Federal Reserve corruption and the United States financial health.

A video has been circulating around the web and is currently available on YouTube. This is an absolute must watch and demonstrates the complete ineptitude of our government officials. In the video you see the inspector general of the federal reserve board being questioned. She is asked a very simple question, that is – can she explain why the federal reserve balance sheet expanded by one trillion dollars and where that money went. In other words, in the past half a year our federal reserve borrowed roughly one TRILLION dollars and the sole agency responsible for auditing this money has absolutely no clue as to where it is.

We are talking about a devastating amount of money that will forever enslave this and further generations with crippling debt. Keep in mind that the entire existence of the federal reserve starting with the creation of this semi-private institution has been questioned for decades now. Due to the work of brilliant men like Milton Friedman and to a lesser extent the admission of blame by current chairman Ben Bernanke we now know that the Great Depression was largely a creation of the federal reserve. More currently, former chairman Greenspan has been blamed and rightfully so for keeping the interest rates too low for too long and thereby potentially instigating the housing collapse. The entire purpose of the federal reserve and it’s creation was to stymie and prevent the inevitable ebb and flow of the business cycle. Various banking panics in the United States prompted the Woodrow Wilson administration to control something that no human has the capacity to understand – a complex free market economy. This intervention by humans into the lifeblood of our economy has now caused unparalleled damage and continues to do so TO THIS DAY!

Please watch this video and pass the information along. Americans must know that our entire existence as a country is being threatened by a few men with noble intentions, ivy league educations and the perception that they simply know better.

Is the 2009 recession over?

At the heels of one of the worst financial and housing meltdowns in the history of this country, rising unemployment and shrinking GDP the sentiment has surprisingly jumped from doom and gloom to mindless optimism.

One does not need to look far to overhear bullish sentiment about the US stock market and little bits of chatter asking hopefully whether this recession is slowing down. Not to be outdone, this irrational exuberance (Greenspan would be proud) goes beyond the local talking heads or financial gurus at the water cooler, our own government hot shots have now proudly announced a reversal in fortune. Both Tim Geithner (tax cheat) and Ben Bernanke (“student” of the Great Depression) have commented on our strong economy and the ability for us to recover.

So what is behind this jolly rhetoric and can we deduce any veritas seemingly from the same people who lead us into this debacle in the first place?

Regarding pundits, talking heads, 99% of the staff of CNBC and other financial channels and other TV personalities – they know nothing. This may sound somewhat condescending and I certainly do not have a degree in economics or financial witchcraft, but as someone who has participated in the market for years I can comfortably state that the people on TV are there for entertainment. There are a handful of individuals on this planet, yes planet, that can successfully time and understand the complex economies of modern countries. Even people like Warren Buffet, arguably the best long term investor of his time got his accounts decimated when he pulled the trigger early on the US equities. If Buffet got it wrong, then Joe S. Pundit knows even less. Their job is to report news after the fact and their attempts at drawing conclusions are laughable at best. One needs to spend a short time watching these people to realize that the conclusions being drawn are infantile and baseless.
Similarly the political elite armed with their ivy league diplomas fair similarly badly in their prognosticating ability and can only infer a small sample of information from key economic data points. However the political elite has a slightly different agenda, then the aforementioned TV rating seeking pundit, the likes of Bernanke is interested in fostering a positive image.

So far we have had housing data, unemployment data, manufacturing numbers and GDP continually demonstrate the systematic breakdown of our economy. However because the rate of change has slowed down, the people responsible for reporting the reality can’t help but place a positive spin on the rate of change and falsely deduce that this suggests the end of our recession. Perhaps it does, but this conclusion is so awfully premature that one must wonder if intellectual dishonesty is at play here. For those with intellectual honesty, the meteoric rise in the stock market over the past two months has clouded any remnants of rational reasoning. *cough* bank stress tests *cough*

So what do our politicians gain by fostering an overly positive imagine of our economy? Simply put, we are broke. We do not have the money to pay for all the goodies that the new administration has promised and we are forced to raise money by selling treasuries. The principal buyer and holder of our debt is China, a peculiar irony to be bailed out by a communist nation, and they must continue to purchase our debt. Why would they? As of now we are still the world power and our economy has the potential to generate output that rivals all of Europe. However as we spiral out of control into a recession/depression/whatever, the Chinese rightfully wonder if purchasing additional debt is prudent! So leave it to our politicians to give the good Communists a propaganda campaign that even they can be jealous of.

