While the MSM lauds his actions, Emperor Paulson is about to impose economic martial law on the citizens of America. Outside the Treasury will read the moniker "Over 1 Trillion Served" (except not by choice)! I believe it is time that we change our Pledge of Allegiance to more accurately reflect the Imperial status of Mr. Paulson:
I pledge allegiance to the flag of the United States of Hank Paulson and to the kleptrocracy for which it has become, one nation, above God, divisible, with debasement and inflation for all.
Sunday, September 21, 2008
Wall Street Perestroika
A Fait a Compli
Having watched the Sunday talk shows, it is obvious that the Wall Street Debt Reduction Plan is a done deal, with only minor detail to be discussed. I am not sure how to feel about it. But probably it is somewhere between bewilderment and incredulousness. Chutzpah, properly defined, is killing your parents and looking for sympathy that you have become an orphan. The one thing that this plan does not lack is chutzpah. The thieves on Wall Street have designed this plan so that they can improve their balance sheet, and in effect cover their losses on bad bets. Paulson will have absolute authority over the plan, and they will be able to buy instruments from foreign banks as well as commercial real estate paper. So the taxpayer has the added benefit of assisting his banker friends abroad and our Donald Trumps at home. This plan reminds me of another ambitious reform program. When Mikhail Gorbachev came to power, he knew that communism was not sustainable, and he believed it could be saved by a few reforms of the system, Perestroika and Glasnost (Rebuilding and Openness). The problem was that communism itself was a flawed system, and no amount of Perestroika could save it. The Soviet Union (and Russia today) had no finished product to sell abroad, and its collectivized farm system was unable to produce enough food for its population. It was completely reliant on oil exports to fund its ability to feed the masses, and when oil prices collapsed, it took out the USSR, despite all the attempts by the cronies to keep it propped up. So, as I look upon the landscape today, I see that Mr. Paulson is attempting a Wall Street Perestroika, so that the system can be saved!?!? However, one needs to ask a fundamental question, i.e. can our economic system, as currently designed, be saved? The parallels are frightening. As the USSR was dependant on oil exports to stay afloat, so to the USA is dependant on capital exports (treasuries/gse/mbs/derivatives etc…) to stay afloat. So just as a collapse of oil prices in the 80’s squeezed the USSR out of business, the last thing that the USA can tolerate is a new “price discovery’ on our capital exports. Because we are completely dependant on external powers to finance our budget and thus run our country is the reason why I believe these extraordinary measures are being undertaken. But just as Perestroika of the USSR failed because it was unsustainable, Wall Street’s Perestroika will probably fail. Adam Smith said that no country that has ever run up a large foreign debt has ever paid it back. I think that when foreigners understand that we do not have the capacity to pay back our debts, and that we are going to have to inflate our way our of our debt, they will pull the plug on the current finance agreements and in effect destroy the dollar’s standing as the world’s reserve currency. This may lead to the collapse of our whole economic system, despite Mr. Paulson’s best efforts to prop up the oligarchs.
Having watched the Sunday talk shows, it is obvious that the Wall Street Debt Reduction Plan is a done deal, with only minor detail to be discussed. I am not sure how to feel about it. But probably it is somewhere between bewilderment and incredulousness. Chutzpah, properly defined, is killing your parents and looking for sympathy that you have become an orphan. The one thing that this plan does not lack is chutzpah. The thieves on Wall Street have designed this plan so that they can improve their balance sheet, and in effect cover their losses on bad bets. Paulson will have absolute authority over the plan, and they will be able to buy instruments from foreign banks as well as commercial real estate paper. So the taxpayer has the added benefit of assisting his banker friends abroad and our Donald Trumps at home. This plan reminds me of another ambitious reform program. When Mikhail Gorbachev came to power, he knew that communism was not sustainable, and he believed it could be saved by a few reforms of the system, Perestroika and Glasnost (Rebuilding and Openness). The problem was that communism itself was a flawed system, and no amount of Perestroika could save it. The Soviet Union (and Russia today) had no finished product to sell abroad, and its collectivized farm system was unable to produce enough food for its population. It was completely reliant on oil exports to fund its ability to feed the masses, and when oil prices collapsed, it took out the USSR, despite all the attempts by the cronies to keep it propped up. So, as I look upon the landscape today, I see that Mr. Paulson is attempting a Wall Street Perestroika, so that the system can be saved!?!? However, one needs to ask a fundamental question, i.e. can our economic system, as currently designed, be saved? The parallels are frightening. As the USSR was dependant on oil exports to stay afloat, so to the USA is dependant on capital exports (treasuries/gse/mbs/derivatives etc…) to stay afloat. So just as a collapse of oil prices in the 80’s squeezed the USSR out of business, the last thing that the USA can tolerate is a new “price discovery’ on our capital exports. Because we are completely dependant on external powers to finance our budget and thus run our country is the reason why I believe these extraordinary measures are being undertaken. But just as Perestroika of the USSR failed because it was unsustainable, Wall Street’s Perestroika will probably fail. Adam Smith said that no country that has ever run up a large foreign debt has ever paid it back. I think that when foreigners understand that we do not have the capacity to pay back our debts, and that we are going to have to inflate our way our of our debt, they will pull the plug on the current finance agreements and in effect destroy the dollar’s standing as the world’s reserve currency. This may lead to the collapse of our whole economic system, despite Mr. Paulson’s best efforts to prop up the oligarchs.
