100 Years ago Fed Created, Israel meeting to dismantle the system

The Federal Reserve bank started 100 years ago today.  To read up on how the Federal Reserve Bank, a private institution, came about click here.

I have written already on how I think the next currency should evolve, using private enterprise in post titled Ideal form of Money, Power to the People.  However, getting there does NOT have to be a 'revolution', it can be an 'evolutionary' process.

Israel Monetary Change Movement is making noise about how to overhaul the system.  At the heart is the uneven power in banks to create money and the power of corruption in politics.  I am skeptical that this movement will gain enough momentum to make significant change, but who knows.

Hopefully a debt-free society can emerge for public money.  I have covered before how tricky this is, often this can lead to hyperinflation or currency collapse.

Bill Still covers this event.

Bring Back Glass-Steagall act

When the Glass-Steagall act was repealed under Clinton, it set the stage for what we are dealing with now.
Take a look at how the total assets in the banking industry was moved to the top 3 banks.

Good video to watch below, see article on this here.

Waiting for Central Banks Reactions

There is pressure on all sides right now in the global economy. Europe is teetering on an economic deflationary event not seen since the Great Depression. In 2008, it was a deflationary event, but quite short lived compared to most. The US changing laws to stop valuating companies using Accounting standards since the great depression helped, as well as 1.5 trillion annual deficit spending.
Food prices, gas prices, and some other resources are not even close to their 2008 lows. US unemployment/under employment is at 8.5% to as high as 25% depending on what statistics you believe. US Federal bonds at near record interest rate lows. China experiencing a credit collapse, with Australia at minimum experiencing an economic cool down. There are many other signs such as manufacturing slowing, etc.
 Since 2008 NOTHING has been fixed. As a global society we pissed away 4 years, trillions in debt spending, as well as encouraged companies to be reckless and remain insolvent. So its back to the central banks, what is the response going to be? Watch another 2008 unfold? Or pre-emptive strike? If history is any tale, pre-emptive strike is a shoe in.
 But there is a fly in the ointment. Natural resource prices have not yet collapsed like they did in 2008. If the Central Banks come out guns a blazing with more free cash, it will cause resources to move UP from here. I won't call for skyrocket by any means. But a higher low between economic issues does not bode well for the next few years.
 So I remain mildy bullish resources, with a toe in the waters, waiting to hear the other shoe drop, a "new deal" of printing to further flame the global currency war.

Discussions on true financial reform

Ran across this former Goldman Sachs employee talking about true financial reform.
Refreshing to talk frank about there is a true issue here.
Wish some solutions are offered, but recognition is a great first step.

Quick 15 minute watch.

CNBC Rant by Rick Santelli

This is one aggressive rant from a major news source, CNBC by Rick Santelli.
But then again, who cares, summer is here, time to think happy things.  For those who want to ignore the negative, click here for funny videos.

Skip to 3:30 into video.

Eliot Spitzer speaks out about USA Financial Games

Eliot Spitzer speaks out in Slate magazine in article titled "Eliot Spitzer: 5 Ways to Make Banks Pay for Their Secret $7 Trillion Free Ride?".

I can't reprint the article, but her is a teaser section, I encourage everyone to read the entire article:

The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn’t want us to know about it: They didn’t want to admit the magnitude of their financial distress.

Now to put this into perspective, lets get to the heart of the matter.  All of the money is supposedly repaid.  So what harm is there in above?  Well the institutions benefited by net pocketing 13 billion dollars by keeping money that would have been paid out at normal rates.

So while "net" the entire lending situation was extreme, the net in-their-pocket-profit was 13 billion, what amounts to be a gift from taxpayers to the financial institutions.  Considering the USA is debt spending over 1.7 trillion a year, it isn't that huge comparably.

What IS a big deal is it was all done in secret, and it took years of Bloomberg reporters working the court system to get at the information.  And this one point IS A BIG DEAL.

The precedence is now set.  The government can give huge sums of money to companies it sees needs help, with promise of payback in the future.....in secret....and its OK!   I say OK because I predict zero prosecutions for Bloomberg's efforts.  And without prosecutions , it sends signal, it is fine to do.

Therefore when buying or selling stocks, or participating in anyway in a capitalistic business, be aware that the opponent, or the target business is subject to government sponsorship, secretly.  Hardly the stuff that makes for a fair playing field.   It renders public financial information difficult to matter in assessing corporate distress or competitive edge.  For example, if you bet big on Ford becoming the largest USA car manufacturer back in 2007, the events later prevented that from occurring when the government decided to fund General motors and become part owners.  Every business is now subject to the government deciding how events unfold.  They are in effect, no longer law enforcers, but corporate competitors.

