Archive for the ‘Biblical Economics & Money’ Category

Reckless Endangerment

Sunday, March 25th, 2012

The following podcast explores the most fundamental Biblical aspect of economic exchange in society, equal weights and measures.  Biblical Law demands impartiality, independent of your financial status and influence.  Once the imbalance occurs, the rule of Law is compromised and once that occurs, deterioration of society accelerates.  The Rule of Love will ultimately replace the environment in which we find those imbalances.  Our Heavenly Father will ultimately reconcile the “books” and evoke judgment based on righteous Love.  The following interview is but one aspect of the imbalances that plague society today:

 

Comprehending the breadth, and length, and depth, and height

Friday, March 23rd, 2012

These are tumultuous times.  The economy is in a slow motion train wreck and it is mathematically impossible to sustain our current economic course.  There are many with good intentions attempting to muster up a solution to the crisis.  The problem is simply too big to grasp.  There will be carnage when the train concludes its destruction.  People are trying to return to the idea of the original republic here in the U.S.  Though a noble cause in itself, I am convinced that going back is not the answer.  We must move forward and whatever we move to must meet certain criteria.  It must consider every man, woman, and child.  Food, shelter, and clothing are basic fundamentals required to sustain life and every person should have those necessities.  But how?  Where can we find the answer to all of the complex issues we face today?  Our society has become so complex that no one person can cover all of the bases in charting a path of restoration to the values we all hold dear.

Now is the time we should be seeking the Face of Our Heavenly Father in earnest!  It is time to quit going through the motions and shed the persona of being a politically correct Christian and seek the fullness of Our Heavenly Father!  But how?  We must be rooted and grounded in Love.  Right now, we are mentally challenged with the illusion of permanency of the current path of complexity.  We are being bombarded with technology that demands our time, time better spent seeking the Face of Our Heavenly Father.  We are like the proverbial frog in the soon to be boiling water.  The outcome on its current course will not be pretty.  Mothers will be crying in their pillows when the dung hits the fan.   Desperation will replace peaceful logic when men can no longer provide for their family.  Pain is coming, the only question is “How much?”

To comprehend the breadth, and length, and depth, and height of the Kingdom of GOD, we must be rooted and grounded in Love and walk in faith.  Our faith responds to Our Heavenly Father’s Word and we act upon His word in faith.  By responding in Love, we will open Heaven’s door with the Key of David.  Our comprehension of Our Heavenly Father’s plan will come into focus.  We will no longer seek some intellectual think tank for answers, for theirs was simply a carnal opinion with the bias of their upbringing and education.  The only true solution to the future of this complex planet is found in Heaven.  There is but one path to take, it is called “The Way”.  It is the way of Love.  It is found by seeking the Character of Our Heavenly Father and as we do, He is quick to respond with the needed wisdom, understanding, knowledge, and skill to navigate through this time of transition.  Ephesians 3 states:

14 For this cause I bow my knees unto the Father,

15 from whom all fatherhood in heavens and on the earth is named,

16 that he give you, according to the riches of his :glory, to be made mighty through his Spirit unto the inward man;

17 that the Christ dwell in your hearts through faith in love, rooted and grounded,

18 so that ye be strong to apprehend with all the saints what the breadth and length and depth and height,

19 and to know the love of the Christ which passeth knowledge, that ye be filled unto all the fullness of God.

Buying Scarcity with Infinity

Thursday, March 15th, 2012

Warren Buffett recently posed the question, “Would you rather own all the farmland in the U.S. or own gold?”  Most of us would say farmland since we know that it would produce food to be consumed by society.  However the better question to ask is, “Would you rather sell your farmland for gold or a fiat-based currency that was printed out of nothing?”  Would you rather auction off a scarce commodity and receive gold or US Dollars or Euros?  Since the US Dollar has lost over 90% of its value in the last 50 years, why would you want to sell a producing asset for a declining asset?

The recent drop in gold, silver, and related stocks is a buying opportunity for those who believe the above paragraph.  With the long term decline of a fiat currency, gold becomes a productive asset in its relative rise in value.  Gold and silver mining companies will soon return to the “utility company” status they once held during the Great Depression.  Their dividends will be similar to utility companies.

