You Want To Fix The U.S. Economy? Here's A Start
Submitted by Charles Hugh Smith from Of Two Minds
A simple 8-point plan would restore both the banking and the real estate sectors, and end the political dominance of the parasitic "too big to fail" banks.
Craven politicos and clueless Federal Reserve economists are always bleating about how they want to fix the U.S. economy and restore "aggregate demand." OK, here's how to start:
1. Force all banks to mark all their assets to market at the end of each trading day, including all derivatives of all types, including over-the-counter instruments.
2. Allow citizens to discharge all mortgage and student loan debt in bankruptcy court, just like any other debt.
3. Banks must mark all their real estate to market weekly as defined by "last sales of nearby properties" adjusted for square footage and other quantifiable measures (i.e. like Zillow.com).
4. Require mortgage servicers and all owners of mortgage-backed securities to mark every asset within each pool to market weekly.
5. Any mortgage, loan or note which was fraudulently originated, packaged and sold, including the misrepresentation of risk, the manipulation of risk ratings, fraudulent documentation by any party, etc., will be discharged as uncollectable and the full value wiped off the books and title records without recourse by any of the parties.
If a bank fraudulently originated a mortgage and the buyer misrepresented material facts on the mortgage documents, then both parties lose all claim to the note and the underlying asset, the house, which reverts to the FDIC for liquidation, with the proceeds going towards creditors' claims against the bank.
6. Any bank which misrepresents marked-to-market asset values will be fined $10 million per incident.
7. Any bank which is insolvent at the end of a trading day will be closed and taken over by the FDIC the following day, and liquidated in an orderly manner via open-market auctions of all assets, including REO (real estate owned).
8. All derivative positions held by the insolvent bank will be unwound immediately, and counterparties who fail to make good on their claims will also be closed, given to the FDIC and liquidated.
You know what this is, of course: a return to trustworthy, transparent accounting. And you know what the consequences would be, too: all five "too big to fail" banks would instantly be declared insolvent, and most of the other top-25 big banks would also be closed and liquidated.
At least $3 trillion in impaired residential mortgage debt would be written off, maybe more, and $1 trillion in impaired commercial real estate would also be written down. Derivative losses are unknown, but let's estimate it's at least $1 trillion and maybe much more.
If $5.8 trillion of fantasy "value" is wiped off the nation's books, that's only a 10% reduction in net household and non-profit assets, which total $58 trillion. Even an $11 trillion hit would only knock off 20%. If that's reality, if that's what the assets are really worth in the real world, then let's get it over with. Once we've restored truthful accounting and stopped living a grand series of debilitating lies, then the path will finally be clear for renewed growth.
The net result would be the destruction of the political power of the "too big to fail" banks, the clearing of the nation's bloated, diseased real estate market, and the restoration of trust in institutions which have been completely discredited.
Bank credit would flow again, and we could insist on a healthy competitive system of 250 small banks instead of a corrupting system of 5 insolvent parasitic monsters and 20 other bloated but equally insolvent financial parasites.
Those who lied would finally get fried. At long last, those who misprepresented income, risk, etc. would actually pay some price for their malfeasance. Criminal proceedings would be a nice icing on the cake, but simply ending the pretence of solvency would go a long way to restoring banking and real estate and ending regulatory capture by TBTF banks.
What's the downside to such a simple action plan? Oh boo-hoo, the craven politicos would lose their key campaign contributors. On the plus side, the politicos could finally wipe that brown stuff off their noses.
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I urge everyone to read this entire piece. It's very informative, especially if you need a refresher on how debt and fiat currency has affected the world. Here are some of the highlights.
THE PRIVATEER
The aftermath of the 1929 crash ended them in the US and all over the world. Neither have ever resurfaced. But the trap did not snap completely shut until the last vestige of a Gold connection to the money in circulation was extinguished on August 15, 1971.
That was 40 years ago. For the past two generations, the world has lived with a financial system which is ENTIRELY composed of promises to pay. The “reserve” at the base of this pyramid of debt is the
promises to pay of government, aka sovereign debt. And the “reserve” under this sovereign debt is the
sovereign debt of the issuer of the reserve currency - the debt paper issued by the US Treasury.
Not one penny of US Treasury debt has been repaid for 51 years - the last time that US government
funded debt actually decreased on a year-to-year basis was 1960. Ninety-seven percent of today’s funded Treasury debt total has been accumulated since August 1971. Sixty percent of it has been added in the past decade. Forty percent of it has been added since the first signs of the GFC emerged in early 2007.
Assumptions on Greece:
“How can a nation of 11 million people expect to pay off a government debt amounting to 475 Billion
Euros?” We have read variations on this question many times in the mainstream financial media. We
have yet to read this question: “How can a nation of 310 million people expect to pay off a (funded)
government debt amounting to $US 14.5 TRILLION?” If you do the arithmetic you will see the ratio of debt to population is slightly lower in Greece than it is in the US.
