What About the 2/3 of Government Revenue that Comes from Returns on Its Investments?

With all this fear-mongering about the U.S. going into default, I think it's important to understand that the government is the largest investor in the companies its supposed to be regulating and 2/3 of its revenue comes from investments (every government agency maintains its accounts in what is called the "Comprehensive Annual Financial Report" or CAFR, which is NOT the  taxpayer"budget".  It is the general accounting structure for government, a FULL DISCLOSURE of all assets and liabilities),  NOT taxes. So one might ask the government the following questions: how do you regulate a company when you're sharing in its profits? How do you avoid conflict of interest when that conflict is embedded in the established system?  How do you act without considering the revenue potential of your actions? How do you protect us from corporate evil when you are the largest most powerful corporation in the world?  Government power and wealth is corporate power and wealth. There is no separation between government and corporate agendas. It should be readily apparent through the continuing passage of laws that profit government, as well as not only the lack of enforcement applied when the political/corporate elite break the law, but their rewards as in the recent bailouts.

“They tell us that our taxpayer budgets are continuously short of money from debt, taxes, tariffs, tolls, fines, levies, fees, dues, duties, orders, finance charges, excises, audits, permits, licenses , contracts, legalities, acts, rules, regulations, restrictions, requirements, requisites, prerequisites, post requisites, documentation, obligations, restraints, constraints, options, conditions, causes, tenure, status, etiquette, postage limits, speed limits, size limits, weight limits, closed circuit tv, red-light cameras, citations, tickets, quotas, equal opportunity, signs, signals, boundaries, borders, fences, zones, zoning, associations, directives, mandates, sanctions, liabilities, confiscation, eminent domain, restraint, restraining orders, position, possession, influence, ownership, control, lawsuits, punishment, capital punishment, bail, detention, psychiatric observations, rendition, custody, confinement, captivity, incarceration, arrest, manhunts, warrant, required insurance, prescriptions, registration, referrals, waiting lists, free speech zones, terrorist watch-lists, no-fly lists, and, classified information,. These are all sources of revenue for government. In other words, taxation without representation." -- Clint Richardson

The only thing that's in our favor is the government's need to pose as a public servant who performs legitimate tasks, but that mask seems to be dropping more and more every day while we continue to wring our hands and buy into the outright lies that the mainstream media report, 24/7,  in order to ensure that their masters--the unaccountable federal government--remain immune from their ever-increasing legalized "crimes". This continuous threat of government shut-downs, defaults, and going over "fiscal cliffs" is nothing but pure fiction. The reality is that our government is not interested in providing public service, because there is money to be made at our expense by promoting and creating legislation that practically guarantee corporate agendas. Keep in mind that government, directly or indirectly, own 70% of all equities on the stock markets and 80% of the Fed’s income goes back to the treasury!

How do we know this?  It is thanks to Mr Walter Burien and Mr. Clint Richardson, who have exposed a huge piece of the puzzle: that the government owns it all by investment, that we can liberate ourselves from this false reality.  We all need to learn that the political elites profit  immensely from this ongoing government-by-crisis political theater that  unfolds before our eyes everyday on FOX News, CNN, MSNBC, etc. We need to learn that the outrageous revenues that government collects through taxes, fees, permits, licenses, penalties and various forms of corruption, piracy and theft is permanently lost to public benefit.

However,  to most of us, it's much easier to digest the promoted fictions and fallacies about the Federal Reserve and the "default" that they threaten us with through, as Clint Richardson says, the "daily feeding frenzy of misinformation surrounding this investment and currency scam, where inaccuracy and downright fiction rule over any comprehension of what the Fed really is, what it does, and who its master is," than to wade through the 479 pages of deliberately confusing and boring truth that lay within the audited financial statements of the Federal Reserve and the 185,000 government CAFRs of the United States government.

From Walter Burien:

** Government was NOT supposed to operate at a profit. How did they get around this restriction?

ANSWER: If for example a city had a 100-million dollar profit for the year from any of its operations, at a stroke of a pen they create or deposit into a "liability fund" and poof, there goes the profit re-designated now as a liability.

Here is the link to the Board of Governors Comprehensive Annual Financial Report (CAFR), . for 2011, the latest and 98th audit of the Federal Reserve. According to Clint Richardson, "it explains how everything operates, its foreign investments and foreign currency swaps and schemes, its many separate limited liability corporate holdings like Maiden Lane, its dealings and bailouts with AIG, Bears Stearns, and JP Morgan, and of course its assets and liabilities balance sheet."

