The Gathering Storm – Part 2

Before we start, why I am telling you all this stuff, especially if you’re not American?

Before Lehman Brothers imploded there had actually been a protracted death struggle culminating in the now infamous ‘Repo 105’ last-ditch attempt to raise cash.  But at the time we didn’t know it was going on. We were unaware.

Today there is a similar life and death struggle going on. But if, this time,  we pay attention we can see what gets done, by whom, to whom and for whose benefit.

On one side we have the banks who are, make no mistake, fighting for survival. On the other…well that’s the problem. Who is on the other, on our side?

If the banks win this struggle , it will be at the cost of immense violence to America’s pretence of having a legal system where all are treated as equals.  Essentially the law will be set aside and fraudulent activities will be systemically ignored in the name of saving the banks.  If the banks lose it will mean a second huge TARP-like bail out, massive QE or a massive plunge back to depths lower than ’09.


The Fraud.


Part one was about what has been called ‘Robosigning’.  It is where this whole roiling mess started.  In a nut shell it was a fraud of hiring people to sign documents that should already have been signed but weren’t. The signature was supposed to be by the responsible person at the bank who had checked the documentation to guarantee that all is as it should be, that all representations within the document had been verified and the bank was satisfied.

That there were no signatures suggests none of the above was done.  Let’s face it, if a bank had taken the time to do all that work, why would they leave off the signature?  They wouldn’t.  Which means the work was NOT done.  Which additionally means the person ‘robo signing’ after the fact was perjuring themselves.  The robo signing was ’09 and later.  It was therefore done by the banks AFTER the sub-prime collapse.  That’s important. It shows a cover up.  The question is covering-up what?

The signatures were also found to be forgeries.  All very nasty. But the banks and those who have their backs – the government want to ‘cop a plea’ essentially. They want to say – ‘yup, terribly sloppy. Won’t happen again. A colossal clerical cock-up. But cock-up, not conspiracy.’  The usual ‘let’s be sensible about this and not imagine conspiracies’ flummery.  So let’s not imagine. Let’s look at known facts. Facts about how serious this is and how petrified the banks and the government who protects them are.

The banks and their owned politicians are so desperate to contain the damage they tried to change the law.  The bill was called the Interstate Recognition of Notarization Act 2009.  It was passed without debate.  One of its effects would have been to allow the entire robosigning scandal to be swept away by simply providing new documents to be notarized in any handy state you like – more than likely far away from the state where a house was being foreclosed, and presto the new ‘notarized’ document would replace any awkward questions about old documents. No need to worry about those old things.  And this ‘new documents’ ruse has already been tried. So far they too have been rejected by the courts. So far.

The Notary bill was vetoed by Obama. Even he could see the political suicide if he let the banks have such a blatant ‘Get out of gaol free’ card.  And so a single moment of decency in an otherwise epically putrid affair.

Sadly, fraud and conspiracy is exactly what  seems to have been gong on. And the banks themselves are providing some of the proof for this claim.

Remember from part one, the picture of the banks in the centre with the mortgage payer to their left and the Security buyer to the right?  Well robo signing was all about the left hand side.  Now we pass to the right.

The robo signing scandal is analogous to the Watergate break in. Robo signing is itself a scandal and is what came to light first.  But it is itself actually a cover up gone wrong.  The real piece of villainy is what it was designed, but failed, to hide.

It’s one thing to shaft ordinary home owners.  They have no powerful friends they can call, they have no expensive lawyers and they don’t know each other so they can’t easily club together to fight back. It is quite another thing to shaft hugely wealthy, very well connected companies who do know each other, can club together and do have expensive lawyers.  Yet it is this group ( the broader financial class and other banks) that the bankers may have set out to shaft and rob in the first place.  Greed gets you every time doesn’t it?

So this week Pimco, the world’s biggest bond trader, Blackrock, the worlds largest money manager and the NewYork Fed itself, joined a suit which already included Met Life, America’s largest life Insurer, to sue Bank of America.  America’s largest bank. The suit claims BoA sold them fraudulent mortgage backed securities and they want their money back. At stake 47 billion dollars worth of securities.  Shares in BoA took a little tumble.

