If you would like to add a comment to any of the threads here on AADB, registration with blogspot.com is not required. Simply click on the ‘comments’ link at the bottom of an essay, and either enter a nickname under ‘choose an identity’ or post your comment anonymously. Serious comments are always welcome.


Below are the two final essays to be posted on Allegiance and Duty Betrayed. The first one is written by a friend -- screen name 'Euro-American Scum' -- who, over the past four years, has been the most faithful essayist here. He has written about everything from his pilgrimage to Normandy in 2004 to take part in the 60th–year commemoration of the invasion, to his memories of his tour in Vietnam. His dedication to America’s founding principles ... and those who have sacrificed to preserve them over the past 200+ years ... is unequaled. Thank you, E-A-S. It has been a privilege to include your writing here, and it is a privilege to call you my friend.

The second essay is my own farewell. And with it I thank all of the many regular visitors, and those who may have only dropped in occasionally, for coming here. I hope you learned something. I hope a seed or two was planted. But, even if not, I thank you for stopping by ... 25 March, 2010


Light-hearted 'gif's of the Day
-- and --
Jim Cramer's 'Expert' Advice

Jim Cramer.jpg

Video: Tuesday March 11, 2008: "Bear Stearns is fine!"

Should I be worred about Bear Stearns in terms of liquidiy and get my money out of there? No! No! No! ... Bear Stearns is fine ... Bear Stearns is not in trouble ... Don't move your money from Bear! That's just being silly! Don't be silly! ... Jim Cramer

Mr. Cramer's recent advice was made doubly unpalatable because it was issued, as always, as if he were talking to a group of kindergarteners -- and intellectually-challenged kindergarteners at that. If that unwise advice had been just a simple mistake based on bad information, or lack of information, it would be one thing, but for years this man has been dishing out market advice, ten percent of which smells of financial self-interest, thirty percent of which is flat out wrong, and sixty percent of which the average Joe could tell you himself. That people continue to listen to this man is beyond my comprehension.

~ joanie


John Cooper said...


When assaulted with the absurdities of the modern political (ob)scene, I like to back away, tune all that out, and focus on the important stuff closer to home.

As Walter (google: Jeff Dunham) says, "I don't give a damn."

Anonymous said...


robmaroni said...

Thanks. I needed that. :>)

Dawnsearlylight said...

I wasn't familiar with Cramer until now, but it's been a rough introduction. From the video, he seems like an idiot.

Anonymous said...

LOL! Thanks for starting my day off with a good laugh.

daveburkett said...

The Dow is up 280 points as I write. Nothing positive has happened in the real economy. Nothing positive has happened to the dollar. The Fed has only waved its magic wand over this mess. I wish there was reason for the uptick, but there isn't.

marcus aurelius said...

I heard that the Fed is considering buying mortgage-backed securities in order to shore up the markets. I also heard a conservative analyst say that such a thing should never happen in a country that doesn't have a hammer and sickle on its flag. I agree with the analyst. That would be a major move toward socialism/communism.

john galt said...

I also heard a conservative analyst say that such a thing should never happen in a country that doesn't have a hammer and sickle on its flag.

You can say that again. The Fed has no business buying such things. Talk about abuse of power.

Also all of this movement smacks of protecting the big guys. I've heard very little about the big chunk the average investor lost in the Bear Stearns thing. As usual, the big money guys are covering themselves and the hell with the small investor.

First_Salute said...

Policy Review article, Aug.-Sept. 2001

The Fed's "Depression" and the Birth of the New Deal

- Lawrence M. Stratton and Paul Craig Roberts


* * *

March 19, 2008

livefreeordie said...

The Federal Reserve was formed to make such measures unnecessary. But the wisdom of regulators proved to be far short of the ability of bankers themselves to prevent panics from collapsing the money supply. By concentrating power over the money supply in a few hands, progressives greatly leveraged the power of mistakes. The New Deal and the Great Society are the unfortunate consequences of the progressives’ trust in wise men and their lack of faith in the market. Now that the market has triumphed everywhere and its supposed greatest failure can be seen to have lain with the unwise actions of the wise men themselves, the legacy of the progressives looks more dubious than ever.

From the article you linked, First_Salute.

Timely and brilliant, if frightening.

First_Salute said...

Money Matters

Article today, by Elaine M. (it's her blog):


Describes recent activities of the President's Working Group on Financial Matters (a.k.a. Plunge Protection Team - "PPT").

* * *

March 19, 2008

First_Salute said...

Robert McHugh, Ph.D. explains one of the activities of the Plunge Protection Team, that is mentioned in Elaine M.'s Money Matters article (above).


I confess, that I had thought, that the President's Working Group on Financial Matters (the "PPT"), was advisory --- I did not realize until lately, how much this group was apparently (but not so obviously in the public eye) manipulating the stock market (and presumeably other markets).

The M-3 status, continued after March 2006, can be seen at:


* * *

March 19, 2008

John Cooper said...

F_S: The Elaine Supkis article was superb.

cw-patriot said...

F_S, thanks for the info on the Plunge Protection Team, as difficult to digest as such sickening information is. Great research, as always.

