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Sunday, October 31, 2010

On This Date- Halloween..


Here's some interesting economic and non-economic factoids...

~ Happy Halloween ~

On this day- October 31:

1517 – Protestant Reformation: Martin Luther posts his 95 theses on the door of the Castle Church in Wittenberg.

1864 – Nevada is admitted as the 36th US State

1876 –  A monster cyclone ravages India, resulting in over 200,000 deaths

1887 – Nationalist Chinese leader Chiang Kai-shek was born. He was the first constitutional President of the Republic of China.


1913 – Dedication of the Lincoln Highway (from NYC to SF), the first automobile road across US

1913 – The Indianapolis Street Car Strike and subsequent riot begins

1917 – World War I:  Battle of Beersheba (Third Battle of Gaza, Sinai & Palestine Campaign)- "last successful cavalry charge in history".

1922 – Benito Mussolini becomes prime minister of Italy


1926 – Magician Harry Houdini died of gangrene and peritonitis that developed after his appendix ruptured. His appendix had been damaged twelve days earlier when he had been punched in the stomach by a student unexpectedly during a lecture Houdini was giving where he had commented on the strength of his stomach muscles and their ability to withstand hard blows.

1940 – World War II:  The Battle of Britain ends- The United Kingdom prevents a possible German invasion

1941 – After 14 years of work, Mount Rushmore is completed.

1941 – The US Navy destroyer Reuben James was torpedoed by a German submarine near Iceland. The US had not yet entered World War II. More than 100 men were killed


1954 – Algerian War of Independence- The Algerian National Liberation Front begins a revolt against French rule

1956 – Suez Crisis: The UK and France begin bombing Egypt to force the reopening of the Suez Canal

1984 – Indian Prime minister Indira Gandhi is assassinated by two security guards. Riots soon break out in New Delhi and nearly 10,000 Sikhs are killed.

1993 – Actor River Phoenix died at the age of 23 of a drug overdose after collapsing outside The Viper Room in Hollywood.

2002 – A federal grand jury in Houston, TX indicts former Enron Corp. chief financial officer Andrew Fastow on 78 counts of wire fraud, money laundering, conspiracy and obstruction of justice related to the collapse of his ex-employer.

Saturday, October 30, 2010

Daydreaming..

From http://dailyreckoning.com -

"Central bankers and finance ministers are proudly doing things that they used to be punished for. Henry II brought his bankers together in 1124. Those found guilty of debasing the coinage – an earlier form of quantitative easing – were either castrated or they had their right hands cut off."

Hmmm.. I vote for both.

 ~ Ben Bernanke, head of the Federal Reserve 'vants da suck yer blood'

Friday, October 29, 2010

Why the argument for Fed Stimulus is a Lie

~  "Its Mine.. all Mine"

The biggest argument for more Fed stimulus is to get money into banks so they will start lending to others and to businesses so they will start hiring.   Sounds just wonderful...

Its also complete utter bull...

US Companies Stash One Trillion Dollars in Cash: Moody's- "US companies are hoarding nearly one trillion dollars of cash that they are unlikely to use for expansion amid a muddled outlook on economic recovery, rating agency Moody's said. "Companies will hesitate to spend their cash hoards on expansion until there is greater certainty about the direction of the US economy," said Steven Oman, senior vice president at Moody's Investor Service.

A new Moody's study of corporate cash balances found that US companies, excluding financial firms, had about 943 billion dollars of cash and short-term investments on their balance sheets at mid-year 2010. The 20 most cash-rich companies had a combined 346 billion dollars.  "Given low demand and capacity utilization within certain industries, companies are wary of investing their cash in new capacity and adding workers, thereby doing little to abbreviate the jobless recovery," it said.  Moody's forecast that as the economy stabilizes, companies most likely would use their cash for share repurchases and acquisitions."- Agence France-Presse

 ~ "Mmmm, this smells soooo Good!!"

Did you catch that last sentence?  So even if the economy fully strengthened, "companies most likely would use their cash for share repurchases and acquisitions", and Not to hire new workers.

~  You can spend $10 Trillon.. or $10 Zillion dollars..  but until companies are FORCED to hire again, such as government setting up hiring quotas and the threat of Heavy taxes on businesses that do not meet them, you are not going to solve this unemployment problem, no matter how much the government gives to these businesses.  Then again, the goal of Fed stimulus never was job creation, so expect a lot more of it.

How to take a negative and spin into a 'positive'?

Bob Woodward:  Can you believe how intense the cover-up of the national economy is?
Carl Bernstein:  I know.. I thought all the Watergate lies were bad.
Bob Woodward:  Yes but the difference was back then the lies came from the Gov't alone.
Carl Bernstein:   Agreed:  Now we the media are happy co-conspirators.
Bob Woodward:  Hmm, think I'll stick to writing books on Presidents and wars.

If you read A&G with regularity, you find consistent annoyance with how the mainstream financial media and those who make a living in that field work together to distort truth for their own economic benefit. The media will write a story that is 'positive' yet bury the statistical reality eight paragraphs down, or will mention something negative, then add a bunch of quotes from 'experts' who cheerily turn that bad information into 'optimism'.

Today's example..

Stocks Waver as GDP Grows 2% in 3Q-  "Stocks wavered Friday after a report on economic growth did little to reassure investors about the health of the economy. The Dow Jones industrial average rose 5 points in afternoon trading.  Gross domestic product, the broadest measure of the nation's economy, grew at a 2 percent annual pace in the third quarter. That was in line with economists' expectations and only slightly better than the 1.7 percent growth rate during the second quarter...  Normally such slow GDP growth would have driven stocks much lower. But signs of weak economic expansion provide further support for the Fed's anticipated stimulus plan." AP


1)   2% GDP growth is anemic.  And considering that $13 Trillion (yes Trillion) has already been spent since early 2009 to get this economy moving, it is pathetic.  To say it 'grew' implies Growth- an optimistic word used to describe something stagnant.

The concept of a Trillion is hard to grasp so let's put it this way-  To use simple math, there are 300million Americans currently.  If you took $13 Trillion ($13,000,000,000,000) and divided it evenly to each man, woman and child, each person would have received a personal stimulus of $43,333.33.

2)  Its quite humorous that when stats are released into the public showing the economy struggling or doing poorly, the attitude of investors is a shrug and a 'so what- we'll turn it to our advantage'.  Like pus filled boils and carbuncles on a face, the investors attach themselves onto Wall St, even with an paltry 2% GDP growth because to them, it is a 'positive' which they excitedly await like helpless baby birds being fed regurgitation from mommy bird.

* Funny how the Fed meets on November 3rd, the day After the midterm elections-  definitely a coincidence I'm sure.

Remember what stimulus really is- free zero-interest money to banks to buy some of their toxic debts and which goes directly into the markets. This money is not lent out to businesses or individuals or used to create jobs.  And without this guarantee of free money based on minimal economic growth, cowardly investors would have scurried and the market would have dropped by a hundred points.  Which is alright- markets are supposed to ebb and flow when not artificially propped up by a government.

~ In summary, GDP is flat but this is 'good news' because "it was in line with economists' expectations" and not below,  because it was slightly better than the flat 1.7% in 2Q and because it means Fed stimulus, which is a Horrible, disastrous thing, but is deceptively painted by the media as Great & necessary.

Thursday, October 28, 2010

Opinions are like rear-ends..

