Puerta del Sol- Madrid (Spain) c.1908

What’s really left to say about Spain, anymore? This 12th largest economy in the world now finds itself as close to financial meltdown as a country (other than Greece) can get, and it has gotten there by taking the most twisted and shady path that it could find. Ilargi wrote about this shadiness back on April 18 in his article, Spain, Land of Magical Financial Realism. In it, he discussed how the bank bailout fund in Spain was being funded by… the Spanish banks themselves, so as to allow the Spanish government to under-state its actual deficit/GDP ratio. Most of that “money”, in turn, came from the ECB LTRO Part Dos, which gave out billions worth of 3-year loans to these banks and, in exchange, encumbered just about ALL of the (already toxic) collateral available in the Spanish banking system.

Oh lordy. The Spanish sovereign is being propped up by its own defunct banks. Which get the money to do the propping up from the ECB (re: Germany). That’ll go over well in Berlin once it’s fully understood.

 

…

 

Bank saves sovereign saves bank saves sovereign. Bank saves sovereign with ECB money, and sovereigns rescue their lenders with funds borrowed from the European Union. The Spanish zombie stalks the Madrid and Barcelona midnight streets bleeding German euro’s. Magical realism at its best.

 

One more thing: most of what I see floating by in the news when it comes to Spain’s real estate talks about the cajas, the small banks. But I don’t believe for a moment that the big banks, like Santander and BBvA, were not involved in creating that behemoth bubble. Well over 10% of Spanish homes are reported to be empty. The country built more homes prior to the crisis than Germany, France and Britain did combined.

 

Santander then went on to acquire Alliance & Leicester, Bradford & Bingley and Abbey’s in Britain, as well as Sovereign Bancorp in the US and many other banks internationally. So I wonder sometimes if perhaps anyone in those countries ever asks themselves how safe those operations are today. If these guys can transfer overvalued bad loans and securities around between their Spanish affiliations, can they also do the same in their international branches?

 

 

It should have been clear that all of this blatantly circular credit creation wouldn’t do a damn thing to ease the underlying solvency issues in Spain’s banks, and would perhaps only make those problems much worse. Sure enough, it only took about a month from Ilargi’s article until Bankia went down in flames and the financial situation for Spain became exponentially worse. In a commentary from April 11, Spain WILL Need a Bailout Soon, I shot down Mariana Rajoy’s (Spanish PM) hard-headed assertions that Spain will not need an EU bailout:

If the recent history of the unfolding Eurozone crisis is instructive, Spanish PM Mariano Rajoy’s unconditional statement today that his country will not need an EU bailout signifies that a bailout is exactly what it will need before the year is up. This fact is obvious to anyone who has the slightest idea of how bad Spain’s economy is right now, with an extremely weak housing/banking sector and unemployment that is upwards of 23% and rising. It is, of course, always the banks that get the lion’s share of any bailout money, and Spain’s banks are falling apart quickly.

 

Part of the problem for the Spanish banks now, in addition to their extensive exposure to troubled sovereign bonds and mortgage-related assets, is the fact that the EU’s prior “rescue” efforts have only made things much worse for the entire Eurozone periphery in the short, medium and long-term. As referenced here many times, the ECB’s LTRO programs have simply propped up the banks temporarily, while draining the peripheral economies of available credit and hastening the flight of private (now subordinated) investors from their troubled banking sectors. What else would one expect when trying to solve a debt problem by piling on more layers of unproductive debt?

Earlier this month, I had also pointed out that, while Rajoy was claiming his country would never need a bailout, he was also telling the Parliament that Spanish households, businesses and regional governments had been effectively shut out of the private credit markets, which would include, of course, the Spanish banks themselves (Spain Has Been Shut Out). And THAT would include, by implication, the Spanish Treasury. I made it clear that Bankia’s downfall would not bode well for the finances of the Spanish government:

 

 

Without the pillars of austerity and “structural adjustment”, there is very little justification for the ECB or Germany to continue backstopping the peripheral finances of the Eurozone. It’s not as if the consumers or businesses in these countries can even afford to buy Germany’s exports anymore, as made all too clear by Rajoy’s comments, and the failure of peripheral banks is all but guaranteed. When a financial institution such as Bankia is bailed out, make no mistake – there will be no one able or willing to bail out the Spanish Treasury.

Sure enough, Bankia was immediately nationalized by the Spanish government and, after the phony accounting and the REAL losses were gradually revealed to the public, it has proven itself to be the largest bank failure in Spanish history, and could easily become worse after more accounting falsifications are  brought to light (but none of that criminal activity is stopping one of Bankia’s directors from leaving the firm with a €13.8 million termination package). It wasn’t long before Rajoy was clamoring for the Eurozone Stability Mechanism (ESM) to “lend” directly European (Spanish) banks as well as the ECB to resume purchases of Spanish sovereign debt, in direct contradiction to his earlier “no bailout” proclamations.

The man has lost all credibility, as reported by Louise Armitstead and Fiona Govan for the Telegraph:

Mariano Rajoy says Spain is ‘finding it very difficult to finance itself’ but insists there will be no bail-outs

 

At a press conference designed to reassure markets after the €19bn nationalisation of Bankia, the prime minister admitted that Spain was “finding it very difficult to finance itself”.

 

But Mr Rajoy blamed the soaring borrowing costs on advancing debt crisis across the eurozone, and tried to dismiss fears that Madrid will be crushed by the debts of its banks.

 

Shares in Bankia, which were suspended on Friday as the government unveiled its largest ever recapitalisation plan, plunged 27pc before recovering.

 

The Spanish newspaper, El Mundo fanned the fear by claiming that a further €30bn was required to rescue four other banks, CatalunyaCaixa, Novagalicia, Banco de Valencia.

 

Officials claimed Madrid was already working on complex plans to use the European Central Bank to help recapitalise Bankia, but Mr Rajoy said Spain would stand by its banks by itself. “There will be no rescue of Spanish banks,” he said.

