Finally the US authorities have gotten ‘tough' with the predator financial institutions. The world has been waiting for such decisive intervention since an unending series of Government bailouts of financial institutions began early in 2008 amounting to now trillions of taxpayer dollars. Now, with the world's largest insurance giant, AIG, the White House Economic Council chairman, Larry Summers has expressed ‘outrage.' President Obama himself has entered the fray to promise ‘justice.' US Senators have threatened a law to change the injustice. The only problem is they are all exercising ‘politics of deflection,' taking attention away from the real problem, the fraudulent bailout.
The issue is over AIG announcing it was obligated to pay its traders in its high-risk London unit a sales bonus totaling $165 million for the year. Obama Treasury Secretary, Tim Geithner has announced a novel strategy for ‘justice.' AIG will ‘reimburse' the taxpayers up to $165 million for bonuses the company is giving employees. AIG will pay the Treasury an amount equal to the bonuses, and the Treasury will deduct that amount from the $30 billion in government (taxpayer) assistance that will soon go to the company. But he said that the Obama administration hasn't given up on efforts to recoup the money from the employees who got the bonuses. Good luck.
Larry Summers is the man directly responsible for the mess. As Clinton Treasury Secretary from 1999-January 2001 he shaped and pushed the financial deregulation that unleashed the present crisis. He was Treasury Secretary after July 1999 when his boss, Robert Rubin left to become Vice Chairman of Citigroup, where Rubin went on to advance the colossal agenda of deregulated finance directly.
As Treasury Secretary in 1999, Summers played a decisive role in pushing through the repeal of the Glass Steagall Act of 1933 that was instituted to guard against just the kind of banking abuses taxpayers now are having to bail out. Not only Glass-Steagall repeal. In 2000 Summers backed the Commodity Futures Modernization Act that incredibly mandated that financial derivatives, including in energy, could be traded between financial institutions completely without government oversight, ‘Over-the-Counter' as in where the taxpayer is now being dragged. Credit default Swaps, at the center of the current storm, would not have been possible without Larry Summers and the Commodity Modernization Act of 2000. He is now the White House Economic Council chairman, mandated to find a solution to the crisis he helped make along with Tim Geithner, his friend who is Treasury chief. Foxes should never be asked to guard the henhouse.
Theatre of the absurd or deflection?
This all makes great food for tabloid headlines and popular outrage. They can write that elected politicians are finally acting in taxpayer interests. Until we look a bit more closely. Paying $165 million in employee bonuses or any amount for a company that is in the middle of a multi-trillion dollar fraud that is bringing the world economy down with it is ‘outrageous.'
The problem is the tax bailout haemmorrhage will go on. The reason is the Obama Administration like its predecessor refuses to take consequent action with AIG, despite the fact today the US Government owns at least 80% of AIG stock, bought for $180 billion of, yes, taxpayer dollars. To demand AIG ‘pay back the government' is absurd as the government is in effect demanding it pay itself back with its own money. The latest claim that the Treasury will subtract the $165 million bonus money from the next $30 billion tranche it will give AIG says it all.
Preserving the CDS bubble
The political ‘outrage' expressed by the Obama Administration is an example of ‘perception management.' The population is being slylyduped into believing their officials are working in their interest. In reality the officials are channeling growing popular outrage over endless bank bailouts away from the real problem to an entirely tertiary one. The US Government has injected $180 billion since September 2008 to keep the ‘brain dead' AIG in business and honoring its Credit Default Swap obligations. In effect, they are propping up the casino to continue endless gambling with taxpayer dollars.
The rise of a market in derivatives or ‘swaps' contracts supposedly to ‘insure' against a company going into default and not being able to honor its debts, the Credit Default Swaps market, is at the heart of the global financial catastrophe. The market was ‘invented' by a young economist at JP MorganChase, interestingly enough one of the few big banks recording profit today.
As noted, CDS trading was created free from US Government regulation by President Clinton when he signed the Commodity Futures Modernization Act of 2000 that mandated that financial derivatives not be under government regulation scrutiny. Enron crony and UBS bank adviser, Texas good ‘ol boy Senator Phil Gramm helped pass the laws at a time his wife, Wendy headed the putative regulator, the Commodity Futures Trading Corporation (CFTC). That gave the green light to a derivatives market nominally worth more than $62 trillion in 2008. No one knows the exact size because this is a ‘phantom banking market' completely private and between banks, so-called OTC for Over-The-Counter, ‘just between us.'
Michael Greenberger who headed the CFTC Division of Trading and Markets in the late 1990's at the time of the financial deregulation acts, says that banks and hedge funds"were betting the subprimes would pay off and they would not need the capital to support their bets." The unregulated Credit Default Swaps, he says, have been at "the heart of the subprime meltdown. In 1998 Greenberger proposed regulating the growing derivatives market. At the prospect, he says, "all hell broke loose. The lobbyists for major commercial banks and investment banks and hedge funds went wild. They all wanted to be trading without the government looking over their shoulder."
The confidence between banks, the ‘just between us,' collapsed after the ill-conceived decision by the US Government on September 15 2008 not to save the world's fourth largest investment bank, Lehman Brothers. By then, there was no alternative but to nationalize and then sort out the mess. Bankruptcy, as the world now realizes, was not an option. But neither was the Henry Paulson TARP ‘casino rescue plan' and Geithner's continuation any option.
