The Epitaph of Nationalization – Not It’s Inception

Defenders of the free-market façades which have permeated the economic zeitgeist of the past two decades lamented and lambasted the Obama Administration’s intrusion into the automotive heartland of America’s industrial ego. How could the government (please sneer here, a little gratuitous boo, hiss – thank you) dare usurp the likes of Chrysler and GM - these bastions of iconic industrial supremacy? Militant faux alarmists decried this latest intervention as “socialist” (you may wish to boo and hiss again here) and a threat to the very core of American enterprise.

However, watching this scene unfold from my euphemistic utopian armchair from which I philosophize, pontificate, prophesy and do other things which start with my alliterative “p”, I was struck with the irony that this act represents the end, not the beginning of nationalization. And, given the delightful complexity of economic implicit codependence, actually accelerates the transition that I’ve been discussing since 1997.

Indulge the following observations.

Nationalization of property. For the not-so-informed, a lien on something means that you don’t actually own something. In fact, the lien holder is the effective owner of whatever is financed. So when, in 1938, the Federal Government created Fannie Mae (as part of FDR’s New Deal) and Freddie Mac (1968), it established, under the public guise of home ownership, what amounted to the largest nationalization of residential property in US history. Ironically, many self-described conservative free market advocates actually saw this as liberation and failed to read the fine print in the lien provisions. The Bush Administration, in its post-9-11 rush to stimulate the economy further secured the effective lien-holder status of the federal government by liberalizing capacity for higher debt limits, lower loan to value ratios, and greater unsecured credit exposure.

Tax deferred investments. Fair and Balanced™ defenders of “Truth” and the “American Way” are delighted to know that the “free market” was made accessible to American investors through contrivances like the 1978 market ruse launching the 401(k) and other tax-deferred investment programs. Ironically, these programs actually served to support, through fee income, those who allegedly managed programs who, in good times or ill, collected fees while the American investor was precluded – at pain of accelerated taxation – from following his or her instinct to exit a market that was tanking. By nationalizing retirement savings (and through the current administration’s on-going unwillingness to declare a tax holiday to empower the American public) the government insured that all retirement monies would enjoy the management monopolies created by tax policy which benefited institutional cabals – not the public they were supposed to benefit. And I can’t resist the impulse to remind you that your pension is “guaranteed” by the illiquid PBGC!

Nationalization of small business and US employment. Since the 1942 establishment of the forerunner to the U.S. Small Business Administration (which few remember as the Small War Plants Corporation), the engine of jobs growth in America has been dominated by the Federal Government. Through preferential federal procurement (1953) to loan guarantees (1958) to the Reagan administration’s venture capital inducement in the form of the Limited Liability Corporation’s propagation together with considerable venture capital tax incentives, the government has been inextricably integral to the formation, preferential selection of winners and losers, and instigators of small business across the country.

Nationalization of education. Spend any time in institutions of higher learning and you’ll find that the business of education long ago became the business of the federal government. The “socialization” of research and development throughout this country enjoys a long, colorful history of linking academic research to federal funding in its most recent incarnation dating to the Stevenson-Wydler Technology Innovation Act of 1980. Make no mistake. If you want to succeed in the grant funding which leads to tenure in the research institutions of this country, you will pass through the federal government.

These are but a few of the ways in which the recent automotive (and not so forgotten nationalization of the banking and insurance sectors over the past 16 months) “takeover” by the government should not be seen as a novelty but rather as the concluding footnote to a history where the private sector has become intoxicated on entitlements which are so cunning that they are labeled by cacophonous economist and pundits as “free market”. It's not the "end of American enterprise", rather its the conclusion of a process which will add impetus for a new process to emerge.

President Obama has injected a much needed call to action into our economic haze by calling for a renewed productivity in America. If only he took the time to listen to the overlooked facts below, we’d be in a better position.

1. On green jobs – America made a hubris-filled mistake in the late 1970s and early 1980s. By liberalizing patent laws, the US Patent Office allowed thousands of patents on hydrogen vehicles, fuel cells, wind and water turbines, biomimetics, biochips, alternative fuels and all other “green” technologies. These illusory inventions were never put into commercial use and now the patents that would, in a traditional sense, support Obama’s green industry are expired and in the public domain. Major innovations in “green”, much to chagrin of this Administration and to the detriment of “green funds” are not the exclusive domain of the US. In fact, most of the cutting edge is off-shore. Readers should remember that the Chinese government’s mandatory technology transfer programs of the 1990s mean that many technologies alleged to be owned by US companies are already licensed to China. So, we not only have to invent the technology of the future but we also have to invent the corporate structure that uses the “open source” technology recycling paradigm that our past excesses now demand. Proprietary is out – Innovation Recycling is in.

2. On environmental infrastructure – No pension fund is fully insulated from the 20-30 year bonds which pay for our oil addiction, or massive power grid infrastructure (generation and distribution). Those who would advocate for the adoption of environmentally aligned power and utilities must first confront the reality that accelerating the obsolescence of bond financed utilities will also accelerate pension and entitlement illiquidity. Therefore, the challenge facing the “green” infrastructure community is to not only innovate solutions but innovate how to factor the innovation futures of said innovations to offset the bond defaults their adoption will trigger. And after we deal with the obsolescence in the short-term, we will need to innovate entirely new investment vehicles to pay for the more rapid cycling adoption of frequently improved green innovations.

3. It’s a interdependent world out there – I was struck by the fact that a significant volume of the wind turbines which spin their vast arms against the generous celestial gradients have, in their blades, balsa wood harvested from Papua New Guinea. Huge stands of these generous trees are lumbered and laminated to create the green generators. Isn’t it ironic that we’re killing trees to go green? Now I’m not suggesting that we cannot use natural resources but I am interested in calling for what I’ve referred to as “Peace Trade”. What Peace Trade (a concept that we developed to help promote conflict free component and raw materials for consumer products) does is put the human and environmental face (literally pictures of who and where all components came from) on end products so that the consumer sees the all-in cost of consumption. As we look to the industrial transformation of America, we should acknowledge our abuse of resources – promoted by John Maynard Keynes in The General Theory of Employment, Interest, and Money (1936) as being “basically free” – and realize that innovation in supply must be inextricably linked to innovation in industry.

We’re lucky. The end of one cycle is here. If we take the time to embrace the agnostic realities of the compromises we’ve directly and indirectly accepted and see that our way forward will involve centralized leadership – not from Washington D.C. but not at its exclusion either – we have a shot at some really cool futures. We can redefine what "Washington" means and what the "economy" means if we collectively engage in creative alternatives rather than lament our nostalgia over a past that really wasn't what we thought it was. So, let’s enjoy the sunset because a new day is just about to dawn.


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Why 44 million Americans should get to know PBGC

On the same day that GM announced that it would be trading bonds for equity – a proposition that every pension fund manager must love to hear – it is notable to observe that we’ve had a mysterious one month hiatus in the PBGC stepping into guarantees of illiquid pensions. During the month of March, 4 large pensions were taken over and then, with little explanation, April appears to be passing with no more than a peep.

Now, you all know that I’ve frequently written and spoken on the much-larger-than-the-bank-failure risk in our nation’s pension programs for quite some time and you’ll note that no public official has stepped up to the plate to address this issue head on. In fact, the Obama Administration spent another $30 billion in attempt to bury the reckoning that will be triggered when AIG finally is forced to disclose the fact that it’s managed annuities are no more. But we shouldn’t worry. The Pension Benefit Guarantee Corporation has put the best minds on positioning their obligations for success in the hands of companies with an impeccable reputation for getting the market right. It has contracted management to BlackRock, Goldman Sachs, and J.P. Morgan who manage “very significant real estate and private equity allocations and supplement staff with a full range of services…at a fixed price”.