~ joanie

Anonymous said...

How about we get off the economy and back to politics? There's nothing any of us can do about the economy anyway.

T_M said...

A quarter can still buy a gallon of gas. If it's a silver quarter.

First_Salute said...

SEC's Cox steps in it


Incredible! Now the SEC claims that the creditors of Bear Stearns are to blame --- anybody who makes a move to get their money from a bank, is now defined by the federal gov't as being suspect.

So, your money at your bank, the money that you loan to a bank, is the federal government's money, er, make that, the SEC's money?

The federal government/SEC now claims the right to tell you WHEN you can get your money back, if ever, under any circumstance.

That, is what they probably call a "savings plan."

Within one week, the bank, Bear Stearns, is found (behind the curtains where only the Fed and the SEC are privileged to know the actual conditions of the bank, Bear Stearns) to be such a train wreck, that the only way to keep it from getting to the Cassandra Crossing, is to get somebody to buy the bank, IMMEDIATELY, on last weekend, no less, buttressed further by a 0.25 drop in the Fed-control rates!

Within said week, because holders of shares of the bank (and now we have to wonder about the SEC's Christopher Cox's conflict of interest, in his knowing people who have shares of Bear Stearns) who spent this week crying about "how they was robbed," are attempting to spin what was certainly known on the inside, to be a Wreck Looking for a Place to Happen ... into being a Bank Robbery Perpetrated by the Depositors?!

This is such a hoot! First, the government does its thing, in which we have little but to trust, that Bear Stearns must be sold, IMMEDIATELY! Or all financial hell will break loose!

Next, we have the government doing its thing, claiming that there was nothing to see here, folks, other than you rubberneckers who panicked and started to pound on the doors of the bank (pictured x numbers of times thru the week - including captions, such as, "Gee, wish I could buy the building").

So which is it?

Full reverse thrust, and try and get this stopped before it goes over the edge?


The Customer is Always Wrong!

Now, there, you have a crisis in confidence, and it is all inside the government's agencies.

* * *

March 20, 2008

First_Salute said...

Wait, there is more.

First, the bank, Bear Stearns, was solvent according to its leader.

Second, the bank was not solvent, because it was not set up by the same leader, to manage the concerns of the depositors.

Third, the federal government stepped in, because the condition of the bank was bad enough to arrange a sale of the bank.

Fourth, shareholders of the bank, are making a big deal in the public eye, about THEIR being robbed.

Fifth, Bear Stearns continues to borrow in the billions of dollars, on a daily average, from the Fed.

So, is, or is not, Bear Stearns a "collapsed bank?"

Did JPMorgan buy it?

Is now, JPMorgan just walking away?

Has Bear Stearns been reinflated, and are they back in business?

Excuse me, but there is mud to be in somebody's eye, the Fed that brokered the deal, the buyer, the sold-out-er, the customers?

Is this yesterday's news?!

The last ten days did not happen?

Does JPMorgan now sue the government, to get the government to fulfill the sale of Bear Stearns to JPMorgan?

Does the SEC sue all the depositors of the bank, Bear Stearns, for "damages" on the charges of "It's your fault?!" "The bank was just fine, until you asked for your money back!"

Excuse me?! Where is Trafficant, when you need him?!

* * *

March 20, 2008

cw-patriot said...

Absolutely brilliant posts, F_S. Too bad the average Joe has no idea what you're talking about. Even those who've lost their shirts as a result of the kind of corruption/manipulation you describe.

After many years of studying the markets and economy forces (no, I am by no means a market expert), I never cease to be amazed at the way in which the rich and powerful can manipulate anything -- anything. And how they can introduce fudge factors, and conveniently created 'external market forces', whose effects actually dictate the real value of everything on this planet.

The average Joe is completely at their mercy. The big money/power elite could declare an historically valuable entity 'worthless' tomorrow morning -- and declare cow manure to be the most valuable commodity on earth -- and a new economic icon would ensue.

I've heard amazingly little about the 'little people' who put a portion of their savings/retirement into Bear Stearns. Many of them lost fortunes (relative to their net worth). But all the elite are concerned about is 'the system'.

I've had it up to here. All of the political and economic shots are called, and formulated, behind closed doors. The free market is dead. Corruption rules. Big pockets are lined, and little pockets are picked. And the beat goes on.

We saw a program on the History Channel several weeks ago. I believe it was entitled 'After Man' (or something like that). It chronicled what would happen if man disappeared from the planet -- what the planet would look like in one year, ten years, a hundread years -- 'after man'. It was fascinating (the most incredible scene centered around the way in which Chernobyl is coming back, significantly faster than anyone imagined it would). To me, although entirely speculative, it illustrated nature's resiliance (or, put differently, God's eternal power).

I see these market manipulation in somewhat the same way (on a more microcosmic level). The Fed, and all other articifial forces that are chipping away at the free market system, can continue to play games, and invent 'solutions' to their self-created problems -- all the while leaving the average Joe scratching his head and wondering which 'rules' are in play from day to day. But some day, when there exist too many brush fires, and not enough manipulatives strategies with which to extinguish them, market forces will win out. Big time. I hope it happens in my lifetime, and before America's fall.

