Starve the Beasts - Start the Revolution

It is apparent now there remains only one way for ordinary Americans who love their country and want at least some of what's good about it to be preserved for future generations: We must kill the FIRE Economy beasts (FIRE: Finance, Insurance and Real Estate).

Recommended method of choice: Starvation - suitably slow and painful.

We're the victims in a hostage situation, if you didn't know, held captive and mesmerized by the soft, flat-panel-TV glow of the FIRE Economy, which depends on our sheep-like conformity and Stockholm-syndrome-like admiration of our captors, but it's NOT too late to regain our senses, if only for the benefit of our children and grandchildren. Even if it is only wildly exaggerated - and it isn't - that the Systemically Important Too Big To Fail (SITBTF) institutions completely have captured our flag, our capital, our political parties, our "democracy" and our very lives, we as regular, hard-working, country-loving J6Ps have only this one remedy remaining, as all others woefully have failed.

We've tried writing letters to Congress, but they fell on deaf ears attached to bodies sated with the addictive, lobbyist-supplied narcotics of perks and favors and clothed with garments filled with finance-industry campaign contributions. One might feel good having written a letter, but unless you're one of the someones stuffing their pockets with cash, it's wasted effort. We've tried voting out the "ins" in the Capitol Building to no avail, either. Once the DC Kool-Aid has been consumed by elected Representatives and Senators of BOTH parties the fix is in. It's all good fun in Washington; ask anyone who has done the peoples' business in Babylon for even one lousy two-year congressional term and they will concur: it's a great gig if you can get it, and better if you can keep it as long as possible. As such, they always will cater to the whims and needs of the purveyors of campaign cash who can insure they remain as Courtiers at the Castle in Emerald City.

Last year we fell for the whole "change you can believe in" campaign gimmick but somehow the candidate elected in November has pulled off in many ways an astonishing, seamless transition from his predecessor, of which his administration's dealings with Wall Street, AIG, Fannie/Freddie, SITBTFs and the economy are only a few, validating once again that immutable fool-most-of-the-people-most-of-the-time law of the universe. (Which, in and of itself, should be all the evidence necessary to prove, beyond any doubt, the entirety of Wall Street's now-not-so-behind-the-scenes direction of public policy, and government's role as the FIRE economy's stooge and enforcer.)

We have only one option remaining to fix this ourselves, to starve the beasts, and it is, simply:
Stop Doing Business With Them.

If you are banking with a SITBTF bank, start by closing your checking account. Move it to a smaller community bank which offers the same features such as bill payment services, payroll depsosit, automatic debits and the like. Close your savings accounts, your CDs, your money market deposit accounts and move them to one or more community banks, and introduce yourself to an actual banker and branch manager (it will be handy someday to personally know someone).

You still will have ample FDIC deposit insurance, regardless of the institution's size and you still will have nationwide ATM capability, so shut down those SITBTF accounts NOW. If you own or manage a business, and are so empowered, close your business deposit accounts and move them to a financial institution not considered part of the current problem. It's a lot of effort, and it's not easy, but your future generations will thank you.

DO THESE THINGS, and, one, we will get someone's attention when they begin to notice a measurable increase in closed accounts and a rapidly falling deposit base (worst-case scenario for a SITBTF), and two, we will begin to starve the beasts via an orderly "run" on these giant messes masquerading as solvent, responsible financial institutions.

Next, open new IRA and investment accounts - not that you have much left in them, which makes the timing opportune, and you weren't getting any useful advice or guidance anyway - at regional or online brokerage firms NOT owned by or associated with any other FIRE economy player, including the giant mutual fund industry. Starve the beasts!

Need home, car, business or life insurance? Well, don't get insured through any subsidiary of any SITBTF company, especially one which has used its past-life AAA rating for evil, not good, and now has been seized by our government stooges and enforcers, not to rescue it but to co-opt it as a money conduit to pour tens of BILLIONS of dollars borrowed from China into the balance sheets of other, well-connected domestic and foreign (!?!) SITBTFs, one of which has the initials "GS."

Finally, methodically begin to terminate your borrowing relationships with the SITBTFs. This is the difficult part. Start by paying down and paying off your credit cards - all of them. Start consuming with CASH whenever possible. Yes, cash, Benjamins, coin of the realm and all. Besides, cash transactions have that certain, quaint, pleasing quality of anonymity so lacking today in our every-waking-thought-is-now-monitored cyber-world. Close them as soon as they are paid off and don't fall for that FICO-score crap that your credit rating will decline if you - YOU - voluntarily close a credit card account. If it does, so what. For god's sake, it's your option and your choice. Perhaps we all should shoot for no FICO score (or, zero, as Dave Ramsey boasts).

