How Big is the Economic Bomb? Big, Very Big

In the after math of the 2008 crisis, and after “We the People” bailed out the “Too Big to Fail Banks” to the tune of over $14 Trillion dollars, our CONgress vowed they would never let that happen again. Yet since 2008, this very same CONgress has blocked every effort to regulate the banks and audit the FED. The result of the 2008 crisis has had our economy stagnated for the last seven years and the very same people that caused the last economic crisis have created a $278 TRILLION dollar derivatives time bomb that could go off at any moment.

According to Michael Snyder, when this absolutely colossal bubble does implode, we are going to be faced with the worst economic crash in the history of the United States.  It is dangerously bad, as you will see below, those banks have actually gotten far larger since then.  So now we really can’t afford for them to fail.  The six banks that we are talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you add up all of their exposure to derivatives, it comes to a grand total of more than 278 trillion dollars!  But when you add up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.

In other words, these “too big to fail” banks have exposure to derivatives that is more than 28 times greater than their total assets!  To put this in perspective, it is like you having $100,000 in assets and owing more than $2.8 million dollars! Do you think you could get away with that? This is complete and utter insanity, and yet nobody seems too alarmed about it.  For the moment, those banks are still making lots of money and funding the campaigns of our most prominent politicians.  Right now there is no incentive for them to stop their incredibly reckless gambling so they are just going to keep on doing it.

So precisely what are “derivatives”?  Well, they can be immensely complicated, but on a very basic level, a “derivative” is not an investment in anything.  When you buy a stock, you are purchasing an ownership interest in a company.  When you buy a bond, you are purchasing the debt of a company.  But a derivative is quite different.  In essence, most derivatives are simply bets about what will or will not happen in the future.  The big banks have transformed Wall Street into the biggest casino in the history of the planet, and when things are running smoothly they usually make a whole lot of money, and just like in 2008, things can go very wrong very fast.

Today, the “too big to fail” banks are being even more reckless than they were just prior to the financial crash of 2008. As long as they keep winning, everyone is going to be okay.  But when the time comes that their bets start going against them, it is going to be a nightmare for all of us.  Our entire economic system is based on the flow of credit, and those banks are at the very heart of that system. In fact, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system. So that is why they are called “too big to fail”.  We simply cannot afford for them to go out of business.

Our politicians promised that something would be done about this.  But instead, the four largest banks in the country have gotten nearly 40 percent larger since the last time around.  The following numbers come from an article in the Los Angeles Times

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

A majority of these derivatives are focused in the energy and financial sectors, and what we are seeing now is great volatility in both of these sectors. Demand for oil has been grossly miscalculated and when the OPEC nations decided to continue to produce at the same levels after the demand declined, you saw what happened to oil prices at the pump. This is further complicated by the cost of recovering oil from fracking in the US. This bomb is about to go BOOM!

Further complicating the picture is the moves being made by the BRICS and the newly developed AIIB. The Asian Infrastructure Investment Bank (AIIB) is an international financial institution that was proposed by the government of China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia region. AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which are regarded as dominated by developed countries like the United States. The United Nations has addressed the launch of AIIB as “scaling up financing for sustainable development” for the concern of Global Economic Governance. Chinese Premier Li Keqiang affirms AIIB cooperative stance. As of April 2, 2015, almost all Asian countries and most major countries outside Asia had joined the AIIB, except the US, Japan (which dominated the Asian Development Bank, formed in 1966) and Canada. North Korea’s and Taiwan’s applications were rejected. This is a serious threat to the US dollar as the international trade currency and increases the exposure of the big banks in a way that is not yet completely discernible, other than if AIIB has its way, the dollar is in for a big devaluation. Already the AIIB has proposed an alternative to the dollar, called the SDR, which would be asset based something like the following manner.

SDR

And finally, Greece sits on the edge of collapsing the Euro. This will occur if Greece finds some or all of its debt to the ECB and IMF are odious. Odious Debt is: In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

Today Odious Debt is now a reality in Greece, where Zoi Konstantopoulou, the head of the Greek parliament and a SYRIZA member, released two videos which have promptly gone viral, designed to promote the investigative parliamentary committee to look into the circumstances surrounding the signing of the country’s two bailout agreements that led Greece to implement its austerity measures.

According to Greek Reporter, Konstantopoulou has said that the newly established “Debt Truth Committee,” will investigate how much of the debt is “illegal” with a view to writing it off. Proving that this is more than just a populist stunt, during a vote that took place early yesterday, out of the 300 Greek MPs, 156 voted in favor of establishing the public debt auditing committee. “The committee will examine how Greece entered into the bailout agreements with its international lenders, as well as any other matters related to the memoranda’ implementation,” SYRIZA Parliamentary Secretary Christos Mantas had explained earlier. “We are fulfilling our commitment and the social demand to explore the causes and responsibilities of an unprecedented crisis that devastated the vast majority of society,” Mantas added. If the Greek “Debt Truth Committee” indeed persists with determining how much of its debt is legal and enforceable, and ultimately decides to rescind some (or all) of it, the only question is how long until other countries around the world, all of which are burdened with massive, untenable debt loads across the government, financial and household sectors, decide it is time to do the same and declare a fresh start.

So given these current situations, it is very easy to see just how crazy these “Big Banks” are, and how they are going to come crashing down, given their current exposures. There isn’t enough money in existence to “bail them out” and the impacts on the world’s economy will be felt for decades. It really isn’t a matter of if this current economic situation is going to come crashing down, it is only a matter of when, and “when” looks real big and up close right now.

The Big Six Banks Just Get Bigger and Bigger

Back in 2008 we were held hostage as a people and eventually wound up forking nearly $17 Trillion dollars over to the banks after their casino games failed. We were told if we didn’t the world economy would collapse. These banks were just too big to fail. So now over five years have passed and our miserable congress failed to enact any meaningful legislation to prevent a repeat situation from occurring. Where the money really went will be an upcoming article, but for now let’s just look at those banks to see how big they are today. The numbers will shock you.

First the only banks that did not survive were the community banks serving their local communities. In 1985, there were more than 18,000 banks in the United States.  Today, there are only 6,891 left. The six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.

The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets. JPMorgan Chase, alone, is roughly the size of the entire British economy. The five largest banks now account for 42 percent of all loans in the United States.

Well, since they gotten bigger, they must be in better shape, right? Wrong again. Right now, four of the “too big to fail” banks each have total exposure to derivatives that is well in excess of 40 trillion dollars. That’s $160 Trillion dollars! Their exposure is over TWICE the global GDP and 14 times larger than the US GDP! The total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.

global GDP

Just think about from your personal financial perspective. If you were in that situation, it would mean your debt was 381 times your assets. In the US, Americans tend to have a low net worth. According to Social Security numbers those under 25 has a net worth of $1475, 25-34 has $8525, 35-44 has $51575, 45-54 has $98350, 55-64 has $180125. So let’s take the 35-44 number of $51575. This would mean you would have debts that totaled $19,650,075! Until you understand this from that perspective you cannot appreciate how totally insane this whole house of cards really is in truth.

The fact is these guys are totally and criminally out of control and no one is doing a single thing meaningful about it and now it is so nuts anyone who would be contemplating action is absolutely fearful to even speak about this insanity.

