Category Archives: Financial Crisis

Closing Banks; Truth, Consequences and Solutions

So far, 33 banks have closed in the United States this year in 2009. In Colorado, the New Frontier Bank closed on Friday, May 8th. This happened in the agricultural community of Greeley, and has left many farmers without access to the needed loans to plant and continue to care for their investment already sown in the ground.

Interestingly, while the American public is paying for corporate bailouts, the same American public often has no idea which banks are going to be closed and how it will affect them. Link to New Frontier Bank‘s website In times when securing any type of loan for the average person is increasingly difficult, the closing of the bank has left unsuspecting farmers only 30 days to find another loan. What are the possible consequences of this?

The farmer may not be able to secure a loan and may loose the farm. If that happens, less food will be grown and less and agricultural goods will make it to the market. This could then drive up the price of goods available on the market if there is less supply. This will affect consumers because they will then have a more difficult time buying the more expensive goods for their household. To further complicate things, if there is more property available on the market, it could further depress the real estate market. Who has the capital to buy right now and where will the family go?

As our wealth collected in our taxes goes toward bailing out large financial corporate institutions, our People are left by the wayside. Usually, in nations that have a form of representative democracy, policy is created to safeguard society and people’s rights. In the United States, it seems that the largest corporate institutions have the strongest and are able to exert their rights, often over the will of the People.

We need to examine the underlying philosophies that have helped to create this situation. This can be difficult though, as we currently have fewer media voices that are examining the situation. Media corporations have gotten larger, have simultaneously increased their control and reach of information on mainstream media forms, and have simultaneously been shutting down the investigative sections of newspapers and broadcast TV because they are not as commercially profitable. Instead, artificial blame, fear, mistrust and other non-news are being broadcast. In response, only people of similar political views seem to talk to each other. But, there is something that we can do, in a way that will allow the regular person to get his or her point of view across.

 

Raising FDIC limits can be hazardous to your health

The U.S. is a great country, although we’re currently teetering on the edge of falling into an unknown abyss. We can, however, learn several things by looking back at recent history then make better policy. One thing to ponder about the recent $700 billion bailout is why one aspect of it temporarily raises FDIC (Federal Deposit Insurance Corporation) limits from $100,000 to $250,000. It is a radical increase and has both good and bad consequences, depending on how much money a person or business entity has to invest, and whether or not the health of the short term economy or long term health of the U.S. Treasury is more important. Let’s look back at what happened in our recent past starting in the 1930s and then jump to the 1980s to see what happened when the savings and loans insurance limit was raised.

After the last Great Depression, the American public did not trust banks and saw little security in depositing their hard earned money in banks. While Roosevelt viewed federal insurance as a potential hazard to the treasury because it would allow banks to engage in riskier lending practices, he caved to public pressure and built upon the regulatory bank hierarchy and created FDIC, and later the Federal Savings and Loan Insurance Corporation (FSLIC) for the Savings and Loans institutions. Roosevelt purposefully kept the federal insurance limit low, up to $5,000 at that time, in order to protect smaller lenders and business while setting up the regulatory structures to allow the larger S&Ls to regulate and insure the smaller ones. We will now fast forward closer to the present.

In 1982 Reagan signed into effect the Garn-St. Germain Depository Institution Act. It was a sweeping deregulatory act that created the environment for the Savings and Loans scandal to occur. It allowed S&L institutions to invest in commercial real estate, allowing the potential for more profit. It also raised the amount of federal insurance from $40,000 to $100,000. This has had many impacts.

The S&L institutions that failed used the higher amount as insurance for them to engage in risky real estate and mortgage backed securities trades. S&L were no longer responsible for losses because the U.S. Treasury was backing them up. S&L institutions advertised a high interest rate return for jumbo CDs (remember them?) to attract larger deposits – up to $100,000. As a result, money flowed to the institution. It then bundled the deposits together and started trading them on Wall Street. Raising the FSLIC amount insured essentially boosted the immediate capital of the savings and loans institutions, making insolvent institutions look immediately healthy – for a short time, before the CD needed to be repaid and the capital flowed back out.

This is why raising the FDIC insured limit is scary – and hazardous to the financial health of the U.S. Treasury. On the other hand, it does prolong a crash from happening during the last days of the Bush Administration. (Which brings up another important point. The Bush administration needs to be watched as it tries to pass various regulation in its last days in office. So far they have passed regulation, which is really deregulation, allowing mountain top mining to essentially cut off the tops of mountains, get the valuable stuff out, them dump the remaining stuff in the valley.) On the other hand, the overall amount that taxpayers are responsible for can rise significantly.