At the point the Government let Lehman Bros go down only months after saving the far smaller Bear Stearns and also AIG, not even a bank, there was no clear idea who would be saved and who not. No bank could afford to trust any other bank not to be holding just as risky loans as they. The crisis became a global systemic crisis. Notably, the man who participated in the decision to let Lehman Bros fail ‘to teach a lesson' was then President of the New York Federal Reserve, US Treasury Secretary Tim Geithner.
The US Government has stated that AIG cannot be allowed to fail, that, to use the jargon, AIG is ‘too big to fail.' The reason the Government says it can't let AIG fail is that if the company defaulted, hundreds of billions of dollars' worth of Credit-Default Swaps (CDS) would ‘blow up,' and US and European banks whose toxic assets are supposedly insured by AIG would suddenly be sitting on immense losses. Quite the contrary, AIG is ‘too big to save' under current rules of the game that have been written by Wall Street and the privately-owned Federal Reserve, Treasury Secretary Geithner's former employer.
The CDS fraud
Credit Default Swaps purported, in theory, to let banks remove loan risk from their balance sheet onto others such as AIG, an insurer. It was based on a colossal fraud using flawed mathematical risk models.
AIG went big into the selling Credit Default Swaps with banks around the world, from its London ‘Financial Practices' unit. AIG in effect issued pseudo ‘insurance' for the hundreds of billions of dollars in new Asset Backed Securities (ABS) that Wall Street firms and banks like Citigroup, Goldman Sachs, Deutsche Bank, Barclays were issuing, including Sub-prime Mortgage Backed Securities.
It was a huge Ponzi scheme built by AIG that depended on the fact the world's largest insurance company held a rare AAA credit rating from Moody's and S&P rating agencies. That meant AIG could borrow more cheaply than other companies with lower ratings
AIG issuing of CDS contracts acted as a form of insurance for the various exotic Asset Backed Securities (ABS) securities being issued by Wall Street and London banks. AIG was saying ‘if, by some remote chance' those mortgage-backed securities suffered losses, AIG would pay the loss, not the banks.
Then it got really wild. Because credit-default swaps were not regulated, not even classed as a traditional insurance product, AIG didn't have to set aside loss reserves! And it didn't. So when housing prices started falling, and losses started piling up, it had no way to pay off.
AIG then issued of hundreds of billions of dollars worth of CDS instruments to allow banks to make their balance sheets look safer than they really were. Banks were able to get their loan risk low not by owning safer assets. They simply bought AIG's credit-default swaps. The swaps meant that the risk of loss was transferred to AIG, making the bank portfolios look absolutely risk-free. That gave banks the legal illusion of BIS minimum capital requirements, so they could increase their leverage and buy yet more ‘risk-free' assets.
How could that be allowed? The level of venal corruption in the Clinton and then Bush Administration rivals that of the last days of Rome before its fall from the internal rot of corruption. Banks invested billions in lobbying Washington politicians to get their way.
What can be done?
Fortunately there is a simple way out of the AIG debacle. The US Government can step in and fully nationalize AIG, 100%, kick out responsible management, declare AIG's CDS contracts null and void and let holders sue the US government to regain value for what were in reality lottery gambles not loans to the real economy. They own 80% so the step is small to 100%. Doing that would end the global market in CDS and open the door for countless legal challenges. But AIG's counterparties, as we begin to learn, were exactly the big Wall Street players like Goldman Sachs, Citigroup, even Deutsche Bank. They have gotten enough taxpayer bailouts to cover their risk in CDS. Let them recognize risk is the heart of banking, not the opposite.
Myron Scholes, the ‘father' of financial derivatives, who won a Nobel Prize in economics in 1997 for inventing the stock options model that led to financial derivatives back in the 1970's, has declared that derivatives and Credit Default Swaps have gotten so dangerously out of hand that authorities must ‘blow up' the market.
Scholes says derivatives traded over the counter should be shut down completely. Speaking at York University Stern School of Business recently, he said the "solution is really to blow up or burn" the over-the-counter market and start over. He included derivatives on stocks, interest rate swaps and credit default swaps that should be then moved into regulated markets.
The idea is simple and not that radical. A US law banning OTC derivatives and moving them to regulated exchanges would end a colossal ‘shadow banking' fraud. Banks would not lose much more than already, but the world financial system would get back to ‘normal.' OTC derivatives are unregulated precisely to hide risk and enable fraud by the banks. It is past time to end that. There is where the US Treasury and other Governments must focus, not on meaningless ‘transparency' calls or trading bonus ‘justice.'
Friday, March 20, 2009
Thursday, March 19, 2009
Playing the Banking Game
“He that will not apply new remedies must expect new evils; for time is the greatest innovator.” Francis Bacon
On February 19, 2009, California narrowly escaped bankruptcy, when Governor Arnold Schwarzenneger put on his Terminator hat and held the state senate in lockdown mode until they signed a very controversial budget.1 If the vote had failed, the state was going to be reduced to paying its employees in I.O.U.s. California avoided bankruptcy for the time being, but 46 of 50 states are insolvent and could be filing Chapter 9 bankruptcy proceedings in the next two years.2
One of the four states that is not insolvent is an unlikely candidate for the distinction – North Dakota. As Michigan management consultant Charles Fleetham observed last month in an article distributed to his local media:
“North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state's GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!”
