Fractional Reserve Banking or Money Counterfeiting?

This week, I have decided to take apart yesterdays post into fractions, and elaborate on the several assumptions and statements that I make in it. This first of a few, in which will be taking a slightly deeper look into some issues I think people need to think about which relate to the ongoing global financial meltdown.

So the first issue I would like to discuss in detail is that of Fractional Reserve Banking. The following definition is courtesy of Art Branch Inc:

Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only portion of the money deposited with them as reserves (i.e. the reserve requirement). The bank pays interest on all deposits made by its customers and uses the deposited money to make new loans. In order to understand how fractional reserve banking works, let's look at the following example.

Somebody deposits $1,000 with Bank A. Bank A is obligated by law to keep 10% of the deposited money as a reserve, that's why the bank keeps $100 and lends out $900. Somewhere down the road the $900 loan is deposited in another chequing account (it might or might not be with the same bank). This second bank also wants to make money by giving out loans, that's why it keeps the required $90 and lends $810. Fast forward to a deposit with a fourth bank and you'll get the following:

As you can see from the table above, the banks created $2,439 based on the first $1,000 deposited. This in essence is a license to print money. The fractional reserve banking works for now, because the total amount of withdrawals is offset by deposits made at the same time. While the depositors are confident at the fractional-reserve banking system, a very small part of all deposits is withdrawn at the same time allowing the banks to handle the withdrawals through the 10% reserves. However when people's confidence in the banks is shaken, bank runs are possible, and the entire banking and financial system can collapse.

So, based on the reserve ratio principle, you can see that banks are essentially allowed to create money 'out of thin air' by keeping a small reserve on hand, and lending out the remainder of their deposits. But there is an even bigger catch at play. A lot of people wonder how banks can make so much money charging such low interest rates (in the 4% to 5% range recently). Well the answer is simple. As an example, imagine you deposit $100 in the bank, and then the bank turns around and lends out $900 based on your $100. For simplicity lets assume the interest rate is 5%. The banks earnings in this case are $45 (5% x $900). When you think about the fact that it took $100 to make $45, you realize that the banks actually earn 45% ($45/$100) on your $100 deposit, and not the advertised 5%.

The following diagram illustrates the amount of money in circulation as measured by various bank reserve requirements. As you can clearly see, the lower the reserve ratio, the higher the amount of money in circulation. Based on the previous example, you can logically deduce that lower reserve requirements result in higher bank earnings on the same $100 deposit.

As the amount of money in circulation increases, so does inflation. As such, the hidden 'tax' on everyone is in the form of increased prices (or decreased currency value). The following diagram illustrates the inverse relationship between the money supply in circulation and value of the money itself.

Getting back to the main topic of this post: through fractional reserve banking, western countries have sustained growth in their economies through booms and busts, which were arguably created by the central banks and the fractional reserve banking model. If you look at the following list, you will notice that the countries with the lowest or non-existent reserve ratios are mostly western countries. You will also notice that the countries with the highest reserve ratios are mostly developing countries. During these tough financial times, those suffering the least are the countries at the bottom of this list because of their reduced dependence on debt to finance economic growth.

In summary, I think it is quite clear that fractional reserve banking is designed by definition to be a debt-based system. The paper currencies of most if not all countries do not hold an intrinsic value based on a reserve in gold, silver or any other commodity. Instead, the currency's value is determined by the amount of money in circulation and the governments order that it must be accepted as a means of payment.

As a closing remark, now that you understand the basics of how banks 'create' money, do you really think that creating more debt and adding it to the existing mountain will really solve the problem on a long-term basis, or is it just a quick fix until one day we wake up and the banks start repossessing everything we own...


Sources and further readings:

http://www.centralbanksguide.com/fractional+reserve+banking/
(Definition and explanation of Fractional Reserve Banking)


PRO-FRACTIONAL RESERVE:
http://blog.paulmckeever.ca/2008/05/28/inflation-the-gold-standard-and-fractional-reserve-banking/
(Paul McKeever - Inflation, the Gold Standard, and Fractional Reserve Banking)

http://www.freebuck.com/articles/afekete/040420afekete.htm
(Fractional Reserve Banking Revisited)


ANTI-FRACTIONAL RESERVE:
http://www.marketoracle.co.uk/Article6989.html
(The Market Oracle - How the Fed Creates Bull and Bear Markets)

http://www.islamic-finance.com/item113_f.htm
(Don't Mention the Reserve Ratio)

http://westernstandard.ca/website/article.php?id=2884
(Banking and Morality: 100% Reserve versus “Fractional” Reserve)

Another Dose of Global Interest Rate Cuts

This is a quick post to note that today, the Federal Reserve cut rates by 0.5%, which brings the all-in rate down to 1%. The Fed followed a move by the Chinese Central Bank which itself cut its rate to 6.66% from 6.93%.

Several other countries are expected to follow, with Norway already announcing a 0.5% cut down to 4.75%.

Stock markets around the world rallied yesterday on the expectation that central banks were planning these moves.

