Monday, November 30, 2009

Financial Crunch! Economic Collapse! (Part 7)

China no longer the largest holder of U.S. Treasuries
Andrew Moran
Feb 17, 2010
Japan has officially taken over China as the number one holder of United States Treasuries as China sold off more than $34 billion, which brings its total holdings down to $755.4 billion.
In December, China lowered its total holdings of United States debt by $34.2 billion to $755.4 billion from $789.6 billion and is now the second-biggest holder of US Treasuries, which is a sign that China is reacting to U.S. policy, according to Reuters. During the past year, China has vehemently showed its displeasure about the security of their dollar-denominated assets.
According to Business Week, Japan is officially the largest holder of US Treasury securities and rose 1.5 per cent, or $11.5 billion, in December to $768.8 billion, while Great Britain also increased its holdings to $302.5 billion and Brazil increased US Treasuries to $160.6 billion.
However, foreign holdings of US Treasury securities fell by $53 billion, according to the Treasury International Capital. December’s drop surpassed the previous record of $44.5 billion in April of 2009.
China took over Japan in September of 2008 as the largest US debt holder in the world and continually increased its bond holdings until December, reports AFP.
Xinhua notes that if reductions in holdings continue to decline then that could force the US government to make higher interest payments as the country runs record federal deficits, debt and tens of trillions of dollars in expenditures and liabilities. The news agency further noted that the multi-trillion dollar deficit cannot be sustained and will eventually ruin the economy.
Nevertheless, President Barack Obama and his administration announced it will tackle the deficit and he will appoint a commission to address the deficit crisis at hand.
Corporate Empire vs. The People, Community, and Freedom
Wall Street and the Bankruptcy of America
By Damon Vrabel
Thursday, February 11, 2010
Last week Wall Street firm JP Morgan Chase announced its CEO Jamie Dimon would be paid $17 million for 2009. As a reminder, this is the guy who said on CNBC in February 2009, “we should teach the American people you’re supposed to meet your obligations, not run from them.” So what does a Wall Street firm actually do besides sending its head salesman out to lecture Americans with a subtle threat to pay him as his firm kicks them out of their homes and jacks up their credit card rates? The time has come to reconsider this question before Wall Street destroys any remaining glimpse of a free market and free society.
Unfortunately almost nobody knows what Wall Street does despite its incredible power over everything in the United States and much of the world. Neoclassical economics, i.e. groupthink for the banks, even has the media and the people who work for Wall Street fooled. The AP described Wall Street yesterday as “an essential component of economic recovery”—so much for the idea of a non-captive, free press. NYT writer David Brooks thinks Wall Street firms “channel opportunity to new people.” I’d be curious if those in Argentina, Indonesia, Peru, Iceland, and the small towns of America that have been destroyed would agree with such detached fiction.
Debt: The Temporary Illusion of Wealth
Supposedly Wall Street is responsible for making the United States the wealthiest country in the world. Yet, if that is true, how could the US be trillions of dollars in debt? Why is almost every state bankrupt? Why are Americans losing their homes? Why does the lower class have to work multiple jobs to feed their families? Why do both parents in middle class families have to work when one parent could easily support the family fifty years ago? We were told we were making so much progress over those years thanks to Wall Street. What happened?
My apologies for so many questions, but sometimes the only way of making a point so dramatically different from CNBC propaganda is to ask the obvious. Hopefully the questions make it clear that the United States is hardly the richest country in the world. Instead it is the most insolvent, drowning in the most debt. This is because the very core of our money and banking system, headed by the Federal Reserve and cartel member Wall Street banks like JP Morgan Chase, is based on nothing but debt. If only we would have listened to John Adams, “There are two ways to conquer and enslave a country. One is by the sword. The other is by debt.”
So strip away the complex façade of high finance, and it should be clear given the current state of the US economy that Wall Street puts people, businesses, and governments in debt. As opposed to sucking off only the taxpayer as it did after the crash of 2008, Wall Street sucks off both the interest payer and the taxpayer in other years. The more indebted Americans are, the more short-term bonus money Jamie Dimon’s team and the Goldman traders make. When Wall Street would otherwise go bankrupt from excessive debt-based profiteering, the government props them back up because it is also controlled by debt. In fact, the monopolizing Wall Street cartel only exists because of the government. This should smash the prevailing belief that Wall Street as currently structured represents anything close to a free market institution.
The government made a grave error creating the cartel because, unfortunately, the rise of Wall Street goes hand in hand with the decline of America. A bank cartel with government protection, which adds no productive value to the economy but instead sucks value from everything else, eventually hollows out the host upon which it lives. Real value comes from community relationships, effective local governments and businesses, farming, manufacturing, construction, etc. Wall Street, on the other hand, is a massive mining operation that lords over all the people and institutions doing those activities. It is just a different version of the feudal kings of old who staked controlling claims around the world to mine people and resources. Once the Federal Reserve Act created the Wall Street cartel with a permanent controlling stake over the entire system, the American republic was doomed, guaranteed to be converted into a voracious corporate empire in a matter of a couple generations.
Centripetal Forces
Every major religion warns about the danger of usury, but the secular case against it is even more powerful. It is the most powerful centralizing centripetal force ever invented, and it steadily increases velocity to the point where life becomes nothing but a sprint in a hamster wheel to keep the debt system running. Over time, the simple math results in Wall Street centralizing an inordinate amount of wealth and power while the rest of the economy becomes increasingly indebted—precisely the situation in which we find ourselves today.
Wall Street centralizes wealth by stripping profit from the rest of us who create real value. For example, if farmers make 5% profit, but have to borrow at 5% to fund their operations, they go out of business and the debt owners behind the banks collect all the profit. That is why family farmers no longer exist, while bankers are so well paid for pushing debt around that they buy the farm land and rent it back to the farmers who were driven off of it.
At a 2005 political rally, a divorced woman with three kids told President Bush she worked three jobs in order to fund her family (an example of the extreme velocity of our system) and wondered what he could do about it. He said “Uniquely American isn’t it? I mean that is fantastic.” Wow. Fantastic that it is becoming impossible in modern America to earn enough to feed a family no matter how many hamster wheels a parent spins? No doubt like most politicians Bush has no clue what the problem is, but his ignorance about money and credit makes him an apologist for the monetary system and the Wall Street cartel. When one parent working a standard job fifty years ago made plenty to feed a family, this debt system has brought us to the point where many citizens of supposedly the wealthiest, most advanced nation on earth cannot thrive, let alone survive, without having multiple jobs.
Financiers and their cheerleading press like to scream that this is petty populism. No, it is simple math, math that greatly benefits the top of the hierarchy while impoverishing others. But empathy for those others should compel us to wakeup and recognize the fact that the American republic and many communities around the world are on their deathbeds thanks to an empire system built on debt. Naturally financiers will try to use their platforms like CNBC to shout us down, but it is time to shut them down.