This is what happens when (alleged) thieves fall out with each other.  Bear in mind BoA are not unique. They did what everyone else was doing. As we will see later.

The BoA case is the biggest but it is not the only.  There are a whole host and they are multiplying faster than bed bugs in Manhattan.  Variously what they allege is that banks may have:  knowingly and fraudulently over-valued houses thus lying about the value of securities they were creating, told investors a pool of mortgages had only 10% sub prime or risky loans in it while knowingly including 40%, may have ignored evidence they themselves solicited that mortgages were false, risky or otherwise fraudulent and left them in a pool of mortgages without passing on any of the information to investors, may have conspired with Ratings Agencies to give higher ratings to low grade securities, and last but by no means least may have pledged the same mortgages to more than one investor.

How widespread may all these problems have been? Well according to testimony from Richard M. Bowen, former Chief Underwriter for Citigroup’s consumer lending group to the Congressional Financial Crisis Inquiry Commission,

“In mid-2006, I discovered that over 60 percent of these mortgages purchased and sold were defective,.. Defective mortgages increased during 2007 to over 80 percent of production.”

So not just BoA.

This might seem like an unbelievable litany of malfeasance.  A little too much to believe, even of banks. And yet in many cases it is the banks making the claims.  Multiple selling appears in several cases, one of which is, rather wonderfully, BoA versus Taylor Bean and Whitaker Mortgage Group. BoA claim they lied and cheated and were ever so beastly. And BoA is shocked and and and…. want our money back!

There are several reasons such multiple assigning might be done. One of them is to combine it with taking out multiple insurances upon the same mortgage or on the whole security it is in.  One for each different assignment for example.  Which would mean that when the one mortgage/security defaults the company that was running the fraud – who knew to insure that security because they had knowingly ensured it would fail by stuffing it with sub par mortgages without telling either the buyer or the insurer – that company (not the owner of the security nor the home owner) – that company – would get paid insurance many times over.  There is evidence that this was done.

Bad as all this is, the worst of it is that because it is SO systemic, involves SO many companies and SO many mortgages and securities, there is going to be an almighty pressure to DO NOTHING.  Because to do anything presses a button which sets off explosions almost everywhere.  If one was to take all the charges and suppose they are all representative of frauds that really have taken place, then several Trillion in residential mortgage backed securities are invalid and quite possibly as many Commercial.  If they aer invalid the banks HAVE to pay it all back. They DO NOT HAVE THE MONEY.

They were and still are insolvent. Their debts and liabilities vastly out number their assets. That is leverage for you. Leverage, without the promise of income from mortgages and secutiries – is ‘lights out’.

To allow the questions to stand and be pursued through the courts is death to the entire Shadow Banking system. Will the powers who have already spent several Trillion dollars of our money and saddled the us, the tax payers, with paying that amount back, will they ALLOW everything they have spent so much to save, to be buried under a land slide of fraud?  And just in case you don’t have a headache yet remember many of those we owe this borrowed money back to are the people involved in the fraud.

What is oozing to the surface is that they are ALL in it.

While BoA is suing Taylor Bean, BoA is being sued by Pimco, Met Life, Blackrock and the NY Fed. I am quite sure the Fed does not WANT to sue BoA. After all they have bailed out BoA with billion upon billion.  The problem is how interconnected it all is.

Met life began the suit they are all now part of.  For months BoA simply stonewalled Met Life. Then suddenly, when this whole thing began to blossom into the fungal growth it is now, the others jumped in.  Why?  Did they suddenly think it was going to blow up and wanted to get their money before it did?

Pimco has been buying up distressed bonds.  Some suspect they did so specifically to be able  to sue.  The Fed owns a huge number of Securities which it is now obliged to try to recoup money on which it acquired from the ‘rescue’ of Bear Stearns and AIG. They plus many others went into the infamous Maiden Lane I, II, III. Blackrock manages Maiden Lane.

But Blackrock is one third owned by Bank of America.  And in turn Blackrock owns around 5% of BoA.  Which is a very large chunk.