 

He said he wanted the bail-out fund, the European Stability Mechanism, to be allowed to lend directly to banks – but argued this would be for the sake of banks across the eurozone, not just Spain. “The [Spanish] government is doing what it should be doing,” said Mr Rajoy, who rarely speaks publicly on the debt crisis. “Europe must dissipate any doubts over the euro, affirm that the euro is an irreversible project and act in consequence.”

 

Spain’s Ibex fell 2.17pc, dragging other bourses down, although trading was low due to US and European holidays. The yield on Spain’s benchmark 10 year bonds plunged deeper into the danger zone, rising to 6.48pc. The spread between German and Spanish debt yields to the widest spread since the euro was launched.

 

“Spain is finding it very difficult to finance itself with sovereign debt risk premium so high,” said Mr Rajoy. “With [the spread over bunds] reaching 500 basis points it is very difficult to raise finances.”

 

…

 

Nicholas Spiro, at Spiro Sovereign Strategy: “The Spanish crisis has reached a tipping point. Investors have lost confidence in Spain. The botched bail-out of Bankia was the trigger for the abrupt sell-off – a sell-off that threatens to turn into a rout unless bold and decisive measures are swiftly taken by eurozone policymakers to shore up the bloc’s endangered sovereigns and their banks.”

So Rajoy definitely has good reason to be concerned – Spanish 10Y bond yields are hovering around an entirely unsustainable 6.5% and are at a 500bp+ spread from German 10Y debt, while Spanish government liabilities to its banking sector are only going up. It is predictable, yet extremely saddening and maddening that the mainstream always focuses on how best to bailout the large banks, while the people are left to suffer under mountains of private and public debt (Spain’s Unbearable Pain). Spain’s unemployment rate is at 25% and rising, while retail sales just posted a record-breaking year-over-year decline in April (9.8%), which makes it all too clear that many Spanish people don’t even have a penny left to spend.

These people are losing their jobs, savings, homes, investments, families and their will to live with every passing day. Perhaps “losing” isn’t the right word, because it’s not as if they just misplaced all of these things. Instead, these things have been forecefully stripped from the people, who are LOSING their patience for financial oppression. It is times like these when you root for the system to quickly collapse into a heap of rubble through mass protest and unstoppable financial contagion, because the alternative is to watch it burn down slowly by the filthy hands of the corporate elites, as the smoke suffocates the life out of everyone else who is trapped within it.

January 1939. An evicted sharecropper among his possessions in New Madrid County, Missouri. 35mm nitrate negative by Arthur Rothstein.

I would like to present an extremely depressing and disheartening article to you today, written by Surly of the Doomstead Diner. It contains a lengthy story that encapsulates all that is ass-backwards in modern consumerist cultures, where there is an unfathomable level of deception of the general population and an equally unfathomable lack of compassion for those who have fallen on rough times, but it is much more than just a story – it is a fundamental reflection of our religion.

It is something that needs to be heard, shared and considered by us all. And it also needs to be understood in a broader context of where we have been and where we are headed. On this Sunday – a day of worship for many – Surly asks us what we, as citizens and consumers of America, really worship. Who is really our God, what evil deeds has he required of us in the past and how many more will he require of us in the future?

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Mammon is Hungry: Husband’s Suicide One Day, Wells Fargo to Evict Wife The Next

A recent quote from Diner Karpatok get me thinking the other day about the nature of our post- industrial society, and several thoughts and issues began to intersect. And then I came across the story of Norman Rousseau, below.

Deep within the bowels of the diner, the original exchange, part of a longer thread:

Quote from: Karpatok on May 22, 2012, 01:18:21 AM

“To really feel the pain of the prisoners, the pain of the raped children, the pain of the animals. Martin Buber wrote of the recognition of the reality of the Other. He called it I and Thou. I and Thou together is the full reality of consciousness. To the extent that one cannot embrace the reality of the Thou, one is not fully human... To the extent that one does not let oneself feel that pain, one also cannot experience joy. We are not solipsists living in isolation and doubting the reality of the forest, we are not autistic unable to respond to others; if we are we are very sick.”

My reply:

To lapse serious for a moment, this is indeed the nut of the matter. And it is the illness at the heart of who we are, our addiction to the paradigm of unlimited growth, and in our “devil take the hindmost” politics. We used to believe, or at least proclaim, “E Pluribus Unum;” there was a time when we even taught it. There was a time where our institutions weren’t corrupt with moral rot. There was a time when people believed that a “rising tide would life all boats.”  Indeed, there was a time when we cared about our neighbor, when we would not pull a crust of bread out of a hungry child’s mouth to give it to a war profiteer or a Wall Street bankster. There was a time, or so we believed, when our churches were not full of pederasts and thieves, when we actually held with what was taught from the pulpit and lived accordingly, or semi-accordingly, according to our lights.

If, as is written in Matthew, “By their fruits shall ye know them,” then we are well and truly fucked. Because by our actions we invert every single thing that Jesus is reported to have said, and which every great teacher and moral leader teaches. By our actions, we clearly worship Mammon. When a vulture capitalist destroys a workforce, dumps pension obligations off on taxpayers, and pockets handsome sums for his trouble; when a company lays off thousands in the name of “efficiency,” leaving the remaining workforce stressed and gasping– and fearful of the next wave; when we balance the budgets on the backs of the poor; when we steal people’s houses through corrupt application of refinancing rules (thinking Wells Fargo here): we do the work of Mammon.

Several years ago I read an article in The Atlantic about the Muslim Brotherhood, and why the originator came to hate the United States. One of the reasons was that he came to hate the manicured, watered lawns in Kansas as an obscenity, when there is so much hunger, privation and suffering across the globe. There is a good reason the rest of the world hates us, and at the root is our wasteful, cannibal culture, that chews up everything in sight, as well as our utterly debased materialism with no organizing set of beliefs aside from profit.