Exponential Growth
Due to its compounding nature, having interest attached to all the money in the system creates the need for exponential growth. It must continuously expand. This is why we have seen so many developing countries conquered by debt in the last several decades. A steady state is not possible. Neoclassical economics inexcusably ignores this by implying that our system is driven by production and money is simply a medium of exchange that facilitates it. On the contrary, the very nature of the debt-based money pumped out by Wall Street and the banking system requires growth. We see such growth in ever-expanding shopping malls, ever-decreasing quality of franchise food, ever-increasing number of manufacturers moving offshore to find lower cost labor, and many other ways. These are bad enough. But if growth is not driven by real production that can maintain more stable levels of debt, how else can the system grow?
Credit inflation
An illusion of growth can be created by simply issuing more debt. This is called credit inflation, which is for the most part the type of growth the US economy has experienced ever since 1971 when the dollar was changed to allow for infinite credit inflation. If the banking system is viewed as a casino, credit inflation is passing out extra free chips to everyone, which makes people think they are more wealthy. It certainly makes the casino, i.e. Wall Street, more wealthy as they extract their rigged profit from an expanded game with far more chips, but the reckoning with the truth eventually comes when everyone else tries to cash out their chips. The money will not be there. This is what the world is facing as we approach a massive deleveraging decline in the economy.
Credit inflation spirals total debt out of control because more and more must be borrowed in order to payback all the interest in the system. It is not hard to understand the problem with such a pyramid system—it crashes. Is should have crashed in the 80’s, but the financial system worked overtime to prevent it. Government then changed laws in the 90’s to prevent it again by allowing Wall Street to engage in chicanery that created a near infinite amount of credit inflation—the fraudulent derivatives market. The Wall Street / DC axis of power colluded throughout the 2000’s to continue preventing it.
The Reckoning
After so many years of kicking the can down the road with false growth, a reckoning is now upon us. Credit inflation by definition results in deflation. People are getting ready to leave the casino. Everyone will be in a mad frenzy competing to cash chips in for real value. The last significant deflationary period, the Great Depression, resulted in WWII. One can only imagine what we will face in the next several years.
One aspect of the future that is becoming increasingly clear is the return to something akin to two-tiered feudalism—most of the population, small businesses, and governments awash in debt vs. the small group that benefits from it. This includes the debt owners, their Wall Street servants, their DC servants, and the top echelon of the multi-national corporations that cycle the debt. David Brooks says pointing this out is divisive. Sure. Just like pointing out the difference between slaves and owners in the old South was divisive. Surely he would not be an advocate for the owners back then. Why is he now?
Again, it is not politics, but the simple math of this empire system that rewards those at the top at the expense of almost everyone else. This is why a guy in a power suit who moves numbers back and forth like Jamie Dimon can make $17 million sucking value from the Americans who are losing their jobs, their homes, and possibly their country for good if nothing is done. Such skewed math is the basis of debt servitude, not a free market. Conservatives need to examine this truth and stop cheering for the debt lords, and liberals need to stop supporting the big government that keeps them in power.
Nothing will ever be done at the federal level—both parties are hopeless captives. The solution is to reconstitute local communities because they are self-sufficient, not dependent on the corporate system, and therefore capable of living without the Wall Street mining operation above them. Moreover, state and local governments need to reassert their autonomy and spend money into the system, rather than borrowing it from banks, in order to escape debt prison.
Why Geithner Must Go
The Treasury Secretary Will Likely Be the First Casualty of Obama's Political Debacle
William Greider
Jan. 26, 2010
The first casualty of the president's political debacle will likely be Timothy Geithner, the severely over-confident treasury secretary well known as a lapdog of Wall Street. Geithner was effectively repudiated by the president last week when Barack Obama abruptly announced a new, more aggressive approach to financial reform. But the immediate threat to Geithner is the scandal of collusion and possibly illegal behavior gathering around the Federal Reserve Bank of New York for its megabillion-dollar takeover of insurance giant AIG.
Tim Geithner is standing in the middle of the muck because he was still president of the New York Fed in the fall of 2008 when it rescued AIG with tons of public money (now totaling $180 billion). The facts of the deal are catching up with him now and none are good, since they raise doubts about his competence and his public integrity. This scandal has smoldered for several weeks in newspaper business sections, but is about to grab front-page attention.
The House Oversight Committee, chaired by Edolphus Towns, has turned up damning evidence and called Geithner to testify the week of January 27. Committee investigators are poring through some 250,000 e-mails and subpoenaed documents and finding smoking revelations. House Republicans smell blood. House Democrats, given the present climate of popular discontent, are unlikely to rally around tainted goods.
Perhaps the most explosive revelation is that Geithner's subordinates at the New York Fed instructed AIG executives to evade securities law and conceal from the public the $62 billion the insurance company paid out on contracts with the largest investment houses and banks. AIG was already bankrupt and 80 percent owned by the government, kept afloat solely with the billions being injected by the central bank. Yet the Fed told the company to pay off the bankers at full value--100 percent on the dollar--without negotiating a better deal for the public. The bankers would not have collected a dime if the government hadn't come to the rescue.
The Fed, in other words, gave the largest, most prestigious banks a very sweet deal--much sweeter than anything the banks or the federal government will offer to homeowners facing mortgage foreclosure. The central bank, in effect, was operating a backdoor bank bailout that nobody could see. The public billions devoted to AIG went in one door at the insurance company and came out another door to the private banks. Goldman Sachs alone collected $13 billion.
Failure to disclose is a big no-no in corporate finance. People can go to jail if they willfully withhold material information from shareholders and the Securities and Exchange Commission (SEC), or they may be sued for investor fraud. Yet that is what the New York Fed told AIG to do. The company officers wanted to report fully to the SEC. Their Fed overseers told them to take out the disclosure out of their report to the SEC (the facts were ultimately not disclosed until five months later). The Fed, remember, is the government's principal banking regulator. It is supposed to enforce the laws, not tell regulated firms to break them.
What was the Fed anxious to hide? Clearly, it was the clandestine and illegitimate conduit it had devised at AIG to funnel billions to the banks, unseen by the public. Keeping this bailout secret would avoid arousing even greater anger about the bailouts. It might also help prop up stock prices at endangered banks, though savvy financial players swiftly figured out what was going on. Only the people needed to be kept in the dark, along with their elected representatives in Congress.
The Federal Reserve was trying to cover its own butt. And Timothy Geithner's. Disclosing precisely what Geithner had done to arrange backdoor bailouts on the New York end would have definitely damaged his chance of becoming Obama's treasury secretary. When the facts were eventually acknowledged, members of Congress repeatedly demanded to know which firms got the Fed's money. The Federal Reserve Chairman and his top deputies said it would be "inappropriate" to say.
Somebody seems to be lying in this matter. When the Fed's irregular action to block AIG's full disclosure was first reported, Treasury officials said Geithner was not involved because he had "recused" himself from the AIG dealings. Yet, according to the latest revelations reported by the New York Times, the general counsel of the New York Fed, Thomas Baxter, has told House investigators that Geithner verbally approved AIG's generous payouts to the banks.
So which is it? Was Geithner involved or wasn't he? It seems highly improbable Geithner could have managed to remain ignorant of this very controversial decision not to disclose. In fact, it would have been derelict for him not to have known. Committee members will want to probe the question further--what did Tim Geithner know and when did he know it? Let's hope he is under oath. Martha Stewart, remember, went to prison not for trading stocks on insider information but because she lied to federal investigators.
