This was written by my patriot friend Stan in Florida:
Notes on the Margin
There were a couple of events that took Wall Street by surprise – although they should not have fallen into that “unexpected” category.
The first one was the election of Scott Brown of Massachusetts to the US Senate that in the process wiped out the Democrat Supermajority of sixty votes in the Senate that are required to enact cloture and end debate that is used to filibuster any legislative action. Until almost the last day of the campaign the result looked like a tossup, but the final result was very convincing.
This has thrown the entire healthcare legislation, crafted by the majority in secret and with practically no transparency, into the legislative ashcan. This has also potentially removed the burden of significantly increased costs and taxes on business and individuals – not to mention the adding of the gigantic deficit to be dealt with by posterity.
This change in the Senate will markedly alter the political landscape in the country. In fact, it may change or nullify the entire legislative agenda of the Administration and knock Obama off the path that he has been on “to fundamentally change this country”. It looks like the “silent majority” has finally let out a loud yell that in the months to come will reverberate in many other corners of the country.
However, soon it will become quite obvious that what happened in Massachusetts, and will spill over into the rest of the country, will have a considerable impact on the economy and the markets. It also validates the statement we made in our last Special Report that to try to predict what the market will do in six or twelve months is not only asinine, but also an exercise in futility that the various gurus and talking heads engage in at the beginning of any year.
The second thing that happened was the proposed taxation of large banks, ostensibly to repay the costs associated with the TARP. A number of these banks had TARP pushed down their throats in a closed weekend session by the former Treasury Secretary Hank Paulson under some threats of retribution – even when those banks did not want and did not need that money.
Some of those banks that did accept the money have already repaid those funds with hefty interest included. Now they will be taxed to finance some of the other shenanigans that the Administration wants to engage in with the yet unused money, and whatever it would collect in taxes – like keep propping up the floundering automobile industry and subsidize the UAW benefits that the automobile industry is saddled with to the tune of one-half billion dollars a year in interest on bonds that hey were forced to give the union. Or maybe try to resurrect the currently defunct “shovel ready” jobs program.
While the promised tax on banks was the first salvo fired by the Administration, the second salvo that followed was the next step towards the control of the financial industry. It will put limits on the size of those institutions and their proprietary trading. Here the government will get deeper and deeper into the control of bank operations. When that news came out it collapsed the markets both here and overseas.
In his interview with ABC last week Obama said that his Administration would get into “a big fight with the banks”. This clearly conveyed his attitude towards Wall Street in general, and banks in particular.
Admittedly the big banks right now are not very popular with consumers and the electorate, so they lend themselves to be a very handy whipping boy for Obama – or at least to use them as an excuse for the things he has in mind. The big banks have recently disclosed very large profits from their operations, and the compensation packages for their executives have also been pretty outlandish, so it is not very surprising that they are not very popular with the folks on Main Street.
What is studiously being excluded from this discussion is that it was Congress that through the Community Reinvestment Act of 1977 prohibited the banks from ‘redlining’ in their mortgage operations and mandated the issuance of loans to unqualified borrowers to enable more people to reach the “American Dream”. Fannie and Freddie threw their doors open and were backed up by the government.
It has to be understood that after the banks were forced to swallow many subprime mortgages that any self-respecting bankers would have been crazy to hang on to. So these subprime mortgages were bundled up, securitized, and sold off. In the process the banks discovered that they could make a lot of money doing that, so in 1999 they lobbied Congress to get rid of the Glass-Stiegall Act (Banking Act of 1933) that would enable their investment branches to lay their hands on the capital held by their commercial operations. Of course the Fed under the Old Maestro Greenspan did not see anything wrong with that
The skids were really greased when in 2000, pushed by the Progressives, Congress passed the American Home Ownership and Economic Opportunity Act that really opened up the floodgates. Then the greed really took over -- so while the regulators remained asleep at the switch things got out of hand. You know the rest of the story…
Except now Obama & Co. are exclusively blaming banks for what had taken place.
In the days ahead it can be expected that the administration will concentrate its attacks on the banks. First, if for no other reason than to divert the attention from the other failures of the Administration’s legislative agenda. But more importantly it has to be recognized that to accomplish Obama’s agenda to “fundamentally change the country” they will first have to control the financial industry that feeds capital to the other segments of the economy and other industries. Let’s not forget the old motto, which in simple term says, “He who has gold, rules.” And since the financial industry is where ‘gold’ is, it is not too difficult to understand why it is the major target of the White House ideologues. This in the final phases of the process, if given enough by the electorate, may lead to outright nationalization by offering the justification that “the system does not work”.
Meanwhile on Wall Street and in the media the various experts will concentrate on the minutia and the nits of the day-to-day events – failing to see the forest and the trees, for the knotholes in the trees (and never mind the forest) – unable, or unwilling, to connect the dots.
