Damn it Jim, I'm an Accountant Not a Cook
June 28, 2004 9:29 PM   Subscribe

America's Black Budget - the Manipulation of Mortgage and Financial Markets Investors benefit from understanding the federal budget, credit policies and covert intervention that drive markets -- often overriding fundamental economics. How has the US governmental apparatus become so powerful in the marketplace and what does it mean to the health of our economy? How unstable is the mortgage bubble and where are the opportunities for investors if the bubble bursts?
posted by willnot (21 comments total)
It reads like a conspiracy theory, but I thought it was a really interesting read none-the-less.
posted by willnot at 9:31 PM on June 28, 2004

Risks - get out of "trophy" housing.

Opportunities - buy Gold. Speculation : "Why NM Rothchild withdrew from the London Gold pool?"

I believe CAF is on the level. One can never know for sure, of course.

Meanwhile, Afghanistan re-emerges as World's #1 opium production center, threatens to destabilize region.
posted by troutfishing at 10:00 PM on June 28, 2004

: run away

: buy shovels, seeds, and organic power-bars.

: build secret mountain enclave, wait for jackals to devour one another.

: profit !
posted by troutfishing at 10:15 PM on June 28, 2004

Or :

1) Ignore evil stuff

2) Promote only the good

3) Thrive.

4) Spread personal DNA
posted by troutfishing at 10:17 PM on June 28, 2004

Opportunities - buy Gold

The price of gold is very high right now. It looks like it could go a little past $420 (pothead market manipulation, anyone?). But it could crash back down to a historic level of $280.
posted by Kwantsar at 11:52 PM on June 28, 2004

I'm just an average joe and can't untangle all the fancy ideas but a couple things strike me as suspect of this southern belle:

It reads like a late-night TV infomercial complete with product close at the end and the wide-eyed agreeable side-kick.

Catherine would be glad to read this article in person for $2 thousand dollars.

Her government experience is a year or probably less from 1989-1990

But I do like some of the ideas on her website, to use local banks.
posted by stbalbach at 12:43 AM on June 29, 2004

Well, it reads like a conspiracy, but it is interesting. It also corroborates much of what I've been reading from more respected journalists and analysts over the past two years.

I think what it really boils down to is this: our entire financial structure has been built up based upon a subjective system that is no longer based upon reality. It's simple math, really: if you spend more than you make it's bad. If you spend more than you make, but can get that debt financed by foreign nations, it's okay. But if you spend more than you make and those foreign nations balk at purchasing more of your debt, you're pretty much phucked.

I recall reading an article in graduate school where the author argues that one of the primary reasons why the US government will not forgive the debt of many 3rd world nations is because US banks *rely* on debt servicing income as a method of financing US consumer debt.

Long story short: we're dealing with a teetering house of cards. Ayn Rand would be very disappointed in our leadership.
posted by tgrundke at 6:39 AM on June 29, 2004

I agree about the pitch for gold at the end. I was following most of her argument and agreeing with it, but then became suspicious at the end. If she is earnest, it's a shame she should bring that into question by ending the conversation that way. To give her some credit, it was the interviewer who brought it up and perhaps she didn't have an opportunity to clarify her position. If she has something to gain by promoting gold investment (other than the return on her own investment), then she should have stated that, which she didn't.
posted by PigAlien at 7:49 AM on June 29, 2004

I think I see the black helicopters. . . grab your tin foil hats and run for the hills.
posted by caddis at 7:51 AM on June 29, 2004

For what it's worth, I believe this article is true, but I don't believe it is because of a conspiracy.

I believe that complex systems (such as financial and political systems) exhibit emergent behaviour and that the concentration of wealth in our society and the consequences of it are a form of emergent behaviour in our society the way it is structured.

I think she is correct in saying that the only solution is to change the rules of the game on a local level so that the emergent behaviour works out better for everyone instead of just a few.

