The Howard Group

Why I'm Green

noreply@blogger.com (Group Boss) — Sun, 29 Mar 2009 17:47:00 +0000

If Going Green has won me over there is hope for all of us!

By Melvin J. Howard

We now know that you and I don't just go out and make money when we go to work or sell something. Instead we are just getting a transfer of already existing money from people that have some. Unless these people or companies are a bank then they didn't make money either - they also got a transfer of some money that already existed. Money, you will recall, is just the other-side, the mirror image, of debt. Money is created by the creation of a corresponding amount of debt. Money, in its most basic and spendable (or liquid) form, is created by banks making loans to the non-bank public.

Maybe your money started its life as funding for a dam or mining project, and here you are with it today. Maybe it even started off as the funding for that logging project that caused your favourite forest to be clear-cut and which caused you so much distress. That seems like money some of us might not like very much. Before I even ventured into the outback I really never knew what was all the fuss about? Global warming, carbon pollutants, clear-cutting, recycling. I didn’t care much as long as it didn’t affect me in the City but slowly I found that it did it effects all of us. So lets look at exactly what purposes money is being created for and then we'll have a better idea of the history of the money we are spending today.

If you go to the web site of the Federal Deposit Insurance Corporation bulletin at http://www.federalreserve.gov/pubs/bulletin/2000/0600lead.pdf. Total assets of commercial banks at year-end 2000 are $6.2 trillion dollars. Savings Institutions have total year end 2000 assets of $1.2 trillion.

Here is an interesting way to look at this data. Adding up the total Commercial Banks and Savings Institution Assets would give a total of $7.4 trillion in bank assets. This is, of course, debt of the non-bank public (that’s us) owed to the banks this is in the form of mortgage, credit card debt and so-forth. The way that money works this should mean that the total money supply in US dollars (that is the money that we non-banks can use in the trade for all goods and services) should be close to this $7.4 trillion in bank assets. At the end of 2000, this is $7.2 trillion, which is only 2% off the total bank assets or debt owed by the public to the banks.

Let's just focus on Commercial Banks since that’s where most money (almost 85%) is being created. This total balance sheet of the commercial banks gives us the breakdown of how today’s available bank money was created. We see that $3.8 trillion, or 60% of it, is created as "Loans and Leases". The rest was created for other assets owned by the banks such as investmen

t securities and bank real estate. So let’s drill down into these "Loans and Leases" since they make up most of the money that’s been created. You will see a breakdown of how this $3.8 trillion dollars was created. Almost 50% was created for real estate purposes, mostly mortgages for residential and commercial real estate purchases and development. Another 30% is for commercial and industrial project purposes. And most of the rest is loans to individuals, in the form of Credit Card and other personal debt. Combining this information we can see that almost half of the money created by banks comes into existence for some kind of real estate transaction, commercial or industrial project. We can extrapolate and say that about half the money we use today came into existence for the purpose of some kind of Land Alteration and its associated natural resources. This means the replacement of natural land with some kind of human development. The US dollar based monetary system including the G-20 nations, as we know it today is heavily dependent for its survival on human alteration of the natural landscape and it's resources.

Let’s go green

Nature has figured out some excellent ways to moderate the flow of water to manage flood and drought risk and also to clean water so that the waste of one process can get all cleaned up and ready for another process. This all happens through water's interaction with the land and with the ultimate Central Banker - the Central Banker of Energy, the Sun. Humans have absolutely no control over the Energy Central Banker. All they can control is the things that store the sun's energy like plants and animals that eat plants, and also they can go find the sources of other stored solar energy in the form of old squashed dead plants and animals, called oil and coal. All these activities plus all of the human monetary-system driven development of land effect the land on earth, not the Energy Central Banker. So the land is what we focus on in considering the link between the water cycle and the money cycle that forms the basis of our economy.

The way that nature manages flood and drought risk is really through plants and soils which are, of course, the very best of friends - the soils being largely made up of decaying leaves and trees, and the plants needing the soils for food. The soils store lots of the rain as groundwater and they are kept in place by tree roots. Some of this water the trees might like for later when they get a bit thirsty, and other ground water might fall to an underground aquifer or run off slowly into a stream in the watershed.

Having lots of plants and rich soils in a watershed means that when there is lots of rain the ground will soak up lots of the excess water and this will help mitigate flood risk. When it's been a long time between rains you can rely on the groundwater in the aquifer or the groundwater gradually seeping into a nearby stream to provide a steady flow of water from earlier rains. This helps mitigate drought risk.

As for natures water cleansing functions the trees keeping the soils in place prevent excessive amounts of mud, clay, sand and salt from sliding into the stream. The soils and the little microorganisms living in them are very fond of waste products that most other living things would find rather unappetizing. Them and other little critters living in or near the stream often perform water cleaning and filtering functions that help to make the water useable for others. The trees sweat off some water through evapo-transpiration helping to cool the stream area so that all the critters that live there that have an important role in the water cycle can stay at a nice temperature to do all their work. Having such a water cycle on our planet makes a lot of sense given that gravity would otherwise drain all the water to the salty sea and sea-water is not very drinkable. This whole business of evaporation and rainfall to replenish all living things that need fresh water is quite sensible and, of course, life as we know it would not exist without an efficient water cycle. A prosperous human society cannot exist without an efficient water cycle. There's that efficiency word that people would have us believe that only markets can provide. There number of ways to describe efficiency but lets just talk about efficiency in plain language that makes sense intuitively. At the end of the day markets and the monetary system are all about allocating energy amongst the different participants of a society - whether that energy be in the form of labor applied to a raw good to make it into a product, the raw good itself such as food crops, or stored energy such as coal and oil. And we know that all our energy comes from the sun and that only plants know how to capture and store that energy directly. All these being the processes of Mother Nature they obey what we humans have interpreted to be the natural laws of physics, most especially they obey two important energy laws - the First and Second laws of Thermodynamics - that have never ever found to be violated by any process. Water obeys these natural laws. Money, being a purely human abstraction, does not.

The First Law of Thermodynamics is the Law of Conservation of Energy. This says that the amount of energy in the universe is fixed and you can’t create new energy or destroy existing energy. When it comes to the planet Earth, we get new energy to the earth from another source in the universe, called the Sun. Apart from all the energy that we have stored in and on earth and the daily dose of sunlight we have no other energy available to us. This is perhaps the primary reason humans have seen fit to develop markets - that is, to allocate this scarce resource of energy.

If the laws of Thermodynamics had just stopped there, all would be right with the world! Under the conservation of energy I could just fill my car with gas, stick a little collector in the exhaust pipe and recycle all the energy I just used and fill my car back up, since I know that energy will be conserved. I only ever have to buy one tank of gas in my life. Buy one load of electricity to heat my home for my whole life Id just recycle everything over and over. Energy companies would go bankrupt, there would be no wars in the Middle East, and the stock market would collapse because no-one could make money from selling energy.

OK there’s a catch. And that’s the very important Second Law of Thermodynamics. The ENTROPY Law. The law that sits right at the heart of the conflict between man and nature. ENTROPY is a measure of disorder in terms of the usefulness of energy. Low entropy means very useful energy. High entropy means quite useless energy cant use it for another process, its not organized enough. The Second Law of Thermodynamics says that Entropy always increases as energy is used. Therefore, once you have used all the gas in your tank, even though the driving process left the same amount of energy from the gas in the world, that energy has become pretty useless so that you cant re-use it. This law then really creates the scarcity of energy and the primary motivation for using markets to allocate it.

Some economists tell us that this will be done most efficiently if the conditions of a free market are met. Presumably this means energy will be distributed more efficiently since that ultimately is what the market is distributing. So how does the market deal with the Entropy Law? The answer to that would be Not at all! While it is true that the Entropy Law contributes greatly to the scarcity that gives rise to the need for markets you will not find the Entropy Law mentioned in mainstream economics textbooks. Modern money and capital markets, and contemporary economics have been built up IGNORING the most fundamental laws of nature. It is interesting to consider who runs things most efficiently - the Markets or Mother Nature? Given that the most desirable outcome of the water cycle, even from a human-centered point of view, is a stable, secure flow of clean water one would have to conclude that Mother Nature arranges the most efficient allocation of energy, for, in the natural processes there are no waste products, and solar energy is used to its maximum. Every player in the natural water cycle does some work in the water cycle and various related nutrient cycles and their waste products get used as input into some other process in these cycles. Nothing is wasted and everything fits together to form a whole cycle that has evolved over millions of years and that we are the beneficiaries of today. Nature's water cycle seems to have taken the Entropy law into consideration and then optimized energy use within this

boundary condition.

Enter Man

But then we Humans come along with fears of scarcity, markets and a monetary system that ultimately depends on alteration of the land for its survival and for the survival of the markets. But most alterations to the natural landscape then disturb Mother Nature's maximally energy efficient water cycle in several common ways. These are common things that have happened all across the globe:

First, deforestation exposes soils and causes soils, sediment and salt to rush into the stream at the next rainfall. You end up with salty water and/or sediment that kills off lots of the plants and critters that had important roles in the water cycle such as water filtration.
Second, the loss of soil and vegetation, coupled with impervious surface coverage such as roads, car-parks and buildings means that water can no longer seep into the ground as is very important in mitigating flood and drought risk. The frequency of flood and drought increases.
Human activity in watersheds (real estate, mining, logging, intense farming and so forth) and the loss of filtering systems through the loss of vegetation and soils means more and more pollutants are entering the water sources.
The practice of building dams either for hydropower or for storing water in a place that doesn't have enough, and the practice of channelling water to places that don't have much, has been responsible for massive loss of aquatic life, flooding and drastic alteration to affected watersheds and local water cycles.

Then we market-oriented humans come along and say, "Now we have a water problem. Let's use some market mechanisms to fix it." In fact a lot of the market-oriented people go so far as to say - "Let's privatize the water - they think that this pure market solution will fix everything can you believe this? " And they say this perhaps forgetting that it was market forces that got us into this problem in the first place.

All this is not to say that us humans should not have markets for other things or should not alter the land. Rather it is a wake up call to build a much better world and make more efficient use of our energy. Ultimately this would mean a paradigm shift in the way land is developed so as to retain enough natural resources for million of years to come. If we do these functions right it would enter into the economy at the point of credit creation, or equivalently money origination think about it. “That’s why I am green.”

Well Done Mr. President

noreply@blogger.com (Group Boss) — Mon, 23 Mar 2009 04:14:00 +0000

Mr. President never lose your sense of humor no matter what Steve Kroft says of 60 minutes.

By Melvin J. Howard

How many laws do you live under? Thousands. We all live under thousands of laws. Now, in your lifetime, how many of those laws have you written, proposed, voted on, or been consulted upon? For the vast majority of people, the answer is none. None. And do you have any friends or relatives that have written any of those laws, or proposed them, been consulted, or voted on them? Most people would say no. So in a system of majority rule (democracy), how is it that you are living under laws you never wrote or voted for? And if they are being written, someone must be writing them. And if it isn’t the majority participating in those law-making stages, it is the minority. Which minority? Well, in the U.S. it is the senate, house, president, and advisors. Are there any legitimate laws proposed by majority groups and brought to senate? Yes, of course there are laws made that truly represent the majority view. Are there any that are manipulated in by special interest groups and passed as law for the masses? Yes, there are plenty of laws passed that in no way serve the majority and only serve a powerful minority (that is part of the whole point of spending vast amounts of money for a candidate). Enter President Obama he is doing something different then any other President he is actually making ordinary citizens apart of the process. Let’s face it until he came a long we didn’t know what heck was going on in the white house. The fact is President Obama has charisma and some do not like it. I am not sure Steve Kroft of 60 minutes is a fan by his interview stance but I could be wrong.

Never the less for whatever critics that the President might have I for one love the transparency. It’s unprecedented the white house is open to the public. It’s refreshing to get information direct from the President. So whether it’s on Leno or 60 minutes I will take it. I still occasionally get e-mails from the President yes I am one of the 2 million he has on his list. I even follow Senator McCain on Twitter he also has some good points to make. What I am trying to say we live in a system. The system has defaults and exceptions. If you live by default, you will experience the default states of the system. If you live by your own code, you will experience your own results. In this system, there are laws and structures that put everyone ‘in their place’ within the system. This is the default of the system.

We are under thousands of laws, of which you had nothing to do with the creation of most. You just wake up every day and get your new laws issued to you on TV during news. You accept them as the truth about the way things are – not realizing that your acceptance is what makes them come alive. Millions of people do that simultaneously across the country, all watching the same TV news program, and a new law comes into effect because each one of you just didn’t question it. This works almost all the time. You are predictable in your response. You just believe it is for your own good, or that you can't change it, and you do as told, becoming the default. You have given away your power to experience your own truth and make up your own mind. Original thought is replaced by rehashing what you have been told. We have done that for the last 8 years. Once you make a habit out of this, you become predictable. You even forget how to have original thought that is not tainted by your past experience (which was also tainted by other people’s past experiences). Advertising works and it works because of this reason – predictable, trained response to certain scenarios. Companies spend millions of dollars on one 30-second appearance of an ad during the Super Bowl because they know it works. As an individual, you don’t want to admit that adverts and media influence your behavior strongly, yet you can admit that the population is influenced. Nobody wants to admit that they are influenced. But don’t you make up part of the population?

In this system, you have a government. This government also decides on who prints your money. Your government also sets your education curriculum up. You cannot legally study outside of the education system framework set up. You must follow the system. Even the corporations where you get your ‘jobs’ force you to have followed the education system. Who writes the education system? The government (which is elected through corporate power). This education system tells you how to live your life, how to get jobs, what you are worth, what you should do and think. It prepares most people for jobs – for dependence. Few walk out of it and start self-reliant enterprises. Which is odd when you consider that each human being has a unique thumb print, unique mind, and unique everything. So each being would, if he or she followed their hearts, produce in a unique and thus self-reliant way. As long as they don’t try to conform to one way of doing things for everybody, logic tells you they would be able to do what they love and be self-reliant in it because no one else would be able to duplicate them. If fact, we all know of someone who succeeded wildly by doing what they love and doing it they’re way with persistence. Americans can come out of this loss of confidence if they just look inside themselves and not on outside forces.

Everything in nature is unique and self-reliant. Only we human beings require employment to live! Don’t you find that strange? No other creature in nature requires employment to live. Self-reliance is the natural state of all beings for they are extensions of the Almighty Creator, all part of the One. So, your education system is written and maintained as is by the government. Its effects as we see them are the majority walking out programmed to look for jobs and scared to death of being self-reliant. Correlate this with the fact that 2% of the world’s most powerful people own, influence or control about 75% of the resources in use, resources that need people to work them, and you may see a pattern there. And correlate this with the fact that they also have a hand at the government set up and the money supply and printing, and you may see another pattern there. This is not an attempt to point to any one conspiracy or anything. This is not a conspiracy theory far from it. But the facts as they are showing us that there are people who are aware and those who are not. And those who are aware have goals, some with very large global goals, which they pursue. Some goals may be noble and some not. And nothing is impossible. And the laws of cause and effect always work. No matter how ridiculous the situation itself sounds, they work. What is amazing about the education system is that everybody knows that it trains people to know certain facts but leaves them unprepared for the world. Everybody says, “Why don’t they teach us how to make money, how to live with other people, basics of humanity?” And everybody knows that the leaders of the nation read self-development books and materials, because they work. For example, the book Think and Grow Rich has been a classic must-read for the most powerful people ever since the 1930s. Yet none of its principles ever made it into the education system, even though the leaders know the principles very well because they read that book and apply it. The knowledge you would pay thousands of dollars for in a weekend seminar is so simple yet empowering, but no one ever puts it into the education curriculum.

Why? Did you know that, for all of humanity’s history, powerful civilizations have always been led by a small group of people, families or dynasties? All over the world, this same pattern has been in place since 8,000 B.C. Always, the one thing that differentiated the masses under control with the controllers was always a lack of awareness, a withholding of knowledge there is no excuse for that today. Has this pattern stopped, or are we in delusion? As you can see, there is never anyone to blame as such. The masses have to accept the delusion for it to work. So the idea of victim and victimizer is inaccurate, although fairness, in human terms, may not be present.

The whole point I am making of all this is to show you that if you live by default, within the system, you will get the default results of the system. Awareness and making your own choices is the only way you can have your own results. But there is more. You can extend your own wealth and freedom by helping others see theirs, and by adjusting your system to make it more efficient and easier for you. The U.S. spends $1.03 billion on military expenditure per day! The whole world including the U.S. spends $3 billion per day on the military. The U.S. makes a handgun every 20 seconds (and guess who owns the gun factories). All this is done in the name of peace. The means of war are the means of war, and the means of peace the means of peace. You cannot confuse the two and think one will create the other. You cannot use the means of war to make peace. Cause and effect dictate it to be impossible. Peace is only achieved when people choose peace, truly, in their hearts and mind. The more weapons you make, the cheaper they get and the more available they become. Just like faxes and mobile phones. At one time, very few people had nuclear weapons. Now anyone with $100,000 can get a small one in the black market. You can buy an AK47 assault rifle in Afghanistan for $15. The more you make of anything, the cheaper and more available it becomes. You cannot increase peace by spending more on the military – you simply guarantee conflict that way. Simple economics. (By the way, every time there is a war, the national debt increases and the Federal Reserve Bank are owed more by the taxpayer.

What people have yet to realize is that democracy is not necessarily freedom. Democracy simply means majority wins. Even the dictionary defines it as that. Majority rules. Majority of what? People? Money? Right now, it is money. So the one with the most money rules. The golden rule, right now, is that the one with the most gold rules. You find this applying in almost all democracies. Even in ‘poor third-world countries’, money is always used to ensure the results of elections. Majority rules. Democracy. Interesting concept.

Freedom, each being recognizes the sovereign divinity within other beings. Within that simple boundary, each being is free to do, as they like. In other words, you are free to be free, to deal with your own consciousness, to live and let live.

And so is everyone else. The idea that one is free because they live in a democracy is a contradiction. Look up the words freedom and democracy in a dictionary:

· Freedom: The condition of being free; the power to act, speak, or think without externally imposed restraints.

· Democracy: The doctrine that the numerical majority of an organized group can make decisions binding on the whole group.

Find your freedom within you. You are built with it. Just like, as all of life, you are built with self-reliance capabilities. You can be wealthy and free through many means and for varying periods of time, but you most easily and effectively do so with your own inner power, wealth and freedom. Everyone has that. You cannot blindly rely on the system – you can't wait for the government to do it all for you get up off that couch. President Obama is doing his part now its time to do yours. You will simply become a default output if you do anything. The government has pluses and minuses. There are parts of it that can help you on your path and parts that can hinder you. But at the end of the day, you have to stand up for yourself. You have the inherent uniqueness and capability to! Humans are still evolving. We are not even civilized yet (can you imagine a civilized society that somehow gets innocent children at birth and manages to turn them into people full of fears, children who shoot each other?); we are only just learning to use our reasoning capabilities; we are a race at the adolescent stage of evolution. Democracy is not the end stage – it was simply a stepping-stone to something bigger.

Take A Bow Chairman Bernanke

noreply@blogger.com (Group Boss) — Mon, 16 Mar 2009 04:55:00 +0000

Just what is the Fed

By Melvin J. Howard

The birthplace of the Federal Reserve System was not Wall Street or Washington as people might think. Public scrutiny and transparency was never an option for the fed in the past. But in this economic climate we needed to hear second to the President of the United States. The second most powerful man in the world the Fed Chairman himself. Ben Bernanke the current fed chairman was on display for the public in a 60 minute interview. The Fed was started in a state with a proven track record of loyalty to wealth accumulation as a priority over the rights of the people. This was evident from the states long history of slavery, coupled with such a remarkable devotion to gold that it uprooted its indigenous inhabitants and marched them off to Oklahoma at the first smell of gold. This state was Georgia, and in 1910, a special meeting took on Jekyll Island. Duck-hunting was the excuse given for having to go there. But numerous historical accounts of this event reveal that the duck population remained fully in tact and, instead, the Federal Reserve System was designed. In Frank Vanderlips Autobiography. Mr Vanderlip attended the secret meeting and was President of National City Bank, which is now known as Citigroup today. Another account was written by Bertie Forbes, in a publication called Current Opinion in 1916. He went on to found Forbes Magazine. Interestingly today the Federal Reserve Bank of Minneapolis also has this same account on its web site, so it is "Official History").

Three years later, during the week before Christmas 1913 when several representatives were already on vacation, the US Congress passed the Federal Reserve Act, thereby giving birth to the Federal Reserve System. Today, though the gold standard is "no more", we still live with the legacy of that Jekyll Island. Mr. Warburg was also one of the designers. There was no public input. It has survived fairly well, with the exception of the 1929 crash and subsequent depression, because the general public trusts it. However, they do so mostly without understanding it. So that why last nights interview was all the more ground breaking.

SO, How is money created, and what role does the Federal Reserve and its member banks play? Lets start with some common misconceptions about money, and why they are not true:

Misconception 1: You make money by going to work, or by selling something.

FALSE: Nobody can make money except commercial banks (also called depository institutions) and the Federal Reserve, which is owned by the commercial banking industry. When you get paid for work it is merely a transfer of money that already exists. It was, at some time in the past, created by the banking industry for a purpose for which they saw fit to create (or really lend) money.

