Bill Black's Blog

He is writing up a storm over at New Economic Perspectives, which I've added to my blog roll as "Bill Black et al. (there are other profs blogging there, as well).

Lots of Good Stuff In a Guest Post Over at Charles Hugh Smith's Place

See here.

Here are the opening paragraphs, which I think are dead on:

By now it should be clear even to the most optimistic observer that the global financial system has given itself over to systemic lawlessness. Once international banks were effectively allowed to print their own money in an unregulated “shadow” system and have it redeemed full value by national taxpayers, the charade was over. The only thing left, at this point, given the full cooperation of governments and an eerie world-wide non-enforcement of law, is for banks, like a cancer to savage and consume every concrete store of non-counterfeit productivity and asset value.

Not only have governments from China to the United States committed themselves to a chess game meant to eke out relative advantages on a sinking ship, but they have positively rewarded those who are speeding the collapse. A simple, cannibalistic economic rule now persists until a new system emerges: Economic manipulation, destruction, and extortion are simply more profitable, far more profitable, than good old fashion value creation. Disaster capitalism will be pursued full force.

Whether a country is communist or capitalist, authoritarian or marginally democratic, no longer matters. Citizens globally have been made to be the pawns and patsies of a universal financial Ponzi scheme that can only end in carnage. Who cares if this insures debt peonage for the world and likely mass austerity, suffering, and shortages. There’s a buck to be made! Who cares if my own children will be choking on the garbage I spewed into the financial air and water system. I’m rich!

When morality, reason, and sovereignty collapse together, we are left with outright anarchy, in everything but name. This is a reality so uncomfortable that hundreds of trillions dollars more of citizen retirement savings and other assets are likely to be tragically liquidated trying to regain stability and finance the “lean times” in the hopes of the promised upturn.

Again, the WEF's latest report is a statement of what the worldwide Ponzi scheme requires to continue, and any rational observer will recognize that it is impossible to meet that goal.  What's happening right now is not so much anarchy as it is looting by the financial elite and the governments that serve them.

One Interpretation of the WEF's Call for Another $100 Trillion of Debt in 10 Years

"The jig is up."

What's the jig?  Debt money.

Why is it up?  Because the world economy can no longer support perpetual exponential debt growth.  Nor can it support continued perpetual exponential corporate earnings growth.

Why is the WEF calling for something that can't be accomplished?  There are many reasons.  First and foremost, to let people who understand the real game the time to shift their wealth from paper assets to real assets.  Second, to let smart guys like Steve Keen and smartish ideologues like Mish pontificate about how stupid the goal is.  Pontification about alleged stupidity provides a wonderful distraction.  It is perhaps humanity's greatest sport: railing on other people for being stupid and "not getting it."  Third, there are true believers out there who just may be able to make the seemingly impossible possible.  Seriously.  The ability to extend a Ponzi scheme depends entirely upon challenging imaginative sociopaths to come up with a way to overcome impossible odds.  That's how we got all this "financial innovation."

The good news is that the WEF's time horizon implies that there is time to transfer wealth from fictitious assets to real assets.  Most people won't start worrying about what happens ten years from now until five years from now: corporate "long range" strategic planning never looks more than five years out, so even the TBTF corporate banks won't start worrying about cleaving to the WEF's suggested 10-year mean until 2016, and they'll convince themselves that they can "right the ship" for another two years.  This means the real Galtian panic will start around 2018.

Here's what this means.  If you are in debt now (negative net worth), get out within five years so you have at least two years to build up enough wealth to provide the opportunity to choose what you do for a living (avoid wage slavery).  If you have no debt but no savings ,start saving and build up that wealth.  If you have wealth (positive networth), transition that wealth into real assets when the opportunity arises.  As much as I hate precious metals, what I think doesn't matter.  Expect the new, non-debt based currency to be based on gold and silver.  We're going to see a steady ratcheting action on the price of these precious metals, so look for dips to average in on.