~ joanie

First_Salute said...

The seedy side

What we are expected to believe in as the best and the brightest work of market analysis, is called "risk management." We see in meeting after meeting, and in the financial literature, the use of formulae that a lot of "experts" go to great length, to format on the pages.

If you want to "raise capital," you have to have those formulae organized and their data and results indicating, this is a well-rewarded venture.

Yet, there is more to "risk management," and it is exactly what you describe: the seedy fudge factors of lawyers and financiers and politicians all conniving to arrange upsets of the free market forces.

For example, before, when the Fed would lower rates, the streetwise logic had it, that would mean more inflation, and in such anticipation, you would see more buying of commodities.

Yet, this week we find the opposite result, so much so, that only collusion on the matter of selling items in exchange for U.S. dollars, on a worldwide scale, could result in commodities (except oil) plummeting, including gold, now down over 100 dollars from its high, not a week ago.

I cannot complain about the dollar's recovery, but I can about the why --- the about face by the Fed and the White House, on the matter of exports.

Both offices insisting on how, exports are needed to soften an entry into any recession. That was top priority, and inflation was not a worry.

Suddenly, inflation data that would show up in the next periods, is skewed badly, by this stunt, that allows the Fed to return to lowering interest rates even more, but now, instead of redefining the CPI (as previously done, to eliminate from it "food and energy"), the Fed may rely upon "external forces" applied by way of some deal it made with foreign central banks.

Curiously, that torpedo in the side of inflation, will be enough to invalidate a claim of "there is inflation," because the data will be largely upset by this deal, to manipulate commodities.

I'm glad to see prices drop, but then, I'm not glad to see the Fed, which claims it must "reflate" and prevent "deflate," to so in-obviously arrange to DEFLATE inflation data, so that more rate drops may be installed.

There seems to be a new dog and pony show, per revelation of whatever data adds up to in some week, only the Fed knows.

Where previously, we were told, that the actions by the Fed, will take some time, months, to show, rather, we find the Fed is furiously throwing levers in order to apply thrust here, then apply thrust there, then here, then there ... in order to perform a "soft" docking maneuver between recession and inflation.

I believe, it could still happen, but it assumes that quite a lot of other external forces do not suddenly, as they say, "impinge" upon either object, quote: "from out of nowhere."

From where, the SEC leader, Chris Cox, has accused us, the people, as being the source.

Yeah. If only the federal government and all these "experts" could get rid of the people, then the formulae of central planning will work --- for the privileged few.

That is, relative to we who must actually, daily, work at maintaining our well-being by exercising near-constant wealth managment at the kitchen table.

I find, that I cannot trust any bank, because nothing that they say, is standing up to the deplore-able conditions there (any of them) put in play by their leaders.

Worse, at the federal level, where, if not to JPMorgan, Bank of America, and Well Fargo, can the Fed go for assistance? When more than a couple of the so-called "regional banks" fails?

The problem is, that the public has the impression that, according to the financial media, some bottom is to be found. When in fact, there is no financial condition of the banks in toto, that represents that there is a bottom yet to be found. It, the bottom, is not there, it is not in sight.

The banks are only held up by a failure by the depositors, to run on the banks, enough.

That actually is our "cash position" in these United States. The banks where most Americans deposit there money, are leveraged so badly, that ANY can be made to fail.

Yet we still see our government refusing to eliminate taxes on dividends, which act would allow investors' money to pour into the banks; and we still see our government elminate taxes on interest income for savings accounts, which would stimulate people to pour money into the banks, too.

We still see our government "experts" attempting to make their "money and banking" Keynesian theories "work."

It, that, is all about central planning and control, because, as you point out, the politicians want credit for what works, but if it means huring the people, to make things work, then the politicians will do just that and blame it all on the people.

This is not a "crisis of confidence" in banking. It is a crisis of confidence in our ability to limit government --- it is a crisis, because our government is, with this financial crisis, trying to build up its power and remove more of ours, by which we limit government.

This problem did not develop because the checks and balances of government were not weak enough --- it developed because the checks and balances against government were not strong enough.

As is the habit of government, for example, as the Fed has lowered rates, "thanks to Greenspan," thus setting off the destructive reactions within the mortgage business, followed by the government solution for this problem of its own making, by FURTHER lowering of interest rates ... so will the government, which relished in more control then, seek more and more control now.

The government will, as usual, claim that "special interests" and other externalities are at fault, when all along, the problems can be traced back to TOO MUCH GOVERNMENT CONTROL AND POWER.

That, by the way, championed by Republicans/RINO's in addition to Democrats.

People who actually believe in liberty and practice limited government, have been savaged by the Republican Party for such peoples' defense of conservative standards.

People who have tried to protect our property from foreign invasion, have been called "vigilantes" by our President, a so-called "Republican."

People who have long wished to save money, could not find any savings plan at any bank, which beat the actual inflation we know exists in our lives.

People who have tried to invest in free markets have been stunned to find their investments deflated, by the government's central planning that claimed to be against deflation.

