Friday, September 18, 2009

The Greatest Story Never Told

The title may be a bit much, but it has a nice Friday morning punch to it. In response to my post on the decline in household and business debt (and spike in federal debt), reader mab details:

Look at the Flow of Funds net lending and net borrowing. As your chart shows, absent the Government, borrowing was hugely negative. But even more telling is that absent the Fed, lending was negative by over a TRILLION!
And here is a chart of that net lending...

And while I would love to rant about this, I couldn't do a better job than mab.
The TARP was used to fill huge black holes in bank balance sheets - we new that going in. But the notion that banks would ever use the money to lend to tapped out households or to small businesses was a ruse. What's worse, now there is even less incentive for banks/creditors to restructure mortgage debts.

I'd like to know how much of the TARP and AIG pass through bailouts are being used to speculate on existing paper assets. If people only understood the size and scope of this historic rif-off.

The biggest swindle in history. The greatest story never told.
Source: Federal Reserve


  1. Multiple comments - first, between you and CR it got me wondering what the Net was for the major sectors over the last few decades. What was particularly revealing about CR's chart was the two big bubble in Net Worth (can you spell wealth effect). If you'll stop and think about it that's a stunning chart. We should have had a severe downturn after the last burst bubble but instead used the Housing ATM. On the other side of the coin today's Journal has an interesting story on the Fed looking to set comp limits with a chart on Wall St. bonuses. With all the jaw-jaw about systemic risks it was only this decade that thing really went to hell in a hand-basket. Now bump that up against these two charts:
    Interpretation is left as a take-home exercise but....the hint is debt-fueld mania to fund Wall st. profits and bonuses as the expense of the health of the economy. Try won't like it.

  2. We cnnot strictly say it is not told - a handful of politicians have openly challenged the Fed what has happened to the money approved by Congress. An apathetic american public cannot be made to take note unless it wants to.

    That the media (as it has done during the darkest days of the bush administration) has acted in complicity by keeping the truth away from its headlines, is exactly what the american public deserves - an irresponsible public who does not question and cares only about leveraging up to its ears and speculating in stocks and real estate and does not question how the money it broowed would be repaid, would be led to the abyss by an equally irresponsible media.

  3. It is a zombie asset bubble in the making!

    Side note: This is part of the reason why SRS collapsed to $9.

  4. CEO,
    As you well know, most Americans need to work very hard to make ends meet these days so that the likes of CEOs can be recklessly over-compensated. Sorry, but these people don't have a lot of time or effort left to audit the federal government or large banking institutions.

    As for apathy, I think that if you actually took the time to talk to someone, you'd find that, in fact, there isn't apathy out there. There's very strong feeling about what is happening in government and the financial industry.

    I think that your broad characterization of the public is unfair and your contention that the public deserves what has happened is outrageous. You might really be talking mostly about arrogant wall-streeters who deserve to be strung up by their balls in the public square.

    As for the media, well, I think that anyone who hasn't had their head in the sand knows that american media outlets are owned by large corporations that have been party to the massive corruption that the not-so-apathetic american public has been victimized by. (Apathy? See mid-term elections in 2006 and prez election in 2008. Also see complete meltdown of republican party over a mere 18-months. That doesn't look like apathy, it looks like rage).

    It's clear that the largest portion of irresponsibility has been on the part of the financial industry. Who was holding a gun to their head to give away money to people who obviously couldn't pay it back? What-the-hell kind of responsible bank does that?

    What kind of CEO blames the customer for the downfall of their company/industry? One who doesn't have any guts. I would never want someone like that running my company.

  5. Anonymous -

    I revised your second to last paragraph. It reads a bit more balanced now:

    It's clear that the largest portion of irresponsibility has been on the part of consumers who couldn’t turn off Dancing With the Stars long enough to do a personal cash flow analysis. Who was holding a gun to their head to sign a mortgage they obviously couldn't pay back? What-the-hell kind of responsible person does that?

    Reads better, don't ya think?