To impact matters even further there is one part of this whole legal argument about the legality of the securities and the transfer of ownership and title, which centres on a company called MERS, The Mortgage Electronic Registration System.  How is that a problem?

Well a huge number of the possibly fraudulent securities and mortgages will be now owned by Freddie and Fannie.  Who have spent two years buying them up as part of saving the oh-so-necessary-and-socially-beneficial banks.  So it’s not surprising that F&F are gearing up to sue … everyone. Already another part of the Federal housing machinery the Federal Home Loans Banks have filed court papers demanding various big banks buy back $20 billion in loans citing “fraud, misrepresentation, and violations of state and federal securities laws.”

So where’s the problem?  Well MERS, at the centre of much of the litigation is owned by…Fannie and Freddie.  So who are they giong to sue?  The Banks? And who will they sue, MERS maybe? Which means the obvious answer is for F&F to sue themselves for fraud, settle out of court and pay an undisclosed but vast sum on condition of not saying anything about it any more.

I am sorry I have dragged you thought so much arcane detail. But the claims, if simply stated baldly just seem too unlikely.  You need some proof.  But now that you’ve glimpsed that there really is proof and substance what is the point? Apart, that is, from the total evisceration of trust in any aspect of the entire financial world.  And a huge pending question over whose side our systems of laws will come down on? On the side of justice or the side of money and power?

The point is this, defrauding and stealing from ordinary mortgage payers is one thing.  Stealing from powerful fellow financial players is another.  It pisses them off.  Shit on the little people by all means. But don’t shit in your own nest and steal from your brothers.  It endangers the system.

Now I think they all knew the game was bent.  But as long as they were ALL profiting, then the thieves were happy to stick together.  That changed when the little people started to get uppity and some lawyers decided their was money to be made helping them.

At that point, when foreclosures were suddenly stopped, the flow of money into the entire system stopped. No payments, no foreclosure payments AND it coincided with the Federal bail outs running low.  Suddenly all the addicts needed a fix and no one had any dope.

When there was no more money coming in, all the thieves started to look at each other.  Addicts panic when they’re strung out.  The thieves are thinking if there isn’t going to be enough to go around, and if someone is going to get blamed they want to get theirs first.  Knife the other bloke before he knifes you.

And that is where we are.  The banks are corrupt through and through. The system over which they preside is not about banking its about stealing. From you, from me, from insurers, from pensions, from governments and even from each other.

In my opinion they should be shut down. If the argument is that we need banks. Then all the more reason to shut these monstrosities down. They are banks in name only. And their needs are now pressuring entire nations into actions that endanger the well being and future of us all.  If we let them they will set us against each other and profit from the carnage and misery.

Next, and last, what this new cash and fraud crisis means for the nations whose banks are caught up in it?

UPDATE  – The rating agency Fitch  just put ALL the main American banks on Rating Watch Negative.  That means they are not downgraded YET but are being watched closely with a view to downgrade.  The two banks most affected?  BoA and Citi!

26 thoughts on “The Gathering Storm – Part 2”

  1. excuse me if I'm missing something here but…

    Your outline of the debt problem, and description of the way that all banks are in hock to all the other banks, blackrock part owning BoA and vice versa, etc, is as always clear incisive detailed and informative but your conclusion, as ever, is that the rotten apples should be shut down, and the banking system cleaned out.

    In other posts you have outlined the way in which countries borrow from each other ( spain borrowing 40 odd billion from portugal and portugal borrowing 40 odd billion from spain etc ). Most ( cough) dveloped economies are currently running a deficit of 70% or more of their GDP. so Where do governments get the money they lend to each other, to keep national infrastructure ticking over, stop the system breaking down? You have described the way in which some of it is simply written into existence by promisary notes , but the hard cash is surely borrowed from banks ? And the list of " international bond guarantors" you printed with regards to Allied Irish, wouldnt the same names appear on an equivalent list of purchasers and providors of large scale government transactions overseas ( aircraft, arm, oil, industrial contracts etc)

    So my question for you is, under what circumstances could you imagine a government closing down the very banks they borrow from, when both Bank and Government are going cap in hand to the same ultra-rich elite, who it is ( as you described r.e. Ireland) more in their interests to protect than their own people ?