According to the Bank for International Settlements, the global financial system has a total of 441 trillion dollars worth of exposure to interest rate derivatives, which is nearly 6 times global GDP. Most governments’ coffers have been drained and most pension plans and investment pools are also tapped out.  The FED’s answer to this mess is just to keep printing money at the rate of about $40-60 Billion every month. This is only delaying the inevitable collapse that must come and folks are starting to get antsy that this is going to happen soon, very soon.

insanity1

The only sane approach here is to have a global financial reset and the sooner the better. We can demolish this mess with a single global jubilee along with breaking these behemoths back down to a size where if they wish to act in a risky manner, they will live or die on their sword and the world will continue on without them. This would also eliminate these world-wide austerity programs and allow countries to get back to using their tax dollars for infrastructure, health care, education, and basic science research that will benefit all mankind.

It is important that we all understand these facts and are prepared to act when the time comes again when these con artists and habitual gamblers once again come begging with threats to blow up the economy. We should all just say to our representatives no way will we allow you to use one more penny of our money.  We should be willing to look them straight in the eye and say “Blow it up”! It is only then can we begin to construct a global economy based on honesty, transparency, sound fiscal decisions, and truly market driven economic activity. Don’t buy into the fear factor this time around.

How “Bail-outs” and Bail-ins” Are Just a Huge Transfer of Wealth

In our continuing effort to educate even those who call themselves “experts” on the economy, we have to continue with the facts that the banksters, MSM, and dupes that call themselves legislators don’t want you to see or understand.  We have, in recent past articles, shown you just the facts about the bailouts and now the bail-ins going on in the EU for what they are, just a huge transfer of public wealth to the hands a few elites in banking and the central banking system.

As we watch the economy continue to falter, and jobs vanish, don’t you wonder where all the so-called QE monies really went that were meant to stimulate the economy? Here we are, 5 years into this so-called recovery and unemployment in the US is still 7.6% and only 47% of Americans hold full time jobs.  The number one employer is WalMart and the number two employer is Kelly Temp Services! In the EU, there is a 40% unemployment rate and people’s bank accounts are being raided without consent to supposedly prop up the banks (Bail-Ins). Government services are being slashed everywhere and still nothing seems to be improving.

Well, even though you are not supposed to understand this, let’s look at the Central Bank Practices and especially at the issue of banks’ reserves at the FED and other central banks in the world. This is a complex subject with much technical jargon that confuses a lot of people. Besides, don’t be surprised that your bank branch manager on Main Street as well as lecturers in finance and economics are also ignorant on this issue. In the case of the latter, this subject is hardly taught in universities. And this is the reason why the scam has not been exposed or understood. But, for those who have a basic idea of bank reserves and how this huge amount of “excess reserves” have been created by the FED, have you asked yourself, “Why have I not spotted this scam earlier?”

Many have been taken in by the propaganda that “excess reserves” is the means to encourage banks to extend credit (give out loans) to desperate borrowers who needed urgent funds to survive and to jump-start their businesses. This propaganda is grounded on the assumption that there is insufficient liquidity in the market. This assumption is misleading.

What are Excess Reserves? The latest figures obtained from the H.3 release from the Board of Governors of the Federal Reserve System (the FED) shows excess reserves of about $1.794 trillion (data as of April 17, 2013)! This level of excess reserves is unprecedented and is the highest since reserves were legislated as a requirement.

Excess reserves are the surplus of reserves against deposits and certain other liabilities that depository institutions (collectively referred to as “banks”) hold above the statutory amounts that the FED requires in accordance with the law. The general requirement is that banks maintain reserves at least equal to ten percent of liabilities payable on demand. There is now data to show that as much as 50% of these “excess reserves” are held for United States banking offices of foreign banks.

 

Let me elaborate. Banks receives deposits from their customers which are inter-alia placed in current accounts (checking accounts) or time deposits (fixed deposit accounts) and which the customer can at any time withdraw from the bank. But, banking practice shows that at any one time, only a small fraction of customers would withdraw their deposits in full. So, there was no need for banks to keep all the deposits in their vaults to meet such a demand for payment. Laws were enacted to allow banks to keep in reserve a small amount of monies to meet such demands. That being the case – if only 10% reserves is all that is required according to banking regulations to meet repayment demands, why should there be such a huge amount of reserves, beyond the legal requirement of 10%?

Understand the fact that when a customer deposits monies in a bank, he is in law a “creditor” (he has loaned the monies to the bank) and the bank is a “debtor” (and he can use the money in any way at his absolute discretion, even to speculate). This is because the ownership of the money has been transferred to the bank. The money is no longer the money of the customer. It now belongs to the bank. And as long as the bank is solvent, and there is a demand for repayment of the deposit, the law of contract stipulates that the bank must repay together with the agreed interest that has accrued.

silver-coins-bars

Now here is where, legally it gets interesting.. if at the time when demand for repayment is made, the bank is bankrupt (i.e. in a liquidation) then the depositor/customer in law is deemed an “unsecured creditor” and must join the queue of all unsecured creditors to share the proceeds of any remaining assets after all secured creditors have been paid. If there are no remaining assets, the depositors get zilch! That is why and as illustrated in the bank confiscation of deposits in Cyprus banks acting in concert with central banks can expropriate all customers’ deposits to pay their secured creditors. You catching on here?

How did the Excess Reserves balloon to a massive US$1.794 Trillion? The Fed’s overall balance sheet has expanded from about $909 billion before the crisis (i.e. before 2008) to about $3.3 trillion in 2013. Of the $2.4 trillion increase, approximately $1.8 trillion is excess reserves. Banks were up to their eyeballs in toxic assets (financial sewage) and they are drowning in this cesspool but for the rescue efforts of the FED and other central banks they would have sunk to the bottom of the cesspool.

The FED created trillions of money out of thin air by a digital entry in its books to purchase the toxic assets (financial sewage) in batches from the banks. The objective of QEs is to save the banks and to save the US Treasury from bankruptcy and not Joe Six-Pack. However, in this article we are focusing on the banks. So, let’s say that the banks HAVE OVER US$10 trillion of financial sewage AND WANT TO DISPOSE THEM WITHOUT AROUSING ANY ALARM.  The monies flowed from the FED to the banks to purchase the financial sewage. The financial sewage is sucked into the FED’s financial vacuum. However the monies are not channeled to the banks’ branches in Main Street to be loaned out to Joe Six-Pack. It is re-routed back to the FED as “reserves”. When the reserves exceed the minimum 10% requirement, the excess is classified as “excess reserves.” This is merely a book entry! And adding insult and injury to Joe Six-Pack, interest of 0.25% is paid on the reserves (i.e. giving profits to the banks).

The banks are allowed to survive in spite of their massive frauds and other financial hanky-pankey. The banks are allowed to use digital technology (e.g. high-frequency trading) to corner the market and destroy Joe-Six-Pack. But, Joe-Six-Pack has to suffer the indignity of unemployment, foreclosures, reduced unemployment benefits, surviving on food-stamps, and other austerity measures. Starting to see the picture here and how this crap is how we are being fleeced like passive little lambs?

“The money flows from the FED to the Too Big To Fail (TBTF) Banksters to Buy Toxic Assets, which is sucked in by the FED’s Financial Vacuum, thereby cleansing the TBTF banks’ balance sheets. The money is then re-routed back to the FED as “excess reserves”.

The FED create monies out of thin air to bail-out the Too Big To Fail banks (TBTF banks) by purchasing their financial sewage (valued at book value as opposed to mark-to-market i.e. instead of paying only 10 cents on the dollar or less, the FED pays dollar for dollar) thereby removing the financial sewage from the balance sheet of the TBTF banks to reflect a “healthier” balance sheet as there are now less financial sewage in the banking system. And, because the TBTF banks are suffering losses, the FED pays 0.25% interest on the “excess reserves” created so as to generate easy profits for the TBTF banks for doing nothing at all. They are earning profits merely from a book-entry in the FED’s books!

