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Argentina’s Economic Collapse
After many years of apathy in the country, the insurrection exploded. The spontaneous revolt of facelesspeople meant saucepans were being banged in every neighborhood, all the way to the city’s vital centers.
What happened to Argentina? How was it possible that in so rich a country so many people were hungry? The country had been ransacked by a new form of aggression, committed in time of peace and in a democracy. A daily and silent violence that caused greater social disruption, more emigration and death than the terrorism of the dictatorship and the Falkland Islands war.
Ever since independence, almost 200 years ago, Argentina’s foreign debt has been a source of impoverishment and corruption and the biggest scandals. Since the first loan negotiated by Rivadavia in 1824 with the British Bank Baring Brothers, the debt was used to enrich Argentinean financiers, to control the finances and empty the country of its wealth.
This foreign debt always went hand in hand with big business, and with the complicity of nearly every government, from Miter and Quintana to Menem and De la Rua. The policy of indebtedness gave rise in Argentina to generations of technocrats and… Continue reading
2011 Bank Failures on Track to Reach 100
Commercial real estate loans were the principal cause of the five bank failures reported in November according to Trepp’s November 2011 U.S. Bank Failure Report. These loans comprised 80.8 percent of the $160 million in non-performing loans that caused the bank failures in Georgia, Louisiana, Iowa, Nebraska, and Utah. The majority of the commercial real estate loans (64.4 percent of the total) were land and construction loans, the remaining 16.5 percent were commercial mortgages.
Delinquent residential real estate loans were the secondary cause of distress, representing 10.1 percent of the portfolios at the failed banks; of the remainder 5.4 percent were commercial and industrial loans and other loans comprised 3.7 percent.
In what Trepp called a pattern, the five failures in November followed eleven in October. This year there has been a spike in failures in the month immediately following the end of a quarter and then a drop in the two subsequent months. Thus far in 2011 90 banks have been closed by regulators, an average of 7.5 per month, a pace indicating a total of 100 for the year. Trepp said it expects the bank closures to extend into 2012 and possibly beyond although this will largely depend on the economy in general and real estate in particular.
The estimated costs to resolve the failed banks (loss severity) fell to 17.5 percent of failed bank assets, down from 22 percent in October. Loss-sharing was featured in only one of the five failures during the month.
Trepp noted that the banks that failed in November had been on its watchlist for a considerable amount of time – a median of 12 months – and all had featured the highest Fail Risk Scores issued by Trepp, a ten. After the November failures there are 227 banks with high Failure Risk Scores remaining on the Trepp Watchlist although smaller banks now predominate.
Trepp predicts that there will be a high number of failures in Georgia, Florida, Illinois, Minnesota, North Carolina, and Tennessee in upcoming months.
Lessons of the 1930s: There could be trouble ahead
In 2008 the world dodged a second Depression by avoiding the mistakes that led to the first. But there are further lessons to be learned for both Europe and America.
“YOU’RE right, we did it,” Ben Bernanke told Milton Friedman in a speech celebrating the Nobel laureate’s 90th birthday in 2002. He was referring to Mr Friedman’s conclusion that central bankers were responsible for much of the suffering in the Depression. “But thanks to you,” the future chairman of the Federal Reserve continued, “we won’t do it again.” Nine years later Mr Bernanke’s peers are congratulating themselves for delivering on that promise. “We prevented a Great Depression,” the Bank of England’s governor, Mervyn King, told the Daily Telegraph in March this year.
The shock that hit the world economy in 2008 was on a par with that which launched the Depression. In the 12 months following the economic peak in 2008, industrial production fell by as much as it did in the first year of the Depression. Equity prices and global trade fell more. Yet this time no depression followed. Although world industrial output dropped by 13% from peak to trough in what was definitely a deep recession, it fell by nearly 40% in the 1930s. American and European unemployment rates rose to barely more than 10% in the recent crisis; they are estimated to have topped 25% in the 1930s. This remarkable difference in outcomes owes a lot to lessons learned from the Depression.
Debate continues as to what made the Depression so long and deep. Some economists emphasize structural factors such as labour costs. Amity Shlaes, an economic historian, argues that “government intervention helped make the Depression Great.” She notes that President Franklin Roosevelt criminalized farmers who sold chickens too cheaply and “generated more paper than the entire legislative output of the federal government since 1789”. Her book, “The Forgotten Man”, is hugely influential among America’s Republicans. Newt Gingrich loves it.