If enough of us begin voluntarily closing our revolving credit card accounts and paying with cash, the saps at FICO will be forced to change their secret statistical recipes which have worked so well the last 30 years to keep millions of us enslaved with debt. If that happens, if FICO is forced to change its magic algorithms, then voluntarily closing a paid-off account would IMPROVE a credit score, but our goal should be to not have a score at all - that'll show 'em. By then it won't matter. FICO will be going away soon enough as the discredited, flawed, theoretical mathematical formula it is, one, like so many financial models of the last generation, which worked right up until it didn't.

So, got an AmEx card? Pay it off and cut it up. Ditto for Discover. Mega-Bank Visa or MasterCards - flush 'em. What's in your wallet? Forget Capital One and get reacquainted with some dead presidents. For those credit-card-is-required transactions, use your debit card, the one attached to your new checking account at a small, solvent community bank. Starve the beasts! Take back our country! Car loans are trickier, but, again, an auto loan from a smaller community bank will help starve the beasts. The same for home loans - starve the beast by doing business with anyone else. We can do it.

Since Washington clearly will not DO ANYTHING to help ordinary people, only the monied interests, WE MUST. This is war, it's revolution, a fight for our future, but it's bloodless and LEGAL. We must declare our independence from the tyranny of the FIRE economy and the Systemically Important Too Big To Fails. We have the right to take these matters into our own hands because the heads of our elected and appointed leaders are crammed so far up the exit chutes of the titans of Wall Street and the Main Streets where the SITBTFs are headquartered there is NO OTHER SOLUTION.

If you agree "too big has failed," you have great company. Kansas City Fed President Tom Hoenig delivered a speech (as a private citizen, not necessarily reflecting the view of his Federal Reserve Bank) in March entitled "Too Big Has Failed," suggesting the time was right to break up the financial cartels. Hoenig testified before Congress April 21 and reiterated that view (his written statement here), going as far as saying "when you have banks that are too big to fail, you will get oligarchs." (Yes, oligarchs.) Simon Johnson, former IMF economist and now MIT professor, posting at The Baseline Scenario recently authored a must-read "The Quiet Coup," in the May issue of The Atlantic. William Black, a former regulator who led the cleanup of the Savings & Loan mess in the early 1990s and blew the whistle on the massive fraud and corruption in that scandal, recently told journalist Bill Moyers on PBS that CEOs of some of these SITBTFs, in order to increase their own personal income, have deliberately set out to make bad loans - pure fraud. He would know: the title of his recent book is "The Best Way to Rob a Bank is to Own One." And don't forget Nobel Laureate Joseph Stiglitz, who has been out spoken in his belief that no bank should be too big to fail.

There are countless more of us, without a public forum, who feel the same way, and we have the power to do something about it. The time is right, the time is now. Take back our country. Let's make SITBTF no BFD and RIP. It'll take a decade, maybe longer, but this is the only way to end our present hostage situation and we have the power. All we need is the will to make it happen. Start today. Stop doing business with our tormentors - all of them. Stop patronizing our persecutors. Are we stupid? HELL NO.

Stop the madness - starve the beasts. If we don't, WE are part of the problem and we deserve what we are getting and what is happening, now and in the future, because it WILL happen again if we let it.

Starve the beasts - start the revolution.

Presidential Humor, Deficit Spending Edition

Official: Obama wants agency spending cut by $100M

At first we thought it was a misprint on the headline: Surely it should have read $100B, as in "Billion."

Then we checked the calendar, thinking it might still be April 1st. But no, the president intends to ask his cabinet, in its first official meeting today, April 20th, to find ways to cut $100 million of government spending this fiscal year.

Cost-cutting optimists might call that "a good start," but the more cynical among us call it a "rounding error."

Not to press the issue, but in the hour President Obama and his cabinet will discuss ways to save $100 million, the federal government will have spent $228.3 million more than it has taken in.

Yes, a FY2009 projected deficit of $2 trillion means our federal government of the people, etc., etc. is spending nearly $5.5 billion a day more than it collects in tax revenue, which is $228.3 million an hour.

Surely the president and his advisers can think of more important things to do than waste another $228.3 million trying to find ways to save $100 million.

Do they think we can't do the math? Or can't be bothered? And haven't we been told repeatedly for months that, in a deep recession, ALL government spending, even when spending taxpayer dollars borrowed from our BFFs China, et al, is GOOD spending.

Helps the economy, and all since consumers without jobs can't or won't spend and businesses without consumers can't or won't spend.

Don't worry about the waste, we'll address that some other day when the economy is running on all four cylinders.(And by the way, what metaphor will we use when we switch to electric cars? Maybe we'll be running on all "thousand volts" or something.)

Mr. President, please, for $100 million, don't waste everyone's time.