What does the State of North Dakota have that other states don't? The answer seems to be: its own bank. In fact, North Dakota has the only state-owned bank in the nation. The state legislature established the Bank of North Dakota in 1919. Fleetham writes that the bank was set up to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. Three elected officials oversee the bank: the governor, the attorney general, and the commissioner of agriculture. The bank's stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota. The bank operates as a bankers' bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It loans money to students (over 184,000 outstanding loans), and it purchases municipal bonds from public institutions.
Still, you may ask, how does that solve the solvency problem? Isn't the state still limited to spending only the money it has? The answer is no. Certified, card-carrying bankers are allowed to do something nobody else can do: they can create “credit” with accounting entries on their books.
A License to Create Money
Under the “fractional reserve” lending system, banks are allowed to extend credit (create money as loans) in a sum equal to many times their deposit base. Congressman Jerry Voorhis, writing in 1973, explained it like this:
“[F]or every $1 or $1.50 which people – or the government – deposit in a bank, the banking system can create out of thin air and by the stroke of a pen some $10 of checkbook money or demand deposits. It can lend all that $10 into circulation at interest just so long as it has the $1 or a little more in reserve to back it up.”3
That banks actually create money with accounting entries was confirmed in a revealing booklet published by the Chicago Federal Reserve titled Modern Money Mechanics.2 The booklet was periodically revised until 1992, when it had reached 50 pages long. On page 49 of the 1992 edition, it states:
“With a uniform 10 percent reserve requirement, a $1 increase in reserves would support $10 of additional transaction accounts [loans created as deposits in borrowers' accounts].”4
The 10 percent reserve requirement is now largely obsolete, in part because banks have figured out how to get around it with such devices as “overnight sweeps.” What chiefly limits bank lending today is the 8 percent capital requirement imposed by the Bank for International Settlements, the head of the private global central banking system in Basel, Switzerland. With an 8 percent capital requirement, a state with its own bank could fan its revenues into 12.5 times their face value in loans (100 ÷ 8 = 12.5). And since the state would actually own the bank, it would not have to worry about shareholders or profits. It could lend to creditworthy borrowers at very low interest, perhaps limited only to a service charge covering its costs; and it could lend to itself or to its municipal governments at as low as zero percent interest. If these loans were rolled over indefinitely, the effect would be the same as creating new, debt-free money.
Dangerously inflationary? Not if the money were used to create new goods and services. Price inflation results only when “demand” (money) exceeds “supply” (goods and services). When they increase together, prices remain stable.
Today we are in a dangerous deflationary spiral, as lending has dried up and asset values have plummeted. The monopoly on the creation of money and credit by a private banking fraternity has resulted in a malfunctioning credit system and monetary collapse. Credit markets have been frozen by the wildly speculative derivatives gambles of a few big Wall Street banks, bets that not only destroyed those banks' balance sheets but are infecting the whole private banking system with toxic debris. To get out of this deflationary debt trap requires an injection of new, debt-free money into the economy, something that can best be done through a system of public banks dedicated to serving the public interest, administering credit as a public utility.
Some experts insist that we must tighten our belts and start saving again, in order to rebuild the “capital” necessary for functioning markets; but our markets actually functioned quite well so long as the credit system was working. We have the same real assets (raw materials, oil, technical knowledge, productive capacity, labor force, etc.) that we had before the crisis began. Our workers and factories are sitting idle because the private credit system has failed. A system of public credit could put them back to work again. The notion that “money” is something that has to be “saved” before it can be “borrowed” misconstrues the nature of money and credit. Credit is merely a legal agreement, a “monetization” of future proceeds, a promise to pay later from the fruits of the advance. Banks have created credit on their books for hundreds of years, and this system would have worked quite well had it not been for the enormous tribute siphoned off to private coffers in the form of interest. A public banking system could overcome that problem by returning the interest to the public purse. This is the sort of banking system that was pioneered in the colony of Pennsylvania, where it worked brilliantly well.
Restoring Michigan to Solvency
Among other advantages to a state of owning its own bank are the substantial sums it could save in interest. As Fleetham notes of his own ailing state of Michigan:
“According to recent financial reports (available online), the State of Michigan, the City of Detroit, the Detroit Water and Sewerage Department, the Wayne County Airport, the Detroit Public Schools, the University of Michigan, and Michigan State University pay over $800 million a year in interest on long term debt. If you add interest paid by Michigan cities, school districts, and public utilities, the cost to our taxpayers easily tops a billion a year. What does Wall Street do with our billion plus dollars? They decorate their offices like kings.”
Interestingly, the projected state budget deficit for 2009 is also $1 billion. If Michigan did not have to pay over a billion dollars in interest to Wall Street, the budget could be balanced and the state could be restored to solvency. A state-owned bank could not only provide interest-free credit for the state but could actually generate revenues for it. Fleetham notes that in 2007, the Bank of North Dakota earned a net profit of $51 million on a loan volume of $2 billion. He comments:
“Last year, Michigan citizens paid over $5 billion dollars in personal income tax. With a state bank like North Dakota's we could reduce this burden, fund new businesses, and restore our crumbling water and sewer systems. And we don't have to feel sorry about Wall Street losing our business. They didn't ‘earn' the money they lent us. They created it in computers and charged us interest to boot. Let's follow North Dakota's lead and get free from Wall Street's web.”
