The collapse of Lehman Brothers is seen as the beginning of our current economic malaise

This guest post is by grochef and entry in our non-fiction writing contest .

Caveat: I am not and do not provide investment advice. Each of us must decide what works best for ourselves and our situations. I will, however, share my thoughts and my actions.

The collapse of Lehman Brothers is seen as the beginning of our current economic malaise. While the official end of the Great Recession was in June 2009[1], many of us know very well that things have not improved and, in many ways, are getting much worse.

Two futures trading companies collapsed recently as their CEOs made off with millions of their customers’ dollars. In the case of MF Global, CEO Jon Corzine, former Governor and Senator from New Jersey and Goldman Sachs executive, made off with $1.6 billion (With a “B”) in customer funds. He is not in jail.

The European Union is slipping toward breakup, threatening the Euro (The second most traded currency in the world [2]), which was introduced only 14 years ago (January 1, 1999). Central Banks across the globe are engaged in currency wars, attempting to make their currency lower in value in order to attract other countries to purchase their goods and improve their slumping economies by increasing exports. Meanwhile, large, Too Big To Fail banks continue the same sorts of shenanigans that brought on the recession in the first place. Above the law and hungry for more power, the banks manipulate prices of stocks and commodities with their High Frequency Trading (HFT) supercomputers that can trade millions of shares every millisecond, making pennies on each trade and billions of dollars per year. We cannot compete with that.

Those same banks used predatory means to convince millions to buy houses that the bankers knew those people could not afford. And the bankers added to that scam by manipulating (fraud) the numbers on the mortgage documents to make it appear that those same people appeared to be making much more than they actually did. Those fraudulent mortgages were then bundled into groups of bad loans and sold as Collateralized Debt Obligations (CDO) – a fancy term for bundles of loans. Those toxic CDOs were then sold to various pension funds around the world as highly rated funds. The bankers knew that those CDOs were doomed to fail, so they bought insurance called Credit Default Swaps (CDS). So, first the banks sold the toxic CDOs for a profit, then when those CDOs went belly up, they cashed in again by collecting the insurance, resulting in the financial demise of AIG, Lehman Brothers and millions of pensioners and homeowners around the globe. The biggest culprits in all this destruction were Goldman Sachs and JP Morgan, the same corporate cesspools that have provided the past and current presidential and foreign governmental administrations with their “talent”.

Former employees of Goldman Sachs Group, Inc.: [3]

Lucas Papademos – Prime Minister of Greece

Mario Draghi – Governor of the European Central Bank (2011–present)

Mario Monti – Prime Minister of Italy and Minister of Economy and Finance since November 2011

Romano Prodi – Prime Minister of Italy (1996–1998, 2006–2008) and President of the European Commission (1999–2004)[156]

Bradley Abelow – Former Chief of Staff and Treasurer of New Jersey under Jon Corzine, and President of MF Global, Inc.

Sergey Aleynikov – Programmer. Convicted in stealing code and serves 8 years in prison.

Joshua Bolten – Former White House Chief of Staff

Mark Carney – Governor of the Bank of Canada[157][158]

Michael Cohrs – Member of Court and the Financial Policy Committee at the Bank of England

Jon Corzine – CEO of MF Global, Inc., former New Jersey Senator (2001-2006) Governor of New Jersey (2006–2010)

William C. Dudley – President of the Federal Reserve Bank of New York

Henry H. Fowler – Former United States Secretary of the Treasury (1965–1969)

Reuben Jeffery III – Under Secretary of State for Economic, Business, and Agricultural Affairs (2007– )

Neel Kashkari – Former Assistant Secretary of the Treasury for Financial Stability

Ashwin Navin – President and co-founder of BitTorrent, Inc.