Partial text of linked story:

WASHINGTON (AP) -- President Barack Obama convenes his first formal Cabinet meeting Monday and will ask department and agency chiefs to look for ways over the next 90 days to cut $100 million out of the federal budget, a senior administration official said.

Back from his fence-mending trip to Latin America and the Caribbean, Obama will be reminding the panel that American families are having to make tough financial decisions and need to know the government is spending their money wisely, too.

The official discussed Topic A for the session on grounds of anonymity because it will be behind closed doors.

A second senior official, also speaking anonymously, said Obama will point to cuts already being proposed.

The Veterans Affairs Department has canceled or delayed 26 conferences, saving nearly $17.8 million, he noted, and will be using less expensive alternatives, like video conferencing. The Agriculture Department is working to combine 1,500 employees from seven office locations into a single facility in 2011 - saving $62 million over a 15-year lease term. And the Homeland Security Department has estimated it can save up to $52 million over five years by purchasing office supplies in bulk.

The federal deficit for March alone was $192.3 billion, and $100 million would represent about one-twentieth of 1 percent of that. Obama has brought forward a $3.6 trillion budget for the 2010 fiscal year, beginning Oct. 1, a proposal that would produce $9.3 trillion in deficits over the next decade.

Creative Q1 Accounting, Systemically Important Department

Wells Fargo projects record $3 billion 1Q profit

Of the four remaining major national banks (Chase, Citi, BofA and Wells), Wells Fargo and Citi have a far lower amount of loss reserves as a percentage of loans than do JPM and Citi.

Notwithstanding, in conjunction with newly restored "mark-to-make-believe" accounting from their friends at FASB (who were bribed by the Fed and threatened by the SEC), the banks likely will report stellar Q1 earnings, by design, meaning the feds (that seamless Bush-Obama transition) implicitly will allow them to now under-reserve for bad loans, thus dramtically improving net income and capital ratios.

Combined with "stress tests" to be graded, not "pass/fail" but "present," the entire exercise appears to have been created to dupe private investors into buying new issues of common stock offered by the banks, such as Goldman Sachs' upcoming issue, to "prove" capital markets are functioning again.

Add the PPIP government-sanctioned looting of what little taxpayer money yet can be borrowed from China and we will be able to call off Depression 2.0.

(Pay no attention to those unemployment numbers, or tent city numbers, or mass shootings numbers because, HEY!, the banks are OK!)

Which will, of course, prop things up for 6-12 months and lift the stock market sufficiently for Wall Street insiders to "distribute" their remaining equity holdings to the rube small investors who mistakenly believe the government has solved all our problems.

And which, of course, sets up the "big one" sometime in 2010. The big what? I don't know, but it's coming.

Check local listings, but stay tuned...

Not Your Garden Variety Recession

G-20 protesters and internet blogosphere neo-anarchists notwithstanding, there is good news. We are NOT in a depression, as in The Great Depression circa 1929-1939. U.S. and world economic data is nowhere near being so grim, although we have turned back the clock a generation by some measures, such as unemployment, now at 8.6% and automobile sales fewer than 10 million annualized.

By the same token, however, the current economic environment cannot be considered a “garden variety” recession to borrow San Francisco Fed President Janet Yellen's recent description of what now ails us. So what is it; what do we call this coordinated global economic slump? Economists cleverly have been renaming economic downturns for more than a century, as noted economist John Kenneth Galbraith observed years ago.

Before 1900, we had business panics, but in 1907, perhaps to soften the reality of that economic setback, it was described as merely a crisis. By 1929, after two very good decades, the then-fearsome connotation of crisis gave way to the more-benign sounding depression, designed to reassure our ancestors, at least initially, that it was, in fact, not a crisis. The decade-long duration and severe depth of economic collapse in the 1930s forever precluded the future use of the small-d term depression, when, emerging from World War II, that period forever became known as The Great Depression.

What next, Mr. Webster? Ah, recession will do, so we had a good one in the mid-1940s as the war effort ended and millions rapidly became unemployed, but since the setback in the 1950s was so mild and sideways by comparison it was deemed only a rolling readjustment. Galbraith theorized the use of the term growth correction to describe future episodes of economic malaise, but it doesn't quite fit the deeper nature of the extant situation.

Since all the good names already have been taken, and recession, deep recession and unprecedented recession already have worn thin, we can expect, as its effects linger longer than current wishful thinking allows, to see something like economic transition or generational economic transformation to enter the lexicon. This economist's preference is the latter, a generational economic transformation (see, even a good acronym: GET) as the balance-sheet-repairing, debt-deleveraging, deflationary nature of this event, not seen in such magnitude certainly since the 1970s and perhaps since the 1930s, gives rise to Yellen's, and others including former Fed chairmen Alan Greenspan and Paul Volcker, apt observation of why it's different this time.

