Rashomon: Everyone Tries To Explain Death Of Banking

Violent thunderstorm in Berlin, NY, 8/25/7
Elaine Meinel Supkis

In the famous movie, 'Rashomon', four different people tell four different stories about a rape/seduction/murder. The present economic meltdown is similar: so many people are lying or concealing stuff, it is very hard to sort out what is true, what is fake and where this will end except I know it will end badly. We have had a philosophy of global trade/global banking for quite a few years now yet many people trying to make sense of this latest...and not so unusual...banking collapse tend to overlook key players and misunderstand key philosophical banking issues. China and Japan are NOT playing the same game or using the same rules Europe and the USA use.

By Mark Gilbert at Bloomberg:

As global credit markets petrify, central banks are playing ``Whac-A-Mole'' with the hammer of overnight funds to bash down short-term interest rates. At least the ridiculous claims that the subprime crisis is confined to the U.S. mortgage market have subsided.

First off, why are the central banks in Europe and America playing 'whack-a-mole' trying to make their interest rates even lower than the rate of inflation that they already are? What happened to the free market ™ philosophy? Wasn't the miracle of capitalism the free flow of money at a rate decided by the marketplace? Why are the bankers conspiring with the Central Banks of the imperialist West to lower interest rates that already don't attract all that many savers? Doesn't the fact that the overnight rates are rising give proof to the notion that interest rates are too low already?

This irritates me. All my life, these people lectured us that free markets are more efficient than industries manipulated by governments yet we just saw a huge government intervention in most of the G8 countries. Excluding China which is of greatest significance. Something very significant happened and worse, it is still happening. My ears pricked up when I heard the central banks of the G7 countries announce they were capable of going to infinity like Zimbabwe is today, hyper inflation, anyone?

The housing subprime crisis is throughout the entire European/USA empire. While Asia built industries, the West built holiday homes in Spain, Greece, Italy, Las Vegas, Miami and other fun places. Note that Greece is burning due to hyper-dry, hyper hot weather. The financial crisis is tactical: the arrogant Western nations, accustomed to and enjoying the continuing privilages of Imperial rule, have chosen to waste much of this last cycle's wealth on frivolities, both imported from Asia and domestic. This is now in full collapse despite the joy over last month's wretched new house sales might suggest.

Mark Gilbert:

The Federal Reserve and the European Central Bank are trapped between the devil of inflation and the deep blue sea of the global money markets. The waves that carry billions of dollars and euros between financial institutions every day have been becalmed by concern about, well, take your pick from a laundry list of worries, all of which signal fear ousting greed.

If there's one takeaway from recent events, it's the reminder that the potency of global capital can leave central banks powerless. Bank of America Corp.'s $2 billion investment in Countrywide Financial Corp., the biggest U.S. mortgage lender, may have done more to stabilize financial markets than the hundreds of billions of dollars of short-term funds supplied by the Fed and the ECB.

Right away, I want to strangle Mark. What an idiot. Does this child really imagine the Bank of America had an extra $2 billion to throw down the toilet? Countrywide, as I have clearly shown, is led by a group of bank robbers who took out $400 million to line their own pockets a la Enron in just the last year. This is not a good investment. Just before this buy-out happened, all the top bankers met with the Federal Reserve and Treasury to hack out how they would conjure up fake money to save Countrywide. They knew they couldn't have the government hand over $2 billion just so the Countrywide officers could sell out the last of their stocks before decamping. They decided to give this money to the banks and then the banks would 'lend' it to Countrywide.

This is very inflationary as well as morally deficient. Not to mention, useless. Far from being non-players in this game, the ONLY players are the Central Banks! All the wealth held by our regular banks are pure garbage. If it gets revalued by some skeptical bookkeeper, about 30%-50% of this wealth will vanish which is why banks do not want an accounting and why the Western imperial banks had to dump over $500 billion in two weeks, into the maws of these banks holding fake wealth!

Mark is still puzzled:

After a slow start in responding to the surge in money- market rates earlier this month as banks hoarding capital stopped lending to each other, the U.S. central bank has shown some nifty footwork in trying to dodge the rate-cut bullet.