There is total denial that the Greek default will have a substantial impact on the global banking system.  The Euro is in deep crisis.  Portugal and Spain are the next targets for this contagion.  The losses are a real threat to the banking system.  Youth unemployment in Greece is at 51.4%.  80,000 Greeks attempted to storm the government buildings recently.  Greece has contracted by 15% and is contracting by 7% this year.  How many countries can contract by 25% and reasonably recover in the short term?  The Rule of Law is disintegrating in Southern Europe.  People are now terrified of the unknown.  The mainstream media would have us believe that all is well.

The Greek Tragedy: Part 2

Sunday, March 11th, 2012

Now that one bond group of Greek obligations has defaulted, we must consider the other groups that have yet to experience a cash transaction requirement.  Until a bond is at redemption or an interest payment is required, it has not legally defaulted for nonpayment.

Bank bonds, Hellenic Railway bonds, Urban Transportation bonds, etc. will all be impacted by default.  How big will the line be tomorrow as all Greek bondholders seek to make their insurance claim?  This reminds me a slow motion train wreck.

The Greek Tragedy: Part 1

Saturday, March 10th, 2012

In recent blogs I have reported that the ISDA had attempted to redefine the Greek default.  Yesterday afternoon, their tune changed, by necessity.  Moody’s has stepped in and called the event a default.  The ISDA responded that a “credit event” had occurred:

“LONDON, March 9, 2012 – The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved unanimously that a Restructuring Credit Event has occurred with respect to The Hellenic Republic (Greece).”

“The Committee determined that an auction will be held in respect of outstanding CDS transactions on March 19.”

An auction?  Huh?  I look for the buyers at the auction to receive funds for settlement that would trace back to a Central Bank.  It will be interesting to watch this play out.  The stakes are high and will potentially affect everyone no matter where those losses are absorbed.  The current system is crumbling and the Emperor really has no clothes AND he is standing next to the elephant in the room.

Did Greece default on their debt?

Friday, March 9th, 2012

Greece averted bankruptcy be convincing their bondholders to take a 53.5% loss on the face value of their existing bonds.  See: http://finance.yahoo.com/news/greece-secures-biggest-debt-cut-132152251.html   The ISDA will not have to honor their default swaps for now.

Let me get this straight.  Last week I had a bond worth let’s say $10,000, and this week it is worth $4,650.  Am I suppose to believe that someone didn’t default on their original obligation and my insurance won’t cover this loss?  Man’s laws have been so perverted that anything goes in the financial arena.  Soon, the general population will wake up and realize that their retirement funds may not be worth what they thought.  How long can this continue?  Haman in the Book  of Esther thought all was well the week before he was hung.  Happy Purim!

Bearing Good Fruit

Friday, March 9th, 2012

"By this My Father is glorified, that you bear much fruit; so you will be My disciples.”

Who among us wants Our Heavenly Father glorified?  To answer this question, we must become fruit inspectors and first and foremost we must inspect our own fruit.  Have I been a blessing to anybody today other than my family?  Have I given someone an encouraging word or an unexpected blessing?  Let’s be brutally honest with ourselves.

Your money represents your productiveness.  Most of us worked hard for the money we have and $1,000 represents xxx hours of our life at work.  That money represents us for a period of time operating in our gifts.  Money itself is not a bad thing.  The flow of money is healthy to a community.  Exchange is like a flowing stream and without the flow, the water becomes stagnant.  Men accumulate money to build up wealth for various reasons.  Some of those reasons are noble and other reasons have no benefit to society.

When I was in banking, one of our largest depositors was a man who reminded you of the Beverly Hillbillies and he even drove a similar pickup.  His body odor alerted us of his arrival.  His deposits were in the 8 digits.  What a shame!  He had the opportunity to be a blessing to so many people but he simply hoarded his money as though he was broke.  To the average person on the street he looked like a hobo.

Jesus spoke a parable in Luke 12:

16  Then He spoke a parable to them, saying: “The ground of a certain rich man yielded plentifully.

17  And he thought within himself, saying, ‘What shall I do, since I have no room to store my crops?’

18  So he said, ‘I will do this: I will pull down my barns and build greater, and there I will store all my crops and my goods.

19  And I will say to my soul, “Soul, you have many goods laid up for many years; take your ease; eat, drink, and be merry.” ’

20  But God said to him, ‘Fool! This night your soul will be required of you; then whose will those things be which you have provided?’