    It was stated in the Guardian today that 90% of wealth generated in the UK is generated by the 1 million jobs linked to the city. That money is not going ' back into the economy" it's going offshore or certainly out of the UK to increase the various holdings of the same ultra-rich elite (who are bondholders for the banks you wish the government to close down) who lend it back to the UK to run various private and state enterprises.

  2. (cont'd)
    The geometry is, escher like, a closed circuit. And the storm clouds you describe are gathering because the only logical answer to the debt loop you describe is breaking the loop, the two most obvious ways ( speaking as a non economist trying to understand all this) being debt repudiation or recourse to law ( banks suing each other).

    If banks go down, nations go down, if as you suggest theyre both borrowing from the same small ( whirl)pool of offshore/ private wealth. So it's in everyone's interest to keep these bastards happy for as long as possible. It's quite easy to be anti government or anti bank or indeed anti everything when self interest or protecting one's own ass ( I mean investors) is so clearly the driving motivation behind national government policy.

    Your exposition and passion for such matters is fantastic and really I thank you for it and appreciate your campaigning spirit….. I know there are no ready answers but i always struggle with your conclusions….. as to what new and positive change of direction might be pursued. Closing everything down seems abit drastic and or nihilistic seen from the point of the view of the ultra rich elite who are paying for it all. I note with interest the recent campaign in America for the ultra rich to give away ten percent ( or was it half ? all these zeros….) of their wealth. Sure you can be cynical about it and call it a milksop but perhaps the people that prop the banks up are starting to look for a way to protect their own ass ( ets) or at least to avoid openly shooting themselves in the foot. Is Civic responsibility moving from Public to Private ? Wasnt that called Feudalism ?

    Excuse me for writing at such length but i have been following your writing for some time and would appreciate your comments on my possible missaprehension of what you are advocating, which remains somewhat obscure to me.
    Although of course you might not be advocating anything, but simply keeping a beady eye on what's going on. For which again thanks.

  3. The UK & US govts don't have to borrow from anyone. They can create credit out of thin air, which is what QE2 is about. EU countries, on the other hand, have to borrow if they're deficit spending, since they do not control their own currency. So neither the UK or US govts can be brought down by failing banks. Those govts can always meet their domestic obligations.

    As for the culprits in this disaster, for me it's the ratings agencies. W/o them, the scale of the fraud couldn't have reached the astronomical state it's in now. Why anyone bothers with anything they now say is one of life's great mysteries. They have shown time & again that they're either incompetent or just plain bent. Bent, most likely.

    And for the resolution, I expect this will all be swept under the carpet in some manner, though how exactly, considering all you've outlined above, I cannot imagine. As ever, capitalism is eating itself when times are bad. Profits are hard to find, so they squeeze each other. It's all they've got left. They've milked the rest of us dry.

  4. DopeAddict – The UK & US govts do have to borrow from someone, the central banks. QE is money created out of thin air by the central banks which is used to buy Government bonds. This is still borrowing as the Government have to pay interest on these bonds. One can argue that this is a more stable way of borrowing than for the EU countries but it is not the Govts who have any control over the printing.

    On a separate note, I constantly ask myself, how can intelligent people not realise what mess they are creating. Maybe I have to step out of my box and into one of somebody incredibly rich. If someone is making more money than they can possibly spend then maybe they like to demonstrate their power by other means!

    http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8081594/Bankers-caused-credit-crisis-for-kicks.html

  5. Hi thesleeperawakes

    I agree with you. It reads like an obvious frame-up, as if the rich have got bored and want to try something different.

    Perhaps now they've been caught out, their plan is to create such a torrent of court cases that, in order for the economy to recover, the government will have no choice but to vote in a moratorium on all kinds of toxic debt.
    Out comes a shit shovel and a faint path through the Toxic Debt Wasteland is discernible.

  6. Golem XIV - Thoughts

    Andrew,

    Great questions. I'm not ignoring you. I'm thinking. I'm also playing with the kids if I'm honset.

    Not sure if I'll answer here or in a post.

