Two fronts of your most crucial war

The two fronts of your most crucial war

By Don Hank

We Americans are at war and although we are often bombarded with the idea that our enemy is politicians, the real enemy is ignorance. Thus, each of us must wage this war with all our heart and soul on two fronts. On one front, the target is each other. In the other, it is ourselves. For example, in the case of Don Hank, the targets are:

1—my own ignorance (including biases that interfere with my own objectivity).

2—my neighbors’ ignorance (including biases that interfere with their objectivity).

Each front is equally important. I can’t fight the war on my readers’ ignorance unless I can come to grips with my own ignorance. So my foremost and biggest job is to defeat my own ignorance.

But why does the war on ignorance matter?

Because America – and the rest of the world – cannot get out of this economic and political crisis without knowledge. By that I mean, the conviction that the “economists” and the politicians they control, who got us into this mess, cannot — and don’t want to — get us out of it.

If America had done its homework, combating its own ignorance and ideological prejudices, not one of the scoundrels like Barney Frank who engineered the housing crisis would ever have been elected in the first place.

America cannot regain a degree of freedom by ignoring readable, layperson-accessible analyses by those who have done their homework and know how the crisis started and why, and who in Washington and Wall Street was responsible.

Readers who are still confused about the how, who and why of our life-threatening economic crisis need to catch up quickly before it is too late. The wolf is at the door and we can’t afford to get it wrong again.

As evidenced by their support for bailouts, both Bush and Obama subscribe to Keynesianism to some extent, and America is going broke as a result. Therefore, just voting Republican cannot save us. There are Republicans who get it, but probably just as many who don’t, or worse, will not vote their principles.

I have an acquaintance who teaches economics and believes – or rather believed — in Keynesian economics, or essentially what Reagan called voodoo economics. The cult’s founder John Maynard Keynes once famously said that if the government hired workers to dig a ditch and fill it back up, that would stimulate the economy. That’s how smart he was, and that is how smart Obama is, whom Rush has correctly identified as a “moron, economically” (true, Obama intends to bring down America, but the unemployment rate is too high to cover up or frame as a Bush hangover and that is causing people to trust Republicans more in economic affairs. Obama truly believes that spending more of your money will help. He had not immediately spent that TARP money, hoping to invest it around election time. But the voodoo is not working).

My economist acquaintance would usually try to rebut articles written by conservative / classic liberal economists and published at Laigle’s Forum. One of her main arguments was that the issues were too complex for normal people to grasp, that she had worked for years as a market broker and was an insider so she just knew things that mortals like me could not. In other words, she proffered the same sleight of hand, devoid of clarifying details, resorted to by Bernanke and his cronies in their plea for bailout money. But I always had a counter-rebuttal that she could not respond to, because no amount of insider savoir-faire is a fair substitute for common sense and facts. She no longer rebuts, so she may have gotten awake. After all, the current situation can certainly wake up the most Keynesian among us.

The Keynesians look back at FDR, a Keynesian president, and claim he “got us out of the depression.” In fact, an analysis by UCLA economists Harold L. Cole and Lee E. Ohanian, replete with painstakingly gathered data, shows that FDR’s policies prolonged the depression by 7-8 years. Many other economists agree. The fact that there is still any debate over this at all is a tribute to the hard work of academics who worship FDR as an economic shaman and roundly reject common sense.

So how can America get up to speed on a crisis that threatens our very existence, our money and our jobs?

You need to read sound analyses. It’s hard work, but you’re an American and you know that hard work is why we are great.

I haven’t seen better readable analyses of our economic crisis than the ones by Steph Jasky of FedUpUSA. Steph is one of the few bloggers who do their homework and know whereof they write and speak. Like me, she and her family were personally affected by the housing crash and wanted to know the identity of the monster that ate their investment. After arduous research, she succeeded in identifying that many-headed shape-shifting monster and is still working hard to inform you and me about its ongoing misdeeds.

I strongly recommend you subscribe to Steph’s newsletter and scan her site. Here is the latest column you can’t afford to miss:

http://fedupusa.org/2010/10/05/just-trash-the-dollar-and-its-all-good/

Just trash the dollar and it’s good (this column is full of charts compiled by Wall Street itself)

Chart is the SPX, white line is the dollar by comparison.  That’s where the ramp the last month has come from.  That’s an OVERT currency devaluation – 7%.

And what’s the SPX change?  About 10%.

Oil?  Oh, it’s up 17%.  Hope you like much more expensive gas and…. this winter…. heating oil.

Read more.

Other sites can also be helpful, even some of the ones trying to sell you their services and products. Because they can only sell if they can demonstrate to you, through cogent arguments and analysis, that they know a lot about the economy and keep abreast of economic affairs.

One such site is Taipan Publishing Group, which features, for example, the following vital and informative piece:

http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-100610.html

Massive foreclosure errors will collapse the housing market (again)

The worst excesses of the housing market bubble and bust are coming back to haunt us. Now is the time to prepare for another home price collapse, with fresh rounds of “quantitative easing” sure to follow.

It would be hilarious were it not so tragic. Come to think of it, it’s hilarious anyway. The country has not yet paid for the idiotic shenanigans of the late great housing market bubble. The latest debacle virtually ensures that the U.S. housing market will collapse.