21  “So is he who lays up treasure for himself, and is not rich toward God.”

This rich man is not unlike the steward who buried the talent.  He did not put his wealth to work, even if it would only generate interest.  All he was concerned about was himself.  What would happen if many of us were to pool our resources and operated a Kingdom Enterprise based on Love?  The Pentecostal church era produced mega-churches by being in unity to a degree.  I certainly don’t condone some of the methods used to generate funds but Our Heavenly Father IS sovereign and the Pentecostal infrastructure did get built.  Christian TV did develop even with all of the scandals that came with it.

I expect a “Gideon” call to come soon.  The Midianites, the Amalekites, and the children of the east (China) have been in “control” of the system.  Gideon was threshing wheat by the winepress, indicative of the transition from Pentecost to Tabernacles.  When the call comes forth, who will respond?

Givers and Takers

Thursday, March 8th, 2012

Wouldn’t it be nice to be able to buy a used car without wondering whether you are acquiring someone else’s problem?  The used car salesman has earned a reputation over the years of being a manipulative liar.  Now there are exceptions to the rule but in the U.S., full disclosure of mechanical issues is rarely the case.  This is indicative of the nature of takers.  They tend to be scarcity-oriented and feel like they have to manipulate others in order to get ahead.  They really don’t believe that Our Heavenly Father will provide for them so they must lie, cheat, or steal to make ends meet.  This view of scarcity follows them throughout life.  As they do acquire some assets, they continue this path and it simply becomes part of their character.  When a car salesman gets the best of a customer, they call it “knockin’em in the head”.  How sad!

Givers, on the other hand, view life as having access to abundance and understanding that they are satisfied no matter what state they are in.  They will fix their vehicle or disclose the known issues with it for they want to look out for the other person.  They seek a fair and balanced deal.  They have the best interest of the buyer at heart.  Economic justification for repair is no longer the primary issue.  They simply do the right thing.

What about businesses?  There are mostly takers out there also.  Why?  I would suggest that corporations reflect the hearts of those who set them up and have management responsibility of the policies and overall direction.  How many pharmaceutical companies have knowingly released drugs that could  have an adverse affect on individuals using their product?  They spent millions of dollars on research and the corporate mandate was to make a profit at any cost.  It was reported that the nuclear power plant in Japan was known to have the design flaw before the tsunami but those in control did not want to fix the issue, it was too costly.  Construction companies take shortcuts and compromise quality in pursuit of squeezing out a little more profit.  The buyer has to be on guard at all times.  Regulations are added in an attempt to modify the behavior but never deal with the core issue: greed.

What would happen if a group of givers were to form a conglomerate of businesses based on Love where the corporate mandate was to serve customers and employees rather than exploit both groups?  What would happen if healthcare groups were created to serve the individual rather than the pocketbooks of the greedy?  What would happen if men and women were placed in the area of their gifts and calling rather than simply filling an opening with a warm body?  Now that sounds like a Kingdom Enterprise.

The Treachery of Greed

Wednesday, March 7th, 2012

Betrayal is a violation of trust whereas treachery is betrayal by prior intent.  For example, if financial institution A were to write Greek Bond insurance contracts with investors B, C, D, etc. in case of default by the Hellenic Republic of Greece knowing that the contract would never be enforced to pay off, this would fit into the above definition of treachery.  Let’s say that financial institution A issued contracts on $10 Billion worth of bonds and generated $200 Million in immediate profit, a mere 2% of face value.  Financial institution A gives its executives bonuses from that $200 million in profit.  The investors paid 2% insurance to guarantee their principal.  The interest on the bonds would more than offset this insurance cost, a prudent investment.

Now let’s fast forward a few years and Greece needs to devalue those existing bonds by 53.5%.  Now those bonds are worth $4.65 Billion, less than half of the original principal.  Who should take the loss?  The insurer against default or the bondholder who paid for insurance against such an event?   See: http://www.cbsnews.com/8301-505245_162-57391659/greece-steps-up-pressure-in-uncertain-bond-deal/

Who decides whether the insurer must pay?  The ISDA(International Swaps and Derivatives Association).  If financial institution is required to pay, their balance sheet capital immediately goes down by $5.35 Billion and potentially makes them insolvent.  This would be an instantaneous event.  A similar event occurred in 2008 to Lehman Brothers and they are now history.  Vice President Joe Biden mentioned the potential of a bank holiday at that time.  On the other hand if investors B, C, D, etc. suffered losses, it would be spread among many smaller entities without adversely affecting the financial system.

