Today's Market Observation  06.15.2009  Mon  Tue  Wed  Thu  Fri  Kirby Archive

Globalism or Localism

A Peek at Financial Ecosystems

BY ROB KIRBY | june 15, 2009

World Trade, free trade, regional currency blocs, global warming, G-8, G-20, New World Order, carbon taxes, Central Banking and Debt Based Money Systems, expanded roles for the World Bank and I. M. F. – collectively, these are all factors – or components of a financial eco-system - which have contributed to our current deteriorating, global economic circumstances.

There are those who would suggest that our deteriorating global economy has in fact been purposely engineered, and the true intent is to usher in One World Government and One World Currency as a “solution” to the problems that have purposefully been created. Under any circumstance one would be hard pressed to find anyone who believes that responsible financial stewardship has been exercised by leadership, and the irrespective whether there is a conspiracy or cabal operating in the dark shadows or not.

Top Down or Bottom Up?

Our current economic hierarchy is conceptually organized on a "top-down" basis [Central Planning?]. That is to say, we have created monolithic institutions which lack the ability to effectively adapt and respond to real world situations. Wikipedia defines top-down as:

A top-down approach is essentially breaking down a system to gain insight into its compositional sub-systems. In a top-down approach an overview of the system is first formulated, specifying but not detailing any first-level subsystems. Each subsystem is then refined in yet greater detail, sometimes in many additional subsystem levels, until the entire specification is reduced to base elements. A top-down model is often specified with the assistance of "black boxes" that make it easier to manipulate. However, black boxes may fail to elucidate elementary mechanisms or be detailed enough to realistically validate the model.

Speaking of “black boxes,” we need look no further than the insanity and grotesqueness of derivatives markets – swelling in size into the hundreds of TRILLIONS in notional oustanding – with NO discernable end users and virtually NO-ONE asking HOW or WHY that could or should be.

It is evident by the chaotic gygations in the economy that the top-down approach to global macro-economic management has not served us very well.

I had the opportunity to speak at length last evening with Catherine Austin Fitts – who spent time on the “inside” – as the former U.S. Assistant Secretary of Housing—Federal Housing Commissioner, Bush 41 Administration – examining, analyzing and witnessing first hand the failure of our current economic model. Ms. Fitts has a remarkable record as a “doer” and based on her analysis, she is a proponent of “re-engineering” the fundamental nature of our financial eco-system to a sustainable, grass-roots, bottom-up approach, utilizing the demonstrable economic advantages inherent in local communities. Wikipedia defines bottom-up as:

A bottom-up approach is piecing together systems to give rise to grander systems, thus making the original systems sub-systems of the emergent system. In a bottom-up approach the individual base elements of the system are first specified in great detail. These elements are then linked together to form larger subsystems, which then in turn are linked, sometimes in many levels, until a complete top-level system is formed. This strategy often resembles a "seed" model, whereby the beginnings are small but eventually grow in complexity and completeness. However, "organic strategies" may result in a tangle of elements and subsystems, developed in isolation and subject to local optimization as opposed to meeting a global purpose.

To Fitts, looking at the “bigger picture” begins with carefully examining and analyzing the merits of fundamental, grass-roots, ‘local’ economics:

One approach, certainly the least offensive, is to take the current official version of municipal assets and revenues as a given—and the legal and regulatory rules that apply—and simply struggle to find ways of living within our means.

A second approach—one that leads to real solutions—is to step back and look at the bigger picture, the full financial ecosystem. For example, rather than just looking at the immediate assets on our municipal balance sheet, let’s incorporate the enormous pools of state and local pension funds and other capital reserves.

• Are we investing them in ways that create income in our economy or that strip our economy and savings with leveraged buy out and mortgage frauds?
• Who is getting the fees from these pools? Is it ethical firms or is it the same Wall Street banks that have been so instrumental in recent financial frauds?
• Where are all the government contracts related to activities in our communities? Do they reflect productive expenditures, or are we pumping up corporate stocks paying someone $50-150 an hour to do something that someone in our community would love to do for $10-25 per hour plus health care benefits?
• Are we outsourcing tax payer funded jobs to Asia while paying Americans unemployment, welfare and food stamps, hence leaving the jobs here that would save taxpayers funds when we look at government budgets on an integrated basis within a place?
• What are the laws and regulations that create public and private expense in our place and who is making or losing money from them? Is it time to reinvent some fundamental rules?

So, let’s say we look at the [even] bigger picture. We also need to look at the bigger picture through time. Available assets are not just those currently existing. We need to understand whether we are missing assets—either to understand the drains in our economy so we can heal them presently or determine if there are methods to recapture missing assets. In short, we want to understand who and what drained assets and what the state of economic warfare in a place is so that we can create lasting change.

• Who has been distributing narcotics into our communities? [See: "Narco Dollars for Beginners."]
• Who has been engaging in mortgage fraud? (See “The Myth of the Rule of Law.”}
• What money has gone missing from our various levels of government, including off balance sheet agencies and arrangements? [See: "The Missing Money."]
• What has been the impact on savings of Federal Reserve monetary policy and the manipulation of the precious metals and financial markets? [See: "Positioning Your Assets" and "Positioning Your Assets: Is Your Community Waving Goodbye to $3.3 Billion?."]
• Are public or private financial institutions engaging in usury, fraudulent inducement or other practices that are grounds which would allow recovery of illegal profits or abrogation of fraudulently created liabilities?

On one hand, these are not politic questions for a busy municipal official or a local citizen to ask. However, we need to find a process in which they can be asked, lest we wake up and find participatory budgeting is really a tool to wage the most offensive type of economic warfare to date.