Saturday, September 20, 2008
Trickle Down Tax Cuts.
It has become obvious that this ridiculousness has left the realm of economics and is now a political problem. There is no question but that the Bush tax cut, spending increases and decreased regulations, all financed by borrowing, have allowed the Wall Street oligarchs to game the system in their favor and make an inordinate amount of money (who wouldn't want to pay 15% taxes on 100 million dollar bonus?). But we are well past the point where anybody thinks that this is either right or moral. The question is, what's next? What Mr. Paulson suggests is the largest tax cut for the rich in American history. 1 Trillion dollars of debt relief for the Wall Street oligarchs, financed either by tax increases or inflation, is what is on the table for us. I cannot for the life of me understand why the Democratic candidate for the US president, Mr. Obama, is favor of this solution. The Democratic party has always been the party of the working Joe, so how can Mr. Obama support one trillion dollars of debt relief for the Morgan Stanley's of this world. He is such a big critic of trickle down economics (rightly so), yet he is in favor of trickle down debt relief. Can you just imagine that you had one trillion dollars to play around with. You could give back to Wall Street, who created this mess, or you could spend it as your wish. How many factories, roads, power plants, schools, bridges, solar farms, etc.... could you build? How many jobs could you create with a trillion dollars. How many fiscal stimuli could one inject with a trillion dollars? But Mister Paulson believes the best utilization of our fiat currency is to fortify the Wall Street Oligarchs, "so credit could flow through our system!" This is bull shit!!!!! This is a false choice that is being presented to us!!!! I implore any and all who read my little blog to contact your congressman and senator and tell him/her that you do not want your money to go to Wall Street. Do you believe that is fair that the taxes paid by the brave men and women of our armed services, who put their lives on the line for us day in and day our, be sent to people vacationing on their yachts? If there is any debt relief to be had, let it be had by regular working people who were ensorcelled into taking excessive debt by the oligarchs' sales force. I propose that people have direct debt relief by sending any kind of debt that was incurred from 2003-2006 (or so) to a DRC (Debt Reduction Corporation), and thus 1 trillion dollars of debt relief can be had by the American consumer. Thus, they will have excess capital that can be used for spending, saving or investing. Much of this can be taxed by the government, so they will have a return on investment. I am shocked that Democrats have allowed Wall Street to flim flam them into their nonsense. Please, America, let us unite in this effort to end the Wall Street Debt Reduction plan. They don't deserve it!!!
Thursday, September 18, 2008
That was short lived.
