Wednesday Open Thread: Deja Vu, Vu, vu, vu

It's Day 311 of the Year 2018 CE

So, November 7, 2018 - for my reference if nothing else.




Wanted Poster at Holburn Station (London, UK)






Monday I gave Bank Transfer Day sort of short shrift. Not because it was a bad idea but because the execution was soooo miserable and half-assed. Actually, it is a great idea for everybody except banks and banksters, and everybody should really go ahead and follow through on it. Credit Unions generally pay better interest rates and have fewer and lower fees than banks. They are less likely to indulge in criminality too.



That's not why this is titled as it is, or why I used the same image, but there is some serious bankster deja vu going down. History, they say, has a tndency to rhyme and I wish to take a peek at a longer cycle that the obvious one, one that I fear is getting ripe for yet another repeat real soon now.



The first obvious echo is from the S&L Crises of the 80s and 90s that is generally blamed on Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980. That resulted in the failure of about 1/3 of the nations S&Ls because they were suddenly free to act like banks and didn't know how. There was a lot of wrongdoing, and also a lot of failure to perform due diligence. Keating and a (very) few others went down. That worked so well that bank deregulation became part of the DLC/New Democrats ideological vision. Bill Clinton made bank deregulation part of his "New Democrats" Reaganomics 2.0 platform and package. The best known part was the repeal of Glass-Steagall. This permitted banks to gamble with ordinary depositors money and pushed the formation of "too big to fail" omni-banks. Less well known is Clinton's Commodity Futures Modernization Act of 2000, enacted to protect any and all existing and as of yet to be invented schemes and scams that could be shoehorned into the concept of over-the-counter derivatives from those evil gummit regulators. This included a host of such products like credit default swaps that helped create and/or exacerbate the next bank meltdown when it came. Those chickens came home to roost in 2008, wherein the financial crisis of 2008 rapidly became the global recession of 2008 - 2012. (The end of the recessin in 2012 is probably definitional in the same way that one can have endless increases in the cost of living without there existing any "inflation".) Again, the failure to perform due diligence was rampant, as was fraud, but most of the malfeasors skated this time around. For example, the California Attorney General let Steve Mnuchin and his One West Bank walk despite numerous foreclosure law violations. (No she was neither a Republican nor a Russian.)



The 2008 bank crash, enabled and or propelled by Clinton's repeal of Glass-Steagal and enactment of the CFMA, echoes something similar other than the S&L crises, something that looks to be getting ready to bite us again, and that is where I'm going with this. Where? Continental Illinois. The Continental Illinois National Bank and Trust Company was a very large bank in its day with around $40 billion in assets. That large size enabled it to become the largest bank failure in US history as of 1984 and right up through WaMu's failure in 2008. It was mostly brought down by bad loans it had purchased from another failed bank which it hadn't known to be bad at the time of purchase. There was a lack of due diligence and one bank officer also received some kickbacks for approving loan applications. At any rate, when the smaller, downstream bank failed, that started a run on Continental Illinois that brought it down.



Zo, who was the smaller bank and how did they come to have so much bad paper to upstream to Continental Illinois? Penn Square Bank was a small shopping center bank in Oklahoma. There was an oil and gas boom in Texas and Oklahoma and everybody wanted a piece of the action. Penn Square was there to lend money to anybody and everybody who had or could beg, borrow, lease, or contract to buy a drilling rig. Penn Square discovered that they had an infinite supply of lendable funds because they could upstream the loans that they made almost as fast as they made them. The bigger upstream banks were happy to cash in on the earnings from the loans without having to service them or do any due diligence (because Penn Square, the initial lender, had done the due diligence and was on the hook for servicing the debts). Penn Square sold over a billion dollars worth of loan participations, often 100% of the loan.



A lot of the drilling financed by Penn Square's loans was into deep, extremely high pressure gas deposits and the projects failed. No project, no gas, no revenue to pay the loans back with. In addition, the 1980 saw a massive oil glut, driving energy prices way down. Projects that didn't outright fail still couldn't pay their loans back. And -- with an oil glut, the drilling rigs that were artificially overvalued as collateral for many of the loans became worthless. Penn Square's loans became worthless in vast numbers, as did those billion dollars worth of loan participations. Penn Square was allowed to go under, no other bank was willing to pick up its deposits and liabilities. SeaFirst, Michigan National and Chase Manhatten all took major losses. SeaFirst went down later in the year and was gobbled up by B of A. Relative giant Continental Illinois, one of the country's ten largest commercial banks, was saddled with a half a billion of Penn Square's worthless paper and finally went under 2 years later. It too was gobbled up by B of A.



