- The following article copied below by Joshua Holland
is a good article. The focus in general hints around the body of the economic
situation we face but misses the heart of the matter of "who"
drained the wealth from the economy. The word he used per losses in the
markets and housing per equity was "evaporated".
- Well folks, evaporated yes out of one pocket and into
another. The derivative market allows wealth to be transferred on paper
through and by the trader having the 0000000000000000's at the end of their
trading account and the ability to effect circumstance to effect the market
moves to lock in a profit on their trading activity.
- So, to get to the heart of the matter, let's look at
who made a killing on their derivative trading activity. A good start would
be the US Auditor Generals audit on bank derivative activity from the top
30 banks. I note that banks act as the manager for investors and those
primary investors with the banks are local and federal government accounts..
(Insurance company international derivative activity would be the next
good place to look)
- To access this report on the banks, it can be downloaded
at - http://cafr1.com/STATES/US-TreasuryReports/BankDerivativesMarch08.pdf
- When you view this report scroll down over 2/3rd through
the report until you get to the "Table Section" pages 22-33.
As copied from page one of this report: "Derivatives activity in
the U.S. banking system is dominated by a small group of large financial
institutions. Five large commercial banks represent 97% of the total industry
notional amount, 93% of total trading revenues, and 85% of industry net
current credit exposure."
- Here on TABLE 1 on page 22, the numbers are listed in
"millions" so add six zeros to the numbers listed in the tables.
JP Morgan Chase comes in at #1 in their derivative holdings with $89,997,271,000,000
(90 Trillion). They expanded their TOTAL CREDIT EXPOSURE TO CAPITAL RATIO
to (411.6) TABLE 4 page 25 and it appears picked up a net appreciation
of a little over two trillion dollars. Not a bad cash pick up in their
pool of funds to buy out their competition at 10c on the dollar of whom
were not part of the market manipulation game that got smashed in the derivative
"forced majeure" play... And just think, government then used
one-trillion in taxpayer funds to secure up their own casino in which they
just crucified all other outside players in.. ( they rape you and then
attach your checking account to pay themselves for having done so in the
first place stabilizing their own playing field) Now that's the definition
- For those that have an interest in gold, look at TABLE
9, JP Morgan Chase on their derivative gold position $95,230,000,000 (95
Billion dollars). Ever wonder what drove the gold market down? With derivatives
you can short (sell first) or buy (buy first) on paper even if you do not
own one (1) oz of gold. If you used this type of money to sell first, you
can collapse the market and when collapsed offset your short positions
and walk with the equity from the trade.
- Also look at Graph 4 and 5B pages 12 and 14. (Graphs
in trillions of dollars). It appears their activities were very profitable
for them, or should I say their clients?
- The people are realizing the effect of the recession
if not the "D" word. They are told trillions have been lost in
the economy and they have been. The issue is not that the people and resulting
economy on one side of the coin have lost trillions, the issue is: with
the ballooned up now 600 trillion dollar international derivatives markets,
WHO took those trillions by profit on the other side of the coin???
- I note that starting in the 80's government created off-shore
management teams where vast amounts of revenue was transferred (in the
trillions) whereby they being off shore would not be subject to the same
SEC and CFTC scrutiny as they would be if managed in the USA. This gave
the ability for these funds to be invested outside of the dollar and in
any country - China, Russia, Mexico, etc... It also created a foundation
for derivative activity and investment ownership that would be invisible
to the American people. An URGENT necessatiy exists for a transparent audit
of these off-shore government management groups to see the "net"
results from trading activity on the run up of the stock market and crude
oil prices and then the orchestrated collapse of the same. With derivatives
thes government investment funds made substantial profits on both sides
of the move. Most of these off-shore funds are set up on a redemption basis.
So, say if local government x put in one-hundred million dollars ten years
ago and that money compounded to two billion dollars over ten years, the
profit would not show up on that local government's books until redemption.
Again an audit of these international off-shore funds is urgently needed
to establish the net results of the trading activity therefrom.
- Sent FYI and truly yours,
- Walter J. Burien, Jr.
- P. O. Box 2112
- Saint Johns, AZ 85936
- http://CAFR1.com and
- Tel: 928-445-3532
- Pension funds pay a salary and benefits at retirement.
Any local government can be restructured to meet their annual budget needs
"Without" taxes. TRF (Tax Retirement Funds) paying for every
City, County, State's annual budgetary needs! This now makes the people
the true owners with government being the true service provider. Government
has already shown that a TRF works by example through the management of
their own combined multi-trillion dollar pension funds! CAFR1 says: Make
it law and make it so!