From Farms to the Cities
In the 1930s, for instance, America largely was a rural, agricultural based economy, with a few dense cities primarily on the east coast and in the Midwest, much as China less than two decades ago. The Great Depression, with a successful application of Keynesian government fiscal stimulus policy and a big devaluation of the dollar as we extricated ourselves from the gold standard, gave way to the resumption of the nation's trajectory toward becoming the world's manufacturing powerhouse.

Millions of Americans left their parent's farms, first to fight and build the war effort's machinery in WWII and then to join the post-war workforce which laid the foundations of the huge metropolitan cities of today, as the nation, whose factories literally were the only ones left standing in 1945, entered a golden age of economic dominance. For two full decades, until the mid-1960s, we held sway in the world's economic system, with manufactured products of unsurpassed quality consumed at home and exported worldwide. (As no one over 50 today can forget the time, years ago, when “made in Japan, Korea or China” meant inexpensive, trinket-quality merchandise found in five-and-dime stores – today's equivalent to dollar stores.) The Vietnam War era of the late 1960s and the first OPEC oil shock of the early 1970s marked the beginning of another generational economic transformation.

From Manufacturing to Service, Finance and Information
By 1973 our generous efforts to rebuild in Europe and Asia that which WWII destroyed left us at a competitive disadvantage, as newer, modern overseas factories filled with workers willing to labor for a fraction of the U.S. wage scale began to erode our manufacturing dominance, especially in consumer products. And so began another difficult decade, which coincided with the coming of age of the Baby Boomers, that 80-million-strong mass of humanity which has been marching through the U.S. economy since the end of WWII. College-educated boomers sought the professional and managerial positions for which they were prepared, just in time for the advent of the information age, which, more than anything, is responsible for the demise of our human-labor manufacturing era. Boomers became bankers and accountants and attorneys and investment managers and information technology gurus and chain-store executives and real estate developers as we transitioned from being makers of things to consumers of things made by others.

And we did much of it on OPM – other people's money, namely the overseas savings glut which resulted from the wages and profits of low-cost exporters, now principally in Asia. Those peoples for years, having no internal destination for their funds due to dearth of available consumer products, housing and automobiles, instead recycled their profits and savings into the safest of investments denominated in the world's reserve currency – U.S. government debt, corporate securities and, yes, the mortgage-backed investments of the world's biggest residential real estate market.

And the extended era during which the beast “risk” appeared to be fully tamed ended, not coincidentally, at precisely the point at which interconnected global financial risk, priced for perfection, reached its zenith, which now conspires to usher in the next generational economic transformation. (Black Swan alert, the “unknown unknown:” The exponential growth of derivatives in the 2000s, thought to manage, control and disperse risk, in fact, has magnified and concentrated risk such that the failure of a single, systemically important entity – AIG, for example – threatens to bring down the world's financial, economic, political and social systems.)
As the late economist Hyman Minsky observed in the 1970s, “Success breeds a disregard of the possibility of failure; the absence of serious difficulties over a substantial period leads to the development of a euphoric economy…(and the belief) a new era has arrived.”

From Now to Then
If we indeed are in the beginning stages of yet another GET, which by historical standards lasts about a decade, to what exactly are we transforming into, economically speaking? “Always in motion, the future is,” said a wise Jedi knight, but we still can make educated guesses as to what segments of our economy may dominate a generation hence. Healthcare, certainly, is one segment, as our old friends, the Baby Boomers, enter prime health-care-consuming years, and, by all accounts, will refuse to age gracefully, or at least without the benefits of better living through chemistry.

Energy, including alternative energy, will be another dominating sector of the global economy, although by the next generation's end, alternative energy will be just “energy” and non-renewable, hydrocarbon-based fuel sources may become known as “legacy energy.” Technological advances, and, importantly, profit-generating capability in wind, solar, geothermal, hydrogen and hydroelectric power, and, who knows, maybe cold fusion, could make these forms of energy the sources of the next great fortunes of this century, as did legacy energy, real estate and information technology in the last, and railroads before that.
Food production, housing and cities, and technology all will play key roles as well in our economy of the next generation, but less so finance and investments, at least to the extent they have dominated the economy of the century's first decade.

Can We Get There From Here?
We will get there from here, but not easily, and not without the elapse of a decade or so in which to do it, which means much change, much uncertainty, much reordering, much angst and many attempts at all levels – consumers, businesses and governments – to delay, or even prevent, the inevitable transition. And, surprisingly only to G-20 protestors and internet blogosphere neo-anarchists, the end result will be a better standard of living in America, as has been the case in every previous generational economic transition. And not only here, but throughout the world.

Now it may be a different better standard of living, when measured against the consumption-centered experience of the last three decades, but it will be better, and what more could one want for one's children and grandchildren who will inherit the world we have created.