Not much more to say here, the upcoming post on fractional reserve banking will be much more thorough and in-depth, and will address the issue which I will leave off on:

The world is debt-strained, countries are drowning in debt (think Iceland and Pakistan) and corporations cannot borrow any more because they are over-leveraged as is. Investors are having a hard time trusting corporations and banks, and now the central banks walk in and offer more debt to solve the problem.

The good news here is that debt in the US now costs 1% (to banks and corporations of course). The bad news is, if things get worse from here, how many more rate cuts can the Federal Reserve support?


More readings:

Bloomberg - Fed Cuts Rate to 1% to Avert Prolonged Recession

Reuters - U.S., China Kick Off Global Round of Rate Cuts

BBC - US Interest Rates Slashed to 1%

Wall Street Journal - Fed Cuts Rates by Half Point Amid Economic Deterioration

The Banking Establishment: Crooks or Geniouses?

The stock markets took a real beating last week. As my predictive power has been proven to be 0, I will not be trying to make any guesses as to the direction the markets will take this week.

Suffice to say, things are not looking good. Even after all of the cash injections world governments have committed to, investors are still weary of putting their money into investments which they are not sure about. And rightly so. After all, the past few weeks have shown how over-leveraged (i.e. debt straddled) our corporations and banking institutions really are.

I think its about high time we got a bit more into the technical aspects of the financial meltdown. First, I think we are all aware of the fact that the US and 'industrialized' world economies are based on debt. Through fractional reserve banking, the US and its allies have run up tremendous amounts of debt growing their economies since the establishment of banking.

In order to understand how the process of making money works, i suggest that you view one of the two recommended documentaries at the end of this post. In a nutshell, the government gives the Federal Reserve bonds in exchange for the paper currency. The Fed then controls the money supply (and inflation) through the buying and selling of bonds on the open market. But all new money starts off as an exchange for bonds, so money itself is always 'owed' with interest. Therefore the debt is always increasing regardless of the governments budgetary surpluses or deficits.

However, that's not the end of the story. The paper money in use today is what is referred to as fiat money. For a period between Bretton Woods and 1971, the worlds currencies were pegged to gold (the gold standard), meaning, the paper money at least had some sort of intrinsic value. At that time, each currency was pegged to the dollar, and the dollar was re-deemable for gold. Please click on the pre-1971 $100 dollar image below and note that in the top left corner, it is written 'redeemable in gold'. As of 1971, Nixon unilaterally cancelled the Bretton Woods system and US dollars were no longer convertible to gold. The US dollar then became the defacto 'safe' currency. The IMF and World Bank function in US dollars and base their loans on fractional reserve banking.

So from 1971 forward, the US dollars value was based on the amount of money in circulation. Put in another way, the 'legal tender' value was determined by the physical amount of paper currency that was available. In essence, when more of the money was printed, the money already in circulation by definition had to decrease in value. An alternate way to look at this is that the price of goods HAD to increase due to the increased amount of money. So instead of looking at inflation as an increase in the price of goods, you should look at it instead as a decrease in the value of the dollar.

In simple economic terms, the law of supply and demand states that as supply increases (and demand remains steady), the price must inevitably decrease. Alternately, if supply is steady and demand increases, the price inevitably increases. Pick which way you choose to look at it, but either way, inflation is a tax that has been worked into the monetary system. It is inflation which lowers the value of our money. And if there was some sort of peg on which to base the value of the currency, inflation would be almost if not completely eliminated.

Given that the current market situation is the result of huge amounts of debt, it is extremely unlikely that the powers that be would decide at this point to peg the currency to gold again. I think they simply don't have the gold reserves necessary to accomplish something of this magnitude. However, the proposed solution is to fix the debt problem by issuing more debt. Well, I think that anyone can understand that this simply will not work. Giving a drug addict more drugs to get rid of the 'fix' is not really solving the problem, it is only delaying the solution. I think that it is inevitable that this house of cards will crumble at some point if a serious solution is not proposed.

Now, I know I am not the smartest guy in the world. In fact I only have a bachelors degree in finance, no masters and no doctorate. Therefore, I know that the establishment knows all of this as well as I do, and probably a lot more. So the question that arises is: why sustain this system which will surely result in economic catastrophe? Ultimately, this will end up costing those who have money the most, as their money will be worthless. So why?

Great video about the banking industry and the Federal Reserve: Money, Banking and the Federal Reserve.

Another great video: Money as Debt


Other interesting readings:

Global Research - Financial Meltdown: The Greatest Transfer of Wealth in History
(Amazing article which discusses several of the aspects I mention in this post)

Wall Street Journal - Moody's CEO Warned Profit Push Posed a Risk to Quality of Ratings

Reuters - U.S. Has Plundered World Wealth With Dollar: China Paper

International Herald Tribune - G-7 Warns Against Strengthening Yen as Financial Turmoil Deepens

The World Economic Forum Fails to Stem Crisis

There is a very interesting article on Bloomberg today about the World Economic Forum (WEF), which meets annually in Davos, Switzerland. The article discusses why the forum did not predict that the worlds debt was going to collapse on itself.

