by Luis Bravo Villarán, March-April 2009
“If you want to remain slaves of bankers and pay the
cost of your own slavery, let them continue to create money and control credit
in the country” … Sir Josieh Stamp
1880-1941
The FED founders: Rochefeller, Morgan, Wartburg
y Rotschild
“The impact of the Obama plan would be seen
toward the end of 2010, because the main problem confronting the plan of economic
stimulus for US $ 787,000 million is the lack of credibility. If the market is
not persuaded, no matter how much money will be made available -more and more
money- and expectations will continue to drag down. The Economist published a
study of the GB-Congressional Budget Office that forecasts that the aid package
could achieved the expected impulse only towards the end of 2010”.
This forecast and the chain of requests from various
corporations in crisis (such as Chrysler and General Motors) is affecting the
confidence of American citizens. While uncertainty does not dissipate, no one
(except the very reckless always in the spot) will go for investing in sectors
linked to domestic demand in the US as textiles and agribusiness ...”
From “Investigacion y
Gestion Consultores” (Peru)
The great problem of the crisis –out of not being
established in its true dimension-
is that solutions are being sought through the injection of money to financial
institutions which performances are precisely the cause of this debacle. If
such a galaxy of "gamblers" (operators of the "global
casino") who dragged the world to the darkness under the receipt of
"free market" (when in fact what was being done was an extreme
debauchery) and that so famous idiot phrase (or for idiots), "Do not worry that the market fixes
everything" (when in fact young rogue traders were disorderly or
irresponsibly fixing –or unfixing- deals in search of higher returns to their peers
–the bankers- along with bonds to their pockets).
¿By chance it may be thought that this
"confidence crisis” could be overcome by doing what the US and EU governments
are doing injecting money (over issuing money bills) in industrial quantities to
banks (and AIG)?; ¿by chance some one may believe that there are random bailout
prescriptions of economists who have never experienced a crisis like this; when
if not all, almost all were wrong or remained silence some by interest and the
others by ignorance; and those who had timidly foresee what came, did not raised
their voices high enough and/or on time?.
The big problem today is how to avoid acknowledging
that the "system" failed, collapsed, hopefully this would have been
plunged into when the chain of crisis in 2000-2001. Nasdaq in year 2000 and
then in 2001: S-11, Enron, World Telephone, airlines (Ch-11), etc. By that time
government avoided any American bank to fall in order to keep the
"system" in force; then disease would have been detected at an
earlier stage and the damage would have been minor and possibly healed through a
more effective control; but what was done was to inject large amounts of
dollars to the market to continue the "gambling" ... and the gambling
continued strengthen by the "system double standard" in the secondary
markets where the SEC only regulates securities traded over more than 270 days;
naturally each piece lasted up to 270 days through the "Commercial Papers”
that were backed by packaged mortgages in small slices and traded by means of
computational models again and again every day, generating small daily returns but
for (up to) 270 days ... It was first money backing money ... then packages of
mortgages (in fact “occupied non-productive assets” whose profitability was the
result of speculation in the mortgage market, so absurd, because the mortgage debts
had a limit: the payment committed and the ability to perform it) ... up to
money without any backing other than papers. All these unsupervised,
unregulated. Here there are two great responsible: governments for allowing
these types of transactions and banks for performing without limits and without
the slightest regard to ethics or to the MARKET.
The solution here is not inject money (from Treasury) into
banks and restore their ability to continue to manage what they have handled so
bad throughout so many years. Here what should proceed is to be transparent and
this is possible only after recognizing the true extent of the crisis in each country
(mainly in the US
and the EU).
¿Who has created this spiral of huge losses?; it is
clear that they were the banks.
Now and due to desperation the bailout program of $700
billion approved last year is being delivered to the banks (and of course also to
AIG) along with fostering them to go into secondary markets presumably in
search of that gambled hidden money to inject it to the market … so gamblers
are requested to save the casino; but as both gamblers and casinos have lost,
the government rescues them to continue with the gambling?; ¿would it be the
correct way to recover market confidence … or simple the way to restore the
losses to the casinos owners?
Bank Aid Programs
Are Seen as Open to Fraud
Published: April 21, 2009 (NYT)
WASHINGTON -
The Treasury Department’s most ambitious plans to rescue troubled banks -partnerships
between the government and private investors, backed by the Federal Reserve - are inherently vulnerable to fraud and should not be started without
stronger safeguards, a top government investigator warned in a report to be
released Tuesday.
