Mortgage Socialism Turns Owners Into Serfs

July 13, 2008

Elaine Meinel Supkis

The numbers coming out of the Fannie Mae/Freddie Mac mess are massive: $6 trillion in lending that is now a snarled mess. Everyone is trying to understand what went wrong. But always, they leave out all the important information: Japan's free Funny Money™ lending at near zero interest, Greenspan's 1% interest rate holiday, the US trade deficit and government overspending. 'There is blood in the street' Cramer throws in the towel and yells, 'SELL!' A good sign. Note that this 'rescue' of Fannie Mae/Freddie Mac is, like the Bear Stearns 'rescue'---on a weekend when no one can do squat about it until tomorrow. And tomorrow is another day! Stocks will go up because everyone expects Uncle Sam to shower them with money we don't have but will create out of thin air! GAH. Dummies. Idiots. FOOLS.

Paulson Seeks Authority to Shore Up Fannie, Freddie

(Bloomberg) -- Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.

Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

One half of $12 trillion is $6 trillion. Yikes. And half of this $6 trillion is guarantees on loans made by others then passed off to Fannie Mae and Freddie Mac. $6 trillion is the amount of Federal overspending we amassed since 1990. If the Federal government becomes totally responsible for the losses in Freddie Mac and Fannie Mae's messes, this could possibly up to $1.5 to $3 trillion. Which takes us from $9.5 trillion in public red ink today to well over $12 trillion in one fell swoop.

So here we are at last: A nation deep in debt is going to save mortgage lenders who are deep in debt and the bank that will bankroll all this has no more reserves. There is lots an lots of insane economic news this weekend that clearly shows that few people understand any more the fundamentals of banking, the facts about inflation and who causes it and the dangers of modern finances that is totally tilted towards passing as much money as possible to lenders while destroying the savings of people who wish to save money. Time for a swift visit to the open gushing wishing well that is pouring infinite lending into international financial systems: Japan.

Tokyo banks rise as U.S. rescues mortgage firms

MarketWatch) -- Japanese shares advanced Monday, with financials such as Mizuho Financial Group climbing after the U.S. announced rescue measures for mortgage giants Fannie Mae and Freddie Mac.

The Nikkei 225 Average rose 0.3% to 13,074.27, while the broader Topix index climbed 0.5% to 1,292.33, after both benchmarks opened lower.

Whenever it looks like the US is going to spend money like there is no tomorrow, Japan jumps for joy. The ultimate bankers of all this mess are in Tokyo and Beijing. Both have giant trade surpluses with the US. These surpluses are totally unsustainable. Both work to keep it going despite this. Both have a trillion+ in US bondage dollars as well as each holding more than a trillion FOREX dollars. When Japan is happy, we know we are doing something wrong.

Bank of Japan expected to hold line on rates again

MarketWatch) -- Despite a major change in economic conditions over the past 90 days, the Bank of Japan's monetary-policy committee is expected Tuesday to hold its key interest rate at 0.5%, lowest among the Group of Eight industrialized nations.

Gov. Masaaki Shirakawa and committee members will assess data showing soaring crude-oil prices and mayhem in the world's financial markets are damping growth in the world's second-largest economy.
The central bank is expected to revise its half-yearly outlook downward, determining the economy is decelerating while inflationary pressures remain elevated.

'So what if there is inflation! We don't care!' yells the Japanese Samurai banker. Of course, there was this silly G8 meeting in Japan just the other day! Did the others scream at Japan, 'Dummy, you can't lend at near zero rates! You are flooding the world with Funny Money™! Stop it!'

Instead, quietly, they all agreed this was a great idea. Ignore inflation! Then, they all appeared in the public to attack the Arab oil nations and blamed them for inflation. No one mentioned stopping the stupid boycott of Iran, either. Today, I bought gas. It was $4.23 a gallon. Things are evolving very fast, here. I still see lots of fancy SUVs parked in front of trailers and cheap houses. But they are not buzzing about merrily like last year, even. Things are collapsing rapidly now. Let's go the the other top G8 nation that is over $10 trillion in government debt, too. England had the identical stupid housing boom which featured the same 'Let's run up debts until they equal the new value of our homes!' mania. Housing became very expensive in England. Now, it is becoming worthless, fast. So, the English have an old solution!