Everywhere we find the decay of our freedoms, our free market, our free trade --- all caused by too much government power in the hands of the manipulative "experts" from Yale, etc., which this very day, cannot bear to let the free market, free capitalist, freedom to own property, and other free exercises by the people ... exist.

We are at the point where government must have it all, and we are expected to be grateful and especially to not cause any trouble.

Whatever you do, don't go to the bank and withdraw your money --- it will make you a "person of interest."

March 20, 2008

First_Salute said...


Above, meant to say:

and we still fail to see our government eliminate taxes on interest income for savings accounts

March 20, 2008

siliconvalleyguy said...

Whatever you do, don't go to the bank and withdraw your money --- it will make you a "person of interest."

I would be rolling on the floor with the hilarity of that statement, if it weren't so friggin' true.

lori_gmeiner said...

This is not a "crisis of confidence" in banking. It is a crisis of confidence in our ability to limit government --- it is a crisis, because our government is, with this financial crisis, trying to build up its power and remove more of ours, by which we limit government.

This problem did not develop because the checks and balances of government were not weak enough --- it developed because the checks and balances against government were not strong enough.

I'm no financial expert, but I do know enough about the current crisis to know that those statements ring clear and true.

Thank you, First Salute.

First_Salute said...

Some freedom

David Mamet, who has been the writing force behind the successful CBS TV series, *The Unit,* has declared himself free from some of the tyranny of liberals:


His essay begins:

John Maynard Keynes was twitted
with changing his mind. He replied,
"When the facts change, I change my
opinion. What do you do, sir?"

That and other realizations, you may find worth reading in Mamet's declaration of independence.

* * *

March 21, 2008

First_Salute said...

His liberation

More, from Mamet [EXCERPTS]:

"people are each out to make a living, and the best way for government to facilitate that is to stay out of the way"

"But if the government is not to intervene, how will we, mere human beings, work it all out?

I wondered and read, and it occurred to me that I knew the answer, and here it is: We just seem to."

- - -

I mention the above, because it is on that, which the RNC, the Republican Party, has turned away from trusting the people on economic, finance, banking, and money matters.

Where so-called Republicans formerly said what Mr. Mamet now realizes, the modern day RINO wishes to exlude the people from the marketplace, replacing the people with ONLY the consumer and ONLY the voter.

* * *

March 21, 2008

First_Salute said...

Seeking Alpha

Over at that website, in reply to an article:

... this comment was made:

"I suspect that the powers that be, at the ultimate top level, have showed their willingness to swing the axe against a sacrificial "bear" and have told all the others in the penultimate levels (e.g. hedge funds) that they had better shore up their cash reserves, and 'would you please do that by selling a portion of your commodity positions so as we all get some public goodwill less the masses revolt.'"

* * *

First_Salute said...

Mackinac Center for Public Policy

*Great Myths of the Great Depression*


Download the PDF file. It's a good companion to the article mentioned previously, by Lawrence M. Stratton and Paul Craig Roberts.

* * *

calbrindisi said...

First Salute,

Your "Great Myths of the Great Depression" is a keeper. Many thanks! I'll be passing it on.

john galt said...

Nice work, First_Salute. You've provided lots of excellent information. After I digest it myself, I'll be sharing it with some co-workers who are interested.

First_Salute said...

watch out for the whipsaw

One of the major indicators of trouble, that has yet to happen, has been "the plunge" - the down 500 or so; it has yet to happen.

Enough gamblers will continue to be in the stock market, until then.

While, "the whipsaw" is right in front of their eyes, but they will not see it: Over the last week, the DJIA moved thru a range of 600 and then some.

That seems to me, at least, to be record volatility in the current context of our economy.

What the central banks did, to force the sell-off of commodities, had to have forced intense liquidation *and* intense buying, to cover the un-expected. There *must* be some reconcilation, of that, though we do not know when, but that release of such a big torpedo in the water, with no target out there but our own rust-belt-bucket, has gotta hurt.

* * *

John Cooper said...

What I want to know is why the Bear Stearns shareholders were not given the opportunity to vote on the takeover of the company.

And exactly where was that great protector of the individual investor, the SEC?

I hope the shareholders file a trillion dollar suit against the Fed. Wouldn't that be sweet?

First_Salute said...

At the moment "it went down," Two Dollah was *it,* there was the trade, to be settled later.

Whoever was hoodwinked into thinking "it's all over at Bear Stearns," to have ordered this "conservatorship" - that has yet to acquire legs, oddly enough - has a lot of esplaining to do.

On the other hand, why? Because from the looks of things, the whole matter has already acquired a level of, yesterday's news, a flick, a bump, a jolt, it's over.

Forget the whole thing, and let the market and shareholders deal with each other.

Of course, that leaves JPMorgan in a powerful position to refuse further cooperation with *this* Fed, but it also plays into the hands of Bush who probably has somebody already in mind to replace Bernanke.

The Fed chair will be expected to fall on his own knife ("Seppuku"), making way for some new Knight to ride on Wall St.

Sounds like another plan, to keep the plates spinning, the audience wondering, and the whole theatre alive.

You can't make up this stuff.

First_Salute said...