I feel like Jeremiah today, but from here it is crystal clear that we are doomed. Which is, of course, part of what led me to this collective, to RE’s notion of “save as many as you can, ” and to thoughts of “what do we do next?”

It may not matter, but it is incumbent upon us to live and work as if it does.

Karpatok also added:

“Why did I shudder and flinch when my foreman lover said about construction hires at the 7Eleven, “Tu est Patrona, tu dau lucru si ei manunc.” That is ,” You are their patron, you give them work and they can eat.” Who the hell was I to have that power over them to grant life and life to the children on the dirt floor far away? But to do it without acknowledging them, without asking their names,how did they get here,[they walked a thousand miles under the burning sun el norte,el norte] how many children did they have, where were they from exactly? So in a tiny way we touched each other while they carried with their small bodies the huge stones to build the patios, the same stones with which they had built their pyramids before the Conquistadores had arrived. And now the huge houses for which the patios were built in Prince Georges county are all foreclosed and abandoned. Who are we all, passing in this conflagration?”

Who indeed? How we exercise the power that we have over one another, as we pull the levers and grease the gears of the virtual machines that increasingly govern our life says much about who we are– and who we have become.

Mammon remains hungry, and the story of his (our) endless lust for human flesh is best illustrated by the following story, well told by Mandelman on the blog Mandelman Matters. This story goes on at some length, but the length is necessary to place this tragedy in its appropriate context:

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Husband’s Suicide Yesterday, Wells Fargo to Evict Wife Tomorrow Anyway

Wells Fargo claimed that Norman and Oriane Rousseau had missed a mortgage payment.  But the payment HAD been made in person at a Wells Fargo branch by Cashier’s Check, and Mrs. Rousseau has the receipt for the transaction.

The Rousseaus file a dispute with Wells Fargo over the supposed missing payment.  Wells Fargo “investigates” and comes back saying that the Rousseaus had stopped payment on the check.  They stopped payment on a Cashier’s Check?  Seriously?

The teller’s receipt establishes that the cashier’s check was in the custody and control of Wachovia on April 1, 2009, and the research by the Cashiering Department should have concluded that Wachovia screwed up by not applying the cash-equivalent funds to the Rousseau’s account. After delivery and acceptance to the branch office, it was Wachovia’s responsibility to safeguard the instrument; Wachovia itself effectively stopped payment on the cashier’s check

Concerned that they could not resolve the payment dispute but told they should apply for a loan modification, the Rousseaus hired a law firm and submitted a loan modification application.  After that it was standard operating procedure at Wells Fargo… we lost this, and we lost that, resend this, and resend that… for almost a year.

Wells Fargo then of course told the Rousseau family not to make their payments, that they were being considered for a loan modification and that making their payments would immediately disqualify them.

So, they saved their payments just in case Wells decided to deny them a modification.  Saved every single one just in case the bank decided to act like… well, Wells Fargo Bank.

Then Wells sent them a Notice of Default, but when they called to say they wanted to reinstate their loan, Wells said what they always say… IGNORE IT… don’t worry about it, everything’s fine, it’s just an automated sort of thing… why, you’re being considered for a loan modification.

Then Wells filed a Notice of Sale on October 28, 2010.  Their home would be sold on November 22, 2010.  And still Wells said… IGNORE IT… it’s just another automated sort of thing… your loan modification is still pending… and please re-submit some documents.

It was November 10, 2010… just 12 days before their home was to be sold… when the Wells Fargo representative told the Rousseau’s that their loan modification had been denied.  The reason: Insufficient income.

Yeah, but you know the funny thing about that is that their income hadn’t changed a nickel since they applied for the loan modification.  So, what’s the deal?  Did it take Wells Fargo a year to figure out the Rousseau’s income was insufficient? That same day the Rousseaus found a lawyer and discovered they had a RIGHT TO REINSTATE their loan.  (Nice of Wells not to tell them that, by the way.)  They contacted Wells and requested a reinstatement quote… TWO DAYS LATER Wells finally gave them the phone number for RCS, the trustee.

But, RSC said that reinstatement would take two weeks and trustee sale was going off as planned in 8 days.  Wells got them their reinstatement quote too… it was dated November 15, but received via email on November 17, 2010.

And it expired in two days and had to be received in Texas by November 19, 2010.

The Rousseaus had more than enough in savings to reinstate their loan, they told Wells Fargo that… but now they couldn’t get the money from their IRA in time for the 2-day deadline and Wells refused to postpone the sale.

So, the Rousseau’s home sold at the trustee sale on November 22, 2010.

Next the Rousseaus go through a series of lawyers.  Finally, they get a good one and in July of 2011, the court grants an injunction contingent on them making a monthly payment of $1800.

But, by December of 2011, Wells finally wore the Rousseaus down and they just couldn’t make December’s payment.  They used up all their money fighting Wells Fargo, and Norm had been unemployed since the foreclosure.  He was taking odd jobs as a handy man to make ends meet.

Wells Fargo immediately goes to court… gets the injunction dissolved… then proceeds with the Unlawful Detainer… the lockout is set for May 15th, 2012… at 6:00 AM.

THAT’S TOMORROW MORNING… AT 6:00 AM.

Over this past weekend, Norm Rousseau talked with their attorney who is working pro bono by the way.  Basically, his lawyer tells him…

“Look… let’s face the facts here.  We’ll proceed with the lawsuit.  We’ll fight like hell to get you back in the home, but you have to be ready with some sort of plan so you’re not left homeless and on the streets.”

Norm found someone who has a 27-foot motorhome he can use, but after he gets it home on Saturday… it stops running… it won’t start.  But, Norm Rousseau is a man in his 50s with mad skills.  He goes to work around the clock taking apart the engine, doing everything he can to get it running so that on Tuesday morning he will have somewhere to house his family.  He’s up all night Saturday night, but still can’t get it running.  It’s too big to tow with a car.

