“When Wall Street talks about the “failure” of a bank or other financial institution it means the failure of the company to pay off its own bondholders. It does not mean that depositors, counterparties or other bank customers lose money. A bank is essentially a big portfolio of assets, about 70% which are typically financed by depositors, customers and other liabilities, about 20% by the bank’s own bondholders, and about 10% with the capital of the bank’s stockholders. In a typical bank “failure,” the bank is taken into receivership by regulators, the liabilities to stockholders and bondholders are cut away, the remaining package of assets and liabilities is sold as a single entity to some other firm, the old bondholders get the proceeds of that sale, and the stockholders are wiped out. When investors willingly take a risk, and buy the stocks and bonds issued by an institution that goes on to mismanage its business, this is the appropriate outcome. Depositors and customers typically don’t lose a penny”

“If public funds are provided during a financial crisis, and it cannot be clearly demonstrated that the institution is solvent, the funds should be provided post-failure, as senior loans to a restructured institution where shareholders and existing bondholders have already been subject to losses. The interest rate should be relatively high, to encourage replacement of public funds with private ones. With few exceptions, when public funds are used to avoid major restructuring and shield private investors from losses, the result is almost inevitably a larger, less transparent, and more recklessly managed institution.”

“The same is true for government or “sovereign” debt. When Wall Street talks about “failure” of Greece, for example, it means failure of Greece to pay off its own bondholders. In trying to avoid this failure, Greece is instead forced to impose extreme austerity and depression on its citizens. From the standpoint of those citizens, Greece has already failed them painfully. Those are the choices – let bad debt “fail” or force depression on innocent citizens.”

“In 2008, the Federal Reserve created a set of off-balance sheet shell companies called “Maiden Lane” to buy undesirable long-term assets of Bear Stearns and other financial companies, justifying the purchases by appealing to Section 13.3 of the Federal Reserve Act. But if you actually read Section 13, it is clear that under the law, “discounting” means (as it has always meant) providing short-term liquidity by essentially providing a check-cashing service for obligations that are short-dated, well-collateralized, and promptly collectible. The Fed’s creation of the Maiden Lane companies to purchase bad assets was, and remains, illegal under the language and intent of the Federal Reserve Act.”

50% Contraction in the Fed’s Balance Sheet This is a great article on the Federal Reserve and it’s actions regarding interest rates and Treasuries. It’s a bit of a tough read, but if you can get through it and understand it, I think you will gain tremendous understanding of our current economic regulatory motivations and hurdles.

Handicapping QE3 This one has an in depth look at the results of the previous rounds of Quantitative Easing, and the likely timing and effects of a third round.

For the rest of his analysis, check out the full list of Weekly Market Comments here.

Those of you with facebook accounts have no doubt seen one or the other, possibly even both, of the above and below images (the one below had the caption Dare to be Stupid, Click LIKE & SHARE if people calling for “zero taxes” shouldn’t be using public streets and sidewalks .

The former is an Occupy Wall Street protest. I think there is a bit of validity in the picture in the sense that while government has a monopoly on force, you are allowed to avoid using the products of corporations you don’t approve of in order to vote with your wallet to change their policy. Even so, the Occupy Wall Street message, while vague, seems to be one directed at general wealth disparity of management, rather than opposition to any given company or product.

The latter is a Tea Party protest, with the implication that people shouldn’t be allowed to protest their government in public. These people paid for the things around them, regardless of whether they wanted to. While signs like “CUT TAXES NOT DEFENSE” are hard to defend in our current budget, the post is centered more on the validity of protesting, rather than the flawed message. The first Amendment clearly gives them the right to assemble and redress their grievances, and unlike OWS, they are on public property rather than private.

Both of these posts have tens of thousands of likes and shares. They are unhelpful. They lack substance. They serve only to increase partisan divides through snarky peer pressure.

These two political movements should be embracing each other. They both find their main opposition not in each other, but in the status quo. Ron Paul recently made the point that compromise is when you give up half of your beliefs. He said we need to be finding common ground with others issue by issue, rather than picking one of the two parties and sticking with it blindly. What do they agree on? That those in power are abusing it, that there is too much money in politics, and that the system is broken beyond the point where working within the established system will fix it.

