‘Roll out the guillotines and let the heads roll’…this call is increasingly heard in various countries. In Britain, in particular. The Queen is happy, no one views her as a Power so she will keep her head while heads of commoners will roll around her ankles. And nothing fundamental will change. Bankers and fund managers are still pulling in many billions in bonuses despite losing everything, for much of the last year. The frantic efforts to bail out both the US economy, the world’s lopsided trade deals and the entire banking system of the world is bankrupting the US Treasury and Federal Reserve. Not a single thing that needs fixing is being fixed.
The crass behaviour of Britain’s financial aristocracy rivals the last of the Bourbons. Marie Antoinette famously patronised the Parisian mob with her ‘let them eat cake’, while dining in luxury in the Tuileries.
The City bankers who ruined their banks but have been kept in employment by the taxpayer now demand we pay them their bonuses to maintain the aristocratic lifestyle to which they have become accustomed. They know no shame and take no blame. They are lucky the British have no guillotines in stock.
Is the public outrage simply the politics of envy? I think not. Most of us have no problem with successful entrepreneurs earning lots of money. They rightly command respect, as the backbone of a healthy, private enterprise system.
The bonus-hunting bankers, by contrast, stand charged with destroying wealth on an epic scale. Foolish, greedy, irresponsible behaviour and excessive risk-taking led to massive losses and the crisis in the banking system which is now costing millions their jobs and many their homes. Why should such failure be rewarded?
Vince Cable is the Liberal Democrat Treasury Spokesman.
The NYT ran this long article about Trying to Live on 500K in New York City. It had to be tongue-in-cheek except it wasn’t. I lived in NYC long ago, I remember when you could buy a mansion in New Jersey for only $150k. I remember when I could buy a seat at the opera, both the Metropolitan and the City Opera. I remember eating in Midtown restaurants that were famous and it didn’t cost all that much. Seriously, inflation is caused by too many people using too many dollars to chase after too few things.
All the things I enjoyed like Broadway shows, are now hideously expensive. So is housing, and all the other trappings of ‘wealth’. This is due to an obvious thing: too many ‘rich’ people are bidding up the price of everything using funny money made out of thin air! The rich got used to bidding millions of dollars for wretched ‘works of art’ but this was all fake. You see, back in 1978, I could go to Sotheby’s and bid on art and did this! Didn’t cost me more than $6,000, too! Got some really nifty stuff, this way!
Now, it has gone insane. The numbers climb. A painting of water lilies which fetched only $10,000 in 1935 going for $30 million is insanity. Wretched excess has infused the entire culture, the entire system from top to bottom. No longer content with perfectly fine houses, the rich built palaces in multiple places and then spent oodles of money, fixing things up and decorating. The surge in decoration went through the roof this last 30 years. In the last ten years, multiple TV programs were all about home decoration and such. Well, the funny money has vanished and so will these inflated values. The rich grew richer and wasted nearly every penny of this.
The bank’s board has begun discussions about the bonuses with UK Financial Investments (UKFI), the body set up by the Treasury to manage the Government’s shareholdings in Britain’s ailing banks.
The scale of the plan is likely to increase public anger as the recession deepens, and add to the frustration of ministers. It comes as Alistair Darling, the Chancellor, announces in The Sunday Telegraph today his plans for an independent review of the way banks are managed, including the bonus system.
The review, which ministers hope will address voters’ concerns about big payments to executives, will examine the roles of directors and institutional investors and study how British banks compare with overseas institutions.
They still want more! How astonishing this is to me. Ever hear of taking losses? And then working back from it? Good for the soul. But they want perpetual profits for themselves.
As readers will recall, J.P. Morgan received the first large bail-out from the New York FED of $55 Billion, guaranteed by Bear Stearns’ worthless assets, to prop up its own liquidity position and buy Bear Stearns stock.
J.P. Morgan also recently received another $25 Billion in TARP payments from the Treasury.
This article is about how J.P. Morgan’s executives , instead of receiving easy to detect cash bonuses, received very large bonuses in the form of Stock Appreciation Rights (SARs) and Restricted StockUnits. These equity compensation securities are not easy to understand or value by other than experts in the field.
All of the bankers all over the planet are playing the same game. I remember when no one, not even corporate executives, owned private jets. Some owned private planes but I remember when the Arab oil kings got money and bought a bunch of huge jets so they could jet around the world, wasting money. Now, everyone wants to be an oil king! And if there is no oil, they want it, anyway.