After all, what better way to continue spending our way out of our demise then to shift the burden onto someone else? Eventually the gravy train will come to a screeching halt and reality will sink.

Bernanke has vowed to maintain the 10 year yield at 3%, in layman terms this means he is going to ensure that someone continually buys the 10 year treasury note. What does 3% give the United States? First it continues to provide cheap mortgages to people and hopefully incentivize new home purchases and secondly, keeps the Chinese happy and prevents them from unwinding their position. Unfortunately in order to buy our own notes, we need to print some cash and debase our currency. Debasing our currency if done in small doses has the benefit of lowering the dollar and thus shrinking our debt, may not make the Chinese happy, but does not give them many options. Sadly debasing the currency also ushers in inflation and inflation is battled by raising rates, something that Bernanke could do at any time. However raising rates when the economy has not actually improved ushers in an economic concept called stagflation. Stagflation is bad, ask Jimmy Carter.

Is the recession over? Why would it be! Can it get worse? Yes, much worse.
Protect yourself and do not buy into the hype.

Freddie Mac CFO found dead, apparent suicide.

This seems like a relevant story, because we have not heard much from either Freddie or Fannie – two institutions that are dead center in the entire housing/financial collapse.

This morning the former CFO committed suicide. David Kellerman was only 41 and while it’s possible that personal issues could have played a role, right now it is safe to speculate that whatever mistakes Freddie made during the past few years could have generated enough guilt. I have no intention in trivializing the death of a human being or making such a serious matter political, one is left wondering just how dirty and corrupt the entire relationship between Fannie/Freddie and the government was.

Specifically their operating margins that made Bear Sterns look like a walk in the park, blatant lobbying of Democrats and some Republicans, guarantee from the government to back them with taxpayer money no matter the failure and their social engineering practices. Barney Frank can certainly blow wind on capitol hill and call out AIG CEOs, but only our politicians know the full extend of the Fannie/Freddie implication and how instrumental they were in causing our current crisis.

Perhaps some people on the inside know this all too well and have found such drastic measures as their only outlet. I would have much rather prefered that the man not take his life, but instead used the rare and valuable knowledge of a CFO to fully disclose the practices of the two largest mortgage buyers in America.

Obama to regulate our entire financial system, liberals launch new offensive.

A story in NY Times today suggests that plans by the administration will be unveiled soon detailing the most far reaching and intrusive regulations to date. The first sentence of the story sets the tone for what is sure to be a highly contested and controversial proposal.

“The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan”

With this introduction, banks and similar institutions that do not fall under the auspices of the TARP plan will be subjected to government oversight in all matters of compensation. Essentially our government will now be in charge of determining decisions currently being decided by industry experts and regardless of what noble intentions Obama has in mind, this cannot possibly end well.

This kind of intervention may very well have devastating results in the form of talent fleeing the industry and seeking employment in other countries or simply switching careers all together. Most notably, intervention of such magnitude will surely be justified as something sorely required using the explanation that deregulation caused our current crisis. Unfortunately this excuse resonates well with Americans who for the most part do not understand the complex world of credit default obligations, default swaps, derivatives and other tools of immense leverage. Of course this is by no means an attack against Americans, because frankly, why should they understand these concepts? It took hours of reading and listening to speakers for me to come close to understanding the concepts behind our meltdown and I can assure you that deregulation has very little to do with it.

America’s financial system has not been a free market system for a very long time, probably since the Great Depression when the first wave of immense regulation took place (and look how well that turned out). We have always suffered from a hybrid of free market and socialist principles and the government will never in a hundred years admit that they have as much to do with the current collapse as greedy Wall St. punks.

