April 4, 2008
Elaine Meinel Supkis
Greenspan's PhD research turns out to be nothing. He is probably a fraud. Surprised, anyone? And from the Ninja Economist, more 'scary charts.' Just like yesterday, the day before and the last 100 days before that, almost all the economic news is 'bad news.' So world stock markets resume their fall. What a surprise. Again. Sub prime losses are now over $230 billion and climbing. Far from bottom, there is more to come as we knew way back last year. More American consumers are falling behind their many debt payments as job losses accelerate. This was easily foreseen by anyone with half a brain, of course. Not that the people running things have brains. Note that Greenspan was too stupid to write a thesis for his business Phd. Not that these things are worth the paper they are printed on. Like the dollar.
Greenspan, who left the Fed in 2006 but is still consulted as a genius, might find a metallic exoskeleton exceptionally comforting come May, when the University of Texas Press publishes an unflattering book by Robert Auerbach entitled Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank.
Auerbach, a veteran Fed basher, portrays Greenspan as a real-life Professor Marvel -- who, through double-talk or "garblement," transformed himself into a mighty economic wizard à la Oz. Auerbach strongly implies that Greenspan's 1977 Ph.D. from New York University was obtained in a few months with little more rigor than a matchbook-cover art degree and that Greenspan has kept his Ph.D. thesis secret in order to protect his vaunted academic reputation.
"Normally," writes Auerbach, "a Ph.D. dissertation in a field such as economics must be in a form sophisticated enough to be usable in research, must make a contribution to the existing body of knowledge, and must be original, unpublished work. When approved, the Ph.D. candidate is normally required to supply a bound copy of the dissertation, which remains in the university's library and is available for future researchers to consult."
Auerbach, who has a Ph.D. in economics from the University of Chicago (Nobel laureate Milton Friedman was his thesis adviser), kept requesting access to the papers until NYU's provost, David McLaughlin, finally admitted in August 2005 that, "I can tell you that it was the practice of the business school, during the 1970s, not to deposit dissertations with the library. Thus, a copy of Greenspan's dissertation is not in the Bobst Library. We suggest that you contact Greenspan directly in order to obtain a copy of his dissertation."
Writes Auerbach: "Evidently, he wanted me to believe that NYU business Ph.D.s just took their dissertations home and put them in a drawer."
HAHAHA. So much for Greenspan's veritas. I suppose he got his degree due to his 'life experience'. Back then, it was being part of the Nixon 'Wage/Price Freeze' team? HAHAHA. He should have gotten his degree from Moscow University for Economic Research. As the US misspent money on a fruitless war with Vietnam and the Cold War, our economic condition evaporated. As always during wars, this spending caused inflation to take off. So, belatedly, our government went from 'guns & butter' into 'rationing'. The reason governments ration during wars is to prevent inflation, after all. But we did our rationing after losing the Vietnam War. I suppose Greenspan, learning about economic matters in this school of dementia, learned some interesting lessons about how one can use war to boost the money supply.
Greenspan's reign at the helm of the Fed will go down in history as one of the worse. And he has competition, too! Bernanke is giving him a good run for the debased money. Greenspan is a purely political hack who did whatever his buddies wanted him to do. This is why all charts showing money supply matters and the condition of banks go off the charts when he took over. The vacillations and severe rises and tremendous falls are painfully obvious. This raging instability was due to his political objectives which were to support wild government misspending and encourage bubbles in speculative areas. Incidentally, government and trade debts shot through the roof during all this. For this reason alone, he bears the crown of 'Worst Fed Chief...EVER.' And the name 'traitor' should be appended, too.
For this fool has destroyed our nation. This is no small matter. He made it easier for a troop of pirates and pack of hell hounds to pour into this nation's economy and strip it bare. All we have to show for this is a mountain of debts we can't pay.
To all INFLATIONISTS: I’ve almost ALL these charts are for you. Each MASSIVE write down is the DESTRUCTION of credit and money. Since these write downs go straight to the bottom line, this results in the MASSIVE de-leveraging of these HIGHLY leveraged corporations. Because they ALL have to de-leverage at the same time, risky assets (from simple equities, to real estate) all find themselves CONTINUOUSLY OFFERED, with NO SUSTAINED BID. This is DEFLATIONARY.
Also, for the last time: The Fed is NOT printing money. Nor will it. The current liquidity injections are NOT inflationary, as they are TEMPORARY and nothing more than SWAPS of one illiquid (toxic mortgage derivatives) asset for one liquid (U.S. government debt) asset.
