Financial Crisis III: Stores of Precious Metals in Trusts and Funds - Junk Bond and Credit Market Concerns

Here is the state of the gold and silver holdings in trusts and funds.

In other matters, there were two articles about risks in the credit markets that caught my eye this weekend.

These *could be* stories spread by market operators who are hoping for turmoil in the junk bond markets.

Or on the other hand this could be signs of something which some have feared would be approaching, as we seem to keep repeating the behaviours that prompted the last two financial crises this century.

The truth is hard to discern these days— it has few friends, and even fewer willing to stand for it.

Nevertheless, I thought it would be appropriate to bring them to your attention, for what it is worth.

Greenwich Time, A New Credit Bubble Gets Ready to Burst, May 31, 2019

The Street, U.S. Officials Meet in Secret Over Junk-Loan Frenzy as Recession Alarms Flash, June 1, 2019

The Warning Part II: Financial Armageddon, Again - Blood Moon - Trump Trade Policy the Patsy?

"Ultimately, the same financial architecture that surrounded the housing mortgage crisis (almost certainly including 'naked' credit default swaps) has been replicated in the three key areas where debt is growing at a troubling rate: defaults in student loans, auto loans, and credit card debt...

Thus, as the tenth anniversary of the Lehman failure approaches, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers to their newly deguaranteed foreign affiliates.  ['off balance sheet' part deux]

But, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer.

While relief is unlikely to be forthcoming from either the Trump Administration or a Republican-controlled Congress, some other means will have to be found to avert another multitrillion dollar bank bailout and/or financial calamity caused by poorly regulated swaps on the books of big U.S. banks...

By their own design, large U.S. bank holding company swaps [derivatives] dealers and their representatives have crafted their own massive loopholes from Dodd-Frank swaps regulations, which they can exercise at their own will.

By arranging, negotiating and executing swaps in the U.S. with U.S. personnel and then ‘assigning’ them to their ‘foreign’ newly ‘deguaranteed’ subsidiaries, these swaps dealers have the best of both worlds: swaps execution in the U.S. under the parent bank holding companies’ direct control, but the ability to move the swaps abroad out from under Dodd-Frank.

As history has demonstrated all too well, unregulated swaps dealing almost always ultimately leads to extreme economic suffering and then too often to systemic breaks in the world economy, thereby putting U.S. taxpayers, who suffer all the economic distress that recessions bring, in the position of once again being the lender of last resort to these huge U.S. institutions.

The Obama CFTC tried to put an end to these loopholes through a proposed rule and interpretations in October 2016.  However, those efforts were never finalized
before Donald Trump assumed the Presidency.  There will almost certainly be no relief from these dysfunctions from the Trump Administration or Congress.

However, state attorneys general and various state financial regulators have the statutory legal tools to enjoin these loopholes and save the world’s economy and U.S. taxpayers from once again suffering a massive bailout burden and an economic Armageddon."

Michael Greenberger, Too Big to Fail U.S. Banks’ Regulatory Alchemy


"'We didn't truly know the dangers of the market, because it was a dark market,' says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. 'They were totally opposed to it,' Born says. 'That puzzled me. What was it that was in this market that had to be hidden?'...

'It'll happen again if we don't take the appropriate steps,' Born warns. 'There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.'"

PBS Frontline, The Warning

While the mainstream media says 'Russia, Russia, Russia' and the Administration says 'Immigrants, Trade, and Deregulate' the Banks may be setting up the US taxpayer for another taste of Financial Armageddon and a multi-trillion dollar bailout under duress.

As Trumpolini says, the US Taxpayer is 'the piggy bank' that is going to be robbed.  But it may not be at the hands of foreign mercantilists, but by domestic predators, wrapping themselves in the Constitution and the flag.

Or perhaps Michael Greenberger and Brooksley Born are just alarmists that don't really understand modern finance.

