Canadain Political Turmoil Eh?

I don't comment often on Canadian politics, because we have very boring politicians and political system here in Canada. But the recent turmoil in parliament is just impossible not to comment on.

In a nutshell, Harper's Conservatives won a strengthened minority in an election on October 14 but are now hanging on for dear life. They had been facing a confidence vote in Parliament on Monday that they would almost certainly have lost. Please see my post on the election for more information. [Canadian Election Post]

The constitutional battle erupted on Friday last week, after Harpers Conservatives tried to eliminate direct subsidies of political parties. Seeing as everyone but the Conservatives has been completely worn down financially by the recent elections, the Conservatives stood to gain by being the wealthiest party in Canada at the moment.

The Liberals, NDP and Bloc then decided to form a coalition and try to topple Harpers government, at which point Harper begged the Canadian Governor General Michaelle Jean for a suspension of government, so that he can put forward his proposed "economic stimulus package", which will surely benefit the wealthy more than thos who really need it.

"Today's decision will give us an opportunity - I'm talking about all the parties - to focus on the economy and work together," said Harper, after his meeting with Michaelle Jean. If the request had been rejected, he would have had to step down or face a confidence vote he was sure to lose.

Harper's request for suspension was unprecedented. Historically, no prime minister has ever asked for Parliament to be suspended to avoid a confidence vote in the House of Commons.

For those who do not follow Canadian politics, getting two political parties in Canada to agree on an issue is as likely as having a 2 month winter. So the fact that the Liberals and NDP were able to form a coalition with the support of the Bloc Quebecois, should indicate that Harper has taken a big piss into his own pool. And there obviously isn't enough chlorine to dilute it.

I have made no secret of the fact that I think Harper is Satan. I don't really like any of the other party leaders either, but my despisal of Harper overshadows my dislike of any of the others. Harper is just plain old evil, and he needs to go ASAP. He is destroying this country, and I might have even considered voting Conservative in the last election (for the lack of a better choice) if they would have had a new, young and charismatic leader.

Everyone and their grandmother have an opinion on this issue, and I think that what the NDP, Liberals and Bloc Quebecois did was show unity. They definitely showed that they were more bi-partisan than Harper, who unilaterally decided to do something which benefits only the Conservatives by trying to cut off public funding for political parties.

So what if the NDP and Liberals are allying with the separatists? Do you think they are actually going to vote in favor of separation after all is said and done? 100% not. They are doing what cornered people do: looking for options outside of the box. For this, I commend them. At least they can sit down and agree on something for a change.

What really disturbs me in this whole mess is not the coalition, or the Conservatives unilateral move. It is the fact that Harper has to go get permission from the Governor General to make any major changes in the House of Commons. So who is really the leader of this country, the elected Harper, or the un-elected Michaelle Jean? Think about this for a second.

The Governor General

The Governor General has the power to suspend or dissolve Parliament, and many other powers which supersede those of the elected prime minister. And who is the Governor General of Canada?

According to the Government of Canada website: “Sworn in on September 27, 2005, the Right Honourable Michaëlle Jean, 27th Governor General since Confederation, represents the Crown in Canada and carries out the duties of head of State.” [source]

Moreover, according to the Governor Generals website: [source]:
- The Governor General is appointed by the Queen on the advice of the Prime Minister.
- The Governor General presides over the swearing-in of the prime minister, the Chief Justice of Canada and cabinet ministers.
- The Governor General is Commander-in-Chief of the Canadian Forces.
- The Governor General receives Royal visitors, heads of State and other prominent guests.
- The Governor General accepts the credentials of new ambassadors who represent their respective countries in Canada.

On an interesting side-note, she is listed higher on the CIA's website than the Prime Minister. [link]

So to conclude, Harper, Martin or Chretien might run it on a day-to-day basis, but who has the final say? At the end of the day, people will say that Canada is a constitutional monarchy, but the current situation in the country would indicate that this system is not so democratic after all...