They are both decentralized movements, which is both a strength and a weakness. Those in power (the combination of the two parties and their joint corporate masters) are ridiculing both sides on the airwaves. Photos like those above are shown as if they represent the views of the entire movement. On the other hand, without centralized structure, they are able to pull together a group of people who don’t agree on everything, without forcing any of them to compromise their beliefs. They are a hydra, much like many of the decentralized militant groups around the world. It’s hard to kill something that has no vital organs. And for each, the existence of the other alleviates that which has plagued every third party that has tried to spring up: the kingmaker excuses. If only one of these movements were to exist, the main party on the other side of the spectrum would get an easy win due to the split vote. If they are both strong, the two party system is out of excuses.

Stewart had him on again more recently. Below is the third part of the interview. The first two parts are there too, but were of less substance. Ron Paul needs to get better at explaining his positions to liberals. It isn’t that he wants to destroy all social programs and safety nets, he is just trying to get them back to a more local level.

There was also this interview on FOX, where he talks about working with the Democrats, and how compromise in the modern political sense is where you give up half of your beliefs. He instead is willing wo choose his allies issue by issue, and find common ground rather than concessions.

Ron Paul makes quite a campaign commercial.  It’s interesting to see a candidate for president run on a platform of consistency, honesty, peace, liberty, and sincerity, and not have a single one of his opponents question his credentials on any of it. He faces only two obstacles: A corporate financed media who censors his victories, and a fear that a reduction in federal power would bring back the dark ages.

I urge my readers to help with these two hurdles.

On the issue of electability: If he wins the primary, Republicans will vote for him rather than Obama. Those supporters of Obama who are primarily anti-war will come around as well, since Ron Paul has far more credibility on the issue.

On federal power: Much of the power of the federal government is recent. For example, I see people recoil when they hear he wants to do away with the Department of Education, as if doing so would put us into a situation where all the schools closed and children never learned to read. The Department of Education was created in 1979. If you went to school after that, do you think you got a better education than your parents? Taking the power over education from the teachers and communities and putting into the hands of federal policy makers has taken the substance out of learning and left it cold. Ron Paul seeks to put the power back in the hands of states, communities, and teachers, not to end education.

Be heard. We can’t have the media convincing people that we don’t exist. We need to turn headlines like Poll: Romney leads New Hampshire, Huntsman in third, Perry in fourth into a rallying cry against a system trying to fix the vote for those in power.

Not since the advent of Unnecessary Censorship have I seen such an awesome video concept. For a taste of what it must be like for the deaf to watch Rick Perry speak, check out the video above. I look forward to many more future episodes of Bad Lip Reading.

And my sister talks to bigfoot, who’s her neighbor:

I will force spiders and badgers on the enemy!

Give that woodchuck a tuna melt:

Got it?

OK, now let’s remove 8 zeros and pretend it’s a household budget:

• Annual family income: $21,700 • Money family spent: $38,200 • New debt on credit card: $16,500 • Outstanding balance on credit card: $142,710 • Total budget cuts: $385

I’ve seen the above posted on a number of sites recently. The oldest source I saw for it was here. I think it’s valid to think of the budget in these terms. Sure, there are differences, such as our government’s ability to legally launder money, but the basic principles of home finance do relate, and taking eight zeroes off helps make things imaginable. Considering that there are approximately 300,000,000 Americans, around half of whom don’t pay income taxes, it isn’t even too far off for figuring your own percentage of the debt. Gimmicks aren’t going to change this chart. You can tax the people to give out loans (more debt) to small businesses, but that is mostly zero-sum. You can tax the people to pay for unemployment to encourage the unemployed to spend money to stimulate demand for products and thus create jobs, but that is like buying your employer’s product on your credit card in order to keep them paying your paycheck; It gets you nowhere or worse. You can tax the rich dry and barely make a dent in that number. Just like in your personal finance, if you want to gain wealth, you need to provide something that someone else needs. If we aren’t selling more to foreign nations than we are buying, we are losing. This isn’t so much a supply or demand problem as it is a relative value problem. If we are going to be on the losing side of this equation, we need to be printing money rather than borrowing it. This may not be fair to the savers, but they will fail right along with the rest of us on the current course. Printing money eventually devalues it. A devalued currency will make imports more expensive and exports more affordable, putting us to our rightful place in the market again. I would also support an eye-for-an-eye tariff policy to prevent socialist nations from taking advantage of us. Until one or both of these things are instituted, our economy will continue to decline. Even with those changes, we also need to reduce our spending on the military, foreign aid, micromanaging regulations, incarceration, social programs for non-citizens, and benefits for public employees.

