US taxpayers can expect to lose even more than the estimated USD 22 billion made in the fall last year, due to increased losses for the Treasury Department on sales of shares in bailed-out companies, according to a report released on Wednesday by the special inspector general for the Troubled Asset Relief Program (TARP).
The report said taxpayers could lose USD 5.5 billion specifically on Ally Financial – formerly called GMAC under a partnership with General Motors – in losses based on unsafe mortgages given right before the financial crisis. Ally owes USD 14.6 billion of the USD 17.2 billion in assistance it received.
The US government would also need to sell all General Motors shares it holds at USD 71.86 per share, more than double the current price of USD 28. GM still owes USD 21.6 billion of the USD 49.5 billion bailout it received.
“Taxpayers saved GMAC, and they should not be put in the position of needing to save the company again,” said Special Inspector General Christy Romero, adding that both Ally and General Motors owe more than half of the USD 67.3 billion still owed to taxpayers by companies that were bailed out during the financial crisis.
The government watchdog went on to reveal fraud related to TARP during investigations that subsequently led to criminal charges against 119 people, including 82 senior company executives.
This comes as Romero accused the Treasury Department for providing “excessive” pay for executives tied to the bailed-out corporations rescued from the financial crisis including General Motors, Ally Financial and AIG – the largest bailout recipient at USD 182 billion.
After the 2008 financial crisis, Congress authorized USD 700 billion for the bailout of some of America’s largest companies. About USD 413 billion was eventually issued.
More than $114 billion exited the biggest U.S. banks this month, and nobody’s quite sure why.
The Federal Reserve releases data on the assets and liabilities of commercial banks every Friday. The most current figures, covering the first full week of 2013, show the largest one-week withdrawals since the Sept. 11, 2001, attacks. Even when seasonally adjusted, the level drops to $52.8 billion—still the third-highest amount on record, and one for which bank experts and analysts were reluctant to give a definitive explanation.
The most obvious culprit is the expiration of the Transaction Account Guarantee program, the extraordinary federal effort to shore up the country’s non-gigantic banks during the 2008 financial crisis. Big banks were considered “too big to fail,” while smaller ones were vulnerable to runs. The TAG program backstopped their deposit bases by temporarily offering unlimited insurance on money kept in non-interest-bearing accounts. That guarantee ended on Dec. 31, so a decrease in deposits would be expected first thing in January.
But hold on: The Fed data show $114 billion leaving the 25 biggest banks—about 2 percent of their deposit base. Only $26.9 billion left all the others, equivalent to 0.9 percent of their deposit base. Experts had predicted that the end of TAG would hurt the nation’s small banks because the big ones are still considered too big to fail. “I think [customers] are going to go back to the mega banks,” the head of a regional bank in Bethesda, Md., told The Washington Post in December. “They’ve been assured by the government that mega banks are too big to fail. It’s a horrible, bad, poorly-thought-out situation.” Small banks fearfully lobbied the Senate to extend TAG, with analysts telling the New York Times that they expected $200 million to $300 million—yes, with an m—to move from affected accounts into money market funds or elsewhere.
So if the missing $114 billion is not the result of the TAG program expiration—or at least not all related to TAG—what’s going on? Paul Miller, a bank analyst with FBR Capital Markets, cautions against reading too much into the Fed’s weekly data. “It’s a noisy database,” he says. Among large U.S. banks, there have been movements of greater than $50 billion (not seasonally adjusted) during 107 different weeks since 2000. It’s not uncommon to see 11-figure swings—that is, tens of billions of dollars—from positive to negative, or vice-versa, one week to the next.
Noise can increase near the start of a year. “The first quarter is always a wacky quarter,” Miller says. And January 2013 has seen an incredible amount of change. First, the fiscal cliff drama had companies shifting dividends and had bank clients guessing what their tax liabilities would be, which might explain the $60.4 billion pumped into the largest banks during the week ending Dec. 26. (Seasonally adjusted, it was the sixth-highest level on record.) Second, the payroll tax just went up, sticking most wage earners with paychecks that are 2 percent smaller.
Third, ordinary investors may be ready to move out of federally guaranteed accounts and into investments. Stocks did very well in 2012. As Bloomberg Businessweek’s Roben Farzad wrote on Jan. 16, equity mutual funds saw their second-highest inflows on record in the first week of the year. Economists are worrying that market exuberance is getting too high, with one measure of risk aversion at a three-decade low.
“If deposits are really trending down—and at the end of the month, we’ll be smarter than we are now—if that’s the case, it can tell us a few things,” says Dan Geller, executive vice president of Market Rates Insight. “And one thing that it could tell us is that the law of elasticity is finally catching up with deposits.” In other words, contrary to what economic theory predicts, deposits have been piling up at banks ever since the crisis, even though they offer pitiful yields. Geller says that may finally be ending—though like Miller, he says not to put too much stock in just one burst of Fed data.
