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Tuesday, October 10, 2017

How to Beat Capitalists at Their Own Game and Save the Middle Class


Poor Man Survival

Self Reliance tools for independent minded people…

ISSN 2161-5543

A Digest of Urban Survival Resources

A Conspiracy of Greed: How to Beat Capitalists at Their Own Game and Save the Middle Class

Shah Gilani

Ever wonder who's responsible for the widening wealth gap in America? Or how the middle class across the country got hollowed out in a generation?

It's not a mystery, though what's happened has been shrouded in false narratives and fake news.

The truth's in front of us. We're living it in real-time. It's just never discussed openly... for a reason. The people behind this growing catastrophe rigged the system so most people believe this is normal.

Knowing how things got to where they are is one thing. Knowing what steps to take to arrest and reverse the widening income and wealth gaps in the U.S. is something altogether different.

Here's the thing that matters now…

Until things change (which would probably be in winter, because it will be a cold day in Hell), the game is the game. The crony capitalists own it and make the rules, and the only way to beat them is to join them; to play the game the way they do. Make money the way they do.

Only through understanding their conspiracy of greed can you turn their profits into your own.

Here’s who has the power, how to topple them from their thrones, and how to win big at the game you were never supposed to see…

Who to Blame for the Disappearing Middle Class

Republicans aren’t to blame. Their old-school platform of a smaller federal government, fiscal conservancy, more power to the states, and belief that a lightly regulated path to working hard and standing on your own two feet is what made America the global bastion of entrepreneurship and helped create a middle class is laudable and fair.

Democrats aren’t to blame. Their old-school platform of a larger, more interventionist federal government spending on social programs, safeguarding workers and all kinds of civil rights, protecting the environment, and their belief that government should stand behind those not able to stand on their own two feet or have been trampled by runaway businesses, helped create a middle class and is equally laudable and fair.

The two parties, with their vision and flaws, balanced by democracy, made America great.

What happened is greedy, neo-con, profiteering Republican crony capitalists hijacked their party, while greedy, limousine liberal, profiteering Democrat crony capitalists hijacked their party. And together, as a new class of political elites joined the Masters of the Universe manipulating state apparatuses, big banks and financial services for fun and profit… A lot of profits.

The crony capitalists’ principal enrichment tools are financialization and its henchman, globalization.

Financialization: Poisoning the Economy

Financialization is the retooling of the economy’s production and distribution assets, consisting of made-in-America goods and services, into credit-driven banking and financial services products.

At its core, financialization is the transfer of low risk, low profit debt into high risk, high profit products.

The net result of the mass commodification of debt-based financial instruments and leveraged debt (grossly under-collateralized by low risk debt) is rampant speculation. This heavy betting, however, isn’t undertaken just for the sake of pyramiding risks for speculative gains. These so-called “products” are now integral and necessary investment tools because traditional, safe investments don’t yield adequate returns in the world of financialization.

In 1980, according to the U.S. Bureau of Economic Analysis (BEA), financial services contributed 4.9% to the country’s GDP. At its peak in 2006, that contribution had almost doubled to 8.3%.

More to the point, James Kwak, law professor at the University of Connecticut, calculated that in 1980 the financial industry’s profits as a share of total U.S. business profits was 7.5%. That share of all business profits in corporate America jumped to more than 41% by the mid-2000s.

U.S. GDP in 2016 was $18.56 trillion, according to the BEA. In full view of financial services share of GDP (which is rising again) and its share of corporate profits (also on the march to new highs), it’s impossible not to see the financialization of the U.S. economy.

How Financialization Snaked Its Way Into Our Government

The road to financialization began with the overturning of longstanding public and economic protections starting with the Depository Institutions Deregulation and Monetary Control Act of 1980, a Trojan horse that let banks establish holding companies and gave the Fed more power over more banks.

That major deregulatory action was followed quickly by the Garn-St Germain Depository Institutions Act of 1982, which leveled the playing field for banks and their holding companies experiencing disintermediation and decreasing profitability at the hands of newly minted competitors.

Ultimately, a series of subsequent rules- and regulations-trimming by Congressional cronies crescendoed with the Gramm-Leach Bliley Act of 1999, whose main function was the total repeal of the Depression-era Glass-Steagall Act that for decades separated insured, deposit-taking commercial banks from swashbuckling investment banks.

That’s how elitist Democrats and Republicans paved a super-highway for the financialization of the American economy and their personal enrichment from the country’s transformation.

