Peter Suderman Says They Lied About Obamacare

On November 7, President Barack Obama made a
first tentative stab at an apology for the fact that millions of
Americans were losing their health insurance plans as a result of
Obamacare. Peter Suderman says Obama’s broken promise that people
who liked their health plans could keep them only scratches the
surface of the administration’s health care mendacity, and argues
that it was one of at least a dozen false or misleading statements
that senior administration officials and ranking Democrats made
before, during, and after Obamacare was signed into law.

View this article.

from Hit & Run http://reason.com/blog/2014/01/14/peter-suderman-says-they-lied-about-obam
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Brickbat: Pointed Discussion

Never point a gun at something or
someone you don’t intend to shoot. Jerome M. Hauer, New York
state’s commissioner of the Division of Homeland Security and
Emergency Services, has apparently never heard of that rule. He
recently used the laser
attached to a handgun
 as a pointer during a presentation
to foreign officials. The laser tracked across the head of at least
one of the officials before resting on the map Hauer was pointing
to.

from Hit & Run http://ift.tt/19rA8Vv
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How Bitcoin Could Serve the Marijuana Industry (With Banks Still Nervous)

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

The reason venture capitalists have become so intrigued with Bitcoin over the past year or so is because it is what the industry refers to as a “disruptive technology.” Some of the key tenets of a disruptive technology are that it allows people and businesses within a certain industry (or industries) to do things cheaper, faster, and better than before by a significant, if not revolutionary margin. Bitcoin easily checks all these boxes. Even more than that, it also frees humanity from the vengeful whims, or simply the bureaucratic inefficiencies, of the state apparatus. Case in point, when Wikileaks was unable to access the traditional banking system due to a state sponsored blockade, they were still able to obtain funds through Bitcoin. In fact, that specific example, is the primary reason that I officially got behind Bitcoin in late summer 2012. I made this point clear in my debut article on the topic titled: Bitcoin: A Way to Fight Back Against the Financial Terrorists?

Which brings me to the topic of today’s post. Medical marijuana is already legal in 20 states plus the District of Columbia. It is also completely legal for recreational use in two states; Colorado where I reside, as well as Washington State. Nevertheless, big daddy government still thinks it knows best and continues to classify the relatively benign substance as a schedule one drug under federal law. As such, the banking system, (including state banks) is simply to afraid to get involved. Enter Bitcoin.

Well at least that is what I suspect will happen. As of now, it has been anecdotally reported that one dispensary has made Bitcoin payments an option, but I haven’t seen any clarification as to which one. I see this as a fantastic opportunity for both the Bitcoin community as well as the marijuana industry to come together to solve a major problem. It could be a huge win-win for both. The main question on my mind at this point is whether or not the main Bitcoin payment processing companies Coinbase and BitPay will agree to play along…

*Note: Since the publication of this post a reader pointed out that since the Bitcoin payment processors do utilize the banking system, it doesn’t exactly solve the problem. This is a fair point, but leads me along another thought process. It may indeed end up being a blessing in disguise as it sets up the marijuana industry as the perfect testing ground for use of BTC as an actual currency. Ie, potentially paying suppliers and employees in Bitcoin, perhaps only partially at first. This is going to be fascinating to watch.

First let’s examine the problem. A recent article from the New York Times highlighted it. Here are some key excerpts.

The New York Times writes:

Legal marijuana merchants like Mr. Kunkel — mainly medical marijuana outlets but also, starting this year, shops that sell recreational marijuana in Colorado and Washington — are grappling with a pressing predicament: Their businesses are conducted almost entirely in cash because it is exceedingly difficult for them to open and maintain bank accounts, and thus accept credit cards.

 

As a result, banks, including state-chartered ones, are reluctant to provide traditional services to marijuana businesses. They fear that federal regulators and law enforcement authorities might punish them, with measures like large fines, for violating prohibitions on money-laundering, among other federal laws and regulations.

 

“Banking is the most urgent issue facing the legal cannabis industry today,” said Aaron Smith, executive director of the National Cannabis Industry Association in Washington, D.C. Saying legal marijuana sales in the United States could reach $3 billion this year, Mr. Smith added: “So much money floating around outside the banking system is not safe, and it is not in anyone’s interest. Federal law needs to be harmonized with state laws.”

