A mortgage bond is a bundle of mortgages packaged together and sold as a bond. The way it works is simple: A mortgage lender, usually a bank, lends money to an applicant to buy a home. They then sell the debt to an investment bank. The reason a bank sells their loans is that it takes them off their books, which enables them to lend again. The laws which govern banking practices require that the bank keep a sufficient amount of assets in reserve in case their loans go bad. Each loan would make more money for the bank if it went to maturity, but in passing the loan along the bank can now re-lend against the same assets that were held in reserve for the previous loan. Say for instance a bank has nine million dollars in reserve, by law, believe it or not, it can create up to one-hundred million dollars in new money for loans.[1] According to the Federal Reserve Bank, this generous ratio is enough to keep the banking system liquid as it is unlikely that all the banks loans would go bad at the same time. So if the bank has two, fifty- million dollar loans out, it cannot lend again until at least some portion of these loans are repaid. They net a smaller profit from selling the loans off, but it means they can lend again.
More often than not, the loans are purchased by Fannie Mae or Freddy Mac. Fannie was created by FDR as part of his New Deal banking reforms. It was a government agency, whose purpose was to buy debt from banks and allow them to re-lend. The program was extremely successful, so much so that it was privatized under Bush family protege, Richard Nixon. Today it, and Freddy Mac which came later, are Government Sponsored Enterprises ( GSE ), which means they are private corporations which are under a government mandate to serve a particular purpose in the public interest.
In the 1980s, Lew Ranieri of Salomon Brothers Wall Street investment bank came up with the idea of compiling bank debt and selling it as a bond. Hence the mortgage bond was born. The idea was simple: Buy a thousand or so mortgages, put them together, and sell them as a security. The bond-holders would get paid as the mortgages got repaid.
A great idea but there were problems unique to selling mortgage debt as bonds.
1, The bond which contained a thousand or more mortgages was going to be quite expensive, and would price most buyers out of the market.
2, Usually a bond is issued by a single institution, be it public or private, then given a rating by rating companies, then bought by the public at a price commensurate with the rating. The best bonds are rated AAA, these are the safest bonds one can buy, so the rate of interest offered by the issuer doesn't have to be so high. Lower rated bonds are riskier, consequently the rate of interest the bond pays has to be higher in order to induce the public to buy them. In the case of the mortgage bond, the risk incurred by the buyer was dependent on the ability of home-owners to pay off their debts. In some cases, as we shall see, such as when the loans were "prime," determining risk was quite easy. However, when these bonds contained sub-prime loans, the overall risk of buying such a bond was a tricky calculation based on the likelihood of a thousand individual mortgages being collected. The usual metrics the rating agencies used were not applicable to these new mortgage bonds, there was a lot of guesswork involved.
3, Another problem for the investment banks hoping to sell mortgage debt to the bond-buying public was the uncertainty of how long it would take for these bonds to mature. Typically, the term of the bond is known in advance. Their lengths vary greatly, and is taken into consideration by the prospective buyer. You buy what you want. In the case of the mortgage bond, some homeowners might pay off their mortgages early, which, from the point of view of the bond-holder, was undesirable.
If you buy a bond, you want to hold it for awhile. If your bond gets paid off early, you have made less from your investment than if it had gone to term. This is particularly problematic for a bond derived from mortgage debt as the mortgages were more likely to be paid off prematurely when bank interest rates were low. If a home-buyer takes a fixed-rate mortgage at five percent interest and rates subsequently drop to four or three percent, then he or she would do well to take out another loan to pay off the first and save thousands in interest. For the holder of a mortgage bond this means that one of the underlying loans has been paid off and part of your investment is now gone. To make matters worse, one cannot turn around and re-invest one's profits from the paid-off bond into a new one as the drop in interest rates which caused the premature pay-offs makes for a lousy bond market.
Why? If you are a business or government agency, and you want to raise some money, you can go to a bank and borrow, or you can issue a bond. If bank rates are low, borrowing makes more sense. If bank rates are high, and you think you can sell a bond with a lower rate of interest than you would have to pay a bank for a loan, then the bond is a better bet. Low bank rates kill the bond market as under those circumstances there's no reason to issue bonds. Homeowners refinance when rates are low, not a good thing if you are holding mortgage bonds.
Fortunately for Ranieri and Salomon Brothers, the rise of mutual funds provided the solution for the first problem, but created another.
Mutual funds are just that--mutual. Around the same time as Ranieri was contemplating the mortgage bond, investment banks began to offer mutual funds. These are pools of money into which anyone can invest. The funds themselves then buy stocks, bonds etc. This made it possible for people who were not rich to invest in a broad range of securities. It also made the purchase of fairly expensive items more feasible. Mortgage bonds could be bought by anyone who could afford them, but now they could be bought by investors who really couldn't afford them on their own.
Great news for Ranieri but there was still another hurdle: If mortgage bonds were to be collectively owned, how would redemption work? Say a mutual fund with a thousand investors in it buys a mortgage bond which included a thousand mortgages, would each mutual fund participant own a single mortgage within the bond? This wouldn't be feasible because these bonds would be owned by the fund collectively, not by individuals within the fund, otherwise it wouldn't be a mutual fund. If the bond was collectively owned, how would it be determined whose investment would be ended first if and when a mortgage was paid prematurely? The obvious answer would be for all the fund's participants to bear the loss equally but this would make it hard for funds to buy mortgage bonds as investors might not be willing to accept the depreciation of the bond in this manner. Some would want greater protection or would see these bonds as not a good investment vis a vis non-mortgage bonds.
Cleverly, Ranieri came up with a solution: Mortgage bonds would be sold in "tranches" ( French for "slices" ), and each one would be backed by just a handful of mortgages within the bond. Mike Lewis'[2] analogy is that of a sky-scraper in a flood plain. Buying the first tranche of a mortgage bond was like buying a condo on the first floor, you were more likely to be flooded--having your investment end due to prepayment of the underlying mortgages--so the rate of interest paid on the first tranche was a little higher. You were exposed to more risk, but had a greater reward. As the tranches progressed--being higher in the building--your risk of being flooded out declined and so did your potential pay-off.
In addition, it was determined that the flow of money that would result from homeowner prepayment of mortgages would be distributed in a pay-as-you-go manner. The owner(s) of the first tranche would receive payment when all of the mortgages which comprised the tranche were paid by the homeowners. In such cases where only some of these mortgages were prepaid, the the holder(s) would receive payment on that percentage of the loans which were prepaid and the rest of the investment would continue until all of the mortgages were paid. This offered investors the opportunity to be part of the riskier, higher pay-out tranches, or, for those more conservative, they could buy into a safer tranche.
It worked brilliantly, Mortgage bonds became very popular with bond investors. At this initial stage all the loans underlying these bonds were prime. These were the kinds of loans bought from mortgage buyers by Fannie Mae. As such, the loans were guaranteed by the GSE. If somebody actually defaulted, Fannie would take possession of the property and pay off the loan. This being the case, these mortgage bonds were as close to a sure thing as a bond can be. They were better than AAA, and quickly gained the reputation of being the safest investment one could make.
This would change with the advent of sub-prime lending. Which will be the subject of the next article in this series.
[1] For a more detailed explanation, please watch the video entitled Money as Debt linked on the right column of this blog.
[2] From his book The Big Short
Sunday, November 28, 2010
Sunday, November 21, 2010
The Grand Deception ( part three ), The Method
The purpose of this series of articles is to explain exactly what caused the collapse; who made it happen; and, if I achieve my goal, why. It is my contention that this depression, like so many others, is a scam. In order for the reader to learn what precisely happened, it's necessary to understand how the financial markets work.
If you don't have any background in economics, or have ever turned on CNBC and wondered just what language they were speaking, not to worry! What will follow will demystify marketspeak for you no matter how inexperienced you are with such things. What happened is really quite simple, you will have no trouble following along. I promise.