Who were the Republicans and Democrats behind the wholesale transformation of America, and where are they now? You’d be shocked at how many of them you know as Senators, House members, cabinet Secretaries, principal regulators… Supposed stalwarts of American prosperity, who’ve become filthy rich at the expense of the middle class, on whose backs and from whose labor and savings they’ve enriched themselves personally and their reelection war chests. I’ve written thousands of pages in Insights and Indictments naming names and calling these sellouts what they really are: crony capitalist pigs.

The proof is in the pudding. Actually, make that pooling.

Without financialization we never would have had the subprime mortgage crisis and the devastating stock market and financial systems crashes.

Home mortgages used to be made “locally” by bankers, thrifts, and credit unions that knew their communities, knew the value of properties and neighborhood borrowers. Mortgage loans mostly stayed on the books of lending institutions until maturity or until properties were sold.

Financialization shook up the staid and steady establishment with its cheap come-on capital, its pooling techniques, its structuring, its tranches, its derivatives and synthetic derivatives of derivatives. It turned a utility service into a speculative pyramid of leveraged loans that looked and acted more like a Charles Ponzi scheme than the sophisticated, high-yielding, supposedly safe (packaged with government approval and guarantees) financial instruments they were made out to be by rating agency co-conspirators.

We know how that ended.

The Other Victims of Financialization

The other prime example of the financialization of America is the pooling of student loan debt.

As if leveraging-up the American dream of homeownership wasn’t slippery enough, leveraging-up students and adults stepping up the ladder of a higher education in pursuit of better wages and career opportunities is an even more egregious financialization scheme with the same profit motive.

What happened to teachers, professors, administrators, state schools’ and private schools’ goals of helping Americans get a higher education for the fair wages they once earned and the balanced budgets they hoped to achieve?

They got greedy. They’re all in the big, for-profit game now, thanks to financialization.

Hopeful students are suckered into cheap loans which are, of course, pooled, leveraged, sliced, diced, and sold to investors. The cash those investors fork over can be used to make more loans, to pyramid (or Ponzi, if you choose) students hopes and dreams that a higher education means a higher standard of living.

And if those loans are in arrears, in default, and don’t get paid back, investors don’t worry.

The government, thanks to crony capitalist Congressmen and women, have fixed that profit-leaking hole. Making student debtors “low risk” by having the state guarantee payment of interest and principal to investors – while extracting more payment from grossly indebted students (most of whom never graduate) no matter the cost or the poverty level of those beleaguered, unemployed, underemployed, and generally struggling indebted borrowers – means that more loans can be “sold” like dream-catchers to the uninitiated who have no idea about the trap they’re being lured into.

And as for the neo-liberal educators and liberal schools who want more kids to get a better education, they’re making hundreds of thousands of dollars in salaries and tens of millions of profits every year.

That’s financialization at work.

Then there’s globalization; essentially, the henchman of financialization. Domestic financialization is just a spoke in the profiteers’ global wheel of fortune.

Globalization and the New Comparative Advantage

Globalization, the long-arm of financialization, is an insidious contributor to the widening income gap and wealth inequality in the U.S.

Globalization is, essentially, another nail in the coffin of America’s middle class.

Undoing its insidious effects will be hard, don’t get me wrong. There are years of damage and many powerful people who are profiting from the system being upheld just the way it is.

But it’s possible.

It used to be that “comparative advantage”, the concept in economics that a country that produces goods and services more efficiently at a lower opportunity cost (considering indigenous capital, labor, and resources) will yield profitable global exports and drive revenue to import goods and services manufactured more efficiently elsewhere.

Now, the financialization of the U.S. economy (our shift from domestic manufacturing profitability to financial services profitability) gives America’s mobile mountains of capital a comparative advantage globally to finance manufacturing overseas and subsidize imports.

This new “financialized” twist on globalization results in domestic manufacturing losing its comparative advantage and jobs being exported. It also increases the profitability and further enrichment of capital exporters and importers of cheaply manufactured goods and services, to be marked up and sold to – likely debt financed – Americans.

The Trojan Horse in Our Government

Successive Democrat and Republican administrations and individuals were steadily spoon-fed cash and campaign contributions by crony capitalist compatriots commanding armies of law-writing lobbyists who hollowed out the middle class by exporting jobs, in the name of “free trade.”

The entire series of free trade pacts, falsely sold to the American public, were in reality an orchestrated and well-engineered plan to expand American credit into overseas markets.

Crony capitalists’ massive credit manufacturing factory, housed in the Federal Reserve, financed the export of cheap capital and good-paying American manufacturing and assembly jobs, the historical engine of American prosperity and an expanding middle class, so they could import profits from every corner of the globe.

