Tons of money was made and I saw many many people get involved in the market. One of my fathers cooks at the restaurant actually purchased a home in Aug of 2006 for the incredible top ticking bubblicious price of $507,000.00!!! His income? $2,100.00 per month. That's how out of control it got in California and it was all around me. So back to the news clip on that cool winter day in Australia (our summer is their winter, duh!) I recall this analyst talk about "mortgage backed securities" and how the "secondary market" would freeze up. Once I heard these terms in conjunction with subprime I raced to the computer and learned what the hell these things were. This was the beginning of my financial awakening.
Think about these key concepts:
(1) All money is LOANED into existence
(2) Debt assumes that the future will be larger than the present
(3) It is debt that forces us to scramble around in the attempt to collect “money” to pay back what we borrowed
(4) We can only find money in this system so long as someone else borrows as money is created when people borrow
(5) When people stop borrowing no money is created thereby causing defaults and threatening to destroy the system as others can no longer repay what they borrowed
(6) Borrowing requires the system to grow forever and forever
(7) the world is finite with limited resources making it impossible to grow forever
(8) peak oil will limit the worlds growth
(9) exponential growth is incompatible with a finite planet
From there I learned about the bond markets, stock markets, commodities, currencies and basic economics. At this point law school became a means to an end as first year grades placed me below the median. What really mattered was my real education that I was learning on my own. Oddly enough I got better grades the less I studied. What the fuck right? The second year of law school consisted of class, clerking for some insane attorney, working at the library and my own "special education." By the summer of 2008 we all know what happened: crude hit $147 a barrel, regional banks started to fail and then bigger banks began to fail and that’s when some banks became to big to fail. By the fall of 2008 all the recklessness, greed and fraud came home to roost with a stock market collapsing from 14,000 points 8,000 points, then to fall to a whopping 6,600. The collapse in the financial markets had finally arrived.
And it only took a little more than a year after the worries first began. At this time I was a third year in law school, law firms were cutting staff like crazy, and job losses totaled up to 700,000 per month. People were losing jobs in real estate, construction, finance, trucking, and in manufacturing. Some of these job losses were necessary (too many real estate brokers) while others were victims of the close to 10% drop in real GDP. The correction was here and was doing its damage. The most important and healthy thing the correction did was push down real estate prices. While most people with skin in the game think this is a crazy statement, the reality is that real estate became too expensive. Too many scarce resources were being diverted towards the service of mortgage debt when it easily could have been directed elsewhere. This correction is taking place right now with millions of Americans that have stopped paying ridiculous mortgage debt in exchange for rent that is a third less of their original note. The true recovery factor in this country is because of all the money that is no longer going towards mortgage debt and is being spent in the economy.
But of course, the authorities, the powers that be, made the story take a different direction. They decided to load the country up on debt, and lots of it to the point where we are now pushing $14.3 trillion. Just imagine that in September of 2008 we were below $10 trillion. The big banks were kept alive and they are back to business as usual, fucking the average joe. I believe a friend of mine may have been a bit late on her Citicard (citi bank) and they increased her interest rate from 8% to 29.99%. And this is the bank we bailed out with taxpayer money?? And yes these banks continue to rob John Q. Public with their prop trading desks and their use of high frequency trading whereby they front run their clients accounts by microseconds, taking pennies away from pension funds one micro second at a time. Some of these banks have record trading quarters from time to time! Wow, such talent! Such a great contribution to the quality of life for the human race. Please. These people are modern day pirates with nice suits on but hearts and souls of black shit.
I talk to many people everywhere I go. Whether in court room, the store when buying smokes, the bar, on the street, at the coffee shop. In 2009 I would tell people “you hear about the job losses last month?” and they would respond with “things will get better.” That in fact was the response I received the majority of the time. Fast forward to 2011 and when I bring up the economy, even though the stock market has roared back and the job losses have been plugged for the time being, people respond with “things are all fucked up.” More and more people are beginning to realize that the employment numbers are goosed or that inflation is cooked to the downside. Most importantly, people are beginning to realize that paper money is essentially worthless. I follow what people say in the comments section of the major media websites such as CNN, CNBC, FOX, MSN, and YAHOO news. Whereas before people were getting into their usual left-right battles about “how it was Clinton’s fault” or “no it was Reagan and Bush’s fault” today I’m seeing a lot more comments to the effect that “both parties are fucked up.” When/if people lose faith in the current system which is rotten to the core, only then can we have a true correction. And not only that, but when people learn that our current system of debt money is basically one big fraud, perhaps we may even see the rejection of this monetary system.
