Posts tagged Goldman Sachs

We Are In FAR Worse Shape Than We Were Just Prior To The Last Great Financial Crisis

0

 

Source: http://theeconomiccollapseblog.com

By Michael Snyder

We Are In FAR Worse Shape Than We Were Just Prior To The Last Great Financial Crisis

 

Crushed-Car-By-UCFFool-300x300None of the problems that caused the last financial crisis have been fixed.  In fact, they have all gotten worse.  The total amount of debt in the world has grown by more than 40 percent since 2007, the too big to fail banks have gotten 37 percent larger, and the colossal derivatives bubble has spiraled so far out of control that the only thing left to do is to watch the spectacular crash landing that is inevitably coming.  Unfortunately, most people do not know the information that I am about to share with you in this article.  Most people just assume that the politicians and the central banks have fixed the issues that caused the last great financial crisis.  But the truth is that we are in far worse shape than we were back then.  When this financial bubble finally bursts, the devastation that we will witness is likely to be absolutely catastrophic.

 

Too Much Debt

One of the biggest financial problems that the world is facing is that there is simply way too much debt.  Never before in world history has there ever been a debt binge anything like this.

You would have thought that we would have learned our lesson from 2008 and would have started to reduce debt levels.

Instead, we pushed the accelerator to the floor.

It is hard to believe that this could possibly be true, but according to the Bank for International Settlements the total amount of debt in the world has increased by more than 40 percent since 2007…

The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements.
 
The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, according to data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S.’s gross domestic product.

That is a recipe for utter disaster, and yet we can’t seem to help ourselves.

And of course the U.S. government is the largest offender.

Back in September 2008, the U.S. national debt was sitting at a total of 10.02 trillion dollars.

As I write this, it is now sitting at a total of 17.49 trillion dollars.

Is there anyone out there that can possibly conceive of a way that this ends other than badly?

Too Big To Fail Is Now Bigger Than Ever

During the last great financial crisis we were also told that one of our biggest problems was the fact that we had banks that were “too big to fail”.

Well, guess what?

Those banks are now much larger than they were back then.  In fact, the six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger since the last financial crisis.

Meanwhile, 1,400 smaller banks have gone out of business during that time frame, and only one new bank has been started in the United States in the last three years.

So the problem of “too big to fail” is now much worse than it was back in 2008.

The following are some more statistics about our “too big to fail” problem that come from a previous article

-The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.

-Approximately 1,400 smaller banks have disappeared over the past five years.

-JPMorgan Chase is roughly the size of the entire British economy.

-The four largest banks have more than a million employees combined.

-The five largest banks account for 42 percent of all loans in the United States.

-Bank of America accounts for about a third of all business loans all by itself.

-Wells Fargo accounts for about one quarter of all mortgage loans all by itself.

-About 12 percent of all cash in the United States is held in the vaults of JPMorgan Chase.

The Derivatives Bubble

Most people simply do not understand that over the past couple of decades Wall Street has been transformed into the largest and wildest casino on the entire planet.

Nobody knows for sure how large the global derivatives bubble is at this point, because derivatives trading is lightly regulated compared to other types of trading.  But everyone agrees that it is absolutely massive.  Estimates range from $600 trillion to $1.5 quadrillion.

And what we do know is that four of the too big to fail banks each have total exposure to derivatives that is in excess of $40 trillion.

The numbers posted below may look similar to numbers that I have included in articles in the past, but for this article I have updated them with the very latest numbers from the U.S. government.  Since the last time that I wrote about this, these numbers have gotten even worse…

JPMorgan Chase

Total Assets: $1,989,875,000,000 (nearly 2 trillion dollars)

Total Exposure To Derivatives: $71,810,058,000,000 (more than 71 trillion dollars)

Citibank

Total Assets: $1,344,751,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $62,963,116,000,000 (more than 62 trillion dollars)

Bank Of America

Total Assets: $1,438,859,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $41,386,713,000,000 (more than 41 trillion dollars)

Goldman Sachs

Total Assets: $111,117,000,000 (just a shade over 111 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $47,467,154,000,000 (more than 47 trillion dollars)

During the coming derivatives crisis, several of those banks could fail simultaneously.

If that happened, it would be an understatement to say that we would be facing an “economic collapse”.

Credit would totally freeze up, nobody would be able to get loans, and economic activity would grind to a standstill.

It is absolutely inexcusable how reckless these big banks have been.

Just look at those numbers for Goldman Sachs again.

Goldman Sachs has total assets worth approximately 111 billion dollars (billion with a little “b”), but they have more than 47 trillion dollars of total exposure to derivatives.

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 427 times greater than their total assets.

I don’t know why more people aren’t writing about this.

This is utter insanity.

During the next great financial crisis, it is very likely that the rest of the planet is going to lose faith in the current global financial system that is based on the U.S. dollar and on U.S. debt.

When that day arrives, and the U.S. dollar loses reserve currency status, the shift in our standard of living is going to be dramatic.  Just consider what Marin Katusa of Casey Research had to say the other day

It will be shocking for the average American… if the petro dollar dies and the U.S. loses its reserve currency status in the world there will be no middle class.
 
The middle class and the low class… wow… what a game changer. Your cost of living will quadruple.

The debt-fueled prosperity that we are enjoying now will not last forever.  A day of reckoning is fast approaching, and most Americans will not be able to handle the very difficult adjustments that they will be forced to make.  Here is some more from Marin Katusa…

Imagine this… take a country like Croatia… the average worker with a university degree makes about 1200 Euros a month. He spends a third of that, after tax, on keeping his house warm and filling up his gas tank to get to work and get back from work.
 