 

The limitations have created unique burdens for legal marijuana business owners. They pay employees with envelopes of cash. They haul Chipotle and Nordstrom bags containing thousands of dollars in $10 and $20 bills to supermarkets to buy money orders. When they are able to open bank accounts — often under false pretenses — many have taken to storing money in Tupperware containers filled with air fresheners to mask the smell of marijuana.

 

The all-cash nature of the business has also created huge security concerns for business owners. Many have installed panic buttons for workers in the event of a robbery and have set up a constellation of security cameras at their facilities beyond what is required, as well as floor sensors to detect break-ins. In Colorado, Blue Line Protection Group was formed a few months ago, specializing in protecting dispensaries and facilities that grow marijuana, and in providing transportation security. The firm largely uses military veterans who have Special Operations experience.

Also in a recent article, CoinDesk alludes to a possible solution using Bitcoin:

At least one marijuana dispensary in Colorado has reportedly begun accepting bitcoin.

 

A somewhat bigger problem for dispensaries lurks in federal law. They cannot accept credit card payments, so all purchases must be in cash – or bitcoin.

 

Banks and credit card companies are playing it safe. They must comply with federal legislation and although it might be possible to come up with a workaround, they do not appear interested at this point.

 

Federal law has forced dispensaries to accept cash, and cash only – but bitcoin is a tempting alternative. Anonymity does not matter, since recreational marijuana is legal in Colorado, but with no credit cards in the mix, it is practically the only alternative.

 

Sales of recreational marijuana in Colorado are reportedly exceeding $5m a week, and banks simply cannot enter the fray until regulators give them the green light.

It’s still early days, but this is fertile testing ground for Bitcoin’s disruptive, game-changing capabilities. I will be eagerly watching this story.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bFMz_DblJKE/story01.htm Tyler Durden

Watch: Video, Pictures Convince Public, But Not Jurors, in Kelly Thomas Case

A jury has acquitted two officers on trial for the beating and
death of Kelly Thomas, a homeless man with schizophrenia, as

Scott Shackford notes below.

Reason TV has covered the case extensively for years, not only
because of the brutal, horrific nature of Thomas’s death, but also
because of the integral role that new media and the democratizing
effect of technology has played in the perception, coverage, and
visibility of the incident.

A picture snapped on a cell phone and surveillance footage
uploaded to Youtube both fueled and sustained public outrage in a
case that might have otherwise gone unnoticed. To many, the
picture, the video, and the audio provided incontrovertible
evidence of police abuse. The
images and sound
, accessible to anyone who looked for it, were
enough to lead to the
first murder trial
of a police officer in Orange County
history.

In this case, those same images and sound were not enough to
convince a jury to convict the officers of 2nd degree murder,
involuntary manslaughter, or excessive force.

Regardless of your feelings about the outcome, Reason TV’s
original documentary, produced only months after the beating
occurred, is a must-watch video for anyone interested in this case
or in the role technology is playing in the ever-evolving
relationship between the police and the citizenry:

from Hit & Run http://reason.com/blog/2014/01/13/watch-video-pictures-not-enough-to-convi
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A Rat-Infested "Shithole" – This Is New York City's Worst School (And The Reason Why)

In Europe, “it is all austerity’s fault” or so the conventional, and very wrong, wisdom goes. Or rather, fauxterity, because as we showed months ago, with European debt and spending soaring, tax revenues plunging, and zero actual reforms since Draghi’s “whatever it takes” speech made any actual attempt to fix the economy through fiscal policy irrelevant (after all the Goldmanite at the head of the ECB will fix any runaway bond yields), the main thing that actually ails Europe is sheer political incompetence and unbridled corruption (and the hangover of record debt, but as every Keynesian knows, even more debt will easily fix that).

As it turns out, the same applies for the US: because in a country in which the lack of economic “growth” and prosperity are attributed to the occasional sequester, and a stingy congress that refuses to unleash the spending floodgates, the money is perfectly sufficient – the problem is that quite often it ends up in the hands of people who one may call criminals, if one were so inclined (although legally is prohibited at least until they end up convicted in a court of law).

