Tag: Finance

Choking the Porn Money Chicken

Hmmm:

Despite being in good financial standing, adult film performers and others in the porn industry have had bank accounts abruptly terminated—and the U.S. Department of Justice (DOJ) may have had something to do with it.

Under “Operation Choke Point,” the DOJ and its allies are going after legal but subjectively undesirable business ventures by pressuring banks to terminate their bank accounts or refuse their business. The very premise is clearly chilling—the DOJ is coercing private businesses in an attempt to centrally engineer the American marketplace based on it’s own politically biased moral judgements. Targeted business categories so far have included payday lenders, ammunition sales, dating services, purveyors of drug paraphernalia, and online gambling sites.

Here are the details on Operation Choke Point:

The “chokepoint” in this operation is the nation’s payments infrastructure, the means by which merchants process nearly $5 trillion in consumer purchases in the U.S. each year. Federal law enforcers are targeting merchant categories like payday lenders, ammunition and tobacco sales, and telemarketers – but not merely by pursuing those merchants directly. Rather, Operation Chokepoint is flooding payments companies that provide processing service to those industries with subpoenas, civil investigative demands, and other burdensome and costly legal demands.

The theory behind this enforcement program has superficial logic: increase the legal and compliance costs of serving certain disfavored merchant categories, and payments companies will simply stop providing service to such merchants. And it’s working – payments companies across the country are cutting off service to categories of merchants that – although providing a legal service – are creating the potential for significant financial and reputational harm as law enforcement publicizes its activities. Thus far, payday lenders have been the most frequent target. Whatever the merits of payday lending – and there are valid arguments on both sides –it is legal in 36 states. And if payday lenders are today’s target– what category will be next and who makes that decision?

To anyone familiar with the way our thuggish government does business, this is not a surprise. When they can not get something outlawed — like payday lending or medical marijuana — they use the tools at their disposal to harass them to death. They threaten banks and financial services into not doing business with them. They pass onerous regulations. They launch inspections and raids to insure “compliance” with whatever regulations they’ve imposed. And they come down like a ton of bricks on anyone who has broken the rules to even a minor extent.

In this case, it appears that someone at the DoJ may have abused that power to go after an industry that is popular and legal. But … that’s what fucking happens when you give the government this kind of power. We shouldn’t be at all surprised that this power is being abused. We should be shocked if it isn’t abused every damned day. Think about it: through a campaign of subpoenas and legal demands, the DOJ can effectively impose massive fines on industries that have broken no laws. All that needs to happen is for someone in Washington to get a bug up their ass about an industry and they will be targeted for potentially millions in compliance costs.

Operation Choke Point needs to be ended immediately. It may turn out that this has nothing to do with Operation Choke Point. But the existence of a program like his is antithetical to the notion of rule of law. If the Obama Administration doesn’t like pay day lenders or porn sites, they can try to outlaw them through legislation (good luck with that). Allowing this kind of lawless harassment is simply wrong, no matter who is being targeted.

Update: To clarify something: the connection of this incident to Operation Choke Point is speculation at this point. It’s possible Chase is just engaging in some good old-fashioned slut shaming (in which case, fuck you, Chase). It’s also possible that the porn industry inadvertently triggered Operation Choke Point protocols since they are targeted at businesses that have high charge rejection rates and it’s likely a lot of porn users experience buyer’s remorse and try to reverse the charges (or that porn sites are a favored test bed for stolen credit cards).

Nevertheless, my criticisms stand. We have been here before. The reality that many drug dealers have lots of cash has been used to assume that anyone with lots of cash is a criminal and the cash can be taken without trial. The reality that some criminals structure bank deposits has been used to make structuring itself a crime, even when the money involved is legitimate.

The government is pressuring banks into shutting down accounts because they meet a profile of fraudulent business dealing. How is this anything more than an extension of the already abusive structuring laws?

The Taxman Taketh

This is pretty fucking outrageous:

A few weeks ago, with no notice, the U.S. government intercepted Mary Grice’s tax refunds from both the IRS and the state of Maryland. Grice had no idea that Uncle Sam had seized her money until some days later, when she got a letter saying that her refund had gone to satisfy an old debt to the government — a very old debt.

When Grice was 4, back in 1960, her father died, leaving her mother with five children to raise. Until the kids turned 18, Sadie Grice got survivor benefits from Social Security to help feed and clothe them.