~ "Got the $1,000 suit.. Finance section in hand.. ready to conquer the world"

According to Stock Trader's Almanac Editor-in-Chief Jeffrey Hirsch, ""The super boom's not really going to kick off until 2017 after we shake out all this financial crisis," he says. He predicts the Dow will hit 38,820 in 2025, a 500% gain from the intraday lows of March 2009... It only takes a 7%-8% gain, compounded annually, to get to 38,820, Hirsch notes. In fact, the Dow rose 1,400% during the bull market of 1982 to 2000"- Yahoo Finance

 ~ "In 2025, I'm going to be SOOO Rich!!  YEAH~"

1)  If you think Hirsch knows what he's talking about (which he doesn't), then you also have to accept the entirety of his premise- that it will take Seven more years to get out of this current financial mess.  That would date the crisis at 2007-2017, meaning we're not in a recession and certainly not a BS 'recovery'-  it would mean we're in year 3 of the second Great Depression.

2)  This is the kind of garbage you find in mainstream financial news- worthless pieces of empty information from no-named nobodies who don't have a clue on anything.  Next time you read or listen to some 'expert' give financial advice, ask yourself this-  Did he/she forecast the current depression we're in- did that person write or speak on it prior to 2008 warning people to protect themselves financially?  If not, then he/she is no 'expert'.

Opinions are like rear ends- everyone has them..  except some are fortunate enough to be picked up by mainstream news.

Japan & US have things in common...

 ~ President Obama meets with Japan's Emperor Akihito, 2009

Asian Stocks Mixed Amid Fed Stimulus Uncertainty- "Japan's benchmark Nikkei 225 stock index was down 14.42 points, or 0.1 percent, at 9,375.53 in zigzag trading and barely reacting to the Bank of Japan's widely expected decision to leave its key interest rate unchanged at zero to 0.1 percent. The central bank also gave more details of a $61 billion asset purchase program to help revive the Japanese economy, which is being battered by a strong yen and persistent deflation."- AP  (10/28/10)

1)  What is 0.1%?   It is one hundredth of one percent or 0.001.  If a person had a lifetime savings of 10,000 yen or dollars in the bank at an APR of 0.1% and he/she was dependent on the interest to offset rising costs of goods and services, the total yearly interest in simple math would be 10 yen or dollars (83 cents/month US currency).  Currently, in US banks, the interest rate is the same as Japan- 0.1%.   In 2000, the interest rate on savings in US banks was 5% (this is a normal savings account, not a CD which actually paid out a higher interest).  If you had $10,000 in a bank in 2000 at 5% interest, in simple math, you would have accrued $500 or $41.66/mo.    That is a loss in saving of $490/yr. between then and now.


If you had $100,000 dollars in a US savings account in 2000, the yearly interest at an APR of 5% would be $5000.  Today, the yearly interest at 0.01% APR comes to $100.     Understand better?

2)  The "$61 billion asset purchase program" is a bank bailout.  In the US, we call it Fed stimulus or Quantitative Easing 2.  The $61 billion yen will come from the taxes of hardworking Japanese men and women, go directly into the banks coffers and never to be seen again.  Just like in the US.

~ US Fed Chair Ben Bernanke & Masaaki Shirakawa, Governor of the Bank of Japan working for the same cause; seeking the same goals.

3)  The article says the economy is being 'battered' by a strong yen.   A 'strong' yen or dollar (or franc, peso, deutche mark,etc) means the people of that particular nation can purchase more goods and services with that money.  In other words, the stronger the currency, the greater value it holds and the greater the purchasing power.  To Japan's government and finance leaders, just like in the US, this is looked at as 'bad'.  Weaker currency expands exports- makes imports more expensive- makes goods and services cost more- means work longer- harder- for less money.  To governments of Japan and US, this is 'good'.


Japan and the US have things in common- Both economies are in Very bad shape, both are completely beholden to the banking interests and neither government gives a damn about the financial well being of its everyday citizens.

Wednesday, October 27, 2010

"Amazing" and not in a good way

From Bloomberg.com- Oct 21,2010...

New York Fed Faces 'Inherent Conflict' In Mortgage Buybacks- "The Federal Reserve Bank of New York’s effort to recover taxpayer money used in bailouts during the crisis may be at odds with its mission to ensure the stability of the financial system"

~  Think of it in financial terrorism terms- instead of suicide bombers, these are suicide bankers at work. The entire financial system has been rigged to explode by the bankers at the least amount of accountability, therefore the Fed or politicians can not ever be working on behalf of the population because to do so would cause the financial system to literally blow and it is the bankers who have done the rigging.

*  Some may feel the comparison of bankers to terrorists is hyperbole or exaggeration for dramatic affect.  This not the case- it is an accurate depiction of the banking system currently in place.  The bankers (Goldman, AIG, etc..) over the past 2 years and at present, have said this to the government: 'Give us more money or we're going to blow up the system.'  Now, how is that different than a terrorist at a cafe strapped with explosives threatening to blow themselves up for an ideological cause?  

The bankers are sociopaths, and they want money.  Simple.  They made bad risks- placed bad bets in regard to mortgages, securities and derivatives. They lost A LOT of $ in the process.  They don't want to take any losses- they will not take any losses..  they want Money!  This is why governments around the world have collectively poured trillions upon trillions of government stimulus into the global markets- because bankers threatened the US and Global economy with complete destruction and chaos otherwise. And the banks still want More- they still have trillions upon trillions of dollars of toxic debts on their books.. debts which they will not take a loss on, which is what Quantitative Easing 2 is about.   These are Suicide Bankers... and 'We the People' are nothing more than collateral damage.

"The New York Fed, which acquired mortgage debt in the 2008 rescues of Bear Stearns Cos. and  AIG, joined a bondholder group including Pacific Investment Management Co. that aims to force Bank of America Corp. to buy back some bad home loans packaged into $47 billion of securities, people familiar with the matter said this week.  Concern that Bank of America may be forced to buy back soured mortgages helped send its stock down almost 5 percent in the last two days, wiping out $5.92 billion of its market value."

~ Basically- the evil, despicable Wall St investor doesn't like the idea of Bank of America buying back its toxic garbage while it is perfectly acceptable for the taxpayer to remain on the hook. And it puts the New York Fed in the position of either recouping the money and seeing continued losses of Bank of America in the billions, or do nothing while the banks win and the money of everyday Americans get flushed down the toilet.

Tuesday, October 26, 2010

A US History of 'Panic- Part IV - 1907

 
This is the last of a 4 part series on the US history of Panics or depressions prior to the Great Depression '..   The other parts can be found below:

Panic Part I

Panic Part II

Panic Part III


Panic of 1907

This also known as the 1907 Bankers' Panic when the New York Stock Exchange fell close to 50% from its peak the previous year. There were numerous runs on banks and trust (commercial bank) companies.  The panic eventually spread throughout the nation when many state and local banks and businesses entered into bankruptcy.  Primary causes of the run include a retraction of  market liquidity by a number of NYC banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops (These specialized in stocks and commodity futures- bucket shops typically catered to customers who traded on thin margins, even as low as 1%. Most bucket shops refused to make margin calls, so that if the stock price fell even momentarily to the limit of the client's margin, the client would lose his entire investment.)


The crisis was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company.  When this bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Co.—New York City's third-largest trust. The collapse of the Knickerbocker spread fear throughout the city's trusts as regional banks withdrew reserves  from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.

