Making MOney

News item, Nov. 4, 2011, LSJ
"The government provided American International Group with $182 billion at the height of the 2008 financial crisis. Treasury has recouped $18 billion of the 268 billion it provided the company through the government's Troubled Asset Relief Program. The rest of the money came from the Federal Reserve."

And where did the Fed get the money? It made it by writing numbers after the account of AIG at the Fed. Apparently, it never occurs to the FED to do the same for underwater home mortgage holders! This is why people are participating in "Occupy Wall Street" and similar protests across the country.

AIG was a profitable insurance company before it gambled on derivitives based on sub-prime mortagages. AIG got bailed out from its folly, but not the common Joe home owner who is now in the street. This is the basis for the protest signs referring to the 99%.

Central Bank History

I have been advocating that the Fed should make loans to the Treasury to finance public intrastructure and consumer spending. If you think this is completely crazy, keep in mind what has actually happened. During the height of the recent financial crisis in 2007, the Fed loaned a German bank $350 million and Citigroup, JP Morgan, Bank of America, and Wachovia each $500 million. All this and more was done to keep the banks solvent so they could make loans to business.

None of this cost the American taxpayer a dime. The Fed was doing what any bank does everyday for its commercial customers, creating money by making loans. Security? The banks pledged various assets including residential mortgages that no one knew exactlly what they were worth. What could the US Treasury use for security? Why not the human capital assets of the nation? This would allow the Treasury to finance such local gvernment investments as teachers instead of laying them off. This makes too much sense and therefore probably won't be done!

For more, read William Krehm at

The Great Casino

"Many investors have bet against Greece, using billions of dollars in complex financial instruments, called derivatives, that turn a profit when there is a debt default." NYT Oct 28, 2011
This is immoral and absurd. No one should be able get rich betting against a sovereign nation.

Underwater Countries

Angela Merkel and the EU countries have forced the holders of Greek debt to accept 50% losses--called a haircut, in exchange for guaranteeing a bailout fund. There is no reason that the German and French taxpayes have to finance this fund. The European Central Bank still refuses to act like a bank and make loans to banks.
I doubt if the bailout fund will be sufficient to cover Greek bonds let alone Italy that owes $2.7 trillion or 120 percent of its GDP. If the central banks does not step up there will be chaos.

Underwater Mortgages

The ratio of total mortgage debt to property value:
Las Vegas 119%
Orlando 100
Phoenix 97
People have begun to stop outmigration from New York, Massachsetts, and Michigan to these supposed paradises. I guesss they have decided that snow is not so bad after all.

Karl Case estimates that the decline in home prices from 2005 to 2009 caused consumer spending to be $240 billion in 2010 than it would have been. This kind of decrease in the value of a major asset can not be absorbed by individuals or banks. Both need to start over. After all, this is an accounting problem and we could change the banking rules for banks that write off the decline and refinance their mortages.

Consequences of Burst Real Estate Bubble

A local government official in Livingston County, Michigan reports that the local government is stuck with the bill for water and sewer installation after the real estate developer went bust. The local government exercised its tax lein and put the land up for auction. Since prospects for development are slim and there are few buyers, a parcel may sell for $50. Under Michigan law, the developer may later buy it back for the auction price. If housing demand picks up, the delinquent developer makes out like a bandit. If not, the developer is only out $50.

The "Occupy Wall Street" people probably don't know these details, but they know the sstem is rigged in favr of the rich and they are mad as hell.

Selective Perception

What do you see when you look at the "Occupy Wall Street" participants? If you enjoy the status quo economy you probably see the trash they accumulate. If you prefer change, you probably see courageous people willing to scacrifice their comfort for a cause benefiting many.
It's called selective perception!