Now, Social Security claims it overpaid someone in the Grice family — it’s not sure who — in 1977. After 37 years of silence, four years after Sadie Grice died, the government is coming after her daughter. Why the feds chose to take Mary’s money, rather than her surviving siblings’, is a mystery.

Across the nation, hundreds of thousands of taxpayers who are expecting refunds this month are instead getting letters like the one Grice got, informing them that because of a debt they never knew about — often a debt incurred by their parents — the government has confiscated their check.

The Treasury Department has intercepted $1.9 billion in tax refunds already this year — $75 million of that on debts delinquent for more than 10 years, said Jeffrey Schramek, assistant commissioner of the department’s debt management service. The aggressive effort to collect old debts started three years ago — the result of a single sentence tucked into the farm bill lifting the 10-year statute of limitations on old debts to Uncle Sam.

That law was passed when the Democrats controlled Congress. Raise your hand if you’re surprised.

It’s difficult to count the number of things wrong here: supposed overpayments of parents being extracted from their children; debts older than good scotch suddenly being valid again; the lack of any real evidence that an actual overpayment happened; plus, who wants to bet that they are primarily targeting middle class and poor people who lack the resources to fight it? Grice is taking them to court, but most people can’t afford that and it’s debatable whether the cost of fighting it would be more than the debt. And for a lot of people, tax refunds — correction, the return money they loaned the government interest-free — is a critical part of their budget.

In discussing student loans, I described our federal government as the world’s biggest predatory lender. Well, now they’ve become the world’s biggest predatory collection agency. Almost everything they are doing here would be illegal if a private agency tried to do it. But the gang of thugs who run our empire won’t be bound by rules. Rules are for plebs, not for the state.

Why the President’s College Plan Won’t Work

I’ve been thinking about the President’s recently announced plan to change the federal student loan program. Something about it bothered me and it took Alex’s post below to finally crystallize my objections.

It won’t work. Even if it works, it won’t work. It won’t work because Barack Obama, oddly enough for a Harvard man, misunderstands the nature of higher education and, not oddly at all for a Democrat, misunderstands the nature of the problem with student loans.

Here’s the plan:

The plan, which Obama rolled out as he opened a two-day campaign-style bus tour of college campuses, would create a rating system beginning in 2015 to evaluate colleges on tuition, the percentage of low-income students, graduation rates and debt of graduates.

Eventually, as an incentive for schools to make improvements in these areas, federal financial aid would be awarded based on those ratings. Obama said he could create the ratings system through executive action, but the plan to reallocate federal aid based on the ratings would require congressional approval.

In principle, this isn’t a bad idea. There are a lot of diploma mills out there that give out crap degrees and a lot of schools that really don’t care if your degree is useful or not as long as they get that sweet sweet federal money. So some form of accountability wouldn’t be a bad idea.

But in practice, it will fail. Badly.

Let’s put aside that such a system would inevitably be gamed by the colleges (most likely through grade inflation to bump up their graduation rates). Let’s put aside that rent-seeking universities will make sure that their school doesn’t get hit. Let’s put aside that this will only change how loans are allocated rather than the total amount — so the river of federal money will continue to flow. Let’s put aside that such rankings already exist in many publications. In fact, let’s put aside that the President’s plan is so dumb that even Kevin Drum can point out the flaws in it.

No, the bigger problem is that many people do not go to college to get an education. You can get a fantastic education if you want one. And for many specific professions — science, for example — you can learn a lot (although most of the necessary skills for me were learned in the lab and the library, not the classroom).

But most people go to school for credentialing: to get the bachelor’s degree that is a requirement for a steadily growing number of jobs that have little to do with education. Harvard could be giving out the worst “bang for buck” in America. But people would still line up to go because a degree from Harvard carries a cache in the business world that a degree from East Yachupetz Community College doesn’t (even though community colleges almost certainly give the best education bang per dollar). So let’s just say, for the sake of argument, that you use this system to cut down on student loans to Harvard in favor of schools that are more “efficient”. That won’t happen, of course, since Harvard has about three hundred friends on Capital Hill, but let’s pretend it does. What happens? Does Harvard care? They’ll have plenty of people who can pay. They have tens of billions in tax-free endowment to finance people who can’t. At worst, some people at the margins lose out on getting that ticket to the upper class that is an Ivy league diploma. Net benefit: nil.

Indeed, the exploding cost of education has nothing to do with education — faculty hires have been flat. It has been the result of growing administration and construction designed to make a university degree seem like a more impressive credential than it actually is.

