Jul 112012
 
 July 11, 2012  Posted by at 3:29 pm Finance
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I think the one recurring question that has been on everyone’s minds since at least 2008-09 is – what will the government do? We all know what the large private corporations and high-level bankers are going to do – they are going to lie, cheat, scheme and steal their way into whatever forms of wealth and control they can get their grubby little hands on (see the Libor scandal for the most recent example). But then we must ask whether the government is going to help them do those things and how exactly they are going to help. After four painful years of betrayal, the answer to the first part of that question seems to be a resounding YES.

And with political partisanship propaganda filtering through the Western populace in time for various elections, a lot of people will look at these government policies and scream “SOCIALISM” or “COMMUNISM” with a growing sense of frustration and anger. Indeed, there has been no other time in recent history in which central authorities have been so actively involved in the affairs of the private sector. But, if I remember correctly, the foundational tenet of central planning in a Communist system is, “from each according to his ability, to each according to his need” – the economic version of the Golden Rule. Is that what we see happening here?

That’s not what I see happening… I see the central authorities bending over backwards to take what people can no longer afford to give and giving it to those who are never satisfied with what they have. That’s the entire point of low interest rate policy, quantitative easing, central bank currency swaps, discount loans to banks, public loan guarantees, etc. They either directly hand out taxpayer money to the banks (and their large corporate beneficiaries) in exchange for worthless collateral, or they coerce workers and savers to put their wealth into the private sector in the form of consumer spending and investments. They also coerce debtors to remain in debt and continue running on the treadmill for fear that it slows down and they fall off the back, as Nicole would say.

This dynamic is the most potent in the Eurozone right now, where banks are starting to get bailed out by their governments en masse, AGAIN, and the struggling masses are forced to forgo public salaries/pensions, health benefits, etc. and also pay higher taxes. We see it all to clearly in Spain, where the Spanish government is currently at the forefront of bailing out reckless bankers and implementing austerity, while the Spanish population is already suffering upwards of 25% unemployment. However, don’t be fooled for a second into thinking that the same dynamic isn’t happening right here and right now in the U.S.

In fact, a headline from Reuters today, which probably comes off to most people as a “positive” economic development, actually confirms that the wealth extraction process in America continues on even in the absence of QE3, and is beginning to reach extreme levels.

U.S. Bankruptcies On Pace To Fall To Pre-Crisis Levels

 

July 5 (Reuters) – The number of U.S. businesses and consumers filing for bankruptcy fell 14 percent in the first half of 2012 and could end the year at the lowest level since before the 2008 financial crisis, according to data released on Thursday.

 

New bankruptcy filings fell to 632,130 in the first six months of the year compared to the same period last year, according to Epiq Systems Inc, which manages documents and claims for companies in bankruptcy.

 

The number of businesses filing for bankruptcy dropped 22 percent to 30,946 and the number of consumers seeking court protection from creditors fell 13 percent to 601,184.

 

“We are on pace for perhaps the lowest total new bankruptcies since before the financial crisis in 2008,” said Samuel Gerdano, executive director of the American Bankruptcy Institute, which jointly released the report with Epiq.

 

Gerdano attributed the decline to low interest rates, which have been kept at rock-bottom levels since the financial crisis by the U.S. Federal Reserve.

 

Despite the drop in filings, there have been several large bankruptcies this year, including photography icon Eastman Kodak Co, textbook publisher Houghton Mifflin Harcourt Publishers Inc, and Hostess Brands Inc, the maker of Wonder Bread and Twinkies.

The first question we should be asking here is who benefits from low interest rates that prevent businesses and consumers from filing for bankruptcy and discharging their debts? Yep, you guessed it – the same people who benefit from every other policy enacted by central authorities. As long as there remains wealth to be extracted from people who have mortgages, car loans, business loans, student loans, credit card debt, etc., the government will help the private banks do just that. The bankruptcy process is really the closest Americans will ever come to having a “debt jubilee” over the next decade, and that’s the one thing that is progressively slowing down, becoming sclerotic and growing much too expensive for the little guys.

