How Do We Fix A Broken Financial World?
By Susie Madrak Sunday Jan 04, 2009 2:00pmOur leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.” - Michael Lewis
In today's New York Times, Michael Lewis, author of "Liar's Poker" and "Panic: The Story of Modern Financial Insanity", looks at the systemic intertwined interests (like the don't-rock-the-boat SEC) that kept Wall St. embroiled in such questionable and risky practices. As just one example among many, he points to the man who tried to stop Bernie Madoff for years:
... Consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.
In his devastatingly persuasive 17-page letter to the S.E.C., Mr. Markopolos saw two possible scenarios. In the “Unlikely” scenario: Mr. Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers. A customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.’s shares rose, Mr. Madoff kept them; if they fell he fobbed them off onto the poor customer.
In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.
Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999. He had no direct financial interest in exposing Mr. Madoff — he wasn’t an unhappy investor or a disgruntled employee. There was no way to short shares in Madoff Securities, and so Mr. Markopolos could not have made money directly from Mr. Madoff’s failure. To judge from his letter, Harry Markopolos anticipated mainly downsides for himself: he declined to put his name on it for fear of what might happen to him and his family if anyone found out he had written it. And yet the S.E.C.’s cursory investigation of Mr. Madoff pronounced him free of fraud.
Of course, Madoff was a relatively small part of the culture:
The American International Group, Fannie Mae, Freddie Mac, General Electric and the municipal bond guarantors Ambac Financial and MBIA all had triple-A ratings. (G.E. still does!) Large investment banks like Lehman and Merrill Lynch all had solid investment grade ratings. It’s almost as if the higher the rating of a financial institution, the more likely it was to contribute to financial catastrophe. But of course all these big financial companies fueled the creation of the credit products that in turn fueled the revenues of Moody’s and Standard & Poor’s.
These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.
This is a fascinating piece, with lots of advice about what needs to be fixed to restore confidence in the financial system. (As you may have guessed, nothing substantive has been done yet.) Go read the rest.
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How do we fix a broken financial world? I don't know, but in the meantime I'd advise you to convert as much as you can into cash, stuff it into large coffee cans, and bury it all deep in your back yard. That's what I'm going to do.
...convert it to euro's or gold or silver (even better)...
The FED is fixin' ta print tractor trailer loads of that soon to be worthless "cash" that we call the "American dollar"
...did you ever hear of the weimar republic in germany?
http://en.wikipedia.org/wiki/Inflation_in_the...
If it gets that bad, then we're all screwed.
In the meantime, this will cheer everybody up:
http://smokingmirrors.blogspot.com/2007/08/do...
If you need a good hook-up for the silver coins, check out my website:
Silverrockstheworld.com
Here's a little primer video on silver:
http://www.youtube.com/watch?v=aa-8g6Dv8Ow
Not confidence, foreign debt. We are way out on the credit card limb, 3 trillion and counting. It is only a matter of time before the world says no more.
That is very simply why we will not be able to spend (or invest call it what you like) our way out of this mess. China alone holds 2 trillion of our dollars, sterilized sitting there doing nothing.
The answer is simple but not popular, tighten the belt, stop spending. It's what we do personally when we are in over our head, it's no different on the national scale.
And the only solution any of the political hacks have is to borrow more and spend more. AND it's coming from supposed expert economists. Wonder how many people on the verge of bankruptcy these clowns tell to fix the mess by borrowing more?!?
When you are painting with illusions and pure imagination... anything is possible.
http://www.youtube.com/watch?v=RZ-uV72pQKI
Look at what Willy did with it...
...is a system that runs and survives on growth; growth fueled by spending. If every American consumer stops spending, many more millions will lose their jobs - retail, auto industry, etc., etc.,.
This is why FDR (and soon Obama) implemented vast spending programs to create jobs so people would have money to spend and invest.
The problem with our kind of capitalism is that it is based on a fiat money system run by independently owned banks (the Fed) who charge interest on every dollar at the moment they put it into circulation - so we can never get out of debt.
that Wall Street Money can buy.
As for cash, it depends on which currency you are holding.
With Paulson the Plunderer, Bernanke the money printer and the BOMB (Bush Obama McCain Bailout) in tow, what is a poor person to do?
It will be dollars to dust.
We need a whole new Paradigm.
Period.
