Dear Steve Liesman: Here Is How The US Financial System Really Works

Tyler Durden's picture

Earlier today, Bill Frezza of the Competitive Enterprise Institute and CNBC's Steve Liesman got into a heated exchange over a recent Frezza article, based on some of the key points we made in a prior post "A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed" in which, as the title implies, we showed how it was that the Fed was indirectly intervening in the stock market by way of banks using excess deposits to chase risky returns and generally push the market higher. We urge readers to spend the few minutes of this clip to familiarize themselves with Frezza's point which is essentially what Zero Hedge suggested, and Liesman's objection that "this is something the banks don't do and can't do."

Liesman's naive view, as is to be expected for anyone who does not understand money creation under a fractional reserve system, was simple: the Fed does not create reserves to boost bank profits, and thus shareholder returns, and certainly is not using the fungible cash, which at the end of the day is what reserves amount to once dispersed among the US banks, to gun risk assets higher.

Alas, Steve is very much wrong. And as a tangent, it is truly deplorable how many "experts" have zero understanding of just what the interplay of the Fed and commercial banks is in money creation.

The biggest stumbling block that Steve seems to have is the dramatic shift in the historic interplay in money creation pre and post-Lehman. As we showed previously, where in the Old Normal, whereas every dollar of deposits (or low powered money, or however one wants to define them), was derived from an almost 1-to-1 correlation between new loan underwriting by commercial banks (seen here), something snapped the day Lehman filed. This can be seen in the chart below.

What happened after September 2008 is very obvious, and very dramatic: there was a major disonnect between deposits sitting in bank vaults, which continued to rise dramatically, and loans underwritten by commercial banks, which tumbled until early 2011, and have since attempt to stage a very weak and modest comeback. What is undeniable, however, and what once can check easily with the weekly H.8 statement - the Weekly update of Assets and Liabilities of US Commercial Banks, is that in the latest week, there was a $2.1 trillion difference between deposits ($9.317 trillion), and bank loans ($7.237 trillion) in the US banking system.

That much is undisputed.

Incidentally, there are less loans outstanding currently than there were the week after Lehman filed ($7.275 trillion). What is irrelevant here is why loan creation has lagged as much as it has: whether it is due to more stringent lending standards (supply), or due to far lower interest in debt-funded enterprise for loans (demand). That is a policy discussion (and one, by the way, that proves undisputedly that the US economy is much weaker now than it is purported to be as end consumers and business have far less desire to risk becoming indebted even in a zero interest rate environment) and not relevant to the subject discussed in this article.

Where things get tricky for most, certainly for Mr. Liesman, is grasping the genesis of the surge in deposits over loans.

For that answer, we go to the Fed, specifically the Chicago Fed, and its 1961 booklet, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion, which incidentally is still the best reference for everyone who is desperately confused about money creation under fractional reserve banking (although, for obvious temporal reasons, it excludes all discussion of that critical subset of credit money created under Shadow Banking, which peaked at nearly $23 trillion in 2008 - luckily, that too is not relevant in this discussion).

And while we sincerely urge anyone with even a passing interest in fractional reserve banking, especially those who break down monetary theory to three letter acronyms that spell out "socialism" to read the entire booklet, there is one line that is absolutely critical. To wit:

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank. The actual process of money creation takes place primarily in banks.

The punchline is bolded because that simple sentence is so very misunderstood by most. It is also why historically, deposits matched loans created by commercial banks on a dollar for dollar basis. Yet as can be seen in the chart above, this historic truth broke down to the right of the blue arrow, at which point money creation was no longer the purvey of the (commercial) banks.

So who created money? Why the Fed of course, courtesy of the $2+ trillion in excess reserves injected into the financial system since the week of September 15, 2008.

This should come as no surprise: after all the Fed has "purchased" some $2.2 trillion in assets over the same time period, which have been necessarily matched by an expansion in the two main Fed liabilities: currency in circulation and reserves, as the whole point of the Fed's ongoing purchases of US Treasurys, in addition to monetizing the US deficit and allowing the US government to operate without fear of a surge in bond rates (and a bond auction failure via the Primary Dealer-facilitated close loop that is the name for each and every Treasury auction as there will always be a buyer of last resort), is to provide the necessary and sufficient "collateral" to ever expanding reserves.

And while the amount of currency in circulation has risen by a very modest amount in the past 4 years, it is the amount of excess reserves that has soared by a massive amount - virtually the entire asset expansion on the left side of the Fed's balance sheet has gone to creating reserves parked with banks.

And as expected, mapping out a chart between the expansion in commercial bank deposits since the day of Lehman's failure and the amount of assets purchases by the Fed (which is explicitly almost a 100% identity to reserves created by the Fed) explains just where the incremental $2 trillion in money creation - i.e., bank deposits by reverse identity, has come from.

Naturally, if one were to account for the money that has gone into currency (i.e. M1) instead of reserve creation, the two lines would virtually overlap. Furthermore, for those purists confused by the peculiar slump in the black (deposits over loans) line around March 2010, the explanation is simple, and once again comes courtesy of the Fed (via the G.19):

Upward revisions to revolving consumer credit are due mainly to nonfinancial business. Prior to March 2010, securitized pools contribute positively to the revisions, while corresponding declines in finance company estimates somewhat damp their effect. After March 2010, finance companies contribute positively, while offsetting declines of securitized pools estimates somewhat damp their effect. The average revision from January 2006 through March 2012 is slightly less than 3 1/4 percent of its former value, with most revisions about $27 billion above the old estimates. In March 2010, the gap widens somewhat because of adjustments for the accounting rule changes, Statements of Financial Accounting Standards (FAS) Nos. 166 and 167, which cause finance company estimates to jump by more than the offsetting decline of securitized pools.

In other words, if it weren't for the securitized pool adjustment in March 2010, the black line would have been a straight horizontal one from January until September 2010, precisely as the total Fed asset expansion would suggest it should be.

* * *

The point of the above explanation is to demonstrate, simply and visually, that whereas deposit creation in the days before Lehman came primarily courtesy of banks, the days since Lehman have seen the Fed in the driving seat when it comes to deposit (money) creation.

At this point a tangential discussion might be required on the difference between high powered and lower powered money, or M1 and M2, but that would require a much broader dive into the mechanics of fractional reserve banking (one which will be satisfied by the Chicago Fed's booklet), but suffice to say, deposits are the fungible equivalent of money when being transacted from one low powered investment option (deposits in banks) to another (purchases of risk assets).

And, once again, like one week ago, we would have ended this conversation here because suggesting that banks abuse excess deposits for risky pursuits would be considered absolutely preposterous... if it wasn't for the stunning confirmation courtesy of that epic blunder by none other than Jamie Dimon's JP Morgan, and his Chief Investment Office (conveniently once again located in that mecca of underregulation London) implosion, just what it is that banks do with the excess between deposits over loans.

Allow us to paraphrase what we wrote last week:

Presenting Exhibit A, which comes directly from page 24 of JP Morgan's June 13 Financial Results appendix, in which the firm laid out, for all to see, just how it is that the Firm generated over $5 billion in prop trading losses in its Chief Investment Office unit - a department which had previously been tasked with "hedging" trades but as it turned out, was nothing but a glorified, and blessed from the very top, internal hedge fund, one with $323 billion in Assets Under Management! To wit:

The chart above shows the snapshot - from the horse's mouth - of how a major "legacy" bank, one engaged in both deposits and lending, decided to use the "deposit to loan gap" which had swelled to $423 billion at just JPM (blue box in middle), and led to $323 billion in CIO "Available For Sale securities."

What happened next is well-known to all: JPM's Bruno Iksil, together with Ina Drew and the rest of the CIO group (all of whom have since been dismisses), decided to put on a massive bet amounting to over $100 billion (and potentially much greater - sadly there still has been no full disclosure by either the bank nor regulators just what JPM was invested excess deposits in) in notional across the credit spectrum (the one place where a position of this size could be established without becoming the entire market, although by the time it imploded Bruno Iksil was the market in IG9 and various other indices and tranches). The loss was just as staggering, and amounts to what is one of the largest prop bets gone horribly wrong in history.

