Tuesday, March 31, 2009

Insurance Companies Next Bail-out?

Some months ago I started reading about the potential problem of variable rate annuities and the insurance companies that sell these investments with a "guaranteed" return. The problem has recently been exasperated with the continued decline in the stock market and scared people looking for a safe investment for fixed income. The buzzing on blogs like this one and articles at Bloomberg , Barron's and others are pointing to big trouble with many life insurers. Below is a post that I found today from a guy that's really pissed:

The insurance business is supposed to be simple and relatively stable. It's not difficult to sell insurance, collect premiums, hedge your risk elsewhere with re-insurers and then invest the remaining premiums conservatively.

So what the hell happened? AIG (AIG) allowed an unhedged fund to operate from within and a tiny 400 person division brought down a giant that employed 125,000. Hartford (HIG), Prudential (PRU), Lincoln National (LNC), MetLife (MET) and Genworth (GNW) are all suffering the same fate. All are facing ratings agency downgrades based on capital ratios that fall with the stock market.

The culprit in this mess are guaranteed variable annuity contracts. A relatively new phenomenon in the annuity business, guarantees on annuity returns are irresponsible and should never have been allowed to exist. I don't remember which insurance company first got the bright idea to offer a minimum guaranteed return for their investors, but once launched by 1, the other firms soon followed with similar guarantees.

Insurance regulators whistled by the graveyard and made no effort to stop or even slow down the proliferation of these contracts and the rest is history. Sure, there were no evident problems during the bull market of the past 13 years, but once markets began correcting it was simply a matter of time until these guarantees began to destroy capital cushions at all of the above firms.

Big deal, you say. Let these insurers go belly-up if they can't raise new capital. One small problem. Millions of Americans have their retirement savings in annuities and millions more have life insurance policies with the above firms. Our fragile system could not withstand a large run by policy holders to cash out their life insurance policies, as these companies operate like banks and only keep a small percentage of assets in liquid form.

So to prevent disaster, you will soon be asked to give half a trillion or so of borrowed money in order to save these life insurers all because of their damned guarantees on variable annuity returns. They won't ask for $500 billion all at once, because the sheeple might actually notice and complain. Instead we'll wake one morning soon to hear that Treasury has given $100 billion to the industry and that the problem is now solved.

Does the pattern sound familiar? It should. The government assault on taxpayers to rescue big business is always incremental. Drip, drip, drip until we drown.

Sunday, March 29, 2009

Bailouts, Buyouts, Nationalizations: It's Never Enough

Martin Weiss writes:

... Two years ago, when major banks announced multibillion-dollar losses in subprime mortgages, the world's central banks injected unprecedented amounts of cash into the financial markets.

But that was not enough.

Six months later, when Lehman Brothers and AIG fell, the U.S. Congress rushed to pass the TARP, the greatest bank bailout legislation of all time.

But as it turned out, that wasn't sufficient either.

Subsequently, in addition to the original goal of TARP, the U.S. government has loaned, invested, or committed $400 billion to nationalize the world's two largest mortgage companies … $42 billion for the Big Three auto manufacturers … $29 billion for Bear Stearns, $185 billion for AIG, and $350 billion for Citigroup … $300 billion for the Federal Housing Administration Rescue Bill … $87 billion to pay back JPMorgan Chase for bad Lehman Brothers' trades … $200 billion in loans to banks under the Federal Reserve's Term Auction Facility (TAF) … $50 billion to support short-term corporate IOUs held by money market mutual funds … $500 billion to rescue various credit markets … $620 billion in currency swaps for industrial nations … $120 billion in swaps for emerging markets … trillions to cover the FDIC's new, expanded bank deposit insurance, plus trillions more for other sweeping guarantees.

And it STILL wasn't enough.

If it had been enough, the Fed would not have felt compelled this week to announce its plan to buy $300 billion in long-term Treasury bonds, an additional $750 billion in agency mortgage backed securities, plus $100 billion more in Fannie Mae and Freddie Mac paper.

Total tally of government funds committed to date: Closing in on $13 trillion, or $1.15 trillion more than the tally just hours ago, when the body of this white paper was printed.

And yet, even that astronomical sum is still not enough! ...

Click Here To Read Entire Article

Obama Fires GM CEO Rick Wagoner

GM CEO resigns at Obama's behest

The Obama administration asked Rick Wagoner, the chairman and CEO of General Motors, to step down and he agreed, a White House official said.

Wagoner's departure is one of the remarkable strings attached to a new aid package the administration plans to offer GM.

The White House confirmed Wagoner was leaving at the government's behest after The Associated Press reported his immediate departure, without giving a reason.

On Monday, President Obama is to unveil his plans for the auto industry, including a response to a request for additional funds by GM and Chrysler. (excerpt) read more at politico.com

Wednesday, March 25, 2009

Root causes of hyperinflation

The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run. Enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities, fails to force acceptance of a paper money which lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Often the body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralizing their attempts to stimulate the economy.

Read entire Wikepedia article

Monday, March 23, 2009

China Proposes New Global Monetary System

China calls for new reserve currency

By Jamil Anderlini in Beijing

Published: March 23 2009 12:16 | Last updated: March 24 2009 00:06

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.

What Is The Law

What Is Law ?

What, then, is law? It is the collective organization of the individual right to lawful defense.

Each of us has a natural right--from God--to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of any one of them is completely dependent upon the preservation of the other two. For what are our faculties but the extension of our individuality? And what is property but an extension of our faculties?

If every person has the right to defend -- even by force -- his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right -- its reason for existing, its lawfulness -- is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the common force -- for the same reason -- cannot lawfully be used to destroy the person, liberty, or property of individuals or groups.

Such a perversion of force would be, in both cases, contrary to our premise. Force has been given to us to defend our own individual rights. Who will dare to say that force has been given to us to destroy the equal rights of our brothers? Since no individual acting separately can lawfully use force to destroy the rights of others, does it not logically follow that the same principle also applies to the common force that is nothing more than the organized combination of the individual forces?

If this is true, then nothing can be more evident than this: The law is the organization of the natural right of lawful defense. It is the substitution of a common force for individual forces. And this common force is to do only what the individual forces have a natural and lawful right to do: to protect persons, liberties, and properties; to maintain the right of each, and to cause justice to reign over us all.

From The Law, by Frederick Bastiat

Sunday, March 22, 2009

China Divesting of US Treasuries

China inoculates itself against dollar collapse
By W Joseph Stroupe

There is mounting evidence that China's central bank is undertaking the process of divesting itself of longer-dated US Treasuries in favor of shorter-dated ones.

There is also mounting evidence that China's increasingly energetic new campaign of capitalizing on the global crisis by making resource buys across the globe may be (1) helping its central to decrease exposure to the dollar, while (2) simultaneously positioning China to make much greater profit on its investment of its reserves into hard assets whose prices are now greatly beaten down, while (3) also affording it greatly increased control of strategic resources and the geopolitical clout that goes with it. This is turning out to be a win-win-win situation for China as it capitalizes upon the important opportunities afforded it by the present global crisis.

The exact size and the precise composition of China's huge FOREX reserves, the exact degree of China's exposure to the dollar and its viable options, if any, in decreasing that exposure are matters of intense interest, because China's policies in this regard could have gargantuan implications for the US and the global financial systems and for the dollar...

Read entire article at Asia Times

Bloomberg: Worst Decline In Dollar Since 1985

Dollar Declines Most Since 1985



General News

By Ye Xie

March 21 (Bloomberg) -- The dollar dropped the most against the currencies of six major U.S. trading partners since the Plaza Accord almost a quarter-century ago as the Federal Reserve’s plan to purchase Treasuries spurred speculation that it’s debasing the greenback.

“What it introduces is the problem of the currency to the extent that the Fed is buying what isn’t desired by foreign holders,” said Bill Gross, co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television on March 19. “The Fed can keep interest rates where they want to keep them, at least for a 6- to 12- to 18-month period of time, but it will have consequences down the road.”

The U.S. currency weakened beyond $1.37 per euro this week for the first time since January as the central bank’s decision to increase its balance sheet by $1.15 trillion lowered yields, making American assets less attractive. The Norwegian krone and the New Zealand dollar rallied as the Fed’s move spurred advances in commodities...



Click here to read the entire Bloomberg article

Thursday, March 19, 2009

AIG Punitive Tax is Revolting

I’m floored that so many Republicans in the house voted for a 90% tax on bonuses paid out by companies who took bailouts. Where are our principles? We know the other side has no principles but why do we join them in such a low place?

Look, a 90% tax is a 90% tax. We don’t know the terms and conditions of the bonuses. We don’t know the purpose of the contracts, or what AIG receives in return for such largess. Frankly, we shouldn’t be concerning ourselves with what a private firm and its employees consent to, no more than we interfere with what consenting adults do. Populism and petty outrage are no excuses to throw principles out of the boat, especially when the anger is largely directed at the wrong things and the wrong people.

