The Fed is going to go bankrupt

It’s certainly a daring prediction from Jim Rogers. I very much like how he points out that the Federal Reserve is the THIRD central bank in the United States. Central banks are neither omnipotent nor eternal, they are merely financial parasites on the nation, and like any other parasite, they have a finite lifespan. One merely hopes that like the previous two, the current central bank will not outlive its host.

I particularly enjoyed this exchange:

“Bernanke seems to be out of ideas recently.”

“Mr. Bernanke’s been out of ideas since he went to Washington. What’s wrong with you? He’s just an Ivy League professor. Are you kidding? Why do people think he knows anything? For God’s sake, I went to an Ivy League school. They didn’t know anything.”

Unlike most Fed observers, I have actually read Mr. Bernanke’s Essays on the Great Depression. The primary thing I took away from it was that he places too much stock in government statistics and far too much faith in monetary policy. He’s less an economist than an econometricist.

Mailvox: Beware the bank runs

Item: The unofficial Problem Bank List is now in excess of 1,000 institutions, 1,002 to be precise, with $417.4 billion in claimed assets. Based on the FDIC reports, I estimate that only $255 billion of those assets actually exist.

Item: One of the Dread Ilk writes of his recent experience with his bank. “I went in to my local [bank] yesterday to withdraw 5k. The fellow behind the counter looks at the number on my withdrawal slip… then whispers to the lady at the next teller station, who rolls her eyes and shakes her head, as if withdrawing that much was a horrible trial.

“I only have $1400!” I hear him say.

They both then departed for the back and came back a minute later with some bills.

“I’m sorry,” my intrepid teller says, “We can only manage $4000.”

He then has me re-write my withdrawal slip… and gives me $4000, of which just over half is hundreds. The rest was scraped together from 50s and 20s.

I said “Huh. You guys are in bank-run territory now, aren’t you?”

He looks up, “Uh… I guess.”

Action Item: If you are living in the USA, you may wish to consider keeping a bit more cash on hand than usual.

Droit du banquier

I’m not sure which is more unsettling. The fact that these bankers think they’re irresistible or the fact that they find nondescript Manhattan hotel maids to be so utterly alluring:

Another international moneyman has been busted for sexually assaulting a maid at a luxury Manhattan hotel, cops said last night. Mahmoud Abdel-Salam Omar — the 74-year-old former chairman of Egypt’s Bank of Alexandria — allegedly groped and “gyrated” against the maid in Room 1027 at The Pierre hotel on Fifth Avenue, a law-enforcement source told The Post. He was wearing a bathrobe at the time, but it was not clear what, if anything, he had on under it.

I suppose this is one way to bring the ongoing financial madness to an end. Just keep arresting bankers, one grope at a time.

Note to would-be rapists

While the consensual defense is a perfectly reasonable one, and no man should ever be convicted on the mere basis of a he-said she-said accusation, it’s not a defense that is going to hold up when you a) initially denied that any sort of sexual encounter ever took place and b) you are claiming innocence by reason of an alibi.

International Monetary Fund (IMF) chief Dominique Strauss-Kahn’s defense attorney looks set to claim the French politician’s alleged assault on a Manhattan hotel maid was actually a consensual sexual encounter. During Strauss-Kahn’s arraignment hearing Monday lawyer Ben Brafman told a packed criminal courtroom, “The evidence, we believe, will not be consistent with a forcible encounter.” The New York Post cited a source as saying, “There may well have been consent.”

Now that the alibi defense has disappeared, I’m curious to know if the New York Times and Wall Street Journal are going to start crying anti-semitism as soon as the consensual defense falls apart, (his accuser is a Muslim, after all, and therefore must be assumed to be a top al-Qaeda operative), or if they’ll try running with the “too big to jail” argument first.

NB: One wonders about the wisdom of centralizing the global financial system and turning it over to an idiot who is dumb enough to not only rape an African immigrant, but an African immigrant who may have HIV or AIDS. Now that would truly make for poetic justice.

One way or another

Be it financial or physical, the IMF is determined to rape you:

The leader of the International Monetary Fund was pulled from an airplane moments before he was to fly to Paris and was being questioned Saturday by police in connection with a sexual assault of a maid at a hotel, police said.

Dominique Strauss-Kahn, a candidate for president of France, was taken off the Air France flight at John F. Kennedy International Airport by officers from the Port Authority of New York and New Jersey and was turned over to police Saturday afternoon, said Paul J. Browne, New York Police Department spokesman.

He was being questioned by the NYPD special victims office. No charges have yet been filed.

The 32-year-old woman told authorities that she entered Strauss-Kahn’s room at the Sofitel near Manhattan’s Times Square at about 1 p.m. Saturday and he emerged from the bedroom naked, threw her down and tried to sexually assault her, Browne said. She escaped and told hotel staff what had happened, authorities said. They called police.

