Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

How to Thwart the Assassins of the American Dream

Politics / US Politics Aug 15, 2010 - 10:24 AM GMT

By: Janet_Tavakoli

Politics

Best Financial Markets Analysis ArticleArianna Huffington's new book, Third World America: How Our Politicians are Abandoning the Middle Class and Betraying the American Dream, paints a grim picture of the State of the Union:

"Every day, Americans, faced with layoffs and tough economic times, are forced to use their credit cards to pay for essentials such as food, housing, and medical care -- the costs of which continue to escalate. But, as their debt rises, they find it harder to keep up with their payments. When they don't, banks, trying to offset losses in other areas, turn around, hike interest rates, and impose all manner of fees and penalties..." Third World America, (P. 77)


Our mediocre grammar school and high school educational system continues its downward slide. The Great Recession is squeezing school budgets. We are failing our children, our most important resource of all.

In 2009, the American Society of Civil Engineers gave the nation's infrastructure a near failing D rating:

"Flip on a light switch, and you are tapping into a seriously overtaxed electrical grid. Go to the sink, and your tap water may be coming to you through pipes built during the Civil War. Take a drive, and pass over pothole-filled roads and cross-if-you-dare bridges. The evidence of decay is all around us." (P. 95)

The over-hyped American Recovery and Reinvestment Act of 2009 earmarked only $72 billion of the $787 billion appropriation of taxpayer dollars to projects to improve the country's infrastructure.

Meanwhile, multi-national corporations avoid taxes, sheltering $700 billion in foreign earnings to end up with a measly $16 billion (2.3%) tax bill. GM is among those companies, yet it took almost a half billion dollars in bailout loans. Boeing and KBR Halliburton are among the defense contractors that avoid taxes, while enjoying government contracts worth tens of billions.

Banks (not Fannie and Freddie) Crippled the Housing Market

Fannie and Freddie do not make loans. They purchase mortgage loans and earn fees for guaranteeing payments on the loans. According to the Mortgage Bankers Association, in 2006, Fannie and Freddie accounted for 33% of total mortgage backed securities issuance. In the first half of 2010, they accounted for around 64% of new issuance. They were forced to pick up the slack and buy more when Wall Street's private label securitization Ponzi scheme blew up.

Fannie and Freddie are Wall Street's dumping ground. They would have had problems on their own, but their problems would not have been close to their current scale, and they did not create the housing bubble.

Congress twisted arms to make Fannie and Freddie buy more than $300 billion of phony "AAA" rated mortgage-backed securities from banks, not counting loans that didn't meet their stated requirements. Today Fannie and Freddie want banks to repurchase tens of billions of these loans, since they fail to meet representations and warranties, and the banks are fighting this obligation.

Top subprime lenders included Wells Fargo; Countrywide, purchased by Bank of America); Washington Mutual, now part of JPMorgan Chase; CitiMortgage, part of Citigroup; First Franklin (now closed), purchased by Merrill Lynch, which was purchased by Bank of America; ChaseHome Finance, JPMorgan Chase; Ownit, partly owned by Merrill Lynch, which was later purchased by Bank of America; and EMC, part of Bear Stearns, which was purchased by JPMorgan Chase. Most of the rest depended on massive loans from Wall Street. Many of these lenders were sued by states for fraud and paid billions in settlements.

According to Inside Mortgage Finance, the top mortgage backed securities underwriters during 2005-2006, only two of the subprime abuse years, included now defunct Lehman Brothers ($106 billion); RBS Greenwich Capital ($99 billion); Countrywide Securities, which is now part of Bank of America ($74 billion), Morgan Stanley ($74 billion), Credit Suisse First Boston ($73 billion); Merrill Lynch ($67 billion), Bear Stearns, which is now part of JPMorgan Chase ($61 billion), and Goldman Sachs ($53 billion).

