• America, End Your Fear Of Wall Street

Few Americans have the time to educate themselves on the operations of those who control the most critical elements at the heart of the Nation’s well being. The Kings of Wall Street have long coveted the absolute supremacy they now enjoy over the largest economy in the world. Their road to ascendancy has been long and methodical, but with the collapse of the mortgage and equity bubbles, the past year’s actions by those pillars of persuasive absolutism on Wall Street confirm that their dominance is unprecedented in American history.

A vast majority of Americans must have been astounded by Bernanke’s recent response to Congress’s request that the Government Accountability Office (GAO) audit the Federal Reserve’s financial transactions and assets. The following was the heart of Bernanke’s response, “… auditing ... would be highly destructive to the stability of the financial system, the dollar and our national economic situation.” The GAO is a legislative branch agency organized under the U.S. Congress. How is it possible that Bernanke would have had the guts to tell Congress to go fly a kite? This is the same Federal Reserve whose power Obama wants to expand? Does he really have a good grasp of the true nature of Wall Street and the functions of its insiders? Perhaps the $14 million he received from Wall Street bankers, investment firms and securities brokers during the election campaign are clouding his perception.

Bernanke not only screamed an emphatic, "no," but he had the gall to threaten Congress and the American people with economic destruction. How is such arrogance and power remotely possible? While it might be tolerated if coming from the oval office, it should not be tolerated from a banker. It is also, for anyone who is watching, an obnoxious affront to the Constitution as articulated in Article I, Section 8, “The Congress shall have power to … coin money, regulate the value thereof, and of foreign coin, and … to borrow money on the credit of the United States.” Does this resemble anything we have witnessed during the past year? Not remotely.

Through a century of market ups and downs, interest rate fluctuations, mergers, acquisitions, political influence, lobbying and positioning insiders to the most powerful government and government related institutions, the Kings of Wall Street have nurtured and advanced their isolated power to a point where they are responsible to no one. After the Fed created hundreds of billions in bailout dollars to purchase unaudited toxic waste from its “friends,” these same friends paid themselves billions of dollars in bonuses. These were billions more than the amounts they distributed to their own shareholders, and the rationalizations were as asinine as the bonuses. Obama’s wishful thinking and promises of “oversight and transparency,” over trillions of Fed dispensations, have long been attenuated by the dissonance of fear. Stating that the Fed and Wall Street’s autonomy is complete, would be a gross understatement.

When Bernanke told Congress and the world that if AIG was not bailed out, the international economic order would come tumbling down, did the majority of his listeners believe him? Absolutely. Panic was being incessantly pounded into the public’s consciousness. Unless a handful of senior players from the banking sector didn’t get their way, the underpinnings of the global economy would disintegrate, and the world as we knew it would come to an immediate halt. Paulson chanted the refrain, and shortly thereafter so did Geithner, whose performance made sure that the message was delivered with the requisite amount of perspiration and earnestness accentuating the urgency. Above all, he underscored the fear.

Individuals, who could not care less about the health of America, just as they never cared about their firms’ clients, control the economic engines of this country. Their egos dictate their actions, and satisfaction of abnormal greed is the compelling priority. The details of the business, and its legalities, … be damned. Have we forgotten that when Lehman Brothers collapsed overnight, no one knew there had been a problem? None of its executives were familiar with the extent of the calamity when it hit their firm, nor did their books indicate where assets might be hiding or what claims might exist against them. Transparency? Due diligence? Forget being a shareholder looking for information since the senior executives, the CEO and the Board of Directors were oblivious. Was there any conscious human being near the top of the Lehman ladder who cared enough to raise doubts? Would he or she have been listened to? Not likely.

When you are too preoccupied picking out the leather for your new executive jet, or refurnishing your third mansion in Cap D’Antibe, you don’t have time to spend on corporate incidentals such as the details of an audited financial statement. Even if there had been a spare moment, you’d have to fly to that Bridge tournament in Chicago, … or some other urgent pastime where your “friends,” or your ego expect an appearance.

There is a culture of omnipotence that has been very pervasive throughout all of Wall Street’s major firms during the past two decades. It has reached a level of absolute and supreme potency within a few of its more majestic mindsets like those at the top of firms such as Goldman and Morgan. These firms have by design created complex webs of interwoven corporate entities, crossing geopolitical borders with questionable practices beyond the boundaries of laws and oversight. Theirs has been a comfortable ride, since there is no will on the part of any government to provide intrusive oversight to the investment banking giants, therefore effective oversight is simply an ephemeral, wishful thought on the part of a cornered public.

The Morgan Stanley acquisition of Bear Stearns with a $30 billion taxpayer guarantee was a sweet gift handled between the boys, with little evidence of hard-nosed negotiating on behalf of American taxpayers. Obviously, reasonableness also never entered the room. Bailouts for Citigroup, AIG, Bank of America, Citigroup, and AIG were negotiated between friends, some friends only pretended to be working on behalf of the American taxpayers. When Treasury, The Fed and the heads of the major Wall Street firms, particularly Goldman Sachs and Morgan Stanley, came together to make deals, their actions were not “negotiations” as defined in any normal dictionary. Who really represented taxpayer interests? No one. The Third Side, the taxpayer who will foot the major risk, was not in the room. Not only were taxpayers not in the room, but they were also swindled. There is no other way to describe the one sidedness of the structures that taxpayers were handed.

Taxpayers recapitalized banks under insanely bad terms and conditions, where they unwittingly guaranteed toxic asset, as occurred in the Citigroup bailout or when B. of A. acquired Merrill Lynch. Did anyone question B. of A.’s use of TARP funds to “acquire,” competitors? No-one representing taxpayer interests seemed to care, and quite to the contrary, Merrill’s losses were purposefully concealed from both investors and regulators. Did anyone negotiate hard with these banks, B. of A., Goldman and Citi, when as creditors to Chrysler, they forced its destruction instead of allowing the government to provide it with deals as sweet as the ones they had received themselves? Not much. Geithner and Bernanke were evidently not close friends of any Chrysler executives or employees residing in Detroit. They were, however, friends and colleagues of Wall Street.