Taking the Initiative in California
California could do this as well. Robert Ellis is a Tucson talk show host who once worked on Wall Street and has been involved in setting up several banks and financial institutions. In January of this year, he proposed in a letter to Governor Schwarzenegger that California could resolve its financial woes by setting up a bank on the model of the Bank of North Dakota. Ellis wrote to the governor:
“I admire your tenacity in dealing with California's financial problems. Your idea of using IOU's was ingenious but there is a better way. The State of California can charter its own bank and issue its own checks to all state employees . . . . It can also pay all its vendors, contracts and contractors through the bank . . . . Additionally, once the bank is operational, you can fund your own state projects and you determine the interest rate paid as opposed to being at the mercy of the banks you currently deal with or the interest rates the investment bankers make you pay to issue bonds. By doing this, you will put the state in control of its own destiny and make it the benefactor of its own money.
“. . . What I am proposing is not new. It has been done by one other state in the nation [North Dakota]. Why should you continue to pay the banks for services and interest on loans when you can receive that interest for the benefit of the state of California? Wouldn't it be better if you could fund your own infrastructure projects without having to get the approval of independent banks or investment bankers? Additionally, you set the interest rate on your own projects. You can even set it at zero if you deem the project worthy enough.”
Ellis offered his services in setting up the bank, which he thought could be chartered in a few short months. The Governor has not replied, but some pressure from constituents might encourage a response.
Failing that, there is the initiative and referendum process pioneered in California. It allows state laws to be proposed directly by the public, and the state's Constitution to be amended either by public petition (the “initiative”) or by the legislature submitting a proposed constitutional amendment to the electorate (the “referendum”). The initiative is done by writing a proposed constitutional amendment or statute as a petition, which is submitted to the California Attorney General along with a submission fee, which was a modest $200 in 2004. The petition must be signed by registered voters amounting to 8% (for a constitutional amendment) or 5% (for a statute) of the number of people who voted in the most recent election for governor.5
As Gandhi said, “When the people lead, the leaders will follow.” We the people can beat the Wall Street bankers at their own game, by moving our legislators to set up publicly-owned banks that create credit using the same banking principles that are accepted as standard and usual in the trade by bankers themselves.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.
On February 19, 2009, California narrowly escaped bankruptcy, when Governor Arnold Schwarzenneger put on his Terminator hat and held the state senate in lockdown mode until they signed a very controversial budget.1 If the vote had failed, the state was going to be reduced to paying its employees in I.O.U.s. California avoided bankruptcy for the time being, but 46 of 50 states are insolvent and could be filing Chapter 9 bankruptcy proceedings in the next two years.2
One of the four states that is not insolvent is an unlikely candidate for the distinction – North Dakota. As Michigan management consultant Charles Fleetham observed last month in an article distributed to his local media:
“North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state's GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!”
What does the State of North Dakota have that other states don't? The answer seems to be: its own bank. In fact, North Dakota has the only state-owned bank in the nation. The state legislature established the Bank of North Dakota in 1919. Fleetham writes that the bank was set up to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. Three elected officials oversee the bank: the governor, the attorney general, and the commissioner of agriculture. The bank's stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota. The bank operates as a bankers' bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It loans money to students (over 184,000 outstanding loans), and it purchases municipal bonds from public institutions.
Still, you may ask, how does that solve the solvency problem? Isn't the state still limited to spending only the money it has? The answer is no. Certified, card-carrying bankers are allowed to do something nobody else can do: they can create “credit” with accounting entries on their books.
A License to Create Money
Under the “fractional reserve” lending system, banks are allowed to extend credit (create money as loans) in a sum equal to many times their deposit base. Congressman Jerry Voorhis, writing in 1973, explained it like this:
“[F]or every $1 or $1.50 which people – or the government – deposit in a bank, the banking system can create out of thin air and by the stroke of a pen some $10 of checkbook money or demand deposits. It can lend all that $10 into circulation at interest just so long as it has the $1 or a little more in reserve to back it up.”3
That banks actually create money with accounting entries was confirmed in a revealing booklet published by the Chicago Federal Reserve titled Modern Money Mechanics.2 The booklet was periodically revised until 1992, when it had reached 50 pages long. On page 49 of the 1992 edition, it states:
“With a uniform 10 percent reserve requirement, a $1 increase in reserves would support $10 of additional transaction accounts [loans created as deposits in borrowers' accounts].”4
The 10 percent reserve requirement is now largely obsolete, in part because banks have figured out how to get around it with such devices as “overnight sweeps.” What chiefly limits bank lending today is the 8 percent capital requirement imposed by the Bank for International Settlements, the head of the private global central banking system in Basel, Switzerland. With an 8 percent capital requirement, a state with its own bank could fan its revenues into 12.5 times their face value in loans (100 ÷ 8 = 12.5). And since the state would actually own the bank, it would not have to worry about shareholders or profits. It could lend to creditworthy borrowers at very low interest, perhaps limited only to a service charge covering its costs; and it could lend to itself or to its municipal governments at as low as zero percent interest. If these loans were rolled over indefinitely, the effect would be the same as creating new, debt-free money.
Dangerously inflationary? Not if the money were used to create new goods and services. Price inflation results only when “demand” (money) exceeds “supply” (goods and services). When they increase together, prices remain stable.
