Thursday, July 22, 2010

America is Insolvent!

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China Calls Our Bluff: The U.S. is Insolvent and Faces Bankruptcy as a Pure Debtor Nation
By Washington's Blog
Global Research, August 3, 2010
Washington's Blog - 2010-07-23
America's biggest creditor - China - has called our bluff
As the Financial Times notes, the head of China's biggest credit rating agency has said America is insolvent and that U.S. credit ratings are a joke:
The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.
“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview.
He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.
In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.
“The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.
Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.
There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.
Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.
The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.
Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a government’s fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.
“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said.
A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.
“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said...
“China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”
Might Makes Right Economic Collapse
Indeed, Guan is even dissing America's military prowess:
“Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”
As I've repeatedly shown, borrowing money to fund our huge military expenditures are - paradoxically - weakening our national security:
As I've previously pointed out, America's military-industrial complex is ruining our economy.
And U.S. military and intelligence leaders say that the economic crisis is the biggest national security threat to the United States. See: http://www.gazette.com/articles/mullen-47273-military-time.html, http://articles.latimes.com/2009/feb/13/nation/na-security-threat13 and http://www.reuters.com/article/idUSTRE51B64820090212.
[I]t is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire ...
Indeed, as I pointed out in 2008:
So why hasn't America's credit rating been downgraded?
Well, a report by Moody's in September states:
"In superficially similar circumstances, the ratings of Japan and some Scandinavian countries were downgraded in the 1990s.
For reasons that take their roots into the large size and wealth of the economy and, ultimately, the US military power, the US government faces very little liquidity risk — its debt remains a safe heaven. There is a large market for even a significant increase in debt issuance."
So Japan and Scandinavia have wimpy militaries, so they got downgraded, but the U.S. has lots of bombs, so we don't? In any event, American cannot remain a hyperpower if it is broke.
The fact that America spends more than the rest of the world combined on our military means that we can keep an artificially high credit rating. But ironically, all the money we're spending on our military means that we become less and less credit-worthy ... and that we'll no longer be able to fund our military.
The Scary Part
I chatted with the head of a small investment brokerage about the China credit rating story.
Because he gives his clients very bullish, status quo advice, I assumed that he would say that China was wrong.
To my surprise, he simply responded:
They're right. What's scary is that China knows it.
In other words, everyone who pays any attention knows that we're broke. What's scary is that our biggest creditor knows it.
Tricks Up Their Sleeves?
China has been threatening for many months to replace the dollar as the world's reserve currency (and see this). And China, Russia and other countries have made a lot of noises about replacing the dollar with the SDR. See this and this.
Gordon T. Long argues that the much talked about gold swaps are part and parcel of the plan to replace the dollar with the SDR. Time will tell if he's right.
China, of course, is not without its own problems. See this and this.
In related news, Germany's biggest companies are starting to shun Wall Street as too risky.

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America is Insolvent. Why Would China's Rating Agency Rate US Sovereign Debt AA When it is No Better Than Junk?
By Matthias Chang
URL of this article: www.globalresearch.ca/index.php?context=va&aid=20176
Global Research, July 19, 2010
For all intent and purposes, the United States is insolvent.
This is not my personal assessment but that of world renowned “experts” and economists, and financial institutions. Just google “US Debts” and you can find thousands of analysts stating that there is no way that the US can ever pay off its debts. The US cannot even liquidate the accumulated interest on the outstanding debts. The debts are in the trillions!
The Casey Daily Dispatch observed:
The simple reality the Fed is waking up to is that the structural underpinnings of the economy are damaged beyond any quick or easy fix. That’s because until the debt is wrung out of the system, either through default or raging inflation – there’s no chance of it actually being paid in anything remotely resembling current dollars – the equivalent of an economic Black Death is going to plague the land.
The American rating agencies, Moody’s, Standard & Poor’s, and Fitch Ratings still give the thumbs up for the United States – a whopping AAA rating. These same agencies gave AAA ratings to the CDOs and other financial products peddled by the Too Big to Fail Global Banks when they were in fact junk. It took the financial tsunami to expose their fraudulent practices.
So I don’t give too much credence to the ratings by these crooked institutions.
The National Inflation Association (NIA) believes that the real credit rating of the US should be junk. But you don’t have to believe them either.