“Wait a minute,” you may ask. “Hasn’t the housing market ALREADY collapsed?”

Well, yes. But the collapse isn’t over yet. There is another implosion coming – a crushing leg down that will pulverize all hopes of recovery into talcum powder. And another tidal wave of public outrage will likely come with it… all thanks to our wonderful friends in Washington and on Wall Street.

I wish I were exaggerating here, but I’m not. We have flat-out Disaster coming with a capital “D.” Follow along and you’ll understand why.

To first set the stage, let’s briefly cycle back in time to the glory days of the housing bubble…

Read more.

Friends, the information America needs to pull out of this economic crisis – caused by dangerous politicians from both sides of the aisle that you never should have voted for – is all available for free (although I do recommend you push the Donate button at FedUpUSA if you can afford to).

Need I say more?

Further reading on the economic crisis:

http://laiglesforum.com/subprime-crisis-the-overal-picture/346.htm

http://laiglesforum.com/a-modern-day-lafayette-rallies-the-troops/343.htm

http://laiglesforum.com/french-mainstream-press-confirms-our-assessment-of-the-financial-crisis/339.htm

http://laiglesforum.com/global-elite-mum-on-economic-analysis-in-europe-us/1862.htm

One nation under material

One nation under material

By Donald Hank

Whenever I meet someone who identifies himself as a “liberal” or left-winger, I immediately ask them, “What caused the banks to crash?” The invariable answer: “lack of regulation.” When I ask them to elaborate, they say, parroting Tim Geithner, that the problem is “very complex,” implying “you aren’t smart enough to understand.”

The ultimate implication is that free market principles killed the banks.

But the free market has an alibi. It left the country years ago.

Some say free market capitalism started to decline with the creation of the Fed and income tax in 1913. Others trace the decline to the 30s and FDR’s Keynesian policies.

At any rate, the Western economy has long been an unsavory mixture of government and business, which some call corporatism and others call fascism. Indeed, it is essentially the economic system introduced by Mussolini, with the difference that Mussolini did not use it to harm banks or businesses.

Read more.

Bankers in lockstep across the globe — coincidence?

Extrapolate the details in the following article by David Noakes to the bank crisis in the US and you get a plausible explanation for a disaster whose causes so far have not been explained or even investigated.

The author blames deregulation, although that was a secondary cause in the US. In the American media, deregulation is often blamed as well but without even a hint at the supposed mechanisms by which a “lack of regulation” might have operated to bring down the banks, and particularly how this would have happened simultaneously all over the globe. Indeed keen observers outside the elitist system have pointed out plausible causes and plausible mechanisms for our banks’ failures, such as the CRA and Fanny-Freddy and the complete lack of documentation and lack of down payments required by those semi-government Democrat-managed entities for mortgage lending. Laigle’s Forum is one of the few sites that has even attempted to tackle this issue in some depth. We find that rather than just simple deregulation or lack of regulation, it was in fact over-regulation that wrought the havoc. Specifically, Clinton had strengthened the CRA, requiring banks to make $1 trillion in loans to “underserved communities.” The only way to accomplish this was to force them into requiring no documentation of income and no down payment, absolutely suicidal policies. Bush, put up a meek fight, then went right along, urging a Zero Downpayment Initiative at his HUD web site in 2005.

But I have published the following article to show the striking similarity between the behavior of bankers on both our continents.

Knowing the extent of corruption among money managers, the below-described situation in the UK does not seem so far fetched a scenario for this country either.

Is there a clue in here for us? Note that managers of failed institutions here also got bonuses and exorbitant salaries, and none left in shame. No shame was shown on either side of the Atlantic and no one has apologized for bringing down Western finance and threatening the financial security of every citizen of dozens of countries. No accountability was demanded by government. And indeed, a dissident British banker was murdered for protesting the bad policies in place there (see below).

Compare this with the strong arm tactics used in the US when some banks wanted to refuse the bailout money. Wasn’t it really hush money?

Is it really plausible that the bizarre behavior witnessed in US banks would have mirrored the behavior of bankers on the other side of the Atlantic just by accident? How about the bailouts? They happened in concert all over Europe as well, over the protests of the citizenry, especially in Britain. Here, 90% of all calls to the US Congress urged lawmakers to vote against the bailout.

One thing is certain: International elitists in government and finance do not operate independently of each other, they are basically all in agreement, they use their willing media lackeys to overcome the public’s mistrust, and public mistrust of them is at an all-time high everywhere. There is no debate over the “wisdom” of the bailouts, no hint that the payments would be accompanied by any change in policy or regulations. And this despite the whispered accusation that bank failures were due to under-regulation – an accusation that catapulted ultra-elite, ultra-Left, ultra-incompetent Obama to power. Why wouldn’t bailout payments under Obama be predicated then on the passage of new regulations and strict compliance therewith?

Clearly, the public is being led around by their noses by an international group of cynical idealists and elitists who think we are all stupid.

It is a miracle that we have not yet seen massive protests.

But then, our bellies are still full.

Just wait…

Donald Hank

 

Did directors deliberately destroy their own banks?