The above doesn't even include the credit derivatives, collateralized debt obligations (CDOs), and structured investment vehicles (SIVs) that amplified losses. Yet, Arianna notes how America imploded while bankers soared:

"Someone like [Robert] Rubin is able to wreak destruction, collect an ungodly profit, then go along his merry way, pontificating about how 'markets have an inherent and inevitable tendency -- probably rooted in human nature -- to go to excess, both on the upside and the downside.' This from the man who, as Bill Clinton's Treasury secretary, was vociferous in opposing the regulation of derivatives -- a key factor in the current economic crisis -- and who lobbied the Treasury during the Bush years to prevent the downgrading of the credit rating of Enron -- a debtor of Citigroup." (P. 150)

Robert Rubin operated an economic wrecking-ball from prestigious positions of influence including: former co-chairman of Goldman Sachs, director of the National Economic Council, former Treasury Secretary under President Bill Clinton, board member and senior "risk wizard" counselor at Citigroup, member of the President's Advisory Committee for Trade Negotiations, and member of the SEC's Oversight and Financial Services Advisory Committee, unofficial econmic adviser to President Obama, and co-chairman of the Council on Foreign Relations.

Rubin is just one example of the many bankers, who helped destroy the economy while creating a connected financial oligarchy.

Hide Billions of Losses, Take Bailouts, Collect Billions, Skip Jail

Instead of apologizing for screwing up, the banks demanded the Great Bailout. At the start of the meltdown, the IMF and the U.S. administration estimated losses of $2 to $2.5 trillion. Unemployment and the losses are now shockingly worse. What was merely a recession escalated into the Great Recession.

How big are the actual losses? No one knows.

After destroying the value of major banks, culprits used their enormous political influence -- funded with taxpayer dollars -- to get Congress to force the accounting board to change accounting rules (as of April 2009) so banks don't have to recognize losses until they sell the assets.

According to William K. Black, after the much tinier S&L crisis, there were over 1,000 successful felony prosecutions, several thousand successful enforcement actions, and roughly 1,000 successful civil actions.

This time Congress gave us the Great Cover-up. Bank officers dodged jail time and collected billions in bonuses. As one of my South American friends observes, he's witnessed this third-world corruption before, and this time it's in English.

Banks Stall the Recovery and Prolong the Great Recession

Unemployment marched upward, delinquencies soared, and banks stalled foreclosures. The longer banks delay foreclosures and sales, the longer they can avoid acknowledging losses. Phony accounting and zero cost funding from taxpayers created an illusion of recovery.

Stalling helps banks while they pressure Congress to bail out failed mortgages with taxpayer dollars. Instead of working out mortgages with homeowners, they can wait for a government program to buyout or subsidize their failing loans. The markets aren't recovering, because banks own colossal chunks of mystery-meat assets.

It's a black hole of debt. If banks were forced to price these assets at market values and sell them, the market would clear, and the market would make a faster recovery. When Japan did this, it stalled its economy for twenty years, and it still hasn't recovered.

Voters Must Demand the Solution

Voters must demand that Congress uncovers and publicizes facts and prosecutes the financial system's massive multi-year frauds. This will mean thousands of felony prosecutions, enforcement actions, and civil actions.

Congress completely failed in genuine regulation and enforcement. It must start over on financial reform, regulate derivatives, commodities trading, update Glass-Steagall, and more. It will have to break-up the Too Big to Fail financial institutions.

CEOs of our Systemically Dangerous Institutions (SDI's) fail to manage them, because no one is capable of doing it. Like a morbidly obese junk food addict, banks won't even get on a scale. Our banks refuse to properly measure (account for) the problem.

Third World America elegantly summarizes the way forward. Arianna Huffington names the culprits and gives a roadmap for solutions. The rest is up to us. We deserve better than a third world economy divided by ultra-rich on one side and debt-ridden middle class and dirt poor citizens on the other. Citizens must demand a clean-up of corruption and a foundation for healthy growth.

Third World America will be published September 7 and is available here.

By Janet Tavakoli

web site: www.tavakolistructuredfinance.com

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).

© 2010 Copyright Janet Tavakoli- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules