HAPPY NEW YEAR! (and work smart this year)

This coming year remind yourself that, more than working hard, you should always work smart. Otherwise you might find yourself swimming in ...

- Mark

WEALTH EXTRACTION 101

Remember this? (full view here; thanks Seven)

This chart explains who owns the title to one home in America. It was put together by a securities analyst who wanted to know who held the title to his home. It took him one year to figure this out. Here's the incredible part. It's the day job of this analyst to figure this stuff out on a daily basis.

Yeah, I know. Property rights in America shouldn't be this difficult. What a mess.

Anyways, I wrote about this and the legal maze that makes our financial and real estate markets such a mess earlier (here and here). Specifically I wrote that the very notion of property rights in America may be in trouble because of how Wall Street wanted access to income streams (to create securities), but didn't want to actually produce anything for the money. So they found a way to dump the actual title (plus the administrative and legal responsibility) of a home on to an obscure mega corporate entity called Mortgage Electronic Registration Systems (MERs). Then - in a demonstration of wealth extraction at its finest - they siphoned off the house payments into another legal maze (of securities) that benefited a few Wall Street market players.

And just like that, a small group of market players were able to make claims on millions of mortgage payments (through various "security" instruments) without having any responsibility for filing, registering, and tracking who owned the note on the house. (If you're looking for a metaphor it's kind of like handing the car keys, your wallet, and a keg of beer to your unemployed cousin and telling him to have fun.)

This is where it gets real good.

Rather than deal with homeowners after the mortgage bubble collapsed - and after their mortgage payment-security scheme went bust - Wall Street and other big market players said: "We can't negotiate with homeowners because we don't have the title to the home (MERs does). And besides, the loans have already been sold several times over ... oops."

Then, while threatening that system collapse was imminent if they didn't get bailed out, Wall Street and America's biggest financial players got the federal government to provide them with trillions in taxpayer backed guarantees. Why should big banks and Wall Street have to negotiate with homeowners (and learn from market justice) when Uncle Sam can foot the bill for their greed and arrogance?

Trillions of dollars in bailout money are now being used to purify and prop up an entire industry, while filling financial holes created when the income stream (i.e. mortgage payments) behind Wall Street's (pyramid) security schemes dried up.

Again, wealth extraction at its finest (if you're wondering why Wall Street isn't in jail, me too).

Anyways, I'm writing about all of this (again) because of how this Harper's Magazine article on MERs (hat tip to Barry Ritholtz) explains how Wall Street can make claims on money without actually producing anything of value. It also helps us all understand how our nation's biggest market players have undermined our nation's market integrity, while making a mockery of property rights in America.

If you care about the Constitution (hello, Tea Party) and the future of our nation this is one of the areas where you should be directing your attention.

- Mark

MERRY CHRISTMAS REAL AMERICA

As Real Americans continue to work and prepare for family and friends during this Holiday Season, we shouldn't forget about the people who've made record profits and secured ginormous bonuses from their taxpayer backed loans and bailouts.

So I want to invite everyone to recall how Wall Street and America's biggest financial institutions secured trillions in bailout/borrowed funds and then dumped their toxic crap on us with this classic, but humorous, Christmas reminder of what happens when we let irresponsible "family" take advantage of our good nature. Enjoy.

For the record, our free loading financial institutions on Wall Street are represented by Randy Quaid.

Happy Holidays.

- Mark

TRAILER PARK ECONOMICS

So, I'm thinking, How do I make this somewhat complicated post easier to understand? In the post I explained how Wall Street and the nation's biggest banks profited after making stupid business decisions. Specifically, I wrote how Wall Street was able to get the federal government American taxpayer to underwrite their stupidity with government taxpayer backed loans after they lost a bundle gambling on reckless derivative investments, and then wrecked the economy. Here's a short - and a bit more humorous - take on the events surrounding our market collapse and bailout.

* * * * * * * * * * * * * * * * * * * *

Imagine that you owned a trailer park development project and went to Las Vegas. You borrowed against your assets and then gambled away all your money. You now have to file for bankruptcy. This is how market justice is supposed to work.

Then, out of the blue, your bank covers your losses in Las Vegas. Then they open the loan spigot for you. The bank also tells you that you can continue doing what you were doing before you lost everything (in this case gambling). Seeing all this the Vegas casinos jump in and say, "Come to our gambling dens (again) ... we're even going to comp your suites." 

The best part (for you) is that the banks are going to charge you virtually zero percent on the money they're lending you. All you have to do is give the bank title to your "trailers with a view" development project as collateral. 