“Within this 479 pages of dry and boring financial reporting is a full description of the Fed’s operations, including the basic financial happenings of each individual reserve bank. Yeah, I know, it doesn’t have the flair of a good “Secrets of the Temple” or “Creatures” type of novel, but its got all the actual facts and figures from TARP to SOMA. Why? Because this is what is required by federal law.

If you want to know about the Fed, read the CAFR.

If you want to know about your city, read the CAFR.

If you want to know about your county, state, district, or any other governmental agency or corporation, read the CAFR.

Here are a few highlights:

Board of Governors of the Federal Reserve System
Washington, D.C.
May 2012

To: The Speaker of the House of Representatives:

Pursuant to the requirements of section 10 of the Federal Reserve Act, I am pleased to submit the ninety-eighth annual report of the Board of Governors of the Federal Reserve System. This report covers operations of the Board during calendar year 2011.

Sincerely,

Ben Bernanke
Chairman

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Sentinal Ruling: You Have No Legal Right To Your Money.

Jon Corzine stole $1.6 billion from segregated client accounts during the collapse of MF Global, and now he has a legal precedent to officially support him thanks to the August 9th  Sentinel Management Group decision.

This egregious ruling not only sets precedence for futures brokerages, it sets precedence for every depository institution.   In other words, your funds--customer funds--are now the legal property of the mega-banks. That's right. The banksters can legally use your money to fund its casino transactions with legal impunity.  Not that it makes much difference in an environment where the rich and powerful are above the law.

But, for what its worth, this 7th circuit court decision--that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of money lost--punishes innocent account holders everywhere. Because, to be sure, the appeals court that affirmed an earlier district court ruling that the bank had a "secured position" on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money, did so in order that its ruling will be applied in perpetuity.

“Basically, there is a new 7th Circuit opinion saying that there is no reason to impose a constructive trust on a lender's takings of customers' funds from client commodity firms that were used (inappropriately) to secure the firms' borrowings, as long as the lender can say that it did not know WITH CERTAINTY that customers' funds were being repledged. Negligence and misappropriation (vs. knowing criminal intent) are now a sufficient excuse for letting the lender keep the money and go to the head of the line for distributions in bankruptcies of the client commodity firms. Spread the word.” -- Walker Todd of AIER, former legal counsel, Federal Reserve Banks of New York and Cleveland

Links:

Sentinel indictments: Feds say 2 reaped $500 million in fraud

"Federal authorities announced Friday the indictment of Eric Bloom and Charles Mosley, the former chief executive and head trader, respectively, of bankrupt Sentinel Management Group Inc., on charges of defrauding some 70 customers of more than $500 million.

The case, described as one of the largest criminal financial fraud cases prosecuted in federal court in Chicago, stems from the sudden August 2007 collapse of Sentinel, a long-standing, well-connected money-management firm based in Northbrook that allegedly misled clients by exposing their accounts to a portfolio of highly risky derivatives.

$1.6 Billion in Missing MF Global Funds Traced

Email Ties Corzine to Missing Funds

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The Best Connected Company in the World.

A revealing documentary about the international world of private equity banking.

The Carlyle Group, one of the largest investment banks in the world, is based in Washington and has accumulated its capital mainly by investments in the defence industry. On their list of employees are people like Lou Gerstner (former chairman of IBM), George Bush Sr., James Baker III, John Major (former British Prime Minister) and Fidel Ramos (former Prime Minister of the Philipines). The Carlyle Group invests in areas that are closely tied to government policy: aero space and defense, telecom, real estate, health care and the banking business. With 16 billion dollar under management they have the reputation of being the best-connected company in the world. Their list of private investors include George Soros, the Saudi Royal Family and the Bin Laden Family. How does the Carlyle Group operate, who are the people behind the Carlyle Group and how much power does Carlyle have? This film explores the fine line between the conflict of interests and a new global way of doing business.

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The Revolving Door of Access, Power and Privilege Continues to Spin.

On behalf of global corporate interest President Obama has nominated a fox to guard the hen house. That's right. While President Obama was vacationing in Hawaii, he nominated Jerome Powell, a former Carlyle Group executive, former hedge fund insider, to serve on the Federal Reserve Board of Governors.

The Carlyle Group is a massive private equity firm.  It is "an immensely powerful company with virtually no scrutiny," and is one of the most powerful, well-connected, and secretive companies in the world.

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Betting On the Profit Potential of a Movie

Investments can kill you, or so says The Motley Fool, so beware. However, the following sounds fairly benign, or is it?