Warren Buffet called mortgage-backed securities ( MBS ) "economic weapons of mass destruction." [1] These ballistic missiles fired from the turrets of Wall Street's oldest and largest banking houses ultimately brought the world's economy to a standstill. The MBS were to the financial industry what tortillas are to Mexican cuisine in that they could be molded and cut into many different dishes. As tortillas are used to make tacos and burritos and quesadillas, so MBS came with different ingredients and formed into many different market-pleasing shapes and sizes. The problem was that the tortillas holding these creations together were disintegrating. The mortgages which "backed" these investments were going bankrupt at an alarming rate. And when this became public it caused a massive sell-off. This resulted in the sub-prime housing market collapse and the prospect of bankruptcy for those institutions, many of them respected Wall Street banking and insurance companies, which had invested large sums in these MBS. It was like yelling fire in a crowded theater, it caused a stampede toward the exits. The market was shorted so hard and so fast that it caused panicked selling of both the MBS and of shares in those companies which didn't make it to the exit in time.
That is how the collapse happened. To understand it in detail, it is necessary to understand what "shorting" is. To understand that one needs to know a little about how buying and selling securities or commodities work. If you know what a dividend is, or what going "long" or "short" is, then you don't need to read on. If you don't, please stay with me.
Let's begin with the life cycle of the average company on one of the stock exchanges. Say you have an idea for an business but don't have as much money as you need. You could go to the bank and get a loan, or, if you believe you are on to something big and think others might be willing to buy in, you can "go public."
"Going public" or taking your existing company public means that you will sell shares in your enterprise on the public market. You go to an investment bank[2] and they handle all the details and, for a fee or some shares or both, they put your shares on an exchange. ( Usually the New York Stock Exchange [ NYSE ] or the over-the-counter exchange known as NASDAQ. ) This is the initial public offering of stock ( IPO ), thereafter you can decide to increase the number of shares available on the exchange if you need to raise more money.
The term "share" means just that: It's a share in the company, a share of its ownership. If there are a million shares in a given company and you buy one, then you own one millionth of that company. Typically the people going public wish to retain control so they keep a majority of the shares. If there are a million shares then the original owner would keep 500,001 and make only 499,999 available to the public. Thus he or she would still be the majority owner.
Shares in companies are often called "securities" as the buyer has secured a share of the ownership, you have paid for it outright. If one does buy some shares in a company one is said to have a "position" in that company.
The IPO share price is fixed to what the investment bank thinks the public will pay. If you have an existing company and doing so well that you need capital to expand, then it's likely that investors will pay more. If your company is a start-up then your shares probably wont fetch much. On average, for new companies, the IPO price is about ten bucks.
Now you have a "joint-stock company"[3] The price of your shares will go up when more people want to buy then sell, and vice versa. Let's say you do really well, your company goes global and becomes the biggest player in your industry. While this is going on, your shares are going to be in high demand, but if you are very lucky and begin to dominate your sector, you cease to grow as quickly. Take Microsoft for example. They are so dominant that in order to keep growing they will have to find another planet that needs operating software. Now, just about everybody buys Windows, there just isn't anybody left to sell to. When companies reach this stage, they generally experience a sell-off as investors begin to look to other companies which are still growing. This creates a problem for even big successful companies like Microsoft as the value of their enterprise is determined by their "market capitalization."
Market capitalization is easy to compute: It's the total number of shares in existence multiplied by the share price. If there are a billion shares of a company, and their price is fifty dollars, then the company's market cap', or value, is 50 billion dollars. When there is a sell-off and the share price declines, the overall value of the company declines. That means their credit limit goes down; it means they would have to offer a larger number of their shares in order to buy another company; it means they are more susceptible to being bought out in a hostile take-over. In order to keep their share price up when they can no longer keep growing, many companies issue dividends[4] to share-holders. This is a sum of money per share, usually paid annually. For many, particularly those who dislike risk, these are good investments in that these companies are usually quite stable and fiscally sound, and one gets a better return on investment from these dividends than one would from a bank account. There's not much hope of making a lot of money from these shares, but they are a dependable source of income. Some people live off these dividends.
When investors buy securities, they are doing so in the hope that the share price will go up. If you buy at fifty bucks a share, and sell at 100, then you have doubled your money ( minus broker's fees ). Of course it could backfire on you and the share price could go down, that's the risk you are taking, but the hope is the price will go up after you take a position in a company. This is called being "long" in the market.
There is a way of betting that the share-price of a given company will go down. This is called being "short" in the market. Often this involves companies which issue dividends.
Say you own some securities which pay dividends annually. And let's say that they pay on the first of May. It's now the second of May and you have received your dividend and you are waiting 364 days until you get paid again. Now your broker tells you that somebody is looking to borrow some shares of the company you have a position in. The prospective buyer says lend me a thousand shares and I will return them to you before May of next year. He also offers to pay all broker's fees and, in addition, pay you a fee as well. Your broker says the guy is a good credit risk and You agree because it's a second payday for you, and you will have your thousand shares back in time to receive your dividend as usual.
The borrower is hoping that the share price will go down so he borrows the shares and immediately sells them. He now has until May to buy them back and return them to the lender. If the price drops in that time then he's made some money. Here's how it works: He sells the shares for say sixty dollars. He now has $60,000. If he's lucky and sometime in the next year the price drops to thirty dollars a share, he then buys a thousand shares costing him $30,000. He's made $30,000 in profit ( minus broker's and lender's fees ). He returns the shares to the lender and everyone's happy. If the share-price rises and he has to pay more than he got when he sold, then he loses money. This is shorting the market.
The lender now has shares that are worth half of what they were before the loan but that would have been the case anyway, and if you are holding shares for their dividends then the actual price isn't particularly important. ( That is after the initial purchase. ) If the lender collected the same in the fee from the borrower as he collects from the dividend payment, as is often the case, then the lender has doubled his yearly income from the shares he holds.
We have been talking about securities, there are also ways to short bonds. In the 1980s, Lew Ranieri of Salomon Brothers investment bank created the mortgage bond. It allowed purchasers to buy a piece of the debt owed by homeowners and access the flow of cash that resulted from mortgage payments. Basically, mortgage bond buyers were sharing in some of the risk the bank had assumed when it wrote the mortgage, and sharing in some of the profits when the mortgage payments were made. Bonds, which are loans made by buyers to the issuer at a fixed or variable rate of interest, are usually issued by governments or corporations. In this case these bonds were derivatives [5] issued by investment banks themselves and based on the long-term ability ( or inability, as the case may be ) of mortgage borrowers to repay their debt.
When a bond is issued, it is given a rating by rating agencies. The best rating is AAA and the worst/highest risk bonds are commonly referred to as "junk." This rating is the agency's evaluation of how solvent and able to pay off the bond the issuer is, an assessment of the risk the buyer is taking. Traditionally, there are only two parties, the issuer and the buyer. If a bank is issuing a bond, the rating agency is evaluating the bank itself. In the case of the mortgage bond, the issuer is an entity, usually the investment bank itself, which has bought mortgage loans from a commercial bank or mortgage company, and is offering a piece of it to the bond-buying public. There are now three parties involved: the issuer, the buyer, and the homeowners who are paying off their mortgages. The task of the rating agency is now much more complex, less mathematical and more subjective and interpretive. This alone made these financial investments risky, but the likelihood of getting a good appraisal from the rating agencies was diminished further by political developments.
Since 1980 when Ronald Reagan took office, there has been a steady erosion of regulation and oversight of Wall Street, and it hasn't mattered whether a Republican or Democrat was in the White House. Under Clinton, the Gramm-Leach-Bliley Act was passed in 1999. It repealed the Bank Act of 1933 ( Sometimes called the Glass-Steagall Act ) which had kept investment banks from owning commercial banks and ratings agencies. With the runway now clear, a great consolidation occurred with the result that investment banks now owned the agencies which were now assessing the mortgage bonds offered by the same investment banks. The point of Glass-Steagall was to prevent just this kind of conflict of interest, once it was out of the way, all kinds of shenanigans were possible.