This situation has been clearly created by the government, not private institutions. The government chose to tinker with the free market in the form of easy money for sub-prime borrowers, which added the gasoline to the fire. Government chose to not let these idiot firms fail. And now government leaders gets riled up over the consequences their actions generated because they chose - say it with me - to ABANDON THEIR PRINCIPLES IN THE FIRST PLACE! Government should have no role in bailing out firms that fail or in driving social goals through financial games.

And the other aspect that simply a$$es me up is the sense that somehow a bailout dollar flows from the government into the cost center that funds the outrage du jour. This is simply getting ridiculous. These costs existed before the outlay of cash. Why aren’t we outraged at the outlay of cash for government spending? We KNOW those dollars come from us, whereas the AIG dollars consist of their operating cash, the money they raise from capital markets, assets, and lots of other things. Frankly, AIG could sell a unit or some assets and say THOSE dollars went to bonuses. However, Nancy Pelosi STILL have Air Force jets, 100% taxpayer funded (and probably more expensive than the private equivalent), standing by awaiting her beck and call to fly her to whatever planet she came from.

But the conversation itself is ridiculous.

The Republican Party is abandoning its principles. Worse yet, I don’t think elected Republicans on the whole even KNOW what their principles are! I really don’t! I think they think they know their principles, but I suspect most of them are on Ronald Reagan autopilot. Instead of asking “What Would Reagan Do” they should be asking “What is the Right Thing to Do?”

A little less outrage, and a little more thought, please.

Category: , , ,

Sunday, March 15, 2009

Grand Illusion - The U.S. Federal Reserve Bank

So if you think your life is complete confusion
Because your neighbors got it made
Just remember that it's a Grand illusion
And deep inside we're all the same.
We're all the same...

America spells competition, join us in our blind ambition
Get yourself a brand new motor car
Someday soon we'll stop to ponder what on Earth's this spell we're under
We made the grade and still we wonder who the hell we are


Styx – Grand Illusion

The whole world is in a state of complete confusion. Americans are coming to the realization that their lives have been a grand illusion. You thought your neighbor had it made. They were driving a Mercedes, spent $40,000 on a new kitchen with granite countertops and stainless steel appliances, sent their kids to private school, had a second home at the shore, and took exotic vacations all over the world. Now their house is in foreclosure and you are paying to bail them out. The anger and outrage in the country is at the highest level since the Vietnam War. The American public is being misled by government officials, politicians, and the Federal Reserve regarding the causes of this crisis and the solutions needed to solve our economic tribulations.

The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion:

"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States . There are Class A,B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?

Learn more in an article by James Quinn

J. Kyle Bass gambled on the sub-prime crash - and won!

Betting on a crash - the gamble of J. Kyle Bass

5:00AM Tuesday Jan 01, 2008
Mark Pittman

J. Kyle Bass, a hedge fund manager from Dallas, strode into a New York conference room in August 2006 to pitch his theory about a looming housing market meltdown to senior executives of a Wall St investment bank.

Home prices had been in a five-year boom, rising more than 10 per cent annually. Bass conceived a hedge fund that bet on a crash for residential real estate by trading securities based on sub-prime mortgages to the least creditworthy borrowers. The investment bank, which Bass declines to identify, owned billions of dollars in mortgage-backed securities.

"Interesting presentation," Bass says the firm's chief risk officer said into his ear, his arm draped across Bass' shoulders.

"God, I hope you're wrong."

Within six months, Bass was right. Delinquencies of home loans made to people with poor credit reached record levels, and prices for the securities backed by these sub-prime mortgages plunged. The world's biggest financial institutions would write off more than US$80 billion ($103 billion) in sub-prime losses, while Bass, his allies and a handful of Wall St proprietary trading desks racked up billions in profits.

The new sub-prime derivatives amplified the risks of the underlying mortgages, and now investors are reaping the consequences.

Bass, a former salesman for Bear Stearns and Legg Mason, had struck out on his own in early 2006. He started Hayman Capital Partners, specialising in corporate turnarounds, restructurings and mortgages.

He drove a US$200,000 500-horsepower Porsche Ruf RTurbo with a built-in racecar-style crash cage.

A former competitive diver who had put himself through Texas Christian University in Fort Worth partly on an athletic scholarship, Bass was about to take his most ambitious plunge yet: betting home values would decline for the first time since the Great Depression.

