Archive for the ‘corruption’ Category

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A sad day for freedom

Friday, October 30th, 2009

UPDATE: It may not be as bad as it first seemed. Zelaya has to be approved by the Congress that booted him out so maybe little Honduras outsmarted the Obama people.

Well, it seems Obama and his cronies have forced Honduras to back down and allow the nutcase Zelaya back into a power sharing arrangement in Honduras. This is disgusting but one more example of the radical leftist inclinations of this president. I have previously posted on this topic and am still puzzled by Obama’s attraction to this crazy man.

Maybe the real friends of Honduras can figure out Obama’s angle. There has to be one. There is no sane person who thinks this is good for Honduras.

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Posted in corruption | 4 Comments »

Revisiting the history of the collapse

Sunday, October 25th, 2009

Last year, I posted a lengthy piece on the origins of the mortgage industry collapse and the role Congress played. I have since closed the post to comments to reduce spam. A reader found it and sent me an e-mail about a Frontline piece that is apparently full of lies. UPDATE: I should change this to say that it is not lying that is the problem but the inability of the writers to see the merits of a free market and a determination that only regulation, and by extension a command economy, can safely run the financial markets. Derivatives were not the problem. The problem was the inability to estimate risk because the GSEs, Fannie Mae and Freddie Mac, were pushing the envelope with government guarantees to their risky loans. Every step which should have warned of the risk was failing because the parties saw huge profits and, at the end of the day, a guarantee by the Treasury that nobody could lose. Moral hazard was rampant.

Typically, it blames the Bush people (actually Greenspan and shows Bush giving him a medal) even though the problems were begun under Clinton and Congress was the chief villain. Here is an example of Congress on the job. Note the tactic of hiding incriminating videos by claiming copyright violation. At least one is still visible.

Rush Limbaugh discussed it on his show and there is a link to the PBS show.

Ladies and gentlemen, they had to do what they were told. The federal government created policies that made them make these loans to people who couldn’t pay them. That’s what the subprime mortgage crisis is all about. The architects of that are Bill Clinton, Barney Frank, Chris Dodd, and a whole bunch of other minor bit players. ACORN’s involved, ACORN’s running around hassling banks if they don’t make loans to people. So now, after following mandated policy, federal law, the Community Redevelopment Act under Carter, it was put on steroids in the late nineties with Clinton and the bunch and that thing forced the banks to make these loans. And so these banks, after following orders, are now being blamed for the problem.

My point in my post was that both parties contributed and those who tried to warn or to rein in the out-of-control Fannie and Freddie were punished or warned of punishment. Ms Born was warning but she did not see that the real risk was government intervention in markets (Fannie/Freddie) not deregulation.

Or consider the experience of Wisconsin Rep. Paul Ryan, one of the GOP’s bright young lights who decided in the 1990s that Fan and Fred needed more supervision. As he held town hall meetings in his district, he soon noticed a man in a well-tailored suit hanging out amid the John Deere caps and street clothes. Mr. Ryan was being stalked by a Fannie lobbyist monitoring his every word.

On another occasion, he was invited to a meeting with the Democratic mayor of Racine, which is in his district, though he wasn’t sure why. When he arrived, Mr. Ryan discovered that both he and the mayor had been invited separately — not by each other, but by a Fannie lobbyist who proceeded to tell them about the great things Fannie did for home ownership in Racine.

When none of that deterred Mr. Ryan, Fannie played rougher. It called every mortgage holder in his district, claiming (falsely) that Mr. Ryan wanted to raise the cost of their mortgage and asking if Fannie could tell the congressman to stop on their behalf. He received some 6,000 telegrams. When Mr. Ryan finally left Financial Services for a seat on Ways and Means, which doesn’t oversee Fannie, he received a personal note from Mr. Raines congratulating him. “He meant good riddance,” says Mr. Ryan.

Yes, this was a bipartisan scandal and PBS (government funded, of course) tries to avoid the truth and blame Bush and Greenspan. Why not ? Everyone else that is government funded does. Greenspan missed the impending crisis but the PBS program missed it too.

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Posted in corruption, financial, politics | 13 Comments »

My new favorite song

Friday, October 2nd, 2009

Peggy Noonan doesn’t like this sort of thing but she is living in her New York City bubble. The people who live outside the east coast alternative universe know better. If someone doesn’t stop this runaway train, our children and grandchildren will blame us and rightly so.

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Posted in corruption, financial, politics | 4 Comments »

The future of the dollar

Sunday, August 30th, 2009

UPDATE #2: The Chinese have noticed what the Fed is doing and are not happy about it. That is very bad news for the dollar.

UPDATE: There is also weirdness going on in the real estate market. Look at this piece on foreclosures and what is happening. Now the stock market began a swoon. Maybe this is the end of the bear market rally.

Several months ago I posted a chart of federal money creation. Where has this money been going ? This may explain it. Some went into the housing bubble, but much is going out of the country. Look at this:

BOPI_Max_630_378

Since 1995, capital has flowed into the US from other countries. Then came 2008.