Mortgage bonds were difficult enough to assess, now there was added pressure of pleasing the owner. It was in this murky, deregulated, derivative market that the MBS and other worthless investments that caused the current depression were spawned.
Further complicating matters was the legal question: What was the responsibility of the issuer of these mortgage bonds? As they were new, the law didn't address three-party bonds. If the bonds went bad due to the inability of homeowners to pay their mortgages, did the bond-holders have any legal recourse against the investment bank which sold them the bonds? The law was unclear in this regard.
For the first decade or two of their existence, mortgage bonds were a great success and made Ranieri a very wealthy man. However these bonds in recent years became "securitized." That is to say that they were repackaged and bought and sold like shares of joint-stock companies. The potential of these new derivatives, particularly in the then red hot housing market, combined with new liberal bookkeeping practices like mark-to-market accounting [6] which camouflaged just how dubious these MBS were, made these new instruments extremely popular with investors. They were the clinking-clanking sound that kept Wall Street world going around and around. When at last Meredith Whitney of Citigroup sounded the alarm by announcing that these MBS were worthless, they were shorted as were the companies which were holding large quantities of them. Thus did Lehman Brothers and other titans of high finance left holding the bag fall. Our economy fell with them.
There was one company in particular that guessed just the right time to short the housing market. It's a hedge fund called Paulson and Company. It shorted just before Alan Greenspan, head of the Federal Reserve Bank, raised interest rates. The housing market was hot because the Fed had lowered rates and kept them there thus making home-buying more affordable. Greenspan was also responsible for green-lighting MBS and mark-to-market accounting. His raising of interest rates was sure to slow the housing market down, Paulson anticipated this moment and placed the largest short ever in the history of Wall Street. As it turns out, his ability to read Greenspan's mind netted him personally about fifteen billion dollars. Estimates of how much he made for his fund vary widely but the actual profits must exceed 50 billion. It was later revealed by a Securities Exchange Commission ( SEC ) investigation that Paulson had been crafting some of the bogus derivatives for Goldman Sachs, the same worthless paper which he had been shorting.
Later, when Alan Greenspan retired from the Fed and, after finishing a tour for his autobiography, he was hired by Paulson. The terms of the deal were not released.
Is it possible that Paulson had more than a hunch as to when the Fed would lower rates and kill the housing market? Is it possible that the party who designed some of these MBS and made the largest bet ever against them actually intended them to fail? Is it possible that what happened was what was intended?
There's a lot more, dear reader, a lot more, details to come.
[1] He should know, he launched a few of his own. More on this in later articles in this series.
[2] As opposed to depository or commercial banks that you and I deal with. Investment banks broker stocks and bonds etc.
[3] So called because it is jointly owned.
[4] So called because they are the result of dividing the total number of shares by the amount being paid out by the company.
[5] Derivatives can be any investment which is derived from another. In the case of a mortgage bond, it's derived from the payments of homeowners.
[6] Mark-to-market accounting allowed companies to register the profits from a sale before they had actually received the payment. With mortgage bonds, investment banks' bookkeeping reflected mortgages as being paid when they were written. One had to dig much deeper than normal to find where the books reflected the actual status of the mortgages. This is what Meredith Whitney did.
If you don't have any background in economics, or have ever turned on CNBC and wondered just what language they were speaking, not to worry! What will follow will demystify marketspeak for you no matter how inexperienced you are with such things. What happened is really quite simple, you will have no trouble following along. I promise.
Warren Buffet called mortgage-backed securities ( MBS ) "economic weapons of mass destruction." [1] These ballistic missiles fired from the turrets of Wall Street's oldest and largest banking houses ultimately brought the world's economy to a standstill. The MBS were to the financial industry what tortillas are to Mexican cuisine in that they could be molded and cut into many different dishes. As tortillas are used to make tacos and burritos and quesadillas, so MBS came with different ingredients and formed into many different market-pleasing shapes and sizes. The problem was that the tortillas holding these creations together were disintegrating. The mortgages which "backed" these investments were going bankrupt at an alarming rate. And when this became public it caused a massive sell-off. This resulted in the sub-prime housing market collapse and the prospect of bankruptcy for those institutions, many of them respected Wall Street banking and insurance companies, which had invested large sums in these MBS. It was like yelling fire in a crowded theater, it caused a stampede toward the exits. The market was shorted so hard and so fast that it caused panicked selling of both the MBS and of shares in those companies which didn't make it to the exit in time.
That is how the collapse happened. To understand it in detail, it is necessary to understand what "shorting" is. To understand that one needs to know a little about how buying and selling securities or commodities work. If you know what a dividend is, or what going "long" or "short" is, then you don't need to read on. If you don't, please stay with me.
Let's begin with the life cycle of the average company on one of the stock exchanges. Say you have an idea for an business but don't have as much money as you need. You could go to the bank and get a loan, or, if you believe you are on to something big and think others might be willing to buy in, you can "go public."
"Going public" or taking your existing company public means that you will sell shares in your enterprise on the public market. You go to an investment bank[2] and they handle all the details and, for a fee or some shares or both, they put your shares on an exchange. ( Usually the New York Stock Exchange [ NYSE ] or the over-the-counter exchange known as NASDAQ. ) This is the initial public offering of stock ( IPO ), thereafter you can decide to increase the number of shares available on the exchange if you need to raise more money.
The term "share" means just that: It's a share in the company, a share of its ownership. If there are a million shares in a given company and you buy one, then you own one millionth of that company. Typically the people going public wish to retain control so they keep a majority of the shares. If there are a million shares then the original owner would keep 500,001 and make only 499,999 available to the public. Thus he or she would still be the majority owner.
Shares in companies are often called "securities" as the buyer has secured a share of the ownership, you have paid for it outright. If one does buy some shares in a company one is said to have a "position" in that company.
The IPO share price is fixed to what the investment bank thinks the public will pay. If you have an existing company and doing so well that you need capital to expand, then it's likely that investors will pay more. If your company is a start-up then your shares probably wont fetch much. On average, for new companies, the IPO price is about ten bucks.
Now you have a "joint-stock company"[3] The price of your shares will go up when more people want to buy then sell, and vice versa. Let's say you do really well, your company goes global and becomes the biggest player in your industry. While this is going on, your shares are going to be in high demand, but if you are very lucky and begin to dominate your sector, you cease to grow as quickly. Take Microsoft for example. They are so dominant that in order to keep growing they will have to find another planet that needs operating software. Now, just about everybody buys Windows, there just isn't anybody left to sell to. When companies reach this stage, they generally experience a sell-off as investors begin to look to other companies which are still growing. This creates a problem for even big successful companies like Microsoft as the value of their enterprise is determined by their "market capitalization."
Market capitalization is easy to compute: It's the total number of shares in existence multiplied by the share price. If there are a billion shares of a company, and their price is fifty dollars, then the company's market cap', or value, is 50 billion dollars. When there is a sell-off and the share price declines, the overall value of the company declines. That means their credit limit goes down; it means they would have to offer a larger number of their shares in order to buy another company; it means they are more susceptible to being bought out in a hostile take-over. In order to keep their share price up when they can no longer keep growing, many companies issue dividends[4] to share-holders. This is a sum of money per share, usually paid annually. For many, particularly those who dislike risk, these are good investments in that these companies are usually quite stable and fiscally sound, and one gets a better return on investment from these dividends than one would from a bank account. There's not much hope of making a lot of money from these shares, but they are a dependable source of income. Some people live off these dividends.
When investors buy securities, they are doing so in the hope that the share price will go up. If you buy at fifty bucks a share, and sell at 100, then you have doubled your money ( minus broker's fees ). Of course it could backfire on you and the share price could go down, that's the risk you are taking, but the hope is the price will go up after you take a position in a company. This is called being "long" in the market.
There is a way of betting that the share-price of a given company will go down. This is called being "short" in the market. Often this involves companies which issue dividends.
