Wednesday, October 1, 2008

How to make the bailout work


Almost everyone (including Krugman who should know better) thinks this banking crisis is about inadequate capital caused by losses.

They are wrong.  Its about inadequate finance caused by lack of trust.

Let me explain

Nobody I know calculates the total system losses plausibly above 2 trillion dollars.  I have had several goes at calculating the losses on this blog.  Here is an early attempt at scoping non GSE mortgage losses.  If I add the private equity disasters, GSE losses and things like car loans to this I still can't get end credit losses above 1.5 trillion.

That is a vast amount of money – enough for instance to solve most of Africa’s education and water problems.  But in the context of the huge industry that is America’s finance system it is just not that big. 

So far financial institutions have raised (well) above 400 billion in fresh capital – its probably nearing 500 billion.  The Federal Government has absorbed losses through the takeover of Fannie, Freddie, contingent liabilities on Wachovia, AIG and others of maybe 50-200 billion (lets use the low number). 

The pre-tax, pre-provision operating profit of S&P financials used to be above 400 billion and is probably still above 350 billion.  Two years of that and there is another 700 billion. 

The banks had some capital to start with – in some cases excess capital against regulatory standards. 

All up – we have almost certainly raised or passed to the government – or within two years will have earned – something approaching 1.5 trillion.

There is no capital shortage.  Get used to it.  The Krugman endorsement of the idea that you can’t save the financial system if you can’t read a balance sheet is dumb. 

The problem is the problem that begets all sharp-shock financial crises – which is just the sheer erosion of trust.  [I consider Japan to be a slow burn financial crisis whereas Korea was more like America.]

The erosion of trust was caused by lies

Wall Street and big banks sold lies for years.  I wrote once that the lies that destroyed Bear Stearns were told by Bear Stearns (note unfortunate investment theme in the link!).  The lies that are now destroying the whole of American Finance were told by American Financial Institutions.  The creditors simply do not believe any more.

What is needed to make this crisis go away is the re-emergence of trust.  When that happens people will lend to American financial institutions and they will stop failing.

American financial institutions require lots of wholesale funding – far more wholesale funding than they require in equity.  The crisis is not about the equity holders - its about the debt financiers of the US financial system.

Wholesale funding is just not available.  The banks are all subject to modern bank runs – the mass failure to roll or withdrawal of wholesale funding. 

There are several ways that the wholesale funding can be either replaced or rolled.  One way is (dare I say it) the original (and deeply suspect) Paulson plan but on a much larger scale.  The idea is that rather than securitise the mortgages and other assets on the bank balance sheet and sell the wholesale to people who no longer trust American Financial Institutions you sell them wholesale to the US Government.  The US Government funds it wholesale by selling US Treasuries – which – despite weapons of mass destruction and other deceptions – are still widely trusted assets.

The only problem is that the loan – to deposit ratios of the US Financial Institutions are just too high – and pretty well the entire wholesale funding needs to be replaced.  Buying 750 billion in assets simply does not do it.  Idea works – scale is not big enough.

Moreover the original Paulson plan involved the taxpayer taking considerable risks – and in my view the taxpayer deserves a return for those risks.  The usual solution is to give equity (ie the Democrats plan) but when the risks are large enough you wind up giving enough equity to simply nationalise the institutions.  That works. 

We know it works – we have Sweden/Norway as external examples – and even the takeover of Fannie and Freddie clearly worked – it gave confidence to the people who provide wholesale funding and lowered the price of mortgages.  

But nationalisation works not because it injects equity – it works because it injects confidence.  It makes the debt of those institutions similar to Treasuries and hence inspires confidence.

I blogged once about how this is a very different situation from Japan.  Japanese banks had no equity but plenty of funding.  They survived for more than a decade in a much weakened state.  By contrast Wachovia and WaMu went down when they still had plenty of stated equity but limited confidence.  The reason – America needs wholesale funding.

So please – I am begging here – can the pundits get their thinking straight.  Its not about equity – its about funding.

Got it.  And the problem I have with Sheila Bair is that she thinks it is about loan books – and she scares the funding off.  Moreover her takeover of WaMu was almost designed to scare off the funding – and that was dumb and should be a sacking offence.

Please get this right though - its about FUNDING not about CAPITAL.  Government action - Sheila included - should be designed as far as possible to give confidence back to the people who fund America.

 

 

 

John Hempton

13 comments:

Blank Xavier said...