His mind must have been wandering late on Saturday night.  What must a man, a father, a provider be thinking when he knows that everything in life has somehow gone terribly wrong and there’s nothing left to do?  He must have been imagining the sheriff pulling up to evict his family on Tuesday morning… just two days away, as the motorhome’s engine lay in pieces in his driveway.

I can only imagine what must have been going through his mind as he worked tirelessly, without sleep, on that engine and electrical system… as the clock ticked away the hours, I’m sure going faster and faster as time was running out.  Damn, it’s already 11:00 PM… then it’s 3:00 AM… and then 5:00 AM… and then before he knew it… a most unwelcome sun was shining… 9:00 AM…

I can almost hear him thinking: “Damn it, what am I going to do?  How could this have happened?”  I can hear him swearing under his breath as he fights with the old parts trying to get them to work together again… I can see him staring at the engine as the will to go on was leaving his soul…

Norman and Oriane Rousseau had bought their home in Ventura, California in 2000, putting nearly 30 percent down, which was their life savings.  In 2006, every time they went into the World Savings branch they’d get pitched on refinancing into one of World’s infamous Option ARM loans… that are now illegal, I believe.  After a couple of years of being pitched, they finally bought into World Saving’s lies.

They had told World Saving’s loan officer, ERIC COOPER, that they were only interested in obtaining a conventional 30-year, fixed-rate loan.  They wanted consistent payments over the life of the loan.

But COOPER assured them that they could significantly reduce their monthly payments… by more than $600 per month, with a lower interest refinanced loan. COOPER said that the new Pick-A-Payment loan product was better suited to their situation.

He described the Payment Option ARM as the new industry standard.  He pointed out that the lower interest rate and payment flexibility were valuable advantages that were not available with other loan products.  And he said that even more importantly, unlike the previous WORLD loans, the interest rate was tied to an index with historically low rates that were continuing to decrease.

According to COOPER, industry experts projected the interest rates to continue to fall, and so their monthly payments would be EVEN LOWER than their initial payments.

Even under the worst case scenario, COOPER assured them, the historical data for the index indicated that changes in the interest rate would only be slight, and if an increase should occur it would have a negligible effect on their monthly payments… no more than a few dollars.

And besides, COOPER explained, the loan would only be around for a couple years, as they should expect to refinance within the next two years to take advantage of even more favorable interest rates and as the steadily rising housing values would surely increase the amount of their equity in the property.

Then COOPER went for the close…

On the condition that the Rousseaus apply for the new loan that very day, he would agree to waive their pre-payment penalty, stating that there would be virtually no costs to refinance beyond a $35.00 application fee.

COOPER also convinced the Rousseaus that it was in their best financial interests to consolidate approximately $25,000 in unsecured debt in the refinance transaction, citing the benefits of the lower interest rate and the convenience of having only one payment.

The Rousseaus provided COOPER with accurate and truthful information regarding their income and assets, and COOPER was such a nice guy that he offered to complete the Quick Qualifying Loan Application on their behalf.

It was right around November 1, 2007, that WACHOVIA arranged for a notary to complete the closing at the Rousseau’s home.  The notary discouraged their review of the documents and directed them straight to the signature lines, but the Rousseaus noticed that a pre-payment penalty in excess of $4000.00 was included in the closing costs… the fee that COOPER had promised to waive if they applied that same day.  They called COOPER and he apologized for the oversight, but tried to get them to sign anyway, because it would only add a couple of bucks to their payment.

They said… no… they’d reschedule the appointment and wait for the four grand to be taken off their bill, thank you very much.

Two weeks later, the notary returned and they signed the paperwork for their new $368,000 state of the art loan.

Now, the Rousseaus didn’t know it at the time, but COOPER was a lying sack of garbage that had misrepresented just about everything having to do with their new loan.

The 7.2% interest rate of the new loan was actually higher than their old loan and higher than the 6.8% quoted by COOPER.  The “significant reduction in monthly payments” was an illusion accomplished by comparing the fully amortized payment of the 2006 loan with the negative amortizing minimum payment due under the new loan.

The new loan, at annual change dates, added deferred interest to principal and the loan amortized, with payment increases capped at 7.5% for ten years.  Then, the new loan recast when negative amortization reached 125%.

The Rousseaus were never told about the new loan’s fully amortizing payment of $2,497.94 per month, in fact their payment amount was intentionally misrepresented by COOPER.  And the new monthly payment could never decrease because it represented the minimum payment possible… the negatively amortizing option that meant payments would increase at each change date.

But that wasn’t enough for our boy COOPER.  The Rousseaus were charged $2,640.00 in origination fees for the “low cost” refinance, which made a tidy profit for World/Wachovia/Wells/Whatever bank.

And best of all, an undisclosed Yield Spread Premium (“YSP”) of $4,195 was charged for placing them in a loan with an interest rate .50% higher than they qualified for, and that YSP increased their monthly payments by $123.32, or $44,395.20 over the life of the loan.

The truth is that the Rousseaus were a heck of a long way from being considered well qualified for their new loan. Their fully amortized payment represented a total debt-to-income ratio of 27.91%, but that percentage was based on income figures that were grossly overstated by guess who? That’s right… COOPER.

The Rousseaus told COOPER their total gross annual income was, $76,000, but somehow it got listed as $136,800 on the application.  You know… the application that good old COOPER was nice enough to fill out for the Rousseaus.

So, it was Sunday… yesterday… around 10:00 AM… and Norm couldn’t get the motorhome running.  He must have realized that he couldn’t handle the shame of seeing his wife and stepson evicted with nowhere to go… living on the street.  I don’t know how anyone could face that reality.  I don’t think I could. 

How could it be that just 12 years before they had put their life savings down on their first and likely last home?  They had done everything right, but nothing was right anymore, and I’m sure to Norm Rousseau, nothing would ever be right again. 

Their church had offered to help them, maybe find them somewhere to stay temporarily, and that would be fine for his wife and her son… but not for him.  I’m sure he wept as he looked at the engine parts laying there, realizing that it was over.