Say you own some securities which pay dividends annually. And let's say that they pay on the first of May. It's now the second of May and you have received your dividend and you are waiting 364 days until you get paid again. Now your broker tells you that somebody is looking to borrow some shares of the company you have a position in. The prospective buyer says lend me a thousand shares and I will return them to you before May of next year. He also offers to pay all broker's fees and, in addition, pay you a fee as well. Your broker says the guy is a good credit risk and You agree because it's a second payday for you, and you will have your thousand shares back in time to receive your dividend as usual.
The borrower is hoping that the share price will go down so he borrows the shares and immediately sells them. He now has until May to buy them back and return them to the lender. If the price drops in that time then he's made some money. Here's how it works: He sells the shares for say sixty dollars. He now has $60,000. If he's lucky and sometime in the next year the price drops to thirty dollars a share, he then buys a thousand shares costing him $30,000. He's made $30,000 in profit ( minus broker's and lender's fees ). He returns the shares to the lender and everyone's happy. If the share-price rises and he has to pay more than he got when he sold, then he loses money. This is shorting the market.
The lender now has shares that are worth half of what they were before the loan but that would have been the case anyway, and if you are holding shares for their dividends then the actual price isn't particularly important. ( That is after the initial purchase. ) If the lender collected the same in the fee from the borrower as he collects from the dividend payment, as is often the case, then the lender has doubled his yearly income from the shares he holds.
We have been talking about securities, there are also ways to short bonds. In the 1980s, Lew Ranieri of Salomon Brothers investment bank created the mortgage bond. It allowed purchasers to buy a piece of the debt owed by homeowners and access the flow of cash that resulted from mortgage payments. Basically, mortgage bond buyers were sharing in some of the risk the bank had assumed when it wrote the mortgage, and sharing in some of the profits when the mortgage payments were made. Bonds, which are loans made by buyers to the issuer at a fixed or variable rate of interest, are usually issued by governments or corporations. In this case these bonds were derivatives [5] issued by investment banks themselves and based on the long-term ability ( or inability, as the case may be ) of mortgage borrowers to repay their debt.
When a bond is issued, it is given a rating by rating agencies. The best rating is AAA and the worst/highest risk bonds are commonly referred to as "junk." This rating is the agency's evaluation of how solvent and able to pay off the bond the issuer is, an assessment of the risk the buyer is taking. Traditionally, there are only two parties, the issuer and the buyer. If a bank is issuing a bond, the rating agency is evaluating the bank itself. In the case of the mortgage bond, the issuer is an entity, usually the investment bank itself, which has bought mortgage loans from a commercial bank or mortgage company, and is offering a piece of it to the bond-buying public. There are now three parties involved: the issuer, the buyer, and the homeowners who are paying off their mortgages. The task of the rating agency is now much more complex, less mathematical and more subjective and interpretive. This alone made these financial investments risky, but the likelihood of getting a good appraisal from the rating agencies was diminished further by political developments.
Since 1980 when Ronald Reagan took office, there has been a steady erosion of regulation and oversight of Wall Street, and it hasn't mattered whether a Republican or Democrat was in the White House. Under Clinton, the Gramm-Leach-Bliley Act was passed in 1999. It repealed the Bank Act of 1933 ( Sometimes called the Glass-Steagall Act ) which had kept investment banks from owning commercial banks and ratings agencies. With the runway now clear, a great consolidation occurred with the result that investment banks now owned the agencies which were now assessing the mortgage bonds offered by the same investment banks. The point of Glass-Steagall was to prevent just this kind of conflict of interest, once it was out of the way, all kinds of shenanigans were possible.
Mortgage bonds were difficult enough to assess, now there was added pressure of pleasing the owner. It was in this murky, deregulated, derivative market that the MBS and other worthless investments that caused the current depression were spawned.
Further complicating matters was the legal question: What was the responsibility of the issuer of these mortgage bonds? As they were new, the law didn't address three-party bonds. If the bonds went bad due to the inability of homeowners to pay their mortgages, did the bond-holders have any legal recourse against the investment bank which sold them the bonds? The law was unclear in this regard.
For the first decade or two of their existence, mortgage bonds were a great success and made Ranieri a very wealthy man. However these bonds in recent years became "securitized." That is to say that they were repackaged and bought and sold like shares of joint-stock companies. The potential of these new derivatives, particularly in the then red hot housing market, combined with new liberal bookkeeping practices like mark-to-market accounting [6] which camouflaged just how dubious these MBS were, made these new instruments extremely popular with investors. They were the clinking-clanking sound that kept Wall Street world going around and around. When at last Meredith Whitney of Citigroup sounded the alarm by announcing that these MBS were worthless, they were shorted as were the companies which were holding large quantities of them. Thus did Lehman Brothers and other titans of high finance left holding the bag fall. Our economy fell with them.
There was one company in particular that guessed just the right time to short the housing market. It's a hedge fund called Paulson and Company. It shorted just before Alan Greenspan, head of the Federal Reserve Bank, raised interest rates. The housing market was hot because the Fed had lowered rates and kept them there thus making home-buying more affordable. Greenspan was also responsible for green-lighting MBS and mark-to-market accounting. His raising of interest rates was sure to slow the housing market down, Paulson anticipated this moment and placed the largest short ever in the history of Wall Street. As it turns out, his ability to read Greenspan's mind netted him personally about fifteen billion dollars. Estimates of how much he made for his fund vary widely but the actual profits must exceed 50 billion. It was later revealed by a Securities Exchange Commission ( SEC ) investigation that Paulson had been crafting some of the bogus derivatives for Goldman Sachs, the same worthless paper which he had been shorting.
Later, when Alan Greenspan retired from the Fed and, after finishing a tour for his autobiography, he was hired by Paulson. The terms of the deal were not released.
Is it possible that Paulson had more than a hunch as to when the Fed would lower rates and kill the housing market? Is it possible that the party who designed some of these MBS and made the largest bet ever against them actually intended them to fail? Is it possible that what happened was what was intended?
There's a lot more, dear reader, a lot more, details to come.
[1] He should know, he launched a few of his own. More on this in later articles in this series.
[2] As opposed to depository or commercial banks that you and I deal with. Investment banks broker stocks and bonds etc.
[3] So called because it is jointly owned.
[4] So called because they are the result of dividing the total number of shares by the amount being paid out by the company.
[5] Derivatives can be any investment which is derived from another. In the case of a mortgage bond, it's derived from the payments of homeowners.
[6] Mark-to-market accounting allowed companies to register the profits from a sale before they had actually received the payment. With mortgage bonds, investment banks' bookkeeping reflected mortgages as being paid when they were written. One had to dig much deeper than normal to find where the books reflected the actual status of the mortgages. This is what Meredith Whitney did.
Thursday, November 18, 2010
The Protest in Great Britain
Near tripling of student fees ( an annual
increase of about $10,000 ) due to austerity measures imposed by the big banks has sparked riots.
Some are claiming that the the protest was "hijacked by anarchists." ( note the black and red anarchist flag being hoisted and the nearby encircled A, the anarchist logo, in one of the photos. )
http://www.suite101.com/content/student-protests-in-london-descend-into-chaos-a310184
Here's a statement from students in Sussex from their blog
http://defendsussex.wordpress.com/2010/11/15/statement-from-the-occupation/:
Statement from the occupation:
This afternoon, over 170 students occupied the lecture theatre in the Fulton building at the University of Sussex in protest of the trebling of tuition fees and the attack on our education system.In light of Wednesday’s demonstration, which saw 52,000 people come out in opposition to the government’s proposed cuts to education and raising of fees, we feel it is necessary for further action to consolidate the efforts made so far and push on in the opposition to these ideologically motivated cuts to both education specifically and public services as a whole.
We reject the notion that these cuts are necessary or for the benefit of society. There are viable alternatives which are not being explored. While the government has suggested that ‘we are all in this together’, we completely reject this and are insulted that these cuts are being pushed through alongside reductions in corporate tax. We feel these cuts are targeting those who are most vulnerable in our society.
