Trusting Banks as Far as You Can Throw Them

By The Mogambo Guru

06/17/09 Tampa Bay, Florida I was kind of dozing, idly dreaming of playing golf, where if I wasn’t putting the ball right into the cup from 25 feet away, then I was chipping it in from 25 yards out, wowing the crowd with deft wedge action, whereupon my caddy, a beautiful girl in a bikini and stiletto heels, would say, “Oooh! Nice one! You are so good that it gets me hot! I am panting for you, my Hot Mogambo Golfing Stud (HMGS)!”

Suddenly, I was jolted rudely awake by alarms ringing in the Mogambo Bunker Of Paranoid Delusions (MBOPD) at the news of a drop of $40 billion of Total Fed Credit last week. Wow! This is the “money” that magically appears, literally “out of thin air, as a new credit on the books of the banks, which they can then loan out some Huge Freaking Multiple (HFM) of that little bit of new credit, thus creating lots and lots of new money.

And this huge $40 billion downward swing of Total Fed Credit in one week is a Big Freaking Bunch (BFB), where the total effect on the banks is the reciprocal of the fractional reserve ratio, which is at least 10 times as much according to the classical textbook examples, but more likely a thousand times as much, seeing as how the Federal Reserve itself says that total bank assets are now a whopping $12.030 trillion and total bank liabilities are $10.780 trillion, against which the banks are only “required” to have $57.622 billion as reserves! Hahaha!

So what does that make the fractional reserve ratio? 187-to-one? Hahaha! We’re freaking doomed by out-of-control fractional-reserve banking!

And in that regard, the M1 and M2 money supplies are still growing, with M1 up 17% over last year and now hitting $1,596.2 billion ($1.696 trillion) and M2 up 8% from this time last year, now hitting $8,327.9 billion ($8.327 trillion).

Perhaps this is the reason the internationalforecaster.com quotes Nassim Nicholas Taleb, economist and author of the terrific book The Black Swan, as saying, “Bank nationalizations are ‘absolutely necessary’ to stop them damaging the financial system further with more losses.”

His sentiments are obviously echoed by New York University Professor Nouriel Roubini, who actually says the majority of U.S. banks are “insolvent”.

And as if anyone had to be told that bankers and politicians cannot be trusted, Mr. Taleb goes on, “You cannot trust the banks in taking risks,” and because we stupidly did, we now “have a very strange situation in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst.”

And one of the reasons that you can’t trust the banks is revealed by Bloomberg.com when it’s reported that one of the Federal Reserve morons, Dallas district-bank President Richard Fisher, said, “The Federal Reserve isn’t capable of offsetting the ‘flood’ of U.S. Treasury borrowing with its bond-purchase program, which is helping to revive credit markets.” Hahaha!

I got a Hot Mogambo News Flash (HMNF) for this dork: yes they can! There is nothing to stop them! Hahaha! Who’s going to stop the Federal Reserve from creating all the money that the federal government wants to borrow, and then the Fed using the money to buy all the new government debt? Hahaha! You gonna stop them? Hahaha!

Of course, he may be saying this because he and his Fed moron buddies have screwed everything up and he doesn’t want to talk about that, or how Mises.org reported that “The Federal Deposit Insurance Corporation (FDIC) list of problem banks grew to 305 in the first quarter, the highest number since 1994,” to which they then ominously added that “but of course the names of those banks are not released so that depositors can be forewarned.”

This is probably why msnbc.com had the headline “Most Banks Still Getting Weaker, Analysis Shows,” with an explanatory subhead of “First-quarter reports show bad loans increasing at 60% of banks,” which seems somewhat understated since later we read that “Overall, bad loans rose another 22 percent in the quarter.”

Even worse, it is even more lopsided than that, as, “While the 10 largest banks reported $10.2 billion in earnings for the quarter, the remaining 8,245 banks together lost $2.6 billion, according to the analysis,” which comes down to “One in five banks lost money in the quarter, and several lost big, weighing down the rest.”

The disintegration of the banking system, the fall of the dollar and the ruination of everything connected with them seems the perfect place to remind you that if you are not buying gold, silver and oil to profit from this governmental incompetence and stupidity, then there is something Very, Very Wrong (VVW) with you, which means you probably stopped paying attention already, which leaves the rest of us who ARE buying gold, silver and oil, meaning that there is nothing more to say about buying gold, silver and oil!

Whee! This investing stuff is easy!

Political stock picks

Uncle Sam goes on a buying spree, chargeable to you

By Richard W. Rahn

Did you want to own shares of stock in Chrysler LLC, General Motors Corp., American International Group Inc., Citibank and other major corporations?

Well, if you did, you could have purchased them through any stockbroker. But if you chose not to buy them, you are out of luck because the U.S. government is buying them for you, whether you want them or not.

One could be picky and ask where the Constitution gives the president the right to serve as our personal stockbroker - ah, it doesn't - but constitutional niceties are not much of a concern within the Washington establishment.

