The greatest derivative fraud of all: The US Dollar

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An article by Bruce Johnson at the American Thinker, “Are All Securities Created Equal?, questions whether the bundling of securities and derivatives is really “capitalism”.  His contention is that bundled derivative products are too many steps removed from where wealth creation takes place and critics should not blame “capitalism” for what happens.

I responsed with the following comment:

An honest market where derivatives are sold is good for capitalism, because it creates a bridge between those who have capital (savers and investors) and those who need it (businesses).  Stocks are derivatives:  they are certificates of paper that represents parts of companies.  I sell stock options.  These are derivatives of stocks whose trade is based on an underlying stock position.  Options provide an opportunity for market participants to reduce their risk–by selling positions, I take on the risk of others at a premium.

The problem with the mortgage CDOs is that they were packaged liar-loans that the lenders who made them knew the borrowers could never pay back, and so they bundled them and sold them in order to avoid their own bankruptcy. This is a sign of systemic corruption in the US mortgage industry: banks, brokers, borrowers, and bureaucracies are all corrupt.

The current United States form of capitalism is on its last legs, as the Federal Reserve kicks the can down the road of the greatest derivative fraud of all time:  the US dollar.  It used to be a derivative of gold, then it became a derivative of the “full faith and credit of the United States”.  Since that isn’t worth bucket of warm spit anymore, the dollar itself is a fraud.

I have a saying every time one of my many purchases from China stops working:  The Chinese pretend to give us products that work, and we pretend to give them money that’s worth something.

Dan Mitchell on why extra-territorial corporate taxes makes the United States uncompetitive world-wide

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Dan Mitchel explains cogently why US extra-territorial taxation penalizes American businesses and makes it impossible for them to compete on a level playing field with foreign companies.  He doesn’t even touch on the subject of why US international taxation of individual US citizens living outside the borders of the United States. This penalizes American companies for hiring US citizens overseas, not to  mention how it destroys the lives of US citizens abroad.  On that, read Roger Conklin.  Hat tip Isaac Brock Society.

The education bubble: Larry Summers quote

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Zero Hedge writes, citing Larry Summers:

“The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.” Larry Summers, source

It is only fitting that the sequel to what to a large majority of people is the dumbest quote in history, will once again come from Larry Summers:

“Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.”  Larry Summers, source.

I guess that Summers has never heard of debt to equity ratio.  A strong debt to equity ratio is a crucial criterion in a creditworthiness equation; the problem with borrowing more is that the debt that greatly increases the numerator will at the same time decrease the denominator because:  equity = assets minus liabilities (debt); debt/equity ratio = debt/assets-debt.  Thus, the debt to equity ratio must necessarily increase, reducing the credit-worthiness of the entity.

Thus, mathematically speaking, the only way to increase creditworthiness is to increase assets without increasing liabilities.  Deficit spending, in most cases, does the opposite–it increases debt without increasing assets, thus destroying the creditworthiness of the government.

What does this have to do with the education bubble?  Larry Summers was president of Harvard University, the smartest university in the world, that produced such luminous graduates as George W. Bush and Barack Hussein Obama.

Out of the fry pan: on playing musical trading accounts (UPDATED)

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Update: I am happy and relieved to say that the rest of my US positions have been moved now to TD Waterhouse. It is now only a matter of getting them to transfer any remaining dividends will be paid on the 15th of June. Also, I’ve learned the reason for Penson Worldwide’s financial woes: a bad bet on a horse race track.

(NB: I’ve started to see my final positions show from Questrade show up in my TD Waterhouse US funds account after I published this post–so good news. I’ve got my fingers crossed for now.)

In the Spring of 2011, when I was in the process of getting out of the United States tax system, my lawyer advised that I move my accounts out of TD Waterhouse into a company that had no holdings in the United States, as he thought the US could hold TD’s US assets as leverage against me. So I took his advice, and moved my bank accounts to a credit union and my investment accounts to Questrade, a Canadian only company. Thus, if things got nasty with FATCA, I would create distance between me and the United States. I wonder how many US laws I broke doing this.

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