Furthermore, not only are these cuts damaging our current education, but are changing the face of the education system as we know it. The hole in finances left by government cuts will inevitably be filled by private interest. This marketization of education will destroy the prospect of free and critical academic enquiry, on which universities should be based. The trebling of tuition fees will further exclude another swathe of society and make university accessible only to the rich.
We reject the media manipulation of the occupation of Millbank. The cost of the damage to 30 Millbank is less than insignificant when set against the damage of lost livelihoods and destruction of public services for future generations.
This occupation recognises that Aaron Porter’s statements condemning the demonstration are counter-productive and serve only to divide and segregate the movement. We are disappointed that, as a national representative of students, Aaron Porter’s statements have detracted from the real issue at hand by focusing on the events at Millbank Tower.
We believe that this Tory led coalition government has no mandate for lifting the cap on tuition fees. Nick Clegg has openly manipulated student voters in his campaign for election, and following the recent exposure of plans to drop his pledge to reject any rise in tuition fees, this occupation condemns his dishonesty and undemocratic methods.
Education is a right, not a privilege.
- We demand the University of Sussex management makes a statement condemning all cuts to higher education and rise in tuition fees
- We are opposed to all cuts to public services
- We oppose a rise in tuition fees
- We call for solidarity and support for those arrested or victimised on Wednesday’s demonstration
- We stand in solidarity with others taking action, both nationally and internationally, in the fight against austerity measures.
- We call for all other university, college and school students and staff to strike and occupy in defence of the future of our education system, and to participate in the national day of action on the 24th November 2010.
Sunday, November 14, 2010
The Grand Deception ( part two ), The "F" Word
Why is it that people cannot believe their own eyes, particularly when they've seen it all before? Why can't they believe what is happening right under their noses? If one studies the history of the United States, one will learn that there has been a never-ending struggle between the international banking cartel and the duly elected government of this country, between private and public power. The conflict began even before George Washington was sworn in as the first president. According to Ben Franklin, the revolution was not the inevitable consequence of the Stamp Act or taxes on tea or whiskey, but rather the result of Britain's outlawing of the colonial currency ( Colonial Scrip ).[1] Such hardship followed from a lack of cash and credit, Franklin insists, that the colonists had little choice but to rebel.
Alexander Hamilton, the cartel's man, argued for the creation of a privately-owned central bank, modeled on the Bank of England, to set and regulate the new nation's monetary policy. Jefferson and Franklin roared in protest but were defeated by the banker's bottomless pockets. Franklin was so averse to the bank that he even supported deportation of all Jews then in the colonies and a ban on further Jewish immigration.[2] Alas Hamilton and his faction prevailed, the U.S. had defeated the British Army, but lost to its bankers. The bank was born, with the Rothschilds in firm control.
The bank's charter ran twenty years. When it expired, President Madison vetoed the renewal bill. Congress then tried to override Madison, and the scandal that resulted has been the subject of much acrimonious debate since. In the British Parliament, Madison was accused, and not without some justification, of violating his own Constitution to defeat the bank. The upshot was the War of 1812. Britain's bankers were by then so powerful that they were directing Britain's foreign policy, and had been since Walpole assumed control of the British government in the wake of the South Sea Bubble scandal, another banker scam. Once again we had won a war against British soldiers, but lost to their money-lenders.
After the war, Madison inexplicably reversed himself and agreed late in his second term to a new charter for a national bank. Certain reforms were enacted, but it was to no use. Once again the same British bankers as before gained control of the new bank.
When the new bank's charter came up for renewal, President Jackson declined in the most undiplomatic of terms. He referred to the its owners as snakes and vultures and shameless con men and profiteers. All true, of course, but such rhetoric plunged the bank and Jackson into a conflict which divided the nation and paralyzed the government. Much of the correspondence of the bank's head, Nicholas Biddle, survives to this day. In it he threatens that if the government doesn't renew his bank then he would be "forced" to pursue a policy of contraction. By this he meant that the big banks would hoard the nation's money supply, just as they are doing today, and plunge the country into unemployment and recession.
This they did. This time, however, it back-fired on them. As the economy got worse and worse, popular opinion sided with Jackson. Those Congressmen who were on Biddle's payroll began to complain that they would lose their seats if they continue to support the bank. Eventually the Rothschilds called an end to the war as the recession had begun to hurt their other business interests. Jackson, and the people, had finally triumphed over the cartel. Unfortunately, the bank was rechartered as the Federal Reserve Bank in 1913, and the cartel became our masters once again.
Since Jackson, five presidents have taken on the big banks: Lincoln, Garfield, T. Roosevelt, F. Roosevelt, and Kennedy. All were shot at, three were fatally wounded. Coincidences all, I'm quite sure.
There was an attempt to overthrow FDR and install a Fascist dictatorship in his place.[3] According to documentary filmmaker Adam Curtis, this effort was led by Prescott Bush, son of Samuel Bush, grandfather of George W. Bush.[4]
Biddle's creating a depression is by no means unique, there have been many bank-induced financial crises since. Among the more important are 1837, 1857[5], 1873, 1893, 1907, 1929, 1937, 1973, 1993, and 2008. There is an enormous amount of literature on how J. P. Morgan, American representative of the Rothschild banking dynasty, manipulated bond prices and money supply to bring about the economic collapse of 1907. One cannot take an Economics 101 class in an American university without learning about it. The same is true for the other depressions, if to a lesser degree. Even Milton Friedman, maven of the Rockefeller-founded University of Chicago School of Economics and zealous advocate of the banking establishment, admits that the Great Depression was caused by the Federal Reserve Bank's policy of contraction.[6]
Even no less a revered figure than Winston Churchill has written about banker manipulation of the economy. When he visited New York in '29 during the stock market collapse, Bernard Baruch took Churchill onto the floor of the exchange. The Brit looked around at the harrowed faces and the frantic selling and commented to his companion about how horrible it all was. Not to worry, Baruch counseled him, "we made this happen, and we'll make it stop at the appropriate time."[7]
What is astounding to me is that with all the information available about the subterfuges these banks and their servants in government have perpetrated, one is still met with outrage, even contempt, if one dares to use the "f" word--fraud.[8] "yes, well, that might've happened in the past, but it's not possible anymore...with people suffering the way they are, your wacky conspiracy theories are not helping."
Why is it so hard for people to believe that what is happening is what was intended? As we know it has been so many times in the past? Was it really so hard for the Fed to realize that uncollectible mortgages, used as collateral for securing credit, and bundled, tranched, traded, sold, and optioned by private corporations ( hedge funds ) of unknown ownership, in a secret and unregulated derivatives market, might lead to mass bankruptcy? Is Alan Greenspan really as stupid as he now claims? I don't believe it, and in this series of articles I hope to convince you that what we are witnessing is fraud, a criminal conspiracy with you and me as the intended victims.
Yesteryear's wacky conspiracy theories are today's documented facts. Meredith Whitney, bean-counter for Rockefeller-owned Citigroup, shook up Wall Street when she became the first analyst to issue a dire assessment of the sub-prime mortgages and their derivatives. When she did, she fired, no doubt unwittingly, the first shot in the banker's war against working-class people like you and me. Her warning, that Citi' was going to have to cut its dividend [9] or face the possibility of bankruptcy, launched a sequence of predictable events which has led to an enormous transfer of wealth and power, unprecedented in its size and scope, from working people up the food chain to the richest families in the world.
In the next few installments of this series, I will describe the specific events, in roughly chronological order, that precipitated the collapse. I will talk about the specific banks and hedge funds which are involved. I will explain in simple terms just what these derivatives are and how they were used to bring down the economy. And I will talk about who owns these banks and funds, and just how they profited from our misery.
[1] From his autobiography
[2] This is inexcusable of course, but in fairness to Franklin banking and money-lending were still quite controversial in his day, and were dominated then, even more than now, by Jews.
[3] The Plot to Seize the White House, by Jules Archer.
