Okay AR...can we talk for a moment? It's official! After the meeting of the G20 all of the World's Governments are now focused on "fixing" the problems at all costs. Hmmmmm...so when did government get bigger than the market? Don't know. Back to the G20 in uno momento.
First...what you may or may not know is that recently the Financial Accounting standards Board (FASB) suspended its rule #157-e...the Fair Value Rule. Basically this rule requires banks to value their assets using a "mark-to-market" method. Not sure what mark-to-market valuation is all about...go back and check out an earlier post of mine. Anyway, the FASB reports that the new measure purports to guide asset holders who mark their holdings to market through a two-step process to help them decide "whether a market for a financial asset that historically was active is not active and whether a transaction is not distressed."
Okay so hurdling all the legal mumbo jumbo this basically means that banks now have greater flexibility and can use their own valuation methods. This could lead to reduced bank write-downs and boosts to their net income. However, what scenario have we created by allowing these institutions to mark up prices on assets? Are we not attempting to expose all these toxic assets and further create incentives for investors to buy them up? Is this more lying to investors and taxpayers to shore up the financial markets bottom lines so they can report higher earnings? On the other hand, if the new changes caused some growth on bank balance sheets..does it not make sense that they should be in a better position to lend? Regardless of either way is Valuation not the real problem here? Did the lie on wall street stem from utilizing the face value of assets? Got you scratching your head now, right?
While you're checking your scalp, back to the G20. President Barrack Obama stated at the G20 meeting last week in London that, ".....he came to listen and not to lecture" Yes...listen we all should, and watch very closely. Talk of US economic supremacy is now being replaced with collaboration, diplomacy, and cooperation. Yeah you saw the picture of President Obama with Russian President, Dmitry Medvedev, China's president Hu Jintao, and the President of Italy, Georgio Napolitano looking like a reunion of old frat buddies. But did you get past the smoke and mirrors to see some of the things that were really going on...How about talks of a New World Reserve Currency!
Oh but the Oligarchs are at it again! Just to bring you up to date an economic alliance has been formed between Brazil, Russia, India, and China back in 2008. The B.R.I.C. nations represent the 4 largest oil production countries in the world lead by Russia. (You probably didn't know that Rusia produces even more oil that the Middle East) Essentially, what is happening is that with the US national debt soaring at over $11 trillion and expected to grow another $10 trillion over the next 10 years, some countries are worried. China hold $2 trillion in foreign reserves with two-thirds of that in US assets. Then came the announcement that the central bank was to buy $1.1 trillion in securities. Xie Xuren, China's Finance Minister, and Zhou Xiaochuan, Governor of China's central bank are becoming increasingly vocal as one of the world's emerging and evolving economies focused on reshaping the global economic landscape.
Of course with this type of bulging debt, a concern UN panel has publicly stated that the world should replace the dollar. Not only that, China, Russia and its partners have all called for the establishment of a New International Reserve Currency. Oh no folks, this consortium won't be be looking for something based on the gold standard but more so on something that would allow oil to be reflected independently. Remember, under the OPEC agreement oil has been traded in US dollars since 1971. Opps..of course there are always pundits. Remember, Iraq switch to trading oil in euros. Iran has been asking customers to pay in non-dollar currencies and have converted all its oil export payment to non-dollar currencies. Hugo Chavez has little love for the dollar and Venezuela has been bartering with oil.
Could the rise of the Euro be partially the reason for the Iraq attack? Check back to 2002. Saddam Hussein may have seal his doom when he announced in 2000 that Iraq was no longer going to accept dollars for oil and decided to switch to the euro. Even stranger, this change somehow missed being reported by the big media conglomerates. By the way, the dollar was reinstated again about mid 2003. However, what has been revealed is that there was active Pentagon planning for operations against Iranian suspected nuclear facilities. Okay, Okay we all know the publicly stated reasons and consequences for Iran housing "weapons of mass destruction." What you did not know was that Iran had the ultimate nuclear weapon aimed at the financial system of America.... The Iranian Oil Bourse. Just think about it, Iran was about to commit the mother of all sins....creating its own exchange to compete with the US NYMEX and London's IPE when it came to trading oil.
Getting back to B.R.I.C...in a surprise move at the G20 meeting, China suggested the world move towards greater use of the International Monetary Fund's Special Drawing Rights, created by the IMF in 1969 as an international reserve asset. The expansion would include the rouble, the yuan, oil,and gold.
Now I'm sure we can all make a point about what will come to past and maybe even predict what is about to come. Perhaps we will all be partially right. But the truth be told, the Chinese and Russians are taking the first steps to plant the seeds at the G20 that the US is jeopardizing the dollars as the world currency by printing massive amounts of money. So while thousands of blokes in London gathered to protest at what some feel is the epicenter of financial hijinks, I can't help but to ponder on the fact that the financial structure of the US is truly broken and what will be the repercussions to the average guy like me; or why the lack of oversight and greed that was allowed to fester and permeate for such a long time.
How can we trust anyone? The security and investment community contributed $146 million in campaign
contributions and the banking industry added another $34 million. How do we stop the Bernie Madoffs, Mark Dreiers, and AIGs of the world who use fixed financial reporting, payoffs, corrupt elected officials and fear to perpetrate their criminality. All for the love of money. But alas..these folks and opportunities would not exist if not be for greed disguised as the American Dream that allows the average person to become the next rape victim and the rising professional to become a criminal.
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