Credit crunch: Emergency scheme to help cash-strapped homeowners

Homeowners struggling to meet their mortgage payments would be able to sell their homes to the local authority and rent them back as tenants under radical proposals being considered by the government to prevent the misery of repossession.

Emergency measures to allow families to keep a roof over their heads are being drawn up as the scale of repossessions proceedings becomes increasingly apparent. In Newcastle upon Tyne alone, the newly nationalised Northern Rock is monopolising at least one day a week in the county court to pursue defaulting borrowers.

HAHAHA. The State buys everything up! Then, you get to live there and pay 'rent'. And this is the end of the 'ownership society'. In England and the US, the government holds all the mortgages. The government holds all the value of all the houses in the same place they hold all the taxes and all the governments are going bankrupt because they have no reserves, now money and no hope of ever paying off the huge debts they are rapidly accumulating due to running deep in the red! MY GOD! Isn't this kind of stupid?

So we sell the US and England to Japan and China and they will own our nations and we can live in our 'council houses' and be serfs. How charming. And Japan simply had to keep their own interest rates far below the rate of inflation to do this trick. And China only had to peg the yuan. Well, give them both a hand for being much smarter than the English and Americans.

Now for the big NYT article today about the Fannie Mae mess:

Fannie Mae and Freddie Mac own or guarantee about half of the nation's $12 trillion mortgage market.

They provide the capital that banks use to write new loans. If Fannie and Freddie stop buying loans, banks may stop making new loans, freezing the United States housing market.
Fannie and Freddie provide stability and liquidity to the mortgage market. If it is harder for them to borrow money, mortgage interest rates will rise.

What Are the Consequences of a Government Bailout? A bailout would potentially put taxpayers on the hook for billions to offset Fannie's and Freddie's losses.

It would most likely make it more expensive for the United States government to borrow money in the future, since the government's potential obligations, which currently stand at about $9 trillion, would rise by an additional $5 trillion.

Shares of Fannie and Freddie would probably be worth little or nothing,

I meddled with one of the graphs in this story.

Whenever anything doubles in size every ten years of less, it is out of control. It is a bubble. It is a sign of distress, not health. It means that someone has poked a hole in the Cave of Death and fake wealth is now pouring out, wealth that has no substance. Wealth that vanishes in a flash. Instead of reacting with joy and happiness, we must rush in and fix these messes before they become gigantic! This is why the Derivatives Beast is so hideous: it doubles EVERY YEAR. It is now well over $650 trillion in size and I haven't a clue what is happening to it this month. It will probably die and stink up the entire banking systems of the planet.

I once had a cow die in a bad spot. We couldn't move the ton and a half creature. It was a real mess, having to demolish a building to move it. Well, it stinks. And this will stink, big time. Let's go back in the past to see how this evolved in the last 5 years when the mortgages nearly quadrupled in value before the debt frenzy died. For this was an exercise in everyone dumping as much debt as humanly possible onto all the houses in America, big and small. Here is a story from when the house debt frenzy was just taking off, in 2004:

2 Big Mortgage Agencies Pressed To Buy More Low-Income Loans

By ALEX BERENSON
Published: May 12, 2004

An obscure rule intended to promote affordable housing has become the Bush administration's latest weapon in its effort to tighten the rules on Fannie Mae and Freddie Mac, the giant mortgage finance companies.

The Department of Housing and Urban Development has proposed forcing the companies to purchase more mortgages from lower-income households. The companies must now buy half of their loans from people making less than the median income in a region, or from developers building apartments that will probably be rented by those people.

The housing department has proposed raising that target to 53 percent next year and to 57 percent by 2008. It also wants to raise several other closely related targets.

The companies have not publicly opposed the changes, which will take effect on July 2 unless the administration rescinds them. But they are quietly worried that they will be unable to meet the new goals unless they refuse to buy some loans from people making more than the median income, in effect slowing their growth.

Last year, even the goal of 50 percent proved difficult for Fannie Mae and Freddie Mac to meet, because many mortgages took the form of a refinancing and people making more than the median income refinance more often.
*snip*
Some independent experts say that the new proposal appears to be a move by the White House to pressure the companies to limit their growth and to do it in a way that they will find difficult to fight.
*snip*
Because of their low borrowing costs, Fannie Mae and Freddie Mac have grown rapidly over the last decade. Now the companies are under sharp scrutiny from regulators, the Federal Reserve and the White House over growing fears that they are too big and do not have enough of a capital cushion to protect themselves from rapid changes in interest rates. The companies say that they are closely regulated and have hedged themselves against big swings in rates.