By David Noakes

The Royal Bank of Scotland (RBS) went from assets of plus £88 billion in 1999 to estimated liabilities of minus £1.3 trillion in 2009 – equal to a year’s income (GDP) for the whole of Great Britain. If Directors with mental disabilities had been appointed, they might have reduced the bank’s value by half. But to utterly destroy it on so stupendous a scale took real knowledge and determination.

It seems clear the wholesale mismanagement and corruption of banks by their directors was not unbelievable incompetence, but criminal. The government huffs and puffs at bonuses and pensions paid as a reward for failure, but then in every case it lets those corrupt payments, totaling billions of pounds, stand without passing legislation to confiscate.

It looks as though these huge bonuses and pensions were intentionally paid to compensate directors precisely for destroying their own banks, and for a job well done.

HSBC quietly possesses an ethical, Christian board. They are well managed, profitable, and took no part in creating this crisis. Standard Chartered Bank’s profits actually went up, even in 2008/9.

But take the case of Abbey National. In July 2004 their risk management officer, Richard Chang, was objecting that the run down of the bank by directors was deliberate (it resulted in the Bank’s ownership being transferred to a European Bank, Santander.)  The HBOS whistleblower alleged the same.

Anonymous documents then arrived at the board with similar suggestions, with additional evidence of sexual impropriety among Directors. Richard denied he had sent them, but was called in for a two and a half hour interrogation by the directors at the hands of Kroll corporate security, during which he was bullied and threatened, and at the end he was found dead five floors below at the bottom of the internal Atrium in Abbey’s London head office in Euston.

The courts, CPS, coroner, FSA, directors and police have closed ranks to prevent a criminal prosecution or investigation. These services all have large numbers of freemasons in their senior structures.

High ranking Freemasonry runs right through this banking crisis. All the failed banks, Northern Rock, Abbey, RBS, Halifax Bank of Scotland (HBOS) had Freemasonry controlling their boards. Gordon Brown is a 33rd degree Scottish Rite Freemason, as was Tony Blair; there are 400,000 of them in Britain.

Brown’s job seems to be to take advantage of the destruction of the banks, by pouring far too much of our economy into those ready made back holes, which will destroy the Pound Sterling.

The crisis was caused by the USA and EU governments deregulating banks in 1999. Massive, self collapsing bubbles predictably formed in every market including housing, stocks, and derivatives. It is deregulation that enabled corrupt boards to wreck their own banks. They now have estimated liabilities of £7.2 trillion or £250,000 per household; they should now go bust; Britain cannot afford to save them.

Freemasonry and Common Purpose are the European Unions’ foot soldiers on the ground in Britain. They know the EU dictatorship cannot be built while there is a strong Britain on the doorstep; we stopped them twice before in 1918 and 1945, and Britain has to be destroyed if the dictatorship is to succeed.

These British traitors get their massive payoffs for handing Britain to the EU on a plate, poverty stricken and stripped of democratic defences.

Many of those won’t realise that the initial deflation of the recession they worked so hard to create will, with the trillions Brown is borrowing for the banks, turn into hyper inflation with super high interest rates, and in two years they could be starving with the rest of us, their gravy trains and bribe money useless, their houses repossessed, as ours will be.

If you wish to avoid this ghastly future, you need to do your part now in talking to people about a General Strike against the EU, our government, Law Lords, and all the senior officials who are so deliberately sabotaging our nation.                                                                 David Noakes. eutruth.org.uk. 07974 437 097

The most confused man on the planet

Bailout based on phony “crisis”

Commentary by Donald Hank

I had reported before the first bailout vote that I had called my own bank and asked if I could still get a home-equity loan in the amount of about $50,000.

The loan officer, with just a glance at my records, was able to ok that.

I asked him why they were able to do this at a time when everyone was talking about a credit crunch. He said it was because this bank (PNC) had always been careful whom it gave loans to.

Now an independent analysis shows the whole “crisis” may have been manufactured — or at least blown way out of proportion — by government. Whatever the case may be, it resulted in the election of Barack Obama, whom a majority of voters said they “trusted” to restore the economy — even though it was clear his own party had contributed mightily to the weakening of banks.

Now, the international research and consulting firm Celent, has presented an analysis suggesting the whole “crisis” is bogus.  Independent analyst Cliff Kincaid reports:

“Using charts and graphs of data from the Federal Reserve and other agencies, the Celent study says that statements from Paulson and Bernanke about a “credit crisis” affecting businesses, real estate, banks, and state and local governments were just not true.”

 

Madoff gave huge support to the Left

What a surprise.

While the Left constantly accuses conservative capitalists of being greedy, the world’s biggest rip-off artist of all time (aside from the Social Security Administration) has given almost a third of a million to far-left political candidates and the abortion industry, displaying a clear-cut sympathy for the Left and their vision for America.

America has seen a veritable parade of leftists (both RINOs and Democrats) committing crimes (Blagojevich is only the latest example) but so far shows not a glimmer of understanding that Leftism goes hand in hand with deviant, anti-social behavior, blithely voting for the Left and even believing – on Lord knows what basis – that the Left has the answer to our economic woes.

Read about it here.

 

GW Bush’s “Christian” globalism-socialism gobbledygook

George W. Bush could well be the most confused man on the planet. He calls himself a conservative but never saw a socialist give-away program he didn’t like. Unlike other conservatives, he seems to see the Constitution as more of an obstacle than a boon to his vision for America. He clearly opposes sovereignty for the US and has taken us to the brink of an EU type supranational government, greatly facilitating Obama’s job.