FYI -- these are my own opinions.  Apply them at your own risk.  I'm not an investment advisor.  I just see a global deflationary environment marked by seemingly counter-intuitive consumer staple price inflation driven by bouts of commodity speculation.  There is a method to this madness, though: staple price infaltion will anger the masses and condition them to accepting change they otherwise would be too rational to accept.  The only way that elites can expect to ride this kind of tiger is by guiding the masses to adopt something as money that is fixed, e.g., the amount of gold and silver in the world.

The neoliberals are setting us up for the second punch.  The first was Chicago School.  The Second will be Austrian School.

Count on it.

Marc Faber on Davos

I don't know anything about Marc Faber, but he has some strong opinions and is not afraid to share them.  Zerohedge has a video interview of him and summary posted up here.  The video is worth watching (I love how he laughs at the people interviewing him).

Here's what he had to say about the Davos attendees:

I dont think the 'thinkers' are in Davos. I think it's a group of liars, and people that go along with the system, and perpetuate fraud and abuse, and dubious practices in the financial system.

Well, there you have it.

One Surefire Way to Lose Any Credibility You Might Have (Along with Your Soul)

Attend the 2011 World Economic Forum at Davos.

In what may best be described as an orgy of name-dropping, Arianna Huffington provides the first entry in her "Davos Diary."

The recent release of the World Economic Forum's cheerleading for continued exponential debt growth tells us all we need to know about the World Economic Forum: it is a public relations arm of the international banking cartel and its neoliberal/neofeudal ideology.  Steve Keen has a couple of posts up about the WEF's roadmap for world debt servitude here and here, as does the Automatic Earth here. 

Anybody who attends the Davos event lends the WEF credibility at the expense of his or her own, particularly if he or she claims to be seeking meaningful reform or change.  The WEF has put a stake in the ground: it is demanding more of what has wrecked the world economy and millions of lives, all the while implying that things will get worse unless it gets its way.  All of the wonderful sounding discussions that enticed "progressives" like Arianna Huffington to attend Davos this year are just the nominal cost the WEF is paying for its sales pitch to co-opt ostensibly reform-minded people to buy the WEF's vision. 

It will be interesting to see who attends Davos and what they have to say about the experience.

Update:  Here's another article from HuffPo, this one from a guy named Ken Adelman, who unwittingly displays a healthy dose of narcissism by referring to himself as one of "the world's movers and shakers."

Here is a partial list of attendees.  Yes, Jamie Dimon is on the list.

Nothing to See Here. Move Along.

Zerohedge and The Atlantic Monthly have articles up today about mortgage insurer Ambac's lawsuit against Bear Stearns and JPMorgan.  Each article has a different focus, and I think zerohedge has the more sophisticated take on what recently revealed internal Bear Stearns e-mails portends:

Today's mortgage fraud stunner comes from Bloomberg's Jody Shenn who reports on the ongoing lawsuit between Ambac and former Bear Stearns mortgage unit EMC, now part of JP Morgan. In what can only be classified as fraud-cum-double dipping-cum-AIG/Goldman, "JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns. “That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co. He said such allegations show why “investors and consumers have a right to be distrustful of the banks’ statements." The bottom line is that JPM, which has so far been able to escape largely unscathed from the fraudclosure scandal, is about to take front and center. The reason: the very first line of the just released Exhibit 1 to the Ambac lawsuit: "In mid-2006, Bear Stearns induced investors to purchase, and Ambac as a financial guarantor to insure, securities that were backed by a pool of mortgage loans that - in the words of the Bear Stearns deal manager - was a "SACK OF SHIT." But the stunner, and nothing short of a full-blown scandal if proven true, is that Bear Stearns (aka JPM) after funneling misrepresented loans with Ambac's insurance, "implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities." This needs its own congressional hearing right now, followed by a few wristslaps. After all such wholesale fraud can never possibly be prosecuted in the world's most advanced country.

The Atlantic Monthly article suggests that at least some of these internal e-mails come from Bear Stearns "whistleblowers," one of whom is identified by name in a prior Atlantic article (the above-linked Atlantic article provides a link to this article).