The panic may have deepened if not for the intervention of financier J.P. Morgan, who pledged large sums of his own money, and convinced other New York bankers to do the same, to shore up the banking system.  At the time, the United States did not have a central bank (the current Federal Reserve) to inject liquidity back into the market.  Despite the infusion of cash, the banks of New York were reluctant to make the short-term loans they typically provided to facilitate daily stock trades. Unable to obtain these funds, prices on the exchange began to crash on Thursday October 31.   Morgan summoned the presidents of the city's banks to his officeand  informed them that as many as 50 stock exchange houses would fail unless $25 million was raised in 10 minutes. And 10-15 minutes later, 14 bank presidents pledged $23.6 million to keep the stock exchange afloat.

 ~ JP Morgan

Although calm was largely restored in New York by Saturday, November 2, yet another crisis loomed. One of the exchange's largest brokerage firms, Moore & Schley, was heavily in debt and in danger of collapse. The firm had borrowed heavily, using stock from the Tennessee Coal, Iron and Railroad Company  (TC&I) as collateral. With the value of the thinly-traded stock under pressure, many banks would likely call the loans of Moore & Schley on Monday and force an en masse liquidation of the stock. If that occurred it would send shares of TC&I plummeting, devastating Moore and Schley and causing a further panic in the market.

In order to prevent the collapse of Moore & Schley, Morgan called an emergency conference at his library Saturday morning. A proposal was made that the US Steel Corp., a company Morgan had helped form through the merger of the steel companies of Andrew Carnegie and Elbert Gary, would acquire TC&I. This would effectively save Moore & Schley and avert the crisis.

 ~ JP Morgan as the Pied Piper

By then, J.P. Morgan was drawn into another situation. There was a major concern that the Trust Company of America and the Lincoln Trust could fail to open on Monday due to continuing runs. On Saturday evening 40–50 bankers had gathered at the library to discuss the crisis, with the clearing-house bank presidents in the East room and the trust company executives in the West room.  Morgan then entered the talks and told the trust companies that they must provide a loan of $25 million to save the weaker institutions. 

On Sunday afternoon it was worked out to  finalize the deal for U.S. Steel to buy TC&I and by Sunday night had a plan for acquisition. But, one obstacle remained: the anti-trust crusading President  Theodore Roosevelt who had made breaking up monopolies a focus of his presidency.  Roosevelt was implored to set aside the principles of the Sherman Antitrust Act and allow—before the market opened—a company that already had a 60% market share to make a massive acquisition. Roosevelt relented, and allowed the merger to occur.  The final crisis of the panic had been averted.

~ Teddy Roosevelt

The result of the Panic of 1907 was the second-highest volume of bankruptcies to that date. Production fell by 11%, imports by 26%, while unemployment rose to 8% from under 3%. Immigration dropped to 750,000 people in 1909, from 1.2 million two years earlier.  The frequency of crises and the severity of the 1907 panic added to concern about the outsized role of J.P. Morgan which led to renewed impetus toward a national debate on reform.   Eventually in 1912, the Federal Reserve was born and would replace the 'trusts'.

~  It is interesting to see the similarities between this Panic and what happened in September, 2008-  Banks and financial entities acting irresponsibly...  over-emphasis on the importance of protecting the stock market.. closed door meetings and backroom deals amongst the powerful elite.. a President who betrays his principles out of fear of unknown..

**  History repeats.  This nation has a history of protecting banks, investors, commerce and Wall St.  And because of this loyalty and determination to protect these entities at all times, this nation has had over a dozen Panics, recessions, depressions and Great Depressions in our history.  And it will continue- indefinitely- as long as these interests are protected at All costs.

What does "Ants & Grasshoppers" want?


A lot of time is spent on this blog explaining what's going on economically in the financial sector and in government.  Decisions that are not only not for your benefit but in fact for your economic detriment.  This blog also tries to demonstrate how biased mainstream news is, particularly the written media who distort truth through sensationalistic headlines and spin, and strategically bury statistical facts at the bottom of their columns where few bother to read.    All this done with a political and more importantly, a financial agenda to push.

So this leads to the following question- What is the position of this blog- what does A&G want in terms of economic policy and the overall state of the American nation?   Good question- glad you asked..

In no particular order, A&G would desire the following in a perfect world...
  • That not only QE2 not occur but the power to stimulate the economy be completely taken out of the Federal Reserve's hands (Bernanke) since their mantra is strong economy through monetary decisions that solely benefit the triad of Evil-  Wall St., banking/finance, and investors.
  •  That the government would enact "trickle up" policies that puts wealth in the hands of everyday people so they could stimulate the economy through business start-ups and everyday commerce which would guarantee money be circulated at a faster rate than at present.
  • Social Security get a cost of living increase of 4-5% for 2011 and beyond
  • Additional minimum 26 weeks of unemployment benefits to the '99ers'- those who've ran out of government assistance while unable to find work since the recession began.    
  •  The government provide job training for those unemployed in marketable & expanding fields to give  people the best chance possible to find meaningful employment on their own. To receive benefits, you had to attend 10hrs/week in free or copay classes.   No classes- no benefits.
  • Establish a law that compels businesses to hire instead of hoarding cash reserves by giving tax breaks to those who expand hiring and tax penalties to those businesses that either do not hire or continue releasing workers for economically selfish reasons.  Called Carrot--stick.
  • That policies be enacted to strengthen the US dollar rather than weaken it vs other currencies so products and services can be as affordable as possible while dealing with massive unemployment and stagnation of wages.
  • Establish a law that any company that sells its products to US consumers has to make at least 15% of its items domestically, using American workers & they will receive a tax break OR continue making all products abroad and the US place a 40% tariff on those items.  Companies must be Forced to use American labor if it wants American consumption. Once again- Carrot--stick.
  • Via the Patriot Act under the crime of Financial Terrorism, the government arrest the top leadership of Goldman Sachs, AIG, JP Morgan, Chase, Bank of America and every other major CEO and power broker directly or indirectly responsible for the economic situation we're in today They would be detained them indefinitely without counsel as would any other suspected terrorist trying to harm our nation.  This is important- their actions, in particular the creation and profiting off the housing bubble and its results, have blown this economy apart- far worse than any bomb could have.  It caused untold suffering, massive collateral damage and shook the bedrock of the entire financial system... and we're still just beginning to pick up the pieces.
  • Increase the interest rate by 3-4% to bring savers back to the banking system and reward them for living in a fiscally responsible way.
 Basically this is what 'Ants & Grasshoppers' wants- Fairness, Accountability, Justice, sincere Job creation, a Strong dollar, a Better Life for Everyday people and a Strong, Safe & Vibrant America.

French Protest strikes & The God-Awful News Coverage of it


The situation in France, where the people are protesting having their retirement pensions extended by two years, fascinates me very much.  Not only because it is deeply refreshing to see a people fight to protect their rights rather than taking things with a stiff upper lip or with casual indifference.  I'm also fascinated by how intentionally poor a job mainstream news does in covering the strikes in an accurate and objective light.

This morning AP wrote an article entitled "France: Strikes costing up to $560 Million Per Day".  It mentions the expense to France after two weeks of strikes and protests to this point.  The article mentions things like trash collecting in the streets and the notion that France is a laughingstock or oddity to the rest of the world.  This of course is meant to conjure up pictures in the mind of radicals and fringe elements, which are meant to discourage others from considering strikes and open protest as reasonable remedies.

Yet buried at the very bottom of the article is this nugget of truth- "The demonstrations against the retirement reform have brought millions into the streets, and polls have shown that a vast majority of French people support the strikers. Meanwhile, the conservative Sarkozy's popularity is plummeting."

