(9 am. – promoted by ek hornbeck)
Eric Sprott recaps the last financial decade as a prelude to the future:
To stem the flow of money out of US-based money market funds, Paulson had to provide an almost instant guarantee on all money market funds held within the US. Kanjorski recounts, “If they had not done that, their estimation was that by 2pm that afternoon (September 18th), $5.5 trillion would have been drawn out of the money market system of the United States, [which] would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed. We talked at that time about what would happen if that happened. It would have been the end of our economic system and our political system as we know it.”7 Further details of these meetings have been provided by Senator James Inhofe, who recounted that Paulson had warned of martial law and civil unrest if the TARP bill failed.8
We were literally hours away from worldwide financial collapse, civil unrest, and martial law, but Hank Paulson somehow managed to leave those flashbulb memories out of his “memoir.” Sprott, among others, predicted it all, from the NASDAQ bubble collapse, the evils of the subsequent “lending mania” in the years afterward to “ease the pain,” and which led directly to the housing bubble, and current housing collapse itself.
Sprott thinks we have learned nothing, and that the next bubble to burst will be the debt bubble, $122 trillion in debt obligations.
So where does this leave us for the decade ahead? In bad fiscal shape. It seems as if we’re just making the same mistakes over again, and on a far larger scale. We have passed the debt obligations of the financial system onto the governments. We have liquefied the system beyond any rational explanation, more than doubling the monetary base since the collapse of Lehman Brothers. Social Security, which was in balance in year 2000, is now underfunded by $15 trillion dollars. Total unfunded obligations of the US Government are now $104 trillion. If we add the $6 trillion of outstanding Fannie Mae and Freddie Mac debt and the $12 trillion of outstanding national debt, we arrive at a total US government debt obligation of $122 trillion. It’s a truly preposterous amount of money that will never be paid off in today’s dollars. As we wrote in our October 2009 article entitled “Dead Government Walking”, the US Government is on a trajectory to default on their obligations, and the same can realistically be said for the UK and Japan. The answer put forward by the US, UK and Japanese governments? Quantitative Easing and 0% interest rates. Have they learned nothing from the past decade?!
“Previously unthinkable” is the new “inevitability.” Wasn’t it Vonnegut who described the saturation bombing of Dresden as “sublime?”
In another must-read, Yves Smith details the Wall Street mentality, the runaway egos and lack of social conscience, and yes, “hard work,” that got us into this “unthinkably” dreadful bind.
A year on from its brush with Armageddon, the financial services industry has resumed its reckless, self-serving ways It isn’t hard to see why this has aroused simmering rage in normally complacent, pro-capitalist Main Street America…
…Wall Street just looted the public on a massive scale. Having found this to be a wondrously lucrative exercise, it looks set to do it all over again.
Be warned that Smith unsurprisingly uses the same unfortunate metaphor I’ve previously used and retracted to describe the sheer obliviousness of Wall Street traders.
I’d cut and paste more, but it’s hard work, and I don’t even get out of bed for less than a million dollars.
To top it all off with a fat fucking maraschino cherry dripping with remorseless indifference and even scorn for the those living in or entering humiliating poverty resulting directly from their outrageously irresponsible acts of economic dislocation, I’d like to complete this little dilation of rage by pointing out that the millionaires and billionaires have actually done quite well for themselves.
Even within the top percentile, the gains from 2006 to 2007 are extremely concentrated. The top .01% (top 14,988 US families, making at least $11.5m in 2007) share increased from 5.46% in 2006 to 6.04% in 2007 leaving well behind the 1928 peak of 5.04 percent (Figure 3). This shows that 2007 was an incredibly good year for the super rich.
2007 was an incredibly good year for the super-rich, just like 1928! Only better! Hallelujah! I’m sure there will be no similar sequelae of events in 2008 as there were in 1929.
Bring out the charge of the love brigade, there is spring in the air once again! For millionaires and billionaires, that is, who despite what everyone else is going through, are striking it richer! Especially the billionaires who bet on our collapse!
Well, it wouldn’t be a very good romantic comedy if some of the billionaires didn’t have temporary misunderstanding and falling out with their wallets and feel like it was the end of the world, but in the end they fell into one another’s arms and began waltzing, and the billionaires said, “Oh, Timmeh, you still make me feel…like a billionaire!”
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listen to it all, including the harmonics. Just superb.
The one thing which I find objectionable is Sprott’s association of Keynes with the cause of the problem. Keynes never advocated governments going into debt to pay the gambling debts of financial speculators. No one would have conceived of such a thing during Keynes’ lifetime. Such a development is more reasonably attributable to Friedman and his shock doctrine, in this application using the crisis brought on by the deregulation that he had pushed as an opportunity for wholesale looting of the public to cover the financial sector’s fecklessness and then blaming the problem on a misconstrued interpretation of the Samuelson bastardization of Keynes that has been popularized in the USA since the ’50s by being taught in almost all economic departments in US colleges. In fact Keynes said: “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done,..”
The other objection is to his implication that Social Security is part of the problem. It is now, but we have paid adequately for a solvent Social Security system and those payments have been fecklessly mal-invested, mostly at the behest of RW ideologues who have always hated Social Security, have always claimed it was doomed and who have done all they could to undermine it.
LLoyds of London backs its re-insurance business with the assets of wealthy individuals who offer their assets as security in return for healthy returns. These are The Names and include the Queen of England. We should compile a list of US citizens who are billionaires or who have made their fortune substantially in the USA and make that list of names responsible for the unfunded liabilities of SS and Medicare. If they abscond to other countries, well, then we have reason to be glad we are “the only remaining superpower”.
Here is another post from Yves, along with a link and some of my commentary, that shows just how fraudulent the whole situation has been.
In case you missed the juicy reporting on Lehman, Giethner and Repo 105, here is a link from an earlier post on Naked Capitlism.
The short version: Repo 105 was a transaction Lehman employed with British banks to temporarily sell the banks assets for cash, which assets would be bought back in a week or so. Lehman posted as security 105% of the cash they borrowed in alleged asset values to their counter-party AND paid a premium interest rate. They showed these transactions on their books as final sales. These Repo 105, and later 108 transactions peaked at the time for the quarterly statements and was a pretty transparent attempt to dress up their balance sheet for the quarterly or yearly statements.
They used British banks because they could not find US banks who would give them a letter of opinion that these were final sales. People are on record that Dick Fuld, CEO of Lehman, was fully briefed and walked through these transactions and it is virtually inconceivable that Tim Giehtner, then President of the New York Fed, who had oversight responsibility for Wall Street, was unaware of these transactions. Paulson in his recent book noted that it was common knowledge in the summer of 2008 that Lehman’s books were not an accurate statement of the firms value.
Loss of access to Repo 105/108 was likely the final straw bringing down Lehman in the fall of 2008, precipitating the GFC. That was the source of at least $50 billion of the hole that suddenly appeared on Lehman’s balance sheet.