    Dope, Sleeper Rich thanks for your comments as always.

  7. P.S. the obvious answer to a the questions posed by a banking culture of maximising profit via risk- raking is a return to old fashioned prudence. ( e.g. splitting high street banks from investment banks / taxing earnings kept in a country lower than holdings sent abroad etc)

    But prudence as they say never pays . And our paymasters want paying. Fast. They owe alot.

    also playing with kids.
    That's weekends for you.

  8. thesleeperawakes — Don't wanna quibble. As you say, that is how US & UK govts deficit-spend. My point, I guess, is that don't *have* to borrow to spend. At least that's how I understand it…

    The govt owns the currency, they don't have to, in effect, get permission from anyone to spend, nor take the unnecessary step of issuing govt bonds to borrow money from the purchasers.

    If they want to "buy" something, they can just credit the seller's account.

    Issuing govt bonds is just corporate welfare. It's a step that *can* be skipped, if the govts choose to do so.

    And in today's climate, spending in this manner (to create jobs, not just flood the country with currency) won't cause inflation, not with so much un-utilized resources at hand. Our govts need to spend to spur demand, but aren't doing so.

  9. I love the way that the system fails and we try to fix the system using the system.

    Usury should be outlawed and money should go back to being boring. Then it will be us that have interesting lives rather than money. Imagine a world where G's blog was about filmaking rather than the construct we exchange for goods and services.

    I'm sure people would still play games and good luck to them, their is no one reality. But their games won't overshadow the whole globe like the worlds biggest tumour.

    Oops! Sorry i was dreaming again! Silly me!

  10. 24k — yeah, the funny thing is you still see references to "the collapse of communism," yet you never see the phrase "the collapse of capitalism," though that's exactly what we've been seeing these last few years.

  11. richard in norway

    hi just want to say i love the site and your info is very engaging. i keep trying to tell people that this aint over, but unlike you i don't have the tools to analysis it, i just feel it in my water

  12. thesleeperawakes

    Hi Golem,

    Further to my post above re Governments having to pay interest on QE (through central banks purchasing bonds/gilts etc), I tried to find some evidence that all the extra money being printed is causing our debt to spiral as well as our currency to devaluate. You are substantially better at understanding these issues so I was wondering if you could enlighten me/us.

    Using the treasury's figures (http://www.hm-treasury.gov.uk/d/pesa_2010_complete.pdf) over the past few years our debt had increased reasonably slowly. 05-06 (+7.8%), 06-07 (+6.9%), 07-08 (+8.6%), 08-09 (+1.8%). 09-10 (+1.4%). Now the interesting/worrying bit is when one looks at the increase from 10-11. Our debt interest increases from 30,948 mil to 43,268 mil, an increase of 39.8%. Now is this the beginning of a debt spiral because with compound interest that debt would be very very quickly unmanageable? Also, why does it suddenly jump now and not during the start of the crisis?

    Another interesting debt interest stat that I found was in the local government expenditure section. On a smaller scale but still intriguing, public sector debt interest has been rising yearly by +14.3%, +17.7%, +10.2%, +33.6%. It would seem that local government had got into a debt spiral but in 08-09 their debt interest dropped by 178 million (-25%) and then 09-10 dropped again by 503 million (-97.9%). How in the midst of the crisis, ever increasing expenditure and a rise in public sector workers did they manage to almost remove interest on their debt?

  13. Golem XIV - Thoughts

    Hello Sleeper,

    Thanks for the figures. While you have been getting these I have been digging into Japan's figures. Which are an absolute nightmare.

    Now, I know I say this periodically but you'll just have to forgive me. I get nervous that anyone here gets an inflated idea of how much I know or how expert I am. It is very kind of you, Sleeper, to claim that I am better at this stuff that you are. Your modesty does you credit. But I am NOT an expert. I don't want anyone here to think that I am.

    I read a lot and try to think clearly about what I read. THAT'S IT.

    As you have seen I sometimes make horrid errors. Luckily Dave from France and others here, pick them up. For which I am most grateful.