When we talk about money here we mean money that can be used in all transactions and in the repayment of all debts. This is what we are calling bank-money. However many non-bank types of so-called "money" raising instruments are increasingly being used by non-bank corporations to avoid direct contact with the bank money creating process. This includes things like corporate bonds and shareholder equity, which expand on the bank money supply, but all are completely dependant on, and rely on the confidence that they can be liquidated for, "bank money". We might call this other stuff "near money". Since, in our society, it is really bank money people seem to need for the basics of life, and these other near monies are luxuries for people that have excess, we will focus just on bank money.

Misconception 2: Money has something to do with gold and Fort Knox.

FALSE: The monetary system USED to be backed by the gold standard until President Nixon abolished the Gold Standard in 1971 during the Vietnam War. He did this because there was not enough gold at Fort Knox, KY to back all the money that needed to be created to fund the massive wartime expenditures. The axing of the gold standard backing the US dollar led to the "floating" of most national currencies, which were no longer pegged to a gold conversion standard.

Money is no longer a store of value. It is only a measure, an electronic accounting system of credits and debits, which has come to be accepted world over as the only way of conducting trade. Each day several trillion dollars travels the globe trying to attract more electronic credits for its owners. Today's money is not backed by gold that is no secrete now it is backed by our trust in the monetary system. This is ultimately a trust in those that create and control the money supply. The commercial banking system, and its major shareholders. The statement on all Federal Reserve Notes "In God we Trust", is perhaps the most telling statement of this trust.

Misconception 3: Money is Created by the Government Printing it.

FALSE: Today almost NO money is created by the government. Most of the total money supply is created by banks making loans to the non-bank public. Almost all money (more than 95% at any time) is created by the creation of a corresponding amount of debt. Currency in circulation is just a very small proportion of the total money supply and it is created by the Federal Reserve System, not the government.

SO HOW DOES MONEY GET CREATED?

Base money, also called high powered money, is created when the Federal Reserve performs what are known as Open Market Operations. In this process the Federal Reserve injects money by buying Government Securities, which then become debt owed by the government (that is the American Taxpayer) to the Federal Reserve. And where does the Federal Reserve get this money to buy the government securities? Well, it prints it". The Federal Reserve has no budget, quite simply because it doesn’t need one. In fact, almost all money we come by has its basis in high powered money that the Federal Reserve has printed at some time in the past. Most of this base money is currency in the form of Federal Reserve Notes. The Federal Reserve then creates a spurious "liability" on its balance sheet called Federal Reserve Notes outstanding, and in return gets an asset in the form of government securities, which the public must repay through the efforts of work.

Once this base money is created, banks can create around 10 times this amount in checking accounts and other deposits. They do this by making loans to the non-bank public. A corresponding amount of checking account money is created for each new loan.

BANK SUPERVISION

One of the best means of prevention of financial crises (and therefore IMF bailouts) is stricter supervision of banks and other financial services companies, so that they don’t make too many risky bets that destabilize the markets. This is in the best public interests of a public that depends on stability of the banking system, and doesn’t have an alternative monetary system to fall back on.

One would think that bank supervision would be done under the guise of a government body so that there could be some democratic accountability of the supervisor, and some representation of the public’s interests. But under the Gramm-Leach-Bliley Financial Services Reform Act of 1999 the regulator of all bank holding companies in the US is the Federal Reserve. They are also the supervisory body, which will monitor banks risk taking activities and their associated capital buffers under the new Basel Capital Accord.

Apart from the issue of ownership, the conflicts of interest with respect to the "central bank" are two fold. In most other countries the central bank the driver of monetary policy - and the bank supervisor - trying to make sure the financial system is safe - are two entirely different bodies.

Alan Greenspan, the former Governor of the Federal Reserve Board, that overseas all the Federal Reserve Banks, said in his bid for being the bank regulator of choice, that regulation by a separate government body (such as the Office of the Comptroller of the Currency) devoted only to managing safety and soundness of the banking system would "inevitably have a long term bias against risk taking and innovation". Bur he left out that these risks are usually born by the public. Often banking officials forget that there is a public to worry about. That is, until a public bailout is needed like now.

Studying the Fed, Bretton Woods and The Basel Accords is fascinating and it would take up much more space in this entry to explain. But I still applaud Fed Chairman Ben Bernanke for coming on television to restore confidence, which we so sorely need. Personally speaking as a deal maker we need the credit markets restored yesterday.

The Roaring 20's What Did We Learn ?

noreply@blogger.com (Group Boss) — Sun, 08 Mar 2009 01:52:00 +0000

Let Go Back To The 1920s for a little Financial history lesson

By Melvin J. Howard

Much of the source material on the 1920s used for this entry actually came from the web-site of the Library of Congress. The site has a very extensive selection of original documents scanned into electronic files and posted to the Web. For the 1920s era there is a fascinating collection called "The Coolidge Era and the Consumer Economy". I am a big fan of the Library of Congress you could leave me there for a week I would be in heaven.

Link to the Library of Congress 20s collection http://memory.loc.gov/ammem/coolhtml/coolhome.html

Now let's head back to the 1920s Einstein was about to make a speech called Language, Science and Goals.

Einstein was becoming a very famous person in this period known as the Roaring 20s and he was traveling in the US to explain his amazing Theories of Relativity. These theories made him the premier Time Traveler of Western History. In particular, his Special Theory of Relativity provided the Western world with a radical new look at the concept of time, and it implied strange time travel and time-space paradoxes. He notes in this speech the role that science plays in the world, and that it is leaders who set the goals and priorities first and science that follows, rather than the other way around.

Now imagine we are back in the twenties World War I is over, the Republican Harding is President and the decade started glumly with what is known as the Agricultural Depression. Radio was the new mass communications medium of the 1920s. The Westinghouse Company launched the first radio station KDKA in 1920 in Pittsburgh, Pennsylvania. Radio brought with it great promises as the medium for free speech and democracy but these promises were never fulfilled in the twenties, as we shall see.

Campaign finance and corruption scandals rocked the Harding administration, the most famous being the Teapot Dome Scandal, whereby government officials had secretly leased public oil-fields to private interests in return for cash and other favors. Harding had an unfortunate incident with some foodstuffs in 1923, he dropped dead and Calvin Coolidge became president and served as such until 1928.

The Coolidge Administration favored deregulation, industry self-regulation and brought in tax cuts to stimulate spending. ATT, NBC, and CBS built huge radio networks across the country that grew rapidly in the last half of the decade. These networks were all supported by advertising revenue and this tended to "dumb down" the content so as not to offend the major revenue sources.

The public relations industry and major corporate propaganda campaigns were launched. Spearheading much of this activity was a man named Edward L Bernays who wrote extensively on "The Business of Propaganda" and helped Coolidge get elected in 1924. Advertising in newspapers and radio claimed unprecedented proportions of print-space and airtime.

Various movements to encourage ever more spending were launched - such as the Better Homes Movement, and various targeted Women's and Negro consumer campaigns were launched. Marketing specifically to children kicked off with the first annual Macy's parade in NY in 1924. Target marketing statistical analysis reached new levels of sophistication with the introduction of the punch-card system.

America had reached new and amazing heights in consumerism! Popular radio shows, the new talking movies and song/dance combos such as the Charleston engaged millions and helped the decade become known as the "Roaring 20s."

The Chain Store was born. Sears, Roebuck and Company opened 324 stores nationwide between 1925 and 1929. Woolworths, Krogers, JC Penney, and Walgreens all spread stores all over the country. Many loved the convenience but hated that the small local merchants were forced out of business.

The stock market climbed to new heights in the late 1920s, the ordinary American was encouraged to invest their savings in the stock market and more Americans owned stock than ever before. At the same time the proportion of Americans on incomes below the poverty line continued to increase so that this proportion reached almost 50% by 1929 by some accounts.

Campaign finance was out of control with large companies like Dupont and General Motors giving lavish contributions to both parties. In a magazine called "The Forum", in a July 1929 issue, a man called Norman Thomas wrote an article called "Plutocracy in the Saddle" about business domination of government and calling the two party system the Twiddle duplicans and the Twiddle democrats. He also went on to say about this system of two parties in the pockets of big business "This is immensely better than having one dictator who might get shot or one party which might provoke a rival organization based on principle. Two parties to stage a good show annually and a roaring circus every four years to divert the people - what could be better? A devout and reasonably shrewd "captain of industry" who does not daily thank God for this great gift of two parties, both his for the campaign contributions, is an ingrate. Indeed its more sophisticated leaders may sometimes reflect how much better it is to teach people how to read and then give them what they should read, let them vote but control the parties through which they vote, [rather] than, like the stupid Czar of Russia, to try to keep the masses illiterate and voteless."

In the latter half of the 1920s the Public Utilities were consolidating like crazy through a handful of holding companies, and in the process were raising consumer prices. As people found out later they were also taking on huge amounts of debt, overvaluing assets and hiding losses from investors.

Corporate profits were soaring throughout much of the twenties generally thought to be due to increased consumer spending, credit availability and increased efficiency.

But there was a large part of this story not being told lest it would offend the advertisers providing the revenue to the radio stations and newspapers. This was that of the conditions and wages of the non-union workers in the many factories - such as garments, candies, and so forth. In general union membership declined drastically during the 1920s.

There were sweatshop activists in those days too. You can find some of their reports online at the Library of Congress website. In one report by the Consumers League of New York entitled "Behind the Scenes in Candy Factories" you can read about the appalling conditions of women who worked in these factories and the wages of around $10-12 a week, which was considered well below a liveable wage. The authors actually went to work in these factories in order to learn about these conditions. There were also reports documenting abuses in the garment industry and a campaign to encourage labelling of garments with the conditions they were made in. This was all in stark contrast to the glamorous images of these products portrayed in never ending streams of advertising.

A network of consumer activism popped up around the country much of which was spearheaded by a Nader-type by the name of Stuart Chase. In 1927 he co-authored a large study called "Your Money's Worth" documenting the shoddiness of many mass-produced products, the false claims in advertising and the trend for producers to make sure products would be replaced at frequent intervals. Comparing the consumer to Alice in a nonsensical Wonderland he found advertising industry correspondence with corporate clients that boasted that only 25% of purchases are based on real need - the rest are the product of "salesmanship".

On the financial side, Andrew Mellon was Secretary of Treasury for the whole decade. He was also one of the original founders of ALCOA - the Aluminium Company of America.

A fellow named Benjamin Strong, a Morgan man, was the Director of the Federal Reserve Bank of New York at the time. His informal and totally private agreements with the head of the Bank of England, Sir Montague Norman, to help England stay on the gold standard led the Federal Reserve to make harmful interest rate cuts in 1927 that created excessive stock market speculation. This played a large part in the severity of the ultimate crash. These dealings between Strong and Norman are documented in the diaries of Federal Reserve Board member Charles Hamlin, which are also readily accessible on the Library of Congress web site.

The British economist John Meynard Keynes was very critical of this move of England back to the Gold Standard saying that "In truth, the gold standard is already a barbaric relic." This is because the gold standard forced prices and wages to be set by international traders and speculators, rather than the needs of workers and consumers. Today, these are still set by international speculators in our current environment of free capital flow and domination by a single reserve currency - the USD.

This move by the Federal Reserve in 1927 to lower interest rates to help England stay on the gold standard encouraged stock speculators to borrow money at these low rates from the banks and then plow these borrowed funds into the stock-market. The banks themselves were engaged in a lot of these speculative activities because many of them also operated investment banking and brokerage businesses. This speculation continued until 1929 when in August the Federal Reserve raised interest rates.

Stock prices reached their peak in September - the Dow Jones Index having doubled in just over a year. But then with the higher interest rates on borrowed speculative funds and nervousness that stocks were overvalued, stocks started falling in October. Banks started calling in the loans used to buy stock. On October 29, 1929 (Black Tuesday) the Dow-Jones Industrial Index crashed enough to wipe out this doubling of the Dow. The Dow and the markets as a whole started on a downwards spiral that bottomed out in 1932. Many people just couldn’t pay off their loans and banks started going bankrupt all over the place from this and from the collapse of their own stock investments. There was at this time NO Federal Insurance of bank deposits and people saw not only their stock markets investments disappear, but also their bank accounts vanish. For, even under the gold standard, bank money is nothing but the confidence that it can be used in trade. When that confidence disappears, so does money, and so does everything you worked for and transferred into those mysterious bank credits. If you need to refresh you memory about why money is simply an abstract notion and how it comes into existence - you can revisit my archives.

America was still on the gold standard. So compounding all these problems the massive loss of confidence in the banking system caused the worst thing of all for the financial system - a run on banks - with people wanting to redeem their bank deposits and Federal Reserve Notes for gold. But of course there isn't enough gold under fractional reserve banking and such a run on banks will always collapse it. Expectation of bank collapse is a self-fulfilling prophecy, as it is with the stock markets, and as it is with any currency.

When you have such lost confidence in the financial system, where there has just been complete dependence on it, the whole monetary system collapses - money disappears because all it was confidence. Everything - markets, trade, business, work - it all starts to grind to a halt.

Herbert Hoover was President at the time of the 1929 Crash. In the subsequent depression neither his administration nor the Federal Reserve did very much to bring the country out of the depression. This helped to get FDR elected and he took office in 1933.

As history goes whenever a famous leader says something really important about big business it doesn't get remembered very well. Instead the large corporations who run the networks seem to have an uncanny knack of extracting only the short phrases that don't hurt revenues and playing them over and over again so that nobody will remember the important things that were said about their advertisers.

And so it was with the FDR inauguration speech of 1933 where every man and his dog remembers:

"The only thing we have to fear is fear itself".

But how many people remember the other parts of the speech where FDR is talking about the bankers and the Wall Street speculators? Such harsh criticism has never been heard since from an American President!

And yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply.

Primarily this is because the rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

Yes, the money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and the moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days, my friends, will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.

Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, and on unselfish performance; without them it cannot live."

"And finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency."

And so the process for implementing regulation to provide checks and balances and bounds on the markets began. For it is only after such a collapse that the Wizards actually realize that their success in their own game does ultimately depend on the people's willingness to play in it. The regulatory blitz included all the landmark laws described above plus many more. The regulations, of course, started first and foremost with the Rulers of the Exchange of Mankind's goods and the Money Changers in their Temple.

The 1933 Glass-Steagall Act built a wall between banks - which are essentially the guardians of the publics money and the brokers and investment banks - who are the primary gamblers in the exchanges. This would prevent privileged bankers from gambling with other people's money to make profits for themselves. Glass-Steagall also separated these institutions from insurance companies who took on a completely different set of risks.

To restore confidence in the banks and therefore rebuild the monetary system 1933 also saw the birth of federal deposit insurance under the FDIC or the Federal Depository Insurance Corporation. This insurance would guarantee that depositors would get all or most of their money back in the case of bank insolvency. It was realized that this insurance created a moral hazard for banks. Because deposits were backed by the Federal Government banks had more of an incentive to take more risks. They could get more deposits by promising a higher return to depositors. With this money they could invest in riskier higher return assets to get higher profits and the depositors wouldn't be too worried about this because they knew there was federal insurance on their deposits. This realization brought in a law that forbade paying interest on checking accounts so that banks couldnt do this. The separation of banks and other financial operations under Glass-Steagall also helped to prevent this undesirable risky behavior of banks. Sometimes history can help us in the future.

Fear Is Over-Rated

noreply@blogger.com (Group Boss) — Mon, 02 Mar 2009 06:40:00 +0000

Fear you can feel it but don’t give into it!

By Melvin J. Howard

When Franklin D. Roosevelt famously declared "the only thing we have to fear is fear itself" at his 1933 inauguration, his audience remained silent. Most likely, they knew they were scared. And, as Americans have shown time and again during crises, they were ready to let government transform itself to help settle their nerves. Today, fear itself — or something close to it — is flaring here and there, often in puzzling ways. "Everything can be taken from a man but ...the last of the human freedoms - to choose one's attitude in any given set of circumstances, to choose one's own way. Viktor E. Frankl

We are all feeling a little less wealthy these days but I argue it is only our fear that is making us feel this way. The first step to having wealth is to know what it is. And few people know what it really is, in and of itself. What is wealth? What causes it? What causes the cause of it? Let us start with money, the world’s symbol of wealth, and then move deeper. Lets take a look at money. Money is merely legal tender, a form of exchange. We use it to exchange value. It represents value. Money is the ‘body’ of value. It is the physical representation of value that rises and falls in ourselves, within us. Not within ‘things’ outside of us, but within us. For without us, what can the value of a thing, such as a car, be to us? Nothing, at least not to us. In other words, it is we, the observers, that place value in things, but this value is really value in us – we give value to the material things. The material things have no ‘money’ value in themselves – we give that to them. So, money is the external physical representation of a particular section of our internal value, within us, within you. That is why a house or a block of shares valued at $1 million today can fall to a valuation of half a million dollars tomorrow when fear is introduced into the hearts of those involved. The fear kills a portion of the internal values of the participants and that is reflected by the paper money, the ‘body’ of value.

Money is not the enabler; it is that which makes the people point their attention and their power in a certain way. It is the carrot on the stick. It gives you a promise, alters your belief so you may act in a certain way. In fact, it doesn’t do it by itself; you build that image all by yourself in your mind. You build the belief and the promise in your mind, you convince yourself, and then you act in that way. This acting ‘in that way’ is what people mistake as the power of money. Money can't do anything by itself. It is we the people that do things, create things, exchange things. And we do it all based on what we believe. And then we think we are powerless and it is money that has the power. And this misconception has such a strong grip on people’s minds.

How many times have you felt powerless, defeated and incapable, just because in your mind you did not have ‘enough money’? How many times have you reduced yourself and thrown away your dreams because of this idea? Don’t you find it incredible that you can actually believe, in an instant, that you are next to nothing just because the ATM slip printed less zeros than you expected? You can actually be dreaming of starting a business, doing something for yourself and loved ones, and all those dreams can be shattered in one second when you get your bill or account statement. Why do you choose this? Look, if you only have $10 left, the reality as it stands would be that, at that moment, you only posses $10 of funny money. That is all. That is not related to the next moment of your life – it is up to you to choose how you will next move. It is not related to your dreams and goals – it needs not shake them one single bit. It is not related to your emotions and mood – you choose how to feel about that $10 and that is why different people feel differently about $10. It is not related to your power, capability, confidence or anything else like that – you choose all these yourself.

Walt Disney, against all odds, criticism, and a string of ‘failures’, stuck to his imagination and became the entertainment king of the world. Mickey Mouse was launched at the lowest point of his ‘failures’. No one could have predicted that an empire would have been launched on a mouse. When we willingly go where our most desired imaginations take us, we become creative forces that have no limits. Albert Einstein said that imagination is the greatest creative force. Learn to be willing to go where your imagination and desire takes you. Your thoughts are a major part of your wealth consciousness and beliefs. Example remember that most people who win lotteries lose all their money within a few years and actually end up in debt, while people with high wealth consciousness make billions out of nothing repeatedly.

Money is not something you need. It is not a need. A need. As long as you feel you need money, you will find it hard to get. The minute you drop your neediness of it, your belief that you are any less without it, you will find you are surrounded by it and by whatever it is that you desire and move towards. Money is a communication device, and when you have neediness, you are communicating lack of, and that is what you will experience.

Whether you are in a job or a business of your own, the way to gain increasing wealth (and money if that is what you want – but remember that you can have wealth without money) is to continuously go within and find the value and power that is inherent in you as it is in everybody. Then bring it out and communicate it. And you will find that, in ways you can't even predict, the wealth and money will automatically come. Go within, bring it out, communicate your value, ask for what you desire, and repeat. Ask and it shall be given. Seek and you shall find. Knock and it shall be opened unto you. We have seen how money enables you to convince someone else to act in a certain way. It shifts their beliefs towards something you would like to have happen. But what else does money do? It shifts your own beliefs – it convinces you that you have the power. But it is not the money that convinces you; it cannot possibly do that. You convince yourself, without a shred of doubt, that you have the ability! When you don’t have $100 that you imagine you need to get a pair of shoes, the $100 you imagine is the only way, out of infinite possibilities, that will get you the shoes, you convince yourself totally that you don’t have the ability to get shoes. When you have the $100, you convince yourself totally that you have all the power you need to get shoes. Did you know that you could convince yourself of either of these even without money? You may have the $100 but convince yourself totally that you have some perceived shortage and you shouldn’t spend it on shoes or else you will suffer. And so you remain without shoes. Of you may not have the $100 but you convince yourself totally that you will get shoes, and somehow you end up with shoes (as a gift, through some special offer, or in any of many other ways! This all teaches you two things: (1) you can convince yourself either way regardless of the money and the results happen regardless of the money and (2) you always, always, regardless of the money, have to convince yourself first of your ability so that you may use it. So lets get off this train of fear that has been holding back our recovery. Don’t by into the doom and gloom we are much more resilient then the bad news we hear about day to day.

"A democracy cannot be both ignorant and free" - Thomas Jefferson

A Question Of Confidence

noreply@blogger.com (Group Boss) — Sun, 22 Feb 2009 21:33:00 +0000

Banking is built on Trust

By Melvin J. Howard

A nearly $820 billion stimulus package passed the House of Representatives last Wednesday without a single Republican vote. Bipartisan support an idea way of doing things but not practical. Frankly I am not sure by holding back on the votes did the Republicans do more harm to their own constituency. This is not a time as politics as usual we need bold steps now. Especially in our financial system we will also look at the banks past behaviour of appetites for homes through predatory lending followed by the foreclosure process. The US dollar is the backbone of the international monetary system. This trust in the US dollar is little more than a group psychological phenomenon that could collapse simply by people starting to question the faith they have in it like now.