A little piece of data that would be helpful to realize is that the PBGC actuarial report (the “stress test” if you will for insurance companies) reported that, on September 30, 2008, their single-employer program exposure included $57.32 billion for the 3,850 plans that have terminated and $12.61 billion for the 27 probable terminations. This number was calculated prior to September 30, 2008. There is no evidence that it included things like the Bernard Madoff-triggered pension collapse of East River (taken over by PBGC on March 10, 2009. The anticipation of pension assumptions of Propex (3,300 pensioners on March 23, 2009) and Intermet (4,500 pensioners on March 13, 2009) are also rounding errors in the face of the massive automotive and supply chain challenges that lie ahead in the coming days and weeks.

PBGC seeks to reassure the American public that it’s in good shape (and is obviously well managed with BlackRock, Goldman, and J.P. Morgan) but there are some details that should be considered that may suggest another story. Let’s look past the fiscal year end deficit of $11.5 billion and the current $69 billion in known liabilities. Let’s also look past the recently reported 6.5% drop in returns on professionally managed assets. Rather, let’s look at the fundamentals that drive the actuarial data which is supposed to tell us that all’s in hand.

You’re welcome to review the fine print yourself (I would encourage that by the way) but it’s important to note that over the past nearly two decades, SPARR or the Small Plan Average Recovery Ratio, has dropped from 12.01% in 1991 to 4.26% in 2008. The SPARR is the percentage of assets recovered by the PBGC from plans that they have taken over in the year of termination compared to the outstanding liability assumed. So a dropping SPARR is a BAD thing. And, a dropping SPARR together with a negative asset return on managed funds is a really bad thing.

In short, if you still are scratching your head wondering why you keep hearing about things being “too big to fail”, realize that they are all being propped up to avoid the musical chairs conundrum that will soon be sitting at every dinner table. The real problem, unlike those economists who want to blame 1930’s economic theory for velocity and money problems, is the one no one has the courage or accountability to face. That is that we made a number of promises that are now in default. And, we will all have to understand that we all must find our way, together, out of this mess. It will begin by extending the table to those who are about to find out that what they were planning to live on isn’t going to be there.

The House Wins

Breathless commentators on the major “news” media outlets over the past week have dared to dream that we may have seen the bottom of the greatest economic downturn since the 1930’s. Could it be that we’ve tested the bottom? Can anyone afford to sit on the sidelines as we see the market so deeply discounted?

A tiny note that is worth considering: finally the Financial Times has put into the public awareness in an April 5, 2009 article (see article here) data that I discussed at the last Arlington Institute SpringSide Chat – namely, the only winners right now are the “house”. What I mean by that is that the only real wealth extraction that was taking place during the last quarter (and if we’re serious, for the past several years) was the money being taken off the table by banks and brokers that charge fees for “managing” investments and trades. It turns out that over 50% of the profitable revenue for many of the world’s leading banks came from transaction and trade fees. This was not creating value for investors. Rather it was charging them for moving investments between equally ephemeral classes.

And here we go again. Just before earnings season when we’ll see the devastating consequence of on-going unemployment and when record numbers of workers around the world will be seeing their unemployment benefits expire – two pending market shocks which will add to the pension collapse that I’ve written about earlier – you’re being asked to put money back into the market. For the record, this advice is for two beneficiaries only. First, it is for the benefit of your broker/banker/fund manager. And second, it’s for the same hedge funds that shorted the market into oblivion before. As investors are lured back into the rock of the sirens, the very professionals who are pumping the market’s value are positioning themselves for the next drop when, you guessed it, they’ll be more than happy to take your cash again.

It feels like Las Vegas because it is. The fundamentals that soured the IBM / Sun Microsystems deal over the weekend are as termite-infested as ever. The massive pending debt refinancings that are necessary on corporate balance sheets – a phenomenon which will emerge in April and May – are as problematic as they were and no amount of accounting wizardry nor accounting obfuscation (just approved this past week by an unconsidered U.S. government reality deferral) can save us from the fact that until the market constituents generate value, investors will keep losing. The winners are those who are trading on quantitative models which profile investor behavior – your behavior – and the bankers and brokers who collect the fees for rearranging the deck chairs on the Titanic. If the Obama Administration really wanted to help the average investor, it would provide an asset balancing tax amnesty where pensions, 401(k) and other tax deferred retirement plans could be really moved and managed by the individual rather than keeping them trapped in the nepotistic cabal where the House is the Winner.


