The Scott Expedition!

May 25, 2014

Part 11 (from prev blog)

The US government’s own data shows a net worth of minus $16.9 trillion, over 100% of GDP in the red.  And even in their most optimistic projections, the government tells us that growth in debt will outpace growth in tax revenue. US has not freed itself from the debt catch 22. 

The US has struggled with the impact of the crash of 2008 with reforms that have stopped short of the Glass Steagall response to the crash of 1929 in its principal reform compelling the separation of investment banking from commercial banking built around the protection and securitisation of depositor funds. Mario Draghi’s imminent stress testing of European banks is reminiscent of Timothy Geithner’s stress testing of US banks that arguably restored confidence in banks.

The more debt is paid down through austerity, the more the economy takes a loss. The critical point of 90% debt to GDP has been passed by US and many members of the EMU: http://www.economist.com/news/finance-and-economics/21576362-seminal-analysis-relationship-between-debt-and-growth-comes-under “This Time is Different”. In their paper Ms Reinhart and Mr Rogoff sorted the figures into four categories of indebtedness and took average growth rates for each.

They found that public debt has little effect on growth rates until debt reaches 90% of GDP. Growth rates then drop sharply. Over the entire two-century sample (from 1790 to 2009), average growth sinks from more than 3% a year to just 1.7% once debt rises above the critical level. In a shorter post-war sample the decline is more dramatic; average growth drops from around 3% to -0.1% after the 90%-of-GDP threshold is attained.” Ireland’s debt to GDP is 123% and we’re struggling with correspondingly low growth levels of >1% struggling under projected growth levels of 2-3% that are never realised.

But hey, the troika are there to bail us out further, so markets believe. We have a coalition government  of  bailiffs willing to superimpose on taxpayers austerity measures to pay the crippling interest repayments circa €8bn/pa looting Irish public services while the wealthy are protected from having to pay a fair share of such bills. Economic stagnation is buffered by propaganda efforts to persuade the public that a small increase in employment levels recovering from 15% to 12% means such austerity methods are succeeding. Not unrelated to the success of austerity, If you can have a look at this John Stewart/Tim Geithner interview of recent days. Its elsewhere on YouTube and other places in spite of efforts to prevent it viewable for Irish audiences: http://www.youtube.com/watch?v=9R7OL2ZyZKQ  Geithner is the man who faced down our Minister Noonan telling Noonan he had to pay up on senior bondholder debt.

Geithner played the same ruse in the US insisting derivatives of AIG worth €60bn be paid back at 100% on the dollar. So-called recovery in the US has meant the return of profits to the banks without the trickle down benefits of a growing economy. Instead wealth has been concentrated and consolidated for the TBTF banks with the wealthy 1% given even more power.

The printing of money invested in stocks and shares has led to inflation of wealth for the rich and contraction of economic freedom and asset participation by the poor. This is an economic recovery sparked by fools gold that will not end well. Dodd Frank and Volcker have not defused the financial weapons of mass destruction that have built up in the shadow banking deregulated toxic world of global financialisation since the early 1970’s. Instead Geithner has revived the monster that gave us 2008.

“Most first time homebuyers can’t afford a home in the US. They are overburdened with college student loan debt, and the ‘sins’ of the fathers who delivered them over 200 years of servitude. There is no way those people will fill the mortgage gap and create a true and sustainable housing market without, once again, interest rate fixing and more fraud to prop up a goofy system.”

Similarly in Ireland property through financialisation of the property market still remains a speculative bubble that the present government refuse to lance. Property prices are simply too high to be affordable except by cash rich speculators. It is conceivable that a future beckons with speculators overcoming the property sector where family home buyers will be squeezed out of the market entirely.