The propaganda which I referred to earlier that such monies were meant to enable the TBTF banks to extend credit is therefore bullshit and a load of financial nonsense. So why are the so-called reputable economists at leading universities such as Harvard, Princeton, Cambridge, Oxford etc. touting this propaganda?  In spite of all this past mismanagement, the practices by the TBTF banks is continuing unabated, including the so-called record profits declared by the TBTF banks and the huge bonuses given out to the bankers and their hire-lings. These practices are all just window dressing as long as the toxic assets are not marked-to-market and not declared as junk. If such assets are properly declared, the fiat money banking system would be staring at a bottomless black-hole of toxic assets and indebtedness! What’s worse is these same TBTF banks are still up to their eyeballs in toxic debt, such as derivatives, credit swaps, etc.  In fact JP Morgan Chase alone has exposure more than twice the US GDP! JPMC is exposed just in interest rate derivatives at $45 TRILLION. Take a look at the Fed’s H.8 report to understand how bad it really is.

This has compounded the problem. After the Global Financial Tsunami, all the TBTF banks don’t have enough reserves to meet the withdrawal of deposits placed by customers before the crash. The TBTF banks don’t even have the requisite 10% reserves to meet these demand deposits (Old Deposits).  However, banks are continuing to receive deposits from customers of which 10% of these deposits must be transferred to the FED as reserves. Data shows that customers’ deposits are at an all time high (since 2007), but bank lending is not keeping pace.

Banks are not lending out what they are entitled to do so for two reasons:

1) The banks are using a portion of the “New Deposits” to meet the liability of having to repay the “Old Deposits” in the system. This is because even the excess reserves (created under the QE) are insufficient to meet the demand for repayment of the Old Deposits. So, part of the current New Deposits would be utilized for that purpose. This is the Deposit Ponzi Scheme.

2) Banks are earning no risk profits from interests on “Excess Reserves” at the FED and are only willing to lend to credible borrowers. In the present economic climate, there are just too few credible customers. This is another reason why banks are not lending.

When QE stops, the FED would not be out on a limb because the monies used to purchase the financial sewage from the TBTF banks are still in the FED’s books. The Fed need only to have a reverse entry in it’s books after re-packaging the financial sewage INTO SOME NEW FORM OF FINANCIAL PRODUCT OR WHATEVER (which the TBTF banks are adept at doing before the crash and are still continuing to do so) and dumping them back to the banks and another generation of stupid investors at such time when and if the banks would have recovered. But with the TBTF banks continuing their same toxic practices unabated there is no recovery, ever. Further, with the bank’s unbridled right (sanctioned by law) to confiscate the customers’ deposits (now commonly referred as “Bail-In”) using the Cyprus template, banks have additional financial resources to continue with the plunder and financial rape of the public.

I hope this helps us understand that this unabated transfer of wealth ends with our economic enslavement. The public must be able to understand these fundamentals and demand the end to this fractional banking system and the end of the FED. Your congressmen and women are dupes in this game, as they really don’t understand and therefore do what they are told to do. Inform them WE GET IT and WE DON”T LIKE IT, AND IT MUST STOP NOW! Fire the Fed, break up the TBTF banks and return to pre-1913 banking system controlled by the US Treasury. WAKE UP!  A special thanks to Matthias Chang of Global Research, who unknowingly contributed so much to this article.

Fast and Furious Goldman Sachs – The Tip Off of Why Issa is Attacking Eric Holder

Eric Holder and DOJ have been conducting an on-going investigation of the five major banks and investment firms and potentially a coordinated criminal conspiracy to rig both LIBOR and EURIBOR interest rates.   The most significant thing you need to understand about these rates is that they are the basis which firms like Goldman Sachs uses to determine fees for credit default instruments.  The total exposure of the banks, investment firms and hedge funds is nearly $800 trillion dollars! The information uncovered by the DOJ investigation was shared with UK regulators and this week the CEO of Barclays has resigned instead of facing the Parliament’s Treasury Select Committee. “This is the most damaging scam I can recall,” said Andrew Tyrie, chair of parliament’s Treasury select committee. “It appears that many banks were involved and Barclays were the first to own up.”

The interest rate rigging scandal that has engulfed Barclays was the result of a coordinated attempt at collusion by traders working for a coterie of leading banks over at least five years, according to a series of lawsuits and legal rulings filed in courts in Asia and North America.

The lawsuits allege the fraud was extensive, spanning at least three continents and involving trades worth tens of billions of pounds. The allegations raise further serious questions about the banks’ ability to police themselves and the role of senior management in monitoring the activities of their employees.

In a 28-page statement of facts relating to last week’s revelation that Barclays had been fined a total of £290m, the US Department of Justice discloses how a network of traders working on both sides of the Atlantic conspired to influence both the Libor and Euribor interest rates – the rates at which banks lend to each other. It was, in effect, a worldwide conspiracy against the free functioning of the market.

Here is where it gets really interesting, as reporter Lee Fang writes in, Think Progress reports “Exclusive: Goldman Sachs VP Changed His Name, Now Advances Goldman Lobbying Interests As Top Staffer To Darrell Issa .”

Fang reported, “ThinkProgress has found that a Goldman Sachs vice president changed his name, then later went to work for Issa to coordinate his effort to thwart regulations that affect Goldman Sachs’ bottom line.” The former Goldman Sachs vice president Fang was referring to is Peter Simonyi, now known as Peter Haller.

Imagine that for a minute, a Goldman Sachs operative as a top congressional staffer, lobbying for Goldman Sachs, in this case to block strengthening Dodd-Frank regulations on derivatives. Issa’s wish is exactly the banks’ wish, to weaken the legislation so Wall Street’s Derivatives Casino can keep its stakes up.  Fang asks, “Has Rep. Darrell Issa (R-CA) turned the House Oversight Committee into a bank lobbying firm with the power to subpoena and pressure government regulators?”

In fact, “In July 2011, Issa sent a letter to top government regulators demanding that they back off and provide more justification for new margin requirements for financial firms dealing in derivatives. A standard practice on Capitol Hill is to send a letter to a government agency with contact information for the congressional staffer responsible for working on the issue for the committee. In most cases, the contact staffer is the one who actually writes such letters. With this in mind, it is important to note that the Issa letter ended with contact information for Peter Haller, a staffer hired that year to work for Issa on the Oversight Committee.”

Pretty diabolical scheme: deflect Issa’s corrupt lobbying techniques to emasculate oversight, by ferreting out a DOJ scandal to cover the Democrats with the Fast and Furious scandal, burying the larger scandal of planting a Goldman operative in Congress to lobby for soft laws on derivatives. The Fast and Furious scandal is nowhere near the magnitude of the Goldman Sachs operative scandal, with the add-on that Goldman has succeeded in getting the U.S. attorney general held in contempt and at the same time discredited Obama for using his presidential override of the charge.

Lee Fang writes, “Issa’s demand to regulators is exactly what banks have been wishing for. Indeed, Goldman Sachs has spent millions this year trying to slow down the implementation of the new rules. In the letter, Issa explicitly mentions that the new derivative regulations might hurt brokers ‘such as Goldman Sachs.’

“Haller, as he is now known, went by the name Peter Simonyi until four years ago. Simonyi adopted his mother’s maiden name Haller in 2008 shortly after leaving Goldman Sachs as a vice president of the bank’s commodity compliance group. In a few short years, Haller went from being in charge of dealing with regulators for Goldman Sachs to working for Congress in a position where he made official demands from regulators overseeing his old firm.