Ninja's second chart has an important error:
I always note the 9/11 anomalies. This is when the government decided to cheat on nearly everything, commit open crimes without thought. The whole world felt sympathy for us and let us run riot so we ran riot. Note how the excess infusion was NOT soaked back up by the Fed. The first infusion was the Greenspan attempt at giving Bush a 'good' economy right after he stole the election. To prove to America, life under a dictatorship is preferable to freedom and democracy.
Also, the tax cuts instituted right before 9/11 are the major part of the fuel for inflationary fires we see even now. Despite many billions disappearing rapidly as the funny money vanishes like snow in the hot sun, so it is here: the money may be vanishing but the central bankers are replacing it as fast as possible! But the excess differential we see on this chart when the Fed refused to clean up the 9/11 injections is still fueling inflation. Until this is soaked up [and the Fed intends to never soak it up!----Unless Volker takes over!] we will have inflation.
Now for some truly stupid things from the International Monetary Fund:
Yet it’s also the case that, since July 2007, some of our most reliable indications about the exact nature of rapidly emerging financial problems have come from these very same markets for risk. In fact, looking back over the past six months or so, it’s now apparent that these markets have given us a quicker and more accurate heads-up about potential macroeconomic issues than have many conventional macroeconomic indicators.
Specifically, you can see the market’s view on the default probability of various securities from the price of so-called credit default swap (CDS) spreads. The idea is that if you want to hold a security and protect yourself from the risk of a default, you can effectively buy insurance through this market—actually, you buy the option to sell (or "put") the security to someone else if it defaults. The CDS spread is the price (or effective premium) of that insurance. Because many of these CDSs are traded in liquid markets, the price of this insurance is updated in a rapid and transparent manner.
You know, if we want a fire alarm system that is the house burning down and the whole neighborhood noticing it, we could say, yes, the present system sends us warnings. Or if we want forest fire warnings to be a raging forest fire, yes, this is also a nifty notion. But if you don't want forest fires or houses burning, it is a truly lousy system. Rational people looking at statistics could clearly see what was wrong long ago. I have. And if I can do it, anyone can do it. We don't need a total collapse in a huge financial sector to be our warning that something is wrong!
And the IMF KNOWS THIS! But they have spent years in denial. As the G7 nations rapidly drove the planetary financial/trade systems off the cliff, these are the same nations that used the IMF to demand trade/budget stringent measures for all other nations, not themselves! Now, the bastard sheep are baaaing their way home again. And the things the IMF chastised other nations over, are now showing up on the G7 balance sheets.
Also, the IMF should, like me, be pushing for the ELIMINATION of all 'insurance' against defaults on these sorts of instruments! This 'insurance' gave them all room to write up hideous Alpine mountains of bad debts. There wasn't a bad deal these people weren't willing to underwrite. The only brake on reckless lending is FEAR. And if we remove fear of failure, they will write loans for anything and everything on earth, to infinity. Literally, not metaphorically.
Ergo: we must prevent them from having these hedges on their own bad bets. Indeed, they themselves know they have overblown the 'insurance' side of things. This is all part of that massive, hideous monster I call 'the Derivatives Beast'. The reason I picture it as a living creature is simple: it grows. It stirs and things go crashing down. It eats, too. Things it eats, vanish. It now dwarfs all other metrics in our global economy. By far. And the IMF should have attended to this critter! They knew about it! They could see it just as clearly as I! They know who is feeding this creature. And they do absolutely nothing. They can't even talk honestly about it or discuss some way of stopping it from growing to infinity. For infinity is fatal for all of us. The entire financial system of the world will be sucked down, in a flash, into this deed, dark hole and in the past, when this happens, the resulting depression can last for over a thousand years. So we have to deal with it and slay it. Outlawing this sort of hedging is one way. In my mind, the ONLY way to end this menace.
Gold-based believers like Ron Paul hope that will squeeze off this infinity-making machine. Perhaps it will. The truth is, we have to find some tool to end this madness. Time is running out. After the Derivative Beast passes the quadrillion mark, we are in very dangerous territory. And it is heading there...rapidly. Since it doubles every 5 years or faster, and is already passed the 1/2 quadrillion mark, we don't have much time left.