In a previous paragaraph, this stupid expert explains that the central banks are powerless in the face of the mighty wealth held by the big private banks! Yet here he is, discussing how the national bank has to keep interest rates up while at the same time, the big banks who are begging for money from the central banks, are 'hoarding capital.' Did this poor man enquire as to what this 'capital' is? HAHAHA. That, dear fellow, is the key you are missing! This 'capital' is all paper issues that are promises that will never, ever be fulfilled. This is why banks can't use them as money right now. The only way they can do this is to sell these pieces of promises and hope there are buyers.

The banks weren't 'hoarding'---THEY WERE UNABLE TO FIND INVESTORS FOR THEIR PAPERS! A key difference, I may add. I often wonder why the major media support these idiots who babble total nonsense. I would think everyone would want good analysis that gives reality an unsparing look! But then, I remember Cassandra.

Mark again:

It started by reducing the cost of emergency funds at its discount window. That borrowing source, though, has provided a weekly average of just $52 million this year when seasonal credit to small institutions in agriculture or tourism is excluded. The most it has been tapped for in the past five years is just $785 million, though almost $12 billion was drawn down following the Sept. 11 terrorist attacks.

So on Aug. 22, the four largest U.S. banks stepped up, with Citigroup Inc., Bank of America, JPMorgan Chase & Co. and Wachovia Corp. each taking $500 million of funds at 5.75 percent, well above the 4 percent rate that the overnight Fed funds rate closed at that day.

The implied message to the smaller finance houses is that there shouldn't be any stigma attached to borrowing at the penalty rate if you need to.

You can imagine the telephone conversation with the Fed that inspired such munificence; not dissimilar from the 1998 chat that brought about the rescue of Long-Term Capital Management LP. A cynic might also wonder whether Bank of America's $2 billion vote of confidence in the U.S. mortgage market by buying preferred stock in Countrywide was similarly Fed-inspired.

All of this is evidence that the Fed will keep pulling new tricks to avoid cutting its key overnight target rate of 5.25 percent, either before or at its Sept. 18 gathering -- and will rally U.S. financial institutions to its cause, marshaling the forces of capital by reminding them that their interests in maintaining market order are 100 percent aligned.

Interesting that later in this article, Mark calls people like myself 'a cynic.' He doesn't call us 'realists.' The value of the word 'cynic' is negative. We aren't trusting! This poor man doesn't realize that the facade of competition and capitalism is just that: cynical and utterly fake. When push comes to shove, the big guys and their tools within the government and the Federal Reserve work in amazing tandem to make things work out for the big banks and the big industries.

The Fed isn't 'rallying' the big banks to a 'cause.' They are scared to death of a dragon holding an amazing amount of American Imperialist bonds, cash and paper CDO's. If the temptation to drop rates back to 1% gets too strong, this dragon will dump the entire mess on top of the world markets and cause a total collapse of world trade. In 2002-2004 when the Federal Reserve gave away money for free and inflation took off, oil was $35 a barrel and food was 2/3rds today's prices, nay, make that 1/2 the way things are going. This is significant inflation in essentials! Back then, the Bank of Japan had 0% interest so they didn't care if the US inflated the dollar, when it was translated into yen, Japan still was ahead of their own domestic inflation. So they let us do this. But during the 1% regime in the US, China began building their FOREX reserves. It went from $20 billion just 7 years ago to $1.3 (or is it $1.4?) billion today. Chinese purchases of US bonds also grew 10X in size.

So we can't get the Bank of Japan to go along, we have to get permission from the Bank of China to go along. This is where the last 5 years of screaming for the yuan to get stronger comes in. The stronger the yuan, the more the US money held by China shrinks in value! Oh my. Like in Japan. The Japanese were spitting fury when the banking crisis hit because the Japanese have almost a trillion dollars in FOREX reserves themselves so this made the yen suddenly strong, something they absolutely hate and will move heaven and earth to prevent. So does Mark talk about all this? HAHAHA. Nope.