AP's story is 10 paragraphs- it waits until the very end to begrudgingly admit that the French people overwhelmingly Support the current strikes.  Even though its affecting transportation, garbage pick up, schools, mail delivery and pretty much every other aspect of normal everyday life for two full weeks-- The French people Support the striking unions because they understand what is at stake.  They fought long and hard to have retirement at 60.   They understand that if they lose and the age becomes 62, it can easily become 65 or 70 or 75.  They also understand all other economic and social safety nets can be taken from them.  They will not surrender without a fight; a public pronouncement of their anger and betrayal by their government.

When austerity comes to America.. and it will..  and the retirement age is moved up to 70, and Social Security and Medicare are permanently tampered with, how will we respond as a nation?

There is a God...



Some may be offended by this specific blog post..  A&G does not care.

For on Earth, there is the Powerful & the powerless..

And then there is a Force in the universe greater than us all..

One who reminds all of us of The great life lesson..

A lesson every person who Profits from Wall St. should have been taught:

You Can't Take It With You!   

AIG Chief Diagnosed With Cancer-  "American International Group Inc. said Monday that its president and chief executive officer, Robert Benmosche, has been diagnosed with cancer.

The company announced Benmosche's diagnosis after the market closed Monday. Its stock fell 26 cents, or nearly 1 percent, to $40.84 during aftermarket trading.  Robert Miller, chairman of AIG's board of directors, said the company will engage in contingency planning to ensure management continuity as Benmosche's treatment unfold."- AP

~  There is a God..  And yet you see, not even cancer stops the Machine

Monday, October 25, 2010

Understanding the News- 10/25/10


 Today I decided that rather than demonstrate through numerous headlines how detached Wall St. is from Main St and how the government sincerely does not care about everyday people, I decided to explain the disconnect using only one article entitled "QE2- How To Play the Fed's Next Big Move"- Wall St Journal (10/25/10)

Before we get into the specifics of the article, notice the headline- how insipid that is.  Really.  The Fed is about to circulate hundreds upon hundreds of billions, if not a trillion dollars into the US economy which will weaken the dollar and make the money you & I currently possess weaker and cause goods and services to cost more.  Yet this financial publication is treating QE2 as a fun game.  If you go to the bookstore, you will see asinine titles such as "How to Win at the Casino" or "How to be a Millionaire by 30"-  this WSJ article headline deserves its place alongside those 'quality' pieces of literature.

Now onto the meat of the article...

"Federal Reserve Chairman Ben Bernanke seems poised to deliver a second round of "quantitative easing," meaning the Fed will buy assets like Treasury bonds to lower long-term interest rates and boost the economy. Investors who pile in after the Fed could get hurt."

~  This will Not boost the economy- repeat.. will Not boost.. It will keep interest rates super low to benefit banks and punish savers.  Bernanke will give this money to banks for free and the banks in turn will Not lend it- they will buy back Treasury bonds and get 3% interest in the process.   ** I can't possibly express this any clearer-  QE2 and any other Fed stimulus, is a backdoor bailout of banks who are holding collectively over $50 Trillion (with a T) in toxic debts from the subprime mortgage crisis of the 2000s.  Most banks currently are zombie banks.

"The central bank is expected to announce at its Nov. 3 meeting that it is launching the second round of quantitative easing since the financial crisis began.  If it works, the thinking goes, bond yields should fall, the dollar should drop and riskier assets like stocks and commodities should rise. That is what happened during the first round of quantitative easing, at the height of the financial crisis. The Fed's bond buying, which was first announced in November 2008, pushed stocks up 29.5% during the next 12 months, while gold gained 44.5% and high-yield bonds rose 16.6%. The dollar plummeted 12.6%."

~  In other words the Dow, currently at 11,190 as of this moment, is really 29.5% higher than it would be naturally if not for the vast amounts of money pumped into the markets- money that could have been used to create jobs-  money that has Not created any real employment for everyday people.   If not for the funny money, the Dow would currently be at 7,800 range which is not catastrophic by any means.  But then those who make money on the stock market would have less profit and government cares more about them than us.

Gold going up in value ultimately isn't a good thing- it means there's a lot of volitility and people do not know where to put their money so that it does not disappear or get destroyed by evil Fed Secretaries..  So professional and everyday investors put their money in gold as a safe haven to hedge against a weakening dollar or a collapsing nation.  In simple terms, the higher gold prices go, the worse the economy is and the more frightened people are.

In addition, the dollar plummeted 12.6%-  that is 1/7th the value of the dollar prior to Nov. '08!!.  In other words, what you could by for $100 prior to Fed intervention,  you now need $112.60.   It may not seem like much if you're getting a burger and fries, but it adds up when you're looking to buy a big ticket item like a TV, car or home.

"Mr. Bernanke's speech at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo., persuaded the market that quantitative easing was on its way... Since the end of August, the Dow Jones Industrial Average has gained 11.3%, oil has jumped 11.2% and gold has increased 7.6%... True to form, the dollar has dropped 6.6% against a basket of six currencies since Mr. Bernanke's Jackson Hole speech."

~  Like vermin attracted to musky cheese the investors get excited.  In the process, the price of gas per gallon to fill your car has gone up and the dollar has lost another 6.6% in value.  Aren't government and investors just 'wonderful'?

"Shorting the dollar has been a favorite trade of some market professionals. Bets against the greenback by hedge funds and other speculative investors have more than doubled from $13.6 billion on Sept. 14 to $29 billion on Oct. 12, near the record of $36.5 billion reached in 2007, according to Commodity Futures Trading Commission data."

~  Nice to know someone is profiting from the deterioration of our currency...

"The long bond has weakened in recent weeks: Yields, which move in the opposite direction of price, have leaped from 3.53% to 3.94% since Aug. 26, the day before Mr. Bernanke's Jackson Hole speech. That has presented an attractive buying opportunity, says Richard Cookson, the London-based global chief investment officer at Citi Private Bank, especially if investors think the Fed's bond buying won't cure what ails the U.S economy.  "Unemployment remains very high, inflation is falling and quantitative easing isn't going to change that," says Mr. Cookson. Long-term interest rates, therefore, aren't likely to go up, and could even fall from here—meaning bond prices could rise."

 ~ The simple way to interpret all that gobbledygook is this:  Everything to a sociopathic investor is a 'buying opportunity."  There are people out there in Finance-land who see your pain.. see the statistics.. then figure how to best invest and financially profit off your economic suffering.  Your financial pain is an investor's "buying opportunity"  And the government aids and abets the investor by spending billions upon billions to make the conditions for the investor as smooth as possible, while we all can eat cake.

-  Lastly, the quote in the final paragraph says it all-   "Unemployment remains very high, inflation is falling and quantitative easing isn't going to change that"-    Correct- no it isn't.   So why do QE2 in the first place?  By know we all know the answer to that and it has nothing to do with our benefit.

Sunday, October 24, 2010

Which nation's populace has the better response?


From the New York Times, Oct 22:

More Than the Channel Divides Britain & France:  "It was instructive this past week to observe the responses on both sides of the Channel to Europe’s economic malaise spreading like a dark fog occluding the future.

Faced with the prospect of a longer working life until a minimum retirement age of 62 (up from the current 60), a million French citizens took to the streets, as strikers closed refineries and blockaded fuel depots, leaving motorists to fume in line for gasoline and diesel.

But, (in England), confronting government measures promising not only a longer working life but 19 percent cuts in public spending, the loss of almost half a million public-sector jobs, steep reductions in welfare payments and five bleak years of austerity, the British barely seemed to blink"

~ So which populace has the better; the more empowering response?  Passionate protest, or to taking it all with a stiff upper lip? 