This is why State intervention scares me so much - why I fear it will turn bad into catastrophic. The market knows what it needs - pretty much. It can make mistakes but people by their own self-interest work hard to do the right thing. The State endures no such guidance and it can entirely fail to understand a situation and then act - with the force of law - imposing new conditions on the market which, since if the State is wrong are essentially random, will sometimes be useless but sometimes terribly, terribly harmful. The chance of them happening to match up with what's needed and is helpful is of course very low; it's just improbable. Much easier to break by chance than to build.

Left to their own devices, a whole bunch of banks would now fail (and they deserve it) and newcomers would take their place.

With the State getting involved, we see the banning of short-selling and now acts which are strongly worsening the situation.

marc.van.den.bosch said...

John,

I guess that you are right about mortgage related losses. You would know, you have a banking background. But are you also right that fixing the mortgage mess (or other loans) will bring back confidence?

My guess is that you are not. We know now that financial institutions have lied to us as a matter of course, that they are highly leveraged and that their management is unaware of the risks being taken. As long as they turn a profit and as long as the books show that the risks are hedged.

I expect much more systemic upheavel in the months to come, as funds and individual banks default creating unbalanced risks on other banks' books.

I do not wish it, I fear it.

Peter said...

The pre-tax, pre-provision operating profit of S&P financials used to be above 400 billion and is probably still above 350 billion. Two years of that and there is another 700 billion.

John, trust is all fine and dandy, but you really think there's $350B of operating profit? How will they replace all the securitization revenue?

John Hempton said...

Peter – and I am guessing he is my regular Peter – wonders why I am sure that there is still 350 billion in pre-tax, pre-provision earnings of the US financial system. Well here goes:

There are 10 trillion of mortgages and maybe 8 trillion more that is intermediated.

For the mortgages most are fixed at rates above 6% and the funding (where that is available) is well under that. There is probably 3% spread there.

There is 7-800 billion of credit cards. Very big spreads there.

There is over a trillion in car loans. Can’t imagine the spreads being less than a few percent.

Then there are asset management fees, arranging fees, branch fees, cheque fees etc.

I think we can get to a number that big without too much effort.

In general spreads are RISING not falling – the problem is not the revenue – its can you get the funding to earn that revenue.


J

OilyGasMiner said...

It seems that we have all abandoned Adam Smith's notion of the INVISIBLE HAND. As gov intervention is clearly evident. Rather, I like to refer to the 'invernists' as the not-so-fantastic 4. Bush, Cheney, Paulson and Bernanke.

Ok, so the bailout failed...
Have we forgotten about the NEW SEC GUDIANCE that was passed just yesterday? The SEC is giving the management of financial stocks the ability to "cook their books"... how? they now have the ability to subjectively place value on the assets on their balance sheet. Don't get me wrong soem may be honest and act conservatively. WHILE others will be overly optimstic, and inflate their books. My 2cents.

Source: http://www.stockresearchportalblog.com/2008/10/new-sec-guidance-sleight-of-hand-never-works-in-the-long-term/

Anonymous said...

Well I'm not sure.

There was capital (i.e. real goods and services) burned up in all this mess. It got malinvested into enterprises that just brink back less, i.e. they generate loss.

To recover these losses it's not enough to print paper and call that "capital". We need to work, create the missing stuff, and save it - i.e. consume less goods and services than we produce. The surplus can then be invested in new enterprises.

I fail to see how this could be just an "issue of missing trust".

Mari said...

john: My understanding was the JPM bought all the insured and uninsured deposits of WaMu. Ofcourse the unsecured bondholders did not get anything...but unsecured bonds as a % of assets is small. The wholesale funding you refer to is not the same as unsecured bonds. The interbank market as a proxy to institutional deposit market shows there is a strain. I think the Ireland example is good (not unsecured bonds and sub debt insurance), but insure all deposits that should take away the problem of funding issue without the bailout.

Peter said...

This is my 2nd comment on this blog so I don't think I'm the regular Peter. Anywho, howdy.

Your math is fine if you assume current level of debt being maintained by consumers and performing. That assumption seems difficult to justify without more close scrutiny.

Aaron Krowne said...

Ok, so let's get the banks all doing wholesale funding through the Treasury. Now what do we have?

I find it hard to believe the result will be increased confidence by foreigners in dollar-denominated assets, especially if we continue to fix interest rates below inflation.

The US has an exponentially increasing need for financing. How can ROW possibly continue to meet this? This is already the case *before* throwing in your proposal.

Also while I'm not a huge fan of Krugman something strikes me as extreme about suggesting that it isn't much of a problem that no one can trust a bank balance sheet.

The private market certainly isn't going to jump at the chance to provide equity or funding without knowing the target bank's fundamentals.