Henry Paulson – Former United States Secretary of the Treasury (2006–2009)

Robert Rubin – Former United States Treasury Secretary, ex-Chairman of Citigroup

Massimo Tononi – Italian deputy treasury chief (2006–2008)[156]

Malcolm Turnbull – Australian politician, former federal leader of the Liberal Party of Australia

George Herbert Walker IV – Managing director at Neuberger Berman and member of the Bush family

Robert Zoellick – United States Trade Representative (2001–2005), Deputy Secretary of State (2005–2006), World Bank President

I have been saving with credit unions for over two decades. The interest rates are fair and the customer service is extraordinary. I quit being used as a cash cow for banks when I began getting charged for having accounts in their coffers. Most importantly, Credit Unions DO NOT use our money to make bets. Banks had been limited to savings and loans until Clinton and the Republican congress deregulated banking in October 1999 by repealing the Glass-Steagall Act.[5] Now, banks can use our savings to fund their gambling in derivatives. The ability to use and lose customer funds without any legal repercussions allows bankers to lose our money (See MF Global) and then get bailed out with our tax money. We lose two ways.

In order to protect your own money, I suggest that you do some thinking about what to do to make your money as safe as possible. Currently, interest rates on a typical savings account are below 1% APR. The Federal Reserve, not part of the U.S. federal government, but a privately held, for profit company[4], sets the interest rates that banks pay each other to borrow each other’s money. That rate is nearly 0%. Our savings interest rates are based upon those interbank rates. There is talk of making that rate negative. In other words, we will be paying the bank to use our money and paying them again to borrow! That is what is known as a lose-lose situation.

I will leave it at that. I hope that I have started your thoughts racing. Do some reading and research. It’s fun, easy and it may save your money and your life.

References:

1. http://en.wikipedia.org/wiki/European_Union

2. http://en.wikipedia.org/wiki/Euro

3. http://en.wikipedia.org/wiki/Goldman_Sachs

4. http://www.youtube.com/watch?v=iYZM58dulPE

5. http://www.nytimes.com/2008/09/28/magazine/28wwln-reconsider.html

This contest will end on October 10 2012 – prizes include:

  • First Place : $100 Cash.
  • Second Place : $50 Cash.
  • Third Place : $25 Cash.

Contest ends on October 10 2012.

Comments

  1. SurvivorDan says:

    Well that just strengthens my belief that leaving any money in the hands of banks, brokerage houses, etc is too risky. I do have some cash on hand but I don’t think the value there is stable, long term.
    Food, med supplies, tools, guns and ammo and a little silver. That’s it for me.
    I’m just not smart enough to ‘invest’ my money so that it ‘grows’.
    Experienced enough ‘growth’ already.

    So who and where should I invest in now?
    What do they call that when you keep doing the same thing expecting different results? ;)

    • michael c says:

      Optimism…

    • insanity

    • My wife calls it “Stupid”. So I guess thats me too…..

    • Pineslayer says:

      SD, after reading the post I forwarded it to some friends asking basically the same question. Picked up some good backpacking items today used, big a*s smile on my face all the way home. Been hammering the garden areas for next year. Area of concern is water distribution to the gardens, got gathering, but low on hoses and the like. It never ends.

  2. village idiot says:

    Good article, and interesting. I’m curious to know what “predatory means” are when it comes to lending, and I’m wondering why you left real estate agents, community organizations like ACORN, ratings agencies, and govermental entities like Fannie Mae, Freddie Mac, HUD and the FHA out of the equation when you refer to the real estate bubble and the subsequent financial crisis it caused. I’m longing for more.

    • VI
      I had the same thought myself, but didn’t want to shake up the Lib’s here. Gee at the risk of sounding paranoid, sort of seemed like the whole thing was planned, huh?

    • VI,

      In some cases credit reports were falsified so people qualified only for subprime mortgages. People who obviously could not afford to pay the mortgage were permitted to borrow money–all on the thought that by the time the bank repo’d the house, it would be worth more. Research all the stuff Countryside did.