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- Was The 'Credit Crunch' A Myth Used To Sell
A Trillion-Dollar Scam?
- By Joshua Holland
- There is something approaching a consensus that the Paulson
Plan -- also known as the Troubled Asset Relief Program, or TARP -- was
a boondoggle of an intervention that's flailed from one approach to the
next, with little oversight and less effect on the financial meltdown.
- But perhaps even more troubling than the ad hoc nature
of its implementation is the suspicion that has recently emerged that TARP
-- hundreds of billions of dollars worth so far -- was sold to Congress
and the public based on a Big Lie.
- President George W. Bush, fabulist-in-chief, articulated
the rationale for the program in that trademark way of his -- as if addressing
a nation of slow-witted 12-year-olds -- on Sept. 24: "Major financial
institutions have teetered on the edge of collapse ... [and] began holding
onto their money, and lending dried up, and the gears of the American financial
system began grinding to a halt." Bush said that if Congress didn't
give Treasury Secretary Hank Paulson the trillion dollars (give or take)
for which he was asking, the results would be disastrous: "Even if
you have good credit history, it would be more difficult for you to get
the loans you need to buy a car or send your children to college. And ultimately,
our country could experience a long and painful recession."
- For the most part, the press has continued to echo Bush's
central assertion that there's a "credit crunch" preventing even qualified borrowers
-- that's the key point -- from getting loans, and it's now part of the
- But a number of economists are questionioning the factual
basis of the credit crunch narrative. Columnist David Sirota recently looked
at those claims and concluded that
Americans "had been punk'd" -- that "the major claims about
a credit crisis that justified Congress cutting a trillion-dollar blank
check to Wall Street were demonstrably false," and the threat of a
systemic banking crash was used by the Bush administration to overcome
popular resistance to the "bailout."
- It's a reasonable conclusion; this is an administration
that used the threat of thousands of al-Qaida sleeper cells in the United
States to sell Congress on the Patriot Act, the specter of mushroom clouds
rising over American cities to push through the Iraq war resolution and
the supposedly imminent crash of the Social Security system to push for
privatizing Americans' retirement savings.
- But the question comes down to what they knew and when
they knew it. The analyses that suggest the whole credit crunch narrative
is false are based on data that lagged behind the numbers that policymakers
had available, in real time, back in September. So the question -- probably
unanswerable at this point -- comes down to whether or not they looked
at the situation and in good faith believed that pumping hundreds of billions
of dollars into the banking system would contain the damage and save an
economy teetering on the brink of collapse.
- What Else Could Be Happening?
- Of course, no one disputes the fact that as the economy
has tanked, the number of new loans being issued to American families and
businesses has plummeted. But is because credit has dried up for qualified
- Economist Dean Baker doesn't think so. He explains the
situation in simple terms: The media, he argues, "are blaming the
economic collapse on a 'credit crunch' instead of the more obvious problem
that consumers just lost $6 trillion of housing wealth and another $8 trillion
of stock wealth." It's a commonsense argument: much of the economic
growth of the Bush era existed on paper only, built on the rise of a massive
bubble in real estate values rather than growth in productive industries.
- When all that ephemeral wealth vaporized -- and with
the economy shedding jobs like a dog with dermatitis -- consumers stopped
buying, and businesses, anticipating a long slowdown, stopped seeking the
loans that they might have otherwise tapped to expand their operations.
- Whether good borrowers can't get credit from banks because
the latter are hoarding cash or lending has stopped because of a drop-off
in demand for new loans is not some wonky academic debate; it's of crucial
significance. Because if lending to qualified parties has truly frozen,
then even if the specific implementation of the Paulson Plan was deeply
flawed, its broad approach -- "recapitalizing" banks in various
ways, buying up some of their crappy paper and guaranteeing some of their
transactions -- is fundamentally sound.
- If, on the other hand, the primary problem is that people
are broke and maxed out on debt, and firms aren't looking for money to
expand, then the kind of massive
stimulus package being considered by the Obama transition
team and congressional Dems -- largely designed to stimulate demand from
the bottom up, with public works projects, tax cuts for working families,
aid to tapped-out state and municipal governments and new money for unemployment
and food stamps -- is obviously the best approach to take.
- Broadly speaking, these are the parameters of the debate
in Washington, and that means that properly diagnosing the underlying problem
is crucially important.
- Is the Credit Crunch a Big Lie?