This story was bogus back then. Bush was not tightening credit. He was letting it flow. The Japanese carry trade was flooding the US with nearly free loans. Bush needed support for the wars so he wanted everyone happy. This meant making it easier and easier for more and more marginal people to access loans. So, half of the mortgages taken in by these semi-Federal future feudal institutions were for refinances? This was so people could buy stuff they couldn't afford. This is the Home ATM machine at work. People refinanced in order to take advantage of the higher value of their homes which were due to the cheap lending pouring out of the Fannie Mae/Freddie Mac ATM machine.

Note also how these people 'hedged' themselves. Rates set by Greenspan when this story was written was at 1%. And Fannie Mae got that rate! And then relent the money and the spread was great fun for the lenders! If everyone in America decided that their homes, big or small, shanty or mansion, were all 75% more valuable in 2004 than in 1999, this is a delusion. It is very inflationary. And by tapping into this supposed value increase, everyone got their hot little fists on huge sums of Funny Money™ to the tune of over $3 trillion. Incidentally, in the news last week, this is roughly the amount that experts expect us to lose in the next several years! Duh. It vanishes. After expending all its power via inflation of everything else.

Now for a year later, in 2005, the peak of this madcap excess of debt creation, debt dumping onto US real estate:

Greenspan steps up criticism of Fannie

Fed chief says company and Freddie Mac have exploited their relationship with the Treasury.
May 19, 2005:

(CNN) - Federal Reserve Chairman Alan Greenspan Thursday suggested that the nation's mortgage lending giants, Fannie Mae and Freddie Mac, are taking advantage of their implicit government subsidy to pad their profits with investments that are too risky, which is not helping the nation's homeowners.

"The Federal Reserve has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie other than the creation of profit through the exploitation of the market-granted subsidy," Greenspan said in a speech at a conference sponsored by the Federal Reserve Bank of Atlanta.

At the same time that Greenspan was speaking, Fannie Mae was deemed "adequately capitalized" as of March 31 by its chief regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), with a projected surplus over its minimum capital requirements sufficient to absorb the uncertain impact of accounting errors on its capital.

OFHEO, which oversees both Fannie Mae (Research) and Freddie Mac (Research), had classified Fannie as "significantly undercapitalized" as of Dec. 31. By law, the regulator classifies Fannie and Freddie as adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized.

Accounting problems at Fannie are still being investigated and may result in an earnings restatement of as much as $11 billion. But OFHEO said the company was "on target and has adequate contingencies in place" to hit its required level of a 30 percent surplus over minimum capital by Sept. 30.

HAHAHA. Greenspan created the 1% interest rate and then had the temerity to demand that Fannie Mae and Freddie Mac stop interfacing with Bush's minions who were churning out Funny Money™ at a mad rate? HAHAHA. When Bush cut taxes, Greenspan should have anticipated inflation and raised rates, not dropped them. But Greenspan works for Wall Street. So he flooded Wall Street with new cheap money! And they got giant tax cuts! And this spilled into the housing markets! Duh! What a shocker! NO ONE WAS SAVING MONEY BECAUSE THE FED SET RATES RIDICULOUSLY LOW! Thanks to Greenspan, US savings collapsed for the first time since 1933 below zero. We basically had no savings. Greenspan groused that he would now have to raise interest rates rapidly.

Which he did. FAR TOO LATE. I was furious with him at that point. It was obvious that the inflation horses had long left the stables. Gas prices were rapidly climbing. The US was obviously bogged down in two wars we were losing. The US trade deficit during the 1% regime went from $-300 billion a year to $-800 billion a year. Our economy was imploding. It was a total disaster. And the budget deficit ballooned at the same time. And Greenspan was worried about Fannie Mae being undercapitalized?????

THE ENTIRE US ECONOMIC SYSTEM WAS UNDERCAPITALIZED. And was being rapidly cannibalized. And Greenspan was the one responsible. Not Fannie Mae.