Why even have debt? What purpose does it serve other than to destroy the earth and ourselves at a much quicker rate? The simple reality is that if people didn’t have debt they wouldn’t be in such a scramble to “hustle” in order to pay off this debt. It is debt that comprises the massive hamster wheel that the entire world is running on. Could you imagine a world without debt? Or a massive jubilee announced across the entire world? That would be amazing wouldn’t it?
Just last night I was watching Greek TV and the news were saying how 3 people committed suicide in the last 5 days because of their debt woes. Mind you Greece is a small country so they actually report things like this. Even on American websites and forums I hear graduates talking about wanting to kill themselves because of the huge debt burdens they carry. Even those who are employed but have large student loans are still scrambling, working, hustling like mad, many of them working extra jobs, just to pay down that debt. This imaginary entity, this debt, was created when Bank A (lender) credited Bank B’s (law school’s bank) account with X amount of dollars created from thin air. In turn, borrower student signed a promissory note (with bank A) promising to pay what he borrowed (that was created out of thin air) PLUS interest. What a fucking fabulous system we have created! Banks used to loan out deposits but now loan out AGAINST their deposits, hence the term fractional reserve banking. This fraction reserve banking system, which works so long as the economy continues to grow, basically requires that the economy MUST grow. Every year, every month, the “economy” must grow. We MUST eat more, shit more, drive more, buy more, text more, everything more more more. Because if we don’t grow then the system implodes onto itself into a nightmarish deflationary collapse. So as this system requires the world to grow, it puts us all on the hamster wheel, ensuring that we do what we can to make sure we pay off our debt, but in turn making sure the economy grows.
It basically comes down to this: the entire world economy is based off of a fucking equation. Yes you heard that right, our lives, our well beings, our futures, are based off of an equation. And the equation posits that the world must grow, must consume more, must waste more, more trash, more crap, more stress, more fat. The growth junkies are so captured by this equation that many commentators were seeing the Japanese disaster as a “opportunity” for GROWTH! Please notice and recognize the use of the word “growth” in news articles as it is the basis for everything for the equation.
Our money system requires that the world grows, that eventually we pave the entire planet seven times over, just to satisfy the equation. Nearly everyone lusts after the power of money, yet very few understand or even know what it is. Yet the awakening grows each day as the powers that be expose the secret of what our money truly is, how it is nothing. When Bernanke and the rest of the crooks at the Federal Reserve crank up the printing presses creating trillions in the process, smart people see that there is no true value in something that can be created out of nothing. Look a little deeper, and you will learn how destructive this “nothing” can be. Yes, all money is loaned out of existence. Bernanke creates money as he “loans” it to the federal government in exchange for treasury bonds, or the US taxpayers promise to repay something that was created out of nothing.
Again, think about these key concepts:
(1) All money is LOANED into existence
(2) Debt assumes that the future will be larger than the present
(3) It is debt that forces us to scramble around in the attempt to collect “money” to pay back what we borrowed
(4) We can only find money in this system so long as someone else borrows as money is created when people borrow
(5) When people stop borrowing no money is created thereby causing defaults and threatening to destroy the system as others can no longer repay what they borrowed
(6) Borrowing requires the system to grow forever and forever
(7) the world is finite with limited resources making it impossible to grow forever
(8) peak oil will limit the worlds growth
(9) exponential growth is incompatible with a finite planet
Right now the system is desperate for growth, desperate for new money to be introduced into the system. With businesses strapped and households already overburdened with debt, only the government can borrow to spend into the economy. There is also one more class of persons that can borrow right now, and that is the student borrower. Once confidence in the student loan con disappears, that bubble will burst as well. Don’t get caught in this trap ladies and gentlemen as it is especially vicious. At the present time there is no escape from the clutches of the student loan as it cannot be discharged in bankruptcy. As of now, it MUST be repaid. Therefore, don't let the "equation" get to you because according to the worshipers of the "equation" people NEED to borrow. Uncle Ponzi NEEDS YOU!
In conclusion, it is imperative that people learn about our money system and how flawed it is. We cannot rely on a system that requires perpetual growth as the humanity has its ups and downs. Right now, people are slowly beginning to realize what a con the entire system is. To further your education in this abstract and complicated area, please go to Chrismartenson.com and watch the "crash course" which is a great presentation discussing the "system" in much greater detail. It's free and is probably the most informative presentation I have ever seen. Get on the ball people because we may not have much time left before the real turmoil begins.
That’s all for now
Subprime
I totally agree with the idea that debt has become too burdensome, and is taking over our lives. But your timeline is a little bit off with comments like, "They decided to load the country up with debt..."