* * *

"BOSTON (MarketWatch) -- Standard & Poor's Ratings Services on Friday revised its outlook on Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. to negative from stable, saying net revenue could decline between 20% and 30% this year after write-downs."

* * *

First_Salute said...

* * *

The Bernanke Plan
(you could call it)

Start with pg. 2 of the downloaded PDF file:


This is the Sitka Pacific Capital Management, March 2008 Letter to Clients.

* * *

John Cooper said...

F_S: Good find. Everyone should read those five pages.

The main thing I got out of it was that Bernanke and his Wall Street buddies are using the word deflation as a con man would (meaning "a pay cut for us"), not in the traditional economic sense of "a decrease in the money supply".

Bernanke claims to be an "expert" on the Japanese economic situation. According to the link, he intends to do everything in his power to prevent a similar situation from developing in the United States. But then the article goes on to state:

Despite the deflation of Japanese stock and land prices over the past 15 years, life for the average Japanese citizen has continued on relatively undisturbed. If fact, on the surface Japan looks like any other prosperous, modern nation. The reason: Japan has consistently had one of the highest savings rates in the industrialized world. When you save more and have less debt, a deflation in prices is not detrimental to your financial survival.

In other words, the "horrible 15-year deflation" in Japan hasn't hurt the prudent among them at all - it's only made life difficult for the con men among them - those that make their living by drawing interest on money that doesn't exist.

First_Salute said...

* * *

Partying Like It's 1929
by Paul Krugman
March 21, 2008
*New York Times*



"Wall Street chafed at regulations that limited risk, but also limited potential profits. And little by little it wriggled free — partly by persuading politicians to relax the rules, but mainly by creating a “shadow banking system” that relied on complex financial arrangements to bypass regulations designed to ensure that banking was safe."

* * *

First_Salute said...

* * *

You are correct, that there is really only one type of deflation that concerns the Fed, and that is the deflation that upsets that risk model game (what I now call the "Rick Model Racket").

That is, their need to rig the externalities --- create and contorl a vaccuum in wich their risk models will net them their predicted gains.

They (the "experts" at the Fed) are not trying to save the economy, rather, they are trying to save their risk models and risk modeling and the "Wow!" factor these models carry into high-powered meetings where deals are made, by those in awe of the numbers.

BTW, I hasten to add, that the now infamous vaccuum, is actually more the work of lawyers who arrange all the board game pieces ( ... and over and over and over ... again).

The "bankers" play with the risk models, and the lawyers make the arrangements.

Deflation ultimately becomes the "GAME OVER" in that staged production, because "negative growth" means no returns on investment and can lead to only portions of returns *of* investment.

The mistaken belief, is that there is no actual investment, and that, there is no actual gain.

When, as you point out, there is slow to moderate growth - and usually comfort, but not "vast riches!"

So, in fact, people save their money at banks, and banks actually make loans, backed by that money and borrowers' collateral.

It just does not all add up to *boom times* for banks, but almost everybody else manages to get along *and without inflation eating up their savings.*

What we want, but not what greedy "investment banks" want for themselves.

In other words, the market is actually left alone, with gov't more out of the way of things, so that prices can go up *and* down in the supply-and-demand marketplace area.

We get by. We make do. We actually can save and at a rate that beats inflation.

Our wish, which is what we once viewed as the pinnacle of trust in a bank manager, whom we understood, and he or she understood, to be in a position of watching carefully over this, *our* progress in our own wealth management, that such a manager represented us, his or her depositors as the lifeblood of the bank and its operations, this is something that was, in my youth, sacrosanct where we kept our money safe.

We had no doubt, and the bank officials had no doubt, of the bank mgt. and officers' duties.

Though your bank name might not say so, almost all banks of this kind of value in our lives, were referred to as "trust and savings banks."

Currently, we are a long distance from that, as *our* assets are now abused by so many corporate bigshots in banking, to be *their* liquidity pools in which, and with which, to play. To make that work, the money had to flow *for them* instead of being conservatively to moderately invested for us - again, part of that trust.

We expected, once upon a time, for our bank to invest our money wisely, and we did not begrudge the bank's profits, as long as long-term growth of our assets prevailed, at least staying ahead of inflation.

For a long time, much of America enjoyed a relatively peaceful and rewarding period in which passbook savings accounts, were very well regarded, bringing in ample deposits, and thus, reserves for the banks. We stayed ahead of inflation or at least near enough to the actualy rate of "kitchen table inflation."

Bankers knew what all that meant to us and for most of America, the board of directors at banks, was made up of productive members of the community; in contrast to what is today, some kind of a joke or circle of, you might say, board room jet setters ... in some cases, outright pirates with very good dental work.

I had a lot of training in the importance of trust in bank management, when I was a kid. The trust department was organized to address trust, in regard to estates, but in all of the bank, all operations were organized to address trust, as a duty to the bank's depositors.

We kept your money safe. You all could run on our bank, and you would all get all of your money (though we, too, would have to call in some loans - if your run forced the matter, and some of those loans might be from you); and after a week of that, being all cleaned out, come Monday, you would be amazed to find that we were still open for business, and you all brought your money back; and we all laughed about it, "What was that!?"

