Servias Ministries Blog

Wealth destruction has been occurring in cycles for centuries.  Businessmen have made and lost fortunes.  Regions have suffered from depression-like cycles while others enjoyed expansion.  However this time looks to be different.  Nobody likes a personal economic compression (or depression).  Compression is valuable in that it functions to remove unproductive actions, ventures, assets, and thoughts.  During these times is when we find out that we are "void of GOD’S Word".  When times are good we tend to coast through life and become lax in our relationship with Our Heavenly Father.  It seems that there is no need to enter into our prayer closet and seek His Holy Face.

I was taken through the financial wilderness for 18 months from March ’95 to September ’96.  During that time I could not seem to generate revenue for my family.  Fear gripped my heart.  Each day I would spend at least one hour in prayer prior to beginning that day’s activities.  Peace would come as well as reassurance that HE was still on the Throne.  Some days I would weep, other days I would dance before the Throne, and some days I would just be still and wait for a Word.  What a roller coaster of emotion!  At the end of the 18 months, Our Heavenly Father gave me the revelation of The Feast of Tabernacles and its implications to my life.  After our darkest hour comes the morning light.

The prodigal son in Luke 15 parallels what is happening today:

Luke 15:13-17

13 "And not many days after, the younger son gathered all together, journeyed to a far country, and there wasted his possessions with prodigal living.

14 "But when he had spent all, there arose a severe famine in that land, and he began to be in want.

15 "Then he went and joined himself to a citizen of that country, and he sent him into his fields to feed swine.

16 "And he would gladly have filled his stomach with the pods that the swine ate, and no one gave him anything.

17 "But when he came to himself, he said, ‘How many of my father’s hired servants have bread enough and to spare, and I perish with hunger!

Prodigal living is functioning in a "wastefulness and riotous excess"; lawless, reckless, and extravagant expenditure, chiefly for the gratification of one’s sensual desires.  Doesn’t this reflect the American culture of the past three decades?  Didn’t Wall Street capitalize on this type of living by providing excessive credit to satisfy those wasteful, reckless, and extravagant expenditures?

Notice the compression cycle that occurred in verse 14.  Just as he was totally "strung out" (on leverage), the severe famine came and he began to be "in want".  His standard of living took a nose dive and became a servant to swine.  After he hit bottom, he came to his senses (or revelation) and knew that if he returned to his father, at least he could eat as well as the hired servants.  Upon his return, The Father rejoiced with a party and the son enjoyed a steak dinner.

The Global Leaders are attempting to sustain the party.  The amount of debt created over the last 30 years is unsustainable and some type of compression will take place.  In previous recessions, the Federal Reserve and other central banks used interest rates to stimulate the economy as well as fiscal spending programs.  With interest rates approaching zero, what worked in the past is not working now.  The Central Banks will do whatever is necessary to prevent a severe depression.  Compression is coming!  Hearing GOD’S Word will determine what we will be eating for dinner- pig slop or steak.

Eight new acronyms to remember:

• TARP: Troubled Asset Relief Program. This is the Treasury’s big $700 billion ($850B including pork) program that has been used to prop up financial institutions.
• TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.
• TALF: Term Asset-Backed Lending Facility (or "son of Taffy"). Recently announced Fed program designed to help the market for student, auto and other consumer loans.
• CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.
• AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from "breaking the buck."
• TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries. 
• SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan’s purchase of Bear Stearns in March. Also used to back AIG’s balance sheet to avoid total collapse.
• PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed’s discount window (back when there were independent broker/dealers).

At warp speed, legislators approved a $700 Billion bailout for Wall Street with the total now standing at $8.5 Trillion.  Wall Street Executives single handedly have wiped out trillions of dollars of wealth while receiving exorbitant bonuses in the process.  Hank Paulson was a recipient of some of this bonus money as well while at Goldman Sachs.  AIG has received over $100 Billion in spite of their luxurious getaway.  Major banks were handed billions of dollars even if they did not want it.

The U.S. automakers are asking for $35 Billion and are being burned at the stake.  I know there is much criticism of the U.S Big Three.  However, the market has voted with its dollars to keep these guys in business.  The Big Three simply gave the American people what they wanted- Hummers, luxury SUV’S, etc.  The U.S. Congress breezed through $8.5 Trillion for the banks with very little criticism.  The ratings agencies who were supposed to protect the global community from toxic investments have had no public hangings.  Yet for a request of 4/10ths of 1% (35/8500), the U.S. Automakers are being sliced and diced.

C’mon people! Let’s keep these things in perspective.  The blue collar worker will be the one to suffer if the automaker bailout does not come, not Wall Street.  Where is the support for Main Street when it really needs it?  Have you forgotten about all of those extravagant bonuses paid to all levels of Wall Street employees?  Do you think a line worker in a GM plant gets anything close?

The U.S. is the largest debtor nation in history.  Our leader flies on the most expensive corporate jet in existence, Air Force One.  It’s cost per mile to operate is unbelievable yet we do not want our leader taking a junket to China or the Middle East when we have our hand out for more of their wealth to support our debt or way of live, now do we?

This arrogance directed toward three CEO’s underlines the fundamental mess we are in.  Pride and ego have taken center stage.  Let’s find some whipping boys to take the heat while the real culprits are found on Wall Street, not Main Street.

"The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

Bank of America Corp, Citigroup Inc, and JPMorgan Chase & Co represent over half of the estimated U.S. cards outstandingsas of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults."

See: http://biz.yahoo.com/rb/081201/business_us_finance_research_oppenheimer.html

The credit card crisis is running 18 months behind the mortgage crisis.  Those who have been on cash flow life support by using the credit cards will have the plug yanked out of the wall.  This will exacerbate the mortgage crisis as well as the dismal retail numbers being reported.  If the consumer represents 70% of the Gross Domestic Product (GDP), a 10% decline in consumer spending yields a 7% decline in GDP, and that is a serious problem.

In the 1930’s deflation was a major issue.  To fight deflation, Franklin Roosevelt’s took action which resulted in a 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation.  This action proved to be successful in dealing with the Great Depression.  Ben Bernanke is the expert on monetary policy of the Great Depression.  I expect the U.S. Dollar devaluation to begin sooner than later.

A $2 Trillion reduction in credit limits by the major credit card companies accompanied by an increase in credit card interest rates will place further drag on any recovery.  A forced cleansing cycle for the credit card abusers is ahead.

The underlying issue of the financial crisis is the handling of OTC derivatives.  Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is unregulated. 

The financial community securitized every debt imaginable- mortgage loans, credit cards, car loans, student loans, etc.  The size of the problem is somewhere between 200 and 900+ trillion dollars depending on who you talk to.  There is no public market for these instruments and nobody is talking about creating one.   This financial crisis will not be solved without creating a financial market for these securities.

Why is there no financial market for OTC derivatives?  Those in power know that a "market" would cause ‘price discovery" to occur and then we would find out how worthless or near worthless these instruments were.  Once the cat is out of the bag, we would find many institutions to be insolvent.  So much for transparency.  The powers that be are just throwing good money after bad.  The longer it takes to come to a day of reckoning, the more severe the cleansing will be.  Those who profited from this OTC derivative scam are not innocent… and they know it!

Pro 28:20  A faithful man shall abound with blessings: but he that maketh haste to be rich shall not be innocent.