When New York City police detectives arrived moments later, Strauss-Kahn had already left the hotel, leaving behind his cellphone and other personal items, Browne said. “It looked like he got out of there in a hurry,” Browne said.

It is with the cynicism borne of experience and observation that I await the news DSK will not be charged because tanks will patrol the streets and cats and dogs will start living together if any elite bank or banker is held accountable for their crimes. A little talk with the immigration authorities – the woman is a maid, after all – and a discreet payment in the low six digits should make this unfortunate little contretemps vanish in due course. How unsurprising that the Wall Street Journal headline describes the arrest as being for “alleged sexual assault” rather than “attempted rape”.

But it is worth noting that these are the sort of bastards who are supposedly going to save the global financial system. Out of the goodness of their hearts, of course.

UPDATE: DSK will almost certainly walk uncharged. He has diplomatic immunity. He could have murdered her after raping her and he still wouldn’t face charges.

United Nations Convention on the Privileges and Immunities of the Specialized Agencies and Annex V1

Whereas the General Assembly of the United Nations adopted on 13 February 1946 a resolution contemplating the unification as far as possible of the privileges and immunities enjoyed by the United Nations and by the various specialized agencies; and

Whereas consultations concerning the implementation of the aforesaid resolution have taken place between the United Nations and the specialized agencies;

Consequently, by resolution 179(II) adopted on 21 November 1947, the General Assembly has approved the following Convention, which is submitted to the specialized agencies for acceptance and to every Member of the United Nations and to every other State member of one or more of the specialized agencies for accession.


Definition and Scope


In this Convention:

(i) The words “standard clauses” refer to the provisions of Articles II to IX.

(ii) The words “specialized agencies” mean:

(a) The International Labour Organisation;

(b) The Food and Agriculture Organization of the United Nations;

(c) The United Nations Educational, Scientific and Cultural Organization;

(d) The International Civil Aviation Organization;

(e) The International Monetary Fund;

UPDATE 2: The Guardian says DSK does not have immunity: “Strauss-Kahn, who does not have diplomatic immunity as head of the IMF, is expected to be brought before a state court on Sunday.”

Here is hoping they nail the rat bankster. Pity he’s only being charged with the rape-rape instead of the financial variety.

The Wall Street Journal scrubs the True Finns

Karl Denninger catches the WSJ doing a little ex post facto editing of the letter written by True Finn leader Timo Soini on the corrupt nature of the European banking bailouts:

Why I Won’t Support More Bailouts

When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.

The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders.

To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let’s follow the money.

At the risk of being accused of populism, we’ll begin with the obvious: It is not the little guy that benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a kind of deadly symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever-more money back to our governments, keeping the scheme afloat.

In a true market economy, bad choices get penalized. Not here. When the inevitable failure of overindebted euro-zone countries came to light, a secret pact was made. Instead of accepting losses on unsound investments—which would have led to the probable collapse and national bailout of some banks—it was decided to transfer the losses to taxpayers via loans, guarantees and opaque constructs such as the European Financial Stability Fund, Ireland’s NAMA and a lineup of special-purpose vehicles that make Enron look simple. Some politicians understood this; others just panicked and did as they were told.

The money did not go to help indebted economies. It flowed through the European Central Bank and recipient states to the coffers of big banks and investment funds.

The text that the Journal removed is marked in bold. Read the whole thing at the Market Ticker. And a thought occurs to me. Since the election of Mr. Soetoro has demonstrated that absolutely no documentation is required of an American presidential candidate, why not nominate Mr. Soini for the presidency? He’s a damn sight better than anyone else the Republicans are likely to choose, he isn’t too old, and as the leader of a popular, electorally successful party, he can’t possibly be called unelectable.

Anyhow, it’s a good example of how the Whore Street Journal should not be trusted any more than the New York Times or the National Enquirer.

Killing Ireland to threaten Spain

This article by a professor of economics at Dublin College is easily the most informative summary of the disaster presently facing Ireland, and by extension, the financial world.

The one thing you need to understand about the Irish bailout is that it had nothing to do with repairing Ireland’s finances enough to allow the Irish Government to start borrowing again in the bond markets at reasonable rates: what people ordinarily think of a bailout as doing.

The finances of the Irish Government are like a bucket with a large hole in the form of the banking system. While any half-serious rescue would have focused on plugging this hole, the agreed bailout ostentatiously ignored the banks, except for reiterating the ECB-Honohan view that their losses would be borne by Irish taxpayers. Try to imagine the Bank of England’s insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work.

Instead, the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted. And the ECB plan, so far anyway, has worked. Given a choice between being strung up like Ireland – an object of international ridicule, paying exorbitant rates on bailout funds, its government ministers answerable to a Hungarian university lecturer – or mending their ways, the Spanish have understandably chosen the latter.