A ROYAL BANK OF SCOTLAND executive who led its investments into “toxic” sub-prime loans was paid close to £40m in just three years, The Sunday Times can reveal. Jay Levine, 47, was the bank’s highest-paid employee, earning almost four times more than former chief executive Sir Fred Goodwin.
Levine, who ran the group’s American investment bank RBS Greenwich Capital, received the bumper pay deals over 2005, 2006 and 2007, according to sources close to the bank.
His pay has never been disclosed since he was not a main-board director. The pay deals came as the bank ramped up its exposures to sub-prime mortgages, asset-backed securities and collateralised debt obligations (CDOs).
I guess, Sir Fred is of the old school. Tut-tut. But Levine is a fast guy, a member of the Family and took the bank for a ride. Like all Mafia-style guys, he talked fast and played a fast game and saddled the organization he infiltrated with a ton of bad deals. Exit Mr. Levine for NYC and his Home Base. Unfortunately, the immense Madoff scandal is bringing up unpleasant associations.
(Bloomberg) — The 83 percent drubbing China took on its $3 billion investment in Blackstone Group LP is good news for the U.S. Treasury.
China’s loss of more than $5 billion on the $10.5 billion invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007 may increase its demand for the relative safety of Treasuries just when the U.S. needs help the most. President Barack Obama is growing increasingly reliant on international investors to finance his $780 billion stimulus plan and to keep Treasury yields and market interest rates down.
While 10-year yields rose 5 basis points to 2.60 percent after Timothy Geithneraccused China of “manipulating” the yuan at a Jan. 22 hearing on his nomination as Treasury secretary, they fell 13 basis points to 2.72 percent 10 days later as Chinese Premier Wen Jiabao said his government’s Treasury strategy would be aimed at maintaining the “value” of “our foreign reserves.” Investors interpreted Wen’s remarks as support for U.S. debt.
“They got burned when they began diversifying outside of the government securities area, and they still might be stinging from it,” said James Sarni, who helps manage $55 billion as a partner at Payden & Rygel in Los Angeles. The Chinese are “shifting toward safer assets after taking significant losses,” he said. “Going forward, the Chinese will continue to provide support for the Treasury market.”
China and Japan are not supporting our debts because they expect any US paper to make money for them. They are doing this so they can have unbalance trade. The yen is finally weakening again and the Japanese are happy. The yuan is also weakening and everyone is rejoicing in Asia today. They see a light at the end of this tunnel. All they have to do is enable US borrowing from them. Sweet!
Japan’s Investors Savor Strong Yen in Hunt for Assets
Daiwa SB Investments Ltd. is urging clients to put their money into Brazil, Mexico and Turkey after the yen’s 55 percent gain against their currencies made emerging markets a bargain. A year ago, it wasn’t recommending any developing nation funds.
“A lot of assets have gotten extremely cheap and Japanese investors are looking to park their money somewhere,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at the second-largest brokerage in Tokyo. “Emerging markets including Brazil, Mexico and Turkey look attractive. We would like to invest more in such countries.”
Well, they will get crushed again by the Bank of Japan and the Miti group, the export industrialists. The Old World Order is trying to get some traction here, again. The US should be fighting this off, tooth and nail. Instead, we pray for it, too. We want easy, continuous credit! So we can buy more Asian goods and OPEC oil.
Senator Charles Grassley, who hit the headlines earlier this week after suggesting Microsoft sack foreign workers before Americans, is attempting to insert wording into President Barack Obama’s near-$900bn fiscal stimulus plan that would effectively stop many banks hiring non-US citizens.
Senator Grassley, working with independent Senator Bernie Sanders, has introduced an amendment to the bill to ensure that workers holding H1-B visa’s cannot work for taxpayer-funded banks.
The move, were it to become law, might require many of America’s leading banks to axe thousands of foreign staff currently in the US on a H1-B, which allow foreign nationals with special skills to work in America.
The rear guard action of some US representatives has zero backing in the White House, the Treasury, the Federal Reserve and the army of lobbyists who want cheap labor, poor workers and tons of cash for themselves so they can dish out immense, barely taxed bonuses.
A new bank bailout plan to be unveiled Tuesday by the Treasury Department is set to create incentives for private sector investment into troubled banks.However, regulatory observers worry that those incentives may not be strong enough to bring in the hedge funds, private equity companies and other investors Treasury Secretary Timothy Geithner hopes to bring to the table.As part of the revised plan, Treasury is considering creation of a “bad bank” or “aggregator bank” that would buy illiquid mortgage securities from struggling financial institutions. According to the new approach this plan would be partly funded by some of the remaining money from an existing $700 billion Troubled Asset Relief Program fund, but the majority of the funds would come from the private sector.