But maybe, just maybe, the Fed and the regulators are conveniently asleep at the switch, again.  And we are going to be forced to go through that whole, horrible episode of hidden leverage and multi-tiered frauds for the great benefit of a very few and their enablers in the professions and the government again.

Do they really know?  Are the people charged with protecting the public sure?  Will we even care until its too late?  Is all this fear-mongering hoopla about external threats just another misdirection, a distraction from the real crisis unfolding?  Is Trump, and his trade policy, being set up as a patsy for the next crash?

I would say that the probabilities are unacceptably high that another black swan may be coming home to roost.  And that the beneficiaries of this rotten system will do nothing to stop it, again.


Related and h/t for link to this paper:  Wall Street’s Derivatives Nightmare: New York Times Does a Shallow [CYA] Dive

Another More Terrible Financial Crisis Is Coming— For the Benefit of a Few

"So we may not be that far away from the next bubble bursting, and I could imagine, if I think about policy, what we just talked about, with the end of a recovery cycle, we’ve pumped $4 trillion in this country, $30 trillion globally, into the economy with monetary policy.   So that’s tapped out.

We are now using fiscal policy to overheat a late-stage recovery in order to keep the Republicans in office.  We are doing nothing to bolster underlying growth with educational reform, infrastructure reform, et cetera."

Rana Foroohar, The Rich Have an Escape Plan


"I think it’s important in the power of finance and how pervasive this is throughout the economy, this has very little to do with Republicans and Democrats. In fact, some of the key opening doors for finance happened in the Clinton administration."

Paul Jay, Clinton's Committee To Save the World Unleashes Wall Street

Rana Foroohar is an associate editor and global business columnist for The Financial Times, and CNN’s global economic analysts. She’s the author of Makers and Takers: The Rise of Finance and the Fall of American Business.

SP 500 Futures - Gap Filled Intraday - The Gathering Storm

"Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it."

Mark Twain

The gap in the SP 500 futures continuous chart that we left behind a few weeks ago has just been filled intraday.

As a reminder this is a stock option expiration week, although as I recall May is not a particularly significant month.

I imagine a lot of enthusiastic call buyers have just been smoked out of their seats and their June positions.

The tension on the tape the last few days was palpable.  It just took some small event to trigger it giving its overlong duration and extent out of balance.

I don't think impeachment is on the table for President Trump, except in overheated Democratic rhetoric.   Although I would not rule anything out while The Donald has access to twitter.

The NDX has a quite a way to go to close its gap, but that is another matter. For my purposes the SP 500 futures are the bellwether.

I have pulled in my short positions, and just left some other risk off positions run, mostly in gold. No silver at this time for a trade.  It just doesn't work as well in a panic because of its precious/practical nature.

My cynical side says that this market pullback is just a long overdue correction in the Trump rally. But we will have to wait and see where the stock markets finds a footing, or if contagion of selling starts to trigger liquidations and some sort of selling feedback.

As I noted the other day, this is a concern for me because the nature of this rally has been narrow and price driven.  People were throwing money into passive index funds, which were rising steadily thanks to speculation in about ten stocks.

The 'big one' for the markets, as opposed to a major correction, will gain the most damaging momentum from the erosion in quality of private debt loads which are once again back to record levels, along with the extreme leverage in financial derivatives exposure held by just a few financial institutions.  That is the real nitro in this chemical mix.

If any financial breakdown spreads to the $222 trillion dollars in derivative exposure then it is time to hit the exits.   There is no way to bail out that sort of malfeasance gracefully without imploding the currency, theories about the ability to print money without limit notwithstanding.

Speaking of rotten fundamentals, the average growth in loans exceeds the average growth in hourly wages.  Thanks to Tony Sanders at Confounded Interest for that chart below.

Let's deregulate The Banks even more and hand out tax breaks to the one percent!  And spend all our time looking for Russians hiding in the shrubbery so we can blame them.

Sleep well.