If philosophy is questions that may never be answered, and religion is answers that may never be questioned, then politics is asking the wrong questions in order to avoid unwanted answers.

There are times when truth is the bane of politics, often justifiably so. It is one of the most central tenets of our nation that everyone is treated equally under the law.

Or so we say.

If a man and a woman go out for a walk topless, only one of them will be arrested for indecent exposure.

When they turn 18, only one of them has to register for the draft.

Sometimes it is somewhat less certain. If a couple are getting divorced, which one is going to get the kids and which one is going to pay the child support? We all know the answer, most of the time.

In Arizona, if you look Mexican they will ask you for your papers.

Age discrimination is so rampant in our legal system that we wouldn’t even know how to remove it. We consider our kids to be old enough to go overseas and kill and be killed in war years before we consider them to be responsible enough to drink a beer.

And then you have groups who claim to be crusading against discrimination, arguing to mandate it in their favor in order to balance the scales. They argue that high crime rates and low test scores among their constituents are the result of  poverty and tests written by the majority for the majority. They suggest that the solution is affirmative action. Grants for minorities, hiring quotas, and legal protections against discrimination based on their minority status.

I would argue that these things cause the very things they claim to prevent. You can’t just give an opportunity to one person without taking it away from another. Denying a job to the most qualified candidate in order to give it to a lower scoring minority breeds dissension and lowers productivity. It foments racist and sexist thoughts in those who are turned down for the job they are best at.

It also creates a perception of incompetence. Would you want to be a minority who had earned their position through skill and hard work, only to have everyone figure you were given the job to fill a quota? I’m not saying such policy should never be made, but that we need to be honest about all of the effects it will have, rather than optimistic cherry picking. If the state of repression is significantly more serious than the ill will generated, such as slavery or segregated schools, then so be it, but there comes a time when the only time you approach equality is when you take the training wheels off.

I say approach equality rather than achieve equality because I don’t believe we will ever get there. There is no divine entity making sure that everyone’s weaknesses are perfectly balanced out by some hidden strength. Some people are just bad people. Some are weak, some are strong. Science tells us that many of these traits are passed on genetically.

So what do we do when science tells us that people with short index fingers are more prone to violence? What happens when a racial profile accurately predicts aptitude? When a gene predicts that you will cheat on your spouse?

Most of us don’t even want to admit that it might be possible. Pretending that such data doesn’t exist is just hiding our head in the sand. It’s out there. People read it. People act on it. The Amish riding around in buggys doesn’t prevent the existence of military satellites.

If we are to have equal treatment under the law, our only hope is to studiously prevent our government from collecting, interpreting, and acting on details of our personal data. This means in order to prevent such profiling, we also need to be rid of the quotas.

These kinds of issues are things I occasionally ponder. If you are interested in getting a much deeper understanding of the news and issues surrounding the battle between reality and social expediency, there is a blogger who seems to devote his every waking hour to the subject, and I’m sure gets a daily earful of people calling him a racist for doing so. Whether he is or not, he’ll make you think, and alert you to news you just won’t hear elsewhere, for example:

The Cherokee Nation voted to amend their constitution to remove the citizenship of descendants of slaves once owned by its members. More casino money for the rest of the tribe?

Asians pulling away in SAT scores.

Race and DNA based medicine.

Study shows other apes don’t have shared goals.

How Microsoft reduced its  taxation from 25% to 6% in one year.

Dept. of Justice legal loophole to discriminate against Americans.

