Well the fool (or morals tutor as he prefers) over at gifthub.org has done it again. For some reason, he thinks philanthropy is supposed to be REAL. It is one thing to out the criminal enterprise of housing bubbles and “piratization” as I have tried to do. It is quite another to pull the system’s most prized air cover out from over it’s patriarchs and matriarchs. That is some kind of REAL high WASP chutzpah.

Next thing we know this fool will be asking Jay Hughes to explain what Michael Corleone (played by Al Pacino) meant in Godfather III — “The higher I go, the crookeder it becomes.”

These folk are very sensitive about all the “holier than thou” stuff. We are talking real money here.That said, I’m no cynic. If we have a REAL morals tutor, then maybe we could have a REAL aristocracy which takes responsibility to manage their REAL conduct and intergenerational pools of capital in a manner which nurtures REAL civilization. After all, before you can have REAL law, you need someone who we can trust to see right from wrong and teach the rest of us where and when to draw the line.

“As to the history of the Revolution, my ideas may be peculiar, perhaps singular. What do We Mean by the Revolution? The War? That was no part of the Revolution. It was only an Effect and Consequence of it. The Revolution was in the minds of the People …”
— John Adams

Say a prayer for our morals tutor. He stands between us and the abyss.

We face real challenges in maintaining liquidity in the mortgage market by “dropping” money out of central banking “helicopters.” It is one thing to keep the price of an asset inflated. It is another thing to keep the price of billions of  dollars of securities secured by non-existent things inflated.

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. Here is an article originally spotted by the great Bill Murphy of GATA — “Discrepancies in America’s accounts hide a black hole” by Daniel Gros published in the Financial Times on June 15 2006. It starts as follows:

“The global financial system seems to have a black hole at its centre. Over the last two decades, US residents have sold a total of about $5,500bn worth of IOUs to foreigners, yet the officially recorded net investment position of the US has deteriorated only by a little more than half of this amount ($2,800bn). The US capital market seems to have acted like a black hole for investors from the rest of world in which $2,700bn vanished from sight - or at least from the official statistics.”

“How can $2,700bn disappear?”

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Let me add a section from my article “The Myth of the Rule of Law”:

“In March 2000, the HUD Inspector General testified that HUD would not publish financial statements for fiscal 1999 and that the undocumentable adjustments made so far to balance the books was $59 billion. A close reading of the undecipherable preliminary audit indicated that, in fact, the number was $17 billion in fiscal 1998 and $70 billion on the asset side and $59 billion on the liability side in fiscal 1999. As a practical matter, since HUD was assuring us that their systems did not work and that they had simply not bothered to check their accounts and cash balances in the old fashioned way using paper and pencil, we had no numbers of any meaning. In fact, anything was possible. Worse yet, GAO reports of the Treasury accounting systems — both as to their reliability and control by private contractors — are also disturbing. With little or no “info-sovereignty”, the internal controls are insufficient to assure that cash balance reconciliation between an agency such as HUD and Treasury are accurate.”

“When an agency can issue government guarantees and not record what they have issued correctly and then write checks that are not recorded correctly, then one or more of the players that handle the money, namely the US Treasury, the Federal Reserve Bank of New York, AMS and Lockheed, may be in a position to steal literally hundreds of billions of dollars with no one the wiser except those enjoying the fruits.”

“Such a thought seemed far-fetched not that long ago. Indeed, in 1994 after the first FHA/HUD financial audit was published, a mortgage banker came to see me. He was a serious engineering type who clearly worked hard and mastered the details of his business. He was distressed, he said. For decades he had been keeping a tally of total outstanding FHA/HUD mortgage insurance credit. He had brought printouts of his database for me. It turned out that the government’s published financial statements showed the amount outstanding was substantially less than the actual amount outstanding. He was sure.”

“I assumed that the guy was crazy. If what he said were true, then the US Treasury and the Federal Reserve would have to be complicit in significant fraud, including securities fraud.”

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The way to contain the subprime mortgage situation is to simply print cash to buy up mortgage backed securities filled with mortgages for which no homes exist (or for homes that have multiple duplicative mortgages issued on them) as well as mortgages with principal amounts owed in excess of what the homes are worth and for which debt service is greater than the homeowner can afford. Looks like that is happening.

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An old trading story goes something like this:

“The story goes that sometime in the early years of the Twentieth Century there was a lull on the trading floor of the New York Stock Exchange, a lull that extended from hours into days - and the boys were getting bored and restless. Come an afternoon, for want of any better entertainment, one of the traders pulled out an elderly sardine tin and announced his willingness to sell this unique item for no more than a nickel. In a moment two jobbers from the Railroads pitch had bid and counter-bid for the tin, pushing the price up to a dime. Not to be outdone, the swells who trade Texas oil stocks jump in, doubling the price of the sardines, then doubling it again. The tin passes from professional hand to professional hand, with the ticket sometimes a cent or two higher, sometimes up a quarter. At last the hubbub attracts the attention of the baby of the floor, a wet behind the ears college kid. He spots the unusual label and can’t miss the excitement in the open outcry yelling of the traders. The kid, determined to show he can play with the big boys and genuinely intrigued by the apparent rarity of the item, firmly calls out ‘Ten bucks’ and is delighted when the bidding comes to an abrupt end. Hefting out his pocket-knife, he punctures the tin, only to be met with the unmistakeable stink of rotting fish. Bewildered and heavily out of pocket, the new boy turns to one of his elders and betters, who had taken a half Dollar turn out of the tin an hour previously. ‘I don’t get it’ says the kid, ‘these sardines are long gone.’ ‘Son’, says the old jobber, ‘those weren’t eating sardines, thems were trading sardines.’ ”

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I live in a farming community in the midst of a drought. No one is printing money to give our farmers to cover the cost of planting fields of corn that are now burning up.

One of my favorite people comments:

“Billions for the bankers burned by their own lies and greed, but not a cent for farmers burned by drought, to paraphrase Charles Cotesworth Pinckney.”

The result? The price of food and many other essential items is set to explode. I want you to do some scenarios on your family budget as to what you would do if the price of food went up 20-40% over the next 18 months.

I have been developing a methodology for Solari to determine the total economic return (impact on both investor and living ecosystem) of a mining operation. I have been inching along as my understanding of geology is limited to dim recollections of high school science.
I just decided to put the effort on hold and watch The Teaching Company’s course in Geology: The Nature of Earth: An Introduction to Geology taught by John J. Renton of West Virginia University. It is unbelievably helpful. These things are the opposite of Hollywood - a professor who is authentic and grounded, loves to learn and teach and really cares. When I was in college or business school, you were lucky to have 1 or 2 of such teachers a year. Now it appears you can have them every time for whatever topic you want to learn about. This may be better than Netflix documentaries.

If you have had an experience with The Teaching Company’s courses, I would love to know which ones you recommend.

Thanks to wonderful allies Nan Garrett (Georgia Green Party) and Katey Culver and Howard Switzer  (Green Party of Tennessee) I had the opportunity to speak to the Green Party national convention in Reading, Pennsylvania in July. I spoke for two hours taking questions from the floor every 15 minutes or so. I felt something new and exciting — a deeper understanding emerging about money and using money in concert with political action. There is a willingness among diverse groups to look at and collaborate on real solutions. I can’t wait to get back out on the road to participate live in the continuing conversation.

Nan sent a follow up letter to the New York Times. I have her permission to share it with you. Thanks, Nan!

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Catherine,

I wanted to thank you again for such a riveting presentation yesterday in Reading. As kids say, you rule! you rock! By the way, I was reading an article in the NY Times, which caused me to respond as you see below….

Nan Garrett
Mon, 16 Jul 2007
From: Nan Garrett
Subject: Economic Populism
To: letters@nytimes.com

I read your article “A New Populism Spurs Democrats on the Economy” by Robin Toner with some skepticism.

The Democrats have talked populist notions decades, yet even when they have some modicum of governmental power, it never seems to translate to real economic power for the People of this nation. They are great at criticizing the
Republicans but their practices are just as elitist, just occasionally with different recipients of their largess.

If you want to check out real economic populism, check out Catherine Austin Fitts and solari.com. Fitts’ background includes Managing Director and member of the Board of Wall Street investment bank Dillon Read & Co. Inc., Assistant Secretary of Housing - Federal Housing Commissioner in the first Bush Administration and President of Hamilton Securities Group, a Washington DC investment bank. Fitts
works with investors who wish to improve the total economic returns of their assets — both their investment returns and the returns to the people, communities and environment impacted by their investments.

Fitts was one of the keynote speakers to the Green Party’s annual meeting this past weekend in Reading, PA, and the Greens seemed to really soak up what Fitts had to say.
Nan Garrett