The WEF is composed and funded by 1000 global member corporations with revenues exceeding $5B. Naturally, a who's who of important global bank and corporate leaders, alongside their political front men and celebrity ego strokers, have been meeting every year for the past 27 years to discuss global issues and attempt to propose solutions.

There is something discomforting about the fact that these 'important' people meet every year to discuss our future under the pretense of solving 'global' problems. If that was truly the case, and the WEF was an effective forum for solving global issues, then why was this financial catastrophe currently gripping the world (an several others before it) not identified and dealt with at the appropriate time?

It seems to me these meetings are more about the attendees getting together and stroking their own egos (after all, they are the top global leaders, politicians and celebrities) than it is about helping people like you and me.

The World Economic Forums slogan is "committed to improving the State of the World". Quite clearly though, they are doing a lousy job as there have been multiple crises' and wars since the forum began in 1971.

On a positive note, at least the WEF identified Canadian banks as the soundest in the world. So at least my money is somewhat safe, even though our banks here in Canada have already started a push to pay their way out of the crisis through more debt. I and several of my friends have already received calls from our banks offering us lines of credit and increased credit card limits. I am still making the same amount of money as I was 3 months ago RBC!

Official World Economic Forum Website: http://www.weforum.org/


More Readings:

Bloomberg - Out of Control' Wall Street Chiefs Spurned Warnings at Davos

Business Week - Top Countries in Global Competitiveness

CTV - Canadian Banks the Soundest in the World: Report

Iraqis Hit Back at US Military Commanders

As I have largely ignored Iraq in my blog thus far in favour of issues more widely covered by the mainstream media, I have decided today to write a critique of recent US behaviour towards the Iraqi government.

The US Government is about to sign a pact (Status of Forces Agreement) with the Iraqi government to extend their troop presence in the country until June 30th 2011.

The US is doing its usual bullying job by attempting to intimidate the Iraqi Parliament into submission. Admiral Mullen, the US Chairman of the Joint Chiefs of Staff, warned that Iraq risked security losses of "significant consequence" unless it approved the deal to keep American forces in Iraq beyond the end of the year.

US Defence Secretary Robert Gates added a warning of "dramatic consequences," saying the US would have to "basically stop doing anything" if there were no Status of Forces Agreement.

At least the agreement will make US soldiers somewhat liable to the Iraqi government if they commit any serious crimes. As honorable as this seems, it will only occur in extreme cases of abuse of power, which will probably 'never' occur as US soldiers are known to be so well behaved in their operations around the world. (Please note the extreme sarcasm in my tone)


The Iraqis want to handle security in their own country (understandably so) and want the Americans to get out as fast as possible. Iraq's military spokesman Brigadier General Qassim Atta said Iraqi forces were ready to handle security across the country, noting that they already control 11 of Iraq's provinces.

But the Americans of course know best, and insist that if they leave, total chaos would reign in Iraq. Of course, with the brilliant way they handled the whole invasion, I tend to believe that the Iraqis know better about the security in their own country.

There is a great documentary on the American invasion of Iraq available on You Tube: No End in Sight. Definitely worth taking a look at.

The Long Winded Conclusion: After the US destroyed Iraq and its sovereignty, and lent it enough money to repair all the damage (at interest of course!), now they want to stay on for another 3 years to steal one of the most valuable resources the Iraqis have left: oil. Some might argue that this is the reason they went into Iraq to begin with, but be weary of mainstream media instilled ideas. The Iraq war was about much more than just oil (albeit oil was an important factor in the equation). The Iraq War was more about the next step in globalization and expansion of the global capitalist empire. It is a war designed to be sustained so that extreme government defense spending can be justified. Most of the profiteers in the war are western corporations anyway. Watch No End in Sight for more on this...

A great independent media source which covers Iraq quite often is: http://www.indymedia.org/


More readings on the subject:

Reuters - Pentagon Seeks to Calm Concerns Over Iraq Troop Pact

Reuters - Door Nearly Closed on Iraq Troop Deal, Gates Says

BBC - Iraqis Hit Back at US Commander

Al Jazeera - US Gives Warning on Iraq Troop Pact

Bloomberg - Iraq Says Mullen's Push for U.S. Security Accord `Not Welcomed'

AFP - 'Dramatic' Consequences Without US-Iraq Troop Accord: Gates

Don't Mind the Economy, Obama is Beating McCain

Obama opened a 10 point lead today over rival John McCain according to a Journal/NBC poll. This could be interpreted as people thinking that he is a better politician. I instead choose to interpret like this: Obama has raised $150 million in campaign contributions for the month of September. This broke all election financing records and dwarfed McCains allowed $84 million budget.

So While Obama is grossly outspending McCain and his ads are running at a 4-to-1 ratio compared to McCains, its no wonder that the American public has taken a liking to the Illinois Senator. The fact that McCain keeps putting his 72-year-old foot in his mouth regularly, and that Colin Powell endorsed Obama over the weekend, might just have put the last nail in McCains political coffin. Does anyone still think he has a chance to win?

I do prefer Obama to McCain, but the American people need an honest politician in office. Please see yesterdays post for campaign contributions to see who 'owns' the two candidates. Obviously, even though Obama looks and acts a lot better than Bush and McCain, and assuming he genuinely wants to help the American people, he will be VERY limited in what he will be able to do. His political backers own Washington anyway, and will be expecting a return of favors. Besides, look at the article at the bottom about fake Obama contributions. Very interesting read.

So go out and get informed about the banks and the financial crisis, because in the end, unless you are making over $100k per year, you will inevitably suffer because of the current financial situation. You don't own any stock you say? You work for the government so your job is safe? Well the several Trillion dollars about to be spent to bail out the banks and give them a free lunch after they screwed all of us through interest rates and bank fees, will lead to a VERY high inflation rate.

So when you are paying 10% more for everything from bread, butter and milk, to gas, cars and insurance, remember who got the short end of the stick during the bailout of the American economy.

There is a man who is trying to do something about this (and running for President of the US in 2008). You might have heard about him, his name is Ron Paul. Check out his Campaign for Liberty Website for more information about how you can participate.

At least watch this You Tube Video with a Ron Paul interview to get an idea of what he is about. You can see that at least he is trying to solve the real problem, and not worrying about getting elected or keeping his backers happy...

More Readings:

Reuters - Obama Opens Double Digit Lead Over McCain

Reuters - Obama Raises Record $150M in September

Washington Post- Questions About Online Controls Follow News of Fake Obama Donors

New York Times - Fictitious Donors Found on Obama Finance Records
(Very good article, indicating America's new darling politician isn't so squeaky clean after all. Please don't insult my or your own intelligence by suggesting he had nothing to do with this.)

Does Goldman Sachs own the US Government?

Today I decided to do a little research on Goldman Sachs, because I have been noticing the company’s name popping up all over the place during my readings of the financial crisis. So, here is a list of interesting Goldman Sachs facts, with links to their corresponding articles:

1) In September of this year, Warren Buffet invested $5Billion into Goldman Sachs non-voting preferred shares through his company Berkshire Hathaway. This by itself means absolutely nothing, but the significance will be made clear by reading the rest of the post. See Article.

2) Henry Paulson started working at Goldman Sachs in 1974, becoming CEO of the company in 1999. He remained as CEO of Goldman until his appointment as Treasury Secretary in 2006. Profile 1 (US Treasury) - Profile 2 (Wikipedia).

3) Of course Paulson had to take care of his old buddies at Goldman while disbursing a part of the $700B package. He has set aside a $10B cash injection for the company he used to run! See Article.

4) The man responsible for Henry Paulson becoming the US Treasury Secretary is a man by the name of Joshua Bolten. He worked in Goldman Sachs for 5 years from 1994 to 1999 and currently serves as George W. Bush’s Chief of Staff. Profile 1 (White House) - Profile 2
(Wikipedia)

5) The new Interim Assistant Secretary of the Treasury for Financial Stability and the man in charge of the Troubled Assets Relief Program (TARP) Neel Kashkari, who will be responsible for overseeing the $700B bailout package, is another Goldman Sachs alumni. He was actually already working at the Treasury as an Assistant Secretary of the Treasury for International Economics and Development, and will now play a dual role in the Treasury. Profile 1 (US Treasury) - Profile 2 (Wikipedia)

6) Kashkari in turn has tapped Reuben Jeffrey, an 18-year veteran Goldman Sachs executive, to serve as interim Chief Investment Officer for TARP. Reuben was already Under Secretary of Economic, Energy and Agricultural Affairs since June of 2007 and advises the Secretary of State on international economic policy. Profile 1 (State Department) - Article (Chron.com)

7) In September, after the $85 million US government bail-out of the American International Group (AIG), the world’s largest insurer, Henry Paulson pushed for a fellow Goldman Sachs-er to be appointed as the new director and CEO of the company: Edward M. Liddy. Board Member List (AIG) - Profile (Wikipedia)

8) The current Director of the National Economic Council is Stephen Friedman. He spent most of his career in Goldman Sachs, part of it as the chairman of the company, before taking on this role and a few others. PAY ATTENTION HERE: He is also the chairman of the President’s Foreign Intelligence Advisory Board (a banker in this position?) AND, is a class "C" director AND Chairman of the Board of the New York Federal Reserve (meaning he is elected to represent the public!). Profile 1 (Whitehouse) - Profile 2 (Wikipedia) - Profile 3 (New York Fed)

9) Robert Zoellick, the current head of the World Bank and former US Deputy Secretary of State, is a former Goldman Sachs managing director. Profile 1 (World Bank) - Profile 2

10) I saved the best for last of course. Lets take a look at who the top contributors are for the incoming president (Wikipedia)Barack Obama and his sure-to-lose opponent John McCain. Source: OpenSecrets.org

Obama 2008 Campaign Contributions

What do you know, Goldman Sachs is the top contributor to Obama's campaign this year. But don’t let this $739,521 fool you, they’ve actually donated quite a bit more to the Democrats, click here for the exact numbers.Let’s think about this for a second. Obama is always saying how he will support any measure that helps the average American (i.e. the little guys). However, 5 of his top 10 contributors (50%) in the 2008 election campaign are banks. His 10^th top contributor is Lehman Brothers, the institution which collapsed on the first black Monday, September 15^th, and arguably caused the ensuing meltdown. So would it be safe to say that Obama is thinking more about the banks (particularly Goldman Sachs) interests rather than the average Americans?

