Business – Economics – News

Surprise surprise, just kidding.  You give bankers cheap or free money and they will find a way to make profits, you can trust in that.  We should not be surprise that is happened, bankers are great are making money when things go up and when they tumble down.  We should have all heard about Goldman Sachs and the risk control strategy of shorting the investments they were selling to their sophisticated investors.  According to Reuters, bonuses rose by an average of $123,00 last year, at the rate it will double in just over 5 years time.

Comptroller Thomas DiNapoli said on Tuesday profit for all of Wall Street could top $55 billion for 2009, nearly triple the previous record year. Last year, the U.S. economy began to stabilize as lenders raced to repay federal bailout money they had come to view as a stigma.

Average taxable bonuses on Wall Street rose to $123,850 in 2009, DiNapoli said in a statement. Compensation at Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley, three of New York’s biggest banks, rose 31 percent, he added.

The comptroller’s annual report on Wall Street pay is closely watched not only by Wall Street, but also by politicians eager to rein in runaway pay in a still-weakened economy where unemployment remains high and tax revenue remains depressed.

While bonuses are well below the level set in 2007 and are now more closely tied to company performance, DiNapoli acknowledged that many may consider them out-sized given the lingering problems in the economy.

Analysis: The “Too Big to Fail” doctrine was a failure in itself, sure we averted financial disaster but at what cost?  We should of taken the pain and let those banks go bust so the next generation of banks do have the expectation that Governments will stand ready to save your bank if you make bad decisions even if it was the profitable and most popular one at the time.  We have set ourselves up for this to happen again and it will be much sooner than later.

This is a very serious solution and a growing and very real problem.  Representative Mike Pitts has put a Bill (H. 4501) forth that would ban U.S. federal reserve notes (dollars) as legal tender in the state of South Carolina.  It may just be symbolic because of the massive deficit spending.

Since the federal reserve was established in 1913, the U.S. dollar has experienced a continued de-valuation by the issuance of more currency than has been required over the last 97 years.  This solution may be a little extreme but with the amount of spending and unfunded liabilities, it may be time to send a message that something needs to be done.

South Carolina Rep. Mike Pitts has introduced legislation that would mandate that gold and silver coins replace federal currency as legal tender in his state.

As the Palmetto Scoop first reported, Pitts, a Republican, introduced legislation this month banning “the unconstitutional substitution of Federal Reserve Notes for silver and gold coin” in South Carolina.

In an interview, Pitts told Hotsheet that he believes that “if the federal government continues to spend money at the rate it’s spending money, and if it continues to print money at the rate it’s printing money, our economic system is going to collapse.”

“The Germans felt their system wouldn’t collapse, but it took a wheelbarrow of money to buy a loaf of bread in the 1930s,” he said. “The Soviet Union didn’t think their system would collapse, but it did. Ours is capable of collapsing also.”

Analysis: The winds are changing about our dollar system and if we want to have no real constraint in the about of currency being issued and if we are okay with constant inflation no matter what and never allowing deflation or real corrections in the economy without some knee-jerk reaction from the congress.

A nice little bombshell with BAE admitting it was using corrupt practices to lands arms deals with various governments.  Funny how they refused guilt for over two decades and now they decided to come clean.  It looks like they oversold some expensive defensive systems to quite small countries.  In the details they only admitted to accounting fraud so they would not be blacklisted for future arms contracts

The arms giant BAE today agreed to pay out almost £300m in penalties as the company finally admitted guilt over its worldwide conduct in the face of long-running corruption investigations.

For 20 years, the firm had refused to accept any wrongdoing, despite mounting evidence of alleged bribes and kickbacks, much of it uncovered by the Guardian.

But BAE said it would plead guilty to charges of false accounting and making misleading statements in simultaneous settlement deals with the Serious Fraud Office in the UK, and the department of justice in Washington.

The admissions in the US covered BAE’s huge £43bn al-Yamamah fighter plane sales to Saudi Arabia, and smaller deals in the Czech Republic and elsewhere in central Europe.

Analysis: The world of Arms dealings is still a shadowy stigma about them with all the backroom dealings that the public never sees.