Take the case of public school PS 106, located in Far Rockaway, Queens – the school is allocated $2.9 million to serve a low-income population with 98 percent of its students eligible for free lunches. As a Title 1 school, it gets extra federal funds. There is one problem: none of that state money actually makes its way to the students, and with no class, or books, and a rat infestation, PS 106 has officially earned the title of New York’s worst school.

The Post details the educational process at one of New York’s public schools:

Students at PS 106 in Far Rockaway, Queens, have gotten no math or reading and writing books for the rigorous Common Core curriculum, whistleblowers say. The 234 kids get no gym or art classes. Instead, they watch movies every day. “The kids have seen more movies than Siskel and Ebert,” a source said.

 

The school nurse has no office equipped with a sink, refrigerator or cot. The library is a mess: “Nothing’s in order,” said a source. “It’s a junk room.”

 

No substitutes are hired when a teacher is absent — students are divvied up among other classes. A classroom that includes learning-disabled kids doesn’t have the required special-ed co-teacher.

 

About 40 kindergartners have no room in the three-story brick building. They sit all day in dilapidated trailers that reek of “animal urine,” a parent said; rats and squirrels noisily scamper in the walls and ceiling.

 

* * *

 

But five months into the school year, PS 106 classes still don’t have the books or teacher’s guides.

 

They have no reading program, no math program,” a source said, adding Sills blames outside administrators for not sending materials. Teachers muddle through by printing out worksheets they find online, buying their own copy paper.

 

The DOE gave no explanation for the missing curricula but said it’s “working with the school to provide students with physical education.”

Surely, all of the above is the result of some evil legislator who refuses to release another million or two to satisfy the school’s pressing budgetary needs. Actually, no. It turns out it is all the principal’s fault:

The principal — Marcella Sills, who joined PS 106 nine years ago — is a frequent no-show, sources say.

 

Sills did not come to school last Monday. On Tuesday, she showed up at 3:30 p.m.

 

On Wednesday, The Post found her at home in Westbury, LI, all day before emerging at 2:50 p.m. — school dismissal time. Wearing a fur coat, she took her BMW for a spin. She showed up at school Thursday, but not Friday.

 

When Sills, 48, does go to work, it’s rarely before 11 a.m. — and often hours later, say sources familiar with her schedule. “She strolls in whenever she wants,” one said.

 

The school hasn’t had a payroll secretary in years.

Not only that, but the school’s community members also state that they have never seen a budget tracking the income and spending. Well, the income is clear: generous taxpayers. As for spending: it’s quite clear where the funds are being embezzled.

When [Marcella Sills] is out, an assistant principal is left in charge. Yet Sills, who gets a $128,207 salary, also pockets overtime pay — $2,900 for 83 hours in 2011, the latest available records show.

Unfortunately, it all goes downhill from there, because any attempts to rectify the situation are halted before they will even begin.

Staffers won’t speak up or even file a grievance with their union because Sills will retaliate, a source said. Parents wonder if higher-ups know what’s going on.

 

“Why don’t they get on them? I don’t understand that,” said Michael Moore, father of a second-grader.

 

Another father, Roland Legions, added. “They’re not doing right by the kids.”

 

One mom said she couldn’t get a meeting with Sills to discuss concerns. Another said Sills is “just not professional.” “She should be here,” the mom said. “How is she going to run the school if she’s not here?”

She won’t. But she will gladly collect her paycheck while the student spend time watching movies with the rats. Actually, scratch that: “A spokesman denied the trailers are rat-infested.”

In conclusion:

“This school is a complete shithole, but nobody in a position of power comes to investigate. No one cares,” a community member said.