So how do we know for sure that the US should be rated as junk?
Simple! Apply common sense to the facts before you.
Since the United States defaulted on its debts in 1971, when President Nixon refused global and sovereign creditors the right of redemption in gold for US dollars, it has been living on borrowed time. The United States conned the world into accepting its toilet paper currency and for those who dared to question the integrity of its fiat currency, the mighty US military was deployed to ensure compliance.
The global banking elites then employed subservient economists the world over to tout the merits of the floating exchange rate as the mechanism to determine a currency’s value. Countries were compelled by threats of war or coups to peg their currency to the dollar. The dollar became the “anchor” in place of gold. Trade had to be denominated in US dollar which gave the United States an undue advantage.
This “pegging” gave an illusion of strength of the US dollar and creditworthiness of the United States. While others have to produce and earn an income in a “local currency” and then exchange it for US dollars to import and or purchase goods (as over 80% of global trade is denominated in dollars), the “paper tiger United States” need only to print money to pay for goods and services when its income was insufficient to pay and sustain its standard of living.
For over 37 years, the United States got away with this con!
For over 37 years, people the world over sold their produce to the United States in exchange for a paper with a number printed on it, a number denoting its value i.e. a 100 dollar note etc. People just accepted the number printed on the paper as reflective of the “real value” of the currency. In reality it has no value. It costs a few cents to print the toilet paper currency.
Through slick propaganda, people were led to believe that the value is as printed on the paper. No one dare to question the absurdity of this proposition.
But now, we have reached the stage of total collapse of the global fiat currency system. Every country in the developed world is implementing the policy of “quantitative easing” (the central bankers’ jargon for creating money out of thin air) in a desperate effort to pay off mounting debts and compounding interest in the trillions. To a lesser extent, developing countries are also following the Washington consensus. The global financial system is flooded with toilet paper currencies.
What will be the endgame?
Let’s pause and think for a moment. Let’s apply common sense.
The US dollar $, the Euro, the pound £, the Yen ¥ etc. are all fiat currencies – they have no intrinsic value. Their value is a number arbitrarily printed on the paper and sanctioned by central bankers as “legal tender”.
In essence, they are all junk – toilet paper currencies. So how do they “float” against each other under the global floating exchange rate system?
This is where the fun starts.
How does one compare a junk from another? How does one determine the exchange value of one junk from another? A junk is a junk!
Forget about the market forces determining the values of the various junk currencies. It is determined by central bankers and no one else.
Whether a US dollar is equivalent to Ringgit 3.40 or Euro 1.18 or Yen 90 is arbitrarily decided by the respective central banks. And there is nothing you and I can do about it. If it serves the interest of a country to have its currency devalued, the central bank of that country will allow its currency to devalue and vice-versa.
Sometimes, the central bankers get their accomplices, the hedge funds to jointly manipulate the forex market through derivatives trading. And as long as the central bankers and their accomplices maintain the fluctuations in any one period of time in accordance with the parameters previously agreed by the central bankers, nothing much will happen. It is when central bankers cannot agree on the parameters that problems will emerge, often resulting in trade wars and even “hot” wars.
Don’t believe me?
I will give two examples:
The Plaza Accord
In 1985, at the request of the United States – France, Germany, Japan, and the United Kingdom agreed to deliberately weaken the dollar's exchange rate. At the material time, the United States was having huge trade deficits, especially with Japan.
The agreement, known as the Plaza Accord, was to help the United States reduce its huge trade deficit to assist its economy to climb out of the 1980's long recession. The intervention was so successful, that the dollar depreciated beyond its target level. By the end of 1987, the dollar had fallen by 54% against both the D-mark and the yen from its peak in February 1985. This sharp drop caused another panic – that of an uncontrolled dollar plunge.
To address and reverse the excessive depreciation of the dollar, the same group of countries agreed in 1987 to strengthen the dollar. This latter effort was known as the Louvre Accord. Another blatant market manipulation! Since when were any markets really free?
Why did England and France agree to participate in this blatant market manipulation? They owed US a big thank you for winning the Second World War. It was time for the US to collect past dues. In the case of Germany and Japan, being defeated nations and under occupation, they had no choice but to kow tow to big brother USA.
