The iTulip’s Great Insights Thread

[Sapiens]

Re: The iTulip’s Great Insights Thread

Usury = Death.
Nature = Life.

The higher the rate of interest charged under Usury the faster things wilt and die.

In contradistinction, Nature is bountiful, the more you plant, the more you harvest!

[Sapiens]

Re: The iTulip’s Great Insights Thread

http://www.itulip.com/forums/showpos...42&postcount=3

Because Arendt refused to caricaturize and demonize, she suffered much from the Jewish comunity. In fact her everyman almost anti-climactic protrayal of evil is far more ominous than the comic book variety, if for no other reason than it is practically invisible and potentially omnipresent like a colorless odorless gas.

The genius of the current system is that everyone got rich by participating in little white lies of omission. There are no suitcases of ill-gotten gains passed underneath tables. Because responsilbity was masterfully defused between realtor-loan originator-appraiser-aggregator-pension fund operator-MBS salesman-rating agency-quasi governmental agency...

The genius of segmentation and originate-and-distribute is that all participants have plausible deniability. No ONE has responsibility for the whole picture.

..................

[Sapiens]

Re: The iTulip’s Great Insights Thread

http://www.itulip.com/forums/showpos...94&postcount=1

Re: How the Scam Works- Hudson

Here's what people don't seem to understand about the government's recent bailout packages:

1. The credit crisis has destroyed all bank capital in the US. All of it. If banks were forced to mark their loans to market they would all fail. The FDIC would be called in, many depositors would lose their shirts, etc, etc.
2. The Fed cannot create bank capital. They can only lend to the banks, in exchange for "AAA"-rated assets.
3. The Treasury doesn't have the authority to directly create bank capital either (except through special programs like TARP). However, they have weaseled a way to create loan "guarantees."
4. Problem solved: issue guarantees against the known-bad debt, in a way that will get it off of the bank's balance sheets, so that their capital will be replenished.

In other words, the "scam" that Hudson points out is exactly what they're trying to accomplish: to recapitalize the banks using taxpayer dollars, without explicit Congressional authorization to do so -- presumably because if Congress had any idea what the price tag would be, they would likely say no.

[Sapiens]

Re: The iTulip’s Great Insights Thread

http://www.itulip.com/forums/showpos...88&postcount=1

Ej writes in:

iTulipers are as exposed as everyone else to the relentless influence of the Bullhorn and are not immune from its power to reprogram even the most aware and self-aware if they are exposed to it. Watch TV, read the financial press, or listen to the radio and the message conveyed is that the current financial and economic crisis is temporary, much like previous crises, and will soon be remedied by treatments that worked in the past, such as interest rate cuts, tax cuts, liquidity injections, and bailouts.

As a rule, few people embrace change, either good or bad. Most people want the world to remain the same. A predictable world, even if it produces occasional hardships, is at least manageable if the hardships can be anticipated and planned for. But we are facing permanent change to our economies and the structures of our societies and few are up to facing this fact at an emotional level, never mind try to figure it into their investment decisions. Most people are desperate to hear comforting lies about their future.

iTulipers are different. They are brave. They don't want lies, they want to know where they stand. So I will put this as simply and as clearly as I can.

The system under which the U.S. and global economy have operated for over 20 years is systemically corrupt. The current systemic financial crisis ultimately arises only indirectly from systemic risk. The root cause of the systemic risk is systemic corruption of the financial system and the private and public institutions that comprise it. Leadership within private and public financial institutions took the license given them to cooperate too far and the system collapsed; systemic corruption in turn led to the excesses that then led to the institutional failures, of the banks, regulators, ratings agencies, and others.

It is a mistake to think that the system can recover so long as the men and women who run these institutions that created the crisis are still in control, and it is a mistake to expect that they will leave quietly or soon. They will not negotiate away their power or wealth or standing. They must be confronted and so far there is no one currently in a position to confront them. Those who have, quickly find themselves discredited and marginalized. This is how all corporatist political systems operate. There are rewards for cooperation and punishments for objectors.

This explains the instance of "CEOs" of financial institutions who are rewarded for failure with large bonuses and allowed to continue to run companies that they have effectively destroyed. An actual CEO is fired for failure, and receives a bonus only for increasing shareholder value according to an employment contract drafted by a compensation committee of the board that is bound by rules of corporate governance.

These financial institution leaders are CEOs in title only. More accurately they are appointees of the financial oligarchy, not CEOs bound by rules of corporate governance. To acknowledge this fact, from here on we refer to the CEOs of financial institutions as FOAs, financial oligarchy appointees, and to their leader Tim Geithner as the American Finance Minister, according to the model of government used by Russia and other oligarchical political systems.

We got out of the stock market in 1998 once we become aware of the situation. We will re-enter the markets once we see clear evidence that the private institutions of finance and the public institutions that regulate them are no longer corrupt. We will know that the corruption has ended when the following has occurred.

One, there are hearings, trials, convictions, and perpetrators serving jail time. So far, there is not even discussion of hearings.

Two, the national financial press becomes independent of the money that finances the content, with a clear delineation between advertising and editorial content. We see no evidence of that occurring either. Our realism, misunderstood as pessimism by some readers at the time, about the ultimate impact of Jon Stewart's calling out of Jim Cramer has been born out--after a couple of weeks, Cramer is back to business as usual.

Three, the private financial and non-financial sector debt built up during the FIRE Economy era is reduced by at least half through either debt forgiveness or inflation.

It is quite impossible to do business with unethical people, and just as impossible to invest in financial system controlled by unethical people. Until the above events occur, we do not see how we can invest in the U.S. stock market.

[WDCRob]

Re: The iTulip’s Great Insights Thread

Great thread Sapiens...

I've got a post or two from Finster that I think belong, I'll see if I can dig them up.

[Sapiens]

Re: The iTulip’s Great Insights Thread

http://www.itulip.com/forums/showpos...86&postcount=1

"the payments made to AIG by the Fed and Treasury, which were then passed-through to dealers such as Goldman Sachs (NYSE:GS), can only be viewed as an illegal taking that must be reversed"

Is that a realistic expectation?

The last thing the elite does in a country when they realize that the system cannot be saved is to loot the treasury.

[Sapiens]

Re: The iTulip’s Great Insights Thread

http://www.itulip.com/forums/showpos...06&postcount=7

Originally Posted by gorkypark View Post
Agreed; the interest has also to be borrowed into existence...this fails in a deflationary environment which is why there are black holes in the bank balance sheets..

And in 95% of the cases of loans being issued, the interest is never borrowed into existence. This is the mathematical impossibility (ie "black hole" as you described) that I am trying to help people understand.

This "black hole" can also be called defaults. As in, no matter how hard one works, someone somewhere will be forced into default simply because there isnt any money on anyone's balance sheet that can service the debt (without borrowing more money into existence, that is). Funny, I didnt see that in any of the contracts that I signed. Nothing of the likes "You could default on this contract and we will confiscate the property you offered as collateral, through no fault of your own". I think that's a violation of contract law, in that it's fraud by deception and outright theft.

[Rajiv]

Re: The iTulip’s Great Insights Thread

It is critical to realize why this remains hidden in plain sight.

Interest is paid by the individual, and it appears to be the individual's responsibility.

However the creation of the interest is done by the society at large -- and like any Ponzi scheme, it works while the economy is expanding.

However, expansion and contraction are both part of the Economic cycle.

During contraction, individuals lose their jobs, or means of economic production, and the individual's property (in the form of collateral) passes to the lender, who then consolidates, and money (created from thin air) transforms into an asset owned by the lender!

And in the words of "Hypertiger," the top enriches itself at the expense of the bottom!

[Jay]

Re: The iTulip’s Great Insights Thread

It is critical to realize why this remains hidden in plain sight.

Interest is paid by the individual, and it appears to be the individual's responsibility.

However the creation of the interest is done by the society at large -- and like any Ponzi scheme, it works while the economy is expanding.

However, expansion and contraction are both part of the Economic cycle.

During contraction, individuals lose their jobs, or means of economic production, and the individual's property (in the form of collateral) passes to the lender, who then consolidates, and money (created from thin air) transforms into an asset owned by the lender!

And in the words of "Hypertiger," the top enriches itself at the expense of the bottom!

Are the banks still left with the pre-existing liability on their balance sheet? I.e. They lend me 500k, I default, they get the property, but still have a 500k hole on the balance sheet.

[Rajiv]

Re: The iTulip’s Great Insights Thread

Are the banks still left with the pre-existing liability on their balance sheet? I.e. They lend me 500k, I default, they get the property, but still have a 500k hole on the balance sheet.

I think Sapiens is better qualified to answer this question than me.

That said, in my opinion, this depends upon the market value of the collateral, and the amount already paid up.

Thus the rush to recapitalize the banks, and a reticience to help the borrowers on part of "the powers that be," and also the reluctance on part of the banks to sell the foreclosed assets.

[marvenger]

Re: The iTulip’s Great Insights Thread

banks don't need to be solvent, peekaboo accounting satisfies the auditors

http://www.itulip.com/forums/showthr...ght=max+keiser

[Sharky]

Re: The iTulip’s Great Insights Thread

Are the banks still left with the pre-existing liability on their balance sheet? I.e. They lend me 500k, I default, they get the property, but still have a 500k hole on the balance sheet.

After taking out a loan, the situation looks like this:

Bank Asset: $500K loan
Bank Liability: $500K deposit

After you buy the house with the loan, the deposit nominally stays in the banking system, even though it's not in your account any more.

If you default on the loan, then the loan goes away, but the liability temporarily remains:

Bank Asset: your house
Bank Liability: $500K deposit

This is all fine until the bank sells the house. Let's say they got $200K. The bank would then destroy the received $200K and $300K of its own capital, to write down the liability:

Capital loss: $500K asset - $200K sales price = $300K (written off against bank capital / income)
Bank Asset: none
Bank Liability: none

[Jay]

Re: The iTulip’s Great Insights Thread

I think Sapiens is better qualified to answer this question than me.

That said, in my opinion, this depends upon the market value of the collateral, and the amount already paid up.

Thus the rush to recapitalize the banks, and a reticience to help the borrowers on part of "the powers that be," and also the reluctance on part of the banks to sell the foreclosed assets.

Rajiv, I'm not out to defend to the present system, I just want to understand it better, so please take this line of questioning in that light of inquiry:

If, during a default, the banks are left with a loan liability and an asset, the preponderant problem doesn't necessarily lie in the debt system itself, but in the willingness of politicians to bail banks out and in the corrupt tentacles of bankers infiltrating the government to ensure that a bailout occurs. If the banks have to worry about receiving a dud of an asset and keep it on their books, this does serve as an effective froth speedbump as long as the system isn't corrupted to the extent that solvency doesn't matter because no one enforces an audit, or an audit doesn't matter because the rules have been changed to the extent that capital requirements are effectively zero, no?

I would agree that this is the predicament that we find ourselves in now, but does that permanently discredit debt money as a system? In and of itself, no, unless you could argue that no matter what checks and balances are put in place, you will always end up in this morass of corruption as it is also inherent in a debt system that all regulations, no matter how ingeniously created, are going to eventually be flaunted or co-opted. I suspect that might be the case the more I learn, especially in comparing the present with past debacles such as the Great Depression and the Long Depression which had similar roots in over indebtedness and inevitable debt deflation.

You could also very effectively argue that the debt system places too much power into the hands of the bankers, and unnecessarily so, but none of those arguments make it factually correct that because of compound interest a segment of the population can never pay back their loans due to the money not existing. I think Sharky's argument about the interest being paid first and then being recycled by the banks who pay for a productivity equivalent in some form holds weight. It just means that the banks are really, really powerful. They hold the keys to the kingdom by controlling monetary flow in the economy while also skimming a large chunk right off the top. But if they are left with a depreciated asset in a default, that doesn't cover their corresponding liability, this power has a built in governor to some extent.

That leads me necessarily to the next vital question, and that is whether a non-debt based system is any better. I don't know enough to answer this. I have seen your posts and videos showing such systems in action and also have read that the Greenback during the civil war was not debt based and that other non-debt based US currencies have been associated with periods of economic expansion in the past.

I would love for non-debt based currencies to be fleshed out more in this forum; for my own understanding, but also because they might offer a solution to the historically repetitive debt deflation problems we face today. A non-debt system would also stand in stark contrast to the present clarion calls for increased regulation within our existing debt system that likely offer only false hope until the next avalanche of debt two generations from now.

[Jay]

Re: The iTulip’s Great Insights Thread

After taking out a loan, the situation looks like this:

Bank Asset: $500K loan
Bank Liability: $500K deposit

After you buy the house with the loan, the deposit nominally stays in the banking system, even though it's not in your account any more.

If you default on the loan, then the loan goes away, but the liability temporarily remains:

Bank Asset: your house
Bank Liability: $500K deposit

This is all fine until the bank sells the house. Let's say they got $200K. The bank would then destroy the received $200K and $300K of its own capital, to write down the liability:

Capital loss: $500K asset - $200K sales price = $300K (written off against bank capital / income)
Bank Asset: none
Bank Liability: none

Thanks Sharky, that is what I suspected and fits in with my above post. Sorry, if this is simple to all of you, but I have zero education in these areas. I appreciate all of the comments and input.

[Rajiv]

Re: The iTulip’s Great Insights Thread

Jay, your points are well taken. The main problem with debt as money lies in the charging of interest in general, and compound interest in particular.

To understand the problems, one would be well served to spend time with Chris Martensons "The Crash Course"

Also Prof Albert Bartlett's "The Most IMPORTANT Video You'll Ever See" on Exponential Growth

And Dan Chay's

"Are Human Beings Smarter than Yeast?"

And finally Michael Hudson's 'Why the “Miracle of Compound Interest” leads to Financial Crises' is a must read.

The technological core of economies is wrapped in a framework of property laws, financial practices and taxes that vary sharply from one country to another. This institutional context imposes an extractive overhead of property claims and debt service that are largely a vestige of the conquest of Europe by the Vikings and their kin, who appropriated the public commons and levied property rents. These military conquerors were followed by the Templars and Italian bankers, who legitimized the charging of interest and standing royal war debts. The financial counterpart to increasing returns in the production sector is the “magic of compound interest” – the tendency of debts to multiply by purely mathematical principles, independent of the “real” economy’s ability to pay. Early analysts of compound interest pointed out that the debt overhead tends to expand autonomously, eating into the “real” economy, slowing it down and polarizing property and income by diverting revenue away from production and consumption to pay creditors.

What distinguishes the “other canon” from today’s dominant orthodoxy is its rejection of the assumption that economies tend to stabilize automatically in a fair and equitable balance, and hence do not require government regulation – and that public enterprises operate more efficiently if transferred into private hands. Accusing government planning of being inherently inefficient and hence needlessly costly, today’s self-proclaimed neoliberals claim that the dynamics of free markets will overpower whatever government planners try to impose.

Defending the need for active public policy, the other canon finds that such a balance requires that markets be shaped by selective taxation, public regulation, subsidies and infrastructure investment. Privatization of public enterprises and other parts of the public domain adds to their cost of production by building in financial charges and capital gains by owners, and higher payments to the financial managers who end up as planners of these assets.

According to this approach, the slogan of “free markets” is merely a euphemism for centralizing planning power in the hands of financial and other vested interests that are seeking to break away (that is, “free”) of oversight, regulation and taxation by elected officials. They seek above all to make central banks independent – that is, controlled by the commercial banking interest – and to concentrate trade and tax policy in the hands of the IMF and World Bank globally, and domestically in an Executive Branch controlled by financial and property lobbyists. Thanks largely to the privatization of election financing and its rising media advertising costs in today’s political campaigns, the vested property and financial interests have succeeded in un-taxing and deregulating themselves. This is just the opposite policy from that advocated by the classical liberal political economists from Adam Smith through John Stuart Mill. To these “original” liberals, a free market meant a market free of free lunches for the rentier interests. Their idea of freedom was one of equal opportunity for all economic players.

It is important to recognize that every economy is planned. Forward planning began in the Neolithic to schedule the planting and harvesting of crops, as well as sea and caravan trade and the festivals that organized the community’s basic rhythms. The calendar emerged as the major planning vehicle, usually kept by sky-chiefs. In today’s world, corporations plan how much to produce for the market, how much advertising can create a demand for their products and build brand loyalty, and where to focus research and development spending. Their lobbyists ask governments to invest in infrastructure, grant subsidies, price supports and tax concessions (“loopholes”), rezone land sites, regulate foreign trade and provide police protection against fraud and other crime. Consumers plan how much to allocate for education and save for retirement, how long to stay in school, and seek regulation of workplace conditions, public health and related shaping of the economic context in which market forces operate.

Given the fact that all market participants engage in forward planning of one sort or another, the great political question concerns just who is to do the planning. To the extent that government relinquishes this role, planning passes into the hands of the economy’s financial managers. When the government steps aside, they pick up the slack. Unfortunately, their time frame is shorter and their aims are more narrowly self-serving than those of public officials. Most seriously of all, they seek the economic rent and extractive financial returns that classical liberals and Progressive-Era reformers sought to minimize by government regulation or taxation.

Today’s pattern of economic development and taxation is not what most 19^th-century economists expected to see. Viewing economic evolution in terms of rising productive powers – and hence, living standards – they thought that economic management would pass naturally into the hands of industrial engineers under a regime of democratic parliamentary reform. They also expected governments to play a growing role, above all in by providing the infrastructure needed to make domestic industry and agriculture more competitive, and to prevent monopolies and other special interests from extracting rent or otherwise profiteering from the economy at large.

The classical economists characterized economic rent as “unearned income,” and John Stuart Mill called capital gains an “unearned increment,” best typified by the rising land values that accrued to landlords “in their sleep.” The aim was for prices to reflect only the returns to socially and technologically necessary costs of production, and to maintain an economy in which after-tax income is earned, not achieved by property privileges of special interests. Taxes levied on these rentier gains would be paid out of the economy’s “free lunch.” Rather than raising prices, taxing these returns keeps land values and the price of stocks in monopolies low.

To defend their moral and fiscal right to this income, and to minimize public regulation and taxation of price gains for land, stocks and bonds, the rentier interests depicted their returns not as extractive but as a bona fide cost of doing business, and hence earned. They even went so far as to claim that these returns acted as the mainspring of economic growth. On this basis the rentier lobbies in modern times have advocated that taxes should be levied on labor, not on the land’s economic rent or the extortionate prices and related gains demanded by monopolies.

In this paper I want to discuss the financial sector’s tendency to dominate, deflate and polarize economies, thwarting economic potential.