So the trick now is to get the government to view your business as worthy to secret gifts.  This is the road to currency issues, the USD cannot withstand unlimited abuse before it breaks.

This makes this event worthy of my series of Financial Ground Zero events, documenting the events that are leading to a currency crisis. (2013-2017).  Thanks to my brother for the article link

Where should your money be?

I am not going to endorse or reject this video.  I think it is worth readers to watch, and give thought to the content.  At the very least, it was interesting to see how they used  the movie It's a Wonderful Life to make their point.

At the end, it refers you to the web site Move Your Money for more information.

As food for thought, check out youtube and surf, I found this one, all interesting.

Very scary news items released

Last night I posted "Know when to hold them, when to walk away". When I did that post, I had NOT looked at the blog Zero Hedge yet. I wish I had.

This morning, while checking my RSS feed, to my surprise is very disturbing news, making FAZ and other inverse funds look great, and me wishing I had posted "when to walk away" on Wednesday night instead.

Item 1, Regulators going after High Frequency Trading firms, reviewing code to understand their scalping logic. This is a milestone step for the government to change trading rules to reduce or eliminate HFT. While I support the idea, I also recognize that about 70% of the trading volume of stocks is now computers. Any disruption in the perverted trading arena will likely be a negative one.

Item 2, US Government filing suite against a dozen banks, including BAC for fraudulent practices on mortgages. Filing may happen TODAY (Friday 9/2). Obviously a massive pile on lawsuit from 50 states and now federal regulators can't be good for banks in the near term. Granted once the dust settles, and accounting practices returned to pre-2009 era rules, I'll be optimistic once again about banking. But that means quite a bit of volatility between these two events.

Item 3, Wikileaks releases 65 GB of email archive stolen from Bank of America, uncensored. I am pretty sure executives in BAC did not envision their private communications years later being placed on a global bit torrent. I am also pretty sure at a minimum one damning email will emerge to support the federal and state lawsuits. It isn't unreasonable to think BAC may become the fall guy in this next wave of state and federal lawsuites.

Well there ya have it, quite a bit of significant news. This post has achieves the status of entering Financial Ground Zero series. Good luck.

A small glimmer of hope appears

I have very mild optimism that maybe the politicians are starting to get it. I read an article from England, and I quote:

The Liberal Democrat minister said: "It is disingenuous in the extreme to use the current context to argue against reform."

"Banks are in a way trying to create a panic around something which they know has got to happen."

"The governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem."

"We can't have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer; this can't go on and it has got to be dealt with."

Sir, you do and America does, when you include the CDS liabilities that can trigger a cascade failure. That is what you get when you allow such agreements with zero transparency and minimal guidelines from the public.

I have minimal hope since a chorus of people are needed, not just a couple of politicians to bring the underlying problems to a head.

I'll eagerly await other bloggers to dissect if the changes in Britain are real, or another toothless paper tiger.

Taxing Irish citizens for 20 years for bank losses

Interesting video about Ireland Banking failure, and resulting debt placed on Irish Citizens.

Ireland is bankrupt, its only a matter of time that they will return to economic wasteland once again.

It is very unfortunate, the answer was simple. Let the banks that gambled take the losses and free Ireland from gambling debts of banks.

That of course is not what has happened.

Also the bankruptcy laws in Ireland are draconian. That country needs same laws as America, if underwater, opt to give the house back to the banks. Instead citizens can be put into jail.

Is US Government is Owned by the Banks?

In the history of politics, I dare say 99.5% of all political bodies are heavily beholden to the industries that fund those parties. In a country like Saudis Arabia, the oil companies majority the dominating of influence of politics. In Afghanistan, prior to US occupancy, by far the largest influence would be the warlords selling their poppy seeds abroad. You can go through each country, look at it's prime industry and you will find undo influence in policies.

In the USA, there was a time when manufacturing owned the USA. From the 1950's through 70's, it is clear that manufacturing and local industry ruled politics. Remember when tobacco was given by doctors as a sedative to calm nerves? Even when tobacco was becoming regarded as a health threat, it took decades to get tobacco labeled with a warning. This is no accident. Many US states where funded by the tobacco industry and resisted any changes that would adversely affect it.

For various reasons, the US manufacturing base evaporated, that can be a topic of a different, long winded post. Between the 80's and today, it is clear the largest influence on American politics is the financial industry.

