International Forecaster Weekly

Dont Look to Banks To Solve The Problems In The Economy

Not much effort being made to solve problems in economy, money borrowing causes servitude to banks, Fed policies weaken sovereign nations, millions to lose their home this year, insolvency becoming a national problem, Goldman Sachs faces civil charges, maybe more, banks not helping homeowners in crisis, spying on email.

Bob Chapman | April 17, 2010

One of the reasons for less bank lending is the almost non-existent market for securitized bonds. Investors have so many bad loans on their books that they refuse to commit to further risky investments. This means banks are forced to hold this toxic paper on their books and that inhibits them from lending at higher levels. If the Fed had not purchased $1.7 trillion of this toxic junk many banks would currently be in bankruptcy. Thus, there still are trillions in these bad loans on the books of many financial institutions and they cannot be sold and they are clogging up the system, and there is no end in sight for the problem.

At the same time there is no effort to reduce federal debt, because if government does so it will absorb more funds needed for investment and to fund newly occurring debt. This reduces money supply and further crowds out business investment. This is truly being in a box with no way out. The Fed has been accommodating via monetization and will have to continue to do so, but the result of that is inflation and perhaps hyperinflation. As you can see this is a never-ending debt trap, and nothing that has been done is permanently solving the problem. Business understands. They are raising as much money as possible at the lowest rates since the 1930s. They may be flush with cash, but can they employ it. Unemployment at 22-1/8% means less buyers for their products. They cannot expand because the demand isn’t there. They cannot invest because they are unsure of recovery and they continue to lay off to cut their biggest cost, labor, and remain profitable. You could call this a vicious circle.


The transfer of fiscal control is passing from the individual to the state in a true corporatist, fascist fashion. These are the same kind of programs that were forced upon the citizens of Italy and Germany in the 1930s. Now you can better understand why the Illuminists in NYC, London and Paris brought Hitler and Mussolini to power and helped finance their rise to power. Part of this plan is to transfer taxpayer revenues into elitist hands, giving them more power over the citizenry. Unfortunately, Americans don’t have a clue to what is being done to them. They do not even know what fascism is. These elitists are so brazen that they are trying to convenience the public that America’s problems are the result of their financial foolishness. In fact, Americans need a forced savings plan to return them to solvency, when in fact the savings are needed by government to fund its burgeoning debt. The world is being forced into austerity. Next comes poverty.

The key to this enforced servitude is the borrowing of money, which enriches the lender, usually private banks, that in the fractional banking system creates money. Historically it is averaged about 9 to 1. Nine dollars are created for every one-dollar on deposit. In fact currently that figure is 40 to 1, as a result of imprudent lending over the past several years. Government also increases money supply by creating deficits and borrowing money to do so. The government borrows and you get to pay the interest and to repay the debt. Currently money is getting more difficult to come by due to the voracious needs of government, which is crowding out other borrowers. The bulk of the money lent by banks has gone into the financial sector leaving very little for individuals and small to medium sized businesses. Government is currently borrowing at very low interest rates. The problem is interest rates are rising. As time goes on the interest on the debt grows more onerous. In this process the privately owned Federal Reserve is buying government debt, usually secretly, so that government can continue to spend more money than it takes in, which is in the form of tax revenues. This is called monetization, because the Fed creates the money it lends out of thin air. The alternative to using the Fed would be to end the Fed and have the Treasury simply create the money. The bankers do not want that because that control of printing of money and credit puts the Fed and banking in control of government. Thus, the Fed is unnecessary. It doesn’t really directly profit from its function; it protects the banks, which own the Fed and allows the Fed to pass inside information to its fellow elitists, who profit from this information in a major way. The Fed and its friends have a license to steal. This is why the Fed should cease to function and their duties taken over by the US Treasury, a job it was mandated to do by our Constitution.

If the Fed is not disbanded it will be part of a move to world control banking that will rob all countries of their sovereignty. Once in place these financial mavens will form a World Government and dictate to the world. This is why Ron Paul’s legislation HR-1207 is so important to the future of America. It will expose what the Fed is really up too. That discovery would lead to the end of the Fed. This November we have a unique opportunity to vote out of office almost all incumbents. That clean slate will give us an opportunity to take back our country. If we are not successful the game is over and Americans will pay a terrible price.

