Wednesday, April 15, 2009

Let's Keep Big Banks from Ruining America Forever




Finally, anger!

Seeking Alpha; JD Kim


The recent comments of many on the nation’s top banking executives are so consistently disingenuous that the subject of this article has been long overdue for some time now. On March 20, 2009, Citigroup (C) CEO Vikram Pandit issued a memo to all Citigroup employees in which he stated,

Our industry has recently seen a tide of negative sentiment rising in Washington, D.C. regarding compensation. Of course, some of it is warranted. But I take exception when there is a discussion about spreading the blame to each and every employee in the financial services industry. At our company, we removed the people responsible for Citi’s financial distress and acted fast to strengthen and streamline the business, and install new risk processes and new risk personnel. You have been invaluable in our collective efforts to put the company on solid footing… please rest assured that senior management and experts in Washington are focused on these developments and trying to address issues raised in the debate with clarity about the real facts.

I take great offense at Mr. Pandit’s willingness to remove all responsibility for this crisis from “each and every employee” in the financial services industry. What made America a great country in the past was each and every American citizen’s willingness to take personal responsibility for his or her mistakes instead of sloughing the blame onto someone else. What made America a great country in the past was the courageous transparency of American leaders to discuss the truth with her citizens, as painful as that truth may have been, not the cowardice of deception to dishonorably fool the masses into believing a picture of reality that is a lie.

Today, we have a global financial system that is morally bankrupt, shrouded in secrecy and devoid of transparency. Today, we have men in the financial industry that abuse their positions of authority to plant stories in the media that distort the truth so massively that they must continue to tell more lies to cover up past lies. In fact, the lies of the financial industry have become so repetitive and predictable, that one week before big US banks started to declare their earnings this season, I wrote an article here that stated Big Banks would announce surprisingly positive earning statements based upon Enron-style accounting tricks, and indeed they have.

And don’t expect any negative news when the US Treasury and the US Federal Reserve publicly announce the results of their “stress tests” on the 19 largest US banks by the end of this month. The “stress tests”, most of which have now been completed, were such a joke that even the Federal Deposit Insurance Corporation called them pointless and devoid of credibility. The “real facts” will never be told by any of the men that have led us into the crisis for they have not the courage nor the moral character to do so. The “real facts” are that this crisis was triggered not by subprime mortgages, commercial paper, financial derivatives, collapsing stock or bond markets, but by a fraudulent monetary system. A fraudulent monetary system allows for massive distortions in capital markets that would be near impossible with the implementation of a sound monetary system.

Though the US Federal Reserve has instituted this fraudulent monetary system, the biggest enablers of this fraudulent monetary system are the Big Banks. So yes, each and every employee of the financial industry must be held accountable for their role in this crisis. Ignorance is an excuse only for the weak and morally repugnant, not the honorable. For three years now, I have predicted, in writing, every major step of this crisis, months, and sometimes years before they eventually unfolded. Since 2006, I have strongly advocated gold investments and silver investments as a way to create wealth during this crisis. My predictions have been remarkably accurate for more than three years now not because I have remarkable psychic skills. I have been able to do so only because I have understood that the origins of this crisis is a fraudulent monetary system enabled through the corrupt relationships that exist among Big Banks, Central Banks, and governments.

Every Big Bank in the US creates money out of thin air through a system called the fractional reserve system. In the US, the reserve ratio requirement (RRR) is NOT 10% as most Americans believe. It is in fact, effectively zero percent, a fact that all executives at big banks do not want you to know. This means that Big Banks can effectively create $100 million of loans for every $1 million of deposits they receive if they so desired. If you and I tried to execute the same business plan with our everyday businesses, you and I would be thrown in jail for fraud within two weeks. In essence, due to the fractional reserve banking system, every single dollar you deposit in a bank is effectively being devalued from the moment you deposit it in a bank. The money you deposit in a bank will never again have the same purchasing power it did from the moment it leaves your hands considering that it takes you a minimum of several months to many years to withdraw and spend all of your savings. Of course, other factors such as the monetary decisions of other major Central Banks affect the dollar’s worth, but in essence, the above statement, even its simplicity, still holds true. Since I extensively explained how devaluation of the US dollar happens in this article, I won’t repeat myself here.