"We were saying that there were going to be US$1 trillion in loans in trouble," Bass says. "That had really never happened before. You had to have an imagination to believe us."

Other early converts were Mark Hart of Corriente Capital Management in Fort Worth, Texas, and Alan Fournier of Pennant Capital in Chatham, New Jersey. In his earlier sales jobs, Bass had sold securities to Fournier. Now the two joined forces to research bad loans.

On the other side of their trades would be investors chasing the high yields from securities based on sub-prime loans. This group included Wall St firms, German and Japanese banks and US and foreign pension funds. They were reassured by the securities' investment-grade ratings, even as foreclosures started in some parts of the US. The traditional way for a speculator to wager against, or short, the housing market was to sell the stocks of major home-building companies with borrowed money and repurchase them for a lower price if the shares fell.

Bass had tried that strategy in the past and found there were limits on its effectiveness, he says. There was always a danger that a leveraged buyout firm would bid for the home-building company and cause the stock to rise, which would cost anyone shorting the stock money.

The new, standardised mortgage bond derivative contracts created a strategy with less risk and greater profit potential.

To learn about the contracts, Bass visited Wall St trading desks and mortgage servicers. He met housing lenders and hedge fund analysts. He read Yale Professor Frank Fabozzi's book on mortgage-backed securities, Collateralised Debt Obligations: Structures and Analysis. Twice. "What I didn't understand was the synthetic marketplace," Bass says.

"When someone explained to me that it was a synthetic CDO that takes the other side of my trade, it took me a month to understand what the hell was going on." Bass and Fournier hired private detectives, searched news reports, asked Wall St underwriters which mortgage companies' loans were at risk of default and called those lenders directly.

In this blizzard of research, Bass turned up the California mortgage lender Quick Loan Funding and its proprietor, Daniel Sadek.

The hedge fund traders learned from a news account that Sadek was dating a soap opera actress, Nadia Bjorlin, and using profits from his mortgage company to fund a movie about car racing, in which she starred.

"When they started catapulting Porsche Carrera GTs and he says, 'What the hell, what are a couple of cars being thrown around?' I'm thinking, 'That's the guy you want to bet against'," Bass says.

Bass called Quick Loan Funding directly. He says he got on the phone with a senior loan officer, identified himself and said he was interested in the mortgage business. As Bass tells it, the conversation sealed his determination to short Quick Loan's mortgages.

Armed with their understanding of the loans they wanted to short and a plan for doing so, Bass, Fournier and Hart hit the road, making pitches to potential investors that the market was about to collapse.

"My biggest fear was that it was going to happen before I could get the money," Bass says.

One of Bass' first investors was Aaron Kozmetsky, a Dallas investor with whom he already had a business relationship.

While Kozmetsky had invested in almost every venture Bass had ever offered, this time Bass put a note of urgency into his pitch.

"It was the first time he's said, 'Drop what you're doing. You need to meet with me on this. Make time for me'," Kozmetsky says. Kozmetsky invested more than US$1 million.

Bass and Fournier focused on single-name mortgage bond derivatives to be more certain that their bets were right. Both bought only securities rated BBB and BBB-, rather than AAA rated securities, expecting them to pay off more quickly.

Bass says he raised about US$110 million and used the leveraging effect of derivatives to sell short about US$1.2 billion of sub-prime securities.

Two-thirds of it was based on BBB rated mortgage instruments, some involving Sadek's loans. One was Nomura Home Equity Loan 2006-HE2 M8, an instrument based 37 per cent on loans issued by Quick Loan Funding.

The remaining third of Bass' investment involved securities rated one grade lower, BBB-, some also incorporating Quick Loan Funding mortgages.

As Bass and Fournier executed their trades in August and September 2006, foreclosures were beginning to spread across the US.

"This is the fat pitch," Bass says. "This is the once-in-a-lifetime, low-risk, incredibly high-reward scenario where we're going to be right."

In January, Bass decided he needed "to meet the enemy" by going to the American Securitisation Forum convention in Las Vegas and listening to presentations from managers of the synthetic collateralised debt obligations that took the other side of his trades. "I came away relieved," Bass says. "They said, 'We know what we're doing. We've been doing it for 10 years. Our models are robust'."

In May, two independent researchers, Joshua Rosner of Graham Fisher & Co and Joseph Mason of Drexel University, concluded in an 84-page study that the US ratings companies Standard & Poor's, Moody's and Fitch had been wrong to bless billions of dollars of mortgage securities with AAA and BBB ratings.