We have to work at a local level and, most importantly, encourage others to work at the local level to prevent the creeping theft and encroaching serfdom. After all, and unfortunately, we are currently willing participants in our own demise.

I get the feeling that many people think the whole idea of corporate serfdom is hogwash. Perhaps it is. I think, however, that it took a very long time for Europe to come out of the dark ages and for power and wealth to concentrate in the hands of the aristocracy. It may be another century in our own time, but I do believe it is possible that some day the corporations will rule like aristocrats and that the CEOs and board members will the dukes and earls of a future America.

I'm not saying this is likely, but it will be more likely if we don't guard against it and less likely if we do.
posted by PigAlien at 8:00 AM on June 29, 2004

... CEOs and board members will BE the dukes and earls...

Also, the concentration of wealth and power isn't something that happens instantly, it is a process that takes time. How much time it takes depends on the means. You can use military might to concentrate wealth and power very quickly at a very high cost. Or, at a lower cost, you can manipulate markets and political institutions and take a much longer time to concentrate wealth and power.

I believe we're currently in the midst of a slow, but quickening effort to concentrate wealth and power. The upside is, if we recognize this, we have the ability to fight back. The downside is, because it is happening slowly, the majority refuse to see it happening.

The best way to take away someone's freedom is to take it slowly, piece by piece.
posted by PigAlien at 8:08 AM on June 29, 2004

The part about poor financial accountability in government is right on the money but hardly surprising...imagine a $2 trillion business where no one has an explicit ownership stake...endless room for fraud, sloth, and waste.

The part about money being secretly siphoned off into "black programs" is pure tinfoil hat.

tgrundke..."if you spend more than you make it's bad"

I would disagree with this statement...almost everyone who buys a house spends more than they make...they just borrow what they don't have in their pocket. Borrowing is not inherently bad if you can service the debt. Even the identity of the lender is not all that meaningful...after all, they are giving you the money...they take the risk.

That, of course, oversimplifies the issues facing global borrowers and lenders. Our three largest lenders in order are Japan, Britain, and China. Japan's treasury holdings are more than twice those of China and Britain combined. Even so, China's treasury holdings represent 9% of outstanding US debt and is the "foreign nation" that receives and deserves the most scrutiny.

It wouldn't make much sense for any of these lenders to explicitly stop purchasing US debt...the resulting disruption in global capital flows would damage all economies not just the US. Lenders to the US implicitly opt not to purchase new debt all the time...they do this by bidding less than the next guy. When enough buyers reduce their bid, interest rates go up and the buyers reevaluate their analysis of the risks of purchase.

Is our financial house in order? Not by a long shot, but I think "a teetering house of cards" is a metaphor too far.
posted by cyclopz at 8:52 AM on June 29, 2004

How about "a solid, well-constructed house of cards"?
posted by rusty at 9:48 AM on June 29, 2004

That's more like it.... :^)
posted by cyclopz at 10:00 AM on June 29, 2004

cyclopz, according to my understanding, mortgage lenders take almost no risk. Is the following scenario correct?

I find a house for $300,000. I make a $60,000 down payment, and get a 30 year mortgage. For the next six years I make payments of $1,500 per month, giving the lender a total of $108,000.

At this point I fall into financial trouble, and can no longer make payments. The lender forecloses on the property, and sells it for an appreciated value of $380,000.

This leaves me with a net loss of $168,000, and gives the lender a six year net profit of $258,000, on an initial $240,000 investment.

Is this incorrect?
posted by mosch at 12:08 PM on June 29, 2004

Yeah, it's incorrect. The lender won't get the full $380,000 from the sale. They will just get enough of the money to satisfy the remaining balance on the mortgage; anything left over goes to the owner of the property.