[4] Here's a blog with many relevant links: http://richardbrenneman.wordpress.com/2010/01/11/smedley-butler-and-the-fdr-coup/
And here is a short video in three parts which touches on Prescott Bush's
involvement:http://www.youtube.com/watch?v=UXGUgFXoRu4.
Unfortunately, I cannot find Curtis' documentary on line anymore.
[5] This one bankrupted the Federal government just before the cartel-financed secession by the South.
[6] In his autobiography Friedman insists that this was due to incompetence rather than criminality. Uncle Milty and I don't have much in common, but the one thing we do share is that neither of us believe a word of that.
[7] From his autobiography ( One of them anyway )
[8] http://dailybail.com/home/william-black-with-dylan-ratigan-there-is-bank-fraud-everywh.html [watch top video and the scroll down to conclusion]
http://www.cjr.org/the_audit/propublica_humdinger_on_a_diab.php,
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atRb5YmXqs0w,
http://www.bloomberg.com/news/2010-11-02/jpmorgan-said-to-be-investigated-over-subprime-cdo-disclosures.html,
http://www.propublica.org/article/sec-investigating-deal-between-jpmorgan-and-hedge-fund-magnetar,
http://finance.yahoo.com/news/JPMorgan-halts-50K-apf-1054548494.html?x=0
[9] Simple explanations for financial terms will be provided in the next article in this series.
Alexander Hamilton, the cartel's man, argued for the creation of a privately-owned central bank, modeled on the Bank of England, to set and regulate the new nation's monetary policy. Jefferson and Franklin roared in protest but were defeated by the banker's bottomless pockets. Franklin was so averse to the bank that he even supported deportation of all Jews then in the colonies and a ban on further Jewish immigration.[2] Alas Hamilton and his faction prevailed, the U.S. had defeated the British Army, but lost to its bankers. The bank was born, with the Rothschilds in firm control.
The bank's charter ran twenty years. When it expired, President Madison vetoed the renewal bill. Congress then tried to override Madison, and the scandal that resulted has been the subject of much acrimonious debate since. In the British Parliament, Madison was accused, and not without some justification, of violating his own Constitution to defeat the bank. The upshot was the War of 1812. Britain's bankers were by then so powerful that they were directing Britain's foreign policy, and had been since Walpole assumed control of the British government in the wake of the South Sea Bubble scandal, another banker scam. Once again we had won a war against British soldiers, but lost to their money-lenders.
After the war, Madison inexplicably reversed himself and agreed late in his second term to a new charter for a national bank. Certain reforms were enacted, but it was to no use. Once again the same British bankers as before gained control of the new bank.
When the new bank's charter came up for renewal, President Jackson declined in the most undiplomatic of terms. He referred to the its owners as snakes and vultures and shameless con men and profiteers. All true, of course, but such rhetoric plunged the bank and Jackson into a conflict which divided the nation and paralyzed the government. Much of the correspondence of the bank's head, Nicholas Biddle, survives to this day. In it he threatens that if the government doesn't renew his bank then he would be "forced" to pursue a policy of contraction. By this he meant that the big banks would hoard the nation's money supply, just as they are doing today, and plunge the country into unemployment and recession.
This they did. This time, however, it back-fired on them. As the economy got worse and worse, popular opinion sided with Jackson. Those Congressmen who were on Biddle's payroll began to complain that they would lose their seats if they continue to support the bank. Eventually the Rothschilds called an end to the war as the recession had begun to hurt their other business interests. Jackson, and the people, had finally triumphed over the cartel. Unfortunately, the bank was rechartered as the Federal Reserve Bank in 1913, and the cartel became our masters once again.
Since Jackson, five presidents have taken on the big banks: Lincoln, Garfield, T. Roosevelt, F. Roosevelt, and Kennedy. All were shot at, three were fatally wounded. Coincidences all, I'm quite sure.
There was an attempt to overthrow FDR and install a Fascist dictatorship in his place.[3] According to documentary filmmaker Adam Curtis, this effort was led by Prescott Bush, son of Samuel Bush, grandfather of George W. Bush.[4]
Biddle's creating a depression is by no means unique, there have been many bank-induced financial crises since. Among the more important are 1837, 1857[5], 1873, 1893, 1907, 1929, 1937, 1973, 1993, and 2008. There is an enormous amount of literature on how J. P. Morgan, American representative of the Rothschild banking dynasty, manipulated bond prices and money supply to bring about the economic collapse of 1907. One cannot take an Economics 101 class in an American university without learning about it. The same is true for the other depressions, if to a lesser degree. Even Milton Friedman, maven of the Rockefeller-founded University of Chicago School of Economics and zealous advocate of the banking establishment, admits that the Great Depression was caused by the Federal Reserve Bank's policy of contraction.[6]
Even no less a revered figure than Winston Churchill has written about banker manipulation of the economy. When he visited New York in '29 during the stock market collapse, Bernard Baruch took Churchill onto the floor of the exchange. The Brit looked around at the harrowed faces and the frantic selling and commented to his companion about how horrible it all was. Not to worry, Baruch counseled him, "we made this happen, and we'll make it stop at the appropriate time."[7]
What is astounding to me is that with all the information available about the subterfuges these banks and their servants in government have perpetrated, one is still met with outrage, even contempt, if one dares to use the "f" word--fraud.[8] "yes, well, that might've happened in the past, but it's not possible anymore...with people suffering the way they are, your wacky conspiracy theories are not helping."
Why is it so hard for people to believe that what is happening is what was intended? As we know it has been so many times in the past? Was it really so hard for the Fed to realize that uncollectible mortgages, used as collateral for securing credit, and bundled, tranched, traded, sold, and optioned by private corporations ( hedge funds ) of unknown ownership, in a secret and unregulated derivatives market, might lead to mass bankruptcy? Is Alan Greenspan really as stupid as he now claims? I don't believe it, and in this series of articles I hope to convince you that what we are witnessing is fraud, a criminal conspiracy with you and me as the intended victims.
Yesteryear's wacky conspiracy theories are today's documented facts. Meredith Whitney, bean-counter for Rockefeller-owned Citigroup, shook up Wall Street when she became the first analyst to issue a dire assessment of the sub-prime mortgages and their derivatives. When she did, she fired, no doubt unwittingly, the first shot in the banker's war against working-class people like you and me. Her warning, that Citi' was going to have to cut its dividend [9] or face the possibility of bankruptcy, launched a sequence of predictable events which has led to an enormous transfer of wealth and power, unprecedented in its size and scope, from working people up the food chain to the richest families in the world.
In the next few installments of this series, I will describe the specific events, in roughly chronological order, that precipitated the collapse. I will talk about the specific banks and hedge funds which are involved. I will explain in simple terms just what these derivatives are and how they were used to bring down the economy. And I will talk about who owns these banks and funds, and just how they profited from our misery.
[1] From his autobiography
[2] This is inexcusable of course, but in fairness to Franklin banking and money-lending were still quite controversial in his day, and were dominated then, even more than now, by Jews.
[3] The Plot to Seize the White House, by Jules Archer.
[4] Here's a blog with many relevant links: http://richardbrenneman.wordpress.com/2010/01/11/smedley-butler-and-the-fdr-coup/
And here is a short video in three parts which touches on Prescott Bush's
involvement:http://www.youtube.com/watch?v=UXGUgFXoRu4.
Unfortunately, I cannot find Curtis' documentary on line anymore.
[5] This one bankrupted the Federal government just before the cartel-financed secession by the South.
[6] In his autobiography Friedman insists that this was due to incompetence rather than criminality. Uncle Milty and I don't have much in common, but the one thing we do share is that neither of us believe a word of that.