The President has two more speeches to give on this subject but I doubt that he will address the real problem problem here which is that the federal government has slowly become the biggest predatory lender in the country. The simple fact is, as Matt Taibbi points out, we now have a system in which universities can charge what they want and the federal government will lock young people into massive loans for an eternity to pay for it. Loans that can not be discharged in bankruptcy but can tally up penalties and interest rapidly. Loans that are immune from Truth in Lending requirements. Loans that can destroy people’s lives by using powers that private lenders simply don’t have. Loans that make more profit for the federal government than they ever did for industry. The situation is so bad that even Taibbi is capable of seeing the truth:

Bottomless credit equals inflated prices equals more money for colleges and universities, more hidden taxes for the government to collect and, perhaps most important, a bigger and more dangerous debt bomb on the backs of the adult working population.

I believe that the federal loan system has poisoned the education system. It has allowed naive young people take out six figure loans for useless degrees. It has bypassed all the consumer protections we have out there. If a private industry did this, they would be in prison (well, maybe not, given how the Obama Administration has dealt with the crooks in the mortgage industry).

Don’t fix federal loans; end them. Let private lenders subject to the same laws as everyone else take over. Let universities loan money and scale their reimbursement to future earnings of their students. In short, give the lenders and the schools a financial interest in providing a useful and affordable education. Because right now all the interests are aligned toward screwing the students, the taxpayers and the professors in favor of university administrators, big education lobbyists and politicians.

Our Shrinking Debt

This is good news:

U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

So how can this be with trillion dollar deficits? Well, the private sector and non-federal public sectors are unravelling a tremendous debt bubble that built up in the last decade. Consumer debt is down by $1.3 trillion. Short term corporate debt is down by 55% as well. This isn’t as good as corporations need to borrow to grow. But for that much debt to be unravelled without a complete economic catastrofuck or massive inflation is remarkable.

It’s also helping with the national debt. Because consumer debt is so far down, the treasury has the loan market pretty much to itself. So all our borrowing is coming at low prices, despite the S&P downgrade.

I expect things to change soon. With debt down to much more manageable levels, people will start borrowing again. And if we can get control of federal finances, that will make borrowing even cheaper for private interests. Four years ago, I said that our economy would not move until we’d unravelled the tremendous debt we’d built up. We’re on our way to doing that, thankfully.

Modern Day Javerts

You know why I get irritated when people call Obama a Secret Communist Anti-Colonialist Crypto-Marxist Douchbag? Because if he actually were one, it would almost be preferable. At the very least, we wouldn’t have shit like this:

Richard Eggers doesn’t look like a mastermind of financial crime.

The former farm boy speaks deliberately, can’t remember the last time he got a speeding ticket, and favors suspenders, horn-rimmed glasses and plaid shirts. But the 68-year-old Vietnam veteran is still too risky for Wells Fargo Home Mortgage, which fired him on July 12 from his $29,795-a-year job as a customer service representative.

Egger’s crime? Putting a cardboard cutout of a dime in a washing machine in Carlisle on Feb. 2, 1963.

Now before you start bank bashing … and I’ll bash some banks later on, let’s go into exactly why Wells Fargo fired him for having done a stupid stunt before men landed on the moon. It’s not because they are an evil company.

Big banks have been firing low-level employees like Eggers since the issuance of new federal banking employment guidelines in May 2011 and new mortgage employment guidelines in February.

The tougher standards are meant to weed out executives and mid-level bank employees guilty of transactional crimes, like identity fraud or mortgage fraud, but they are being applied across-the-board thanks to $1-million-a day fines for noncompliance.

Banks have fired thousands of workers nationally because of the rules, said Natasha Buchanan, an attorney with Higbee & Associates in Santa Ana, Calif., who has helped some of the banking workers regain their eligibility to be employed.

“Banks are afraid of the FDIC and the penalties they could face,” Buchanan said.

The regulatory rules forbid the employment of anyone convicted of a crime involving dishonesty, breach of trust or money laundering. Before the guidelines were changed, banks widely interpreted the rules to exclude minor traffic offenses and some other misdemeanor arrests.

New rules have eliminated exceptions for expunged crimes and certain minor offenses and expanded the categories of employees covered, Buchanan said.

Of course, the bank executives — you remember those guys? — the ones who turned the financial system into a cat’s cradle made out of uncooked spaghetti and then came to us with their hands out when it fell apart? Yeah, this not sweeping them up. In fact, Wells Fargo agreed to pay the Feds $175 million to make a high-level investigation go away.