Now the JPM spin is well-known: the CIO was merely there to "hedge" exposure, as a direct prop bet would be illegal as per the Volcker Rule, not to mention the avalanche of lawsuits and the regulatory nightmare that would ensue if it became clear that the firm was risking what amount to deposit capital to fund massive, highly risky prop trading bets. Which, when one cuts out the noise, is precisely what JPM did of course, especially since the "hedge" trade blew up just as the market tumbled in the spring of 2012, a time when it should have otherwise hedged the balance of the firm's otherwise bullish posture. That it did not do this refutes the logic that this was a hedge, and confirms that what JPM was doing was nothing short of using an internal, heavily shielded hedge fund, which had $323 billion in collateral as investible equity, to trade away, knowing very well no regulator would dare touch JPM.

* * *

Now, the conventional wisdom has always been that banks would lend out deposits: obviously something they have not done since the Lehman failure as we have been shown previously and in this post, and hence the "deposit to loan gap", and failing that, the deposits would be invested in only the safest securities - Treasurys and the like (sorry, not Italian or Spanish bonds).

Now it is possible that JPM did purchase "safe" securities, quite possibly hundreds of billions worth of bonds, or MBS, or agencies.

Did JPM transform its treasury purchases via repo into free cash, or did
it simply rehypothecate them in the bowels of the London financial netherworld where anything goes (something we know for a fact happened extensively with that other Primary Dealer
failure, MF Global) repeatedly off the books for even more free cash, is also unknown, and unclear. But that too, is irrelevant for the topic at hand. What we do know for a fact is that the firm, ultimately ended up with free, uncumbered fungible capital of some $423 billion to trade and risk at will as it saw fit.

That much is now also undisputed, and has been confirmed by page 24 of JPM's June 13 Financial Results appendix.

And none of this would have been public knowledge had it not been for the epic trade blunder at JPM's CIO. Or rather, any allegations that JPM was abusing excess deposits to trade on its own prop account would be simply dismissed as further ramblings of deranged fringe bloggers.

* * *

So to summarize what we know:

  1. We know that historically banks have created money (both low and high powered) and specifically, deposits, via loan creation. This process broke down in September 2008 when loan creation by commercial banks effectively ceased.
  2. We know that in the aftermath of Lehman, the Fed's reserves were the source of the money used by banks to boost their deposits, either by traditional or shadow bank transformation pathways, even as loans remained stagnant, and are now, nearly 4 years after Lehman, at a lower level than they were in late September 2008.
  3. We know that, as JPM has explicitly admitted, at least one bank has used the excess deposits over loans to engage in risky activity, and to trade on its own prop account, on at least one occasion, with a loss potential as large as $5 billion, and potentially far greater.

What We don't know how many other banks are using excess deposits to engage in risky activity, which may range from selling credit CDS (single name or index), to buying equity ETFs and REITs (like the Bank of Japan openly does), to buying outright stocks, to even buying real estate, or any other activity which obviously continues to be unsupervised by the Fed, especially in offshore jurisdictions (London).

So, dear Steve Liesman, now that you too know just who is funding the surge in deposits, and now that you too know, that bank(s) are directly taking advantage of this excess deposit pool to trade for their own account, perhaps you can ask the Chairman during his next press conference, what happens to internal bank hedge funds when the Fed starts unwinding its QE and by implications, results in a drop of at least $2 trillion in excess deposits over loans (a number which will likely rise to $3 trillion by the end of 2013, then $4 trillion by the end of 2014 and so on). But certainly ask him what would happen if instead of using excess deposits to invest in the S&P 500 (or Russell 2000 as the case may be), the banks were to lend said money out, and how far would the stock market plunge as a result.

Because, oddly enough, there are some people who are misguided and believe that the Fed still has some capacity to tighten, or even stop expanding its balance sheet, without destroying that house of cards - the S&P500/Russell 2000/DJIA - it has so carefully and lovingly created over the past 4 years.

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Shizzmoney's picture

We know that historically banks have created money (both low and high powered) and specifically, deposits, via loan creation

This is why minting the coin idea is so stupid. 