Comparing this data with TIC releases, indicates that from January to May the total capital outflows from the U.S. amount to ($314) billion in assets, consisting of central bank purchases of $50 billion, however, matched with private investor dispositions of $364 billion.

Ignoring the implications of what this decline would mean for an economy that relies exclusively on credit growth in order to perpetuate the monetary Ponzi scheme that the US economy has been for years, the simple conclusion here is that a combination of declining consumer credit and foreign interest for US debt purchases has very negative implications for the credit bubble the Federal Reserve is trying to reflate. As for the consequences for the U.S. Dollar as a result of this activity, these have recently become all too clear.

The Treasury seems to be swapping bonds that are being repatriated and replacing them with Treasuries. This may make the foreign bond holders whole but what happens to us ?


It would appear that foreign central banks have been swapping agency bonds for Treasury bonds, but that’s not how the markets work. First, they would have to sell those bonds, before they could use the proceeds to buy government debt. So to whom did they sell those Agency bonds in order to afford the Treasury bonds?

They sold them to the Treasury. If you do that on your tax return, it is called a “sham transaction.”


These are the three critical points to remember as you read further:
1. The US government has record amounts of Treasuries to sell.
2. Foreign central banks, which have a big pile of agency bonds in their custody account, would like to help but want to keep things somewhat under the radar to avoid scaring the debt markets.
3. The Federal Reserve does not want to be seen directly buying US government debt at auctions (and in fact is not permitted to, but many rules have been ‘bent’ worse during this crisis), because that could upset the whole illusion that there is unlimited demand for US government paper, but it also desperately wants to avoid a failed auction.
For various reasons, the Federal Reserve cannot just up and start buying all the Treasury paper that becomes available in record amounts, week after week, month after month.

Instead, it uses this three-step shell game to hide what it is doing under a layer of complexity:

Shell #1: Foreign central banks sell agency debt out of the custody account.

Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.

Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction.

What is the purpose of this shell game ?


The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.

The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.

When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.

This will not end well. I also still think the stock market rally is a bear market rally. Here is the full article.

Zimbabwe !

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Posted in corruption, financial | 4 Comments »

The Prince of Darkness

Sunday, August 23rd, 2009

This weekend, I spent four days on my sailboat at Catalina Island, in Avalon Harbor. My son and his friends were celebrating his coming marriage. I spent most of the weekend reading a book I should have read several years ago when it came out. It is called The Prince of Darkness and is a memoir by Robert Novak who died last week. Novak was a reporter who spent 50 years reporting on politics from Washington, DC. He began as a young reporter for the Wall Street Journal after an apprenticeship as a local sports reporter and then as an AP writer, rewriting phone reports by AP stringers. He then was invited, much to his surprise, to a partnership with Rowland Evans, a well-connected Washington socialite and political reporter. They began with a column that emphasized political gossip but soon moved on to hard reporting mixed with opinion. They were probably the most effective and influential partnership in national political history. The best comparison would probably be Drew Pearson and Jack Anderson, who combined hard reporting and strong opinion for many years although they were not a partnership so much as a succession from Pearson to Anderson.

I disagreed with Novak on several issues, chiefly Israel and the Iraq War. On the Iraq War he was consistent and, unlike most Iraq War critics, he was also opposed to the 1991 Gulf War. My problem with most critics of the Iraq invasion of 2003 is that they have no realistic opinion on the alternatives Bush faced after the 2001 attack. Once we had been attacked, the alternative to an invasion was withdrawal from Saudi Arabia and a concession that Saddam should be allowed to continue his regime with the risk of nuclear weapons and further aggression. The usual critics try to say that we had Saddam “in a box” and sanctions would have been sufficient to prevent further adventurism on his part. This is ignoring the failure of sanctions, which were being attacked by the same leftists who attacked the invasion. Had we conceded that we could not prevail, radical Islam would have been empowered and we would face further attacks. Novak, almost unique among serious pundits, opposed the 1991 war and was willing to accept the Kuwait annexation and the potential for a second invasion of Saudi Arabia. Given that Saudi Arabia was the origin of most of the 2001 hijackers, and that they have continued funding of radical Islamic activity throughout the world, his position had consistency and a logic that, while I may oppose it, is far more compelling than the opportunism seen on the left wing since 1991.

I also disagree with him on Israel and he does not provide the same logic and consistent argument that he provides on Iraq. His book shows a seamy side of Washington that, no doubt, led to his cynical and skeptical view of the machinations of the federal government over the 50 years in which he wrote his column. The book is a real education on the workings of the federal government and a cause for concern that nothing seems to have changed except, perhaps, for a lessening on the quality of political leaders. He is very critical of Newt Gingrich, for example, and his reputation as a right wing critic should be discounted as his criticism is bipartisan and well founded. I have seen enough politics at close hand to be impressed that this is an account that will stand for many years. I highly recommend it.