The compromises the Federal Reserve faces is called 'the Horns of Dilemma.' Namely, we have no good choices. The default choice of doing everything possible to keep the status quo is suicidal. Not only will it cost us an arm and a leg, it won't work in the bitter end. Going back to the fact that the top G7 nations misspent a fortune in building vacation and retirement homes, it is obvious this is unsustainable and the end is in sight. Asia won't bankroll us all retiring to Turkey or the Bahamas or our gambling games in Las Vegas, forever.

Mark struggles onwards:

The modern rules for central banking are still being crafted and honed. There's no guarantee that their evolution will keep pace with the turbocharged rate of change in financial markets where the prospect of fabulous riches motivates insane levels of creativity and entrepreneurship.

The recent turbulence suggests one big change may be needed. Ignoring house values and the stock market when setting monetary policy looks increasingly unsustainable when they play such a vital role in determining the economic outlook. So when central bankers hold the equivalent of their annual picnic at Jackson Hole, Wyoming, at the end of the month, the topic of asset prices should be high on the agenda.

You know, these guys could invite me to their picnic. I will bring the horse shoes. And my archery equipment. I will give them a 20 yard running start. Or I can tie them to a stake and throw horse shoes from my draft horse, Sparky. Modern rules of banking were set 100 years ago. Nay, 500 years ago, in Amsterdam. Note that back then, there was the sudden Tulip Bulb frenzy! Well, the same lessons are learned over and over and over again. After each major financial meltdown, the bankers and the speculators all solemnly swear they will never, never do it again and then a passage of time and off they go, breaking all the rules set up after the previous crash! So it is today: all the 'honing' of the bank rules involved eliminating all the post-Great Depression rules. This is what is 'turbocharged.' And the creativity and entrepreneurship is certainly 'insane.' I'm glad he called it correctly. Only this fool ADMIRES this insanity. Figures.

Want to see pure insanity in banking? Click here to see interest rates in Japan. Also, click on the image below to see what these rates look like.

Standard, regular bank accounts earn a whopping 0.196%! Wow. Can't wait to open a savings account. An 120 day CD earns the fabulous sum of...0.774%. All the other time frame CDs earn less, by the way. I see hordes of money-hoarding savings-mad Japanese screaming to break into the bank vaults.

Here is the latest Bank of Japan analysis of this last, disastrous month:

Japan's economy is expanding moderately.

Public investment has been sluggish. Meanwhile, exports have continued to increase, and business fixed investment has also continued to increase against the background of high corporate profits. Household income has continued rising moderately, and in this situation, private consumption has been firm. Housing investment has been more or less flat. With the rise in demand both at home and abroad, production has continued to be on an increasing trend, although it has been flat most recently.

Japan's economy is expected to continue expanding moderately.

Exports are expected to continue rising against the background of the expansion of overseas economies. Domestic private demand is likely to continue increasing against the background of high corporate profits and the moderate rise in household income. In light of these increases in demand both at home and abroad, production is also expected to follow an increasing trend. Public investment, meanwhile, is projected to be on a downtrend.

On the price front, the three-month rate of change in domestic corporate goods prices has been positive, mainly due to the rise in international commodity prices. The year-on-year rate of change in consumer prices (excluding fresh food) has been around zero percent.

Another misunderstanding about Japan is the idea, they want to grow very fast and hate seeing the lower classes made poor. Japan has a very long cultural history of making the laboring classes extremely poor and on top of this, they also make the upper classes do the same. For example, eliminating nearly all furniture in even the palaces so everyone sat on the floor. And elevating poorly-made wares as unique works of high art (sounds familiar?) in order to create the appearance of wealth in the midst of poverty.

Note that exports are rising and imports are falling. A key issue. Note, also, spending by the governmen of Japan is expected to fall. Another key difference between Japan and the USA.

Time to visit other Bank of Japan statistical sites!