The Treasury Secretary's precarious situation may well spill over to damage the fate of Federal Reserve chairman Ben Bernanke, seeking Senate confirmation for a second term. Until now, the Board of Governors in Washington has claimed to be aloof from the AIG mess at the New York Fed. This may also be untrue, according to the latest revelations. Some of the Fed governors in Washington, it turns out, were quite upset by the deals being made by Geithner's staff at the New York Fed. Lying is easier when a government agency is given privileged secrecy.
"What does any of this buy us?" some governors asked, according to one newly disclosed e-mail message. Good question. For that matter, what did the public get for its $180 billion? Senators might want an answer before they vote to give Bernanke another four years. Bernanke's distress was revealed last week when he suddenly announced that he wants a GAO audit of the entire AIG deal-making. That was jarring because Bernanke has repeatedly claimed the Congressional demands for a GAO audit of the Federal Reserve would destroy this sanctified institution.
The smell of scandal poses a more fundamental question about the future of the Federal Reserve. The president's financial reform proposals would authorize the Federal Reserve to become the super-regulator of the entire financial system--empowered in privileged secrecy to decide the most fateful matters of who should fail, who should be saved. The largest banking institutions are comfortable with this "reform," since they proposed the idea. Anyone else who looks closely at the Fed and the AIG fiasco should see immediately the alarming implications.
Banks shut in Fla., Mo., NM, Ore., Wash.
By Marcy Gordon
Jan 22, 2010
WASHINGTON (AP) - The Federal Deposit Insurance Corp. took over the five banks: Charter Bank, based in Santa Fe, N.M., with $1.2 billion in assets and $851.5 million in deposits; Miami-based Premier American Bank, with $350.9 million in assets and $326.3 million in deposits; Bank of Leeton in Leeton, Mo., with $20.1 million in assets and $20.4 million in deposits; Columbia River Bank, based in The Dalles, Ore., with $1.1 billion in assets and $1 billion in deposits; and Seattle-based Evergreen Bank, with $488.5 million in assets and $439.4 million in deposits.
Regulators shut down banks Friday in Florida, Missouri, New Mexico, Oregon and Washington, bringing to nine the number of bank failures so far in 2010, following 140 closures last year in the toughest economic environment since the Great Depression.

Beal Financial Corp., based in Plano, Texas, agreed to assume the deposits and assets of Charter Bank. In addition, the FDIC and Beal Financial agreed to share losses on $805.5 million of the failed bank's loans and other assets.
Columbia State Bank, based in Tacoma, Wash., agreed to buy the deposits and assets of Columbia River Bank. The FDIC and Columbia State Bank agreed to share losses on $697.4 million of its loans and other assets.
Umpqua Bank, based in Roseburg, Ore., is assuming the deposits and assets of Evergreen Bank. The FDIC and Umpqua Bank agreed to share losses on $379.5 million of its loans and other assets.
"Evergreen's capital has been depleted by large loan losses," Brad Williamson, director of the banks division in Washington state's Department of Financial Institutions, said in a statement. "Like many banks across the state and country, Evergreen's real-estate construction and development portfolio has suffered tremendously as real estate values have fallen."
The federal regulators used a novel procedure for Premier American Bank, employing the first so-called "shelf charter" to give preliminary approval to a group of investors to obtain a national bank charter before acquiring a specific troubled institution. The shelf charter was inactive until the acquisition was made.
A new bank with a national charter was set up, to be called Premier American Bank N.A., to assume the deposits and assets of the failed bank. The investment firm Bond Street Holdings LLC got preliminary approval with a shelf charter on Oct. 23, and final approval was granted Friday by the U.S. Office of the Comptroller of the Currency, which regulates national banks.
Also, the FDIC and the new bank agreed to share losses on $300 million of Premier American's loans and other assets.
Sunflower Bank, based in Salina, Kan., agreed to assume the deposits of Bank of Leeton. The FDIC will retain most of its assets for later sale.
The failure of Charter Bank is expected to cost the deposit insurance fund $201.9 million; that of Columbia River Bank is expected to cost $172.5 million; Premier American Bank, $85 million; Evergreen Bank, $64.2 million; Bank of Leeton, $8.1 million.
As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions out of the federal deposit insurance fund. It fell into the red last year.
The 140 bank failures last year were the highest annual tally since 1992, at the height of the savings and loan crisis. They cost the insurance fund more than $30 billion. The failures compare with 25 in 2008 and three in 2007.
The number of bank failures is expected to rise further this year. The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
The agency last year mandated banks to prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.
Depositors' money - insured up to $250,000 per account - is not at risk, with the FDIC backed by the government. Besides the fund, the FDIC has about $21 billion in cash available in reserve to cover losses at failed banks.
Banks have been especially hurt by failed real estate loans, both residential and commercial. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.
If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.
This week, President Barack Obama called for limits on the size and investments of big Wall Street banks to help stave off a fresh economic meltdown. Obama's proposal, which would need Congress' approval to take effect, includes barring banks that take deposits from also trading securities for their own profit. It also would separate commercial banks from investment banks, a line that was blurred a decade ago by legislation reversing Depression-era restraints.
Democrats propose $1.9T increase in debt limit
Associated Press Writer Andrew Taylor
Wed Jan 20, 2010
WASHINGTON – Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $1.9 trillion to pay its bills, a record increase that would permit the national debt to reach $14.3 trillion.
The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation.
It's hardly the debate Democrats want or need in the wake of Sen.-elect Scott Brown's victory in Massachusetts. Arguing over the debt limit provides a forum for Republicans to blame Democrats for rising deficits and spiraling debt, even though responsibility for the government's financial straits can be shared by both political parties.
The measure came to the floor under rules requiring 60 votes to pass. That's an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority.
Democratic leaders are also worried that Sen. Evan Bayh, D-Ind., who opposed the debt limit increase approved last month, will vote against the measure.
The record increase in the so-called debt limit is required because the budget deficit has spiraled out of control in the wake of a recession that cut tax revenues, the Wall Street bailout, and increased spending by the Democratic-controlled Congress. Last year's deficit hit a phenomenal $1.4 trillion, and the current year's deficit promises to be as high or higher.
Congress has never failed to increase the borrowing limit.
"We have gone to the restaurant. We have eaten the meal. Now the only question is whether we will pay the check," said Finance Committee Chairman Max Baucus, D-Mont. "We simply must do so."
A White House policy statement said the increase "is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question."
Less than a decade ago, $1.9 trillion would have been enough to finance the operations and programs of the federal government for an entire year. Now, it's only enough to make sure Democrats can avoid another vote before Election Day.
Republican Sen. John Thune of South Dakota immediately offered an amendment to end the bank and Wall Street bailout, officially known as the Troubled Asset Relief Program, or TARP. Thune would prohibit further expenditure of TARP funds and would require that all funds paid back be used to retire debt.
The latest increase comes on top of a stopgap $290 billion measure that cleared the Senate on Christmas Eve. Given the country's finances, that measure would last only about six weeks, lawmakers said, requiring the far larger measure that's pending.