“It’s not the first time Haller has worked the revolving door to help out Goldman Sachs. According to a report by the nonpartisan Project on Government Oversight, Haller—then known as Peter Simonyi—left the Securities and Exchange Commission (SEC) in 2005 to work for Goldman Sachs, then quickly began lobbying his colleagues at the SEC on behalf of his new firm. At one point, Haller was requiring [sec] to issue a letter to the SEC stating that he did not violate ethics rules and the SEC agreed. A brief timeline of Haller’s work history underscores the ethical issues raised with Issa’s latest letter to bank regulators:

“● After completing his law degree in 2000, Haller was employed by Federal Energy Regulatory Commission as an economist, and later with the Securities and Exchange Commission in the Office of Enforcement.

“● In April of 2005, Haller resigned from the SEC to take a job with Goldman Sachs. Although he was not a registered lobbyist, he soon began lobbying the SEC on compliance issues on behalf of Goldman Sachs.

“● In 2006, Haller left Goldman Sachs, according to a Goldman official who spoke to ThinkProgress.

“● In 2008, he took a job with the law/lobbying firm Brickfield Burchette Ritts & Stone.

“● In January of 2011, Haller was hired to work for Issa on the Oversight Committee. Under the supervision of Haller, Issa sent a letter dated July 22, 2011 to bank regulators (including the heads of the Federal Reserve, FDIC, FCA, CFTC, FHFA, and Office of Comptroller) demanding documents to justify new Dodd-Frank mandated rules on margin requirements for banks dealing in the multi-trillion dollar OTC derivatives market, like Goldman Sachs.”  This resume embodies everything that is wrong with the financial industry.

So much for Haller; now back to Issa. “When he took over the chairmanship of the Oversight Committee this year, Issa dramatically shifted the committee’s focus away from its traditional role of investigating major corporate scandals. Instead, Issa has used the committee to merge the responsibilities of Congress with the interests of K Street and Issa’s own fortune.” In some way he spelled out his own end by doing this.

“In June of this year, ThinkProgress broke the story about Issa’s own complicated relationship with Goldman Sachs. [They] revealed that Issa purchased a large amount of Goldman Sachs high yield bonds at the same time as he used the Oversight Committee to attack an investigation into allegations that Goldman Sachs had systematically defrauded investors leading up to the financial crisis. This conflict of interest, along with ThinkProgess’s exclusive story about Issa’s earmarks benefitting his own real estate empire, received coverage in a recent piece by the New York Times.

ThinkProgress also broke a story last month revealing other revolving door conflicts within Issa’s staff. Peter Warren, Issa’s new policy director, maintains some type of financial contract with a student loan lobbying group he led last year, and received a bonus from the lobbying group before leaving to work for Issa. Since joining Issa’s staff, Warren and his colleagues have fought to weaken the recently created Consumer Financial Protection Bureau, the new agency charged with overseeing student loans.

“The new revelations about Peter Haller, however, raise even more significant ethical concerns than Peter Warren and other ex-lobbyists working for Issa. Why did Issa hire a high-level Goldman Sachs executive to work on stopping regulations on banks like Goldman Sachs? Haller’s direct involvement in the July letter brings Issa’s ability to lead the Oversight Committee—charged with conducting investigations on behalf of the public interest—into serious doubt.”

It also explains why President Obama did invoke executive privilege concerning Issa’s Fast and furious investigation and the unusual actions of the Democratic Caucasus walking out on the vote. There is no doubt that the banksters are running scared and acting in such desperate manners.  There are literally billions of dollars of exposure here and REAL criminal activity.  The fact that it could extend to congressmen and senators is even more revealing.  To those who are involved and/or have knowledge of the activities should at this moment consider hard what the future may hold for them when this whole scheme unfolds in MSM.  This may be your last chance to save your butts.  Act now or do the PERP walk tomorrow, your choice.

Some Fact Checking on the BIG BAILOUT and Its Effect on the Economy

Remember back in 2008, when Uncle Ben Bernanke and Little Timothy Geithner went to the Hill and said they needed $700 B to bailout the banks or else the world economy would collapse?  Yeah we all remember, there have been millions of articles, documentaries, and movies made about it.

Ok so when the Congress called Uncle Ben back to testify about what he did with the money and was asked to explain how the bailout had saved the economy, he REFUSED to disclose who got how much, defending his position by saying that divulging such information could jeopardize the public faith in the individual banks who had received monies.  Congress said, ‘Oh OK that makes sense’.

Then, in 2009, the discussion was that if banks were too big to fail that those banks should also be too big to exist, as that would put us right back in the position that got us into the jam in the first place.  Bernanke agreed, but offered no statements as to what should be done to prevent it.  Some in CONgress did and the Dodd-Frank Bill was passed.  At the time some said it was too weak as written, but hey, at least it was a start.

So, here we are now.  How has Dodd-Frank or Federal Reserve policy worked?  I do hope you are sitting down for this.  You may also want to pour a stiff dink, if you are so inclined, or at least have a pair of vise grips handy to occasionally pinch yourself.

First, too big to fail has resulted in the following: Five banks — JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc., Wells Fargo & Co. (WFC), and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve. Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy!  WHAT????  Yeah you read it correctly.  Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.  Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.  What say you Uncle Ben? What say you CONgress?

At a recent lecture at George Washington University, Mr. Benanke said ,according to CNNMoney, — “The bailouts of Bear Stearns and AIG were “distasteful” but still necessary. Meanwhile, the Fed was “helpless” when it came to saving Lehman Brothers, he said.

“Lehman Brothers was in itself probably too big to fail, in the sense that its failure had enormous negative impacts on the global financial system,” Bernanke said. “But there we were helpless, because it was essentially an insolvent firm.”

In a lecture about the Fed’s emergency efforts during the financial crisis, Bernanke explained that the central bank was willing to bail out AIG (AIG, Fortune 500) and Bear Stearns because it expected both firms would eventually be able to pay back their loans. Bear Stearns was ultimately acquired by JPMorgan Chase (JPM, Fortune 500).

Lehman Brothers, on the other hand, had no collateral to put up in exchange for the Fed’s assistance.

“It was very difficult and in many ways distasteful intervention that we had to do on the grounds that we needed to do that to prevent the system from collapsing,” Bernanke said. “But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”

Oh! Then I guess we really had no choice except to fork over the $700 Billion.  It was exactly $700 Billion though, wasn’t it Uncle Ben?  It took a court case by Bloomberg (because CONgress wouldn’t or couldn’t demand the info) to reveal the true number of the bailout.  Vise grips and shot glasses at the ready, here are the real numbers we are all on the hook to the FED for.

The amount of money in secret loans that some of the big Wall Street banks received from the Federal Reserve is absolutely staggering.  The following figures come directly from a GAO report….

Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Bank of America – $1.344 trillion
Goldman Sachs – $814 billion
JP Morgan Chase – $391 billion

OMG that’s $7.1 TRILLION and then with the bailouts of foreign banks, yes most of the major banks in Europe, and yes we did those too, but you know the information is “so sensitive”.  The total is $16.115 TRILLION and that is more than the annual GDP of the entire country!

But this has been good for the economy right?  I mean if we, as the American people, throw that much money at the problem things are getting better.  I mean the banks did the responsible thing to fix the problem, after all we have trusted them with an entire year’s worth of labor by everyone and every company in the US.  Well…..consider these two facts.

1). Over the past few years, big Wall Street banks have made huge amounts of money speculating on the price of food.  This has caused food prices all over the globe to soar and it has caused tremendous hardship for hundreds of millions of families around the planet.  The following is from a recent article in The Independent….