    Most of what I try to do is to argue against what I see as the debilitating and stultifying uniformity of opinion, which seems to verge of hysterical claims of certainty from the mainstream media and their assembled experts.

    So much is passed off as 'certain' or 'unarguable' when it is not. So much is set aside as 'unthinkable', when it shouldn't be. I hope my value is to remind people that all the claims of certinty are just that – claims.

    All I cwant to claim, is that after three years of reading, learning and thinking, I think I can clearly see how false a lot of the assertions made by those who DO claim to be expert, really are.

    Anyway – our figures.

    The local figures are fairly easy I think. My guess is that the drop in interest payments would be largely due to the BoE cutting the base lending rate as far as they did. I am sure councils would have been rolling over enough debt that they would have benefited from the rate drop. T

    hat initial rate drop has now been eaten away by the banks who have claimed they needed the extra margin and cannot afford to pass along the rate cut to customers.

    The national figures are more of a problem. I can't offer you a quick answer. So many things have been changing. For example, it is concievable that some figures for unfunded liabilities such as some PPI's may have been consolidated onto the public finances. If so their figures would suddenbly appear and our payments would jumnp.

    I don't know if this is true. I just offer it as the kind of question I would be asking of those figures.

    Our interst on gilts hasn't gone up that much. But the amount we've borrowed has. And what we are bying with it continues to amaze me. Our holdings of US debt have rocketed in the last quater. If memory serves the BoE's purchases of doU.S. debt is now over 448 billion dollars. In the last US figures it showed the BoE had bought another 74 billion.

    WITH WHAT? That's about 50 billion pounds. Did you hear of the BoE crerating 50 billion from somewhere for this purchase? I didn't.

    Something very strange going on. Not your questions I know. But I thought I'd mention it.

    Sory not to be able to shed more light.

  14. Golem XIV - Thoughts

    Andrew,

    I have been writing a reply but I'm not happy with it. It tries to cover too much ground and I have run out of time for the moment. I have to go filming for the rest of the week. I am not sure if I'll get much time to post anything. I might, in the evening but I might not.

    So in the mean time I thought I would say this. In more normal times nations did borrow from the 'Bond Market'. We no longer live in normal times. The amounts we now 'need' are so huge the only people we can borrow from are other nations. The US borrows from China, itself, Japan and GB in that order.

    The reason we 'need' such vast sums is because we have chosen to save the banks and the shadow system, from their epic and terminal insolvency. Were it not for that choice we would not need to borrow or print on anything like the scale.

    So the private banks are NOT the solution to our borrowing they are the cause. The answer is not to borrow more but to owe less.

    Let the banks go and with them goes our need to borrow and print on the scale of trillions. The US is considering printing another 1-2 trillion. NOT to spend on welfare or production but on 'saving' the banks from yet more losses from their mortgage backed assets. Let the banks go and this need does with them.

    There is the argument, put by the banks, that should we let the banks collapse that it would set off such a chain reaction of collapses that we would never recover our ability to invest in new productive capacity. I do not believe this is true. There would be a chain reaction but it would not stop us in our tracks. Without the need to squander trillions on banks we could borrow or print much more modest sums to kick start productive wealth creation.

    We are living in a world of two kinds of debt, two kinds of IOU's. The banks IOU's are based on mortgages. The properties underlying those mortgages, however, are NOT worth what the mortgages say they are worth. The IOU's are empty. Which is why the banks will not accept them from each other any more. This problem cannot be airbrushed away.

    Upon this empty base the banks have created and still protect, an empire of other paper prodcuts and the promises they in turn contain.

    Nations also have debt. But our debt is based on a more solid promise. The promise that the nation can raise tax upon the labour of its people. THAT promise is still solid. It is why the banks take every opportunity to exchange their paper promises for the 'cold hard cash' based as it is on the promise of tax and labour.

    We are risking the soundness of our promise to rescue and underpin their edifice of worthless paper and its empty broken promise of securitized and derived wealth.

    We should not do this.

    What it boils down to is that we do not need the banks we have, but they need us. We need a banking system. We do not have one and will not have one so long as the insolvent banks which paralyze it, are kept alive.