The Asian Financial Crisis
All you need to do is to recall what happened during the Asian financial crisis. The tiger economies were undermined and attacked and their currencies went into a free fall. Malaysia’s economic development was severely threatened. But the then prime minister, Tun Dr. Mahathir Mohamad had the foresight and courage to take on the global financial elites and imposed capital and currency controls. The prime minister unilaterally fixed the exchange rate for the ringgit at RM3.80 to a dollar. Forex speculators took a major hit and never recovered from this surprise counter attack.
While this unprecedented intervention was executed to save the national economy and the livelihood of 23 million Malaysians, the global financial elites through the shadow banking system intervened to manipulate the market to reap obscene profits and to plunder.
We will now address the trillion dollar question.
How does China or the United States decide that one US dollar is equivalent to 6.7 Yuan or whatever rate?
Before addressing the question, it is important for us to understand how in a relatively short period of time, China was able to accumulate such a huge amount of dollar reserves and became the No. 1 creditor of the United States.
In their grand scheme for financial hegemony, the US financial elites proposed to the Chinese financial elites that in exchange for massive FDI and outsourcing of industries by the US, China must supply cheap goods to the American market and maintain an agreed exchange rate. This scheme was the lynchpin to an unprecedented expansion of credit in the global financial system, because such a rapid expansion of credit would be extremely inflationary. When China can supply the entire spectrum of goods at less than ten percent of the prevailing price, the financial elites knew that they could flood the global casino with dollars without having to worry about inflation.
And as they say, the rest is history.
This arrangement served the US and China well for two decades, in fact too well resulting in China having the largest dollar reserves in the world as well as becoming the largest creditor to the US.
Coming back to the trillion dollar question, as stated earlier the exchange rate is determined by the respective central banks. Of late, the Obama administration has been putting pressure on China to revalue its currency. In response to the pressure and to avoid a trade war, China allowed its currency to appreciate slightly. In fact, this happened just before the G-20 Summit in Toronto.
While the above arrangement (specifically the agreed exchange rate) has served its original purpose, it can no longer be sustained. This is because the current yuan/dollar peg is distorting the forex market and will exacerbate even further the present global financial crisis.
As a result of the global financial tsunami, the US is in default once again. But this time round, Obama cannot do what Nixon did in 1971.
The Daily Reckoning assessed the situation correctly when its subscribers were told:
Wait a minute. We're still Number One, right?
Yes...in the sense that we can, in theory, kick any butt in the world. That is, if the Chinese let us. They've got so much of our money and so many of our bonds, if they decided to dump them, we'd be in one helluva fix. Because we don't pay enough in taxes to fund our social programs and the Pentagon at the same time. We can't afford it. So the nice Chinese lend us money.
But don't worry. They've promised not to dump our bonds. And we're sure they'll honor that promise for as long as they want to.
As far as we know, no empire that had to borrow money from its rivals has ever lasted very long. Britain got itself in that position in WWI. It could no longer afford the carrying costs of the empire – including the huge cost of the war itself. So, it borrowed from the US. The Germans borrowed from US lenders too. But America's lenders to Britain had more money in New York and more power in Washington. So, the US entered the war on Britain's side rather than on Germany's side.
Then, in WWII, when an American general was put in charge of D-Day, it was clear that Britain had ceded the lead dog position to the US. It was a friendly handover, achieved by force of economics rather than by force of arms. The US did not have to defeat Britain militarily. Instead, she merely had to finance her.
A few years later, during the Suez crisis, Britain learned what it was like to be a subordinate power. She discovered that she could no longer throw her weight around without US consent.
But that is on the military front. At home, Britons discovered that they were poor...and getting relatively poorer. Under the weight of growing social welfare programs and a shrinking empire, Britain's economy sagged. Its old allies – France and the US – boomed in the post-war years. So did its old enemies – Japan and Germany. Soon, not only were its friends richer and more powerful...so were its adversaries.
So, we now have a ridiculous situation where the United States owes global creditors trillions of dollars (specifically China), is insolvent, yet, the exchange rate does not reflect the underlying weakness of the United States.
We also have the situation where China has been selling goods and services to the United States and is being paid in toilet paper currency that has no value other than the artificial and arbitrary value printed on the paper. China, in turn lends these toilet papers back to the United States so that it can purchase more goods and services from China. The United States has no money to repay China, so it creates money out of thin air, via the electronic printing press and use that to pay China.