So, let me get this straight, we have former Bear Stearns insiders "blowing the whistle" and clearly talking to anybody who would listen-- including reporters, the victims of Bear Stearns' fraud, and the attorney general of New York-- but they didn't talk to federal law enforcement?  Really?  Sorry, but that's not possible.  Indeed, it is impossible to imagine that such insiders did not reach out to the SEC first. 

If reporters want a real story, they should be asking the whistleblowers about their interactions with federal agencies like the SEC and the DOJ.  Exposing the apathy of federal law enforcement towards such crimes would be an eye opener for a lot of people.

Between the zerohedge article (which links to a copy of the exhibits themselves) and the two Atlantic articles, we have a picture of leveraged fraud:

1. Bear Stearns defrauded borrrowers (falsifying borrrower info to secure loans they did not qualify for)
2. Bear Stearns defrauded ratings agencies (failure to disclose lending fraud)
3. Bear Stearns defrauded mortgage insurers (misrepresenting quality of the loans)
4. Bear Stearns defrauded the mortgage trust and mortgage-backed securities investors (no transfer of loans to the trust)
5. Bear Stearns defrauded the loan originators by selling them back loans that they did not have proper title to (the loans should have been transferred to the mortgage trusts)
6. Bear Stearns defrauded the stock market by shorting the stock of mortgage insurers that had insured Bear Stearns' "sack of shit" mortgages (trading on material non-public information)

And you can bet that if Bear Stearns was doing it, everybody on Wall Street was doing it. 

This story also provides an additional wrinkle on the MERS fraudclosure mess, confirming the suspicions of people like Karl Denninger that banks did not transfer title to mortgage trusts so they could resell the same mortgage multiple times. 

But, hey, nothing to see here.  Move along.

Jesse Doesn't Go Far Enough

Jesse says: "America Appears to Be Trapped in a Massive Coverup of Control Fraud and Corruption."

By "America," Jesse actually means the United States government.

I don't think Jesse goes far enough.  The United States government is aiding and abetting ongoing fraud and corruption.  The word "coverup" implies a past wrong, not an a continuing one.  The United States government is acting as an accomplice, not as a cleaner . . .

State "Bankruptcy": Headfake for Main Street

There's a bit of buzz going around about several states seeking ways to default on their obligations to public employees while honoring their obligations to bond holders.  The discussion is proceeding as if it is about "bankruptcy," but what is really being discussed is selective default.  While Yves was among the first to post on the subject a week or two ago, Jesse's post today is more concrete.  Make sure to check out this post from Jesse, as well, which contains a pithy put-down of POTUS.

Selective default simply isn't possible.  Even under federal bankruptcy laws-- which do not apply to states, who are sovereigns-- the debtor cannot arbitrarily decide which creditors to pay back and how.  The creditors have a big say.

Nor is state "default" of any sort desirable.  Yet.  First, states and municipalities still own a lot of valuable property.  Second, retired public employees remain a powerful political force.  Third, the money these retired employees spend is helping to prop up state economies.  Fourth, and perhaps most importantly for the people pushing the "selective default" non-reality: states and municipalities owe a lot of money to banks and institutional investors.

No, all of this talk is aimed at conditioning the public to accept the privatization of state and local property at pennies on the dollar a la Arizona as the only politically feasible solution.

Of course, the states and municipalities will lease back the property, thus ensuring an additional stream of rents that will actually increase the cost of running state and local governments.

Unfortunately, you can only sell what you own once.  In 2012, we'll see the same drama play out again, and this time we may actually see states default, which will lead to the destruction of public unions and pension fund obligations.

One way to look at this is as a replay of 1970s stagflation (aka screwflation), but this time public unions and public property are in the crosshairs.

Charles Hugh Smith: Of One Mind Not Fully Known

As I've said before, Charles Hugh Smith is one of my favorite thinkers/authors out there because he is truth seeker, but from time to time I find myself frustrated when he allows his biases to deter him from the truth.  The good news is that deterring him is not the same as stopping him, so I trust he'll soon discover what he has missed.

