Zero Hedge ran a post today about the fact that subscribers can pay for a 3 minute advance look at the Chicago PMI before it is released to the “general public”. The Chicago PMI “indicates how vibrant regional manufacturing activity is. An index value of 50 or higher indicates increasing busi-ness activity; below that indicates decreasing activity”. Today the PMI for September came in at 46.1 which was below the estimate of 52. The market tanked exactly 3 minutes before the PMI number was released to the general public. Bespoke Investments says it all:
While there appears to be nothing illegal taking place, it does provide another example of how the market is stacked against the individual investor.
While it is true that there is nothing currently illegal taking place —–it should be made illegal. Imagine if a company CEO said he was going to sell subscribers to his newsletter a 3 minute advance look at his company’s sales, orders or earnings? Yet the firm that compiles the Chicago PMI (Kingsbury International) gets to sell market moving information in advance to a select few well heeled folks… The SEC will probably start it’s own advance-look-at-information vending arm soon…like the NYSE has already done. It’s a hell of a set-up the crooks have built for themselves.
Gretchen Morgenson in the NYT reports on the growing challenge of the Mortgage Electronic Registration System (MERS). The registry eliminates the need to record changes in property ownership in local land records, without having to make recording at local county court houses.
As cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, was among the first to argue that MERS, which didn’t own the note or the mortgage, could not move against a borrower…. Initially, judges rejected those arguments and allowed MERS foreclosures to proceed. Recently, however, MERS has begun losing some cases, and the Kansas ruling is a pivotal loss, experts say.
In April 2006, Mr. Kesler filed for bankruptcy. That July, Landmark National Bank foreclosed. It did not notify either MERS or Sovereign of the proceedings, and in October, the court overseeing the matter ordered the property sold. It fetched $87,000 and Landmark received what it was owed. Mr. Kesler kept the rest; Sovereign received nothing….Days later, Sovereign asked the court to rescind the sale, arguing that it had an interest in the property and should have received some of the proceeds. It told the court that it hadn’t been alerted to the deal because its nominee, MERS, wasn’t named in the proceedings.
The court was unsympathetic. In January 2007, it found that Sovereign’s failure to register its interest with the county clerk barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn’t have an interest in the underlying property….By letting the sale stand and by rejecting Sovereign’s argument, the lower court, in essence, rejected MERS’s business model.
Denninger picked up on this story earlier than the NYT from a Huffington post and speaks to the real implications of the story. It’s not about MERS and really not about second mortgage holders, it’s about the mortgage backed security holders in general:
The real bottom line here is that securitized bondholders may in fact be holding worthless pieces of paper. My hollering about this began in April of 2007, right when The Ticker began publication, and continued all through 2007….How long will it be before an enterprising attorney or firm decides to put together a class action with all of the bondholders who are certain to get hosed down the road? Good question. It is in fact one of the mysteries of the present mess that we haven’t seen a significant push in this direction as of yet.
We don’t know how long it will be either, but it could mean some big fees for the lawyers and a very rude awakening for the CMBS owners. Just when the FED thought it had all the skeletons securely locked in the closet…
Sen. John Ensign (R-Nev.) received a handwritten note Thursday from Joint Committee on Taxation Chief of Staff Tom Barthold detailing the penalty for failing to pay the new proposed “fee” for not buying health insurance.
Barthold said violators could be charged with a misdemeanor and could face up to a year in jail or a $25,000 penalty.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
- Thomas Jefferson
Quick! Get out the green spray paint and cover this up: “Durable Goods Orders in U.S. Unexpectedly Decreased“.
Orders for goods meant to [last] several years dropped 2.4 percent, the worst performance since January, the Commerce Department said today in Washington. Excluding transportation equipment, orders were little changed. Restrained consumer spending and near-record excess capacity mean companies will probably not boost investment in new plants or equipment in coming months. The report indicates the jump in auto sales from the Obama administration’s $3 billion trade-in program may not give other industries a jolt, raising concern any factory rebound will be uneven.
No problem, the banks will still be able to game the stock market and give the government their share, so all is well…
In essence, the government has passed the baton on to the banks so they can keep the party going. This phenomenon has been most evident in bank earnings. Banks are in the business of lending, but an odd thing has occurred while bank earnings soared – they were doing no lending! Banks have been hoarding record amounts of cash as the government floods their balance sheets via various programs and bailouts. Many assume that the banks are either attempting to loan the money or simply letting it sit on their balance sheets earning nothing. But Moonraker’s analysis raises a more nefarious possibility – the banks are effectively creating a ponzi run stock market in which they use the bailout money to drive various market prices higher and thereby juice their own earnings. It’s quite brilliant when you think about it – until the music stops.
Who’s in charge of the music?