This has already happened in some states of the US where hedge funds rich on QE and Geithner handouts, have bought left right and center squeezing out local homebuyers. Homebuyers are now forced to rent and with a cornered market those rents can be set at any price. This is a consequence of the financialisation of the economy destructively consuming the real economy. http://online.wsj.com/news/articles/SB10001424052702303661404579177873015074830   ireland-government-debt-to-gdp While radical financial moves have been made led by Paulson/Geithner(see below) to counteract the effects of Wall Street 2008 that led to imminent financial meltdown , in Europe it is believed losses incurred by the crisis in 2008, have been largely concealed by regulators ‘successfully’ hiding the losses of large banks in many EMU jurisdictions.

Stress tests across banks in the EMU some Friday next October will see phone calls made to each of the chief executives of every bank in Europe to reveal the findings of those tests. No one knows the full details of the formulae being used to calculate any shortfalls in these banks. Any bank found to be short will have until the following Monday to procure the money. Speculation on this blog surround the recent arrival circa last December of hedge fund miracle buyins to large tracts of the NAMA portfolio.

Is the Irish bank book currently being sterilised by such investments being groomed for the imminent stress test appraisal involving property and commercial/private loan exposure to marked down losses? Prof Morgan Kelly recently drew attention to the large exposure of Irish SME’s to outstanding levels of loan obligations that have yet to be written down. Are we currently being recreated into a new financial entity spawned by global financialisation rather than real economics? Have Irish banks marked down losses and how will they fare in oncoming stress tests?

Is a world of appearances dumping and triumphing over the real world?

According to Iain Dey writing in Sunday Times, 25/05/14, Business 8, European banks including Irish banks face the following scenario in regard to Mario Draghi’s ECB bank stress tests: “”..big banks have already started to brace themselves for the fallout. deutsche Bank launched an €8bn share issue last week to bolster its bank sheet, partly due to fears the probe will expose the fault lines in the German financial system.

Italy’s banks have raised cash, and France’s BNP Paribas may follow soon” “”The market thinks about 30% of Europe’s banks should fail the stress test,” said a senior director at a large European bank. “If only 5% are told they have to raise more capital, the test will look soft and it will be dismissed as a political fudge. – which means the whole exercise has been pointless. “But if 40% fail that’s a lot of money to find.”

Global shadow banking excesses deregulated have covered up real economic realities hedged beneath a false economy built upon illusion and farcical casino gambling bubbles in stocks and shares and paper derivatives not worth the paper they are written on.

The Geithner solution to global crisis built upon creating more paper and more illusion with soft pedal reform, is a recipe for global recession and a worsening of the global economy. More economic activity could have been generated if TARP assets were handed out to ordinary american taxpayers in tax benefits and social welfare entitlements with Hooveresque dam building programmes  designed to improve US infra structure, roads, schools; rather than handouts to gambling bankers playing derivatives and the stock market pretending they are building the real economy instead of a global toxic paper dump of appearances as the world eats its young.

In Ireland Fine Gael pride themselves and publicise at every opportunity their willingness to take the tough decisions to save the Irish economy. These decisions have meant denial of medical cards to the long-term disabled and the imposition of odious debt upon Irish taxpayers. The tough decisions have not been to stand up to Timothy Geithner to refuse to pay senior bondholder gamblers; they have caved in to the dictats of the troika; they have failed to renegotiate our debt to involve burden sharing and debt write down.

http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program The Public Bank solution Some radical alternative solutions to our banking crisis have emerged in Ireland and US involving the proposed setting up of a more sanitised form of banking, namely, Public Banks. In the US there has been debate around the question of the constitutionality of Public Banks vs Private Banks. So-called “public banks” as we know them today are not Public Banks in the strict sense of the term. If they were, they would be issuing ‘greenbacks’.

Instead they trade in dollars backed by the Fed just as private banks do. Public banks are a hybrid version of public savings banks or chartered banks.They lend out deposits under regulations that claim to favour depositors rather than lenders or bank shareholders. You could regard them as private banks who claim they operate more in favour of the public interest. ‘Public’ Landesbanken German banks operating in the framework of Sparkassan German public savings banks, have gotten into deep trouble through derivative speculation (reform of shadow banking and unregulated derivative gambling is more urgent than ever) proving public banks tend to move from a hybrid model to a private commercial one before they crash.