- There's plenty of evidence that Baker's right. He points
out that even though mortgage rates have plummeted, the number of applications
for new loans has dropped to very low levels and argues it's "the
most glaring refutation of the claim that people are unable to get credit."
If creditworthy applicants were being denied loans by banks unable or unwilling
to lend, Baker explains, "then the ratio of mortgage applications
to home sales should be soaring" as qualified homebuyers apply to
multiple banks for a loan. "Since there is no notable increase in
this ratio, access to credit is obviously not an issue."
- Again, this is common sense. Consumer spending drives
about 70 percent of the U.S. economy, and in recent years, much of that
spending was financed by people taking chunks of home equity out of their
properties -- people might have been eating in fancy restaurants, but they
were essentially eating their living rooms to do so.
- That the American people don't have the appetite to go
deeper into debt than they already are in order to make new purchases is
hard to dispute. In November, consumer
prices across the board fell at a record rate for the second
month in a row. And even with mortgage rates plummeting, so many homeowners
are "underwater" -- owing more on their homes than they're worth
-- that they're unable to refinance because the equity isn't there. Paul
Schuster, a vice president at Marketplace Home Mortgage, told the St. Paul
Pioneer Press, "What I'm really concerned about is the job
picture ... If (people) don't feel good about their jobs, rates aren't
going to matter."
- The National Federal of Independent Business' November
survey of small-business owners found no
evidence of a credit crunch to date, concluding that if "credit
is going untapped, it's largely because company operators are not choosing
to pursue the credit. It's not that companies can't get the extra money,
it's that they don't want or need it because of the broader slowdown in
- The credit crunch narrative -- and the justification
for creating Paulson's $700 billion TARP honeypot -- is built on three
related assertions: 1) banks, fearing that they'll be unable to meet their
own financial obligations, aren't lending money to one another; 2) they're
also not lending to the public at large -- neither to firms nor individuals;
and 3) businesses are further unable to raise money through ordinary channels
because investors aren't eager to buy up corporate debt, including commercial
paper issued by companies with decent balance sheets.
- Economists at the Federal Reserve Bank of Minnesota's
research department -- V.V. Chari and Patrick Kehoe of the University of
Minnesota, and Northwestern University's Lawrence Christiano -- crunched
the Fed's numbers in an examination of these bits of conventional wisdom
and concluded that all three claims are myths.
- The researchers found that "interbank lending is
healthy" and "bank credit has not declined during the financial
crisis"; that they've seen "no evidence that the financial crisis
has affected lending to non-financial businesses" and that "while
commercial paper issued by financial institutions has declined, commercial
paper issued by non-financial institutions is essentially unchanged during
the financial crisis." The researchers called on lawmakers to "articulate
the precise nature of the market failure they see, [and] to present hard
evidence that differentiates their view of the data from other views."
- That finding was backed up by a study issued by Celent
Financial Services, a consulting firm, again using the Treasury Department's
own data. According to a story on the report by Reuters,
Celent's researchers concluded that the "data actually suggest world
credit markets are functioning remarkably well." Rather than a widespread
banking problem, Celent found that the rot was limited to "a few big,
vocal banks and industries such as car manufacturing, which would be in
- There are also some important caveats. Economists at
the Boston Federal Reserve responded to the Minnesota Fed's research (PDF),
arguing that the use of aggregate data doesn't fully reflect the dysfunction
in specific subsectors of the economy, nor does it adequately reflect the
decline in new loans.
- It's also the case that single-cause explanations for
complex crises usually fail to hit the mark. Banks, having fueled the housing
bubble (and similar bubbles before that) with the creation of ever-shadier
"exotic" securities, are probably erring on the side of caution
in writing new loans. They're looking at their balance sheets as quarterly
reports approach, and the number of foreign investment dollars coming into
the U.S. has declined, meaning that some qualified firms may, indeed, have
trouble raising cash in the near future.
- Dean Baker, while arguing that "the main story is
that people don't have money and therefore want to spend," acknowledged
that "some banks are undoubtedly anticipating more write-offs from
other loans going bad, so they will hang on to their capital now rather
than make new loans." And, as Sirota notes, some of the institutions
that are relatively healthy are reportedly holding cash in anticipation
of picking up weaker banks on the cheap.
- But one thing is clear: the economic crisis may have
woken up Washington's political class when it hit the banks, but it remains
a product of long-term imbalances in the economy, and the idea that it's
primarily a pathology of the banking system in isolation is a misdiagnosis
that, if uncorrected, can only result in a longer, deeper and more painful
recession than might otherwise be the case.