“One week is just a very thin slice,” he says. Still, $114 billion is a big figure, and it’s one to keep an eye on in order to understand where the economy is headed in 2013.
The U.S. House voted to temporarily suspend the nation’s borrowing limit, removing the debt ceiling for now as a tool for seeking deeper spending cuts.
The measure, passed 285-144, lifts the government’s $16.4 trillion borrowing limit until May 19. It goes to the Senate, where Majority Leader Harry Reid said lawmakers will pass the bill unchanged and send it to President Barack Obama.
Three-Month Suspension of U.S. Debt Ceiling Passed by House
Senate Majority Leader Sen. Harry Reid on Capitol Hill.
“The premise here is pretty simple; it says that there should be no long-term increase in the debt limit until there’s a long-term plan to deal with the fiscal crisis that faces our country,” House Speaker John Boehner, an Ohio Republican, said during floor debate. “This is the first step in an effort to bring real fiscal responsibility to Washington.”
The revised strategy eliminates the risk that House Republicans would be blamed for a default in the short term. Republicans plan to focus on other fiscal deadlines and say they aren’t giving up their fight for cuts to federal programs.
Stocks rose, with the Standard & Poor’s 500 Index (SPX) surging to its highest level since 2007. The S&P 500 gained 0.15 percent to 1,494.81 at 4:35 p.m. in New York. It rose 4.8 percent in January through today for the best start to a year since 1997. The Dow Jones Industrial Average (INDU) rose 67.12 points, or 0.49 percent, to 13,779.33.
Republicans plan to use two other approaching deadlines — the March 1 start of automatic spending cuts and the need to pass a bill by the end of March to fund the government — to extract spending reductions from Obama and congressional Democrats.
The measure passed today, H.R. 325, would allow the nation’s borrowing authority to automatically rise May 19 to accommodate the amount the U.S. Treasury borrowed during the three months that the limit is suspended.
“The president believes that we need to, as a country, do the responsible thing and without drama or delay pay our bills,” White House press secretary Jay Carney said after the debt bill passed the House. “Ideally we would extend or raise the debt ceiling for a long period of time.”
Carney said the vote “represents a fundamental change” in the House Republicans’ strategy.
… Germany has done nothing wrong! It simply demanded a reclamation of what is rightfully Germany’s to demand.And here is the crux of the issue: in a globalized system, in which every sovereign is increasingly subjugated to the credit-creating power of the globalized “whole”, one must leave all thoughts of sovereign independence at the door and embrace the “new world order.” After all this is the only way that the globalized system can create the shadow cloud of infinite repoable liabilities, in which we currently all float light as a binary feather, which permits instantaeous capital flows and monetary fungibility, and which guarantees that there will be no sovereign bond issue failure as long as nobody dares to defect from the system in which all collateral is cross pledge and ultra-rehypothecated… for the greater good. Until the Buba secretly defected that is.And this is the whole story. Because by doing what it has every right to do, the German Central Bank implicitly broke the cardinal rule of true modern monetary system (never to be confused with that socialist acronym fad MMT, MMR or some such comparable mumbo-jumbo). And the rule is that a sovereign can never put its own people above the global corporatist-cum-banking oligarchy, which needs to have access to all hard (and otherwise) assets at any given moment, on a moment’s notice, as the system’s explicit leverage at last check inclusive of the nearly $1 quadrillion in derivatives, is about 20 times greater than global GDP. This also happens to be the reason why the entire world is always at most a few keystrokes away from a complete monetary (and trade) paralysis, as the Lehman aftermath and the Reserve Fund breaking the buck so aptly showed.We are confident that little if anything will be made of the Buba’s action, because dwelling on it too much may expose just who the first country will be (or already has been) when the tide finally breaks, and when it will be every sovereign for themselves. Because at that point, which will come eventually,not only Buba, but every other bank, corporation, and individual will scramble to recover their own gold located in some vault in London, New York, or Paris, or at your friendly bank vault down the street, and instead will merely find a recently emptied storage room with humorously written I.O.U. letters in the place of 1 kilo gold bricks.
Ecuador’s government wants the nation’s banks to repatriate about one third of their foreign holdings to support national growth, the head of the country’s tax agency said.Carlos Carrasco, director of the tax agency known as the SRI, said today that Ecuador’s lenders could repatriate about $1.7 billion and still fulfill obligations to international clients. Carrasco spoke at a congressional hearing in Quito on a government proposal to raise taxes on banks to finance cash subsidies to the South American nation’s poor.