Norm Rousseau called me a couple of months ago.  He wasn’t asking me to help him, in fact, he never even told me about what he was going through with Wells Fargo.  No, Norm was concerned about someone else who was losing a home.  A really good person who’s done so much for so many others, was how he described her.  It wasn’t right what the banks were doing he said.  He was hoping that I could do something to help someone he knew, because she was someone who had helped others… but he didn’t say a word about himself.

Norman Rousseau gave up over that engine that sits in pieces in his driveway today, the sun shining down making the metal parts hot to the touch.  Maybe it was the frustration of having nowhere to turn for justice, maybe it was the shame he felt that somehow he had let his family down… even though that was not the case at all.

Sometime mid-morning on Sunday Norm Rousseau ended his own life.  He went into his bedroom, covered his head with a blanket so as to contain the mess… and shot himself.  At one point he could have reinstated his loan, that’s what he had planned to do, but Wells Fargo had made that impossible… they stripped him of everything he had.

And now, his wife and stepson are to be evicted at 6:00 AM tomorrow morning.  They have nowhere to go, they have no money, they are still in shock over the loss of Norm.

And I don’t know what to do really.  I’m going to call the sheriff’s office in Ventura… see if I can persuade them to drag their feet for a week before locking them out.  Their lawyer is trying to file something with the courts, but maybe you can think of something too.

Maybe you can forward this article to people in the media.  Tell them what’s going on… maybe someone will care enough to do something.  It’s 11:21 AM and I’ve been up all night again, I can’t really keep this up much longer… but somehow I felt like telling Norm’s story was the very least I could do.

Since Wells Fargo had already done the very least they could do.

Rest in peace, Norm Rousseau.

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The psychopaths in charge of Wells Fargo have already killed another American. Wells Fargo, Mammon’s agent on earth, now has Norman Roussseau’s blood on its hands. And these are people who never missed a house payment. Given that Wells’ only responsibility is to generate profits for shareholders, and devil take the hindmost, perhaps Cooper’s behavior, described above, is to be expected. And thus the wages of “corporate personhood:” if we knew a person willing to do whatever it takes to generate a profit, lie, cheat, steal, kill, wouldn’t we call that person a psychopath? Instead, executives get fat bonuses, banks build giant buildings as monuments to themselves, or as temples of Mammon, and we whistle down the street knowing that the business of America is business. And this is why Occupy has sprung from the streets and alleys, and resistance is beginning to form. And why the state maintains such an overweening interest in squelching nonviolent protest.

How we the sheeple can sleep through this slow-motion Kafkaesque nightmare without getting our ample butts off the couch and into the streets is simply beyond me.

In the blog, “The New Inquiry”, George Scialabbla answers the question, “How Bad Is It?” with precision, and by invoking the writer whose work whose works are highly instructive in these times, the man I call the arch-prophet of Doom, Morris Berman:

“Here is a sample of factlets from surveys and studies conducted in the past twenty years. Seventy percent of Americans believe in the existence of angels. Fifty percent believe that the earth has been visited by UFOs; in another poll, 70 percent believed that the U.S. government is covering up the presence of space aliens on earth. Forty percent did not know whom the U.S. fought in World War II. Forty percent could not locate Japan on a world map. Fifteen percent could not locate the United States on a world map. Sixty percent of Americans have not read a book since leaving school. Only 6 percent now read even one book a year. According to a very familiar statistic that nonetheless cannot be repeated too often, the average American’s day includes six minutes playing sports, five minutes reading books, one minute making music, 30 seconds attending a play or concert, 25 seconds making or viewing art, and four hours watching television.

Among high-school seniors surveyed in the late 1990s, 50 percent had not heard of the Cold War. Sixty percent could not say how the United States came into existence. Fifty percent did not know in which century the Civil War occurred. Sixty percent could name each of the Three Stooges but not the three branches of the U.S. government. Sixty percent could not comprehend an editorial in a national or local newspaper.”

This all sounds very much like Kunstler territory, as that stylist regularly decries the burgeoning illiteracy of the neck tattoo crowd, the NASCAR crazies, and the vulture capitalists. Citing Robert Putnam in bowling alone, he notes that “all forms of social capital fell off precipitously.” We stick our noses and computers and on social networking sites, and leave behind having friends to dinner, card parties, making new friends face-to-face, trusting one another, joining volunteer organizations, and otherwise being vitally involved in our respective communities.

And while we members of the “precariat” toil for our bread, the quality of life in the world’s richest nation continues to spiral down to Third World levels. Recently summarized by James Speth and Orion magazine, you’ve heard it all before. The US has the highest poverty rate for both adults and children, lowest rated social mid-ability, lowest score on you and indexes of child welfare and gender inequality and of course, remarkable levels of economic inequality. Thus the legacy of trickle-down economics.

Scialabba goes on to invoke Morris Berman. For those not familiar with his work, Berman is a cultural and intellectual historian, so his portrait of American civilization is anecdotal and atmospheric as well as statistical. Scialabba puts it well:

“He (Berman) is eloquent about harder-to-quantify trends: the transformation of higher (even primary/secondary) education into marketing arenas for predatory corporations; the new form of educational merchandising known as “distance learning”; the colonization of civic and cultural spaces by corporate logos; the centrality of malls and shopping to our social life; the “systematic suppression of silence” and the fact that “there is barely an empty space in our culture not already carrying commercial messages.” Idiot deans, rancid rappers, endlessly chattering sports commentators, an avalanche of half-inch-deep self-help manuals; a plague of gadgets, a deluge of stimuli, an epidemic of rudeness, a desert of mutual indifference: the upshot is our daily immersion in a suffocating stream of kitsch, blather, stress, and sentimental banality. Berman colorfully and convincingly renders the relentless coarsening and dumbing down of everyday life in late (dare we hope?) American capitalism.