Top Wall Street executives apologise for failures during the height of the financial turmoil in 2008
By Daily Mail Reporter
Last updated: 14th January 2010
Wall Street executives have apologised for their risky behaviour and poor decisions during the financial turmoil of 2008.
While also defending their bonus and compensation practices to a sceptical U.S. commission, the executives admitted they had underestimated the severity of the crisis.
The commission, which is investigating what caused the collapse, said Americans 'have a right to be' furious about the hefty bonuses banks paid out after getting billions of dollars in federal help.
As the hearings opened before the Financial Crisis Inquiry Commission, chairman Phil Angelides pledged 'a full and fair inquiry into what brought our financial system to its knees.'
The panel began its year-long inquiry amid rising public fury over bailouts and bankers' pay.
'We understand the anger felt by many citizens,' said Brian Moynihan, chief executive and president of Bank of America. 'We are grateful for the taxpayer assistance we have
received.'With Bank of America having repaid its bailout money, he said 'the vast majority of our employees played no role in the economic crisis' and do not deserve to be penalized with lower compensation.
Moynihan said compensation levels will be higher next year than they were in 2008 - but not at levels before the financial meltdown.
Jamie Dimon, chief executive of JPMorgan Chase & Co, said most of his employees took 'significant cuts in compensation' in 2008. He said his company would continue to pay people in a 'responsible and disciplined manner' to attract and retain top talent. Still, Dimon said, 'We did make mistakes and there were things we could have done better.' John Mack, chairman of Morgan Stanley, said the crisis was 'a powerful wake-up call for this firm.' He said he didn't take a bonus in 2009 and that his bank has overhauled its compensation practices to discourage 'excessive risk-taking.'Angelides, a former Democratic treasurer of California, questioned Goldman Sachs' Lloyd Blankfein about packaging soured assets into bond-like securities and selling them to investors. These included risky mortgages that were extended to borrowers with poor credit records and helped cause the home-loan bust.
'It sounds like selling a car with faulty brakes and then buying an insurance policy on that car,' Angelides said.
But Blakfein responded: 'I do think the behaviour is improper. We regret the consequence that people have lost money in it.'
Like the other witnesses, Blankfein acknowledged lapses in judgment in some practices leading up to the crisis.
'Whatever we did, it didn't work out well,' he said. 'We were going to bed every night with more risk than any responsible manager would want to have.'
The commission's vice-chairman, Bill Thomas, a Republican, said the inquiry would try 'to get to the bottom of what happened and explain it in a way that the American people can understand.'
Thomas, a former chairman of the tax-writing House Ways and Means Committee, said one important question is, 'If you knew then what you do now, what would you have done differently?'
Dimon said a crucial blunder was 'how we just missed that housing prices don't go up forever.' Added Mack: 'We did eat our cooking and we choked on it.'
Commissioner Heather Murren, a retired Merrill Lynch director, raised questions about banks that insisted on being paid in full by failed insurer American International Group Inc. on financial contracts that went bad.
She asked Blankfein why Goldman Sachs did not offer to take less than 100 percent in payments from AIG, given the severity of the financial crisis and knowledge of the taxpayers' stake.
'It didn't come up in any conversation that I can recall,' Blankfein said.
The bipartisan, 10-member commission was handed the job of writing the official narrative of what went wrong before the financial system nearly collapsed in the autumn of 2008.
The commission is modelled on the panel that examined the causes of the attacks of September 11, 2001.
But the prototype could be the Pecora Commission, the Senate committee that investigated Wall Street abuses in 1933-34. It was named after Ferdinand Pecora, the committee's chief lawyer.
Congress has instructed the current commission to explore 22 issues, from the effect of monetary policy on terms of credit to bank compensation structures.
In 2009, the Federal Reserve Bought 80% of U.S. Debt?!
Update: CNBC: “I Guess You Can Use the Word Ponzi Scheme”
posted by
January 9th, 2010
Here’s the problem that the U.S. Fed’s “exit” poses in simple English: Our fiscal 2009 deficit totaled nearly 12% of GDP and required over $1.5 trillion of new debt to finance it. The Chinese bought a little ($100 billion) of that, other sovereign wealth funds bought some more, but as shown in Chart 2, foreign investors as a group bought only 20% of the total – perhaps $300 billion or so. The balance over the past 12 months was substantially purchased by the Federal Reserve. Of course they purchased more 30-year Agency mortgages than Treasuries, but PIMCO and others sold them those mortgages and bought – you guessed it – Treasuries with the proceeds. The conclusion of this fairytale is that the government got to run up a 1.5 trillion dollar deficit, didn’t have to sell much of it to private investors, and lived happily ever – ever – well, not ever after, but certainly in 2009. Now, however, the Fed tells us that they’re “fed up,” or that they think the economy is strong enough for them to gracefully “exit,” or that they’re confident that private investors are capable of absorbing the balance. Not likely.
Geithner’s Fed Told AIG to Limit Swaps Disclosure
By Hugh Son
Jan. 7, 2010 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.
AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.
“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”
Geithner Had ‘No Role’
“Secretary Geithner played no role in these decisions,” Meg Reilly, a Treasury spokeswoman, said in an e-mail. “He was recused from working on issues involving specific companies, including AIG,” after his nomination for Treasury secretary on Nov. 24, 2008. Geithner “began to insulate himself weeks earlier in anticipation of his nomination,” she said in a separate statement.
Geithner, who was tapped by President Barack Obama, took the Treasury job in January, 2009. Mark Herr, a spokesman for New York-based AIG, declined to comment.
Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.
The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.
E-mail ‘Troubling’
Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said the e-mail exchanges were “troubling” and that he supports holding congressional hearings to review them.
AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.
Securities Lawyers
“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” Thomas Baxter, general counsel for the New York Fed, said in a statement. He said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”
Kathleen Shannon, an AIG deputy general counsel, wrote to the insurer’s executives in a March 12, 2009, e-mail about the conflicting demands from the New York Fed and SEC.
“In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”
Deutsche Bank
Under pressure from lawmakers, AIG disclosed the names of the counterparties, which included Deutsche Bank AG and Merrill Lynch & Co., on March 15. The disclosure said AIG made more than $27 billion in payments without identifying the securities tied to the swaps or listing the value of individual purchases by each bank, details the Fed wanted to keep out, according to the March 12 e-mail from AIG’s Shannon.
Earlier that month, Fed Vice Chairman Donald Kohn testified to Congress that disclosure of the counterparties would harm AIG’s ability to do business. The insurer agreed to turn over a stake of almost 80 percent in connection to its bailout.
The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.
According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.
‘No Mention of the Synthetics’
The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”
AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.
As part of a bailout that swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a taxpayer-funded facility designed to remove mortgage-linked swaps from the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008, that AIG executives wanted to publicly disclose details about Maiden Lane the next day.
“Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?” Brett Phillips, a New York Fed lawyer wrote in an e-mail that day. “The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG’s announcement and the New York Fed’s publication of term sheet summaries.”
‘Guided By Your Counsel’
“Given the significance of the transaction, AIG would be best served by filing tomorrow,” Shannon wrote. “We will of course be guided by your counsel.” The document outlining the Maiden Lane agreement was posted on Dec. 2, 2008.
In at least one instance, AIG pushed for documents to be disclosed and then released the information.