After a May 3 presentation at the Hudson Institute in Washington, Rosner stood on K Street and lit up an American Spirit cigarette.

"The ratings are just wrong," Rosner says. "Completely wrong."

For Bass and Fournier, it was validation of their trading strategy. As investors worldwide began to panic, Bass and Fournier watched the values of their short positions soar.

- BLOOMBERG

Saturday, March 14, 2009

Property and Plunder

Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.

But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

Now since man is naturally inclined to avoid pain -- and since labor is pain in itself -- it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor.

It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.

But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.


From The Law by Frederick Bastiat

Friday, March 13, 2009


New Stock Market Terms


CEO– Chief Embezzlement Officer

CFO - Corporate Fraud Officer

BULL MARKET– A random market movement causing an investor to mistake himself for a financial genius


BEAR MARKET– a 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING– The art of buying low and selling lower.

P/E RATIO– The percentage of investors wetting their pants as the market keeps crashing.

BROKER – What my financial planner has made me.

STANDARD & POOR– Your life in a nutshell.

STOCK ANALYST– Idiot who just downgraded your stock.

MARKET CORRECTION– The day after you buy stocks.

CASH FLOW– The movement your money makes as it disappears down the toilet.

YAHOO – What you yell after selling it to some poor sucker for $240 per share.

WINDOWS– What you jump out of when you're the sucker who bought Yahoo at $240 per share.

INSTITUTIONAL INVESTOR Past year investor who's now locked up in a nuthouse.

PROFIT – an archaic word no longer in use.

Young Americans: Luckiest Generation In History

To illustrate how material abundance increases for each generation under free market capitalism, W. Michael Cox, chief economist at the Federal Reserve Bank of Dallas, has done several studies comparing the purchases that teenagers could make from a summer job at the minimum wage, in various years. Here's a summary of his 2000 article in the IBD.

Here's my own updated version of the Cox analysis. In 1949, the minimum wage was $0.40 per hour, and a full-time summer job (40 hours per week for 12 weeks) would have generated $192 in total summer earnings (ignoring taxes). Using a Sears catalog for retail prices, $192 would have only purchased the following 4 items in 1949:



Now contrast that with 2009. At the 2009 minimum wage of $7.25 per hour, a full-time summer job will generate about $3,500 this year, which would be enough to purchase the following list of 28 items (click to enlarge):

What a difference 60 years of free market capitalism makes!

According to Cox: "Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers."

MP: Teenagers today can afford things like cell phones with cameras, digital cameras, GPS systems, CD players, DVD players, laptop computers, and iPods that even a billionaire couldn't have purchased 20 years ago. As much as we might complain, just by being alive in the 21st century America, even if you're earning the minimum wage, you've "won first prize in the lottery of life."

Posted by Mark J Perry

As heard on the Mark Levin Show
--

Sunday, March 8, 2009

Roots of Global Financial Crises

During The Great Depression era, congress passed the Glass-Steagall act . Along with establishing FDIC insurance, the Glass-Steagall act prohibited the mixing of the “commercial” and “investment” banking industries. It was a response to the collapse of the American commercial banking system in 1933 which followed the stock market crash in 1929. Hearings at the time had revealed conflicts of interest and fraud in many banking institutions’ securities activities. The differences between bankers, brokers and insurance companies were often indistinguishable.

In 1999 the Gram-Leach-Bliley act (GLBA) was passed by congress. It repealed the part of the Glass-Seagall act that prohibited banks from offering investments, commercial banking and insurance, and paved the road for consolidations and mergers that would have been illegal under Glass-Seagall.

It was largely to legitimize the merger of Citibank (Citicorp) and The Travelers Group that the bill was enacted. Citigroup was formed and became the largest financial corporation in the world. Since the repeal of Glass-Steagall, the differences between bankers, brokers and insurance companies have once again become indistinguishable; just as it was in the years leading up to The Great Depression.

It's also interesting to note that sub-prime loans made up only 5% of all mortgages before the 1999 repeal. In the years afterward, sub-prime loans soared to 30% of all mortgages.

Links to some of my sources and many more details are below. It's absolutely fascinating and at the same time very sad to see how intermingled with financial institutions our government is. We definitely have the best government that money can buy! :)

Glass-Steagall Repeal.
Gramm-Leach-Bliley
Citicorp-Travelers Merger