So who wants to be a billionaire?

Clusterstock has detailed and easy-to-follow instructions to making ridiculous amounts of easy money. Start by forming a bank, hire all of your friends as bankers and raising some capital. After those preliminary steps, the hard part is done:

STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%. STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45% STEP 6: Sit back and watch the cash flow in. At this spread, you should be earning at least 4% per year on your $10 billion of capital, or $400 million. Sure, there's some risk that the Fed will grow a backbone and raise short rates, but there's not much risk. (They have an economy to fix and banks to secretly recapitalize). And in any event, if the Fed raises short rates, making your $1 billion will just take a bit longer. (And if they REALLY raise rates, causing you to actually lose money, it will be someone else's problem.)

Continue ReadingSo who wants to be a billionaire?

Four litmus tests for Congress

According to consumer advocate Ed Mierzwinski, the following four reforms "seem obvious to taxpayers. Not to Wall Street." I would add that they don't seem obvious enough to most members of Congress. They should have been passed at least a year ago:

1) Will Congress enact a strong version of the Consumer Financial Protection Agency? [It needs to be independent, needs to regulate all financial products, needs to reinstate federal law as a floor, not a ceiling, of protection]. 2) Will Congress regulate the shadow markets, e.g., unregulated derivative, hedge fund, and private equity shadow markets? 3) Will Congress audit the Fed? 4) Will Congress end the too-big-to-fail system that led to taxpayer-funded TARP bailouts?
I agree with Mierzwinski that these needs are obvious. The only reason they aren't yet law is that Congress is flooded with banking industry money. It's time for Congress to show whether it has any integrity for enacting these four reforms, which constitute some very low bars, indeed. These are minimum standard that any reasonable person would immediately support. Members of Congress need to show us that they really represent the People of the U.S. by immediately voting for these four reforms.

Continue ReadingFour litmus tests for Congress

Local Economic Activism on the Rise

Last night someone let a breeze into my house. When we got home, the furnace was at redline as it vainly tried to keep the thermostat warm. The radiators were dangerously hot. And I was pretty sure that I didn't leave my cookbooks strewn across the pantry floor on a layer of shattered Victorian art glass. The responding officer mentioned that the holiday season is a hot time for those who use this method to encourage people to buy more stuff. Our neighborhood email newsgroup has had more buzz than usual about burglaries and car theft. One sign of a weak economy is a rise in material crimes. The poor become more desperate while the rich take shorter tropical vacations and drive last year's Lexus. These guys were in a studied hurry. They opened and dumped drawers, flipped mattresses, and opened every door. As near as I can tell, my super-zoom camera and new laptop computer were the only really significant items taken. Plus several hundred dollars, mostly in state quarters and other change. They found and collected the power supply and carry case for my laptop, each in a different location. I miss my vintage laptop bag more than the much pricier laptop. It was a classic Targus backpack that has been getting favorable comments for 14 years. I haven't seen another quite like it since the year I bought it. Fortunately, we were away with all our credit cards and my smaller (but now favored) camera. It appears that some jewelry of little economic value is also missing, and an older camera. And a set of house keys. Changing the locks is easy. But not having keys didn't seem to slow them last night.

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On the continuing loss of the middle class

Eliot Spitzer discussed the economy of the United States with Amy Goodman of DemocracyNow. Has the economy recovered? No:

[W]e have a major crisis in this nation, and that crisis is jobs. That crisis is that we are seeing the elimination of the middle-class job foundation that permits most Americans to do better year after year after year. The reality is median family income has been stagnant for forty years, and the policies of what I call financialization, which is major banks trading assets back and forth, the Wall Street banks, such as Goldman, which is rightly a lightning rod right now for much of what’s going on, buying and selling, playing with tax dollars in proprietary trading—they make huge money, nothing is added to the economy, jobs are sent overseas. All of this going on simultaneously. That is what our economy has become. And Ben Bernanke and Tim Geithner were the architects of this.
Spitzer also commented on AIG and credit default swaps:
AIG was, to a great extent—their financial products division—a Ponzi scheme supposedly guaranteeing hundreds of billions of dollars of CDS collateral, credit default swaps, with no collateral behind it. That is part of what brought us down. But that is the system that the Fed was overseeing. They specifically rejected the effort back in ’94, ’95 to regulate this swamp. The derivatives, that are a quintessential Wall Street creation, have some small utility at an economic level, but became an enormous revenue stream for banks, and they were unregulated. People made a fortune. We taxpayers hold the bag.

Continue ReadingOn the continuing loss of the middle class

Economic news on the street

Avert your eyes from Wall Street to see what is happening to America. These statistics are part of a terrifying article by Elizabeth Warren, who serves as the Chair of the Congressional Oversight Panel created to oversee the banking bailouts:

Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can't make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.
There are many other statistics in this article. For instance, fully employed males haven't seen a pay increase since the 1970's. Warren also presents banks as villains in her story:
Boring banking has given way to creative banking, and the industry has generated tens of billions of dollars annually in fees made possible by deceptive and dangerous terms buried in the fine print of opaque, incomprehensible, and largely unregulated contracts.

Continue ReadingEconomic news on the street