The dusty old antique economic systems of a few hundred years ago can not contain its negatives nor sustain itself in a viable environmental way anymore.
Communism and Capitalism are both total failures... and using systems like that is akin to being a crack head.
Sure we may be able to salvage some spare parts, like the air freshener, However to progress and survive as a species we need a whole new rigging.
We need to pace ourselves
You are absolutely right when you say a new economic paradigm is needed. There are those few who have benefited from the existing construct (yes, even during downturns they find profit), and from them you should expect nothing less than fierce and violent opposition to any change.
But they only power they hold over us is the power we ourselves give to them.
We put our own shackles on... We do this with out being told.
We can also remove them. I can remove mine, can you remove yours?...
Like Imo the Macaque it always starts with one... good thing for us many before us have already started the party for us.
The pain that this collapse is yet to cause is going to be a significant wake up call to those just starting to feel their fear.
Do we allow ourselves to fear hence enabling the masses to also do so?
The gravity of our will, should send out the correct posture for others.
Using the methods of our past teachers that have not been eroded over time, is the tool set we need for this next step.
IT is another step, it is that time right now.
Are we a species with heart?
or not?
Are we Human beings also... or just animals?
I think we will find out... I think were already almost facing the right direction...
We just have to keep turning that way... and ignore the petty clanging's, banging's, and certainly a few booms of those "few" who will not have their cannibalistic orgy interrupted...
Our govt,that we entrusted to regulate our capital markets failed.
Big bankers lobbied their way out from under all the regulations, and the SEC are a bunch of paid insiders.
It failed.
If your organs fail to remove filth from your body...
You DIE!
The system is dead. Its waste products are too toxic to be sustainable.
----
Seriously,
This is not the first time this sorta thing has happened... It happens every time, and is caused by the very same people...
However what is different about now.. is the levels of damage we are able to do with the smallest efforts, and the level of awareness in the common man masses ie: the host...
When the Rothschild's crashed the market with false Waterloo battle results then purchased it in its entirety... We were on horseback...and the mass of common man was supremely ignorant of such matters.
When it happened later with various other bastards, we should of done more, and then again.. and again and again and again...We were able to do some massive changes in the 30's to erect barriers against these monsters and their gluttony, however after 7 decades of more infection and more attacks those bulwarks are now breeched.
We need to slay this beast... We need to render it impotent.
That is if we want to survive.
We need to build a new system.. one that does not have the cancer that the model of Capatalisim has..
We need a totally new line of thinking.. a totally new approach...
Anything else would be akin to GM getting this loan.. then pumping out 3 axle Hummers with grass on the roof of it so you can absorb the CO2 you release as you drive..
Comon now...
...check out a site called The Zeitgeist Addendum on youtube for some ideas about how a new paradigm could come to fruition...worth thinking about.
endthefedendthefedendthefedendthefedendthefed
http://video.google.com/videosearch?q=end+the...
On the SEC Lewis says:
Economist James Galbraith describes the entire government as a 'Predator State'.
The last few years have revealed some seriously horrific results of its/our ... "feedings"
Privatizing rain for starters... Do we even have to move on to owning genetics?...
Naturally the list keeps going and going and going...
I don't need to fix the financial system.
Suggestion: Go toward the exits.
... Are they as cramped as they look?
Sounds like the title to this:
http://www.youtube.com/watch?v=COqUjfrB8dI
Consumer confidence, details about the global Ponzi scheme, endless tabloid reports about the criminals involved is just another smokescreen. Where the fuck is the DOJ and the criminal charges that should be laid against the failed elites who were responsible for this totally avoidable disaster?? Until this happens, it will just more of the same. Who to "blame"? How do we go forward?? Will Obama be able to save us from this crisis?? More Murdock-controlled blather to keep the teeming unwashed confused, dazed and distracted.
Banks and stockmarkets are institutions designed to channel wealth to the wealthiest 1% of the World.
Let them crash and burn. We will all be better off in the long run.
...but a very large number of us will be dead before that happens.
We should switch immeadiately to the 60 day month and keep all monthly payment the same.
happy.
After seeing how investment banks created the credit bubble and the commodities bubble, and then, when they lost their shirts, got American taxpayers to replace the money they had lost, investors will not be returning to the stock markets. They now realize that it is a rigged game, run by insiders who never lose. The markets will recover, but many market participants are either wiped out, or do not trust the markets any more.
i'd buy pharmaceuticals.