I suppose if wholesale funding were put in through the gov, and banks were still held to doing realistic write-downs and simply recapitalizing as needed, that wouldn't be too bad of an outcome. It will still be inflationary, but not as much as if the gov took on the bad assets directly.

I guess the problem is: how do you wean the banks off cheap public financing?

Anonymous said...

Amazing. The first ever global depression will go down in history horribly misunderstood. What a pathetic bunch of ignorant fools we have become. Consumer junkie credit card morons. Perfect little victims. Say that reminds me.

Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold ALMOST 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, offshore accounts, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST ONE PERCENT HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars which have been transfered FROM US TO THEM. All over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They just keep getting richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any ‘humanitarian’ progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. So don’t fall for any of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. Crime, poverty, and suicide will skyrocket. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. IF IT WEREN’T FOR THE OBSCENE, UNREASONABLE, AND UNJUST DISTRIBUTION OF UNITED STATES WEALTH, THERE NEVER WOULD HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE NEVER WOULD HAVE BEEN A COLLAPSE IN THE HOUSING MARKET. Sub-prime did not cause the problem. It only accelerated the outcome. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah Winfrey, Ellen DeGeneres, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. In fact, they specifically endorsed Countrywide by name. The same Countrywide widely responsible for predatory adjustable rate sub-prime lending and the accelerated collapse of the housing market. ENDORSED BY OPRAH WINFREY, ELLEN DEGENERES, AND DR PHIL. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. It also drives up the cost for nearly every product and service on the market. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. No offense fellow citizens. But we have been mislead by nearly every public figure. We still are. Even now, they claim to be ‘hurting’ right along with the rest of us. As if gas prices actually effect the lifestyle of a millionaire. ITS A LIE. IN 2007, THE RICHEST 1% INCREASED THEIR AVERAGE BOTTOM LINE WEALTH AGAIN. On average, they are now worth over $4,000,000 each. Thats an all time high. As a group, they are now worth well over $17,000,000,000,000. THATS WELL OVER SEVENTEEN TRILLION DOLLARS. Another all time high. Which by the way, is much more than the entire middle and lower classes combined. Also more than enough to pay off our national debt, fund the Iraq war for a decade, repair our infrastructure, and bail out the US housing market. Still think that our biggest problem is China? Think again. Its the 1% club. That means every big name celebrity, athlete, executive, entrepreneur, developer, banker, and lottery winner. Along with many attorneys, doctors, and politicians. If they are rich, then they are part of the problem. Their incredible wealth was not ‘created’, ‘generated’, grown in their back yard, or printed up on their command. It was transfered FROM US TO THEM. Directly and indirectly. Its become near impossible to spend a dollar without making some greedy pig even richer. Don’t be fooled by the occasional loss of a millionaire’s fortune. Overall, they just keep getting richer. They absolutely will not stop. Still, they have the nerve to pretend as if they care about ordinary people. ITS A LIE. NOTHING BUT CALCULATED PR CRAP. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Sub-prime. Their idea. High energy prices. Their idea. Oil ‘futures’. Their idea. Obscene health care charges. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. The multi-million dollar endorsement deal. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea. Vioxx, and Celebrex. Their idea. Excessive medical testing. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, medical testing, love-sick, celebrity junkie. Their idea. All of the above drive up the cost of living, shrink the middle class, concentrate the world’s wealth and resources, create a dominoe effect of socio-economic problems, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. In many cases, the ‘charitable’ contribution is almost entirely offset. Not to mention the opportunity to plug their name, image, product, and ‘good will’ all at once. Which is usually done just before or after the release of their latest commercial project. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to ‘federal tax revenue’. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for millions because the executives, celebrities, athletes, attorneys, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid. Not to mention the spike in crime because of it. There is a dominoe effect to consider. IT CAN’T WORK THIS WAY. But our leaders refuse to acknowledge this. Instead they come up with one trick after another to milk the system and screw the majority. These decisions are heavily influensed by the 1% club. Every year, billions of federal tax dollars are diverted behind the scenes back to the rich and their respective industries. Loans from China have been necessary to compensate in part, for the red ink and multi-trillion dollar transfer of wealth to the rich. At the same time, the feds have been pushing more financial burden onto the states who push them lower onto the cities. Again, the hardship is felt more by the majority and less by the 1% club. The rich prefer to live in exclusive areas or upper class communities. They get the best of everything. Reliable city services, new schools, freshly paved roads, upscale parks, ect. The middle and lower class communities get little or nothing without a local tax increase. Which, they usually can’t afford. So the red ink flows followed by service cuts and lay-offs. All because of the OBSCENE distribution of bottom line wealth in this country. Anyway, when you account for all federal, state, and local taxes, the middle class actually pay about the same rate as the rich. The devil is in the details. So when people forgive the rich for their incredible greed and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, bankers, celebrities, athletes, attorneys, doctors, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Strong middle class, free and clear assets, lower crime rate, more widespread prosperity, stable job market, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, credit crunch, weak US dollar, 13 figure national deficit, and 12 figure annual shortfall. The cost of living is higher than ever before. Most people can’t even afford basic health care. ALL BECAUSE OF GREED. I really don’t blame the 2nd -5th percentiles in general. No economy could ever function without some reasonable scale of personal wealth and income. But it can’t be allowed to run wild like a mad dog. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. UNBRIDLED CAPITALISM ABSOLUTELY CAN NOT WORK. TOP HEAVY ECONOMIES ALWAYS COLLAPSE. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. The American dream will be shattered. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH MAKES WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman. Of course, they will jump to small minded conclusions about ‘jealousy’, ‘envy’, or ’socialism’. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.