The irony of free trade financed by cheap capital is that global competition ultimately led to overcapacity and reduced profitability.

Bringing back jobs to the U.S. now would be even more expensive and eat into corporate profits.

The evisceration of America’s middle class and the widening income gap and wealth inequality in the United States aren’t the fault of free markets, or globalization in its unadulterated form.

Our problems aren’t caused by the design of our money system.

They’re caused by how these systems got leveraged through financialization.

Here’s what we need to do to arrest and reverse this crony capitalist engineered nightmare…

Four Simple Steps to Fix This Disaster

There’s a way to right the sinking ship that was once America’s golden dynamic, its manufacturing prowess, its expanding middle class, the root of its entrepreneurship, and the backbone of our economic growth.

I’ve broken it down into a four-part plan.

1.     Replace the Federal Reserve System with a mathematical, automatic monetary expansion and contraction mechanism.

By acts of compliant Congresses, America’s private central bank has been ceded the extraordinary powers it possesses. They are responsible for the artificial manipulation of interest rates, the bailing out of the criminal enterprises America’s big banks have morphed into, and for the benefit of their constituent crony capitalist controllers, orchestrate centralized command and control of the economy.

The Federal Reserve System has to be exorcised from the body of American politics and our economy like cancer from a suffering soul.

2.     Break up America’s big banks by separating commercial banks from investment banks.

The big banks in America, even without the backstopping and financing of a central bank, would still coalesce to preserve their power over government and the economy and should be broken up.

Separating commercial and investment banking is fundamental to safe banking and doesn’t impinge one iota on the capital markets’ ability to convene capital, slice and dice financial products, and transfer risk through free market mechanisms.

3.     “Localize” the availability of capital.

By localizing capital, borrowers of all stripes would have greater access to whatever they need and lenders would have a much better handle on risk aspects of the loans they make.

4.     Enforce term limits on Congress

Finally, term limits would get the career crooks out of Congress and pave the way for representatives who are judged by what they do in the short time they’re given to do it, rather on the length of time they have to enrich themselves on the backs of their constituents while professing to fight for them against the ravages of big banks and globalization.

The American people can be unshackled from the Washington-financed and protected crony capitalist oligarchy that subjugates the economy and citizenry to its profiteering and unshackled free markets. American ingenuity and our once enlightened work ethic can be unleashed on the economy like never before.

We just have to make it happen.

Essential Positions to Have in Your Portfolio

In general, crony capitalists are all “renters” of financial assets. They’re all playing the markets. It’s the game they know best and own lock, stock, and barrel. So, anyone wanting to ascend the wealth ladder has to be in their game.

The easiest way to play the market is to buy the whole market.

I recommend doing that by buying an ETF that tracks the market, whether you prefer the Dow Jones Industrial Average as your barometer of the market, the S&P 500, the NASDAQ, or some other benchmark, there’s an ETF for you.

SPDR Dow Jones Industrial Average ETF (NYSE:DIA) tracks the Dow, SPDR S&P 500 ETF (NYSE:SPY) tracks the S&P 500, and PowerShares QQQ Trust ETF (NASDAQ:QQQ), which tracks the NASDAQ 100, are all good choices.

The system protects the big banks, coddles them, feeds them capital, and applauds their rising profitability… And, when they get caught doing something criminal, they just pay a toll and get back on the highway.

So, own a bank. Or two.

I like Wells Fargo & Company (NYSE:WFC) – not because it’s “clean.” It got caught opening up accounts for people who had no idea their signatures were being forged on account-opening documents. All that, to the tune of millions of accounts. For what? A few million dollars in fees? A few promotions? A few bonuses? Some stock options? The answer would be, yep, all of those things.

Wells Fargo isn’t out of the woods on this one yet. But its stock has been hit by the scandal and, of the big banks, it has the best dividend yield at 2.88%. I’d buy shares here and add to my position if the stock falls. If the market drops and Wells has more fallout from the account opening scandal, it’s possible the stock could fall to $44. I’d buy it all the way down there and sit with it as a core position in my portfolio.

As far as the big banks getting broken up, unless you see steam from Hell freezing over, don’t hold your breath on that one. What we thought was going to be a 21st Century Glass-Steagall now looks like it’s going to be a bunch of rules changes that benefit regional banks and community banks, who have been beaten up inordinately by all the regulations piled on the whole industry, thanks to the criminal activity of all the big banks.

Deregulating banks will be more about easing the burdens of smaller banks, at first, than wholesale gifting to the big pigs.