  3. Preps first.
    Credit Unions are not immune to fraud or failure although I would trust a local bank/CU before a national one. http://www.zerohedge.com/contributed/2012-08-14/can-credit-union-industry-survive-its-regulator
    At this point, it is all about wealth preservation, not investing. If you still have FRNs after prepping, then physical gold & silver. Do not trust allocated vaults, too many have gone bad, even ones with religious foundations. If it is not in your possession you don’t own it.
    Just my opinion.

  4. That’s quite an article. More and more, I’m liking the return rate I’m getting under the mattress, in the buried can, and from my stored food.

  5. I never new about all these people and G-S. Thankyou.

  6. It should be noted many politicians, including Obama prior to being President, put pressure on lenders to give home loans to those who could not afford them. Zero down payment, for example, enabled the poor to buy a home they could never otherwise have purchased. The lenders certainly shoulder the blame for the housing and mortgage crisis, but it was politicians helped create the problem in the first place. To fix their mistake they now want to spend more taxpayer dollars to help these poor homeowners who are struggling.

    I once had a dispute with a bank involving an account I had closed in person, yet they kept it active because I didn’t submit the closure request in writing. Because it had a minimum balance requirement and my account was empty they charged me daily fees for an entire month before I noticed it on my statement. By that time the fees amounted to nearly $150! I refused to pay and they refused to budge, so they flagged me as an abusive account holder and referred me to a collection agency. I successfully defended against collections, but I couldn’t get a checking account anywhere for five years! Thankfully, I only had a couple of bills and I sent money order payments each month, but it was a problem given most employers pay earnings by direct deposit into a bank account. Not long after that I was able to convince a local credit union to give me a savings account in spite of the “flag” and based on my activity on that account alone they were willing to give me a checking account with a VISA debit card one year later. I can attest to the fact credit unions will give much more in the way of personal service and they handle all of my vehicle loans now.

  7. michael c says:

    I have been with a credit union for over 20 years. Credit (union) card interest rate is the lowest of every card I have.

  8. The old adage “It takes money to make money” seems to have turned around to “To make money we take money” as far as the listed scoundrels are concerned.

    With the low return rates of current bank accounts, and then throw in fees they apply, it is likely the banks will make even more money from you than what they pay in dividends / returns. Then, if they fail, it does not matter, 7% return on nothing is still nothing.

    Unfortunately the “Mattress” return-rate could also backfire if your home gets broken into and robbed; unless you have a half-ton safe in your basement. Then you have to watch out for “Big Brother” and all of Fearless Leaders’ followers.

    Gold, silver, other precious metals, and jewels have been a form of currency and financial stability for millennia, but you cannot eat them, and they become a “heavy” burden if you have to transport them.

    @SD…
    Doing the same thing and expecting different results, I believe is called idiocy. As for who and where you should invest now… I would be more than happy to accept your funds to add to ‘my’ favorite investment vessel ;O)

  9. worrisome says:

    Find a place where you can park your paycheck to cover you regular bills. If not free research for the cheapest possible. Don’t worry if they have a myriad of online services, write a check! A debit card so you can buy groceries etc would be a good idea as well. After that, invest in taking care of yourself! Preps; Silver and Gold, Guns and Ammo, a good set of wheels! And let it be…….

  10. robert in mid michigan says:

    doing the same thing over and over and expecting a diferant result is the definition of insanity.

    scary thoughts and unfortunatly scary truths. the only sound investment i have found lately has been in food. as it is always going up in price what i have has a far greater rate of return than any bank would give me. i enjoy eating my ham and bean soup with fresh bread from the oven and know i only paid pennies a serving rather than the dollars it now costs. keep prepping keep praying and keep it safe

    god bless

  11. I liked the next article on that site. The FEMA camp whoo-whoo article. Still claiming “There are, according to various (unconfirmed) reports, some 800 FEMA prison camps in different regions of the U.S.” But no one has ever provided an address or specific location of one. 800 unconfirmed? No kidding.

    • I think this is a valid point. There are many sites claiming of FEMA internment camps, but nowhere are they listing specific locations. Now the general public is not able to access military installations for verifications, but what about all these other reported “camps?” Where the heck are they… specifically?
      Who has GPS locations after driving past one, where are they on Google Earth? Regardless the GPS DATUM being used, any coordinate close enough should be visible in Google Earth.
      Or is this whole subject another scare tactic?

