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A New Approach To Regulating Wall Street Could Be More Than Wishful Thinking

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Bob Chapman
International Forecaster
Friday, January 29th, 2010

The return of Paul Volcker, bailed out banks out of touch, greedy and arrogant and are due for a change, can there be jail time for Wall Street gangsters? Other countries in a fragile economic state, just as ours is, Bernanke bailed out himself, SEC secret files.

Paul Volcker is back and things are about to change in Washington. A split has occurred between the paper forces of Goldman Sachs and JP Morgan Chase. Mr. Volcker represents Morgan interests. Both sides are Illuminists, but the Morgan side is tired of Goldman’s greed and arrogance. Volcker cannot be called old school or anachronistic. He represents sanity in an insane financial world even though he is an integral and powerful part of the elitist structure. He represents a change in gears and approach. The present administration and the Democratic Party has lost its moorings and is in on a path of political suicide. They have tried to get passed impossible legislation that the American people do not want, and they will abandoning those positions, because they are no longer tenable. The election of Scott Brown in Massachusetts was a major defeat for all administration programs. As you will see Mr. Obama and fellow Democrats will start sounding like popular conservatives and populist talk show hosts, as they attempt to win back their center. That is where Paul Volcker fits in. He is back and major changes are about to take place financially and politically.

Goldman Sachs, Citigroup and others in their greed have lost touch with economic and financial reality and they looted the system. Not that JP Morgan chase was blameless, they did their looting and damage to the system as well, but not in the high handed arrogant way the others did. The recall of Volcker is an attempt to reverse the damage as much as possible. That means the influence of Geithner, Summers, Rubin, et al will be put on the back shelf at least for now, as will be the Goldman influence. It will be slowly and subtly phased out. One of the things we have always believed is that Volcker was never out of touch. He is brilliant, brash, irreverent and successful.

There is a real split that has developed over the past year between the Morgan and Goldman forces. For Goldman it has been a difficult year; they got caught stealing. First in naked shorts, then front-running the market, both of which they are still doing, as the SEC looks the other way, and then selling MBS-CDOs to their best clients and simultaneously shorting them. Such unethical, despicable behavior is criminal. As criminal as Berkshire Hathaway’s $100 million fine for fraud, but no jail time for the crooks, which includes Warren Buffett. As a result of the antics of Goldman and Buffett, Washington needs a new face on Wall Street, not that of a criminal syndicate. Mr. Obama and the Democrats need a cleaner Wall Street, that can be respected, and that can assist the administration of strong markets, higher employment and sustainable economic recovery. An economy that has floundered and made little gain in spite of a major infusion of stimulus, bailouts and $13.7 trillion in monetary injections.

The attempt will be to bring the financial system back to brass tacks. No more arrogant fat cats. A subtle quieter Wall Street. Stability is what is needed and Volcker can bring that if he is allowed too. That would include little or no MBS and CDOs, the regulation of derivatives and hedge funds and the end of massive market manipulation, both by Treasury, Fed and Wall Street players. Congress has to end the “President’s Working Group on Financial Markets,” or at least limit its use to real emergencies. Needless to say, the Fed has to be eliminated and that power returned to our Treasury Department as we close the revolving door between Wall Street and Washington. In a new terrible wrinkle the recent Supreme Court decision allowing corporate America to buy politicians has to be reversed by Congress ASAP. The SEC and the CFTC have to stop aiding and abetting Wall Street and become protectors of the investors. If that cannot happen they should be replaced by quasi-government entities that will catch the crooks on Wall Street and really punish them. Not with fines but with time in jail. The Glass-Steagall Act should be reintroduced into the system and lobbying and campaign contributions should end. How is that for cleaning house?

Securities firms should not be allowed to be or own banks, and insurance companies. Banks, insurance companies and brokerage firms should only be allowed to control a portion of their markets. No more monopolies and no more too big to fail. All books at corporations should always have to mark-to-market, not mark-to-model and two sets of books should be banned. The BIS and the FASD should be allowed to set guidelines that protect the public as well as participants. What we have now is political force. Fannie Mae, Freddie Mac, Ginny Mae and FHA should be sold to private interests. The government should not be in the insurance or real estate business. No more politics in lending and banks should be limited to a lending ratio of 10 to 1. If they do not comply they should be shut down. It is bad enough they have the leverage that they have. State banks such as North Dakota’s are a better idea.