That’s ok – nobody cares, which means one can once more fall back to the traditional bullshit excuse and again blame those evil stingy legislators who refuse to give Ms. Sills a few more million to collect for doing… nothing.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/PJWSWj4MbCw/story01.htm Tyler Durden

A Rat-Infested “Shithole” – This Is New York City’s Worst School (And The Reason Why)

In Europe, “it is all austerity’s fault” or so the conventional, and very wrong, wisdom goes. Or rather, fauxterity, because as we showed months ago, with European debt and spending soaring, tax revenues plunging, and zero actual reforms since Draghi’s “whatever it takes” speech made any actual attempt to fix the economy through fiscal policy irrelevant (after all the Goldmanite at the head of the ECB will fix any runaway bond yields), the main thing that actually ails Europe is sheer political incompetence and unbridled corruption (and the hangover of record debt, but as every Keynesian knows, even more debt will easily fix that).

As it turns out, the same applies for the US: because in a country in which the lack of economic “growth” and prosperity are attributed to the occasional sequester, and a stingy congress that refuses to unleash the spending floodgates, the money is perfectly sufficient – the problem is that quite often it ends up in the hands of people who one may call criminals, if one were so inclined (although legally is prohibited at least until they end up convicted in a court of law).

Take the case of public school PS 106, located in Far Rockaway, Queens – the school is allocated $2.9 million to serve a low-income population with 98 percent of its students eligible for free lunches. As a Title 1 school, it gets extra federal funds. There is one problem: none of that state money actually makes its way to the students, and with no class, or books, and a rat infestation, PS 106 has officially earned the title of New York’s worst school.

The Post details the educational process at one of New York’s public schools:

Students at PS 106 in Far Rockaway, Queens, have gotten no math or reading and writing books for the rigorous Common Core curriculum, whistleblowers say. The 234 kids get no gym or art classes. Instead, they watch movies every day. “The kids have seen more movies than Siskel and Ebert,” a source said.

 

The school nurse has no office equipped with a sink, refrigerator or cot. The library is a mess: “Nothing’s in order,” said a source. “It’s a junk room.”

 

No substitutes are hired when a teacher is absent — students are divvied up among other classes. A classroom that includes learning-disabled kids doesn’t have the required special-ed co-teacher.

 

About 40 kindergartners have no room in the three-story brick building. They sit all day in dilapidated trailers that reek of “animal urine,” a parent said; rats and squirrels noisily scamper in the walls and ceiling.

 

* * *

 

But five months into the school year, PS 106 classes still don’t have the books or teacher’s guides.

 

They have no reading program, no math program,” a source said, adding Sills blames outside administrators for not sending materials. Teachers muddle through by printing out worksheets they find online, buying their own copy paper.

 

The DOE gave no explanation for the missing curricula but said it’s “working with the school to provide students with physical education.”

Surely, all of the above is the result of some evil legislator who refuses to release another million or two to satisfy the school’s pressing budgetary needs. Actually, no. It turns out it is all the principal’s fault:

The principal — Marcella Sills, who joined PS 106 nine years ago — is a frequent no-show, sources say.

 

Sills did not come to school last Monday. On Tuesday, she showed up at 3:30 p.m.

 

On Wednesday, The Post found her at home in Westbury, LI, all day before emerging at 2:50 p.m. — school dismissal time. Wearing a fur coat, she took her BMW for a spin. She showed up at school Thursday, but not Friday.

 

When Sills, 48, does go to work, it’s rarely before 11 a.m. — and often hours later, say sources familiar with her schedule. “She strolls in whenever she wants,” one said.

 

The school hasn’t had a payroll secretary in years.

Not only that, but the school’s community members also state that they have never seen a budget tracking the income and spending. Well, the income is clear: generous taxpayers. As for spending: it’s quite clear where the funds are being embezzled.

When [Marcella Sills] is out, an assistant principal is left in charge. Yet Sills, who gets a $128,207 salary, also pockets overtime pay — $2,900 for 83 hours in 2011, the latest available records show.

Unfortunately, it all goes downhill from there, because any attempts to rectify the situation are halted before they will even begin.

Staffers won’t speak up or even file a grievance with their union because Sills will retaliate, a source said. Parents wonder if higher-ups know what’s going on.

 

“Why don’t they get on them? I don’t understand that,” said Michael Moore, father of a second-grader.

 

Another father, Roland Legions, added. “They’re not doing right by the kids.”