What Then Is Your Point, Mr. Potter?

"The more people rationalize cheating, the more it becomes a culture of dishonesty. And that can become a vicious, downward cycle. Because suddenly, if everyone else is cheating, you feel a need to cheat, too."

Stephen Covey, The Speed of Trust

"The greatest crimes of human history are made possible by the most colorless human beings. They are the careerists. The bureaucrats. The cynics. They do the little chores that make vast, complicated systems of exploitation and death a reality... And they do not ask questions."

Chris Hedges, The Careerists

 

If, as Jamie Galbraith has put it, economics is 'a disgraced profession,' what does it matter, when almost all the professions from medicine to law to finance have also given themselves over to the darkness of this world in high places?

 

Can they be so aloof that they do not see it, see what they are becoming?  See what they serve?

Are they such bystanders that they can no longer even see themselves and where they stand?

Can such a lack of self-awareness be attributed to the blindness of egoism? Or some more profound denial of conscience that rips the very fabric of their reality and its consequences?

Have we finally approached the tipping point of corrosive indifference in our leadership and the careless few, again?

Have the wages of supreme narcissism and exceptionalism finally come to be paid with a third financial crisis, and then another?  And finally the unleashing of madness?

 

It profits a man nothing to give his soul for the whole world... but for a stipend?

 

And when the hard winds of nemesis start howling across the land, where do they think it will end, and who and what do they think will remain standing?

 

Gold Daily and Silver Weekly Charts - Will the Fed Ever Learn?

"They will act in accord with the proverbs, 'that a dog will return to his own vomit; and the sow that was washed will go back to her wallow in the mud.'"

2 Peter 2:21-22

No. The Fed will not learn. 

The Fed will keep repeating their policy errors because they are well paid not to learn.  And the economic bobble heads will keep agreeing with them and rationalizing their failures.  This is the judicious thing to do if you wish to succeed in a disgraced profession,  trafficking in expedient fantasies that may last as long as everyone that matters agrees with them.

The Fed wishes for the ECB and the other central banks to do dumb things like they and some of their friends are doing so that they all do the same dumb things together.  There is safety in numbers apparently.  Hey, we all did dumb things out of good intentions.  Who could have known?  No one saw the bubble coming.   No one could have known that what we were doing was making things worse. 

It worked for Greenspan.  And it's working for the Banks.

The Fed is a creature of the Banks.   Its members are all members of the same 'Club.'   They are from the ranks of the financial demimonde, and their livelihoods and privileges are supplied by the financial-political complex.

Insiders never speak ill of insiders. And whistleblowers and reformers are left at the curb. Or tossed under a bus.

As a regulator the Fed is one of the worst possible choices, just a quarter step removed from pure 'self-regulation' by the Banks.  The Fed acts as their proxies and manservants. 

 

The recent tapes of NY Fed meetings with Goldman are no surprise, except perhaps to those who live in an illusion of morally superior technocrats, ruling wisely with perfect virtue, cloaked in their models and jargon.  And of course, you have no need to know, and could not understand it if you did.

I'm sorry, but this is just not how things are in the real world.   The US and UK are caught in an awful credibility trap, and are destined to suffer stagnation and growing inequality until reform comes.  And as we have seen in the case of Japan, that can be a very long time.

Speaking of things that make you go what the heck?, on CNBC this morning the assertion was that 'the gold market is not driven by supply and demand. It only responds to fear and greed.'  That is, it's only fundamental basis is emotion.

And you know what? In the West, in London and New York, that's true. 

The gold and silver markets have the depth and substance of a game of Liar's poker. They are rigged, like most of the other markets with global consequences have been.  The precious metals market hasn't been cleaned up yet because the pinheads who are running the scam have no real track record or experience in trading physical commodity markets. 

 

They think they can keep leasing out what isn't theirs and leveraging up ad infinitum, without ever incurring any real world consequences.  And the Banks are perfectly willing to take their cuts because they are covered with plausible deniability, just following orders. 