Further Readings:

Globe and Mail - Harper Blunder a Blow to Credibility

Globe and Mail - Parliament Shut Down until January 26th

Globe and Mail - After The Storm

CTV - Governor General Approves PM's Request to Suspend Parliament

CTV - Canadians Regionally Split on Political Storm

Reuters - Canada PM Wins Suspension of Parliament

BBC - Canada Halts Parliament Amid Row

Citigroup Bailout: $20B, Total Cost So Far: $3.5T

Another One Bites the Dust

The news came out late on Sunday that Citigroup is getting a bailout from the Federal Reserve, amounting to $20 billion dollars. The $20 billion of new cash comes on top of a $25 billion infusion the bank received last month under the Troubled Asset Relief Program (TARP).

Citigroup's stock has lost about 80% of its value since the beginning of the year, and has dropped below 5$ last week for the first time since the mid-1990s. At the time of writing, the Federal Reserve just announced “it is to inject another $800bn into the US economy in a further effort to stabilize the financial system.” [article]

Even as most stocks rallied on the news that President-elect Obama had selected Timothy Geithner to be the next Treasury chief, Citigroup continued its fall. My gut tells me short-selling of Citigroups stock had something to do with this.

As discussed in my previous post [Secret $2T Fed Program], we must look at whose interests are best served by all of this. The reason Citigroup was not an attractive acquisition target to any of its competitors is because of its heavy baggage of about $306 billion in “risky assets” that it had on its books.

So if you’re J.P. Morgan for instance, and you buy up Citigroup for $20.5 billion (Citigroups market capitalization on Friday Nov. 21st, 2008), you are still taking a big risk with the $306 billion Citigroup has on its books. Even though Citigroup has $2 trillion in total assets [article], it is not liquid. This means that it would be very difficult to get cash for the $2 trillion in assets in the event that you need to start writing off the rotten ones. How do you get around this annoying $306 billion?

Pass it on to the Taxpayers

If I was a billionaire banker who owned stock in Federal Reserve and who was receiving a piece of the $3.5 trillion from my company (The Fed), this is what I would do:

1) I would short-sell the stock of Citigroup to the point that the company loses 60% of its market capitalization in 3 days: Citigroup was worth $51.8 billion on Friday Nov 14th, 2008. One week later, it was worth $20.5 billion. At the beginning of 2008, Citigroup was worth $160.4 billion. [Source: Google Finance]

2) I would then get my company, the Federal Reserve, to step in and lend Citigroup (who is also an owner of the Fed) $20 billion.

3) I would also get the Federal Reserve to “step in to protect Citigroup from losses on $306 billion of troubled U.S. home loans, commercial mortgages, subprime bonds and low-grade corporate loans.”

4) Now Citigroup is a much more attractive candidate for a merger or acquisition because the Federal Reserve is guaranteeing all of its “toxic assets” through taxpayer dollars.

“There will surely be ongoing chatter about a breakup of Citi once the dust settles,” analysts at Royal Bank of Scotland Group Plc. [article] Which one of the remaining banks will be the one doing the acquisition after the next “big one” falls?

A Little Perspective Please

So let’s start thinking about everything that’s been happening for the last few weeks:

Size of Citigroup bailout (so far & that we know of) = $45B
GDP of Sudan = $46.2B
GDP of Slovenia = $46.1B
GDP of Ecuador = $45.8B
Source: [wikipedia]

The reason I say "that we know of" is because of the secret $2 trillion Federal Reserve program which I covered in my last post. Since we do not know how much each bank got through that program, we are left with a minimum of $45B for Citigroup.

What's really disturbing is Citigroup’s bailout is roughly the same as the GDP of each of these three countries. Pause. Take a minute to think about and process this information. It is staggering to say the least.

Here is something else for you to pause and think about: $2 trillion, then $700 billion and now $800 billion. People are tossing around these huge numbers for bailing out banks and corporations, but I don’t think anyone has stopped for a second to realize how big the figures we are talking about really are.

99% of which is for banks

Do you have any idea how much money that is and what you could do with this amount of money?