A more common view among economists, however, is that the simultaneous tightening of fiscal and monetary policy turned a tough situation into an awful one. Governments made no such mistake this time round. Where leaders slashed budgets and central banks raised rates in the 1930s, policy was almost uniformly expansionary after the crash of 2008. Where international co-operation fell apart during the Depression, leading to currency wars and protectionism, leaders hung together in 2008 and 2009. Sir Mervyn has a point.
Look closer, however, and the picture is less comforting. For in two important—and related—areas, the rich world could still make mistakes that were also made in the 1930s. It risks repeating the fiscal tightening that produced America’s “recession within a depression” of 1937-38. And the crisis in Europe looks eerily similar to the financial turmoil of the late 1920s and early 1930s, in which economies fell like dominoes under pressure from austerity, tight money and the lack of a lender of last resort. There are, in short, further lessons to be learned.
Have You Heard About The 16 Trillion Dollar Bailout The Federal Reserve Handed To The Too Big To Fails?
What you are about to read should absolutely astound you. During the last financial crisis, the Federal Reserve secretly conducted the biggest bailout in the history of the world, and the Fed fought in court for several years to keep it a secret.
Do you remember the TARP bailout? The American people were absolutely outraged that the federal government spent 700 billion dollars bailing out the “too big to fail” banks. Well, that bailout was pocket change compared to what the Federal Reserve did. As you will see documented below, the Federal Reserve actually handed more than 16 trillion dollars in nearly interest-free money to the “too big to fail” banks between 2007 and 2010. So have you heard about this on the nightly news? Probably not. Lately Bloomberg has been reporting on some of this, but even they are not giving people the whole picture. The American people need to be told about this 16 trillion dollar bailout, because it is a perfect example of why the Federal Reserve needs to be shut down. The Federal Reserve has been actively picking “winners” and “losers” in the financial system, and it turns out that the “friends” of the Fed always get bailed out and always end up among the “winners”. This is not how a free market system is supposed to work.
According to the limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the grand total of all the secret bailouts conducted by the Federal Reserve during the last financial crisis comes to a whopping $16.1 trillion.
That is an astonishing amount of money.
Keep in mind that the GDP of the United States for the entire year of 2010 was only 14.58 trillion dollars.
The total U.S. national debt is only a bit above 15 trillion dollars right now.
So 16 trillion dollars is an almost inconceivable amount of money.
But some other dollar figures have been thrown around lately regarding these secret Federal Reserve bailouts. Let’s take a look at them and see what they mean.
The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?
In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right.
The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball. Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks).
Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks.
Before getting into the timing of the Fed’s god-father actions, let’s discuss its two kinds of swaps (jargon alert – a swap is a trade between two parties for some time period – you swap me a sweater for a hat because I’m cold, when I’m warmer, we’ll swap back). The Fed had both of these kinds of swaps set up and ready-to-go in the form of : dollar liquidity swap lines and foreign currency liquidity swap lines. Both are administered through Wall Street’s staunchest ally, and Tim Geithner’s old stomping ground, the New York Fed.
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Pictures From A Latvian Bank Run As MF Global Commingling Comes To Town
If anyone is wondering why the collapse of MF Global after the discovery of its commingling and theft of client funds was the single worst thing that could happen to market confidence, then look no further than the small Baltic country of Latvia where precisely what Jon Corzine’s firm did to its clients, has happened at the bank level. Businessweek reports: “Lithuanian prosecutors issued an arrest warrant for Vladimir Antonov and Raimondas Baranauskas who are former shareholders of Bankas Snoras AB. Both men are suspected of embezzlement and document forgery, the Prosecutor General said in a statement on its website today. Baranauskas is also suspected of accounting fraud and abuse of authority, it said.” Kinda like Jon Corzine, if not by the actual authorities, then by everybody else. And just like in the US where the lack of confidence in the system following the MF filing, so in Latvia the people have decided to hit the ATMs first and ask questions later. ““This money was the bank’s clients’ money,” said Irena Krumane, head of Latvia’s bank regulator, on Latvian Television last night. Krajbanka will most likely be liquidated because the bank doesn’t have the resources to meet depositor… Continue reading