We Already knew McCain is a corrupt old fart that's owned by the banks and corporations, so its no surprise to find out that 4 of his top 5 contributors (80%) are banks. Note McCains third top contributor is Goldman. Click on the picture to go to OpenSecrets.org for more information.

McCain 2008 Campaign Contributions

I realize this is a long post, but it makes up for the fact I did not post all weekend. I encourage everyone to look all these people up for yourselves if you don’t believe me. Also, if I have missed someone over, please send me a note and I will verify and then add them. I will be continually expanding this post as I uncover more "Goldmanners" in government positions. Here is a link to the NY Times article which gave me the idea, and some additional readings on Goldman:

NY Times - The Guys From 'Government Sachs'
(They go too easy on Goldman in my opinion. Obviously there are huge conflicts of interest here but NY Times tries to play these down.)

Bloomberg - Goldman Sachs Paydays Suffer on Lost Leverage With Fed Scrutiny
(Bloomberg tries to make it seem like the poor Goldman executives will suffer pay cuts! Yeah right! One set of crooks standing up for antoher...)

Bloomberg - Obama Faults Bankers, Takes Cash

Other prominent people who were employed first by Goldman Sachs, and then by the US government include:

• Former treasury secretary Robert Rubin.
  

• Former President of the Export-Import Bank of the US Kenneth D. Brody.
  

• Goldman Sachs' graduate James Johnson served as president and CEO of quasi-government housing lender Fannie Mae.
  

• Dan Jester has been involved in most of Treasury’s recent initiatives, especially the government takeover of the mortgage giants Fannie Mae and Freddie Mac.
  

• Steve Shafran, who is currently involved in the Treasury's initiative to guarantee money market funds.
  

• Other prominent Goldman executives currently employed by the Treasury include Kendrick R. Wilson III, Edward C. Frost and Robert K. Steel.
  

Markets Fall Again, Warren Buffet Says to Buy

(Image Courtesy of Bloomberg)

The big news of the day is that the stock market began a rebound, before starting to fall again near the close of the markets. The DOW went up to over 200 points, but ended the day 127 points down.

I think a big portion of todays rally has to do with the Warren Buffett's Op-Ed in the New York Times. If you have not read it, its definitely worth taking a look at. Warren Buffett, one of the worlds most respected investors, is currently buying US equities as part of his private portfolio. As he says:"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." He goes on by quoting Wayne Gretzky:"I skate to where the puck is going to be, not to where it has been." Pay attention, he is one of the major 'market-makers' of the global economy and it would appear that people liked what The Warren had to say, as equities began the day on an upward trend.

In other news, Nikolas Sarkozy and European Commission President Jose Manuel Barrosois are due to meet US president Bush for talks about a potential summit to 'reform the financial system.' Reuters has a very good article which addresses this issue and contrasts it to some of Karl Marx's theories. In particular, the author mentions that one of the several steps towards communism is government control of capital. Keep in mind, in his book the Communist Manifesto, Marx advocated a natural progression towards a communist society, not one achieved through revolution (as has been the case with each and every communist regime in history).

Meanwhile, W. has called on Americans to "to trust in the government's series of interventions to fight the crisis in the banking system." That's a laugh. With his and the US governments track-record of spectacular achievements, its no wonder the markets seem like they are suffering from schizophrenia...

Readings:

NY Times - Buy American, I am
(This is Warren Buffets Op-Ed, definitely worth a read)

Reuters - US and France to Meet on Financial Crisis

Reuters - Karl Marx and the World Financial Crisis
(Fantastic article, definitely worth reading)

International Herald Tribune - Bush Says US Bailout Package Will Take Time

BBC - Bush Urges Patience Over Economy
(This article includes a video of Bush pleading for patience.)

Calls for 'Reform of Financial System'

(Image courtesy of PBS)

So Today UBS is getting a $60B dollar bailout from the Swiss Government. In essence, UBS will put $54B of its toxic assets (i.e. subprime mortgages) up as collateral into a fund administered by the Swiss Central Bank, and in exchange, will get the $54B in cash. That by itself is a pretty sweet deal for the Swiss banking giant, but it gets even better. The Swiss National Bank will also give UBS 6B Swiss Francs (~$5.2B) in cash with no mention of any kind of repayment. The $54B will carry an interest rate of LIBOR + 2.5%.

Chatter is now beggining about the looming economic crisis (not to be mistaken with the financial crisis). As Nikolas Sarkozy said: "If we can bring coordinated answers to the financial crisis, can we not bring coordinated answers to the economic crisis?" Of course, Gordon Brown agreed and said that "EU leaders had agreed on the need to reform the international financial system."