To prove a point, lets take a look at last week. If you haven't heard already, it has been exposed that banks have not been keeping legal documents on the housing it owns, for a wide variety of reasons. One theorized reason is such documents, if produced, could be used to prosecute banks for fraudulent loan practices.

In any event, the problem has been dubbed MortgageGate.

The solution should be straight forward, enforce the law. The banks knew the law, and had to track houses worth upwards of millions of dollars with proper documentation, just like me and you must. Therefore, a bank should not be allowed to foreclose on a home without producing proper documentation.

In the absence of proper documents, the process should be the same, as if you lost your home ownership paperwork, and had to re-establish ownership. States across the country are finally taking notice, and stopping the foreclosure process in light of the lack of law process.

How SAD is it, that none of these states enforced the law, until this came to light through internet media and small media outlets.

Mortgage Gate Reaction by US government

The US congress and senate passed by a VOICE vote a new law HR 3808 called the Interstate Recognition of Notarizations Act of 2010 that would in effect, absolve banks from having proper legal documents to foreclose on any real estate. This act was waiting for President Obama's signature, when Mortgage Gate exploded across the internet. Thankfully, the exposure of the government altering legal process and excempt banks from following it, applied enough pressure for Obama to not sign the bill.

NOTICE, President Obama did not VETO the bill either! By not vetoing, there is room to come back at this after the mid term elections. Further, President Obama is against states halting foreclosure processes to review gaps in the legal process.

As for halting the foreclosure process, I for one believe this actually benefits the banks. By not allowing foreclosures to proceed, banks many continue to record the bad loans at full value, and not realize losses until the foreclosure completes. In a strange way, I think the banks wanted foreclosure gate, as an option to stop the realization of losses. But I digress.

Now that the US government failed to pass laws to make it easier for banks to foreclose without documentation, Mr. Ben Bernanke of the Federal Reserve Bank is chiming in.

As a member of a private institution, and not part of the federal government, frankly I don't see how the Fed has any standing to weigh in on this problem. Further the Fed is part of the private banking system, screaming conflict of interest.

Mr. Bernanke is starting the news engine to set the stage to rework the process, in what I imagine will be in favor of the banks. Let me be clear. The US congress can be the only entity to pass federal laws and to spend US taxpayer money according the US constitution. As previously documented on this blog, the Fed has in fact, spent US taxpayer money by backing non-federally backed bad debt notes. Now I am waiting to see how the Fed can rework the foreclosure process for bank benefit, without having the power to pass laws. I expect the spin will be a "banking process clarification", or something to that effect.

Is US Government is Owned by the Banks ?

Consider what you just read. The US congress and senate passed a law to allow the banks to foreclose without required legal documents EN MASSE, in a manner that has no record of who voted for the bill. This to me indicates the congress knew this law was just plain wrong act on their part.

By the grace of the internet and getting the word out about this law's imminent passage, President Obama did not sign into law.

The US government has taken on TRILLIONS of dollars in bank debt, and made it the problem of the US people. Further, the US government has not enforced law process in either creation of mortgages, or foreclosing on those same properties.

Further, banks are allowed to have a "special" accounting standard that in effect, allows the bank debts to not be valued using the common practice of "book value", but rather stated value. This change was enacted as an emergency measurement over a year ago, and still remains today.

There are many reasons why above is being supported by the US government.

The likely answer is lawmakers answer with "what they know" which is, changing laws. They are member of legislative and not judicial branch. As such, the politicians easier answer is to change laws, rather than get aggressive and apply pressure on the judicial branch.. I am not excusing the lawmakers actions, but rather explaining human nature is try to take the quickest, least effort, way to resolve a problem.

The other possible answer is lawmakers are "owned by the banks", and beholden to the money driving the US.

Either way, it isn't good for the common persons bottom line.

Bank Closure Visualized

This isn't a video per-se, by click this link to watch an EXCELLENT representation of the market closure rate from 2000 to today.

Shutting the Doors: A Decade of Bank Failures


Thanks to Paul Lomba for the link. (aka firemanjersey)

Oh, Canada, Crack House or Mansion?

I recently spent quite a bit of time in Canada for business. I really liked it there, I can see many advantages for the average person to live there.

But, there is some troubling indicators from Canada. First and foremost, their real estate market hasn't crashed like many other places. But that isn't to say they don't have over-valuation issues.