In Spenglerian fashion, Berman seeks the source of our civilization’s decline in its innermost principle, its animating Geist. What he finds at the bottom of our culture’s soul is … hustling; or, to use its respectable academic sobriquet, possessive individualism. Expansion, accumulation, economic growth: this is the ground bass of American history, like the hum of a dynamo in the basement beneath the polite twitterings on the upper stories about “liberty” and “a light unto the nations.” Berman scarcely mentions Marx or historical materialism; instead he offers a nonspecialist and accessible but deeply informed and amply documented review of American history, period by period, war by war, arguing persuasively that whatever the ideological superstructure, the driving energy behind policy and popular aspiration has been a ceaseless, soulless acquisitiveness.” Not surprisingly, Berman finds parallels to the fall of Rome in our current state. By the end of that empire, Berman noted that economic inequality steeply rising, the legitimacy of the state was waiting, popular culture utterly the based, and civic virtue among the elites had disappeared. This made the effectiveness of the state and the projection of military power unsustainable. Scialabba points out this is 21st century America in a nutshell. Our foreign policy for the past 50 years has brought us to the turn where, in the period of time after 9/11 we have flailed about looking outside ourselves for the solutions to vague and undefined threats, ramping up internal Stasi-style security apparatus to bend, fold, spindle and mutilate the citizenry. “Our response to 9/11 is been utterly hysterical, and our inability to make an effort to understand the long festering consequences of our Imperial predations portended is clearly as anything could the demise of American bloat global supremacy.”

Scialabba adds, “What will become of us? After Rome’s fall, wolves wandered through the cities and Europe largely went to sleep for six centuries. That will not happen again; too many transitions — demographic, ecological, technological, cybernetic — have intervened. The planet’s metabolism has altered. The new Dark Ages will be socially, politically, and spiritually dark, but the economic Moloch — mass production and consumption, destructive growth, instrumental rationality — will not disappear. Few Americans want it to. We are hollow, Berman concludes. It is a devastatingly plausible conclusion.”

Jesus is quoted in Matthew as having said, “By their fruits shall ye know them.”  By our fruits, or deeds, we clearly worship Mammon, and Norman Rousseau was a blood sacrifice. For all of that and more, as Berman notes, we are doomed, if for no other reason than the Lords of Karma will see to it. After all, Nature bats last.   And, as to how we treat one another, Karpatok reminds us of Martin Buber’s I and Thou: “To the extent that one cannot embrace the reality of the Thou, one is not fully human..” 

What are we? What have we become? Ray Kurzweil whispers of the Singularity, as we dispense with one another with all the empathy of machines.

It is thus on my heart on a Sunday morning, with the soft breezes of her Virginia spring whispering through the trees. . . a holiday weekend, where the sun is bright, the birds chirping in trees bursting with bright green, my neighbors bustling about readying themselves for church. Yet Mammon lurks, hungrily.

This is a critique of the theory of Freegold (F-theory), which is part of an ongoing series entitled, Freegold: Perspectives and Critiques (FPC).

A key concept underlying F-theory is that Freegold provides the world a way to abandon the debt-dollar global monetary system, after the latter has naturally run its course. It posits that the rest of the world will stop supporting the “peak exorbitant privilege” of the U.S., which it has achieved through the dollar’s reserve currency status, access to cheap oil and the constant necessity for other countries to support our public and trade deficits. F-theory predicts that these other countries will soon refuse to support our structural deficits, the dollar will hyperinflate, and that this event will make way for a new Euro-centric monetary paradigm with physical gold as THE reserve asset used by all countries within the Freegold system.

In this commentary critique, I would like to focus on the idea that the global oil trade, which currently supports the privileged status of the dollar, will soon be made to support the countries and currencies that make up the Freegold system instead. First, we should understand how the U.S. dollar became a proxy for oil after its international gold backing was stripped away by President Nixon in 1971, and why other countries have went along with this setup for so long. FOA gives a pretty good explanation of this dynamic on the “First walk” of his “Gold Trail” (emphasis mine):

“Few people can fully accept or consider that oil became the backing for world dollars after gold was removed in 71. But that is exactly what happened in theory and practice. Using some earlier writing, I’ll tie them into what we are saying today. I’m going to repost some of my comments

 

(between —- marks) from the USAGOLD forum archives. Starting with FOA (1/15/00; 14:58:12MDT – Msg ID:22961).

 

—- my friend, they were not using this concept as a real “commodity money play” in the “gold standard perception”. At that time we were buying local oil with “fiat dollars” (made so by the 1933 internal gold confiscation) and foreign oil with “gold dollars”. But, as you pointed out, dollar production was so far past it’s “gold backing” that it was obvious they (USA) were pegging dollar printing to oil prosperity, not gold reserves. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil pricing fully well expected to cash in unneeded dollars for gold. As we can see, reality and present day events of that time were as “mismatched” as today! All of the dollars success was ultimately made possible because oil could (and was) priced so far below it’s “economic worth” to the world. At that time, even our Middle East friends had no idea just how useful oil would (and had) become to maintaining the world economic base.——–

 

Having read that (and keeping it in mind), I return to the implied questions of my “Foundation” post below. “Why in the world did foreign governments, especially Europeans, eventually go along with supporting a now fiat dollar reserve system after 71?”

 

…

 

The only problem was that if we continued this route, two things had to give: we would have to leave the gold standard because our money supply was exploding (relative to gold supply) and find a new source of oil because ours was running out.

 

…

 

In a somewhat convoluted way, by leaving the gold bond, it forced all world oil prices higher. Advancing the search for new (still cheap by value return standards) oil and paying for it using dollars backed by not only oil payment settlement in dollars but the continued purchase of supply “well under world use value”.

 

G-7 countries knew that initially they would have to sell some gold in a controlled burn that would allow gold to seek a higher level after the dollar / gold break. However, once oil producers understood that gold was going to be “managed” at reasonable levels, the continued pricing of oil in dollars and it’s flow was assured for some time. Allowing the exchange of dollars for gold on the world markets,,,, as needed and wanted.