The banks have it right.  If you are going to create money out of thin air, at least try to attempt to make some cash out of it, either by theft, fraud, or usury.


kliguy38's picture

Liesman looked very nervous and agitated ...more so than usual........he was defending a very dangerous ground and he knows it......He was shooting in the dark and it wasn't hitting anything and he knew it.

TruthInSunshine's picture

I don't watch cnBSc, but I can only imagine that Liesman's now-standard incoherent, inept rantings were uttered in the muffled way that only a mouth stuffed full of bankster cock would sound.


Edit - I made an exception and watched the clip. Liesman is such a douchebag, of such an enormous size, that he fails to understand the simple premise that dollars (or Federal Reserve Notes, to be perfectly precise), are "fungible," OR, even more fundamentally, he may not even know the definition of "fungible."

It's really embarrassing for him, cnBSc, and the state of financial education in this country that an so-called "economist" is a main stream (even if quite lame & inept) cable network's chief commentor on such things as this.

francis_sawyer's picture

Justin Beaver could give more sound economic commentary...

Richard Chesler's picture

Naive is a 5-year-old.

Liesman is simply corrupt.

nasdaq99's picture

the corrupt apologist for a system throwing granny under the bus to take care of GS, JPM et al.


fuck you LIESman and all the rest of your bullshit apologist, sold out idiot friends.  i want REAL MONEY, not berdonkye/obamah toilet paper bucks

NotApplicable's picture

Now this is what ZH is all about. Not political horse-race/divide and conquer nonsense.

But documenting the financial crime in progress.

Michaelwiseguy's picture

Zero Hedge traffic probably going through the roof today so I'll watch my mouth, Not.

Most sinister cunts in congress Nancy Pelosi and Dianne Feinstein.

Mainstream media stuck on stupid. Probably making a sound but no audience listening.

Steve Liesman spaghetti head baby picture;

sunaJ's picture

Thank you, ZH, for adding a bit of coherence to this shit show.  It is too bad, really, that ZH must occupy the station that it does.  In an ideal world, I would be reading stories like this on the SEC website (as part of a report of finding) or the nightly news.  The idea that these powerful people have your best interest in mind and that any divergence is a result of failed best intentions is encouraged by our own cognitive dissonance.  We don't want to believe that such criminals exist and the world is this corrupt, so it is easier to believe "they are doing their best for us even if they make mistakes."  It is a disconnect so powerful that people will defend their owners to the death rather than concede all the ugliness.  Unfortunately for the deluded and the sober-minded alike, the banksters will be happy to accommodate us our death, because that is what we are talking about.  People die in this world every day so that this world of make believe can go on.  More will die this year than last year as all semblance of order continues to slip away.

Stop and think for a minute just how bound to the course of these fraudsters we are:  The very fact that what happened with JPM is not even discussed in an adult manner except by "some fringe blog," only goes to reinforce the fact that on the enforcement side of finance and on the dissemination of truth, our government and 4th Estate are willing accomplices to the ponzi. 

There is no societal alternative to the criminal plan. No redress of grievance.  No justice if the crime is big enough.  War is part of their plan if you don't like what they are doing.   We effectively have no political or judicial retort to the will of the FED.  This article even lends further credence to the idea that if primary banks want a crisis, they can start one at any time of their choosing and benefit.


EnslavethechildrenforBen's picture

So the Bankers get their money for nothin and their chicks for free. Seems fair.

economics9698's picture

Tip of the hat to Tyler, that was some fucking excellent work.

Raymond K Hessel's picture

Liesman is an economic journalist.  


That's like being a sports journalist. 


If a sports journalist ever tried to defend against a professional athlete in any sport, he'd be crushed, humiliated, out of breath, and foolish looking.


Because you need a financial education to understand what the fuck was going on, only a few of us knew to laugh.  What a clown!  

He thinks because he covers finance and banking that he can actually play with the pros. 

knukles's picture

Liesman and Krugman

The Null Set

A L I E N's picture

This piece deserves an award.