Its likely though Angela Merkel has moved to protect Public banks in Germany by ensuring they will not be subject of stress tests (an ominous omission in regard to the fairness of stress testing), Landesbanken strategic lenders of the Sparkassan public bank model, have lost badly through derivative speculation during the Wall St meltdown.

The public bank model offers more than it can deliver and it may be unfit for purpose in a world increasingly dominated by global financialisation and looting due to Shadow banking practices. Public banks rely on the dollar and may represent  more prudential forms of lending practice but they operate in a world whose rules favour private banking.

The pro banker republicans in fact were the ones who opposed the 1913 Fed Reserve Act. The act provided for a committee that would run the 12 regional reserve banks owned by commercial banks and the committee would be appointed by the President. ‘Bankers would run the twelve Banks, but those Banks would be supervised and by the Federal Reserve Board whose members included the Secretary of the Treasury, the Comptroller of the Currency, and other officials appointed by the President to represent public interests.’

Examination of the constitutionality of the Fed Reserve Act 1913 needs to be seen in light of the reforms of Glass Steagall Act in the 30’s and removal of regulatory controls in the 70’s and Dodd Frank Reforms and Consumer Protection Act that already may be proving too little and too late to save the dollar.

The world of shadow banking and global financialisation reveal contamination that threatens to overwhelm and destroy capitalism and democracy with growing signs of extreme right, nationalistic backlash both political and economic. What is required to reform the global economic system are deeper changes than those provided by Dodd Frank with its Volcker Rule amendment:  http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act

“Comprehensive regulation of financial markets, including increased transparency of derivatives (bringing them onto exchanges);” has yet to be fully implemented. Separation of commercial banking from investment banking as in the Glass Steagall Act is matter of urgent reform. Preventing this are TBTF entities such as Goldman Sach’s whose ruthless manipulation of financial markets allows them to manipulate the commercial aspects of banking activity with permeable Chinese walls giving them permanent access to business information they use to exploit investment opportunities( see last blog re Libor rigging)

There are quite a few ideas out there masquerading as solutions to the global financial crisis that are in effect worthless. You’ll find them paraded as success stories, look for wide grinning faces of arrogant disdain among politicians who promoter austerity. Austerity for the people and not austerity for bankers!

Lose money at the financial casino tables of Wall Street. Solution, give them more money to play with and replenish losses of the compulsively addicted. In Europe the solution is to introduce austerity and give the bill for the losses to taxpayers and the public sector. Reward the bad and punish the good. Steal from the poor to pay for the odious losses of the wealthy under threat of financial Armageddon.

The growing divide being rich and poor gives more power to the rich to prey upon and loot the fallen assets of those who’ve lost out in the crash. Thus hedge funds rich on QE from Wall Street bailout like to launder the proceeds by scooping up the proceeds of great deals provided by NAMA who’ve done the work in sterilising property portfolios and packaging them into nice economic ribbons and bunting ready to be picked clean by loose hedge fund money.

This is a world where virtual money has now become the new real.

Flushing The Toilet

In Europe things are not going that well. Interesting times are with us. France and Italy and Spain going under with deteriorating growth rates indicating recession.

In Ireland we face the problem of no affordable for the young. Solution 100% mortgages.

In the US Federal debt has been rising, and will soon exceed 90% of GDP. That should ring the alarm bells. According to Reinhart and Rogoff, author of the 2011 book, This Time Is Different: Eight Centuries of Financial Folly. Reinhard and Rogoff are of the opinion that when government debt exceeds 90% of GDP, the economy will contract at a 0.01 annual rate. This is now known as “The 90 Percent Rule.” The concept is that giant debt levels will crowd out economic activity and hamper growth. Incidentally, debt levels in Europe are close to the 90% threshold. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/5/13_R._Russell_-_I_Saw_Bread_Lines,_Babe_Ruth_&_The_Graf_Zeppelin.html

What’s wrong with this picture?