Because while Ecuador, with its 26.3 tonnes of gold, may be small in the grand scheme of gold things, all it takes is for more and more banks to join the bandwagon and demand delivery in kind from official repositories (i.e., New York and London), and the myth that is the overcollateralization of hard money by central banks will promptly come to an abrupt, bitter and, likely, quite violent end.Help Us Transmit This Story
Yesterday’s AM fix was USD 1,725.00, EUR 1,321.03, and GBP 1,075.10 per ounce.
The Bundesbank stated, “There is no doubt about the integrity of the foreign storage sites in this regard”.
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The Daily Bell
Dominant Social Theme: Terrorism must be combated by controlling people’s money.
Free-Market Analysis: What we consider to be the “phony” war on terror is the gift that keeps on giving to those who run our governments.
The phony war on drugs only adds to the rationales for telling people what they can and cannot do with their resources.
What is going on is a pattern, not a series of defensive moves taken out of desperation. The power elite intends to lock down the world, it seems, in order to track every monetary transaction of any significance.
We wrote about this trend previously in “Spain Bans Cash.” Here’s an excerpt:
… As we have long predicted, the phony “sovereign debt” crisis in Europe is being used to justify all sorts ofauthoritarian measures.
It is government pols that gladly borrowed what European banks threw at them. And somehow the upshot earlier this week is that Spanish citizens now lose the right to conduct many transactions in cash.
Spectacularly, the reports such as this one, excerpted above, don’t even both to hide the real point. The Spanish government wants to ensure that it can “track transactions and make sure that people and businesses are paying taxes.”
Of course, anyone who has visited Spain of late knows that the tax burden in Spain is onerous indeed, and is one reason that the truculent tribes that have co-existed uneasily with Madrid are again beginning to beat the drums of secession.
The taxes that the central government levies on small businesses especially are verging on punitive. But there are no apologies. The official position is one of unflinching demands.
And now Mexico is going the way of Spain. Always there is a justification. But the reality of the project is much broader and has to do with a power elite wish, apparently, to create a world government that is fully in charge of what people can and cannot transact. Here’s some more from the Forbes article excerpted above:
In 2010, Mexico instituted strict limits on foreign exchange cash transactions to $1,500 per person per month, which caused several cash dollar exchanges to withdraw from the business and had the effect of penalizing tourists.
Of course, US dollars are a huge portion of the actual paper cash that this effort is aimed at, but the Mexican peso is the 12th most traded currency in the world and by far the most traded currency in Latin America.
Reuters reported that, “Sales of drugs from marijuana to cocaine and methamphetamine in the United States are worth about $60 billion annually, according to the United Nations. About half of that amount is estimated to find its way back to cartels in Mexico.”
The Woodrow Wilson International Center For Scholars’ Mexico Institute published a comprehensive study in May 2012 entitled “It’s All about the Money.” The report recommended tight integration and coordination with the United States in the areas of legal framework, financial institution regulation, intelligence on cross-border currency flows, and non-conviction based asset forfeiture.
Two years in the making, the new law also requires notaries, real estate brokers, and other dealers to report the forms of payment for transactions above the respective limits. Financial institutions will also be required to report monthly credit card balances in excess of 50,000 pesos ($3,875).
The article mentions that Italy has also banned cash transactions above a certain amount. Certainly this is a growing trend.
The Forbes article mentions the prevalence of the Mexican drug trade but it is well known at this point in alternative news circles that US Intel is behind much Western drug trade in order to fund various black and gray ops. Presumably, MI6 and the Mossad are also involved.
The British Crown made a fortune in the 1800s selling opium to the Chinese. Government drug trafficking is an ancient business. In order for something to be maximally profitable, it has to be in short supply. Making something illegal is one way to damp supplies and raise profits.
Conclusion: We figure at some point gold and silver will also come under attack, as that’s the way the world is trending. But in the meantime, these national bans continually pressure more and more freedoms, including the freedom of shielding one’s wealth from prying eyes. And that’s just the point …
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When people raise questions about the utility of the Fed, they are usually lectured about how volatile the economy used to be and how much better it is now, thanks to the wise oversight of our central bank. Recent research has thrown cold water on this claim. Christina Romer finds that the numbers and dating used by the National Bureau of Economic Research (NBER, the largest economics research organization in the United States, founded in 1920) exaggerate both the number and the length of economic downturns prior to the creation of the Fed. In so doing, the NBER likewise overestimates the Fed’s contribution to economic stability. Recessions were in fact not more frequent in the pre-Fed than the post-Fed period.But let’s be real sports about it, and compare only the post-World War II period to the pre-Fed period, thereby excluding the Great Depression from the Fed’s record. In that case, we do find economic contractions to be somewhat more frequent in the period before the Fed, but as economist George Selgin explains, “They were also almost three months shorter on average, and no more severe.” Recoveries were also faster in the pre-Fed period, with the average time peak to bottom taking only 7.7 months as opposed to the 10.6 months of the post-World War II period. Extending our pre-Fed period to include 1796 to 1915, economist Joseph Davis finds no appreciable difference between the length and duration of recessions as compared to the period of the Fed.But perhaps the Fed has helped to stabilize real output (the total amount of goods and services an economy produces in a given period of time, adjusted to remove the effects of inflation), thereby decreasing economic volatility. Not so. Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility, and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for. The ups and downs in output that did exist before the creation of the Fed were not attributable to the lack of a central bank. Output volatility before the Fed was caused almost entirely by supply shocks that tend to affect an agricultural society (harvest failures and such), while output volatility after the Fed is to a much greater extend the fault of the monetary system.When we look back at the nineteenth century, we discover that the monetary and banking instability that existed then were not caused by the absence of a government-established agency issuing unbacked paper money. According to Richard Timberlake, a well-known economist and historian of American monetary and banking history, “As monetary histories confirm…most of the monetary turbulence — bank panics and suspensions in the nineteenth century — resulted from excessive issues of legal-tender paper money, and they were abated by the working gold standards of the times.” In a nutshell, we are faced once again with the faults of interventionism being blamed on the free market.