Because people dont stop to think about it too much the above realization can initially cause some shock and confusion, and maybe also some hope. To get more comfortable with this very different way of looking at money and to get a better understanding of how the monetary system works, there is an excellent text, which was written in 1965 that you should be aware of. It is called "A Primer on Money, Banking and Gold" and I would highly recommend this to those who wish for a more detailed technical understanding of the mechanics that were described at a "big picture" level throughout on "How Money is Created".

A Mr. Peter Bernstein wrote this book all those years ago, when the monetary system was still bound to the gold standard and so was actually a bit different than it is today. Nevertheless Mr. Bernstein, who had a long and distinguished career in the banking industry, including many years at the Federal Reserve, wrote. Even though the monetary system has lost its gold backing and several other key changes have been made, much of this text is still relevant today. Professor James Tobin, Nobel Prize Winner in Economics and famous among activists for his Tobin Tax proposals, has also given the book much praise. It is very sad that such books are not widely available, nor incorporated into the core school curricula so that the monetary system could be clearly identified for what it really is. It is Mr. Bernstein himself, who sums up this dilemma over educating people about the monetary system so eloquently. He says in his book that when we "ask what the American Dollar is really based upon, we would have to say that it exists essentially on promises and bookkeeping machines. If anyone were to set up such a system by decree or legislation, it would probably never work. Indeed, it is just as well that most people never stop to realize that the money they earn for their efforts is only a number in a bookkeeping machine, or a piece of paper convertible into nothing more than another number in a bookkeeping machine."

The English word "credit" can be traced back to its Latin origins as being synonymous with "belief, faith, confidence, and trust". While many bankers may be aware that this trust is not well founded. This is because the system works to their advantage. If public confidence in the monetary system is to be shaken it will have to come from those hurt by it. But first they themselves will have to get to the point of questioning the system they have placed their trust in. The growing abuses of credit creation powers over the middle class and the poor, has made this period of awareness of these abuses. The big banks and financial players (that is the ones too big to fail) whose loans start to default, but who can't have the defaults hit their books; need someone to get the money out from somewhere. Today’s predatory lending will take us to one of the cities where abusive lending practices are some of the worst in the country, and the state with one of the most bank-friendly foreclosure laws on the books. Interestingly it is also the place where the Federal Trade Commission has recently filed suit against Citigroup for the predatory practices of its subsidiary, Associates First Capital, in what could become the largest and most public case against a predatory lender ever seen in this country. This location is Atlanta, Georgia.

Behind the Curtain

The famous extreme capitalist and private property advocate, Ayn Rand, who was the author of "Atlas Shrugged", once said, "If money is the root of all evil, then what is the root of all money?" This might make you chuckle if you recall that Alan Greenspan, the Chairman of the Board of Governors of the Federal Reserve, worked with her extensively on her book "Atlas Shrugged", released in 1957, which many claim to be the most influential book since the Bible.

This philosophy of objectivism largely rejects the idea that capitalism and capitalists should have any social goals at all, and promotes the idea that all acts and intentions should be purely selfish. Not surprisingly Rand's work was a huge hit with the powers that be in America at the time, hot on the heals of the McCarthy era. Her ideas are actually very different to Adam Smiths philosophy but we wont go into that here. In coming up with her rather extreme, but very influential, theories it appears that Ms Rand must have been skipping her physics lessons. The revolutionary developments in Physics that took place in the early 1900s in the form of Quantum Mechanics and Special Relativity her philosophy may have hit some stumbling blocks. Both of these radical developments in physics shook the foundations of Western thought premised on objectivity, independence of objects, the absolute nature of time, and certainty. Gradually this new way of looking at the world, which has many parallels with eastern religions, has replaced the old Newtownian (or classical) mechanics way of looking at the world in physics, and is seeping its way into other sciences such as chemistry and biology.

Today it is the economists, business-people and politicians who are the furthest behind in picking up on these turn-of-the century revolutionary developments in physics. The only thing they gleaned from this scientific revolution was knowledge of how to make the atomic bomb and blow things up in a spectacular fashion. What they could have learned is some pretty interesting flaws in their own field of economics. Not only are today’s mainstream economic theories, and philosophies like objectivism, outdated by being based on the Newtonian or classical worldview, but these same outdated views are reflected in our current monetary system. Which has now brought the world to its kness.

This digression into modern physics, while talking about the relationship between the Fed and the middle class as well as the poor, may seem rather odd. Nevertheless it brings home the point that money is a social and psychological phenomena and so the beliefs and "science" adopted by those that create money and control the monetary system must be scrutinized. Let’s explore further some of the foundations of contemporary mainstream economic theory that are challenged by the worldview shift brought about by modern physics, that the economists have yet to pick up on. It is rather ironic that mainstream economics, claiming to be so scientifically based, ignores the developments in the most objective of science of all. The emerging field of so-called Ecological Economics is doing a much better job of incorporating modern physics.

Lets just note here that these changes in perspective, quantum philosophy, forces us to think about time differently, to always acknowledge the interconnectedness of everything, and to recognize ever present uncertainty in everything. The private property markets of today do not operate in this fashion. Rather they treat people and objects as independent economic units, and discount the future as less important than the present. Furthermore they have limited mechanisms for coping with uncertainty remember Long term capital.

Federal Reserve needs to change

Under this old or classical worldview central bankers use more or less traditional techniques for exercising some control over the economy, and a large part of this is maintaining the confidence of the markets in the monetary system. So people that don’t have much money don’t factor into central bankers decisions very much at all. On the surface many might think that there is no relationship between the Federal Reserve and the poor to speak of. However this ignores the interconnectedness of everything and this is perhaps best considered within the context of the "Zero Sum Game".

Thus, according to Martin Mayer in the book "The Fed", only one fifth of commercial and industrial financing now comes from the banks. The rest comes from people and non-bank institutions that have accumulated lots of the existing money.

This has several implications. First the Feds powers over the market is more limited because there are so many non-bank financiers, so the Fed has to do whatever it can to please these non-bank markets and keep their confidence in the whole financial system alive. By necessity this means always pleasing the people that already have lots of money. Second, banks go looking all over the place for new people and entities to lend to since the domestic non-bank corporations abandoned them. This search has been a big part of banks overseas lending adventures and the phenomenal growth in lending to the sub-prime domestic markets over the past decade. The sub-prime market is a person with bad credit histories, which often correlates with low income. This loan market has grown 300% from about 75 billion in 1993 to over 400 billion by 2002. Previously the banks wouldn’t touch this market with a ten-foot pole, but in their never-ending search for new borrowers, especially at high yields, this was a huge growth area and the banks jumped on it.

In past years the practice of redlining has been common amongst banks, whereby banks mark maps with a red marker for areas they would and wouldn’t lend to and these distinctions were often made along racial lines. These days a similar map marking process might be used to distinguish between prime and sub-prime markets that is, who gets access to credit on reasonable terms and who gets lumped into the sub-prime category, which is where the exploitative terms of credit prevail.

Public concern over discriminatory practices in lending and the limited availability of credit in poorer neighborhoods lead to the passing of the Community Reinvestment Act (CRA) in 1977, under which bank examiners are supposed to check banks record of meeting the credit needs of the entire community including low to middle income groups. This means that the Federal Reserve has some responsibility for this but, as already noted, the Fed is mostly concerned with monetary policy, which means making sure that people that have the most money keep confidence in the monetary system. So as Martin Mayer points out in "The Fed", "discrimination against low income people in lending operations was a subject guaranteed to be of no interest to the Federal Reserve System". And as Kenneth Thomas, a Wharton School lecturer on finance points out, "banks are always happy with the ratings given by the easiest CRA grader in the business", meaning that the Fed doesn’t take the CRA review of banks too seriously at all.

Mayer also notes in "The Fed” "Both publicly and privately, the Fed has always refused to acknowledge the existence of discrimination in any part of the American banking system.

Business Week reported on a study commissioned by the Fed that found that 50% consumer spending in the year 2000 was attributable to the top 20% of income earners. Also, amazingly, 80% of directly held equity or stocks was attributable to the top 20% bracket. The conclusion of this study was that the economic boom of the middle to late 90s was almost entirely driven by the spending of the top 20% of earners, whose spending in turn was driven by confidence derived from an inflated equity market. Now that the markets are sliding this spending has stopped, we are now into recession, and layoffs are increasing in response to low company earnings. What then is a Federal Reserve Chairman to do? It seems his role is to keep the stock markets up and keep the top 20% - the speculator class - happy. So maybe its not just that the poor are irrelevant to the Feds decisions, but the irrelevancy may run as high as 80% of the American people! Not to mention the rest of the world.

Atlanta's "Freedom Walk"

In December of 2002 there was much celebration in Atlanta over the fact that Georgia has now produced two Nobel Peace Prize winners - Martin Luther King Jr and, most recently, former president Jimmy Carter. In fact, the King Center and the Carter Center, dedicated to both the memory and missions of these two Peace Prize winners, lie only about one mile apart and there is a walking path connecting the two. This walk, starting on Auburn Avenue, birthplace of King and home to the King Center, has been described as that from "Civil Rights to Human Rights" in the local Atlanta news and follows a road called "Freedom Parkway".

"It must be a great walk!" But take the wrong turn and you can tell certainly financial freedom was not evident - instead, foreclosure was, with some streets dotted with several homes in foreclosure.

Keep going and you will end up at the Fulton County Courthouse in downtown Atlanta. Lining the steps throughout the day were a bunch of mumbling lawyers with piles of papers that they were reading, one after the other just like this:

Excerpt: Fulton County Courthouse January 2007 Foreclosure Sale

These lawyers were auctioning off the thousands of Atlanta homes in foreclosure that hit their books in the month of December. Most of the homes were going straight back to the banks. Don't be fooled by the location of the auction - just because it takes place outside the courthouse, "outside" is the operative word. There's none of this "getting your day in court" when it comes to foreclosure here.

Foreclosure statistics from the Atlanta Foreclosure Report where most of these homes were that were being auctioned off by the collection of mumbling lawyers on the courthouse steps. Consistent with studies done on foreclosure in other cities, the data showed the highest rates of foreclosure in predominantly African American neighborhoods. Pondering all this, I departed the courthouse steps and headed back towards Auburn Avenue.

History of Black-Owned Financial Institutions

Back along Auburn Avenue, you can pass by the modern Atlanta Life Insurance Company building and then, heading east towards the King Center, passed by many buildings in disrepair. You can just make out the words on the signs of some of the buildings, and, if you know your history, you can try and imagine what were going on in and around them years ago - for Auburn Avenue were once the hub of black economic activity in Atlanta and a key source of capital for African Americans.

Along this stretch of Auburn you pass by the Apex Museum, and you can watch a movie called Sweet Auburn - Street of Pride.

That excerpt from the Apex Museum's video "Sweet Auburn - Street of Pride", narrated by Cicely Tyson and Julian Bond, includes a short history of some of the major black-owned financial institutions that emerged during the early twentieth century, some of which are still with us today.

It's definitely not easy to read about the history of black owned financial institutions, for not very much history has been written about them. Professor Alexa Benson Henderson at Clark-Atlanta University wrote a book in 1990 called "Atlanta Life Insurance Company: Guardian of Black Economic Dignity" where she described this hole in American history as follows ... "I was discouraged...by the dearth of sources, printed or otherwise, on many of the significant individuals, groups and organizations that have been associated with black business development in Atlanta and elsewhere. Sadly, many of these inspiring stories are lost forever."

The Atlanta Life book opens a window to a whole branch of US financial history that has been largely ignored. Black-owned financial institutions sprung up in many places following the end of slavery, initially taking the form of community and church-based mutual aid associations. In the late nineteenth and early twentieth centuries there was no federal tax and no such thing as social security, unemployment insurance, Medicaid and so forth. As always, those at the bottom of the economic ladder were the most vulnerable to the contingencies of sickness, accident, job loss, death or imprisonment of a breadwinner.

Out of this environment and out of necessity grew a slew of mutual aid associations in black communities. In such a mutual aid group the cost of these risks is pooled by everyone paying a small weekly or monthly premium. Out of this pool are paid the costs of the few that experience the covered contingencies, such as death benefits to widows and orphans and weekly payments if you get sick and can't work. In this way the community as a whole bears these risks. This arrangement is more conducive to community development than having every member bear risk individually, which would tend to bankrupt whole segments of society.

Out of this collection of mutual aid societies in the South ultimately grew several extremely successful life insurance companies that, despite tremendous obstacles, are still with us today, including Atlanta Life on Auburn Avenue and North Carolina Mutual, born in another hub of black capital accumulation - Durham, North Carolina. These institutions have performed the near impossible - surviving for a whole century and through a period of brutal segregation, discrimination, the Great Depression and through having to win the confidence of their own communities in black owned and operated financial institutions.

Around the time these insurance companies were starting to grow, another key segment of black finance was emerging - the black owned banks. For example, Citizens Trust Bank opened up on Auburn Avenue in 1921 to meet the credit needs of the black community, to promote savings and the old-fashioned principles of "thrift", and to promote homeownership. Through all that happened in the twentieth century, Citizens Trust Bank is also still with us today.

These and other black-owned institutions played a significant role in the accumulation and distribution of capital in African American communities throughout the twentieth century. It is no coincidence that the communities around them, such as the Auburn Avenue area, developed into economic hubs. Banks and insurance companies pool deposits and premiums and then invest them in things like home mortgages, office buildings and business loans. To the extent these pooled funds were invested back into local communities, further economic development of the communities was assured. Well, as the years went by and even as segregation continued, white financial institutions began to see that money could indeed be made off black customers and they began to compete fiercely for this business. Ronald H. Bayer's book "Race & the Shaping of Twentieth Century Atlanta" sums up this situation as follows: "The success of these black institutions had proved to the white financial community that blacks were good mortgage, bank and insurance risks. The decisive factor has not been the [white] citizenry's quickened sense of charity or prosperity. As the men along Auburn Avenue often murmur wryly . "Dollars, you see, are not segregated".

Often with deeper pockets, bigger marketing budgets, more experience and privileged access to the legislature, white financial institutions had many advantages in acquiring black customers, to the detriment of the customer base of the black institutions.

As the era of state sanctioned segregation was coming to an end in the South in the 1960s and 70s, a different form of segregation was already rampant in both the North and South - financial segregation. The dominance of white institutions providing financial services to black customers soon led to a situation where accumulated capital from premiums and deposits were not being reinvested back into those communities but, rather, flying away to ventures in other areas. In such a situation capital is increasingly drained out of the local community. It is clear to me this is a very different financial war this time. Instead of domestic it has taken on a global perspective. Requiring and new way of banking the old redlining way of leaving certain segments out of the system is obsolete. Banking is based on confidence and that confidence must come from the population at large. Not just the elite financial institutions should reflect today’s society for so long that has not happened.

Whether Your Money Is Old Or New You Should Have A Plan Trust Me

noreply@blogger.com (Group Boss) — Sat, 14 Feb 2009 22:48:00 +0000

Plan and execute

By Melvin J. Howard

The fascination I have with Trusts goes back to over 17 years ago. When my lawyer and friend at the time taught me the many uses of Trusts. But I wanted to know the history where did the idea of trusts come from etc. I discovered it arose almost accidentally from the procedural intricacies of English law, where a dual system of justice had arisen as early as the fourteenth century. The system provided two judicial structures based on fundamentally different jurisprudences of the rule of law and the rule of equity. The common law courts administered law and the Chancery courts provided equitable relief when the application of strict law in the common law courts either gave no remedy or gave an unjust one. The Chancery courts were often faced with petitions relating to “uses”. A “use” arose where a person (the “feoffor”) conveyed property of any sort to another (the “feofee”) upon the understanding that thre other was to hold the property on behalf of the feoffor or on behalf of a third party (cestui que use). Clearly the feofee, bound in honour but beyond the law, was in a position of confidence which he might abuse. Consequently, the rights of the cestui que use required protection. The common law courts failed to recognise uses and so it was upon repeated petition to the court of “conscience” that relief was awarded by the Chancellor who forced the feofee to administer the property for the benefit of the cestui que use, according to the terms of the grant.

Throughout the centuries the trust has proved a remarkably resilient and flexible concept. Its uses have reflected the needs of the times. In Medieval times it was used as a means of avoiding forfeiture, while in the Victorian period it was often used as a means of controlling one’s family, even after one’s own death. Today, as well as retaining its old uses, the trust has been put to many new ones. The modern role of the trust lies significantly in pension funds, charities and various endowments.

A function of the trust concept, which has been common for many centuries, is its utilisation for charitable purposes or for the public good. “Charitable” in English law has a technical and somewhat artificial meaning, which derives from the meaning contained in the Statute of Charitable Uses (the Statute of Elizabeth). To date, no comprehensive definition of a legal “charity” has been provided either by statute or by the courts. However, there is an accepted if not wholly adequate test. A claim to charitable status is determined by considering whether the purpose in question comes within Lord MacNaghten’s classification, first stated in 1891:

‘Charity in its legal sense comprises four principle divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community’.

The achievement of charitable purposes through the use of a trust is often easier and cheaper than the use of a charitable corporation, or for the purposes to be administered by a local authority. For these reasons, many established charities today are in fact trusts. One pertinent way in which such trusts are utilised is in the creation of disaster funds which accepts funds from members of the public (the trusters or settlors) for equitable distribution amongst the victims, survivors and dependents of victims, of the disaster.

A debtor’s property is in principle available for the satisfaction of his creditors and , if he becomes bankrupt, it will pass to his trustee in bankruptcy; but it is possible, by making use of a protective trust, to obtain a measure of protection against such a calamity. The very notion of protective trusts, which effectively empowers a settler to defeat his creditors by putting his property beyond their grasp, would no doubt have Henry VIII turning in his grave. However, there is much to be said for allowing some means of protecting a person’s dependants from the adversities caused by his own lack of financial prudence and from this perspective it is pleasing to note that a settler cannot create a trust which will protect him against himself own bankruptcy. In Re Boroughs-Fowler , a settler attempted to protect his property by creating an ante-nuptial settlement that provided that the income from the trust should be paid to him and in event of his bankruptcy, paid to his wife. This was not allowed by the court and it was held that the property vested in the bankruptcy trustee, who could validly dispose of it. This rule is now enshrined in the Trustees Act 2000, formerly the Trustees Act 1925 of the UK.

A trust may be created in order to avoid any single person acquiring a controlling share of a company. If for some commercial or other reason the original owner does not want another person or body to acquire a controlling shareholding in a company, a sufficient number of shares could be taken out of circulation and put in trust. This method may be used in order to protect a company from a hostile takeover. It should be recognised however that this procedure might well have the effect of limiting the company’s freedom of manoeuvre, as the trust holding would be subject both to trust considerations and to commercial ones, and company decisions would be tightly bound into the welfare of the trust.

With the increasing incidence of divorce in modern society it is foreseeable that a marriage will not last a lifetime. One way of avoiding the financial arguments that invariably embitter the parties to a divorce would be to make provision for the holding of property in trust, with the aim of dividing it out equitably on the break-up of the marriage. However, there may be a problem in relation to such a provision’s validity. In Re Johnston’s Will Trusts a trust was set up which made provision by a father whereby his daughter was to receive certain sums in the event of her divorcing her husband. Clearly, the father’s intention was to provide for his daughter only if her husband stopped supporting her; but the court held that the provision was void as being contrary to public policy in that it amounted to an encouragement to the daughter to divorce her husband. In spite of such precedents, it is submitted that such a provision may be a sensible way to deal with an event that is undesirable but foreseeable, so long as it does not encourage the onset of the undesirable event itself.

COMING TO AMERICA

The Business Trust made its debut in Massachusetts in 1827. As a result, a U.S. Business Trust today is often called a "Massachusetts Trust" in legal circles. The U.S. Supreme Court defined the Massachusetts Trust as a form of business organization, common in Massachusetts consisting essentially of an arrangement whereby property is conveyed to trustees: in accordance with terms of the Trust. The business is to be held and managed for the benefit of persons who hold transferable certificates issued by the trustees showing the shares into which the beneficial interest in the property is divided. [Hecht v. Malley, 265 U.S. 144 (1924)] [446 U.S. 458, 469].

Neither the railroads, nor industry or banking were invented in the period between 1865 and 1914, generally accepted as the time limits of what was called the Gilded Age. The new element which drove the concentration of wealth was consolidation in search of economies of scale and the strive for monopoly ( “ Trusts “).

When the great C. Vanderbilt acquired both the New York & Harlem and the Hudson River railroads, he achieved a monopoly on railroad transportation between New York City and Albany. This he later parlayed into a controlling interest of the New York Central Railroad, which he promptly merged with his Hudson River railroad, thereby establishing a through line between New York and the Great Lakes. His interest in the Erie Railroad, which ran a parallel line along the Southern border of New York state, was entirely motivated by the intention to extend his monopoly. What Vanderbilt did or sought to do in New York, the Pennsylvania Railroad did in Pennsylvania and other railroads did elsewhere. Mergers created larger and more efficient systems and a reduction of competition, which in turn promised higher profits. Thus, when the new generation of industrialists started to expand their scope of activity from local factory owners to national operators, they merely followed the railroads in their economic logics.

The concepts of pooling and artificial price fixing, were not invented during the Gilded Age, but the period was characterized by the typical short economic cycles, the boom and bust cycles, which favored their application. In times of rapid growth, high profits tended to attract an excess of investors and overcapacities were rapidly built up. When the excessive offer hit the markets, prices had to sink and spelled doom over the concerned industries. Leading firms then often tried to maintain high prices by pooling and collectively reducing production. Such pools (or cartels) were more or less loose and the looser they were, the less they were effective. Only in a few cases did these cartels succeed to control prices effectively for a prolonged period. One such example is the Gunpowder Trade Association, which was organized by the leading gunpowder manufacturers, including E.I. Du Pont de Nemours, after the end of Civil War threatened the industry, which then naturally suffered from overcapacity.