Due Diligence was presumed to be being undertaken by Penn Square. They didn't need to, they had a money machine. The revenues kept pouring in from upstreaming their loans to bigger banks and all they had to do was find money to pay those banks their share of the interest on those loans. Since money is fungible, this was a self-sustaining Ponzi scheme up until the day came that nobody was buying those loans while they simultaneously went bad in droves. Basiclly, those in charge of due diligence, in effect, saw themselves as having no economic stake in the soundness of the loans and no need to make sure that they were good. They also had a world of rosy assumptions to fall back on. For starts, isn't "having your own oil well" the very definition of wealth?



Back in the late seventies or early eighties I became aware of Mortgage Brokers, in part because they were suddenly everywhere, and inpart because I actually knew people who quit real jobs to get in on the racket. Really? thought I. At that point I began to detect a faint aroma of Penn Square. The brokers weren't on the hook for anything, were paid on commission, and were almost certainly being relied upon to do due diligence. Why in hell would they? That would slow them down, reduce the number of mortagages they could move as well as the size thereof, and seriouosly reduce their income. This will surely bite us in the butt some day, thought I. But WAIT! Maybe 20 years down the road I found out about the growing popularity of Mortgage Backed Securities. I suddenly began to see faint visions of Continental Illinois. Brokers, paid on commission to sell debt are being largely relied upon to do due diligence by and for banks which are in turn packaging those loans and moving them upstream, making their revenue stream independent of the quality of those loans or the ability of the borrowers to repay them Meanwhile, housing prices were skyrocketing as Realtors began pushing houses not as "homes", places to live in, but as "investments" things to gamble on. Buy at any price and interest rate, the price "value" will continue to skyrocket generating "equity" which will qualify you for a lower rate loan allowing you to pay off your original one, balloon and all. Balloon? Oh of course, interest only and/or minimum payment loans, how silly of me no to think of that. At that point I actually saw 2008, it was as certain as the sun coming up tomorrow.



A not too interesting peek at a little financial history. Shallow and oversimplified at that. So what? Fracking An oil and gas drilling boom that has lost 280 billion dollars in the last decade and is being financed by banks and wall street. Companies that can't even pay the interest on their debt getting even more loans and investment capital in a market area that is guaranteed to produce only gluts and reduced prices the more it succeeds. Does this sound at all reminiscent of Penn Square? I tried to ferret out the total debt load of this industry and came up blank. Not the most prolongued, sophisticated or dedicated search, but everybody is talking about the losses, and even the debt, but no numbers for the debt. The losses will have to tell the story. Back in 2014, during an oil price dip, about 100 frackers walked away from some 70 billion in debt. Bankrupt. Who held it? Dunno. It is clear that the banks and brokers are now in it strictly for the commissions (and why not with interest rates so low?), and the fracking company CEOs are in it for their obscene compensation. Their compensation and bonuses come not from finding, extracting and selling product, but from finding and extracting money in the form of debt and even capital.



Like I said, no debt data, but the stuff that did surface is veerry interesting. Some samples:

“Fracking is a business built on attracting ever-more gigantic amounts of capital investment, while promises of huge returns have yet to bear out,” says an introduction to McLean’s book. In fact, North American exploration and production companies saw their net debt balloon from $50 billion in 2005 to nearly $200 billion by 2015, according to a recent research paper by Amir Azar, fellow at Columbia University’s Center on Global Energy Policy.

Beyond the debt overhang, the fracking industry’s fortunes directly impact oil prices and the rest of the economy, while also being a significant job creator,



http://knowledge.wharton.upenn.edu/article/will-fracking-industry-debts-...


listed E&P firms would over time need to make about $60bn of free cashflow each year. Assuming that both energy prices and capital spending stay flat, that would require them roughly to double production from current levels.