We know Wall Street can create an investment vehicle for just about anything and everything, and that includes the movies. That's right, futures trading on box office returns. Soon, betting on the profit potential of a movie will become reality as the second film business applied to US regulators to set up a “movie derivatives” exchange. The Commodity Futures Trading Commission (CFTC), began seeking comment on an application by privately-held Veriana Networks to operate Media Derivatives as an “electronic exchange for contracts based on box office movie revenues”.

Wait. What about Domestic Box Office Receipt Futures (DBOR Futures), from Cantor Exchange, a subsidiary of Cantor Fitzgerald, L.P.?

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Can Investor America Get Its Moral Compass Back?

Recycled post from February of 2008 inspired after reading John Bogle:

How many minimum wage employees have been sacked because the till was short a couple of cents? How many tellers fired for adding a couple of cents to balance out? A teller caught adding or subtracting money to her drawer, no matter how small the amount, not only gets fired immediately but also runs the risk of dealing with the law. Yes, one cent is enough to get an $8/hour teller fired for violating the integrity of her position.

Yet, CEOs, earning 600 times what the average teller makes, a crime in and of itself, can get away with manipulating billions of - no, not cents - dollars. Do they get fired? Well, if they do, and that's a big IF, they are rewarded with millions of dollars, bonuses, and cushy deals where they will never have to work again.

Oh, that's right...they are allowed to get away with hijacking our economy because of the "risk" they take. Risk? That no matter how badly they do their job, they are guaranteed a lifetime, dining on goji berries, white truffles, gold leaf, and caviar.

The bottom line is, the chances of top executives or big time fund managers serving time or facing any consequences for violating the ethics of their profession is slim to none; that is, unless the greed and corruption ooze out from every pore as was the case with the Bernie Ebbers, Kenneth Lay, Jeffrey Skilling, Dennis Kozlowski etc.

If it's not the CEOs raking in the bucks at our expense, it's the fund managers who are notorious for skimming money from the working man, especially hedge fund managers. Everyone knows that the hedge fund industry, a hotbed of "legalized" corruption, is, at best, a playground of of the hyper-wealthy.

Mutual funds however, according to John C. Bogle, founder and prior CEO of The Vanguard Group, started out as an industry that looked more to stewardship. The main objective of the mutual fund, was to secure the shareholder’s assets. As financial America has transformed itself from an "ownership society to an agency society", mutual funds have become an "industry of salesmanship. It’s become a marketing business instead of a business of management", as Bogle puts it.

Agents or institutions are holding most of the stock in the nation and they are not representing the principles of the industry. The Investment Company Act of 1940 states mutual funds must be operated, organized and managed in the interests of the shareholders rather than in the interest of the investment managers and distributors. Today, corporate trustees and mutual fund managers are acting in their own interests and not in the interest of the underlying pension beneficiaries and the fund share-holders

There is a disconnect between those who own the fund and those who manage or who run the funds. They are working at cross-purposes. Managers make their money by charging the highest fees the market will bear. 1.6% does not sound like much but it makes a dramatic difference when compounded over time. Remember what Albert Einstein said about the strongest force in the universe, "compound interest".

Managers have an interest in getting mutual funds as large as they can to take home the largest management fees they can. The larger the fund, the harder it is to manage and the shareholder pays the price. As Warren Buffet says, “The fat wallet is the enemy of superior returns”.

The average cost of a mutual fund is 3% (1.6% - manager fees + 8/10 % for transaction costs + ½ % sales charge = 3%)

Let's say you get a 10% stock market in the future, subtracting the cost, the average fund will give you 7%. Doesn't sound like a big deal until you look at a compound interest table and look at what happens between 7% and 10% over 30 years. You will find at 10%, a dollar will grow to $18 in the stock market but if it earns only 7%, it will only grow to $9.

In addition, instead of long term value, managers engage in short-term speculation.
The average mutual fund turns over it’s portfolio, at the rate of 110% per year. That means the average fund holds its average portfolio stock for an average of 11 months. The brokers and managers make all the money when turnover is this high, not the investor.

Is that fair? When the investor puts up 100% of the money, takes 100% of the risk but only receives 25% the return?

It's up to the individual investor to capture as much of the market return as he possibly can and no one is going to do that for him. He can begin by finding out how much the fees are and moving his money to mutual funds that are tax and transaction cost efficient and find out which ones understand the wisdom of long term investment.

Financial Industry Regulatory Authority (FINRA) is the largest non-governmental regulator for all securities firms doing business in the US. It's very difficult to determine whether funds are fee excessive. FINRA.org provides a mutual fund analyzer that will calculate the fees associated with the shareholder's fund.