Fitts has had first hand experience “practicing what she preaches” as CEO of a company she founded after leaving government, Hamilton Securities:

Hamilton Securities Group created computer software for tracking financial flows in the mortgage industry. In 1993, Hamilton Securities Group won a contract with HUD to manage its $500 billion portfolio. As a result of its innovative computer tracking of finances called ‘Community Wizard’, Hamilton Securities saved Federal Taxpayers $2 billion and according to Fitts "took the world's breath away." [30] Carolyn Betts, a former Hamilton Securities employee said:

The HUD field office people went absolutely crazy when they saw it. You could go in with a pointer on a map and get to information on expenditures by each HUD program. It was a pretty beautiful program and would have become unbelievably powerful. [31]

Fitts’ innovative program was so successful that it was earning special attention from Congressmen with one chairman of an oversight committee in October 1997 favorably commenting on the "eye-popping" results. [32] Fitts’ program had the potential to revolutionize the way in which large multibillion dollar portfolios were managed. Vice President Al Gore's Reinventing Government Initiative gave her firm the Hammer Award for Excellence in Re-engineering Government. Fitts innovation also came to the attention of powerful individuals who viewed it as a threat to existing way in which finances were tracked in HUD and other federal government agencies that apparently allowed corporations to reap large profits from government inefficiency.

Fitts’ pioneering work came crashing down around her in June, 1996 when a qui tam (whistleblower) suit was brought against her firm by a rival HUD contractor John Ervin who alleged Fitts committed fraud against HUD to the tune of $3.8 million. According to the Federal False Claims Act, a qui tam suit has 60 days to be investigated before a federal judge has to reach a conclusion on the substance of the suit and unseal the qui tam so that the defendant can respond to the allegations. Instead, the HUD Inspector General together with the federal judge in charge of the case took four years before another judge decided the allegations lacked substance, unsealed the qui tam in July 2000, and the government decided to end its role in the case. [33] In the meantime, Fitts’ firm was subjected to 18 audits and investigations, multiple subpoenas for thousands of documents, not paid money owed to it by HUD while the ‘investigation’ was underway, subjected to media leaks and a smear campaign that frightened away potential investors, and ultimately raided by Department of Justice agents in 1998. The raid effectively destroyed the Community Wizard program and put an end to Hamilton Securities’ efforts to survive the legal onslaught that involved steep legal costs. At the end, Fitts company went bankrupt, Fitts was emotionally exhausted, but continued to fight for her reputation, repayment from HUD, and exposure of wrong doing by the HUD Inspector General in allowing the qui tam law suit to proceed for four years on a ‘fishing expedition’, while simultaneously leaking false information. [34]

After her experiences in both working with HUD as an employee (1988-1989) and as a contractor (1993-1997) and observing at first hand the chronic state of finances that could not be accounted for under normal accounting rules, Fitts concluded that HUD was being run as a ‘criminal enterprise’:

In the summer of 2000, a member of the staff for the Chairman of the Senate appropriation subcommittee (with jurisdiction over HUD …) confided to me that they believed that HUD was being run as "a criminal enterprise." I responded that I "did not disagree." Reaching that conclusion was a long time coming. It took many years of experience implementing practical and sound reforms to the FHA mortgage system, only to have the system reject any and all efforts to have it become anything other than an integral part of a significant mortgage bubble and a pork and slush fund operation. [35]

The fraudulent movement of finances through HUD were made possible by poor auditing standards that enabled as much as tens of billions of dollars to go annually missing.
[complete article]…

Conclusions

As Catherine Austin Fitts advocates, it is time for a grass-roots bottom-up approach wherein individuals become re-empowered, as it is evident that the top-down approach has serious flaws. The key reasons for this are as follows:

• The top down approach, as its legacy, has bestowed upon us a system of false weights and measurements. Derivatives which artificially set prices and falsified economic reporting leading to imprudent asset allocation. This trivializes effort.

• False measurements have led to the mis-pricing of capital, which has also led to the squandering of finite resources necessary for national salvation and the perpetuation of mankind.

Today's Market

Overseas equity markets began the week on sour tone with Japan's Nikkei Index falling 96 points to finish at 1,039. North American markets didn't fare any better with the Dow off 187.10 to 8,612.10, the NASDAQ giving up 42.42 to 1,816.38 and the S & P losing 22.50 to end the day at 923.70. NYMEX crude oil futures lost 1.54 to finish the day 70.50 per barrel.

In the interest rate complex the benchmark 5 yr. government bond ended the day at 2.73% while the 10 yr. bond finished at 3.72%.

On foreign exchange markets the U.S. Dollar Index gained .80 to 81.12.

Precious metals were pummeled with COMEX gold futures losing 9.80 to close at 929.50 per ounce while COMEX silver futures were slaughtered for .77 to end the day at 14.11 per ounce.  The XAU Index lost 4.96 to 140.16 and the HUI Index dropped 14.35 to 335.30. 

On tap for tomorrow, at 8:30 a.m. May PPI data is due, Headline number expected +.5% vs. prior +.3%, Core number expected +.1% vs. prior +.1%. Also at 8:30 a.m. May Housing Start data is due, expected 485K vs. prior 458K as well as May Building Permit data, expected 500K vs. prior 498K. At 9:15 a.m. May Capacity Utilization data is due, expected 68.4% vs. prior 69.1% and May Industrial Production data is also due, expected -.7% vs. prior -.5%.

Wishing you all a pleasant evening!

Rob Kirby
Registered Representative

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Rob Kirby
Kirby Analytics Newsletter | Toronto, Ontario, Canada
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