Big Slick's picture

Perhaps someone can explain to me how currency in circulation has remained in check at the same time that the Fed's balance sheet has grown while funding government operations (through bond purchases) which largely funds entitlement distributions of money to the public.

or is the assertion from the article that currency in circulation has remained in check erroneous?

walküre's picture

Cracks are getting wider and wheels are coming off.

Bank of Vatican City IOR (Institute for Works of Religion) is only accepting *cash* now and cutting ties to Deutsche Bank. DB had been the Pope's state merchant bank and processing all e-payment transactions. How many Euros/Dollars etc per day is coming in through the front door(s) to the "Holy" City is anyone's guess.

Insiders say that Vatican is never going to open their books and getting scrutinized by EU tax collectors and investigators. IOR (Institute for Works of Religion) Probably the most predominent and largest bank to facilitate money laundering around the globe.

What does IOR do with the cash they're collecting? It will stay in the Vatican is my guess. No deposits, no paper trail. The Church knows how to survive a currency and financial crisis. Has been at it for over a millenium.

Cash and PMs. That's what the Church holds. Everything else is bullshit and since the Church is one gigantic scammer and bullshitter, I'd say they're an expert and know what they're doing. Follow the money and the example.

Doomer's picture

What a bunch of priests are doing with the Sunday collection is almost meaningless in the grand scheme of things.  Much, much bigger fish to fry.

TPTB_r_TBTF's picture

You are uninformed.  The Sunday collection is used to buy the Snickers bars to coax the little boys.

The Church is a big business, for example, Catholic Hospitals are some of the biggest health-care fraudsters. They run schools to indocrinate children.  These schools are not a free service to the community.

Plus, by running schools, they have a never-ending supply of children-

"They made money taking over the care of children but put many of their members who were known abusers in charge of them," Reuters

Seems they donT always get it [business] right, that article was about a bankruptcy filing.


Yes, the dioceses have huge holdings. ... Many women's institutes have substantial cash, equities and property in their own names, and their members hold directorships in multiple institutions, which in turn have giant assets.

Much of that money is managed by the Christian Brothers Investment Services -- about $4 billion. ...

Follow the Money


The Church is also one of the biggest producers of porn. Big money in porn.  But who's bothered by that fact?


... also happens to sell porn ...

It ranks second to when it comes to its online sales of books and other [ <== "other!?" ] media-related materials.

DonT have time to finish this "essay" on Church Finances.  Sorry must go now...

Go Tribe's picture

Thousand thumbs up to the article and your post. This is becoming really old, and if the pot boils over these fuckers are going to be fucked.

Doomer's picture

Here is the "money" quote from Modern Money Mechanics (emphasis added):

"However, banks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets - loans and INVESTMENTS."


"Deposit expansion can proceed from investments as well as loans. Suppose that the demand for loans at
some Stage 1 banks is slack. These banks would then probably purchase securities. If the sellers of the securities
were customers, the banks would make payment by crediting the customers' transaction accounts; deposit liabilities
would rise just as if loans had been made. More likely, these banks would purchase the securities through dealers,
paying for them with checks on themselves or on their reserve accounts."

TruthInSunshine's picture

The Non-Federal Reserve-less Non-Bank is just the latest entity & iteration of the literal Ponzi scam that perpetuates pure fiat monetary systems (see remarks/footnotes below regarding Plaza Accord and Nixon Shock, which closed the Bretton Woods pact) that some refer to as fractional reserve banking (see Modern Monetary Theory as described and admitted to in their own publication, 'Modern Money Mechanics' - Modern Money Mechanics is a booklet produced and distributed free by the Public Information Center of the Federal Reserve Bank of Chicago; MODERN MONEY MECHANICS*) , whereby this non-bank entity and front for The Money Masters uses taxpaying slaves, many of whom ostensibly believe they are free and sovereign citizens of a sovereign "nation," as collateral, to conjure what they claim is 'money,' but that which is really debt (since there is nothing of inherent value backing it), from thin air, leveraging it up by many multitudes (money multiplier/deposit multiplier, derivative contracts and other forms of leverage can ratchet this debt up by a magnitude of a thousand times or more from the point of inception/creation), getting a nation to endorse it as monopolistic fiat (and enforce the monopolistic recognition of it as such for the payment debt, both public and private, via codified law and corollary enforcement agencies). 