Speaking of the bailouts, President Bush has said that he must go against his free-market principles to save the free market. Even after the banking crisis broke, his HUD web site called for a “Zero Down Payment Initiative” that would have forced banks to require no down payment for loans.

It is becoming abundantly clear that, at the rate government is jettisoning principles, we will soon have no free market left. The government now owns a significant share of banking interests and is greedily eyeing our auto industry. You the taxpayer are a silent – or rather muzzled – shareholder.

Many can’t decide if Bush is a socialist or if he is really naïve. But if he is really that naïve, then he possibly belongs in the Guinness Book of World Records!

Personally, having heard Bush speak, I believe he has a grossly distorted idea of Christianity and thinks that the US government must be kind to the enemies of our people (all but the man who threatened his father), treating them as we would ourselves but treating ourselves like slaves and letting our enemies abuse us. Mainstream “Christianity,” which is little more than a tool of the Left, teaches that nationalism is an evil. This teaching fits nicely with Bush’s notions of globalism (which he inherited from his father), melded with his naïve and distorted “Christian” socialism (a misinterpretation of Biblical precepts concerning the poor), his open-border, pro-amnesty policies and his receptiveness to supranational government. His fairly plain Christian views on abortion and family make him palatable to the Christian “right,” which has no understanding of the Left and their intentions. This group, which talks suspiciously like the “Christian” Left, has shown a dangerous willingness to coexist with socialism and global governance that is, as we speak, resulting in their own irrelevance in world politics.

If my theory is correct, Bush has zero understanding of the Left, which laughs at people like him.

But his policies are no laughing matter.

The socialist State: a hotbed of capitalism

The socialist State, a hotbed of capitalism

by Donald Hank

Gerald Celente has chalked up a formidable list of correct forecasts, having predicted all the major market downs for years. He is now predicting an unprecedented economic collapse within the first Obama term.

He is also predicting an imminent tax revolt.

Now perhaps we need to step back and look at the positive side of a down economy:

Nothing less than total collapse will stop people like Barney Frank, one of the chief culprits in the bank crisis, who accused the critics of Fanny Mae and Freddie Mac’s Democrat policies of alarmism. But now that these GSEs have collapsed and gone into receivership, he and his cohorts, like Chris Dodd, still sound morally superior to those who favor the free market. Clearly, those who brought us the crash, as well as voters who bought the myth that conservative policies caused it, need an overdose of reality to back them up against the wall. Democrats and RINOs can lie all they want, but who will restore their portfolios? About $6 trillion has been lost so far.

Celente says the reality overdose is on the way, and here is why I believe him.

We now face a Soviet style state that is taking over ownership of business.

To see how this will end we need only look backward — at the Soviet Union.

Go to WorldNetDaily Exclusive Commentary for more

How the Democrats crashed the banks

How the Democrats crashed the banks. Part I

 

By Ken Brinzer

 
Those who buy into the so politically-convenient disinformation that blames Wall Street greed for our economic woes are likely to overlook the real culprits in the economic plunge story that has taken place from Wall Street to Main Street, coast to coast, and far beyond.  That’s because the real culprits are in the United States Congress, not on Wall Street.  And to be sure, it may be a matter of greed, but it would be of political greed and or myopia.
For example, take a look at the devolution in the Freddie Fannie debacle.  It all began with a reasonable idea that was enacted into law under President Carter in 1977.  Known as the Community Reinvestment Act (CRA), it caused little harm and surely did some good, until it was morphed into something quite different, quite insidious and pernicious during the Clinton years.
In 1995 under the version of the act revised by the Clinton administration, lenders were told that proof of income, source of down payment and credit history of a loan applicant would no longer be required as qualifying criteria.  In addition to this revision of the CRA, the lending community was threatened by Clinton’s Attorney General Janet Reno, who promised to prosecute to the full extent of the law those who violated the 1995 lowered standards for lending.  The die had been cast under Clinton and the situation was such a mess that in 1999, then Clinton Treasury Secretary Lawrence Summers warned that reform of Freddie and Fannie was essential.  His warnings fell on the deaf ears of those at Fannie and Freddie and over in congress who should have pushed for reform following Secretary Summers’ call for it, but instead promulgated the expansion of their powers.
Then during the Bush years, there were 18 further calls for congress to reform Freddie and Fannie and all were ignored.   Most notable among those who issued calls for reform of Freddie and Fannie during the Bush years were Treasury Secretary Snow, then Fed Chairman Alan Greenspan, and even President Bush himself.  All calls for reform were ignored or blocked by those members of congress who had their own agenda and did not hesitate to belittle and demagogue against these legitimate calls for reform.  One such belittlement came from the mouth of Representative Barney Frank who characterized the calls for reform as “inane”; but they weren’t, they were really needed and that became obvious when information surfaced that 5 million home loans had been made to illegal aliens alone, many without income or asset verifications, and all without citizenship papers.
Clearly those in congress had a responsibility to reform the financial nonsense that became public policy under Clinton and went unreformed throughout the Bush years despite abundant calls for reform from both inside and outside of the executive branch.