The trouble is that this is a circular argument. If achieved across the whole shale industry it would mean that output would be twice as high as it is now, leading to a 5% increase in global supply, which might in turn lower the oil price. There is something heroic—and baffling—about America’s shale firms. They are the marginal producer in a cyclical industry, and that is usually an unpleasant place to be. The oil bulls of Houston have yet to prove that they can pump oil and create value at the same time.



https://www.economist.com/business/2017/03/25/americas-shale-firms-dont-...


To make matters more complicated, many of these energy companies are financing their operations by borrowing in the junk-bond market, which means borrowing rates are relatively high.
"As oil prices have fallen recently, so have prices of high-yield bonds," Charles Schwab's Collin Martin wrote in October. When bond prices fall, rates rise.

"Oil prices can have a broad impact on the high-yield bond market because energy corporations have been increasing their share of the high-yield bond market. Today, energy companies make up more than 15% of the Barclays U.S. Corporate High-Yield Bond Index.



https://www.businessinsider.com/energy-companies-making-up-high-yield-bo...



The DESMOG blog makes no bones about it, declaring this to be "The Great American Fracking Bubble". https://www.desmogblog.com/2018/04/18/finances-great-american-fracking-b...



And, piece de resistance, loan participations appear to also be part of the process. From none less than The American Banker:

Since 2013, the federal regulatory agencies have been warning banks and investors about the potential risks in leveraged lending. These warnings have been both timely and prescient, particularly in view of the ongoing credit debacle in the energy sector. In addition to the well-documented credit risk posed by leverage loans, we believe that the widespread practice of selling participations in leveraged loans represents a significant additional risk to financial institutions and other investors from this asset class.
...
The investor exodus away from leveraged loans with exposure to the petroleum sector brings back memories of the 1970s oil bust, an economic shock that led to the failure of Penn Square Bank in 1982, the subsequent failure of Seafirst Bank later in that year, followed by Continental Illinois Bank in 1984. Before its failure, Penn Square technically continued to "own" — and service — loan interests held by other banks with participations. As receiver for the failed bank, the Federal Deposit Insurance Corp. deemed those investors to be nothing more than general creditors of the failed bank's estate. Those participating banks lost their entire investment.

As in the 1970s, today a substantial portion of the leveraged loan market has been "participated" to other banks and nonbank investors.



https://www.americanbanker.com/opinion/a-cautionary-tale-from-the-80s-fo...



But, in the end, it is our money. We will all take the hit sooner or later. Simple self defense says to get your money out of those institutions and into Credit Unions, where it will be far safer because they aren't directly involved in that crazy shit. Beyond that, every buck that we move out of them gives them less money to be wildly speculative with, though that might simply prolong the agony.



(Image: "Wanted Poster at Holburn Station (London, UK)" (public domain)



OK, it's an open thread, so go for it ...


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Also for finally getting a dem. majority in the NYS Senate. Can we please finally legalize recreational Canabis here in NY?!? I'm tired of waiting for the stores to open in MA. The person in charge of the Canabis Board there was quoted as saying it is less complicated to start up a nuclear reactor than open up a weed store there! There were no issues at my "white privileged" polling location in a semi rural area outside Albany NY. I had to wait less than a minute for a cubicle to open up so I could fill in the bubbles on my ballot. Then no waiting to insert it into the counting machine. I voted Green Party where possible.

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enhydra lutris's picture

@jbob
cannabis win. Good luck in NYS. Let's see if they can act like Johnson Dems and not Reagan Dems (But without Johnson's war and supression of free speech).

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

The Aspie Corner's picture

Not much of a shock from where I'm standing, though I do suspect rigging where the Gubenatorial and Senate races are concerned given how close they are.

From Ballotpedia:

Senate:
Scott, Rick(R) 4,073, 835 50.21%
Nelson, Bill(D) 4,039,298 49.79%

Governor:
DeSantis, Ron(R) 4,052,118 49.73%
Gillum, Andrew(D) 3,996,679 49.05%

I'm not really surprised. The rest of the state largely remained in the hands of incumbents. Rick Scott will have a new public office off of which he can profit and Bill Nelson will just go on to some cushy lobbying job through his own connections, to be sure.

That being said, take a look at how close these results are. Do these not look rigged to you?

edit: Flawer'Duh may as well elect Sideshow Bob.