We have written elsewhere on this post about Too Big To Fail, however, with the taxpayer’s willingness (through inept government) the crisis has created ever-larger monsters on Wall Street. America’s vast banking system has become weak and remains weak other than for those at the top of its food chain. The controlling players have not changed, and the economic contraction will continue. We have become numbed to the fact that when banks fail, the public pays. A few companies, under the aegis of a small band of individuals created the perfect environment for the implosion of the banking system through massive risk taking. Congress cheered actively from the sidelines. The Wall Street hands that were in large part responsible for the crisis now dictate government actions, and have effective control over the public purse. In the meantime, the Fed, standing squarely on the backs of all taxpayers, is doing the job of large banks that still refrain from injecting credit into the economy.

While megabanks trade publicly, there is a dearth of verifiable, or incisively auditable value that can be placed on them since it appears none of their executives know the extent of the worthless paper lurking deep in their bowels, and none of them would tell you if he knew. Admitting the size of the toxic assets would require enormous write-downs, and would affect their bonuses as well as the values of the company shares.

We should not get swayed into believing that Too Big To Fail is simply a remote concept dealing with enormous corporations with global reach. Too Big To Fail refers to individuals at the top of these financial giants with all of the substantial power that the companies they manage can wield. Too Big To Fail encapsulates the stupidity that brought the world to the brink of collapse. We are just a couple of mergers away from a global financial power that will be impossible for any government to regulate, although regulation already seems nonexistent for any of the current top players on the Street.

The markets are technically driven and managed by systems that maximize profits for those who control them, using technologies that very creative talent produced. There is no ceiling to that creativity, and no end to what might be done to restructure the financial underpinnings and superstructure of the nation’s economy. The talent is available, and all that is required is willingness to do so. Constitutionally there are possibilities, but relinquishing control over money is not an alternative Wall Street will readily agree to, yet, reversing the process is within the purview of Congress.

The key to minimizing the future damage that the kings of Wall Street might further inflict on the Nation is to bring their power and influence into the realm of reasonableness. This means bringing their propensity for size to within reason for any organization involved in pure “banking,” and focusing their attention to providing large and small companies with the services, particularly credit, which they require to remain open for businesses.

There is a lesson to be learned from the current debacle, while the window remains very clear, and before time and retrospect blur the current reality into a distorted sequence of lies as the months advance. In order of priority, the following should be considered for a sound America going forward.

1. Take back control of The Fed. Humans will be human therefore there are no guarantees that the people’s representatives will act with foresight, however, they will accountably serve under the canopy of transparency, and due diligence, rather than submit to the beck-and-call of those whose billions in annual bonus money stagger the imagination.
2. Take back control of money.
3. Segregate “Banking,” from “Investment Banking,” and everything else that seems to attach itself to the once-upon-a-time credibility of banking. Reinstate the Glass-Steagall Act (except as it pertains to the Fed) that was for the most part repealed in 1999 eliminating the restrictions of affiliations between banks and “investment banks,” … and don’t listen to any bankers who tell you different with stories about diversification reducing risk, or banks being completely capable of regulating themselves. We have seen the evidence. One very intelligent provision contained in the act is section #32 that prohibits banks from having interlocking directors. Such decree could well be applied to other industries where “Board of Directors,” has simply become an incestuous and corrupt exercise.
In the same process, throw out that brilliant piece of Congressional ingenuity called the Gramm-Leach-Bliley Act.
4. Cap the size of banks so that their executives more naturally demonstrate concern for soundness of lending decisions, and the well being and success of their regional customers. Banking should be a service, and should not be a casino where the management can pilfer the till as has been repeatedly demonstrated wantonly by the major Wall Street firms.
5. Allow the FDIC to do its job, and instruct it to play serious hardball with the risk takers who come into its line of sight.

This is not minor tweaking of the system. This is also not a call for the establishment of a consumer protection agency to police all things financial from credit cards to mortgages. Common sense dictates implementation of a structural reconstruction. The proposed Consumer Financial Protection Agency would only be an ill-defined expansion of the government payroll, proliferating government reach into more corners of society. This make little sense since there are agencies already entrusted to protect consumers which are not doing their jobs. Proposing the launch of such an inappropriate meddling amoeba is evidence of government ignorance of the realities on Wall Street.

America, your government is lying to you. You’ve been had, and are being had. It has no idea what is going on with your money. Those few bureaucrats who have ensconced themselves in positions of unnatural power and influence, and who manage the joystick, won’t tell you the truth. Even more pathetic is the fact that neither Congress, nor the President, know enough about the mechanics of America’s economy to apply practical judgment decisions in the refashioning of the system, … nor, it seems, do they have the will to act. Considering the fact that the current administration continued the trend of installing those who had a healthy hand in packing the powder keg that ignited into the economic disaster now encumbering the nation, we cannot expect much change. The billions of dollars that politicians received from Wall Street over the past decade through campaign contributions and lobbying, was insurance on their continuing silence, and stifled any burgeoning ethics.

Taxpayers have become disillusioned by the abuse they have endured at the hands of special interests, and the lack of intelligent, common sense response from their elected officials. A broad swath of the electorate is wearied. Congress should pay attention to 2012, and the electorate should demonstrate a little selfishness. Taxpayers should look for some creative thinking instead of the tired old nursery rhymes dispensed from portable pulpits.