 "You may never know what results come of your action, but if you do nothing, there will be no result" -- Gandhi

Saturday, October 23, 2010

A US History of 'Panic' - Part III- 1884-1897


This is the third installment in 'A US History of Panic'.  To those who have taken the time to read the first two installments, it is A&G's pleasure to educate &  inform you on the constant financial ups and downs through this nation's history.  To those who didn't bother reading or only skimmed, I suppose its like the adage suggests- you can pull a mule to water but can't make it drink.  Onto part 3 of the history lesson...

Panic of 1884

~ Image depicting Panic of 1884

This was a panic during the Recession of 1882-85.  Gold reserves of Europe were depleted and the New York City national banks, with tacit approval of the U.S. Treasury Dept. halted investments in the rest of the US and called in outstanding loans. A larger crisis was averted when New York Clearing House bailed out banks in risk of failure. Nevertheless, more than 10,000 small firms failed.

Panic of 1893


This was a serious economic depression similar to the Panic of 1873, which was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures. Compounding market overbuilding and a railroad bubble was a run on the gold supply and a policy of using both gold and silver metals as a peg for the US Dollar value. Until the Great Depression, the Panic of '93 was considered the worst depression the United States had ever experienced.

The 1880s were a period of remarkable economic expansion in the US, one which eventually became driven by railroad speculation. Railroads were over-built, and many companies continued growth by taking over competitors, endangering their own stability. In addition, many mines were opened (frequently with rail connections), and their products, especially silver, began to flood the market. Farmers, particularly in the Midwest, suffered a series of droughts which left them short of cash to pay their debts, which drove down the value of their land.



The 'Free Silver' movement arose, gaining support from farmers (who sought to invigorate the economy and cause inflation, thus allowing them to repay their debt with cheaper dollars) and mining interests (who sought the right to turn silver directly into money). The Sherman Silver Purchase Act of 1890, required the U.S. government to buy millions of ounces of silver (driving up the price of the metal and pleasing silver miners) for coining money (pleasing farmers and others) .

One of the first signs of trouble was the bankruptcy of the Philadelphia & Reading Railroad. Congress responded by repealling the Sherman Silver Purchase Act. As concern of the state of the economy worsened, people rushed to withdraw their money from banks and caused bank runs. The credit crunch rippled through the economy. A financial panic in the United Kingdom and a drop in trade in Europe caused foreign investors to sell American stocks to obtain American funds backed by gold. People attempted to redeem silver notes  for gold; ultimately the statutory limit for the minimum amount of gold in federal reserves was reached and US notes could no longer be successfully redeemed for gold. Investments during the time of the Panic were heavily financed through bond issues with high interest payments.

~ NYSE during Panic of 1893

 As the demand for silver and silver notes fell, the price and value of silver dropped. Holders worried about a loss of face value of bonds and many became worthless.  A series of bank failures followed along with bankruptcy of many other companies; in total over 15,000 companies and 500 banks failed (many in the west). According to high estimates, about 17%-19% of the workforce was unemployed at the Panic's peak. The huge spike in unemployment, combined with the loss of life savings kept in failed banks, meant that a once-secure middle-class could not meet their mortgage obligations. Many walked away from recently built homes as a result.

The severity was great in all industrial cities and mill towns. Farm distress was great because of the falling prices for export crops such as wheat and cotton.  A severe wave of strikes took place in 1894, most notably the bituminous coal miners' strike that spring, which led to violence in Pennsylvania, Ohio, and Illinois. Even more serious was the Pullman Strike which shut down much of the nation's transportation system in July, 1894.

The decline of the gold reserves stored in the U.S. Treasury fell to a dangerously low level, forcing President Cleveland to borrow $65 million in gold from Wall-Street banker JP Morgan in order to support the gold standard.  Many of the western silver mines closed and a large number were never re-opened. A significant number of western mountain narrow-gauge railroads, which had been built to serve the mines, also went out of business.  The U.S. economy began to recover in 1897. Confidence was restored with the Klondike Gold Rush and the economy began 10 years of rapid growth, until the Panic of 1907.

 
~  If there's one thing you, the reader should be taking from this, is that the entities that are causing all the economic pain and suffering today in 2010- banks, investment firms, Wall Street, speculators, investors- These are the same sinfully Evil entities which have caused misery and suffering for everyday people for the entirety of this nation's economic history.  The greed, lust for power and hunger for more money have caused every period of economic suffering-  from 1796 to the present.

Everyone wants their 'cut'- their piece of the profit pie and 'F' anyone who may get hurt in he process.  This is how the sociopathic financier thinks, and as this history lesson is meant to show, this mindset goes back farther back than 2007 or even the Great Depression.   And government's response to the economic elite is always to bend over with hands on ankles.

Part four- Panic of 1907 and Depression of 1920-21 coming soon



Friday, October 22, 2010

What did we learn in school? Really?

Homer Simpson says:  "Hey kids, you can be just like me.. Just stay in school, study hard, do as your told, and don't worry about anything because government will fix all problems <belchhhh>"

Every American who attended K through 12th grade, spent approximately 2,100 days of their lives in the public school system.   When you add 4-5 years of undergraduate studies at college, and for some, additional schooling to achieve a Masters then Doctorate, that's quite a bit of time commitment.   But what did we really learn?  What essential survival or social skills did we come away with, in case modern society broke down, even for a temporary period like after a hurricane or blizzard?

Were we taught how to hunt or fish?  What plants are edible vs inedible?

Were we taught how to prepare food?  How to cook it? 

Were we taught how to sew or how to make clothing?

Were we taught how to do anything not involving electricity?  How to preserve leftover food? How to wash clothes?

Were we taught how to build?  Shelter?   A crate?  Taught to build anything?

Were we taught how to grow and tend to a garden?  How to turn useless green lawns into productive fields that grow crops that feed people?

Were we taught anything about farming?  Raising livestock?

Were we taught how to socialize with others?  How to show friendliness and how to be publicly sociable to others instead of insulating from the rest of the world with texts, tweets &  iPod earbuds in our ears?

Were we taught how to barter and trade?  How to negotiate? Were we taught to share?

Were we taught to think of others beyond ourselves?  Were we taught to think on the common good rather than feeding the Id?

 ~ Little Billy couldn't figure out the proper way to sit in a chair.. isn't he just precious?!..Aww~

Were we ever taught common sense?  Deductive reasoning?

Were we ever taught how to think analytically?  How to question?

Were we taught how to make do with less?  How to sacrifice?

Were we ever taught what it means to appreciate what we have? Taught to appreciate the moment?

Were we ever taught about marching to beat of one's own drum? To Not be a follower?
 Were we ever taught what true priorities in life are? 

After 2,100+ school days, were we Ever taught Anything important?

Why not?

Understanding Headlines- 10/22/10


 It is A&G's mission to take the lies and distortions of mainstream media and explain what they're really saying in a very direct way that laypeople can understand.  Those who are fortunate enough to visit and read this will benefit and be a leg up on the clueless.   Onto today's headlines...

Currencies Center Stage As G20 Gets Under Way:  "The U.S. pressed emerging nations to set targets to reduce their vast trade surpluses with the West, a plan that could see their currencies rise."-  AP

As I've said many times before, the US wants to purposely devalue the US dollar.. Yes Martha, it really wants the dollar weaker than other currencies even if it means its populace suffers by paying more for goods and services.  This reasoning is two-fold- 1)  It owes so much in debt to other nations, especially China that the weaker the dollar, the less it has to pay back;  2)  The Fed & Treasury believe the only way the US is going to rebound from this current small-d depression (that is really what we're in- not a recession or pretend 'recovery') is through trade exports; making our products as inexpensive as possible for foreign consumption.  The American people will suffer but that's 'OK' since the government really doesn't care about you and I anyways.



