Thursday, October 14, 2010

The financial fraud was inevitable

Yes, there are going to be a million stories about fraud in the financial sector.  Because the fraud was overwhelming.  But the fraud was also foreordained.  When you make an impossible claim, like that you can promise a 10% return on an investment over the long term, eventually you must cheat to do the impossible.  And why do we know it is impossible:  Because geometric growth of the real economy in a finite biosphere is impossible over the long term.  It is Rule of the Biosphere #1.

I wrote in Elegant Technology about the dangers of excessive growth expectations as manifest by the practices of usury.  This wasn't this big stunning prophecy in 1990--it was merely a restatement of the idea that even eigth-grade arithmetic still works pretty well.
Stage 1 Damage. The first victims of usury are small producers in competitive, credit-sensitive industries. Start-up enterprise must compete in shrinking markets. Most fail.
Stage 2 Damage. Existing companies take shortcuts, defer maintenance, cut back on R&D, etc. Wages drop. Layoffs begin
Stage 3 Damage. Social order is disrupted. Financial institutions start taking unnecessary risks because few producers can pay the returns required. This leaves the fools and charlatans. Layoffs cascade. Governments are stressed trying to cope.
Stage 4 Damage. Whole industries begin to fail. Sections of the country are ruined. Homelessness and crime increase. Prosperity, such as is left, becomes further and further removed from the production of goods.
Stage 5 Damage. Financial institutions begin to fail. Orderly financial transactions are replaced by speculation, greenmail, etc. Sober bankers become gamblers and crooks.
Stage 6 Damage. Governments are bankrupted. Insurance for financial institutions are exhausted. Financial distress becomes widespread.
So now we are in Stage 6 Damage Globally. 30 years of crazy people running the economy who literally believed that asking 10% returns was a sign of financial modesty.  And yes the fraud stories will get lurid.
The economic crisis was an 'inside job'
By Kathleen Parker Wednesday, October 13, 2010
If you haven't been humming tunes from "Les Misérables," you haven't seen "Inside Job," the new documentary about how our economic crisis evolved.
The most forgiving American will want to seize a pitchfork and march on Wall Street. Or Harvard Square. Or in front of the White House. There are so many despicable parties, it's hard to pick a favorite. Is it time to reconsider the Axis of Evil?
The film, written and directed by Charles Ferguson (and narrated by Matt Damon), will be opening in select cities this week. Although much of the story is familiar, Ferguson manages to weave together decades of bits and pieces into a dramatic narrative that plays like a whodunit. Names have faces, and storytelling combined with graphic illustrations helps explain the complex series of events that led to the global meltdown. Here are a few takeaways:
One, trying to assign blame to either Democrats or Republicans is pointless. Everyone is culpable. From the early 1980s, when Ronald Reagan deregulated banks, through the two Bushes, Bill Clinton and now Barack Obama, each administration has endorsed -- and each Congress has helped tweak -- laws and rules that made systemic abuses and the meltdown not only possible but, looking back, inevitable. more
50 State AG's to Geithner: Screw You and The Banks 
by Badabing 
Wed Oct 13, 2010 at 03:08:16 PM CDT
With the White House and Geithner's continual denial of the continued cover up of financial fraud though out entire system, and their refusal to call on a national moratorium for Foreclosure Gate in order to protect Wall Street and the Banks from homeowners who are calling into question one of the most basic tenants in our Constitution, property ownership, Geithner just got the biggest slap in his face to date:
All 50 States Attorney Generals are standing up for the taxpayers and citizens in their own jurisdiction, and demanding that the chain of title and ownership (the original notes as written by the Banks/Lenders) be unwound and shown in their own various courts of law. 
Geithner and the White House have been continually warned about what was happening with these illegal foreclosure mills, and they ignored it, to protect the Banks/Lenders. Now, it's too late, because this matter is taking on a life or its own.
Regulators from all 50 states are launching a coordinated investigation into possibly "deceptive" and "unfair" foreclosure practices that may have illegally evicted families from their homes. A bipartisan group of state attorneys general from 49 states and financial regulators from 39 states will work together to comb through foreclosure filings and documents from mortgage servicers to see if any state laws have been broken in the rush by services to kick borrowers out of their homes without following various state and local laws. Homeowners, homeowner advocates and various state officials have complained that mortgage servicers have failed to follow basic procedures, like reviewing documents, properly signing them and other tasks long followed prior to the mortgage securitization boom that took off this decade.
Foreclosures are a matter of state law. If state investigators find the problems to be systemic, the nation's largest banks could face a crisis rivaling that of September 2008 when the financial system was rocked by the failure of Lehman Brothers, the government takeover of Fannie Mae and Freddie Mac and the forced marriage of Bank of America and Merrill Lynch, some analysts say. "This announcement illustrates states' ability to coordinate our efforts to protect consumers," said John Ryan, executive vice president at CSBS. "The foreclosure process in the various states is designed to ensure a basic level of due diligence and accountability occurs before taking an action that has dramatic implications for homeowners and communities. more
Of course, anyone who is surprised that Obama and company are coming down on the side of the foreclosure merchants apparently missed the following announcement in the Wall Street Journal last March 24. The banksters intimidated Obama over criticisms about bank bonuses!
Obama Dials Down Wall Street Criticism
WASHINGTON -- The Obama administration, after months of criticizing Wall Street, has been scrambling to woo top bankers and financiers to back its latest bailout plan.
Associated Press
President Barack Obama speaks about investments in clean energy and new technology included in the budget on Monday in Washington.
In recent days, in spite of public furor over huge bonuses paid at American International Group Inc., the administration has concluded that it needs the private sector to play a central role in fixing the economy. So over the weekend, the White House worked to tone down its Wall Street bashing and to win support from top bankers for the bailout plan announced Monday, which will rely on public-private investments to soak up toxic assets.
But weeks of searing criticism by politicians and the public had left bankers leery of working with the government. After brainstorming about what to do about that problem, the White House resolved to try to take control of the debate, according to several administration officials. In weekend television appearances, President Barack Obama and other administration officials tempered their criticisms of the financial sector.
Feds Gunning for Authority Over Exec Pay
Treasury Secretary Timothy Geithner will be asking for the authority to modify executive pay agreements, while the President explains his budget priorities and the latest effort to stabilize banks. Video courtesy of Fox News.
Meanwhile, Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don't favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on "in pencil, not ink," and to "validate" or "express support" for the plan, these people say. more
And now for a gentle reminder that this is still about the Predator Classes trying to extract too much from the real economy!

No comments:

Post a Comment