Speculation by large investment banks is driving up food prices for the world’s poorest people, tipping millions into hunger and poverty. Investment in food commodities by banks and hedge funds has risen from $65bn to $126bn (£41bn to £79bn) in the past five years, helping to push prices to 30-year highs and causing sharp price fluctuations that have little to do with the actual supply of food, says the United Nations’ leading expert on food.

Hedge funds, pension funds and investment banks such as Goldman Sachs, Morgan Stanley and Barclays Capital now dominate the food commodities markets, dwarfing the amount traded by actual food producers and buyers.

Goldman Sachs alone has earned hundreds of millions of dollars in profits from food speculation.

2). According to the New York Times, the too big to fail banks have complete domination over derivatives trading.  Every month a secret meeting that includes representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup is held in New York to coordinate their control over the derivatives marketplace.  The following is how the New York Times describes those meetings….

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

When the derivatives market fully implodes, there will not be enough money in the world to bail everyone out.  According to the Comptroller of the Currency, the too big to fail banks have exposure to derivatives that is absolutely outrageous.  Just check out the following numbers….

JPMorgan Chase – $70.1 Trillion

Citibank – $52.1 Trillion

Bank of America – $50.1 Trillion

Goldman Sachs – $44.2 Trillion

That’s over $200 TRILLION dollars, more than 3 ½ TIMES the global GDP! And that is just the Big Five’s exposure to the derivatives market.

This is beyond insane and would be funny except we are being enslaved to keep it floating. When you combine these facts with the current crisis in the EU, and the fact CONgress has gutted Dodd-Frank and even voted down the Volcker rule that would not allow banks to speculate with our deposits, it doesn’t even make sense to a brick wall.

I write this article because the banksters are counting on us not understanding how well they have fleeced our global economy with no hopes of any recovery.  They hope we will all just say this is high finance and we don’t need to understand it.  You would understand if your teenage ran up $5,000 in credit card bills wouldn’t you? And I am certain what you would say and do to your irresponsible teenager who did such a thing.  THEY would be grounded for LIFE, and you certainly wouldn’t give them any more of your money!  For each and every one of us, we need to understand this is the very same thing, only the irresponsible teenagers in this scenario are the FED, the banksters, and our CONgress, and I am being nice. Criminals could also be used to replace irresponsible teenager in this real life scenario, lots of criminals.  So what are we going to do about this, DAD? MOM?  There really isn’t anybody else stepping up, nowhere in the world.  Sorry to be such a bummer, but it is what it is.

Announcing the World is Under New Management-Goldman Sachs

You know, when I tell people that what we are experiencing is not a new depression or giant recession, but instead the largest transfer of wealth to the ¼% elite, they nod their head in disbelief and quietly think that man is off his rocker.  But when you look at what is happening politically in the US, Europe, UK, and to a lesser extent the Middle East and Africa there is no doubt in my mind that the financial elite have put Goldman Sachs in charge of managing the world.

From their perspective it makes good sense and after all running governments is the biggest business opportunity of all.  Where else can you siphon off assets and when you need more money you just extract it from the citizenry and they cannot do anything about it.

Look at the US government at all levels, executive, legislative, and administrative, who is running the show?  Ex-Goldman Sachs and FUTURE Goldman Sachs executives, the FUTURE part is important to watch.  Consider this from the Independent.

Source: The Independent

The ascension of Mario Monti to Italian Prime Ministers office is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic. This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the Eurozone, skeptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the Eurozone can and will pay its debts – and Goldman’s interests are entwined with the answer to that question.

Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren’t “bought and paid for” by corporations, as in the US, he says. “Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.”

This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

The bank’s two dozen-strong international advisers act as informal lobbyists for its interests with the politicians that regulate its work. Other advisers include Otmar Issing who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro.

Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, Attorney General of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman of Goldman’s UK-based broker-dealer arm, Goldman Sachs International, and until its collapse and nationalization he was also a non-executive director of Royal Bank of Scotland. He has been a prominent voice within Ireland on its bailout by the EU, arguing that the terms of emergency loans should be eased, so as not to exacerbate the country’s financial woes. The EU agreed to cut Ireland’s interest rate this summer.

Picking up well-connected policymakers on their way out of government is only one half of the Project, sending Goldman alumni into government is the other half. Like Mr Monti, Mario Draghi, who took over as President of the ECB on 1 November, has been in and out of government and in and out of Goldman. He was a member of the World Bank and managing director of the Italian Treasury before spending three years as managing director of Goldman Sachs International between 2002 and 2005 – only to return to government as president of the Italian central bank.

Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the Eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn’t be above 60 per cent of the size of the economy. And the brains behind several of those derivatives were the men and women of Goldman Sachs.  (See previous blogs).

The bank’s traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time. In one deal, Goldman channeled $1bn of funding to the Greek government in 2002 in a transaction called a cross-currency swap. On the other side of the deal, working in the National Bank of Greece, was Petros Christodoulou, who had begun his career at Goldman, and who has been promoted now to head the office managing government Greek debt. Lucas Papademos, now installed as Prime Minister in Greece’s unity government, was a technocrat running the Central Bank of Greece at the time.

Goldman says that the debt reduction achieved by the swaps was negligible in relation to euro rules, but it expressed some regrets over the deals. Gerald Corrigan, a Goldman partner who came to the bank after running the New York branch of the US Federal Reserve, told a UK parliamentary hearing last year: “It is clear with hindsight that the standards of transparency could have been and probably should have been higher.”  When the issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi says he wasn’t involved in the swaps deals either at the Treasury or at Goldman.

It has proved impossible to hold the line on Greece, which under the latest EU proposals is effectively going to default on its debt by asking creditors to take a “voluntary” haircut of 50 per cent on its bonds, but the current consensus in the Eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full. These creditors, of course, are the continent’s big banks, and it is their health that is the primary concern of policymakers. The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other Eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus.

“The IMF is running around trying to justify bailouts of €1.5trn-€4trn, but what does that mean?” says Simon Johnson. “It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008: The mechanism is different, in that this is happening at the sovereign level not the bank level, but the rationale is the same.”

Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year after almost a decade in politics and took control of a historic firm called MF Global. He placed a $6bn bet with the firm’s money that Italian government bonds will not default. When the bet was revealed last month, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed within days. It was one of the ten biggest bankruptcies in US history, but got little coverage in MSM.

The giant myth here is that the interests of the banks are the same interests for governments.  This is what is being used to justify this massive transfer of wealth.  Do we, as a collectively we, not see this as it is?  What is really happening is the methodical dismantling of government and democracy in favor of the commercial interests of the bankers without the consent of the people.  If any current government official balks they are eliminated.  Ask the recent PREVIOUS PM’s from Greece and Italy.

My suggestion, given these facts, is that all the unemployed and under employed workers in the world should immediately apply for work at Goldman Sachs.  It looks like the only company hiring for the next five years globally.

 

Why the Collapse of the EU is Important to You

U.S. bank exposure to the European debt crisis is estimated at $640 billion, nearly 5% of total U.S. banking assets, according to recent research papers written for Congress. Need we say more than that?  Yet, U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, accounting for two-thirds of the total related to the five nations, BIS data show.

The payout risks are higher than what JPMorgan Chase & Co. (JPM), Morgan Stanley and Goldman Sachs Group Inc. (GS), the leading CDS underwriters in the U.S., report. The banks say their net positions are smaller because they purchase swaps to offset ones they’re selling to other companies. With banks on both sides of the Atlantic using derivatives to hedge, potential losses aren’t being reduced, said Frederick Cannon, director of research at New York-based investment bank Keefe, Bruyette & Woods Inc.