After frittering away 4 billion "bailout" taxpayer dollars to "save the company," Chrysler just announced it was going into bankruptcy. Not the normal Chapter 11 bankruptcy, but a "managed bankruptcy" that will require at least another 8 billion in taxpayer dollars, while, at the same time, turning 55 percent of the ownership of the company over to the United Auto Workers (whose contracts and work practices helped destroy Chrysler) and 35 percent of the equity to Fiat motors of Italy (a company that is contributing no cash - hmmm). U.S. and Canadian taxpayers are putting up a lot of cash but only get to share the remaining 10 percent ownership.

This proposed Chrysler deal raises a whole series of questions that taxpayers, creditors, existing shareholders and those who believe in the Constitution should find troubling. Why should taxpayers believe another $8 billion will be enough, since all of the previous forecasts about how much Chrysler would need were dead wrong? Why should Fiat be given such a large ownership share merely on the promise to bring small-car technology - and not cash - to Chrysler? (It should be noted that Fiat historically has been far from the best-run car company. In 2003 and 2004, it had to be bailed out by GM - yes, GM - which eventually lost $2 billion on the deal, leading, in part, to its own problems.)

Why is it proposed that the secured creditors - those with specific pledged assets - are treated no better than the general creditors, in violation of their contractual rights? Why are the cash creditors treated worse than the pension creditors? Should not the taxpayers who are forced to put at least $12 billion into the company have a superior claim to future earnings before the UAW or Fiat?

Why should one believe the directors the Obama administration appoints to the board of Chrysler will have the necessary expertise and not be more beholden to the Obama administration and the Democratic Congress than to the American taxpayer?

The evening before the announcement of the proposed Chrysler deal, President Obama said during his news conference that he and his administration had no interest in running the banks and the auto companies - which was reassuring. But the actions of the administration have been totally contrary.

Normal bankruptcy law, under Chapter 11, enables companies which appear to have a viable future to reorganize and reduce their debt and operating burdens by paying the creditors something above salvage value and rewriting labor contracts. This is done through the courts and requires no involvement of the executive or legislative branches of government - and is blessed by explicit mention in the Constitution.

If a business, even after reorganization, will still not be viable without a subsidy, why should a taxpayer get stuck with the tab? After all, there are plenty of competitive, well-managed and solvent banks, insurance companies, auto companies, etc., to pick up the slack for those that are not viable and to provide for consumers' wants, needs and desires.

Over the past century, three basic economic models have been tried: socialism, where the government owns the means of production and where there are almost no property rights; fascism or state capitalism, where the means of production are owned by private parties but where the government controls the actions of the companies, including who is named to run them, and where private property rights are severely limited; and finally, capitalism, where the means of production are privately owned and property rights are strongly protected.

Over time, only one of these systems has been compatible with continued economic growth, opportunity and liberty - and that system is capitalism.

Capitalism is a self-correcting economic system and only gets in sustained trouble as a result of faulty government policies, such as excessive or erratic monetary growth, which causes "bubbles"; inflation or deflation; and/or destructive tax, spending or regulatory policies.

Politicians in Washington coercing citizens to buy into companies they wish not to, and politicians picking boards of directors and managers of companies are doing more than merely flirting with socialism and fascism.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

This Tax Is for You

A levy on Joe Six Pack.

Today is the dreaded April 15, but at least in Oregon it's even going to cost you more to drown in your tax sorrows. In their sober unwisdom, the state's pols plan to raise taxes by 1,900% on . . . beer. The tax would catapult to $52.21 from $2.60 a barrel. The money is intended to reduce Oregon's $3 billion budget deficit and, ostensibly, to pay for drug treatment.

If it passes, Oregon will overnight become the most taxing state for suds, one-third higher than the next highest beer tax state, Alaska. The state may do this even though Oregon is the second largest microbrewery producer in the U.S. The beer industry and its 96 breweries contribute 5,000 jobs and $2.25 billion to state GDP. Kurt Widmer of Widmer Brewing Co. says the tax would "devastate our company and small breweries throughout the state." Adds Joe Henchman, director of state projects at the Tax Foundation, "This microbrewery industry has gravitated to Oregon in part due to low beer taxes."

For Oregon to enact punitive taxes on its homegrown beer industry makes as much sense as Idaho slapping an excise tax on potatoes or for New York to tax stock trading. Even without the tax increase, taxes are the single most expensive ingredient in a glass of beer, according to the Oregon Brewers Guild.

But Democrats who run the legislature are desperate for the revenues to help pay for Oregon's 27.9% increase in the general fund budget last year. If they have their way, every time a worker steps up to the bar and orders a cold one, his tab will rise by an extra $1.25 to $1.50 a pint. Half of these taxes will be paid by Oregonians with an income below $45,000 a year. Voters might want to remember this the next time Democrats in Salem profess to be the party of Joe Six Pack.