Today we are in a dangerous deflationary spiral, as lending has dried up and asset values have plummeted. The monopoly on the creation of money and credit by a private banking fraternity has resulted in a malfunctioning credit system and monetary collapse. Credit markets have been frozen by the wildly speculative derivatives gambles of a few big Wall Street banks, bets that not only destroyed those banks' balance sheets but are infecting the whole private banking system with toxic debris. To get out of this deflationary debt trap requires an injection of new, debt-free money into the economy, something that can best be done through a system of public banks dedicated to serving the public interest, administering credit as a public utility.
Some experts insist that we must tighten our belts and start saving again, in order to rebuild the “capital” necessary for functioning markets; but our markets actually functioned quite well so long as the credit system was working. We have the same real assets (raw materials, oil, technical knowledge, productive capacity, labor force, etc.) that we had before the crisis began. Our workers and factories are sitting idle because the private credit system has failed. A system of public credit could put them back to work again. The notion that “money” is something that has to be “saved” before it can be “borrowed” misconstrues the nature of money and credit. Credit is merely a legal agreement, a “monetization” of future proceeds, a promise to pay later from the fruits of the advance. Banks have created credit on their books for hundreds of years, and this system would have worked quite well had it not been for the enormous tribute siphoned off to private coffers in the form of interest. A public banking system could overcome that problem by returning the interest to the public purse. This is the sort of banking system that was pioneered in the colony of Pennsylvania, where it worked brilliantly well.
Restoring Michigan to Solvency
Among other advantages to a state of owning its own bank are the substantial sums it could save in interest. As Fleetham notes of his own ailing state of Michigan:
“According to recent financial reports (available online), the State of Michigan, the City of Detroit, the Detroit Water and Sewerage Department, the Wayne County Airport, the Detroit Public Schools, the University of Michigan, and Michigan State University pay over $800 million a year in interest on long term debt. If you add interest paid by Michigan cities, school districts, and public utilities, the cost to our taxpayers easily tops a billion a year. What does Wall Street do with our billion plus dollars? They decorate their offices like kings.”
Interestingly, the projected state budget deficit for 2009 is also $1 billion. If Michigan did not have to pay over a billion dollars in interest to Wall Street, the budget could be balanced and the state could be restored to solvency. A state-owned bank could not only provide interest-free credit for the state but could actually generate revenues for it. Fleetham notes that in 2007, the Bank of North Dakota earned a net profit of $51 million on a loan volume of $2 billion. He comments:
“Last year, Michigan citizens paid over $5 billion dollars in personal income tax. With a state bank like North Dakota's we could reduce this burden, fund new businesses, and restore our crumbling water and sewer systems. And we don't have to feel sorry about Wall Street losing our business. They didn't ‘earn' the money they lent us. They created it in computers and charged us interest to boot. Let's follow North Dakota's lead and get free from Wall Street's web.”
Taking the Initiative in California
California could do this as well. Robert Ellis is a Tucson talk show host who once worked on Wall Street and has been involved in setting up several banks and financial institutions. In January of this year, he proposed in a letter to Governor Schwarzenegger that California could resolve its financial woes by setting up a bank on the model of the Bank of North Dakota. Ellis wrote to the governor:
“I admire your tenacity in dealing with California's financial problems. Your idea of using IOU's was ingenious but there is a better way. The State of California can charter its own bank and issue its own checks to all state employees . . . . It can also pay all its vendors, contracts and contractors through the bank . . . . Additionally, once the bank is operational, you can fund your own state projects and you determine the interest rate paid as opposed to being at the mercy of the banks you currently deal with or the interest rates the investment bankers make you pay to issue bonds. By doing this, you will put the state in control of its own destiny and make it the benefactor of its own money.
“. . . What I am proposing is not new. It has been done by one other state in the nation [North Dakota]. Why should you continue to pay the banks for services and interest on loans when you can receive that interest for the benefit of the state of California? Wouldn't it be better if you could fund your own infrastructure projects without having to get the approval of independent banks or investment bankers? Additionally, you set the interest rate on your own projects. You can even set it at zero if you deem the project worthy enough.”
Ellis offered his services in setting up the bank, which he thought could be chartered in a few short months. The Governor has not replied, but some pressure from constituents might encourage a response.
Failing that, there is the initiative and referendum process pioneered in California. It allows state laws to be proposed directly by the public, and the state's Constitution to be amended either by public petition (the “initiative”) or by the legislature submitting a proposed constitutional amendment to the electorate (the “referendum”). The initiative is done by writing a proposed constitutional amendment or statute as a petition, which is submitted to the California Attorney General along with a submission fee, which was a modest $200 in 2004. The petition must be signed by registered voters amounting to 8% (for a constitutional amendment) or 5% (for a statute) of the number of people who voted in the most recent election for governor.5
As Gandhi said, “When the people lead, the leaders will follow.” We the people can beat the Wall Street bankers at their own game, by moving our legislators to set up publicly-owned banks that create credit using the same banking principles that are accepted as standard and usual in the trade by bankers themselves.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.
Friday, March 6, 2009
Barter... The new Buzzword!
Even though barter has been around for eons and remains the most tested and stable form of commerce to date, the recent economic decline has perked up people’s interest. Is it just me, because I’m in the industry, or are others seeing this huge resurgence of the B-word?