In North America, we don’t make $1200 a month, and we don’t spend a third of our paycheck on keeping our house warm and driving to work… so, the cost of living… food will triple… heat, electricity, everything subsidized by the government will triple overnight… and it will only get worse even if you can get the services.

All of this could have been prevented if we had done things the right way.

Unfortunately, we didn’t learn any of the lessons that we should have learned from the last financial crisis, and our politicians and the central banks have just continued to do the same things that they have always done.

So now we all get to pay the price.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

 

 

3dnew3-240x300

Image credit: http://theeconomiccollapseblog.com

 

Your new landlord lives on Wall Street

0

 

Source: http://www.againstcronycapitalism.org

By

Your new landlord lives on Wall Street

 

Probably not Wall Street renting this one.

Probably not Wall Street renting this one.

 

In the wake of the housing crash, wide swathes of the desert Southwest, Florida, Atlanta, parts of California, and other places were littered with relatively new homes which were empty. The pre-seeded lawn turf often hadn’t even taken root before the foreclosures began.

Each vacant home represented a personal economic disaster for someone. Families moved in with grandparents. Pets were left in shelters which were filled far beyond capacity. It was only a couple of years ago. For many the memory is still very fresh.

But at about the same time parts of Tuscon started to be reclaimed by tumbleweeds a few hedge funds (and banks) figured that there was yield to be made from renting the homes which were now unused back to the people who could no longer afford to own them. If the homes could be pooled along with the rents, perhaps the investments could even be sold as derivatives.

Market solution right?

Wrong.

Why did the Crash of 2008 happen?

The version we hear now is that Wall Street created all these bizarre instruments for investing, got greedy, and then it all toppled on itself. That’s the version one will hear from outlets like The Washington Post or Time.

Then there’s another version which is liked by the more conservative folks which holds that the Community Reinvestment Act  signed by Clinton encouraged home ownership in places where people really had no business taking on a mortgage. Then the poor risks imploded the market.

Both narratives have a lot of truth to them. Yes Wall Street got greedy. Yes it did create overly complex instruments which went haywire. And yes the Community Reinvestment Act, an insane act of social engineering if there ever was one helped to collapse the market.

But these things are only a part, and not the main part of the story.

The Crash of 2008 occurred because Allan Greenspan panicked in the wake of the 2000 recession and the 2001 attacks on the World Trade Center and Pentagon. He cut interest rates to low and kept them there for too long.

After folks had gotten hammered in the tech bubble collapse of the late 1990s they looked around for a new way to grow money. Baby boomers were staring right at retirement. Suddenly they discovered residential property which could be financed at next to nothing thanks to the Fed keeping rates lower than they should have. Plus many people rationalized, real estate was tangible, unlike tech stocks. Baby boomers, and then their children, piled in because of all the cheap money from the Fed. Before Greenspan knew it he had ignighted a worldwide fire fueled by easy money. The crash was only a matter of time.

But when the carnage came most of the banks (especially the megabanks) emerged. Some, like Goldman Sachs, stronger than ever.  First they were bailed out by the US taxpayer directly to the tune of probably more than a $trillion (we don’t really know.) Then after the acute phase – you know the time when families across the country were waiting in in humiliation for the banks to kick them out of their homes (remember that?)- the Fed began the quantitative easing infusion of monetary junk into the arm of the financial sector.

With time the banks were recapitalized (even if they were now easy money junkies) and fat bonuses were had by many courtesy of the taxpayer.

The former homeowners were not recapitalized however, and found that they had just rejoined the rental market – if they were lucky enough to have a stream of income. 2010- 2011 were especially hard years for many Americans. They were record years for a few of the megabanks.

Now a few years on the recapitalized banks, the insiders, the friends of the Fed, have picked up the homes which were in distress to rent them back to great unwashed. How nice of them. Especially having been bailed out by the great unwashed.

But that is life in a crony capitalist economy. If one has friends in the government one gets hooked up. If one doesn’t one gets to rent one’s house from a faceless PO Box in downtown Manhattan.

And make sure the rent is on time. You wouldn’t want to have us kick you out of your home again would you?

Click here for the article.

Image credit: http://www.againstcronycapitalism.org


Nick Sorrentino
About Nick Sorrentino

Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.

 

Okay Mr. President, you want to talk about “inequality”? Let’s talk about it.

0

 

Source: http://www.againstcronycapitalism.org

By

Okay Mr. President, you want to talk about “inequality”? Let’s talk about it.

 

SOTU-cc-565x376

 

I woke up this morning to Steve Liesman on CNBC explaining the theme of tonight’s State of the Union Address. You see, since 1980 middle class wages have only gone up only 50% in inflation adjusted terms whereas for the top 1% of earners income has gone up by 210%. Something clearly must be done. How can such a disparity be? This is unfair. Can’t the government “solve” this?

The new narrative which has likely been crafted by John Podesta super crony capitalist extraordinaire, is that Congress (specifically the Republican controlled House) isn’t letting the president address the issue of income inequality.

“It’s those old guys who don’t care about you who are holding back the manna from heaven aka Washington DC. It’s their fault not mine. I’m not incompetent and way out of my league even after 5 years in the White House. Not my fault. It’s the selfish and rich Republicans. They want you to remain poor.”

Rally the base when times are bad is the old political wisdom, and they are very bad for this president. Shore up the folks who will defend you no matter what and change the conversation from Obamacare. Anything but Obamacare.

Given that the ACA is Obama’s chief “achievement” to date this is a particularly sad state of affairs. The president’s “pivot” (the word is right up there with “optics” in my book) toward income inequality is a cynical political move. The White House is desperate to regain at least some momentum in the face of a 2013 which was one failure after another.