Barney Frank can certainly hold public show trials and demand AIG executives to be paraded in public, but it should anger every red blooded American in realizing that Frank was instrumental in preventing REGULATION of Fannie and Freddie, two companies that are the backbone of the housing collapse. When the GOP called for regulation of Fannie/Freddie, they did so because these two companies operated as government sponsored enterprises and operated with margins that doubled that of the most risky company, Bear Sterns. Yet, instead we get people like Jon Stewart whose ratings triple because he gets to skewer Jim Cramer on national television, on the grounds that some private companies acted recklessly and Jim failed to report it. However Jon completely ignored the two government sponsored enterprise (GSEs) that owned half of the entire US mortgage market and have since collapsed, siphoning almost 200 billion in taxpayer money. Of course he ignores it, obviously it is much more interesting to demonize AIG executives taking 100-200 million dollars than it is to explain what a GSE it’s responsibility in our housing collapse.

See, that actually takes time to research and guts to finally admit that government intervention, not a lack of regulation is the actual culprit behind our current demise!

Capitalism did NOT cause the financial crisis.

Despite what many individuals (most of whom have no idea what they are talking about) and some pockets of the mainstream media, capitalism and free market did NOT cause the financial and housing crisis. In short, there is a great deal of government involvement in our financial sector and the constant meddling caused the bulk of this crisis. Without Fannie and Freddie buying up large swaths of CDOs (a collection of risky, non-risky loans), banks would not be so willing to sell these loans off in such a hurry. Of course Fannie & Freddie would not have operated on massive 60 to 1 leverage margins, had it not received an implicit guarantee from the government to be bailed out. When organizations that hold half the mortgages are called GSEs (Government Sponsored Enterprises) do we really have a free market system? No, we have institutions operating in ways they were never intended to operate, causing other banks to over leverage (like Bear Sterns) and subject themselves to massive risk for the sake of competition.

Anyway, to truly explain the underlying reasoning behind the collapse of our financial system and to thoroughly understand why government involvement is the death knell for even the mightiest of countries, watch the following video from John Allison.

John Allison is chairman of the board of BB&T Corporation. He began his service with BB&T in 1971, became president in 1987 and was elected chairman and CEO in 1989 (serving as CEO until the end of 2008). During Mr. Allison’s tenure, BB&T has grown from $4.5 billion to $137 billion in assets.

Link to the video: http://www.aynrand.org/site/PageServer?pagename=reg_ls_financial_crisis

Note: This is about 1.5 hours, so if you are truly interested in learning and understanding, it will take some time, but I promise you it will be worth it.

Housing crisis a war on middle class America.

We have a housing crisis in this country, but the crisis is not rising foreclosure rates and rundown neighborhoods. After all, those elements have existed before and they are a natural part of the real estate market’s ebb and flow. There is another crisis unfolding, a crisis that the media will not report and the politicians will not acknowledge. War has been declared on every single American who in the past several years did all the right things and made all the correct decisions. Somehow it has been established that those suffering the impending housing doom are victims of greedy bankers and exploitative free marketeers unleashed upon America due to ‘deregulation’. It has been estimated that those suffering foreclosures number somewhere between 4 and 6 million people. For perspective, there are as many Facebook fans of Barack Obama. The remainder 295 million Americans due to sheer cunning shrewdness and genius escaped the prying clutches of money grubbing bankers and for this cunning mischief there will be retribution.

Retribution comes in the form of aid to those in need (sometimes), paid for by the lucky 295 million. Before delving into the “stimulus” bill passed yesterday, observe two perks being distributed, two perks passed by our Congress.