By George Soros
The proposal from Hank Paulson, US Treasury secretary, for reorganising government regulation of financial institutions misses the point. We need new thinking, not a reshuffling of regulatory agencies. The Federal Reserve has long had authority to issue rules for the mortgage industry but failed to exercise it. For the past 25 years or so the financial authorities and institutions they regulate have been guided by market fundamentalism: the belief that markets tend towards equilibrium and that deviations from it occur in a random manner. All the innovations – risk management, trading techniques, the alphabet soup of derivatives and synthetic financial instruments – were based on that belief. The innovations remained unregulated because authorities believe markets are self-correcting.
Regulators ought to have known better because it was their intervention that prevented the financial system from unravelling on several occasions. Their success has reinforced the misconception that markets are self-correcting. That in turn allowed a bubble of excessive credit to develop, which extended through the entire financial system. When the subprime mortgage crisis erupted it revealed all the weak points. Authorities, caught unawares, responded to each new disruption only after it occurred. They lacked the ability to foresee them because they were in the thrall of the market fundamentalist fallacy. They need a new paradigm. Market participants cannot base their decisions on knowledge, or what economists call rational expectations. There is a two-way, reflexive interaction between the participants’ biased views and misconceptions and the real state of affairs. Instead of random deviations, reflexivity may give rise to initially self-reinforcing but eventually self-defeating boom-bust sequences or bubbles.
Time for more charts! Click on chart to enlarge:
As usual, when we add important events as well as noting basic economic conditions, the chief often being the relative price of oil, we can see clearly how things got out of control. All the money charts show the same actions: starting in 1970, everything suddenly curves upwards. Inflation may rise and fall but ALL of the money charts show the same ever-steepening curve. What this chart above shows is how our government has flooded our own banking system with its debts. And how the sales of Treasuries are feeding underlying inflation that is HIDDEN FROM VIEW. This is, like our huge government debts, being shipped overseas and hidden in the bank vaults of our trade partners. Who use this as leverage for controlling our economy. For their own benefit.
Since much of this money was absorbed by our own banking system, enriching it and giving it a huge base to make loans, since it also has been parked overseas, this is the root cause of global inflation. Our own government is causing global inflation! And the IMF is supposed to go after nations doing this. But won't even discuss this matter. We know that our national debt has shot from $1 trillion in 1980 to over $9 trillion today. And will be double that in ten years or less. Like the Derivative Beast which is fed by our own government spending, this is an unrealistic growth rate. The US cannot double its debts every year for long. No one can. Nothing on earth, not micro organisms, molecules or large living creatures can multiply and double in size forever. Mother Nature has stern limits on this.
And always, when any system, thing or dynamic begins to double and redouble, it crashes. It doesn't slowly cease. It blows up. This is the 'hard landing' everyone talks about. But if we look at all the charts Ninja supplies in the above story, we can see a lot of 'off the chart' collapses. This is Mother Nature's way of stopping a ridiculous dynamic.
Wall Street banks are working on plans to separate troubled assets from the rest of their businesses in an effort to ring-fence problems and restore investors’ confidence in the financial sector.
A number of US firms are looking to follow the example set by UBS, which this week put securities linked to US mortgages into a separate subsidiary with a view to eventually reducing its exposure to the troubled assets, which have been responsible for more than $30bn of losses so far.
Just like with the hedges and the Derivatives Beast, the idiots who want infinite wealth are now trying to fence in the unicorn. They thought they would get infinitely rich on giving out infinite easy loans to the masses to buy houses, etc. And for businesses to merge, etc. Now that these loans are going bad, they are trying to stop this process from unwinding. Or rather, they want to shove it aside and make it an orphan of someone else while it loses value. Then they can find somewhere else to dump more mountains of debts and collect their fees. This is like garbage men who are paid to take away the garbage but then fill up the truck, return and dump it all on our front yards, then driving off to a new neighborhood to do the same.