But since Mr. Obama seems keen on bringing it up, let’s talk about inequality.

Despite what the establishment #oldmedia always say, the increased income inequality that we see is not the result of the “rich” taking advantage of unfettered markets and then making a mint at the expense of everyone else. Capitalism, free markets, free thinking, entrepreneurship, innovation, is not the problem. Capitalism is in most respects the cure. No, the problem is that business and government have increasingly partnered with one another to make some very rich and to shut out others. It’s too little capitalism which is the problem.

Let’s take a look at the most obvious example, Wall Street.

Has Wall Street reaped the windfall it has over the past 5 years because of the free market, because of capitalism?

Absolutely not. Had the free market been allowed to work in 2008 Goldman Sachs, AIG, Citi, Bank of America, and Morgan Stanley would probably be history. These banks leveraged themselves out too far and got caught exposed. Their greed did them in. Mr Market made a margin call and many “masters of the universe” turned out to have feet of clay after all. The banks should have been allowed to collapse so that better managed banks could fill in the space.

The banks weren’t too big to fail. They could have failed and life would have gone on. ATMs would have kept working. The sun would have still risen in the east. The economy after a period of adjustment would have righted itself and emerged much healthier for having jettisoned the poorly managed firms. Lloyd Blankfein would have been out of a job, but he’d have survived somehow in the Hamptons.

But that isn’t what happened as we know. The managers of these institutions knew how to manipulate the levers of power. They were able to engineer a massive bailout, which started at $700 billion and just grew from there. In the years after the bailout bonuses were paid out at the big banks with abandon. These bonuses were for the most part paid for by the American taxpayer. No wonder people are angry.

But the bailouts weren’t capitalism. The bonuses which were paid to Jamie Dimon and friends weren’t a result of “free markets.” They weren’t the just rewards of building a better mousetrap, or even building a better derivative algorithm. They were the result of crony capitalism, a soft form of fascism, which is of course a form of socialism. The bankers made millions because the state redistributed the income of everyday Americans and gave it to Wall Street.

Or take for example the sell off of the taxpayer’s (forced) position in GM at a loss last year. In addition to losing $10 billion on the deal for the taxpayers, the deal done by Treasury unleashes the executives which so long as money was still owed to the taxpayer couldn’t go nuts with executive compensation. Now, after the $10 billion taxpayer loss they and the GM board are free to do as they wish in the pay department.

Or what about the huge percentage of so called “green” energy initiative grants and loans which went to politically connected people in 2009. Folks made millions, in wind, solar, algae, and who knows what else, all again courtesy of the US tax payer. Almost none of the ventures were economically viable. But lots of people got paid that is for sure.

There are probably thousands of other examples over the last 10 years or so (and many more going back way before the past decade,) ranging from war profiteering of all sorts, to cronyism in the new healthcare law, to draconian copyright laws which are a subsidy to Hollywood, to, well, there are many other examples which we have chronicled at Against Crony Capitalism.

So we shouldn’t be surprised that there is so much income inequality. Business and government in this country have partnered up. Sometimes the government has the upper hand. Sometimes business does. But both parties engage in the crony capitalism waltz to enrich themselves, to the exclusion of a large part of the American population.

And at the heart of it all, is the Federal Reserve.

Nothing creates illegitimate inequality (there is legitimate income inequality which exists in a free price system) like the Federal Reserve.

0% interest rates are for the most part pretty good for rich people. Money which is super cheap can be used to speculate and invest at almost no cost. In theory such low rates are also good for home buyers. Low rates keep monthly payments lower. More people buying homes (with lower payments) spurs the economy and then the economy roars back to life as we all buy Sub Zero freezers and SUVs. This was the logic behind the housing boom in the mid 2000s and it is the same logic the Fed is using now (with less success.)

But 0% rates also means that savers are hung out to dry. The prudent middle class is hammered. Those who have a nice nest egg built up over a lifetime of hard work and thrift find that unless they take on significant risk there is no return for their money. $500,000 in a CD not so long ago yielded an yearly payout of $25,000. Now because of the Fed keeping money cheap artificially that same $500,000 might yield $5,000 on an annualized basis if one is lucky.

Over time granny finds that $5000 per year isn’t enough to get by on even though her house is paid off. She finds she must dip into her nest egg a little more each year, which also in turn lowers her already modest yield. Soon the nest egg is gone.

Of course she can always seek increased yield in other places like the stock market, (which though they won’t say it is exactly where the Fed wants granny to put her money) but widows and orphans really have no business there. It’s bad enough for granny to lose her pool of wealth over years. Losing much of it in an afternoon is tougher to take. But that is what our current monetary policy encourages.

Not so long ago granny could keep up. She could beat inflation and pay her living expenses. When she died her wealth was passed on to the next generation.

But now, thanks to the Fed and it’s policies which benefit the hedge fund guys instead of the average saver it is unlikely that much of granny’s wealth will be passed on. Wealth has been pulled from the middle class.

“Inequality” has been exacerbated by a government which is too large. The only way to get the economy on track is to lessen the footprint of government. Free prices. Free markets. Let people create. Make it easier to start businesses

But tonight Obama is unlikely to talk about how after years and years of failure government must now get out of the way. (Boy how great would that be?) Or how government sponsored public/private partnerships steal money from the average American. Or how the government enabled the biggest bonus binge Wall Street has ever seen. Or how granny is getting clobbered because of loose monetary policy.

No, my bet is that he will talk about how the economy has worked for the “rich” while others have fallen behind. But he won’t call for freer markets and an end to price fixing at the Federal Reserve. He will instead insist that government “do something.” What that something is I’m not sure but the term “shovel ready” will likely make an appearance tonight along with its old buddy “infrastructure improvement.”