 * The Federal Reserve Bank of Chicago, describing, by their own words, the ruse of Modern Money Mechanics (quote from Page 6, last paragraph):

"What they [banks] do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by [the amount of the "loan"]."


When was the last time you lent money to a friend and suddenly found you had more funds? 

Theoretically, and just for illustration purposes, even if 95% of loans go bad (or more), the fractional reserve bankers lose nothing. They created this fiat money from nothing and received the protection of the nation in distributing fiat monopoly currency. Not only do they lose nothing, they actually gain any real assets that were pledged as collateral to securitize most of the loans that went 'bad' - Harvest.

Repeat this process of Harvest by first inflating the money supply, getting people deeply indebted (many of whom weren't indebted before), and soon enough, with enough cycles of harvest, what belonged to many will be concentrated in the hands of a few, all via the sham that is fractional reserve banking.

It's the biggest scam in the history of mankind.

Once a person grasps this basic concept, they'll understand why events have taken place as they have (Bretton Woods*; Plaza Accord; Federal Reserve Act of 1913; closing of the gold standard in 1971*, etc.), and they'll finally grasp how a select few have rigged the game to be able to harvest assets continually, and concentrate wealth and power, by doing nothing other than maintaining Deep Capture of a nation's legislative and judiciary branches (and executive, in the case of the U.S.) of government.

*On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to gold. As a result, "[t]he Bretton Woods system officially ended and the dollar became fully fiat currency, backed by nothing but the promise of the federal government." This action, referred to as the Nixon shock, created the situation in which the United States dollar became the sole backing of currencies and a reserve currency for the member states. At the same time, many fixed currencies also became free floating.

Essay by Carmen Reinhart & Ken Rogoff

Shifting Mandates: The Federal Reserve’s First Centennial

It is probable that in 1913, while financial panics were not uncommon, high inflation was still largely seen by the founders of the Fed as a relatively rare phenomenon associated with wars and their immediate aftermath. Figure 1 plots the US price level from 1775 (set equal to one) until 2012. In 1913 prices were only about 20 percent higher than in 1775 and around 40 percent lower than in 1813, during the War of 1812. Whatever the mandates of the Federal Reserve, it is clear that the evolution of the price level in the United States is dominated by the abandonment of the gold standard in 1933 and the adoption of fiat money subsequently.    One hundred years after its creation, consumer prices are about 30 times higher than what they were in 1913. This pattern, in varying orders of magnitudes, repeats itself across nearly all countries.

StychoKiller's picture

Other than that, Mrs. Lincoln, how was the play?

TwoShortPlanks's picture

CNBC's reaction to Frezza's comment:

Did the Fed's decision to comment on ending QE mid to late 2013 come as a result of a ZH article showing a Derivative Ponzi?

Like Sprott said, "Suck and [fucking] blow" you motherfuckers!

Which leads me into my next question; God bless-em, but, exactly who is ZH, a sounding board for some think tank somewhere? Being one or two steps ahead of the game is one thing, being a dozen steps ahead is quite different.

Michaelwiseguy's picture

Zero Hedge + its commenters combined are a think tank, that's for sure.

SoundMoney45's picture

“Both force and money are impotent against ideas.”

Ludwig von Mises

TheFourthStooge-ing's picture


Now this is what ZH is all about. Not political horse-race/divide and conquer nonsense.

But documenting the financial crime in progress.

Fucken A.

This is the kind of reporting (journalists take note: reporting, not repeating) that is only found here. The biggest welfare queens in history (the league of TBTFs) are using their EBT (Extorted from Broke Taxpayers) gubmint handouts for gambling. They know that nothing will happen to them because the rackets they bet on are so complex that, even if the news media weren't already bought and paid for, not one reporter in ten thousand could figure it out, let alone explain it to an editor.

Incidentally, this article reminded me that about a year ago I made a donation to ZeroHedge and that the content over the past year certainly justified doing so again. While it wasn't much, it more than makes up for the lost ad revenue resulting from my computer bypassing the advertising. If you run any type of ad blocker when reading ZH, you might want to give it some thought. Just sayin...

