Shadow Government "Money" Supply Growth from ShadowStats

Chart of U.S. Money Supply Growth

24 April, 2010

Recommended Article By Gene Kernan: New Goldman PR Disaster: Execs Celebrated Subprime Implosion

Hi Guppies,
Your friend, Gene Kernan, has recommended this article entitled 'New Goldman PR Disaster: Execs Celebrated Subprime Implosion' to you.

Here is his/her remark:
I'm shocked!! And dismayed!!! Well, not really.

New Goldman PR Disaster: Execs Celebrated Subprime Implosion
Posted By Yves Smith On April 24, 2010 (11:01 am) In Banking industry, Credit markets, Derivatives, Free markets and their discontents, Investment banks, Media watch, Social values

It’s ironic how the “Goldman was so smart to have shorted subprime” meme is now being turned on its head in the MSM as Goldman’s conduct in the run-up to the crisis is begin re-examined in a new light.

The underlying premise of the Goldman defenders is that it is fine for the firm to have laid off its exposures whether via the old-fashioned mechanism of selling them, unbundled, into the market, or the modern way of wrapping them into more complex products. The very reasons that the latter yielded better results at the time are the very same reasons that strategy is being criticized now.

First, the products were often so complex as to be difficult for investors to analyze. Crudely speaking, that means you have a bigger universe of potential stuffees, since presumably some would have rejected these exposures had they understood what they were getting. Of course, one might reasonably say, “Don’t buy anything you don’t understand,” but I would hazard that a lot of supposedly professional investors routinely buy products they don’t understand based on a salesman’s explanation. Since most of them did not blow up, or when the did, the investor in question had so much company as to suffer not career damage, many investors became desensitized. Second, major financial firms, and Goldman in particular, came to treat customers as trading counterparties, meaning if it was possible to nick a profit from them, that was always the preferred course of action. Yet many of these customers appeared to have assumed the relationship was on! a different footing, that Goldman at a minimum (consistent with its continued blather about putting customers first) was not rapacious and would deal with them honestly and fairly.

And now Goldman’s PR is in a head-on collision with granular examination of its conduct. Its posture, that it was merely acting as a middleman and therefore providing a socially useful function, does not square with its having continued to push subprime products like its Abacus program out the door as a way to achieve a short position.

From the Wall Street Journal:

New documents from a Senate investigation show top Goldman Sachs Group Inc. executives cheering the gains they were reaping as subprime-mortgage securities collapsed in value in 2007….

In a statement Saturday, Sen. Carl Levin, chairman of the subcommittee that will hear the Goldman testimony, said investment banks such as Goldman Sachs “were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis.”

In one of the email exchanges, Mr. Blankfein appears to bluntly acknowledge the firm’s strategy in broad terms. “Of course we didn’t dodge the mortgage mess,” Mr. Blankfein said in an email on Nov. 18, 2007. “We lost money, then made more than we lost because of shorts. Also, it’s not over, so who knows how it will turn out ultimately.”…

The emails also show other Goldman officials cheering the news that some mortgage-related securities were being downgraded by credit-rating firms in late 2007.

Top trader Michael Swenson said that as a result of the downgrades, certain payments Goldman owed to investors would “go to zero.”

“Sounds like we will make some serious money,” responded another executive, Donald Mullen.

At another point in July 2007, Goldman executives appear to discuss how their mortgage investment numbers were up, despite big losses on securities known as collateralized debt obligations and residential mortgages.

“Tells you what might be happening to people who don’t have the big short,” wrote Chief Financial Officer David Viniar in an email.

More on this topic (What's this?)
Jon Stewart on Goldman Sachs
Read more on Goldman Sachs Group, Subprime lending at Wikinvest

Article taken from naked capitalism -
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23 April, 2010

Did I mention that Goldfinger is bent on ruling THE WORLD?!?!?

"The means of defense against foreign danger historically have become the instruments of tyranny at home."

James Madison
"'I want the Americans to come over here and get bogged down, bankrupt their country, and besides it'll help my recruiting efforts.'
Osama Bin Laden

22 April, 2010

"IL DUCE" Would Be Proud

In as fine an example of telling us what we already know, as I've ever seen, National Public Radio "spins" the recent Pew polls (done in March, repeated in April - no doubt seeking higher numbers) at rpms far in excess of the fastest computer hard drive.

Noting that "the Pew poll shows a comparable level of dislike toward banks and financial institutions (22 percent positive, 69 percent negative). Large corporations do only slightly better (25 percent positive, 64 percent negative), a ratio that almost exactly matches the public scoring of the overall federal government (25 percent positive, 65 percent negative)."

No kidding. Pew's polls at least suggest that "the public" (defined by a federal court as "that vast multitude that includes the ignorant, the unthinking, and the credulous...") is coming to grips with the fact that "banks and financial institutions...[and]...[l]arge corporations" ARE the government, even if they can't quite yet admit it to themselves.