The theory was that there was a trade-off between unemployment and inflation. But if you go back to the original article by Phillips, he never demonstrates that such a thing exists in the real world. He manipulated and maneuvered the data around to make it look as if there was one. Once his errors are swept away, and the data broken down, the Phillips Curve vanishes as any kind of long-run pattern. It didn’t take stagflation to teach us that. It was always untrue.This raises a much more interesting question. How did the idea ever come to dominate the macroeconomic literature in the first place? Here’s my theory. Recall that Keynesian theory suggests there are no downsides to manipulating aggregate demand through fiscal and monetary policy. If you created full employment, it would stay there and we’d all live happily ever after. It seems paradoxical, then, that Keynesians would embrace a theory that suggests that creating full employment risks generating inflation. Keynes never said that, but people like Paul Samuelson did….It became fairly well recognized, even in the 1950s, that there could be such things as inflationary recessions. That put orthodox Keynesians in big trouble. In order to cover themselves, Samuelson and Solow adopted the Phillips Curve as a model. It served as the means to save themselves from the realization that Keynesianism was fundamentally flawed.When inflation and unemployment increase, they don’t have to throw in the towel on Keynesian theory; they merely claim that the Phillips Curve has shifted outwards. They are saved–until of course the outward and inward shifts of the whole curve dominate movement along the curve. That means the supposed trade-off itself has disappeared. That’s exactly what happened. Many people see that the curve is now discredited. But in fact, it never did stand up. It was an escape hatch built by Keynesians that no longer allows them an escape.
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Among the trading rooms and floors of Connecticut and Mayfair [in London], supposedly sophisticated money managers are raising big questions about QE3 — and whether, this time around, the Fed is not risking more than it can deliver.
Which raises the question, what is it intended to deliver? As suggested in an earlier article here, QE3 is not likely to reduce unemployment, put money in the pockets of consumers, reflate the money supply, or significantly lower interest rates for homeowners, as alleged. It will not achieve those things because it consists of no more than an asset swap on bank balance sheets. It will not get dollars to businesses or consumers on Main Street.
The challenge for Ben Bernanke and the Fed governors since the 2008 bailouts has been how to deal with the backlog of fraud – not just fraudulent mortgages and fraudulent mortgage securities but the derivatives piled on top and the politics of who owns them, such as sovereign nations with nuclear arsenals, and how they feel about taking massive losses on AAA paper purchased in good faith.On one hand, you could let them all default. The problem is the criminal liabilities would drive the global and national leadership into factionalism that could turn violent, not to mention what such defaults would do to liquidity in the financial system. Then there is the fact that a great deal of the fraudulent paper has been purchased by pension funds. So the mark down would hit the retirement savings of the people who have now also lost their homes or equity in their homes. The politics of this in an election year are terrifying for the Administration to contemplate.
With high-paid lobbyists contesting every proposed regulation, it is increasingly clear that big banks can never be effectively controlled as private businesses. If an enterprise (or five of them) is so large and so concentrated that competition and regulation are impossible, the most market-friendly step is to nationalize its functions. . . .Nationalization isn’t as difficult as it sounds. We tend to forget that we did, in fact, nationalize General Motors in 2009; the government still owns a controlling share of its stock. We also essentially nationalized the American International Group, one of the largest insurance companies in the world, and the government still owns roughly 60 percent of its stock.
Bailout or Receivership?
Only if the largest banks are broken up, the part-nationalised outfits turned into genuine public investment banks, and new socially owned and regional banks encouraged can finance be made to work for society, rather than the other way round. Private sector banking has spectacularly failed – and we need a democratic public solution.
Ellen Brown is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com, http://EllenBrown.com, andhttp://PublicBankingInstitute.org.
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