We were a true trust and savings bank, an actual investment bank, not what is now called an "investment bank," which much more accurately, is not a place of trust, but an investment house or firm.

Such a firm *could* engage in more trustworthy, conservative operations, but it would normally come to us, instead of paying a lot of overhead, to be an "all-in-one bank."

You could run an "all-in-one bank," but it ends up being awfully hard on the management, whose duty to you, is trust, but whose duty to the players of the house, risk model management.

The differences are enough, in banking versus risk model managment, that the Congress and the Office of the Comptroller of the Currency et al, should have never let the boundary between these major operations, be blown away by the gov't in the name of "free markets" (as we know, defined by "experts" and lawyers who will arrange and package anything and call it "good."

* * *

* * *

First_Salute said...

* * *

"Risk Model Racket"

(not "Rick" - sheesh!)

* * *

First_Salute said...

* * *

Where the "experts" went wrong:

They knew, that higher rates of return, meant higher risk.

They used to shy away from that, for normal banking operations.

What happened was, that the risk models became much more complex - the advanced models and math - which allowed the "experts" to fool themselves into thinking that the risk models were more accurate - more trustworthy - and, that higher risks were more attainable.

So the "experts" went with it, at a time when coincidentally, other waves of investing progress, thanks to the swell of high technology, carried along with that swell, the higher returns on investment.

The "experts" attributed the "great results" to these newer, more sophisticated risk models, when in fact, the better rates of return, realized, were due to high-tech growth itself.

Along came various large and moderate and small bumps in that high-tech growth, and "just like that," the risk models did not look so good, and every time, Greenspan stepped in to save the risk models and the people playing with them.

Greenspan kept the risk models alive thru the dips, and then the era of the high-tech boom picked up, and the "experts" saw their risk models performing well again.

Few asked questions; it was considered non-whatever to challenge the "experts'" math and multiple letters and publications.

Meanwhile, back at the economy, the high-tech era matured. The housing boom, which was a production of the risk models fever, and could not sustain itself without cheap foreign labor, which President Bush tried hard to supply, always needed real growth in industry and trade, to sustain wage growth along with the inflationary spiral of home prices that had long ago (2002) left home values behind.

Suddenly, we found risk model fever all alone, a probability game with no inherent lift, no forces imparting thrust, other than the Federal Reserve.

Risk Model Fever had finally arrived on its own, all hat, no cattle, flat broke and near busted.

* * *

cw-patriot said...

I love your plain-speak, F_S. :)

You manage to sift through all the corruption, dogma, and hype and come up with the nugget of truth -- filthy though it may be from being buried so long.

When you combine political/financial 'elites', greed, a public steeped in naïveté, nearly unbridled power, and the ability to re-write 'natural' rules, you come up with your Risk Model Fever -- all hat, no cattle, flat broke and near busted.

It's not a pretty picture, but you proved yourself quite an artist.

~ joanie

robmaroni said...

First_Salute, you're seeing much more than the average American does. 20-20 vision I'd say.

From "A Bankrupt Superpower: The Collapse of American Power":

The Bush administration forecasts a $410 billion federal budget deficit for this year, an indication that, as the US saving rate is approximately zero, the US is not only dependent on foreigners to finance its wars but also dependent on foreigners to finance part of the US government's domestic expenditures. Foreign borrowing is paying US government salaries--perhaps that of the president himself--or funding the expenditures of the various cabinet departments. Financially, the US is not an independent country.

A troubled currency and financial system and large budget and trade deficits do not present an attractive face to creditors. Yet Washington in its hubris seems to believe that the US can forever rely on the Chinese, Japanese and Saudis to finance America's life beyond its means. Imagine the shock when the day arrives that a US Treasury auction of new debt instruments is not fully subsribed...

Anonymous said...

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." --- Ludwig von Mises

danthemangottschall said...

From an excellent post on another site by another 20-20 seer:

"Well lets see what our great federal government has given us lately:
1: An unknown number (ridiculously guessed at 12 million)of illegal aliens draining billions of dollars from our economy and corrupting fairness and justice for all. Bringing with them their refusal to assimilate into our culture but carrying their own culture of corruption, crime and low education and skills. Our government not only turned their head on this invasion, but encouraged it and continue to encourage it by talk of “amnesty”.We needed the President to be a statesman and tell the illegals our laws would be enforced and that if they wanted to come here they would have to wait and obey our laws. Instead he encouraged them to break our laws, and they have continued to break many of our other laws. Why not? If somehow amnesty does become law many fraudulent applications will be approved? Last time it was around 40%, this time can't we expect more because of past failure to curb fraud?

2: An unknown number of badly made mortgages, many which were fraudulently made that the government not only encouraged but pushed for with changes in laws. Now they want the innocent conservative taxpayers to pay for the mistakes our government made and that the financial industry made and the included fraud in this debacle. This once again shoots down fairness and justice for all and undermines the principles of which this nation was founded on. We needed the Fed to slow down irrational exuberance years ago but they didn't. We needed them to keep banks highly regulated but they didn't. We needed our Attorney General to caution people about lying on their applications for morgages and the penalties they could face and we needed a few token prosecutions to deliver the point. Nothing was done. Lawlessness once again goes without penalty.

