Tag Archives: bail outs

Here’s Why the New COVID Relief Program Will Turn the Working Class into Serfs… by Chris MacIntosh

When you rely on the government, it can exact just about any price it wants. From Chris MacIntosh at internationalman.com:

New COVID Relief Program

“This work was strictly voluntary, but any animal that absented himself from it would have his rations reduced by half.” 

George Orwell, Animal Farm

Everything is now political.

ESG, climate change, racism, gender, vaccines. Ask yourself why is it that  all of these things are non-negotiable? Why can’t they be discussed? Why is there no room for dissent, questioning, and discourse?

Something is amiss. Think about it.

The pointy shoes at the IMF tell us that the pandemic will cost the world $28 trillion by 2025, which means it’ll be much, much more.

The truth is the pandemic isn’t the cause. The lockdowns, however, are.

Understanding what exactly this “pandemic” is, is really critical to understanding everything taking place globally and in financial markets both now and in the future.

This virus is statistically as dangerous to the population as a bad flu. “No, not possible, Chris. Look at the response by governments. Surely that’s disproportionate.” Yes, it is, but there is a reason.

To understand the answer to this more fully we need to go back to 2008 and then walk forward tracking the unfolding events.

Following the housing crash and subsequent banking crisis QE was brought in as the tool to “fix” what could have and should have been fixed by letting the banks fail and putting on trial and jailing Wall Street bankers as well as regulatory agencies who were all willfully and knowingly involved in a massive fraud.

The economy has been hanging by a thread ever since.

Then in 2019 the money market seized up with the overnight lending rate shooting up, causing the pointy shoes at the Fed (and the ECB in coordination with the BOE, too) to step in to “fix” it.

They printed upwards of 100 million smackaroos PER NIGHT.

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Confirmed: Fed Bailed Out Hedge Funds Facing Basis Trade Disaster, by Tyler Durden

What would a financial crisis be without bailouts for a lot of scummy types who don’t deserve it? From Tyler Durden at zerohedge.com:

Back in December, when the world was still confused about what exactly happened before (and after) the September repocalypse – which has since exploded thousand-fold resulting in the Fed now doing daily $1 Trillion repo operations – we said that in addition to the implicit bailout of JPM (which we described here first, and subsequently others), by restarting its repo operations the Fed was also bailing out dozens of hedge funds engaging in highly levered trades involving a relative value compression trade in the Treasury cash/swap basis… almost identical to what LTCM was doing ahead of its 1998 bailout, which is also why we titled the article “The Fed Was Suddenly Facing Multiple LTCMs.”

In a nutshell, the article explained why and how the return of the Fed’s repo ops was nothing more than the Fed preemptively bailing out all those hedge funds that would have imploded had basis trades gone haywire. Below is a key excerpt from that post:

One increasingly popular hedge fund strategy involves buying US Treasuries while selling equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or difference in price between the two. While on its own this trade is not very profitable, given the close relationship in price between the two sides of the trade. But as LTCM knows too well, that’s what leverage is for. Lots and lots and lots of leverage.

We also said that “hedge funds such as Millennium, Citadel and Point 72 are not only active in the repo market, they are also the most heavily leveraged multi-strat funds in the world, taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They achieve said leverage using repo.”

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A Disgusted Nikki Haley Quits Boeing’s Board In Protest Over Bailout Demand, by Tyler Durden

Good for Nikki Haley. She may be grandstanding, but at least she’s grandstanding on principle. From Tyler Durden at zerohedge.com:

While Boeing’s shareholders await to see if they will be granted a taxpayer-funded bailout, or if all those billions they greedily pocketed from the company’s stock buybacks instead of forcing the company to allocate toward a rainy day fund may have doomed if not the airplane manufacturer, which will promptly re-emerge from Chapter 11 with a clean balance sheet, then themselves, today the first casualty of the Boeing crisis emerged when Nikki Haley, the former U.S. ambassador to the United Nations, announced she was leaving Boeing’s board after less than a year, saying she opposes the planemaker’s decision to seek a U.S. bailout amid the coronavirus crisis.

“I cannot support a move to lean on the federal government for a stimulus or bailout that prioritizes our company over others and relies on taxpayers to guarantee our financial position,” Haley said in a March 16 letter that Boeing disclosed late on Thursday, one day after it was revealed that the company is seeking a $60BN bailout.

“I have long held strong convictions that this is not the role of government” she added.

Whatever one thinks of Haley, she is absolutely correct on on this issue: that Boeing wasted tens of billions to push its stock artificially higher by repurchasing its stock in hopes of lifting management equity-linked comp and making its shareholders richer instead of even pretending to plan for a less than perfect future is inexcusable, and no bailout of Boeing should ever be allowed. If Boeing needs the funds, it can sell stock and raise cash – the opposite of what it did for decades. If that is insufficient, Boeing should file a prepackaged Chapter 11 where the creditors take over all the equity and the company emerges from bankruptcy debt-free in one day.  Without a dollar of debt, Boeing should be able to weather any disruption no matter how long, and once the economy normalizes it can rehire all the workers that had been laid off.