Well this was done in the middle of the night and the funding cap is no more.  Looks like we are now going to support these failed institutions to an unlimited amount with an exposure of over $5 trillion (with a T) dollars.   We are still making loans to people that really should not have one because of the lack of equity they put into the deal.  If we are going to have a policy of home ownership in America then we should focus on creating jobs that can support a normal mortgage not providing financing to people who will struggle to own a home.

The Treasury Department has removed the $400 billion financial cap on how much money it will provide to the beleaguered mortgage giants Fannie Mae and Freddie Mac, a step taken to keep the companies from failing. So far, taxpayers have shelled out $111 billion to the pair.

Yesterday, Treasury officials said the cap would be replaced with a flexible formula. The goal is to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.

Fannie Mae and Freddie Mac provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages.

Without government aid, the firms would have gone broke, leaving millions of people unable to get a mortgage.

The biggest headwind facing the housing recovery has been the rise in foreclosures amid high unemployment. The Treasury’s latest move could allow Fannie and Freddie to play a bigger role in restructuring mortgages for troubled borrowers.

Analysis: This is going to cost the taxpayers dear.  It looks like economic headwinds are coming back and that could push more mortgages into default and that would make the GSE’s have to tap the Treasury to make good on their bond payments.

Sorry about the delay since my last post.  Its been a busy new year.  This is a pretty important piece of news that has not gotten much play in the media but it has major implications.  In December, the Gulf Monetary Union Pact (GMUP) took effect.  This looks to be the first step on creating a single trading currency for crude oil coming out of the Middle East.  The dollar has been to sole currency almost all commodities have been traded in and this is a reason we have been able to run huge budget deficits compared to the rest of the world.

When you have to trade your currency in for U.S. dollars to transact an oil purchase, it creates demand for dollar no matter what.  If now you have a competing currency that 40% of the world’s oil can be traded in directly then you are opening a situation where the dollar is not in as much demand and that would mean with all these extra dollars being printed with our excessive federal spending, the value of the dollar with fall dramatically.

A Gulf monetary union pact took effect on Tuesday, the Kuwaiti finance minister said in a move that brings the energy rich region closer towards launching its own single currency.

“The Gulf monetary union pact has come into effect,” the finance minister, Mustafa al-Shamali, was quoted as saying by the official KUNA news agency.

“Accordingly, GCC central bank governors will work out a timetable for the establishment of the Gulf central bank to ultimately launch the single currency,” said Shamali.

Under the pact, a Gulf monetary council to be established early next year would develop into a central bank which would then take the required measures to issue a single currency.

Analysis: If this takes place into a single trading currency we will see further declines in the U.S. dollar and either major tax hikes or spending reduction we “have” to happen in the United States.

The AIG & Goldman Sachs saga is getting more interesting by the week with more information coming to light for analysis.  Here is a Wall Street Journal article about how Goldman Sachs was the middleman in many of these credit-default swaps (CDS) and in the transaction where it took the liabilities on their own books they used AIG to insure against the risk of default.

What is even more interesting is when they insure against AIG defaulting when they had such a large amount of risk with a single counter-party.  It makes one wonder if they knew that AIG was in over its head and that because of the amount of liabilities this is why the government bailed out AIG CDS bets with Goldman Sachs being the largest recipient.  So is it true the Goldman Sachs was actually insolvent until they got bailed out?

The trades yielded Goldman less than $50 million in profits, which were mostly booked from 2004 to 2006, according to a person familiar with the matter. But they piled risks onto AIG’s books, which later came to haunt the insurer and Goldman. The trades also gave Goldman a unique window into AIG’s exposure to losses on securities linked to mortgages.

When the federal government bailed out the insurer, Goldman avoided losses on its trades with AIG covering a total of $22 billion in assets.

A Goldman spokesman says that up until AIG was rescued by the government, the insurer “was viewed as one of the most sophisticated financial counterparties in the world. It wasn’t until the government intervened in September 2008 that the full extent of AIG’s problems became apparent.”

“What is lost in the discussion is that AIG assumed billions of dollars in risk it was unable to manage,” the Goldman spokesman added.

Analysis: This is more and more started to smell like a cover-up of a much larger fraud that needs to be investigated further.  The WSJ has taken it this far and now its time for the FBI and DOJ to take the ball in run.  It is very unlikely that our entire financial meltdown was caused entirely because of incompetence and lack of knowledge over the risks of these new “financial innovations”.