The 27 EU leaders and now calling for 'co-ordinated' action to combat the economic decline and the major new initiative is the backing for an overhaul of the Bretton-Woods Agreement, which was established in 1944. Lets not forget that Bretton Woods was the place where such great ideas as the IMF and World Bank came from. These institutions have contributed very little in terms of economic stability, but have contributed a great deal by creating vast sums of third-world debt. For more information on this subject, please see John Perkin's amazing book: Confessions of an Economic Hitman.

Readings:

Reuters - EU and US to Meet on Financial Crisis

Reuters - Most of G7 in Recession, More Rate Cuts Ahead

Bloomberg - Switzerland Bails Out UBS

Bloomberg - Obama Invites Manhattan Donors to Help Get U.S 'Back on Track'

International Herald Tribune - Wall Street Gyrates After More Losses in Global Shares

BBC - US Industrial Output Down Sharply

BBC - Shares in the US Continue Falling

Markets Tumble as Recession Fears Trump Bailout

(Image courtesy of Bloomberg)

Although I predicted wrongly that the markets were going to drop on Monday, I was at least correct in the conclusion that they were going to end up sinking like rocks by the end of the week, which seems to be what is happening right now.

The Dow closed 733 points down on fears of 'recession', which I think is the understatement of the year. Why is all the media gently saying 'on fears of recession' or in order to 'avoid recession' when a more appropriate word for it would be a total catastrophe? Even the Bloomberg article at the bottom says that the Asian stocks are sinking due to 'concerns' of recession.

So the sinking is continuing, and the UK is already proposing a solution through the 'reform of the global banking system.' Gordon Brown said the IMF should be "rebuilt" to help regulate the world's financial systems. And Angela Merkel and Nicolas Sarkozy are both calling for 'better international supervision of the financial system.'

I think the IMF, World Bank or some new agency created to regulate global banks will have a very important role in shaping how this financial crisis will play out...


More readings:

BBC - EU Leaders Seek Broad Bank Reform

BBC - G8 Backs Financial Reform Summit

Reuters - Markets Tumble as Recession Fears Trump Bailout

Bloomberg - Asian Stocks Slump on Recession Concerns

Bloomberg - Europe Aim for Global Bank Rules Meets US Objection

Harper Scores a Bigger Minority Government

So the results of the Canadian Election are in. No big surprise here as Harper and his Conservative minions took the most seats (143), gaining 17 seats in this election. Thankfully, Harper will only be prime minister of a minority government.

Stephane Dion's future is being questioned, and hopefully the liberals will elect someone with a little bit more personality. Dion is a good and smart guy, but as we all now, these days you need to be charismatic as well to win elections.

Here are the final results of the election:

The results are pretty close to the election exit poll which I posted yesterday...


More readings:

Globe & Mail - Dion's Future Questioned

Globe & Mail - Harper Bets the House, Wins Another Minority

National Post - Tories Get Another Minority, But a Stronger One

National Post - Liberals Ready to Support Harper on Economy

National Post - NDP Made Gains in B.C. and Atlantic Canada

Canadian Elections Almost Go Unnoticed

With everything that is happening in the world, you could be forgiven for forgetting to go out and vote today if you are a Canadian citizen. I just got back from voting and I must say, they really should have included a vomit-bag with the voting card. I mean, this election was just such a waste of everyone's time (and tax dollars) and the power structure of the country will inevitably stay almost exactly the same. So here is what I have to say to the leaders of our 5 major political parties:

Why waste our tax dollars on a useless election Mr. Harper? You, as well as the rest of Canada, know that you are an idiot, so why not just ride out your full term and go away! We don't like you. The only reason you are getting any votes is because you lie well and can keep a straight face while doing it, and because voters are still pissed at the Liberals for the sponsorship scandal.

Stephane Dion, once you lose this election to the above mentioned imbecile, you might consider moving aside and letting a more charismatic leader come to lead the Liberal party. As much as I respect your intelligence, you have 0 charisma and ability to move and motivate people. The liberals need someone like Obama, to at least create the illusion of a breath of fresh air. Do I sense young Justin Trudeau being groomed for the position? We will see...

Jack, you got lucky this election. I don't usually vote based on my dreams, but I dreamt last weekend that we were having lunch, so for the lack of a better choice, I voted for you. Consider yourself very priviliged!

Gilles. What can I say to you that you don't already know? Quebec is a part of Canada and will always be a part of Canada. We are moving towards a unified world, not a separated and segregated one, so when you figure that out, you might want to get that big French stick out of your ass, and let a new generation of Quebecer politicians onto the scene.

Elizabeth, I can't say I know much about you. I can only say that if I did not have that dream about having lunch with Jack Layton, I would have voted for your party. Go Greens!

So that was the official exit poll taken last night by the Globe and Mail.

If you are looking at this from a foreign country, it should be quite indicative of how shitty our choices are, if I voted based on a dream that I had. Hopefully Jack won't disappoint if he wins...


