The Great Money Experiment

The reason why corporate CEO's make so much money is because they hold the most power and with that comes great responsibility, and with that responsibility comes the automatic absorption of any blame when something goes wrong. Consider this, and look at the current financial dilemma, and how much it seems to be blunder in the media that no one knows who is to blame.

It's really not a matter of who to blame, but rather blaming those who had there hands on the money most of the time. Those who managed, manipulated or exchanged money, in order to move loans into the housing market had their hands on the cash at all times, not to mention the commission that came as reward for successfully locking in a loan for a lender. Steve Heideman, a mortgage broker said back in April 2007 that the brokers are to blame, because there are "problems and abuses [that] are happening because brokers see it as their right to make as much money as they can on a loan" (Subprime crisis shines light on mortgage brokers). The higher dollar value of the loan, the higher the commission on it's signing. This could have been a main contributor to bloating the value of the loans, to the point that the values of the homes would plummet below the debt of the loan. As of August 2008, "one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth" (Debt outpaces home value for one-third of new owners!).

So how do you blame homeowners, or those individuals who had inherited debt at a point far beyond the signing of their loan. The homeowners were losing cash. They lost cash simply because financial firms closely tied to investments of mortgage packages were absorbing all the cash through their sale. Cash is gone. The average consumer does not have the buying power or the financial sway to grab more money from a larger financial institution. What the consumer has is what they deposit in the bank, and what the banks will lend directly. But it has not been that simple over the past decade, because loans for the most part were and are ghost cash. It simply never existed.

To further the point, the financial sector has been playing a dirty game of where's the cash. Homeowners simply cannot make good on their debt because the monetary values are hidden behind an imaginary wall of infinite lending. Credit has become money, and seems to mask any true measure of cash value. Mike Shedlock, an investment advisor, has a great and informative blog, that discusses the question, "Where's the cash?". At one point he looks further into Alan Greenspan's implementation of the Sweep Account Program (Federal Reserve Board Data on OCD Sweep Account Programs). Shedlock explains here that, due to advances in financial analysis software, banks have the ability to monitor customer's usage of their checking accounts, and based on that information, can "sweep" or "relabeling transaction deposits as savings deposits." This is done for the purpose of the bank not having to hold a larger reserve requirement, basically a statute put in place by the lending Federal Reserve, that makes it mandatory for banks to hold a percentage of their deposits in reserve to secure the value of what's been lent to them. Now with less money actually in the bank required to be on hand, having been moved from checking (on demand deposits) to savings accounts, the bank is free to lend out more and more of its money, with no limitation. One hundred percent of your money has been lent out, and money you think is sitting in your comfy-cozy checking account is simply, not there (Where's the Cash?).

So, the financial fog is beginning to clear a bit, but who do these banks give money to? Well more times than none they are lending to people via mortgage brokers, and the mortgage brokers not only take the commission, but also bundle up all their loans, and sell them off to investors. So the cash is being dumped into the mortgage broker's laps en mass. Brokers were stealing twice from the consumer, and the banks were enabling this practice, by eliminating value in the consumer's cash, and turning the value back on when it was put back into the financial system.

A Clueless Economy

Why does Congress vote no on a bill to rescue Wall Street, then turn around, and vote yes? Why does Lehman Brothers get tossed overboard while other financial firms get rescued by the U.S. government? It's really not absurd to say that there was a failure, and it is easy to assume that failure is always due to someone abusing the system. Bob Moon, stated on National Public Radio's Marketplace, stated that American's have lost well over a trillion dollars in retirement funds since the Wall Street fallout bail out. Now there has been this huge amount of lending over the past decade, so much lending that banks, and financial firms were giving out endless amounts of credit without any sound collateral, and by overlooking the risks of loaning to unchecked borrowers. These financial firms were giving out money like it was going out of style, and now they've been bailed out by the government, and at the same time are locking up the credit and the flow of money. Moon, even went onto say by "painting a word picture" for the listeners, that "the fire hose is going, it is just gushing out money right now, to make sure there is an adequate money supply around the world. What's happening is, it's going directly into the coffers of those banks (ones that survived the financial fall out), and they are drinking it all up." Thus the banks are reluctant to distribute any of the money that is amply available to them.

So today we have market analysts, the Fed, and Wall Street all scratching their heads, wondering why this is occurring. Simply put, the money is not there. The consumer is tapped out. They can't turn to credit because it's been all frozen up. They cannot turn to cash, because it's being heavily absorbed by banks and any other lenders. It's like the parents asking their children why they are not eating dinner, yet there's no food on the table.

Most analysts at this point are blaming confidence, and that's apparent, in that financial confidence deems monetary assets, and we have financial firms with more debt than assets, and consumers tightening their spending, and at the same time losing future assets through investments, and retirement funds. If Wall Street wants to blame confidence, that's fine, but it should be secondary to the blame pointed at itself for absorbing all the cash. If the banks can look at its own low confidence levels, then they would relinquish the cash, and maybe things could get back to normal. These financial giants got there bail outs, so they should quit their collective wining, and be more responsible with value in the market.

Come on, really, either we have a monetary system or we don't, but give us something here!