(to be continued)

Ken Brinzer is 62 years old, and lives with his wife, a high school chemistry teacher, in Penn Hills, PA. The Brinzers have been married 34 years and have 3 adult children.  He is a financial services professional, licensed both as a life insurance agent and a registered representative series 6. He holds a BA degree in Spanish from Rutgers (1968).  He served in the USAF for 4 years 1968-1972 and attained the rank of captain.  He is a practicing Catholic, reads at church, and loves God, Family, and Country and the splendor of truth.

http://mises.org/story/2451

Making Kids Worthless: Social Security’s Contribution to the Fertility Crisis

Daily Article by Oskari Juurikkala | Posted on 1/24/2007

“Kinder haben die Leute immer – People will always have children,” assured Konrad Adenauer, the German Chancellor, in 1957. He was convinced that the future of the brave new pay-as-you-go social security system would not be undermined by demographic changes.

Adenauer was as wrong as ever. Social security schemes around the developed world are facing a major crisis due to greater longevity, declining retirement ages and – lo and behold – below-replacement fertility rates.

What the good statesman did not realize is how the new system would affect the incentives of individuals to work, to save, and to have children. Labor force participation rates among older workers have declined dramatically since the 1960s throughout the Western world. The rules of social security benefits in most countries mean that working just does not pay off. In this way, pay-as-you-go social security schemes contribute to their own bankruptcy.[1]  

Read more here.

Laigle’s Forum featured on Christian Newswire:

http://www.christiannewswire.com/news/405798484.html

Subprime crisis: the overall picture

Subprime crisis : the overall picture


By Vincent Benard

 

In many aspects, the current financial meltdown that brought many banks and insurers to insolvency may be compared to the nuclear meltdown that affected the Chernobyl power plant. And whatever Big Government pundits may tell us endlessly – without real in-depth arguments – inappropriate state intrusions in the economy are as much responsible for the financial crisis as poor state management of nuclear facilities by USSR was for the Chernobyl disaster.

If the mechanisms of the so-called “Chinese syndrome” can be described as a process of ignition, amplification, and then propagation of atomic reactions, likewise, the current crisis is a story of state interventions in the economy, that ignited, amplified, and then propagated the meltdown from its original core to the whole financial system.

Ignition

The main factor that ignited the current crisis is how politicians forced two state regulated enterprises, Fanny Mae and Freddie Mac, to refinance a growing part of unsecured loans to low and very low income families. In exchange, Fannie and Freddie were exempted from some accounting requirements generally expected from ordinary firms, allowing them to leverage too much credit compared to their equity, by an extensive use of off balance “special purpose vehicles.” All these operations were made under an implicit taxpayer provided safety net, as the statutory rules of the department of Housing and Urban Development made possible the nationalization of Fannie and Freddie in the case of bankruptcy.

These government provisions, coupled with a law mandating banks to find ways to originate loans to some high risk-profiled borrowers (the much discussed and controversial Community Reinvestment Act), reversed the usual prudential rules governing company CEOs: first, don’t fail, and then, make a profit. Due to their government backing, Fannie and Freddie only had to expand their volume of business, without too much consideration of the underlying risks. The purchase of so many bad loans by two state-backed giants encouraged reckless lending by banks and mortgage brokers to many risk-unaware families.

This behavior was greatly helped by Alan Greenspan’s decisions to lower and maintain very low interest rates in the early 2000s without consideration of the obvious asset bubble that was emerging in the housing sector. When credit is too cheap, borrowers tend to be less careful in their investments.

Amplification

But these facts do not explain by themselves how big the housing bubble has become. The average Joe, in the mortgage broker’s office, was not as unsophisticated as generally described. He could lose his common sense and succumb to easy credit only because the brokers could show him impressive Case-Schiller index curves, which seemed to show that any housing investment could gain more and more value every year, making the purchaser richer even while he was sleeping. Without this apparent housing inflation, many people wouldn’t have jumped so recklessly onto the easy credit bandwagon.

But this housing inflation did not occur everywhere in the country. Some of the most dynamic metro areas, in terms of population growth, haven’t experienced any housing bubble. Recent Nobel Prize Paul Krugman, supported by several research papers, notably from academics like Ed Glaeser or Wendell Cox, explained it by land use regulations: when these regulations are flexible and tend to be respectful of the property rights of the land owner, housing bubbles cannot even get started. But when regulations allow the existing real estate owners to prevent farmland holders to build the houses required to satisfy all housing needs, housing prices start skyrocketing.

Housing mortgage debt owed by families grew from 4.8 to 10.5 trillion USD (from early 2000 to late 2007. But had every city in the USA had the same flexible land use regulations that they had in the fifties, and that still exist in fast growing areas like Houston or Atlanta, this exposure to risk would have been much lower, by 3 to 4 trillion. More borrowers would have qualified for the prime credit market and its less risky loans, since the lower price of the purchased homes would have resulted in better credit ratings. So, despite the bad lending practices mentioned above, the risk of a general collapse of the credit market would have been nearly equal to zero.

Propagation

At this point, we just explained the roots of a mortgage crisis. What is still missing is the way it has spread throughout the financial system. Once again, bad laws are to blame.