A friend of mine works for a law firm that handles corporate and individual bankruptcies in Northern Virginia, and he also confirmed that business had slowed down for the firm lately. He made it clear that a primary reason was the fact that it simply wasn’t worth it for potential clients to file anymore – they didn’t have nearly enough equity left in their assets or dischargeable debt to justify paying the lawyers’ fees and court costs associated with a bankruptcy filing. Basically, they have already been squeezed out of so much wealth that they have been priced out of the bankruptcy process. It is really a sad state of affairs…

 

“From each according to his inability, to each according to his greed”

 

Make no mistake, that is the golden rule of our age. And when central governments around the world decide to nationalize their private industries through legislative dictate, it will STILL be the motto we are forced to live by, because only a select group of elites will benefit from the decisions of those central planners. No, such a paradigm cannot described as Socialism or Communism. What is happening is so unprecedented and radical that our current language barely has the words to describe it. Perhaps we can call it Fascism on Steroids and in Hyperdrive… or something like that.

But regardless of what we choose to call it, we must remember that 99%+ of humanity occupies the same boat here – there is no use trying to scapegoat one segment over another through the political process. Those types of populist calls will start coming in strong and fast, but we must resist the urge to validate them ourselves. The political machinations of nation-states are all but dead now; only the natural sovereignty of individuals and their local communities remain.

Home Forums From Each According to His Inability, To Each According to His Greed

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July 11, 2012 at 3:29 pm #8475

ashvin

I think the one recurring question that has been on everyone’s minds since at least 2008-09 is – what will the government do? We all know what the lar
[See the full post at: From Each According to His Inability, To Each According to His Greed]

July 11, 2012 at 11:46 pm #4584

jal

they didn’t have nearly enough equity left in their assets or dischargeable debt to justify paying the lawyers’ fees and court costs associated with a bankruptcy filing. Basically, they have already been squeezed out of so much wealth that they have been priced out of the bankruptcy process. It is really a sad state of affairs

What happens to those people?

Is the next step being hounded and scared by private collectors of debts?

Prison?

July 12, 2012 at 12:30 am #4586

Don Levit

I really like your categorizing the statement as the economic version of the Golden Rule.
That really provides some objectivity and accuracy to that incredible statement.
You know, there are 2 ways people are disappointed: The first, is not getting what they want. The second, IS getting what they want!
Don Levit

July 12, 2012 at 5:10 am #4589

sangell

I think you’re drawing the wrong conclusion as to the decline in bankruptcies, especially in regards to businesses. This probably has more to do with zombie banks rolling over loans to zombie companies to avoid writing the loan off. Low interest rates makes the process easier. Also, to the extent that banks are allowing short sales or reworking loans under the various government foreclosure avoidance programs is going to reduce the number of “homeowners’ filing for bankruptcy.

July 12, 2012 at 7:10 am #4590

dr.van nostrum

I am a contractor in the Dallas Texas area. About 6 months ago I overheard a conversation between two management types at a local family-owned builder-supply business. They were dumbfounded that another builder-supply business in the area had just secured financing from a British financial institution at an !!% rate! Apparently, this other business had done this TO SURVIVE!! These men knew the complete impossibility of such a gambit and were amazed that anyone could be so foolish! Not being a shy person, I insinuated myself into the conversation. As a result, I also learned of another large building supply company in the area that can only be described as a “zombie” company. These management guys at the family-owned business were angry because Wells Fargo Bank was “keeping alive” a competitor. The family-owned business has no debt. Their competitor continues operating in the market because it apparently owes Wells Fargo so much money that the bank could not allow it to go out of business. This of course screws up the market pretty badly while putting completely unnecessary and unfair pressure on the debt-free business! Two examples from my corner of “bankruptcy avoided”.