19 April, 2010

Recommended Article By Gene Kernan: Bill Black and I React to Goldman Fraud Charges

Hi Reader,
Your friend, Gene Kernan, has recommended this article entitled 'Bill Black and I React to Goldman Fraud Charges' to you.

Here is his/her remark:
Their 20-20 hindsight matches my foresight rather well...

Bill Black and I React to Goldman Fraud Charges
Posted By Barry Ritholtz On April 16, 2010 (5:31 pm) In Video

I did three segments with Yahoo on Goldman Sachs.

The first one they posted was me and Professor Bill Black discussing the issue with Aaron Task.

Article taken from The Big Picture -
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17 April, 2010

Article from RealClearPolitics

Gene Kernan ( wanted to share the following link with you:

They added this message:
My, my, how they try. Notice that Goldfinger\'s public relations arm keeps trying to infer that those opposed o overreaching government must be racist. Gotta be irritating when something like this happens...

15 April, 2010

The Cost Of Corporate Communism - a Zerohedge article

Guest Post: The Cost Of Corporate Communism

14 April, 2010 The "Money" Mob

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It's really little comfort to hear "taht crazy shit you said years ag was true!"
=== END NOTES ===

I read two interesting thoughts last weekend. The first is from legendary 18th-century economic god Adam Smith -- father of free-market thinking -- who wrote this on the topic of regulating banks:

exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.

The second came from JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon's annual letter to shareholders, which says a skill he strives for is the "Ability to face facts."

Amen to both
The outcome of banking gone wild is now well-known. Less obvious are the dramatic changes banks underwent since the 1980s that concluded with the collapse of 2008.

By looking back over the past 25 years, it's easy to highlight Smith's point of banks running roughshod over everyone else. And we can show this with cold, hard facts Dimon appreciates.

The three facts that put our current financial system in perspective are charts of profit growth, compensation growth, and relative size of today's biggest banks. I owe credit for the inspiration of these charts to a presentation in March by former International Monetary Fund chief economist Simon Johnson. Let's look at each.

1. Money for nothin'
Every business, every corporation, and every consumer relies on banking in one way or another. That makes it a special industry, and it's why banks receive special treatment like backing from the Federal Deposit Insurance Corp. It also makes it an industry that should be at least somewhat anchored to the rest of the economy. When the economy does well, banking does well; when the economy does poorly, so do banks.

That's roughly how it worked for most of the post-World War II period until the early 1980s -- profit growth among banks hugged close to the businesses they lent to. Then something strange happened:

Source: Bureau of Economic Analysis, author's calculations.

Let me explain this chart a little more. The Bureau of Economic Analysis tracks total corporate profits by industry going back to 1947. I took total financial profits, and total profits from all other industries, and calibrated both groups to "1" in 1947. So what this chart shows is the relative profit growth of banks compared with everyone else.

From 1947 until the mid-'80s, financial profits and all other profits were fairly correlated. Then in the mid '80s ... snap! ... financial-sector profits left everyone else in the dust.

There are two explanations for this. One, we've had consistently falling interest rates since the '80s, which is great for most businesses, but banks especially. Two, the '80s were deregulation central. As Simon Johnson and James Kwak explain in the book 13 Bankers:

[A broad] deregulatory trend begun in the administration of Jimmy Carter ... transformed into a crusade by Ronald Reagan. The eventual result was an out-of-balance financial system that still enjoyed the backing of the federal government --- what president would allow the financial system to collapse on his watch? -- without the regulatory oversight necessary to prevent excessive risk-taking.

Two big innovations that came from this were an explosion of derivatives, and the securitization of debt. As the past two years taught us, both products can be great in moderation yet deadly when used in excess -- which they usually are.

The reason excess within financial products became standard is simple: Bankers were getting fat and happy off these things even when clients lost money. That brings up chart No. 2.

2. Lifestyles of the rich and fortunate
There was nothing glamorous about banking for most of the post- World War II period. The leaders made fortunes and gained power -- as leaders of all industries do -- yet the lower workers were just average Joes making average wages.

As with profits, that changed abruptly in the '80s:

Source: Bureau of Economic Analysis, author's calculations.

In 1959, the average finance employee made $4,880 a year, while the average in all other sectors made $4,560. By 2006, the average finance worker made $82,200 compared with $52,800 for everyone else. Nice.

The practice of paying bankers ungodly sums just for showing up isn't the historic norm. It's really something that sprung up in the '80s with the advent of financial engineering and the outburst of subsidized profits.

Another thing we've become accustomed to that isn't historically ordinary is the size of the largest banks. That brings up chart No. ?3.

3. What too big to fail looks like

Source: Capital IQ (a division of Standard & Poor's),, author's calculations.

This is the combined total assets of the four big commercial banks -- Citigroup (NYSE: C), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and JPMorgan Chase -- as a percentage of gross domestic product. In 1992, the combined assets of these four banks amounted to 5.2% of GDP. By 2009, that number had increased tenfold, to 52% of GDP. The big jump came in the late '90s with the repeal of the Glass-Steagall Act, which allowed commercial banks to merge with investment banks. A second surge came in 2008 after surviving banks purchased their fallen neighbors.

