Setting the Stage for the Next Great Depression

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Editor’s Comment: 

Special Note to Readers: Thank you for your good wishes on my speedy recovery. It helps a lot to know that the people whom I seek to serve feel the same way about me as I do about them.

Despite the huge loss taken by homeowners thus far ($13 trillion) and the even larger loss taken by the American taxpayers for fabricated bailouts of fake losses (around $25 trillion, thus far) the banks and their paid politicians are presenting us with the prospect of making the last 4 years only a dress rehearsal for the big one. 

By removing investor protections and by obscuring what little transparency we had left in terms of required disclosures, there is only one thing standing between us and complete oblivion: wishful thinking. With this “JOBS” bill, we add insult to injury to investors. And the reason is obvious as well — as long as the Banks have the power and control the narrative, they are going to use that power. As long as the Banks wield that kind of power, investment in anything American will be subject to caveat emptor — let the buyer beware.

The Banks and the administration seem to believe that they can literally bully investors into making investments in American assets — stocks, binds and real estate, in particular. This is a stupid assumption. Just because other governments and large investors have had to play along with the American fiscal and financial policies while they regain their balance, doesn’t mean that central bankers and prospective investors have forgotten that Wall Street essentially committed an act of financial terrorism on the scale of Ghengis Khan. Nor will they forget that the American regulators not only let it happen, they promoted the cover-up afterwards.

We don’t need to read tea leaves anymore. The bond market, never regulated properly is now the wildwest. Almost anywhere else seems more attractive than the U.S. because only the U.S. has broken its promise of protection and regulation of the banks. So we are now stuck in a holding position where auctions are failing or faked. The only major buyer of U. S. Treasuries are the big banks who are buying the bonds with our own money printed by the Federal Reserve. It’s a Ponzi scheme. People are simply biding their time waiting for a better reserve currency to emerge — which now only requires the issuer to enforce common sense rules. 

The housing Market is no mystery either. Each year we hear that this is the bottom of the Market. Each year the market drops a little more. The reason is simple: we have allowed the great masses of people to enter into loan deals that created an inventory of millions of homes — with millions more on the way — that nobody wants at any price. They’re bulldozing them now.  The argument is that investors will feel assured and confident once they know that the notes and mortgages will be enforced even if the loans were defective in every conceivable way. We don’t need conjecture here. Reality supplies us with a ready answer to that argument — investors are not buying it, the Market is frozen and cannot recover.

Contrary to the exotic theories of policy-makers driven by bank narratives, it is the Banks that are not trusted, not the borrowers. It is the regulators that are not trusted not homeowners. And yet we insist on loading the burden of this mess mostly on the back of homeowners and taxpayers who are buying “homes” without title, buying mortgage bonds that don’t exist and leaving foreign investors to buy homes for cash also without title and very possibly acquiring a liability that has never been disclosed.  If the banks had lost money like the rest of us then we could make the argument that they had simply screwed up.  But they didn’t.  They made money.

Confidence in American financial markets can only be restored if prospective investors, already burned recently by horribly disfigured bonds, perceive that it is truly safe to invest in American assets. That can’t happen unless disclosure is required and unless the message is sent loud and clear that the banks suffer the penalty for violations, management goes to jail for committing fraud, and property is returned to victims of the largest financial scam in human history — so far.

Last Ditch Attempt To Save A Little Bit Of Investor Protection In The United States

By Simon Johnson

As it currently stands, the “JOBS” bill now before the Senate would gut investor protection in the United States.  The title of the bill is a complete misnomer – anything that weakens investor protection makes it more risky to invest in companies and increases the cost of capital to honest entrepreneurs.  (For more background on the bill and links, see this piece.)

Much of the 1930s-era Securities legislation, which served us well for more than 70 years, is about to be repealed in a moment of bipartisan madness.

Almost all attempts to amend the House version of this legislation – and to make it more favorable to investors – have now failed in the Senate, and the “cloture motion” received more than 60 votes (so the bill cannot be filibustered).  But Senator Jack Reed (D., Rhode Island) is leading one last charge to make the Senate version more reasonable.

Here is the issue with H.R. 3606 (as the House version of the bill is known), from Senator Reed’s website:

“The SEC requires public companies to disclose meaningful financial information to the public. This provides a common pool of knowledge for all investors to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate public information can people make sound investment decisions. The result of this information flow is a far more active, efficient, and transparent capital market that facilitates the capital formation so important to our nation’s economy. H.R. 3606 would roll back key investor protections, denying the public critical information that is essential to make sound judgments and would ultimately not lead to the proposed goal of the bill: providing for access to capital, particularly for small emerging companies.”

The “JOBS” bill would permit even very large companies to avoid all public disclosures.

Amazingly, it would also exempt these companies from having to comply with the federal regulation regarding mergers and acquisition.  Private equity firms would even be able to manipulate the market while making a tender offer for shares – the kind of behavior that has really been taboo (and illegal) since the 1930s.

Senator Reed has put forward an amendment, #1931, that will at least partially retain some of our existing investor protections and disclosure requirements.

Specifically, Senator Reed’s amendment would close or limit a major loophole that will allow large companies to avoid registering with the SEC (and therefore escape much regulation).  The Reed Amendment would clarify how to define “shareholders” for the purpose of determining if a business is so widely owned that it must register with the SEC.  Under the Amendment, the count should be based on beneficial owners of the shares, i.e., real people.  The goal is to prevent evasion of the SEC registration threshold through “nominal” owners holding the shares for large numbers of beneficial owners.

Big companies like H.R. 3606 – they will be regulated less and if the cost of capital rises for start-ups, that actually helps them.  The Chamber of Commerce, the American Bankers’ Association, and the Independent Community Bankers of America have all weighed in heavily against the Reed Amendment – the idea of escaping SEC scrutiny greatly appeals to them.

The Chamber of Commerce’s letter against the Amendment to Senators closes with this statement – or you might call it a threat (bold and underlining in the original):

“The Chamber strongly opposes this amendment and may consider including votes on, or in relation to, this amendment in our How They Voted scorecard.”

Under Senate rules, the Reed Amendment would need just 51 votes today in order to pass.  But against this kind of corporate firepower, does this entirely reasonable Amendment have any chance?

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