Banking is not a magical, abstract, or obscure foreign art, although some of the fringe elements have become complex by design, such as the proliferation of derivative financial instruments. Government is protecting special interests and is NOT forcing a restructuring of America’s financial system. Taxpayers should demand that capitalism be reinstated back into the banking system. They should demand that Wall Street’s power elite end its mortgaging of the American future. Taxpayers should ignore platitudes and bromides from Obama and Congress, and they demand a break-up of Wall Street’s major players.

Taxpayers should be lining up in the next elections to install individuals into Congress, no matter what party they might represent, who will take back control of the most important components of the economy, and ensure that the country has a chance at a sound future. The electorate should not allow the continuing concentration of financial power to accumulate in fewer and fewer irresponsible and egocentric hands.

Take control back from Wall Street, demand transparency, and quit bailing out firms that should be allowed to fail. Stop being mesmerized by the pretense and illusion that was perfected under Alan Greenspan. Take back control of the money supply before another crisis turns a struggling economy with escalating debt, into a long term depressed economy.

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• Obama & Middle Class Income Tax Increases

The recession is dealing a hard blow to government revenues with tax receipts expected to drop 18 percent this year. The big question being lathered across the Nation, but not being answered honorably by the Administration, revolves around tax increases. The double-speak and denials are only adding annoyance to the feelings surging around the stress already felt by the taxpayers. Not only will the “middle class” be saddled with fresh tax increases, but so will you and your neighbor if you live in America.

The strategy of repeatedly pretending that only the wealthy are going to pay for the massive spending increases is quickly getting old and not believable. From the mansions in Beverly Hills to the park benches of Central Park, all residents will be sending more dollars to the government in one way or another. This is not about new tobacco or alcohol consumptions taxes, or even about the massive tax-grab that will come from Cap And Trade, this is about new tax measures, and new taxes on everything that can be squeezed for cash starting with your income. Forget the campaign promises you almost believed about middle-class tax cuts, and forget Sunday meet-the-press equivocations by well-trained emissaries like Geithner and Summers. Your taxes are about to increase dramatically.

The Administration is very demonstrably building a government well beyond anything that national revenues will be able to support either in the mid-term, or the long-term. With the Nation stuck in a long-term economic quagmire hurting all taxpayers who are already feeling the weight of chronic tax-creeping, the imposition of obvious and visible new income taxes is politically dangerous. The sophistication of the speciousness will find new levels of creativity during the coming weeks.

The White House will no doubt launch a campaign to “talk-up” the economy in the hope that positive proclamations will make them so. Reality is that unemployment, well above the claimed 10%, is somewhere around 16% when you include “marginally attached workers” as well as those employed “part time for economic reasons,” calculated as the “U-6 rate” by the Bureau of Labor Statistics. Unemployment increasing is neither a turn around, nor a bottom to the recession, and is a far different reality from the “8% or less” predicted by the Administration when it launched its stimulus program. So much for rose-colored forecasting by economists.

Tax receipts are apparently down by 22 percent on individual incomes, and are down 57 percent on the corporate front. When you blend that with a deficit that will surge to almost $2 trillion this year, and a National debt accelerating past $11.6 trillion, your options are limited. We can assume that cutting federal spending is an ideological impossibility, leaving the government with two principal choices, and neither induces positive tingles up your spine. You can be asked to sacrifice and have your income taxes increased massively, or the dollar’s value can be allowed to drop significantly as more of them get printed. The likely path will be a less harmful blend of both of these alternatives. The key will be to allow the dollar’s value to slide gradually so that there are no sudden shocks striking at the heart of national and international markets. International creditors like China will be irritated, but will accede to the gradual process of easing down the dollar. Forget the doomsday scenarios, however, America will take years to work its way out of this recession, then pay off past and current government spending sprees, on its way to growing through the new financial demands on its treasury that will surface over the next decade from baby boomers, social security and healthcare.

In order to initiate an advance on the lengthy economic turnaround, the joy ride of debt-spending-with-wanton-abandon mindset enjoyed by Bush and continued by Obama must be brought to a close. Deficit growth cannot continue on a path exceeding the rate of economic growth. The Administration should surface out of its decision closet, and become resolutely emphatic on a course of action that will reverse the deficit's current trend. Obama’s next address to the Nation should be, “I know I promised that if you made under $250,000 per year, you would not see your taxes increased a single dime. Not your income tax. Not your payroll tax. Not your capital gains tax. No tax. I was wrong. I was hasty in forming that covenant with the electorate. We are a government living beyond its means, with currently no end in sight to the discrepancy. Here is my plan for an overhaul of the tax code, and what it will mean to every single one of you. You can expect your income taxes to increase an average of ten percent, for starters. Now, about a national sales tax, …”

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• Obama Mitigating Mortgage Foreclosures?

Obama announced that between $50 billion and $100 billion will be spent on making mortgage payments affordable, as part of the giant gamble he and Congress are making, under the title of “stimulus.” No help will be provided for those who made rational decisions on purchases, but ample support will be provided to those who couldn’t afford the homes they signed up for. Rationalizations for such a move are being promoted by the administration, Congress and the MSM. They are easy to dispense, but is such policy right?

Banks are temporarily suspending foreclosings on some home loans until they have had time to understand what the government really intends, and they’ve had a chance to negotiate their way into the handouts. Financial corporations such as Citigroup, Chase & Co., and Morgan Stanley will set a moratorium in place until early March, by which time it is expected that the mortgage modification details will be finalized.

The hard sell for this program uses supposedly sincere reasoning such as, “If the house next to yours is in foreclosure, your home drops in value as well.” That is the big one since instilled fear is an instrumental motivator. At first blush, it sure sounds convincing, but then it settles into your consciousness, and a discomfort begins to shade it’s seemingly benevolent intent. You begin to dissect the soundness of the argument and stand back to look objectively at the whole picture. Where is the common sense?