In just one year, from 2006 to 2007, the corporate index has gone up 2.9%! Since 2002, it has gone up 8.2%. But inflation has been negative to barely 0.2%. Explain this and we can explain the top magic wand waving machine on earth. The gross manipulation of the appearance of both a fake depression coupled with rank suppression of buying, lending and pay raises in Japan is astonishing. A real brutal system that works. One the Western empires refuse to copy. The Japanese game is to make the currency weak, the FOREX reserves super-strong and to thwart all free trade coming in as much as possible. Through hook or crook.

More about that later. The main thing is, anyone looking at the raw data out of Japan can see exactly how fake this depression is. The numbers above show significant growth these last 7 years. The trick here is, the US and Europe use consumer spending as a gage as to the health of an economy. Japan ignores that or worse, crushes spending by consumers in order to make things look bad while sneaking in great numbers for export trade statistics. A significant difference we should copy simply because this is how they do it!

From Bloomberg:

European Central Bank President Jean- Claude Trichet may buy time tomorrow as he seeks to thaw a credit-market freeze without surrendering a two-year fight against inflation.

In his first speech since the financial-market rout began, Trichet may disappoint investors wanting a clear signal whether he will raise interest rates on Sept. 6. He may instead keep his options open, pledging liquidity to the banking system without closing the door on an increase. He speaks at 3 p.m. in Budapest.

Oh, the temptation to have super-cheap money! They know the Bank of Japan has insanely low rates. They want this. But they have to keep the populace happy and not strangle consumer spending like they do in Japan. So they twist and turn trying to discover some new trick, some insane deal that will allow them to get money for free from the Demon of Wealth. They already sold their souls so they have to grasp at straws now, trying to make a deal. They want the impossible: the right to make money infinite without any inflation.

From Bloomberg:

``Additional tightening from the ECB now risks exacerbating the current crisis and could prompt an even sharper slowdown,'' said James Nixon, an economist at Societe Generale SA in London who used to work as a forecaster at the ECB. ``We now expect the ECB to hold rates at 4 percent until at least the spring of next year.''

There is evidence that the fallout from the collapse in the American market for subprime mortgages is hurting Europe.

They are loath to understand the 'crisis' here is there. The same philosophy, the same desire to consume and pay in cash, unsustainable amounts of money, means Europe is heading down the same slope the US is already most of the way down. When Asia was weakening their currencies to compete with the US and Europe, both first treated this sudden bonanza as a sign that our economies were strong, not being strangled. The wealth this created in the west was considerable and if we used it to strengthen our industries, Asia would have retaliated instantly. But since we squandered every penny of it, Asia was perfectly happy and is still very happy to keep this status quo going some more. So long as Europe and America stop pestering China over its cheap yuan.

From Market Watch:

Sachsen LB, one of two German banks threatened by a global credit crisis, is in talks to sell itself to a rival after an investment in a hedge fund turned sour, the Wall Street Journal reported on Saturday.

Sachsen LB is proposing to sell itself to Landesbank Baden-Württemberg after the hedge fund problems added to the bank's struggles in the asset-backed commercial paper market, the newspaper said, citing unidentified people familiar with the situation.

The rapid merger of banks always happens in either inflationary periods or right before a depression. Anyone looking at the history of banking can see this. And the deficits caused by bad hedge funds are signficant. This is so stupid. It is way more than half a trillion dollars so how much longer can the G7 central banks float this red ink mess? A month? Two months? Will fear return to Wall Street once they realize, it is all over? Or do we wait a year for inflation to run 20% higher than the official rate of return?

From Xinhua:

The State Administration of Foreign Exchange has approved a qualified domestic institutional investors (QDIIs) quota of 300 million U.S. dollars to Deutsche Bank China, according to a release by the bank.

"Through its QDII quota, Deutsche Bank will be able to leverage its leading global franchise in order to offer Chinese clients a range of first-rate investment products," said Chairman of Deutsche Bank China Lee Zhang.

QDII quota, aimed at allowing financial institutions to offer overseas investment products to domestic clients, received the cold shoulder from Chinese investors.

By the end of this June, China's banks only used 26 percent of the 50-billion-yuan quota granted to qualified domestic institutional investors, the China Banking Regulatory Commission said in late July.