To play that game, I like buying a regional bank or a community bank.

I like New York Community Bancorp Inc. (NYSE:NYCB). NYCB’s stock has been under pressure because it’s been expanding by acquisition and moving away from the core lending (to NYC rent-controlled apartment buyers) tactics that made it so stable. There’s talk that pressure on earnings might cause them to cut their dividend a little more (it’s currently yielding 5.25% according to Yahoo Finance), on top of the cut they recently announced. But the yield’s still fat, and they have plenty of money to pay it.

The fact that the stock’s been hit and is trading down at its 52-week lows is another reason I like bottom-fishing here and taking a position.

If rules and regulations hammering smaller banks, like NYCB, get turned around, their profitability will go up. You want to own one.

And then there’s technology. Specifically, a tech company that manufactures cheaply overseas, sells its products everywhere (especially here in the U.S.), and has so much cash parked overseas it would blow your mind. It owes its success not just to its loved products, but to the fact that it is the posterchild for a company that hit it out of the park thanks to “trade deals.”

I’m talking about Apple Inc. (NASDAQ:AAPL). Own it, you won’t regret it.

I like having a stop-loss order 10%-15% below where my stocks are trading. As they rise in price, I raise my stops. If the market tanks, I get taken out with nice profits or without getting hurt much, and look for a lower point to get back in.

That’s how the players play the game, and stretch the gap on folks who don’t know what the game is… Let alone how to play it.

Editor’s note: A trusted colleagues, Shah Gilani, ran his first hedge fund in 1982 from his very own seat on the Chicago Board of Options Exchange (CBOE). He consistently presents his legion of subscribers with the chance to score double- and triple-digits gains on trade after trade. So believe me when I tell you-this guy knows what he’s talking about. Today, he dives into the mystery behind the disappearing middle class and four steps to right the sinking ship that was once America’s golden dynamic.

Personal Note:  I personally recommend owning very little stock except those that cater to growth areas in the burgeoning area of the new American underclass.  That would include pre-paid “green dot” credit cards, Family Dollar retail stores which are doing quite well, neighborhood medical clinics run by hospitals [alternatives to the ER], check cashing/money services franchises [see the Center for Financial Service Innovation]…

In 2014 Americans paid $32 Billion in overdraft fees which is one reason why 12 million citizens -and non-citizens-no longer use banks.

Despite 79% of US workers having a high school diploma their wages have decline by 23% since 1968 [factoring in inflation] and the US has seen a rise in part time and the so-called “gig” job economy by 20% of the labor force…many now forced to work two and even three jobs to survive [even with government benefits] in order to survive…preventing them from being a good parent as they are often focused on short term survival vs. the family.

Bank or Bust

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an online bank account? You’re not alone — but you have nothing to be afraid
They may not have the name
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But we understand why you might be
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A lot of myths are floating around
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How to Survive the War on the Middle Class

14 of the best reports I’ve assembled on protecting your freedom…Here is the download link.

What about you? Got anything interesting to share?

Bruce, the Poor Man, free thinker, social critic & cynic

A Final Note…

Contributors and subscribers enable the Poor Man Survivor to post 150+ free essays annually. It is for this reason they are Heroes and Heroines of New Media. Without your financial support, the free content would disappear for the simple reason that I cannot keep body and soul together on my meager book sales & ecommerce alone.

Additional Resources

4 Ways to Cash a Check without a Bank Account
No bank account? No problem. You can still cash that check.

How to Switch Banks the Easy Way
Switching banks doesn’t have to be a nightmare. Here’s how to change banks the easy way (and we’ve included a downloadable checklist)

How to Waste Sudden Wealth
Don't let 'found' money slip through your fingers.

Be Radical, Get Rich
Want to know how to get rich? Stop being average!



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Larry said...

I often think the who system has become a scam meant to defraud the middle class and enrich Wall Street and it really got rolling in the 80s when they began shipping our jobs to 3rd world countries-hell, the US no longer even ranks in the top 10 best countries to live in and the buying power of our dollar sucks!

Sandy said...

The Middle Class has been beaten to a pulp...unlikely to ever recover from everything a I read as once the greed takes over among politicians and bankers, they never let go and we all become mere serfs. [by the way, just happened upon your blog - good stuff]

DAR said...

According to a Bankrate survey the number one concern Americans have about our potential damage to our currently favorably economy and the job Trump is doing are the obstructionist Democrats and the discord between the two parties in DC...they can't seem to get their bad acts together on behalf of the American people.