The concept of "trusts" was invented during the Gilded Age, as a response to the specific legal situation, which forbid corporations from owning other companies or assets in other states. It notably appeared as the legal form, the Standard Oil alliance took in 1882, to unite its shareholders as it could not merge its constituent companies. The introduction of the holding company in New Jersey during the 1890's allowed what was formerly impossible and thereby accelerated the trust movement in corporate America during this period. Under public pressure, the US Congress reluctantly introduced anti-trust laws to rein in the growing concentration of wealth and power in the hands of a few individuals and fight the large corporations in their efforts to restrain competition. These efforts proved rather futile, as witnessed by the creation in 1890 of the American Tobacco trust, the same year in which the Sherman Act passed. The American Sugar Refining Company joined in January 1891 and the nine year old Standard Oil trust made no efforts to adjust, despite the fact that it was the target of the Sherman anti-trust legislation. It would take twenty years until these three major trust would be dissolved by order of the Supreme Court of the United States.

In time most American industries fell prey to the consolidation or trust movement, many of them during the 1890's. However, some sectors were more suited to be "organized" than others. Such was the case of the nascent (rock) oil or petroleum industry, which came under the influence of the secretive John D. Rockerfella and his partners. Drawing his strength in his deep faith, John D. Rockefeller relentlessly brought his Standard Oil Company forward, until it owned 90% of the nation's oil refining capacity and controlled all essential oil transportation infrastructures, with its pipeline network, tank car fleet and secret railroad rebates. The four major railroads serving the Western Pennsylvania Oil Regions then were the New York Central - Lake Shore, the Erie - Atlantic & Great Western, the Pennsylvania and the Baltimore & Ohio. To achieve his goal of monopolizing the oil industry, John D. Rockefeller allied himself with his strongest competitors : refiners. He also enrolled the most fervent of his opponents in the Oil Regions, such as John Dustin Archbold and lawyer Samuel C.T. Dodd.

Standard Oil became so fabulously profitable, that it was soon known as the "Mother of Trusts", standing behind the consolidation of many other industries. By then, John D. Rockefeller inherited the mantle of evil the brand-mark of the villain, who tried to monopolize just every sector he could get hold on and thereby required his tribute from the innocent consumer and producer. This impression was actually wrong, as these enterprises sprang from the initiatives of the oil trust's individual shareholders and were not orchestrated by a common entity. Although John D. Rockefeller had some ambitions to consolidate the steel industry, (which he failed to do), most of the trusts financed by Standard Oil money were organized by other partners. The most active were Oliver Hazard Payne (American Tobacco), Henry Huddleston Rogers (the smelters trust) and Rockefeller's brother William, who promoted the great Amalgamated Copper scheme in 1899, with the support of James Stillman and the National City Bank. There were lesser trusts with Standard Oil influence, such as the National Lead Company and the American Linseed Company.

What Rockefeller did in oil, James Buchanan did in tobacco products and the Havemeyers in sugar refining. Founded in 1890, the American Tobacco Company grew mainly by acquisitions until it controlled most of the smoking tobacco industry in the USA. Its sister, the Continental Tobacco Company, was organized (in 1898) to control the plug tobacco sector as where the American Snuff and American Cigar companies to control their respective segments of the tobacco trade. These companies were merged into the Consolidated Tobacco Company of New Jersey in 1901. To expand into foreign markets, the British American Tobacco Company was formed and the Havana Tobacco Company, to control the cigar supplies from that Caribbean island. Duke, a self-made-man like Rockefeller, was supported by a powerful group of Northern financiers, who had built the street railway systems in New York, Philadelphia and other cities. This group essentially consisted in William Collins Whitney, Thomas Fortune Ryan, Peter A. B. Widener and Anthony N. Brady. Oliver Hazard Payne, the long-time treasurer of Standard Oil and estranged brother-in-law of William C. Whitney, was also a large shareholder.

Unlike the Rockefellers and the Dukes, the Havemeyers who reorganized the sugar industry in the 1890's, were already wealthy and well established in the sugar refining business. The first pair of Havemeyer brothers, William and Frederick Christian, immigrated from Schaumburg-Lippe (Germany) in 1802 and established their first sugar refinery on Vandam Street in New York three years later. Their family prospered in New York and made the city to the premier sugar refining center in America. A scion of this family, Henry Osborne Havemeyer, who was linked by marriage to the Elder family, whose fortune was also made in sugar refining, consolidated the industry under his American Sugar Refining Company in 1891. By 1907, the Sugar Trust controlled 98% of US sugar production. Thereafter it came under litigation with the US government and was forced to relinquish control of its member firms, thereby effectively loosing its dominant position. When a settlement was reached in 1922, the market share of American Sugar Refining had sunk to 32%. In modern times, sugar refining ceased to be the profitable business it used to and the industry, once New York's most important, declined.

During the 1890's and into the first decade of the Twentieth Century, trusts were organized in every major American industry. Some were loose agreements between major firms, such as the infamous "Meat Trust", which pooled the large Chicago and St. Louis packers (Armour, Cudahy, Morris, Swift and Wilson) in one strong combination, using essentially the same methods as Standard Oil, notably in relation with the railroads, to fix prices and drive competitors out of business. Others took the form of holding corporations, usually chartered in New Jersey or Delaware and frequently organized with speculative rather than economic motives. To these, we may count a number of the companies, which were set up by a former shipping merchant, turned investment banker, whose involvement in industrial consolidation earned him the nickname "father of trusts" : Charles Ranlett Flint. Although generally weak at their beginnings, some of the Flint trusts later became successful corporations, like American Woolen (later Textron) or the Computing-Tabulating-Recording Company (now IBM). The Moore brothers of Chicago were also prominent trust organizers of the rather speculative nature. They created the National Biscuit Company (Nabisco), the Diamond Match Company and four companies, which were absorbed by the United States Steel Corporation in 1901. The Moores stood also behind one of the last great railroad empires to be organized in the USA.

The steel merger, which created the largest company of the world, was the apotheosis of the trust movement and a monument to America's greatest financier of the Gilded Age : John Pierpont Morgan. The banker and railroad pacificator had already a name in industrial consolidation, having merged the Edison manufacturing units with Thomson & Houston to form General Electric in 1892. Morgan's credit in organizing the US Steel Corporation was essentially related to the mobilization of the huge financial means it took to float securities with a par value of 1'370'000'000 $ without breaking the market. Morgan, who stood behind the Federal Steel Company and the National Tube Company, also managed to unite all major players in his steel trust, these being the Carnegie Company, the Moore Group, Gates' American Steel & Wire Company as well as Rockefeller's iron ore properties in the Mesabi range. Elbert Henry Gary from Morgan's Federal Steel became chairman of the board, Charles Michael Schwab of Carnegie Steel became president and the directors included J.P. Morgan, John D. Rockefeller and J.D. Rockefeller jr , Henry H. Rogers, Marshall Field, Nathaniel Thayer jr, William H. Moore, Peter A.B. Widener and Henry C. Frick.

Unlike Standard Oil or Consolidated Tobacco, the United States Steel company, despite its huge capitalization, was nowhere near achieving a monopoly position, as several major competitors (including Lackawanna Steel, Jones & Laughlin, the Crucible Steel Company of America and others) were left out. New combinations soon appeared and threatened the steel trust in its very existence. After clashing numerous times with the conservative Gary over corporate policies, Schwab left US Steel after a three year tenure, took over Bethlehem Steel and built it into a major competitor. His successor William E. Corey also left after a few years to take over a competing concern. John Warne "Bet-A-Million" Gates was involved in the creation of Republic Iron & Steel after he had unloaded his wire trust to United States Steel. And Henry Clay Frick, while still a director, teamed with the Mellons of Pittsburgh to create the Union-Sharon Steel company, which they also unloaded on the steel trust.

Under the presidency of Theodore Roosevelt, who succeeded the elected William McKinley after his assassination in 1901, the US government started to take a stronger stand against the trusts. As a consequence of these actions, the following major trusts were ordered to dissolve: Northern Securities (Western railroads) in 1904, Standard Oil and American Tobacco in 1911. The split-up parts continued to prosper and in many cases became greater than their parents had ever been. But with the gradual retirement and dilution of the founding interests, the resulting oligopoly of strong companies characterized a new and more competitive environment, which eventually benefited both, the general economy and the stronger of the competing firms. Industries, where competition gave way to regulation, like the railroads, generally declined, although this decline may be essentially due to more general macro-economic changes. The trusts were the predecessors of our modern corporations and they played a role in the economic growth of the United States. The multi-million dollar fortunes they made to their organizers and promoters were part of the Gilded Age. But it is no different today when billion dollar fortunes are derived from successful companies in the field of high tech.

The above are a few of the uses to which the trust can be put. The examples chosen show that the nature of a trust can be protective, of person or property; it can achieve desirable aims, either of a private or charitable variety; or it can be distributive, in the sense of transferring wealth in a tax advantageous manner. From a strategic point of view, it is submitted that Maitland’s claim that the trust is “the greatest …achievement performed by Englishmen in the field of jurisprudence” holds sufficient weight. From a moral stand point, it is simply stated that Henry VIII’s misgivings of the Medieval system would still hold a degree of justice when applied to the modern trust. However, what is important to note is that the trust can clearly not be dismissed as having outlived its usefulness and today forms a distinctive part of English law which at the very least says a great deal about the ingenuity of some highly skilled lawyers. Also don’t expect your local retail banker to understand anything about trusts they won’t. Only deal with top level senior private bankers.

The More We Rely On Computer Modeling The More We Are Going To Be Disappointed

noreply@blogger.com (Group Boss) — Sat, 07 Feb 2009 19:58:00 +0000

Have we become too reliant on computer modeling?

Nothing can replace the human touch

By Melvin J. Howard

The modern world of high technology could not have come about without the invention of the computer. Computers are used throughout society for the storage and handling of data—from secret governmental files to banking transactions to private household accounts. Computers have opened up a new era in manufacturing through the techniques of AUTOMATION, Computers come in a wide range of sizes. Supercomputers analyze massive, complexly interrelated sets of data. For example, they solve problems in aerodynamic design of supersonic aircraft, predict the weather, and come up with new designs for disease-specific drugs. Mainframe computers and their smaller cousins, minicomputers, are the workhorses of commerce and industry. These centralized machines maintain records, calculate payrolls, and analyze statistics, among many other jobs. But there is a down side with all this technology we have come to rely on it as fact instead of a tool.

The familiar PERSONAL COMPUTER, also known as a PC, desktop computer, or microcomputer, is used for word processing, accounting, and record keeping in businesses and homes. In business and industry, employees use PCs for their everyday work and to access other computers, larger or more specialized, for work of greater complexity.

Slightly larger than PCs, but considerably more powerful, workstations are used in such diverse tasks as designing machines, electronic circuits, and structures; creating advertisements, brochures, and magazines using DESKTOP PUBLISHING software; and training doctors in surgical techniques. Now rivalling desktop computers in computer power, but considerably smaller in size, laptop and notebook computers have become a favorite tool of business people. Travelers carry these light, battery-powered computers into trains, planes, and hotel rooms to do their work much as if they were in the office. Through small modules called docking stations, these users can link their laptops to a variety of external services such as printers and communication networks.

“Embedded” computers are hidden in equipment. They perform such simple tasks as preventing a car’s brakes from locking or such complex ones as instructing a machine tool to perform a task or stabilizing a jumbo jet. Did you know that everything a computer does is based on ones and zeroes? It's hard to imagine, because you hear people talking about the absolutely gargantuan (huge) numbers that computers "crunch". But all those huge numbers - they're just made up of ones and zeros. It's kind of like the computer is made up of a bunch of lightswitches, and each lightswitch controls just one lightbulb. On or Off. One or Zero. But if you took all of those lightbulbs together, and said "Let's make each sequence of On-and-Off represent a different number!" Well then, you could get some pretty large numbers. For instance this binary code says Melvin J. Howard Principal of the Howard Group :01001101 01100101 01101100 01110110 01101001 01101110 00100000 01001010 00101110 00100000 01001000 01101111 01110111 01100001 01110010 01100100 00100000 01010000 01110010 01101001 01101110 01100011 01101001 01110000 01100001 01101100 00100000 01101111 01100110 00100000 01110100 01101000 01100101 00100000 01001000 01101111 01110111 01100001 01110010 01100100 00100000 01000111 01110010 01101111 01110101 01110000. Another part of the financial industry that relies heavily on numbers is credit scoring.

Credit scoring was invented by the Fair Isaac Corporation in 1958 to provide a quick, data-driven method for determining the credit worthiness of an individual or corporation. This innovation was only possible with the development of the computer and modern communications technology. As the technology and business model has advanced, credit scoring has become integral to the proper functioning of the consumer economy. Credit scoring was developed as a method for predicting consumer behavior based on sophisticated statistical models. In short, it compares one credit user's behavior to statistical averages in order to predict whether they will be a good candidate for an extension of credit. These statistical models only improve in overall accuracy as more people enter the system. This was difficult to accomplish in the early period of the history of credit scoring. The FICO score, last overhauled in 1989, is based on a complex formula using many variables—and yet it can be manipulated fairly easily by ordinary people. In the past few years a group of "credit doctors" and mortgage brokers began devising tricks, some illegal, to help borrowers juice their FICO scores to qualify for credit cards and mortgages on homes they couldn't afford. At the same time new, exotic mortgages were bursting onto the scene and Fair Isaac was slow to keep up with the changes. By the end of the housing boom in 2006, FICO's accuracy in predicting the likelihood of a borrower's repaying a debt had slipped. Yet this model is flawed the more heavily lenders and bankers relied on credit scores, the more mistakes were made," says Anthony B. Sanders, a finance professor at Arizona State University and former head of asset-backed research at Deutsche Bank in New York. FICO was not created to predict risk; it was created to make money think about it? Ever got some info on your credit score that was not right. Or worst yet someone is using your identity it happen to me several times try to get that erased. You have a better chance of getting a seat on the next space shuttle. There are better ways to predict consumer risk what’s the use of having a high credit score but only have a week’s salary in the bank?

Smart people aren't supposed to get into this kind of a mess. With two Nobel prize winners among its partners, Long-Term Capital Management L.P. was considered too clever to get caught in a market downdraft. The Greenwich (Conn.) hedge fund nearly tripled the money of its wealthy investors between its inception in March, 1994, and the end of 1997. Its sophisticated arbitrage strategy was avowedly ''market-neutral''--designed to make money whether prices were rising or falling. Then came the guns of the month of August or I like to call it vodka and caviar . Long-Term Capital's rocket science exploded on the launchpad. Its portfolio's value fell 44%, giving it a year-to-date decline of 52%. That's a loss of almost $2 billion. ''August has been very painful for all of us,'' Chief Executive John W. Meriwether, a legendary bond trader, said in a letter to investors. (Long-Term's executives declined to speak on the record.)

Long-Term Capital and its Nobel laureates in economics, Robert H. Merton and Myron S. Scholes, weren't the only ones who got creamed. Locating the losses is hard because Wall Street and the hedge-fund world don't disclose them. According to Andrew W. Lo, a finance professor at Massachusetts Institute of Technology who advises several so-called quant funds, as much as 20% of hedge funds, which control some $295 billion, are quantitatively oriented. The reputation of quantitative investing itself has been dealt long-term damage. Merton and Scholes, after all, are two of the most esteemed figures in finance--co-inventors with the late Fischer Black of the options-pricing model that underpins much of rocket science ( “ quant funds “ ).

1994: Long-Term Capital Management is founded by John Meriwether and accepts investments from 80 investors who put up a minimum of $10 million each. The initial equity capitalisation of the firm is $1.3 billion. (The Washington Post, 27 September 1998)

End of 1997: After two years of returns running close to 40%, the fund has some $7 billion under management and is achieving only a 27% return — comparable with the return on US equities that year.

Meriwether returns about $2.7 billion of the fund's capital back to investors because "investment opportunities were not large and attractive enough" (The Washington Post, 27 September 1998).

Early 1998: The portfolio under LTCM's control amounts to well over $100 billion, while net asset value stands at some $4 billion; its swaps position is valued at some $1.25 trillion notional, equal to 5% of the entire global market. It had become a major supplier of index volatility to investment banks, was active in mortgage-backed securities and was dabbling in emerging markets such as Russia (Risk, October 1998)

17 August 1998: Russia devalues the rouble and declares a moratorium on 281 billion roubles ($13.5 billion) of its Treasury debt. The result is a massive "flight to quality", with investors flooding out of any remotely risky market and into the most secure instruments within the already "risk-free" government bond market. Ultimately, this results in a liquidity crisis of enormous proportions, dealing a severe blow to LTCM's portfolio.

1 September 1998: LTCM's equity has dropped to $2.3 billion. John Meriwether circulates a letter which discloses the massive loss and offers the chance to invest in the fund "on special terms". Existing investors are told that they will not be allowed to withdraw more than 12% of their investment, and not until December.

2 September 1998: LTCM's equity has dropped to $600 million. The portfolio has not shrunk significantly, and so its leverage is even higher. Banks begin to doubt the fund's ability to meet its margin calls but cannot move to liquidate for fear that it will precipitate a crisis that will cause huge losses among the fund's counterparties and potentially lead to a systemic crisis.

3 September 98: Goldman Sachs, AIG and Warren Buffett offer to buy out LTCM's partners for $250 million, to inject $4 billion into the ailing fund and run it as part of Goldman's proprietary trading operation. The offer is not accepted. That afternoon, the Federal Reserve Bank of New York, acting to prevent a potential systemic meltdown, organises a rescue package under which a consortium of leading investment and commercial banks, including LTCM's major creditors, inject $3.5-billion into the fund and take over its management, in exchange for 90% of LTCM's equity.

Fourth quarter 1998: The damage from LTCM's near-demise was widespread. Many banks take a substantial write-off as a result of losses on their investments. UBS takes a third-quarter charge of $700 million, Dresdner Bank AG a $145 million charge, and Credit Suisse $55 million. Additionally, UBS chairman Mathis Cabiallavetta and three top executives resign in the wake of the bank's losses (The Wall Street Journal Europe, 5 October 1998). Merrill Lynch's global head of risk and credit management likewise leaves the firm.

April 1999: President Clinton publishes a study of the LTCM crisis and its implications for systemic risk in financial markets, entitled the President's Working Group on Financial Markets (Governance and Risk Control-Regulatory guidelines-president's working group) As this case demonstrate, the lenders are the first to get nervous when an external shock hits. At that point, they begin to ask the fund manager for market valuations, not models-based fair valuations. This starts the fund along the downward spiral: illiquid securities are marked-to-market; margin calls are made; the illiquid securities must be sold; more margin calls are made, and so on. In general, shareholders may provide patient capital; but debt-holders do not.

LTC prided itself on hiring PhDs and other brilliant talent to add to the mystique of the group. And the hedge fund performed spectacularly. It used proprietary computer driven models (think algorithms) to find miniscule misprincings in markets and would use leverage and derivatives to exploit those mispricings. At one point in time, $5b of equity was levered up to a $130b of total assets or bets outstanding well you know what happened.

The role played by the big credit rating agencies - such as Standard & Poor's and Fitch - in the unfolding financial crisis is now well-known. By giving complex, opaque and ultimately toxic mortgage-backed securities high ratings and therefore, their own ringing stamp of approval, the credit agencies enabled banks to market these destructive securities around the world. We are now all paying the price. Now, to prevent this very same crisis from turning into a full-blown catastrophe 1930's-style, governments around the world - from President Obama to Brown to Merkel and beyond - are planning major fiscal spending operations to place a floor on the terrifying downward economic spiral and to begin to turn the world economy toward recovery. Even the austerity-loving IMF is strongly supporting these initiatives.

Yet now, Standard & Poor's and Fitch are sending "credit warnings" to other governments, threatening to downgrade their sovereign debt ratings if they "allow" their fiscal deficits to increase too much. Standard & Poor's downgraded Greece's sovereign credit rating. Explaining the downgrade, Marko Mrsnik, S&P analyst, said: "The global financial and economic crisis has, in our opinion, exacerbated an underlying loss of competitiveness in the Greek economy." (Financial Times, January 14, 2009). And in recent days, three other eurozone countries - Portugal, Ireland and Spain - have been warned by Standard & Poor's to "fix" their public finances or face downgrades. Under the current system, such downgrades would increase the cost of raising funds and be taken as a signal to investors to shy away from these investments. Most significantly, these public warnings fire a shot across the bow of larger countries - such as Germany, the UK and France - that they had better not go too far down the road of fiscal expansion, or they might face a similar fate. This is flawed thinking the only way, then, to improve countries' ability and willingness to service debt in the medium term is to engage in massive fiscal expansions in the short term. But the credit rating agency models do not reflect this truth. This is true on a country by country case. What is most insidious about the credit agency warnings is the "fallacy of composition" follies it provokes. If collectively countries and investors follow their advice and governments - especially in the largest countries - fail to engage in large enough fiscal expansions - then the prospects for widespread payment problems of sovereign debt surely will occur. A widespread heeding of Standard & Poor's information will almost certainly lead to massive losses for investors.