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Modern education is little more than toeing the line for the capitalist pigs.

enhydra lutris's picture

@The Aspie Corner @The Aspie Corner
have no expectations for/of FL. Crooked Dems are crippling their own party in some of the places not safely gerrymandered GOP. The remnants of the Batista crony Cuban diaspora will forever vote for the right, and then there's a gob of the US militant right. I'm always amazed that some of the elections are as close as they are.

Edit - forgot to say good morning.
Good morning, Aspie.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

Lookout's picture

...and as you found not easy to find the numbers. Thanks for the economy review and predictions.

A Credit Union is a good idea ...
(and public banks a better one- that most people don't understand.
Measure B Public bank for Los Angeles
Yes: 40.59%
No: 59.41%)

- so is diversifying out of the dollar (and fiat currency in general). I keep waiting on http://aquionenergy.com/ to sell their saltwater battery. I'm going to convert some dollars into batteries and PV panels.

The market itself has become a Ponzi scheme with companies buying their own stock to drive up the price. This is bound to come crashing down in the near term as companies are so over valued - (Telsa worth more than GM?)

I'm glad I have a garden. Thanks for the OT and have a good day everybody.

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“Until justice rolls down like water and righteousness like a mighty stream.”

enhydra lutris's picture

@Lookout
investment, as are solar with batteries. I wish we'd gone the battery route when we installed out solar, 'cause it now will be an expensive retrofit and redesign.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

Newsom elected governor of California ... BOHICA

Now he’s poised to once again take a position of national prominence, this time as the leader of California’s resistance to President Donald Trump.

Newsom, 51, was elected California governor on Tuesday, easily defeating Republican John Cox. It’s a prize he’s eyed for a decade and gives him a platform to spar with Trump and advance the ambitious policies he champions, including universal health care and an aggressive effort to improve services for impoverished children.

“We say about California: We’re America’s coming attraction,” Newsom said while campaigning last week. “The future happens here first.

Bam! Karn Evil 9

Welcome back my friends to the show that never ends
We're so glad you could attend, come inside, come inside
There behind a glass stands a real blade of grass
Be careful as you pass, move along, move along

Come inside, the show's about to start
Guaranteed to blow your head apart
Rest assured you'll get your money's worth
Greatest show in Heaven, Hell or Earth

You've got to see the show, it's a dynamo
You've got to see the show, it's rock and roll, oh
Right before your eyes we pull laughter from the skies
And he laughs until he cries, then he dies, then he dies

rest in peace
Don't think about Skid Row keep flushing!
good luck

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enhydra lutris's picture

@eyo
preview/reminder of the way things actually are and the path we're on.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

@enhydra lutris thanks, for the next seven days I am out of medicine and money. At least there is enough food. HOPE

I will think happy thoughts, and make austerity fun. Less than forty bucks in checking? Hey it's a Credit Union not a BANK, so good. heh

peace

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enhydra lutris's picture

@eyo
there.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

@eyo
He showed that when he made San Francisco the first city to legalize gay marriage. He completely discredits them with lines like "same old tired rhetoric". I may turn the channel to the Gavin show from the Trump show.

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Beware the bullshit factories.

will not stop until they have extracted every last penny from those who work for a living.

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enhydra lutris's picture

@randtntx
economy and capitalism. Thanks for reading and have a good day.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

He even said so this morning. He's going to badly need a scapegoat for the next 2 years, and the groundwork is already laid for Pelosi to fill that bill. If the establishment cared about that, Ocasio-Cortez would be the next speaker, maybe with some training from Pelosi in how to create consensus and pass legislation.

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Beware the bullshit factories.

enhydra lutris's picture

@Timmethy2.0
Pelosi has already said too much dumb shit about her plans for the future for this to end well if she is speaker.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

lotlizard's picture

will never be investigated further, I fear — unless it’s Senate committees who do it, like the Church (D-Idaho) committee in the late 1970s.

Oh — at this very moment, German channel “n-tv” is carrying President You-Know-Who speaking live with an interpreter translating into German in real time.

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@lotlizard @lotlizard

at this very moment, German channel “n-tv” is carrying President You-Know-Who speaking live with an interpreter translating into German in real time.

I find watching the reactions of people to Trump as he talks, with the sound off, to be most informative and least torturous. Occasionaly I'll put the closed captions on. He's not the only public figure I do that to.

