Friday, March 11, 2011

No Honor at the Top

I've just watched "Inside Job," the Oscar winning documentary on who and what caused the global recession that we're in, and will be in for some time. I'm going to watch it again. It has a powerful message. If I were King for a Day, I would royally decree that everyone above the age of eighteen watch it - and test them on what they learned. Then I would lead a million people, or as many who can cram around Wall Street, Broadway, Nassau St., New St., Exchange Pl. and other New York City streets in that area and shout to high heaven for all of the criminals to come out of their buildings, something along the lines of what Micheal Moore did in his documentary, "Capitalism: A Love Story."  Mr. Moore's documentary also had a powerful message and right along with "Inside Job," it's another one that I'd force everyone to watch. And, if nobody came out of those buildings, as King I would order a swat team to drag them out. That's the problem with being a tyrant, as one with total power is inclined to become, I would likely condemn the innocent right along with the guilty. I'd like to think that there is at least one person in those buildings who is innocent or who "had a feeling" that what they were doing "wasn't right," or perhaps, and this is a stretch, refused to destroy their own company AND the global economy for the sake of their own wealth. I know. I know. The odds are against it.

Here's how much I think everyone should watch those documentaries: If I had the money, I would buy the rights to them and put them on YouTube for everyone to watch free of charge. I know. I know. The odds are against anyone watching the movies.

Here's why they should. Everyone I know... well, maybe not everyone. I know one person who doesn't have a pot, let alone a bank account, but as far as I know everyone else I know has at least a bank account. Most couldn't last a month if they lost their jobs, their paycheck, on the amount of money in their bank account. Some have a savings account. Some have a retirement account, and a few have investment accounts. All of them NEED to watch these movies. They NEED TO KNOW how close they are to losing those accounts. If they knew, maybe they can prevent it. And, the one who doesn't have a pot should watch it because they COULD HAVE a pot - after first extracting the head from the arse. Our cash in "their" bank gives them the capital to make loans.

A good, responsible bank keeps enough cash (capital) on hand (our cash) so it won't go bust if too many people don't pay off their loans. It's called a debt-to-capital ratio. When a good bank makes loans to people with good credit, it is very rare for 5% of the loans default. A bad, irresponsible bank goes broke when the debt-to-capital ratio is way out of whack, when it makes too many loans and it's taking way too much risk, such as Lehman Brothers had when it crashed. It had a 33 to 1 ratio, so if over a measly 3% of loans defaulted, and it did, the bank would run out of cash (our cash) to support itself. Actually, it was much worse than that for Lehman Brothers. It had as much as 20% loan default because it bought loans (Collateralized Debt Obligations) that banks had loaned to people who could not pay them off, subprime mortgages.

So, your (our) cash is used to make loans. When the loans are so bad and risky, all your/our cash can be lost. And, it was. When the banks are simply out of control, even the government may not be able to save your/our cash. In that case, the only people who wind up with the money (our money) are the big bankers. That's why you need to watch these movies. I know. I know. Odds are against it.

Out of all of the young people I know, only two have a chance of having a little bit more than the average person. If I count their mates, confirmed and apparent (assuming that current apparent fiancees makes the grade - I hope they do), that makes four people that I know who will "make it," or said better, who will get a bigger "piece of the pie."  One is a prime candidate for one of those Wall Street, high-flying jobs, but the lifestyle there is dangerous (more later about that). All of the other young people I know are "comfortable" and at the whims of Wall Street; with perhaps some cash in the bank but they have no idea how risky it is there. It could, if they keep sleeping, come falling down on their heads again and again, and like the past few years, they will bitch and moan about the money they lost, and perhaps keep listening to Limbaugh, but have no idea what hit them nor ever learn what happened. At least they won't hear the truth from Limbaugh. And then, while they're "liking" this and that on Facebook, they'll go do the worst thing they could do - they'll vote. Crap!

I know. I know. The odds of everyone wising up, or even waking up, are extremely high. So, what was the message of both documentaries? The unadulterated greed. It was so thick you could taste it. And, it is difficult to believe that a person would destroy their own company, their own country, the United States, and the global economy for their own sake, to get more money than anyone else and to destroy billions of jobs worldwide without the slightest twinge of conscience, but that's what they did. This is not normal behavior. It is psychopathic behavior. Not only that. When the U.S. Government had to bail them out - not to save them, but to save trillions of dollars in ordinary people retirement and savings accounts - they took another trillion dollars from taxpayers without blinking an eye. The average American has no clue how much damage Wall Street did worldwide. And, the guys who did it picked up their suitcases of cash and walked away with it. Not a single one went to jail or had to give any of it back. And the ones who replaced the criminals are doing the same thing again. The derivatives, the investment instruments that Warren Buffet called "weapons of mass destruction," are still being bought and sold without the slightest regulation. Commodities, such as oil, corn, soybeans, pork bellies that set food prices worldwide are still being bought and sold without the slightest regulation. Enormous wealth is still being transferred from the poor to the rich. The gap between haves and have-nots is still getting wider. Sooner or later, there will be a revolt. Someone's going to die just like they are in Libya, except it will happen in the good ole U. S. of A. And, the primary reason that there is not one iota of regulation throttling Wall Street greed is the Republican Party. The GOP doesn't like regulations.