…
The report
also warned that the Treasury’s $700 billion Troubled
Asset Relief Program has evolved into a $3 trillion effort of
“unprecedented scope, scale and complexity” and comes with too little oversight
and too little information about what companies are doing with the taxpayer
money they are getting.
…
Neil M.
Barofsky, the special inspector general assigned to monitor the bailout
program, in his second report to Congress was particularly critical of the
Treasury Department’s refusal to demand detailed information from banks and
other financial institutions about what they are doing with the money they
receive.
…
The inspector
general was particularly pointed in his criticism of the Obama administration’s
plan to buy up questionable assets from banks. That plan calls for the Treasury
to spend $100 billion to buy up troubled mortgages and mortgage-backed
securities.
The plan also
calls for multiplying the total volume of those asset purchases to almost $1
trillion by allowing private investors to borrow money at low interest rates
from the Federal Reserve.
Mr. Barofsky
said the plan posed “significant fraud risks,” especially when it came to
buying up securities backed by exotic mortgages made during the peak of the
housing bubble, when the excesses of poorly documented loans and no-money-down
loans reached their zeniths.
The report
said that the Federal Reserve intended its lending program, known as the Term
Asset-Backed Securities Loan Facility, or TALF, to finance new lending rather
than to buy up existing assets. It warned that the Fed was not currently
planning to examine the securities that it would finance, and would be relying
instead on the evaluation by credit rating agencies that originally failed to
spot the dangers of subprime mortgages.
Both the
Treasury and the Fed have increased the amount of information they are making
public about their various rescue plans. Treasury officials have pushed the
banks to provide information about their lending volumes, and they are
demanding more information about what banks are doing with their money.
But Treasury
officials have argued that it is almost impossible to get meaningful
information about how banks are using money under the troubled-asset program,
in part because the money came with few conditions.
Treasury
officials have also noted that if the funds are allocated for one purpose, like
mortgage lending, they free up other money that can be used for a very
different purpose, like making acquisitions.
From the … LETTER TO SHAREHOLDERS
Jamie Dimon,
Chairman and
Chief Executive Officer
JP
Morgan Chase - March 23, 2009
…
Albert Einstein once said, “Make everything as simple as possible, but
not simpler.” Simplistic answers or blanket accusations will lead us
astray. Any plan for the future must be based on a clear and comprehensive understanding
of the key underlying causes of - and multiple contributors to – the crisis,
which include the following:
- The burst of a major housing bubble
- Excessive leverage pervaded the system (*)
- The dramatic growth of structural risks and the unanticipated damage they caused
- Regulatory lapses and mistakes
- The pro-cyclical nature of virtually all policies, actions and events
- The impact of huge trade and financing imbalances on interest rates, consumption and speculation
…
(*) B. Excessive
leverage pervaded the system
Over many years, consumers were adding
to their leverage (mostly as a function of the housing bubble), some commercial
banks increased theirs, most of the U.S. investment banks dramatically
increased theirs and many foreign banks had the most leverage of all.
In addition, increasing leverage
appeared in:
- Hedge funds, many using high leverage, grew dramatically over time. Some of that leverage was the result of global banks and investment banks lending them too much money.
- Private equity firms were increasingly leveraging up their buyouts. Again, some banks and the capital markets lent them too much money.
- Some banks (and other entities) added to their leverage by using off-balance sheet arbitrage vehicles, like SIVs and leveraged puts.
- Nonbank entities, including mortgage banks, CDO managers, consumer and commercial finance companies, and even some bond funds, all increased their leverage over time.
- Even pension plans and universities added to their leverage, often in effect, by making large “forward commitments.”
Basically, the whole world was at the
party, high on leverage – and enjoying it while it lasted.
…
A document that must be fully read
¿What is needed for the market (a demonized term, but
real) to regain confidence? … The only possibility is to give access to money in
order to meet their needs (increased demand) and this would only be viable with
more "income" for individuals. But as this does not seem to be possible
at this time, what may be explored first is how to lower the pressure to collect
from them what they can not afford, but not through the purchase of their debts
by the Treasury that would pay the banks, as this is "more of the same”,
but through a careful studied to transfer the debt titles from banks, to a
“special trust” (may be one main trust organization with autonomous branches in
each state); then the banks would become beneficiaries of the trusts and there
will be no writing-off in their balance sheets. In the meantime, pending the
recovery of the payment capacity of individuals and families, also can be set
in stages special contracts for rental of occupied houses whose product enter to
the trusts (collection subordinated with special conditions) and gradually to
the banks according to a design to be agreed.