What this means, of course, is that there's really no incentive for the mortgage holder to sell for a price that significantly exceeds the balance of the mortgage, so the owner may not see the property sell for the full $380,000 that they would expect.
posted by aenea at 1:15 PM on June 29, 2004

Because they hold title to the underlying property, lenders take limited risk...but your scenario assumes that the property appreciates. When a borrower defaults on appreciated property, the home is sold in pre-foreclosure in the majority of cases. The legally mandated time between a determination of default and foreclosure (different by state) typically allows a borrower whose home has increased in value to effect a sale that satisfies the loan.

The properties that actually end up in foreclosure usually come with lots of other baggage that follows a distressed borrower...the legal expenses surrounding eviction, multiple loans on the property, a poor maintenance record, and liens from unpaid taxes and legal judgements. These homes tend to have declined in value, often materially. Lenders are generally thrilled if they can sell these properties anywhere close to the value of the original loan.

One scary side effect...in cases where the value of the forgiven loan is materially greater than either the appraised or sale value of the foreclosed property, the IRS may treat that difference as a taxable gain on the part of the borrower!

So mortgage lenders don't make money flipping foreclosed real estate...they make their money on the sliver of difference between where they can borrow and what borrowers are willing to pay.
posted by cyclopz at 1:17 PM on June 29, 2004

work at the local level to prevent the creeping theft and encroaching serfdom.

I always thought serfdom came about because of local level rule .. historically serfdom came about in Europe in the Middle Ages after the collapse of the larger institutions and towns and cities became independent enclaves self-governing and it was the serf who served the local ruler in return for protection (feudalism). It was not until the rise of the Monarchs and states and the money system that serfs were freed, or in some cases like Russia not until only recently. Just using that as a parallel is there not danger in returning to locally based economies and the resulting lack of freedoms that could develop? I would think the more open the borders and trade are the more prosperous the people will be and the less shackled to institutions.
posted by stbalbach at 3:11 PM on June 29, 2004

stbalbach, in Russia, at the least, the serfs were originally free and they worked the land and had to give part of what they farmed to the owner of the land. Then, the Czar changed the law so that the serfs had to work only a specific piece of land and couldn't move around. Then, Ivan the terrible basically said that serfs belonged to the landowner and deprived them of any rights whatsoever.

There are still serfs in India today. Serfdom is technically illegal in India, but it has a long history and is hard to eradicate in the countryside. In any event, the reason that serfdom exists in India is because landowners tell the ignorant, illiterate peasants that they owe them money and have to work to pay back the money. Then, the children inherit the debt of the parents and the debt always grows because the illiterate/uneducated peasants are too dumb to calculate their own debt.

In any event, in western culture today, debt cannot be inherited or forced onto someone else. People are also free to change jobs. However, if the economic climate changes, it becomes harder and harder for people to change employers. If corporations get too much power, they can make it difficult for those who are unhappy to oppose them.

Combined with our debt-driven, consumption-obsessed society, all it would take is for bankruptcy to be outlawed to create a nation of serfs because even though we might appear to be free, we would have to work the rest of our lives to pay back our debts, like the serfs in India.

Of course, at the beginning of America, it was called 'indentured servitude'.
posted by PigAlien at 3:59 PM on June 29, 2004

The problem is that the person you thought you'd hired to protect your social values and trade agreements is the CEO of a large corporation that has been hired by Aramco to double their oil reserves, incidently hiring that same corporation post-takeover to operate the police force of the newly-won oil field employees and their social support structure of groceries and clothiers and widgetmakers.

It's a win-win situation for the CEO of your top-level police force. He gets paid a whack of money by Aramco, plus he expands his own company.
posted by five fresh fish at 10:42 PM on July 3, 2004

Although, given you change your CEO every once in a while, he might not profit by the long-term takeover. He does pocket a shitload of money from the owners of Aramco, though, to the tune of billions more than you're paying him.

I guess that's the difference between various elected representatives: can they be purchased by foreign companies, or only by local ones? Can they be purchased by you -- is the amount you pay them enough to keep them looking after you and not a corporation with deeper pockets?
posted by five fresh fish at 11:17 PM on July 3, 2004

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