2/17/12…the frog

(market summary: we had a strong rally yesterday, volume remains average at best thanks to the electronic trading networks (ETN), yet remains 200 million below average on the NYSE, unless that is the new normal. But something is amiss…big names are now sharing opposing views with huge differences…some say we are in for a huge multi-year rally, while others see a correction of 20% or even more. TB feels, as you all know that it may, or will, continue to rise until the veil is pierced, then it will fall but the combined weight of the combined bears and disgruntled bulls may take it down even more…especially since those TB feels most aligned with see a recession looming later this year. After all, what are we rallying on? Corporate profits, mixed economic data, a slowly improving employment situation as shown in the weekly jobless claims, but ask yourself who has employees left to lay off…zero, zip, nada…but hire? Raise salaries? You have to be kidding and if you get a job, chances are it will be for considerably less than you earned in the last one…that is the world we live in…oh, that plus the Euro crisis which will undoubtedly end with a new government in Greece, a weaker Euro (thankfully for us as we raise more debt and the Fed is already ‘absorbing’ nearly half of the new issuance of bonds). It is time for the Euro to sink or swim…got any water wings?)

….remember how he remains happy while the temperature in the pot rises until he cooks? You didn‘t really think this was going to be about the French, did you?

Anyway, folks, we are the frog…deluded by the Bush recovery…Dubya that is, not his dad who thought differently. We just went through the worst financial crisis…globally…in the history of mankind, but just as our skin was about to boil, some kindly person (quel horror, it was the GOVERNMENT), turned down the heat and now while not nearly at room temperature, we are lax, once again thinking “it can’t happen again, at least not here.” Yet the same villains…and they are villains are hard at work using those same government guarantees to lull the frogs (we, the people), into believing all is well…after all, they are all banks…Goldman Sachs is a bank…Morgan Stanley a bank, yet the very definition of a bank is an institution that takes deposits AND makes loans. It does not, for the most part take on underwriting risk, nor ‘invest’ in risky securities…especially  the ones they underwrote and knew were….uh…crapola.

How long has TB been on this tack? More than three years…he has been mocked for it, had friends in the business say he is wrong, and lately say it is government who is to blame…even by some of the same ‘banks’ that were bailed out, and who are stalwartly trying to destroy or at least weaken any law (think Dodd-Frank), or any individual or group who gets in their way (Sheila Bair, Elizabeth Warren, Occupy Wall Street – a misguided group who is belatedly getting credit for trying to do something…it is too bad that they didn’t have a positive name as TB suggested like ‘Reform Corporate America’ and some leadership, but when the GOP, especially the Tea Party contingent, denounced them as dirty hippies, they managed to ‘neutralize’ them (those of you who read spy novels know what that means).

Finally, however, some well known names are belatedly saying that they had a point…too bad they didn’t have the guts to do so in the first place and redirect them to reform rather than destructive protest as it has evolved to in Oakland, California.

TB cannot overstate the need to go to http://www.billmoyers.com and learn the facts…former Citi CEO John Reed for one, and Gretchen Morgenson of the New York Times…or how about Dylan Ratigan, the most pro-capitalist person on CNBC for years (now at MSNBC), who has had rants against the financial system, despite being pro-capitalist like TB, that were counter to those of CNBC.s Rick Santelli (“does anyone hear want to pay for someone else’s mortgage?”), which kicked off the Tea Party, thanks to huge contributions by the infamous Koch brothers…who don’t give a damn about America or the law, but continue to enrich themselves and have duped millions of Americans into fighting for THEIR wealth.

Now let’s go back to the crisis…only two magazines had the guts to ‘invest’ in investigative reporting: the unlikely Rolling Stone and Vanity Fair! What does this say about capitalism when the champions of it, the Wall Street Journal and it’s self-serving editorial staff (remember when the front page denounced Michael Milken while editorials considered him a victim of false prosecution under the leadership of Jude Wanniski?) …don’t even get TB started on Forbes.

Look how blame has morphed: first to individuals who were irresponsible…that they were borrowing what they couldn’t afford (an anathema to the Germans, but whose banks willingly created flawed financial instruments and lent outside the country, until they would have destroyed themselves if not being bailed out by the government). Yet as TB has said: if you are seeing all your neighbors (ex-neighbors?) becoming rich in real estate, and you are losing ground in your job, why not try it…not totally irrational but lacking in moral responsibility? But so what? It took a loan originator, an appraiser, and loan review to grant that loan – often with data falsified by their own employees, to grant the loan. But as John Reed said, after he left (hmmm), loans were made that were only made because they were being sold to others without recourse. Now who is the irresponsible one? Sold to Wall Street who then packaged them and sold them to fools, but then the banks found it so profitable that they retained some of them forgetting that they were junk since they had that coveted AAA rating, and eventually took themselves down with their clients…a vicious cycle.

Yet for these irresponsible acts, they were bailed out…Goldman, Merrill,  and Morgan Stanley were declared ’banks’ over a weekend without any review…and they remain that way today…except Merrill which was bought by a bank…who later expressed sour grapes, when they were drooling to buy them as they did Countrywide. THEN Paulson, the Treasury Secretary, not the hedge fund manager with a slightly different spelling who was shorting the same paper, told the banks to pay bigger bonuses…after all, isn’t that how it works?…the more money you have the more you ’invest’ or consume?