I didn’t realize that Geithner, the ex-NY Fed Secretary of the Treasury, was so directly involved in saddling the Irish taxpayer with the losses that would have otherwise been taken by the banks that were bailed out. I don’t see how it is possible to read this and still convince oneself that the world’s economic and financial problems of 2008 are in the past it’s perfectly clear that the global financial system hasn’t been fixed in any way, shape, or form, it is only that extend-and-pretend has gone from the national to the intercontinental level.

As I noted yesterday, despite my very contrarian predictions of a continued decline in housing prices, I actually appear to have underestimated the speed, and likely the eventual extent, of the collapse. In the same way, my predictions that the banks and governments of the world would reinforce their failure by taking it to the next level appears to have somewhat on the conservative side as well.

Ireland and Greece are already toast. They are almost guaranteed to default sometime within the next two years. What sort of domino effect this will kick off can’t be accurately predicted, but it seems reasonable to assume that the bankruptcy of an entire nation or three will be more calamitous than the mere failure of a single Austrian Creditanstalt.

The great financial rape

Tyler Durden shows how the banks used the housing bubble to rob the middle class of half their wealth:

The Great Middle Class between those in poverty and the top 20%–56 million households– owns about $2.7 trillion in financial wealth, and the millions with mortgages own an additional $1 trillion in home equity. That comes to $3.7 trillion, or about 6.5% of the total household net worth.

Consumer durables–all the autos, washing machines, jet-skis, etc.–are worth about $2.2 trillion ($4.6 T = $2.4 T in consumer debt). Add the durables and the other wealth, and the Great Mortgaged Middle Class holds about 10% of the total household wealth ($5.9 trillion).

Before the housing bubble, households owed about $5 trillion in mortgages. The housing bubble came along, introducing the fantasy of home-as-ATM-cash-withdrawal-machine, and mortgages ballooned to over $10 trillion.

Back at the top of the bubble, the middle class had $6 trillion more assets on the books. Considering the Mortgaged Middle Class now owns about $6 trillion in net assets, then the bursting of the housing bubble caused their net worth to drop by 50%.

With regards to the importance of real estate and debt, note that household and nonprofit real estate is now worth $18.2 trillion despite its $6.8 trillion decline since 2006. This is non-trivial, given that real estate is still nearly twice the current $8.9 trillion of the M2 money supply. What I find particularly interesting is that mortgage debt and consumer credit are both nearly flat; this indicates that the Fed has successfully resisted the debt-deleveraging thus far while being unable to prop up the prices of certain asset classes.

This is further indication that what we are presently seeing in the equity and commodity markets is a speculative spike driven by liquidity rather than true monetary inflation. The silver market, in particular, has gone nearly vertical, which in most situations would indicate that there should be some further buying opportunities in the relatively near future. Alternatively, if the rising commodity prices are indicative of hyperinflation, we’ll see real estate prices start rising soon and silver could go to 400.

I think, however, that we’re more likely to see prices start collapsing when QE2 comes to an end. For all that the rising prices look superficially impressive, they’re actually quite moderate in comparison with the $5 trillion in global liquidity pumping. No doubt there will be calls for QE3, but given the increasingly obvious failures of the first two quantitative easings and the attention that is being given to the debt, I doubt the Fed will be in much of a position to try it.

Anyhow, the two most interesting signals now appear to be housing prices and silver. Right now, these markets are moving in opposite directions and its as foolish to ignore one as the other. Sooner or later, one of them is going to reach an inflection point and reverse direction and that should provide us with a better idea of whether Federal Reserve pumping has been disguising the deflation or various factors unique to the housing market has been mitigating the effects of inflation in the real estate market.

Six bank failures

Yesterday the FDIC shut down six banks with around $4.2 billion in assets between them. But I thought one thing was a bit peculiar with regards to the seizure of Superior Bank in Birmingham, Alabama.

“As of December 31, 2010, Superior Bank had approximately $3.0 billion in total assets and $2.7 billion in total deposits. … The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $259.6 million.”

It seems as if the bigger the bank is, the smaller the cost to the FDIC reported. In this case, the losses were only 8.7 percent, much lower than the 22.5 percent average for bank closures in 2010 and 2011. This would appear to suggest that the losses are being disguised in the assets being acquired by the new bank, which in this case is “Superior Bank, N.A., Birmingham, Alabama, a newly-chartered bank subsidiary of Community Bancorp LLC, Houston, Texas”.

I’ve also noticed that both the numbers of banks seized and percent of estimated bad assets appear to be shrinking. The 34 banks seized so far in 2011 averaged about 34.4 percent bad assets versus 42.1 percent for the 157 banks seized in 2010 and 41.1 percent for the 140 seized in 2009. This would appear to indicate a material improvement, although it is a fairly modest one considering that the fair financial winds of government spending and quantitative easing appear to be drawing to a close.

Max Keiser scares the BBC

Best line: “Just because Max sounds bonkers doesn’t mean he is.”