    If the insolvent banks are put down, the paper which is worthless will turn to dust and blow away. The assets those banks contain which actually do have worth will remain intact. At the moment they are trapped inside the rotting and inert cacasses of the dead banks. Where they do no one any good. We need that wealth to be freed.

    Kill the banks, flush away the rotten flesh, liberate the living assets and put them to work in new banks.

    I am sure this will not convice you Andrew. But I thought I should write you something no matter how inadaquate rather than seem to ignore you for a week.

  15. I've been immersing myself in Modern Monetary Theory. MMT seems to be a figure of fun for the neoliberal members of the von Mises/Hayek cult of personality, as one would expect, but the interesting aspect isn't the theory, but rather the explanation offered of how the US (and, by extension, UK, Australian, Japanese) monetary system works.

    I don't think the mechanics of our monetary systems are arguable, so if the MMT folks' explanation is valid then a lot of people not only misunderstand the system, but are also implementing policy based on that misunderstanding, and to our detriment.

    http://www.moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    So Golem, if you're not a member of the "MMT is bullshit" crowd, maybe someday you could talk a bit about its perspective on debt, taxes & austerity. Or not. Just a suggestion.

    Regardless of your ideas about the MMT cult, I'm glad I found your blog, & I enjoy its thought-provoking nature.

  16. Golem XIV - Thoughts

    DopeAddict,

    Thank you for your kind comment. And thank you for the link. I am away for a couple of days and may not have time to post.

    I have downloaded the pdf and will see if I can understand it.

    Thanks again.

  17. hey golem / david

    well it doesnt convince me but it reads like it doesnt convince you either. I didn't really expect an "answer".

    so here's some more questions:

    Whilst agreeing in principle with your recommendations that bad banks should be shut down, I return to my question, who is going to shut them down, if the governments are the ones borrowing from them ? Answering a concrete question with an unrealiseable abstract only makes logical sense. This contradiction will be / is being played out in real time and will eventually resolve itself one way or another, perhaps something " drastic "' needs to happen to force someone's hand…. thats why smaller countries like ireland are interesting as a model. As you noted, the Irish gov't chose to back private wealth not the public interest …i.e. perpetuate the status quo / guarantee short term security.

    Perhaps to advance this argument the terms need to be altered. I live in France, these discussions have spurred a new party to form : the Anti Capitalist party. They will be tilting
    at windmills because the debt politic you desfribe is based precisely on lack of capital; if nations and banks had capital ( liquidity) the borrowing wouldn't happen. I don't think you can call it capitalism anymore : you would have to call it something like " writing-capital-into-existence-out-of-thin-air"ism. The day when someone ( perhaps you ) decides what to call it is the day when the answer we are both conjecturing will form itself in to an alternative which observers experts and perghaps even nations can put their weight behind. What would you call it ?

    All this frantic dollar buying on behalf of China / UK ( you noted 74 billion last quarter in UK ) etc notes a last ditch return to capitalism. But perhaps the capitalism and globalsim are in conflict with each other, capitalism suggests a competetive world where seperate entities with a certain reserve of resources compete : this is not the same world where a phone call to a company in the UK or france or italy or brazil goes to the same call centre in New delhi, or where our ecological trousers are shipped over from india at 1/10 of the cost to the customer of those made down the road.

    Countries develop at different speeds, stock and shares rely on the same up and down being played out between companies and nations. Yet the global fincancial market has no " eschange rate " it works at a constant speed, making its profit not for individual economies but for multinational companies. The money involved as you observe dwarfs national budgets.

    90% of wealth generate in UK city related !! ( guardian)
    no wonder they back the city before the UK !!!

    The so called credit crisis ………the liquidity / hosuing market crash is a symptom ……. but of what ?….

    .Suggested by the above is that perhaps the cause of the debt spiral is a kind of "contradcition in terms" or " stress" between the activities/ behaviour and goals of multinational companies and those nation states/national economies…..which nobody has thought to factior into their profit margins yet ?