The usual suspects, politicians want us to bail them out again and again and in these two cases, they haven't even defined how much it will cost us. They are used to writing endless checks for their failures without being called on the carpet or taken to task. I am tired of paying for “my” government's mistakes, if things are this bad, let them start by cutting all politicians salaries and pensions similar to what they did to Social Security beneficiaries with WEP and GPO. They made the mess let them pay for it with their dollars. Next start drilling in ANWAR. Charge Iraq for our cost to liberate and rebuild their country. All our leaders seem to do is create bad situations with their bad decisions then try and pass their failures off to us.

Its business as usual, Management by crisis instead of planning ahead and preventing crises. The failures of our government have now encouraged the little people to break our laws as they see crime does indeed pay, its lawfullness that doesn't pay.

The two above bailouts proposed by our leaders are revolutionary in nature and indeed may cause more problems than they solve."

First_Salute said...

* * *

I suspect strongly, that if Bush were to announce drilling in Alaska and in the Gulf, as a matter of national security, OPEC would drop the price to $40/bbl overnight.

I suspect strongly, that OPEC uses the price of oil and the price of gold (OPEC being the largest purchaser of gold), to hold enormous pressure over the dollar and over the head of our President, to get him to do *their* bidding.

* * *

John Cooper said...

I'm glad this subject is still of interest to at least *some* people, since it's already off the media radar screen.

Speaking of risk management, let's take a moment to recall that it was Bill Clinton's 1992 change in the Public Utility Holding Company Act [PUHCA] of 1935 that brought us Enron and the 2001 power crisis in California.

Likewise, it was his 1999 repeal of the Glass Steagall act that turned our once-trusty banks into one-stop financial service and derivatives centers.

This repeal allowed the creation of Citigroup, and former Goldman Sachs CEO, Robert Rubin, was on Clinton's "brain trust" that came up with the idea. In 1999, just by coincidence I'm sure, Rubin became the U.S. Treasury Secretary. These days - by another amazing coincidence - Rubin is drawing a $10 million annual salary as the CEO of Citigroup.

It's an incestuous group, those "financiers". Even that liberal rag "The Nation" is embarrassed about it: Citigroup: Too Big to Fail?:

The fall of Citigroup is a resonant political event--akin to the Republican Party's failure to win reform of Social Security--only this time the bell tolls for the Democratic Party. The creation of Citigroup as an all-purpose financial supermarket and too-big-to-fail banking marvel was very much the accomplishment of Clinton Democrats. They enacted the law in the late 1990s that authorized this megabank monstrosity, with coaching from Treasury Secretary Robert Rubin, Fed chairman Alan Greenspan and of course Sanford Weill, the creative genius who built Citi.

Now that this institution has slid into deep trouble and Rubin has been appointed emergency chairman to rescue it, Democrats inherit the stink. They made this mess possible. Will they now accept the meaning of Citigroup gone sour and begin to undo the damage? That is, undertake reform of the financial system in fundamental ways? I doubt it, though the message is obvious.
I doubt it too. They're going to make it worse.

First_Salute said...

* * *

One explanation of Glass-Steagall ("GSA"):


The view at BusinessWeek.com, in 1999:


The author of the BusinessWeek.com article, was Chris Farrell. In 1999, he said: "Good riddance, Glass-Steagall."

Today, in 2008, he says, in his public radio column

"What about the Wall Street titans who got us into this mess?"

He never minds the liberal political titans who erased the Glass-Steagall Act, dropping the barriers between banks and such a mess; and now, of course, he demands:

"Regulation Is Necessary"

* * *

john galt said...

ALL FIAT CURRENCIES COLLAPSE, because the debt that they represent grows exponentially, eventually overwhelming the ability of any economy to even pay the interest on the debt. This is why interest rates are declining towards zero. Eventually, even interest rates of .1% will be too high to pay and the defaults will implode the financial system. Notice that I did not say the defaults would implode the economy. That will still stagger on, because that is operated by people whole trade real goods and services. It's the financial system that will disappear and be replaced by honest money.

Clearly the system is collapsing now. Last week’s drop of 12% in gold is a sign of instability in the paper system, not a vote of non-confidence in real money. The sell off was contrived by the monetary interests and I expect it will have unintended consequences. For example, taking gold down, means that the perceived value of the US dollar and other paper currencies are raised. But, the problem with taking the price of gold down by raising margin hugely is that the powers that be may have forced any number of hedge funds [or dealers that behave like hedge funds] that were long gold and silver towards bankruptcy.

To save themselves these hedge funds may be forced to sell CDO's and other derivatives that are already illiquid. The values of these derivatives which had been in limbo will be exposed as worthless, and that in turn may expose banks who hold this stuff on their balance sheet as visibly insolvent. It is the rule of unintended consequences biting the manipulators on the butt. Nobody out there understands the complexity of the derivative markets. It's an immense financial domino system, and the plunge protection team may have just tipped dozens of dominoes over. Their collapse is doing to spread and widen until it reaches right back onto the balance sheets of the money center banks. The Fed is going to have to monetize trillions of this crap to stop the dominoes of failure and that's going to kill the dollar and the rest of the fake money out there.