Over the past eighteen months, the average servicing costs of existing Greek sovereign debt have at least quintupled. Greek debt as a percentage of Greek GDP is rising fast. Why? Because Greek government borrowing (a component of any nation’s GDP) is being constrained by the blowout in yields. Greece isheld to be a basket case facing the inevitability of default because they cannot devalue their currency.
Since the early 1980s, the average Fed Funds rate has been 5.7 percent. Since the end of 2008, it has been 0.00 percent. In their projected deficits between now and 2020, the Obama administration assumes a rate of 2.5 percent. A return to the average rate would add $US 4.9 TRILLION to the deficits. Further, the size of the deficits depend on an assumption of annual growth rates averaging 4.2 percent over the next three years. A normal growth rate of 2.5 percent would blow out the deficits by another $US 4 TRILLION by 2020. The US CAN devalue its currency and has been doing so for ten years. It is held to be solvent because it CAN raise its debt “limit”. Greece can’t do either. That’s the only difference.
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License Plate Lawsuit
The complaint alleges Linlor requested a personalized license plate of “GOPALIN” in 2009 and 2010, but the DMV denied his applications, stating the request was "vulgar or obscene or expressing superiority of political affiliation."
Despite the judge’s decision, the complaint alleges the DMV again denied Linlor’s request for a “GOPALIN” plate. Meanwhile, Linlor discovered the DMV had issued other politics-related license plates, including “GOGREEN,” “DMOCRAT,” “AL GORE,” “KERRY,” “EDWARDS,” “DEAN,” “HILLARY” and “RONPAUL,” while rejecting requests for “REPBLCN” and “BUSH,” the complaint alleges.
When Linlor applied for a “GO OBAMA” plate, the DMV approved it, he alleges.
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Govt Wastes $300 million on Navy Ships Headed to Scrap Heap
They are the two ships no one wanted, almost constantly embroiled in one dispute or another for the past 25 years. The two Navy behemoths have never gone on a mission, were never even completed, yet they cost taxpayers at least $300 million.
Now the vessels, the Benjamin Isherwood and the Henry Eckford, are destined to leave Virginia waters for good and be scrapped at a Texas salvage yard, with no money coming back to the U.S. Treasury.
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In full disclosure, I own some of these coins for this exact reason. This is from Steve Sjuggerud, who writes a piece called True Wealth.
This Soars in a Gold Bull Market, But You Haven't Missed It Yet
In every gold bull market since we went off the gold standard 40 years ago, this particular asset has soared by hundreds of percent.
But so far in this current bull market, this asset hasn't done a darn thing.
If this asset does what it's done in every other gold bull market, hundreds of percent gains lie ahead...
In the 1972-1974 gold bull market, this asset soared 348%.
In the 1976-1980 gold bull market, this asset soared 1,195%.
And in the much smaller 1986-1989 gold bull market, this asset still soared hundreds of percent.
Now we're in the greatest gold bull market since the 1970s. Gold is up 477% over the last 10 years. But this particular asset is only up about 25%.
In True Wealth, I recommend a slightly higher-quality coin: a pre-1933 Saint-Gaudens that's been graded as just about perfect (a grade of MS-65 by one of the two major grading companies) and is sealed in a tamper-proof container. These coins are much rarer than the raw coins... yet they sell for about $2,300 – the smallest premium in history relative to their melt value.
To give you an idea, at the peak of the last bull market in gold, these particular coins sold for nearly 10 times the price of gold. Ten times the price of gold today would be over $15,000 for these coins. But you haven't missed a thing... You can buy them for $2,300 today.
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This last quote is from Stansberry Research's Digest. If Goldman Sachs is having trouble making their numbers, I can only imagine how tough it is for the other banks. I'm not a fan of bank stocks. I think they will be the first and hardest hit in a market correction.
S&A DIGEST
Forgive us if our schadenfreude is showing. But the destruction of the paper money system appears to be working its magic, even on the indestructible Goldman Sachs...
Goldman's second-quarter profit of $1.05 billion was considerably below analyst expectations and only the fifth time it's missed estimates in its 12 years as a publicly traded company. Goldman's revenue sank in its fixed-income, currency, and commodity trading (normally the bank's outperformer) divisions. The reason, according to CEO Lloyd Blankfein: "Certain of our businesses had disappointing results as we reduced our market risk in response to attempting to manage fluctuations in prices and market liquidity."That's obviously pure B.S. But I think it means something like, "We tried to lever up during the quarter and then lever back down in time to report big profits and a lighter balance sheet in our SEC filings, the same scam we've been running since we went public. But this time it just didn't work. We're not sure why, but our government spies aren't answering their phones as quickly as they once did."
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