But this divergence from reality is not the case everywhere. Certainly not in the Asian and Mideastern markets where some accountability still exists, and delivery tends to imply taking possession.

And in that convergence of these two markets, the physical and the paper, there is both risk and opportunity. When the reckoning comes it is likely to be quite impressive.

There will be a Non-Farm Payrolls report on Friday.

The Comex Delivery Report for Friday is late, as if it is about anything that is actually delivered anywhere but on paper.  There was the usual moving around the plate in the silver bullion warehouses.  Gold was a snoratorium.

There is speculation now by the economists about when wage inflation will return. They are looking at 2015 for it.

I would point to the Japanese experience of 3.6% unemployment, at least on paper, and a massive underemployment running about 40%, with general wage stagnation and a large portion of the population struggling along on near subsistence wages. 

Tell me again what is going to change to allow Labour to demand higher wages from a system totally dominated by two political parties both paid to represent the moneyed interests, driven by an insatiable greed for more? 

Change will come, but not from within.

 

 Something will have to happen to bring people back to their senses, and put some humility and a sense of obligation and proportion back into the masters of the universe.  I won't go so far as to suggest a sense of shame.  Perhaps just respect, if not for the law, then for justice.

 

What that will be I do not know.

Have a pleasant evening.

 

Related:  Criminal Investigation Into JP Morgan's Currency Trading

 

 

We Are Still In a Financial Crime Wave

In his recent column The Opposite of Stagflation Paul Krugman says that:

"One of the truly amazing (and disheartening) things about the Great Recession and its aftermath has been the continuing insistence of many economists that it’s somehow a supply-side slump, driven by the evils of Obamacare or something. This tends to come from people who view stagflation in the 1970s as having permanently refuted all things Keynes.

So I guess it’s worth pointing out repeatedly that the recent slump shows all the hallmarks of a demand-side shock; in particular, rising unemployment has been associated with falling inflation — the opposite of stagflation."

So I guess its also worth pointing out that the opposite of stagflation is not economic stagnation with declining inflation, but steady growth with very modest inflation. But given it is Paul K. we'll grant that he is assuming inflation as a reference point in this.   And in focusing in on the model battles, he is saying that we are indeed seeing stagnation, but there is deflation as his form of the Keynes model would predict.  Huzzah!

 

I will put aside for now his assertion that we are seeing declining inflation.  I think it might be said we are seeing little inflation growth overall, but with inflation appearing in certain product segments and assets.  But this is, I believe, an artifact of the way in which the Fed is pursuing very significant, top down monetary stimulus in a system that is still distorted and corrupted by the financial sector and its moneyed interests.  A few at the top are taking the greatest part of the monetary growth, and their demand is not for common goods but for luxuries, and monopolies, and more financial assets.

And so Paul Krugman is triumphant, because he would then go on to say, as he often does, that all we have to do is pour massive stimulation in to the economy from the fiscal side, and the demand side of the economy would recover as consumers could use their wages to purchase more goods.  Problem solved. 

 

And its a good piece of intellectual land to stake out, because no matter what the actual outcome in the real world, Paul will be able to argue that he was right if there is a favorable outcome.  Or if not, then it would have been favorable except that the government did not provide enough stimulus.  I would be inclined to believe that even if stagflation does eventually show up, he will argue that it was some other anomaly that does not affect his model.  A model that is too narrowly focused, and yet with too many degrees of freedom, to be useful.  

 

This works for Paul because his focus is sufficiently narrow and circumscribed, which is the failure of most economic models to provide any actual benefit for the real world, and are unsuited for the purposes of making policy decisions except at the most advisory level.  It allows him to almost completely ignore the facts on the ground, what really happened to cause the financial crisis, and what forces exist to keep it stubbornly at work despite massive top down monetary stimulus by the Fed.  