The president will probably wag his finger at the House GOP a bit and threaten to use executive actions to go around them. He’ll try to look like he means business.

Obama will also talk about the need to raise the minimum wage, which is basically economic suicide but makes for good sound bites. He will give hope to people who are hurting but who unfortunately may not understand that if the minimum wage is raised they may soon be out of a job.

In short Obama will be long on proposals, long on rhetoric, but woefully short on understanding. Pretty much the to story of his presidency.

Image credit: http://www.againstcronycapitalism.org


Nick Sorrentino
About Nick Sorrentino

Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.

 

 

Nigel Farage: Europe Run by Big Banks, Big Business and Big Bureaucrats (Video)

0

 

Source: http://www.againstcronycapitalism.org

By

Nigel Farage: Europe Run by Big Banks, Big Business and Big Bureaucrats (Video)

 

European elections are coming.

UKIP MEPs video capture

UKIP MEPs video capture

YouTube Preview Image

###

Video capture added to original post.

Why Is Goldman Sachs Warning That The Stock Market Could Decline By 10 Percent Or More?

1

 

Source: http://theeconomiccollapseblog.com

By Michael Snyder

Why Is Goldman Sachs Warning That The Stock Market Could Decline By 10 Percent Or More?

 

Time-Is-Up-300x300Why has Goldman Sachs chosen this moment to publicly declare that stocks are overpriced?  Why has Goldman Sachs suddenly decided to warn all of us that the stock market could decline by 10 percent or more in the coming months?  Goldman Sachs has to know that when they release a report like this that it will move the market.  And that is precisely what happened on Monday.  U.S. stocks dropped precipitously.  So is Goldman Sachs just honestly trying to warn their clients that stocks may have become overvalued at this point, or is another agenda at work here?  To be fair, the truth is that all of the big banks should be warning their clients about the stock market bubble.  Personally, I have stated that the stock market has officially entered “crazytown territory“.  So it would be hard to blame Goldman Sachs for trying to tell the truth.  But Goldman Sachs also had to know that a warning that the stock market could potentially fall by more than 10 percent would rattle nerves on Wall Street.

This report that has just been released by Goldman Sachs has gotten a lot of attention.  In fact, an article about this report was featured at the top of the CNBC website for quite a while on Monday.  Needless to say, news of this report spread on Wall Street like wildfire.  The following is a short excerpt from the CNBC article

A stock market correction is approaching the level of near certainty as Wall Street faces a major paradigm shift in how to achieve price gains, according to a Goldman Sachs analysis.

In a market outlook that garnered significant attention from traders Monday, the firm’s strategists called the S&P 500 valuation “lofty by almost any measure” and attached a 67 percent probability to the chance that the market would fall by 10 percent or more, which is the technical yardstick for a correction.

Of course Goldman Sachs is quite correct to be warning about an imminent stock market correction.  Right now stocks are overvalued according to just about any measure that you could imagine

The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock: (1) The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4) EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE and P/B relationship; and compared with the levels of (6) inflation; (7) nominal 10-year Treasury yields; and (8) real interest rates. Furthermore, the cyclically-adjusted P/E ratio suggests the S&P 500 is currently 30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings.

There is a lot of technical jargon in the paragraph above, but essentially what it is saying is that stock prices are unusually high right now according to a whole host of key indicators.

And in case you were wondering, stocks did fall dramatically on Monday.  The Dow fell by 179 points, which was the biggest decline of the year by far.

So is Goldman Sachs correct about what could be coming?

Well, the truth is that there are many other analysts that are far more pessimistic than Goldman Sachs is.  For example, David Stockman, the Director of the Office of Management and Budget under President Reagan, believes that the U.S. stock market is heading for “a pretty rude day of awakening”

“This (2014) is the year of the end game. The party is over. We are now just at the point where they are rounding up the Wall Street drunks who are swilling on the fifth consecutive seasonally maladjusted phony recovery. That will become evident in the weeks and months ahead. Then I think the markets are going to have a pretty rude day of awakening.”

For many more forecasts that are similar to this, please see my previous article entitled “Dent, Faber, Celente, Maloney, Rogers – What Do They Say Is Coming In 2014?

There are also some other signs that we are rapidly heading toward a major “turning point” in the financial world in 2014.  One of those signs is the continual decline of Comex gold inventories.  Someone out there (China?) is voraciously gobbling up physical gold.  The following is a short excerpt from a recent article by Steve St. Angelo

After a brief pause in the decline of Comex Gold inventories, it looks like it has continued once again as there were several big withdrawals over the past few days. Not only was there a large removal of gold from the Comex today, the Registered (Dealer) inventories are now at a new record low.

And of course the overall economy continues to get even weaker.  The Baltic Dry Index (a very important indicator of global economic activity) has fallen by more than 40 percent over the past couple of weeks

We noted Friday that the much-heralded Baltic Dry Index has seen the worst start to the year in over 30 years. Today it got worse. At 1,395, the the Baltic Dry index, which reflects the daily charter rate for vessels carrying cargoes such as iron ore, coal and grain, is now down 18% in the last 2 days alone (biggest drop in 6 years), back at 4-month lows. The shipping index has utterly collapsed over 40% in the last 2 weeks.

So does this mean that tough times are just around the corner?

Maybe.

Or perhaps things will stabilize again and this little bubble of false prosperity that we have been enjoying will be extended for a little while longer.

The important thing is to not get too caught up in the short-term numbers.