Unemployment Rate Drops In 23 States in September: "Unemployment fell in 23 states and Washington, D.C., rose in 11 states and was unchanged in 16 during September, the Labor Department said Friday...  Still, little hiring took place last month. A survey of employers found that payrolls decreased in 34 states and increased in only 16 states and Washington, D.C... Nationwide, the unemployment rate was unchanged last month at 9.6 percent"-  AP

This is the kind of bullshit 'news' item that mainstream news is famous for.  Someone writes an article.. Headline could have said 'Unemployment Rate Rose or Remained Unchanged in 27 States in September' and been factually accurate.  But that's not 'happy'- So a copy editor or the writer him/herself decides to focus on the 'positive'- unemployment drops in 23 states..Yay..  OK, now we read that payrolls increased in only 35% of the US States. Means payrolls decreased or remained unchanged in 65%- Hey that's over half- not too 'positive'.  Then we look at nationwide unemployment remaining the same at 9.6% (its really over 17% unemployed if U6 is taken into consideration).. hmm, that doesn't make for a 'cheery' headline..   

So you have nothing sincerely positive in the news story to match the header. But the AP was damn well determined to give a happy headline wasn't it.   Think of it this way- let's say a movie is released called "Blue Skies and Colorful Balloons" but when you go to the theater to see it, while there is blue skies and balloons in one scene, its really a film about haunted houses, devils and demons.--  this is American news.


Americans Dumbfounded As French Protest Increase in Retirement Age to... 62: "According to a recent news report, most people in France support the protests. But the cause is unlikely they'll get much sympathy in the United States--or anywhere else, for that matter."- Yahoo Tech Ticker

If Americans do not support the protests or show sympathy, it will be because they don't fully understand what they'll be facing soon down the road.   It may seem funny or odd that French people would protest the retirement age increasing to 62, but understand that the French people have amongst the highest quality of life of anyone in the world- they're paid well, have more paid vacation time than US workers and at this moment, get to retire at 60 instead of 66 which is the US retirement age.  And all these things they have won for themselves through protests and demonstrations.  

In other words, while we sit at home, eat cake & cookies, watch garbage on TV, and judge each other by asking "What do you do for a living?" as the first question uttered from our mouths, the French and others in Europe fight to protect and preserve their freedoms and rights. They also find the question of "What do you do?" to be deeply impolite for it matters more to a continental European who a person IS than what he/she 'does'.  And when the French people are successful and preserve their retirement age at 60, will Americans admire the French spirit or be more resentful of them?

There will be a time soon enough when the US faces austerity like in Greece- where social services and pensions are severely cut back to pay on the debts.  Taxes will be raised either through federal income tax, increases in sales tax and property taxes or even a Value-Added-Tax such as in Europe which would dramatically increase the cost to buy goods and services. All this while the government purposely devalues the dollar.  The US Govt may also need to raise retirement to 67.. or 69 to keep Social Security & Medicare solvent.   Will you be laughing still?  When that day comes, will you accept all this in a passive, docile way?


 Housing's Worse Case- "Yesterday the regulator for Fannie Mae and Freddie Mac put out a forecast of how much the two mortgage giants would cost taxpayers through 2013. After the news hit, there was much consternation at the Treasury Department because many news outlets went with that big worst case scenario headline of the big bailout costing $363 billion."

Quite simply, the Treasury was annoyed that the mainstream media did not do as it usually does- fudge and play with numbers to paint negative scenarios in the most rosy light. In the government's 'perfect world', we the people wouldn't be told anything on Freddie & Fannie Mae, much less any other aspect of this economic crisis.  But if we must be told.. if we have to be told something, then like the old song goes, 'You have Accentuate the positive.. Eliminate the negative'

Thursday, October 21, 2010

A US History of 'Panic' - Part II : Panic of 1873

 ~ 1874 Tompkins Square Riot, NYC

The purpose of this history lesson into past depressions and economic downturns in the US is to show that these things are not new phenomenon that magically started in 1929.  In addition, the greed and deep Evilness of banks and investors is not something that started with Goldman Sachs.  This has been a part of American history since its inception- its just the baddies get bigger and bigger, and the government does more and more to give aid and comfort to them.

So continuing the history lesson- today's focus:

Panic of 1873

 ~ Black Friday- NYSE shuts down, 1873

The Panic of 1873 surrounded a severe international economic depression in Europe and the US that lasted until 1879, and even longer in some countries. It was triggered by the fall in demand for silver which followed Germany's decision to abandon the silver standard in the wake of the Franco-Prussian war. In 1871, Germany's leader Bismarck extracted a large indemnity in gold from France and ceased minting silver coins. Financial failures began in Vienna, Austria, which spread to most of Europe and North America by 1873. In Britain, the result was two decades of stagnation known as the "Long Depression", which weakened Britain's economic leadership in the world.

The decision of the German Empire to cease minting silver coins caused a downward pressure on the value of silver which had a knock on effect in the US. As a result, the Coinage Act of 1873 was introduced. Prior the US had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to a 'de facto' gold standard, which meant it would no longer buy silver at a statutory price or convert silver from the public into silver coins.  This depressed silver prices hurting Western mining interests, who labeled the Act "The Crime of '73." The coinage law also reduced the domestic money supply, which raised interest rates, thereby hurting farmers and anyone else who normally carried heavy debt loads. This perception of instability caused investors to shy away from long-term obligations, particularly long-term bonds. In September 1873, the American economy entered a crisis.

~ Jay Cooke

Jay Cooke & Co. a major component of the United States banking establishment, found itself unable to market several million dollars in railway bonds. His firm, like many others, was invested heavily in the railroads. At a time when investment banks were anxious for more capital for their enterprises, President  Grant's monetary policy of contracting the money supply (again, also thereby raising interest rates) made matters worse for those in debt. While businesses were expanding, the money they needed to finance that growth was becoming more scarce.  As Cooke was about to swing a $300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless.

On September 18, the firm declared bankruptcy. This set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, more slowly in Chicago, Virginia City, Nevada and San Francisco.  The New York Stock Exchange closed for ten days starting September 20. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876. Construction work halted, wages were cut, real estate values fell and corporate profits vanished.

Here's how different parts of Europe were affected:

~ Black Friday, May 9 1873, Vienna, Austria

Germany & Austria- 

A similar process of over expansion was going on in Germany and Austria, where the period from German unification  in 1870/71 to the crash in 1873 came to be called the Gründerjahre or "founders' years". A liberalized incorporation law in Germany led to the founding of new enterprises, such as the Deutsche Bank as well as the incorporation of established ones. Euphoria over the military victory against France in 1871, combined with the influx of capital from the payment by France of war reparationsencouraged stock market speculation in railways, factories, docks, steamships - in short, the same areas of over expansion as in the US It was in the immediate aftermath of Bismarck's victory against France that he began the process of silver demonetization. Germany was now on the gold standard.

On May 9, 1873, the Vienna Stock Exchange crashed, no longer able to sustain false expansion, insolvency, and dishonest manipulations. A series of Viennese bank failures resulted, causing a contraction of the money available for business lending. In Berlin, the railway speculation bubble burst.  The contraction of the German economy was exacerbated by the conclusion of war reparations payments to Germany by France in September 1873. Coming two years after the founding of the German Empire, the panic became known as the Gründerkrach or "founders' crash".