The Republican Party's philosophy, laissez faire, letting things take their own course in regards to markets and business, has become "normal" in our culture. Even economic professors teach it, especially since the 1970s. It's what all of us have been led to believe. Bootstrap living. Can't make it? Pull yourself up, or die, you lazy ass! The fact is that when greed rules, when it dominates the culture over the airwaves and in colleges and universities, someone is going to be left behind whether they're lazy or not and however hard they try to pull themselves up from their bootstraps. The fact is that if greed isn't controlled, governments fail, societies fail and everyone suffers. I have to agree with Studs Terkel. He said, "competition is the wrong idea. Cooperation in society is what we need for all to live a good life," or words to that effect. Laissez faire is the wrong idea. Allen Greenspan was wrong. Ben Bernanke is wrong. Larry Summers is wrong. Tim Geithner is wrong. And, since President Obama is surrounded by the same criminals who caused the meltdown, he is wrong by accepting their advice. The truth is more likely that he faced an ultimatum, follow them or be a one-term president. Washington D. C., including the Presidency, is owned, lock, stock and barrel, by Wall Street regardless of who is president. Still, any Democrat is a thousand times better than the worst Republican. At least a Democrat typically has the working people and general society in mind, even if they can't do anything about it.

Frankly, there is nothing right about laissez faire. The idea that businesses and corporations can do any thing they want and that a buyer, i. e., me, must beware of what we buy because it could be junk, a scam, illegal, a dupe, a fake or otherwise doesn't live up to its claimed use is preposterous. If I put my money in your bank, Mr. Banker, I expect you to use it wisely and to not risk it foolishly and pay me a good interest rate for the use of my money. And, if you are foolish and lose it, then I expect you, not the government, to pay it back, even if that means selling off all of your assets, including the shirt on your back. It's the same with anything else I spend money on. If I buy a $100,000 car, it damn well better give me an erotic massage every day. I had better feel GOOD about it. Otherwise, you don't deserve to be in business. There will always be a need for a consumer to be aware and educated of personal financial risk when buying goods, and to be thrifty with their money and to save always.  But, there should never be a time when corporations and businesses can run roughshod over consumers just because they can.

I guess if you watch the movies, at least you may learn enough to ask your bank a few questions, such as how secure your money is. Perhaps you can find a clue about how your bank does its business and whether your money is at risk more than at other banks. Credit Unions seem to be safer. They are regulated better and are less risky. If you invest, you should at least think about how greedy the executives are who run the companies of the stocks you buy. Perhaps that will give you a clue on what stock to buy, when to buy it and when to sell it.

Here are some questions to ask your bank.
1. What is your debt-to-capital ratio?
2. Do you, your corporate headquarters or a subsidiary you own buy and/or sell Collateralized Debt Obligations (CDOs) or any other derivative?
3. Do you, your corporate headquarters or a subsidiary you own buy Credit Default Swaps?

Here are good answers:  If 2 and/or 3 are "Yes," get the hell out of that bank.

1. The correct answer is: Less than 10 to 1 debt-to-capital ratio. This means that your bank has $1.00 cash on hand for every $10 or less that it loans out, so it is 10% capitalized. It means that your bank can sustain its business (and your money) even if 10 percent or less of its loans default. Over 10% default rate is rare when all borrowers have good credit.

2. The correct answer is: NO. If it does, then more than a 10 percent default is possible and it's likely that the bank's borrowers don't have good credit, and the bank should have an even lower debt-to-capital ratio, say 5 to 1. Otherwise, you're money could be lost if not for the government guarantee, up to $200,000 (may have changed to $100,000).

2. The correct answer is: NO. If it is Yes, then your bank is gambling with no risk loans and likely loans to people who have bad to zilch credit ratings and can't pay the loan off. In fact, your bank may be counting on the person not paying off the loan; it's making more money from the Credit Default Swaps than if the person paid off the loan.

I guess you could ask one more question: Is your bank connected, in any way, with Wall Street trading, whether stocks, options, commodities or derivatives? If it is, then consider moving your money to another bank or credit union, preferably a locally owned one.

All exchanges, including the hidden derivative exchange, fluctuate based on recommendations of Wall Street analysts of one kind or another; stock analysts, commodities, options, credit ratings, derivatives, mortgages, corporate loans, and on and on.  If there's something that can be traded, there is an analyst for it.  Usually, investors buy and sell investments based on analysts' recommendations.  Companies plan their sales, production and services on "meeting" analysts predictions. Derivatives are packaged based on analysts' best ratings. The price of oil, corn, soybeans and pig bellies are determined by how much caffeine an analyst has with his morning dose of cocaine, or how much the guy snorted the night before, or how tired he was after he paid for a $1,000 prostitute. They make a lot of money, live fast, drive the most expensive cars and use cocaine and any handy beautiful woman. They rub elbows with traders and bankers to make deals, sometimes fraudulent deals, and money. They're not interested in investors, customers, their company or the United States or its citizens.

I heard the most honest assessment of Wall Street analysts this morning that I've ever heard. In the midst of the Middle-East oil instability, a wishy-washy jobs report, increased unemployed claims, a Euro evaluation problem, and China's first time ever trade deficit, the news broadcaster said, "Wall Street analysts have no idea how markets will be affected." Well, they have never had any idea how markets will be affected.

See the documentaries, and if you want to know more, read "All the Devils are Here."

I know. I know. Odds are against anyone watching the movies.


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