There’s a waiver process for people who have mended their ways — like Eggers, who has not put a fake coin in a laundry machine recently. But the process takes time … unless you’re a high-powered executive. And the banks are prioritizing getting those waivers for … high-powered executives. The FDIC may issue a grand total of 74 waivers this year. They are not going to people like Eggers.

This is not communism. It’s not capitalism either. It’s the Corporate Welfare State, where profits are privatized, losses are socialized, risks are encouraged and the wealthy well-connected bosses are never harmed. When the hammer does come down, for appearance’s sake, it comes on low-level employees and borrowers, not the big bosses or even the medium ones. And both parties are supporting this, as much as the GOP likes to pretend they opposed TARP.

Now about those banks. This is yet one more data point for the case that the big banks have gotten too big and too powerful for the health of our nation and our economy. This is not a case where the free market has created a oligarchic banking system. This is a case where the government, by bailing out big banks and letting them use that money to buy up small banks, has encouraged this; has created this. I have made this argument before. But this is again in the news with Simon Johnson making the case that breaking up the big banks should be part of the GOP platform (if necessary, they can make room by dropping the planks on Shariah law and outlawing abortion without exception). Here is John Carney, quoting the TARP watchdog on the problem. I’ll quote Johnson:

The big opportunity for presumptive Republican presidential nominee Mitt Romney and for conservatives more broadly is to choose this moment to pivot against big banks. Ryan is plugged into the Tea Party wing of the Republican Party, which has been consistently opposed to megabanks and the subsidies they attract through being too-big-to-fail (talk to Representative Ron Paul).

Ryan can draw on the intellectual support of senior figures in the Republican Party — including former Utah Governor Jon Huntsman, the presidential candidate who had the strong support of the Wall Street Journal editorial page for his approach to breaking up the megabanks. Senator Richard Shelby — ranking Republican on the Senate Banking Committee — is cagier, but seems inclined to be skeptical of the value of the largest banks as currently constituted. Two weeks ago, Senator David Vitter co-wrote a brilliant letter to Federal Reserve Chairman Ben S. Bernanke on the problems the banks pose.

In addition to politicians, the emerging consensus among heavyweight Republican intellectuals is that bigger banks should be forced to fund themselves with much more equity relative to debt — in other words, capital requirements should be significantly higher for any financial firm whose failure can cause broad damage. The argument is that too-big-to-fail is too- big-to-exist and the right way to pressure banks to break up is through capital requirements that increase along with a bank’s size.

A Romney-Ryan ticket has the opportunity to tap the Republican populist tradition (think Teddy Roosevelt). The megabanks — such as Bank of America Corp., JPMorgan Chase & Co. (JPM) and Citigroup Inc. — have become today’s government-sponsored enterprises. They receive large, opaque and dangerous subsidies, encouraging them to engage in excessive risk taking. The question is how best to remove those subsidies.

Removing the subsidies isn’t enough. The damage to our political, financial and legal systems is too extensive. I do like the requirement of higher capital requirements, which has some support. But I fear that if we don’t do something about this soon, we’re going to have a much worse situation on our hands.

Because firing people like Eggers isn’t working the problem.

(H/T to Maggie McNeill for the post title).

The New Corporate Welfare

This is somewhat disconcerting:

The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid.

General Electric, Goldman Sachs, Procter & Gamble, Chrysler, Ford, General Motors and AMC Theatres enjoy deals to keep state taxes deducted from their workers’ paychecks, the report shows. Foreign companies also enjoy such arrangements, including Electrolux, Nissan, Toyota and a host of Canadian, Japanese and European banks, Good Jobs First says.

Why do state governments do this? Public records show that large companies often pay little or no state income tax in states where they have large operations, as this column has documented. Some companies get discounts on property, sales and other taxes. So how to provide even more subsidies without writing a check? Simple. Let corporations keep the state income taxes deducted from their workers’ paychecks for up to 25 years.

Good Jobs First, I should point out, seems to be interested in a slight variation on corporate welfare, declaring that they want corporate subsidies to be “accountable and effective”. I agree with the first, but the second is incredibly dubious. I don’t think that any of this corporate welfare business is effective in building economies. In the end, the state expends more money and effort scratching the backs of fat cats than they can possibly recoup. Unprofitable business are propped up at the expense of ones that can survive on their own. A better idea would be to simply make your state a good place to do business in general: keep taxes low, regulations reasonable and your budget balanced.