“We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25, 2008. “Please let us know your thoughts in this regard.”
AIG’s Shannon replied that “the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay.” The agreements were included in the Dec. 2 filing.
More details of the negotiations over swaps payments emerged in November 2009 when Neil Barofsky, the special inspector in charge of policing the Troubled Asset Relief Program, assessed the Fed’s role in the bailout.
‘Entitled to Know’
“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”
The New York Fed may eventually recoup its loan to Maiden Lane III, the vehicle that obtained CDOs from the banks after paying to cancel the swaps, Barofsky wrote. According to a New York Fed report, the value of securities and cash held in Maiden Lane III climbed 4.5 percent to $23.5 billion in the three months ended Sept. 30.
AIG’s first rescue was an $85 billion credit line from the New York Fed in September 2008. The bailout was expanded three times and is valued at $182.3 billion. That includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion for Maiden Lane facilities to buy mortgage-linked assets owned or backed by the company.
To contact the reporter on this story: Hugh Son in New York at
Treasury to dole out $3.8 billion to GMAC, raise stake
Karey Wutkowski and Corbett Daly
Wed Dec 30, 2009
WASHINGTON (Reuters) - The U.S. is injecting another $3.8 billion into GMAC Financial Services to help cover mortgage losses, in a bailout that makes the government the majority owner of the auto and home finance company.
GMAC said after the capital infusion it does not expect to record more major losses from its mortgage lending unit, which should help stabilize results.
The company is one of the largest car loan makers in the United States, and earning profit will give it more capacity to make loans and eventually pay back the government.
Many analysts see GMAC's mortgage assets, which make up about a third of the company's $178.2 billion balance sheet, as the main obstacle to the lender reaching profitability.
Those assets have already forced GMAC to seek new funds. Before Wednesday's capital infusion, GMAC had already received $12.5 billion of aid from the United States.
A government test of the company's capital in May, known as the stress test, found that GMAC needed $11.5 billion of equity. About $9.1 billion of that equity had to be new capital, while the rest could come from converting existing capital into new instruments such as common equity.
GMAC has raised about $7.3 billion of that $9.1 billion of new capital from the United States. The government decided that the company has raised enough because the bankruptcy of General Motors , which once owned all of GMAC, had less of an impact on the finance company than previously expected.
Not Out of the Woods Yet
Questions still remain for GMAC, though. The extent of future losses from its mortgage assets is not yet clear, a bondholder said.
He added that the best route for GMAC to follow now would be to sell off GMAC's mortgage servicing business, which collects payments from borrowers and is worth more than $3 billion on the company's books.
The bondholder, who requested anonymity because he is not authorized to speak to the media, said the company could continue to make new home loans through its Ally Bank unit.
GMAC's remaining mortgage loans could be used to pay off coming debt obligations linked to its Residential Capital unit, the investor added. If the assets don't perform well enough, that unit could go into bankruptcy, he added.
GMAC said in its statement that its board of directors reviewed Residential Capital's options and decided unanimously to take the steps announced on Wednesday.
GM sold a 51 percent stake in GMAC to private equity firm Cerberus in 2006, but held onto 49 percent of the company. Over time, GM's stake has been whittled down to 16.6 percent, including a trust managed for GM's benefit. Cerberus' stake is now 14.9 percent. The U.S. now holds 56.3 percent, with the rest of the company being held by Cerberus investors.
The government previously held about 35 percent of the company's common stock.
GMAC's mortgage business lost nearly $600 million in the third quarter, but its auto finance operations were profitable, earning about $164 million after taxes.
In November, GMAC Chief Executive Al de Molina resigned and was replaced by Michael Carpenter, a board member and former Citigroup executive.
On news reports of the planned capital infusion, the cost to insure GMAC's debt against default in the credit derivatives market fell to around 4.4 percentage points, or $440,000 a year for five years, from 4.66 percentage points at Tuesday's close, according to market data company Markit.
(Additional reporting by Corbett B. Daly and Tim Ahmann in Washington, and Dan Wilchins and Karen Brettell in New York; Editing by Derek Caney, Dave Zimmerman and Steve Orlofsky)
GATA sues Fed to disclose gold market intervention records
Submitted by Chris Powell. Section: Daily Dispatches
Wednesday, December 30, 2009
Dear Friend of GATA and Gold:
GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank's records of its surreptitious market intervention to suppress the monetary metal's price.
The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA's law firm, William J. Olson P.C. of Vienna, Virginia, ( Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret:
The lawsuit follows two years of GATA's efforts to obtain from the Federal Reserve and the U.S. Treasury Department a candid accounting of the U.S. government's involvement in the gold market. These efforts parallel those of U.S. Rep. Ron Paul, R-Texas, who long has been proposing legislation to audit the Fed. The Fed has wrapped in secrecy much of its massive intervention in the markets over the last year, and Paul's legislation recently was approved by the U.S. House of Representatives.
The Fed claims that its gold swap records involve "trade secrets" exempt from disclosure under the U.S. Freedom of Information Act.
While GATA has produced many U.S. government records showing both open and surreptitious intervention in the gold market in recent decades (see, Fed Governor Warsh's letter is confirmation that the government is surreptitiously operating in the gold market in the present as well. That intervention constitutes a huge deception of financial markets as well as expropriation of precious metals miners and investors particularly. This deception and expropriation are what GATA was established in 1999 to expose and oppose.
Of course GATA's lawsuit against the Fed will take months if not years to resolve. We think we have a good chance of winning it in court. But we can win it outside court, and much sooner, if the suit can gain enough publicity from the financial news media and market analysts and prompt enough inquiry from them and from the public, the mining industry, and members of Congress.
So GATA urges its friends to publicize the suit and to urge journalists, market analysts, mining companies, and members of Congress to join us in seeking disclosure of the Fed's gold market intervention records. If enough clamor is directed at the Fed about these records, the gold price suppression scheme will lose its surreptitiousness and fail.
Unfortunately the World Gold Council, which each year collects tens of millions of dollars in membership fees from mining companies in the name of representing them and gold investors, refuses to question governments about their surreptitious interventions in the gold market. These interventions powerfully influence not only gold's price but the prices of government bonds and currencies, as well as interest rates generally and the value of all capital and labor in the world. There is no more important issue in the world economy than gold price suppression.
So what should have been the World Gold Council's work has fallen to GATA, a non-profit educational and civil rights organization that operates from month to month on donations from people who share its objective -- free and transparent markets in the precious metals and fair dealing among nations generally. As we prosecute our lawsuit against the Fed, we'll be grateful for your support. We promise to do something with it.
For information about supporting GATA, please visit:
GATA's lawsuit against the Fed is listed in federal court records as civil case No. 09-2436 ESH, the letters being the initials of the district court judge assigned to it, Ellen S. Huvelle.
You can find the lawsuit here:
Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Bank of America  repays $45B in government bailout funds
Bank of America repaid its $45 billion TARP loan by drawing from cash on hand and selling new securities. [Forgive our skepticism, but this story has the smell of fish. Is it possible that the Fed "bought" the securities with taxpayers' money? If so, it was merely a bookkeeping trick. We will follow this and report what we learn.]