A fully computerized global finance system means currency traders can move millions of dollars around the world with a few taps on the computer keyboard. Investors instantly profit from minute fluctuations in the price of currencies, short selling etc. There is a downfall with all this capital can flood in and out of a country with a push of the finger leaving a country in ruins remember South East Asia? Was John Maynard Keynes right about global bubbles hate to say it but right now it sure looks like it.

The Human Genome Project (HGP) was one of the great feats of exploration in history - an inward voyage of discovery rather than an outward exploration of the planet or the cosmos; an international research effort to sequence and map all of the genes - together known as the genome - of members of our species, Homo sapiens. Completed in April 2003, the HGP gave us the ability to, for the first time, to read nature's complete genetic blueprint for building a human being.

At the gene level, people are much more the same than they are different. In fact, individual humans vary between each other much less than do individuals of almost any other species. All of this argues that we came from a small group of common ancestors in the recent past.

None of this means that there are no distinguishing marks on our genes that can tell us where our ancestors are from. Anyone looking at Will Smith, Uma Thurman, and Jackie Chan would conclude they are different. Since these superficial differences happen at the genetic level, there must be genetic markers that are shared between people of the same "race." It is important to note, however, that these differences are incredibly minor. By and large, we are all very similar at the genetic level. As an example, a tall white man and a tall black man probably have more in common genetically than do a tall and a short black man. This is because many more genes are probably involved in height than are in observable racial differences. Yes we are different but that difference comprises of only 0.001 or one-tenth of 1 percent of our genes. These are the kind of numbers that astonishes me yet it does not make the news. That tells me we are more alike then different. Yet we have over 10,000 different religions and sects that war with each other. Different ethnic groups that think there are better then any other ethnic group. If people were adept to educate themselves instead of carrying misinformed information from generation to generation we all be a lot better off. We have put some much currency in computer modeling and number crunching this will always lead to disaster. As quantum theory has taught us. You cannot replace the observer i.e. us humans in interactions of the universe. It will always change on you there is one universal law that will not change. That is there will always be change and that is what you can always rely on change.

What Does The Great Wall Of China Have In Common With Canadian Health Care?

noreply@blogger.com (Group Boss) — Mon, 02 Feb 2009 01:14:00 +0000

PROTECTIONISM!!!!!!!!!!!!!!!!

By Melvin J. Howard

Ottawa Canada raises concerns over US trade protectionism. It seems Canada is concerned with a certain clause in the US stimulus package. More specifically I call it the buy American clause. Industry Minister Tony Clement told a Canadian television news cast that the United States has treaty obligations that they’ve have signed onto, NAFTA is one, the World Trade Organization is another and we expect the United States to live up to its treaty obligation. Oh really now you don’t say well Canada you are exactly right you should honor your trade obligations. I have been in an ongoing trade dispute with Canada for the last 6 years over our lost investments in Canada.

Needless to say I have not been impressed with how we have been treated nor the non seriousness about our complaints you may read all about it at http://www.centurionhealthcorp.blogspot.com/ Canada says it protects Medicare from the terms of NAFTA by “reserving” it as “a social service provided for a public purpose. This is an outdated and mute defense because private firms have already been allowed into the delivery of health care in Canada, thereby setting precedents that open the door to privatization. I want to make two major points about NAFTA and they are reiterated and reinforced in the GATS. First, all sectors that are not explicitly and exclusively reserved for public action are to be open to international trade and competition, if not immediately then as soon as possible. Under Article 19 of the GATS, member countries are obliged to pursue “a progressively higher level of liberalization” in any service sector involving a mix of private and public ownership. In a 1998 background note, the World Trade Organization (WTO) stated that countries where the hospital sector is a mix of public and private ownership, or where there are user fees or private health insurance. They cannot argue for exemption under Article 1.3 of the GATS, which provides for “services supplied in the exercise of governmental authority” to be excluded. Once an Article 1.3 exemption is withdrawn, it can never be restored. If a country (or any region of a country) chooses, for example. The passing of the controversial Bill – 11 and the opening of an Alberta-based private hospital called HRG Health Resource Group. Under existing trade agreements if even one hospital is operated on a for-profit basis, the entire country has then committed itself to allow this trend to spread throughout its territory.All such measures, in principle, are covered by the GATS, including laws, regulations, guidelines, licensing standards and qualifications, and limitations on market access. As long as it affects trade in services (even potentially or incidentally), a health purpose is in principle covered by the GATS obligations. The GATS applies to measures taken by any level of government—including provincial, regional and municipal authorities—and even to measures taken by non-governmental agencies exercising powers delegated to them by any level of government. Regional health authorities, regulatory bodies, and even not-for-profit health care providers are therefore covered by the GATS obligations. It applies to most public services and does not distinguish between commercial and not-for-profit services. Any service, including health care, which involves a mix of public and private funding and delivery, is subject to GATS on the same basis as are totally commercial services. When President Obama meets in February I am urging him to put pressure on the Canadian Government to resolve this issue. Barring that calling on the US Trade Representative to file with the WTO that Canada’s health care system no longer constitutes a social service. On the grounds they have commercialized it we want compensation and damages.

Where Is Our Moral Courage

noreply@blogger.com (Group Boss) — Mon, 26 Jan 2009 17:10:00 +0000

Moral Courage is there any left?

By Melvin J. Howard

What is the difference between stubbornness and backbone you may ask. A man who stands for principles in which you believe, has backbone; a man who stands for principles in which you do not believe, is stubborn. But the true difference, is that the stubborn man will not listen to reason. He will persist in a course he has adopted simply to maintain his vanity. He won’t admit that he has been wrong, though, he may know it in his heart. His notion of will-power is sadly false. Will-power is consentaneous to the utmost spirit of conciliation. This does not mean compromise. The man with backbone is willing to listen to argument; he will keep his mind open. But he will not deviate an inch in principle if he knows himself to be right. He will give in before a convincing argument; he is big enough to admit that he can make mistakes, and even that he has made one in this particular instance.

But he will never give in because of mere lack of physical and moral courage. And moral courage is the rarest of all the rare things of this earth. War has shown that millions have physical courage. Millions were willing to face rifle and cannon, bombardment, poison gas, liquid fire, and the bayonet; to trust themselves to flying machines thousands of feet in air, under the fire of anti-aircraft guns and the machine guns of enemy planes; to go into submarines, perhaps to meet a horrible death. But how many had the courage merely to make themselves unpopular and do the right thing? These pressures are several. Lets take wealth and the inheritance tax. Certainly not popular to the living heirs. Governments need so much taxes that ways have to be found to get them. The inheritance tax is the one that generates the least effective resistance. During life, income taxes now weaken the power of the fortune to accumulate, and, at death, the government steps in to take the lion's share. The Vanderbilt fortune is one in point. Until his death old Commodore Vanderbilt strode the country like a colossus with his hundred million. His son William H. made it two hundred millions. He owned the New York Central Railroad as a man owns his corner store. But he found it wasn't healthy for one man to control a great railroad. He found it to his advantage to sell a lot of his control. When he died he left eight children. Eight children subject a fortune to a very enfeebling division. But his sons, Cornelius and William K. got $50,000,000 each. Cornelius' fortune at his death went to several children, but Alfred got the bulk, $80,000,000. When he died it had shrunk to $35,000,000. It was split $5,000,000 to his son William, $8,000,000 to the widow, and the balance to two sons of his second wife. William K. left $100,000,000. It went to two children, Consuelo and William Harold. The former withdrew her fortune to a ducal dynasty in England. Among the various heirs, a good slice drifted into the hands of Frederick W. Vanderbilt. He died in June, 1938. His estate, valued at $72,588,000, was liquidated in 1939, and the Federal government and state of New York took $41,2 72,000 of it in taxes. Bottom line you are not taking your money with you. Of course today there are many ways to off set your tax liabilities. But what I am trying to say is between your heirs and the government your going out of this world broke buddy like it or not. So think of life’s gifts as long-term leases you are only leasing these things while you are here. Once you get that through your head you can start living your life now be a producer of things. Contribute to society. Besides how many houses and cars do you really need?

Say what you want about John D. Rockefeller he made stuff he was not a promoter. When the Standard holding company was dissolved it owned thirty-three corporations, and John D. Rockefeller personally owned something more than one fourth of all the stock. What it was worth, it is difficult to say. The shares when first sold on the market immediately following the dissolution were valued at $663,000,000. Four months later they had risen to $885,000,000.

They were probably worth still more. For the Standard had never made any effort to inflate its values. Whatever may be said of Rockefeller's fortune it was never made in stock adventures in Standard shares. The shares of that company were never peddled about. They formed the subject of no market operations. Rockefeller issued no bales of stock to be listed on the exchange, manipulated to higher levels, and then unloaded on the public. This was the method that Morgan employed and that later became the curse of American corporate business. No stockholder ever had any reason to complain against Rockefeller. As for consumers, he did strive to make the best oil and to furnish unequaled service. He was the best employer of his time, instituting hospitalization and retirement pensions. He paid the best wages in the industry. His sins were the sins of the industrial warrior, the sins of the ruthless competitor. His offenses were leveled against those who dared to sell oil in an oil world that this great monopolist had marked for his own. When he retired, the Standard Oil Company was the greatest industrial corporation in the world. Its tanks were to be seen not only at every railroad station in America but along the Ganges, the Yangtze, and the Amazon, wherever boats or pipes or railroads or wagon wheels could carry his oil. Rockefeller must be accepted as the greatest business administrator America has produced. His immense wealth was the product of intense application to the business of accumulation, to the habit of planning with infinite patience and then executing these plans with indomitable fortitude, cautiously and slowly when possible, with military like swiftness when necessary. Unlike the paper pushers of his day like Morgan, he was no autocrat. Rockefeller possessed an extraordinary capacity for acting with others. He made it a rule never to adopt a decision on any important matter unless he had the unanimous consent of his partners. He could spend years trying to convince them when his simple word would have been law. His fortune belongs in the group of the Carnegies, the Henry Fords—enterprisers who were producers and who got their fortunes by creating wealth and retaining for themselves as large a share of it as they could. They were wholly different from the group of today that shovel paper around and uses various ponzi schemes to show profit were there is none. We have suffered great losses at the hands of people who could not admit they were wrong. Instead of admitting they were wrong they thought fraud would be a better way out. This to me is the most ugliest of vain. I have come to the conclusion that there is no such thing as experts. There are only probabilities and possibilities.

This universe is constantly changing it is not static just because something works for a while does not mean it will forever when will we humans get that through our heads. Humility is the only true gauge of character arrogances has proven over and over the downfall of man and society. America needs to start being producers again that’s how we became a great nation we need more moral courage. Not more paper shufflers!

President Obama, Albert Einstein, W. E. B. Du Bois what do they have in common?

noreply@blogger.com (Group Boss) — Tue, 20 Jan 2009 08:33:00 +0000

It's relative

By Melvin J. Howard

This is a new day for America and it’s been a long time coming President elect-Obama will become President Obama. Although America can be proud today of what it accomplished. It came out of an oppression of its people Martin Luther King Jr. whom symbolizes the struggles of African Americans and preached non-violence in getting his point across is somebody we can all be proud of. But the movement had many international friends as well most were not known at the time. But studying Einstein reviled to me something I would have never known otherwise. For instance how many knew Albert Einstein one of the greatest minds of the century was very outspoken against American racism. Yet the story has remained untold – until now – as has Einstein's support for W. E. B. Du Bois, his friendship with Marian Anderson and his many ties with the African American people living in Princeton's own little ghetto, in and around Witherspoon Street. In 1946, the Nobel Prize-winning physicist traveled to Lincoln University in Pennsylvania, the alma mater of Langston Hughes and Thurgood Marshall and the first school in America to grant college degrees to blacks.

The reason Einstein’s visit to Lincoln is not better known is that it was virtually ignored by the mainstream press, which regularly covered Einstein’s speeches and activities. (Only the black press gave extensive coverage to the event.) Nor is there mention of the Lincoln visit in any of the major Einstein biographies or archives.

Before leaving Germany, Einstein was not only an outspoken critic of the Nazis, but he had begun to speak out against racism in America – the parallel to Nazi anti-Semitism and Aryan-Superman theory was hard to miss. In 1931, W. E. B. Du Bois, a founder of the NAACP and editor of its magazine, The Crisis, wrote to Einstein, still living in Berlin:

Sir:

I am taking the liberty of sending you herewith some copies of THE CRISIS magazine. THE CRISIS is published by American Negroes and in defense of the citizenship rights of 12 million people descended from the former slaves of this country. We have just reached our 21^st birthday. I am writing to ask if in the midst of your busy life you could find time to write us a word about the evil of race prejudice in the world. A short statement from you of 500 to 1,000 words on this subject would help us greatly in our continuing fight for freedom.

With regard to myself, you will find something about me in “Who’s Who in America.” I was formerly a student of Wagner and Schmoller in the University of Berlin.

I should greatly appreciate word from you.

Very sincerely yours,

W. E. B. Du Bois

Einstein replied on October 29, 1931:

My Dear Sir!

Please find enclosed a short contribution for your newspaper. Because of my excessive workload I could not send a longer explanation.

With Distinguished respect,

Albert Einstein

To American Negroes

A Note from the Editor [Dr. Du Bois]:

The author, Albert Einstein, is a Jew of German nationality. He was born in Wurttemburg in 1879 and educated in Switzerland. He has been Professor of Physics at Zurich and Prague and is at present director of the Kaiser-Wilhelm Physical Institute at Berlin. He is a member of the Royal Prussian Academy of Science and of the British Royal Society. He received the Nobel Prize in 1921 and the Copley Medal in 1925.

Einstein is a genius in higher physics and ranks with Copernicus, Newton and Kepler. His famous theory of Relativity, advanced first in 1905, is revolutionizing our explanation of physical phenomenon and our conception of Motion, Time and Space.

But Professor Einstein is not a mere mathematical mind. He is a living being, sympathetic with all human advance. He is a brilliant advocate of disarmament and world Peace and he hates race prejudice because as a Jew he knows what it is. At our request, he has sent this word to THE CRISIS with “Ausgezeichneter Hochachtung” (“Distinguished respect”):

It seems to be a universal fact that minorities, especially when their Individuals are recognizable because of physical differences, are treated by majorities among whom they live as an inferior class. The tragic part of such a fate, however, lies not only in the automatically realized disadvantage suffered by these minorities in economic and social relations, but also in the fact that those who meet such treatment themselves for the most part acquiesce in the prejudiced estimate because of the suggestive influence of the majority, and come to regard people like themselves as inferior. This second and more important aspect of the evil can be met through closer union and conscious educational enlightenment among the minority, and so emancipation of the soul of the minority can be attained.

The determined effort of the American Negroes in this direction deserves every recognition and assistance.

Albert Einstein

Du Bois’ request for a message from Einstein revealed that the African American scholar had a flare for public relations. Einstein’s article brought The Crisis a rare, if small, headline in the NY Times: EINSTEIN HAILS NEGRO RACE. Nearly twenty years later, another Einstein-Du Bois correspondence would bring even more momentous results, but in the fearful 1950s, there would be no press coverage. On the eve of Einstein’s move to America he joined the international campaign to save “the Scottsboro Boys,” nine African American teen-agers from Alabama, falsely accused of rape – eight of them sentenced to death in 1931. For Einstein, the Scottsboro Defense was the first of several protests against racial injustice in the American legal system. For J. Edgar Hoover and his FBI, it was the first “Communist Front” listed in Einstein’s file.

Einstein joined with Paul Robeson, W. E. B. Du Bois and the Civil Rights Congress. Indeed, almost every civil-rights group Einstein endorsed after 1946, including the Council on African Affairs cited earlier, had Robeson in the leadership. Perhaps because Einstein had seen the Nazis use the “Communist” scare tactic, he did not shrink from Robeson’s red glare. Like Robeson, the CRC had close ties to the Communist Party. While defending Rosa Lee Ingram, Willie McGee, the Martinsville Seven and other African Americans they saw as victims of “racist frame-ups,” the CRC also supported the more than one hundred CP officials jailed under the Smith Act during the McCarthy/Hoover period. CRC statements pointed to Hitler’s Germany where the Nazis had first rounded up the Communists while most liberals shrugged from what they thought was a safe distance. It was a historical parallel Einstein agreed with. “The fear of Communism,” he declared at the height of the McCarthy era, “has led to practices which have become incomprehensible to the rest of civilized mankind…”

His outspokenness on civil rights included a virtually unknown 1948 interview with the Cheyney Record, student newspaper at a then-small Black college (Cheyney State) in Pennsylvania: “Race prejudice has unfortunately become an American tradition which is uncritically handed down from one generation to the next,” Einstein declared. That he did the interview is hardly surprising, given Einstein’s previous visit to Lincoln University and his openness in talking and writing to young people. More surprising, however, is Einstein’s statement in the same interview, “The only remedies [to racism] are enlightenment and education. This is a slow and painstaking process in which all right-thinking people should take part.” So be proud America of your 44th President be proud of the red white and blue. It is a new day, new hope and oh YES WE CAN!

Some excerpts from a book by the authors, Einstein on Race and Racism, published in July 2005 by Rutgers University Press.

Generational Wealth You Created Now What?

noreply@blogger.com (Group Boss) — Mon, 12 Jan 2009 02:40:00 +0000

You’re the founding member of family wealth now what do you do?

By Melvin J. Howard

You have worked day an night you have made sacrifices to no end. Blood sweat and tears was on the daily menu. You have taken ridicule sometimes by immediate family members. You have taken risks that people said were foolish. You were laugh at left isolated it cost you a marriage or two friends were nowhere to be found. You had a number of set back after setbacks. But you did not quit you kept going and now you are a success a Founding Entrepreneur of a family empire now what do you do how do you make sure it is carried on? Only 34% of family businesses survive to the second generation, and just 15% make it to the third. Among those that don’t survive, 10% are due to transfer taxation, 25% to unprepared heirs, and 60% to the way successor family members interact.

When discussing generational issues, one needs to distinguish the entrepreneur-founder of a family business from the senior family member in a business that is now in the hands of the second or third generation. Entrepreneurs differ from other people. They have certain characteristics, which make them successful. As it happens, these are the very same characteristics, which make them difficult to relate to as individuals. Spouses, girl-boy friends of Entrepreneurs have to deal with a whole new set of dynamics that are not part of a regular relationship.

A family business' founding entrepreneur is usually a father. (Although less true today than in the past, the entrepreneur-founder is, more often than not, male.) The founder probably had problems with his own father over authority and control. As a result, he has not had the role model needed for shaping his interaction with his own children in ways that build a healthy relationship towards authority and control issues on their part. It would be a mistake, however, to confuse the entrepreneur's difficulty interacting with his children with a lack of commitment to family or a lack of intellectual understanding of the father's role. On the contrary, an entrepreneur is frequently driven to achieve precisely because of a deeply rooted need to recreate the family situation that he wished he had experienced as a child, but was denied. In fact, entrepreneurial founders can often be persuaded of the need for communication between generations because they understand intellectually the emotional needs they experienced in their relationships to their own fathers. Entrepreneurial seniors can often find the wisdom to change even before being pushed by their children seeking more autonomy and responsibility, who seek, in short, a benign exercise of authority by their parents. Ensuring financial security for children is also seen as an important motivation for amassing and protecting wealth. The desire to pass wealth to the next generation is sometimes tempered by concerns that leaving too much money could cause problems for the benefactors. Increasingly, wealthy individuals are keen to ensure that their dependents receive financial education to prepare them for wealth and, in some cases, are adding stipulations to their wills, such as the requirement that a university education is to be completed.

Inheriting money can have a “curse,” a dark side—it can disable people, isolating them, causing shame about what they have, arrogance, or a sense of unworthiness. The discovery of personal identity in heirs has been likened to a journey, where they must go out in the world and find out who they are on their own, away from family and their names. The major challenge in development of heirs is to balance a sense of responsibility for their wealth with their sense of entitlement.

If an heir feels that they deserve what they get and that there are no corresponding values or responsibilities placed upon their inheritance, they eventually experience a deep sense of emptiness, even resentment, inside. Getting a paycheck on one’s own, starting a small business or a community project, or just graduating with honors, are achievements that build personal identity. The young heir has to find some way to do something important.

It all begins with an entrepreneur usually the father

The entrepreneur, the original founder and manager of what will become a Family Business Empire, controls all levers of power on the levels of ownership, management and family standing behind this newly created business entity. He/she provides the founding myth for the family that captures the core family values and a vision to bereferred to across generations. The family business will play a significant role in the dynamics of a family for generations to come. The business is in fact part of the day-to-day living of the family, and is a platform for interactions within the family and with outsiders.

In the later generations, not everyone in the family is, or wants to be, involved directly in the running of the business – while they might all be owners, only some are managers. Whether rising family members become managers in the business is in great measure determined to the extent that active efforts were made to consistently involve them in the business from an early age. Further, the greater generational distance from the original founder translates into a rising need for a separation of power and control over the family’s financial affairs, including the family business. While the business is a family enterprise, at the individual level, once you get past the founder, not everyone in the family is or wants to be involved directly as manager in the business. In such situations there is a clear need to think strategically about the family’s financial position and design a new structure and a plan of action – they have now become a family-in-business.

Maintaining and Growing Private Wealth

A family-in-business needs a platform to capture the wealth – business and financial and to address the broader needs of current and future generations. A family office is the perfect structure it will take care of the day-to-day management and administration of the collective assets and business affairs of one or more families. Its long-term goal is to preserve and grow the wealth for current and future generations. For the family-in-business a family office takes on the rallying role previously served by the family itself.