Of course, then the halls of our state houses wouldn’t be filled with rich guys begging favor of and giving contributions to two-bit politicians. So, we can’t have that.

Still, this confiscation of income taxes is a step past the usual corporate welfare. Money is fungible, and maybe there’s no difference between keeping your employees’ witholding and turning it over to the state before getting it back in a subsidy. But it reeks even more than usual.

Insider information.

Evidence that the problem is government:

BCM Has Ceased Operations
Posted by Ann Barnhardt – November 17, AD 2011 10:27 AM MST
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,
It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

As for me, I can only echo the words of David:

“This is the Lord’s doing; and it is wonderful in our eyes.”

With Best Regards-
Ann Barnhardt

Pay careful attention to what and who she blames. Those arguing that what we need is more regulation, should take notice. All that regulation we just got is basically doing nothing but help destroy wealth, and whatever wealth they are not destroying, the leftists, like Corizine, are stealing, with a wink and a nod from Team Blue and the Community Organizer in Chief. Don’t expect the LSM to report any of this, or if they are forced to do so, watch them then call her partisan or not mention Obama, Team Blue, or Corizine.

Find here the response of the Keynesians: Regulations don’t kill jobs, They create them! Insane. And this comes along with things like this. Of course I will be told that my focus is narrow and I do not have the nuance to comprehend something far more complex than I make it out to be. Yeah, sure.

Not “If”, but “When”.

As I have pointed out, we are sooner than later going to have another economic disaster, because the politicians that caused it not only didn’t fix it with a massive expansion of their power to influence which companies are protected by government and which ones can be taken down, and only made it worse, and others seem to agree. In fact it seems even the LSM now is feeling forced to report on that.

“There is definitely going to be another financial crisis around the corner,” says hedge fund legend Mark Mobius, “because we haven’t solved any of the things that caused the previous crisis.”

What problem is that you ask? Well, it’s those shitty mortgages that never should have been issued, to people that were not qualified and thus couldn’t pay them back, which where issued, under threat of losing your FDIC insurance if you did not comply, as part of a 3 decade long attempt at social engineering a collectivist utopia.

Through quantitative easing efforts alone,” says Euro Pacific Capital’s Michael Pento, “Ben Bernanke has added $1.8 trillion of longer-term GSE debt and mortgage-backed securities (MBS).”

Think about that for a moment. The Fed’s entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone, junk that the banks needed to clear off their own balance sheets.

“As the size of the Fed’s balance sheet ballooned,” continues Mr. Pento, “the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.

“Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30-to-1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51-to-1! If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out.”

Get that? Our government now owns some $2.7 trillion of debt, much, if not all, of it bad debt, and has a measly $52 billion of capital behind it, leaving it leveraged by a ghastly 51–to–1 debt to asset ration. What is left out, to give you some perspective of how fucking insane and bad this is, is the fact that the Dodd-Frank bill capped banks at a 15-to-1 ratio. Our government carries more than three time the debt rated against their assets!

Worse yet, is the obvious fact that Dodd-Frank did nothing to deal with the fundamental problem that caused all this: being forced by government to give loans to unqualified people. The bill basically ignored this completely so the politicians could keep the same social engineering lending requirements that caused the problem in the first place, around. So in the current clime where there is pressure to make banks loan again, as soon as banks actually meet that 15-to-1 ratio, they open themselves to being forced to do more of the same or risk being accused of discriminating. And the whole game starts all over.

Now couple all of that with the horrible state of affairs of the European banking system, which is basically using buckets to drain water from a sinking ship with a gash the size of the one inflicted on the Titanic by an iceberg, and you can see that things look bleak. That’s why we get things like:

“Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said yesterday in a statement. Even as U.S. banks have “manageable” exposure to stressed European markets, “further contagion poses a serious risk,” Fitch said, without explaining what it meant by contagion.

Here is the scary part. None of the Eurocrats in Brussels have the foggiest idea on how to solve this. Don’t be fooled into thinking otherwise. All they are doing is more of the same Keynesian nonsense in an attempt to keep the doomed EU together. The French and German banks are stuck between a rock and a hard place, because they have so much money lent to the troubled members of the PIGS – Portugal, Italy, Greece, and Spain – that any one of those not paying back 100% of what they owe will send them into the abyss. And those that are honest don’t even believes that Greece, where the people have gone bonkers because they now have to wait till they are 60 to retire or are being told they will get less “free stuff” and are up in arms, can pay a fraction of what they owe, back. Those that play the odds favor the EU falling apart. The fall of the big European nanny state is going to hammer us.