Poor bankers. They don’t like the Fed deals. I bet, they and an army of lobbyists will twist many arms until all the risks are on the People and all the goodies go to the Gnomes. Every day, the bad bank proposal is batted around. At this point, they are desperate to drop that name and find a cuter, less frightful and truthful name. How about the ‘Guillotine Bank of France’? Sounds classy.
Philipp Bagus is an associate professor at Universidad Rey Juan Carlos, Madrid and a visiting professor at Prague University. Send him mail. See his article archives. You can subscribe to future articles by Philipp Bagus via thisRSS feed.
Since August 15, 1971 the US dollar has been an irredeemable paper currency. Every irredeemable paper currency in history has failed. Yet, the experiment of the US dollar and the rest of the fiat paper world continues.
During the current crisis, however, financial systems all over the world are increasingly struggling, and the end of the experiment seems closer. In fact, the Federal Reserve System has used up much of its “ammunition” for monetary interventions in an attempt to keep the experiment going, lowering its target interest rate almost to zero. Other central banks are also quickly approaching the “zero limit” for interest rates.
This is a good article to read. I modified the graphs here. The Federal Reserve has been ‘buying’ tons and tons of garbage. We can see it clearly here. The Japanese carry trade ended and like a volcano’s seismograph, the rumbles start small, get bigger and then the mountain blows up! The actual value of holdings has been diminished as this was transfered to the gnomes who used it to pay themselves bonuses for Xmas. It wasn’t enough so they needed more to stave off obvious bankruptcy starting suddenly in late September, when Paulson and Bernanke went to Congress to demand nearly a trillion dollars and dictatorial powers over how to use it.
They gave all these handouts various interesting names—yawn— but they all mean the same thing: the central banks get stuck with all the trash and the trailer trash rich get to keep all their money and get bonuses.
While this example might sound extreme, something similar happened during the first stage of the sub-prime crisis. The Fed weakened the composition of its balance sheet not in favor of the Zimbabwean economy but in favor of the US banking system. The Federal Reserve sold good assets in order to acquire bad assets. The good assets were not gold but mainly the still highly-liquid US treasury bonds in the category of “securities held outright.” The bad assets were not Zimbabwean government bonds but loans given to troubled banks backed by problematic and illiquid assets. This weakened the dollar.
The dollar was weakened! ZIRP also weakens the dollar! Except for one, big, fat problem: all things are relative. If the Japanese and Chinese want to assign a higher value to the dollar and thus, weaken their own currencies, they can do this. And they are doing this. Neither nation greatly reduced their FOREX reserves or their US debt holdings. Both of them warned our government not to wreck the dollar and this is why we are sucking up all the bad banking bunk.
This system may not die! If necessary, Asia will call in Dr. Frankenstein to administer bolts of lightning to our currency to keep it alive and stronger than Asian currencies.
By the way, notice on the graph above, the ‘gold certificate’ part? Up until the end of September, it is the same thickness. Suddenly, it is cut in thickness b nearly 50%. We actually handed out gold certificates to prop up all the bankrupt banks. Now, the plan is for the Fed to get this all back by holding the insecure securities and wait for them to float back up again.
China and Japan don’t care about this. Both are run by draconian powers that are intent on keeping a certain system going and they will get it going, they are very determined. And the US public wants Santa Claus, not protecting our jobs. So we will be bribed to allow the old system to creep back into action again.
If Q4 2007 was the start of the recession, then Q4 of 2008 is the start of the
Depression. It’s only getting worse. We’re not aware of a single bright spot in the
economic data that would even remotely hint at things getting better anytime soon.
We are in the midst of an unprecedented global economic contraction, with no
prospect for one region to ‘save’ the others. This depression is global, pervasive,
and deep. Some may point to plunging interest rates, already at zero in the US, as
a ‘data point’ indicative that things are about to turn around soon. We believe the
opposite to be the case.
Zero percent interest rates are an ominous symptom, not
the cure. In a recession, zero interest rates are highly stimulative. In a depression,
they are not. Monetary policy has been little more than a sugar-coated placebo.