But wait. It gets even better. The banks are going to loan you money based on the value of your trailer park development BEFORE the market crashed. It doesn't matter that you over inflated the value of your $100,000 project by $1 million. You still get your million dollar loan because neat accounting tricks make the value of your crappy assets look good. You can walk away with the borrowed money any time too.

At the end of the day, you know you're going to walk away because the American taxpayer banks are going to be left with your trailer park assets. Sweet (for you).

Incredibly, things get even better for you because, with new money to backstop your stupidity, you can now start kicking out renters that you never liked. With your trailer park investment project effectively paid off, you can become arrogant and vindictive. And you're bringing a new landlord.

Can you imagine this happening? Of course not. This level of reckless support only happens if you're one of the big financial players making stupid bets in America.

While I've oversimplified all of this, conceptually the logic applies. Our financial mandarins, who like to think they're rugged individualsts, are really wards of the state. And you and I get to pay for it all.

- Mark

INTEGRITY OF THE MARKET IN TROUBLE

Those of you who have read my book, or who read this blog regularly, will understand the following two pieces instantly ...

In my book I discuss the difference between wealth creation and wealth extraction. This article from NY Times' columnist Paul Krugman (hat tip to Brian) helps explain the mechanics behind wealth extraction ...

This SF Chronicle article from Robert Reich - which discusses Wall Street's dependence on bailouts, and their subsequent government escorted record profits - helps explain why Wall Street is its own worst enemy.

Both pieces help us understand why the moral justification of capitalism is in trouble. In a few words, Wall Street is destroying what most of us understand to be the integrity of the market.

- Mark

ECON 101 ACCORDING TO LINCOLN

- Mark

BORROWING $1 TRILLION IN ONE DAY ... WHY IT MATTERS (and where the hell is the Tea Party on this?)

Exactly three years ago today, at the height of the market crash, I pointed out on my blog (and my radio program) that the biggest banks in America were granted well over $1 trillion in ultra-low interest rate loans by the Federal Reserve. These loans were granted so the biggest banks would have money to stuff the financial holes that their trillion dollar (derivative) bets had created. They also helped purify toxic crap and kept the banks out of court.

Best of all, the loans were backed by the government American taxpayer.

Thinking how bad things were - and so people could see for themselves - I explained (very slowly) how to find the more than $1 trillion in loans in the Federal Reserve's December 11, 2008 "Flow of Funds Accounts" release.

Things were so bad at the end of 2008 that the banks borrowed $1.2 trillion on December 5, 2008. Let's repeat that ... the banks had to borrow $1.2 trillion on one day.

Worse, much of the collateral the banks put up to secure the loans was either inflated, or simply toxic crap. These toxic instruments are the stuff you and I will get stuck paying for over the next few decades.

Putting it All in Perspective
To put $1.2 trillion in perspective, think about this little nugget: $1.2. trillion is much more than what President Bush spent on the TARP bailout ($750 billion), and far more than what President Obama asked for in the Stimulus Program ($825 billion, of which $275 billion were tax cuts). And it's also far more than the $907 billion we owed as a nation in 1980.

As you can imagine, the Federal Reserve and the big banks fought to keep $1.2 trillion in bailout loans a secret. To do otherwise would have alerted America to how much trouble the banks were really in back in 2008 (they're still in trouble). It was the largest loan-bailout in U.S. history, after all.

Fortunately for America's biggest financial institutions most Americans didn't catch on to what was happening. This includes the vast majority of our incredibly hypocritical "We Just Found Financial Jesus" Tea Party movement. Most them still don't have a clue. Nor do they seem to understand how the banks used more than $1 trillion in low interest loans to profit off of the U.S. taxpayer.

How the Banks Profited ...
Thanks to Bloomberg News we can see exactly who profited from the barely above zero interest loans made to Wall Street's biggest banks. One thing's for sure. It wasn't the American taxpayer. Here's the details.

Simply put, the banks made about $13 billion in taxpayer funded profits (play with the interactive here). How did they do it, you ask? Simple. They borrowed the money at rock bottom interest rates from the Federal Reserve, then "walked down the street" (as it were) to purchase Treasury Bonds from the federal government that paid almost 3% interest. A classic case of robbing Peter (the American taxpayer) to pay Paul (themselves).

But wait, it gets better (or is that 'worser'?).

Flush with cheap taxpayer-backed loans America's bankers began lobbying Washington to stop the movement for more regulations. Their argument? Since they were so healthy - and weren't bankrupt - they didn't need pesky regulations. Regulations and oversight distracted them from making money.

That's right. While America's biggest bankers were on government life support - and had one hand in the taxpayer's pockets - they were also pretending they had done nothing wrong. Ergo, they didn't need to be regulated.