Transfer assets across generations

Family offices have served as vehicles for intra-family and intergenerational transfer of assets. The most common example for the establishment of an office is the retirement of the original founder(s). Family offices can be established on behalf of heirs, so as to have the structures necessary to manage inherited assets in common, rather than liquidating the assets and dividing the proceeds. The truth is that many persons are unprepared to deal with accumulated wealth or a sudden financial windfall. The process of accumulating wealth and enjoying its benefits consumes substantial time. Little thought is given to what happens in the event of disability or death of senior family members. Even less thought is given to the education and preparation of children for the responsibilities of wealth that awaits them in the due course of time. Much work must be done to protect and preserve wealth. This includes a continuous process of education for senior family members, middle-aged adults and younger family members. When formulating a strategy for wealth preservation, rich parents should consider:

Mommy

Financial planning for the family is pointless unless absolute financial security is assured for Mom. It is not possible to talk about sharing present and future wealth with children and other family members until priority and attention is given to providing financial security for the surviving spouse. Usually, this is the wife. Sometimes, this wife is not the mother of some or all of the children who are expectant heirs of a portion of the family wealth. Stepmothers, stepfathers, and stepchildren greatly complicate the discussion of wealth planning alternatives. But it can be overcame with the right strategies. Depending on what kind of relationship you have with your ex-spouse they can be included in to the overall plan or left out of it entirely this is up to you. This is an emotional subject if the founding member of the family enterprise have children but is not married to the mother. This will have to be addressed if the founding member remarries and has children with the current spouse this also makes it complicated. Make sure you address all these issues with your estate lawyer.

Favouring the oldest son) is alive and well I must admit I have been guilty of this myself. But I am determined to giving each child their own chance to define themselves. Its just a common fact kids are not the same even in the same family. They have different personalities some will take an active role in the family business some will not. It is expected that almost half of all family-owned businesses will undergo an event associated with successorship in the next five years. In some cases, there are unfair biases and assumptions that impede a healthy planning process. This can be overcome through candid communications facilitated by a neutral professional.

The next generation.

Rich parents are reluctant to transfer wealth to their children for fear much will be lost in a divorce I am 100% guilty of this myself. A prudent desire to protect assets from loss or dissipation in the event of a future divorce is commendable. At the same time, appropriate planning, including outright gifts and trusts, should not be avoided out of unsubstantiated fears and concerns for the future in this regard. There will always be excuses to avoid the distribution of assets to members of the younger generation. At the same time, there is a need to prepare the next generation for the responsibilities of wealth. In many cases, there may be substantial wealth that should be shared with younger family members before they are required to survive both parents. What good will wealth do the children if they are 70 before they obtain it? After all, rich widows live forever!

Rich fathers will struggle to balance financial benefits for two sets of children if they don't communicate with everybody. The dysfunctional child. Many wealthy families allow one dysfunctional child to stymie the planning process for the entire family. It is a rare case where all members of the family are stable, healthy, mature, well-adjusted and free of disabilities and shortcomings. In a typical situation involving three or four adult married children, it is unusual if all of the marriages enjoy complete harmony and happiness. In other families, one child may have particular challenges with alcohol, drugs or financial responsibilities. It is important for the wealthy family to avoid allowing one isolated situation to shut down the overall planning process that benefits all members of the family. Appropriate special provisions can be made to address the special needs of a family member. The circumstances, however, should not become an excuse to avoid or postpone discussion of important planning matters.

In-laws

Do not allow family traditions and gatherings to prevent children from developing a healthy degree of independence with their own families. At the same time, it is important for rich parents to remember that their grandchildren share more than one heritage. They need to avoid making the mistake of planning the lives of children, in-laws and the grandchildren to the extent that conflict develops in the other sides of the family and respect the desire of the in-laws, and their parents, to enjoy a healthy and balanced relationship with their children, their spouses and the grandchildren. Rich parents should also allow their children to develop traditions that are new and unique for their own family units. This one in really particular to my heart and I hope that I do not make a mistake in this category. This sometimes is the touchiest aspect of generational wealth and the transfer of it especially if you are no longer married to the that spouse. You are no longer apart of the family legally but your children through the ex spouse still are. Whatever route you take is purely up to you but not taking any advance preparation for the future of generations to come is like planting a flower and not watering it and make sure enough sunlight gets to it. Expecting that if it is not looked after it will just grow own its own.

I'm Just To Smart And To Rich For My Money

noreply@blogger.com (Group Boss) — Sun, 04 Jan 2009 06:35:00 +0000

I’m to sexy for my money!

By Melvin J. Howard

In this atmosphere of dwindling portfolios, bank crashes, funds imploding and less then honest money managers like Bernard Madoff . The not quite rich enough and not quite smart enough, certain investing class has for years paid through the nose for what was thought to be world-class money management by investing in funds that promise access to the best hedge funds. The Bernard Madoff scandal now calls into question the value of the so-called fund-of-fund industry. It seems some advisors did little more than turn over most or all of their clients' money to Madoff money that may now be gone. What’s a family office to do? For one always have full control of your money and your investments. Be involved with your money on a daily basis. If an investment, mutual fund, or hedge fund seems like something fishy is going on, get out of it. Never set and forget your investments, assuming that it will taken care of and your finances are on autopilot. It’s your family’s money, and you make the final decisions on the investments. If it seems too good to be true, it probably is too good to be true. Many investors were lured into the returns that this fund was boasting, so they put much of their nest egg in one basket. We all have gut feelings, and if your gut feeling says something isn’t right about a certain investment, then stay away from it. Your gut is probably right. Diversify, Diversify, and Diversify. So many investors forget about this crucial key to investing. Diversifying your portfolio is finance 101, yet so many people disregard it.

Family Offices play an essential role in their investment strategy of wealthy families. They often manage the family financial portfolio and often provide other services, such as handling children's college applications, hiring domestic staff or managing the family fleet of jets. The catch 22 is family offices do not typically manage family funds directly, Instead, they set the strategy and work alongside banks and other investment managers to safeguard and grow the family portfolio. Partnering with a private bank gives you better access to information technology.

But that’s still not enough intelligent people have long been ruined by frauds. Psychologist Stephen Greenspan, who specializes in gullibility, explores why investors continue to be swindled -- and how he came to lose part of his savings to Bernard Madoff. Extraordinary Popular Delusion and the Madness of Crowds" -- most notably on investment follies such as Tulipmania, in which rich Dutch people traded their houses for one or two tulip bulbs. In his new book "Annals of Gullibility," based on his academic work in psychology, he propose a multidimensional theory that would explain why so many people behave in a manner that exposes them to severe and predictable risks. This includes himself: After he wrote the book, he lost a good chunk of his retirement savings to Mr. Madoff, so he writes on the most personal level. The basic mechanism explaining the success of Ponzi schemes is the tendency of humans to model their actions -- especially when dealing with matters they don't fully understand -- on the behavior of other humans. This mechanism has been termed "irrational exuberance," a phrase often attributed to former Federal Reserve chairman Alan Greenspan (no relation), but actually coined by another economist, Robert J. Shiller, who later wrote a book with that title. Mr. Shiller employs a social psychological explanation that he terms the "feedback loop theory of investor bubbles." Simply stated, the fact that so many people seem to be making big profits on the investment, and telling others about their good fortune, makes the investment seem safe and too good to pass up. We think because someone is famous, they must be smart. By investing alongside them, we must be smart, too. The aura of prosperity expands to include us by association. Famous families are not immune to fraud. Entertainers, including sports figures, are often targets just for their name-recognition that’s value to the crook. In Mr. Shiller's view, all investment crazes, even ones that are not fraudulent, can be explained by this theory. Two modern examples of that phenomenon are the Japanese real-estate bubble of the 1980s and the American dot-com bubble of the 1990s. Two 18th-century predecessors were the Mississippi Mania in France and the South Sea Bubble in England (so much for the idea of human progress). Discretion is critical for family offices and their employees managing the fortunes of families whose wealth might be put at risk. This is a standard rule I nail home to every vendor or entity we deal with. Sometimes bigger is not always better and following the Jones is not the right thing to do! Just asks all those smart and rich clients of Madoff.

Are You Willing To Pay The Price?

noreply@blogger.com (Group Boss) — Mon, 15 Dec 2008 02:55:00 +0000

Paying The Price

By Melvin J. Howard

With all the doom and gloom in the news lately from an economical stand point? I thought I would write to remind the successful people how you overcame all obstacles to get where your are today. Remember when you first started out you were willing to pay the price well in this atmosphere of uncertainty. Its time to hunker down and focus and not get distracted by chatter its time to pay the price again. The first rule of paying the price is a very important rule, and, indeed, possibly covers most of the subject matter. Before you make any formal resolutions whatsoever, make certain that you genuinely desire to carry it out. Let there be no doubt that the end you have in view is so desirable or advantageous that it will outweigh all desires and advantages or all other ends that are likely to have to be foregone or abandoned in order to attain it. In short, be sure you are willing to pay the price. This rule is the corner-stone this is of great importance. There is a price for everything for doing and not doing. Paying the price is characteristic and a passionate desire to succeed, a desire so strong and overbearing that it amounts to a demand, and that, in the strictly economic sense to which I means willingness to pay the price. The price is first of all singleness of purpose and concentration of effort. Nearly all of us, at school, have thought that we should some day like to be President of the United States. But not all of us have made it a point to study the lives of past presidents to see how they did it. Not all of us have taken a law course with that special insight like constitutional law. Not all of us have refused tempting commercial opportunities for certain poverty and struggle for a time to gain an end in which the mathematical chances were ridiculously and overwhelmingly against us. Not all of us have kept desperately fanning the embers of dissatisfaction, fanning them into a constant white-hot flame. With most of us the early fire dies; the embers fade and grow cool. We reach as high a level as we ever seriously hope to reach. We have spasms of dissatisfaction with our position in the world, but not sufficient dissatisfaction to make us work our way out of the rut to a higher position. We have moments of longing for the mountain tops, but not enough longing to make us willing to give up something for them. Strolling in the valleys is so much more pleasant than climbing.

And singleness of purpose demands more sacrifices than mere industry. It involves giving up all pleasures that interfere with it. They may be quite innocent pleasures, their sole offense being that they occupy time. It involves making oneself narrow; one cannot be a success in any one line if one dissipates one’s energies in a number of activities—unless, of course, one be a versatile genius whose energies overflow, like Benjamin Franklin, Leonardo da Vinci, or Goethe—and such instances are so rare that they may be ignored. Let there be no mistake. I do not mean to discourage efforts to become a Success. I mean merely to indicate that the goal has a price. I want you merely to ask yourself whether you are willing to pay that price; to ask yourself candidly how far you want to go and how much you are willing to pay; for if you do not ask yourself now, before you make your Success resolutions, you are likely to ask yourself later on.

As you see obstacles and disappointments pile up, you are apt to begin wondering whether the game is worth the pain. And if you decide to give up then, you will have broken your earlyresolution, with all the undermining of self-confidence and faith in your will which that involves.

Once you have made your decision, having coldly decided that that is what you want and that you are willing to pay the price, your decision is forever beyond dispute. You should never ask yourself again whether the other course is possible; whether it is really worth while staying home to study for a specified number of evenings each week;

whether a man who has resolved to stop drinking can really do so suddenly without blowing to pieces; whether smoking is really as harmful as you had thought it was; whether a man in a moderate position, without so many responsibilities and burdens on his shoulders, doesn’t really get just as much enjoyment out of life as the Success. Can I do it a person that comes from Hoboken anywhere can actually accomplish what he sets out to do. Those questions are forever closed; you have asked them before and have decided them. You will know that thoughts determine action, and to control your actions you will begin by controlling your thoughts. You will vivify all the advantages that will come from carrying out your resolution. You will paint them in glowing colors.

You will dwell on them constantly. The disadvantages you will ignore. They are disadvantages only to fools; a wise man does not think them so. Concentrate on the positive side; avoid the negative at all costs friends, family anyone that would dampen your spirit. Picture yourself already a success. I have come across many people in my life that want the easy life the glamour life the rich life. But they are never willing to pay the price. Each successful person knows what I am talking about they have paid the price. What looks to the outside world of easy success is an illusion the price these individuals paid could be number of things. That is why successful people hangout with other successful people. Because without having to say anything each have their own story of what they overcame it is a brother hood. And the only way you are allowed in is if you are willing to pay the price.

John Law's seeds of modern banking

noreply@blogger.com (Group Boss) — Sun, 07 Dec 2008 07:37:00 +0000

The Law of Banking John’s Law

By Melvin J. Howard

Studying Quantum Physics has taught me a lot of things about the life around us it begins to explain how everything in our world comes to be. And the lack of awareness of this fact and how the physical matter comes about and your role in it, makes your life appear to you as an occurrence that is out of your control. It may appear to you as if you are the victim of circumstances, while all along you are the cause of those circumstances, including your experiencing of wealth or lack of it. Take for instance JOHN LAW, here is a perfect example of a person who realize how to create the circumstances around his life. A goldsmith's son, he was born in Edinburgh, Scotland, in April 1671. Having escaped from prison in London, where he was held after conviction of murder in his early twenties, he toured Europe, earning his living as a professional gambler, and then achieved the most amazing leap in history. From the gaming table to the highest office in France a country of which he was not a citizen and from which, a few years before, he had been ejected by the minister of police because of his suspiciously. And when he assumed the role of financial dictator of France he had the satisfaction of succeeding the very gentleman who as minister of police had invited him to clear out of Paris. Law discovered and perfected the device that has played, perhaps, the most important role in the growth of what we now call finance capitalism. Here is what he discovered. On the first day of January 1939, the banks in America had on deposit, guaranteed by the government, the money of their depositors to the extent of fifty billion dollars. But the balance sheets of these banks showed only seventeen billion dollars in cash. A closer examination, however, reveals that not only was the fifty billions in deposits a myth, but the seventeen billions in cash was equally a fiction. There was not that much cash in America then. The actual amount of cash—currency—in the banks was less than a billion dollars. Law's famous Mississippi Bubble was something more than a mere get-rich-quick scheme. To understand it you must have a clear idea of the theory, which lay at its base.

This theory consisted in two propositions. One was that the world had insufficient supplies of metal money to do business with. The other was that, by means of a bank of discount, a nation could create all the money it required, without depending on the inadequate metallic resources of the world. The bank Law had in mind was nothing more or less than the kind of banks we now do business with universally. But this was a unique proposal back then. Law did not invent this idea. He found the germs of it in a bank then in existence—the Bank of Amsterdam. This Law got the opportunity to observe when he was a fugitive from England. The Bank of Amsterdam, established in 1609, was owned by the city. Amsterdam was the great port of the world. In its marts circulated the coins of innumerable states and cities. Every nation, many princes and lords, many trading cities minted their own coins. The merchant who sold a shipment of wool might get in payment a bag full of guilders, drachmas, gulden, marks, ducats, livres, pistoles, ducatoons, piscatoons, and a miscellany of coins he had never heard of. This is what made the business of the moneychanger so essential. Every moneychanger carried a manual kept up to date listing all these coins. The manual contained the names and valuations of 500 gold coins and 340 silver ones minted all over Europe. No man could know the value of these coins, for they were being devalued continually by princes and clipped by merchants. To remedy this situation the Bank of Amsterdam was established. Here is how it worked. A merchant could bring his money to the bank. The bank would weigh and assay all the coins and give him a credit on its books for the honest value in guilders. Thereafter that deposit remained steadfast in value. It was in fact a deposit. Checks were not in use. But it was treated as a loan by the bank with the coins as security. The bank loaned the merchant what it called bank credit. Thereafter if he wished to pay a bill he could transfer to his creditor a part of his bank credit. The creditor preferred this to money. He would rather have a payment in a medium the value of which was fixed and guaranteed than in a hatful of suspicious, fluctuating coins from a score of countries. So much was this true that a man who was willing to sell an article for a hundred guilders would take a hundred in bank credit but demand a hundred and five in cash. One effect of this was that once coin or bullion went into this bank it tended to remain there. All merchants, even foreigners, kept their cash there. When one merchant paid another, the transaction was effected by transfer on the books of the bank and the metal remained in its vaults. Why should a merchant withdraw cash when the cash would buy for him only 95 per cent of what he could purchase with the bank credit? And so in time most of the metal of Europe tended to flow into this bank. There was in Amsterdam another corporation—the East India Company. A great trading corporation, it was considered of vital importance to the city's business. The city owned half its stock. The time came when the East India Company needed money to build ships. In the bank lay that great pool of cash. The trading company's managers itched to get hold of some of it. The mayor,who named the bank commissioners, put pressure on them to make loans to the company—loans without any deposit of money or bullion. It was done in absolute secrecy. It was against the law of the bank. But the bank was powerless to resist. The bank and the company did this surreptitiously. They did not realize the nature of the powerful instrument they had forged. They did not realize they were laying the foundations of modern finance called capitalism. It was Law who saw this. Law perceived with clarity that this bank, in its secret violation of its charter, had actually invented a method of creating money. He came to the conclusion that this was something, which should be not merely legalized, but put into general use to cure the ills of Europe. He also saw clearly that this bank had brought into existence a great pool or reservoir of money and that he who controlled this supply could perform wonders. This was to be one of the most powerful weapons of the acquisitive man of the future—the collection of vast stores of other people's money into pools and the capture of control of those pools. Here is what Law saw. It is an operation that takes place in banks daily. Lets say The First National Bank of Middletown has on deposit a million dollars. Mr. Smith walks into the bank and asks for a loan of $10,000. The bank makes the loan. But it does not give him ten thousand in cash. Instead the cashier writes in his deposit book a record of a deposit of $10,000. Mr. Smith has not deposited ten thousand. The bank has loaned him a deposit. The cashier also writes upon the bank's books the record of this deposit of Mr. Smith. When Mr. Smith walks out of the bank he has a deposit of ten thousand that he did not have when he entered. The bank has deposits of a million dollars when Mr. Smith enters. When he leaves it has deposits of a million and ten thousand dollars. Its deposits have been increased ten thousand dollars by the mere act of making a loan to Mr. Smith. Mr. Smith uses this deposit as money. It is bank money this bank money has been created not by depositing cash but by loans by the bank to depositors. This is what the Bank of Amsterdam did by its secret loans to the East India Company, which it hoped would never be found out. This is what Law saw, but more important, he saw the social uses of it. It became the foundation of our current banking System.

Dr. J. S. Bell, a physicist at the European Organization for Nuclear Research (CERN) in Switzerland, came up with mathematical proof in 1964 that showed that all the ‘separate’ parts of the universe are all connected in an immediate and close way. Many experiments now show that particles separated by space and time somehow know exactly what the other is doing at the exact time the other is doing that particular thing. In other words, they do not communicate. Communication takes time and requires a message. This is different. They know without having to communicate. They act simultaneously as if they are intimately connected somehow across space and time, in a way that does not get affected by the separation in space and time between them. The other profound thing that Bell’s mathematical constructs shows is that the action of a sub-atomic particle is dependent on something happening somewhere else to another sub-atomic particle. In other words, all sub-atomic events are effects of others, and causes of others. This brings the law of cause and effect, of karma, of reaping and sowing, to a completely new light! The law of cause and effect, karma, is not only spiritual but also scientific. So is our current financial dilemma a direct cause of our past monetary policies sure it was. Once the inevitable stock market semi-bust started showing its head in 2000, the central bank and Treasury department anticipated the fallout by launching one of the greatest tax cuts and arguably the greatest liquidity injection in history during 2001-6 period. Further, by gradually raising interest rates, ¼ point at a time, they remained a giant step behind the global financial machine’s ability to expand credit faster than the central banks were willing to restrain it. The most creative and confusing financial securities and associated derivatives (CDO’s, CDO’s squared, CDO’s cubed, MBS’s, SIV’s, CDS’s, etc.) grew exponentially to enable the final parabolic expansion of the greatest aggregate bond bubble in the history. This overwhelming credit market bubble was in its infancy of popping. Then the popping started first from the Sub-Prime mortgage loan blow-ups and then derivatives to major banks ( Citigroup etc ) and companies (automakers) going bankrupt or breaking up to dissolve their debt obligations. What’s great about science is it works backwards not unlike economics the seeds were sown way back of what is happening today?

Hey this is not your father's political party

noreply@blogger.com (Group Boss) — Mon, 01 Dec 2008 03:07:00 +0000

I think I am a Republicrat

By Melvin J. Howard

Before the elections were over someone said to me I was a Republican I asked where did you get that idea from? Since she was a beautiful young lady she had my full attention I told her to prove her case. Well she goes on to tell me I know who you are and I have followed your work even before I met you. You have a taste of right wing about you I go on to ask her is that the perception I give off? Over dinner she tells me that’s not a bad thing it’s just what I get from you. Well now I am totally intrigued I have never had a date like this. She not only was attractive, smart and witty she was trying to guess my politics. After a heated debate of my disagreement she took my hand and said face it baby you are. Well after a little soul searching I found maybe she was not to far off. But I also knew that I was not a Republican nor Democrat. I think I am a little of both and here is why. I am a businessman concerned with any legislation that will effect how you run your company. But I am also concerned with people who do not have a voice, not just the wealthy class. But it is this class that create jobs and opportunity for the middle class to get ahead. I think maybe I am a Republicrat I am convinced that the old two party system is becoming obsolete. We are now a global community things are not so black and white a new world order so to speak. So when I read of President-elect Obama’s cabinet selection I was very happy. Finally I said a politician that gets what America is about today not yesterday.