Firm Writedown Credit Loss(a) Total
UBS 38 38
Merrill Lynch 25.1 25.1
Citigroup 21.4 2.5 23.9
HSBC 3 9.4 12.4
Morgan Stanley 11.7 11.7
IKB Deutsche 9 9
Bank of America 7.3 0.9 8.2
Deutsche Bank 7.4 7.4
Credit Agricole 6.5 6.5
Credit Suisse 6.3 6.3
Washington Mutual 0.3 5.5 5.8
JPMorgan Chase 2.9 2.1 5
Wachovia 2.9 2 4.9
Canadian Imperial (CIBC) 4 4
Societe Generale 3.8 3.8
Mizuho Financial Group 3.4 3.4
Lehman Brothers 3.3 3.3
Barclays 3.2 3.2
Royal Bank of Scotland 3.1 3.1
Goldman Sachs 3 3
Dresdner 2.7 2.7
Bear Stearns 2.6 2.6
ABN Amro 2.4 2.4
[bn:WBTKR=FORA:NA] Fortis  2.3 2.3
Natixis 1.9 1.9
HSH Nordbank 1.7 1.7
Wells Fargo 0.3 1.4 1.7
BNP Paribas 1.3 0.3 1.6
DZ Bank 1.5 1.5
National City 0.4 1 1.4
Bank of China 1.3 1.3
Bayerische Landesbank 1.3 1.3
Caisse d'Epargne 1.3 1.3
LB Baden-Wuerttemberg 1.3 1.3
Nomura Holdings 1 1
Sumitomo Mitsui 1 1
Gulf International 1 1
European banks not 8.4 8.4
listed above (b)
Asian banks not 4 0.7 4.7
listed above (c)
Canadian banks 2.4 0.1 2.5
excluding CIBC (d)
____ _____ _____
TOTALS* 206 25.8 231.8
They already have dumped $232 billion on our front lawns. There is at least another $232 billion to go. This is half a trillion dollars in bad loans that must be dumped somewhere. As communities struggle to deal with the fall out of all this bad lending, housing is abandoned, projects left half-done. Blight spreads across the planet as taxes are used to keep cities from burning down as arson, looting and vandalism rise astronomically. And they want to be cut out of this mess they made? This should NOT be allowed!
And we get to the concept of moral hazard. If everything is hedged and insured, there is no moral hazard. But the hazard becomes the very hedges and insurance themselves!
A fall in the growth momentum of the Fed's balance sheet is the key reason why monetary liquidity is still depressed despite the very easy interest rate stance of the Fed. It is for this reason that interest rate spreads have continued to widen.
In order to have a narrowing in the spread, it is necessary to increase monetary liquidity, i.e., the increase in the growth momentum of the Fed's balance sheet. For the time being, given the weakening in economic activity, this is not easily done. Obviously, if the Fed were to decide to set the interest rate target to nil, then it could have the freedom to pump as much money as it likes. But by doing that it runs the risk of seriously undermining the bottom line of the economy.
Also, contrary to popular belief, the policy of setting and bringing the federal funds rate to a particular target rather than producing economic stability generates the exact opposite result. We have seen that to maintain the target the Federal Reserve must offset various disruptions in the federal funds market by buying and selling assets, i.e., by varying the pace of monetary pumping. It is this variability in the pace of the Fed's pumping, which is manifested through changes in the Fed's balance sheet, that is at the core of the boom-bust cycle menace (see chart).
Ninja keeps hammering away at the notion that we are seeing deflation. We certainly are. But we are also seeing inflation. Like in the 1970's, as we lose in a war, we get hammered by both. The dollar rapidly collapses in value. The devaluation of the currency is always done 'to fix global trade imbalances.' But this never, ever works. From 1970 onwards, the US has had a trade imbalance. It sometimes stabilizes briefly but overall, it has gone in only one direction: upwards. The same with government debts. Up and up. Briefly, Clinton had an advantage there but this was tossed out via the Bush tax cuts which doubled the debts and trebled them rapidly. The tax collecting by the Fed neutralized excessive money making. But the tax cuts have accelerated this money creation. But not at the Fed. The budget deficits neutralize money making by the Fed! So it looks deflationary.
BUT YOU CAN'T HAVE DEFLATION AT THE SAME TIME THERE IS INFLATIONARY BUDGET SPENDING! If the government is pouring money out of every possible pore and if this money is entering the stream, despite the trillion dollars in losses by the big banks, the excess finances of a government running deep in the red equals debasing of the currency. No nation spending wildly can have deflation except the Japanese. They managed this trick by isolating their government debts within their central bank. We don't have a central bank so this trick is harder for us. The Japanese, frankly, cheated. They killed inflation while having wild government spending via the simple trick of clobbering the wages of workers. And they had record cheap oil and commodity prices at the same time.
As my chart above shows, this is gone with the wind. Inflation is raging in commodities. The recent off the cliff fall of commodities was FAKE. It was engineered by the G7 central bankers who basically lied to everyone. Do note that today, they are whispering some of the truth.
THIS IS BECAUSE THE NEWS SHOWS THEM TO BE OUTRAGEOUS LIARS!
