By Michael Pento | April 21, 2010 | 11:43 AM | 2 CommentsTweet This
For a Libertarian like me ending the condition of any entity becoming "too big to fail" means that the government should allow any business to fail regardless of their perceived systemic risk. But unfortunately, for the administration and some republicans, financial reform only means yet more government intrusion into the private sector.
I am aware that it's fashionable to place the culpability for the credit crisis on the failure of markets. But nothing could be further from the truth. It was government that led to the overleveraged condition of financial companies not an unfettered free market that needs to be managed by the public sector.
Markets had nothing to do with the Community Re-investment act, which forced banks to lend to unqualified borrowers. Fannie Mae and Freddie Mac are government sponsored enterprises that steered a tremendous amount of money into the mortgage market by implying there is a government guarantee for their mortgage securities. If the securitization market works why shouldn't it be able to function without the aid of the government? Markets were also abrogated in the most egregious manner when the cost of money was grossly manipulated lower by the Fed in order to induce more people to take on leverage.
But those factors are never really mentioned by the main stream media. Instead it has become much more politically expedient to demonize markets and to use any opportunity available to increase the government's power and influence.
Of course Main St. has become incensed by the avarice and malfeasance of the banking sector. So there is no chance Senator Dodd's financial reform bill doesn't pass. Once the bill becomes law the government will be allowed to deem any firm a systemic risk and subsequently tax, regulate, breakup or shutdown the entity. I, however, don't trust the government any more than I do Goldman Sachs. And just assuredly as the government was unable to not only prevent the credit crisis but actually led to the crisis in the first place, the Dodd bill won't solve anything but empower the government to hasten the path towards the next financial debacle.
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By Michael Pento | April 19, 2010 | 9:17 AM | 0 CommentsTweet This
I appeared on CNBC this morning at 11am talking about bank earnings and the Goldman Sachs fraud charge brought by the SEC. The video has already been posted on CNBC. Click below to view the segment.
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By Michael Pento | April 16, 2010 | 12:43 PM | 0 CommentsTweet This
It wasn't enough that the average American already thought Goldman Sachs (NYSE: GS) controlled the world by placing former employees in key positions in the Administration, Treasury and Fed. Now they have been alleged by the Securities and Exchange Commission to have been pulling the strings on Wall Street and Main St. by committing fraud.
Goldman Sachs misstated and omitted key facts about a CDO tied to subprime mortgages as the U.S. housing market was beginning to falter, the S.E.C. said in a statement today. According to SEC Enforcement Director Robert Khuzami, "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."
The SEC also alleges that billionaire John Paulson's Paulson & Co., which is one of the world's largest hedge funds, paid Goldman to structure a portfolio of Mortgage backed securities so that it would plunge in value and then bet against it. Amazingly enough, the SEC has not indicated that Paulson will be charged with anything.
I also create products such as Unit Investment Trusts and Exchange Traded Funds that are sold throughout Wall St. To think that someone who created an investment product would also have the temerity to then short the same product is egregious, deplorable and completely fraudulent. And to have the issuing firm complicit in the scam by not disclosing the relationship between the creator of the product and his trading activities tied to that same product is also beyond the pale.
The American consumer has been charged with bailing out Wall St. with significant tax increases coming in 2011 and a massive increase in public debt. The unemployment rate is still near 10% and real incomes have stagnated. Now they are finding out that their bailout funds may have been used to rescue crooks. Is there any wonder why the Tea Party movement has become a phenomenon?
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By Michael Pento | April 15, 2010 | 3:15 PM | 1 CommentTweet This
The Labor Department report on weekly jobless claims showed the number of Americans filing claims for benefits rose by 24,000 to 484,000 in the week ended April 10. The four-week moving average of initial claims, a less volatile measure than the weekly figures, increased to 457,750 last week, from 450,250.
My theory has been that much of the job growth in the post Regan era came from the creation and servicing of asset bubbles, precisely due to the increasing erosion of our manufacturing base. That's why the last two recessions produced what has become to be known as jobless recoveries.
While the economy enjoys this ephemeral and ersatz recovery it is bringing no solace to the 8.5 million workers who have been displaced. And will not do so until the Fed and banking sector creates another bubble to replace the stock and real estate bubbles created in from the mid 90's thru 2007.
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By Michael Pento | April 13, 2010 | 1:15 PM | 0 CommentsTweet This
Our trade deficit jumped 7.4% in February to reach $39.7 billion for the month. The increase was more than anticipated, despite the fact that the trade gap with China decreased to $16.5 billion, the lowest since March 2009, from $18.3 billion in the prior month. The U.S. imported the fewest Chinese-made goods in almost a year. Prices of goods imported into the U.S. rose 0.7 percent-but please try to remember there is no inflation.
This provides yet more evidence that balancing our trade deficit with China by allowing our currency to depreciate won't solve anything. As long as we consume more than we produce we will have a trade deficit with some country. Allowing the dollar to fall against the Yuan may just move our imbalance to the Canadians, the Singaporeans or the Taiwanese.
There just isn't any substitute for lowering tax rates, cutting regulations and reducing wages to compete with foreign exporters. Of course, the best solution is to produce more high-tech manufacturing jobs right here at home. They pay better and in some instances cannot be replicated by foreign competition.
But the main point is that just blaming the Chinese for our trade imbalance isn't going to solve anything.
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