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Monetary Looting, by Michael Krieger

The Federal Reserve is at the head of a banking cartel that has looted hundreds of billions of dollars from customers and taxpayers. From Michael Krieger at libertyblitzkrieg.com:

The United States has historically bragged about its free and transparent markets. But what the Fed is doing today is pulling a dark curtain around the financing of this so-called free and transparent market. The public has no idea which Wall Street firms have received this $3 trillion or why they can’t borrow it elsewhere. This kind of obfuscation by the Federal Reserve could actually stimulate distrust in the U.S. banking system. The Fed admitted as much in its most recent Federal Open Market Committee (FOMC) minutes, writing that participation in the Fed’s loan program “could become stigmatized.”

Wall Street on Parade: Is the Fed’s $3 Trillion in Loans to Trading Houses on Wall Street Legal?

The business model of Wall Street is fraud.
– Bernie Sanders

Financial services as currently structured is the most pernicious, predatory and corrupt industry on earth. Moreover, it’s the deliberately complex and opaque nature of the industry which then limits public debate when some problem arises and governments and central banks are called upon to take emergency measures to “save the system,” which is just a euphemism for enormous sums of corporate welfare being funneled to people and institutions who couldn’t survive otherwise.

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Lenin would be so proud, by Simon Black

By socializing risk, in other words by making others pay for someone else’s mistakes, we make sure those risks will be taken again and again. From Simon Black at sovereignman.com:

Several years ago back in 2004-2006, if you had a pulse, you could borrow money from a bank to buy a house.

In fact, bank lending standards were so loose back then that there were some infamous cases of people who DIDN’T have a pulse who were still able to borrow money.

That’s right. Some banks were so irresponsible that they actually loaned money to dead people.

Of course, it turned out that lending money to dead people… or people with terrible credit who had a history of default, was a bad idea.

And the entire financial system almost blew up as a result of this reckless stupidity.

But then something even crazier happened: the Federal Reserve came in and bailed out all the banks with trillions of dollars of free money.

That was utterly nuts. Instead of being wiped out by their idiotic mistakes, the banks learned that they would always be bailed out no matter how stupid or greedy they acted.

The key lesson was that there would be zero consequences for bad behavior.

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Revolution In America, by Robert Gore

What would it take to overthrow the U.S. government? The question may seem academic, but all governments fail. The U.S. government will too, for the usual reasons: its ever increasing size, rapacity, and attempts to control all aspects of life; the corresponding shrinkage of its constituents’ liberty; imperial overreach; welfare-state bread and circuses; debt; spreading poverty; crony capitalism, rampant corruption; widening income disparities, and oligarchic arrogance. As clearly odious as the government is, shouldn’t we do all we can to move it towards its inevitable rendezvous with failure?

Set aside the notion that the salvation of this creaky and corrupt monstrosity might come from the monstrosity itself. The recently passed Cromnibus (Continuing Resolution + omnibus—further corrosion of the once stately and beautiful English language into a leprous gargoyle) should lay to final rest the pitiably naive dream of Republican partisans that their “revolutionary” November victory would work anything revolutionary in Washington, or any kind of change at all. The first rule for honest people in our nation’s capital (if there are any): run like hell from anything hailed as a “bipartisan success,” and double-fast when The Wall Street Journal is doing the hailing, in a front page headline no less. The Republicans gave the Democrats a year’s more spending on their beloved, bloated beast, and did not mount a funding challenge to either Obama’s immigration policy (that’s supposed to come in two months) or Obamacare.

Hidden within the 1600-plus pages bill that nobody but the lobbyists read were the usual pork, earmarks, subsidies, phony cuts (in Washington, if a program is scheduled to grow 10 percent, and that is reduced to 8 percent, they call it a cut), and a Christmas present for the banks: loosening a requirement that they transfer some of their trading activities to affiliates not covered by federal deposit insurance. Naturally the Republicans, swearing fealty to global interventionism and never-ending war, bumped up the military budget—shiny new toys for the generals and admirals and a jobs program for defense contractors back home. With apologies to Ambrose Bierce, here’s a Devil’s Dictionary definition of “bipartisanship”: spending for all!

So forget revolution arising from the current political system. And don’t think that—taking a page from the first American revolution—rebellion will be led by wealthy and successful merchants and lawyers. Those original revolutionaries pledged their lives, fortunes, and sacred honor; current plutocrats are terrified by a declining share price, pressure from a regulatory agency, a class action lawsuit, or unfavorable press. Many of them have a big, crony capitalistic stake in government; they’re not going to be in the vanguard to overthrow it.