 

This also appealed to major countries outside the US because it addressed the “second” problem I listed in the beginning. That being the geographic location of a currency’s real backing asset. With most of the world oil reserves located outside the US,,,,,, and the US slowly running out of it’s domestic reserves,,,,,,, using oil as a backing dynamic somewhat controlled the “free will” of the US. If indeed, the US backed away from managing a cheap gold market or ran it’s printing press too fast,,,,,, oil prices could be managed upward in a devaluation of the dollar. No, not the best of policy concepts for the world, but better than perceiving that the US “Fort Knox” gold was a control on money printing!”

The unmentioned history here, though, is that the U.S. has routinely used direct coercion/force over the last few decades to maintain its control over the oil trade and the dollar-oil nexus, which also happened to work out well for the energy-hungry Europeans. This use of extreme force started well before the post-9/11 exploits in the Middle East, as evidenced by covert intelligence/military operations throughout the Middle East and Latin America. Puppet governments in these regions were installed and re-installed throughout this period like clockwork.

After 9/11, however, the scope and scale of this coercion has only grown larger to reach epic proportions. Make no mistake – what we are talking about here with the dollar-oil nexus is the most important policy consideration for all of the elite policymakers in the U.S. and Western Europe, who together represent the $IMFS. The military might of the U.S. has been used in anticipation of the “problem” FOA was writing about in 2000 – that the oil reserves backing the debt-dollar would be located outside of U.S. jurisdiction and potentially used as a HUGE check on its influence.

F-theory advocates would have us believe that this dollar-oil nexus will be stripped away rather peacefully, as the interests of ME/Asian countries lead them to advocate for a new reserve system. They severely under-estimate the momentum, dedication and brutality of current U.S. foreign policy, though, and they severely OVER-estimate the power of markets to overwhelm those policies and dictate outcomes. A time will come when U.S. control over the oil trade cannot be sustained any longer – most likely when the direct energy costs of doing so become higher than the energy returns – but that time is not yet here. If you don’t believe me, then perhaps you need to take a closer look at this graphic from the National Post:

(click on image for larger graphic, or follow link above)

 

 

DISCLAIMER: I am not an EXPERT on the writings of Another, his friend (FOA) or HIS friend (FOFOA), or on the theory of Freegold. Just like I am not an expert on the writings of any other economic theorist out there or their theories in general. There are a lot of economic works that I have not had the pleasure to read and a lot of ideas I have not considered in-depth, including those contained within the body of work that comprises F-theory. None of my descriptions of F-theory should automatically be taken as 100% accurate, and I welcome any and all challenges to my representations.

This is a critique of the theory of Freegold (F-theory), which is part of an ongoing series entitled, Freegold: Perspectives and Critiques (FPC).

The following is a critique of FOFOA and F-theory by Reverse Engineer (RE) originally published at his blog, the Doomstead Diner. I am re-posting parts of the critique here because I believe RE hits on some key points of contention. Advocates of F-theory generally accept the foundational tenets of Austrian economic theory, even though they rarely claim to rely on it. One of these tenets comes from Carl Menger’s work, The Origins of Money, and Ludvig von Mises’ “Regression Theorem” – they posited that the use of money in human society spontaneously evolved from self-interested individuals engaged in barter, and that this form of commerce is fundamental to the very concept of human existence.

As anthropologists have pointed out for decades, though, the empirical evidence does not support that theory at all. In fact, it may have been centralized or quasi-centralized institutions which originally led to the internal use of money within societies – a fact that isn’t very kosher with those who believe in the undying power of the market system. RE also touches on another major problem with F-theory, in so far as it fails to deal with issues of energy scarcity in upcoming years – a vital consideration for any theory purporting to describe what global society can implement and sustain. So, without further introduction, here are excerpts from RE’s critique.

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Hyperinflation vs. Deflation: Rebutting FOFOA

I’ve been over the fallacies in the thought process of what conventional economists of both the Austrian and Keynesian variety come up with many times already, but I haven’t really addressed specifically the work of FOFOA. So I will do that here and now.

Like Ashvin, I will also make my disclaimer. I don’t profess a complete knowledge of WTF the Freegold advocates are talking about, and frankly I have a whole lot of issues as far as wading through the stilted prose style FOFOA writes. I am just going to look at some underlying assumptions made in this most recent justification for Freegold and for a likely Hyperinflation of the Dollar in the near term, though FOFOA refuses to make any real timeline predictions.

(critique of Money concept)

Let us begin here first with a major fallacy underpinning FOFOA’s entire Worldview as far as Money is concerned:

FOFOA: “The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.”

Emphasis there is mine of course. Primeval? It seems FOFOA believes that Homo Sapiens dropped down out of the trees with the innate ability to create and use money, and the subtext is that it goes back in ALL cultures into the great myst of Prehistory. He is cock sure that money in some form is an essential ingredient to the primeval Homo Sapiens mindset, but this is so untrue as to be completely laughable. It’s pretty clear that money only evolved around the time Agriculture did, and that is only around maybe 10,000 years old. This does not qualify as “Primeval” by any stretch of the imagination. There is a good 60,000 years here between the time Toba erupted and the beginnings of Ag and Money, and Homo Sapiens appears to have been quite successful through that whole period.

Moreover, its not some mythical Xanadu or Utopia in which large cultures flourished without the use of money, really only once the Europeans arrived on the West Coast of the Amerikas was any Money introduced to a very large culture of First Nations people who used a Potlatch or “Gift” Economy. FOFOA sweeps all that stuff under the rug, because it doesn’t fit the construct he wants to make regarding Money, and then more specifically Gold as Money.

…

(critique of Capital concept)

FOFOA: “I’m not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term “capital” can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man’s intellect were the capital of the time.

 

Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That’s the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.”