Maurice+McCabe001 http://www.independent.ie/irish-news/elections/kenny-shakes-hands-with-whistleblower-garda-mccabe-30287155.html

Answer A: Unfortunately Garda McCabe has been relegated to directing traffic while an Taoiseach Kenny is delegated to run a country. (reader, you need to be Irish to get the context) http://en.wikipedia.org/wiki/Scott_Medal

Answer B: Garda McCabe deserves a Scot Medal; An Taoiseach leads  ‘Irish economic recovery’ Scott expedition heading for disaster.

Answer C: Garda McCabe’s actions have led to imminent reform of the Department of Justice.

Enda Kenny’s government presides over the destruction of the state through austerity. (Each  of above correct) Sometimes in spite of all the propaganda re ‘tide is turning’, ‘growth returning’, hard decisions courageously made by this government, a small number of new jobs for those young people left behind who have not emigrated yet, massaging of employment statistics, the truth will out.

Launcelot GobboNay, indeed, if you had your eyes, you might fail of 
the knowing me: it is a wise father that knows his 
own child. Well, old man, I will tell you news of 
your son: give me your blessing: truth will come 
to light; murder cannot be hid long; a man’s son 
may, but at the length truth will out.”(The Merchant of Venice)

Lets look at some home truths: Signs of a new property bubble in Dublin already covered in this blog. how is government responding: http://www.merrionstreet.ie/wp-content/uploads/2014/05/Construction-Strategy-14-May-20141.pdf A highlight of the document is the insane suggestion that State guarantees be provided to boost loan to deposit ratios of borrowers from 80% to 95% on new mortgages.

The bank extends 80% based on the property and the ability of the borrower to repay and the state jumps in with a further 15% leaving the borrower to get a 5% maybe from elsewhere, a credit union perhaps; end result 100% mortgages, a prime cause of the recent property bubble meltdown….

The 2020 property document above was obviously written by bankers for bankers. We have a government of bankers for the bankers.

The solution to the property crisis in Dublin is regulated management of the sector. There is adequate levels of serviced land available in industrial areas of Dublin that would welcome a docklands type regeneration. Planning laws require overhaul to release this land into state ownership.

Opportunity and enterprise stimulus with investment using the floatation of a state investment bond to finance an immediate large-scale building programme for the Dublin region could begin immediately.  Pension Fund investment could be used.

The most important regenerative aspect of such a project would be to fix prices to three times the average industrial wage. Many other creative responses are available.

However its in the interest of vampire banks to keep property prices high to keep toxic assets primed.

The most problematic aspect of the housing crisis in Dublin is the problem of affordability.

The stated objective of reducing prices, introducing affordability, regulating costs of land, materials, building costs, and matching these to what people can afford, needs to be the bottom line for recovery to take place.

Instead the empty government strategy is to try to stimulate demand for cash rich investors, to make large profits for ballyheabanks, both selling large loans and profiting from them at the expense of Irish taxpayers,  indicative of  disastrous failure of this government.

Tough Decisions

Often touted in unison by both Fine Gael and Labour is how they saved the Irish economy from financial Armageddon and in order to do so they had to take the tough and courageous decisions.

Unfortunately the decisions referred to did not amount to showing some backbone and standing up for Irish taxpayers against the dreadnought troika demands for odious reparation of our debts.

It’s quite incredible to believe that an Irish government was so subservient to the EMU that it undertook a bailout of €67 bn forced on it by the troika to payback losses made by private Irish banks to banks in Germany and France and elsewhere.

In the US questions are raised re how ethical it is to have used TARP money generated out of thin air to bailout banks and not home owners. In Ireland, the so-called ‘tough decision’ by government parties has been taken to have Irish taxpayers  landed with the bill. Compliance and obedience mix with incompetence in defending the best interest of Irish taxpayers is the new norm.