First, this crisis shows how risky the bank’s business model, grounded on low equity and very high leveraging ratios, has become unsound in these time of high volatility of some assets. Some will blame banks for this, but you should be aware that before the creation of the FED in 1913, most banks’ business models were based on equity levels over 60%: the shift from a high equity to a low equity model comes first from tax policies which have, in nearly every country of the world, severely taxed capital gains, but encouraged debt by deducting the interest payment from the corporate tax base. The second reason is that central banks, as “last recourse lenders,” usually with a state’s warranty, have themselves favored this shift to a highly leveraged model: borrowing  money was de facto a cheaper resource than raising capital to finance operations.

But of course, this doesn’t explain how a 10% default risk on a credit niche market (the subprimes), totaling less than 10% of the total housing debt (12 trillion at the end of 2007), itself less than one fifth of the total assets being exchanged on American financial markets, generated such turmoil.

The culprits must be sought within a set of rules named “Basel II,” and their declinations in local laws in most countries, aimed at regulating the activities of banks or insurance companies. In some cases, poorly designed accounting rules may have contributed, too.

Basel II rules — and the like — mandate banks and insurers to hold a diversified portfolio of assets aimed at providing them the liquidities they need to face hard times: for a bank, a major loss of customers; for insurers, a series of major disasters. These rules were supposed to “protect” investors from reckless diversification policies. So institutional investors were mandated to own only high quality bonds, or to value some kinds of assets, like stocks, with a weighting that de facto prevented their securities from handling such assets directly.  

But banks and insurers needed the yields of “lower quality” bonds, or even stocks, to remain attractive to private investors. Otherwise they wouldn’t have been able to beat the performance of state labeled bonds, and thus wouldn’t bring any added value to their customers, forcing them out of the market.

So the late 80’s and the 90’s saw the onset of a huge market of “derivatives,” all based on the following principle: lower quality assets (like subprime based securities bonds) are put together in another security, which itself sells new bonds sliced into several “tranches.” The first slice, the “z-tranch,” is a very risky one, which is aimed at bringing a higher yield to unregulated investors as hedge funds but must absorb primarily the first percentages of any losses of the security. Other tranches bear a lower risk but serve a lower yield. The “cushion effect” of the high risk tranch allows the lower tranch bonds to receive an AAA rating from rating agencies, particularly if they are covered against credit default by a special derivative called a “credit default swap,” allowing lender and borrowers to reinsure themselves against defaults on their bonds. And there can be other “derivatives of derivatives” involved in these designs. In many cases, institutions issuing AAA tranches guaranteed the payment of the corresponding bonds.

So the current situation is that many institutional investors do not hold many real stocks or bonds in their portfolios. They mostly hold a majority of derivatives.

But all this incredibly complex financial engineering not only is extremely costly, but has one perverse effect: while reducing the probability of AAA tranches to default, it actually makes the amount of the risk higher in the event that losses are high enough to impact the AAA tranches. And all these complex designs of derivatives make it increasingly difficult to understand where the risks are located in complex securities mixing prime mortgages, subprime mortgages, and other kinds of credits. So when an AAA tranch is impacted by higher than forecast losses, nobody really knows what is the resulting worth of the best tranch if it has to be sold. Is it 95% of the nominal? 60%? Nobody seems able to value these bonds reliably.

So when the mortgage debtors began to be insolvent in a higher proportion than usual, the losses on subprimes derivatives began to exceed the “cushion” effect of Z-tranches. AAA bonds were impacted. Some holders of these bonds, forced to sell off in panic in order to get cash, couldn’t find purchasers, except some highly speculative funds that toughly negotiated the price.

But then, because of inflexible accounting laws, all institutions holding the same kind of toxic assets had to write down the values of these assets in their balance sheets, even if their treasury level didn’t force them to proceed to a fire sale of these assets. So they might have been declared virtually insolvent even if actually they were not. This affected their ability to borrow on short term liquidities markets, and thus led some of them ultimately to file for bankruptcy.

If no regulatory limitations had been placed on the assets that banks and insurers could hold, it is likely that they would not have found the use of exotic derivatives so attractive, and that early difficulties in subprime credits would have resulted in clear signals prompting securities managers to recompose their portfolios. Some investors’ failures could have occurred earlier, but would not have reached such proportions. 

Big Government is the culprit

So, at the root of every mechanism identified as a catalyst of the current crisis, we can find a bad federal or local regulation.

Does this mean that private institutions have no moral and technical responsibility in the current mess? Certainly not. They’ve deliberately chosen to take advantage of these poisonous regulations instead of fighting them, even though some of the underlying risks were clearly identified. Many of them ifnored warnings issued by economists like Nouriel Roubini, or atypical politicians like Ron Paul, and preferred to listen to reassuring assessments of the soundness of the system written by star economists like Joseph Stiglitz. People don’t like dream breakers.

Competition to overturn bad regulations doesn’t exonerate financial private institutions from having failed to do so properly. Whatever conditions are created by the states, firms must act wisely. Many of them obviously did not. But in the ranking of responsibilities, states’ inaccurate and inordinate regulations obviously rank highest. Had its diverse regulations and interventions focused on principles (honesty in contracts, no concealment of malpractice, full disclosure of operations, respect of property rights) and court litigation; had they let private individuals or enterprises decide what was good for them without trying to curb their behaviors in particular directions, none of the elements that allowed this crisis would have been in place.