 

One mom said she couldn’t get a meeting with Sills to discuss concerns. Another said Sills is “just not professional.” “She should be here,” the mom said. “How is she going to run the school if she’s not here?”

She won’t. But she will gladly collect her paycheck while the student spend time watching movies with the rats. Actually, scratch that: “A spokesman denied the trailers are rat-infested.”

In conclusion:

“This school is a complete shithole, but nobody in a position of power comes to investigate. No one cares,” a community member said.

That’s ok – nobody cares, which means one can once more fall back to the traditional bullshit excuse and again blame those evil stingy legislators who refuse to give Ms. Sills a few more million to collect for doing… nothing.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/PJWSWj4MbCw/story01.htm Tyler Durden

Amazon Hints At Its Global Domination Strategy

While Amazon's online business is booming (in revenues – but decidedly not profits), its somewhat sunning inactions at CES this past week raised more than a few eyebrows. Quietly and with no grandiose Michael-Bay-style presentation, Wired reports the 'we-can-make-a-profit-any-time-we-like-if-we-really-wanted' company placed an Amazon Vending Machine at the Las Vegas Airport. As Wired continues, any foray by Amazon into the world of offline retail is a big deal… when Amazon ventures into the physical world – whether with in-store delivery lockers or grocery trucks or vending machines – the company’s sheer scale and ambition demand that you think in terms of world domination. Hhmmm…

 

Image via GeekWire:

 

Via Wired,

this isn’t just a nice piece of marketing. Those attendees were right to turn their heads. Though there’s nothing new about electronics vending machines, any foray by Amazon into the world of offline retail is a big deal. When Amazon ventures into the physical world — whether with in-store delivery lockers or grocery trucks or vending machines — the company’s sheer scale and ambition demand that you think in terms of world domination.

 

 

Picture a near-future where high-tech Amazon vending machines are on every corner selling the kinds of things that typically take shoppers to Walgreen’s or CVS. The machines would take up way less real estate than stores, which would keep overhead low. They could go just about anywhere — say, the basements of big-city apartment towers or the courtyards of suburban residential complexes. And they could be refilled by drivers traveling their daily Amazon Fresh delivery routes (or, you know, by drones).

 

 

As Amazon has made abundantly clear, it’s never been content to limit itself to any one identity. Its primary business, online retail, is a booming success with customers. But offline retailers from Barnes & Noble to Bed Bath & Beyond to Sears are floundering, and Amazon may see an opportunity. It reinvented shopping with its online store. Why not do the same offline? Perhaps that humble vending machine is where that starts.

 

We are a little more skeptical that this is indeed the strategy that will mean world domination but for sure, it means fewer per-sales employees as yet more aspects of the global supply chain from production to sale becoming automated… Of course, one can only hope it helps operating margins…

 

or free cash-flow…

 

 

Though, we suspect it will be merely another way for Bezos to push off any inevitable 'a-ha' moment on the stock for another product cycle.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RmDelscsJow/story01.htm Tyler Durden

Guest Post: We Will Be Told Hyperinflation Is Necessary, Proper, Patriotic, And Ethical

Submitted by Patrick Barron via The Ludwig von Mises Institute,

Hyperinflation leads to the complete breakdown in the demand for a currency, which means simply that no one wishes to hold it. Everyone wants to get rid of that kind of money as fast as possible. Prices, denominated in the hyper-inflated currency, suddenly and dramatically go through the roof. The most famous examples, although there are many others, are Germany in the early 1920s and Zimbabwe just a few years ago. German Reichsmarks and Zim dollars were printed in million and even trillion unit denominations.

We may scoff at such insanity and assume that America could never suffer from such an event. We are modern. We know too much. Our monetary leaders are wise and have unprecedented power to prevent such an awful outcome.

Think again.

Our monetary leaders do not understand the true nature of money and banking; thus, they advocate monetary expansion as the cure for every economic ill. The multiple quantitative easing programs perfectly illustrate this mindset. Furthermore, our monetary leaders actually advocate a steady increase in the price level, what is popularly known as inflation. Any perceived reduction in the inflation rate is seen as a potentially dangerous deflationary trend, which must be countered by an increase in the money supply, a reduction in interest rates, and/or quantitative easing. So an increase in inflation will be viewed as success, which must be built upon to ensure that it continues. This mindset will prevail even when inflation runs at extremely high rates.