July 12, 2012 at 9:00 am #4591

Boris

Wait one cotton pickin’ minute here. A week or so ago, Newspeak stated that Americans just loaded up the highest amount of credit card debt during the quarter since 2007. CNBC spun it saying the the American consumer is back spending and is confident, and we had a rally that day.

July 12, 2012 at 7:08 pm #4595

Ken Barrows

As an attorney who files bankruptcies, I often wonder how many individuals cannot even get the fee to file (never mind attorneys’ fees). Of course, if their only source of income is Social Security, they probably don’t have a lot to worry about from creditors, unless they owe child support, student loans, or taxes.

July 12, 2012 at 7:55 pm #4598

ashvin

jal post=4244 wrote:

they didn’t have nearly enough equity left in their assets or dischargeable debt to justify paying the lawyers’ fees and court costs associated with a bankruptcy filing. Basically, they have already been squeezed out of so much wealth that they have been priced out of the bankruptcy process. It is really a sad state of affairs

What happens to those people?

Is the next step being hounded and scared by private collectors of debts?

Prison?

The first step for these people is really just selling their assets or walking away from them altogether, as well as their loans. Depending on the jurisdiction, creditors and debt collectors may be able to come after them for the balance, and I certainly wouldn’t want to find myself in that situation, because I do think the “normal” protections we have been accustomed to will go out the window pretty quickly and we have already seen quite a few people jailed for what essentially amounts to unpaid debts – see Revisiting the Physical Risks of Debt

July 12, 2012 at 8:00 pm #4599

ashvin

sangell post=4249 wrote: I think you’re drawing the wrong conclusion as to the decline in bankruptcies, especially in regards to businesses. This probably has more to do with zombie banks rolling over loans to zombie companies to avoid writing the loan off. Low interest rates makes the process easier. Also, to the extent that banks are allowing short sales or reworking loans under the various government foreclosure avoidance programs is going to reduce the number of “homeowners’ filing for bankruptcy.

Yes, that’s what I meant by keeping debtors on “the treadmill” in the post. The decline in bankruptcies is obviously not only due to people being unable to afford them (or qualify for them), but also people coerced to stay in debt via low interest rates, refinancing and loan mods, most of which is directly subsidized by taxpayers. Either way, the decline is not a “positive” economic development (for return to growth) as the pundits would have us believe.

July 12, 2012 at 8:37 pm #4600

backwardsevolution

Ashvin – great article! Thanks.

July 12, 2012 at 11:50 pm #4601

snuffy

Propaganda…

Bee good,or
Bee careful

snuffy

July 12, 2012 at 11:57 pm #4602

snuffy

…Boris,I think I detected a note of “sarcastic wit”in your reply?I have lost the ability to listen to any “statistic”from any one with a agenda w/o a [small] belly laugh….telling the truth is a revolutionary act now.

Just got CHS latest in the mail from ama-zone…anyone else got it yet?

Bee good,or
Bee careful

snuffy

July 13, 2012 at 5:28 am #4605

skipbreakfast

It certainly rings far more true to me that, rather than indicating a healthy uptick in the economy, recent declines in bankruptcies are entirely attributable to (1) banks extending even more cheap credit so they don’t have to write down the original (huge) un-repayable loan, and (2) bankrupts simply being unable to afford the basic bankruptcy filing fees and legal costs to follow through.

And it got me thinking that the only new loan customers for banks are the existing loan customers who have no choice but to refinance even bigger loans to keep going. Banks have no choice but to continue the lending game to stay solvent themselves, and so they hold hostage the customers who have big loans that cannot be repaid except by going further into debt with bigger loans. Because potential new customers, like me for example, are not setting foot inside their doors. There is no other business to be had at the moment or the foreseeable future.

Indeed, somewhere in the past two or three years something changed inside of me. My partner and I both KNOW we will never ask for a mortgage again. At this point, it has little to do with what we can afford, and everything to do with a fundamental shift in our psyche. It’s not even entirely political; although, there is some conscious desire to stick it to the banks too. Rather, it is much more of an unconscious shift, more along the lines of the endogenous subconscious changes in mood that Robert Prechter describes in his socionomics theory. I don’t even know when it happened–it’s that unconscious. After liberating ourselves from our first and only mortgage, my partner and I simply refuse on the deepest emotional level to ever get a mortgage loan again. No house seems worth the sacrifice.