It obviously didn't take long for Misters Bernanke and Paulson to resume their bailout ways. I am not familiar enough with AIG to know how calamitous a Chapter 7/11 would have been, but I am sure that there could have been ways to work it out. Drexel and Lehman went belly up, and the world didn't end! Anyway, I have been thinking for a while as to what to post because I believe that at this point, the MSM has caught on to what has truly been happening vis-a-vis Wall Street, so I am not sure that I can add much, except my own little quirky commentary. As I am writing this blog entry, the government is considering the massive use of our money to buy "toxic debt" a-la RTC. I cannot even comprehend how much money all of this is going to cost, nor the consequences of such an action. It seems that at every stage of this crisis, the government has tried to throw good money after bad into some sort of damage control (does anybody remember the MLEC?). However, I cannot escape the feeling that this will not end well. The problems seem to be getting bigger and bigger, and the bailouts keep getting more and more expensive. Our government is now in the insurance, mortgage and securitization business. Barney Frank recommend that it opens up a Real Estate office with lots of new inventory. Far cry from laissez-fare. Everybody is now aware that the real culprits in this crime drama were the Wall Street oligarchs who, as financial mercenaries, have put this country on the precipice of disaster. I would like to offer one piece of advice, should anybody come across this little piece. I believe that it is absolutely necessary to prosecute the oligarchs! I know it may be extremely difficult from a political standpoint, but is so perversely injust that we will have to hand over our savings, while the oligarchs who pilfered this country's vast wealth are on their yachts. I believe that there can be great populist sentiment evoked if we prosecute and fine these criminals, as well as confiscate their wealth. This will end all moral hazard problems. If the federal reserve used special powers to assist in the take over of Bear Stearns, why can't we create a Guantanamo for Wall Street crooks (maybe we can even suspend habeas corpus). The government should have a rendition team ready to go to waterboard these guys into divulging information as to how these crimes were committed. But I digress. It need not go that far. Just take away their money in a grand public way, and use the proceeds to recapitalize the Federal Reserve, instead of printing $40 Billion new dollars.
Sunday, September 14, 2008
Lehman/Merrill Day!
This day will obviously be remembered in the history books, with the full ramification of these event not known for years to come. But I must say that today I am proud that Misters Bernanke and Paulson had the courage to stand up to the oligarchs. Winston Churchill once said that America always does the right thing, after it tries everything else first. I am sure it was an extremely painful decision to inflict the death blow to such a venerable institution as Lehman, but I am also sure it was the right thing to do. The sooner these leveraged, poorly run businesses get taken out, the sooner we can clean out our financial system and get back on solid ground. It's obvious that a combination of greed, leverage and fraud combined to take out some of our great financial institutions, but out of the ashes, new dynamic institutions will arise. This crisis seems far from over, so I hope that our leaders will continue to allow the market to unwind without further subsidy to insolvent institutions. The business of America is business, it is not leverage buy outs and real estate transactions. Hopefully, some of these great minds will turn away from coming up with "business models" and go to work for our struggling manufacturing sector. The sooner we realize that the fraudulent "service economy" cannot be sustained, the sooner we can regain our status. This delevereraging should also serve as a warning about our national debt. We all see how margin call can be a real bitch! We must stop spending, start saving and investing into our manufacturing sector. Green technology and energy independence with other innovations may still save us. The politicians have to stop flim-flamming us by paying for tax cuts with borrowing. We will all have to tighten our belts, and be a little wiser with our money. The sooner we bury these charlatans, the sooner we can get to work to saving our country!
Tuesday, September 9, 2008
Bill Gross' 2 Billion Dollar Day. Thanks Easy Al for all of your insights!
Bail-out hands Pimco $1.7bn payday
By Deborah Brewster in New York
Published: September 9 2008 19:49 | Last updated: September 9 2008 19:49
The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac.
While shareholders in Fannie and Freddie suffered deep losses, the world’s biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr Gross on mortgage bonds issued by the agencies.
Mr Gross had made a big shift out of US Treasuries and corporate bonds over the past year and into agency bonds, betting that the government would support Fannie and Freddie Mac. By May this year, more than 60 per cent of his $132bn fund was in mortgage debt.
Mortgage-backed bond prices rose after the US government seized control of the agencies.
Mr Gross’s fund, which side-stepped the housing market slide, had risen strongly before Sunday’s government bail-out. In the 12 months to August 1, the fund returned 9.2 per cent, beating all of its peers, according to fund tracker Morningstar.
On Monday, the fund rose by 1.3 per cent, or $1.7bn, its biggest one-day rise ever against the Lehman Aggregate Bond index.
Mr Gross, who co-founded Pimco and has managed the Total Return fund since 1987, was one of the first to call for a bail-out of Fannie and Freddie.
In his latest monthly commentary, he also said that the government needed to use more of its own money to support financial markets, or risk a “financial tsunami”.
Mr Gross’ style is to take a macro-economic view and make tactical changes based on short-term movements in the economy.