Government’s economic interventions in human interactions once again have proved counterproductive and finally wrought havoc. This should make people very careful about government claims that new interventions are necessary to solve the crisis and avoid the next one!

 

Vincent BENARD is the president of the Hayek Institute, a French speaking think tank based in France and Belgium – www.fahayek.org . The institute has published several tribunes advocating the free-market point of view on the current crisis. His personal blog is www.objectifliberte.fr

So you want to be a useful idiot

Olavo de Carvalho explains, in the column below, the psychological and sociological mechanisms by which people become pawns in the hands of leftwing political activists, who use them to get their man elected and keep him in power.

Donald Hank

 

Quick lesson in sociology

By Olavo de Carvalho

Emile Durkheim, the founder of sociology, taught that there is a limit to the quota of abnormality which the collective mind is capable of perceiving. This can be given two interpretations, either simultaneously or alternatively:

I — when standards fall below the limit, society automatically adjusts its focus of perception to consider as normal what once appeared abnormal, to accept as normal, commonplace and desirable, what was once feared as weird and scandalous.

II — when the abnormality is excessive, surpassing the limits of the acceptable quota, it tends to pass unperceived or simply to be denied. The intolerable becomes nonexistent.

While it hardly corresponds to measurable quantities, the “Durkheim constant,” as it is usually called, has been found to be an effective analytical tool, particularly at times of historical acceleration, when various changes in standards occur and are put in place within a single generation and can be seen, so to speak, with one’s own eyes.

Daniel Patrick Moynihan, Robert Bork and Charles Krauthammer used this constant intelligently to explain the dizzying changes in American morality since the 60s. Bork wrote in 1996: “it is highly unlikely that a vigorous economy can be sustained by a weakened hedonistic environment of culture, particularly when this culture distorts incentives, rejecting personal achievement as a criterion for the distribution of rewards.” Twelve years later, the idea that bank loans are not a bargain between responsible parties but rather an indiscriminate universal right guaranteed by the government and by pressure from activist NGOs, has done its dirty work. The fact that the creators of the problem do not feel the least bit responsible for it, preferring to cast the blame precisely on those who did everything to avoid it, illustrates the fall of moral standards that I see accompanying the fall of lending standards.

However, the most interesting thing about this is not the application of the principle for the purposes of explanation but rather its practical use as a political weapon. For over a century, all movements interested in imposing sociocultural modifications against the preferences of the majority have avoided direct confrontation with public opinion. They have tried to deceive it by clever use of the “Durkheim constant,” which every revolutionary activist worth his salt knows by heart.

According to Interpretation I, the principle is applied by means of mild continuous pressure, carefully, slowly, gradually lowering the standards, first in the popular imagination by means of the arts and show business, then in the realm of ideas and educational values, followed by the field of overt activism proclaiming the most aberrant novelties to be sacred rights, and finally in the realm of law, criminalizing adversaries and diehards, assuming that any are left. With almost infallible consistency, we find that self-proclaimed conservatives conform passively — sometimes comfortably — to change without noticing that a new identity has been foisted on them from the outside like a straitjacket by those who hate them the most.

 According to Interpretation II, the Durkheim constant is used to turn society upside down overnight without encountering any resistance by means of lies and bluffs so colossal that the population instinctively refuses to believe that there is anything real behind them. The actual victim of the swindle reacts vehemently to any attempt to expose it, because he feels that admitting the reality of the situation would be a humiliating confession of stupidity. In order not to feel like a fool, the poor devil is willing to be a fool without sensing that he is one, confirming the old Jewish proverb “a fool has no delight in understanding.” This is why the biggest revolutionary organization in the history of Latin America, the Forum of Sao Paolo, was set up there in an environment in which all reports about it were ridiculed as signs of insanity, despite all manner of documentary support and proof of its existence. And it is why the United States of America may soon have a president without any proof of US nationality, financed by thieves and tied by a thousand commitments to terrorist and genocidal groups, while his own biggest opponent proclaims he is “a decent person that you do not have to be scared about.”

Translated by Donald Hank

 

Olavo de Carvalho, 61, taught Political Philosophy at the Catholic University of Parana (Brazil) from 2001 to 2005. He now lives in the U. S. as a correspondent for Brazilian newspapers. Website: www.olavodecarvalho.org.

The crisis with Obama’s footprints all over it

The manufactured crisis

 

By Donald Hank

Joan Battey, a good friend of Laigle’s Forum, writes:

James Simpson, a former White House economist, has just published “Barack Obama & the Strategy of Manufactured Crisis” – on AmericanThinker.com at http://www.americanthinker.com/ 2008/09/barack_obama_and_the_strategy.html

Listen to this Interview of James Simpson, by Sandy Rios, Tuesday 9/30 – WYLL 1160AM, Chicago, IL
From http://www.culturecampaign.com/culturecorner.aspx

Further documentation connecting the dots of all the neo-Marxists who have invested in the development of Barack Obama may be found on discoverthenetworks.org

Please take the necessary time to read each linked article and listen to the Sandy Rios program, plus this one: http://www.foxnews.com/story/0,2933,432501,00.html.