Similar hedging strategies almost failed in 2008 when American International Group Inc. couldn’t pay insurance on mortgage debt. While banks that sold protection on European sovereign debt have so far bet the right way, a plan announced by Greek Prime Minister George Papandreou to hold a referendum on the latest bailout package sent markets reeling and cast doubt on the ability of his country to avert default.  In addition, the real axis of financial power, the emergence of a new “political-economic lobby” was hatched in a chance meeting at the Frankfurt Opera House on 19 October, where all of its members attended a ceremony to mark the end of Jean-Claude Trichet’s tenure as President of the ECB. This group, consisting of German Chancellor Angela Merkel, French President Nicolas Sarkozy – increasingly dubbed ‘Merkozy’ in the European press – but also Eurogroup President Jean-Claude Juncker, IMF Managing Director Christine Lagarde, European Commission President José Manuel Barroso, European Council President Herman Van Rompuy, ECB President Mario Draghi, and Olli Rehn, the EU Commissioner for Economic and Monetary Affairs have emerged as a new power bloc.

Their discussions concerning redrawing the European Union have already leaked in the press and have sent quivers through the international financial markets.  In order to “ditch” the bad assets, those 29 banks with the greatest exposure would need to take severe “haircuts, and they are NOT as hedged with swaps as they are pretending they are at the moment.

The CDS holdings of U.S. banks are almost three times as much as their $181 billion in direct lending to the five countries at the end of June, according to the most recent data available from BIS. Adding CDS raises the total risk to $767 billion, a 20 percent increase over six months, the data show. BIS doesn’t report which firms sold how much, or to whom. A credit-default swap is a contract that requires one party to pay another for the face value of a bond if the issuer defaults.

Five banks — JPMorgan, Morgan Stanley, Goldman Sachs, Bank of America Corp. (BAC) and Citigroup Inc. (C) — write 97 percent of all credit-default swaps in the U.S., according to the Office of the Comptroller of the Currency. The five firms had total net exposure of $45 billion to the debt of Greece, Portugal, Ireland, Spain and Italy, according to disclosures the companies made at the end of the third quarter (don’t laugh here).  So if you believe the BIS here, these same banks have at risk $767 billion, but only a net exposure of $45 billion. What’s that smell?

Last Friday at the meeting of the G20 in Cannes, the Financial Stability Board (FSB) revealed a list of 29 global systemically important financial institutions (known as the G-Sifis). These institutions are deemed to be so important to the interconnected global financial system that the unexpected and disorderly failure of any one of them could seriously threaten the world’s financial markets. Of the batch, seven US banks made the list: Bank of America Corp. (NYSE: BAC), Bank of New York Mellon (NYSE: BK), Citigroup Inc. (NYSE: C), Goldman Sachs Group Inc. (NYSE: GS), JP Morgan Chase & Co. (NYSE: JPM), State Street Corp. (NYSE: STT), and Wells Fargo & Co. (NYSE: WFC). Now things start to get interesting.

These 29 banks have been awarded an implicit guarantee that they are, indeed, ‘too big to fail.’ That’s the good news. The not-so-good news — at least from the institutional point of view — is that capital requirements for the banks will increase and each bank must create a plan by the end of 2012 describing how they would wind themselves down if necessary.  Read more: 29 Global Banks ‘Too Big To Fail’, But Not Too Big to Tell the Truth (BAC, BK, C, GS, JPM, STT, WFC, MS) – 24/7 Wall St. http://247wallst.com/2011/11/08/29-global-banks-%e2%80%98too-big-to-fail%e2%80%99-but-not-too-big-to-tell-the-truth-bac-bk-c-gs-jpm-stt-wfc-ms/#ixzz1dNbkihCX

It doesn’t take genius to figure out the gig is up.  The real question now is how hard does the EU fall down and who does it knock down with it?  Does it deliver the knock-out blow to the US economy?  The short answer is probably not, but it absolutely assures a period of hyperinflation that the government will not be able to deny as it is now denying related to the current impacts already being felt.  Just two words for you, food and fuel, enough said, huh?

Given this current situation, bank transfer day isn’t all a lefty progressive thing, is it?  Remember, when banks need money, they always take ours, isn’t that right Jon?

The European Union Has Entered Final Meltdown Phase

As we have outlined in previous articles, The EU will collapse, it was a matter of time.  Well, that time has arrived.  The falsely placed hope was that Greece would go silently into the night and then the politicos in Germany and France then could consolidate any impacts from the rest of the PIIGS and somehow manage the overwhelming debt over time. It was a fool’s dream from the onset.

It was so because first there is no way the German and French People would settle with being saddled with the cost of that bailout. The big secret is that both Germany and France are not in that good a shape themselves.  France’s external debt to GDP is 208% and Germany’s external debt to GDP is 163%.  Here is what the house of cards really looks like:

 

It is deceptive, at least, to use the Public Debt to GDP to honestly evaluate the situation, given the enormous exposure of the German and French banks are facing in the derivatives market float that currently exists. Keep it in your mind always that is the banks behind all of this and the ECB would have to bail them out when the final wheel falls off the joy wagon.

There is no way that German and French banks can cover their exposure and the ECB cannot possibly print that much money without setting off massive hyperinflation that would follow any effort to try and print that many Euros. The hope was that Greece would accept the draconian austerity demanded by the bankers to cover the 220% external debt (ED) to GDP.

Where it gets really crazy is that IF Greece went silently into what can only be described as a deep depression, somehow the EU could then manage the Italian ED (135%), the Irish ED 1098%, the Portuguese ED 239%, and the Spanish ED of 173%, basically on the backs of the French and Germans.  See how crazy it gets.

Well it just got a whole lot crazier in the last 72 hours.  The country that invented drama and democracy is not disappointing the world on either front. Greek Prime Minister George Papandreou on Monday called for two high- stakes votes.  The first asks parliament to say by the end of this week whether it has confidence in his leadership. The second is a referendum in which Greek voters would approve or reject, possibly by year’s end, Europe’s latest debt-crisis workout. The move blindsided European leaders on the eve of a global summit and rocked lawmakers in Papandreou’s party, some of whom are now calling for him to step down. The next day, stocks tumbled worldwide, the euro declined and Italian bonds plunged.

French banks and other lenders exposed to Greece and other weak euro zone countries slumped on Tuesday after Greece’s leader said he would put a bailout plan to a referendum, raising the risk of a disorderly default.  Papandreou knew all along he could not force the Greek people to accept the austerity plan proposed by the ECB and IMF.  Europe’s latest bailout proposal falls far short of what’s needed. Under the deal, private banks holding Greek debt would voluntarily accept a 50 percent write-off on their returns; the European Financial Stability Facility, the EU’s bailout fund, would be leveraged to 1 trillion euros ($1.37 trillion) from 400 billion euros; and European banks would raise 106 billion euros ($145 billion) in new capital by June 2012. As for Greece, it is due to receive 130 billion euros ($180 billion) in public funds on top of 110 billion euros pledged in 2010.

Writedowns of Greece’s sovereign debt should be much steeper. Greek bonds held by the European Central Bank would not be covered, so the writedown is really less than 50 percent. It needs to be closer to 70 percent to make Greece’s debt burden bearable. In addition, the EFSF needs a war chest of at least 3 trillion euros to make sure Europe’s banks are recapitalized and to guarantee the financing needs of Italy and other struggling governments.

Greeks know that this latest bailout proposal will also come with many unpopular strings attached, including further austerity measures. In an Oct. 27 poll for the Greek weekly To Vima, the majority said the deal should be put to a national vote, with 58 percent calling it “negative” or “probably negative.” Deep budget cuts, broken pension promises and heavy government job losses have already led to strikes, street protests and violence.