AP Business Writer Ieva M. Augstums
Wed Dec 9, 2009
CHARLOTTE, N.C. – Bank of America Corp. said Wednesday it has repaid the entire $45 billion it owed U.S. taxpayers as part of the Troubled Asset Relief Program.
Bank of America, which announced its agreement with the U.S. Treasury to repay TARP last week, funded the repayment through a combination of cash on hand and the sale of $19.29 billion of securities that would convert into common stock. The stock increase remains subject to shareholder approval.
In a prepared statement, CEO Ken Lewis said the company cleared a key hurdle in demonstrating the economy's broader health, and said the bank looks "forward to continuing to play a key role in the economic recovery."
Bank of America was among hundreds of banks that received government support through the government's TARP program. The bank received $25 billion as part of the initial round of investments when the credit crisis peaked last fall. It received an additional $20 billion in January shortly after it acquired Merrill Lynch in what was a heavily scrutinized deal.
Repayment of the funds frees the Charlotte, N.C.-based bank from the government restrictions that have hampered its search for a new CEO, including executive pay limitations.
Bank of America has been searching for a successor to Lewis since it announced in late September that he planned to retire on Dec. 31.
Bank of America's board met Tuesday to discuss potential replacements for Lewis, but no decision has been made. Bank of America spokesman Scott Silvestri said Wednesday that a decision will be made "in the near future."
Bank of America is considering both external and internal candidates to succeed Lewis.
BofA's Chief Risk Officer Gregory Curl and Brian Moynihan, the head of consumer banking, are among the top contenders. However, both men have been criticized by analysts as lacking experience or being too close to the Merrill deal.
Treasury said that with Bank of America's $45 billion repayment, the total amount of repaid TARP funds is now $116 billion. That's out of a total of $453 billion that the government has extended to banks, insurers, automakers and other companies under the program.
Treasury now estimates that total bank repayments could reach up to $175 billion by the end of 2010, the agency said in a release Wednesday. That would cut total taxpayer exposure to the banks by almost three-quarters from the peak. Total bank investments that were expected to cost $76 billion now are projected to bring a $19 billion profit, the agency said.
On Wednesday the government said it would extended the $700 billion financial bailout program until October. That sets up a conflict between Democrats, who want to use some of the leftover money to help generate jobs, and Republicans, who say it should be used to reduce budget deficits.
Bank of America shares fell 2 cents to $15.39 Wednesday.
AP Business Writer Daniel Wagner contributed to this story from Washington.
North Korea currency change sparks panic
By Michael Bristow
BBC News, Seoul
Published: 2009/December/04
North Koreans are "devastated" following currency reforms that could wipe out their savings, reports say.
Ordinary people are reported to be desperately trying to buy as many goods as they can with the old currency while it is still valid.
The government told its people on Monday that it was knocking two noughts off the nominal value of banknotes.
Experts say this will help tackle inflation and increase officials' control over an already impoverished population.
They say the Pyongyang government particularly wants to rein in the activities of free markets that have sprung up across North Korea.
Economic hardship
The North Korean government was initially quiet about the reform - telling its own people, but not the rest of the world.
But on Friday South Korea's Yonhap news agency said a Japan-based newspaper with links to the North had confirmed the news.
Yonhap quoted an interview the newspaper had conducted with a North Korean central bank official.
The North Korean banker said international sanctions, natural disasters and the fall of the communist bloc had created economic hardship.
This has forced the North to adjust its currency, Yonhap quoted the official as saying.
Under the new system, an old 1,000 North Korean won note will now be worth just 10 won.
Savings wiped out
North Koreans are thought to have until Sunday to change their old notes into the new currency.
But there appears to be a limit on how much can be exchanged - one report says each adult can cash in only 100,000 won.
“The currency reforms are part of [a] campaign to return to the North Korean version of orthodox socialism” - Rudiger Frank North Korea analyst
At the time of the announcement one US dollar was worth 135 North Korea won at official exchange rates.
That means each adult can exchange about US$740-worth (£445) of won.
Many residents are reported to have reacted with anger and panic because any cash held above that figure will be worthless - effectively wiping out people's savings.
Park Sang-hak, a North Korean defector now living in the South, said: "My contacts [in North Korea] called me to say North Korean people are in despair, crying and shouting - just like a war."
Some reports say the North Korean authorities raised the amount of money that can be exchanged following the complaints.
Fighting inflation
Another defector, Kim Woon-ho, said people were "devastated" when they heard the news, which apparently came as a surprise.
"Complaints are mounting because the North Korean government is taking money away from its people," said Mr Kim, who only left the North for the South this year.
He said ordinary people were trying to buy as many things as possible with the old money before it becomes worthless - leading to massive price rises.
But the picture emerging from the secretive communist state remains unclear.
Another North Korean now living in the South said the new won notes were already being used because few people will accept the old ones.
Many experts believe the reform is intended to curb rising inflation in North Korea.
By limiting the amount of money ordinary people can exchange, the government is in effect cutting the number of banknotes in circulation.
But some experts say the move is also about the government strengthening its control over its citizens.
Return to orthodoxy?
North Korea introduced limited market reforms in 2002 that allowed people to buy and sell goods at free markets.
These markets have become increasingly important to ordinary North Koreans, with a wide range of goods on offer.
State-run shops sell fewer and fewer items, but at free markets North Koreans can buy imported fruit, clothes and electronics, according to someone who recently visited a major market in Pyongyang.
The authorities have recently tried to restrict what goes on at these markets.
Writing in the Korean Herald, based in the South, North Korean expert Rudiger Frank said the currency reform was a political move as much as an economic one.
He said officials want to destroy the newly-emerging middle class, many of whom have made money trading in the free markets.
"The currency reforms are part of [a] campaign to return to the North Korean version of orthodox socialism," wrote Mr Frank, who is based in Vienna.
"[The aim is] to eradicate the dangerous effects of the few years of reform."
Story from BBC NEWS:
Bank of America to repay TARP, raise cash
Move would remove exec pay restrictions as institution looks for a new CEO
The Associated Press
Wed., Dec . 2, 2009
NEW YORK - Bank of America Corp. said Wednesday it plans to repay its $45 billion in government bailout funds in the next few days, a move that will help the troubled bank recruit a new CEO.
The bank said in a statement it would use available cash and raise $18.8 billion in capital to repay the money, which it received during the height of the credit crisis last year and after its purchase of Merrill Lynch & Co. earlier this year.
Bank of America has been searching for a successor to CEO Ken Lewis since the bank announced in late September that he planned to retire on Dec. 31. But the bank, burdened with government restrictions and close oversight after accepting the Troubled Asset Relief Program funds, has so far been unable to sign a new chief executive.
"It removes the stigma that we've had as a company," spokesman Bob Stickler said of the planned repayment. "We become more attractive to a CEO candidate. Whether that means we get somebody external is impossible to say."
The bank has said it was considering candidates from inside and outside the company. Stickler said a decision is expected "in the near future."
Investors were relieved by the news, and sent Bank of America stock up 3.3 percent in after-hours trading.
"It's great news," said Alan Villalon, senior research analyst at Minneapolis-based First American Funds. "It removes some overhang so hopefully a CEO can come in with a clean slate."