ReplyDeleteThe 2007 budget was actually passed pre-crisis, in 2006. And even the 2009 budget, with the higher debt levels, was passed in October of 2008, right after the crisis became widely known. So for 2007 through all of 2009 we were operating under budgets created pre-crisis, or under people's first reaction to the biggest loss of revenue the country had seen in three generations. It was only in the 2009 budget implemented in 2010 that there was any sort of real response to post-crisis conditions, and that budget didn't go into effect until last year. So that's your first real "debt" budget.
So I totally agree with you on the system being basically a fraud, but I think the timeline matters when you talk about the response to the crisis, because that response trailed on for years longer than you're acknowledging here.
That should read "It was only in the 2010 budget passed in 2009 and implemented in 2010..."
ReplyDeleteGood writing, only thing that sucks are that the people who read this are the ones who have already taken on massive debt.
ReplyDeleteTo Anonymous at 1:01 PM:
ReplyDeleteINCORRECT. I am a recent buddy of Subprime's, a recent law school dropout, and an avid Subprime reader. I have taken every measure I can inside my limited resources to accord with Subprime's recommendations.
THANKS MAN! Keep pumping out these articles!
Back in 2008, before the general elections, people were touting Barack Obama as the "Chosen One." Many folks fell for the "hope and change" bullshit slogans but there was something I didn't trust about the man or myth. Well now it is all too apparent. President Obama is a mere puppet, and the strings are manipulated by the Goldman Sachs and JP Morgan Chases of the world. We are fucking cattle being led to the slaughter. Right now we are in the fattening up stages. Our day is coming. Yes we are all fucked.
ReplyDeleteAnon @ 2:21 AM
ReplyDelete"President Obama is a mere puppet, and the strings are manipulated by the Goldman Sachs and JP Morgan Chases of the world"
Absolutely correct. But the good thing is that people are beginning to learn who pulls the strings whereas in 2008 the hopium was as potent as all hell. Each election includes less legitimacy for our beloved "rulers." Sadly, the vast majority of college educated types are so indoctrinated in this country that no matter what you show them they refuse to open their eyes because not only do they like the system, the believe it in as well. Those are the toughest brains to crack as they have been conditioned to only rely on "authorized sources" and would never accept anything said on this little blog.
And not that I know what the hell is going on. I'm just a 28 year old punk lawyer who reads alot about economics, finance and geopolitics. I simply understand certain things that the media never EVER talks about, so I discuss these things here so people can learn.
You also said..
"We are fucking cattle being led to the slaughter. Right now we are in the fattening up stages. Our day is coming. Yes we are all fucked."
I have to disagree with this statement. And do you know why? Because of this: fuck them! Life is larger then their stupid papers, digits and software algorithms. And as a matter of fact if they do in fact blow up the currency that means they have lost control. Remember what the elder Rothschild said in Congress:
"Give me the power to issue a nations currency, and I care not who makes it laws"
If they destory the currency then they lose their power. And with so many people drowing in debt that I know, I saw fuck it, wipe it all out, its debt Jubilee time bithezzzz
Lengthy post, but I am glad I read through it. You learned more by watching these markets, than you probably did in school. At a minimum, you picked up more useful info this way.
ReplyDeleteIn the next week or so, total student loan debt, in this country, should crack $900 billion. The fact is corporate America has such a stranglehold on power, I fail to see how we can change course.
2:21,
ReplyDeleteWe'd all love to hear your opinion of the Prez's performance in the 2000-2008 timeframe. Somehow, I don't think all of the USA's problems started when Obama took office in January of 2008.
I totally agree with the sentiment of Anonymous 10:15 PM above, but um, the election was in 2008, Obama took office in January 2009, and the first budget passed under Obama didn't start until 2010, and, finally, we haven't had an actual budget for the last six months. The country has been operating under temporary measures while the GOP bickers over Planned Parenthood and NPR funding, both of which together total something like a week's worth of military operations in Afghanistan.
ReplyDeleteSo blaming Obama for the budget is stupid, in that it ignores the laws of time and space in order to justify "Hope and Change" puns. Not that I expect facts will help much, but still.
So if money is worthless, why get so enthused about the price of silver? Isn't that as illusory as paper money? You can't feed or clothe yourself with a precious metal.
ReplyDeleteAndy,
ReplyDeleteAt the present time paper money is not worthless as it still buys you goods and services, ergo, it functions as a medium of exchange. The reason why I'm bullish on the metals is because currency debasement is taking place as we speak. The more paper money there is relative to precial metals, the more value paper money loses against the metals. Of course you can speculate on other things to maintain your purchasing power but historically precious metals have served as currency. In fact, the US Dollar used to be as "good as gold" because each dollar in existence was backed by a certain amount of gold. In addition, the word "dollar" is actually a measurement.