The recent success of the Total Return fund has helped Pimco to be the only one of the 25 largest mutual fund managers to lift its assets under management in the year to date, according to Financial Research Corporation data to the end of July.
By contrast, several well-respected equity fund managers are suffering in the wake of the government move, which leaves Fannie and Freddie stock almost worthless. Legg Mason’s Bill Miller, Fidelity, Dodge & Cox and Wellington are among the fund managers that had heavy exposure to Fannie and Freddie – and had lifted that further this year, according to Bloomberg data.
Copyright The Financial Times Limited 2008
By Deborah Brewster in New York
Published: September 9 2008 19:49 | Last updated: September 9 2008 19:49
The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac.
While shareholders in Fannie and Freddie suffered deep losses, the world’s biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr Gross on mortgage bonds issued by the agencies.
Mr Gross had made a big shift out of US Treasuries and corporate bonds over the past year and into agency bonds, betting that the government would support Fannie and Freddie Mac. By May this year, more than 60 per cent of his $132bn fund was in mortgage debt.
Mortgage-backed bond prices rose after the US government seized control of the agencies.
Mr Gross’s fund, which side-stepped the housing market slide, had risen strongly before Sunday’s government bail-out. In the 12 months to August 1, the fund returned 9.2 per cent, beating all of its peers, according to fund tracker Morningstar.
On Monday, the fund rose by 1.3 per cent, or $1.7bn, its biggest one-day rise ever against the Lehman Aggregate Bond index.
Mr Gross, who co-founded Pimco and has managed the Total Return fund since 1987, was one of the first to call for a bail-out of Fannie and Freddie.
In his latest monthly commentary, he also said that the government needed to use more of its own money to support financial markets, or risk a “financial tsunami”.
Mr Gross’ style is to take a macro-economic view and make tactical changes based on short-term movements in the economy.
The recent success of the Total Return fund has helped Pimco to be the only one of the 25 largest mutual fund managers to lift its assets under management in the year to date, according to Financial Research Corporation data to the end of July.
By contrast, several well-respected equity fund managers are suffering in the wake of the government move, which leaves Fannie and Freddie stock almost worthless. Legg Mason’s Bill Miller, Fidelity, Dodge & Cox and Wellington are among the fund managers that had heavy exposure to Fannie and Freddie – and had lifted that further this year, according to Bloomberg data.
Copyright The Financial Times Limited 2008
Friday, September 5, 2008
What's wrong with the Economy?
This is too complex a question for me to answer, but any chance I can get to take a swipe at Wall Street, well I can't resist. As the political season heats up, and we get to choose between Burger King and MacDonalds, people around me keep asking questions as to how we got into this giant mess. Which candidate has the best "economic plan". First, let's start with who is to blame. That answer is simple enough. The Wall Street initiated and Federal Reserve enabled "service" (really finance sector) economy, run by the professional crooks and gamblers of Wall Street is what ruined our economy. There, let's get that straight. It wasn't the coal miners or the auto workers or the engineers or the farmers who destroyed us. It was a laundry list of characters including, but not limited to, guys like Rubin, Greenspan, Boskin, Weil and other elite financiers who have done us in. Until people in America understand this fact, it is impossible to move forward with any kind of debate as to how to solve our economic mess. I have yet to hear either candidate state this, probably because they saw what happened to Ron Paul when he touched on some of these issues. Even as I write this, news is coming out of another massive government bailout of Fannie and Freddie. Can't piss of the Chinese?! Anyway, I would like to post the amount that was paid in Wall Street bonuses over the last 20 years or so. This doesn't include the money the Hedgies or Private Equity boys made, or dividends paid out, but they earned it?! What's remarkable is that there has been a 10 fold increase in bonuses over the last 15 years or so. I know of no other profession with such income growth. Maybe before taxpayer funds are confiscated to bail out these institutions that are too big to fail, the wealth of these elites should be sold off to help offset the bill. I mean, if a company dumps toxic waste, they get a fine, why not Wall Street? I know I am just dreaming, but it will be everybody's nightmare. I believe that at this point, nobody really knows where this is heading, but it probably won't have a happy ending.
www.osc.state.ny.us/press/releases/dec06/bonuses1206.pdf
www.osc.state.ny.us/press/releases/dec06/bonuses1206.pdf
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