Like previous hyperinflations throughout time, the actions that produce an American hyperinflation will be seen as necessary, proper, patriotic, and ethical; just as they were seen by the monetary authorities in Weimar Germany and modern Zimbabwe. Neither the German nor the Zimbabwean monetary authorities were willing to admit that there was any alternative to their inflationist policies. The same will happen in America.

The most likely trigger to hyperinflation is an increase in prices following a loss of confidence in the dollar overseas and its repatriation to our shores. Committed to a low interest rate policy, our monetary authorities will dismiss the only legitimate option to printing more money — allowing interest rates to rise. Only the noninflationary investment by the public in government bonds would prevent a rise in the price level, but such an action would trigger a recession. This necessary and inevitable event will be vehemently opposed by our government, just as it has been for several years to this date.

Instead, the government will demand and the Fed will acquiesce in even further expansions to the money supply via direct purchases of these government bonds, formerly held by our overseas trading partners. This will produce even higher levels of inflation, of course. Then, in order to prevent the loss of purchasing power by politically connected groups, the government will print even more money to fund special payouts to these groups. For example, government will demand that Social Security beneficiaries get their automatic increases; likewise for the quarter of the population getting disability benefits. Military and government employee pay will be increased. Funding for government cost-plus contracts will ratchet up. As the dollar drops in value overseas, local purchases by our overextended military will cost more in dollar terms (as the dollar buys fewer units of the local currencies), necessitating an emergency increase in funding. Of course, such action is necessary, proper, patriotic, and ethical.

Other federal employee sectors like air traffic controllers and the TSA workers will likely threaten to go on strike and block access to air terminal gates unless they get a pay increase to restore the purchasing power of their now meager salaries.

State and local governments will also be under stress to increase the pay of their public safety workers or suffer strikes which would threaten social chaos. Not having the ability to increase taxes or print their own money, the federal government will be asked to step in and print more money to placate the police and firemen. Doing so will be seen as necessary, proper, patriotic, and ethical.

Each round of money printing eventually feeds back into the price system, creating demand for another round of money printing … and another … and another, with each successive increase larger than the previous one, as is the nature of foolishly trying to restore money’s purchasing power with even more money. The law of diminishing marginal utility applies to money as it does to all goods and services. The political and social pressure to print more money to prevent a loss of purchasing power by the politically connected and government workers will be seen as absolutely necessary, proper, patriotic, and ethical.

Many will not survive. Just as in Weimar Germany, the elderly who are retired on the fruits of a lifetime of savings will find themselves impoverished to the point of despair. Suicides among the elderly will be common. Prostitution will increase, as one’s body becomes the only saleable resource for many. Guns will disappear from gun shops, if not through panic buying then by outright theft by armed gangs, many of whom may be your previously law-abiding neighbors.

Businesses will be vilified for raising prices. Goods will disappear from the market as producer revenue lags behind the increase in the cost of replacement resources. Government’s knee-jerk solution is to impose wage and price controls, which simply drive the remaining goods and services from the white market to the gangster-controlled black market. Some will sit out the insanity. Better to build inventory than sell it at a loss. Better still to close up shop and wait out the insanity. So government does the necessary, proper, patriotic, and ethical thing: it prints even more money and prices increase still more.

The money you have become accustomed to using and saving eventually becomes worthless; it no longer serves as a medium of exchange. No one will accept it. Yet the government continues to print it in ever greater quantities and attempts to force the citizens to accept it. Our military forces overseas cannot purchase food or electrical power with their now worthless dollars. They become a real danger to the local inhabitants, most of whom are unarmed. The US takes emergency steps to evacuate dependents back to the States. It even considers abandoning our bases and equipment and evacuating our uniformed troops when previously friendly allies turn hostile.