[7] From his autobiography ( One of them anyway )
[8] http://dailybail.com/home/william-black-with-dylan-ratigan-there-is-bank-fraud-everywh.html [watch top video and the scroll down to conclusion]
http://www.cjr.org/the_audit/propublica_humdinger_on_a_diab.php,
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atRb5YmXqs0w,
http://www.bloomberg.com/news/2010-11-02/jpmorgan-said-to-be-investigated-over-subprime-cdo-disclosures.html,
http://www.propublica.org/article/sec-investigating-deal-between-jpmorgan-and-hedge-fund-magnetar,
http://finance.yahoo.com/news/JPMorgan-halts-50K-apf-1054548494.html?x=0
[9] Simple explanations for financial terms will be provided in the next article in this series.
Thursday, November 4, 2010
The Protest in Dublin
The struggle moves to Ireland.As a result of the Depression, the Irish Government has instituted a schedule of fees for college students. The latter have hit the streets in protest.
Estimates vary considerably, but it seems certain that ten to fifty percent
of students will be forced to drop out due to inability to pay the new fees. In protest, students occupied the Department of Finance building.
This link describes the problem:
http://irelandafternama.wordpress.com/2010/11/04/student-protests-and-the-cost-of-education/
These the demonstration:
http://www.independent.ie/national-news/budget/news/peaceful-protest-turned-to-violence-in-an-instant-2406941.html?start=4
http://www.morningstaronline.co.uk/index.php/news/content/view/full/97261
( "Taoiseach" means secular ruler in Gaelic. In contemporary terms it means prime minister. )
The Grand Deception ( part one ), The Call of Duty
Keeping working people from uniting has long been a priority for the plutocracy. If they fail, it is over for them. For once people join hands across racial, religious, linguistic, and, most importantly, national lines; once we all come to view the rest of people who inhabit our planet as friends to be made rather than enemies to be feared; the rulers of our world, its lord profiteers, will have no hope of quelling the revolt which will rout them from their heights. Wealth, power and privilege will be eternally consigned to the dustbin of history, where they belong. It is just such a coordinated, nonsectarian uprising they dread, and they spare no effort or expense in its prevention.
History is replete with examples of clever subterfuges used by owners to discredit rebellious workers. Perhaps the most insidious tactic is to denounce dissidents as selfish and/or disloyal. Patriotism might be the scoundrel's last refuge, but it is the first, poison-tipped arrow from the quiver of the business tycoon bent on preserving his class supremacy at any cost. One of the worst outrages of this type occurred in the United States before and during the First World War.
President Wilson created the War Industries Board and, after initial difficulties with its management, asked Wall Streeter Bernard Baruch to step in and reorganize it. "Barney" and his agents went around the country telling small businesses and working people that everyone was going to have to make sacrifices for the war effort, that "everybody had to take a haircut." He asked businesses to keep their prices down so that the government and big industry could afford to produce the materiel our fighting men would need to prosecute the war. Likewise, they asked union leaders to urge their higher-paid workers to take cuts, and to forgo raises until the war was over. In every single instance unions agreed, if in some cases reluctantly, and thus labor costs were reduced and prices for essential goods remained low.
The WIB then purchased these materials and directed them to businesses in which Baruch and other board members had a stake. The resulting finished products were auctioned off to the highest bidder. Most lucrative of all were arms sales. Samuel Bush, great-grandfather of George W. Bush, co-owner of a steel company with the Rockefellers, was named chief of the Ordnance, Small Arms, and Ammunition Section. He was also responsible for maintaining relations with manufacturers. In this capacity he directed government funds to businesses, including his own.
The sale of these munitions and other WIB-controlled products were brokered by J. P. Morgan, the American representative of the Rothschild banking dynasty. So great was the war's carnage ( and the opportunity to profit from it ) that literally thousands of buyers lined up every day in front of Morgan's house on Wall Street in the vain hope of gaining his ear. Morgan sold to the highest bidder, including the Axis powers, right up until America's entry into the war.( According to some historians, he didn't abandon his lucrative, treasonous enterprise even after. ) No exception was made for our government, it too had to pay top price or see the discounted produce of American labor resold to her enemies. The profits from this illegal trade found their way into Wilson's cabinet. The godfather of the American intelligence services, Secretary of State Lansing, uncle of Allen and John Foster Dulles, was one of the beneficiaries.
It was the greatest transfer of wealth that had ever occured. Fortunes were made. As a result of his corrupt business deals, Baruch's net worth rose from one million dollars to two-hundred million at the war's end.
The WIB asked American workers to keep the costs of raw materials down in the name of patriotism. The scamsters on the Board then sold these materials to whoever could pay the most for them, even those buyers who would soon be using the munitions to kill Americans. They kept wholesale prices down and jacked their retail prices as high as the market would bear, thus enriching themselves at everyone else's expense. Those who screamed in protest, like Eugene Victor Debs, Elizabeth Gurley Flynn, Emma Goldman, were denounced as traitors. Some, including those mentioned above, were imprisoned.
The same thing happened during the Second World War and Vietnam. It's happening now.
Today it is not in the name of war but economics that we are asked to accept austerity measures. The burden of repaying the enormous debt our government incurred bailing out the world's largest banks must be borne by all, we are told. It is the duty of every citizen to brave the painful contraction of our income and the privation it will impose upon our families. We all must do our part. Others have, so should you, we all have to pull together.
Indeed, we must do our part. It is our duty. We must resist.
We must defeat once and for all the predatory idea that our livelihoods belong to Wall Street or government, and are theirs to plunder whenever either needs a source of quick revenue. We must let Wall Street know that we are not their property, and that our lives are not led in service of theirs. And that we are resolved that we will not be made to suffer for their criminality, or shouted down by their media mercenaries. What is ours is ours, and will not be taken from us.
If we agree to have our buying power slashed by losing our COLA, then we validate the outrage that it is we who are beholding to Wall Street, rather than the other way around; that our pay really belongs to our employers and that we are indebted to them for it; that we are at the mercy of their generosity. Our compensation is not an allowance doled out by a loving parent, but the result of a contract, formal or otherwise, freely entered into by parties of equal stature. We conspire in our own degradation if we accede to their demands. What will we be saying about ourselves, what can we expect in the future, if we agree that trillions should go to Wall Street and that we should take a pay cut to finance the unprecedented give-away. We will be confirming, de facto, that we working people are in a very essential way only second-class citizens; that the interests of the ownership class supercede ours; that the fruits of our labors are gifts bestowed upon us by the privileged few, to be modulated or withheld as suits their purposes. We will be agreeing that what is ours is really not ours, that we didn't really earn it.
What kind of life will it be for us when our financial well-being, and that of the communities in which we live, is contingent on the ethics and goodwill of the ruling class, a ruling class which has never demonstrated the slightest inclination for either? Do you want to live forever at the mercy of Wall Street's gambling addiction? If we give in and agree once again to submit to their latest abomination, will they ever relent? Will we ever be free of them?
Must we accept this? Is this our duty? No! Get off your knees!
In part two of this article, I will attempt to prove that this depression, like all the others, is man-made; that they are the result of planned contractions of the money supply by the big banks; that they are an act of class war against working people; and that the goal is to impoverish us and redistribute wealth upwards to the ruling class. What we are experiencing is not the unhappy result of the Fed's incompetence, or "irrational exuberance," or home-owners biting off more than they can chew, or conflicts of interest within the rating agencies, it is an attack. It is class aggression, and it is our duty to resist.
Until then, here's the end of Shelley's poem, The Mask of Anarchy:
Rise like lions after slumber
In unvanquishable number.
Shake your chains to earth like dew.
Which in sleep has fallen on you.
Ye are many – they are few.
History is replete with examples of clever subterfuges used by owners to discredit rebellious workers. Perhaps the most insidious tactic is to denounce dissidents as selfish and/or disloyal. Patriotism might be the scoundrel's last refuge, but it is the first, poison-tipped arrow from the quiver of the business tycoon bent on preserving his class supremacy at any cost. One of the worst outrages of this type occurred in the United States before and during the First World War.