Just to give you an idea of the power and arrogance of the Fed, this past week saw a gain of $421.8 billion of outstanding loans and leases. The Fed is secret so they do not have to tell us what is going on. Who received the loans and leases and what was the collateral received for such loans? Our suspicion is that Greece is being bailed out by the Fed or institutions in Europe holding Greek debt are being bailed out. This is the sort of thing that has to be stopped. We know the Fed posts their financials, but many things the Fed is involved in are not posted. We still await an execution of an appeal judgment by the Federal District Court regarding who received $112.4 billion in loans directed secretly through AIG and what collateral was received against such loans. The Fed still refuses to respond.

The Fed and the Treasury are well aware that America is bankrupt and the only way it can continue to function is via the Fed’s ability to create endless amounts of money and credit. That is why credit spreads are at records. As of late this year an additional $420 billion in additional interest expense will be added for this year and every other year, plus we are facing another $1.8 trillion deficit. Worse yet, the official projection is for an additional $1 trillion deficit annually for the next ten years. Presently, as a result of policies of the Treasury and the Fed, real inflation is 8%, not the official number of 2.5% to 3%. All these parties, which include Wall Street, have no intention of allowing the reduction of spending and government.

As a result of wanton lending by the Fed into the banking system we are facing, by the end of 2010, an inventory of homes for sale of a 3-year supply, when that number officially, currently is 8.6-months, when normal is 4-months. Housing is still in a bubble. Five to seven million families will lose their homes this year. Even now there is a supply of expensive homes that reaches out five years. Those mortgages containing CDOs, ABSs and MBS held by lenders, the Fed and the FDIC are near worthless. Half the banks in America face insolvency. Of 750,000 mortgage holders under trial modification only about 30,000 have been converted to permanent payment changes. Thee are millions of homeowners who have not made a payment for a year or two ready to come out of the pipeline. The government has been holding prices up three years disregarding the huge distortions they had created in the market. This was done not for the benefit of the homeowners, but to bail out the lenders. They left people in their homes for two years and they paid nothing to stay there. These are mostly people who should have never had a home in the first place. Not only will millions of homeowners be on the street, but lenders books will be flooded with assets worth far less then they are carrying them at. Those homes are about to fall again in value. Instead of cleaning up the books over the last few years management has been busy serving up bonuses for themselves.

The result of the foregoing will be 2,800 banks going under. As we told you before the FDIC won’t be able to handle the depositor’s financial demands. The TARP Oversight Committee says it has been stonewalled by the Fed. As a result only the banks and the Fed know what is really going on. How will banks raise money to offset lending losses? Will government allow them to stay in business in a bankrupt state and merge them? Of course they’ll continue to function, but FDIC insurance will end. The toxic assets will still be there for what is left of the solvent middle class to pay for.

The Natural Bureau of Economic Research says the recession is not over. We believe that the consumer’s lack of income and the absence of credit growth needed for a recovery is absent. Inflation is 8% and wages are falling at a 3% level.

The jobless numbers are again worsening and without major stimulus they will get worse. The raw unadjusted numbers total 514,742 and increase of 99,730 week-on-week. Extended claims jumped 261,817 to 5,555,301. These are the people on the 2-1/2 year jobless payroll.

The Commercial Paper market fell for the 5th week in a row off $15.4 billion to $1.074 trillion. Asset backed paper rose by $200 million after falling by $7.2 billion the prior week.

The NAHB/Wells Fargo Housing Market Index rose 4 points to 19. What can they be thinking of?

RealtyTrac says foreclosures rose 7% y-o-y in the first quarter. Foreclosures were 367 in March, up 19% m-o-m. The highest rates were in Nevada, Arizona and Florida. By totals, California, Florida and Arizona led the pack.

Goldman Sachs director Rajat Gupta may have given inside information about Goldman to Galleon Group hedge fund founder Raj Rajaratnam says prosecutors.

Consumer confidence figures from ABC News showed the weekly consumer confidence index fell to minus 47 from minus 43. Worse yet, 8% of those polled rated the national economy as excellent or good while 92% rated it good or even poor, 25% said it was a good time to buy while 75% said it isn’t.

The Securities and Exchange Commission on Friday charged Goldman Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product related to subprime mortgages.

The SEC alleged in a lawsuit that Goldman (GS 161.60, -22.67, -12.30%) structured and marketed a collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities. However, it failed to disclose the role that a major hedge fund, Paulson & Co., played in the portfolio selection process as well as the fact that the hedge fund had taken a short position against the CDO.

"Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," said Robert Khuzami, director of the division of enforcement, in a statement.

Business Inventories have increased at a 0.5% pace in February, following a flat performance in January, although they dropped 7.7% in year of year terms, according to data released by the US Census Bureau.

The combined value of distributive trade sales and manufacturers’ shipments have posted a 0.3% increment in February, while they fell at a 6.8% pace from February 2009.

The inventory to sales ratio, the amount of time needed to empty inventories at the current sales rate, has dropped to 1.27 months in February from 1.46 months in February last year

Retail sales grew 1.6% in March, up from a 0.5% increase in February. This jump betters market predictions of a more modest rise of 1.0%.

US retail sales ex-autos increased 0.6% in March compared to a 0.8% boost in February. March's result also exceeds analysts' predictions of a greater slowdown to reach a growth rate of 0.4%.

JPMorgan Chase & Co., the second- biggest U.S. bank by assets, beat analysts’ estimates as first- quarter earnings rose 55 percent on record fixed-income trading revenue and a reduction in provisions for credit losses.

Net income climbed to $3.33 billion, or 74 cents a share, from $2.14 billion, or 40 cents, in the same period a year earlier and from $3.28 billion in the fourth quarter, the New York-based bank said today in a statement. The per-share earnings compared with a 64-cent average estimate of 21 analysts surveyed by Bloomberg. (Courtesy of the US tax payer).

Morgan Stanley, which once ran the biggest property-investment arm among Wall Street banks, expects to lose $5.4 billion, or 61 percent, of its $8.8 billion global fund from 2007, said a person familiar with the situation.

The firm sent a fourth-quarter update to investors in recent weeks showing the fund was likely to recover $3.4 billion of the investment, said the person, who declined to be identified because the information wasn’t public. A spokesman for New York-based Morgan Stanley declined to comment.

The mortgage chief of the United States' second largest bank was mobbed by angry borrowers on Tuesday after he invited customers to speak to him if they feared foreclosure of their homes.

The JPMorgan Chase & Co executive was at a congressional hearing in Washington when a lawmaker asked him who mortgage borrowers could turn to if they felt his bank's employees were not helping them hold onto their homes.

"Come to me," said David Lowman, chief executive for JPMorgan Chase & Co's home mortgage business in response to the question from Massachusetts Democrat Barney Frank.

Minutes later, around 50 borrowers burst from the audience and presented Lowman with a 6-page document alleging his bank reneged on a pledge to help struggling homeowners.

The activist who organized the protest said Lowman did not want to talk and left the hearing.

"He ran. He ran like a dog with its tail between his legs," said Bruce Marks of the Neighborhood Assistance Corporation of America (NACA), which helps homeowners avoid foreclosure. "He was scared to death because he doesn't really want to talk to homeowners."

The incident is symptomatic of frustrations among U.S. homeowners as defaults and foreclosure filings dominate the housing sector more than three years after the property bubble began to deflate.

NACA organizes events where borrowers try to get loan modifications with lenders. The group says JPMorgan signed up to the NACA program but dropped out in December.

A JPMorgan spokesman declined to comment on the complaint.

(Reporting by Corbett Daly, additional reporting by Al Yoon; writing by Andrew Hay)

The cost of living in the U.S. rose in March, while prices excluding food and energy were unexpectedly unchanged, indicating tame inflation is accompanying the economic recovery.

The 0.1 percent gain in the consumer price index was in line with expectations and followed no change in February, the Labor Department reported today in Washington. Excluding food and fuel, the so-called core rate held steady after rising 0.1 percent in February, reflecting cheaper rents and clothing.

Lehman Brothers Holdings Inc. may have grounds to sue Goldman Sachs Group Inc. and Barclays Plc after they demanded $1.2 billion in additional margin to assume trading positions auctioned by a Chicago exchange, bankruptcy examiner Anton Valukas said.

Goldman Sachs was the high bidder for Lehman’s equity derivatives at options and futures exchange CME Group Inc., and took $445 million of those assets at a private auction in September 2008, according to previously censored details of Valukas’s March 11 report. Barclays was the high bidder for Lehman’s energy derivatives and took $707 million in assets from CME.

DRW Trading was the highest bidder for Lehman’s foreign exchange, agricultural and interest-rate derivatives, Valukas said. The transfer of $2 billion in Lehman deposits for its proprietary trades at the CME cost the defunct investment bank $1.2 billion, Valukas said, adding that CME also may be sued.