      • Sorry, I did not mean to continue with the thread hijack, but the post did prompt an item of thought.

  12. Personally I think a large part of the problem has been the abnormally low interest rate that the “big” players are paying.

    You take on more risk when you are only paying .25 – .50% interest vs. 5-8%. Cheap money leads to riskier decisions.

    I doesn’t help that NO ONE was found guilty of any crimes in the last melt down. This includes the GM “deal” where bond holders, who are usually the 1st to get paid off when a company goes under, were the last (behind the US Taxpayer). Both of these have shown the investor that the rules have changed and their money is no longer safe within the system.

    My personal answer, not suitable for everyone, is to get out of the stock market, then out of the debt market. Only invest money that I can afford to loose (investing true surplus money). If things turn around these will bring about some financial reward, but I refuse to play the game that has been presented by “financial experts” over the years.

    I would rather be debt free, and as self sustaining a possible, and live a “lower” life style than my contemporaries, than loose everything based upon circumstances that I cannot control.

  13. grochef:

    Thanks for starting.restarting the discussion!

  14. Mr.,

    your comments remind me of something I went thru earlier this year with one of the credit unions that I am a member of. I went to transact business and they told me I had two accounts. I did have a personal account and because I had worked as a youth leader in my former church, my name was on an account belonging to the church. I had not attended that church for over 3 years and the other person who was on the account had died. I told them about the deceased and that I wanted to be off the account as I was no longer a part of this ministry. They told me I could not be removed, neither the deceased and that the church would have to write a letter on letter head telling them to take both of us off. I could not believe this. I was able to get in touch with the church leaders and they did send the letter and I was eventually taken off the account. Moral of this story – I will NEVER, EVER sign any financial documents for any group again. FInancial institutions will hold you hostage. I would encourage anyone who has their name on an account for any entity other than themselves (i.e. social clubs, religious organizations, etc.) to make sure you understand the ramifications in today’s climate.

  15. AgoristTeen1994 says:

    @grochef (the author of the article if any of those who read this comment didn’t know)

    Have you read “Meltdown: A Free-Market Look at Why the Stock Market Collpsed, the Economy Tanked, and Government Bailouts Will Make Things Worse” by Tom Woods Jr.? It quite effectively explains that while the banks are not innocent, it is mostly the result of the Federal Reserve which while it IS a private corporation and despite appearances, the gov’t does have a hand in the Fed’s lowering of interest rates which along with a few laws and regs, set off the housing bubble. Plus “deregulation” implies there was little or no involvement of the gov’t in the banks….if anything the opposite was true. Read the book, you can probably get it from a library, and it’ll explain this.

  16. Old USAF Nurse says:

    Discernment is vital regarding things going badly in the US. In the early 1990’s, there were numerous reports, with pictures, of internment camps being built throughout the US. There were also many reports of military equipment moves, foreign troops on US soil, etc. Remember, the sum of the parts can seem greater than the whole. There’s more than enough to be concerned about without being very speculative. I wish everything could be dismissed as “crazy talk” but that in itself would be crazy!

  17. I heard 2 weeks ago on the news that the govern’t was warning banks to be prepared for another collapse. They outlined what to do before hand, shore up cash and assets, secure their holdings, etc.

    I pulled all my money from a bailed out US bank for their bad unethical practices with me. I keep most of my money out of banks now except only enough to pay my bills in checks. This government has a right to take your money out of your bank accounts, freeze accounts, and monitor your bank activity without a warrant. This was in a bill obscured by it’s thousands of pages a few months before Obama care bill was passed. If there is another bank failure looming, money that is insured may not get another bailout because the gov’t is broke, and insurance paid in may be raided for other projects like Social Security was. I don’t trust banks or gov’t.Credit Union accounts can be taken over by gov’t as well, so be warned.