Britain-

In Britain the long depression resulted in bankruptcies, escalating unemployment, a halt in public works, and a major trade slump that lasted until 1897.  During the depression of 1873–96, most European countries experienced a drastic fall in prices. Still, many corporations were able to reduce production costs and achieve better productivity rates, and, as a result, industrial production increased by 40% in Britain and by over 100% in Germany.

Ottoman Empire-

In the periphery, the Ottoman Empire also suffered. Rates of growth of foreign trade dropped, external terms of trade deteriorated, declining wheat prices affected peasant producers, and the establishment of European control over Ottoman finances led to large debt payments abroad. The growth rates of agricultural and aggregate production were also lower during the "Great Depression" as compared to the later period. So the Empire began to tax heavily all non-Muslim subjects.


~  Part III to come in next few days..

Understanding Headlines- 10/21/10



The goal of every headline of every article written in every subject is to entice the reader to continue reading.  In finance and economics, the goal is also to paint as rosy a picture as humanly possible.  Even if negative statistics or gloomy news occurs, it is reported but minimized or pared down so the reader will continue reading, even if its a continuation of 'happy' propaganda.

I thought it would be fun to give some news headlines and briefly explain what it is really saying...

Freddie and Fannie may need another $215 billion-FHFA - Reuters

The word 'may' really means 'will' and if this headline was truly accurate, it would say 'Freddie and Fannie will need another $215 billion for now' because this is not the last infusion of taxpayer money to be dumped into the Freddie and Fannie Mae hole- not by a long shot.  And this is Important-  when the government took them over, it became a means to funnel money purposely to the banks as a backdoor bailout.  In other words, they are purposely designed to lose money.  It is no accident or bad accounting.  It is a means to boost zombie banks secretly.

Freddie, Fannie Tab Could Hit $363 Billion- WSJ

Good example of playing with numbers.  Is is $215b?  $363b?  $500b?  Doesn't really matter- the key point isn't the dollar total which the government will give to the banks.. I mean Freddie & Fannie Mae- wink wink.. its that whatever is given, will not be the last infusion of money.  But the goal of the headline is to get the reader to focus on the immediate, garnish a reaction of anger so you'll read then move on without reacting in any way to feel motivated to revolt, and when the next bailout of Freddie & Fannie occur 6months later, you will forget this and other cash dumps that took place previous.


Wall St. Discovers Airlines Make Money- TheStreet.com

Should that really be any surprise when they charge for everything from luggage to a can of soda, while packing passengers in like sardines in a tin.  And the worst part is people tolerate it and continue to fly instead of boycotting flying until the airlines stop this pettiness.


Gold Drops After Geithner Says Currencies 'in alignment', Boosting Dollar- Bloomberg

As the dollar weakens, gold goes up. The US govt is purposely and intentionally weakening the dollar as part of a current currency devaluation war going on globally.  When dollar is devalued, it causes inflation- means you pay more tomorrow for the things you pay for today.  When gold rises, it means people are scared about the economic future.  The drop in gold price is temporary and based on another government lie.

Jobless Claims fall to 452K, But Remain Elevated- AP

Here's an excellent example of what I call a distorted optimistic spin headline.  you still have close to half a million American people applying for unemployment benefits yet AP focuses on a minimal decrease of 23,000 people and calls it a 'fall' in numbers.   You see this nonsense often in sports headlines.  The football score may read 'Bears 7, Lions 3' and the headline will say something asinine like "Bears CRUSH Lions" if its a Chicago paper or "Lions put up Herculean effort" if its a Detroit paper.  Neither happened yet to their targeted readers, that's the respective headlines which will attract interest.

~  All news is subjective and biased..  The only truly honest reporting is opinion based journalism and blogs because they do not hide it.   A&G does not like people constantly lied to, sold to, talked down to and manipulated into the left/right political game by the mainstream media.  A&G resents that the news media intentionally refuses to give people the unvarnished truth or provide concrete ideas and/or solutions as to how to combat these ills or to take control of one's life.   That is A&G's bias.

Tuesday, October 19, 2010

A US History of 'Panic' - Part I

Most people believe the first economic crisis the US has ever had to deal with was the Great Depression (1929-41)  This is not the case.  The nation has dealt with many small-d 'depressions' also known as 'Panics' in its history.  Very little to nothing is known about these other economic downturns because the Great Depression tends to overshadow anything before it, and quite frankly, people wrongly believe history is 'boring' and 'dull' due to shoddy teaching of the subject in school, so most American History is foreign to its own citizens.

So here's a short lesson on the US history of Panics...




Panic of 1796-97 -  A series of downturns in Atlantic credit markets led to broader commercial downturns in both Britain and the US, first emerging with the bubble of land speculation in 1796. The crisis deepened into a broader depression when the Bank of England suspended money payments in 1797. The Bank's directors feared insolvency when English account holders, fearing a possible French invasion (Britain was at war with Napoleon), began withdrawing their deposits. In combination with the unfolding collapse of the U.S. real estate market, the Bank of England's action suffered deflation in the financial and commercial markets of the coastal United States and Caribbean through the turn of the century. By 1800, the crisis had resulted in the imprisonment of many American debtors.


 ~ 1819 Political cartoon

Panic of 1819-  This was the first major financial crisis in the US, which occurred during the end of 5th US President James Monroe's Administration. This was the nation's first failure of expansionary monetary policy (increasing the money supply). Government borrowed heavily to finance the War of 1812, which caused tremendous strain on the banks’ reserves of money, leading to a suspension of payments twice, violating contractual rights of depositors. The suspension of the obligation to redeem greatly spurred the establishment of new banks and the expansion of bank note issues, and this monetary inflation encouraged unsustainable investments to take place. It soon became clear the monetary situation was threatening, and the national bank at the time, called the Second Bank of the United States was forced to call a halt to its expansion and launch a painful process of contraction. There was a wave of bankruptcies, bank failures, and bank runs; prices dropped and wide-scale urban unemployment began. In Philadelphia alone, unemployment reached 75%.

The Panic was also partially due to international events. European demand for American foodstuffs was decreased because agriculture in Europe was recovering from the Napoleonic Wars, which had decimated European agriculture. War and revolution in South & Central America destroyed the supply line of precious metals from Mexico and Peru to Europe. Without the base of the international money supply, poor Europeans and governments hoarded all the available money. This caused American bankers and businessmen to start issuing false banknotes and expand credit. American bankers encouraged the speculation boom but by the end of 1819, the bank would call these loans.




 ~1837 political cartoon


Panic of 1837- A financial crisis built on land speculation. The bubble burst when every bank began to accept payment only in gold and silver coinage, based on the assumption by former president, Andrew Jackson, that government was selling land for state bank notes of questionable value. The Panic was followed by a five-year depression, with the failure of banks and record-high unemployment levels. Within  the first two months the losses from bank failures in New York alone aggregated nearly $100 million. Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered.