President-elect Obama's team is eclectic group when he reached out to Senator McCain I said good job. Economic team a cross between republican and democrat I said check. Hilary Clinton Secretary of State now you’re talking. By these appointments I knew we are in a new age of politics where the status quo is thrown out the window. I say lets get the best of the best regardless of party affiliations and lets get the job done. I have to admit I have not be a big fan of elections in the past and here is why. The founders of the United States put in place a constitution to bring in democracy, but somewhere along the way, it was hijacked, so to speak. Democracy by definition is the idea that the majority rule. Majority rules let’s us first look at the link between money and elections. What you will see is that elections were predictable and follows a pattern that, once you learn to recognize it, can be used to have the outcome you want roughly 90% of the time. Lets start with the senate and house elections, In 2002, 98% of House incumbents (those already holding a seat) and 85% of Senate incumbent were re-elected. Through the connections and loyalties that they have formed while in office, the incumbents are also able to raise far more in campaign funds than the challengers (a major reason for the re-election rates). The U.S. House re-election rate has been at over 90% for the last two decades. In the last 20 years, it was at its lowest point in 1970, when, if you were a House member already, you would have had an 85% chance of being re-elected. Odds of beating a US House incumbent based on spending by the challenger in 1994 elections. To a lot of minorities it came down to who has the most money, in a sense. Interestingly, however, the general U.S. population is very non-participative. First, often only about 12% of Americans, on average, vote. The percentage that contributes any money to the proposed candidates (notice the use of the word ‘proposed’ instead of chosen, because the public often have nothing to do with choosing the proposed candidates) what was more interesting is how many conflicts of interest a cabinet posses. Normally, you would expect that the best person for agriculture would run agriculture; the best for commerce would get that job, and so on. But it is nothing like that. Politics was all about favours not the best person for job. President- elect Obama you have proved to be a shrewd politician and a CEO. But I am afraid you do not get all the credit first lady in waiting Mrs. Obama deserves a tremendous amount of credit.. A lawyer in her own right what a great foundation to build a great marriage and partnership. I hope I am that lucky the next time around statically speaking. Eighty-nine percent of high-achieving (and presumably high-earning) men report that they marry or would like to marry a woman who is just as or more intelligent than they are, says Christine Whelan, PhD, author of "Why Smart Men Marry Smart Women." Also, 92 percent of men who describe themselves as "successful" or "very successful" say they are more attracted to women who are also excelling in their careers. I would have to agree with this percentage based on my own observations and talking to a lot of wealthy gentlemen. In my personal experience I have always admired smart intelligent women. Hey the library of law, congress or just the plain ole libarary might be the next best place to meet your other half. Hey it could happen trust me I have seen it!

Where Have All Of Our Money Gone?

noreply@blogger.com (Group Boss) — Tue, 25 Nov 2008 20:22:00 +0000

Wealth in America

By Melvin J. Howard

With the stock market on drugs you have to wonder is money and stock real why do we feel that if the stock market is in the dumps we feel that we lost all of our money? “Trillions in stock market value - gone. Trillions in retirement savings - gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll - gone, gone, gone.

"Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago. You might be disappointed to learn that is was never really money in the first place.

"Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a 'fallacy.' He says the price of a stock has never been the same thing as money - it's simply the 'best guess' of what the stock is worth.

"'It's in people's minds,' Shiller explains. 'We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today - who are very, very few people - are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth.'

"Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000. 'In a sense, $50,000 just disappeared when he said that,' he said. 'But it's all in the mind.'"

Psychology of the Wealthy investor

No doubt you've noticed that different wealthy people respond very differently to particular situations. One might respond to a sharp market dip by wanting to discuss its causes and ramifications with you at length, for example, while another would prefer that you not talk about it at all. There are distinct personalities that all affluent investors tend to fall into. But it’s all in the mind of the individual investor it is psychology or what I like to refer to as Quantum reality they break down as follows:

Family Stewards

Caring for family is dominant focus conservative in personal and professional life. Not very knowledgeable about investing

Investment Phobics

Confused and frustrated by the responsibility of wealth dislike investing and avoid technical discussion of it choose advisers based on level of personal trust they feel

Independents

Seek the personal freedom money makes possible feel investing is a necessary means to an end not interested in the process of investing

The Anonymous

Primarily concerned with confidentiality prize privacy for financial affairs

Likely to concentrate assets with an adviser who protects their privacy

Moguls

Maintaining control is a primary concern use investing as another way of extending personal power decisive in decisions, rarely look back

VIPs

Investing results in ability to purchase status possessions place high value on prestige is important like to affiliate with institutions and financial advisers with leading reputations

Accumulators

Focused on making their portfolios bigger investment performance-oriented tend to live below their means and spend frugally

Gamblers

Enjoy investing for the excitement of it tend to be very knowledgeable and involved Exhibit a highrisk tolerance

Innovators

Focused on leading-edge products and services sophisticated investors who like complex products tend to be technically savvy and highly educated

No matter the investor type it is all based on psychology what do you think is the value of something. Since it not backed by anything tangible it is what you are willing to pay for it.

What is “Real Wealth and what is an illusion ”?

Russell M. Randall an economist writes “Real Wealth” is ultimately that which all humans seek from an economic context, NOT MONEY! All fiat currency and debt securities are at best contracts to acquire Real Wealth. Real Wealth is exclusively Goods, Delivered services, Infrastructure, natural resources, and Human Capital. Recognizing natural resources as a given within any sovereign country, incremental Real Wealth can only be created from work (labor). One cannot WILL Real Wealth into existence! Businesses are a subset of the aggregate Real Wealth on earth, and are made up of Goods (including raw, work-in-process, and finished goods inventory), Capital stock (including the supporting utilities and building infrastructure, tools, equipment, and etc.), and the most important component Human Capital. Business Real Wealth in aggregate cannot increase without work (labor). Even Human Capital must receive training and education to increase Real Wealth for any business. Hence, when the total stock market rockets up (or down) by more than a snails’ pace, there is likely a complete disconnect between business Real Wealth and the stock pricing that the financial and political worlds would like you to believe reflects Real Wealth.

Value is always relative. If an investor values stock “A” more than stock “B” that he owns, he may bid on stock “A” forcing the price up, but stock “B” MUST come down when he sells it, otherwise the aggregate stock valuation (read price and market cap) becomes out of line with the real wealth make-up of the companies (capital stock, human capital, inventories, etc.). Certainly limited short-term market volatility is in order for the mechanics of the trading process to function. However, without the systemic central liquidity manipulation, the total market cap valuation increases would stay in line with the “snail’s pace” Real Wealth creation. Lot's of assumptions here, but hopefully you get the idea. Bottom line…. The stock market would only move up an average of 0.012% per day (1% population increase and 2% productivity increase divided by 250 days) assuming all businesses including gold-mining companies increase productivity at a 2% annual rate. Volatility would be massively reduced because humans controlling the expansion of credit would be on a very tight leash, since they would no longer have the power to create rampant liquidity illusions that find their way into our equity markets. Just imagine…. If we ditch our unfair and manipulated fiat currency charade, we might find those who capitalize upon the daily financial market volatility and the puffed-up financial world actually shift into industries that produce consumable, durable,

or capital goods. Many of America’s greatest minds would leave the liquidity manipulation world and enter the industrial world to enable our long-term global competitiveness.

Conclusion

Sudden market increases do not reflect an increase in Real Wealth; nor do sudden stock market decreases reduce Real Wealth. By converting to a fiat-money system in 1971 we have gradually enabled a complete disconnect between the Financial economy and the Real Economy. Anytime a politician or our central bank feels compelled to “do something” about the economy, the go-to course of action is to goose it with more liquidity. That process only exacerbates the imbalances and illusions that exist, and makes the inevitable return to stability that much more abrupt and painful. I expect the illusory assets to become exposed when Boomers all over the world begin leaving the work force in mass beginning 2008-2010. The Boomers then tasking (cashing in) the financial assets will force a re-pricing we have never experienced in the history of

the Republic. These dire warnings were predicted 2 years ago and look around today. So is pumping money into the economy going to work? I don’t think there are any options left. But I also know this it cannot go on forever-there needs to be a new way to fix our monetary system. History has told us this time and time again I just hope the next crash does not wipe out the whole financial global system.

References:

(1) An important point; work is NOT necessarily proportional to Real Wealth! More labor does not

necessarily yield more value, or real wealth. If I take twice as long to paint a room, the delivered service

of painting the room is no more valuable. The work element is simply always a condition required to

produce Real Wealth.

(2) See the www.mises.org web site for more details on the Austrian Economic Theory.

(3) President Richard Nixon abandoned the Bretton Woods quasi-gold backed currency standard agreement

in 1971. Ref: http://en.wikipedia.org/wiki/Bretton_Woods_system

The FED Becoming The World Central Banker

noreply@blogger.com (Group Boss) — Thu, 13 Nov 2008 21:11:00 +0000

Will the U.S. Fed become the world central Bank?

By Melvin J. Howard

The upcoming G20 summit meeting in Washington has got me thinking what will be on the menu? Will the talk be about the U.S. Fed being the world’s central banker? If there’re not the Fed sure is acting like one. In my humble opinion as I said before and I will say it again the US is nowhere near being done as a super economic powerhouse. Even with its deficits the currency is still the reserve status. "It is the U.S. that is being called upon to be the world central banker. Its already providing unlimited swap lines with Europe. Through the IMF funding emerging markets. Money isn’t just a tool for buying goods and services. Money is a communication device. It is used all the time to influence beliefs. Of the roughly $3 trillion of money moving around the world every day, only about 2% is used in the transaction of products and services. The rest, the bulk, is used in transactions where no products or services change hands! It is used in arbitrage, currency exchanges, politics, legal issues, agreements, control issues and so on. A lot of times, the most powerful movements and agreements about money are changed or maintained without your knowing. You would assume that you know about the most significant movements of money, but paradoxically those are the ones they keep secret. Another example would be the role of the dollar in the recent U.S. wars. Ever since the gold reserve was forever abandoned under President Nixon, all oil has been traded in U.S. dollars and the oil price has been in U.S. dollars. This made the U.S. dollar the world currency for energy trading worldwide. Although the U.S. freely prints U.S. dollars, other countries must give the U.S. their goods and services just to get dollars because many countries also have debts to the IMF, World Bank, and other countries, they also must get U.S. dollars to pay off their debts. So for debts and energy, all countries must get U.S. dollars from the U.S., in exchange for their goods. Before the Euro, the whole world was practically, hooked onto one currency the U.S. dollar. What does this mean in terms of dollars trade world trade?

It buys its imports at some of the cheapest prices, has veto powers in all world trade bodies, and dictates IMF and World Bank policies . Then came the Euro, the new universal currency of the European Union. Within a few years, the Euro started to become a competitor to the dollar in some areas. The dollar started losing its monopoly power in Sub-Saharan Africa, Middle East, former Soviet Union, and Central Asia. Then, Iraq became the first OPEC country to start selling oil in Euros instead of dollars. The U.S. dollar began to decline and the Euro gained 17% in value since that Iraqi decision. Then, Iran started to actively consider selling its oil in Euros instead of dollars. Because Iran is the second-largest OPEC oil producer, this would have dealt another blow to the dollar. But the U.S. Federal Reserve is still the governing authority at the center of global finance. It is the prime financial institution of the world's most powerful economy, overseeing the one global currency. But with the growth of capital markets, the rise of currencies like the euro and the emergence of China, the shift of wealth to Asia and the Persian Gulf. Our economies are connected like has never been before its time for a world Central Banker. I nominate me as its first Chairman but seriouly. The United States have swapped wons for greenbacks, allowing South Korean banks to fulfill local demand for U.S. dollars, which had been starved by the freeze-up in the inter-bank lending markets. Banks can then provide those greenbacks to their local customers to allow them to carry out international business.

The money you use to buy your groceries is part of the same money that makes up all the money in the world. It circulates in that same global ocean of money, just like a water drop is at some point part of the ocean and at another point a drop of rain, then a river, then a shower. The money you use is a tip of a very large iceberg that is mostly hidden from view. You can see the hidden part if you like, but you have to make the choice to look at it.. The money you earn and use possesses the same properties as the money used in the largest international activities (trade, control, politics, etc). You therefore gain much from looking at these big events, because they are reflected in your personal small events. In other words, if you look closely, you will notice that your personal life and the world’s life are closely matched. You will notice that the things you experience in your life are just micro versions, in a different form and context but same essence, of what is going on in the world. You will notice that, in ways you had never seen before, we are one we are entangled. The study of money is fascinating I am not talking about the pure vanity of having it to buy your bling and your new MTV crib. I am talking from a point like inflation and varying the amount of money in the system creates depression. By simply changing the amount of money in the economy, and the interest rate, one can move the economy around in any direction chosen. The principles of economics are clear and simple, and all it takes is to simply set the interest rate and adjust the amount of money in the system and one can move the economy as they wish. This is the power the Federal Reserve Bank has. The flight to U.S. treasuries has been overwhelming of which I predicted a while back. The swap lines give a stamp of approval to each country of their good financial faith in the U.S. but also sends a message to those left still trying to decide which way to go. "Being a friend of the U.S. still matters by the way I hear tale that President –Elect Obama might not attend the G20 summit in Washington. To me that would be a wasted meeting to go to if he is not there. It’s like going to a Jackson five concert and Michael Jackson didn’t show up I would demand a refund!

Will Academia and Finance ever eliminate risk in the Market?

noreply@blogger.com (Group Boss) — Fri, 07 Nov 2008 22:18:00 +0000

Physics and Finance

By Melvin J. Howard

Belal E. Baaquie put out a book by Cambridge University Press called Quantum Finance. This book applies the mathematics and concepts of quantum mechanics and quantum field theory to the modelling of interest rates and the theory of options. Particular emphasis is placed on path integrals and Hamiltonians. Financial mathematics is dominated by stochastic calculus. The present book offers a formulation that is completely independent of that approach. As such many results emerge from the ideas developed by the author. This work will be of interest to physicists and mathematicians working in the field of finance, to quantitative analysts in banks and finance firms and to practitioners in the field of fixed income securities and foreign exchange. The book can also be used as a graduate text for courses in financial physics and financial mathematics. Applies the formalism of quantum mechanics and quantum field theory to finance. Contains a detailed discussion on the empirical aspects of the forward rate curve and comparison of the field theory model with market data. Addresses many problems in finance that cannot be solved using other approaches.

Remember the Black-Scholes model their options theory. It goes something like this options are known to be divided into two types, the first type is called a call option and the second type is called a put option and these options are offered to stock holders in order to hedge their positions against risky fluctuations of the stock price. It is important to mention that due to fluctuations of the stock price, options can be found sometimes deep in the money, at the money and out of the money. A deep in the money option is described when the option's holder has a positive expected payoff, at the money option is when the option's holder has a zero expected payoff and an out of the money option is when the payoff is negative. It is also possible that hedging leaves society worse off than it would be if unhedged since it can make markets more volatile than they otherwise would be. The rescue of LTCM by a consortium of banks after its near failure in September 1998 indicates that there were real fears that the liquidation of its positions would threaten the entire financial system. Derivatives flourish in an environment when the ability to pay is optimistic, where the creditworthiness of the chain of issuers is not in doubt. Like in a bull market now flip to a bear market and everything starts to unravel.

Much of the early success of LTCM was a result of the credibility of Merton and Scholes, which attracted heavyweight investors, lenders and trading partners to the firm, and their ideas, which provided potentially profitable trading opportunities. But for all the brilliance of their theory, it was based on 'expected volatility', which implicitly assumes that history repeats itself, that the future movements of asset prices will mirror their past movements. Unexpected events in the real world such the case, of Russia's debt default was not calculated. That’s life soon as you think you’ve got it figured out it changes on you.

Indeed, all the models that are being used for risk control and to buy assets on the basis of historical movements and small increments using extraordinary leverage must be challenged. Now that Academia and Finance have got together each working on a better theory for financial engineering. Who knows which ones to pick the problem is you don’t know if you are winning or losing until it’s to late hence LTCM. Now get ready for the next new chapter of post crash regulations.

Witness Barnard's Act of 1734. It sought "to prevent the infamous practice of stock-jobbing" that had peaked and exploded with the South Sea Bubble of 1720. Investors had long since fled Change Alley, however, and gone back to trading government bonds instead. Then came 1934, and the Securities Exchange Act tried to protect US investors from the Great Crash of five years before. It guaranteed liquidity to investors who were already broke. And in 2002, Sarbannes-Oxley set new standards for US corporate accounting, stock options and boardroom ethics. Enron and Worldcom could never happen again, not least because they had already happened. By the time Ebbers and Lay were trying to raise bail, Wall Street and the City had already moved on, massing asset-backed bonds and deploying collateralized debt obligations. Production of interest-rate swaps went into over-drive, and crack squads of investment bankers began planning leveraged buy-out deals.

Financial science is just as complex as theoretical physics, based on the fact that "energy is not continuous but comes in small and discrete units," as one definition puts it. "The movement of these particles is inherently random. It is physically impossible to know both the position and the momentum of a particle at the same time...[and] the atomic world is nothing like the world we live in." Just like today's financial markets, in other words – a random, unknowable and unreal world of atom-sized yields.*

Quantum Finance – the science of making money appear out of nowhere – is too complex for all but the very brightest to grasp. Yet it underpins the entire financial universe today. The very fabric of money, mortgages and markets has come to rely on concepts not even the sales desks can follow. And Quantum Finance in its higher forms remains unregulated of course, which is just as it should be. For by the time the SEC and FSA get round to hiring the PhDs they need to make sense of the mess, the smart money will have already moved on, selling out as their Lear Jets get cleared for take-off. What about the dumb money, you may wonder? Well, if you can't spot the patsy, then it must be you. So what’s next step between this rash of new regulations and the next bubble(s) to explode. What are you to do? Lets look at the bubble that got us here.

"The number of [corporate] defaults will rise even in the absence of an economic downturn or interest rate increases," Fitch Ratings say there's also trouble ahead in emerging markets. "With the carry trade fuelled by ample global liquidity and record financial market flows to emerging markets," it said this week, "big shifts in interest rate expectations and a further weakening of the US dollar would test those emerging markets with fragile policy credibility and large external and fiscal financing needs."

But perhaps the AAA-rated bond market will implode first. Bill Gross, head of Pimco, says we've reached a peak in making money from nowhere. Leverage on complex bond trades simply cannot get any higher, he believes, citing "a new derivative credit product retailed to institutional buyers under the sticker known as a CPDO or 'constant proportion debt obligation'." "These multibillion-dollar instruments lever investment grade indices up to 15 times the amount invested," says Gross, "and offer or have offered a spread of 200 basis points over LIBOR with a AAA rating. Hard to pass up I suppose...

"But this AAA rating is subject to numerous (more numerous than usual) subjective assumptions," he goes on. "Increasing multiples of leverage beyond 15x near current yield spreads cannot maintain either a AAA rating and/or the 200 basis points in yield spread that have made this derivative so attractive...The increasing use of leverage, in other words, at least as applied to this particular area, appears to have run out of its magical ability to increase returns." The problem is one of momentum. For if leveraging cannot increase, then it's apt to shrink back, rather than stick. And the most likely cause of leverage recoiling, if all previous bubbles are a guide, will come with a bang, not a whimper.

Then there's the asset-backed bond market, most especially mortgage-backed securities (MBS). This draws the heavy-gun shelling away from Manhattan and onto consumers – first in the way their home loans are funded, and then in the investments made by their pension and insurance fund managers.The United States had $6.2 trillion in these mortgage-backed securities (MBS) at last count, nearly a quarter of the entire US bond market and 50% larger than the US government's own Treasury debt issue. Appetite amongst professional investors in Europe was so great; Sampo and ABN both flooded their MBS into the market in the very same week last year. Britain was late to the party, but it got $9.4bn from one lender plus another $15bn from HSBC, the world's third largest bank.

You have to remember why banks were doing this. Selling a bond backed by mortgage debt means the banks can lend that much money again, doubling their assets per Dollar of deposits. In Britain alone, this little scheme helped the major banks lend nearly $1 trillion more than they took in from savers between 2002 and 2005. Money from nowhere means money for nothing, and the banks have always loved that!

But "mortgage-related debt differs from most other categories of debt," notes a 2003 paper for the US Federal Reserve, "in that it is subject to the risk of prepayment." You might think the risk of early repayment hardly worth fretting about. Not compared with, say, the risk of never getting your money back at all. But when interest rates slip, homeowners refinance. So the MBS backed by the first loan now gets repaid...and that leaves MBS buyers holding cash instead of income.

So what do pension fund manager do for yield? Buy bonds of course, preferably long-dated Treasuries...thus pushing all bond prices higher...sending bond yields lower...and causing more mortgage re-fi that then repays more MBS!

"The market rallies, mortgages prepay, and all of a sudden people have to buy," says one MBS strategist. "It can turn into something that snowballs and causes the [bond] market to rally for a significant period of time."

The MBS market seeps into the wider financial universe via another leaky pipe, too. "When mortgages, or other debt instruments, are chopped up for securitisation," explains John Dizard in the Financial Times, "the more risky slices may go to high yield mutual funds and people who think they're sophisticated investors. The 'residual risk', 'first loss' or 'equity' slices go either to hedge funds or are retained by the dealers or banks who package the securitisations." These dealers and banks don't use the Treasury market to offset the prepayment risk of MBS bonds, says Dizard. They go instead to the market for interest-rate swaps, where they can exchange one stream of income for another stream of yield, tweaking their earnings without selling their assets. As of June, interest-rate swaps – in nominal outstanding value – were worth $65 trillion.