In a review of Richard A. Posner’s book, A Failure of Capitalism, the following “facts and causes” of the current financial crisis and recession/depression are cited:
… excess savings flowing in from Asia and the reckless lowering of interest rates by the Federal Reserve Board; the relation between executive compensation, short-term profit goals, and risky lending; the housing bubble fuelled by low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and the highly leveraged balance sheets of large financial institutions.
The idea contained in the title of this book is that because these conditions arose, capitalism failed. So, many people argue, since Capitalism can fail, then perhaps we should try something else: perhaps bigger government and more control, directly or indirectly, of the means of production. Posner’s conclusion is that:
… the pendulum swung too far and that our financial markets need to be more heavily regulated.
But the NYT’s review says Posner goes even further:
We are learning,” Posner writes, “that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails… Posner thinks laissez-faire economics has nothing relevant to say.
To those who accept Posner’s conclusions, the possibility that government interference in the market economy was the original cause of, rather than the cure of, the current crisis is never mentioned. The possibility that the current government interference is aggravating the current downturn is also dismissed. The Wikipedia post on Capitalism asserts that there is “little controversy that private ownership of the means of production, creation of goods or services for profit in a market, and paid employment are elements of capitalism.”
Ok, since there’s “little disagreement” for these elements, let’s start with them. Based on these, it appears that the idea of Capitalism is really not much more than an ideal similar to the free, non-monopolized, yet, non-regulated markets theorized by economists when they talk about the concept of “pure, or perfect competition”. Thus, for example, Wikipedia’s definition of perfect competition indicates that the economy’s markets, if they were “ideal” and fit the definition of “perfectly competitive”, they would be characterized by:
- Many buyers/Many Sellers – Many consumers with the willingness and ability to buy the product at a certain price, Many producers with the willingness and ability to supply the product at a certain price.
- Low-Entry/Exit Barriers – It is relatively easy to enter or exit as a business in a perfectly competitive market.
- Perfect Information – Prices are assumed to be known to all consumers and producers.
- Transactions are Costless – Buyers and sellers incur no costs in making an exchange.
- Firms Aim to Maximize Profits – Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
- Homogeneous Products – The characteristics of any given market good or service do not vary across suppliers
Of course, no economy has perfect competition and… no economy represents the ideal Capitalism. For example, let’s take “private ownership of the means of production”. If a few individuals, or a few private groups own (or control) all the means of production, we have monopolies or oligopolies. Technically, we might have some vague form of “capitalism”. But most of us would agree (except the lucky owners) that this kind of “capitalism” is far from the ideal. Also, this version dominated by monopolies and oligopolies, will ultimately, fail.
Now let’s combine the next two items in the list of accepted elements relating to Capitalism: “creation of goods or services for profit in a market” and “paid employment”. When we combine these two elements, we are merely lumping the return to capital and the return to labor together, for simplicity. Although one might be traditional and include “raw land”, too; both labor and capital are, in fact the main “means of production”. So the essential elements of capitalism include a return or remuneration to the owners, or controllers of the means of production. Ok, our ideal Capitalism now involves private owners, or controllers of the means of production (labor and capital) AND, from the previous paragraph, we don’t want monopolies or oligopolies to be the owners or controllers.
To the extent that monopolies and oligopolies control the means of production and to the extent that our government directly owns the means of production (communism), or indirectly controls it, through taxation and regulation (socialism), we don’t have the Capitalism ideal. Indeed, a growing special interest group that includes the current President of the United States, despises and opposes the very idea of private ownership or private control of the means of production, even by monopolies or oligopolies – unless, of course those oligopolies are subject to the control of the government elites. To the extent that these groups are in control in our country, we cannot say that Capitalism has failed, since we don’t have Capitalism.
So when our markets lock up, prices go extreme (up or down), and unemployment rises, does that mean that Capitalism, or perfect competition failed? Duh! We don’t have those things! They are ideals – theoretical concepts – that did not exist to begin with, and cannot logically be said to have failed.
What did fail? Well…how about government? Is it not government that is supposed to prevent special interests from gaining “unfair” monopolistic advantage? Is it not our government that is “supposed” to avoid favoritism between special interest groups? And who are the special interests who have recently obtained so much control that they now effectively control the government itself? Well…for one, the banks control the Federal Reserve and the Federal Reserve says it must remain free from “government oversight”, meaning it wants to remain a creature of the banks. Recall that Posner said the easy money policy of the Federal Reserve was a major cause of our current predicament. Further, Simon Johnson (among many) argues the banks have captured the government in a “Quiet Coup”. So, government has failed us miserably in fostering Capitalism. But Capitalism hasn’t failed; it’s government that failed! Our government has been taken over by the special interests.