Who else is thrilled with the Obama and Congress decision to rush into a cash dispensation of such magnitude? Everyone in the bad mortgage food chain is in support of stemming the foreclosure rate. Banks, large and small, are clamoring for more bailout money to cover bad loans they were responsible for providing, and their executives don’t really want to give up the summer home in the Hampton’s. Mortgage brokers, real estate brokers, and homebuyers who are underwater on their house purchase decisions are cheering Obama and Congress. The only ones not in favor are those who made financial decisions diligently, having saved their money and minimized the outlay for shelter as much as they could. We don't need to explore how millions who are renting while saving and waiting for prices to become affordable for their first home, feel about taxpayer money being used to attenuate the drop in real estate values.

Aside from unknown hundreds of billions that will be required to implement such shocking endeavor, Rep. Barney Frank intends to introduce legislation to change bankruptcy law that will enable judges to adjust the principal on mortgages held by homeowners who cannot afford the payments. He plans to provide protection to lenders who reduce already set and contracted interest rates, or change the terms on troubled loans. This movement has enormous ramifications for the long-term viability of the financial services industry. It will certainly impact investors who invest in mortgages with set interest rates and steady returns on investments.

The plan is to reduce potential delinquent borrowers’ payments to as low as 31% or their pre-tax incomes. Evidently those facing foreclosure will get preference on the priority list. It is doubtful that anyone in government will be capable of differentiating fraudsters from intentionally bad decision makers. Who is not on the list? Those who purchased homes well within their financial means. These are also the people who will be paying for their wayward neighbors’ well being. Should renters be given a financial break for having made good decisions, NOT having been seduced by the “no money down” siren’s song, and NOT having lept into the froth of the real estate pool?

We are witnessing the government sliding the country into forced rewarding of bad behavior. This was bad behavior by borrowers, by lenders and by all the middlemen eating off the mortgage loan buffet. In such a program the opportunity for abuse will be significant, and probably uncontrollable. Why would people who purchased automobiles they couldn’t afford not also get bailed out? Didn’t many of these mortgages finance giant TVs and second cars?

The argument for “help” will originate from all corners of the economy. Across the U.S., businesses are preparing their theatrical presentations for requests of a piece of the bailout pie. With the trillions of dollars being loosened from the grasp of future generations by the government, it is understandable that the line-up extends invisibly over the horizon. There is no indication from any source, and certainly not from Obama, Congress or their economists friends, as to how any of these trillions will be repaid. They are probably afraid to face the real answer. Public reaction would be immediate.

Some of the answer for return to a healthy economy rests in individual responsibility for reasonable behavior, enhanced with large doses of education. The government should consider spending money on educating the whole population on the management of money, and on making sound financial decisions, particularly those pertaining to housing. The result would be much less self-destructive behavior. It wasn’t the fine print that burned borrowers, it was the big, bold print. This is one of those areas where even a little knowledge would go a long way.

This dramatic shift of government intervention into the economy from the backs of future generations with no plan or concept for recovery is a realm never before experienced, not even in the 1930s. The added measure of placing additional burden, even punishment, on those who have made the right financial decisions in their lives, is also beyond the pale of reason. The only ones in support of these measures are those with a stake in the game, or those panicked into thinking it is necessary, or possibly those who don’t pay taxes. It would be more reasonable to offer strong incentive such as long term zero interest loans to new home buyers who can come up with large down payments. There is also ample room for the government to positively influence the "renegotiation" of underwater mortgages, however, the government’s unreasonable and unbalanced current plans with this program are extremely difficult to comprehend.

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• Obama, Watch Consumers And Learn

American consumers are being accused of closing their wallets. This is evidenced in three months of contracted spending into the end of 2008. The new year has brought more of the same, and consumers are being admonished for spreading “weakness.”

Politicians, economists, and the media, have strained to peculiar characterizations in describing the source of the current protraction in economic activity. Most renderings are not flattering to consumers, and are aimed at stimulating feelings of guilt or culpability. The use of imagery such as “weakness feeding on itself,” with the weakness being the consumers’ spending, borders on ridicule of the consumer. “Consumer confidence falls,” is another great headline we are subjected to. Why is there such negative perception attaching itself to what is in fact an extremely positive reversal of past detrimental behavior by consumers?

Consumers are not panicking the way their leadership appears to be doing. Taxpayers are being conscientious with their hard earned dollars. Consumers increased their rate of savings to 3.6% of disposable income in December, representing a significant month to month increase from a 2.8% rate in November, and overall a marked improvement from the only 0.8% of last August. Consumers are prioritizing their purchases, and cutting back on credit card use. This is a positive trend that will strengthen the likelihood of a return to economic health in the mid to long term. It also suggests that consumers are discounting endless prognostications, including Obama’s, of a restoration of the economy’s wealth and health within 6 months.

Consumers should ignore the mainstream media, the pundits, the economists and most of all should ignore implorations of “spending” from politicians. The economy will not be fixed in the short term, and believing otherwise is ignoring reality. The turn around can only be realized gradually through a diligent and patient ascent along a very gradual incline. Consumers are first taking care of absolute needs such as food and shelter, and they will then endeavor to save for an uncertain tomorrow. From those savings will emerge confidence that will very gradually ensue to gradual, rational, and conscientious increases in spending levels. Current signals strongly suggest that consumers have learned a lesson, and will in future spend within reasonable means of their disposable incomes. It is safe to expect that consumers will treat their homes very differently, and will no longer perceive them as rapidly appreciating sources of cash.