It’s incredible to believe lack of regulation on the part of the ECB being partly responsible for the debacle, was not stimulus of a collective response to bail out Irish taxpayers by freeing them from this debt that was not theirs.

Instead this debt was saddled on Irish taxpayers. Irish taxpayers not only suffered the personal loss of falling property prices and the meltdown of the Irish economy, but Irish taxpayers were forced to pay the losses incurred by foreign banks and bondholders. Fine Gael and Labour claimed a small reworking of our promissory notes into legalised commercial debt and not the tearing up of the promissory notes, as a success. Reworking of debt into longer term obligations has been touted as ‘success’ by negotiators who failed the test of acquiring debt write down of even a portion of our debt.

Looking at this more closely its clear the majority of Irish politicians are not responsible for this state of affairs. In fact most Irish politicians would not be informed enough on economic matters in general even less so on macro economic policy. Responsibility for these matters is taken out of their hands and resides in a small group who dictate policy:

http://www.taoiseach.gov.ie/eng/Taoiseach_and_Government/Cabinet_Committees/Economic_Management_Council_for_attachment_.html

Taoiseach (Chair)
Tánaiste & Minister for Foreign Affairs & Trade
Minister for Finance
Minister for Public Expenditure & Reform
– See more at: http://www.taoiseach.gov.ie/eng/Taoiseach_and_Government/Cabinet_Committees/Economic_Management_Council_for_attachment_.html#sthash.qnzXCdYu.dpuf

The evidence points to policy being formulated by the banks and handed to the above to execute? How else to explain the ludicrous mistakes of mismanagement that has led to bondholder payouts, compliance to odious and extortionate rates of interest without share burdening of troika bailout, the current 15% insurance deal for first time buyers and ongoing austerity burdens crippling taxpayers.

Philippe Legrain used to be head of the team of strategic policy advisers to the president of the European Commission, José Manuel Barroso. In his new book, European Spring, Philippe Legrain writes: “had Irish banks defaulted on all their debt at the end of September 2010, German banks would have lost €42.5 billion, British ones €27.5 billion and French ones €12.3 billion.”

Legrain describes how Jean Claude Trichet blackmailed the Irish government by threatening to cut off liquidity to the Irish banking system which would mean forcing it out of the euro. Unfortunately, second-rate Irish politicians charmed and entranced by Europe did not have what it takes and they fell in with European demands.

Following the dictats of bankers has led to massive emigrations and massive unemployment and an unconscionable debt burden that is increasingly more unmanageable.

So-called reforms of the health service currently amount to a programme to replace nurses with ‘care assistants’. Our schools are 50% filled with part-time posts with embargos on appointment of fulltime teachers with many schools filled with teachers unqualified to teach subjects they are required to teach on a daily basis.

‘Reform’ ‘hard decision’ regulation through external examination to Junior Certificate level in our schools is being abandoned under the false flag of ‘reform’. Property charges and water charges with falling salaries and rising taxes are bleeding the country dry.

A proposal to solve water supply problems in a country awash with water amounts to the setting up of an expensive and wasteful quango without one leak being fixed. Hopes rest on the quango being sold to a hedge fund who will privatise Irish water and extort further water levies from taxpayers who already pay taxes for their water.

The energy sector is a mess with proposals for pylons and energy reform under hold with the refusal of Pat Rabbitte to publish a white paper. Endless inquiries and committees of investigation in energy, Justice a mess.

Tough decisions amount to attacking the old, disabled and the crippled. They do not mount to tough decisions to face up to those responsible for odious debt foisted on Irish taxpayers.

In a white is black propaganda world even the word ‘tough’ has lost its original meaning.

End

http://www.theguardian.com/money/2014/may/22/tim-geithner-book-financial-crisis-banks-bailout

 

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