So you tell me the difference  between the itinerant farm worker who wanted part of the American Dream and the enablers who enriched themselves knowing that it would all implode at some point (trees don’t grow to the sky)? It is only of scale.

We have converted our democracy to a duopoly…where just two groups control the country: the wealthiest and the Congress, who are in turn owned by the wealthy. Prior to 2005, the financial sector was a consistent 15% of GDP…it surged to 25% during the housing bubble…so that taking out the financial sector from GDP…or even the excess…would have given us only modest growth. Then the bubble burst.

As even the blind fool, Alan Greenspan (pardon TB as that is an insult to the blind) said: I fully expected Wall Street to thwart attempts at more regulation but I didn’t think they could do it that fast. He was only the Maestro in the sense of an enabler who kept rates artificially low, which in and of itself might have mitigated the problem, but failed to regulate subprime lending. Greenspan is a true laissez faire believer. He rejected anything to stop the problem as he felt that all people should have the same access to markets. Thank you Ayn Rand. As a result TB believes he will go down as the worst Fed Chairman in history. He was also the first person contacted by Sandy Weill to get permission to allow Travelers to buy Citi (as John Reed said: a bank can’t own an insurance company but Glass-Steagall didn’t prohibit an insurance company from owning a bank. This occurred six months prior to the repeal of the Act. Who was his second call to? President Clinton…Reed was on the call! Weill told him what he wanted. He then called Rubin who ran it through with bi-partisan support from Phil Gramm, Jim Leach, Charles Scheumer, and Al D‘Amato. Perfect, bi-partisan support, the cover of the Fed and it passed with spattered opposition. The only meaningful detractor was Sen. Byron Dondan (D-ND), who warned that we would have a crisis in less than ten years. Reed now says he wished we had listened to him, rather than ridiculing him…too little too late.

So what did this do? Ivan Boesky or Gordon Gecko couldn’t have said it better: it made greed good! Reed says that in 1999, Citi paid him a $3 million bonus…in 2000 it was $15 million. If he is to be believed, he asked the board why the increase when he was doing nothing different. The answer was a shrug. TB can tell you the true reason as compensation expert Graef Crystal found: to enrich Sandy Weill. He found that Citi was horribly mismanaged and yet he earned more than any other CEO, despite being a major shareholder.

Reed says one day in a discussion, Weill said, we’re all going to be rich. Reed said he had never heard a banker talk this way…after all banking was a rather pedestrian business with average at best compensation. Why did the brains on Wall Street begin their careers with the bond departments of banks then migrate to the big brokers? Money talks! Sandy wanted to be like them…he even tried to buy BofA once.
We are now faced with an election in which the likely GOP candidate, Romney, has changed his view on everything from health insurance to abortion, came from Wall Street, and yet is the closest thing to a moderate…while most of the other contenders were ideologues, and whose very strengths did not make fiscal sense. That will be the choice, between a flawed President who was swept into office by many young people who never voted in an election and others who wanted true change. He failed miserably…perhaps because he too was bought by Goldman Sachs…look at his choice of advisors.

Despite his failures however, the far right, who has made even conservative (Santorum recently said he is a ‘severe’ conservative?), a bad word and liberal akin to socialist or communist. With so many more that have been disadvantaged…i.e. anyone except the top 1% and above or from Wall Street…they insist on blaming him for everything that has happened since…sure, it comes with the territory, but these are not normal times.

Obamacare is not that radically different from Hillarycare, what Romney enacted, or other Republicans supported in the past, yet he is called a socialist or worse…definitely to the left of center but not as far as the right likes to say. A friend talked to two senior staffers in McCain’s campaign and asked what he would have done with the economy…they said not much different. What could he do?

As for his promise to get unemployment below 8%, the studies were valid but it had already surged to 9% right after he took office. Not only that were it not for the emergency unemployment insurance the situation would be far worse. We are also facing headwinds of reducing the Postal Service which along with state and local government layoffs (which are far from over), averaging 20,000 a month for the past two years or more, makes jobs growth impossible to absorb the new entrants to the labor force…do you think that will improve with budget cuts?

This has been a long rant but if you choose to listen to the misstatements…or worse…of the candidates, the SuperPAC’s, the recycled emails that have long been discredited by snopes.com, you will only have yourselves to blame. This is not a game…except for the wealthiest Americans (note TB did NOT say the wealthy, as they are not the problem), whose only goal is to build on that wealth at whatever cost to this great country. They proudly wear their American flag pins and tuck copies of the Constitution in their pocket yet confuse it with the Declaration of Independence, or fail to see why  the founders made it a very flexible instrument. They cry for a Balanced Budget Amendment which would be a disaster. Reagan proposed a line item veto…at long last it may be here, giving Congressmen the ability to include wasteful pork into totally unrelated bills, yet have a sane person remove them.

TB is mad as hell…hopefully angry not mad…but suddenly more and more people are having the guts to speak out against the insanity and try to improve America…it will be one long haul as the perps don’t want to give an inch. We are told to vote…for what? More of the same? No wonder the voter turnout is so low – unless…someday, against all odds, we can break the pattern…but who will it be? No one TB can see, yet!

Enjoy your long weekend…it’s President’s Day…what would Washington and Lincoln think?
TB

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