May 20, 2005: Fannie Mae Says Reserves Are Increasing on Schedule

Fannie Mae said yesterday that it had satisfied its regulator's most recent minimum capital standards, even as Alan Greenspan, the Federal Reserve chairman, prodded it to shrink its mortgage portfolio, a move that would raise its capital reserves.

The company's safety and soundness regulator, the Office of Federal Housing Enterprise Oversight, has found Fannie Mae "significantly undercapitalized" in quarterly reports since September 2004. Over the last eight months, Fannie Mae has scrambled to revamp and build its capital reserves as part of an agreement with Ofheo after major accounting problems surfaced last fall.

Fannie Mae had a $4 billion capital cushion as of March 31, according to Ofheo yesterday. If its portfolio remains the same, the company will have to raise another $5 billion by the end of September to achieve a 30 percent surplus over its minimum capital requirements.
*snip*
"The Federal Reserve Board has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie other than the creation of profit," Mr. Greenspan said in a speech to a housing conference sponsored by the Atlanta Federal Reserve.

The portfolios do not increase the availability of long-term fixed-rate mortgages nor do they lower borrowing rates for homebuyers, he said. He also suggested that the two companies should diversify into liquid debt like Treasury bonds.

Fannie Mae has maintained that it can safely manage financial risks.

HAHAHA. So, Fannie Mae with its $3 trillion in obligations has only $5 billion as a reserve? And what does the Federal Reserve have? Well....$65 billion plus the gold in Fort Knox confiscated by the government in the Great Depression which is another $300 billion. This isn't very much compared to our debts, is it? To be just 10% of our national debt, it would have to be at least a trillion dollars. Maybe if the dollar dies very badly and gold rises to over $2,000 an ounce, the Fed will be capitalized! Ah! That is the plan.

So let's go to today before this big thunderstorm bearing down on me hits and terminates this story:

Cramer: Stocks are Doomed, Sell Now

“Sell everything. Nothing’s working,” he writes.

“Revisit when the prices are adjusted for a big recession, soaring inflation, and a crushed consumer. Sell at 12,000 and come back at 10,000. Even better: short it,” said Cramer.

The biggest babies, whiners and cheerleaders who cheerfully ignored massive trade deficits, huge government overspending, inflationary bubbles in housing, stocks and other things, now is giving up. This is a good sign. It means that some smattering of sanity might be around the corner.

On the other hand, Cramer and all these goons want Uncle Sam to become Uncle Scrooge McDuck and save them from our collective follies. As if Bernanke isn't the fool, not a smart cookie who can riddle out the solution to all of this.

HINT: SAVE THE SAVERS! THEY ARE THE ONLY ONES WHO CAN RECAPITALIZE THE SYSTEMS! Thanks, in advance.

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Comments

[GK]

Monday is going to be either one of the biggest UP days in HISTORY or an unmitigated bloodbath.

I bet watch for the Dow to open 500 points up, dollar to go up to 74 and gold down to $850.

PPT is going to show its RAW POWER on MONDAY. STAND BACK YE WHINERS!

http://www.economicpopulist.org/?q=content/panic-2008-turning-point#comment-729&ref=patrick.net

The third mode is like the second: A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall is larger. Easing monetary policy won't solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency. [My note: This mode is the full-fledged deflationary spiral and liquidity trap].

[calvino]

The yapping flapping magic talking monkey Jimmy Jimbo the wonder flying baboon has told us to short. Oh Lord Jesus, save my positions at the open tomorrow, before I go to all cash.

GK, why the hell are you talking like you know what you are talking about, when you have zero idea. Wait, you are going to buy a volatility spread on the futures, right. With the vix at thirty, that's an expensive proposition, no thanks. Actually the markets are befuddled by this new cart of horseshit being peddled by Killer Hank and the bearded chairrat. Gold up sixty points, oil down eighty. USD up less than thirty on the chf, le euro and the Onishi Takijiro. We do not know about the remnimbi, since that is controlled. As the night wears on the q's and the spx futures have been sliding from the peak of hundred twenty point, reached at about the time you wrote your post. This is going to destroy our currency, sooner or later. Elaine got it right again. Don't know how she does it herding goats up on her mountain. Even she won't give the timeframe though, because the manipulators will rule the near term moves. Next.