As of 2008, half of the worlds population lives off less than 2$ per day. The world population as of 2008 is 6.72 billion. [wikipedia] So at 2$ per day, to feed half of the world for one day it costs $6.72 billion (50% x 6.72 billion people x 2$ per day). For one year, it costs $2.5 trillion. This still leaves about $1 trillion. Assuming it costs $500,000 to build a school, and $1 million to build a hospital, you could build over 650,000 schools and hospitals around the world.

To recap: $3,500,000,000,000 could be used to feed half the world for one full year AND build 650,000 hospitals and schools. Instead, all of this is going to the people who caused this whole financial crisis to begin with. And the taxpayers will be left with the bill at the end of the day.

What is Happening in our World?

When did banks become more important than the well being of society and human beings? More importantly, when did people stop thinking about these kinds of things and asking themselves important questions about the kind of society we live in?

All the information is right in front of us; all we need to do is wake up and start paying attention. Don’t let the system feed your mind, use your mind to think for yourself.

My hats off to the rulers of the banking establishments, you have pulled off the biggest heist anyone could ever have imagined in their wildest dreams...


Further readings:

Reuters - Citigroup Gets Massive Government Bailout

International Herald Tribune - U.S. approves plan to help Citigroup deal with losses

Bloomberg - Citigroup Gets U.S. Rescue From Losses, Cash Infusion

What Secret $2T Federal Reserve Program?

The Lawsuit

After having read an article on Bloomberg about the Fed running a secret $2 trillion program of lending to banks and corporations, a program which is unrelated to the $700 billion TARP project, I thought it was important to bring this little known fact to life [Bloomberg article, Bloomberg TV]. In fact, I have had difficulty finding any major press outlet covering this except Bloomberg, who has requested details of the Fed lending under the U.S. Freedom of Information Act and has filed a lawsuit against the Fed. Thank god for the wonderful world of blogging, because this story has mostly been ignored by the mainstream media. Bloomberg is suing because The Fed has so far refused to divulge any information about the program, except to acknowledge its existence.

I suspect however that the Fed will win this lawsuit under the pretext that it is for the 'public interest' not to reveal exact figures of loan amounts, and who these loans went to. An interesting point raised by BestSyndication is that: "When the Fed was created there were worries that the central bank would be used to provide funds to member banks, like JPMorgan Chase, to purchase assets during economic busts.”


Maximize Profits for Shareholders

When you think about it, it makes sense that the Fed let Lehman Brothers sink on September 15th. It was acting in its own best interest, namely the interests of 51% or over of its investors. This is in line with any other corporation or bank in the capitalist system. The major stockholders of the Fed are the major banking institutions of America.

You can check on the Feds website, the owners of the Federal Reserve is not the government, but the “member banks” [Overview of Federal Reserve, p.12]. The member banks receive a 6% annual dividend for being stock owners. The government merely appoints its board of directors and the chairman (Bernanke). Exactly who owns how much of the Fed is kept secret, but if we assume that its workings are in line with the rest of the banking world, the likely scenario is that ownership is based on market capitalization or the net worth of member banks. So the story goes something like this:

1- The Fed secretly starts lending $2 trillion to its owners.
2- The Fed lets Lehman Brothers and thus the markets collapse.
3- The Fed owners go bargain hunting by buying up competitors for pennies on the dollar and thus consolidating their positions in the market (using the $2 trillion + $700 billion provided by the Fed).

This intuitively makes perfect sense, because that is how our markets work. Lesson number one in business and economics is that a company exists in order to maximize the profits of its shareholders. They are just doing what any other bank or corporation would do to maximize profits. And when you think about it, you can’t really blame the Fed or its stockholders (i.e. the banks) for the financial catastrophe that is currently happening. It is happening and it will pass when the best interests of those who control the money supply are served.


Who Will be Next?

As I mentioned in the previous post, everyone knows that GM has been severely struggling in the past few weeks and is basically begging the Fed and the government for money to continue operations. No money has been committed just yet. But GM posted a $15.5 billion third quarter loss [article]. In one quarter! How much money does the Fed need to lend them to stay afloat if they are burning money at that rate? And is GM going to be able to repay the Fed these huge sums of money with interest? Unlikely.