 

But like the housing bubble, when reality throws an economist a curveball, I have no doubt he will search his many hundreds of columns and find that he mentioned it, once.  And I suppose he may have mentioned reform once or twice as well.

 

His heart may be closer to the solution than the Austerians, but his mind is still carrying water for a system of learning, a method of distributing the benefits of productivity, and a political mindset that is more of an impediment to progress that an aid to it.. This is what happens when a vibrant set of theories from an original mind like John Maynard Keynes suffer from the arteriosclerosis of political dogmatism.  And after all, economics is a disgraced profession.

 

It is the hallmark of what Chris Hedges has called 'the death of the liberal class,' and along with it, the death of its conscience and sacrifice of moral principles to expediency in the service of power.  Few better representatives of this than the Clintons and Obama, and their acolytes in the status quo.  But they are presented as the alternative to an opposing political point of view so base as to almost redefine hypocrisy and greed.

 

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

h/t Yves Smith, et al.

The Recovery™ In One Graph

"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country.

When you won, you divided the profits amongst you, and when you lost, you charged it to the bank.

You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!

You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!"

Andrew Jackson, On the Bank of the United States

"...supply-side economics was merely a cover for the trickle-down approach to economic policy — what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows."

John Kenneth Galbraith

Recovery.  For some.

I am not sure what is trickling down in this recovery.  It is not oats, or wealth.

But I am fairly sure that I know why the recovery is so disjointed and selective.  

It is one of the oldest stories.  It is about the abuse of privilege, of foolish people led in herds shouting slogans crafted by the clever and the unscrupulous, of the treacherous and self-destructive fury of unbridled greed.

It is about the lust for power, the deceptiveness of hubris, the blindness of pride, and the lessons from history that have been carefully and intentionally unlearned.  It is about the madness that brings the fire, in hearts and minds of men.

 

 

h/t Anthony Sanders, Confounded Interest

Lessons From the Panic of 1907

I have just finished reading The Panic of 1907: Lessons Learned from the Market's Perfect Storm, written by Robert Bruner and Sean Carr in 2007. It is an extraordinarily well documented, step by step study of one of the worst bank panics and stock market crashes in modern times.  The broad stock market declined 37% from peak to trough in less than 15 months.

Here is an extended quote from the authors' closing remarks.

"Why do markets crash and bank panics occur? Any single case study, such as the one we have presented here, is subject to a range of interpretations, and we encourage the reader to draw one's own conclusions from the foregoing narrative.

Yet we think that the story of the panic and crash of 1907 inspires consideration that major financial crises can be the result of a convergence of certain unique forces - the forces of the market's perfect storm - that cause investors and depositors to act with alarm.

The recounting of the events of 1907 suggests that the storm gathers as follows.

It begins with a highly complex financial system, whose very complexity makes it difficult for anyone to know what might be going wrong; by definition, the multiple parts of the financial system are linked, which means that trouble in one institution, city, or region can travel easily and quickly to others.

Buoyant growth in the economy makes the financials system more fragile, in part due to the demand for capital and in part due to the tendency of some institutions to take on more risk than is prudent.

Leaders in government and the financials sector implement policies that advertently or inadvertently increase the exposure to risk of crisis.

An economic shock hits the financials system. The mood of the market swings from optimism to pessimism, create a self-reinforcing downward spiral. Collective action by leaders can arrest the spiral, though the speed and effectiveness which they act ultimately determines the length and severity of the crisis."

My own reaction to the Panic of 1907 which they document so well is similar, except for a different emphasis on certain factors and a slightly different slant on their development, based on my own extensive readings about other panics and crashes, including a first hand look at the tech bubble collapse of 2001.

