Chris Martenson, creator of the highly-recommended Crash Course on Economics and one of my personal heroes for putting his money where his mouth is by radically altering his lifestyle to conform to a minimalist one (to prepare for the coming economic meltdown), has written a scathing commentary on his blog in which he discusses the obvious looting operation going on by Timmy Geithner, Lawrence Summers and Rahm Emanuel.
As cynical as I am, I just can’t keep up.
That sentence is a paraphrase of a quote by Lily Tomlin that reads, “No matter how cynical you become, it’s never enough to keep up.”
I have long been a cynic of the bailouts, and, unfortunately, I cannot detect even the slightest sliver of daylight between the prior and current administrations. The reason, I fear, is captured by this quote from Simon Johnson, the former Chief Economist at the IMF and current professor at MIT’s Sloan School of Management:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
The unfortunate conclusion here is that our system and processes are fully “captured” by a tangled web of interests that serve themselves over everything else. Your future, my future, and our future is being systematically ruined by a self-interested group of insiders that can no longer distinguish between their good and the common good.
Here’s the latest string of outrages from this week. [Continue reading]
Seeking to stabilize the foundering housing market, President Obama is offering a plan to help as many as nine million families refinance their mortgages or avoid foreclosure, according to a summary released by the White House on Wednesday morning.
The plan, which is more ambitious than expected, would spend $75 billion to help keep as many as four million families in their homes, and would help as many as five million more refinance their mortgages to take advantage of lower interest rates.
Immediately, Chris Martenson (author of the incredible Economics Crash Course) fired back on his blog, saying:
If you did not buy more house than you could afford, or never issued a loan to a party that could (obviously and predictably) not repay that loan, then you just got punished.
He goes on to analyze the plan and the media’s mischaracterization of it, using New York Times‘s coverage as an example.
Then he takes a look at it from an economic standpoint…
This is throwing good money after bad, and, worse, by seeking to “shore up sinking house prices,” it betrays a complete ignorance of the actual root of the problem. Blaming sinking housing prices for the fix we are in is equivalent to blaming the car for the drunk driving wreck. If Obama were to craft a similar program for drunk drivers, it would include new cars for any that happened to wreck their own.
Ron Paul appeared with Dick Armey today on FOX News with Neil Cavuto. They discussed Obama’s stimulus plan. Not surprisingly neither of them thought much of it.
Chris Martenson, author of the fantastic Crash Course on Economics, has commented on Ben Bernanke’s remarks to business leaders in Austin, Texas today. As expected, it’s not a positive review. In fact the title of his article is “Bernanke – Still speaking as though to children”.
Bernanke’s remarks today did little to soothe this ruffled observer. His remarks struck me as practically dishonest in their inability to speak directly to our actual problems.
WASHINGTON (MarketWatch) – The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S. central bank still has plenty of available firepower it could deploy to restore financial markets to normal, Fed Chairman Ben Bernanke said Monday.
I wish that we could just get some straight talk about our actual condition instead of this weird insistence on “restoring our financial markets to normal.” This ignores the fact that they were completely abnormal. Why would we want to return there? I guess it’s this strange insistence on continually repeating the mantra that things can be “restored to normal” that’s got me unsettled.
The way I see it, there’s no “normal” to return to. Things were hopelessly out of whack before and now they will settle into some new, different level of activity.
Then he quotes from a marketwatch.com article on the same subject, in which Bernanke was quoted as saying that “the Fed could also expand its efforts to supply liquidity directly to markets and investors, bypassing banks and other reluctant institutions.” Martenson was astounded by this remark:
Uh oh. This is a very ominous statement. Let’s imagine what mechanisms he might be envisioning to “supply liquidity directly to markets and investors”. All I can think of is a wire transfer or check directly from the Fed to these “markets and investors”. In the case of “markets” I suspect Bernanke is talking about buying stocks. The Fed granted itself the right to perform this function about 3 months ago and I guess Bernanke is reminding us that they may yet directly buy equities in an effort to support stock prices.