The Savings and Loans scandal had many other facets, as does the current banking and financial situation. I think the U.S. is capable of making better policy. In order to do so, it would be smart to look at what has happened in our recent past before pushing through legislation that ultimately can do more damage to a situation. Raising the federally insured limits in the recent past were disastrous because they allowed insolvent financial institutions to quickly get more capital, that it immediately began trading on Wall Street. They ended up loosing more money. It prolonged a bad situation because it created a larger amount that needed to be reconciled once the financial institutions were taken over. It made the U.S. Treasury and American public responsible for frivolous actions and accounting. In short, it legitimized a looting of the American Treasury.

FDIC Bank Woes and the Possibility of Solutions

While it is important to ‘stabilize’ the economy as our policy leaders are creating yet another bailout plan, these bailout actions seem to prolong the impacts, rather than deal with the causes. (The more recent $800 billion dollar plan aimed toward somehow helping the regular consumer.) Last week it was also announced that more banks are being ‘red flagged’ by the Federal Deposit Insurance Corporation (FDIC) as being ‘troubled’. Last week the FDIC listed 171 troubled banks, that number up from 117 banks just a few months earlier. We have a systemic problem here.

It is deeply troubling that our economy is being steered by people that participated in its deregulation. The current appointee, Treasury Secretary Henry Paulson was CEO of the investment bank Goldman Sachs. They, along with other investment banks lobbied heavily to create a deregulated environment that kept them from having to adhere to the net capital rule. This was a safeguard that limited investment bank activity and risk, according to the amount of capital an investment bank had. Paulson effectively ensured that the SEC would not have jurisdiction over the actions of the investment banks. The investment banks then proceeded to engage in risky trades on a global scale. The largess of the impending economic trouble is being forestalled by throwing money at the problem.

This is a huge, gargantuan, mammothly large and scary problem and in disagreeing with the bailouts, I am not trying to make light of them. It is a horrible, unstable situation that has been created and engineered to be this way. I listened to the report from This American Life a few times to begin to understand the complexity of financial trades and the Credit Default Swaps (CDS) that drove speculation and the resulting hedging and insuring of stocks to make them ‘safe’. In hedging them, and making them perportedly safe, many of the largest investment banks and insurance companies participated. As one started to crumble, it threatened them all. It is a frightening thing, not only in its complexity, but because these CDS trades are private contracts between individual firms, so no one really knows how much firms owe to one another. The CDS market has never been regulated. Some estimates as to how much money is involved are around 60 trillion dollars. And unfortunately, our government, that first endorsed deregulation (it was pushed by certain industry lobbies) to create the system, is now using our tax dollars to bail out the system that previous administrations and Congressional houses created. Both Democrats and Republicans were involved.

Deregulation has been typically accelerated during Republican administrations, but Clinton’s administration and the Congressional houses during all the administrations systemically and consistently helped to create this situation. All along the way, people who spoke out and questioned various aspects of policy were called either a communist, or unpatriotic. We as a People need to begin looking at the problem in order to understand it to move toward solutions.

But first we have to take a look at the current political system as it currently exists. While the American public voted in a new administration, the systemic pressures upon the new administration, cabinet and Congress will push and have molding influences on it. Are corporate and industry lobbyists all of a sudden going to give up on their professions? No. To the contrary. Funding will shift its focus onto the Democrats that occupy the positions. Both the campaign finance and the lobbying system perhaps might need to be restructured.

At the heart of this issue is the notion that a corporation has more rights than individual people or a community. It seems to be fairly clear that for the first 100 years of this republic, the Supreme Court, time and time again ruled that it was their belief that the Framers of the Constitution did not intend for corporations to have any personhood rights. It is in sharp contrast to our current times when multinational corporations have the right to lobby for certain domestic and foreign policy measures, as well as have the right to relocate to various tax havens (Halliburton moving its headquarters to Dubai currently coming to mind) and evade paying U.S. taxes. Thus there is the need to start talking to other people, regardless of political party affiliation, educational level, or any other divisive label. We must look toward solutions as a People. We need to look at our government as an extension of ourselves. It is a representative democracy after all. Something to think about…

Debates and the Well-Being of the U.S. Public Treasury

The third presidential debates are over. I had a screening that evening, so I didn’t see the actual debates, but I have been listening to the news spin afterwards, which brings me to think: I wonder which has more impact in the current age, the actual debates and what the candidates actually said, or the spin and analysis. From listening to the news (and this time I’ve had exposure to Fox News – hotels, other houses) it seems that there was a big difference in this debate. The presidential contenders were seated at a table. Joe the Plumber was also mentioned incessantly. This is apparently a man who asked Obama about taxes, and how it would hurt him because he wants to buy a business. If Joe the Plumber is an average working class wage earner, he would actually benefit from Obama’s tax plan because the rich would be taxed a little more, lifting the burden off the middle class.