  • A d v e r t i s e m e n t

This brings us back to the administration and Mr. Volcker. We know they cannot accomplish these changes; only a few would be helpful. It is obvious there will be little or no recovery and solutions have to be found for immediate problems. We see no way the current credit mechanism can reinvigorate what is left of the system. The money machine will be allowed to because the minute it is turned off the game is over. Mr. Volcker is well aware of that. It could be that will be his solution as it was in the early 1980s. The politicians, particularly the Democrats and the administration are outraged at what Wall Street has done, particularly Goldman Sachs. There are many changes coming and we will have to try to anticipate which way things are headed.

A New Approach To Regulating Wall Street Could Be More Than Wishful Thinking  190110banner4

We believe the Treasury Department is in desperate demand for investors to buy Treasuries. After many years the world has finally awakened to the fact that the US is broke and has been for a long time. Now fewer and fewer investors consider Treasuries as a safe haven. Who in their right mind would buy a Treasury bill with a negative or zero return? We would guess because the buyer perceives them to be safe, perhaps willing to lose some 7% to 8% to inflation. These sales are averaging $50 billion weekly. As the buyers dry up and in order to avoid Fed purchase and monetization, government is eyeing your retirement investments to be the source of their new annuity scheme. This past week the PPT allowed the market to fall just to scare investors into buying Treasuries. It fell 552 points in three days from 10,725 to 10,172, in an atmosphere where for a long time, via the PPT it has been controlling the market. Something serious is definitely up and we probably are approaching the next wave of trouble. We are not alone. Japan is wobbling; China has gone too far with stimulus and is facing hyperinflation, and the eurozone could be facing a breakup, a reduction in size, and perhaps eventually a total breakup. These problems and all the problems in G-20 countries we need like we need a hole-in-the-head. They have all made the same stupid mistakes. We could be facing a perfect storm, and this time it won’t be different; it will be worse. History tells us it will be worse. This is not bad judgment or incompetence it is a takedown of the world economies and financial structure in order to implement World Government. It has been tried over and over again for centuries for the past more than a thousand years; the attempt to bring back the control that the Roman Empire once had for longer than their 500 year reign. Empires collapse and have over this period in time in part due to greed and power, the power to control people. The theme is not the mismanagement of markets and things fiscal and monetary, but the deliberate takedown of today’s financial structure. In history have you ever heard of financial experts collectively in total buying AAA rated bonds that were Triple B? Can their attorneys not read the fine print? Of course they can. Or have you ever heard of lenders lending 40 to 70 times underlying assets, deposits, when 8 to 10 times is normal? Of course you haven’t, because it is prescription for destruction. Why would lenders simultaneously do such things? Because they were acting in concert to take down the system. There are only a handful of writers who recognize the true meaning of what is happening to our civilization. That is because other writers want to be accepted by their peers and within their society. They do not want to step outside the limits; they do not want to end up in an internment camp. That is why they are seldom correct and why we have the problems we have today. All the economic and financial answers do not add up, don’t work, if you truly understand what is going on behind the scenes.

Tiny Tim has warned us again, like his predecessor Henry Paulson, that if you do not reappoint Helicopter Ben then the market will collapse. This again makes it plain that we live in a corporate fascist thugocracy. This gives even greater importance to auditing the Fed and abolishing it. We need US notes, not Federal Reserve Notes.

The Senate results in Massachusetts have really thrown a monkey wrench into the plans of the Democratic Party. No Cap & Trade, perhaps no medical reform, no immigration reform and not enough votes to pass a new limit of debt of $14.294 trillion. In order to service such giant debt, official short-term Fed rates have to be kept at current levels.

States, provinces, cities, towns, counties and Federal Governments worldwide are in debt for more than they should be and are suspects for bankruptcy. Remember as famous economist Franz Pick once told us that debt paper is guaranteed certificates of future confiscation. Almost all governments have followed the lead of the G-20 trying to stimulate their way out of recession or depression.