One of the best analysts on Wall Street, Josh Rosner muses on the question of recent potentially illegal or unethical activities by financial institutions:
…in a time of national crisis we had institutions that were unwilling to put aside their lobbying, put aside their will to power, and recognize they had a greater obligation to the country. This is part of why I said capitalism in its purest form doesn’t work because they would assert their primary duty is their fiduciary obligation to their investors. However, I would say part of fulfilling your fiduciary obligation to your investors is to make sure there is a playing field on which to bring your ball and bat every week. Do I think they tried to maximize their returns in this crisis and minimize the losses they would have to recognize? Absolutely, no question. Is that wrong? I’m not an ethicist, so this is one man’s opinion: Yeah, I think in some sense it is wrong. How do we square that circle? That’s for the government to determine. But I do question whether our Founding Fathers intended for corporations to have the same rights as citizens.
Indeed, the government must create a level playing field without bias and payoff…and it has failed miserably to do so with respect to the financial institutions. But the banks and the ideologues are not the only special interests that control our government and direct it to allow the subversion of practical Capitalism. Not hardly. Besides the banks, other large corporations, notably the oil companies, as well as labor unions and political action groups, all have gained so much sway over our government that – until we eliminate that sway – Capitalism will never flourish in the United States. Indeed, the failure of government to remain free from the special interests is a central argument in favor of laissez-faire economic policies. The Wikipedia post on laissez-faire economics says that the laissez-faire champion, the Chicago School of Economics and other advocates:
…claim to favor a state that is neutral between the various competing interest groups that vie for privileges and political power in a country. They are critical of mixed economies on the grounds that it leads to an interest-group politics where each group is seeking to benefit itself at the expense of another and the consumer… any government intervention such as regulation, protectionism, creating legal monopolies, competition laws, or taxes, interfere with the [market’s judgment] being reflected accurately in the [market] price and the maximization of economic utility.
Laissez-faire assumes the existence of a vigilant, but unbiased government. The collusion between government and the special interests is possibly many things, but conducive to Capitalism is not one of them. Washington’s blog has a good post which suggests that the partnership of the special interests and the government that is preventing Capitalism in the United States is not really communism, or even socialism, it’s fascism:
Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:
What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as “financial fascism” [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company’s corporate ancestor, which made out quite well until Hitler’s bubble burst.
Is Scheer right? I don’t know. But Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because “the State pays for the blunders of private enterprise… Profit is private and individual. Loss is public and social” (page 416). This perfectly mirrors Roubini’s statement about the American government’s bailout plan….Remember that one of the best definitions of fascism – the one used by Mussolini – is the “merger of state and corporate power“.
Demonstrators from both the left and the right want to make a shocking point and gain attention by portraying both the previous president and the current one as fascist, but underneath there appears to be instinctive recognition by society of this trend toward fascism . One can hope so…before it’s too late:
Whatever the name of this demon: Socialism, Communism, or Fascism… it needs exorcism. However, just electing a new party that promises “change” is obviously not good enough. In the recent election, we merely swapped one set of special interests (like oil companies and oil service companies) for another (like unions and socialists). New laws ARE necessary – perhaps even a change or two in our constitution – to eliminate the control of our government by “partnering” special interests. In general, the sway that special interests now have over our election cycle is pitiful.
Making all campaign contributions from any entity (other than $2500 per individual) illegal would be an awesome step in the right direction. In addition, we need to stop all special interest advertising for six months prior to congressional and presidential elections. Ten year term limits on all congressional seats would also be an excellent way to make the influence that any special interest may gain over any particular congressman or woman to die a natural death when their term expires.
More specifically, the Ponzi scheme that is the Federal Reserve needs to be eliminated. Our new special interest-free government should be able to take over supervision of the Federal Reserve from the banks that now perform that function. Indeed, banks regulating themselves just won’t cut it! Further, NO bank or any other firm should be allowed to get large enough to control 5% or 10% of an industry. We have laws that preclude this sort of thing (i.e. Sherman Antitrust Act and other banking laws) that are already on the books! But our government has failed to enforce them. Why? It’s simple: SPECIAL INTERESTS OWN OUR GOVERNMENT.
Harry Reid is said to be planning to force the health care bill through the Senate using the “nuclear option” of Reconciliation.
The Nevada Democrat, who has issued similar threats before, spoke as the Senate Finance Committee began debate over Chairman Max Baucus’ reform plan. Reid threatened to use a budgetary tool called reconciliation — also known as the “nuclear option” — that would allow Democrats to pass key parts of the legislation with a simple majority, as opposed to the 60 votes needed to avoid a Republican filibuster. “If we can’t work this out to do something within the committee structure, then we’ll be forced to do the reconciliation,” Reid said, adding that he views that as a “last resort.”