If you look at our long-term national “balance sheet numbers” and the long-term trends that are systematically destroying our economy, it becomes abundantly clear that a massive economic collapse is on the way.  Our national debt is on pace to more than double during the Obama years, our “too big to fail” banks are now much bigger and much more reckless than they were before the financial crash of 2008, and the middle class in America is steadily shrinking.  In other words, our long-term national “balance sheet numbers” are worse than ever.

We consume far more wealth than we produce, and our entire nation is drowning in a massive ocean of red ink that stretches from sea to shining sea.

This is not sustainable, and it is inevitable that the stock market will catch up with economic reality at some point.

It is just a matter of time.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here


Image credit: http://theeconomiccollapseblog.com

100 Years of Theft with Bill Still ~ Federal Reserve Come to Mind?

0

 

100 Years of Theft with Bill Still

 

12-11-2013 6-50-05 PM

Next News Video capture

 

YouTube Preview Image

Published by NextNewsNetwork

 

The Federal Reserve became a hot-topic issue among youth during the 2008 and 2012 presidential campaigns of Ron Paul. Young people flocked to the elderly statesman, as he rallied on about an organization nearly 100 years old.

The Federal Reserve went from a organization about which most people knew little, to a front-topic issue. Many people protested in the streets, calling on the government to “abolish the Fed.”

Some politicians have attempted to audit the Reserve, hoping to see how the mechanisms of the group work. They have so far, failed in their attempts to shed light on the institution.

Many government officials, and some economists, say the Federal Reserve is needed to manage the economy. Without it, they predict devastating economic swings, and runaway inflation.

Some critics question that assessment, saying the Reserve creates more problems than it solves.

Bill Still is a writer and political activist. He has written extensively about the Federal Reserve. He is the filmmaker of “The Secret of Oz.” and “Jekyll Island.”

LIVE: http://NextNewsNetwork.com
Facebook: http://Facebook.com/NextNewsNet
Twitter: http://Twitter.com/NextNewsNet
Sub: http://NNN.is/the_new_media
Meet the Next News Team: http://youtu.be/2QnNKwQ2WkY
Hashtag: #N3

Too Big To Fail Banks Are Taking Over As Number Of U.S. Banks Falls To All-Time Record Low

0

 

Source: http://theeconomiccollapseblog.com

By Michael Snyder

 

Too Big To Fail Banks Are Taking Over As Number Of U.S. Banks Falls To All-Time Record Low

 

Lower-East-Manhattan-Photo-by-Eric-Kilby-300x300The too big to fail banks have a larger share of the U.S. banking industry than they have ever had before.  So if having banks that were too big to fail was a “problem” back in 2008, what is it today?  As you will read about below, the total number of banks in the United States has fallen to a brand new all-time record low and that means that the health of the too big to fail banks is now more critical to our economy than ever.  In 1985, there were more than 18,000 banks in the United States.  Today, there are only 6,891 left, and that number continues to drop every single year.  That means that more than 10,000 U.S. banks have gone out of existence since 1985.  Meanwhile, the too big to fail banks just keep on getting even bigger.  In fact, the six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.  If even one of those banks collapses, it would be absolutely crippling to the U.S. economy.  If several of them were to collapse at the same time, it could potentially plunge us into an economic depression unlike anything that this nation has ever seen before.

Incredibly, there were actually more banks in existence back during the days of the Great Depression than there is today.  According to the Wall Street Journal, the federal government has been keeping track of the number of banks since 1934 and this year is the very first time that the number has fallen below 7,000…

The number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp.

And the number of active bank branches all across America is falling too.  In fact, according to the FDIC the total number of bank branches in the United States fell by 3.2 percent between the end of 2009 and June 30th of this year.

Unfortunately, the closing of bank branches appears to be accelerating.  The number of bank branches in the U.S. declined by 390 during the third quarter of 2013 alone, and it is being projected that the number of bank branches in the U.S. could fall by as much as 40 percent over the next decade.

Can you guess where most of the bank branches are being closed?

If you guessed “poor neighborhoods” you would be correct.

According to Bloomberg, an astounding 93 percent of all bank branch closings since late 2008 have been in neighborhoods where incomes are below the national median household income…

Banks have shut 1,826 branches since late 2008, and 93 percent of closings were in postal codes where the household income is below the national median, according to census and federal banking data compiled by Bloomberg.

It turns out that opening up checking accounts and running ATM machines for poor people just isn’t that profitable.  The executives at these big banks are very open about the fact that they “love affluent customers“, and there is never a shortage of bank branches in wealthy neighborhoods.  But in many poor neighborhoods it is a very different story

About 10 million U.S. households lack bank accounts, according to a study released in September by the Federal Deposit Insurance Corp. An additional 24 million are “underbanked,” using check-cashing services and other storefront businesses for financial transactions. The Bronx in New York City is the nation’s second most underbanked large county—behind Hidalgo County in Texas—with 48 percent of households either not having an account or relying on alternative financial providers, according to a report by the Corporation for Enterprise Development, an advocacy organization for lower-​income Americans.

And if you are waiting for a whole bunch of new banks to start up to serve these poor neighborhoods, you can just forget about it.  Because of a whole host of new rules and regulations that have been put on the backs of small banks over the past several years, it has become nearly impossible to start up a new bank in the United States.  In fact, only one new bank has been started in the United States in the last three years.

So the number of banks is going to continue to decline.  1,400 smaller banks have quietly disappeared from the U.S. banking industry over the past five years alone.  We are witnessing a consolidation of the banking industry in America that is absolutely unprecedented.

Just consider the following statistics.  These numbers come from a recent CNN article

-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.

-The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.

-Approximately 1,400 smaller banks have disappeared over the past five years.