Governments within the US are in terrible shape financially. The federal government has unfunded liabilities for pension and medical benefits of some $3 trillion. The November trade deficit was $34.6 billion. The December deficit is $91.9 billion, almost double year-on-year. Quarter-on-quarter the deficit was 17% higher. The deficit for October 30, 2009 was $1.4 trillion and 2010’s deficit will be higher than $1.70 trillion. No sane person would buy government bonds after looking at these numbers. You might say this is the future and we do not like the looks of it.

During this past week the Dow lost 4.1%, S&P 4.3%, the Russell 2000 3.4% and the Nasdaq 100 fell 3.9%. Banks slipped 0.8%; utilities 1.4%; high tech 4.5%; semis 4.6%; Internets 4.2% and biotech’s 2.2%. Bullion sank $36.00 and the HUI fell 8.6%. The dollar gained 1.3% to 78.29.

Two-year T-bills fell 7 bps to 0.75%; the 10’s fell 7 bps to 3.59%; the 15’s fell 5 bps to 4.40% and the one-year ARMs fell 7 bps to 4.32%. The 30-year jumbos fell 6 bps to 5.96%.

Fed credit increased $5.1 billion to a 52-week high of $2.231 trillion. Year-on-year it is up $181.6 billion. Fed foreign holdings of Treasury and Agency debt fell $5 billion to $2.946 trillion. Custody holdings for foreign central banks rose $405 billion or 15.9% yoy.

M2 narrow money supply fell $9.4 billion to $8.452 trillion.

Total money market fund assets fell $46 billion to $3.240 trillion. Year-on-year that is off 16.8%.

In Friday’s FDIC Financial Follies, five more banks went under. All were absorbed by other institutions. Last year 140 failed. It could be as high as 1,000 to 2,000 over the next 1-1/2 years.

Ben “Helicopter” Bernanke has supposedly been bailed out by the White House and the Senate Republican leadership, with Republican flex-spending accounts to buy off Senators. Corporate America owns our country and almost all incumbents have to be thrown out of office in November from both parties. Again, Americans strongly oppose the reappointment of Mr. Bernanke, but that doesn’t mean anything in our corrupt government. Let’s make sure the political spin doesn’t work anymore. Scream at the top of your lungs non-confirmation and the resignation of Geithner.

We found it of great interest that the SEC has disclosed in an e-mail to the Fed that they keep secret financial records related to national security that only two people at the SEC are allowed to access. We heard of such files 30 years ago from our sources in Washington, but were never able to get concrete confirmation. We have been told it is not only for financial records, but regarding individuals as well. We have been a political target of the SEC since 1967. We believe this same safe holds the records pertaining to the manipulation of all markets by the “Working Group on Financial Markets.”

 Senior executives from J.P. Morgan Chase & Co. also got involved. Rainmaker James B. Lee, who serves as a firm vice chairman, and Jes Staley, who runs the investment bank, each placed calls to senators over the weekend urging support for Mr. Bernanke, according to a person familiar with the situation.

Obama and big-government socialists still don’t get it. Instead of restructuring the US economy and recharging the small business jobs machine, they will try to bribe voters with chump-change tax credits and cost-hike mandates on businesses, which will retard job creation. It’s Sen. Brown’s fault!!

President Obama will propose in his State of the Union address a package of modest initiatives intended to help middle-class families, including tax credits for child care, caps on some student loan payments…the president is calling on Congress to nearly double the child care tax credit for families earning less than $85,000…But the credit would not be refundable, meaning that families would not get extra money back on a tax refund.

Another of the president’s proposals, a cap on federal loan payments for recent college graduates at 10 percent of income above a basic living allowance, would cost taxpayers roughly $1 billion. The expanded financing to help families care for elderly relatives would cost $102.5 million — a pittance in a federal budget where programs are often measured in tens if not hundreds of billions of dollars.

President Obama has also proposed an innocuous deficit reduction plan that would reduce the budget deficit $25B per year for 10 years, if all those rosy projections come true. They seldom do.

The plan entails freezing $447B of discretionary domestic spending, which is only about 1/6 of the budget. The freeze would NOT include military, foreign aid, national security and mandatory-spending programs such as Social Security and Medicare.

This article was posted: Friday, January 29, 2010 at 5:50 am





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