In addition to the Big Banks, the US Federal Reserve, the biggest bank of all, also prints money out of thin air. When Central Banks and participating banks create money out of thin air, they impose a punitive tax upon all American citizens, willing or not, that they euphemistically repackage and re-label as “inflation.” However, this is a tax that necessarily must be factored into one’s earning power every year. Let me explain. Consider if in 2006, you lived in California and earned a modest (for the state of California) $155,000 annual salary. From this figure, you had to deduct 33% for federal income tax and another approximate 10% for state & local income tax. Most Americans in this income bracket would believe that their net earnings for the year was 57% of their annual salary, or $88,350. However, most of us forget to compute one last very important calculation to determine our true net salary that year. In 2006, the true inflation rate in the US was about 10.5%. Since inflation decreases the purchasing power of your money, you must account for inflation as an “invisible tax” in your overall tax rate.

Thus, if you earned $155,000 in the state of California in 2006, your true tax was 33% + 10% + 10.5% = 53.5%. Consequently, your net earnings from your salary that year was barely over $72,000, certainly not $88,350 and certainly not $155,000. This is exactly why some years you may struggle to make ends meet even though you may be earning what you believe to be a very decent salary. It is for the very fact that Big Banks are bamboozling you out of your hard-earned money through a fraudulent monetary system. And you have the Big Banks, and in particular, the executives at the biggest banks in America, to thank for this dilemma. These are the “real facts” that men like Mr. Pandit do not want you to know. So will I ever be empathetic towards financial executives at Big Banks? When these financial executives run their companies with integrity instead of dishonor, when they are aboveboard instead of deceptive regarding their contributions towards this crisis, and when they engage all American citizens in an open debate regarding solutions instead of shrouding their meetings in secrecy, I will become empathetic. Until this occurs, then no, because frankly, financial executives at Big Banks are getting a free ride right now in proportion to their level of responsibility in creating our present monetary crisis.

So here are two simple steps every American must take to end the tyranny of Big Banks. While these steps are not perfect, they will succeed in changing the financial system in America if you truly desire real change.

(1) If you work for a Big Bank, start looking for another job and quit within six months. If you didn’t understand how the US Federal Reserve and big banks are destroying America, if you’ve read this article, you can not claim ignorance as a defense anymore. If you continue to work for a big bank, you are silently agreeing that moral repugnancy is okay. Quitting is not as difficult as it seems. I realized my mistake of working for a big US bank years ago and left to start my own independent company that could truly serve the interests of my clients. If I was still working for a Big Bank today, I would still consider myself part of the problem instead of part of the solution. If you want to remain in banking and don’t want to start your own firm, obtain a new job with a community bank. You have options other than to work for a Big Bank and contribute to America’s downfall.

(2) If you have large accounts, investment, savings, mortgages, or otherwise, at a Big Bank, withdraw all your assets, close your accounts out and give your business to a community bank. Yes, you will lose access to more competitive rates that a Big Bank can offer. Yes, closing your accounts will be a hassle. However, the consequences of doing nothing can devastate future generations of Americans. So consider these actions the greatest gift you can give your children and your grandchildren.

According to the FDIC, as of April 9, 2009, there are 8,256 FDIC-insured banks in the United States. Of these 8,000+ banks, perhaps taking action against the 20 biggest banks in America is all that is necessary to bring sweeping reform and change to the US financial industry. However, if all banks enable our fraudulent monetary system, you may ask, Why the Big Banks? Here’s the answer. While it is true that all banks serve as enablers of this monetary crisis, it was the specifically the Big Banks such as Goldman Sachs (GS) and Citigroup and the US Federal Reserve (as directed by Chairman and former JP Morgan director Alan Greenspan) that actively sought the repeal of the Glass Steagall Act (author’s note: For those of you unfamiliar with the Glass Steagall Act of 1933, it was an act loaded with provisions to specifically prevent the exact scenario we are suffering today). The Big Banks in the US lobbied to destroy the act and won this battle in 1999.

For those of you that understand the revolving door that exists among the US Treasury, the US Federal Reserve, JP Morgan, Goldman Sachs (GS) and Citigroup, it should be obvious to you why JP Morgan, Goldman Sachs, and Citigroup have all survived this crisis thus far. Seasoned gold and silver investors have often speculated that data seems to incriminate JP Morgan and HSBC US as the two Big Banks that consistently short the majority of gold/silver contracts in the futures markets. So to re-establish any semblance of free markets again in America, the Big Banks must be broken up.

According to a PBS Frontline interview, Charles Geisst, a professor of finance at Manhattan College in NYC, stated, “Certainly, Citigroup [and then CEO Sandy Weill] pushed for legislation to get rid of Glass-Steagall, pass what was called HR10 at the time, which became the Financial Services Modernization Act [of 1999]… In the year previous to the Financial Services Modernization Act, the thing that overruled Glass-Steagall, Citibank spent $100 million on lobbying and public relations…They spent a small fortune, a king’s ransom, if you will, getting rid of Glass-Steagall. In fact, when thrown in with other financial firms’ lobbying, it was closer to $200 million over the short period of time.”

Of course, the only real solution to this monetary crisis is to re-instate a monetary system backed by gold and silver. However, until that time comes, the intermediate step to take is to withdraw all support from all Big Banks and re-direct your support to your local community banks. I guarantee you that if we fail to act now, we will find ourselves in a predicament two to three years from now where it will be too late to take action for your actions will no longer have an effect. We have arrived at a tipping point right now and the simple actions above can help save our country and restore it to greatness. No matter your nationality or where you live, the greatest gift you could give every citizen of this world is to take the two steps above and to ensure everyone you know also takes the above two steps.

We still have much to learn from past US Presidents John F. Kennedy and Thomas Jefferson. John F. Kennedy once stated, “The very word secrecy is repugnant in a free and open society”. Thomas Jefferson once stated, “The government is best that governs least” and “When governments fear people, there is liberty. When the people fear the government, there is tyranny.” If we consider how the statements of these great US Presidents apply to our situation today, we will realize that never has secrecy in the US financial sector been greater and transparency less; never has our government governed more; and never have government and Central Banks feared us less.

Consider the $700+ trillion derivatives markets that nobody can seem to properly explain because they are unregulated and opaque, other than the fact that a good percent of this market is destined to blow up. And who do you think invented financial derivative products like Credit Default Swaps that are wreaking so much havoc on the financial system today? The Big Banks. Consider the fact that organizations like the Gold Anti-Trust Action Committee petitioned the US Federal Reserve Board and the US Treasury in 2008 for information regarding US gold swaps, but were denied information under the grounds that the disclosure of this information “would harm certain proprietary interests.” This secrecy regarding the US gold reserves and the secrecy of our $700+ trillion derivatives market is the very secrecy that President Kennedy referred to as “repugnant in a free and open society.” This should serve as a wake up call to us all.

Today, we find ourselves in a state of inertia that is induced by a fear created only by the fact that we have been dearly misinformed about the origins of this crisis. Our ignorance, in turn, is maintained by the secrecy and massive misinformation campaigns propagated by bankers. A misinformed, ignorant populace will remain in a state of inertia but an informed populace can create powerful change. The fact that we have been in a state of inertia for decades has created this obscene situation we face today. However, just as the law of inertia states that a body at rest is likely to stay at rest, the law of acceleration states that force equals mass times acceleration. Thus if we sincerely desire change, we must also seize the personal responsibility to inform all of our friends, our neighbors, and our co-workers about our fraudulent monetary system and the steps that can be taken to dissolve it.

We can consequently then generate mass and acceleration. A body set in motion is likely to stay in motion. This is how we can defeat the Big Banks. America has been in state of inertia not because we are stupid as the Big Bankers think of us. America has been in state of inertia not because we are lazy or uninspired. It has been a long time since the world has looked to America as the shining beacon of freedom and justice, but this is our opportunity, and ours alone, to seize. I am writing this article because I believe in the intelligence, the courage, the leadership, the diversity and the resilience of all Americans. And I do believe you will act upon reading this article.

If you believe that my views need be challenged, I agree, because in any free and open society, open debate and transparency is what leads to the best solution. But whatever you do, ACT. Merely pass this article on to your neighbor to open up a discourse then, for a debate about this is better than no debate at all. Also consider this article from a former IMF economist, Simon Johnson, called “The Quiet Coup.” Please take the time to follow this link and read that article as well. For those of you that have followed my writings for quite some time, you may be surprised that I am recommending an article from a former IMF employee, but trust me, it is an article well worth reading.

Perhaps if we take the small actions I suggest, the small community banks will morph into big banking giants, and we’ll have the same problems all over again. Perhaps, but if we all mobilize and place enough pressure on Congress to pass a Glass Steagall Act II by the time we finish taking the steps above, it will not. The only thing we know for certain is that if we do nothing, we will have sentenced not only ourselves but also future generations of Americans to a very bleak future. However, if we take action now, we can guarantee one thing. We the people will serve notice to the banks that we, and not they, are in control of our inalienable rights of life, liberty and the pursuit of happiness. America’s greatness is rooted in the strength of her citizenry, not her government and certainly not her corrupt banks. As the state of New Hampshire motto goes, “Live Free or Die.”

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