The rich have been benefiting tremendously off of the current system, and actually have not been paying the proportion of taxes that they should when compared to other developed countries. Large multinational corporations should also have loopholes closed (marketing and lobbying expenses really shouldn’t be tax deductible, nor should spa retreats, ridiculously expensive meals or luxury cars) so that corporations would give back to the system that enabled their riches in the first place. Because corporate riches have come at a huge expense: American policy, the well being of the American public and the U.S. Treasury.

Information has become so twisted in the United States that many working Americans that pay into the Medicare system, (since the rest of the developed democracies cover their citizenry) have been lead to believe that it is a health program for the older and poorer. While most of the rest of the developed and developing world use their Medicare programs to cover their entire population. (Think of the publicity campaign that was created and carried out to make Americans believe this is how it should work.) While meanwhile, hard working Americans are paying large amounts of their wages into various types of health, home, and hazard insurance, gasoline, natural gas and energy to heat their homes, for the ultimate profit of various companies. Have we been tricked into believing that the free market will take care of everything? If we look around, we see that private, no bid contracts have been handed out to certain corporations. That doesn’t seem to be free market capitalism, but a strange corporate socialism.

Let’s also remember that government does exist for a reason. In the case of representative democracies, it usually exists to protect their rights of People that make up the constituency. Yet U.S. policy is very different from the other republics in the policy that it applies to its corporations and its People. Perhaps we could begin some nonpartisan discussion on this.

We must begin moving toward solutions that address the root of the problems that we face. We should think about having taxes benefiting the American people, not private corporate institutions or private no-bid contracts. We need to begin discussion on looking at a national non-corporate healthcare plan that benefits the Americans that pay into it. We pay taxes, and we need to begin talking – nicely – to one another. We will not be lead by our commercial news networks in finding solutions. We must start talking to one another. We do have many good systems that are in decent working operations – the other industrial democracies. We aren’t alone. But we need to start by looking past partisan labels and having civil discussion about the possibilities of Solutions.

Looking Toward Solutions – in the financial world, healthcare and other areas…

As we approach the upcoming elections, we have many different things to think about. We do need to face what our policy has done and look deeply at what we think our government should do. Why not take a look at other industrial democracies for solutions?

As I’ve been driving around the country screening “Considering Democracy” people have been asking about different solutions that work, so I’ve also created a page that directly links to other developed, industrial countries.
http://consideringdemocracy.com/solutions_links.html

This way, we can learn directly about how their policies work to hopefully widen the debate in the United States. There is also a new discussion menu, #3 that hopes to move the discussion toward possible solutions. http://consideringdemocracy.com/downloads.html

Here’s a map of where I’ve been, and where I’ll be going with the film:
http://consideringdemocracy.com/heartland.html

I’ll be heading out to the west coast today, with stops in Arizona for more screenings. A couple of them will be with the San Francisco Doc Film Festival. Considering Democracy was also chosen as an Ironweed Film Club – October film. Let’s get people talking – nicely and respectfully! Host a screening party or come to a screening if you can. (Solutions = Good! Information = Good! Denial = Not so good.  Talking nicely to others = Good!  Being a cool person = Good!)

The U.S. Financial Situation

Oh my. It’s looking like the American taxpayer is going to fund the bailout of private financial institutions for an initial $700,000,000,000. This is at the same time that some politicians said a week ago that the financial system is fundamentally sound. There are also huge and fundamental pieces of this debate that are consistently missing. We need to address the causes of the financial situation, not simply set the pattern for Americans to bail out troubled private institutions. We need to examine why and how it happened, then set out to protect the U.S. public and rebuild the U.S. economy.

Earlier last week U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said that they believed that the root cause of the financial troubles is the bad mortgages debt. Indeed, if you dig down only 1 inch into the ground of the problem, that is what you will see, but it’s much deeper than that, and these are our appointed leaders. They should know, probably do know, and they should create policy to protect the People in the United States.

The root of the problem is that accounting methods were changed under the Reagan administration in 1980. They also began deregulating the financial sector. Deregulation continued under the first Bush and Clinton administrations, then accelerated under the current Bush administration. They told us that it was to ‘free the market’ and that it would benefit us, but the opposite happened and is continuing.

In the 1980s, laws and policy were changed at the highest levels of government as they began taking away and dismantling the regulatory structures that governed and insured the savings and loans. It took about 8 years before the lower level governmental regulators found out the horrible reality of what had occurred and began shutting down the insolvent (no funds) savings and loans institutions. In the deregulation policy, the regulatory agencies that kept the institutions financially sound, were also dismantled. Simultaneously, the American taxpayers were put in charge of insuring and bailing out the system, just in case anything were to go wrong. (Previously, the larger savings and loans both regulated and insured the smaller ones. Roosevelt set it up this way so that another Great Depression would not occur. In this manner, the larger saving and loans had a vested interest in keeping their industry sound. This policy was changed and the regulation was taken away under the Reagan administration in order to ‘free up the economy’. Yet this is also a strange phenomena because in saying that they were ‘freeing the market’, one would think that this would be a policy of the free market, yet in backing it with American tax payer dollars it has set up a corporate-socialist system. Weird. Horrible, yet true.)