Government’s artificial injections of taxpayer borrowed stimulus billions, over and above normal and required spending, are unlikely to deliver reliable foundations for establishing solid and sustainable economic pillars. Does no-one sitting at the new Presidential round-table of experts understand that a $15 trillion dollar economy is a “long build?” Short term thinking is what brought us the current mess. Why agitate taxpayers through fright and terror? Is this an attempt to justify incomprehensible spending programs to placate special interests? Will this lead consumers to remain uninquisitive as to the structures of the bailout packages, and their lack of contractual arrangements? Is this an attempt to win over the almost 60% of the population strongly against the stimulus and bailout package Obama and Congress are implementing? Rebuilding of the economy will be a lengthy process, and other than providing consumers with incentives to continue their current trends, government should get out of the way of its materializing.

The political leadership should listen to American consumers. Listen and observe. Doing so would temper the rush to explode the National debt to 70% of GDP. You can help no-one else, if your house is not in order. Consumers are not rummaging for “boom times.” They are searching for shelter in stability.

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• Disrespecting Taxpayers & Shareholders

As CEOs beg for Troubled Asset Relief Program (TARP) handouts, the new corporate mantra is, “maintain shareholder trust,” … sorry, make that the new corporate mantra is not, but should be, …”maintain shareholder trust.”

All Congress and White House promises of oversight on the bailouts don’t seem to apply to financial institutions. Bank of America received $45 billion from trusting taxpayers, and after its sloppily structured acquisitions of Merrill Lynch and Countrywide Financial, taxpayers watched helplessly as hundreds of millions were paid out in bonuses to the failed company executives. $2 billion went to the senior talent at Merrill for delivering $15 billion in losses for the last quarter. The excuse from B. of A., the 100 year old largest financial services company in the world, was that it couldn’t legally challenge the previously made promises for absurd payouts and bonuses to people who destroyed the companies they managed. Truth likely resides closer to lack of due diligence prior to the acquisition, and forgetting to impose much needed conditions upon closing.

How do The White House, Congress and B. of A. CEO Ken Lewis forget to make the cancellation of these extraordinary payouts part of the negotiation when the acquisitions of Merrill and Countrywide were being so brilliantly conceived? Now the Bank is looking for more bailout money from taxpayers. That’s after destroying one quarter of a trillion dollars in shareholder value. Why are taxpayers continuing to be so generous? Why are Obama and Congress not refusing to provide more money? Why are they not demanding removal of B. of A.’s Board of Directors and CEO? What has been perpetrated on taxpayers and shareholders is well beyond the bounds of abusive, and certainly not within the definition of “trust.”

Leaks of Merrill CEO John Thain spending over a million dollars to renovate his office pales compared to the $83 million he paid himself, before his company imploded, receiving $10 billion from taxpayers last October. Is anyone really paying attention? Handing out bailout money appears to be very easily done. Could it be dished out a little less sloppily perhaps?

The Citigroup version of abuse after receiving its $45 billion bailout from taxpayers includes a very visible $50 million executive jet. No flying coach for these managerial failures. Is there someone coaching these folks on effective PR? Now that the public distaste has become an impossible pill to swallow, Citigroup announces a decision not to take delivery of the plane. And this incompetence requires that it be paid millions in compensation so that it does not leave the fold for greener pastures? Who would hire these decision makers? Another bank adept at taxpayer and shareholder abuse?

Are Obama and Congress making good on their promises? It appears that such lack of interest is as extreme in disrespect of taxpayers and shareholders, as the extent of transparency, control and disclosure is lacking. Their response to the public outrage is disheartening and rather pathetic. What category of oversight does, “… (Citigroup) should not be spending its precious greenbacks on frivolous luxuries,” represent? Getting a Treasury Department official to ask Citigroup to rescind the decision after the furor became deafening was proof of incompetence in the execution of the duties to represent taxpayer interests. Should parameters for use of funds not have been decided on and agreed to before the cash bags were delivered?

Where in the rainbow of possibilities contained in the term, “accountability,” does the taxpayer-funded influence peddling of politicians by these companies, get such interpretation? Should taxpayers be grateful that B. of A. has decided to curtail its visible lobbying for bailout money? It will do so more privately from now on, and the rest of its lobbying activities will advance unabated. Politicians will continue to be influenced with taxpayer bailout money, but the manner of this manipulation will be much less embarrassing to taxpayers. Whatever partial non-lobbying the bank is not participating in, seems to be working. It’s expected to receive another traunch of TARP funds as its own exotic and toxic securities ferment into further billion dollar losses.

All of this has nothing to do with tightening regulations on the banking industry, though some is required. This is about setting in place firm agreements and conditions under which the hundreds of billions are to be accepted and spent on behalf of the taxpayers who will be on the hook for the money. This is about establishing a government agency that would, on behalf of taxpayers, become the guiding body watching over the complex intricacies of the whole financial system and its ability to create derivatives no one understands or analyses. This is also about showing respect for sweat that America’s broad middle class will endure to pay back all of this bailout money.

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• Obama - The Second Tell

As follow-up to a November 21, ’08 article on this post regarding signs that may reveal the direction that an Obama Presidency might take, the following presents another “tell.” This one is less innocuous, but may prove to be more expensive to America.

Perceptions inside the current White House, when Bush and Cheney took office, were that incurring debt was its right and was its political capital to spend with Cheney supposedly claiming “deficits don’t matter.” Hindsight was temporarily kind to them with support from William Niskanen, a member of Reagan’s Council of Economic Advisors also claiming, “The lesson we should have learned is that deficits have little or no short-term economic impacts.”

Through the early years of this decade, everyone accepted the premise that debt was a normal, perhaps integral conveyance of a modern society, possibly even an applauded one. From economists to taxpayers on assembly lines, everyone dwelled in the comfort that deficits and borrowing could bring unfathomable respect from acquisition of material possessions. Second mortgages were objects of desire and their procurements were cause for boasting. And didn’t second cars and gigantic cinema sized TV screens provide jobs for people in foreign lands anyway? Who could possibly argue with success?