Then Monday’s surprise was, as Greek politics grew ever more chaotic, strong political protests erupted as the government moved to replace military chiefs with officers seen as more supportive of George Papandreou, the prime minister.  In a surprise development, Panos Beglitis, Defence Minister, a close confidante of Mr. Papandreou, summoned the chiefs of the army, navy and air-force and announced that they were being replaced by other senior officers.

Neither the minister nor any government spokesman offered an explanation for the sudden, sweeping changes, which were scheduled to be considered on November 7 as part of a regular annual review of military leadership retirements and promotions. Usually the annual changes do not affect the entire leadership. “Under no circumstances will these changes be accepted, at a time when the government is collapsing and has not even secured a vote of confidence,” said an official announcement by the opposition conservative New Democracy party.

Add to this Greece’s government looked on the verge of implosion on Tuesday ahead of a Friday confidence vote as a socialist deputy defected and another cadre called for early elections after the prime minister called a referendum on his EU debt rescue. Greek Prime Minister George Papandreou called the referendum late Monday in a bid to secure approval of his disputed economic policies without early elections. But the gambit backfired when a former deputy minister defected, reducing the ruling party’s majority in the 300-seat parliament to 152 deputies. Moments later, the head of parliament’s economic affairs committee Vasso Papandreou called for an early ballot and a temporary unity government to “safeguard” the EU deal agreed last week to slash Greece’s huge debt by nearly a third.

This “popular revolutionary” move is going to spread rapidly to the rest of the PIIGS. The unraveling will be rapid.  The exposure of the American banks is significant and they have already been slammed this week with MF Global filing for bankruptcy on Monday, investors pummeled many financial stocks, fearful that problems were lurking on the books of other Wall Street firms. It was a crisis of confidence, not unlike in 2008 when the markets punished stocks on mere speculation of trouble.  An interesting note is that Jon Corazine, the ex-head of Goldman Sachs, was at the helm at MF Global.  Imagine that! A leopard doesn’t change its spots!

We are going to witness the largest transfer of wealth in the history of the world within the next few weeks and the citizens of Germany, France, US, and Britain are NOT the winners, and neither is the 1%.  The winners are the 1/4%.  Are we catching on yet?

The True Greek Crisis

Everything we hear about the crisis in the EU, it seems that the whole situation is a result of the “problems” in Greece, and to a lesser degree Spain, Portugal, and Italy.  French president Sarkozy and Germany’s chancellor Merkel can’t agree on how to “bailout” Greece.  IMF and the ECB threaten to withhold funding for Greece if they don’t continue to enforce more and more austerity programs.  Greek 1 year bond rate is 117%!

If you followed just MSM you would think the Greeks were the most stupid businessmen and politicians, and there is considerable support that these elements of Greece certainly contributed to the current situation.  After joining the EU, there was wheeling and dealing with total disregard for the future and now they are in a real pickle.  Some in the EU are calling for the dissolution of the Greek government and absorbing the region into other EU member nations!

However, in historical perspective, one could also argue that Greece was setup for this fall. Closer examination suggests a reality that is very different than the “picture” being painted for us to consume.  Let’s examine some facts.

The Lazy Greek Meme

Greece is a land of ancient myth. But more recent myths have made Greeks cringe when foreigners start asking questions.

Greeks are lazy. They don’t work. They’re profligates who are taking down Europe. The caricature has become so common that a recent TV commercial in Slovakia used it to sell beer, drawing a contrast between the virtuous Slovak and the paunchy Greek indulging himself on a beach.

Most foreigners know Greece from holidays spent lolling on its beaches and drifting around its magical ruins. You could easily take it for granted that everybody here is just chilling out. They aren’t. The Greek labor force, comprising 5 million souls, works the second highest number of hours per year on average among countries in the Organization for Economic Development (OECD), right after South Korea. Greeks work 42 hours per week, while the industrious Germans toil just 36.

The average Greek worker earns a bit over $1,000 a month. Private sector employees are the most underpaid in the EU. Even before the harsh austerity measures imposed by the EU and the IMF, the Greeks had already cut the real average wages in the private sector to 1984 levels. This week the Greek parliament is expected to vote on measures that would place 30,000 public sector workers in a “labor reserve” at slashed pay – up to 40 percent.

Greeks retire a bit later than the European average. And the average pension, $990, is less than that of Ireland, Spain, Belgium, and the Netherlands. Thirty percent of the labor force works with zero Social Security or protections, while in the rest of the EU only 5-10 percent of workers are in this precarious situation.

The reality is simple, though rarely admitted –The “bailout” of Greece is really a bailout of big European banks. A game of smoke and mirrors leads us to think that Greek indolence led to financial ruin. The Greeks have done some things wrong, to be sure. But it was a dangerous mix of stupid economic theories and high-flying finance, fueled by a corrupt government, and that combination exploded the economy. If all this sounds sickeningly familiar, it should. We’re witnessing Round 2 of the Great Global Shakedown by the banks.

The Greeks got socked in WWII and then creamed again by a brutal civil war (1946–1949), in which American military aid to the Greek governmental army ensured the defeat of the Greek Communist Party.  After WWII, the Truman Doctrine and the Marshall Plan determined relations between the U.S. and Europe. The economic recovery of Germany—designed to benefit American multinationals like IBM, Ford and General Motors – was a high priority. (Watch a fascinating lecture by economist Joseph Halevi here.) Greece mattered to the U.S. as a strategic barrier against the USSR in the Cold War, so it decided to support Greece with economic and military aid, fearing that another communist domino would fall.

Meanwhile, a resurgent Greek Left began to demand fair labor practices and human rights. It was duly answered with brutal repression. Executions and exile were common. In 1967, the army, backed by the CIA, overthrew the government in a Cold War right-wing military coup. The new government, known as the Regime of the Colonels, engaged in stupid military adventures like a disastrous attempt to annex Cyprus, which led to its collapse in 1974. But the Greeks maintained a ridiculously oversized army and navy, underwritten by the U.S., to keep those Russians at bay. When the Cold War ended, the Russians were no longer a threat to the U.S., and, accordingly, financial support for Greece was drawn down.

Through the ’80s and most of the ’90s, the Greeks economy faltered, and the Greeks had to pay super-high interest rates when they borrowed money. The government, mired in bureaucracy, mismanaged things badly. Taxes were not collected. Bitter class conflicts emerged. Horribly high unemployment persisted.

But in 1992, something called the Maasticht Treaty brought hope, getting the ball rolling for the creation of the euro. Unfortunately, the idea of the euro was kind of a fairy tale promoted by European elites (minus the British). Some tried to sound warnings of an epic screwup. Wouldn’t the lack of a shared language, common culture, and big central government be a problem? Paul Krugman notes that European number crunchers who wanted the euro weren’t above fudging results to make the plan look good. The fairy dusters won, and in 1999, the euro became official. In 2000, Greece joined the game.

One fairy tale held that once countries adopted the euro, they wouldn’t default. They would limit their deficits. Every country would become like Germany, where debt was highly secure. Yay! Greek debt, Irish debt and Spanish debt began to trade as if they were super-safe German or French debt. Countries like Greece that had been considered dicey investment became overconfident. The European Central Bank would take care of inflation, they thought. And surely no one could go bankrupt. The Greeks, once forced to pay high interest rates (as high as 18 percent in 1994), could now borrow at low interest. The conservative Greek government went on a reckless borrowing spree and the banks went on a reckless lending spree. Big European banks were delighted to lend them money; more than a few also helped the Greeks hide evidence that all was not well.