  18. Whilst agreeing in principle with your recommendations that bad banks should be shut down, I return to my question, who is going to shut them down, if the governments are the ones borrowing from them ? This contradiction will be / is being played out in real time and will eventually resolve itself one way or another,

    Perhaps to advance the argument the terms need to be altered. I live in France, these discussions have spurred a new party to form : the Anti Capitalist party. They will be tilting
    at windmills because the debt politic you desfribe is based precisely on lack of capital; if nations and banks had capital ( liquidity) the borrowing wouldn't happen. I don't think you can
    call it capitalism anymore : you would have to call it something like " writing-capital-into-existence-out-of-thin-air"ism. The day when someone ( perhaps you ) decides what to call it
    is the day when the answer we are both conjecturing will form itself in to an alternative which
    experts and nations can put their fiscal wieght behind.

    All this frantic dollar buying on behalf of China / UK ( you noted 74 billion last quarter) etc suggests a concerted try to shore up capitalism. But perhaps the capitalism and globalsim are in conflict with each other. Doesnt capitalism suggests a competetive world where seperate entities with a certain reserve of resources compete ? : this is not the same world where a phone call to a company in the UK goes to a call centre in New delhi, or our ecological trousers are shipped over from india at 1/10 of the cost to the customer of those made down the road.

    Countries develop at different speeds, stock and shares rely on the same up and down being played out between companies and nations. Yet the global financial market works at a more or less constant speed, making its profit not for national economies but for multinational companies.

    The so called credit crisis ………the liquidity / hosuing market crash is a symptom ……. but of what ?….

    .Suggested by the above is that perhaps the cause of the debt spiral is a kind of contradcition in terms or " stress" or between the activities/ behaviour and goals of multinational companies and those nation states/national economies…..which nobody has thought to factior into their profit margins yet ?

  19. Golem XIV - Thoughts

    Sleeper,

    Thanks for the link. Wow! I don't know how many times I disagreed with Larry Elliott and others at the Guardian when they repeated 'it's a liquidity crisis' and I said no it's not and they either ignored me or said, you don't know what you're talking about.

    The MASSIVE problem is that the SOLVENCY crisis WILL NOT BE SOLVED, CANNOT be solved by the idiot policies we have been and still are following. They were designed to deal with a liquidty problem which is why they failed and will continue to fail.

    If King is now saying – finally – that it is a solvency crisis then WHAT THE HELL is he doing still following the broken and ruinous policies of bailing out the banks?!!!

    Andrew I will respond you your very thoughtful posts. But I have only just got in from filmiing and am off again early in the morning. So I have no time to write. Hope you'll bear with me.

  20. Just a note re Obama's vetoing The Notary Bill. It was what is known as a 'paper veto'. Which essentially means that he refused to confirm it or kill it now. But can/will return to it later. Don't be surprised if this gets passed after the mid-terms.

  21. I am impressed with your blog which I have only just recently arrived at. Not only is it lucid and informative in itself it stimulates some very interesting comments. On your point about not being an expert… just one who reads widely and brings intelligence to bear on a subject which is scarily huge and affects us all… is that not you and your commentators very strength? We have been saturated with "experts" most of whom are working within a system that is clearly failing and deeply corrupt and who work within small specialism much like scientists tend to do. We need to apply a generalist vision to this problem and to explain again and again until people start to see just how bad this has got. When you say it is not a liquidity problem…well exactly! Why am I not reading more about this in the mainstream media? The mortgage problem was dealt with (it seemed) and then packed away while the banks restored themselves to heath with a massive bailout. A story widely propagated by " experts" however dubious . It takes delving into to see just how much further than a problem of sub-prime mortgages this was so once again thanks for your analysis. What to do about it who knows? First one has to see it and cut through the crap we are being sold.

  22. On 23 October 2010, Andrew wrote: "It was stated in the Guardian today that 90% of wealth generated in the UK is generated by the 1 million jobs linked to the city."

    After searching, I finally came across this from 21 October: "[…] the Corporation of London points out that the City in its broadest sense provided £66bn of tax revenues in 2009, employed a million people, and accounted for 10% of GDP." (http://www.guardian.co.uk/politics/2010/oct/21/spending-review-banking-city ).

    Can you provide a link for the 90% figure you quoted, Andrew?

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