Villalon said the effort to repay TARP might be a signal that the bank is focused on luring an external candidate.
Banking analyst Bert Ely agreed that the restrictions put forth by federal pay czar Kenneth Feinberg have likely been an obstacle to finding the best possible CEO candidate.
"There could be someone saying, 'I'm not going to take this job unless you pay back the money and get out from under the pay czar," Ely said.
The Treasury Department said in a statement it was pleased that Bank of America planned to repay the TARP funds.
The bank said it has paid $2.54 billion to the government so far in dividends on the TARP money. BofA said it is not yet exercising its right to repurchase warrants that the government received in return for the bailout money. Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.
As of Oct. 31, nearly 50 financial companies returned a total of $72.3 billion in bailout money. Other big banks, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, repaid their bailout funds after they were given permission to do so by the government in June.
Treasury also made $6.79 billion in dividends from the TARP money and $2.90 billion selling warrants.
Bank of America received $25 billion as part of the initial round of bailouts when the credit crisis peaked last fall. It then received an additional $20 billion in January shortly after it acquired Merrill Lynch and it was learned that the Wall Street firm had billions of dollars in losses that Bank of America did not anticipate.
The bank said it will issue $18.8 billion in what are called common equivalent securities to help fund the repayment. It currently does not have approval from shareholders to increase the number of its common shares outstanding, but once it obtains that approval, investors holding these securities will be able to swap them for common shares.
Bank of America plans to hold a special meeting with shareholders in the next few months to vote on increasing the share count. The company also said it plans to raise an additional $4 billion from the sale of certain business units in the coming months.
Whoever becomes the new Bank of America CEO will have to deal with the rising losses on loans that all banks are contending with. Consumers unable to keep up with their bills have been defaulting on loans including mortgages and credit cards.
Bank of America lost $2.2 billion in the third quarter. Its losses were offset somewhat by investment banking income from Merrill Lynch.
The bank is also still facing investigations from federal and state regulators into whether it misled shareholders about the Merrill Lynch deal, including the fact that employees were given billions of dollars in bonuses shortly before the acquisition closed Jan. 1. At the time, Bank of America was also seeking the additional $20 billion in bailout money.
Irony: Andrew Jackson On a Federal Reserve Note
by John Rubino on January 9, 2010
Karl Golovin, a retired customs agent and security director for Ron Paul’s presidential campaign, just forwarded a transcript of Andrew Jackson’s farewell address. It’s pretty amazing. Here’s Karl’s intro, followed by an excerpt:
“During his presidency, Andrew Jackson viewed as his crowning achievement that he “Killed the Bank,” the 2nd Bank of the U.S. Our current ‘Federal Reserve,’ created in 1913, is the 3rd Bank of the U.S. Jackson was intent upon restoring an honest, Constitutional monetary system. There probably never has been written a more articulate, prophetic vision of what calamity would befall our nation if we did not diligently stay that course, as argued by Jackson in the following excerpt from his farewell address in 1837. It reads as if written this very day about our present financial circumstances:”
“. . . . In reviewing the conflicts which have taken place between different interests in the United States and the policy pursued since the adoption of our present form of Government, we find nothing that has produced such deep-seated evil as the course of legislation in relation to the currency. The Constitution of the United States unquestionably intended to secure to the people a circulating medium of gold and silver. But the establishment of a national bank by Congress, with the privilege of issuing paper money receivable in the payment of the public dues, and the unfortunate course of legislation in the several States upon the same subject, drove from general circulation the constitutional currency and substituted one of paper in its place.
It was not easy for men engaged in the ordinary pursuits of business, whose attention had not been particularly drawn to the subject, to foresee all the consequences of a currency exclusively of paper, and we ought not on that account to be surprised at the facility with which laws were obtained to carry into effect the paper system. Honest and even enlightened men are sometimes misled by the specious and plausible statements of the designing. But experience has now proved the mischiefs and dangers of a paper currency, and it rests with you to determine whether the proper remedy shall be applied.
The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain. The corporations which create the paper money cannot be relied upon to keep the circulating medium uniform in amount. In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by the influence of those who hope to profit by it to extend their issues of paper beyond the bounds of discretion and the reasonable demands of business; and when these issues have been pushed on from day to day, until public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given, suddenly curtail their issues, and produce an unexpected and ruinous contraction of the circulating medium, which is felt by the whole community. Nor does the evil stop here. These ebbs and flows in the currency and these indiscreet extensions of credit naturally engender a spirit of speculation injurious to the habits and character of the people. We have already seen its effects in the wild spirit of speculation in the public lands and various kinds of stock which within the last year or two seized upon such a multitude of our citizens and threatened to pervade all classes of society and to withdraw their attention from the sober pursuits of honest industry. It is not by encouraging this spirit that we shall best preserve public virtue and promote the true interests of our country; but if your currency continues as exclusively paper as it now is, it will foster this eager desire to amass wealth without labor; it will multiply the number of dependents on bank accommodations and bank favors; the temptation to obtain money at any sacrifice will become stronger and stronger, and inevitably lead to corruption, which will find its way into your public councils and destroy at no distant day the purity of your Government. Some of the evils which arise from this system of paper press with peculiar hardship upon the class of society least able to bear it. A portion of this currency frequently becomes depreciated or worthless, and all of it is easily counterfeited in such a manner as to require peculiar skill and much experience to distinguish the counterfeit from the genuine note. These frauds are most generally perpetrated in the smaller notes, which are used in the daily transactions of ordinary business, and the losses occasioned by them are commonly thrown upon the laboring classes of society, whose situation and pursuits put it out of their power to guard themselves from these impositions, and whose daily wages are necessary for their subsistence.
The banks by this means save themselves, and the mischievous consequences of their imprudence or cupidity are visited upon the public. It is the duty of every government so to regulate its currency as to protect this numerous class, as far as practicable, from the impositions of avarice and fraud.
 It is more especially the duty of the United States, where the Government is emphatically the Government of the people, and where this respectable portion of our citizens are so proudly distinguished from the laboring classes of all other nations by their independent spirit, their love of liberty, their intelligence, and their high tone of moral character. Their industry in peace is the source of our wealth and their bravery in war has covered us with glory; and the Government of the United States will but ill discharge its duties if it leaves them a prey to such dishonest impositions.
Yet it is evident that their interests can not be effectually protected unless silver and gold are restored to circulation.
These views alone of the paper currency are sufficient to call for immediate reform; but there is another consideration which should still more strongly press it upon your attention.
Recent events have proved that the paper-money system of this country may be used as an engine to undermine your free institutions, and that those who desire to engross all power in the hands of the few and to govern by corruption or force are aware of its power and prepared to employ it. Your banks now furnish your only circulating medium, and money is plenty or scarce according to the quantity of notes issued by them. While they have capitals not greatly disproportioned to each other, they are competitors in business, and no one of them can exercise dominion over the rest; and although in the present state of the currency these banks may and do operate injuriously upon the habits of business, the pecuniary concerns, and the moral tone of society, yet, from their number and dispersed situation, they can not combine for the purposes of political influence, and whatever may be the dispositions of some of them their power of mischief must necessarily be confined to a narrow space and felt only in their immediate neighborhoods.