President Wilson created the War Industries Board and, after initial difficulties with its management, asked Wall Streeter Bernard Baruch to step in and reorganize it. "Barney" and his agents went around the country telling small businesses and working people that everyone was going to have to make sacrifices for the war effort, that "everybody had to take a haircut." He asked businesses to keep their prices down so that the government and big industry could afford to produce the materiel our fighting men would need to prosecute the war. Likewise, they asked union leaders to urge their higher-paid workers to take cuts, and to forgo raises until the war was over. In every single instance unions agreed, if in some cases reluctantly, and thus labor costs were reduced and prices for essential goods remained low.
The WIB then purchased these materials and directed them to businesses in which Baruch and other board members had a stake. The resulting finished products were auctioned off to the highest bidder. Most lucrative of all were arms sales. Samuel Bush, great-grandfather of George W. Bush, co-owner of a steel company with the Rockefellers, was named chief of the Ordnance, Small Arms, and Ammunition Section. He was also responsible for maintaining relations with manufacturers. In this capacity he directed government funds to businesses, including his own.
The sale of these munitions and other WIB-controlled products were brokered by J. P. Morgan, the American representative of the Rothschild banking dynasty. So great was the war's carnage ( and the opportunity to profit from it ) that literally thousands of buyers lined up every day in front of Morgan's house on Wall Street in the vain hope of gaining his ear. Morgan sold to the highest bidder, including the Axis powers, right up until America's entry into the war.( According to some historians, he didn't abandon his lucrative, treasonous enterprise even after. ) No exception was made for our government, it too had to pay top price or see the discounted produce of American labor resold to her enemies. The profits from this illegal trade found their way into Wilson's cabinet. The godfather of the American intelligence services, Secretary of State Lansing, uncle of Allen and John Foster Dulles, was one of the beneficiaries.
It was the greatest transfer of wealth that had ever occured. Fortunes were made. As a result of his corrupt business deals, Baruch's net worth rose from one million dollars to two-hundred million at the war's end.
The WIB asked American workers to keep the costs of raw materials down in the name of patriotism. The scamsters on the Board then sold these materials to whoever could pay the most for them, even those buyers who would soon be using the munitions to kill Americans. They kept wholesale prices down and jacked their retail prices as high as the market would bear, thus enriching themselves at everyone else's expense. Those who screamed in protest, like Eugene Victor Debs, Elizabeth Gurley Flynn, Emma Goldman, were denounced as traitors. Some, including those mentioned above, were imprisoned.
The same thing happened during the Second World War and Vietnam. It's happening now.
Today it is not in the name of war but economics that we are asked to accept austerity measures. The burden of repaying the enormous debt our government incurred bailing out the world's largest banks must be borne by all, we are told. It is the duty of every citizen to brave the painful contraction of our income and the privation it will impose upon our families. We all must do our part. Others have, so should you, we all have to pull together.
Indeed, we must do our part. It is our duty. We must resist.
We must defeat once and for all the predatory idea that our livelihoods belong to Wall Street or government, and are theirs to plunder whenever either needs a source of quick revenue. We must let Wall Street know that we are not their property, and that our lives are not led in service of theirs. And that we are resolved that we will not be made to suffer for their criminality, or shouted down by their media mercenaries. What is ours is ours, and will not be taken from us.
If we agree to have our buying power slashed by losing our COLA, then we validate the outrage that it is we who are beholding to Wall Street, rather than the other way around; that our pay really belongs to our employers and that we are indebted to them for it; that we are at the mercy of their generosity. Our compensation is not an allowance doled out by a loving parent, but the result of a contract, formal or otherwise, freely entered into by parties of equal stature. We conspire in our own degradation if we accede to their demands. What will we be saying about ourselves, what can we expect in the future, if we agree that trillions should go to Wall Street and that we should take a pay cut to finance the unprecedented give-away. We will be confirming, de facto, that we working people are in a very essential way only second-class citizens; that the interests of the ownership class supercede ours; that the fruits of our labors are gifts bestowed upon us by the privileged few, to be modulated or withheld as suits their purposes. We will be agreeing that what is ours is really not ours, that we didn't really earn it.
What kind of life will it be for us when our financial well-being, and that of the communities in which we live, is contingent on the ethics and goodwill of the ruling class, a ruling class which has never demonstrated the slightest inclination for either? Do you want to live forever at the mercy of Wall Street's gambling addiction? If we give in and agree once again to submit to their latest abomination, will they ever relent? Will we ever be free of them?
Must we accept this? Is this our duty? No! Get off your knees!
In part two of this article, I will attempt to prove that this depression, like all the others, is man-made; that they are the result of planned contractions of the money supply by the big banks; that they are an act of class war against working people; and that the goal is to impoverish us and redistribute wealth upwards to the ruling class. What we are experiencing is not the unhappy result of the Fed's incompetence, or "irrational exuberance," or home-owners biting off more than they can chew, or conflicts of interest within the rating agencies, it is an attack. It is class aggression, and it is our duty to resist.
Until then, here's the end of Shelley's poem, The Mask of Anarchy:
Rise like lions after slumber
In unvanquishable number.
Shake your chains to earth like dew.
Which in sleep has fallen on you.
Ye are many – they are few.
Monday, November 1, 2010
Contract Update
Ran into Brian Sherlock at CB this morning, he told me and a few other eager listeners that we have a tentative agreement with management.
Part of the agreement is that they wouldn't announce its details until after tomorrow's election. Brian did divulge that we will receive no raise for the first year of the three-year deal, when asked if our COLA would be reinstated in the remaining two years he declined to answer citing the non-disclosure provision. He did say that in exchange for accepting a year without even a cost-of-living raise, we "made them pay."
He added that they had consulted a "labor economist" and that the latter okayed the deal. Brian then went on to explain that because of the stimulus and TARP, the government has doubled [1] the amount of money in circulation, and there was a danger of inflation during the life of this contract. ( Ya dont say? ) He then went on to explain how more money in the economy without a corresponding increase in the production of goods and services causes prices to rise. At this point I interrupted and politely pointed out to him and the others that I'd been writing on this topic and that I'd submitted some of these essays to him for publishing in our newspaper, which he had not done. [2] He then asked me what my name was and told me that he was determined to get my essays into print. At this point I had to run, he gave me one of his famous bone-crusher handshakes and off I went.
[1] I doubt this figure but it's moot. What's important is that the TARP money is just beginning and has yet to be released into circulation by the big banks. By the time all of these funds hit the streets, the money supply will be more than doubled.
[2] It was before the printing of the latest issue of our paper that I submitted "Diet COLA" ( archived in this blog ). I cannot complain because that issue contained a good deal of first-rate essays. It was the best issue ever, in my opinion. I mentioned this to Brian.
Part of the agreement is that they wouldn't announce its details until after tomorrow's election. Brian did divulge that we will receive no raise for the first year of the three-year deal, when asked if our COLA would be reinstated in the remaining two years he declined to answer citing the non-disclosure provision. He did say that in exchange for accepting a year without even a cost-of-living raise, we "made them pay."
He added that they had consulted a "labor economist" and that the latter okayed the deal. Brian then went on to explain that because of the stimulus and TARP, the government has doubled [1] the amount of money in circulation, and there was a danger of inflation during the life of this contract. ( Ya dont say? ) He then went on to explain how more money in the economy without a corresponding increase in the production of goods and services causes prices to rise. At this point I interrupted and politely pointed out to him and the others that I'd been writing on this topic and that I'd submitted some of these essays to him for publishing in our newspaper, which he had not done. [2] He then asked me what my name was and told me that he was determined to get my essays into print. At this point I had to run, he gave me one of his famous bone-crusher handshakes and off I went.
[1] I doubt this figure but it's moot. What's important is that the TARP money is just beginning and has yet to be released into circulation by the big banks. By the time all of these funds hit the streets, the money supply will be more than doubled.
[2] It was before the printing of the latest issue of our paper that I submitted "Diet COLA" ( archived in this blog ). I cannot complain because that issue contained a good deal of first-rate essays. It was the best issue ever, in my opinion. I mentioned this to Brian.
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