Seriously, how long can this charade last?
Back in 1985, we had the Plaza Accord to bail out the paper tiger USA. The answer then was to devalue the US dollar. But Japan suffered two decades of stagnation.
Why have the same countries – UK, France, Germany and Japan not adopted a similar strategy at this juncture, thereby boosting US exports?
Simple!
1. The US has outsourced so much of their previous exports to China and other countries that it does not have enough meaningful products to export anymore to make a substantial difference in the trade deficit.
2. For the past decade, the main exports of the US were, and continue to be “Financial Products” – the junks wrapped up as CDOs and rated AAA and sold to gullible investors (i.e. gamblers) all over the world. The US was the centre of the global derivatives casino, managed by the Shadow Banking Cartel.
3. There has been such a massive US dollar credit expansion in the last decade as well as toilet paper dollars in the global financial system that any attempt to devalue the dollar would result in an uncontrolled free fall, and the complete destruction of the economy of the US.
4. And China by maintaining its current exchange rate with the dollar (and within a narrow band of fluctuation) has artificially maintained the current value of the US dollar to avoid the status of being downgraded to junk.
5. Thus in the short term, China is complicit, together with other major central banks, in hoodwinking the ordinary folks that the global fiat money system is still in a healthy state. But, by downgrading the US one notch, China and the global elites hope that the con can be maintained for some time so that China as well as other countries can get out of their massive US dollar assets. But the situation is so volatile that no one, absolutely no one can say for sure when a child would cry out the proverbial exposé, hey, the emperor has no clothes!
6. It is also obvious to the global financial elites that if there is a massive flight from dollar assets to euro assets, there would also be an uncontrolled plunge of the US dollar. The European global banks are also up to their eyeballs holding junk dollar assets and would thereby suffer huge losses over and above their exposure in euro loans to the “PIIGS” countries (Portugal, Ireland, Italy, Greece and Spain). Unlike the time of the Plaza Accord, right now, no one wants dollar devaluation. When the slide starts, no one would be able to stop the plunge. Central bankers are sitting on a knife’s edge. Ouch!
7. So, the “Greek crisis” was engineered to prevent such a flight from dollar assets to euro assets. Greece is “Mary Poppins” in the overall financial scheme of things. Its GDP is not even 3% of the Euro zone. In contrast, California is bankrupt and is more pivotal to the US economy. It is the 7th largest economy in the world. Yet, the bankruptcy of California did not impact on the US economy as it should. This is because the global mass media ensured that the bankruptcy would not be highlighted. The hype instead was that the euro would be heading for a crash. The result? The flight to euros was halted in its tracks.
8. Someone threw the spanner in the works. The culprit in the eyes of the global financial elites was the indomitable Iran. China and Russia were playing geopolitical games in their trade relations with Iran in the hope that President Ahmadinejad would not spoil the party before they were ready to dump their massive dollar assets. The US and Israel played the hard ball role while China and Russia initially played the softy role so typical of the police methods when attempting to extract concessions and or confessions. But China’s and Russia’s true intentions were revealed, when exasperated with the resilience and defiance of Iran, they opted to impose severe sanctions on Iran. The quartet did not bother to maintain the farce. The nuclear weapons issue was merely a smoke screen to mislead the world of the impending financial implosion.
The downgrade by China must be seen for what it is – a stark warning that the end is near. The curtain has to come down on the charade.
Another signal that the end is near was when the Bank of International Settlement (BIS) swapped Gold as security for a dollar facility extended to a sovereign (most likely Portugal) via commercial entities. Gold, once considered a “barbaric relic” is now back in fashion in currency swaps. Who would have thought this was possible just a few months ago? In a sense, we have turned a full circle. In 1971, Nixon decoupled gold from the US dollar. Today, the BIS have taken the first few steps in bringing gold back to its rightful place.
No matter how hard the central bankers and China try to prevent the sovereign debt bubble blow-out, they will not succeed.
Sooner or later, China has to make the decision of the 21st century – to dump the dollar and allow global economies to suffer severe pain in the short term, five to ten years, or commit mass suicide together with the US, UK, France, Germany, Russia and Japan.