They have numerous advantages. They occupy very little space, so you can acquire and store many of them, and of course they are literally 'vital.'
statins, stuff like that...
The unemployed and the underemployed cannot afford a years worth of statins. Their diets also suck, as it's cheaper to eat unhealthy foods. Overall health of the populace will be poorer as the economy suffers. I would not invest in the Pharm industry.
It is a crisis of confidence because it is a confidence game. All confidence games end the same way. Ben Bernanke is a bigger version of Bernie Madoff, as was Alan Greenspan before him.
The math: Inflation and deflation complete a cycle. When deflation sets in, the confidence game is over, just as it was for Madoff when he ran out of new clients.
Additional math: all money is debt. Thus all debts can never be repaid, as interest is a factor of debt and thus debt created money.
Thus inflation and deflation complete a cycle.
Bernanke said he would not allow deflation to happen here. The math said he couldn't prevent deflation from happening here. Bernanke can argue with the math all he likes, but he will lose. 1+1=2. Bernanke can't change that, thus deflation is here and now. when it happened to Japan, the FED lie became that we were different than Japan. They didn't cut rates enough. They didn't act fast enough. With deflation here now, the lie is exposed. Japan may be different, but all credit bubbles have the same characteristics.
Yellin said they need to pull out all the stops. The math says that won't work. Pulling out all the stops may stall for some time, but it will not change the outcome. Deflation is the outcome of inflation, as every cycle has an up phase and a down phase. There is no arguing with the math.
So what!!!!
Property values continue to fall, foreclosures continue, banks have defunct mortgages and properties they are not even trying to sell because they have been bailed out.
We have financiers who created Collateralized Debt Obligations, Credit Default Swaps then even more synthetic CDOs leveraged at up 30 to 1 that have incinerated the financial systems of the entire world.
We are giving the Banks the money that they lost. We are bailing out the guys that were idiots.
The same rating agencies that failed so miserably in rating those junk CDOs as AAA are now advising the Fed in their purchase of every piece of junk they can find.
Give specifics, not platitudes.
Platitudes we get from the government.
We have deflation because in a credit crisis people without sufficient credit are ditching assets to raise cash.
It general markets we have a concurrent fall in demand, ergo falling prices. Commodities demand drops, prices drop.
When demand increases commodity prices will come roaring back. Exploration and development are being cut, it will be a double whammy.
In Japan the wages did not fall as much as much as prices, therefore workers actually did somewhat better.
Here, in the Great Depressions, the drop in wages exceeded deflation. For the 25% unemployed and no social safety net it was a complete drop off in wages.
But that was then, this time with Bernanke's 'quantitative easing' as he euphemistically puts it, we are very likely to have inflation, perhaps runaway.
Other Central Banks are on their own printing sprees so they can problems too, I don't know how that will affect us if at all.
It is a confidence game in the sense that when the world sees the light and loses confidence in us, thereby giving up on the dollar it will be very bad for us. It could even be hyper-inflation with the amounts Bernanke has pledged.
We have a very much petroleum based economy. Oil pegged to the Euro or the Yuan would be an entirely different ball game.
Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.” - Michael Lewis
reminds me of the little man behind
the curtain in 'the wizard of oz'.
The fact that the S & P, Moodys, Arthur Anderson, and the investment bankers were not doing their jobs became evident after Enron folded. Only Arthur Anderson was held accountable, but all of these players were complicit. Unfortunatley, it was easier to sweep the problems under the rug rather than deal with them. Until the rug could no longer cover the sweepings. Oh, I forgot, deregulation had laid to rest all the problems that big government had previoulsly created in this new world of individual responsibility and caompassionate conservatism.
Which is cheaper:
1. Piece by piece repair of a money pit, eventually replacing every part and propping it up in the meantime to avoid collapse.
2. Bulldozing it and built from scratch.
People and governments would rather spend trillions of dollars fixing a mess than ripping up the whole system and starting again because of the FUD Factor: fear, uncertainty and doubt.
What makes that worse is they said people and governments don't want to address the root causes of the problem that a clean slate would solve - especially those who are the problem (i.e. those not paying their share of taxes due to "deductions" or "tax exempt" forms of income like shares).
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