Posted in corruption, Israel, politics | 5 Comments »

Health care Obama style

Thursday, August 6th, 2009

I monitor some left wing blogs in order to keep up with the current meme that is animating the left. At one time, it was an attack on George Bush’s service in the Texas Air National Guard. A left-wing blogger named Kevin Drum did a far more thorough study of this story than CBS did, for example, and concluded there was no real story there. I developed considerable respect for Kevin from this incident and have been disappointed to see how few other examples I can find of objective analysis by the left. The current health care debate is one which pits a basic pillar of “progressive thinking”, single payer health care, against the realities of such instances as exist today.

I have been a bit puzzled to see an organization like AARP join Obama on the “reform” bandwagon, such as it is. They are supposed to represent members who are eligible for or members of Medicare and one thing we can all be certain of is the prospect of rationing of care for the elderly in any Obama sponsored plan. It seems that some AARP members have figured this out. maybe the AARP staffers who marched out of that meeting can report the violent oldsters to flag@whitehouse.gov. Here I link to a useful guide for those who wish to identify the evil right wing mob members :).

Anyway, I have run across a good analogy of what this supposed reform is all about. It’s about a new Nomenklatura. That’s the Chicago Way.

It is important that people realize that these government institutions will not be transparent nor will they be fair. A new, parallel system of privileges and favors will arise that will supplant our current system, which is largely cash based. As the government owns and controls more of society, it will be more important than ever to covet the friendship and favor of the Nomenklatura that will control access to queues and prestigious posts.

Luckily we have an entire body of knowledge of how the US will fare as government control increases – our study of the former Communist countries (which was largely done as a response to their military threat, since it was important to understand the “enemy” at the time). For example you can go here and see an interesting research paper related to the topic.

The occasional articles we see on corruption in the system are missing the point; the ENTIRE system will eventually be riven with corruption, because that is essentially how these sorts of socialistic enterprises all end up being run. It isn’t the spots on the dog, but the dog itself.

It is the essence of socialism that, once money is not the medium of exchange, another medium will be found. It is usually one that is available only to the insiders. It’s a bit like cutting $100 million from the trillion dollar budget, then ordering three new $65 million airplanes for Congress to fly around in.

UPDATE: It is now eight new airplanes. Do these people have any sense of where we are ?

Health care will never be more egalitarian than it is now.

Posted in corruption, energy, health reform | Comments Closed

Obama and Honduras

Wednesday, August 5th, 2009

A lot of us have been puzzled by president Obama’s fondness for tyrants, including Ahmadinejad in Iran and Chavez in Venezuela. We attributed his interference in Honduras in favor of a would-be dictator as another of his ideological ventures. However, we might be wrong about Obama here. Maybe it is just the Democrats’ old culture of corruption returning to business as usual.

In October 1994, President Bill Clinton used the U.S. military to force Haiti to take back former President Jean Bertrand Aristide, an intolerant populist who had been deposed in a coup three years earlier. The Haitian people didn’t fare well under the decade of Aristide tyranny and corruption following that U.S. intervention. But key Democrats, who secured contracts with the Haitian government, did.

Why would he do a thing like that ?

Once restored to power, Aristide ruled Haiti for a decade, either as president or as the power behind the throne during the presidency of Mr. Préval. It wasn’t until he was chased out of the country a second time, in 2004, that Haitians were able to document that their government had been doing business in telecommunications with Americans who were close to Mr. Clinton.

Haitians had been complaining to me since the late 1990s about the relationship between Haiti Teleco and a company called Fusion Telecommunications. They alleged that Fusion had ties to Joseph P. Kennedy II, a vociferous supporter of Aristide, and that instead of paying the official settlement rate that all U.S. carriers were supposed to pay, it was getting a special price. The company would not even acknowledge that it operated in Haiti. What I did learn at that time was that Fusion was run by former Democratic Party Finance Chairman Marvin Rosen. Mr. Kennedy was on the board. So too was Mr. Clinton’s former aide, Thomas “Mack” McLarty, and former Mississippi Democratic Gov. Ray Mabus.

Maybe we need to start looking for the Chicago-Honduras connection.

The Honduran constitutional crisis is very different than the Haiti case, in that the Honduran military has never been in charge. When Mr. Zelaya was deported, the presidency was passed, as the constitution requires, to the president of Congress. Mr. Zelaya’s party is still governing the country.

Yet there are important lessons from Bill Clinton’s Haiti policy that hold for Honduras. One is that the U.S. is more than capable of misjudging a constitutional crisis and of backing the wrong guy. When it does, there is no guarantee it will rectify the problem.

Another lesson from Haiti is that a Caribbean despot can offer good terms to foreign investors. Since the Haiti episode Venezuela’s Hugo Chávez has conducted a courtship with Democrats too. He gives Mr. Kennedy’s Citizen’s Energy company cut-price home-heating oil that the former Massachusetts congressman distributes to the poor in order to polish the Democrats’ image. Never mind about Venezuelans suffering under chavismo.

It is all becoming clear now.

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