China at this moment in time is the only country that can survive the coming financial devastation with the least pain as it will be relatively easy to transform its economy from being export-driven to that of a domestic-based economy – tapping the limitless potential of its 1.5 billion citizens. China can do in one short year, maybe at the most two, what would take a generation for the other developed economies to do.
A marginal increase in the purchasing power of its citizens will take up whatever downturn in the export markets.
The fact that the Yuan is propping up the dollar means that it is the Yuan and not the dollar that is the undisputed global reserve currency. If China revalues drastically upwards the Yuan, every fiat currency would head for an uncontrolled free fall.
Let us not be naive and kid ourselves. It is pure pantomime for the US to demand from China to revalue the Yuan and for China to resist a revaluation. This so-called currency tug-of-war is a smoke screen to lend credence that the dollar is not junk but AA, albeit down one notch from AAA.
The fact that so many western-trained economists have not addressed and or exposed this issue can mean only two things – either they are truly ignorant or they are part of this grand charade, blowing smoke into our eyes.
Be patient. Invest in Gold. Prepare for Act II of the financial Armageddon!
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Is America's financial collapse inevitable?
Patrick J Buchanan
January 14, 2010
We were blindsided. We never saw it coming.
So said Goldman Sachs CEO Lloyd Blankfein of the financial crisis of 2008. He likened its probability to four hurricanes hitting the East Coast in a single season.
Blankfein was reminded by the chairman of the Financial Crisis Inquiry Committee, Phil Angelides, that hurricanes are "acts of God." Financial crises are manmade. Yet Blankfein was backed up by Jamie Dimon of JPMorgan, who said, "Somehow, we just missed ... that home prices don't go up forever."
The Wall Street titans thus conceded they did not foresee the housing bubble ever bursting and they did not consider the possibility of a collapse in value of the sub-prime mortgage securities piled up on their books.
Backing up Blankfein's plea of ignorance and incomprehension is this: The crisis killed Lehman Brothers and would have killed every one of them had not the Treasury and Fed, neither of which saw it coming, either, intervened with hundreds of billions in bailout cash.
Yet there were those who warned a housing bubble was being created like the dot-com bubble; others who predicted the Empire of Debt was coming down – as, today, there are those warning that the United States, with consecutive deficits running 10 percent of gross domestic product, is risking an eventual default on its national debt.
The warnings come from the Committee on the Fiscal Future of the United States, chaired by Rudolph Penner, former head of the Congressional Budget Office, and David Walker, former head of the Government Accountability Office and author of "Comeback America: Turning the Country Around and Restoring Fiscal Responsibility."
Who's getting richer under the Obama regime? Find out in Tim Carney's new book, "Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses"
With that share of the U.S. national debt held by individuals, corporations, pension funds and foreign governments having risen in 2009 from 41 percent to 53 percent of GDP, Penner and Walker believe it imperative to get the deficit under control. Unfortunately, it is not possible to see how, politically, this can be done.
Consider. The five largest elements in the budget are Social Security, Medicare, Medicaid, defense and interest on the debt.
With interest rates near record lows, and certain to rise, and back-to-back $1.4 trillion deficits, this budget item has to grow and has to be paid if the U.S. government is to continue to borrow.
Second, with seniors on fire against Medicare cuts in health-care reform, it would be fatal for the Obama Democrats to curtail Social Security or Medicare benefits any further this year. Next year, they will not only lack the congressional strength but any desire to do so, after their anticipated shellacking this fall.
The same holds true for Medicaid. The Party of Government is not going to cut health benefits for its most loyal supporters. Indeed, federal costs may rise as state governments, constitutionally required to balance their budgets, cut social benefits and beg the feds to pick up the slack.
This leaves defense. But the president is deepening the U.S. involvement in Afghanistan to 100,000 troops, and the military needs to replace weaponry and machines depreciated in a decade of war.
Where, then, are the spending cuts to come from?
Can the administration cut Homeland Security, the FBI or CIA after the near disaster in Detroit? Will Obama cut the spending for education he promised to increase? Will he cut funding for food stamps, unemployment insurance or the Earned Income Tax Credit in a recession? For the near term, the entitlements are untouchables.
Is this Democratic Congress, which increased the budgets of all the departments by an average of 10 percent, going to take a knife to federal agencies or federal salaries, when federal bureaucrats and beneficiaries of federal programs are the most reliable voting blocs in their coalition?