But directly to investors? All I can say there is that if you receive a check from the Fed spend it as fast as you possibly can as that will mark a turning point for our currency. If you don’t believe me, then we should take a road trip to Zimbabwe together because that is exactly what their Central Bank did early on in their current inflationary crisis.
Gold is down $50 right now. Sounds like a great time to buy.
Chris Martenson, creator of the Economics Crash Course, was quick to analyze the Citigroup bailout and point out that not only was the money handed over with no questions asked (compared to the grueling questioning given to the Big Three automakers), but that the type of loan given to Citigroup, called a “non-recourse loan”, basically gives the company a strong incentive to default on the loan and pocket $270 free and clear:
This is the most staggering giveaway I could have possibly imagined. To understand why, let’s review the definition of a non-recourse loan:
A nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender’s recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance
This means that when, not if but when, the Citi defaults on this loan there will be no mechanism for recourse for the taxpayers. Why am I confident that Citi will default on this particular rescue loan? Because they are smart people and paying it off would be stupid.
The $300 billion of “assets” pledged as collateral for this loan are worth, perhaps, half that. Possibly as little as 10% if Citi has done its job and purged the worst of the worst from its balance sheet to tuck into this sweetheart deal.
So it’s very simple. Either Citi makes good on the loan and repays all $300 billion and then takes possession of perhaps $30 billion of damaged assets or it defaults and keeps $300 billion.
Yesterday, Secretary of the Treasury Henry Paulson published an Op-Ed piece in the New York Times. It was filled with doublespeak, platitudes, lies, and incredible ignorance. Chris Martenson parsed Paulson’s words, paragraph by paragraph, to shed some truth of the situation. Here’s a snippet:
[Paulson writes:]
I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress. And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our financial institutions and financial markets.
My Comment: Um, no, Hank, sorry, this is not true. Here are some recent quotes from you:
April 20, 2007 — “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.”
July 26, 2007 — “I don’t think it [the subprime mess] poses any threat to the overall economy.”
This article by Chris Martenson is quite revealing, even entertaining (if you’re into black comedy). Read the whole thing here.
We are barreling toward socialism at an alarming rate, and every day I become more and more afraid for the future of our country. Teresa Ghilarducci is an economist at the New School for Social Research in New York who wrote a policy paper on the subject of retirement account, and followed that up with a book entitled, When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them. She was called to testify before Congress on her harebrained scheme to have the federal government take over all our private 401K plans (which have historically realized at least 10% annually, on average) and “guarantee” a rate of return of 3% over inflation. From ABC News:
Here are the basics of her proposed Guaranteed Retirement Accounts:
Employees would make mandatory contributions equal to at least 5 percent of the earnings. Workers could contribute higher amounts if they wish.
Those contributions would be offset by a $600 federal tax credit each participant would receive.
As with a 401(k) plan, workers would have individual accounts they could track. The balance of each account would depend on each worker’s contributions and income level.
The Social Security Administration would handle account management, and the Thrift Savings Plan — a well-regarded retirement plan for federal employees — would manage the money.
Participants would be guaranteed a fixed rate of return that exceeds inflation by 3 percent. For instance, if inflation stood at 2 percent, the worker would earn 5 percent; if inflation reached 3.5 percent, the worker would earn 6.5 percent. Participants could receive an inflation-beating return above 3 percent if the government’s investment returns were high enough.
At retirement, participants’ account balances would be converted into a lifetime stream of income that adjusts for inflation. There would be options to take partial lump sum payments, opt for lower payments in return for survivor benefits and, upon death, leave a portion of a financial account balance.
The intent of the plan is not to replace Social Security. Rather, Guaranteed Savings Accounts would supplement Social Security, Ghilarducci said.
Given the government’s horrendous track record (i.e. Social Security, Fannie/Freddie, Medicare, Medicaid, etc.) it’s preposterous to think the government would handle your 401K money wisely.
Liberty Maven
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