Some readings if you are interested:

Associated Press - Sketches of Top Party Leaders

National Post - Canadian Election Night

Toronto Star - Michael Moore Turns Table on Tories?

Globe & Mail - Leaders Face Tough Fight Beyond Finish Line

Globe & Mail - Layton Says NDP Message Got Through

Markets Rebounding, But For How Long?

So we're back to discussing the financial crisis today. I have returned to the office after a short Thanksgiving holiday (in Canada its earlier), and it seems that the stock market is having an identity crisis today.

Although the good news of all the cash injections and bailouts being offered to the banks seems to be sinking well with the markets, they still seem to be having some digestive difficulties with all of these governmental plans. Also, I don't see anyone in the press stopping to ask the obvious question: Where is all this money coming from?

It would apprear that the authorities (both governmental and economic) would have us believe that throwing money at the problem will result in a shoring up of market confidence. But is this really a long-term solution? Will giving more power and money to the banks really solve the problem?

Another interesting question to think about it why the US government (and many others around the world) are now speaking about buying equity in "healthy" banks. If the banks are "healthy" as they say, wouldn't it make more sense to buy equity positions in not-"healthy" banks, so as to avoid further bank collapses?

There is something fishy going on here. First with Henry Paulson, Gavyn Davies and now Neel Kashkari (the newly appointed head of TARP) all being former Golden Sachs heavyweights. Also, look at the nine banks the government will mostly invest in: Citigroup, Wells Fargo, JP Morgan Chase, Bank of America/Merrill Lynch, Morgan Stanley, Goldman Sachs (of course), New York Mellon Corp and State Street Corp. (The other smaller banks will get peanuts)

Then lets look at who was just chosen to administer the $700B U.S. Treasury plan: NY Mellon Corp. Coincidentally, they are also about to receive $3B as an 'equity' investment from the government. What a stroke of luck...

Third, look who was chosen to bail the banks out. Just look at Paulsons face. Does this look like someone who is looking after your interests?

To conclude, there is something more going on here than meets the eye. I will be putting together some posts on these nine banks in the coming weeks in the hopes of clearing up some of the inevitable confusion surrounding the free lunch the banks are about to get...

In the meantime, this website gives you a nice overview of how the US government spends its tax dollars: http://www.federalbudget.com/

Notice the interest payments for 2006 were $405 billion. Compare that to the TOTAL amount spent on education and transportation combined: $117 billion. And this was in 2006!


More readings for the day:

Bloomberg - Paulson Plans to Invest in Thousands of U.S. Banks
(Ironically, the name of this article changed between earlier this afternoon and now. Basically this article discusses the equity injections into the banking system by the US Treasury)

Bloomberg - BNY Mellon Chosen to Administer U.S. Treasury Plan
(This article discusses the appointment of BNY Mellon as the Treasuries Treasurer...Ironic...)

Reuters - Buy Out Bosses Meet in Dubai
(Now what in the world could these guys be doing right now?)

Reuters - Even as Markets Rally, Executive Fear Bear Trap
(Finally, a decent article on the financial crisis)

International Herald Tribune - U.S. Investing $250B in banks
(Good article with a few additional details)

International Herald Tribune - After Early Rally, Wall Street Loses Steam
(Loses steam today, and by tomorrow or Thursday, we should be sliding again. There aren't enough pro-banking laws that were passed yet...)

BBC - Timeline of Global Credit Crunch
(Good stuff from the BBC, showing a timeline of events dating back to April 2007)

Obama Unveils Economic Package

View Original BBC Article
(Image courtesy of www.notcot.com)

So today I decided to critique Obama's and McCain's economic platforms, since I was completely off in yesterdays post by saying that the markets were going to sink today.

This article comes with two videos, one on each candidate's future plans for the US economy if elected. You can see both Obama and McCain making a lot of promises which I think are going to be very hard to execute given the current market situation. People seem to forget quickly about the amount of debt the economic situation at hand is going to generate.

The interest payments alone on all this extra debt will immediately eat up a big portion of the future governments budget, so this will strongly impact their future spending abilities.

In this case, I am slightly more inclined to believe Obama, because at least he is honest about increasing taxes to the wealthy. This will inevitably generate billions more in revenue for the government. We will see whether its going to be enough after the dust settles from what is happening with the worlds financial system.

More readings on the subject:

Reuters - Obama lays out modest steps on the economy
(Reuters does a great job explaining Obamas plans in this article)

International Herald Tribune - Obama adds emergency planks to economic platform
(Another European take on Obamas plans)

Europeans Agree on Bank Support Plan

View Original Story on Reuters
(Photo courtesy of Reuters)

What a big happy family they all are! This is going to be a short post as I have a massive hangover and a pounding headache.

It seems that there is agreement between the European nations on a common front to give support to the European banks. There is no mention of a US-style monetary bailout, but as mentioned in the previous post, the 'togetherness' is going strong. The signals are clear and in place: first the G7 meeting in Washington and now the meeting of European heads of state in Paris.