-JPMorgan Chase is roughly the size of the entire British economy.

-The four largest banks have more than a million employees combined.

-The five largest banks account for 42 percent of all loans in the United States.

-Bank of America accounts for about a third of all business loans all by itself.

-Wells Fargo accounts for about one quarter of all mortgage loans all by itself.

-About 12 percent of all cash in the United States is held in the vaults of JPMorgan Chase.

As you can see, without those banks we do not have a financial system.

Our entire economy is based on debt, and if those banks were to disappear the flow of credit would dry up almost completely.  Without those banks, we would rapidly enter an economic depression unlike anything that the United States has seen before.

It is kind of like a patient that has such an advanced case of cancer that if you try to kill the cancer you will inevitably also kill the patient.  That is essentially what our relationship with these big banks is like at this point.

Unfortunately, since the last financial crisis the too big to fail banks have become even more reckless.  Right now, four of the too big to fail banks each have total exposure to derivatives that is well in excess of 40 TRILLION dollars.

Keep in mind that U.S. GDP for the entire year of 2012 was just 15.7 trillion dollars and the U.S. national debt is just 17 trillion dollars.

So when you are talking about four banks that each have more than 40 trillion dollars of exposure to derivatives you are talking about an amount of money that is almost incomprehensible.

Posted below are the figures for the four banks that I am talking about.  I have written about this in the past, but in this article I have included the very latest updated numbers from the U.S. government.  I think that you will agree that these numbers are absolutely staggering…

JPMorgan Chase

Total Assets: $1,947,794,000,000 (nearly 1.95 trillion dollars)

Total Exposure To Derivatives: $71,289,673,000,000 (more than 71 trillion dollars)

Citibank

Total Assets: $1,319,359,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $60,398,289,000,000 (more than 60 trillion dollars)

Bank Of America

Total Assets: $1,429,737,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $42,670,269,000,000 (more than 42 trillion dollars)

Goldman Sachs

Total Assets: $113,064,000,000 (just a shade over 113 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $43,135,021,000,000 (more than 43 trillion dollars)

Please don’t just gloss over those huge numbers.

Let them sink in for a moment.

Goldman Sachs has total assets worth approximately 113 billion dollars (billion with a little “b”), but they have more than 43 TRILLON dollars of total exposure to derivatives.

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.

Most Americans do not understand that Wall Street has been transformed into the largest casino in the history of the world.  The big banks are being incredibly reckless with our money, and if they fail it will bring down the entire economy.

The biggest chunk of these derivatives contracts that Wall Street banks are gambling on is made up of interest rate derivatives.  According to the Bank for International Settlements, the global financial system has a total of 441 TRILLION dollars worth of exposure to interest rate derivatives.

When that Ponzi scheme finally comes crumbling down, there won’t be enough money on the entire planet to fix it.

We had our warning back in 2008.

The too big to fail banks were in the headlines every single day and our politicians promised to fix the problem.

But instead of fixing it, the too big to fail banks are now 37 percent larger and our economy is more dependent on them than ever before.

And in their endless greed for even larger paychecks, they have become insanely reckless with all of our money.

Mark my words – there is going to be a derivatives crisis.

When it happens, we are going to see some of these too big to fail banks actually fail.

At that point, there will be absolutely no hope for the U.S. economy.

We willingly allowed the too big to fail banks to become the core of our economic system, and now we are all going to pay the price.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here


Image credit: http://theeconomiccollapseblog.com

 

How algorithms written by coders on Wall Street rule your financial world (yes yours)

0

 

Source: http://www.againstcronycapitalism.org

By

How algorithms written by coders on Wall Street rule your financial world (yes yours)

 

YouTube Preview Image

High frequency trading has changed the investing world, fundamentally. If you do not write algorithms, if you do not benefit from the super dark high frequency trading system, you are on the outs.

Having learned about high frequency trading a few years ago my faith in the stock market was rattled. Then the the Crash hit. Then the Fed started pouring money into the world markets. My faith in the stock market, even as it rose was completely shaken. When I realized what all the new fiat money, coupled with the power of quants meant for the economy I became (and remain) very concerned about the razor edge the world lives on and how far our stock markets have detached from actual real live investing.

It’s not even close to fair for most people in the market. There is a quiet war going on in the ribbons of fiber optics which stretch between Wall Street, Greenwich Connecticut, and beyond.

The new masters of the universe write code. They are programmers.

Below is an amazing documentary. If you have any money in the market you owe it to yourself to watch it.

11-8-2013 6-55-39 PM

YouTube Preview Image

###

Video capture added to original post

###


Nick Sorrentino
About Nick Sorrentino

Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.

 

 

Too Big To Fail Is Now Bigger Than Ever Before

0

 

Source: http://theeconomiccollapseblog.com

By Michael Snyder

Too Big To Fail Is Now Bigger Than Ever Before

 

Lower-Manhattan-At-Night-Photo-by-Hu-Totya-300x300The too big to fail banks are now much, much larger than they were the last time they caused so much trouble.  The six largest banks in the United States have gotten 37 percent larger over the past five years.  Meanwhile, 1,400 smaller banks have disappeared from the banking industry during that time.  What this means is that the health of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley is more critical to the U.S. economy than ever before.  If they were “too big to fail” back in 2008, then now they must be “too colossal to collapse”.  Without these banks, we do not have an economy.  The six largest banks control 67 percent of all U.S. banking assets, and Bank of America accounted for about a third of all business loans by itself last year.  Our entire economy is based on credit, and these giant banks are at the very core of our system of credit.  If these banks were to collapse, a brutal economic depression would be guaranteed.  Unfortunately, as you will see later in this article, these banks did not learn anything from 2008 and are being exceedingly reckless.  They are counting on the rest of us bailing them out if something goes wrong, but that might not happen next time around.