While TARP and taxpayer backed loans enabled banks and Wall Street to dodge bankruptcy, America's biggest banks began turning away and punishing customers who lost their jobs and homes as a result of the 2008 market collapse. Bankrupt citizens facing tough times as a result of the market collapse had to be punished.

Long story short? In spite of collapsing the economy, and asking the American taxpayer to underwrite their market stupidity, the banks demanded market-like discipline be imposed on the American public. It didn't matter that the American taxpayer had helped turn their toxic investments and stupid bets into market gold.

Aren't double standards beautiful?

The Chutzpah Behind the "Self-Esteem" Loans ...
Let's make this real simple. If the banks had not received government loans, or had been forced into bankruptcy or receivership, the lobbying efforts of the banks would have been comical (they still are in my book, but that's another story).

But stuffed with TARP bailout money, and with emergency loans from the Federal Reserve (who created brand new loan "facilities" for troubled banks), America's biggest failed banks were able to escape market justice and pretend things were just fine. Congress played along ... as they continue to do today. But here's the kicker.

In a classic WTF moment, the banks argued that they were simply borrowing from the Fed (again, at least $1.2 trillion in one day) so other banks wouldn't feel "stigmatized" by having to take loans from the Federal Reserve. Huh? Are you kidding me? How clueless are these people? They didn't want other banks to feel shame for making stupid decisions, so banks had to borrow money from the Federal Reserve? Unbelievable.

At the end of the day, the thinking behind our banker bailout programs is akin to the logic behind toddler leagues. You know, the leagues where parents don't keep score so they don't hurt little "Johnny's" feelings. Incredible. Apparently bankers and Wall Street need self-esteem programs too.

Keep this in mind the next time your friend wants to discuss corporations and rugged individualism in America.

The End ...
This, my friends, is just one reason why it's difficult to take the status quo "happy talk" about profits, falling unemployment, and Wall Street success stories seriously. It's all backstopped with trillion dollar federal loans and taxpayer furnished bailout money.

The happy talk about Wall Street means little for jobless and foreclosed upon Main Street. Monopoly Man's successes mean nothing to Joe Six-Pack. This is especially the case since it's all backstopped with taxpayer money, still overly complex loan structures, lax regulatory oversight, and record debt loads.

So - again - my question is Where's the Tea Party outrage on all of this?

- Mark

CORPORATE PERSONHOOD ... A FLAWED IDEA

My article on corporate personhood - the idea that corporations are people too, and deserve the same rights and protections as U.S. citizens - came out in the Bakersfield Californian today. You can read it here. 

Long story short, the idea that corporations are people too needs to be rejected.

- Mark

Addendum: I'm attaching the article below.

***********************

Corporate personhood: A flawed construct that undermines democracy


“If you can’t vote, you can’t contribute.”

This was part of a conversation I had about political campaigns a while back. And it stopped me in my tracks. With this simple comment Larry Moxley summarized how to deal with the influence money has on our political system. And I agreed.

So you know - and I want to be clear on this - Larry Moxley and I are on opposite sides of the political spectrum. There’s very little we agree on. We’ve had strong debates that literally have turned heads in restaurants over the years. But we’re friends who can agree on the things that undermine our national priorities.

When it comes to the influence of money in our political system Mr. Moxley and I agree on this: It’s undermining our political system.

Most of us understand the influence money has on our politics. Simply put, to become legitimate candidates, office seekers spend so much time chasing large donations and corporate money that they lose sight of what‘s good for our communities and our nation.

This shouldn’t be a surprise. When asked why he robbed banks famed bank robber Willie Sutton replied, “That’s where the money is.” Candidates go where the money is too. This means going to large corporations and groups with deep pockets. More on this below. But first, some background.

Candidates for office are forced to pursue money in part because of two legal developments. The most recent allows corporations to give almost unlimited amounts to political campaigns. The earlier, and most important, development granted corporations personhood status.

GOP presidential candidate Mitt Romney acknowledged this when he shot back at a heckler: "Corporations are people, my friend …”

What Romney didn’t discuss was how corporations became people. If he had he would’ve had to explain how corporate personhood came about.

The key here is a Supreme Court (SC) case decision on taxes (Santa Clara County v. Southern Pacific Railroad Company, 1886). While the SC ruled in the railroad's favor - arguing corporations are entitled to 14th Amendment protections - it said nothing about corporate "personhood." A court reporter did.

Specifically, a court reporter - not a SC Justice - wrote the Santa Clara case summary in the head notes, stating corporations enjoy the same rights as a U.S. citizen (yes, I've deliberately oversimplified the primary issues here). Corporate America has been running with this ruling ever since. And just like that - and with no birth certificate - corporations now have the same rights and protections as any U.S. citizen.