All I seem to hear about these days are new-fangled, web-based barter clubs trying to vie for some of the barter “action”. I’ve done a little bit of research (and out of professional integrity I won’t name any names directly) and all they seem to be are shabby, online yard sales offering yesterday’s garbage: old CDs and DVDs, obsolete computer equipment, used furniture, old clothing, stuff nobody wants.
Ever since American Express blew a budget of $800m trying to get BigVine.com off the ground back in 2000, smart business folks have been trying to make online barter work. Strange that the year 2000 sounds familiar…? Oh yes, that’s when Merchants Barter Exchange began. Where is BigVine now? Amazing. With all the power and clout of AmEx, their business client list, and an Obama-like budget, they failed and MBE succeeded. Why?
MBE launched with a tiny fraction of their budget, less resources, less manpower - basically less everything. We decided to do barter right, and not try to cut corners and do things online. MBE uses a highly trained team of brokers to interact with their members, and an elite sales force to continue to build and grow their nationwide economy. To date, MBE is the ONLY national barter company that has achieved ‘pure’ bartering (no cash-barter blends, no inflated pricing, no black-out dates, etc.) Why is that so important, you may ask?
1. Why only eat half a meal?
2. Would you only clean half your car?
3. Would you only take half a vacation?
Exactly, why would you only get part of the benefit of bartering? Additionally - and this is much more important - how can you control trading, if part of it does not go via the exchange and is paid ‘under the table’ in cash? This is how the price is inflated. This is how businesses don’t always get a fair deal.
None of this can happen with the perfected MBE-barter system. We are proud that we have done what AmEx could not. We are excited that we have set the lead and the pace for the industry. We are not much liked by all the other lowly barter folk out there (barter companies from last century, and the new kids on the internet-block), BECAUSE we can do what we do and they cannot, and some folks try to dog us when they can, but we stick to what we are best at: being the best barter company there is.
We love barter, it’s our life. We love the fact that barter is booming right now, but we also know that there are far too many ‘me-too’ folks out there that are just in it for a quick buck and will be gone no sooner than Obama can sign his next bail-out bill.
Thanks for reading, until the next entry. God bless!
All I seem to hear about these days are new-fangled, web-based barter clubs trying to vie for some of the barter “action”. I’ve done a little bit of research (and out of professional integrity I won’t name any names directly) and all they seem to be are shabby, online yard sales offering yesterday’s garbage: old CDs and DVDs, obsolete computer equipment, used furniture, old clothing, stuff nobody wants.
Ever since American Express blew a budget of $800m trying to get BigVine.com off the ground back in 2000, smart business folks have been trying to make online barter work. Strange that the year 2000 sounds familiar…? Oh yes, that’s when Merchants Barter Exchange began. Where is BigVine now? Amazing. With all the power and clout of AmEx, their business client list, and an Obama-like budget, they failed and MBE succeeded. Why?
MBE launched with a tiny fraction of their budget, less resources, less manpower - basically less everything. We decided to do barter right, and not try to cut corners and do things online. MBE uses a highly trained team of brokers to interact with their members, and an elite sales force to continue to build and grow their nationwide economy. To date, MBE is the ONLY national barter company that has achieved ‘pure’ bartering (no cash-barter blends, no inflated pricing, no black-out dates, etc.) Why is that so important, you may ask?
1. Why only eat half a meal?
2. Would you only clean half your car?
3. Would you only take half a vacation?
Exactly, why would you only get part of the benefit of bartering? Additionally - and this is much more important - how can you control trading, if part of it does not go via the exchange and is paid ‘under the table’ in cash? This is how the price is inflated. This is how businesses don’t always get a fair deal.
None of this can happen with the perfected MBE-barter system. We are proud that we have done what AmEx could not. We are excited that we have set the lead and the pace for the industry. We are not much liked by all the other lowly barter folk out there (barter companies from last century, and the new kids on the internet-block), BECAUSE we can do what we do and they cannot, and some folks try to dog us when they can, but we stick to what we are best at: being the best barter company there is.
We love barter, it’s our life. We love the fact that barter is booming right now, but we also know that there are far too many ‘me-too’ folks out there that are just in it for a quick buck and will be gone no sooner than Obama can sign his next bail-out bill.
Thanks for reading, until the next entry. God bless!
Titanic America
I’m not old enough to have been on the original Titanic and I’m sure none of you are either, but the activity in Washington reminds me of what it must have been like on board that ship after they hit the iceberg and realized there were not enough life rafts!
Is it just me, or does it really not make any sense to try to fix our current economic problems with the very vehicle that got us in this mess in the first place? How can we solve this decline by irresponsible lending and borrowing in the short term? The ripple effects of the Federal Reserve printing more ‘debt notes’ and selling them to the US Government to circulate among us are going to be felt for multiple generations to come.
Prior to all this economic decline, Steve Walker, the ex-comptroller of the US left in disgust after over ten years because of what he called the “$400,000 hidden mortgage” our children are saddled with due to our Social Security problem. I shudder to think what “hidden debt” our Grandchildren have now been stuck with.
Using fiscal policies of last century (predominently based upon data during the times of the Gold Standard, and prior to globalization) are not going to solve our current dilemma. It’s rather like trying to fix a hyrid car with a bow and arrow!
But nobody seems to be making much noise. That is except Glenn Beck. I have diligently been following his show and his forecasts, as mine have been spookily similar - and I’m no economist either.