¿Will there be bankruptcies? ; here it can be designed
an exceptional way in which regulation can minimize or avoid this possibility,
so that banks will also recomposing along the time; and indeed, allow the
opening of new banks with capital raised from various sources duly evaluated by
the supervisory body.
¿How to activate the productive sector?; of course banks
must be the articulators of the payment chain within the market and thus
channel the money to the economy, but opening the availability through a sort
of triangle type of credit lines under the control of the trusts gestating a
new collateralization system -"changing the paradigm”- which means to leave
behind the already sold out "mortgage system paradigm", and cover the
whole range of actors, from individuals, families, through small, medium to
larger businesses. Henceforth avoid the establishment of "mortgages"
and removing them from the hands of banks ("judge and party", a
source of abuse that ended with the disaster that has been witnessed since 2007)
and giving the arbitration to the trusts.
In this way governments instead of intervening in banks
ownership, would begin to exercise control through the trusts and then become
the "great trustee". This could be done immediately by creating
public-private trust in each state that will exercise the arbitration and control
on financial transactions independently of the banks (lenders that will become
trust beneficiaries) and the borrowers (credit beneficiaries). A fourth player
would "risk managers" firms (no risk-rating agencies, which is
different), to assist clients in the pre-assessment of their risks to properly
present their operations to the trusts and banks supporting them as part of the new system monitoring and controlling the
credit risks in the operational phase. Insurers will continue in their role of
traditional risk takers and of those risks likely to be economically
transferred; conforming in this way a free, healthy and transparent new system with
greater chances of success than the traditional exhausted system. Assets
control through independent patrimonies and cash flow subordination within the fiduciary
system by the trust entities, will guarantee the banks the operations without
any danger of continuing gambling in the money market the mortgage packaging
type of securities. In this way control will be automatic and all stakeholder
interest protected.
An additional role for the governments (or states) is
to create "corporate guarantee funds" to be managed by fiduciaries
(trusts), for different levels of economic activities, mainly small and medium
enterprises, so as to cover the risks of starting new productive initiatives
properly evaluated until the formation of their assets and the generation their
cash flows, then the whole operation goes into the trust system while the
credit is at risk. Then with new or revitalizing existing initiatives employment
would be generated and thus the CONFIDENCE regained but through a NEW SYSTEM.
Money instead of going to rescue bank (bailout
programs) within a exhausted system would go through a healthy and transparent
system (trust guarantee funds and secontier banking type of credit lines with
the intermediation of commercial banks) to bust the economy restoring the
payment capacity to a market plenty of new opportunities.
To think that this is the solution may be presumptuous;
but this could be indeed the outline of a possible solution with financial tools
available that would eliminate (or at least minimize) the arbitrariness and
debauchery that has turned into this unprecedented costly global financial
crisis.
¿Does this initiative will have costs?; of course there
will be extra-costs due to the presence of new stakeholders: trusts, secontier
credit banking, risk manager firms (that will assist the market to present
initiatives facilitating –filtering- evaluation to trusts and secontier credit
banking, and elaborating statistical data to economically manage small business
operations). But that cost will generate new specialized jobs that will allow re-launching
of a transparent economy; besides, the control of financial transactions will
be inherent to this new proposed system; and in the other hand: ¿what cost is
being paid right now for the traditional system?
Drastic measures: minimize speculation (reinforcing
transparent arbitration) and the generation of high yield fictitious returns
without any backing. To this end, capital and money markets should be strictly regulated
with closer monitoring. Secondary money markets should disappear and with them
the high yield programs where much of the current crisis may be still hidden,
as we have witnessed the explosion of the "housing bubble", but what
about the "corporate" one?
Something fundamental is urgently avoid the gambling with
“foodstuff derivatives"[1].
The worldwide products trading markets should work with simple backed "futures
contracts" duly controlled and monitored, in view that "rogues
traders in financial markets" are increasingly pointing to that market and
with the same known techniques for making decisions to buy and sell (no food,
but securities backed by delivery of food) and make more money through it. What
is next? Clearly the spiraling increase in international food prices in order
to pay returns that these title markets demand. The result at first will be a higher
inflation in food prices (we have recently witnessed this effect as a result of
speculation in the years 2007-2008, not as falsely reported that this was due
to an increased foodstuff demand from India and China); and then ... –God save us- an unprecedented world hunger?.
Again:
“If you want to remain slaves of bankers and pay the cost of your own
slavery, let them continue to create money and control credit in the country” … Sir Josieh Stamp 1880-1941
LBV
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