Debt administered through spinal shunts delivered energy into the U.S. economy. The amphetamine rush sent economic experts into undiluted delusions of grandeur, and the exploiters into creative overdrive on derivative concoctions too complex for their corruption and decomposition to be diagnosed. Somewhere along the delivery track, the drug magically transformed into analgesic and the rest of society, including government, slid into either acceptance or compliance. Some sectors of government abdicated responsibility, when their persuasion to appear oblivious was finessed with financial seduction.

Debt is seductive. Its power is evidently overpowering. America is anxious to move on beyond the current administration and is anticipating a new President with promises of change. We listen for signs of that impending change, and so here is the Second Tell. During this past weekend President Elect Obama, while making promises of unprecedented public works projects, stated, “We've got to provide a blood infusion. And that means we can't worry short-term about the deficit." At least Obama’s delivery of attitude toward economic probity was less arrogant than Bush and Cheney’s, but identical in its bearing. He seems more genuine, even if misguided. The legal debt ceiling has already been increased to $11.3 trillion and more increases will be requested.

Evidently not so much has changed or will change, and deficits be damned, full steam ahead with borrowing and government intervention. An additionally disconcerting sense is felt when accepting the reality of the notion that even bigger government may not be just an enigmatic abstraction over the coming four years.

A preceding article on this post discussed the need of the 44th President to urgently obtain an intensive and thorough education on inflation. With the coming boom in currency creation, not doing so would be tantamount to an abdication of responsibility.

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• Revising Government Relationship To Money

In the search for solutions to the global economic turmoil, there is a disconnect between the objective of bankers and financial institutions, and the objective of government (read: people). The global crisis presents an evolving pathology beyond the reach of Paulson, Bernanke or any other imposition. That is the great mystery and abstruse nature of money.

If current examples of frenetic activity on the levers of the financial system are any indication, no one really understands money. The actions have been more akin to transgressions against taxpayers, although where would any forensic audits hope to begin on a course to discover root causes for the overwhelming market, currency or resource price gyrations. Some well enough appreciate how to use or manipulate money, but who really understands its complexities and flux? We all make some use of it, need it, work for it, fight for it, even beg for it, but understanding it is an altogether different exercise. We leave that to the wisdom of economists and Wall Street addressed expertise.

In the past year, banks all over the world have lost billions, and many have slid into bankruptcy. Paulson’s decision to hand billions to bankers, in the hope they would loosen their grip was just that, hope. J.P. Morgan for example acquired depressed financial entities for pennies on the dollar, expanding its presence and reach over the economy. But lend? Not so much. Why should it take risks, when it is still standing after having been more diligent, or gifted with higher levels of awareness than others?

Banks will not lend in this climate of uncertainty when the term rescue has morphed from verb, or name, into an adjective of economy. Paulson did not structure his deals with effective strings attached to ensure the function of providing liquidity to businesses. If the Secretary of the Treasury’s purpose was to stimulate the wheels of commerce on behalf of taxpayers, he is failing. Europe has also taken the bank bailout route in earnest, with each country dispersing enormous percentages of its GDP hoping to diffuse uncertainty and minimize the collapse of banks.

Did anyone listening to the concept of the government acquiring toxic assets from banks not have an intuitive flutter? And with all the talk of mortgages, are we forgetting the careless lending practices that were also applied to car loans and credit cards? Without disputing the overall concept, who could possibly be chosen as the arbiter of moral behavior on such elemental questions as the application of “valuation” on these noxious and nebulous inhabitants at the far reaches of the derivative universe? Walking on water would prove a more plausible expectation. This is not a smear on Paulson. He is human. He will no doubt do what he believes to be right. Paulson’s view is that of a banker. We will not change human nature, nor eliminate greed through regulation. Although perspective can be limiting, and in the existing financial situation may act to further exacerbate the damage, perspective can be modified. This can in turn alter behavior. The banking system may be in crisis, but much of the rest of the economy is not. At least not yet. Is a very different approach worth consideration?

There are endless suggestions floating through the political maelstrom girding an out of control financial implosion that will not be corralled. We are now heading to the $2 Trillion dollar bailout mark with no end in sight, and little substantive ignition of financing activity. On the personal front, taxpayers and workers are on average currently paying interest of 6.95% on car loans, 11.43% on credit cards, with $2.6 Trillion of consumer credit outstanding.

Taking counsel from Abraham Lincoln and Theodore Roosevelt, in the hope that we might prevent reprimand from Thomas Jefferson, may we be so bold as to proffer on the Secretary a few additional suggestions on dealing with the vicious cycle of credit contraction?

Mr. Paulson,

- Send out the whole army of economists and accountants at your disposal, add more as needed, to meet with the critical cogs in the economy, businesses, not the banks.
- Disperse these troops across the country, adding administrative support from state level when needed or appropriate, to meet with companies large and small.
- Don’t ask what they need, that would be insulting since you already know, just ask, “How much and for how long.”
- Assess the reasonableness of the demands based on current audited financial statements of each corporate entity and make a decision on the urgency of the need.
- Cut the check within two weeks, and here’s the key, No Interest. None. Why should banks be the only ones with access to borderline negative interest rates?
- Prorate repayment schedules over a five year window, preferably, but remain flexible and susceptible to the capacity to repay.
- The taxpayers (read: government) aren’t in need of interest on their money. Whether entrepreneurs or employees, they require an economy that continues to thrive, provides them jobs, a roof over their heads and nourishment for their kids. They’ve already been slapped into awareness on the traps of endless credit, they will be more astute from now on. Furthermore, the national currency is not backed by anything other that the strength of the economy, ergo, until there is a change to something like gold, silver or microchips backing the currency, the economy is it. It needs bolstering and we will trust that its resurgence will provide enough gain for us to deal with the cost of escalating debt.
- Take care to ensure that proper documents are signed with equitable collateral.
- Establish very tough regulations and repercussions in order to limit abuse, kick-backs or graft.
- Nationalize the Federal Reserve if you have time, before deploying the distributors. The Fed will be less cantankerous in good time, but you must give it the good news. It will be really good news, since there will be no leveraging with 30+ multipliers on capital to asset ratios, as we have seen over the past two decades in the financial derivative escalations.
- Government will actually have accurate measurements on the money supply, and there will be no concern for where the interest owed will come from, since none will be required. 
In other words, no one needs to fry at the bottom of the financial pyramid. This will also reduce the need to infinitely create new debt.