Ever since the financial crisis of 2008, our politicians have been running around proclaiming that they will not rest until they have fixed “the too big to fail problem”, but instead of fixing it those banks have rapidly gotten even larger.  Just check out the following figures which come from the Los Angeles Times

Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.

And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.

We are witnessing a consolidation of the banking industry that is absolutely stunning.  Hundreds of smaller banks have been swallowed up by these behemoths, and millions of Americans are finding that they have to deal with these banking giants whether they like it or not.

Even though all they do is move money around, these banks have become the core of our economic system, and they are growing at an astounding pace.  The following numbers come from a recent CNN article

-The assets of the six largest banks in the United States have grown by 37 percent over the past five years.

-The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and the other 6,934 banks account for only 33 percent of those assets.

-Approximately 1,400 smaller banks have disappeared over the past five years.

-JPMorgan Chase is roughly the size of the entire British economy.

-The four largest banks have more than a million employees combined.

-The five largest banks account for 42 percent of all loans in the United States.

As I discussed above, without these giant banks there is no economy.  We should have never, ever allowed this to happen, but now that it has happened it is imperative that the American people understand this.  The power of these banks is absolutely overwhelming

One third of all business loans this year were made by Bank of America. Wells Fargo funds nearly a quarter of all mortgage loans. And held in the vaults of JPMorgan Chase is $1.3 trillion, which is 12% of our collective cash, including the payrolls of many thousands of companies, or enough to buy 47,636,496,885 of these NFL branded toaster ovens. Thanks for your business!

A lot of people tend to focus on many of the other threats to our economy, but the number one potential threat that our economy is facing is the potential failure of the too big to fail banks.  As we saw in 2008, when they start to fail things can get really bad really fast.

And as I have written about so many times, the number one threat to the too big to fail banks is the possibility of a derivatives crisis.

Former Goldman Sachs banker and best selling author Nomi Prins recently told Greg Hunter of USAWatchdog.com that the global economy “could implode and have serious ramifications on the financial systems starting with derivatives and working on outward.” You can watch the full video of that interview right here.

And Nomi Prins is exactly right.  Just like we witnessed in 2008, a derivatives panic can spiral out of control very quickly.  Our big banks should have learned a lesson from 2008 and should have greatly scaled back their reckless betting.

Unfortunately, that has not happened.  In fact, according to the OCC’s latest quarterly report on bank trading and derivatives activities, the big banks have become even more reckless since the last time I reported on this.  The following figures reflect the new information contained in the latest OCC report…

JPMorgan Chase

Total Assets: $1,948,150,000,000 (just over 1.9 trillion dollars)

Total Exposure To Derivatives: $70,287,894,000,000 (more than 70 trillion dollars)

Citibank

Total Assets: $1,306,258,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $58,471,038,000,000 (more than 58 trillion dollars)

Bank Of America

Total Assets: $1,458,091,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $44,543,003,000,000 (more than 44 trillion dollars)

Goldman Sachs

Total Assets: $113,743,000,000 (a bit more than 113 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $42,251,600,000,000 (more than 42 trillion dollars)

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 371 times greater than their total assets.

How in the world can anyone say that Goldman Sachs is not being incredibly reckless?

And remember, the overwhelming majority of these derivatives contracts are interest rate derivatives.

Wild swings in interest rates could set off this time bomb and send our entire financial system plunging into chaos.

After climbing rapidly for a couple of months, the yield on 10 year U.S. Treasury bonds has stabilized for the moment.

But if that changes and interest rates start going up dramatically again, that is going to be a huge problem for these too big to fail banks.

And I know that a lot of you don’t have much sympathy for the big banks, but remember, if they go down we go down too.

These banks have been unbelievably reckless, but when they fail, we will all pay the price. 

Image credit: http://theeconomiccollapseblog.com

The Most Important Number In The Entire U.S. Economy

0

Source: http://theeconomiccollapseblog.com

By Michael Snyder

The Most Important Number In The Entire U.S. Economy

 

Watching-300x300There is one vitally important number that everyone needs to be watching right now, and it doesn’t have anything to do with unemployment, inflation or housing.  If this number gets too high, it will collapse the entire U.S. financial system.  The number that I am talking about is the yield on 10 year U.S. Treasuries.  When that number goes up, long-term interest rates all across the financial system start increasing.  When long-term interest rates rise, it becomes more expensive for the federal government to borrow money, it becomes more expensive for state and local governments to borrow money, existing bonds lose value and bond investors lose a lot of money, mortgage rates go up and monthly payments on new mortgages rise, and interest rates throughout the entire economy go up and this causes economic activity to slow down.

On top of everything else, there are more than 440 trillion dollars worth of interest rate derivatives sitting out there, and rapidly rising interest rates could cause that gigantic time bomb to go off and implode our entire financial system.  We are living in the midst of the greatest debt bubble in the history of the world, and the only way that the game can continue is for interest rates to stay super low.  Unfortunately, the yield on 10 year U.S. Treasuries has started to rise, and many experts are projecting that it is going to continue to rise.

On August 2nd of last year, the yield on 10 year U.S. Treasuries was just 1.48%, and our entire debt-based economy was basking in the glow of ultra-low interest rates.  But now things are rapidly changing.  On Wednesday, the yield on 10 year U.S. Treasuries hit 2.70% before falling back to 2.58% on “good news” from the Federal Reserve.