Some, mostly on the left, look to a revolution that foments up from the oppressed and downtrodden. The welfare state has taken the sting out of the good old-fashioned economic oppression that was to fuel Karl Marx’s revolutions. Nowadays, beneficiaries would only revolt if the checks stopped. The focus has shifted to “white privilege” and “minority oppression.”

The left had hopes that recent killings by white police officers of unarmed blacks would spark a nationwide outbreak of demonstrations and upheaval, but the unrest has fallen well short of that. The problem with such upheaval, from a revolutionary point of view, is that it usually degenerates into mindless violence, looting, and vandalism, the perpetrators destroying their own neighborhoods and businesses. An effective revolution must have planning and organization absent in the usual race riot, and a goal more transcendent than the acquisition of a free big screen TV.

Looking the other direction on the political spectrum, one finds planning and organization among the groups that foresee continuing deterioration and either the imposition of a police state or degeneration into chaos. While some of these groups may be planning revolution, for the most part strategies are defensive and reactive. If a police state is the way the US goes, the admirably defiant sentiment is: not without a fight, they’ll pry my cold, lifeless fingers from my firearm! Potential chaos, on the other hand, has prompted extensive preparatory measures: stockpiling food, precious metals, medical supplies, and weapons; acquisition of autonomous power-generation capabilities; survival and guerrilla warfare training, and building small communities of the like-minded. Many of these efforts are well-coordinated, led by former members of the military. They scare the hell out of the US government and much of the intelligentsia.

Unfortunately, a police state would have a massive advantage in firepower and would not hesitate to use tyrannical tactics, including taking full advantage of already existing surveillance capabilities. Chaos would be less problematic for the cause of freedom. Secessionist enclaves could be carved out and defended by people committed to the founding principles of liberty and limited government, although there would be more devil in the details of working out actual arrangements than many envision. (It took the founders over a year to devise the Constitution and get it ratified.)

The “revolutionary” undercurrent flowing through American culture—both fictional literature and drama and nonfictional books and internet articles—focuses on dystopian and apocalyptic scenarios characterized by conflict and violence. However, there are millions of people who work in the private sector, pay their bills, mortgages, and taxes, and buy goods and services that power the U.S. economy and make it the world’s largest export market as well. While they may no longer be Richard Nixon’s “Silent Majority,” they are still the economic backbone of this country. The undercurrent ignores those millions of people and their economic leverage, which, if properly applied, could hit our government at its weakest point: its dependence on its citizenry and the capital markets for funding.

The government has no autonomous ability to pay for itself, and almost everything it does runs at a loss. Magnifying that weakness: it has over $18 trillion in debt and over $115 trillion in unfunded liabilities. Those unfunded liabilities represent only the domestic, welfare-state commitments it will never be able to fulfill, and do not include the extensive foreign commitments made pursuant to its policy of global intervention.

It is a matter of some urgency that the payers apply their leverage while they still have it. Simply put, they need to bankrupt the government before the government bankrupts them. On present course it will go broke, perhaps sooner than most people expect. In its desperate rapacity, it will seize every stream of income and asset it can get its kleptocratic hands on. It is incumbent on those with streams of income and assets to launch a preemptive strike or lose everything, which would surely usher in that dystopian apocalypse.

For years government economic policy has promoted borrowing and discouraged saving. The first step of a well-coordinated, long-term effort would be to give the government what it wants. Everyone to whom the government and its banking arm (Or is it the banks and their government arm? See “Bankers Nirvana,” SLL, 11/8/14) will extend credit should borrow money, as much as they can. They should also gradually (so as not to precipitate a financial crash too early) withdraw their “evil” savings from banks, money market and mutual funds, and other financial intermediaries. The money borrowed and withdrawn will help fund preparation for what’s to come.

Banks are highly leveraged and operate on thin margins. Any concerted refusal for an extended period of time by millions of customers to pay their debts, including mortgages, would force them to start writing down the value of those debts, their assets. For most banks those debts are their primary asset, and they are a multiple of their equity. A typical bank that had to completely write off 20 percent of its loans, or write down all of its loans by 20 percent, would see its equity wiped out (if loans are five times equity, a conservative assumption).

For those with compunctions about not paying their debts, recall how much compunction the banks and the government had about reaching into taxpayer pockets when banks’ speculative, highly leveraged business models fell apart in 2008. How much compunction have they demonstrated since as the central bank has promulgated a microscopic rate regime to artificially lower the banks’ cost of funding, while eliminating the return on honest savings? The banking system is just as speculative and leveraged now as it was in 2008, and even more concentrated. Global debt is over 40 percent higher.