Again, here we see that the best interests of the shareholders of the Fed are served by letting GM go bankrupt. One of two scenarios will then happen. GM will either be allowed to restructure under bankruptcy protection, essentially allowing the company to annul most of its debt obligations, and start new ones with the Fed; or it will be seized by the government like Washington Mutual and Lehman, and its pieces sold off.

The Fed would of course lend Ford and Chrysler money to buy up pieces of GM at bargain prices. If GM collapses, it will act as a second Lehman, collapsing the already fragile markets further. The major banks will then again step in and start buying up companies and competitors for discount prices. Even Paulson said that “bank mergers may be best for the economy.” [article]


Bank Acquisitions and Failures so Far

To put things into perspective, here is a list of bank acquisitions in the US since the beginning of 2008:

04-01-2008 – Bear Sterns acquired by J.P. Morgan Chase - $2.2B
09-01-2008 – Countrywide Financial acquired by Bank of America - $4B
09-14-2008 – Merrill Lynch acquired by Bank of America - $44B
09-16-2008 – American International Group acquired by the Federal Reserve $85B
09-17-2008 & 09-26-2008 – Parts of Lehman Brothers sold off to Barcklays plc and Nomura Holdings
09-26-2008 – Washington Mutual acquired by J.P. Morgan Chase - $1.9B
10-03-2008 – Wachovia acquired by Wells Fargo - $15B
10-13-2008 – Sovereign Bank is acquired by Banco Santander SA (Spain) - $1.9B
10-24-2008 – National City Bank is acquired by PNC Financial Services - $5.58B
10-24-2008 – Commerce Bancorp is acquired by TD Bank (Canada) - $8.5B

Full list of global acquisitions and failures [wikipedia]

We might soon have to add CitiGroup to this list [article]. The company’s stock has lost 50% of its value in the last three days, and Bloomberg reports that Citigroup may get a government rescue. Or the Fed might allow the Bank of America or J.P. Morgan to buy it. Goldman Sachs has already refused [article], so we’ll have to wait and see.

I might be wrong about which company will be left to go bankrupt, but the idea is there. Whether its GM, Lehman, Chrysler, Citigroup or GE it makes no difference. The end result is what matters, and that is expansion of profits for the stakeholders.


So What Now?

The root of the problem is not the banks or the Federal Reserve, but rather the system which has allowed and even promoted this kind of activity. And I think that we are unlikely to emerge through financial crisis unless some fundamental problems within this system are resolved.

There is so much debt out there right now, that I am worried for when the interest payments on all of the outstanding debt becomes so big that the majority of borrowers entire income is spent just for the interest portion of the loan, and nothing for the principal portion. This is kind of what is happening now, but I expect that a lifeline might be thrown to the global markets to sustain it through one more bubble.

The only solution to this problem from a banks perspective is if paper money is eliminated altogether, and digital currencies become the standard for payment. Then the reserve requirements would become meaningless because money would be created through computers and backed by nothing, not even cotton paper.

The people already have very little control over money, but if this were to happen, we would have no control over our money what-so-ever. And the people with the power to push a few keys on their computer and give you a loan or issue you a payment will also be your masters. It will take a crisis of some sort for the people to accept removal of paper currency and a move to digital currency, and I really hope that the current financial crisis isn’t it…

Please see this video: Bloomberg TV - Transparency at the Fed

Further readings:

Bloomberg - Fed Defies Transparency Aim in Refusal to Disclose

Bailout Sleuth
(Good Blog which discusses some alternative apsects to the financial crisis)

Best Syndication - Bloomberg Sues Fed Under Freedom of Information Act

Russia Today - Fed refuses to disclose who got loans

LA Times Blog - Bloomberg sues to get list of banks borrowing from the Fed

Bloomberg - Citigroup May Get Government Rescue, Investors Say

Reuters -Goldman Cool to Citi Deal Even With Government Aid