Today's essay is a perfect example of what I'm talking about.  It is clear from his body of work that Smith is most influenced by the Austrian school of economics, but he is no ideologue, as he demonstrates by seriously considering two schools of economics that Austrians are trained to despise: the Keynesian and Marxist schools.  Indeed, he emphasizes in his essay that there is truth to be found in these schools of economic thought so they should not be rejected out of hand.  He then goes on to get to the topic of the day, which is the hyper-inflation v. deflation debate.  His analysis is logical and spot on UNTIL he introduces an Austrian analysis of the debate, which he lauds as "insightful," and then he falls into the false "government v. bankers"  dichotomy pushed by the Austrian school to ensure that the money supply is privately controlled, which is the very mechanism and basis for the financial corruption that he has so eloquently identified on numerous occasions.

Apparently, the paper concludes that hyper-inflation only arises when politicians (governments, really) control the money supply, a conclusion that is consistent but not co-extensive with Smith's own conclusion that hyper-inflation is always a political phenomenon.  The theory, according to Smith, is that bankers have to plan for the long haul while politicians have "no future beyond four years," so bankers will make better decisions than politicians.  (Puh-lease.  Bankers are more sober and cautious than politicians?!?  Really?)

The problem with this facile theory is that the politicians are primarily beholden to bankers and capital holders.  A more cynical way of putting it, as we've seen demonstrated time and again over the last two decades, is that the politicians are owned by the banks.  Under our current system, money is politics and politics is money, which means that both hyper-infaltion and deep deflation are political phenomena.  See Damon Vrabel's video series for an excellent analysis of how nations are no longer sovereign under the existing global financial empire.

I will admit to knowing about the hyper-inflation of the Weimar Republic, but I can say with some certainty that it didn't harm the major capital holders in Germany.  I'll even go further and argue that, if somebody will look, they'll probably find that hyper-inflation benefitted those same capital holders because it allowed the Weimar Republic to avoid taxing and/or confiscating their wealth, which was most likely held in real assets and precious metals, to pay war reparations. 

So, I'll agree with Smith's conclusion that hyper-inflation can't happen in the United States in view of the fact that so much of the wealth of major capital holders is tied up in U.S. debt and the dollar, but if that fact ever changes, hyper-inflation can and will happen, if it will accrue to the benefit of the major capital holders and the banks.

Why does Smith find the Austrian analysis to be so insightful?  Most likely because it confirms his own similar conclusion, and because he is biased in favor of the Austrian school.  Unfortunately, once we've confirmed what we think we know, we tend to stop thinking about the issue.  As a result, Smith continues to accept the concept of privately-controlled debt-money, the very source of the corruption he decries, unquestioningly.

What is Violent Rhetoric?

Not all speech is created equal.  The power and effectiveness of speech depends very much on the value system of the audience to which it is directed.  The same words often mean different things to different people, which means that the use of the same words to different audiences can yield opposite results.

This brings me to this interesting post about violent rhetoric from somebody who teaches rhetoric. 

One take away from all of this is that when you are seeking to understand a position taken by somebody you disagree with-- and you really should always try to do so-- it is not enough to apply your understanding of the words they use, you need to their understanding of those words.  Once you start doing that, then you can start considering how the words you use to make a disputed point are understood by your opponent. 

A quick update on the blog roll.  I've removed Damon Vrabel's blog because he has decided to stop blogging.  His wonderful "Rennaissance 2.0" series remains up and available on YouTube, and as far as I know, he is still pursuing his CSPER effort, so bookmark it.  Damon is a genuinely good guy who I hope to find a way to work with in the future.

I've added Max Keiser back to the roll because it is no longer wall-to-wall silver porn.  Other additions include The Automatic Earth and Catherine Austin Fitts' blog, the Solari Report.

Speaking of Catherine Austin Fitts, I invite people to watch this interview in its entirety:



And while you are at it, check out the trailer for the next Zeitgeist movie.  I had some issues with misstatements of fact made in the first movie, but there was a lot more right than wrong in it.  I'm hopeful that this movie will not devolve into unnecessary "splitting" as Damon discusses in his final post.