So what can we do about it? Well, not much. Unfortunately, we are stuck on a runaway train. The problem has gone unchecked for too many years. The US/global depression is comming thanks to the 1% club. It would take a massive effort by the vast majority to prevent it. Along with a voluntary sacrifice by the rich. THATS NOT GOING TO HAPPEN. But if you believe in miracles, then spend your money as wisely as possible. Especially in middle and lower class communities. Check the Fortune 500 list and limit your support of high profit/low labor industries (Hollywood, pro sports, energy, credit, pharmaceutical, cable, satelite, internet advertising, cell phone, high fashion, jewelry, ect.). Cancel all but one credit card for emergencies only. If you need a cell phone, then do your homework and find the best deal on a local pre-pay. If you want home internet access, then use the least expensive provider, and share accounts whenever possible. If you need to search, then use the less popular search engines. They usually produce the same results anyway. Don’t click on any internet ad. If you need the product or service, then look up the phone number or address and contact that business directly. Don’t pay to see any blockbuster movie. Instead, wait a few months and rent the DVD from a local store or buy it USED. If you want to see a big name game or event, then watch it in a local bar, club, or at home on network TV. Don’t buy any high end official merchendise and don’t support the high end sponsors. If its endorsed by a big name celebrity, then don’t buy it. If you can afford a new car, then make an exception for GM, Ford, and Dodge. If they don’t increase their market share soon, then a lot more people are going to get screwed out of their pensions and/or benefits. Of course, you must know by now to avoid those big trucks and SUVs unless you truly need one for its intended purpose. Don’t be ashamed to buy a foreign car if you prefer it. Afterall, those with the most fuel efficient vehicles consume a lot less foreign oil. Which accounts for a pretty big chunk of our trade deficit. Anyway, the global economy is worth supporting to some extent. Its the obscene profit margins, trade deficits, and BS from OPEC that get us into trouble. Otherwise, the global economy would be a good thing for everyone. Just keep in mind that the big 3 are struggling and they do produce a few smaller reliable cars. Don’t frequent any high end department store or any business in a newly developed upper class community. By doing so, you make developers richer and draw support away from industrial areas and away from the middle class communities. Instead, support the local retailer and the less popular shopping centers. Especially in lower or middle class communities. If you can afford to buy a home, then do so. But go smaller and less expensive. Don’t get yourself in too deep and don’t buy into the newly developed condos or gated communities. Instead, find a modest home in a building or neighborhood at least 20 years old. If you live in one of the poorer states, then try to support its economy first and foremost. Be on the lookout for commercial brainwash plots on TV. They are written into nearly every scene of nearly every show. Most cater to network sponsors and parent companies. Especially commercial health care. Big business is fine on occasion depending on the profit margins and profit sharing. Do your homework. If you want to support any legitimate charity, then do so directly. Never support any celebrity foundation. They spend most of their funding on PR campaigns, travel, and high end accomodations for themselves. Instead, go to Charitywatch.org and look up a top rated charity to support your favorite cause. In general, support the little guy as much as possible and the big guy as little as possible. Do your part to reverse the transfer of wealth away from the rich and back to the middle and lower classes. Unfortunately, there is no perfect answer. Jobs will be lost either way. Innocent children will starve and die either way. But we need to support the largest group of workers with the most reasonable profit margins. We also need to support LEGITIMATE charities (Check that list at Charitywatch.org). This is our only chance to limit the severity and/or duration of the comming US/global depression. In the meantime, don’t listen to Bernanke, Paulson, Bartiromo, Orman, Dobbs, Kramer, OReiley, or any other public figure with regard to the economy. They are all plenty smart but I swear to you that they will lie right through their rotten teeth. IT MAKES THEM RICHER. These people work for big business. The ‘experts’ they cite also work for big business. They are all motivated by their desire to accumulate more wealth. THEY WILL LIE RIGHT THROUGH THEIR ROTTEN TEETH. So don’t fall for their tricks. Instead, look at the big picture. The economic problems we face have been mounting for well over 20 years. All of them caused or aggrivated by a constant transfer of wealth from poorer to richer. Soon, it will cause the first ever GLOBAL DEPRESION. Its not brain surgery. Its simple math. Like I said, you are welcome to run this by any professor of economics or socio-economics. If thats not good enough, then look up what Einstein had to say about greed, extreme wealth, and its horrible concequences. I speak the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