But when the charter for the Bank of the United States was obtained from Congress it perfected the schemes of the paper system and gave to its advocates the position they have struggled to obtain from the commencement of the Federal Government to the present hour. The immense capital and peculiar privileges bestowed upon it enabled it to exercise despotic sway over the other banks in every part of the country. From its superior strength it could seriously injure, if not destroy, the business of any one of them which might incur its resentment; and it openly claimed for itself the power of regulating the currency throughout the United States. In other words, it asserted (and it undoubtedly possessed) the power to make money plenty or scarce at its pleasure, at any time and in any quarter of the Union, by controlling the issues of other banks and permitting an expansion or compelling a general contraction of the circulating medium, according to its own will. The other banking institutions were sensible of its strength, and they soon generally became its obedient instruments, ready at all times to execute its mandates; and with the banks necessarily went also that numerous class of persons in our commercial cities who depend altogether on bank credits for their solvency and means of business, and who are therefore obliged, for their own safety, to propitiate the favor of the money power by distinguished zeal and devotion in its service.
The result of the ill-advised legislation which established this great monopoly was to concentrate the whole moneyed power of the Union, with its boundless means of corruption and its numerous dependents, under the direction and command of one acknowledged head, thus organizing this particular interest as one body and securing to it unity and concert of action throughout the United States, and enabling it to bring forward upon any occasion its entire and undivided strength to support or defeat any measure of the Government.
 In the hands of this formidable power, thus perfectly organized, was also placed unlimited dominion over the amount of the circulating medium, giving it the power to regulate the value of property and the fruits of labor in every quarter of the Union, and to bestow prosperity or bring ruin upon any city or section of the country as might best comport with its own interest or policy.
We are not left to conjecture how the moneyed power, thus organized and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands can not yet be forgotten. The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and despondency ought to be indelibly impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors?  The forms of your Government might for a time have remained, but its living spirit would have departed from it.
No nation but the freemen of the United States could have come out victorious from such a contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have dictated the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes.
 The powers enumerated in that instrument do not confer on Congress the right to establish such a corporation as the Bank of the United States, and the evil consequences which followed may warn us of the danger of departing from the true rule of construction and of permitting temporary circumstances or the hope of better promoting the public welfare to influence in any degree our decisions upon the extent of the authority of the General Government. Let us abide by the Constitution as it is written, or amend it in the constitutional mode if it is found to be defective.
The distress and sufferings inflicted on the people by the bank are some of the fruits of that system of policy which is continually striving to enlarge the authority of the Federal Government beyond the limits fixed by the Constitution.
The severe lessons of experience will, I doubt not, be sufficient to prevent Congress from again chartering such a monopoly, even if the Constitution did not present an insuperable objection to it. But you must remember, my fellow-citizens, that eternal vigilance by the people is the price of liberty, and that you must pay the price if you wish to secure the blessing. It behooves you, therefore, to be watchful in your States as well as in the Federal Government. The power which the moneyed interest can exercise, when concentrated under a single head and with our present system of currency, was sufficiently demonstrated in the struggle made by the Bank of the United States. Defeated in the General Government, tho same class of intriguers and politicians will now resort to the States and endeavor to obtain there the same organization which they failed to perpetuate in the Union; and with specious and deceitful plans of public advantages and State interests and State pride they will endeavor to establish in the different States one moneyed institution with overgrown capital and exclusive privileges sufficient to enable it to control the operations of the other banks. Such an institution will be pregnant with the same evils produced by the Bank of the United States, although its sphere of action is more confined, and in the State in which it is chartered the money power will be able to embody its whole strength and to move together with undivided force to accomplish any object it may wish to attain. You have already had abundant evidence of its power to inflict injury upon the agricultural, mechanical, and laboring classes of society, and over those whose engagements in trade or speculation render them dependent on bank facilities the dominion of the State monopoly will be absolute and their obedience unlimited. With such a bank and a paper currency the money power would in a few years govern the State and control its measures, and if a sufficient number of States can be induced to create such establishments the time will soon come when it will again take the field against the United States and succeed in perfecting and perpetuating its organization by a charter from Congress.
The agricultural, the mechanical, and the laboring classes have little or no share in the direction of the great moneyed corporations, and from their habits and the nature of their pursuits they are incapable of forming extensive combinations to act together with united force. Such concert of action may sometimes be produced in a single city or in a small district of country by means of personal communications with each other, but they have no regular or active correspondence with those who are engaged in similar pursuits in distant places; they have but little patronage to give to the press, and exercise but a small share of influence over it; they have no crowd of dependents about them who hope to grow rich without labor by their countenance and favor, and who are therefore always ready to execute their wishes. The planter, the farmer, the mechanic, and the laborer all know that their success depends upon their own industry and economy, and that they must not expect to become suddenly rich by the fruits of their toil. Yet these classes of society form the great body of the people of the United States; they are the bone and sinew of the country–men who love liberty and desire nothing but equal rights and equal laws, and who, moreover, hold the great mass of our national wealth, although it is distributed in moderate amounts among the millions of freemen who possess it. But with overwhelming numbers and wealth on their side they are in constant danger of losing their fair influence in the Government, and with difficulty maintain their just rights against the incessant efforts daily made to encroach upon them. The mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges which they have succeeded in obtaining in the different States, and which are employed altogether for their benefit; and The paper-money system and its natural associations–monopoly and exclusive privileges–have already struck their roots too deep in the soil, and it will require all your efforts to check its further growth and to eradicate the evil. It is to yourselves that you must look for safety and the means of guarding and perpetuating your free institutions. In your hands is rightfully placed the sovereignty of the country, and to you everyone placed in authority is ultimately responsible. It is always in your power to see that the wishes of the people are carried into faithful execution, and their will, when once made known, must sooner or later be obeyed; and while the people remain, as I trust they ever will, uncorrupted and incorruptible, and continue watchful and jealous of their rights, the Government is safe, and the cause of freedom will continue to triumph over all its enemies.
It is one of the serious evils of our present system of banking that it enables one class of society–and that by no means a numerous one–by its control over the currency, to act injuriously upon the interests of all the others and to exercise more than its just proportion of influence in political affairs.
... unless you become more watchful in your States and check this spirit of monopoly and thirst for exclusive privileges you will in the end find that the most important powers of Government have been given or bartered away, and the control over your dearest interests has passed into the hands of these corporations.
The men who profit by the abuses and desire to perpetuate them will continue to besiege the halls of legislation in the General Government as well as in the States, and will seek by every artifice to mislead and deceive the public servants.
But it will require steady and persevering exertions on your part to rid yourselves of the iniquities and mischiefs of the paper system and to check the spirit of monopoly and other abuses which have sprung up with it, and of which it is the main support. So many interests are united to resist all reform on this subject that you must not hope the conflict will be a short one nor success easy. My humble efforts have not been spared during my administration of the Government to restore the constitutional currency of gold and silver, and something, I trust, has been done toward the accomplishment of this most desirable object; but enough yet remains to require all your energy and perseverance. The power, however, is in your hands, and the remedy must and will be applied if you determine upon it….”