So whether paper currencies completely collapse or lose 50% of their current value, I prefer to hold silver and gold as savings as opposed to fiat dollars which are being created at a pace of a trillion per year.
I get rid of paper money as soon as it hits my hands. I m stocking up on precious metals and bullets JD
ReplyDeleteA tour de force--thanks.
ReplyDelete"Sadly, the vast majority of college educated types are so indoctrinated in this country that no matter what you show them they refuse to open their eyes because not only do they like the system, the believe it in as well. Those are the toughest brains to crack as they have been conditioned to only rely on "authorized sources" and would never accept anything said on this little blog. "
So true. And true also that a lot of these people are so terrified about losing what little privledge they have that they are less willing to question the prevailing way of things.
Please read the article entitled "Financial Totalitarianism".
ReplyDeletehttp://cluborlov.blogspot.com/
@ cluborlov,
ReplyDelete"Those who care to look can easily turn up plenty of evidence that the value of every type of financial asset, not just fiat currency or debt instruments, is unsupported. Its value derives from the goods and services provided by a functioning global industrial economy, which is quickly running out of every type of resource it requires; not just high-EROEI fossil fuels, but also metals, rare earth elements, phosphate, irrigation water and arable land. As industrial activity dwindles, worker productivity will decline precipitously. Many people point to precious metals as the ultimate storehouse of value, but without industrial equipment a man can only put out about 100 Watts of energy—a light bulb's worth—and won't dance any faster no matter how many gold or silver coins you throw at him"
Excellent paragraph and I agree 100%. However, I am considering a longer time line. IF things ever fall apart that bad then percious metals themselves will return to their intrinsic value. However, I am hopeful that things won't turn out so bad, at least in our lifetimes.
As an Economics and Management grad, I have trouble buying into your 'precious metals are the key to survival' theory.
ReplyDeleteYou can hold metals all you like, but you can't exchange them for goods in any convenient manner. They have no fixed value as a means of exchange and they never will because metals are limited in quantity and distribution. That's the reason the gold standard was dropped; everytime a new gold deposit was found, the value dropped and then rose and supply dried up, since the US Dollar was fixed to it, it made the currency extremely volatile, moreso, considering that the majority of gold deposits were not in countries that agreed to the gold std.
Also, money is not created 'out of thin air' what you deposit into a bank, gets loaned out on interest, it's how a bank makes money. You deposit money, they loan it out to people, who borrow it, they get charged interest which they pay back with their earnings.
And, no bank in this world loans out all it's loanable deposits to US corporations or citizens. The world is much bigger than the US and a shit ton of loans are given to foreign corporations (and mining firms incidentially).
You can learn a lot of economics outside of university, but boring fundamentals and economic history are not as readily available outside of university settings...and wikipedia is not a reliable source of information...yet.
Econgrad:
ReplyDeleteYou should read Modern Money Mechanics which was written by the Chicago Fed to learn how money is created. Banks do not lend out deposits, rather, they lend money (create money) based on their deposits. Here is an excerpt from the article:
These reserves on Bank A's books are matched by $10,000 of the dealer's deposits that did not exist before. See illustration 1.
How the Multiple Expansion Process Works
If the process ended here, there would be no "multiple" expansion, i.e., deposits and bank reserves would have changed by the same amount. However, banks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets - loans and investments. Unused or excess reserves earn no interest. Under current regulations, the reserve requirement against most transaction accounts is 10 percent.(5) Assuming, for simplicity, a uniform 10 percent reserve requirement against all transaction deposits, and further assuming that all banks attempt to remain fully invested, we can now trace the process of expansion in deposits which can take place on the basis of the additional reserves provided by the Federal Reserve System's purchase of U. S. government securities.
The expansion process may or may not begin with Bank A, depending on what the dealer does with the money received from the sale of securities. If the dealer immediately writes checks for $10,000 and all of them are deposited in other banks, Bank A loses both deposits and reserves and shows no net change as a result of the System's open market purchase. However, other banks have received them. Most likely, a part of the initial deposit will remain with Bank A, and a part will be shifted to other banks as the dealer's checks clear.
It does not really matter where this money is at any given time. The important fact is that these deposits do not disappear. They are in some deposit accounts at all times. All banks together have $10,000 of deposits and reserves that they did not have before. However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent reserve requirement, is $1000. The remaining $9,000 is "excess reserves." This amount can be loaned or invested. See illustration 2.
If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they
do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.
http://www.rayservers.com/images/ModernMoneyMechanics.pdf
Did you ever read this in school?
Econgrad:
ReplyDeleteEmphasis on the last paragraph:
Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created.
There you have it, straight from the fed itself. Money is LOANED into existence.