“The examiner concludes that an argument can be made that the transfers at issue were fraudulent transfers,” Valukas said in the report, released in its unredacted form yesterday. Under bankruptcy law, Lehman may be able to undo the auction, he said.

Part of Valukas’s job was to explore Lehman’s grounds for suing companies that contributed to, or benefitted unfairly from, the demise of the investment bank and its affiliates including the brokerage Lehman Brothers Inc., and to say which kinds of lawsuits are most likely to succeed and what the possible defenses are.

Yahoo is heading for a legal battle with the US government over the monitoring of email accounts.

The company is involved in a federal court case in which the government is demanding access to email archives which include messages that the account owner has already read.

Yahoo argues that the messages fall under the protection of the US Stored Communications Act, which requires law enforcement groups to obtain a search warrant before accessing electronic data archives.

The government contends that the data should not fall under protections because the messages have already been read.

The case could have significant ramifications for the industry in terms of government access to private electronic data, and Yahoo has received backing from several organisations.

A coalition ranging from traditional advocacy groups the Electronic Frontier Foundation (EFF) and the Center for Democracy in Technology, to Yahoo's long-time rival Google, is lobbying the court to uphold Yahoo's right to protect the data.

"This court must protect the user's privacy in these emails by requiring the government to seek and obtain a search warrant based on probable cause," the groups said in a court filing.

The EFF argued that the government is attempting to find a workaround to constitutional protections that have long limited law enforcement's ability to conduct search and seizure.

"Just as your postal letters and packages are private even though the carrier could open them, so your email and other information is protected even if it is stored on a third party's server," said EFF civil liberties director Jennifer Granick.

Not everyone in the current majority party is satisfied with how House Democrats are handling the budget. On Tuesday, Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, said, "I think it is very important to have a budget blueprint to outline priorities where the country is going to spend its money, how we're going to bring the deficit down."

House Majority Leader Steny H. Hoyer, Maryland Democrat, justifies not passing a budget resolution. He claims Democratic inaction is the fault of "deep debt" caused by the George W. Bush administration. This business of blaming President Bush for today's deficit crisis doesn't work 15 months into the Obama presidency. Mr. Obama's $862 billion stimulus package and more than $400 billion supplemental spending bill had more than a little to do with the 2009 budget deficit of $1.4 trillion. Mr. Obama's planned 2010 budget deficit is expected to surpass this record and hit $1.6 trillion. By comparison, all of Mr. Bush's deficits from 2002 to 2008 - giving him no credit for the 2001 surplus - produced a combined deficit of $2.1 trillion.

The November elections are seven long months away. The skyrocketing deficit cannot be hidden under a barrel that long. But out of desperation to spare themselves embarrassment at the polls, Democrats are avoiding a vote on the budget resolution to stall bad news. Although politically expedient, this lack of leadership will make deficits larger in the future.

A Goldman Sachs director, Rajat Gupta, is now under investigation for passing inside info to Galleon head Raj Rajaratnam, says the WSJ.

Gupta is also a board member of Procter & Gamble and American Airlines parent, AMR. He is the ex-head of consulting firm McKinsey & Co. 

There may not be anything here other than that Gupta and Raj were good buddies and Raj was frantically trading Goldman stock during the financial crisis. (Though that in itself is something.)

But the mere suggestion that Gupta passed confidential information to Raj about Goldman Sachs would be devastating to Gupta's reputation.

Goldman's name emerged in a government letter listing companies whose trading, by Mr. Rajaratnam and others in the Galleon case, the U.S. is investigating. The March 22 letter said the government is scrutinizing trades by Mr. Rajaratnam and others in Goldman Sachs from June 2008 through October 2008, a time when Goldman shares gyrated amid the bankruptcy of Lehman Brothers Holdings and concerns about the future of all major investment banks.

As part of that focus, the government is examining whether Rajat Gupta—a current Goldman director, former head of McKinsey & Co. and close associate of Mr. Rajaratnam's—shared inside information about Goldman, the people close to the situation say.

No criminal charges or other allegations have been filed against Mr. Gupta, nor is there any indication that investigators are looking at his own stock trading. A spokesman for Mr. Gupta said, "Mr. Gupta is unaware of any examination of any such issue and has done nothing wrong."...

Messrs. Rajaratnam and Gupta spoke frequently, and Mr. Gupta was invited to attend parties hosted by Galleon, an individual close to the situation says.