And yet the central bank continues to print money. Politically-connected constituents demand that it do so, and it is seen as the absolutely necessary, proper, patriotic, and ethical thing to do.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lDxu5bAwkPc/story01.htm Tyler Durden

To This Day, No One Knows What Financial Firms Are Sitting on

As powerful as it may be, the Fed is not the market. And since the Fed failed to restore trust in the system by forcing all bad debts to light, the financial world has grown increasingly volatile and broken as investors grow increasingly distrustful of the system and begin to pull their money from it: see market volumes continuing to plunge.

 

Nowhere is the lack of trust more apparent than in the financial sector. Indeed, it was a lack of trust between banks (inter-bank lending) that caused the credit markets to jam up in 2008, which resulted in the Crash.

 

That lack of trust continues to this day. In the post-Lehman collapse, instead of forcing real derivative and credit risk out into the open, the Federal Reserve and regulators instead suspended accounting standards and allowed financial firms (and other corporate entities) to continue to lie about the true state of their balance sheets.

 

As a result of this, the financial sector remains rife with fraud and impossible to accurately value (how can you value a business that is lying about its balance sheet?).

 

Those times in which a company was forced to value its assets at market prices have always seen said values losing 80%+ value in short order: consider Washington Mutual, which sported a book value north of $70 billion right up until it was sold for… $2 billion.

 

This type of fraud is endemic in the system. Indeed, we got a taste of just how problematic a lack of transparency can be with MF Global’s bankruptcy, in which a firm with $42 billion in assets lost over 80% of its value since August only to reveal in bankruptcy that it had stolen over $700 million worth of clients’ money.

 

That MF Global engaged in fraud and stole clients’ money is noteworthy. However, the far more important issue is:  HOW did this company receive primary dealer status from the NY Fed nine months before imploding?

 

The Primary Dealers are the banks that actively engage in day to day activities with the New York Fed regarding the Fed’s monetary policies. Primary Dealers also participate in US Treasury auctions.

 

Put another way, Primary Dealers are the most elite, well-connected financial firms in the world.  They have unequal access to both the Fed and the US Treasury Dept. In order for MF Global to have attained this status it must have passed through a review by:

 

1)   The New York Fed

2)   The SEC

 

This is not a quick nor superficial process. According to the NY Fed’s own site:

 

Upon submission of a formal application, a prospective primary dealer can expect at least six months of formal consideration by the New York Fed. That consideration may include, among other things, on-site reviews of front, middle, and back office operations, review of compliance programs and discussions with compliance and credit risk management staff, discussions with senior management about business plans, financial condition, and the ability to meet FRBNY’s business needs, review of financial information, and consultation with primary supervisors and regulators.

 

MF Global passed through all of these reviews to became a primary dealer in February 2011. A mere nine months later, the firm is in Chapter 11 and has admitted to stealing clients’ funds to maintain liquidity.

 

These developments reveal, beyond any doubt, that financial oversight in the US is virtually non-existent. This returns to my primary point: that trust has been lost in the system. And until it is restored, the system will remain broken.

 

A final note on this: the NY Fed is the single most powerful entity in charge of the Fed’s daily operations. How can any investor believe that the Fed can manage the system and restore trust when the NY Fed granted MF Global primary dealer status a mere nine months before the latter went bankrupt?

 

If the NY Fed cannot accurately audit a financial firm’s risks during a six month review, then there is NO WAY an ordinary investor can do so.

 

This is one of the biggest risks in the system: that no one has a clue what financial entities are sitting on in terms of garbage derivatives and debts. As MF Global proved, this risk can result in a TOTAL loss of funds.

 

This type of fraud will continue until the system breaks. At that point hopefully the bad debts will finally clear from the system and we can actually lay a foundation for growth.

 

For a FREE Special Report outlining how to protect your portfolio from this, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

Phoenix Capital Research 

 

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zn3zQgVvyPA/story01.htm Phoenix Capital Research

When Hopium Fails

Presented with no comment…

 

As @BenedictEvans so eloquently noted – this blast from the past may just be resurrected as a candidate for financial news headline of the year… 2014…

 

(just for those curious how The FT would allow the running of such a hopium-devastating headline… the name of the company may interest some)


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xQTWLSyzhg8/story01.htm Tyler Durden