Too Big To Fail
For five long years, we have pursued the fantasy that we could return to "growth" without having to fix or change anything. The core policy of the fantasy is the consensus of "serious economists," i.e. those accepted into the priesthood of PhD economists protected by academic tenure or state positions: what we suffered in 2009 was not the collapse of leveraged crony-state financialization but a temporary decline of "aggregate demand" and productive capacity. The five-year fantasy that free money would fix all the distortions and systemic problems is drawing to a close. Why can't the fantasy run forever? The two-word answer: diminishing returns. Handing out subprime auto loans works at first because it pulls demand forward: anyone who wants or needs a new car buys one now, rather than put the purchase off a year or two. Eventually the marginal buyers default and demand falls off, and the distortions cause an even greater collapse in demand and auto loan quality.
Does anything about 2014 remind you of 2008? The long lists of visible stress in the global financial system and the almost laughably hollow assurances that there are no bubbles, everything is under control, etc. etc. etc. certainly remind me of the late-2007-early 2008 period when the subprime mortgage meltdown was already visible and officialdom from Federal Reserve chairman Alan Greenspan on down were mounting the bully pulpit at every opportunity to declare that there was no bubble in housing and the system was easily able to handle little things like defaulting mortgages. The party, once again, is clearly ending and raises the question: "If asset bubbles no longer boost full-time employment or incomes across the board, what is the broad-based, “social good” justification for inflating them?"
Let's be clear about one thing (to quote the president): the Fed's policies have been an unqualified success for financiers and an abject failure for everyone who has to work for a living. The Fed has not just failed to rectify the nation's obscene inequality in wealth and income; it has actively widened it by handing guaranteed returns to the banks and financiers while strip-mining what's left of the middle and working classes' non-labor income, i.e. interest on savings.
Is the U.S. economy steamrolling toward another recession? Will 2014 turn out to be a major "turning point" when we look back on it? Before we get to the evidence, it is important to note that there are many economists that believe that the United States never actually got out of the last recession. In fact, that would fit with the daily reality of tens of millions of Americans that are deeply suffering in this harsh economic environment. But no matter whether we are in a "recession" at the moment or not, there are an increasing number of indications that we are rapidly plunging into another major economic slowdown. The following are the top 12 signs that the U.S. economy is heading toward another recession...
Though many may reckon the U.S. government (and its Deep State) are not so much incompetent as merely evil, we suggest incompetence sows the seeds of evil consequences. Why is our government so incompetent? Short answer: because incompetence has been fully institutionalized in every branch, every agency and every nook and cranny of the state.
The following exchange between then-Kansas Fed president (and current FDIC director) Thomas Hoenig and the Chairsatan, uttered during the historic Sept 16, 2008 FOMC meeting, is of particular importance for four reasons: 1) it appears to be the first instance in the Fed records, where the phrase "too big to fail" is memorialized; 2) it highlights something that has become all too clear by now: in giving to a culture of moral hazard, the Fed is now being openly "played" by the market (read the big banks); 3) it confirms that the Fed has learned zero lessons from the crisis and 4) the thinking behind the "Bernanke (global) Put" is laid out for all to see.
The entire banking sector is based on two illusions: 1) Thanks to modern portfolio management, bank debt is now riskless; and 2) Technology only enhances banks' tools to skim profits; it does not undermine the fundamental role of banks. The global financial meltdown of 2008-09 definitively proved riskless bank debt is an illusion. It's not just that banks are no longer needed - they pose a needless and potentially catastrophic risk to the nation. To understand why, we need to understand the key characteristics of risk.
“Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded.
If you have been waiting for the "global economic crisis" to begin, just open up your eyes and look around. I know that most Americans tend to ignore what happens in the rest of the world because they consider it to be "irrelevant" to their daily lives, but the truth is that the massive economic problems that are currently sweeping across Europe, Asia and South America are going to be affecting all of us here in the U.S. very soon. Sadly, most of the big news organizations in this country seem to be more concerned about the fate of Justin Bieber's wax statue in Times Square than about the horrible financial nightmare that is gripping emerging markets all over the planet. After a brief period of relative calm, we are beginning to see signs of global financial instability that are unlike anything that we have witnessed since the financial crisis of 2008. As you will see below, the problems are not just isolated to a few countries. This is truly a global phenomenon.
Trust is gone and credit is going and debt is sitting between a rock and a hard place with its grubby hands pressed together, praying that it will be forgiven, forgotten, or overlooked a little while longer. By the way, the reason trust and credit are gone is because oil is no longer cheap and world economies can’t grow anymore. They can’t afford to run the day-to-day operations of a techno-industrial society. They can only pretend to afford it. The stock markets are mere scorecards for players who can only lie and cheat now to keep the game going. Somewhere beyond all the legerdemain and fraud, however, there remains a real world that is not going away. We just don’t know what it will look like when the smog of fraud clears.
As China Orders Its Smaller Banks To Load Up On Cash, Is The Biggest Ever "Unlimited QE" About To Be Unleashed?Submitted by Tyler Durden on 02/10/2014 12:46 -0400
The Chinese new year may be over which following a last minute bailout of its insolvent Credit Equals Gold Trust product was largely uneventful, but already concerns about domestic liquidity are once again rising to the surface following reports that China’s banking regulator ordered some of the nation’s smaller lenders to set aside more funds to avoid a cash shortfall, which as Bloomberg notes signal rising concern that defaults may climb. Which brings us to the question du jour: is the PBOC is laying the groundwork for what developed markets would call an open-ended liquidity injection which can be use to bail out one and all banks on an a la carte basis. Or, in the parlance of our times, the biggest QE bazooka of all because with total banking assets of nearly $25 trillion, said bazooka better be ready to fire at a moment's notice?
Chopped him up and Fed him to the lions!
Once the mafia state of mind has seeped into every nook and cranny of the society and economy, it's not even recognized as corruption: it's simply the way the system works. And so the residents of nominal democracies in Asia, Europe and the Americas do not even realize how thoroughly corrupted their societies and economies really are; they cling to the illusions of choice even as their incomes, wealth and political influence are funneled into the hands of various elites by overlapping extortion rackets.
Today's modest bounce in stocks - considerably removed after-hours - does not provide much hope for those looking to buy the dip with the Dow still down over 1000 points year-to-date. In fact, as we discuss below, troubling news just continues to pour in from all over the world... For those that are not interested in the technical details, what all of this means is that global financial markets are starting to become extremely unstable. Consider the following...
17 years ago, the first major Emerging Market crisis started in Thailand, leading to the Russian default and the collapse of LTCM ushering in the era of Too Big To Fail. This time, all the world needed for the second major EM crisis, was for Ben Bernanke to announce he is giving global central planning a break (because one can be certain the Untaper will be right back on the agenda as soon as the S&P enters a bear market). Ironically, Thailand has largely been insulated from the EM decimation, even through it is now in as bad a political shape as it ever was, and one day ahead of the February 2 general elections things are getting from bad to worse. AFP reports that explosions and heavy gunfire rattled Bangkok Saturday as pro- and anti-government protesters clashed on the eve of controversial Thai elections seen as unlikely to end a cycle of violence in the kingdom after months of opposition rallies.