First, almost all panics and crashes are preceded by sustained periods of artificial growth, not based on improvements in productivity, but by a false expansion in the money system, aided and abetted by speculators and financiers. Although they do not act in overt cooperation, yet there is an unmistakable collusion of purpose. It suggests that the impulse to benefit in this way is present in a portion of the people at all times, as there are impulses to do many other things for personal benefit without regard to the public good. But at certain times the prohibitions which normally hold this behaviour in check are weakened, sometimes through active interventions against regulation, at other times from a decline in moral conscience.

Seocnd, almost all panics and crashes involves relatively small groups of people who seem to be at the heart of the matter, and are closely interlinked into small cartels of corrupted self-dealing involving the accumulation of enormous personal fortunes. One is struck by the interconnectedness of the primary players in the Panic of 1907 in each others companies, banks, investments, and boards of directors.

In this instance there did not seem to be any significant corruption of the government, which was actually in a progressive mood under Theodore Roosevelt, although he was by now a lame duck. Rather, the central government at this time was weak, and regulation was largely in the hands of the business principals, of which no greater example than J. Pierpont Morgan. They will act to protect their own interests when threatened, but their benevolent reputations are greatly exaggerated.

Lastly, there is always the overextension of credit and excessive leverage. Always. This is how any Ponzi scheme grows.  In every case this is what precedes and precipitates the growth of a crisis and panic - the unreasonable overvaluation and expansion of assets precipitated by a relatively small number of men, interlinked loosely through business associations and personal financial gain.

As in the case of 1907 and its aftermath, a few visible persons are offered up for punishment and destruction, but the largest and most substantial of the predators remain unscathed, often being lionized as saviours who attempted the rescue of the nation from a few bad apples and the public from its own folly.

Although the authors make a great deal of the need to take swift and decisive action to stem the crisis, they miss the point that the place to stop this is before the leverage and excess build to the point where almost anything will set the overextended system into crisis and panic. Even if decisive action is taken, it is the greater public that is invariably harmed by the cure, with a few becoming even more enriched, although the harm be less than if nothing had been done at all. By the time the crisis is underway, you will be making deals of convenience, and at terms with the devil.

It should be stressed that there is no evidence in the correspondence of any of the principals that they desired to cause this Panic of 1907 for their own benefit. And there does not have to be.

If a general atmosphere of looting is fostered by the provocations of a few like-minded individuals, their subsequent actions need no coordination, other than the insufficient response of society to stop them before they gain sufficient momentum from their desires. It is the apathy and weakness of the many that provides the stimulus and the encouragement for their plans.

The authors recount the subsequent meeting of many of the principals at Jekyll Island in 1910, to craft a reform of the banking system to be later known as The Federal Reserve System.

I do not see anything in the system itself that is improper or malignant; it is only in it ability to increase and amplify leverage in secret and without equanimity that makes it a powerful tool for like-minded individuals to seek to defraud the many of their life savings through unscrupulous abuse of anything and everything that comes under their power and control.

If you wish to take the measure of a society, look to how its weakest members are protected from its strongest, and its predators skulking at the fringes.

More concisely, you will receive the results that you incent, the behaviours that you cultivate, the society that you promote, if only by doing nothing and allowing small groups of like-minded individuals to set your greater agenda. We have seen this repeatedly in companies both large and small, in entire industries, and we think in the national economy.

If you wish a hell on earth, do nothing for the benefit of others, for the greater good, or to inhibit those who act solely out of greed, fear, and hate. Soon enough you will have a society that is intensely self-interested, self-concerned, superficial, destructive and self-consuming.

A free and just society is not a prize to be won or a gift that can be bestowed; it is a recurring commitment, and an enduring obligation.

This is a reprise of a blog entry originally published here on 5 July 2008.  It seems remarkably appropriate today.

That such economic disaster is promulgated by official corruption and the general belief that morality and justice are merely quaint notions is nothing new.   If you have not done so you might read A. H. Beasley's description of Rome prior to the rise of the Gracchi brothers, Marius and Sulla, which I included in a recent blog entry here.