Our whole investment system, once focused on corporate value has gotten focused on corporate price. We’re a nation of investment traders, speculators rather than a nation of long-term investors. The only way to be successful is to capitalize on the wisdom of long-term investing and instead we’re all engaged in the measurable folly of short-term speculation. It’s the focus on the precise price of a stock, an illusion rather than the eternal reality which is the intrinsic value of the corporation…how much cash it will generate over the foreseeable future or lifetime. -- John C. Bogle

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Machiavellian Scheme or Stupidity?

Sixteen years ago, in 1992, Michael Stamenson, Merrill Lynch's number one salesman, worldwide, starred in the Merrill Lynch training video for brokers. He told recruits, that in order to become a successful broker, and "master of the universe", that they needed the "tenacity of a rattlesnake, the heart of a black widow spider and the hide of an alligator."

Stamenson went on to prove that that's not all you need to master the universe, as his star faded, after his client, Orange County, CA, sued Merrill Lynch for pushing the county into bankruptcy because of Stamenson's reckless investment advice. Orange County was Merrill's biggest account. They bought billions of dollars in exotic securities from Stamenson to fund almost 200 cities and school districts. Merrill Lynch made $100 million in fees. They ended up settling for $400 million, and an additional $30 million to prevent a grand jury investigation.

In addition, not only did Stamenson escape criminal charges, he remained on the payroll ($750,000/yr down from $3 million), retained his Merrill stock options and deferred compensation.

"You frequently see the person at the center of the storm continue to be well compensated by the corporate entity, while they are denying all wrongdoing,'' the lawyer added. "The company can cut someone off or embrace them. In the mix, they have to think about: 'What are the risks if I cut this person off? What happens if he starts saying things to others?"

All documents and testimony were sealed regarding this case, as is normally the case when Wall Street or any large corporation is involved in order to conceal their wrongdoing from public scrutiny.

The Merrill Lynch/Orange County example is just one of many that demonstrate the history of the credit derivatives' role in our current fiscal crisis. Fast forward sixteen years. Isn't it a little hard to believe that the former CEO of Goldman Sachs was blindsided by this economic disaster? Don't you think Enron, WorldCom, Global Crossing, Tyco, and McKesson-HBOC, not to mention, thousands of other warnings and signals that economic collapse was inevitable, should have clued him in? Despite Eliot Spitzer's lack of self-control, he saw this coming, as did many others without the credentials of Henry Paulson. Paulson's hysterics imploring us to approve a bailout were hardly believable. His three-page remedy, declaring himself omnipotent should have been the icing on the cake, so to speak.

So, what Paulson and Bush would like us to believe, that the current crisis is simply due to homeowners and mortgage loans is just one factor of many and the reality is that our government provided the credit derivatives market fertile ground to crash our economy. Structured Investment Vehicles (SIVs) and Special Purpose Entities (SPEs) served to hide enormous amounts of debt from public scrutiny, making companies appear more profitable and more solvent than they really were. No, this goes much further and its roots go much deeper, culminating in institutionalized criminality of which Paulson, Bush, the Supreme Court etc, wittingly, or unwittingly, are very much a part.

Since the Enron debacle, the Supreme Court has put big business' interests ahead of those of we, the people, loosening restrictions on corporate management and lightening the regulatory pressures. Here are just a few examples:

Wachovia v. Watters: The Supreme Court ruled that federal law trumps state consumer protection laws even when it involves an operating subsidiary of the national bank.

Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc : ("scheme liability") The court ruled to greatly limit the ability of shareholders to hold vendors, banks, accountants, law firms and others legally responsible for the securities fraud of another party. In an interview with the New York Times, J. Edward Ketz, called this ruling "a travesty of justice" and a "huge step backwards in the fight to prevent further accounting frauds from harming investors and the American economy."

Exxon Shipping Co. v. Baker: In June, 2008 the U.S. Supreme Court drastically reduced the punitive damages arising out of the 20-year old class action lawsuit, over the 1989 Alaskan oil spill. Since the jury awarded $2.5 billion in punitive damages in 1994, nearly 20% of the 33,000 fishermen, Native Alaskans, cannery workers and others who stood to benefit from the lawsuit have died.

Lilly Ledbetter Fair Pay Act of 2007 The Supreme Court held that the statute of limitations starts as soon as employment discrimination begins rather than when the employee first discovers it. How can you pursue a claim if you don't know that the claim even existed?

Binding Mandatory Arbitration: The Supreme Court's approval of mandatory pre-dispute arbitration has given banks and credit card companies their own system of "justice" where they act as judge and jury. Sen. Patrick Leahy, D-Vt sums it up as the Supreme Court's "blind devotion to corporation arbitration schemes".

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