The sense of relief after being cut free of major debts is eye-opening. It’s like seeing the light of atheism–once you are there, there’s probably no going back. We’ll never go in debt again, I don’t think. And are we so unusual? How many more of us in the wider population are simply swearing off the idea of debt. I think it’s contagious, just as the (vanishing) borrowing frenzy was contagious. If the new anti-debt contagion takes hold in any significant way (and I think it will), the banks are truly sunk. The existing debtor hostages will truly be their ONLY customers!

July 13, 2012 at 11:35 am #4609

snuffy

skipbreakfast,

What you said about the mortgage really rings a bell w/me.Mrs snuffy and I have had a month-long conversation about a job I need to have done and do NOT want to do…involving 1 very large a half dead maple,and one way way way big maple that threatens my neighbors shop,and my “new” orchard. 2 very large trees that need to come down.

My big saw died a while back and I only have a 14 inch bar sthil,that, while it is a nice saw,is not what you want for this project.I have a nice bid from a logger that will include cutting to firewood size….but Mama snuffy and I REALLY had to think about weather it is worth getting it done now…which will mean credit use.

We decided to sell a 85 tercel 4wd wagon and its part car to repay THE FUNDS AS QUICKLY AS POSSIBLE.but to do this as it means 20+ cords of maple… stacked… and that is one form of treasure.

Bee good,or
Bee careful

snuffy

July 13, 2012 at 8:49 pm #4617

Candace

The folks I worry about are the ones who do not want debt, but because they have no income and no valuable assets to sell, they get stuck opting to go back to school to survive.

If you have a few resources you can stay out of debt, it’s the running out of resources that is going to get many of us. IMHO.

July 14, 2012 at 1:37 am #4619

Surly1

Ashvin: “But regardless of what we choose to call it, we must remember that 99%+ of humanity occupies the same boat here – there is no use trying to scapegoat one segment over another through the political process. // The political machinations of nation-states are all but dead now; only the natural sovereignty of individuals and their local communities remain.”

We already see the “freedom” and “liberty” people trying to set up the phony dualism of “makers” versus “takers.” The next gambit is intergenerational warfare, or “throw granny off the ventilator.”

I do not understand your last statement, though:”The political machinations of nation-states are all but dead now; only the natural sovereignty of individuals and their local communities remain.” The nation-state retains an impressive array of tools to coerce and prod the public. The point of the last graph seems to be that we are all in the same boat, and we shouldn’t blame one another… so what do you mean?

July 14, 2012 at 5:50 am #4623

ashvin

Surly1 post=4281 wrote: I do not understand your last statement, though:”The political machinations of nation-states are all but dead now; only the natural sovereignty of individuals and their local communities remain.” The nation-state retains an impressive array of tools to coerce and prod the public. The point of the last graph seems to be that we are all in the same boat, and we shouldn’t blame one another… so what do you mean?

It means that we should not expect to find fairness, justice, peace, love or any of those good redeeming qualities of humanity through large-scale political processes at this point. I’m sure a lot of charismatic leaders will emerge promising exactly those things in upcoming years, and some of them may even scapegoat what seem to be all the “right people”, but we shouldn’t believe any of them. I think those things will only come through the strength of individuals, and whatever communities they can manage to forge and sustain.

July 16, 2012 at 9:29 pm #4647

Surly1

ashvin post=4285 wrote: [quote=Surly1 post=4281]I do not I’m sure a lot of charismatic leaders will emerge promising exactly those things in upcoming years, and some of them may even scapegoat what seem to be all the “right people”, but we shouldn’t believe any of them. I think those things will only come through the strength of individuals, and whatever communities they can manage to forge and sustain.

We are always well advised to beware “men on horseback” promising easy fixes.

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