Running out of other people’s money, sucks, but we better wake up to that reality or Team Blue, which thinks that they can recreate Greece here, but somehow magically without all the trouble that comes with that socialist utopia, will seal our doom. Maybe that’s the plan anyway. Nobody can be as inept as these people have been and continue to be on purpose, and survive this long. The universe can’t be that cruel.

Insiders

Are you angry at Congress? Get angrier, my friends:

Peter Schweizer is a fellow at the Hoover Institution, a conservative think tank at Stanford University. A year ago he began working on a book about soft corruption in Washington with a team of eight student researchers, who reviewed financial disclosure records. It became a jumping off point for our own story, and we have independently verified the material we’ve used.

Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.

You know where this is going, don’t you? Congressmen of both parties have engaged in massive insider trading — swapping health stocks during the healthcare debate, shorting banks stocks when they were warned of the pending financial meltdown, buying up land right before a road is scheduled to be built.

The thing is, as Stephen Bainbridge and Walter Olson have noted, this is all perfectly legal. Congress is not bound by insider trading laws nor are they obligated to put their funds in blind trusts. They can even be given IPOs.

And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.

Efforts to fix this have gone nowhere fast, with both parties. But it gets worse:

In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.

I said it before and I’ll say it again: if OWS really opposes corruption and corporatism, they should occupy Washington. Let’s see how much sympathy the Democrats have for the movement when it’s taking dumps in their yard.

And Burn the Banks Down

Part two of my posts on housing and banking.

If you want to know why I have some shred of sympathy for OWS despite some of their repugnant behavior (that Kos link is priceless, BTW), here is the reason:

Liberal protesters “occupying” Wall Street hate the big banks, which they see as the engine of capitalism. But conservatives ought to hate the big banks because they are the enemies of capitalism.

In addition to the Fannie/Freddie conforming loan increase I blogged about below, Bank of America moved $55 trillion in derivatives to an arm that is backed by the FDIC. We, the taxpayer, are now on the hook for their speculative bullshit. I’m no fan of Glass-Steagle but … Jesus, can’t we do something about that?

But it gets even worse:

A Government Accountability Office report highlighted plenty of conflicts of interest at the Federal Reserve. New York Fed official Stephen Friedman was on the board of Goldman Sachs and actively buying up shares of Goldman while the Fed moved to give Goldman special access to its lending windows.

JP Morgan CEO Jamie Dimon sat on the New York Fed’s board while the Fed was pouring billions of bailout dollars into JP Morgan and granting JP Morgan special regulatory exceptions.

How is this not a crime? How is not corruption that so many in the regulatory agencies have now found six- and seven-figure jobs in the very industry they refused to crack down on? Maybe there is no technical law being violated. But can we not pass a law requiring public officials to stay out of industries they regulate for at least five years? Can we not at least shame these corrupt douchebags for their repellent behavior?

The banking industry is a bigger problem than ever, not withstanding the sack of shit called Dodd-Frank. As John Huntsman recently pointed out, the taxpayers’ exposure on the big banks has only increase since the crisis. The “too big to fail” banks control more of the industry than ever before, having used TARP mainly to buy other banks. And as Russ Roberts points out, we made sure that banks and their cronies got 100% of their money out of the financial crisis. Many avoided having to taking losses at all on the financial crisis they gleefully participated in and made tens of millions off.

Look at those links I just put up. Russ Roberts is anti-Keynesian free market economist. John Huntsman is a fiscally conservative Republican. Tim Carney is a libertarian. These are not dirty hippies saying “fight the power”. All three are free market believers who are saying what OWS is saying — enough is enough.

Now OWS and the Left are wrong on what do about the banks. Forgiving student loan debt would hurt the banks, but it massively unfair to people who paid for their own education. Forcing banks to write down mortgage principal is another bad idea that would either require a gigantic violation of contract law or, effectively, the government bailing out the banks again on their bad mortgage debt. Maybe Matt Yglesias is right that we need to change the way banks account for their gains and losses, but that’s a long-term fix.

Break the big banks up. “Too big too fail” is too big to exist. The right time to do this was when they came begging to us for TARP. But we can’t afford for another financial bubble to blow up in our faces. This time, it will be even worse. This time, it may break the whole damned system.

I’d say this is one of those time when the free market has failed, but it’s not. It’s one of those times when the unfree market has failed. TARP and regulatory capture created these monster banks from corruption and influence-peddling. It’s time we turned the clock back on that.