The modern analogy to FOFOA’s Stone and Mud Huts and Horse Carts in the Ancient World are today’s McMansions and Carz. In his version of Capital destruction it takes an Earthquake or Volcano to destroy this “Capital”, but he doesn’t address the fact that Capital of this kind can become worthless even if it is still standing. The McMansions and the Carz are losing Value because the Energy is no longer there to use them. The “Capital” that was expended to build said infrastructure was the Oil burned, which now exists only as molecules of CO2 in the atmosphere. What “Capital Destruction” has been going on for the Age of Oil came in the form of the burning of that Oil. The OIL was the Capital here, not the stuff that was built with it.

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DISCLAIMER: I am not an EXPERT on the writings of Another, his friend (FOA) or HIS friend (FOFOA), or on the theory of Freegold. Just like I am not an expert on the writings of any other economic theorist out there or their theories in general. There are a lot of economic works that I have not had the pleasure to read and a lot of ideas I have not considered in-depth, including those contained within the body of work that comprises F-theory. None of my descriptions of F-theory should automatically be taken as 100% accurate, and I welcome any and all challenges to my representations.

This is a critique of the theory of Freegold (F-theory), which is part of an ongoing series entitled, Freegold: Perspectives and Critiques (FPC).

One very important thing to note about FOFOA right off the bat is that he is NOT a “hard money” advocate, i.e. someone who believes currencies should be backed by a hard commodity (typically gold). He makes this clear repeatedly throughout his writing, as did Another and FOA, because F-theory is supposed to represent progress in the monetary structures of human civilization. That means going beyond the national/international systems of gold-backed money that existed for centuries, as well as the global system of pure credit-money that has practically existed for the better part of the last century.

Here is an excerpt from FOA and FOFOA on this issue from the latter’s article, Gold is Money – Part I:

FOA: Owning wealth aside from official money units is nothing new. Building up one’s storehouse of a wealth of things is the way societies have advanced their kind from the beginning. What is new is that this is the first time we have used a non wealth fiat for so long without destroying it through price inflation. Again, a process of using an unbacked fiat to function as money and building up real assets on the side. Almost as if two forms of wealth were circulating next to each other; one in the concept of money and the other in the concept of real wealth.

 

This trend is intact today and I doubt mankind will ever pull back from fiat use again. Fiat used solely in the function of a money concept that I will explain in a moment.

 

Understanding all of this money evolution, in its correct context, is vital to grasping gold’s eventual place in the world. A place where it once proudly stood long ago.

 

All of this transition is killing off our Gold Bug dream of official governments declaring gold to be money again and reinstitution some arbitrary gold price. Most of the death, on that hand, is in the form of leveraged bets on gold’s price as the evolution of gold from official money to a wealth holding bleeds away any credible currency pricing of gold’s value in the short run.

 

To understand gold we must understand money in its purest form; apart from its manmade convoluted function of being something you save.

 

 

FOFOA: he human concept of money is changing whether we like it or not. It is being torn apart. Gold, as a wealth reserve and wealth asset, will exist and trade parallel to the world of fiat, the world of credit and debt. Producers and savers will finally have the option to switch tracks so to speak. To get on a parallel track that avoids the inevitable collision with the debt-hungry collective their savings have always faced.

 

And as we pass through this phase transition, as gold switches from the transactional track to the wealth-reserve track, it will take on a whole new meaning… and a whole new value! The non-dollar part of the world already knows this. This is why they are buying gold now!

As you can see, this commentary is so far more of an explanation of an insightful concept expressed by Freegold advocates than a critique of F-theory itself. I am in complete agreement with the writers above that the conflation of transactional currencies (credits) and “money” used for savings is (partially) responsible for creating the extremely unbalanced, unstable economic system we have today, and that, ideally, the two functions should be separated into two different types of money, whose roles should always remain separate. It just makes good sense!

Where the critique comes in, though, is when the Ideal is transformed into the natural result of monetary evolution in human society, and is predicted to occur with near certainty as a part of F-theory. One could think of the synthesis between hard money and soft money in a Freegold system as a monetary Utopia, in which producers (savers) and consumers (debtors) will exist in a harmonic stasis that could theoretically last forever. Compare this to a description of Hegelian philosophy in theory and in practice:

…all successive historical systems are only transitory stages in the endless course of development of human society from the lower to the higher. Each stage is necessary, and therefore justified for the time and conditions to which it owes its origin. But in the face of new, higher conditions which gradually develop in its own womb, it loses vitality and justification. It must give way to a higher stage which will also in its turn decay and perish.

 

…

 

Mankind, which, in the person of Hegel, has reached the point of working out the absolute idea, must also in practice have gotten so far that it can carry out this absolute idea in reality. Hence the practical political demands of the absolute idea on contemporaries may not be stretched too far. And so we find at the conclusion of the Philosophy of Right that the absolute idea is to be realized in that monarchy based on social estates which Frederick William III so persistently but vainly promised to his subjects, that is, in a limited, moderate, indirect rule of the possessing classes suited to the petty-bourgeois German conditions of that time…

Do you notice a similarity between what Hegel did and what A/FOA/FOFOA have done? They have taken a very well thought-out philosophy of the Ideal and forced it to become an actual economic/political denouement that human civilization will occupy. After all, what good is a philosophy if it does not have very practical implications and/or predictions for human society? As Frederick William III proved, though, the material manifestation of the Ideal does not always reflect the Utopian conditions envisioned, and, most of the time, it doesn’t even come close! F-theory predicts the manifestation of a monetary Ideal throughout all of global human society, and that fact alone should leave us very skeptical of its predictions.

(more critiques of F-theory are to come later, and, fear not, most of them will not be nearly as philosophical as this one!)

DISCLAIMER: I am not an EXPERT on the writings of Another, his friend (FOA) or HIS friend (FOFOA), or on the theory of Freegold. Just like I am not an expert on the writings of any other economic theorist out there or their theories in general. There are a lot of economic works that I have not had the pleasure to read and a lot of ideas I have not considered in-depth, including those contained within the body of work that comprises F-theory. None of my descriptions of F-theory should automatically be taken as 100% accurate, and I welcome any and all challenges to my representations.