Later, in Buckley v. Valeo (1976) the SC ruled that spending money to influence elections is a form of constitutionally protected free speech. This was followed up in a 5-4 decision in Citizens United v. Federal Elections Commission (2010), which effectively allows corporations to spend what they want on political campaigns.

The result? Because of the functional equivalent of a typo (1886), corporations are considered people who can speak (1976) as loudly and brashly as they want (2010). Conversely, citizens in the streets of America are given strict limits (time, place, voice) as to how they can exercise their constitutional rights. And it’s distorting our political picture.

If you don’t see it, here’s what’s wrong:

* Corporations are a legal abstracts, created by the state. Per the Enlightenment, constitutional protections were designed for citizens whose rights were historically abused by large corporate entities and the state.



* Corporate "personhood" status was a legal accident. No claim to citizen rights should rest on the functional equivalent of a typo.



* If we can't yell fire in a crowded theater, corporations shouldn’t be able to set fire to political campaigns. Citizens United went too far.



* Unlike most citizens, corporations can directly lobby and get favorable legislation, regular bailouts, subsidies, generous tax write-offs, legal exemptions, limited liability, and can live on indefinitely.



* Foreign subsidiaries can access Madison Avenue, which can distort and elevate their foreign "voice" above most U.S. citizens.



* Corporations find legal cover under proprietary rights (trade secrets) and legal settlements (or fines). This allows corporations to distort and hide their voice.

Our constitution was created to protect citizens from corporate and state abuses. One way to address the trend of corporate money swamping broader national priorities is to consider what Mr. Moxley has suggested for some time now: “If you can’t vote, you can’t contribute.”

It won’t solve all our problems, but it’s a start.


MARK A. MARTINEZ Ph.D., author of The Myth of the Free Market, is professor of political science at Cal State Bakersfield.

THE EURO MESS ... MARCHING US TOWARDS THE PAST?

This commentary on the European Summit-Debacle - from Tyler Durden at Zero Hedge - is both succinct and spot on. This one pretty much sums it up:

"... it means that the Greek scheme of playing chicken with the Euro zone, has now been adopted by everyone else in the core."

Our (America's) political and economic challenges won't make things any better for the global economy.

Not only is history whispering in our ear, but the coming calamity doesn't appear to be on anyones radar screen. I don't know whether it's a product of people not knowing their history, or because people are still caught up in a failed free market ideology that blinds them to reality. Simply believing in free market myths does nothing for people who are desperate and out of work. Desperate people do desperate things.

Indeed, desperate people will also follow stupid people who say and do stupid things. It may take a while, but a collapsing global economy is a bigger threat than al Qaeda. Big time.

Stay tuned. Sigh ...

- Mark

SO, WHERE'S THE TEA PARTY ON THIS ONE?

Via Think Progress we learn that thirty big corporations in America actually spent more money lobbying Congress between 2008 and 2010 than they paid in taxes (hat tip to Tom for the link).

What has all that lobbying gotten corporate America over the long-term? In a few words corporate profits have soared (money once set aside for taxes suddenly becomes "revenue"). Just as importantly, corporations now pay a smaller share of taxes into our economy (as a percentage of GDP) than they did in the past. Check it out ...

All of this helps explain why middle America's income tax (what you earn) and payroll tax (social security, medicare, etc.) payments have remained relatively stable or grown (payroll). Middle America is told that they need to keep paying their share of the bills, while America's richest Americans have convinced most Americans that their tax load has to go down ... for the good of the nation. Trickle down, you know.

Long story short? Our debt problem is largely A REVENUE PROBLEM. And it's caused by a group of people who think shifting the responsibility of maintaining our great nation on to others (the middle class) is a good idea (and it is, for them).

Think about it. As I explained (or tried to explain) to Republican Mark Abernathy during one of our KGET 17 sparring matches, spending as a percentage of GDP has remained relatively stable over the years, and only started to surge under President Reagan's trickle down policies.

At the end of the day, by reducing their tax burden, while maintaining (or raising) the tax load on ordinary Americans, what we're seeing is one of the greatest wealth transfers in human history. Seriously.

Not only do the top 1% and those at the top of corporate America's food chain get to keep more, but someone's going to have to pay for the $14 trillion that's been added to our national debt since 1980 (when it was only $907 Billion). And you can bet your life that the top 1% don't think it should be them.

So, my question is, where's the Tea Party on this one?