Many of these big banks knew perfectly well as early as 2005 that the Greeks wouldn’t be able to pay the money back. But so what? Banks love a little thing called moral hazard – where you know your risky behavior is not going to be punished because somebody out there is going to pay for it. That’s what they counted on with Greece, and accordingly kept the rivers of money flowing.

The Greek government borrowed boatloads for the 2004 Olympics, which cost twice as much as projected. Magician-bankers at Goldman Sachs obligingly helped it disguise the debt — we’re talking billions — with clever little financial instruments called derivatives. The public hadn’t a clue what was going on. All the southern countries on the euro continued to borrow heavily, spend heavily, and for a while, they boomed until the boom as the financial markets collapsed in 2008.

God of the Winds

TSHTF in 2008. Everybody looked around and said, “Who the hell is going to pay off these debts?” The banks saw big money heading out the door. According to the bible of neoliberal economics, this can’t happen. Human beings and societies are one thing. But banks must be saved at all costs.

When the Greek government changed hands in October 2009, the books were opened and it became obvious that there was a much bigger deficit than anyone thought. Investors ran for the hills. Interest rates shot up. In November, just three months before the Greeks became the epicenter of the European economic crisis, the wizards of Wall Street were back on the scene in Athens, trying to peddle more deals that would allow debt to magically vanish. The New York Times summed up the banks’ role in the crisis:

“As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

“In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come…Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.”

With evil financial winds gaining hurricane force, it became clear that Greece would need a whole lot of money if the bankers were going to get paid back. They jumped on the austerity train to nowhere– chasing their tails by making draconian cuts, which only increased their deficits, and then having to ask the EU for more money. Public workers were fired to pay the banks. Pensions were slashed to pay the banks. But there still wasn’t enough money to pay the banks.

If you’re a country that has your own sovereign currency – like the U.S. – then you have some options in this situation. You can do monetary expansion to head off deflation, for example, and devalue your currency. But once Greece went on the euro, it say good-bye to such options. So it cut, and cut, and cut, and now it’s going bankrupt anyway. The country is mired in falling income, rising deficits, and sinks even further. It’s in the Herbert Hoover death spiral.

Meanwhile, members of the EU are flipping out. Contributions to the bailout agreed to in July are supposed to be proportional to a country’s economic status, and thus the Germans have the biggest chunk to fork over. They are not keen on the notion of doing so in order for the Greek and French banks to get paid. Hey, they’re thinking, wouldn’t it be cheaper to recapitalize our own banks directly? The French are really flipping out, because after the Greek banks, their banks are holding the biggest hordes of Greek debt. They’re worried about their credit ratings. The bailout decision has been postponed until mid-November so everybody can fight it out.

With the major banks holding all of these Greek derivatives, is it any wonder that BoA and JPMC are now trying to foist these toxic assets onto the American Taxpayers by transferring these assets into their banking arms so the loses would be covered under the FDIC!

No matter how this turns out, two facts will remain unchanged.  First, Greek debt will be the start of the whole house of cards collapsing, that was the EU and the Euro.  Secondly, Greeks will pay the price of cozying up to greedy bankers for decades.

The Fox is in the Henhouse Again, and We are not Watching!

We watched as the banks were bailed out after ripping off nearly $5 trillion dollars of America’s wealth.  We are on the hook for their loses.  They were too big to fail, we were told.  It would be a disaster for the world’s economy.  The same story was then foisted on our European brothers, and again with the same “chicken little” reasoning.

Well, here we are 3 years later and the economy is still in the dumpster and we have not done one thing to correct the major problem of banks being investment firms ponied up to the roulette table wildly playing with OUR money unchecked.  Now the drunken bankers are at it again.  I have written many articles concerning this crazy derivatives market that is the banker’s hedge for the downside of this slow motion crash of the world’s economy.

This WAS one market that the bankers were exposed and WE were not on the hook for bailouts.  Well, that was until last week.  No ONE is MSM National media is even reporting this.  If you aren’t mad as hell when you read this, you are certifiably in a COMA.

Source: Washington’s Blog

Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers.

Yves Smith notes:

If you have any doubt that Bank of America is going down, this development should settle it …. Both [professor of economics and law, and former head S&L prosecutor] Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.

And remember, as we have indicated, there are some “derivatives” that should be eliminated, period. We’ve written repeatedly about credit default swaps, which have virtually no legitimate economic uses (no one was complaining about the illiquidity of corporate bonds prior to the introduction of CDS; this was not a perceived need among investors). They are an inherently defective product, since there is no way to margin adequately for “jump to default” risk and have the product be viable economically. CDS are systematically underpriced insurance, with insurers guaranteed to go bust periodically, as AIG and the monolines demonstrated. [Background.]

The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.

This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. [Background.] So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

The FDIC is understandably ripshit. Again from Bloomberg:

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Well OF COURSE BofA is gonna try to take the position this is kosher, but the FDIC can and must reject this brazen move. But this is a bit of a fait accompli,and I have NO doubt BofA and the craven, corrupt Fed will argue that moving the derivatives back will upset the markets. Well too bad, maybe it’s time banks learn they can no longer run roughshod over regulators. And if BofA is at that much risk that it can’t survive undoing this brazen move, that would seem to be prima facie evidence that a Dodd Frank resolution is in order.

Bill Black said that the Bloomberg editors toned down his remarks considerably. He said, “Any competent regulator would respond: “No, Hell NO!” It’s time that the public also say no, and loudly, to this new scheme to loot taxpayers and save a criminally destructive bank.

Professor Black provided a “bottom line” summary in a separate email:

1.The bank holding company (BAC) is moving troubled assets held by an entity not insured by the public (Merrill Lynch)  to the Bank of America, which is insured by the public
2. The banking rules are designed to prevent that because they are designed to protect the FDIC insurance fund (which the Treasury guarantees)
3. Any marginally competent regulator would say “No, Hell NO!”
4. The Fed, reportedly, is saying “Sure, no worries” by allowing the sale of an affiliate’s troubled assets to B of A
5. This is a really good “natural experiment” that allows us to test whether the Fed is protects the public or the uninsured and systemically dangerous institutions (the bank holding companies (BHCs))
6. We are all shocked, shocked [sarcasm] that Bernanke responded to the experiment by choosing to protect the BHC at the expense of the public.

Karl Denninger writes:

So let’s see what we have here.

Bank customer initiates a swap position with Bank.  In doing so they intentionally accept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid.  Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the “guarantor” of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Stand Up to the Coup

Bank of America has repeatedly become insolvent due to fraud and risky bets, and repeatedly been bailed out by the government and American people. The government and banks are engineering an age of permanent bailouts for this insolvent, criminal bank (and the other too big to fails).  Remember, this is the same bank that is refusing to let people close their accounts.

This is yet another joint effort by Washington and Wall Street to screw the American people, and to trample on the rule of law.

The American people will be stuck in nightmare of a never-ending depression (yes, we are currently in a depression) and fascism (or socialism, if you prefer that term) unless we stand up to the overly-powerful Fed and the too big to fail banks.

This story from Bloomberg just hit the wires this week. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

First folks, we are talking over $150 Trillion of exposure.  That is 10 times our GDP!  Would you give me 100% of your income for the next ten years because I need it to make up my gambling loses!  What would you say to me?  You know, the OWS call for a BANK TRANSFER DAY in early November is getting to be a really significant idea.  If the banks refuse to act in a responsible manner and the FED is refusing to discipline its children, then we have to just take their “toys” (our money) away from the bankers.  It is time for “time out” for our out of control children.  Check out your local credit unions, they are real functioning banking organizations owned and controlled by their depositors and members.  Congress will never vote our interest, so we have to vote with our bucks.