One of the biggest differences between people like Russ and Damon, on the one hand, and me on the other has been how to create the necessary change.  Personally, based on the success of neoliberalism, I think meaningful, lasting change will require a generation or more of effort to change the values communicated by societal institutions, something that will require working within the current system, which sane people like Russ and Damon have issues with, as the current system seems designed to corrupt anybody who gains power within it.   The Zeitgeist Movement's approach is more in-line with that of Russ and Damon (i.e., refusing to participate in the existing system), with the big difference being that Russ and Damon emphasize local autonomy while the Zeitgeist Movement treats the entire globe as local, which pretty much challenges everything that people like Russ, Damon and I have been advocating. 

Anyway, there's truth to be gleaned there.  Make of it what you will.

Do You Know Your Own Mind?

The vast majority of people don't know their own minds, so you will have a lot of company if you just admit that you don't, either.  The good news is that once you admit your ignorance, you can start working to eliminate it.

The Tuscon massacre was a single, horrific event.  It was not, and could not be, a crisis.  The people who were killed will remain dead.  The people who survived will continue living unless, of course, they don't.   And we spectators will remain sickened by what transpired until, of course, we find something else to hold our limited attention span.

The problem is that folks seem bent on turning what is now an historical event into an existing social and political crisis.  We can't really blame them for doing this, though, because most people don't know their minds.  They just compare what they see to what they expect and conform their understanding to their expectations whenever possible.  This is called confirmation bias, and it is one of the many cognitive biases that allow human beings to function in a world filled with uncertainty, something which the vast majority of us cannot abide.  Uncertainty creates a fight or flight reaction that must be avoided.

The immediate, fact-free reactions of the dominant left-right paradigm were: (1) "a right wing nut tried to assassinate a liberal" from the Left, and (2) "the liberals are going to use this as an excuse to take our guns" from the Right.  While these two reactions have morphed and become more sophisticated as more facts have become available, they remain essentially unchanged.  People don't need factds to be certain.  Indeed, people tend to avoid understanding the facts in order to be certain.

The fact is that there are elements of truth in both competing narratives, but the truth that each narrative contains tells us nothing at all about the Tuscon massacre and everything about the people pushing the narratives.   They don't know their own minds, and they refuse to make any attempt to understand the genesis of the opposing narrative. 

This polarization is creating a crisis of its own, and someone will take advantage of that crisis.  Who?  The same people who took advantage of 9/11 to curtail civil liberties: BOTH political parties.  Not the Left.  Not the Right. BOTH the leaders of the "Left" and the "Right." 

The game is rigged by the human propensity to confirm what they believe they actually know.  Regardless of whether you grew up identifying with the left or the right, you have biases and prejudices that are pandered to and manipulated to foment false crises and distract you from seeing the real crisis unfolding in front of you. 

The key to avoiding the manipulation is identifying when you are reacting from bias and prejudice instead of from fact and reason.  Once you've done that, determine whether or not somebody encouraged that reaction.  In many cases, it was a spontaneous reaction, which is all the more reason to chase down the source of the bias and try to reduce its hold on your thinking.  In other cases, your reaction was in response to somebody pushing your buttons, in which case you need to consider whether they were captured by their own passions or merely trying to enrage yours.  The cynical manipulators are the people you need to identify, but most of the people carrying the message are just passing on what they heard because it confirms what they already know to be the truth.

In the meantime, search for truth in the things that your traditional ideological enemy has to say.  You will find it, and by finding it you will discover that your enemy really isn't your enemy, that you really are not all that different except in your biases and prejudices and how you react to them.

Question: When is an MBS really just BS?

Answer: when there are no mortgages backing it.

The Massachusetts Supreme Court today ruled against US Bancorp and Wells Fargo, finding that both banks had failed to prove that they owned securitized mortgages they had foreclosed upon, rendering the foreclosures invalid.  See the Bloomberg story here. 

A number of people have posted their take on the decision.  Here are Karl's, Yves' and Calculated Risk's.  I'm somewhere between Karl and Yves.  CR mistakenly assumes that the problems are curable, that the banks just mislaid the paperwork.  I'm with Karl in believing that the paperwork never existed or was destroyed, which means that the banks won't be able to cure the problem.  Indeed, if the banks had the paperwork in this case, they had plenty of time to find it and produce it before the Mass Supremes ruled.