The answer? We need to go back to basics. Obviously, MBE-barter is an integral part of the solution. Frugality is too. The MBE-barter system cannot solve the entire economic problem, but it is a large step in the right direction.
Unfortunately I see things getting much, much worse before we hit rock bottom towards the end of 2009. Once folks have spent their tax rebates and realized the Obama Administration has no solid plan for economic survival, I predict bankruptcies escalating to record levels, as ordinary folk just pass on the bad debt to good, taxpaying citizens. The credit card bubble will finally burst. And the effects of printing TRILLIONS of new debt-dollars will start to effect pricing.
Natural forces have a way of righting the boat, but in this case, we’ve put the iceberg directly in the way. Things will have to crash in order to fix the real problem. Hopefully you are already bartering, if not, heed my words: “Barter or go bust!”
[This is just my opinion. Anthony Donnelly]
Is it just me, or does it really not make any sense to try to fix our current economic problems with the very vehicle that got us in this mess in the first place? How can we solve this decline by irresponsible lending and borrowing in the short term? The ripple effects of the Federal Reserve printing more ‘debt notes’ and selling them to the US Government to circulate among us are going to be felt for multiple generations to come.
Prior to all this economic decline, Steve Walker, the ex-comptroller of the US left in disgust after over ten years because of what he called the “$400,000 hidden mortgage” our children are saddled with due to our Social Security problem. I shudder to think what “hidden debt” our Grandchildren have now been stuck with.
Using fiscal policies of last century (predominently based upon data during the times of the Gold Standard, and prior to globalization) are not going to solve our current dilemma. It’s rather like trying to fix a hyrid car with a bow and arrow!
But nobody seems to be making much noise. That is except Glenn Beck. I have diligently been following his show and his forecasts, as mine have been spookily similar - and I’m no economist either.
The answer? We need to go back to basics. Obviously, MBE-barter is an integral part of the solution. Frugality is too. The MBE-barter system cannot solve the entire economic problem, but it is a large step in the right direction.
Unfortunately I see things getting much, much worse before we hit rock bottom towards the end of 2009. Once folks have spent their tax rebates and realized the Obama Administration has no solid plan for economic survival, I predict bankruptcies escalating to record levels, as ordinary folk just pass on the bad debt to good, taxpaying citizens. The credit card bubble will finally burst. And the effects of printing TRILLIONS of new debt-dollars will start to effect pricing.
Natural forces have a way of righting the boat, but in this case, we’ve put the iceberg directly in the way. Things will have to crash in order to fix the real problem. Hopefully you are already bartering, if not, heed my words: “Barter or go bust!”
[This is just my opinion. Anthony Donnelly]
Monday, March 2, 2009
If the Big Guys Do it... Why wouldn't you?
Please allow me to take you back to the 1984 Summer Olympics. Head of the U.S. Olympic Committee, Peter Ueberroth bartered the promotional value of his Olympic logo for a mass of products and services needed by his staff and athletes. United Airlines provided free transportation, Buick the use of 500 autos, Fuji Film 250,000 rolls of film plus processing, and Levi Strauss and Converse clothing and shoes. Ueberroth even traded the logo for a swimming pool to be built by McDonald's. Bartering got more attention when Carl Icahn set up a deal to trade some $10 million of TV time he had acquired in exchange for products and promotions to aid his newly acquired but ailing TWA.
Bartering is coming of Age with the heavyweights like:Amoco,Goodyear,Caterpillar,3M,USX,Kmart and Pfizer. Marketers at Amoco saved the company's parent, Standard Oil of Indiana, the cost of steel piping, thanks to a carefully planned barter. They supplied the latter with chemicals, which were traded to Goodyear for rubber belting materials and later disposed of in another barter. Amoco was paid for the chemicals with trade credits, which Amoco passed up to Standard Oil. It used them in a cashless deal for the pipes.
I'm not real smart, but if the big guys are bartering why wouldn't everyone else barter?
Bartering is coming of Age with the heavyweights like:Amoco,Goodyear,Caterpillar,3M,USX,Kmart and Pfizer. Marketers at Amoco saved the company's parent, Standard Oil of Indiana, the cost of steel piping, thanks to a carefully planned barter. They supplied the latter with chemicals, which were traded to Goodyear for rubber belting materials and later disposed of in another barter. Amoco was paid for the chemicals with trade credits, which Amoco passed up to Standard Oil. It used them in a cashless deal for the pipes.
I'm not real smart, but if the big guys are bartering why wouldn't everyone else barter?
Are you smarter than Einstein? Don't kid yourself!
"If I had my life over again, I would elect to be a trader of goods, rather than a student of science. I think barter is a noble thing." (Albert Einstein)-
The economics of industry change daily, as gasoline and other commodities fluctuate widely, so does our relationship to those economics.The time has come to insulate your company against economic short falls and prepare for the future. Now is the time to grow your business in the direction of a lucrative 100%trade 100% barter company like mine, Merchants Barter Exchange. Start enjoying the benefits of barter! Barter accounts for nearly $1Trillion annually in world commerce.
Barter is not new, throughout history the exchange of goods or services has been the salvation of economies. Barter has always been on the sidelines awaiting rebirth at the time of it's need,and has many success stories. You have probably heard about some of the big deals, but each day millions of small deals are made which help keep thousands of small businesses in the market place.
Using barter, business owners and corporations cover such cost as travel, sales expenses, entertainment, employee benefits, bonus and incentive programs, automotive repairs, remodeling, advertising, inventory and a host of personal expense such as vacations, clothing, Christmas shopping, gifts, flowers and on …and on …and ...These expenses are covered by incremental sales of surplus products or services, that might have gone to competitors.
Incremental, meaning: within the framework of existing expense any increase in sales without added cost represents a higher incremental margin of profit than new sales with increased marketing cost. Unfortunately many business owners are not tuned in to the new sales potential through barter and the barter opportunities that exist.
Think hard for a moment and come up with at least two ways to generate new sales , then think of how to pay the cost for the increases, then think barter, Barter is smarter.
Trade your product with others for advertising, Art, auto repairs, billboards, coupons, clothing, hotels, resorts,getaways, gifts, Jewelry, printing, signs, tools, home and business services, you name it and we will find it for you.
All transactions are guaranteed, no bad checks or credit cards, immediate credit in your account.
Remember cash is not a storehouse of value, but barter is a warehouse of good will, business relationships, parity of value and incremental profits. Money is only money because we believe its money and the government tells us that it is.
Like everything else in life it costs a little to play,though much less than a low budget ad campaign. My company, Merchants Barter Exchange charges a one time fee of $795.00 to join, "cheap as chips" . We will allow you to purchase what you need($2000 barter credit line) , then guarantee to send new business to you to pay for it. Your transaction fees help defray the cost of the significant services that you receive from us.
The economics of industry change daily, as gasoline and other commodities fluctuate widely, so does our relationship to those economics.The time has come to insulate your company against economic short falls and prepare for the future. Now is the time to grow your business in the direction of a lucrative 100%trade 100% barter company like mine, Merchants Barter Exchange. Start enjoying the benefits of barter! Barter accounts for nearly $1Trillion annually in world commerce.
Barter is not new, throughout history the exchange of goods or services has been the salvation of economies. Barter has always been on the sidelines awaiting rebirth at the time of it's need,and has many success stories. You have probably heard about some of the big deals, but each day millions of small deals are made which help keep thousands of small businesses in the market place.
Using barter, business owners and corporations cover such cost as travel, sales expenses, entertainment, employee benefits, bonus and incentive programs, automotive repairs, remodeling, advertising, inventory and a host of personal expense such as vacations, clothing, Christmas shopping, gifts, flowers and on …and on …and ...These expenses are covered by incremental sales of surplus products or services, that might have gone to competitors.
Incremental, meaning: within the framework of existing expense any increase in sales without added cost represents a higher incremental margin of profit than new sales with increased marketing cost. Unfortunately many business owners are not tuned in to the new sales potential through barter and the barter opportunities that exist.
Think hard for a moment and come up with at least two ways to generate new sales , then think of how to pay the cost for the increases, then think barter, Barter is smarter.
Trade your product with others for advertising, Art, auto repairs, billboards, coupons, clothing, hotels, resorts,getaways, gifts, Jewelry, printing, signs, tools, home and business services, you name it and we will find it for you.
All transactions are guaranteed, no bad checks or credit cards, immediate credit in your account.
Remember cash is not a storehouse of value, but barter is a warehouse of good will, business relationships, parity of value and incremental profits. Money is only money because we believe its money and the government tells us that it is.
Like everything else in life it costs a little to play,though much less than a low budget ad campaign. My company, Merchants Barter Exchange charges a one time fee of $795.00 to join, "cheap as chips" . We will allow you to purchase what you need($2000 barter credit line) , then guarantee to send new business to you to pay for it. Your transaction fees help defray the cost of the significant services that you receive from us.
Sunday, March 1, 2009
Survival of the Fittest(Smartest)
I'm a firm believer in this: If you're not standing on the edge you're wasting space. In today's economy if you are in business and you aren't implementing new and innovative concepts in to your business plan, you're inevitably going to be history. Our politicians and economists are continuing to put on a brave face. The global economy is collapsing around us and we continue to artificially inseminate it with worthless paper. The world needs a secondary economy to resuscitate the current one that is on life support. My company Merchants Barter Exchange is doing just that. We are educating the business community on the oldest form of commerce...Barter. If there is one thing that I'm irrevocably convinced of is that we live in a barter economy. To date 19 banks have failed and experts forecast at least 100 more before 2009 is over. Businesses are folding at a record clip and some Fortune 500 companies are included. The writing is on the proverbial wall; BARTER or BE HISTORY! Business owners heed my advice, HELP YOURSELF! The government has forgotten about Main street and left you to fend for yourself. Let MBE insulate your business from the impending DEPRESSION. Stop spending cash on things you need and want, reduce your cash expenditures by 40%, allow us to expose you to new business that you wouldn't have the reach to find, move your excess inventory and surplus, fill the inefficiencies in capacity and time and above all else... distance yourself from your competition by doing something that they aren't.
“I am convinced that most companies don’t maximize their barter possibilities. Instead of aggressively reducing costs by trading their services with those of their suppliers, they seem content to pay top dollar for everything.”
-Mark H. McCormack
“What They Still Don’t Teach You at Harvard Business School”
“I am convinced that most companies don’t maximize their barter possibilities. Instead of aggressively reducing costs by trading their services with those of their suppliers, they seem content to pay top dollar for everything.”
-Mark H. McCormack
“What They Still Don’t Teach You at Harvard Business School”
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