Mish wrote some good articles linked below, but this link from friend Paul Lomba is by far the most entertaining AND educational site. I highly recommend you play the game:

Crack House or Mansion? (Vancouver Canada real estate)

Mish Articles

California USA vs. Ontario Canada - Which State (Province) Is In Worse Shape? Canadian Banks vs. US Banks Comparison

Housing Bubble Comparison: US, UK, Canada, Spain, Australia, Japan

More Free Money, to everyone but the shrinking middleclass

Article sent by Ray Murphy to me, commentary on the Fed "exit strategy" for the all the money creation/injection into the system.

Banks are required to keep a certain percentage of their assets in cash at the Federal Reserve. Any cash above this required amount is "excess reserves," and the Fed is currently paying 0.25% interest on these reserves. The Fed's exit plan will call for increasing this interest rate, to encourage the banks to keep more money in excess reserves instead of lending it into to the economy and thus expanding the money supply.
....
In the process of increasing interest paid on reserves, the Fed will be paying banks even more not to lend. In the process, it will be giving banks yet another way to take nearly free money from the taxpayer and give it back to the government at a higher rate--and then pocket the difference.

If the Fed does raise rates paid, it is an indication to me that all is NOT well, and this accounting trick is a way the Fed can print money and give directly to banks. I think all companies should become a bank holding company, sign over their assets to the Fed at face value in exchange for "reserves", then hold them there to get paid money on that face value.

Remember, the assets themselves, houses, etc, are still in use. So the collateral is on paper only, a pretty nifty trick. Bottom line is its raw printing of cash and handing it out. Not as bad as Zimbabwe, but a slippery slope, and in the long term will lead to currency devaluation.

Bottom line is, government unions are getting full pay without any sacrifice, millions are on multi-year unemployment, , banks getting free money any which way that can be devised, government itself is bigger than ever and spending more than ever. Why not just give every person in America 20K in free money?

I'll tell you why not, because there always has to be a loser and that is going to continue to be the middle class. Be careful for being OK with taxing the crap out of people who make more than 250K, when the currency devalues and your income rises (not fast enough to outpace costs), you will on paper be the rich person. The higher tax level will start just above the middle class, so it will be the first to get crushed when costs rise.

Banks CEOs tell Obama they run the show

In what I consider a real slap in the face, a few bank CEO's at the last minute excused themselves from meeting with President Obama, with some flimsy excuses.

Goldman Sachs CEO Lloyd Blankfein, Citigroup chairman Dick Parsons, and Morgan Stanley CEO John Mack all skipped out on a scheduled dressing-down today from Barack Obama because "inclement weather" made it physically impossible for them to travel to Washington.

In my 20 years of traveling, I have missed one appointment due to flight issues. No matter what happens, I scramble to work around a flight issue, and I do NOT have access to a private corporate jet. I have flown into neighbor cities and drove to locations. For important meetings I always fly in the night before the meeting to allow for problems and recover.

Apparently these 3 CEO's left zero room for error for the meeting with the president, and a flight issue caused them to not show up. I wonder how come their corporate jets weren't able to fly instead of taking a commercial flight.

Nice try Obama, you don't run the country, the banks do. But this does give me optimism, perhaps Obama is a quick learner, and is starting to get more firm with the banks behind the scenes.

Profit from Financial Weakness

Today's blog entry is a recap from an email I sent August 2nd to my mailing list.
A good friend of mine and long time winning day trader pointed out some financial stocks that are ripe for profiting from.
All of these stocks are down from August 2nd, but they still have more to fall.
Of particular is PNC. The reason I like this stock is the risk seems low compared to the potential profit of shorting this stock.

To the right is a graph of PNC over the last two years, and notice when its P/E ratio and EPS was good the stock was topish at 70-75 range. Recently it tanked hard, but came back in the financial rally to the 70-73 range. Why do I like PNC as a short?
1) Its historical top range is 70-75 bucks, its recent lows is 50 bucks, currently near 70 bucks.
2) Banks are NOT going to have banner earnings reports, especially large banks being affected by a cooling economy.
3) Risk to reward is "cover" at 77 or 50 bucks, assuming you shorted at 72 (august 2nd), 5 dollar risk against you, with 22 dollars (or more) for you downward.

Other stocks to look at are:
Bank of America (BAC), at 34 August 2nd, now 28, target 10-15 bucks to cover
US Bancorp (USB) at 32 August 2nd, now 30, target 15 bucks to cover
Wells Fargo Co (WFC) at 32 August 2nd, now 28.70, target 15 bucks to cover (maybe 10)

All of these should hit in next 12 to 18 months, yielding 50% or more profit. Look at the charts, look at their all time highs, consider the economy, set your pain point to get out if wrong, and roll the dice. Always consult a professional adviser over a free blog person's two cents.
UPDATE 11/23/08: see follow up comment