"It's big, invisible plumbing," says Dizard, "like water mains, of little interest most of the time until there's a gurgling and nothing comes out of the pipe." A gulp of air glugged out of the pipe at the start of this month. On Dec.7, the day that sub-prime US mortgage lender Ownit went bust, the spread on 10-year interest-rate swaps in the Dollar jumped 2.5 basis points. That might not sound like a lot, but it's five times the market's standard deviation. "A five standard deviation move in the Dow Jones Industrial Average would be a decline of 350 points," Dizard points out, "or a 40-point drop in the S&P500. That would have got your attention."

Remember, the interest-rate swaps market is worth 5 times the United States' annual economy. And maybe those cheap swaps between bankers – their little-seen deals that pump credit from the mortgage market into the bond market into the profits of banks, insurance managers and hedge funds – are gone.

The money's got to go somewhere, remember. Professional investors abhor cash. But "there are not enough quality assets to go round, so what do you do? Hold on a new US President was elected. He now has to appoint his new administration. That should give us some indication on some of the fiscal policies coming down. So what can you count on between Academia and Finance you can count on this they will all have different theories? Einstein worked 30 years of his life trying to find the theory of everything. He did not find it but I am sure it’s out there it might take another 30 or more years. Until they come up with the theory of everything you are going to have to do your own homework.

Built In America

noreply@blogger.com (Group Boss) — Wed, 05 Nov 2008 19:38:00 +0000

Proud to be an American

By Melvin J. Howard

It is a historic day for America congratulations to President-elect Obama. In the words of Senator John McCain this is especially an emotional day for African Americans. Not since martin luther king Jr. has someone inspired change for so many. This shows the world that America can over come great obstacles to unite under one flag for all. In Martin Luther King Jr. famous I have a dream speech his dream was that his four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character. His dream was one day right there in Alabama little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers. And this will be the day -- this will be the day when all of God's children will be able to sing with new meaning:

My country 'tis of thee, sweet land of liberty, of thee I sing.

Land where my fathers died, land of the Pilgrim's pride,

From every mountainside, let freedom ring!

And if America is to be a great nation, this must become true.

And when this happens, when we allow freedom ring, when we let it ring from every village and every hamlet, from every state and every city, we will be able to speed up that day when all of God's children, black men and white men, Jews and Gentiles, Protestants and Catholics, will be able to join hands and sing in the words of the old Negro spiritual:

Free at last! Free at last!

Thank God Almighty, we are free at last!

I will leave it to the political pundits to debate what kind of administration President Obama will run and polices he will push. Heck I might not even agree with some of them after all I am a capitalist. But putting that all a side I am proud to be an American as a nation we have come that much closer to Martin Luther King Jr. I have a dream.

The Case For Capitalism

noreply@blogger.com (Group Boss) — Thu, 30 Oct 2008 20:49:00 +0000

Capitalism and Wealth

By Melvin J. Howard

Since the global financial meltdown I have been reading a lot lately that capitalism is dead and that socialism is the way to go have we all gone nuts! The socialist are bloating see I told you this would happen that’s funny some capitalist were saying the same thing. Listen just because somebody was asleep at the wheel of regulation does not mean capitalism does not work. When a plane or boat crashes we don’t say well lets go back to the horse and buggy days because it did not work. Up until a few centuries ago, the main sources of wealth were mines, slaves and serfs, land, and cattle, and the only ways to acquire these rapidly were by inheritance, marriage, conquest, or confiscation. Naturally wealth had a bad reputation.Two things changed. The first was the rule of law. For most of the world's history, if you did somehow accumulate a fortune, the ruler or his henchmen would find a way to steal it. But in medieval Europe something new happened. A new class of merchants and manufacturers began to sprout up. Together they were able to withstand the pressure from the local king or Mayor. So for the first time in history, the bullies stopped stealing the merchant and manufacturers wares and goods. This was naturally a great incentive, and possibly indeed the main cause of the second big change, industrialization. The Industrial Revolution was born part of the success of that era was. Conditions were made that people who made fortunes be able to enjoy them in peace. One piece of evidence is what happened to countries that tried to return to the old model, like the Soviet Union, and to a lesser extent Britain under the labor governments of the 1960s and early 1970s. Take away the incentive of wealth, and technical innovation grinds to a halt. Starting your own company is, economically: a way of saying, I want to work faster, smarter and harder. Instead of accumulating money slowly by being paid a regular wage for fifty years, I want to get it over with as soon as possible. So governments that forbid you to accumulate wealth and tax you toward the heavy side are in effect decreeing that you work slowly. They're willing to let you earn $3 million over fifty years, but they're not willing to let you work so hard that you can do it in two. They are like the corporate boss that you can't go to and say, I want to work ten times as hard, so please pay me ten times a much. Except this is not a boss you can escape by starting your own company. America is one of the leading technological countries in the world. Microsoft, Oracle, Apple well you get the jist. The problem with working slowly is not just that technical innovation happens slowly. It's that it tends not to happen at all. It's only when you're deliberately looking for hard problems, as a way to use speed to the greatest advantage, which you take on this kind of project. Developing new technology is a long drawn out process. It is, as Edison said, one percent inspiration and ninety-nine percent perspiration. Without the incentive of wealth, no one wants to do it.

Since it became possible to get rich by creating wealth, everyone who has done it has used essentially the same recipe: measurement and leverage, where measurement comes from working with a small group, and leverage from developing new techniques. The recipe was the same in Florence in 1200 as it is today. Understanding this may help to answer an important question: why Europe grew so powerful back then. Was it something about the geography of Europe? Was it that Europeans are somehow racially superior no, was it their religion no. The answer may be that the Europeans came upon a powerful new idea: allowing those who made a lot of money to keep it! Wow what a concept who would have thought.Once you're allowed to do that, people who want to get rich can do it by generating wealth instead of stealing it. The resulting technological growth translates not only into wealth but into military power.

The theory that led to the stealth plane was developed by a Soviet mathematician. But because the Soviet Union didn't have a computer industry, it remained for them a theory; they didn't have hardware capable of executing the calculations fast enough to design an actual airplane. In that respect the Cold War teaches the same lesson as World War II and, for that matter, most wars in recent history. Don't let politicians and special interest squash the entrepreneurs and capitalism. The same recipe that makes individuals rich makes countries powerful. Let the founders of companies and the nerds that create new technology keep their lunch money, and you rule the world. A company will be maximally profitable when each employee is paid in proportion to the wealth they generate.

That brings me to another observation people tend to take advantage of public resources in socialist environments. I am not saying that it does not happen in capitalist societies as well. But in Socialist societies you get a sense of entitlement that you don’t get in capitalist societies. Like oh don’t worry about it the Government will pay for it. I observed this close up when I saw an individual play with the government run health care system. The person on four separate occasions called 911 for medical emergencies in each occasion alcohol was involved. Each occasion fire trucks and ambulance arrived at the residence. Each time the person never stayed long enough for the doctor so they could be examined. They just took off into the night only to be repeated 3 more times. The cause of all this turmoil trying to get the attention of another person involved a relationship breakup. The person laughed it off each time I on the other hand was outraged tying up precious medical resources. That could have resulted in fatal consequences for someone else who actually needed it. I have seen this happen time and time again not just in health care but other areas as well. It is just a common fact that some members of society are going to work harder and longer then other people. Heck there are some that don’t want to work at all. Should we penalize the ones who worked longer, harder and smarter?

My mother who was my prime example of working hard in America was no victim. She went into the world and kicked butt I started my first job at 12 because we had to father was just not around both physically and financially. You get a sense early on in life that nothing is going to be given to you. You have to work for it not matter how tough it gets get back up. It’s a lesson that is embedded into me that’s why I laugh at questionnaires that ask me when do you plan on retiring I just laugh. Retire I might slow down retire never.

Now there are many senses of the word "wealth," not all of them material. I'm not trying to debate which is the true kind. This site is dedicated about one specific, rather technical sense of the word "wealth." What people will give you money for. This is an interesting sort of wealth to study, because it is the kind that prevents you from starving. And what people will give you money for depends on them, not you .It is probably no accident that the middle class first appeared in northern Italy and the low countries, where there were no strong central governments. These two regions were the richest of their time and became the twin centers from which Renaissance civilization shined. If they no longer play that role, it is because other places, like the United States, have been truer to the principles they discovered CAPATILAISM.

The Matrix of debt you take the blue pill, the story ends and you wake up believing whatever you want to believe. You take the red well?

noreply@blogger.com (Group Boss) — Fri, 24 Oct 2008 01:15:00 +0000

What pill would you take?

By Melvin J. Howard

The Treasury Department, for the first time in its history, is selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.

“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”

Normally, the Fed issues Federal Reserve Notes for U.S. bonds (the federal government’s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, the government is issuing bonds, not for its own use, but for the use of the Fed. Maybe the plan is to swap them with the banks’ junky collateral directly, without actually putting them up for sale to outside buyers. As stated in its press release dated March 11, 2008.

Federal Reserve Actions

The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.

In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.

The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.

“To switch debt that is less liquid for U.S. government securities that are easily tradable” means that the government gets the banks’ toxic debt, and the banks get the government’s triple-A securities. Unlike the risky MBS debt, federal securities are considered “risk-free” for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans.

But here is something more interesting October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. As reported by Reuters: “The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank. To put it simply if the Fed’s money comes ultimately from the taxpayers, that means the taxpayers are paying interest to the banks on the banks’ own reserves – reserves. Now where does that money go? Let’s take a look how the Treasury and the Fed interact with each other. 1) What role does the Treasury Department play? - It is the role of the Treasury to make sure that the U.S. government has enough money to fund the obligations of the U.S. government. Whether the government is running a fiscal surplus or deficit, it is their responsibility to determine how much money should be raised and when. It is also their responsibility to determine what the maturities of this debt should be. The amount of each offering is set by the amount of debt maturing (thus requiring refinancing) as well as any additional debt that may be needed above and beyond that (i.e. to fund that year's deficit). If you check, this is done thru weekly Treasury bill auctions, quarterly refundings and other periodic treasury auctions such as the monthly two-year note. Treasury does not conduct these auctions. The Federal Reserve Bank of New York thru their network of recognized government securities dealers conducts them. The important thing to note here - these Treasury financings has absolutely no impact on the money supply. They simply determine how much Treasury debt is outstanding (i.e. the national debt). (2) What role does the Federal Reserve play - Besides facilitating the Treasury's effort to fund the operations of the government, the FED is charged (along with many other things) with determining how much money is in the system. So how does the FED expand or contract the money supply. To create more money they buy a Treasury bill, note, or bond from one of the recognized government securities dealers (i.e. $1MM treasury security goes to FED, $1MM is released into the system as payment). It’ the money creation/contraction (that can be raised or lowered at will by the FED simply by buying or selling treasury or GSE agency securities), that then gets circulated throughout the financial system.

The National Debt now exceeds $9.2 trillion dollars. In FiscalYear 2006 the U.S. Government spent $406 billion on interest payments alone to holders of that debt. Why so big a debt? Because Government spends far more then it receives in revenue. In 2007 the US government paid roughly $430 billion in interest to pay for money borrowed to finance previous deficits. Each year it keeps getting rolled over the cycle continues. So how does it do this year after year without the financial world coming crumbling down?

Here is how for example, the government runs a $400 billion dollar deficit. The Treasury Department has to sell $400 billion in US Treasury bills, bonds and notes (government IOUs) to buyers at a rate of interest sufficient to attract their money (and beat the interest competition of other banks’ CDs and other governments’ bills, bonds and notes). To avoid a credit squeeze, the Federal Reserve System Open Market Committee in Washington directs the NY Federal Reserve Bank to purchase roughly 10% of that total (or $40 billion) in existing US bills, bonds, and notes from the current holders. To pay for them it creates the $40 billion out of computer entries. Now this new $40 billion is deposited into the banks of the various bill, bond, and note sellers, thereby increasing the reserves of those banks by $40 billion still with me? Pursuant to the Federal Reserve Act of 1913 those banks must keep only 10% of those new deposits on "reserve." (Because these banks do not have to keep 100% on reserve, this banking system is called a “fractional reserve” system.). So of the $40 billion deposited, the banks must keep 10% on reserve ($4 billion) and may loan out $36 billion (90%), for business loans, mortgages, credit card loans, to purchase government bonds - for whatever borrowers want. Those loans (and payments) are in turn deposited in banks. So of the $36 billion loaned out and then re-deposited, the banks receiving the new deposits can then loan out 90% or $32.4 billion, retaining 10% or $3.6 billion as reserves. Then wash and repeat the same process every year.

Now that the housing market is dead, can the Fed resurrect it? Hopefully lower interest rates and tax breaks would help. But already so many Americans are bankrupt, or unemployed, or broke, that they simply cannot qualify for or afford any loans, house, or even, increasingly, a rental. There is talk of a recession once it has been halted - if it can be - the Fed will have to raise interest rates, rather quickly, to avoid severe inflation caused by the deficit. Hence the boom-bust “cycles how long can the current monetary system last like this? I don’t know but a debt monetary system supported by debt has a finite life span its not forever. America is the last remaining super power but it is drowning in the same debt that has encompassed the rest of the world. The events of this year exposed the flaw in the system the money supply was cut off people lost confidence in the dollar. What happened as a result, stocks declined in value some almost by 50%. Corporate bonds were defaulting. Loss of confidence caused a flight of capital from U.S. government securities. Real estate prices plummeted the U.S. dollar has lose some of its purchasing power all we need now is inflation to rear its ugly head.

When I was a kid in college I did not think too much about the economy or how it worked. Long as I had beer money and my car, my girlfriend things were pretty good. I was pretty much oblivious to how the financial system really effects everyone life. That changed when I watched certain businesses go from tremendous growth to bankruptcy. Stock markets that would go up, up and up then crash in short periods. Wealth evaporated overnight I just could not figure that out but I wanted to. So just like in the film the Matrix, Morpheus who by the way is (named after the Greek god of dreams and sleep). Asked Neo here are two pills. The red pill will answer the question "what is the Matrix?" (by removing him from it) and the blue pill simply for life to carry on as before (not knowing anything more). As Neo reaches for the red pill Morpheus warns Neo "Remember, all I'm offering is the truth. Nothing more." I often as myself if I was in the same situation what would I do? About 90% of the population thinks that life is just the way it is and don’t want to learn anything else. Then I guess the blue pill is for them. But for and the other 10% of the population we want to know the meaning of everything so I would have taken the red pill. So the question I leave with you is this what pill would you take if you really wanted to know how the banking system works? You take the blue pill, the story ends and you wake up believing whatever you want to believe. You take the red pill, you stay in wonderland and I show you just how deep the rabbit hole goes!

My Commander-In-Chief

noreply@blogger.com (Group Boss) — Mon, 20 Oct 2008 00:46:00 +0000

What do I want in my Commander-in-chief

By Melvin J. Howard

Wikipedia says a commander-in-chief is the commander of a nation's military forces or significant element of those forces. In the latter case, the force element may be defined as those forces within a particular region or those forces which are associated by function. As a practical term it refers to the military competencies that reside in a nation-state's executive, head of state or government. Often, a given country's commander-in-chief need not be or have been a commissioned officer or even a veteran, and it is by this legal statute that civilian control of the military is realized in states where it is constitutionally required.

The term "commander-in-chief" derives from the Latin imperator. Imperatores (commanders-in-chief) of the Roman Republic and Roman Empire possessed imperium (command) powers. In its modern usage, the term was first used by King Charles I of England in 1639. A nation's head of state usually holds the position of national commander-in-chief, even if effective executive power is held by a separate head of government. Colonial governors are also often appointed commander-in-chief of the military forces in their colonies. in-Chief Allied Forces North, Commander-in-Chief East Atlantic, etc.

Commanders-in-Chief is sometimes referred to as Supreme Commander, which is sometimes used as a specific term. The term is also used for military officers who hold such power and authority, not always through dictatorship, and as a subordinate (usually) to a head of state. The term is also used for officers that hold authority over individual branches or within a theatre of operations.

I am going to tell you two of my all time favourites Presidents have been Ronald Reagan and Bill Clinton . Probably because I just got interested in politics when Ronald Reagan became President. Also I use to watch him in those old movies so I already was a fan. When Ronald Reagan won the Republican Presidential nomination in 1980. Voters troubled by inflation and by the year-long confinement of Americans in Iran swept the Republican ticket into office. Reagan won 489 electoral votes to 49 for President Jimmy Carter. Dealing skilfully with Congress, Reagan obtained legislation to stimulate economic growth, curb inflation, increase employment, and strengthen national defence. He embarked upon a course of cutting taxes and Government expenditures, refusing to deviate from it when the strengthening of defence forces led to a large deficit. In 1986 Reagan obtained an overhaul of the income tax code, which eliminated many deductions and exempted millions of people with low incomes. At the end of his administration, the Nation was enjoying its longest recorded period of peacetime prosperity without recession or depression.

When Ronald got on TV he was convincing, reassuring and smooth. He could have said my fellow Americans in order to cut down on the dog poop in the parks we are all going to have to with our hands grab a handful and put it in the trash bins ourselves. Hey wait a minute don’t we already do that see how smooth he was? Ronny I did not always agree with your polices but man you look good saying it. My second pick is William J. Clinton now there is no President like Bill Clinton. After a tough primary campaign, Bill Clinton won his party’s nomination and went on to defeat Republican President George Bush, and independent candidate Ross Perot in the 1992 presidential race. When President Clinton won re-election in 1996, he became the first Democrat since Franklin D. Roosevelt to win a second term. Following the early failure of his health care reform initiative, President Clinton pursued a moderate but progressive domestic agenda. During his tenure, the welfare system was reformed, the sale of handguns was restricted, environmental regulations were strengthened, and a massive federal budget deficit was turned into a surplus. On the international scene, the Clinton Administration expanded international trade, intervened militarily to end “ethnic cleansing” in Bosnia, launched peace and trade initiatives in Africa and the Middle East, and promoted a framework for peace aimed at ending the strife in Northern Ireland. Regardless of all that other personal stuff Clinton was a good President. When Clinton took the podium you had to sit there and watch your wife drool. But you didn’t care because you had a man crush on him to. I don’t know about you but I like my leader to have a little something extra.

Call it personality, charisma, or just darn good communication skills. I don’t want my Commander in Chief to be stiff cut out of cardboard. When someone is elected to the office of the President of the United States of American you want to take pride that your President can hold his own in any situation. Well I see the same traits in Senator Obama I have watched his character under fire his name being slandered. Yet he did not yield to doing the same in return. A very intelligent and well studied person that won’t crack under pressure. A leader that will roll up his shirt sleeves and get into the dirt with you. It is a new world and new leadership is what’s needed. Race should have nothing to do with who is the better person to do the job. Indeed when I am sitting around the Boardroom table no one is saying well let’s see. Bob I liked your idea but I am not going to use it because you wore yellow today and you know how much I hate yellow. We don’t care where the idea came from we want results so Bob get your ass in there and go to work case closed.

Howard Capital Managment Starts New Fund

noreply@blogger.com (Group Boss) — Wed, 15 Oct 2008 19:51:00 +0000

Howard Capital Management starts American Sentry Capital Fund. The objective of the fund is to seek opportunities of the $700 Billion Dollar Bail Out plan that was recently signed into law. Or known as the Emergency Economic Stabilization Act of 2008.

http://sites.google.com/site/thehowardgroupagenda

Hello Secretary Paulson may I be of some Assistance with a capital "A"

noreply@blogger.com (Group Boss) — Sun, 12 Oct 2008 19:40:00 +0000

Hello Mr. Treasury Secretary I must say you look very dapper today, oh buy the way I like to put in my bid now!

By Melvin J. Howard

When fear is in the market someone always makes money this time selfishly I want to be one of them. The open-ended government bailout of Wall Street has set off a frenzied competition among the biggest banks and financial firms to grab big profits to be reaped from the program. Banks, brokerage houses, insurance firms, mortgage lenders, private equity companies and asset managers are lobbying the Bush administration and Congress to make sure that the legislation authorizing the bailout gives them the biggest possible share of the pot of gold. “Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions not even me!” There are still some key questions I have to ask which institutions will be covered by the plan; what kinds of assets will the government buy; how much will it pay; how will the assets be valued that are shoved off to the government; which financial firms will get the franchise to manage the program and thereby cash in on fees and the eventual resale of the assets? The big winners of the bailout plan the financial companies that will be hired by the government to manage the plan. There could be over $1.5 billion a year in fees. There is one serious problem can anybody say “conflicts of interest”. I am not sure how the Government will be able to prevent it. Some of these financial firms and executives that are bidding created the mess in the first place. Will the public make a profit they could if the government purchased the MBS’s mortgage back securities at below their theoretical values. But I don’t see that happening the way the plan is drawn now. If they are purchased above their theoretical values, which to me make no sense how, are you going to attract private bidders? The clear winner in all this will be the US Treasury they could net over 2 Trillion Dollars for their $700 Billion don’t be fooled United States Treasuries are still in demand. Lets say what this really is a costly recapitalization of the banking system. The losses purchased are going to be guaranteed i.e. equity infusion into the system.

If you really want to revitalize the financial system bring back securitization it’s all but dried up. This market worked well for decades. Don’t throw the baby out with the bath water.

Even with the bailout program it will not address the long-term problem of liquidity of the credit markets the main source of funds for the global financial system. Until then I am lobbying the the Goverment for a piece of the $700 Billion Dollar American Dream!