All fiat money is debt. Debt charges a percentage interest rate. All percentage rates generate exponential increase. In time even the smallest percentage interest will exceed the entire economy's ability to pay.

In our world banks create the money we use out of thin air and charge us 5% per year to use it. Eventually the banks end up owning everything and the people are universally bankrupt. It's a form of slavery.


(Few of us can say it any better.)

First_Salute said...

* * *

J. P. Morgan Chase derivatives exposure



"At the end of 2007, J.P. Morgan’s exposure totaled $77.2 trillion in notional value, exceeding that of any other commercial bank, while Bear Stearns had $13.4 trillion in notional value.

Granted, the combined total exposure if the acquisition goes through could amount to less than that, since derivatives involving the two banks themselves would be cancelled. And with over-the-counter derivatives totalling a notional $516 trillion at the end of June 2007, according to the Bank for International Settlements, Bear Stearns’ exposure might look like a drop in the bucket. Still, its failure might have resulted in defaults on contracts held by its counterparties, including J.P. Morgan, though the potential magnitude of the resulting losses is impossible to determine."

* * *

First_Salute said...

* * *

Current theory on money and banking:

The banks all hitched in a circle of greedy jerks, who claim they have got something on which to survive - the assurance of the circle.

When it is the value of their assurances, that are tragically suspect, to the point where they have a hard time trying to trade among themselves.

They think, that the circle will hold, but it is rotten fiber and a ripe opportunity for the un-expected.

They claim, "You can't rip out the chain stitching, because that would be madness and ruin for us all."

That is the same global theory (more accurately: wishful thinking) of our Treasury and U.S. Government.

* * *

First_Salute said...

* * *

MarketWatch.com story, March 27, 2008

"Judges order banks to fund Clear Channel buyout"


About the banks:

"Now they are trying to walk away from their commitment letter which clearly states that they bear all the risk that conditions in the debt markets might change."

* * *

cw-patriot said...

Your 'current theory on money and banking' is spot on, F_S, but for the fact that you're being too kind.

~ joanie

First_Salute said...

* * *

Bush proposes (in effect) to nationalize banks



"The Fed would become the government's "market stability regulator," given sweeping powers to gather information on a wide range of institutions so that Fed Chairman Ben Bernanke and his colleagues could better detect where threats to the system might be hiding."

"The administration plan also proposes a business conduct regulator who would be in charge of overseeing consumer protection issues."

- - -

Now, whoever is in the Fed, will know the financial conditions of formerly competing banks, and among the competitors, will be some with enough power to take control of the Fed and take over control of the competition.

That, in a nutshell, means that Bush is nationalizing our banks, under whichever forces of banks within the Congress, win the contest.

The most-favored bank is J. P. Morgan Chase; but whichever banks are the top three, they will be under the thumb of the Congress, fine-tuning lending to whomever the Congress wants money to flow.

That, in a nutshell, nationalizes U.S. businesses.

* * *

First_Salute said...

* * *

Community Reinvestment Act - Consequences

Mr. Cooper of this forum, really did his homework, today (Saturday, March 29th).

He found these links, which may interest folks, in regard to the "subprime meltdown" and what helped to cause it.

First, what is, the Community Reinvestment Act (of Jimmy Carter's):


Second, the consequences (CNN story):


* * *

First_Salute said...

* * *

Criminalizing Capitalism

Article at city-journal.com:



"When Congress passed SarbOx in 2002, it intended the new law to keep future defendants from arguing, as Lay and Skilling had, that they didn’t understand their own companies’ accounting and financing methods. Sarbanes-Oxley requires that top executives of publicly traded companies and their outside auditors carefully analyze and report on their “internal controls”—their formal checks and balances—to ensure that a new Enron doesn’t happen on their watch. Another requirement calls on CEOs and CFOs to attest to their financial disclosures’ veracity.

While most critics focus on the new regulatory burden that the act imposes—requiring executives to approve thousands of pages of “internal control” documents prepared by thousands of employees—the more frightening aspect is its criminal sanctions. The potential criminal penalty for “willfully” signing off on statements that are less than “fairly representative,” notes UCLA law professor Stephen Bainbridge, is a 20-year prison sentence."

* * *

First_Salute said...

* * *

That's city-journal.org (not city-journal.com).

* * *

First_Salute said...

* * *

Fed Eyes Nordic-style Nationalization of US Banks



"Scandinavia's bank rescue proved successful and is now a model for central bankers, unlike Japan's drawn-out response, where ailing banks were propped up in a half-public limbo for years.

While the responses varied in each Nordic country, there a was major effort to avoid the sort of 'moral hazard' that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.

Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.

'We were determined not to get caught in the game we've seen with Bear Stearns where shareholders make money out of the rescue,' said one Norwegian adviser."

* * *

John Cooper said...

Glenn Beck is devoting an entire show tonight on the Fed takeover of the economy. 7PM EST on CNN Headline Channel.

As far as I'm concerned, this is the single most important issue facing America right now.