There are many ways to get rich. Some do it with pleasing people the most. Others build ‘a better mousetrap’ in selling a product that doesn’t please people, but they fell for it anyway. Some marry to obtain their money. Others resort to becoming thieves to steal it.
The desire to become rich is, in itself, good. It is the desire for a higher income, to better assets, and so on. Just as someone goes to the gym and must push himself on the weights in order to deal with larger weights, and do this consistently, so too does someone do this in their financial knowledge and action to get to the bigger financial pie.
The most despicable is not the thief who steals other people’s money at night, it is those who legally steal other people’s money during the day. These people use the law and taxpayer money to make themselves rich.
During the real estate boom in America, I knew it was time to get out of the market and even start renting when people who had no business being in the market were getting in ‘to get rich quick’. There is a saying that when shoeshine boys and cab drivers enter the market, it is time to get out. Investors I knew understood this instinctively and got out as well. Many people who were trying to flip houses and all got stuck on the wrong end of the flip. The house is a home, not a magical tree of money.
People in government got in it too. You KNOW a legislator, with a meager income, goes to Washington with nothing and comes out with millions of dollars that something funny is going on. And Wall Street, as defined by the major banks, are not unpolitical. For example, what is Chelsea Clinton’s job? She works for a financial hedgefund group. Many in congress and the banks worked together in an attempt to enrich one another.
Real estate still has a future for good investment since America is still growing in population, unlike, say, Japan. However, most of the population growth in the United States has come from illegal immigration. The so-called mortgages to poor people are, in great part, to illegal immigrants. They were not asked about their income. They were not even asked if they were a citizen of the country. There was great pressure from Congress onto the banks to lend money to these people. Some say it was the wreck of bad intentions. But don’t be naive, it was intended to leverage these folk to make certain people rich. After all, people thought real estate was the path to riches galore from the shoeshine boys to those in Congress and the banking industry.
This is not a financial problem as it is a political one. Fannie Mae and Freddie Mac are government owned institutions that Congress built themselves. Remember Enron? Congress held investigations to see who was responsible. Not only is Congress not holding investigations on the culprits of the mess, they left town as soon as the problem became apparent (which should show signs of their complicity). It is Congress, especially with its heads of banking committees, that has the power to do what was done. As Constitutional Law Scholars say, Congress is the one who has the Power of the Purse.
If it wasn’t so serious, the ‘Bail-Out’ would have been laughable. Congress sets up Freddie Mac and Fannie Mae and pressures the banks to do what they did. When everything implodes on them, Congress leaves town. When they return, they demand ‘bail outs’ which is throwing hundreds of billions of dollars at the problem… the problem they made in the first place! If Congress was really worried about the economy, they could do something like cut the capital gains tax, or at least leave that as an issue on the table. The fact that Congress is in a hurry and trying to ram down hundreds of billions of dollars, and presenting this ‘bail out’ as the *only* option, in a very quick fashion should be another red flag of their guilt.
There is much hyperbole going on now. Some say, “It is the Great Depression all over again!” This hyperbole is because it is an election year, a presidential one at that. But more so it is not because Congress is scared about a faltering economy (many in Congress actually desire the economy to do bad so they can campaign themselves as ‘saviors’). It is because Congress is scared of getting caught. Many of the heads of these committees, such as the banking committee, need to resign immediately.
But lets look at the Wall Street side for a moment. Wall Street has the capital to bail out these companies. Why doesn’t Wall Street clean up its own mess? The reason why is because they want the cozy terms of cheap credit taken from the American taxpayer in order to get more advantageous prices than they could get selling the mortgages to hedge funs or private equity firms. This is why Bernanke said that the fund would intentionally over-pay for these MBS by not paying the market price but some magical price that is called ‘held to maturity value’. There is no such thing as ‘held to maturity value’. There is only one price: the market price.
The mortgage-backed securities trade in units “par.” Par means that the mortgages trade near the principal amount of the borrowing. Right now these things are trading at perhaps 50 cents on the dollar. When Bernanke said he wants to buy these things at “held-to-maturity value,” what he means is they want to pay 80 to 90 cents on the dollar. In other words, a welfare check to rich people in the amount of 40 to 50 cents on the dollar, times $700 billion in the total fund. What is happening is the Treasury is trading high-quality treasury bonds to the big banks in exchange for low-quality mortgage securities, and at prices that the market isn’t bearing out.
Consider Hank Paulson. He only has a few months left in his current position where then he will become a CEO in one of these companies. Paulson coming to Washington saying we must do this deal immediately even though there is no defined plan should raise suspicions.
Right before declaring bankruptcy, Lehman transferred around $15 billion to US and overseas subsidiaries who weren’t included in the bankruptcy. Lehman didn’t go under because of bad decisions. They were buying all this junk on the way down during the summer. Who were they buying it from? From all the other banks. That’s why Bank of America and Citigroup don’t have the same problem that Lehman did.
In other words, this bail-out is fraud.
This isn’t the first time that such financial fraud has been committed in American history nor will it be the last. The reason why they get away with it is because of financial ignorance of most people. And by that, I mean that people are not raised to think in financial terms. What good is it to know how to read when one cannot read a financial statement?
Most people will be unable to retire. So many people simply handed their money to a fund manager and they handled their money for them (instead of the person learning it and doing it themselves). With so many Americans invested in the stock market, as it goes down so will their retirements. The chickens will come home to roost around ten years from now when the baby boomers start retiring in mass.
Everyone will say, “Why can’t I retire?” and “Who took my money?” Over a year ago, in the Blue Ocean article of “The New World”, I have said this and am saying it again. It is people at the top of the political and financial institutions that are taking many people’s money, using their financial ignorance to fleece them (“We must have this ‘bail out’ or calamity shall fall on us!” Appealing to people’s fears).
Luckily, the bail-out broke down. People instinctively know spending money doesn’t solve problems. (I just heard Jack Welch be ‘shocked’ that his chauffeur was against the bail-out. Many of these finance guys are living in a different world and are surprised that the Great Middle doesn’t want to bail them out.) Wall Street has the capital to clean this mess themselves. Let them sell the mortgages at the market price, not try to take taxpayer money to get a ‘better’ price. And start investigations to see who in the political circle had their hands in this to help bring this fraud about.
Don’t believe the hyperbole. This isn’t “Great Depression”. This is “Great Fraud”. But it is such fraud like this that will destroy the currency. No wonder gold and silver shot up.
The good news is that this fraud is finding its way in the open which means it can be stopped. The bad news is that this financial hurricane is heading to Europe which will be 10x worse.
Malstrom's Articles News 