After we bailed out the savings and loans financial institutions, our policy makers through both Republican and Democrat administrations have continued to deregulate, while ignoring the causes of the changed accounting methods. This led to the downfall of some of the largest corporations: WorldCom and Enron among them. They all follow a similar pattern. The appearance of massive profit is booked. Marketing masterminds are hired to lull the American public to invest in it (tax deductible expense!). They will often say they are green and care about us (as Enron did). The institution encourages donations to all sides of the political spectrum. The institution lobbies the Administration, Congress and Justices to bolster their bottom line, saying that it will benefit Americans. The leaders of the company siphon the money out to their own bank accounts, often also putting funds in their wife’s and/or children’s names, to order to spread it out and avoid getting it taken away, they will the move the large bulk of the funds out of the U.S. and to a tax free country, (similar to how Halliburton moved its headquarter to Dubai, the capital of the United Arab Emirates partially in order to pay taxes into the U.S. treasury), and then a few years later, the few lower and local level regulators who are still left, and who have worked tirelessly and valiantly to figured out the wacky, dishonest accounting, discover that was appeared as profit, never actually existed in real funds. This has been repeated time and time again, for almost 30 years.

All this time, a large portion of the U.S. media has been focused on celebrities, animal tricks and the bickering between the two main political parties. Also keep in mind that large multinational corporations spend a lot of money (tax deductible) funding various nonprofit spin machines to further confuse and divide the U.S. populace. Many of these large corporate behemoths pay almost no tax because of it various deductions. Lobbying is also a business expense which can also be deducted. The U.S. system of governance has been corrupted. Now, where to go?

We, as the American public need to begin looking at various solutions and have the courage and strength in order to do so. We will find that other markets based in other countries will be able to better weather the coming financial difficulties because they have better and stronger safeguards in place, more transparency in their media forms, and policy and legislation that protects their citizens. They will also be hurt, but not as badly as the U.S. dollar and economy.

The current $700,000,000,000 bailout is also very dangerous because many other types of policy are being attached to it, yet the underlying causes the the financial distress are not being addressed. It’s created a predatory market and U.S. citizens and taxpayers are footing the bill. The current bill may also have aspects of oil drilling in order to get more of the GOP to vote for it. It also very dangerous because it will allow foreign banks to transfer their bad assets into the U.S. subsidiary, creating the need for the U.S. taxpayer to once again bail out the financial sectors, but those from other markets. We do not have a free market when our government policy helps certain huge corporations. This phenomena seems to highlight the powers that be.

Perhaps we could start talking about this. U.S. policy is quite different from all the other representative democracies – or republics. Perhaps we could look at their systems of governance for possible solutions.  Perhaps we could begin discussion on the rights of corporations versus the rights of People. Let me also clarify: businesses are very important to societies and have been for thousands of years. They provide valuable goods and services. But should they have the right to create government policy? Perhaps we could begin discussion on creating policy that would benefit the People in the United States. Ah, yes, and at one time wasn’t there something about – no taxation without representation? And wait. How does the Constitution start? ‘We the . . . People‘ Just something to think about. And discuss! (Nicely and rationally please.)

Preparing for the Presidential Debates

Considering Democracy had a screening in Oxford, Mississippi last night. The temperature is rising as summer approaches, and the city is in preparation for this fall’s presidential debates as construction zones dominate the city’s streets.

The first of three presidential debates will be held in Oxford, Mississippi on September 26th, 2008. The marketing machine is already churning out signs and stickers, yet it’s blended with a sense of discontent. I walked around the town square and talked to locals about what they thought of the debates. Interestingly, while people are interested and would like to attend, they don’t know how to get in and attend the debates. People also expressed interest in wanting to have the debate in a bigger venue like the coliseum so that more can attend, but they also had the view that while people from the community want to attend, most of the numbers of those attending would already be prepicked. Does this sound strangely Orwellian and familiar? Perhaps leaving the American citizen having a nagging feeling of being – perhaps – passed over in importance by the also prepicked superdelegate?

Historically, the U.S. has promoted itself as the champion of freedom, yet this notion is being questioned in greater frequency and urgency. Are the thoughts, ideas and the needs of the People being consistently passed over? Perhaps. It has happened previously in U.S. history. And People came together and changed the course of history. It’s really just a matter of Common Sense. What do you think?