This chart is particularly revealing because it thoroughly wrecks the claim -- made mostly by bank CEOs -- that megabanks must not be broken up because large companies like Apple and ExxonMobil absolutely need banks of today's size to conduct business. Eyeball the chart for three seconds and you realize how ludicrous this idea is. Big companies didn't struggle to raise capital in 1992. Or 1995. Or 2000. Or 2006. In fact, they thrived like never before. To suggest that reducing the size of big banks relative to GDP to where they were in, say, 1998, would somehow asphyxiate big businesses is comically refutable.

Don't shoot the messenger
These three charts don't tell the whole story, of course. You can gab away about how the Fed, Fannie and Freddie, China, the Democrats, the Republicans, the media, and whoever else you detest created the financial collapse. And please do.

What I hope they do is provide perspective. There's a growing group, without naming names, that acts like even the slightest smidge of financial reform will send us into a Socialist Stone Age. But when you see how dramatically and quickly the financial system skewed, you see how even significant reform would simply revert it back to where it was only a handful of years ago -- a time that was demonstrably more stable, produced higher growth, and, to the irony of all, represented the "old America" so many reform opponents want back.

Some say banks are making lots of money and paying themselves accordingly, but that's their right. That's capitalism. We encourage it. We cherish it. But as Adam Smith mentioned more than 200 years ago, it isn't capitalism if the misbehavior of a few bankers "endanger the security of the whole society." And that's exactly what happened in 2008.It wasn't capitalism. It was banks blowing up the economy. And a few of us are praying it'll soon end.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

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You can become a registered Fool for Free: has shared: Meredith Whitney: Obama credit card reform makes it "more expensive to be poor"

So, if "people cut out of the banking system who can't get by without credit will turn to small financial shops, including predatory lenders..." what's the difference?
Meredith Whitney: Obama credit card reform makes it "more expensive to be poor"

Meredith Whitney argues that credit will -- indeed must -- continue to contract. Yanking it away from consumers is one big way this will happen. sent this using ShareThis.

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Banks Threaten To Go To Supreme Court To Prevent Fed From Disclosing Details Of $2 Trillion In Bailout Loans They Received

12 April, 2010

Recommended Article By Gene Kernan: Declining Bailout Costs or Bad Math ?

Hi Readers, readers,
Your friend, Gene Kernan, has recommended this article entitled 'Declining Bailout Costs or Bad Math ?' to you.

Here is his/her remark:
Goldfinger's publishing arm now employs sci-fi/fantasy authors...

Declining Bailout Costs or Bad Math ?
Posted By Barry Ritholtz On April 12, 2010 (8:34 am) In Bailouts, Financial Press, Really, really bad calls, Regulation

There is a bizarre article in this morning’s WSJ. It declares that the bailouts will cost less than initially feared. It is notable not for what it includes, but what it managed to completely ignore.

The 2008 Emergency Economic Stabilization Fund passed by Congress was over $700 billion dollars — not $250B.

There is no mention of the trillions of dollars on the Federal Reserve’s balance sheet. The ongoing costs of the Federal rescue of Fannie and Freddie — indeed, the complete takeover of $5 trillion in mortgages by Uncle Sam — is glossed over. The journal also seems to have forgotten about the cost of bailing out Chrysler and GM (they mention GM possibly going public, but just barely).

Foreclosure trends are increasing; second liens are defaulting in greater numbers. Banks now have over $30 billion in bad home equity loans. Somehow, these are not mentioned in determining the health of rescued banks.

Depleted FDIC reserves? Not mentioned. Bad loans on bank balance sheets? Ignored. FASB 157 authorizing fantasy bank accounting? Never mind.

The newly concentrated banking sector’s lack of competition is apparently too abstract for discussion. Nor does this final calculation so much as consider any future problems caused by moral hazard (its not so much as mentioned). Future inflation? US Dollar debasement? What TF are they?

Here’s the WSJ:

“The U.S. government’s rescue of wobbly companies and financial markets is starting to look far less expensive or long-lasting than once feared.

As momentum grows at companies that looked like zombies just a few months ago to repay taxpayers for lifelines they got during the financial crisis, the projected cost of the bailout is shrinking to just a fraction of previous estimates. Treasury Department officials say the tab is likely to reach $89 billion, which includes the Troubled Asset Relief Program, capital injections into Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and Federal Reserve moves such as buying mortgage-backed securities and propping up the commercial-paper market.”

You can read the article, but you might notice it has a hole or two . . .


Total Bailout Costs = $89B! WTF?


Light At the End of the Bailout Tunnel
WSJ, April 12, 2010

Profit for Banks Dimmed by Home-Equity Loss Seen at $30 Billion
Dakin Campbell and David Henry
Bloomberg, April 12, 2010

Article taken from The Big Picture -
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