Greece has $271 Billion in bonds issued to private holders.  Roughly $200 Billion will be lost by someone.  Then comes Italy, Spain, and Portugal.  This is a multi-trillion dollar loss potential.  The ISDA voted unanimously that Greek Bonds had not triggered a credit default.  Who were those to vote on this?

Determinations Committee: EMEA
Meeting Date: March 1, 2012

Issue Number: 2012022401 Has a Restructuring Credit Event occurred with respect to Hellenic Republic?

Question 1. for vote: Has a Restructuring Credit Event occurred with respect to Hellenic Republic?

Vote result: No
Votes: 15 “NO” votes –

Bank of America Merrill Lynch
Barclays
Credit Suisse
Deutsche Bank AG
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
UBS
BNP Paribas
Societe Generale
Citadel Investment Group LLC
D.E. Shaw Group
BlueMountain Capital
Elliott Management Corporation
PIMCO   

See: http://www.isda.org/dc/docs/EMEA_Determinations_Committee_Decision_01032012Q1.pdf

Aren’t these the same institutions that issued the insurance contracts to begin with?

Did the tornado at Henryville, Indiana do this?

Let’s see, should the insurance company honor the claim on that bus?  Let’s take a vote…..

Love will overcome treachery and betrayal.  Men’s hearts will be convicted of such acts and Our Heavenly Father will evoke righteous, corrective judgment.  Their pain is coming soon.

Redefining Insolvency

Tuesday, March 6th, 2012

In 1975 I took the Dun & Bradstreet Credit Analysis course that all bank loan officers and credit analysts were required to complete.  This course covered the fundamentals of analyzing borrowers’ ability to service their debt and the risks associated with their various financial conditions.  There were several financial ratios to be calculated and those ratios were compared against industry norms.  If an applicant’s ratios were outside the limits, the loan was typically denied.  The balance sheet is critical to the financial industry.  It is similar to a medical checkup.

Verification of assets and cash flow were fundamental.  If there was a mortgage, a statement verifying the current balance was required.  A recent pay stub was needed to check the income claimed on the loan application.  Each major asset had to be analyzed for it veracity.  If it could not be verified, it might be removed from the ratio calculations.  The D&B course was used by most banks in the U.S.

What happens if the banks themselves need to borrow money?  A similar process occurs by the regulators.  If bank ratios become weak, they are put on a watch list.  If they become too weak, the regulators find a buyer or shut them down and dispose of the assets.

Now enter the Credit Default Swaps (CDS).  What happens if the bank has been issuing lucrative CDS’s as insurance?  Initially the bank’s trading department was able to book a sizeable profit with the expectation that those CDS’s would expire worthless and have no balance sheet impact on the bank.  CDS’s were issued against European sovereign bonds which have no history of default.  This insurance vehicle has been a real money maker for the issuer AND the European Union would come to the rescue of any of its member nations thus eliminating any risk.

Now comes the mismanagement of the Greek economy.  Greece has been living on borrowed time and money.  There is no realistic way for Greece to work out of its debt without someone taking a “haircut” or loss on the principal of the Greek bonds.  A 30% to 70% haircut is now certain.  How can the ISDA (International Swaps and Derivatives Association) determine that no default has occurred?  Since when does a loss on up to 70% of your principal not constitute a default?

If a default occurs, the insurer must pay up.  If the ISDA were to admit to a default, several large international banks would immediately become insolvent.  This could trigger a global bank run and take down the current system.  There is much at stake with a determination of this nature and the ISDA will resist a default at all costs.  Who makes up the ISDA?  The very financial institutions and related parties that issue CDS’s.  The reality is that when Greece defaults, other weak countries will not be far behind.  When this happens, the current financial system’s risk will be greater than the near meltdown in 2008.  What is the best insurance against this risk?  In my view it is gold and silver.  These do not have counterparty risks for man cannot manipulate their value as they do every other financial instrument.

The ISDA may not classify the Greek Bonds as a default, but if it walks like a duck, quacks like a duck…..