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Beware the bullshit factories.

enhydra lutris's picture

@lotlizard
already dead, the GOP hasn't shown any interest in going there and they've had plenty of time and notice. Ditto Seth Rich, closed case, bungled robbery, just like all the other robberies in the area where the victim was killed and nothing was taken. Uh huh.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

magiamma's picture

wow, thanks for all the info. Busy today but will absorb in pieces. SC got one of our folks into city council. We now have three. Need four. Costa Hawkins reform did not pass, of course. That's about all I cared about. Ideas for CA credit unions? Or maybe there is already a link up stream. Persimmons are being processed. That's the good news. Have a very good one.

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Stop Climate Change Silence - Start the Conversation
http://hotair.magiamma.com/

enhydra lutris's picture

@magiamma
of Patelco. They're pretty sizeable, having started life as a CU for Pac Tel employees, but now accept most anybody and everybody. I've been with them a couple of years and am pretty satisfied (they're my second CU, I decided to diversify). Provident (my other, original one) has at least 3 offices down there. They're also pretty good sized and take just about anybody. In the past couple of years their rates dropped comparable to Patelco, but they're picking back up again. They both serve their membership and are more like a coop than a regular bank.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

magiamma's picture

@enhydra lutris

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Stop Climate Change Silence - Start the Conversation
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smiley7's picture

Credit default swaps ...recall that over coffee, it took awhile to get our morning group's heads around the scheme. Thanks for the reminder that Glass-Steagall was in place for good reasons. It seems that each modern president, no matter the party, leaves us with messes of all kinds to clean up afterwards; littered with dead bodies and bankruptcies workers have to pay for across lifetimes.

Today's press conference was a hoot, if you enjoy macho.

Another day older and deeper in debt.

And i read that "Right-Wing Hate Groups Are Recruiting Video Gamers,"

"There wasn't anything obvious to me at first because it's common. This is the norm for kids. Instead of hanging out at the drive-in they're all online," he said.

Yet it's exactly this way, John says, that his son started hanging out with avowed white supremacists.

These people became his son's friends. They talked to him about problems he was having at school, and suggested some of his African-American classmates as scapegoats. They also keyed into his interest in history, especially military history, and in Nordic mythology. Above all, they offered him membership in a hierarchy: whites against others.

"He started to feel like he was in on something. He was now in the in crowd with these guys. It provided some structure and identity that he was searching for at the time."https://www.npr.org/2018/11/05/660642531/right-wing-hate-groups-are-recr...

Out of words ...

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enhydra lutris's picture

@smiley7
pretty much says it all. I read a bunch of stuff on how kids become haters and it is usually very about belonging, plus the usual need to have somebody to look down on.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

Mark from Queens's picture

Thanks for this, e.l.

Love the Wanted poster. At OWS there was a whole wall of them, all the major CEO's of the criminal banks. Wish I had those photos (to that end, it's still amazing to me that a Life in the Day of Occupy film hasn't surfaced yet...).

So many amazing stories from then. Imagine one day standing there and you're meeting and taking a picture with the Egyptian woman who posted the viral video challenging her countrymen to take to Tahrir Sq to oppose the vile police state and chronic unemployment that was destroying her generation, that kicked off the massive protest that toppled Mubarack? Or seeing Tommie Smith speak, bumping into Naomi Klein, Chris Hedges, Cornel West, etc. We've got to stir up some shit again.

Didn't know a lot of that early stuff going back to Jimmy Carter, Penn Square and Illinois Continental.

My father worked in banking and that stuff always glazed me over. No interest whatsoever.
But after the meltdown in 2008 I read a lot, especially during and after Occupy.

Seems to me it's been a concerted effort by the banks to destroy the smaller ones in order to gobble them up. TBTF - could be written on the tombstone of America, really the world. Nothing could be more imminently important than breaking them up, reinstating Glass-Stegall, and heavily taxing all financial trading transactions, including most prominently the high-speed computer-generated garbage that explodes the bubble beyond sense of proportion.

Guillotines.

CreditCardGuillotine.jpg

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"If I should ever die, God forbid, let this be my epitaph:

THE ONLY PROOF HE NEEDED
FOR THE EXISTENCE OF GOD
WAS MUSIC"

- Kurt Vonnegut

enhydra lutris's picture

that guillotine.
Have a good one.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --