Government lying about debt crisis!

by Martin D. Weiss, Ph.D.
Monday, June 27, 2011 at 7:30am

Do you believe what government officials and experts are saying about the debt crisis?

If so, you're taking your financial life into your hands.

Just consider how many times they've been wrong, issued deliberately misleading statements, or simply lied:

In 2007, they swore on a stack of Bibles that the debt crisis was limited to subprime mortgages.

But the crisis promptly spread to all kinds of mortgages, ripping through giant mortgage lenders like Countrywide, Fannie Mae, and Freddie Mac.

In 2008, they admitted it had spread, but swore that it was strictly contained to the housing and mortgage sector.

But in a few short months, it had enveloped commercial paper, money markets, and nearly all of Wall Street. Nearly every one of America's largest banks either failed or came within a hair of insolvency.

In late 2009, they rescued the bankrupt banks and mortgage lenders using the $700 billion in emergency capital approved under the Trouble Asset Relief Program (TARP). Then, they ran deliberately lenient "stress tests" on the biggest banks to "prove" to the public that the emergency had passed.

But with the government now assuming liability for trillions of mortgages and other bank obligations, they transformed a Wall Street debt disaster into an even larger Washington debt disaster: The federal deficit ballooned to four times its pre-crisis size. And in the euro zone, where governments had also pumped massive sums into bankrupt banks, the weakest countries like Greece began to collapse.

In 2010, the European Union and the International Monetary Fund put together a sovereign debt rescue package that was even larger than TARP. They pulled Greece from the precipice and vowed never to let the contagion reel out of control.

But within a few short months, the contagion toppled Ireland and Portugal ... threatened a similar fate for Spain, Italy, and Belgium ... and even raised serious questions about the financial fate of the two largest economies in the euro zone — France and Germany.

Clearly, each outbreak of the contagion, each government rescue, and each new happy-talk pronouncement has merely spawned a bigger disaster, impacting bigger institutions ... gutting the portfolios of more investors ... and ruining the lives of millions more Americans.

Now, here we are halfway into 2011 and they're at it again — this time with a complete package of misleading statements and lies that make all previous ones seem candid by comparison.

Lie #1. They're again saying that the debt crisis of 2008-09 is "history."
The truth: The core cause of the crisis — the gigantic pyramid of high-risk derivatives — has never gone away.

Quite the contrary, the pile-up of derivatives on the books of major U.S. banks is now much larger — $244 trillion, compared to less than $200 trillion before the debt crisis, according to the U.S. Comptroller of the Currency (OCC).

Lie #2. They say that America's largest banks have virtually no exposure to a Greek debt default or a broader European sovereign debt crisis.
The truth: All major European and U.S. banks are linked through an even larger global network of derivatives, now representing more than $600 trillion, according to the Bank of International Settlements.

Therefore, even though U.S. banks may not hold large amounts of European debts themselves, they are directly exposed to European banks that do hold large amounts of loans to Greece, Ireland, Portugal, and others in jeopardy.

Lie #3. They insist that America's largest banks are safe.

The truth: The largest U.S. banks continue to hold nearly all of the derivatives in the country.

Goldman Sachs has $44.9 trillion in derivatives.
Bank of America has $52.5 trillion.
Citibank has $54.1 trillion.
And JPMorgan Chase towers over all others with $79.5 trillion of these potentially dangerous investments.

In total, JPMorgan, Goldman, Citibank, and the BofA alone are exposed to $234.7 trillion in derivatives. In contrast, among the thousands of other U.S. banks, the grand total of derivatives is a meager $9.3 trillion. In other words, these four banks are exposed to more than 25 times the sum total of all derivatives held by every other bank in the United States.

Never before has so much financial power — and risk — been concentrated in the hands of so few!

Yes, these numbers, reflecting the "notional" value of the financial instruments at play, are far larger than the actual amounts invested. But still, the risks are huge ...

The derivatives held by Bank of America are 36 times larger than TOTAL assets;
At JPMorgan Chase, they're 46.1 times larger than the assets;
At Citibank, 46.6 times larger; and
At Goldman Sachs Bank, a shocking 533 times larger!

Yes, in recent months, some banks have reduced somewhat their exposure to defaults by their counterparties. But here again, the exposure remains massive: According to the OCC, for each dollar of capital ...

Bank of America has $1.82 in credit exposure to derivatives;
Citibank also has $1.82;
JPMorgan Chase has $2.75; and
Goldman Sachs is, again, at the greatest risk of all — with $7.81 in credit exposure for each dollar of capital.

That means that if JPMorgan's counterparties defaulted on 36% of their derivatives, every last dime of the company's capital would be wiped out. And at Goldman Sachs, defaults on just 13% of its derivatives would wipe out its capital.
Lie #4. Misinformation about the government's supersized debts is equally egregious. They want you to believe that, although large, the government's debts are far below the danger zone — thought to be around 100% of GDP.

The truth: According to the Fed's latest Flow of Funds report, the U.S. Treasury owes a total of $9.6 trillion, 64% of GDP, which isn't too bad. But the U.S. government is also responsible for $7.6 trillion in debts owed by government agencies, such as Fannie Mae and Freddie Mac.

The U.S. government's total debt burden: $17.2 trillion or 115% of GDP — similar or WORSE than that of countries like Greece, Ireland, Portugal, and Spain!
Lie #5. They argue that America is special because it controls the world's dominant reserve currency.

The truth: Yes, that gives Washington the ability to print money with impunity ... press other rich countries to accept its debts ... and borrow huge amounts abroad to finance its deficits. But it's more of a curse than a blessing!

It means that, more so than any other major nation, the U.S. government is beholden to investors overseas — often the same investors who have repeatedly attacked countries like Greece and Ireland. Ultimately, that could make the U.S. even more vulnerable than Europe.

The EPA's War on Jobs: Coal is from Earth, Lisa Jackson is from mercury

President Obama's jobs council will make its first recommendations today on lifting hiring and strengthening the economy. Too bad the message doesn't seem to be reaching the Administration's regulators, in particular the Environmental Protection Agency.

The EPA is currently conducting a campaign against coal-fired power and one of its most destructive weapons is a pending regulation to limit mercury and other hazardous air pollutants like dioxins or acid gases that power plants emit. The 946-page rule mandates that utilities install "maximum achievable control technology" under the Clean Air Act-and even by the EPA's lowball estimates, it is the most expensive rule in the agency's history.

In 1990, Congress gave the EPA discretion to decide if mercury regulation is "necessary and appropriate," and the Clinton Administration did so in its final days. The Bush Administration created a modest mercury program, only to have it overturned by an appeals court on technical grounds in its final days. The case was still in litigation when Mr. Obama took office, and his appointees used the opening to strafe the power industry, proposing a much more stringent rule.

The EPA issued the utility rule in March, with only 60 days for public comment. Basic administrative practice usually affords between 120 and 180 days, especially for complex or costly regulations of this scale. The proposal was obviously rushed, with numerous errors like overstating U.S. mercury emissions by a factor of 1,000. The word in Washington is that the openly politicized process unsettled even the EPA's career staff.

The agency estimates that the utility rule will cost $10.9 billion annually but will yield as much as $140 billion in total health and environmental benefits. Sounds like a deal. But most of those alleged benefits are indirect-i.e., not from the mercury reductions that the rule is supposed to be for. Rather, they come from pollutants ("airborne particles") that the EPA already regulates under other parts of the Clean Air Act. A good analogy is a corporation double-counting revenue.

According to the EPA's own numbers, every dollar in direct benefits costs $1,847. The reason is that electric generation-yes, even demon coal-results in negligible quantities of air pollutants like mercury. And mercury is on the decline: In 2005, the entire U.S. coal fleet emitted 26% less than the EPA predicted.

The real goal of the EPA's rule is to shut down fossil fuel electric power in the name of climate change. The consensus estimate in the private sector is that the utility rule and eight others on the EPA docket will force the retirement of 60 out of the country's current 340 gigawatts of coal-fired capacity. Reliability downgrades will hit the South and Midwest where coal energy is concentrated. American Electric Power recently announced that the rules will force it to shut down five plants in West Virginia and Ohio, a quarter of its coal fleet.

The power industry estimates that the true costs of the utility rule will far exceed the EPA estimates, which of course will be passed to consumers and businesses as higher prices. The International Brotherhood of Electrical Workers, normally a White House union ally, says the rule will destroy 50,000 jobs and another 200,000 down the supply chain. That's more jobs lost than if Boeing went bust.

Astonishingly, EPA Administrator Lisa Jackson claimed in March that the utility rule is "expected to create jobs," because it will "increase demand for pollution control technology" and "new workers will be needed to install, operate, and maintain" it. In other words, the government should harm an industry and force it to ruin working assets so maybe other people can clean up the mess.

Such theories help explain why the economic recovery and job creation are far weaker than they ought to be, but the good news is that even many Democrats are beginning to push back against the EPA's willful damage. The least Congress can do is force the EPA to delay the final utility rule to allow for more public debate, though a better option would be to junk it.

Katie Brown

Church of Global Warming

Church of Global Warming, Part 1

Shivering and Sweltering in the Dark

First, let me differ in defining environmentalists from greeners in my book. Environmentalists are the people for a cleaner earth and have my thanks and respect.

http://ransrants.blogspot.com/2010/04/convenient-truth.html

Greeners are the scammers that are riding that movement for their own ends and enrichment. Greeners sue any and every energy project to prevent, delay or make it more expensive. Recently they have sued California trying to prevent a solar generator in the Mojave Desert, not to mention a power line to San Diego to carry power.

I also do not lump coal, oil, and nuclear together. Oil power plants are almost gone; 95% of them have been converted to natural gas for economic reasons. Coal vs. nuclear I have covered in a blog:

http://ransrants.blogspot.com/2010/04/unconsidered-consequences.html

The latest generation of nuclear reactors are even safer but not considered by many including the US.

http://ransrants.blogspot.com/2011/01/thorium-reactors-and-sputternik-moments.html

Wind power is a scam. Spain went for it big and a Spanish economist pointed out it cost 2.2 jobs for every green job created, and the green jobs were government subsidized so are going away as Spain downsizes their budget.

The Danes went big for wind power and now have the highest-cost power in Europe. The secret though is that when becalmed, there is an undersea cable bringing Norse hydroelectric power.

The UK has built an extensive net of wind machines originally thought to produce and average of 27% of their max capacity. Experience has been much less than this figure, with an average of 9 months out of 26 being less than 10%.

A study projected the wind machines to replace the 2400 MW nuclear generator outside of Dallas-Fort Worth would cover 20% of Texas and still would have left them shivering or sweltering the dark when Texas is becalmed in mid-Summer or Winter.

In other words, not only is wind expensive, it must be duplicated in capacity by some other reliable source, thus making it even more and absurdly expensive. The reason most want to build wind machines is the $23 per kilowatt US government subsidy (plus often additional from the state). There is no government subsidy for maintaining and operating them, so many machines become abandoned after breaking. California and Hawaii have this problem.

T Boone Pickens wanting to build a few billion dollars of these machines adds new meaning to "Boonedoggle" (sic).

The future holds promise for alternative power should thin-film solar become cheap enough to go on peoples' roof. It's not there yet. I read an article yesterday that would bring it down to 15-cents per KWh, but coal now comes in at 8-cents per KWh. The real idea behind Cap-and-Trade was to raise the price of coal to make solar competitive, not to mention allowing someone to enhance revenues equal to everyone's current power bill.

Other alternatives exist, but I doubt one is moving civilization backwards. Power is civilization. I am not opposed to alternative power; I am opposed to shivering and sweltering in the dark