That’s it, Mr. Paulson. Good luck.
Sincerely,
Your Taxpayers.

While issuing legal tender is in the government’s purview, it does so through creation of bank debt. Banks distribute currency as they see fit. Even The Fed operates under the aegis of the government though it operates privately. Increasing the efficiency of the money creation system, allowing capital to flow and infusing it directly where it will most straightforwardly impact the nation’s engines will ignite recovery. Efficiency is not the primary objective, though under current circumstances, it would appear a necessary one in the mix of considerations. The current monetary and banking infrastructures claim efficiency, while the outcome is evidence otherwise.

The American economy rests on the back of the American worker and consumer. Taxpayers own the government and currency is only a tool enabling commerce. Get it working for you, not against you. With the computing power available and the internet’s ubiquity, the possibilities to become creative on the currency front within economic, political, or other boundaries are endless even to include a large role for banks.

The government just wants its tax. On the next trillion dollars, don’t waste it on the black hole of bad debt. Get this economy thriving again and get it paying its taxes. There will then be hope on the horizon that the principal on trillions of dollars of debt will gradually get paid down.

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• AMERICA’S OBAMA CAPITAL

The American electorate has placed a bet. It is betting: That Obama will burnish the image of America in the eyes of the world, that he will pull America out of its economic crisis, and that the President Elect will lead the nation into a new era of change. Peering through the Obama enigma, there is a very real ray of light that may bring energy to the turn-around, however temporarily. A majority of taxpayers await with hope the revelation of the “change” definition in the Obama encyclopedia, although fear continues to permeate the country, and bad news persists in dominating the news.

The world witnessed an international reaction to the U.S. election of its first African American President. Most Americans, including many who voted for McCain, could not help but be touched by the event, and most were inevitably moved by the possibility that “hope” might find traction, though much of that hope rose from weariness and disappointment rooted in a failed 43rd Presidency.

Populations in Asia, Europe, Africa and even in the Middle East, genuinely applauded the event, and demonstrated a new support for possibilities available in the American society, polity and economy. Most countries around the world envy such freedoms, and many were stirred with a refreshed affirmation of America’s glassless ceiling. Obviously many of those countries also look to America as a source of capital coming from purchase of their products and resources. A few also procure loans for America’s expenditures.

The “goodwill” generated from the Obama election presents America with a window of time during which it will be able to further extend its borrowing practice from countries holding significant dollar reserves. America remains the only safe haven for cash. The Obama Presidency will find that extending the portent of “hope” beyond the borders of the United States could provide the Treasury an additional trillion dollars in borrowed funds with which to structure a turn-around for the world’s largest economy. The care, diligence, boldness and intelligence with which Obama allocates the country’s newfound capital will dictate the length and depth of the current recession. The window provided by this goodwill may be opened only temporarily. We will watch as he attempts to deliver on his promises, but the real “hope” is that he will use this window to dramatically energize the economic engine much of the world depends on.

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• WHAT THEY DIDN’T TELL US ABOUT THE BAILOUT

We are about to witness more plundering of the American taxpayer. The 700 billion dollar bailout so quickly rushed through Congress under the threat of complete collapse of the U.S. economy, was slipped by American taxpayers who in majority were against the bailout. Democrats jumped in first, Republicans were slower to rush in. Both parties acted while drenched in fear and anxiety. The taxpayers were right. Obama and McCain were not, nor did they do the right thing right.

Taxpayers were threatened that with credit market paralysis, their jobs would be at risk, they would not be able to keep their businesses afloat, and they would not get loans to finance their lives. Without the passing of the Emergency Economic Stabilization Act, taxpayers would find their whole way of life turned upside down, and the specter of finding solace on a park bench would be just around the corner.

Neither Paulson, nor Congress, provided any real details on some of the critical concerns surrounding the bailout. Even expert analysts didn’t raise objection as to how some of the potentially explosive finer points might in practical terms find implementation. Taxpayers assumed that in such a world shattering moment, on such a historically critical decision, Congress would finally be diligent. Congress, filled with resident and elected lawyers, would understand the fine-print on the legislation. Taxpayers accepted or assumed that someone, somewhere, hopefully someone with talent, would do the right thing, and make sure that the legislation would in turn be subject to industrious and careful execution. Wrong on all counts.

The coming weeks will deliver further anxiety from wildly fluctuating markets, and distressing news that the bailout will finance hundreds of millions of dollars worth of salaries and bonuses. These millions will be paid to incompetent individuals who mismanaged their institutions into becoming beggars standing at the bailout wicket crying for taxpayer handouts. We can expect agreements between executives and their employers to surface, that Congress did not consider during the passing of the legislation. Don't think for a moment that those agreements won't stand. Paulson and his friends at the Treasury and the Fed will not be able to withhold money from those institutions. And that’s just the beginning of the abuse. Lawyers will rush to the trough, and taxpayers will stand-by, helpless, as large amounts of their added debt burden continues to be abused by many responsible for creating this disaster in the first place.

