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Zombie Banks and the Lessons of Japan

Japan’s “lost decade” has been a perpetual case study for economists and business schools alike. Keynes’ monetary policies, which have to do with the supply and the cost of money, never envisioned a decade of prosperity predicated on historically low interest rates.  As we entered this recession, that whole side of monetary policy should have been declared dead on arrival as the Fed lending rate had been very close to zero and money supply had been at unprecedented levels for many years. If the economic expansion leading up to 2008 happened while mortgage rates were at 8-9% in a reasonably chastened lending environment, then monetary policy would have been a very powerful tool for the Obama administration to use. The fact that the Obama team ignored this fact and gave banks more money at  0-.25% and not much borrowing or lending has taken place confirms the we are heading into the same trap as the Japanese.

The common global culprit that started in Japan in the 90’s ; call it the atrophy of Freidman’s free-market ENTERPRISE value system (Click here for an earlier value systems  blog explaining what investment means to the different value systems) was the shift from having monetary Keynesian policy (ORDER-value system economic tools for policy makers) being completely marginalized by populist consumer-spending policies. When that happened, interest rates had to be reduced to close to zero to maximize consumer spending. (Give money to all regardless of their value systems and see what happens). This process created unprecedented wealth as the consumer’s purchasing power almost doubled by the shear drop in interest rates. To the housing market, this caused meteoric rise of property values and achieved its intended goal of transforming homes into ATM’s. Japanese bankers exhausted the heck out of this model and created things like 40 and 50 year mortgages till there was nothing left to create. By the time the Japanese property bubble burst, the Imperial Palace in Tokyo was worth more than all property valuations in the state of California (now that’s what I call a bubble).

Japan’s banking sector suffers from what’s known as “Zombie Banks”. A phe.nomenon where there are lots of lenders but few borrowers. I’m afraid that’s where the US will be in another 2 years. The speculative FUEDAL/UNHEALTHY ENTERPRISE value system is still alive and well and is still driving much of the activity on Wall Street and at property auctions all over the country.  We won’t get a full picture of the damage, a stage called price discovery, till most of this speculative activity stops. Consumers falling into the HEALTHY version of the ORDER-to-ENTERPRISE value system on the other hand, are a wise and powerful bunch and have taken corrective measures to reel in their spending. This has been the only meaningful bright spot in a minefield of otherwise useless economic data in the past 18 months, AND THE BANKS HATE IT!

Homes need to become ATM’s again to bring banks out of their zombie state and that will not happen any time soon simply because property values haven’t bottomed out yet. As of the date of this blog, the total number banks that have failed in 2009 in the US stands at 140 and at the cost of tens of billions to the tax payer.  Once the dust settles, and the taxpayer’s thresh hold for FDIC-style bailouts is fully exhausted, public opinion will not support the role of banks being anything more than a utility.  Only when banks are sidelined in such manner through necessity will homes be used as places of residence again and not as a speculative investment vehicle and that will spell the end of a nasty adventure into ill-conceived economic policies.

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Economic Policy and Global Value Systems Revisited

The publisher of Integral Leadership Review, Russ Volkman, PhD has asked me to expand an earlier post I had published on this blog. The article appeared in the magazine’s August 2009 edition. Click here to read the expanded version.

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Why an out of Touch Wall Street Refuses to Die

While the historic shift of wealth continues at the hands of the most sophisticated  thieves (Investment Bankers), their game is becoming more and more diabolical. All the talk in financial circles now is about how Goldman Sachs used the most sophisticated technology of the future costing millions to make split second trades and beat out the smaller firms who are using outdated 2009 technology (how un-cool). The record profits that GS reported a few weeks ago fly in the face of the most distressing economic data since the Great
Depression. Their use of continually advancing technology (a hallmark of an innovative post-industrial economy) to advance unsound trading principals is paramount to industrial terrorism.

Up until the end of the 1980’s stock prices used to be representative of productive economic output, an enterprise value system  built on strong foundation of accountability which meant that Wall Street only rallied when the rest of the economy did. For most of the 90’s investment bankers were hatching diabolical systemic plans in dark rooms to make Wall Street “DE-COUPLE” from the real economy to minimize the need for accountability and in the process decouple from any relationship representing real economic output. Below
is a sample representation of the brazen, decoupled SPIN that Wall Street puts on REAL ECONOMIC DATA to insure their continued manipulation of investors large and small. This is not a joke. All you need to do is listen to CNBC for 15
minutes and see this pathology that has become a whole new language. The list is from a post on the blog Seeking Alpha. Never a dull day on Wall Street.

UNEMPLOYMENT @ 9% = BETTER THAN EXPECTED
UNEMPLOYMENT @ 10% = DOW SOARS
UNEMPLOYMENT @ 11% = GREEN SHOOT RALLY
UNEMPLOYMENT @ 12% = ALREADY FACTORED IN
UNEMPLOYMENT = 35% = DOW DROPS 100 POINTS
****
HOUSING PRICE DROP 1% = RECESSION ENDING
HOUSING COLLAPSES = GREEN SHOOT
HOUSING FALLS 20% = STABILIZATION
12% MORTGAGE DELINQUENCY = GOOD FOR STOCKS
HUNDREDS OF THOUSANDS OF MORTGAGES UNDERWATER = HOUSING BOTTOMED
****
GM CHAPTER 11 = PRICED IN
125K+ JOBS LOST FROM GM CHAPTER 11 = PRICED IN
AMERICAN AUTO INDUSTRY BANKRUPT = GOOD THING

****

GOVERNMENT SPENDS 1 TRILLION OF OUR DOLLARS = STIMULUS
NORTH KOREA FIRES NUKE = RALLY
ISRAEL BOMBS IRAN = 30 MINUTE END OF DAY RALLY
WORLD EXPLODES = ASIA RALLIES

****

NO JOBS ARE CREATED = RECESSION ALMOST OVER
U.S. DEBT OVERWHELMING = TOO BUSY RALLYING TO CARE
CONSUMER STOPS SPENDING = RETAIL RALLY

****

BANKS ARE INSOLVENT = SIGNS OF STABILIZATION
BANKS PASS SCAM STRESS TESTS = HUUUUUUUUGE RALLY
BANKS “ONLY NEED 75 BILLION” = OUT OF THE WOODS
BANKS PASS A REAL STRESS TEST = NEVER WOULD HAPPEN
BANKS PAY BACK TARP = LATE DAY SURGE
BANKS CAN’T PAY BACK TARP = EARLY MORNING SURGE

****

CALIFORNIA BANKRUPT = THE WORST IS OVER

****

DOLLAR RISES = RALLY
DOLLAR CRASHES = RALLY
INFLATION = BULL MARKET
DEFLATION = BULL MARKET CONTINUES
REFLATION = MASSIVE SHORT COVERING RALLY
GOLD RISES = STOCKS RALLY
GOLD FALLS = STOCKS RALLY BIG

****

BANKS’ FAKE EARNINGS = SIGNS OF STABILIZATION
COMMERCIAL REAL ESTATE STABILIZING = 1000 POINT RALLY
COMMERCIAL REAL ESTATE CRASHING = STOCKS SHAKE IT OFF TO RALLY
CONSUMER INSOLVENT = CONSUMER IS SPENDING

****

OIL @ 50 = BULL RALLY
OIL @ 60 = GREEN SHOOT
OIL @ 100 = IMPORTANT RECOVERY SIGN
OIL @ 20 = TAX BREAK

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