The securities backing a $29 billion Federal Reserve loan to Bear Stearns Cos. consist primarily of "mortgage-backed securities and related hedge investments," the Treasury Department said.
The disclosure, in a letter to the Senate Finance Committee staff, is the first official comment on the securities behind the controversial loan, made March 16 to facilitate J.P. Morgan Chase & Co.'s takeover of Bear. The Fed made the loan with the ...
I knew this was the deal from the first hours of the rescue. I knew it was a scheme to shift the costs of bad deals onto the backs of the Federal Government. And note the chart above: basic degradation of the currency is due to excessive government debts pouring into banks. They use this to make more loans. But they can't, if previous loans are going bad. So they must shift all this onto the government's ledger. This means the government runs MORE in the red. This gives the banks more money to play with as they buy government bonds. Which become 'assets.'
New York Federal Reserve Bank President Timothy Geithner said capital markets are still ``substantially impaired'' and policy makers and financial industry leaders must ``act forcefully'' to stem the crisis.
``What we were observing in U.S. and global financial markets was similar to the classic pattern in financial crises,'' Geithner said in his prepared testimony to the Senate Banking Committee. He cited ``a self-reinforcing downward spiral'' of asset sales, ``higher volatility, and still lower prices.''
The New York Fed chief also said that the central bank's emergency actions to rescue Bear Stearns Cos. were aimed at halting a ``classic'' financial crisis that would have caused ``protracted'' damage to the U.S. economy.
Fed officials are trying to defend the aid to Bear Stearns as an emergency move to stem deeper damage to the U.S. financial system. Lawmakers are investigating the deal, concerned that government funds may be at risk and that regulators failed to recognize the mounting crisis.
This self-reinforcing downward spiral' is the only way Mother Nature can fix out of control upwards systems. She has NO OTHER METHOD. If one wishes to not be part of such a yin/yang, Miz Risky/Miz Safety cycle, one can stop it in its tracks by raising interest rates every time the bankers get tempted to hand out endless free loans. This system was the system set up eons ago to stop wild banking. But the mandate of the Fed has morphed into 'make the economy go up and up and up no matter what, forever, as fast as possible.' Since this is illogical as well as irritating to the Great Goddess, it becomes the classic 'Boom/Bust' cycle. Which the Fed was supposed to prevent.
Geithner and his buddies created several bubbles and they are now popping. They should all resign. We should put Ron Paul in charge of the Fed for a few years. His grim solutions will fix the banking system. But we want a broken system. This is the nub of the deal. What we want is now impossible. But no one wants to admit this fact.
Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years during the fourth quarter, another sign the U.S. economy is slowing, according to an American Bankers Association survey.
Payments at least 30 days past due increased across all eight categories of loans tracked, the Washington-based group said today in a statement. Late loans climbed 21 basis points to 2.65 percent of all accounts in a consumer-loan index created by the group.
It is painfully obvious that the bottom most layers of our economy are in full collapse. Low wages/rising inflation always kills the lowest classes first. They feel the pain the first and the worst. And this is why the guys at the top shouldn't misbehave. But frankly, they don't care if the lower layers freeze or starve to death. They can't understand history and how the lower ranks deal with this in the end. Why isn't the history of the world taught?
It is too grim. So it is sugar coated.
Treasury Secretary Henry Paulson said the U.S. and China, the world's two biggest emitters of greenhouse gases, must work together to reduce their dependency on oil and increase energy security.
``Our two countries share the challenge of achieving balanced economic growth along with energy security and environmental sustainability,'' Paulson said in the text of a speech today to the Chinese Academy of Sciences in Beijing. ``It will take resourcefulness, creativity, determination and a long- term commitment to achieve the results we seek.''
The US is grinding teeth over the issue of China. They, like I, know perfectly well that China is actually stronger, not weaker, after suppressing the US-sponsored uprising in Tibet. The hope was, the Chinese would walk away from the US and cease diplomacy. Grimly, the Chinese plow onwards. They know our rulers need them. They know that if they cut us off, our entire economic system, this misbalanced, messy system, will collapse rapidly. The only question for the Chinese is tactical: when to do it.
Recently, they got all the oil destined to the US, coming from Venezuela. The US is menacing Iran and we are losing oil resources in South America? HAHAHA. On the other hand, a deal is being hammered out to have us suck down all of Canada's oil. I hope the Canadians like the Amero.