It will also surprise taxpayers that the lending institutions that will receive handouts, will be under no obligation to “lend.” Oops, sorry. Congress also failed on that one. Senators and House Members who rushed this rescue package through, will escape unscathed and untarnished, and one of them will even be rewarded with the Presidency next week. While government cannot be expected to solve all problems that face a nation, it is expected to act with prescience and prudence. Why Congress isn’t, is the real question. Is the mainstream media watching?

Oh, and hiding behind the skirts of PricewaterhouseCoopers and Ernst & Young to “help” in the administration of the bailout should not be accepted as a veil shrouding incompetence, and sanctioning abuse of power.

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• THE ELECTORAL PROCESS - AN URGENT CHANGE IS REQUIRED

American taxpayers are watching their leadership take a stake in the financial engines of their economy, supposedly on their behalf and for their own good. The State is taking equity stakes in banks, healthy banks, solvent banks in need of cash, as well as not so solvent ones. And, as if it matters, Paulson and company are earnestly pointing out that participating companies will have to accept executive compensation limits. Taxpayers have no choice and the compensation limits won’t make the pill go down any more easily. Taxpayers, nevertheless, have front row seats to the biggest show on Earth, and to the historic changes that are shaking the American style of capitalism to its roots.

For taxpayers to be provided the kind of government that will be effective in its supervision and oversight of corporate investments, or general corporate behavior, as well as continued tendencies toward free trade that have built the country and its economy, they will need to demand change in the electoral process. Honest dissection of root problems that enabled the economic turmoil currently being endured by most taxpayers, should lead to an elimination of the organizational, corporate, and special interest funding of elected officials.

How, for example, could Congress, the house Financial Services Committee and the Senate Banking Committee, conduct themselves in a manner befitting the public’s interest when all of them received millions from the financial services industry, including Fannie Mae and Freddie Mac? Independence of thought and deed becomes difficult if not impossible when powerful, almost unlimited forces oil the machine that keeps you elected.

Labor unions, political action committees, corporations, associations and other such bodies, should be prevented from providing dollar contributions, or gifts, to political parties, their representatives running for office or those already in office. Along with changes in corporate governance, there is a need for change in electoral governance.

If this is a government By The People and FOR The People, then the people should demand that the financial clout of special interests be taken out of the equation. It is NOT time to look to Europe for a better form of governance of very much, particularly the economy, as some would suggest. Europe was only remained an envious bystander to America’s technological and entrepreneurial advances achieved over the past thirty years. Don’t turn the clock back a century. Allow as much freedom for innovation as possible, but give teeth to oversight. Get meddling interests out of the electoral process, and allow creativity of get the country out of its current difficulties. Legislators will resist such changes. Don’t let them.

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• THE ROAD TO PANIC – GET OFF

Ten days traveling up and down the West Coast proved to me that the intent of those controlling the Wall Street joystick, with help of many ever-so-willing media pundits, failed to instill Panic and Fear in minds of most Americans. Concerns? Yes. Panic? Not so much.

Taxpayers have been hit with a hurricane of bad news, and have even been threatened with promises that if trillion dollar bailouts were not implemented overnight, the whole financial system of the U.S. and possibly the world, might collapse. The American economy is not failing, and unemployment is at a rate most other countries are envious of.

Since the real problem rests with lenders or repackagers of home loans that can’t be repaid, is anyone telling America’s taxpayers how much these losses really represent in total? No. Is it really almost a trillion dollars, or is it really much, much less? Is anyone asking where all this money went? When a house sold, affordable or not, someone cashed that check. Why are taxpayers told that Treasury Secretary Hank Paulson needs to be given a blank check because only he will be able to do what is right, and he will know what backstops will be needed to provide a soft landing to this calamitous financial unraveling? Did he do what was right when he was head of Goldman Sacks for six years? Is it that he should be respected because he made almost a billion dollars as CEO of Goldman Sacks? His power and dominance continue their trajectory, and if he is given a carte blanche on access to taxpayer’s money, we can expect more abuse. Providing even more latitude to the likes of Goldman Sacks to become banks, is simply a knee-jerk reactive agreement to further consolidation of power.

Congress is not stepping up to the plate and neither are the two Presidential Candidates who are too busy flailing on the stump. If this is really the calamity we are all being led to fear, then all should be in Washington, coming up with immediate solutions. Bailouts are not solutions, just like band-aids are not a cure.

Don’t believe the panic-button pushers. Panic misleads, and it blinds those led to panic from seeing reality, or discerning appropriate action. Panic also leads to extreme swinging of pendulums that create new problems rather than resolve old ones.

It remains that America is a country that billions of people wish they could live in. America is the country that people have confidence in and whose environments they wish could be replicated. Its environment stimulates the entrepreneurial spirit that is further fueled by its creativity. It is also the only country that all capital gravitates toward when it is seeking security. The economic fluctuations, even those such as the ones we are currently witnessing or getting hurt by, caused by abuse or bad management, or even from errors in judgment, are risks accepted by those whose cash is seeking safe harbor. Transparency is one aspect favoring foreign investments in America, however, it is not the principal one. The overriding element is America’s power and international presence.

Whether you are a dictator in Africa, or an oil monarch pillaging your country’s wealth, or a foreign government fund, you will always place a significant portion of your cash where it is safe. America will print more dollars because it can, and it will have a market for them. The doomsayers all make money somehow, somewhere in the game, or just repeat nonsense they’re been fed. There are also those who feint left, then go right. Remember Goldman Sachs’ forecast that oil was heading to $200 a barrel when it was kissing $150? The price immediately caved in following their announcement. Were they looking for fish onto which to dispose of positions? This is no time to panic. Tighten up the belt a little, and save a few dollars. Middle America will ride this out in spite of its Wall Street leaders. However, American taxpayers should make sure their representatives in Washington take action on oversight, and implement some visible house cleaning, punishment on those responsible for the outlandish abuse.

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