Palast: Did Fabulous Fabrice Really Cause the Financial Crisis

Here is a reminder from Greg Palast, who is one of those rarest of creatures, the investigative journalist, about what caused the last financial crisis, and the source of the criminogenic environment that is likely to be a major contributing factor to the next.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

"...In August 2007, hot-shot hedge fund manager John Paulson walked into Goldman Sachs with a brilliant plan to cash in on the US housing crisis.

He paid Goldman to announce that Paulson would invest a big hunk of his fund's wealth, $200 million, in securities tied to the US mortgage market’s recovery. A few lucky investors would be allowed to give Goldman their billions to bet with Paulson that Americans would not default on their home mortgages.

It was a con. Secretly, Paulson would bet against the mortgage market, hoping it would collapse – making sure it would collapse. All he needed was Goldman to line up the suckers to put up billions to be his "partners".

It was Goldman’s and Paulson's financial version of Mel Brooks' The Producers, in which a couple of corrupt theatre producers schemed to suck investors into a deliberate flop...

What did the Feds do to Paulson? He received... a special tax break.

Am I defending the Fabulous Fabrice, the French-fried scapegoat? After all, he was just along for the ride. But he was deeply thrilled to carry water for the Bad Boys. And the charges against him are merely "civil", meaning he won't get jail time even if found guilty.

And what about Goldman, whose top brass knew of the entire game? The Securities and Exchange Commission did fine Goldman for its duplicity – a sum equal to 5 percent of the cash Goldman got from the US Treasury in bail-out funds.

After Goldman’s con became public, its CEO, Lloyd Blankfein was hailed as a visionary for offloading mortgage-backed securities before the shit hit the finance fan. Blankfein hailed himself for, he said, "doing God's work". God did well. Blankfein’s bonus in 2007 brought his pay package to $69 million for the year, a Wall Street record.

Rather than prison or penury, Blankfein was appointed advisor to Harvard University’s business and law schools.

So here’s the lesson all Harvard students are taught: If you can't do the time, don't do the crime... unless your booty exceeds a billion."

Read the entire piece by Greg Palast here.

Make no mistake. The world is watching-- with increasing revulsion.

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological. And I'm talking about the human interactions that I have. I've not seen anything like this, not felt it so palpably.

These people are out to make billions of dollars, and [think] nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people [or] counterparties in transactions.

They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can't find its voice. It's terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say... both parties are up to their necks in this.

...But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy.   I have waited for four years,  five years now,  to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems."

Jeffrey Sachs

The History of the Johnstown Flood: Audacious Oligarchy, Reckless Disregard

The history of the Johnstown Flood of 1889, at that time the worst natural disaster in the US as measured by loss of life, is little understood these days, but quite fascinating.

A group of about fifty wealthy 'robber barons' took over an old dam which had been used as a reservoir for a canal system,  and used it to create a lake resort for their private pleasure.  It served as a weekend retreat from the heat and noise of nearby Pittsburgh. 

Prior to selling the dam to them, the owner, a Congressman Reilly who had purchased the abandoned reservoir from the Commonwealth of Pennsylvania, removed the discharge pipes from the dam and sold them for scrap, thereby eliminating any emergency water relief measures, excepting the spillway.

They constructed buildings, and cottages, and formed the Southfork Fishing and Hunting Club.

They screened the spillway in order to preserve the fish with which they stocked the lake.  The screening tended to collect debris, and hamper the function of the spillway to relieve pressure on the dam caused by the occasional heavy rains.

Poorly maintained, the dam gave way, and wiped out the towns located down river. Having received no warning, many of the people who could have retreated to the nearby foothills were lost in the deluge.

The powerful members of the Club were never held to account because the law was interpreted to find no single member had been personally involved.

The Club itself was sold at auction to pay its mortgage to the banks.  The litigants received nothing.

It would have been even worse if the wealthy had bought insurance on the lives and property of the towns below, in order to further profit from the tragedy, and had cut telegraph wires and warning whistles to maximize the damage, loss of life, and their profit. 