Its already underway. A massive campaign to divert our attention. Trump, Buffet, OReiley, Dobbs, Pickens, Norris, and several other well known filthy rich public figures have been running their mouths about the economy. Finally admitting a hint of severity after almost 2 years of denial. They even have the nerve to acknowledge the possibility of a US/global depression. Still, they refuse to acknowledge the single greatest underlying cause. Remember: Our national debt was way up BEFORE sub-prime. Consumer debt was way up BEFORE sub-prime. The cost of living was up BEFORE sub-prime. Wall Street profits were obscene BEFORE sub-prime. The middle class were loosing free and clear assets BEFORE sub-prime. Our infrastructure was in bad shape BEFORE sub-prime. Loans from China were taken out BEFORE sub-prime. The dollar was loosing value BEFORE sub-prime. So don’t let these cowardly filthy rich public figures divert your attention or limit your range of thought. THE CURRENT ECONOMIC CRISIS WAS NOT CAUSED BY A SINGLE POLICY OR PROCEDURE. IT WAS CAUSED PRIMARILY BY A MASSIVE TRANSFER OF WEALTH FROM POOR TO RICH. OTHERWISE, THERE WOULD NOT HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE WOULD NOT HAVE BEEN A GLOBAL CREDIT CRUNCH. MONEY DOES NOT GROW ON TREES AND IT DOES NOT FLOAT AWAY. IT ONLY TRANSFERS FROM ONE PARTY TO ANOTHER. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. GREED KILLS. IT WILL BE OUR DOWNFALL.

A word for those who respond with the usual ‘I know more than you. Look how smart, knowledgable, and articulate I am’ crap. Let me say this in advance. I don’t claim to be an expert in this field. But I did go on record with these predictions long before any public figure uttered the word ‘recession’. If you search long enough, you will find my early postings from ‘05′ and ‘06′. Including the first draft of this rant. Since then, I’ve gone on record against people like Greenspan, Bernanke, and Paulson. So far, my predictions have been accurate. Like I said. This is not brain surgery. For the mostpart, its simple math. When you concentrate the world’s wealth, you also concentrate its capital and shrink the middle class along with the potential market for every major industry. Homes go unsold. Bills go unpaid. Banks fail. More products go unsold. Jobs are lost. More banks fail. and so on. and so on. It happened 80 years ago. It will happen again. This time on a global scale. Throughout the cycle, the rich will tighten their grip. Concentrating the world’s wealth and resources even further and ensuring the collapse of every major economy worldwide. Think it can’t happen? Think again. GREED KILLS. IT WILL BE OUR DOWNFALL.

Another thing. I don’t want credit for any of this. Otherwise, I would have given my full name a long time ago. As far as I’m concerned, you can put this rant in your own words and take credit for all of it. I don’t care. Just spread the word. Otherwise, the greatest injustice of all time will go down in history unchecked.

By the way. The bailout won’t work. IT WON’T WORK. The plan fails to address the fundamental problem. The middle class don’t need more credit. They need a reasonable share of the economic pie. They also need a lower cost of living and a chance to catch their breath. Most of all, they need to wake up and see the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

Anonymous said...

Agree that this is a financing crisis and has been since inception, hence credit crunch. But equity issues have been exacerbating the issues and can create a vicious circle of their own, not to be ignored. Keep up the good stuff!
Cheers, JL

Dan Brady said...

John,
You seem like a pretty smart guy and I enjoy your analysis, but "pretty much everyone" is right.

I might attribute your views to an Australian bias but you guys down under have been drinking from the same cool aid of real estate abetted debt.

Spend a few moments on this slide presenation and see if doesn't weaken your backbone a bit.

Dan

John Hempton said...

The person who wondered why Wells is taking such a large loss provision - called mark-to-market on acquisition.

J

Australia - that is a property bubble of enormous proportions. I think the banks are SOLVENT at the end of it. But that is very different from saying they are good buys (they are not).

J

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