What about tax hikes? Obama has promised to let the Bush tax cuts lapse for those earning $250,000 but has pledged not to raise taxes on the middle class. Any broad-based tax would be politically suicidal for him and his increasingly unpopular party.
But if taxes are off the table, Afghan war costs are inexorably rising and cuts in Social Security, Medicare, Medicaid and entitlement programs are politically impossible, as pressure builds for a second stimulus, how does one reduce a deficit of $1.4 trillion?
How does one stop the exploding national debt from surging above 100 percent of GDP?
America is the oldest and greatest constitutional republic, the model for all the others. But if our elected politicians are incapable of imposing the sacrifices needed to pull the nation back from the brink of a devaluation or default, is democratic capitalism truly, as Francis Fukuyama told us just two decades ago, the future of mankind?
What the looming fiscal crisis of this country portends is nothing less than a test of whether this democratic republic is sustainable.
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What Caused the Financial Collapse of America?
Francine Hardaway
Serial entrepreneurship veteran
Posted: January 7, 2010
Gucci shoes
BMWs
Driver-attended Lexus sedans
Park Avenue apartments
Westchester country clubs
Greenwich mansions
Jackson Hole vacations
NetJet accounts
Black towncars
Island summer homes
Manhattan steak houses
OK, those aren't the real reasons, but they are the outward trappings. The "real" ten reasons are probably the seven deadly sins, de-regulation, globalization, and the decline of public education.
However, those ten symbols (to which all the major characters in this gripping narrative had unfettered access), although never part of the lifestyle of the average American, are part of every Wall Street banker's repertoire. Even as they failed to mark their worthless assets to market (translation: tell the truth about the crap they had securitized) and continued to demonstrate unfamiliarity with the numbers in the businesses they were supposed to be running, these CEOs were living in unbridled luxury thinking they were taking part in "real life."
By now you probably can guess that I'm reading Andrew Ross Sorkin's Too Big to Fail, and it is making me sick. From what I can tell, none of these investment banking firms or mega-banks had so much as a controller to tell them when to stop spending. Throwing around multi-billion dollar numbers in deals that repeatedly bet the farm (or the firm), they operated in an atmosphere of outright denial about what money actually means. Even the ones from poor backgrounds forgot that their portfolios of toxic assets contained the remnants of other peoples' lives.
And none of those people, with the exception of Dick Fuld of Lehmann Brothers, a hot-tempered egotist, have lost their jobs. They're still in position: John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JP Morgan Chase, Vikram Pandit of Citibank, and Ken Lewis of B of A. Not to mention Tim Geithner, then-head of the New York Fed, now Treasury Secretary. These guys vandalized our financial system and were never apprehended. As far as they were concerned, they did nothing wrong. They moved pieces on a board, and played to win, that's all. When it doesn't work out, they say "holy shit," and scramble for the bailout exits.
Almost two years later, their assets are still toxic. Lehmann crumbled, but my own experience trying to get a mortgage modification has convinced me their real estate division still refuses to mark its assets to market; they still want to value my home, now worth $511,000, at the $769,000 it was worth in 2005. If they didn't, they'd modify my mortgage. But that would mean they would take the write down. Instead, I take it. And I don't mean just me -- I mean every middle class American who owns a home, lost a job, or can't get a loan. We are all taking it.
I also take the new "inactivity fee" for not using my Citibank credit card, and the new "transfer fee" for moving money from my business line of credit to my checking account to pay a bill. And I take the "finance charge" on my Visa, and the ATM fee, and the overdraft fee. We have to take those, so the bankers can keep their compensation.
The fees are going up even as I write this, as the banks fight to get their profits locked in before the new regulations start in February.
Simon Johnson, one of the writers of "The Baseline Scenario" has voted with his feet. He has closed his accounts at the big banks. He can't trust them. He knows they won't help him. They will do anything to preserve their hegemony. They don't even trust each other. In Sorkin's book, even in the most dire circumstances, the ethos is always "don't help the competition." Only when they think the competition's death might bring them down as well do they offer to work together. Wall Street is all about WIIFM: what's in it for me.
In the mean time, the rest of us have learned a different lesson. In our world, where people can no longer afford to eat out or take a vacation, we've learned that we must work together, sharing what little resources we have left so that we can survive in this brave new world the bankers have brought us.
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