When the next crisis arrives, regardless of Dodd-Frank and whether or not some bank activities are or are not “covered” by FDIC insurance, the government will attempt to bail out the banks. Don’t think it will be any different this inevitable next time; they’ll reach into taxpayer pockets once again, because that will be the only money available. The government has much more debt now, as does the Fed, which makes a big increase in debt problematic, and the Fed is already at the zero bound of administered interest rates, which gives it no room to configure monetary policy for the banks’ benefit.

Count on a new wrinkle: “bail ins.” When people deposit money in a bank, they become unsecured creditors of the bank, and that is all. If the bank goes bust, they stand in line with the bank’s other unsecured creditors. There is the FDIC’s deposit insurance, but if enough banks go bust, the FDIC fund will too. Cyprus was the template for bail ins, which is the euphemism for depositor haircuts (or, more correctly, scalps), which is the euphemism for depositors getting stuck with banks’ losses. After Cyprus, bail ins have become an acceptable option, quietly mentioned in banking, central banking, and government circles here and in Europe. No amount of money printing and government debt will save the financial system when banks fail en masse, and depositors will lose some or all of their deposits, whether it’s called a bail in or by its real name—theft.

So the choice is quite simple: screw or be screwed…again. The best defense is a strong offense, but to go on the offensive requires collective action among those who pay the government’s bills. Solitary non-payers face a credit cut-off and asset repossession. Millions of non-payers are a movement, and it would take years to jump through all the legal hoops, especially foreclosure proceedings, necessary to bring them to account. Some banks are still working through the last financial crisis.

While certainly disruptive, this movement, to reach its full effectiveness, would also have to involve a tax protest. Because of tax withholding, that may be more problematic. Major corporations are not going to stop sending in what they’ve withheld from employees’ paychecks. However, a substantial number of individuals refusing to pay estimated taxes and smaller businesspeople (who employ half the nation’s workforce) refusing to collect withholding would be enough for the government, and more importantly, capital markets, to take notice. Anything that called into doubt the capital markets’ bedrock assumption that U.S. debt was backed by the government’s priority claim on the nation’s private-sector production would send interest rates substantially higher, increasing the government’s debt burden.

What are the chances of getting millions of Americans to, as Lady Macbeth put it, screw their courage to the sticking place? Probably small. However, if one accepts the premise that the government-banking complex’s current course will inevitably render it insolvent, leading to a voracious and indiscriminate expropriation of wealth and savings, then this plan is strategically optimal. It relies on the remaining and still substantial American salt-of-the-earth—productive individuals in the private sector—while excluding the quisling wealthy, crony capitalists, welfare state teat-suckers, and random degenerates. Utilizing the salt’s potent leverage—its economic power—this plan seizes the initiative before the inevitable financial crises eliminates that leverage. It strikes a sharp blow against the complex’s weakest point—its accumulated debt and funding vulnerability—a blow against which it has little effective defense.

Execution of the plan will not prevent the dystopian apocalypse. The plan will hasten that outcome. However, preparations for it will in part be funded with the money that has been withdrawn from the financial system or has been borrowed but not repaid. (The paper claims thus extracted should be converted to real money—precious metals—during the preparation phase, before the government and banks completely devalue their own paper.) Note the irony: the government-banking complex will be providing funds for a revolt against it. By denying the complex funds, this plan shifts the odds between the post-collapse police state or chaotic anarchy outcomes in favor of the latter. Police states are expensive to maintain and retard the economic activity on which they are parasitically dependent. Historically, they have had to beg, borrow, and steal to maintain themselves, and the plan would exacerbate the financial difficulties for an American police state.

There are still millions of fundamentally decent, hard-working, tax-paying Americans who have watched as a deterioration that cannot be hidden has unfolded. Pick a proxy—national debt, the poverty rate, people on food stamps, growth of the Federal Reserve’s balance sheet, the savings rate—they all portend impending disaster. There is widespread revulsion, frustration, and foreboding, and a mounting sense of helplessness: what can we do? Voting, which theoretically gives the electorate power to change things, has changed nothing. The two parties alternate doling out the spoils expropriated by a corrupt government.

Nothing in the world can stop the arrival of the day of reckoning—actions have consequences that debt and fiat money can perhaps forestall, but never prevent. The longer they “work” the worse the eventual consequences. On present course the government will go bankrupt. The one option for those of us who have provided so much of its ill-gotten and ill-spent loot—and received so little in return—is to seize the initiative, strike at its weakest point, extract a small percentage of what has been taken, hasten the inevitable crash, and then rebuild America into the great nation it once was.

It will be difficult, perhaps impossible, to persuade sufficient numbers to take that initiative, but in passivity lies ruin. By the time that ruin is obvious to all, it will be far too late. This plan has been sketched in broad strokes and will benefit from collaborative discussion and refinement from a variety of sources. It is an overall strategy and many details must be filled in. However, the only defense against what is surely to come is a strong offense, before our capacity to launch an offensive is stolen from us.

A REVOLUTIONARY NOVEL

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