Credit is neither cheap nor plentiful. Just ask the Bank of Montreal, one of the big
banks in the highly admired Canadian banking system, that recently did a bond
issue (not stock, not preferred, but straight-up plain-vanilla bond) at a 10% interest
rate. Central bank interest rate policies have become irrelevant. Once again, this is
highly indicative that we are in a depression. Corporate spreads have gone through
the roof. Not just for junk bonds, but all bonds, even AA rated.
Any belief that this will be a short and shallow recession, or even a relatively long
and deep recession (but still a recession), is, in our opinion, woefully misguided
wishful thinking. This is a depression – one that has only just begun. One that the
vast majority of us (the sole exception being those over 80 years of age) have never
experienced in our lifetimes.
I didn’t know that the Bank of Montreal got hammered by 10% rates in the latest bond issue! The Canadians are not a huge market for Asia, not anywhere near the scale of the US. So they don’t get ‘subsidized’ by massive FOREX holdings or debts. Both Japan and China know that Obama will be fishing for immense loans. Both know, only they can service the US. So they are waiting impatiently for us to finally vote on the Wild Spending Bill and then, go off to Asia, begging for loans.
Corporate spreads are going through the roof! But NOT US bonds. They will be serviced because they are political. Corporations needing money are rivals of Asia. So they won’t get the sweetheart deals. But the US government will. Asia knows, this will pull down US power even more. We are losing our grip on our own finances and every step taken by the government insures dozens of years of future slavery.
Ackman Says Investors Can Exit Target Fund in March
William Ackman told investors in a hedge fund that invests only in Target Corp. he’s “deeply disappointed” in its performance, and that those wishing to exit can do so in full next month.
“I apologize profusely for the fund’s results to date,” Ackman said in an investor letter dated Feb. 8. Ackman also offered a fee waiver for those who invest in his other Pershing Square funds.
Pershing Square reduced its total economic exposure in Target, including options, to 10.5 percent from 12.9 percent, the firm said today in a regulatory filing. It reported a 9.7 percent stake in the Minneapolis-based discount chain. Target, like other retailers, has suffered as consumers slashed spending to cope with rising joblessness and declines in the value of their homes and stock holdings.
Target fell 29 cents to $32.73 at 4:15 p.m. in New York Stock Exchange composite trading. The shares declined 31 percent last year, compared with a 32 percent drop in the Standard & Poor’s 500 Retailing Index.
Ackman’s Pershing Square IV fund fell 40.1 percent in January, bringing the loss since inception to 89.5 percent, according to a letter sent to investors Feb. 5.
Back to smaller matters: so, the poor investors can finally get their money back? Kind of late, isn’t it? Now that it lost 90% of its value. And people wonder why we see ‘hoarders’ now, not investors! By the way, using the term ‘hoarders’ is a stab at gold and silver buyers who then take the metals home and keep it hidden. Watch out. The Fed is nervous about these things.
AIG Consumer Lender Rating Downgraded to Junk by S&P
American International Group Inc.’s consumer lending unit was downgraded to junk status today by Standard & Poor’s on the prospect of further losses.
The counterparty credit rating was dropped to BB+ from BBB, S&P said today in a statement on American General Finance Corp., which is owned by AIG, the New York-based insurer bailed out by the government last year.
“Weakening economic conditions will continue to pressure American General’s subprime consumer base, possibly leading to materially higher credit losses and further quarterly net losses in 2009,” S&P said.
American General is closing 178 branches and cutting about 380 jobs after a third-quarter loss, the Evansville, Indiana- based lender said in a Nov. 12 regulatory filing. The company cut back new loans to a “minimal level,” according to a Nov. 10 statement from AIG, which is seeking to sell the business to help repay a government loan.
One of the many loans in the graphs above, are things like this AIG story. The American General Finance Corporation is a walking corpse. As Americans either lose their jobs or have pay cuts, they can’t pay back consumer loans and now it is all being BB-ed to death. Eventually, it will be worth $0.
By the way, the Republicans cut out of the Senate bill, money to float all the State’s budgets. This was utterly stupid and foolish for this was the only item on the entire bill that made sense! States are reeling from tax losses, rising unemployment costs, etc. Floating them instead of forcing them to cut back means more jobs, more good things. It makes a lot more sense than funding banks! On top of it, the first defense from raging mobs is a strong state government!
We need more state spending, not Federal spending. A great deal of our Federal spending migrates to stupid places like bombing peasants in Afghanistan. Whereas, state money ends up in the US economy. How about it? I hope Obama vetoes that bill. After all, the last thing employed people need is more tax cuts! Instead, we need more jobs.
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