Newt points out that the original purpose of the US Senate was to force a slower deliberative process to occur that dampened a majority controlled House Of Representatives:
The Founding Fathers designed the Constitution and our government to guard against political power grabs by slowing down the process of making laws…. They insisted that the Senate had to be a deliberative body to slow down the passions of the House and stop mob rule from destroying freedom…. In a famous conversation between the two presidents, Thomas Jefferson is said to have asked George Washington why the Framers had agreed to a second chamber in Congress at the 1787 Constitutional Convention. “Why did you pour that coffee into your saucer?” Washington asked him. “To cool it,” said Jefferson. “Even so,” said Washington, “we pour legislation into the senatorial saucer to cool it.“
Newt also points out that Democrat Senator Robert Byrd helped craft the rules allowing for Reconciliation to avoid stalemates in the budgetary process – but not for issues like health care and has strongly urged his colleagues to refrain from using reconciliation to force health care legislation through the Senate:
“Using the budget reconciliation process to pass health reform and climate change legislation…would violate the intent and spirit of the budget process, and do serious injury to the constitutional role of the Senate.”
Once this nuclear option is unleashed, there is no taking it back. The Democrats better consolidate power into their dream dictatorship because if they ever lose control of both houses again, the collateral damage from the explosion they set off now could be truly be frightening. We predict that the new role of the Senate as dispenser of vengeance on the opposition party will be terrible to behold.
An article at the WSJ, outlines an interview of President Obama on ABC’s “This Week” with George Stephanopoulos. In the interview, Stephanopoulos asked the President about the “Individual Mandate” in Baucus’s senate healthcare bill, which the President supports. The “individual mandate” would require anyone that did not purchase health care to pay a penalty (according to Mr. Obama, not a tax) of $3,800 a year.
This mandate would, in effect, force people to spend money (on a service which the Government provides) and fine them if they didn’t want to. If that’s not a tax, I don’t know what is. Here are some quotes from the interview:
“Well, hold on a second, George,” Mr. Obama replied. “Here’s what’s happening. You and I are both paying $900, on average—our families—in higher premiums because of uncompensated care. Now what I’ve said is that if you can’t afford health insurance, you certainly shouldn’t be punished for that. That’s just piling on. If, on the other hand, we’re giving tax credits, we’ve set up an exchange, you are now part of a big pool, we’ve driven down the costs, we’ve done everything we can and you actually can afford health insurance, but you’ve just decided, you know what, I want to take my chances. And then you get hit by a bus and you and I have to pay for the emergency room care, that’s . . .”
“That may be,” Mr. Stephanopoulos responded, “but it’s still a tax increase.” (In fact, uncompensated care accounts for about only 2.2% of national health spending today, but that’s another subject.)
Mr. Obama: “No. That’s not true, George. The—for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase. What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore . . .” In other words, like parents talking to their children, this levy—don’t call it a tax—is for your own good.
Mr. Stephanopoulos tried again: “But it may be fair, it may be good public policy—”
Mr. Obama: “No, but—but, George, you—you can’t just make up that language and decide that that’s called a tax increase.”
“I don’t think I’m making it up,” Mr. Stephanopoulos said. He then had the temerity to challenge the Philologist in Chief, with an assist from Merriam-Webster. He cited that dictionary’s definition of “tax”—”a charge, usually of money, imposed by authority on persons or property for public purposes.”
Mr. Obama: “George, the fact that you looked up Merriam’s Dictionary, the definition of tax increase, indicates to me that you’re stretching a little bit right now. . . .”
Mr. Stephanopoulos: ”I wanted to check for myself. But your critics say it is a tax increase.”
Mr. Obama: ”My critics say everything is a tax increase. My critics say that I’m taking over every sector of the economy. You know that. Look, we can have a legitimate debate about whether or not we’re going to have an individual mandate or not, but . . .”
Mr. Stephanopoulos: “But you reject that it’s a tax increase?”
Mr. Obama: “I absolutely reject that notion.”
The Congressional Budget Office forecasts that the mandate will result in $20 Billion in revenues over 10 years (from people that opt out of Obamacare, or who can’t afford it). If that revenue isn’t tax revenue, then what is it?
Obama’s argument basically says that if the Government is providing a service (for your own “good”) with charges that it “mandates”, it can’t be called a tax. If that is the case, then taxes don’t exist at all under the Obama administration. Wouldn’t he look nice if he were able to claim that he didn’t increase taxes on the “middle class” during his next election?
Forget about it. Don’t even waste time thinking about it. The purpose of Wall Street firms is to trade value for their own benefit not to build value for the economy either short-term or long-term. While at one point in its history, a non-trivial part of Wall Street’s activity involved financing the growth of American companies, that is now a minor piece of its business. Wall Street is primarily engaged in encouraging individuals and companies to trade value between one another and tolling the parties for the service, and trading against the outside economy for its own account.
A refreshingly candid and accurate assessment. The bums won’t change and it’s foolish to expect it. Wall Street no longer functions as a vehicle for real investment/capital formation. It’s just a big casino and con game. Many of the participants and their government sponsors need to be in jail.