base our economy,

The problem is and will continue to be that we have no way of digging out of our debt and our debt paradigm, we will face this in the future. Debt cannot continue to expand. According to the President we are facing the possibility of the economy shutting down because the ability to keep debt moving will quit. We have nothing bet debt to fall back on to keep our economy going.

The paradigm that debt is good has gone too far. Even if we sold off all of our GDP we couldn’t pay off even 40% of our national debt. One of the facts about debt that most financial people involved in the debt industry won’t tell you is that debt and investment is only really dependable and safe if everyone involved knows what a risk everyone else poses. That in fact is not true. If accurate risk assessment had been done, the sale of mortgage backed securities would have never happened.

In order to get out of what is becoming a vicious and spiraling cycle in a direction of recession we need to realign our economy to be backed by product, manufacturing. To do that we need to get jobs and profit revenue back into this country. Tax incentives have proven ineffectual over the last eight years, simply because big business does not hold up it’s end of the bargain and offshores…everything. How come we never hear about tax penalties to business who have sent jobs and profit outside the U.S. economy.

No one, neither of our Candidates of Change addresses this. The current paradigm of propping up debt seems to be accepted without question, ignoring the risk that seems obscure but has walloped our economy in the face.

We do hear of tax cuts and whether it should be given to business as incentive or consumers as incentive. At this point I need to ask, wouldn’t a bailout at the debtor level be the same as a tax incentive, only more effective? Still, the point is that beyond tax cuts, no one speaks of any other options.

How about opening the discussion of things like tariffs to make it more expensive to manufacture outside of the U.S. than inside. The argument tariffs only goes one step and the three or four it needs to go, which is that tariffs increase prices and people won’t purchase. Fine, let that happen. People won’t purchase an in a competitive capitalistic market, someone is going to say, I’m going to manufacture in the U.S, in order to keep prices down and tap into that market. Manufacturing in the U.S. means jobs, means more cash flow, more loans.

How does this relate to the bailout? It’s like this. The bailout is solely oriented around the credit industry as the singular influence on our economy. Because of that, and being mired in the supply side, no other alternatives are considered. In fact the whole loss of jobs, lower wages and increasing Consumer Price Index (inflation) are all related in that they drove the need for more credit, a change in our economy that really took off starting in the 1970s. At that time the investment markets got dimes in their eyes, thinking money could be made from the movement of money. This is fine if the movement of money continues to grow. However, the supply-siders shot themselves in the foot by wanting to keep too much of the cash for themselves and stalled its movement. They begin relying on credit, again which is fine as long as you can keep loaning out more, but even in the most rudimentary understanding of economics, it’s easy to understand that without cash flow, credit cannot keep expanding. No cash to move, no way to invest in credit.

The need for a different paradigm is imminent

Yes, this does mean biting the bullet for everyone, but even in the bailout plan, there is still talk of people have to bite the credit bullet and massive job losses that could be in the millions. At least with a debtor side bailout and a plan to move away from a credit based to a good or product based economy, there is the possibility of work.

The bailout only says we need this money now, to start loaning again. There is no talk of long term impact or recovery. I would rather face a solution that looks beyond now and at least indicates jobs with checks people can live off of, even if it means a more austere life. A solution that only looks at right now and insists on continuing a process that has proven to be very risky scares me. I know from my own experience the long term damage of living off of credit, buying necessities on credit card. To those about to join me, I say welcome to my world.