I Can't Get No, Stimulation

The U.S. government is an absolute disgrace. We've got Republicans calling us to action to help the economy, then they decide they don't want to move forward with it. We've got presidential debates postponed, now it's going to happen. We're getting promises of lower taxes for the middle class, yet we're being expected to bail out big companies with our tax dollars. Democrats didn't trust Paulson on the bail out plan, yet they will move forward on implementing an unpopular plan, yet it is the "responsible" thing to do (Demolition accomplished).
I was watching on C-Span over the weekend, representative after representative, approach the podium with out-right anger at how this economic bail out plan is being managed by a select group of Congress, and then being brought to the floor for approval, without any discussion over it 110 page subject matter, and the laws it outlines. It's an absolute disgrace to America's ideals, and the way government should be run based on our Constitution. It's sad to witness a hand-picked group of Senators, Bush administration figures, and Representatives, go over a resolution, and walk out and tell the American public that this deal is ready to go. It's not a deal if there's no one else to make a deal with.
Here's a solution for you! Why don't you bail me out? Why don't you bail out all those people who are swamped in debt, because of these outrageously high markets. Why don't you bail us out by giving us jobs that give us reasonable pay, that would allow us to keep us afloat? Why don't you give us some reasonable health care, so that we don't have to shovel out thousands of dollars a month, which could be money used to put back into our debt, or put into investing? You don't do this, because it wouldn't make sense to you. Because you don't know what it's like to have empty pockets, and a pain in your body, you can't take care of, because there's no money to go to the doctor. You don't have a clue what it's like. All you know is how to keep those poor suffering CEO's afloat, so that they'll have enough money to pay for their country club dues, get medical coverage for their pet dogs, and mold their aging ugly wives with out-patient surgeries.
I received a letter from my Senator this weekend, after having spent a good 3 hours writing her a well thought out letter, and she had the nerve to send me back a form letter, which was probably sent out to the rest of her constituency, pacifying me, and telling me that everything will be okay, once we pass this bill, and take care of our poor Wall Street. Senator Feinstein said that she "received from Californians more than 50,000 calls and letters, the great bulk of them in opposition to any form of meeting this crisis with financial help from the Federal Government." That's a lot of people, not even considering those who are opposed who didn't write her. She also stated that "this isn't just about Wall Street." I could not agree with her more. It's a crisis at the individual level, where people are swamped with debt from all angles, and the only solution the government has is to bail out those who inflated the American financial system in the first place. Bailing out Wall Street, therefore won't work, because the Fed has decided to place yet another band-aid on a system that is financially, and internally bleeding. There solution is offer more credit to the existing credit, on top of debt. Money has become a ghost.
President Bush keeps hanging this fear over us, that the economy will destroy itself if this plan does not get approved by Congress, yet the fear has been there for a long time. We knew about our problems long before you did, Mr. President. I fear the only threat that exists now, is your administration's dangerous mismanagement of our economy.

Confusion is Abuse in the U.S. Economy.

One Guy Who Has Seen It All Doesn't Like What He Sees Now - WSJ.com

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In recent past articles, I've discussed deregulation, by our U.S. government, as the primary factor in the economic mess we're in now. In the article linked above, Mr. Bernstein has stated that the major contributing factor of our economic state, and the potential for this to turn into the next best thing to the 1939 Depression, is borrowing, and the investment rabbles that went unregulated by our government. In my opinion Bernstein is getting at a point in this article, that investors and the lending industry knew that if they could race to some undetermined finish line (the precursor to a market crash) with fattened funds, then they could sell off and come off the bull with a lot of money. This seems to be a fixed market in all senses. Take the risks up front, sell off the risk, and then walk away without worry of being anchored down by worthless stock.
Basically, the government was not watching the markets. The economy to me, represents pirates pillaging and looting large cruise ships of consumers. Bernstein even goes onto note that houses cost so much, that you can't buy anything in real estate with cash anymore. It all gets filtered down through the lending market, and this is where consumers represent the looted cruise ship, because a bulk of the real estate market are homeowners or buyers, who don't borrow, they are held under the pirate saber of loans. There are no other options. There's no protection for consumers in this current market, and this holds true in other realms of the market too, not just real estate. The Fed, now, is taking a top down approach, and funneling more money into a system that has way too much of it, and seeking more and more. Instead they should, what Bernstein states, "underpin the consumer". Start from the bottom, and in conjunction to this start sheparding big business lenders into fair loan practices.

Financial Wimps or Scared of the Bull?

When it comes to facing up to financial big boys, I can't decide if they're just plain wussies, or they can't run with the bull market. Seems to me a little of both, which has gotten the U.S. investors into our current market mess in the first place. I'd say that lack of knowledgeable and skilled financial staffers is the one reason, along with political bureaucracy, and these staffers having enough guts to relinguish there overweight wallets, and standing up to these companies who are relentlessly ripping off the American people.
The treasury secretary, yesterday, spoke on regulation yesterday, stating to the New York Times, "I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years". Well Mr. Secretary, here's some news for you! First off, it's not financial stress, it's called a crisis, and it just doesn't appear every 5 to 10 years, but has been substantial throughout the past decade. It started with deregulation by our good ol' faithful, Alan Greenspan, who "engineered the wholesale deregulation of the U.S. banking and financial system" (1). If the Fed is going to take such a soft stance on regulation, then you better be aware of your past actions, before conning the American public into giving them security.
Now, you have the U.S. Housing Secretary resigning, to dedicate more time to his family?! Wrong answer, buddy. Now he's under investigation by the FBI, due to a possible extortion of Philadephia's housing authority, forcing it to turn over property to a politically connected developer (2). What is going on here?!? We've come to find ourselves and our government running from the problems it's created, and instead of rushing to patch up the holes, our leaders have decided to do little if not nothing to patch up the damage, and steer this economic ship in its true direction. If their explanation for all of this is that they were wrong and are cleaning house, then I hope for once in my lifetime, our leaders can find competent, and apt staff members, that can do the without being hindered by politics and money.

1. Financial Market Deregulation Under Greenspan: Did It Go Too Far?
2. Top U.S. Housing Official Resigns
3. Treasury Rolls Out Overhaul of Financial Regulators