And it would have been despicable if they had hired experts and newspapers to falsely lecture the public on the nature of dams, and how their concerns were misplaced and ridiculous. And if they had 'captured' the public officials and inspectors so that they would overlook and excuse the reckless disregard of the Club members for others.

I hope the lessons from this story from history are not lost on you.

When things don't make sense, that is often because there is deception involved.  How can there be widespread destruction and crime, but no one is held accountable? 

It is easy to underestimate the brazenness with which wealthy and powerful people will game the system for their personal profit, and then to cover up their wrongdoing.   That is because most people themselves would not lie and cheat to profit from the misery of others.  They find such behavior to be almost inhuman.

It is natural perhaps to blame the victims. They should have known, one might say. And how often can one be fooled before being blamed for their misfortune as a fool?

But most people, when faced with the uncertainty of conflicting stories, tend to accept the one that is put forward by the mainstream media, and backed by very important people. 

This is especially true if it seems like something they might do. Who could believe in such deceit? But they forget that they themselves are not heartless sociopaths.  And they are not well-practiced, almost pathologically proficient, con men who will say and do almost anything for money, without a twinge of conscience. Surely they may bend the truth a little, but never about anything so great.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

PBS Frontline: The Untouchables

I can hardly wait for the specials about the silver market when that time comes.

The corruption will continue until the people of the Western world hold their politicians accountable, and are not so easily distracted by The Big Show, and emotional bread and circuses.

Watch The Untouchables on PBS. See more from FRONTLINE.

Keiser: Nick Verbitsky On Wall Street's Confidence Game

Never allow them to make us forget the poisonous and deliberate fraud that was at the center of the financial collapse.

MF Global Hid Risk To Avoid Capital Requirements While FINRA Regulators Looked On

One of the common elements in most of the great financial debacles seems, at heart, to involve accounting fraud that is tolerated and excused by all those entrusted with the safeguarding of the public interest and the innocent.

What characterizes the modern financial system, and its vast influence on the fabric of society, the political process, and the dialogues of public policy is the power of easy money, obtained through the mispricing of risk and brazen fraud, to corrupt the corruptible in every station of life, from the press corps to the politicians to the professors.

Truth, honor and goodness are collateral damage when everything has its price. Greed and selfishness abound, and the 'best lack all conviction, while the worst are filled with passionate intensity.'

NY Times
MF Global Dodged Capital Requirements, Report Says
By AZAM AHMED and BEN PROTESS

Under pressure from regulators last summer to increase its capital cushion, MF Global moved some of its risky European debt holdings to an unregulated entity in an effort to avoid having to raise extra money, according to a new report. The revelation raises new questions about MF Global’s actions in its last months — in particular, how it responded to regulators. The brokerage firm had previously disclosed that it had met the capital requirements, but never mentioned that it had transferred some bonds rather than raising additional money.

The shift was detailed in a report by Louis J. Freeh, the trustee overseeing the bankruptcy of MF Global. The report is separate from the one issued Monday by James W. Giddens, the court-appointed trustee charged with recovering money for MF Global’s customers.

“This strategy allowed the MF Global Group to transfer the economic benefits and risks,” thus reducing the “regulatory capital requirements,” the report by Mr. Freeh said.

Shifting the bonds to an unregulated entity to avoid capital requirements is unusual at financial firms, corporate accounting specialists say. Regulators expressed concerns about the maneuver, although ultimately they did not block it. The Financial Industry Regulatory Authority (FINRA), Wall Street’s self-regulator, said it lacked jurisdiction to pursue the matter further.

“It’s a shell game, and the problem is the regulators buy off on this stuff, and then when it implodes, they always look so stupid,” said Lynn E. Turner, the former chief accountant at the Securities and Exchange Commission. “Common sense says why would you accept these types of shenanigans..."

Read the rest here.