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Letters by a modern St. Ferdinand III about cults

Gab@StFerdinandIII -

Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Wednesday, April 22, 2009

The Prophet and Friends propping up their benefactors – the big banks

Wall Street gave the Prophet $40 mn over 4 years – they expect a return on that investment.

by StFerdIII

But it won't work. The US banking system, regardless of what the Prophet and friends state, is facing disaster. The IMF released an accurate assessment of the true state of US banking – another $3 Trillion of bad assets needs to be written off, and another $300 billion of equity is needed as extra capital. The American–Obamed idea that government can print money, raise debt and hand a few trillion to the banks to sort out a set of problems which have gestated for 60 years is frankly dumb, or as dumb as the US Senate Bank Chair, Barney Frank.

$40 million in Wall Street money over 4 years does a puppet make. The banks must expect a return on their investment in the Great Prophet. Wall Street and big banking was the largest financier of the Prophet's divine election – beating out the oligarchs of Silicon Valley who finished a respectable second in financial prostration to the divine One. So the Obamed, last in a long line of inspired Messengers, has to keep his friends and the nexus of big government and big banking in concert and in balance. To keep their financiers in their plush financial offices, the Obamed's have begun the nationalisation of banking. This policy is to safeguard the intertwined and corrupt relationships between government and politics. A fact which is inimical and dangerous to, the American political system.

Banking is already a part owner of the Democratic party – a political entity which receives two times more money from the monied interests and financial houses than the Republicans. Along with unions, and government bureaucrats, the banks compete for power and leverage within the Democratic caucus. The problem is that the US political system – already deeply corrupted – is too tangled up with finance. Nationalising banks, which is what the Prophet and his friends are overtly doing, will only make this deep seated corruption far worse.

For instance the Prophet, Barney Frank and Chris Dodd received literally millions of dollars from the state owned and quite bankrupt mortgage institutions Freddie Mac and Fannie Mae in the past 5 years. Both of these firms together, controlled some 55% of the US mortgage market, and had government mandates to increase lending to minorities and politically preferred groups. Frank recommended Fannie stock in August 2008 – two weeks before it signaled that it was bankrupt. Both Fred and Fan 'passed' government stress tests, with Freddie Mac's CEO Raines even claimed that the mortgage lender had enough capital to survive the worse case scenario or 'nuclear option'. A few months later it was bankrupt. Raines ended up being the Prophet's economic adviser on housing.

Yet there are no investigations or proceedings against Frank, Dodd or the Prophet. The overt corruption is legion and damaging. Banking is the second most regulated industry after pharma. Banks have every incentive to buy off politicians and regulators like Frank, Dodd, or the Prophet. Yet these regulators did nothing to stop the financial scam, and did everything to inflate the housing bubble. Subsidies to home builders; home buyers; minority targets; no money down; turning a blind eye to derivatives; 'Community acts' which mandated home ownership in certain areas and cities; low interest rates.....all of these and more are government distortions and displays of incompetence. Yet we are told that the 'market failed.'

Well it did fail – thanks to government. Now the US government is in train to spend upwards of $3 Trillion on the banking system, to keep alive dead assets in dead banks. The best solution and one that the Bush administration refused to consider is the only one which works – an orderly bankruptcy for those banks too weak to survive and the investigation and indictment of every politician and bank CEO which was a part of this gigantic, state funded fraud.

Simon Johnson, a former high ranking IMF official, wrote a great piece in the Atlantic magazine, on the corruption between politics and banking in the US and the failed policies which led to this economic contraction. He also makes a correct comparison between corporate fasicsm or state crony capitalism in emerging markets, and what has transpired in the US for the past 25 years:

“But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of home ownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful.”

According to Johnson, the US banking system share of total US corporate profits went from a 16% historical average to 41% in recent years. With these profits came more power, and more political control. The US has re-created the banking Oligarchy so prevalent in the 19th century. Banking crises and land value collapses are not new in US history. Neither is the all-powerful banking 'class'. But it was only recently that financial-government 'cronyism' became a large and massively distortive fact in US socio-political affairs.

And the Obamed policy set will only make matters far worse.

Currently the US government is a part owner of every major bank. It has invested $2 Trillion in US banks. You can bet that another $ 1 Trillion is going to be spent to make sure that the largest supporters of the current administration are not thrust into bankruptcy. The US government currently owns about 15% - 25% of the US banking system, based on the total net assets that this industry now possesses. This ownership level will increase as the US government converts their preferred stock into common stock and injects yet more capital into the banks.

The IMF maintains that $300 billion is a minimum level of new capital requirements for US banks. This is a minimum. Other analysts say $1- 2 Trillion is more likely to be needed. At least $3-5 Trillion in bad assets exists in US banks and needs to be written off. The US banking system – regardless of the lies now parading as balance sheets – can never in the short term, produce anywhere near enough profit to cover these write-offs. So where will the necessary capital of some $1 Trillion come from ?

Private money is a far better means to increase the bank's asset strength. But what private investor is going to invest in a Citi Group banking model, which is 39 % owned by the government ? Government's are arbitrary. They change the rules, the tax code, and the regulations at whim. Not many investors or large institutions are going to take the risk of losing their money – especially those not favored by the ruling Democrats - by blindly throwing capital into a government managed mess.

One of the great challenges of a post-Prophet world will be for the Americans to disentangle Wall Street from the ruling political class. This is a necessity, but how it will be done and by whom is a mystery. Both major US parties and especially the Democrats, are on the payrolls of high finance. It will take an Andrew Johnson, or perhaps a T.R. Roosevelt to smash the unholy alliance which distorts US political-economy and which leads to disasters like the current government-banking inspired economic retraction.

In any event without reform and an end to the nexus of big government and big banking corruption the US will come to resemble Europe and third rate emerging markets. The Prophet is thus part of the problem not the solution and the only hope for change, is that he and his friends are ousted from office as soon as possible.

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