Institutional and individual investors prefer to keep hold of their yuan instead of investing overseas because they expect the yuan to continue to appreciate, experts explained.

The Chinese are still learning the ropes. They are increasingly suspicious. And difficult. This is smart. Whatever happens, the Chinese government will move swiftly to change the rules since it is a dictatorship. Will it paper over problems? We can't tell yet. There is a human tendency to do this. Look at America.

From the BBC:

In the US, foreclosure rates - that is homes being repossessed by lending institutions - have hit the kind of levels not seen since the 1960s, according to the website marketoracle.com.

In Milwaukee alone, 20 to 25 new homes with a combined market value of some $2m (£1m) are being foreclosed, or repossessed, every day. State-wide there was a 34% rise in the number of people who faced eviction in 2006 and Ms Derus believes that that number will double this year.

Sounds bad to me. Another industrial city with a long history of being the workhouse for the world, going under. If the rate of eviction is rising 34% and will double, this will mean a rise of 80% next year. Any way we look at this unfolding disaster, it is just astonishing. These people aren't going bankrupt because they are living happily in retirement communities or hanging out at Vegas, they are the working class that is the backbone of any capitalist society. Will they all move to Miami and become drug dealers? Will they become truck drivers competing with Mexicans starting next week? Who has rising wages outside of NYC or Washington, DC? And of course, the military/industrial complex.

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Comments

[DeVaul]

When a man falls off a cliff, he grabs for the first branch or outcrop he can reach. He does not compare various options below him. He does not think at all, but acts on pure instinct alone.

When the Masters of the Universe panic, the end is near.

[blues]

German state to sell bank hit by US subprime crisis
AFP
Published: Sunday August 26, 2007

((----- Copy & Paste -----))

http://rawstory.com/news/afp/

German_state_to_sell_bank_

hit_by_US_08262007.html

The German state of Saxony said Sunday it would sell the Landesbank Sachsen (SachsenLB), which has been hard hit by the US subprime crisis, to the Landesbank Baden-Wuerttemberg (LBBW).

A government spokesman said the regional cabinet had held an urgent meeting to agree the sale of the troubled publicly owned bank.

Well, this would seem to have some bearing on the issue. The faithful Europeans are sacrificing themselves for the noble American Middle Classes! Now the rabbits are hunting tigers! Fish are buying motorcycles! Bush is shipping out to patrol Sadr City!

[blues]

Is it possible that some tiny nation has so perfected the art of subversion that it has seized all the reins of power in both the USA and Europe to achieve its special goals?

[John]

Welll, sure...if you think the Carlyle Group is a "tiny nation." :o)

[blues]

Nope, not the Carlyle Group. Try again.

[John]

Uhhhhhh...the Illuminati?!

/humour

[Rouse]

So why care some much about China $1.3 trillion in reserves if the European and US central reserves just pumped close to half that amount in funny into the banking systems?

Just casting a line into the water, so to speak...

[blues]

Rouse --

So why care some much about China $1.3 trillion in reserves if the European and US central reserves just pumped close to half that amount in funny into the banking systems?

From my perspective, I would ask: Who has all the serious industrial infrastructure? Who has the skilled workers? In the US, we have a huge number of people who basically know enough to do circumscribed (although difficult) jobs, and find their way from one bar to the next. I've posted too much on the hot-shot "progressive" blogs, and those people are apparently "educated," but they can't handle logic and reason. It's sad.

The real net worth of a nation lies not in its paper relationships, but in real assets, and real knowledge, and skills. The USA is only a "superpower" in a narrow sense. We are mainly good at blowing things up. How long will the world sustain a nation that merely produces threats?

[Callihan]

Excellent article, as usual.

For many decades I have thought that Americans just wanted to dream their impossible dreams, dreams of security, wealth, a dream that somebody somewhere cared if they lived or died, acting as if whether they were fat or unhappy meant anything to anyone else, insisting their delusions were true, and demanding that their fantasies be made real.

Maybe all of that is coming to an end. Hubris brings nemesis.

[Elaine Meinel Supkis]

We are all part of the Wheel of Fortune and Vanna White is actually a harpie.