You need to know the facts and draw the conclusion. To put it plainly, numerous activists on the Left have been orchestrating this crisis and others yet to come in order to introduce full-blown socialism in the US. Once they perpetrate a crisis and impoverish us, for example, as they did with welfare, they immediately blame free-market capitalism. If enough Americans believe this lie, the American experiment is finished and it will have failed! It is as simple as that. If you are not sure whether we need the Obama Kool-Aid or not, please read all the links above and listen to the Sandy Rios program linked there. Take notes. There is nothing more important on your agenda today than this.

Meanwhile, I just received an email from Sen. Arlen Specter in response to an email of mine regarding his vote in favor of the bailout.

According to this email, one of the details of the bill was as follows:

A first-time homebuyer tax credit of up to $7,500 is included in the Act, which serves as the equivalent to an interest-free loan to be paid back over 15 years. 

For those wondering what a tax credit is, it is much more than a deduction. It is a give-away. It is free money – at taxpayer expense.

My email in response:

Hello Senator,

With all due respect, it is the kind of give-away scheme you describe that got us into the mess in the first place. How could you support such a scam? You write, in all seriousness:

A first-time homebuyer tax credit of up to $7,500 is included in the Act, which serves as the equivalent to an interest-free loan to be paid back over 15 years. 

First, most of the bailout package rewards Fanny Mae and other lenders for bad decisions and rewards the government for forcing lenders to give out loans at subprime rates, with no documentation required (no job needed!), no down payment, etc.

I understand that the entire bailout package will cost every American $10,000. So to save some people $7,500, we honest people who do NOT default on mortgages or buy things we can’t afford, must now give up $10,000? Even the person who gets the $7,500 will have to pay $10,000. AND home prices will rise accordingly, as they did during the last scam under the Community Reinvestment Act.

With all due respect for your office sir, have you ever stopped to think that this will only exacerbate the current crisis not only through the enormous tax burden but by artificially raising home prices? No one will benefit, except Washington.

Sincerely,

Don Hank

You can easily understand why a lender would want to know if the borrower has a job and can make enough money to repay a loan. But let me also briefly explain why banks have always, in every country in the world, throughout history, required down payments.

Lenders learned centuries ago that when they lent people money for housing without requiring a down payment, this is what often happened when economic conditions worsened:

1-The home prices in that area fell.

2-At the same time, the lender lost his job and couldn’t pay

3-When the lender foreclosed and tried to resell the house to recoup some of his cash, he lost money, often as much as 20%, because the house sold at a loss in the softer market.

That is the reason for the down payment. The reason lenders stopped requiring down payments in the last part of the 20th century was a series of Democrat-supported enactments, including the Community Reinvestment Act (under Carter), which was strengthened under Clinton and Bush, whose HUDs required Fanny Mae to drop or weaken all the safeguards enumerated above (down payment requirements, documentation of employment, etc). To pass this dangerous legislation, the Democrats claimed that minorities were being denied mortgages on the basis of race, when in fact, the minority communities statistically simply did not have enough people with good credit, good jobs and jobs to justify as many mortgages as the Democrats called for. It was – and is – politically incorrect to mention these inconvenient truths. People who now demand fairness in lending are called racists. Community organizers like ACORN, a group that worked hand-in-hand with Barack Obama, used strong-arm tactics to shake down banks and force them to give mortgages to people who could not afford them and then when the loans were, inevitably, foreclosed, the same people who caused the crisis blamed the banks. That way, they could blame the free market and make gullible people believe that America needs socialism, when in fact what we desperately need is less socialism.

Leftist activists are coming out of the shadows and openly gloating that America is now a socialist country. Many naïve people actually believe that socialism will lead to prosperity, even though this system destroyed the Soviet Union, China (under Mao), North Korea and many others and impoverished Europe, where families, even professionals, can hardly scrape by any more.

If you want to salvage even a remnant of the free market system that made America great, you need to widely forward the above links and talk to as many people as you can between now and the election and tell them what you have learned.

And pray that God will spare us from what appears to be an impending disaster manufactured by the Left.

Here is where this was supposed to end, but another dear friend of Laigle’s Forum sent me this urgent message. WATCH THIS VIDEO and read his message!

SUPER IMPORTANT!!!!!

WATCH THE VIDEOS AND PASS THEM ON AS WIDE AND LONG AS POSSIBLE . . . AND FAST

Watch the following videos in sequence so that you get the flavor of the entire HORRIBLE enchilada. Obama can kiss goodbye his presidential ambitions. (Hillary’s collection of Obama’s skeletons has started to leak!)

1- Barack Obama and his Kenyan cousin Raila Odinga – The mother of all October surprises!

http://uk.youtube.com/watch?v=S8QcpdUtxNQ&feature=related

. . . shocking, huh?

Now you will understand the true meaning of the next two . . .

2- Children Singing for The Dear Leader, Comrade OBAMA

http://www.youtube.com/watch?v=KrfrdptVJEg

3- Obama Youth – Junior Fraternity Regiment – Brown Shirts in the Making?

http://www.youtube.com/watch?v=rUEQz5dltmI

Barack Obama MUST be defeated on November 4: Such a threat to America and to the world cannot be elected President of the United States of America.

Do all you can do legally to defeat him!