First is the 7,500 tax credit to new home buyers, assuming the new house was purchased after April, 2008. At first blush, this appears to be a clever incentive to promote new home buying and perhaps stifle the surging avalanche of falling prices and foreclosures. I am just a bit bitter perhaps, because my American dream began January 2008 and therefore I am not eligible for the gracious gift bestowed to us by Congress. But despite my bitterness, I want to ask the politicians a very simple question; If you are trying to stem the flow of falling house values why are you NOT helping the people who already own the home? How is rewarding people who are arguably getting a much better deal than those who bought homes in 2007 make any logical sense? House prices peaked in 2006, fell sharply in 2007 and slid some more in 2008. Why is the tax credit not being directed to those that suffered the sharpest and most dramatic house values declines? Why reward people who are clearly in a position to buy a house anyway and if they are not in a position, then is not creating an extra incentive for people to buy homes the very reason we got into this mess in the first place? Why are responsible Americans who are struggling to get by exempt from getting a credit?

Secondly, the opportunity to refinance directed at those at the brink of foreclosure is once again a practical approach. After all, if people are able to keep their homes then it probably benefits everyone including the owners, banks and the neighborhood. Yet refinancing loans is an expensive ordeal and banks are being rescued by the TARP plan, so somebody is floating the difference – notably, you the responsible taxpayer. What is mostly bothersome though, is that an opportunity to refinance is available to those risking foreclosure and those unable to make payments. What about the rest of us who dare not miss a payment (if we care about our credit history) and were responsible? We need not apply. As a personal story, my bank misplaced a credit card payment totaling a massive $55 and without much hesitation reported this egregious violation to both Transunion and Experian. After admitting the problem (after 4 phone calls), they refunded the late charges and apologized, but informed me that the credit agencies were my own problem now and I had clear up the issues. Great, thanks for the service after 4 years of timely payments. Long story short, my credit history dropped to a reprehensible 680 and I was informed by my mortgage broker than I should wait before refinancing or suffer up to .5 point deduction! So missing mortgage payments and being on the brink of foreclosure is a path towards refinancing, but a double digit missed CC payment renders me ineligible? Why are average Americans who are merely trying to get by so vilified in this country? But my personal qualms not withstanding, according to the Comptroller of the Currency, 58% of refinanced loans fell delinquent within 6 months anyway! Danger, government at work (thanks chris_bdba).

Lastly, let us take a look at all the provisions directed toward housing in the 2009 Economy recovery act, aka New Deal part Deux, aka the Obama presidency.

Public housing capital improvements: $3,000,000,000
Public housing renovations and energy conservation investments: $1,000,000,000
Native American housing block grants: $510,000,000
Community development funding: $1,000,000,000
Emergency assistance for the redevelopment of abandoned and foreclosed homes: $2,000,000,000
Additional capital investments in low-income housing tax credit projects: $2,250,000,000
Homelessness prevention and re-housing: $1,500,000,000
Assistance to owners of properties receiving section 8 assistance: $2,000,000,000
Grants and loans for green investment in section 8 properties: $250,000,000

13.5 billion directed to section 8 housing, low-income and public housing. 13.5 billion from American taxpayers and their children going to people who most likely pay no federal taxes anyway. 2 Billion of which is going to abandoned and foreclosed homes, courtesy of the very same 4 or 6 million who failed to avoid being bamboozled by vicious bankers and predatory lending practices (not sure how the other sneak 295M got away from them). I want to avoid sounding heartless and lacking compassion, there are probably many people who truly deserve and need public housing assistance. However where are provisions for those individuals making right decisions? We don’t need a tax break? We can’t lose our jobs? We are not hurting in this recession? Yet we are asked to foot the bill for these so-called stimulative measures? This is 13.5 billion alone that have as much to do with stimulation as this entry has to do with short. If we are being asked to rescue every single American who made a tragic decision, can we not at least receive some assistance in these hard times? Instead, the “tax relief” promised by Obama penalizes anyone making more than 75,000 – which in case you are not familiar is hardly a lot of money in the East and West coasts. To add insult to injury, the package contains a modified 8,000 tax credit for new home owners and a clause that this credit need not be paid back! Once again, not existing home owners that could use it, but those that are getting a much better deal than anyone in the past 2 or 3 years.

War is being waged on a majority of hard working responsible Americans. Call me old fashioned, but I do not believe that this country amounted to greatness due to punishing and robbing those that do everything right only to reward those that did everything wrong. A trend like this cannot continue and must not continue, America’s stability depends on it.