My thoughts on all of this is that the steps being taken by the overt powers are only the beginning of a series of measures which will be designed to give more financial control to the banking establishment.

Now the obvious question here is why would we give the people who are responsible for this whole mess more financial power?

There are many answers to this question. Mine is that the banks already have a level of control over the political establishment, and the current crisis is being used as a means to solidify their position as our owners. The political and economic system that we live in is a debt-based one with only one guaranteed winner at the end of the day. I'll leave it to you to figure out who that is.

My prediction is that the measures taken today will temporarily calm the markets. The markets will sink on Monday, as has been the case for the past few weeks, but will rebound and remain steady for a few days. By mid-week they should be sinking like rocks again and next weekend we will need more measures give them a 'boost.' You heard it here first...

More interesting articles for today:

Reuters - Finance Minsters Endorse G7 Plan
(But of course they do, imagine what would happen if they didn't. Tomorrow, The Dow would drop 1000 points at least. If you read this article, there is really very little concrete measures being taken, its more of a confidence booster which they think will play a positive psychological effect on the markets)

Bloomberg - European Leaders Vow Bank Guarantees
(Bloombergs take on the situation.)

BBC - European Banks Rescue Plan Agreed
(This article includes a video of Nicolas Sarcozy announcing the measures to be taken in the rescue plan)

What is Wrong With the World These Days?

View Original BBC Article
(Photo courtesy of AP)

So I woke up this morning hoping that I can avoid reading about the damn financial crisis for one day, but our media just won't stop until I've had my first heart-attack!

The BBC article is titled: "Bush plea for unity on global financial crisis." I wonder what that means. Its one of those 'support our troops' statements. Who can disagree with this? For more information about this, read Noam Chomsky's Media Control. Great book about how the media manipulates our opinions. Anyway, where are they going with all of this? Lately, all I seem to be reading about is: "In an interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together."

That kind of sums up the direction this is all going in. It seems that this "togetherness" and "oneness" is the way to go forward, I mean think about it, doesn't it make sense that "we must ensure the actions of one country do not contradict or undermine the actions of another." We already have the EU, we are moving toward an NAU (North American Union) and of course there is already speak of African and Asian Unions, so the foundation is already in place...

One country acting unilaterally? We absolutely cannot have that! After all, now that almost all the political individuality has been eroded, its time for to take economic control. End result? Probably a global central bank to administer all of the individual central banks, so that this kind of shitty situation does not happen again.

The question you should be asking yourself is this: Would this shitty situation even have come about if it weren't for those Wall Street types playing with our money and bankrolling politicians all the way to the White House?

Its like monopoly, its always easier to play with someone else's money and lose it. Why do you think that when you go to a casino, you get chips instead of using your cash to play? Because its much easier to throw it all away on a crappy hand when you are using chips to play and not your own money. Think about it.

So this is it for the article review, i know its kind of brief, but I will spill more thoughts in the coming posts.

Some interesting readings to consider for today (and my take on them):

Reuters - IMF warns of financial meltdown
(Aren't we already there?? I love how they refer to the steps they are taking as necessary to avoid a global recession. More on this in an upcoming post.)

Reuters - Bush says financial crisis needs coordinated response
(More of the same "togetherness" BS)

Bloomberg - Paulson Indicates Need to Purchase Bank Equity `Soon as We Can'
(The new Tsar of the US indicates the government will now become an equity holder in banks. In other words, the government will now have a say in how these banks are run.)

Bloomberg - G-7 Commit to `All Necessary Steps' to Stem Meltdown
(Another take on the BBC article, slightly less BS though.)

International Herald & Tribune - Bush again tries to reassure Americans
(Who agrees that he should just shut up? I mean every time he opens his mouth, the market drops 100 points.)

Introduction to Zen Ziggy

This is my first ranty post, and will likely not be read by many people, so here goes:

First of all, I should introduce myself. I am an almost 30-year old, Montreal-based finance major who works for one of the top 5 Fortune 500 companies (don't ask which one, I prefer to stay anonymous so they don't fire me!). My interests lie mainly in music (!), internet business, reading about ancient civilizations and history in general, sports (especially soccer) and of course finance. I actually have lots more interests, but I am not going to bore my non-existent audience with those! This blog will be a little out there, and I am not afraid to be controversial and step on a few toes to get an idea across...

Bear with me here as this is my first blog post on my first blog, so it might not be following any kind of established blog structure (who gives a shit anyway?).

I will be reviewing articles on major media outlets. I am a strong believer of dissecting this propaganda which is fed to us on a daily basis, and I look forward to point out some issues which I think are important for people to think about. I think its important to balance the information being processed by our minds so that we can form our own opinions, instead of just accepting what the media would have us believe is reality.

I also believe strongly in Zen and my thoughts are influenced by eastern philosophies, hence the name Zen Ziggy. Hopefully some of that will also be reflected in my upcoming posts. Feel free to comment and email me, even if it is to tell me that I am full of shit. I always welcome feedback, even if it is negative.

Enjoy!

ZenZiggy