[hIGHcastle]

GK, it takes a specific type of sentiment and certain influences on a huge mass of people in order for there to be a crash. The same is true for a speculative fever (think tulip bulbs). What we have here is over-expansion of credit due to greed of the bankers.

So yes, in the long term things will become very bad due to our debt and inflation. I am wary of a setup in which the central bankers will force us into a new fiat currency (the Amero). Prophets of the past predicted that Canada and Mexico would be part of the U.S. at some point. I don't rule that out either.

In the short term, this is a banking crisis, and the equity markets will trade in a downward trend as it does in all bear markets. Stay calm and protect your money (gold, <100K in FDIC accounts, etc.)

[GK]

Calvino, have a look at your writing and and implied thought patterns it seems as though you would fall more in the day trader rather than macro economic thinker.

You show a broad understand of everything that is happening right now but a limited curiosity as to why.

Perhaps you enjoy video games more than chess.

Your post proposed to predict my planned trade in tomorrow's market of trading the vix. This is incorrect. My post implies that the BIG BOYS are going to bring out the BIG GUNS tomorrow and me trading in there would be like walking into a fully armored automatic weapon battle with a revolver. Suicide.

I will admit to a small bit of bravado due to closing out my LEH put when the market opened last Friday (had to stay up to 2am) for a gain of one month's salary, but that was just for 'fun'.

In rigged markets like in the US, there are always micro and macro reality as well as micro and macro political power agendas battling for control.

Back 20 years ago on the ivy league economic departments all the cutting edge research was on the impact of EXPECTATIONS on the market. Not reality, just what people thought.

When you have a fiat/financial economy that is slowly diverging from the physical real economy this makes perfect 'sense'.

The other comment in my post is to imply an increasing probability of the long term macro path we are being one of full-fledged deflationary spiral and liquidity trap and requiring further monitoring for evidence.

In a true market without rigging it makes no sense to predict what might happen as all information is priced in immediately.

So the other implication of someone making a 'prediction' of what might happen to a market is essentially the ultimate insult to a market as being so obviously manipulated.

So basically when a human rather than a market is driving the short term, you get someone like Paulson thinking 'who is going to kick me in the nuts this morning, and how and I going to screw the bastard'.

So applying the same thought pattern, it seem obvious that the 'perception' of the positive impact on the USD from the Freddie/Fannie bailout is much more important than the actual impact. And EVERYONE is going to be watching the Asian markets for ANY hint where the herd is going.

An ounce of prevention is worth a pound of intervention.

But it should not be this way. It is totally wrong. The market should be free, with openly available information, and then we can each make our own decisions as to what is best for us. This is insane.

So show some balls and make a prediction like Elaine does so well and put your money where you stream of unconsciousness is.

[calvino]

Sure GK. My money is always running before my mouth. Elaine does not participate in the market, as she has stated. You want my trades? Short aud/usd, nzd/usd, eur/chf, usd/jpy, usd/chf in the overnight. Closed out eur/jpy and eur/chf at a profit. Now go talk theory to someone who wants to hear it, piker. Traders don't talk theory, that's how you get stomped by other traders. We know theory, talking about it like you do is for pikers.

[Rowan]

Thanks, Elaine for a wonderful series of articles.I`m a fan since the first read.
What I`d like to know more about is... since the Great Depression of 1929 resulted from the Weimar hyperinflation which nullified reparations payments to England and France, causing them to default on their loans from the USA, can the Marshall Plan be regarded as part of a takeover of Germany in order to recover not only the costs of WW2, but also from WW1?

That these lenders have long memories is shown by the eternal enmity against Iran and Cuba, for example.

Ah, und noch was. How much of this enormous debt to Asia do vou think represents the profits made by US companies which set up shop there during this boom? How can one outsource so many jobs without exporting the profits also(unless they have been repatriating them dutifuly in order that they may be appropriately taxed)!

I`m not an expert of course,- just another learner.

[Elaine Meinel Supkis]

Wall Street is just the Temple of Worship run by gnomes. The central Banking systems are various Vaticans set up to regulate the Bourse Temples of Money Worship.

The Goddess these guys love is the Triple Goddess of yore: Miss Risky, Lady Luck and Kali, the death dealer, who is the queen of spades.