Always keep an eye on the big picture that has been clearly painted by the Big Master himself…
There were a couple of events that took Wall Street by surprise – although they should not have fallen into that “unexpected” category.
The first one was the election of Scott Brown of Massachusetts to the US Senate that in the process wiped out the Democrat Supermajority of sixty votes in the Senate that are required to enact cloture and end debate that is used to filibuster any legislative action. Until almost the last day of the campaign the result looked like a tossup, but the final result was very convincing.
This has thrown the entire healthcare legislation, crafted by the majority in secret and with practically no transparency, into the legislative ashcan. This has also potentially removed the burden of significantly increased costs and taxes on business and individuals – not to mention the adding of the gigantic deficit to be dealt with by posterity.
This change in the Senate will markedly alter the political landscape in the country. In fact, it may change or nullify the entire legislative agenda of the Administration and knock Obama off the path that he has been on “to fundamentally change this country”. It looks like the “silent majority” has finally let out a loud yell that in the months to come will reverberate in many other corners of the country.
However, soon it will become quite obvious that what happened in Massachusetts, and will spill over into the rest of the country, will have a considerable impact on the economy and the markets. It also validates the statement we made in our last Special Report that to try to predict what the market will do in six or twelve months is not only asinine, but also an exercise in futility that the various gurus and talking heads engage in at the beginning of any year.
The second thing that happened was the proposed taxation of large banks, ostensibly to repay the costs associated with the TARP. A number of these banks had TARP pushed down their throats in a closed weekend session by the former Treasury Secretary Hank Paulson under some threats of retribution – even when those banks did not want and did not need that money.
Some of those banks that did accept the money have already repaid those funds with hefty interest included. Now they will be taxed to finance some of the other shenanigans that the Administration wants to engage in with the yet unused money, and whatever it would collect in taxes – like keep propping up the floundering automobile industry and subsidize the UAW benefits that the automobile industry is saddled with to the tune of one-half billion dollars a year in interest on bonds that hey were forced to give the union. Or maybe try to resurrect the currently defunct “shovel ready” jobs program.
While the promised tax on banks was the first salvo fired by the Administration, the second salvo that followed was the next step towards the control of the financial industry. It will put limits on the size of those institutions and their proprietary trading. Here the government will get deeper and deeper into the control of bank operations. When that news came out it collapsed the markets both here and overseas.
In his interview with ABC last week Obama said that his Administration would get into “a big fight with the banks”. This clearly conveyed his attitude towards Wall Street in general, and banks in particular.
Admittedly the big banks right now are not very popular with consumers and the electorate, so they lend themselves to be a very handy whipping boy for Obama – or at least to use them as an excuse for the things he has in mind. The big banks have recently disclosed very large profits from their operations, and the compensation packages for their executives have also been pretty outlandish, so it is not very surprising that they are not very popular with the folks on Main Street.
What is studiously being excluded from this discussion is that it was Congress that through the Community Reinvestment Act of 1977 prohibited the banks from ‘redlining’ in their mortgage operations and mandated the issuance of loans to unqualified borrowers to enable more people to reach the “American Dream”. Fannie and Freddie threw their doors open and were backed up by the government.
It has to be understood that after the banks were forced to swallow many subprime mortgages that any self-respecting bankers would have been crazy to hang on to. So these subprime mortgages were bundled up, securitized, and sold off. In the process the banks discovered that they could make a lot of money doing that, so in 1999 they lobbied Congress to get rid of the Glass-Stiegall Act (Banking Act of 1933) that would enable their investment branches to lay their hands on the capital held by their commercial operations. Of course the Fed under the Old Maestro Greenspan did not see anything wrong with that
The skids were really greased when in 2000, pushed by the Progressives, Congress passed the American Home Ownership and Economic Opportunity Act that really opened up the floodgates. Then the greed really took over -- so while the regulators remained asleep at the switch things got out of hand. You know the rest of the story…
Except now Obama & Co. are exclusively blaming banks for what had taken place.
In the days ahead it can be expected that the administration will concentrate its attacks on the banks. First, if for no other reason than to divert the attention from the other failures of the Administration’s legislative agenda. But more importantly it has to be recognized that to accomplish Obama’s agenda to “fundamentally change the country” they will first have to control the financial industry that feeds capital to the other segments of the economy and other industries. Let’s not forget the old motto, which in simple term says, “He who has gold, rules.” And since the financial industry is where ‘gold’ is, it is not too difficult to understand why it is the major target of the White House ideologues. This in the final phases of the process, if given enough by the electorate, may lead to outright nationalization by offering the justification that “the system does not work”.
Meanwhile on Wall Street and in the media the various experts will concentrate on the minutia and the nits of the day-to-day events – failing to see the forest and the trees, for the knotholes in the trees (and never mind the forest) – unable, or unwilling, to connect the dots.
Always keep an eye on the big picture that has been clearly painted by the Big Master himself…
Stan
Thank you, Stan, for allowing me to post this.
Frank Semperpapa
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