- Mark

WALL STREET'S GET OUT OF JAIL FREE CARD ... "INTENT"

If you ever wanted to know why no one from the financial sector and Wall Street is behind bars look no further than this 60 Minutes piece on mortgage fraud and Countrywide. Simply put, committing fraud isn't enough to get you prosecuted. You have to show that fraud was also intended (can you imagine a criminal defendant saying, "I didn't mean to kill him, he just happened to be in the way of my bullets"?).

Also, in the FYI category, none of this was confined simply to Countrywide either. It was prevalent and encouraged throughout the industry (and by Wall Street), and is indicative of corporate entitlements and protections that you and I don't get.

I've said it before, and I'll say it again, we can fix a lot of this if we understood Bill Black's "control fraud" better, and used RICO statutes to go after our financial institutions as criminal enterprises ...

- Mark

QUANTITATIVE EASING III (a.k.a. "Corporate Welfare") HAS BEGUN (again)

My God, this is getting way too easy. I said it would happen back in 2010. This past summer I said it would happen, again. So, what happened? Simply put, the Federal Reserve is dumping more cheap money into the markets. This time it's down a European rat hole.

Here's the problem. The Fed's action won't accelerate recovery. It also won't fix Europe's debt woes. And it certainly doesn't make market players any smarter. But it keeps many market players solvent (and arrogant) because it's a bailout that maintains market confidence.

While the Federal Reserve doesn't want to anyone to think it amounts to another market bailout (it is), the sudden availability of cheap cash in Europe allows European banks and market players around the world to continue pretending that our market environment is sound (it isn't). Here's how the bailout plan works.

HOW IT WORKS
In real simple terms America's central bank, the Federal Reserve, is lending dollars to European central banks. European banks need dollars because European banks lend significant amount of dollars (about $3 trillion) to investors and other market players. Dollars are getting harder to find in Europe (which drives up the price). In exchange European central banks send us other currencies (as "collateral"), which include Euros (these are called Fed Swap Lines).

The idea is to put enough cheap dollars into European central banks so that they will lend to domestic banks throughout Europe. What's the goal? To prevent U.S. markets from tanking. How would this happen, you ask? Glad you asked.

If European banks, who need dollars, can't borrow dollars they will begin dumping (selling) U.S.-denominated assets, like U.S. stocks, mortgages, and corporate loans (among others). They do this because they need dollars to cover their losses elsewhere. If the European banks can borrow dollars cheaply, the thinking goes, they don't have to sell U.S. assets. Ergo, if the Fed makes more dollars available to Europe, we don't get a sudden market dump of stocks and bonds out of Europe, which might lead to a wholesale fire sale, and the sudden collapse of the U.S. stock market (again).

Seriously, lending money to Europe on the cheap is our way of keeping Wall Street and our financial markets afloat. But opening the money gates for European banks is really corporate welfare. By not having European banks dump U.S. assets into the market (in order to generate dollars in Europe) the Federal Reserves money dump helps maintain, or artificially inflates, the value of U.S. assets around the world. Portfolio managers win. Wealth managers win. Wall Street wins, again.

You and I, however, foot the bill if (when) it all blows up. We're also told to be quiet when market players cash out their bonus-laden contracts, which have been made whole by these money dumps. No Fed-Funded bailout tax. No "QE Tax." No taxes on taxpayer backed money dumps, period. Nada. Zilch.

Finally, because it sounds better than corporate welfare the Federal Reserve likes to call making cheap money available quantitative easing. Quantitative easing has been done twice since the market began it's crash in 2007. But they're not calling it quantitative easing (QE) this time because, according to the Fed, it isn't. Huh? [head scratch]

BUT "QUANTITATIVE EASING III" IT ISN'T ... HUH?
The Federal Reserve - and everyone who benefits financially from the money dump - don't like to see what's happening (the money dump) as the opening of QE, Round III. They don't like to call it QE III because they know it's corporate welfare, and it kind of hurts market confidence (and their feelings).

As such, global money managers are making a point of letting everyone know that (1) this is for Europe only (it's actually to prop up U.S. assets), (2) the cost of money's not getting cheaper in the U.S. (it's also not available unless you give up your first born), and (3) they haven't restarted 2007-08 crisis programs, like the Term Auction Facility (which would signal a real mess).

Great. In plain speak, this is like saying your recovering alcoholic in-laws are doing fine because you're only giving them beer instead of the hard stuff. Oh, and you're limiting them to drinking until midnight. You get the point.

QE III has begun. But don't call it QE III because it's really corporate welfare, which hurts market player feelings. Shhhh ...

- Mark

ADDENDUM: Almost forgot, here's a humorous but surprisingly well-informed look at quantitative easing and the Fed. Enjoy ...