Only they all got sidetracked in this worship and ended up believing in the three male gods, Jesus, Mohammed and Moses. They are mere men! Unlike the elemental goddesses.

This leads to the present schizophrenic situation: the guys running in circles today trying to figure out how to escape the clutches of the three Goddesses can't directly talk to them even when they sleep with the priestesses of these Goddesses, their trophy wives. Actually, they are NOT sleeping with these priestesses who are kicking them out of the marriage bed due to losing money.

Heh.

How's that for an economic analysis?

To continue: these poor gnomes now must grub up some sort of money and the only way they can do this is to go to the Dragons at the Cave of Wealth who happen to be Asian people with a long record of working their people very hard to accumulate wealth. 'Please give us more credit, we need more credit', wail the gnomes.

The Dragons smile. 'So long as you sign the bottom line and give us your souls.'

I know for a fact, since I lived with the Chinese officials who were sent to the US to figure out capitalism and banking, I saw up close their wonder and astonishment when they figured out how money works and how capitalism functions. 'I be BANK!' said one fine ambitious lad when he learned how the rising Chinese empire could best the US.

So I watch from the sidelines as China relentlessly follows their 50 year plan of displacing the dollar and becoming the world's banking center. This year, Japan announced THEY would be the world's banking center and would do this via the 0.5% interest rate.

See? This is why it is easy to call the shots.

About bear markets: ALL bears who try to get rich shorting dying markets eventually get hammered to death by the struggles of the rulers trying to keep markets artificially up. If we understand this process it is like being a hunter avoiding the thrashings of a great elephant as it dies. Or a great white whale: avoiding being crushed and patiently watching and tracking the dying beast is how one survives to slice up the carcass. Get too close to grab a bite and you get rolled on and crushed.

[calvino]

I'll keep that one in mind Elaine. Although I know the mundane name for this being short squeezes, engineered by Lex Luther at the Treasury and the bearded chairrat.

[Elaine Meinel Supkis]

Names are not as good as mental images. This is why I tell stories here. I am seeking useful imagery to describe technical processes. This makes negotiating around events much, much easier.

[calvino]

Cover the shorts I gave you piker, now, and take another month off from work.

[Royal Dutch]

I enjoy everyones comments, I am more into history than financials, but the two go hand in hand it would seem.

[Buffalo Ken]

Royal Dutch, I suspect so many things go hand-n-hand that we are only just now starting to appreciate. But I think the quicker we learn how connected everything is, the quicker we will be able to find solutions to the current apparent "quagmire" that could really be nothing more than a grand opportunity for humanity to show its merit (or perhaps lack thereof) to the rest of the planet (so to speak).

[Elaine Meinel Supkis]

We can't have any solutions without understanding basic human nature, how it creates things and how we trip ourselves up.

[Royal Dutch]

To quote Johnny Depp from his last pirates movie, "The world hasn't gotten any smaller, there is just less in it."

[GK]

Piker might have been correct many years ago when I did indeed arrive in California with no money...but I think a net worth of 230 pounds of gold (not your silly floating fiat currencies) bumps one out of that category.

http://dictionary.reference.com/browse/piker

"Possibly from Piker, a poor migrant to California, after Pike County in eastern Missouri."

And Hmmm, I wonder how many currency traders there were during the Bretton-Woods era?

Oh yah, right, there were NONE. Exchange rates were fixed.

But perhaps currency trading produces something of real value, like a bike, an almond or an airplane.

Uh, no. It is just glorified gambling.

Those who can concentrate on something for more than 2 minutes at a time and can understand big words might want to have a read of this.

http://www.larouchepac.com/files/pdfs/071127-lpac_myspace.pdf

"Wealth measured in terms of gambling successes, is the form of mass-insanity which has done the most to prompt our population to accept the lunatic changes in policies of national economic and related practice since the U.S. Nixon Administration’s installation."

[Elaine Meinel Supkis]

You are correct, GK. The Bretton Woods II Accords with the floating dollar was supposed to be TEMPORARY. Both Burns and Nixon were adamant about this. But instantly, the investing community figured out this was a potential source of instability that could allow them to create vast fortunes for themselves.

So it became extremely popular with bankers and then traders in Japan figured out the other angle: it can lead to huge export market profits. Now, we can't get rid of this totally toxic system.

[windshields]

Prevention is the best answer on it.