Michaelwiseguy's picture

I sometimes click on ZH ads. ZH, Drudge, and Daily Paul. That's all.

1100-TACTICAL-12's picture

This scene alaways comes to mind when I see Liesman stupid ass , Bernak is the redneck.


nasdaq99's picture








Temporalist's picture


They just need more bank stress tests because those work so well.

disabledvet's picture

Fannie and Fred are/were the "driver of the getaway car." Lehman was Greenspan's comeuppance. The fact is recoveries are created by a "belief in the recovery" and while we can/cannot "be fools too" (try falling in love some time) the reality is those who are simply neutral will now spend what remains of their professional money management career (should be done by year end) simply explaining to the wall how "they know more than the market and that makes all of you wrong." As Bugs Bunny famously said "close Sesame."

TruthInSunshine's picture

disabled vet stated that "[t]he fact is recoveries are created by a "belief in the recovery"...

Focus on this, if you do now, or at some time in the future, believe it to be true (or more "truer" than not, at least):

No government agency or business association spokesperson is ever going to speak of the truth of how bad things are in the present, unless they have no choice because incontrovertible proof has already been released to the masses that would otherwise and obviously demonstrate their insincerity.

As long as "official datum" as published by the various governmental and quasi-governmental agencies/bodies allow governmental and business association spokespeople to understate the severity of our real economic crisis, they will, whether Democrats, Republicans or the chief economist for The National Association of Realtors.

No governmental employee (and especially no politician) will voluntarily relay how dire things may be (again, given a backdrop of "official" statistical datum that is inaccurate and relatively misleading they can fall back on) because they wouldn't want to upset the apple cart, cause further distress or even panic amongst the populace or within the "markets," and no business association spokesperson, whose very jobs entail, at least in significant part, a public confidence building role, will do anything to further dampen the confidence that their industry hope remains amongst potential consumers of their products (e.g. would a spokesperson for the NAR really come out and say that existing homes are selling quickly because inventory is being artificially constrained by GSEs and federal reserve policy and also due to federal reserve monetary policy that has a huge % of listed homes being purchase by investors for cash in an attempt to produce yields in a yield-starved economy - BECAUSE of federal reserve monetary policy? What impact would that have on the confidence of conventional, prospective existing home purchasers, who might then realize there is no true present price discovery and that another leg down is more than possible?).

In other words, they lie because our economy is dependent, in quite a large degree, on an illusion that is often referred to as the "confidence fairy."

If those people who still have the means to purchase a particular service or good feel confident about the security of their own jobs and the current & likely future state of the economy, they're more apt to go ahead and dig themselves into more debt or pay cash to purchase that service or good, regardless of the accuracy (and realism) of their "confidence level."

Conversely, if they don't feel confident about the security of their own employment situation and/or the current and likely future state of the economy, they're more apt to refrain from purchasing that good or service, and save instead, in preparation for what may lay ahead.

And this is why, without exception, throughout history, the masses do not understand there is a crisis until well after it has already begun, and they've already committed to many purchases, indebtedness and other forms of dis-saving, that they wouldn't have committed to had they known accurate information sooner.

Hence, the "confidence fairy," which governmental employees, politicians and business spokespeople all actively perpetuate in their own methods and by various tactics, is a serial and mass killer of efficient markets and rational economic behavior (as it severely distorts essential economic information that is relied upon by economic and market participants).

Go Tribe's picture

They're afraid to let banks run on their own two feet, and they're afraid to pass a federal budget. What the HELL is wrong with this shit-hole country?

Ima anal sphincter's picture

The country is not a shit-hole, just the people who run it. Get rid of these pukes and we could be back on our feet in 6 months. Of course...... there would be a WHOLE lot of people still alive in the Middle East if we did actually take this thing back. (If "they" can choose to kill so freely, shouldn't we have the same option? My enemy wears pin stripes, not turbans.)

Winston Churchill's picture

They lost their legs in a tragic re-hypo accident in the City.

They are so insolvent when counting their hidden contingent liabialities just on

RMBS and HELOC's that it will take 32 years(my estimate)at least to have

a real positive balance sheet value.