Perhaps my favorite take on the decision came from a CNBC pundit who argued that the U.S. Supreme Court will have to weigh in, and that all this decision will do is cause further delay in "clearing the inventory" of housing.  As to the first point, I see nothing in the Ibanez decision that would provide the SCOTUS subject matter jurisdiction because it is purely a matter of state law.  As to the second point, what the Mass Supremes have done is give two families their homes back, i.e., it cleared that inventory quite effectively.  This likely will be true for many, many homes in Massachusetts: the inventory will be cleared because homes were not properly foreclosed upon in the first instance and should never have been on the market, i.e., they should never have been part of the housing inventory.

Going back to the CNBC pundit, I found it both creepy and disgusting that the guy cared more about the housing market working "efficiently" than following the rule of law. 

The Problem Is Not an Increasingly Complex Society, But Decreasingly Complex Members of Society

Yves has kicked off an interesting discussion here regarding Joseph Tainter's theory of collapsing societies.

According to Yves:

His argument is straightforward:

1. Human societies are problem solving organizations

2. Sociopolitical systems require energy for their maintenance

3. Increasing complexity carries with it increased cost per capita

4. Investment in sociopolitical complexity often reaches a point of declining marginal returns

My response:

Society is no more complex today than it was two hundred years ago, not in real terms.

What has changed is not the complexity of our society, but the amount of specialization within it. Specialization yields experptise within a very narrow area while fostering ignorance of everything beyond that area. Worse still is the degradation of language as different specialists assign different meanings to the same terms without realizing it. When the same person was an economist, a lawyer and a philosopher (e.g., Adam Smith, the Buckaroo Banzai of his era), he used terms consistently and carefully.

The ultimate result of specialization is that people from different disciplines communicate with each other and believe they have agreement when they really don’t. As the differences compound and create real, practical problems, eventually, people wake up to the fact that the world is nothing like they thought it was, and their brain chemistry flips the panic switch.

Another way to consider what I’m saying is to view increasing specialization as adding layers of abstraction. Each layer of abstraction simplifies the problem space presented by abstracting away details that are presumed to be irrelevant to it. The problem is that as the total problem space is cut into thinner and thinner slices, it becomes harder and harder to integrate the output of those individual slices into an accurate solution for the total problem space because hidden discontinuities arise due to differences in the details that have been assumed away as exogneous to each slice.

Now, one could view slicing the problem space into thinner and thinner specialties as increasing complexity, but the fact is that the problem space– that is, the problems that society faces and must solve on an ongoing basis– never changes, only our individual understanding of it does. The only reason society seems more complex is because every individual within society has been made more simple because of increasing specialization.

As an addendum, the entire concept of "declining marginal returns," obviously borrowed from neoclassical microeconomics, is fallacious for the reasons Piero Sraffa pointed out a very long time ago. 

That being said, I'll accept it as truth in this one instance because I want to focus on an important question: how does one measure the marginal returns of increasing investment in sociopolitical complexity?  Cui bono?  Society as a whole, or particular members of that society?

While society clearly suffers when its constituent members are dumbed down, certain members of that society-- the predators-- clearly benefit greatly.  A basic tenet of neoliberalism is that there is no society.  Do you think they pushed increasing specialization within society and across geographic regions because they were focused on increasing marginial returns to society as a whole, or on increasing marginal returns to themselves?  Societal collapse is a feature of the "complexity" fostered by neoliberalism, not a bug.

Michael Hudson With a Little History

I found this clip by way of Naked Capitalism.  In it, Michael Hudson discusses the history of the federal income tax in the United States.  With references to Henry George, Adam Smith and John Stuart Mill, I found it fascinating.  What I found most interesting is the dicussion towards the end of the purposeful degradation and mutation of language to "normalize evil."



FYI - The "Tax the Rich" banner shown above appears nowhere in the clip (at least that I can tell).  That was added by the site, presumably to stir up passions.  I actually find that choice of framing counterproductive because what Hudson discusses in the clip is not the "taxing of the rich" per se, but taxing rents and other speculative gains so as to discourage speculation and encourage real capital formation and investment that creates jobs in the United States.