A new study by the national bureau of economic research shows evidence of a much more plausible explanation. Participants were given various sums of money, and an income distribution chart that showed where they stood in relation to the field of other participants. They were then given the choice between giving their money to those below them in the income distribution, or to those above them. Which did they choose?

It varied, but for those who were right above the bottom, they tended to give the money to people above them on the chart. Had they given the moeny to the person below them, then they would have ceded their position and fallen to the bottom themselves.

This theory of last place aversion will make sense to you if you’ve worked a low income job in the years when minimum wage increases have been mandated. Let’s say minimum wage was five dollars an hour. You toiled away at the company for a year and got a fifty cent raise. Now along comes a dollar increase in the minimum wage. After a year of training and experience, you find yourself making the same wage as those who are newly hired. Sure, the company could just raise everyone by a dollar, but that’s a huge expense, and if you’ve been there, you know it doesn’t tend to happen, and that there is plenty of grumbling in the ranks, even when they got a bit of a raise themselves.

Why can’t we just be happy for those who got a wage boost? Why must we look to everyone else to determine our own self worth? If you give one of your pets a bigger treat than the other, you will see that we don’t have a monopoly on the concept of fairness. It’s a survival skill. It drives us to stay ahead of the pack, even if it means keeping the rest of the pack down.

Those who complain one day that the rich are too rich, may the next day complain that the person below them got a bigger raise than them. Handouts to specific groups who are seen as lower on the social totem pole can cause enough resentment to more than cancel out their benefits. Fairness is not a universal construct. Where you stand depends on where you sit.

"When I give food to the poor they call me a saint. 

When I ask why the poor have no food they call me a communist." Camara, Helder

With the advent of the internet, knowledge in many fields is at your fingertips. Unless you want to be a doctor or something similarly carefully regulated, chances are you can learn most of what you need online and at your own pace, and nearly free.

Contrast that with the current college system. Colleges are putting professors on furlough and reducing the amount of education they produce each semester. Meanwhile tuition is going up far faster than the rate of inflation. College loans have increased over 500% since 1999.

Why? What is it in the system that is justifying tuition going up while quality of education is dropping? In this case I believe it is actually a self-defeating government subsidy. Credit is tight right now. If you want a loan for most things, you have to first prove that you don’t need it. This credit crunch has hit every sector but education, in which government loans are still easily available and low interest. Combine this with the lack of work, and people are going back to school and living off loans. The natural result of this is that colleges raise tuition, since the students can afford it.

Looking back a decade, government-sponsored enterprises gave out adjustable rate mortgages to the poor, and once they had them on the hook, raised the rates. What they didn’t take into account is what would happen when they took it too far and people just defaulted and walked away. This time around, they are ensuring that it doesn’t happen again. Federal student loans follow you till you die. Bankruptcy doesn’t help. What will happen when all of this debt comes due? Will people spend the rest of their lives trying to get above water? Will the government forgive the debt on the backs of the taxpayer? Will the next credit bubble use your children as collateral? When will they stop trying to hide the debt and start working to correct it?

What still doesn’t make sense is the furloughs. If tuition is up, and full time attendance is up, and professor salaries aren’t skyrocketing, then why the furloughs? It’s because we are becoming a nation of administrators. Less than a third of your tuition goes into educating you, and the percentage of funds going to college  administrative costs is going up at a truly unreasonable rate. I’m not even saying anyone is getting fat here, just that as a society, we are spending far more on administrating producers than we are on actually producing anything.

What we need now is some transparency. Unfortunately, creating the Office of  Administrative Overview Regulation or some such won’t help. What we need is simple disclosure. Let the resulting outrage do the rest.

Here we have a man, Dennis Kucinich, who is a contender for being the farthest left of center in our government, speaking out against the legitimacy of that government, its monetary policies, and the two party system. What surer sign can we have that the system is broken?

I’ve spoken of Dennis Kucinich before. I don’t always agree with him, but he has my support for one simple reason.  He’s one of the few honest politicians we have left who are willing to speak out against their own party, their own president, even be the only dissenting vote in the house, to set things right. Look at recent legislation, if you are in Congress and you haven’t voted against your party lately, then you have no ethics and no credibility with me.