My estimate is based on $16T divided by $45bn per month.

Whereas  the $16T is what the FedRes added in backdoor liquidity to TBTF.

Might be more,but several forensic accountants came to the same number seperately and

tallies with the sudden increse in Cayman deposits over the peak period of the RMBS

Ponzi scheme..The original money was outright stolen from the beginning,and

those contingent liabiaty's arrise from the banks contractual income stream payments

to the REMIC trusts.

Anusocracy's picture

FEDocracy - the art and science of running the circus from Ben Bernanke's monkey cage.

Adapted from M. Twain

cranky-old-geezer's picture




Anyone on ZH still believing the Fed is a bunch of idiots trying to help a bunch of chronic gamblers stop gambling by buying their losses, giving them more gambling money, are themselves idiots, deserving as much ridicule as MSM idiots.

Anyone here still not seeing it's a well planned looting spree, going according to plan, is ...well, just a fucking idiot.

Anyone who's been here a while and STILL doesn't understand how wealth is stolen from the masses quietly, silently, via currency printing, and transferred to recipients of said currency, is ...well just fucking hopeless.

Everyone waits for some gun confiscation event to launch their (alleged) "revolution".

It'll never happen on the scale they're looking for, meanwhile they don't seem to care that they're being looted to poverty.

Confiscating their precious guns would set off a "revolution", but looted to poverty won't, because it doesn't happen all at once?

Not even retirement account confiscation will do it.  They'll just sit around bitching about it, blogging about it, that's it.

America isn't worth saving.  Americans aren't worth saving.  Sheeple aren't worth saving.  

Gun-owning sheeple aren't worth saving either.

Bankers will win.  They're winning now.  Obvious, blatant, in your face winning.  Looting America right out in the open now, and bragging about it.  

I'm preparing for 3rd world conditions here in America, because that's where bankers are taking this country.

Anyone who STILL doesn't see it is ...well, just fucking hopeless.

centerline's picture

Well said.  LIES-MAN just sucking the dick of the system like so many other whores.

I say let these wankers have thier way.  Round up the best and brightest of the reach-around-pack and give them everything they want.  Carte Blance.  Go for it.  Put your money where your mouth is (lol - nasty thought considering the imagery posited above).

kchrisc's picture

Great comment, great observation.

Jake88's picture

Liesman is both corrupt and stupid.

Harbanger's picture

The chimp has a BA in English and a Masters in "journalism" from Columbia.  WTF does he know about economics?

TheFourthStooge-ing's picture


The chimp has a BA in English and a Masters in "journalism" from Columbia.  WTF does he know about economics?

He knows that he follows the TBTF script to the letter, as any deviation would leave him both unemployed and unemployable.

That's the only economic understanding that his position requires.

azzhatter's picture

he is a journalist punk from columbia

Steverino's picture



Just about what we should expect from a guy who holds a M.S. from Columbia University Graduate School of Journalism and a B.A. in English from the State University of New York, Buffalo.

CPL's picture

He's a heart attack waiting to happen.

Perpetual Burn's picture

Any one else think Steve being so aggressive is a little  suspicious  ?


Is there a under lining agenda? 


NoDebt's picture

Yes, it was a "hit piece". He knew he was going to roll right over him to make him look like a nut.  And Steve thinks he won, by the way.

My favorite part was the comment about "there's $2 Trillion dollars just sitting there, do you think nobody's going to try to use that money?"  You could almost see Steve putting it together as he was answering "They're not allowed to use that money for other purposes."

Right.  I believe that.  The Fed keeps pushing on that rope for no reason, right?  Just to pile excess reserves higher and higher.  Now, you TBTF banks don't do anything foolish with that money now, OK?  Uh huh.

It's a damned engraved invitation to fraud.  They got away with the mortgage fraud with no banksters going to jail and a slap-on-the-wrist of $8 billion in fines (just announced today).  You think they wouldn't do this, too?  Absolutely they would.  No question about it.  Fed knows it and they want it to happen or they wouldn't just be plowing all that money into the dead-end of excess reserves.