Economist Milton Friedman explained the Panic of 1837 as follows: "The banking panic of 1837 was followed by exceedingly disturbed economic conditions and a long contraction to 1843 that was interrupted only by a brief recovery from 1838 to 1839. This Great Depression is particularly interesting for our purposes. It is the only depression on record comparable in severity and scope to the Great Depression of the 1930s,  and its monetary concomitants largely duplicate those of its later mate. In both, a substantial fraction of the banks in the United States went out of existence through suspension or merger --around one quarter in the earlier and over one-third in the later contraction--and the stock of money fell by about one-third. There is no other contraction that even closely approaches this dismal record. In both cases, erratic or unwise governmental policy with respect to money played an important part"

 ~ 1857 political cartoon

Panic of 1857-   This was a sudden downturn in the economy with a general recession first emerging late in 1856, but the successive failure of banks and businesses that characterized the panic began in mid-1857. While the overall economic downturn was brief, the recovery was unequal, and the lasting impact was more political than economic. From its peak in 1852, to its trough in 1857, the stock market declined by 66% and the panic/depression spread to Europe, South America and the Far East. No recovery was evident in the northern parts of the United States for a year and a half, and the full impact did not dissipate until the American Civil War.

The Panic ended a period of prosperity and speculation that had followed the Mexican-American War (1846–1848) and the discovery of gold in California in the late 1840s. Gold pouring into the American economy had inflated the currency. Changes in worldwide economic trade, caused by the Crimean War  between Britain and Russia, had pushed American firms into a precarious worldwide market. After a large increase in state banks in the early 1850s, by July 1856, banks began to lend far more money than they could back up in money even as deposits began to fall.  By October of 1856, depositors started runs on banks which motivated the decision of British investors to remove funds from U.S. banks, and raised questions about overall U.S. economic soundness.  Adding to this, the collapse of land speculation programs that depended on new rail routes, ruining thousands of investors.

Investor confidence was also shaken in mid-September when 15 tons of gold were lost at sea in a shipment from the San Francisco Mint to eastern banks. The gold and more than 400 lives were lost when the SS Central America sank during the North Carolina Hurricane of 1857.  Lastly, what added greatly to the economic tensions of the time was the Dred Scott case with the Supreme Court's ruling in 1857 that when a slave entered a free state with his master, he/she was still the property of his/her master and thus still a slave. The Court's decision threatened to open up all western territories to slavery, prompting the bonds of east-west running railroads to plummet in value, which in turn helped motivate a run on the major New York banks.

~ A US History of 'Panic'- Part II to come soon...

Monday, October 18, 2010

Trivia time- Goldman Sachs

Put on your thinking caps girls and boys because it's trivia time.. Yayyy~

Today's topic:  Goldman Sachs-  10 questions

1)  What exactly does Goldman Sachs do?

    a- investment banking & securities
    b- investment & asset management
    c- mergers & acquisitions advice
    d- underwriting services & prime brokerage
    e- proprietary trading & private equity deals
    f-  all of the above



Ans: F       All of the Above-  Yep... you guessed it right

2)  Goldman Sachs was founded in 1869.  How did it first make a name for itself?

   a-  gold speculation
   b-  currency swaps
   c-  pioneering the use of commercial paper
   d- financial middleman between railroads and banks


 Ans:  C     In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1-270 days.  It is a money-market security issued (sold) by  banks and corporations to get $ to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note.

3)  On December 4, 1928, it launched the Goldman Sachs Trading Corp.  What was that?

   a-  a closed end fund with characteristics similar to a Ponzi scheme
   b-  a means to securitize Latin American national debt
   c-  division of Goldman Sachs involved specifically in Far East economic affairs
   d-  all of the above


Ans:  A    A closed end fund is a collective investment scheme with a limited number of shares. New shares are rarely issued after the fund is launched; shares are not normally redeemable for cash or securities until the fund liquidates.  The fund failed as a result of the Stock Market Crash of 1929, hurting the firm's reputation for several years afterward.

4)  Gus Levy took over as Senior Partner of Goldman Sachs in 1969 and coined a phrase which has become Goldman's philosophy- what is it?

    a-   Kill or Be Killed
    b-   Long Term Greedy
    c-   Customer is always right.. to his face
    d-   Profit before Family.. before Country.. before God


 Ans:   B    'Long Term Greedy' implied that as long as money is made over the long term, trading losses in the short term were not to be worried about.

5)   Another financial crisis for the firm occurred in 1970, when the Penn Central Transportation Company went bankrupt with over $80 million in commercial paper outstanding, most of it issued by Goldman Sachs.  What was the result of this?

   a-   Credit ratings created for every issuer of commercial paper
   b-   Goldman barred from commercial paper transaction by SEC for 5 years
   c-   Goldman still managed to turn a profit off the ordeal
   d-   Gus Levy left to become Fed Chair under Nixon in 1971


Ans:   A    A credit rating estimates the credit worthiness of an individual, corporation or even a country. It is an evaluation made by credit bureaus of a borrower’s overall credit history. A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender.  The 1970 bankruptcy was large, and the resulting lawsuits threatened the partnership capital and life of the firm.

  6)  In 1995, Goldman Sachs bailed out a nation- which?

   a-  Honduras
   b-  Argentina
   c-  Brazil
  d-  Cameroon
   e-  Mexico


Ans:   E   Former Goldman head and Fed Secretary at the time, Robert Rubin drew criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key holder. On November 22, 1994, the Mexican Bolsa stock market had admitted Goldman Sachs and one other firm to operate on that market. The 1994 economic crisis in Mexico threatened to wipe out the value of Mexico's bonds held by Goldman Sachs.

7)  Despite the 2007 subprime mortgage crisis, Goldman Sachs was able to turn a profit- how?

   a-  by selling 95% of total shares 3 months before Lehman collapsed
   b-  by short-selling subprime mortgage-backed securities
   c-  by converting its cash overflow into swiss francs
   d-  by hedging that the market would not fall below 8000


Ans:   B   A mortgage backed security is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans through a process known as securitization. Goldman made a profit of $4 billion by "betting" on a collapse in the sub-prime market, and shorting mortgage-related securities.
  
8)  In spite of a $4 billion profit, how much did Goldman receive from TARP in Oct. 2008?

   a-  $ 2 billion
   b-  $ 5 billion
   c-  $10 billion
   d-  $12 billion


Ans:   C   Goldman also received an additional $10 billion- Berkshire Hathaway agreed to purchase $5 billion in Goldman's preferred stock, and also received warrants (securities) to buy another $5 billion in Goldman's common stock, exercisable for a five-year term.  That Christmas season it paid 1556 employees bonuses of at least $1 million each

9)   In 2007, Goldman Sachs paid $6 billion in worldwide taxes.  What did it pay in 2008?

   a-  $5.7 billion
   b-  $2.3 billion
   c-  $1.2 billion
   d-  $14 million



Ans:   D     This in spite of making $2.3 billion profit and paying $10.9 billion in employee pay and bonuses.

10)  Lastly,  famous Goldman alumni include which of the following:

   a-  Robert Rubin- Former US Treasury Sec. (Clinton), ex-Citigroup chair
   b-  Henry Paulson-  Former US Treasury Sec. (Bush)
   c-  Erin Burnett- CNBC Host
   d- Jon Corzine- Former Governor of the State of New Jersey
   e-  Guy Adami- CNBC's Fast Money
    f-  Jim Cramer- best selling author, CNBC's Mad Moneyhost; Scumbag
   g-  George Herbert Walker IV, member of Bush family
   h-  Robert Zoellick- US Trade Rep (2001–2005), Dep. Sec of State (2005–2006), current World Bank President
   i-  Mark Carney- Current Governor of the Bank of Canada
   j-  All of the Above

Bush:  You did a helleva job there Hank..  a true Hero you are. 
Paulson:  <blush>  Um, golly gee..thanks~
Bush:  No I mean it-  The American people owe you a debt
Paulson:  Well gosh.. It was my pleasure to serve, Mr. President.

Ans:   J    Could it be any other answer?

~  Now wasn't that 'Fun'??