Historically speaking, rates are still super low, but what is alarming is that it looks like we hit a “bottom” last year and that interest rates are only going to go up from here.  In fact, according to CNBC many experts believe that we will soon be pushing up toward the 3 percent mark…

Round numbers like 1,700 on the S&P 500 are well and good, but savvy traders have their minds on another integer: 2.75 percent
 
That was the high for the 10-year yield this year, and traders say yields are bound to go back to that level. The one overhanging question is how stocks will react when they see that number.
 
“If we start to push up to new highs on the 10-year yield so that’s the 2.75 level—I think you’d probably see a bit of anxiety creep back into the marketplace,” Bank of America Merrill Lynch’s head of global technical strategy, MacNeil Curry, told “Futures Now” on Tuesday.
 
And Curry sees yields getting back to that level in the short term, and then some. “In the next couple of weeks to two months or so I think we’ve got a push coming up to the 2.85, 2.95 zone,” he said.

This rise in interest rates has been expected for a very long time – it is just that nobody knew exactly when it would happen.  Now that it has begun, nobody is quite sure how high interest rates will eventually go.  For some very interesting technical analysis, I encourage everyone to check out an article by Peter Brandt that you can find right here.

And all of this is very bad news for stocks.  The chart below was created by Chartist Friend from Pittsburgh, and it shows that stock prices have generally risen as the yield on 10 year U.S. Treasuries has steadily declined over the past 30 years…

CFPGH-DJIA-20

When interest rates go down, that spurs economic activity, and that is good for stock prices.

So when interest rates start going up rapidly, that is not a good thing for the stock market at all.

The Federal Reserve has tried to keep long-term interest rates down by wildly printing money and buying bonds, and even the suggestion that the Fed may eventually “taper” quantitative easing caused the yield on 10 year U.S. Treasuries to absolutely soar a few weeks ago.

So the Fed has backed off on the “taper” talk for now, but what happens if the yield on 10 year U.S. Treasuries continues to rise even with the wild money printing that the Fed has been doing?

At that point, the Fed would begin to totally lose control over the situation.  And if that happens, Bill Fleckenstein told King World News the other day that he believes that we could see the stock market suddenly plunge by 25 percent…

Let’s say Ben (Bernanke) comes out tomorrow and says, ‘We are not going to taper.’ But let’s just say the bond market trades down anyway, and the next thing you know we go through the recent highs and a month from now the 10-Year is at 3%. And people start to realize they are not even tapering and the bond market is backed up….
 
They will say, ‘Why is this happening?’ Then they may realize the bond market is discounting the inflation we already have.
 
At some point the bond markets are going to say, ‘We are not comfortable with these policies.’ Obviously you can’t print money forever or no emerging country would ever have gone broke. So the bond market starts to back up and the economy gets worse than it is now because rates are rising. So the Fed says, ‘We can’t have this,’ and they decide to print more (money) and the bond market backs up (even more).
 
All of the sudden it becomes clear that money printing not only isn’t the solution, but it’s the problem. Well, with rates going from where they are to 3%+ on the 10-Year, one of these days the S&P futures are going to get destroyed. And if the computers ever get loose on the downside the market could break 25% in three days.

And as I have written about previously, we have seen a huge spike in margin debt in recent months, and this could make it even easier for a stock market collapse to happen.  A recent note from Deutsche Bank explained precisely why margin debt is so dangerous

Margin debt can be described as a tool used by stock speculators to borrow money from brokerages to buy more stock than they could otherwise afford on their own. These loans are collateralized by stock holdings, so when the market goes south, investors are either required to inject more cash/assets or become forced to sell immediately to pay off their loans – sometimes leading to mass pullouts or crashes.

But of much greater concern than a stock market crash is the 441 trillion dollar interest rate derivatives bubble that could implode if interest rates continue to rise rapidly.

Deutsche Bank is the largest bank in Europe, and at this point they have 55.6 trillion euros of total exposure to derivatives.

But the GDP of the entire nation of Germany is only about 2.7 trillion euros for a whole year.

We are facing a similar situation in the United States.  Our GDP for 2013 will be somewhere between 15 and 16 trillion dollars, but many of our big banks have exposure to derivatives that absolutely dwarfs our GDP.  The following numbers come from one of my previous articles entitled “The Coming Derivatives Panic That Will Destroy Global Financial Markets“…

JPMorgan Chase
 
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
 
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
 
Citibank
 
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
 
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
 
Bank Of America
 
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
 
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
 
Goldman Sachs
 
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
 
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
 
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.

And remember, the biggest chunk of those derivatives contracts is made up of interest rate derivatives.

Just imagine what would happen if a life insurance company wrote millions upon millions of life insurance contracts and then everyone suddenly died.

What would happen to that life insurance company?

It would go completely broke of course.

Well, that is what our major banks are facing today.

They have written trillions upon trillions of dollars worth of interest rate derivatives contracts, and they are betting that interest rates will not go up rapidly.

But what if they do?

And the truth is that interest rates have a whole lot of room to go up.  The chart below shows how the yield on 10 year U.S. Treasuries has moved over the past couple of decades…

10 Year Treasury Yield

As you can see, the yield on 10 year U.S. Treasuries was hovering around the 6 percent mark back in the year 2000.

Back in 1990, the yield on 10 year U.S. Treasuries hovered between 8 and 9 percent.

If we return to “normal” levels, our financial system will implode.  There is no way that our debt-addicted system would be able to handle it.

So watch the yield on 10 year U.S. Treasuries very carefully.  It is the most important number in the entire U.S. economy.

If that number gets too high, the game is over.
###
Image credit: http://theeconomiccollapseblog.com
Follow theeconomiccollapseblog.com to learn more!

Go to Top