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Is Balance Sheet “Cleansing” PC for Money Laundering?

Open Subscription for the Bair, Bernanke & Geithner LP Hedge Fund.

The cover story in the March 25, 2009 Financial Times discussed the conundrum created by the ill-conceived FDIC and Federal Reserve “Toxic Asset” purchase program. By establishing a heavily discounted “fair market” reverse auction price for these assets, reserve liquidity required by banks post sales will actually need to be enlarged in a market where capital flows are already severely constrained. It came as no surprise that neither Citi nor Bank of America would comment to FT on this fly in the ointment. It came as no surprise that the market celebrated the government’s plan with the same lack of critique that they accepted, well…, no-doc loans, CDO, CDS, TARP, and any other acronym you can imagine and the market lurched forward on shrilled enthusiasm that we may have turned a corner.

Well folks, we haven’t. As the AIG bailout remains a diaphanous money-laundering exercise to pad CDS alleged counterparties at the taxpayers’ expense (the Treasury couldn’t officially just give them money), so the “Toxic Asset” program is a less-thinly veiled racket that, in the final analysis, may temporarily create the illusion that the Federal Reserve and FDIC are not as insolvent as they actually are. After all, as a partner in the purchase of these heavily discounted “assets”, the resulting accounting scams that become options to create illusory variable value assets for both the Fed and FDIC come at a critical time in both organizations’ histories. And the best part about this is that the newly constructed Bair, Bernanke & Geithner LP Hedge Fund is that Congress has no mechanism to oversee or control its actions. Seldom, if ever, have so few been granted such unsupervised control. After all, Congress is only now considering whether it should regulate hedge funds while the Executive branch of government is creating the mother of all hedge funds! And, are we surprised that the same fund managers who tanked billions of dollars of managed funds in the now discredited, careless CDO and CDS mess are stepping to the front of the line saying that they’re in on this scam?

While I’ll write more on this linguistic cultural observation, I thought I might introduce a tiny window into an observation which may bear deeper consideration. We may benefit from a consideration the terms “credit” and “debt” as I believe that has been in the blurring of these important words and their attendant constructs that we may have lost our way. Credit (from the Latin term meaning to confide or entrust), a term that implies a productivity or character based future option, was created to provide capital in the present for a bountiful, more than adequate return derived from accretive value. A farmer received credit in the spring which would be repaid – with return – from the excesses of the harvest. And a letter of credit – made ubiquitous by the Knights Templar – was a conveyance of trust ensuring that there was adequacy in provisions at either end of a counterparty exchange. Debt, on the other hand, was an instrument of scarcity and bondage. Inherent in debt was the control by those who minted the lendable resource over those subordinate to them by virtue of scarcity or station. Anecdotally, you never heard of a credit prison did you? In our less-than-a-full-century addiction to balance sheets, we blurred the line between debits (not to be confused with debts) and credits. And when we took the industrial revolution’s balance sheet, for which this accounting innovation was a means of measuring industrial output efficiency, and applied it to the financial markets, we fully confounded the notion of credit and debt.

When the Nixon administration formalized our modern belief that without debt markets, neither our currency nor our wonton consumption could be supported, we lost our way. When CNBC, CNN, Fox News and others say that we need to open the credit markets, unfortunately neither they nor the politicians for whom they serve as mouthpieces get it. We haven’t had credit markets since we decided to discontinue our productivity-based GDP in favor of debt-ridden, knowledge and service-based consultancies which generate value in the immediate with limited future excess productivity and value. Our plan to repay our debt doesn’t come from an abundant surplus. Rather it comes from our ability to refinance. And that’s the bet that BB&G LP are banking on. In short, the whole system is wired to keep in place a dependency which, in a perverse sense, can only survive when consumers blindly spend themselves into ever deepening holes. The way this mythical Colossus falls is when one component of the scam disengages from the madness.

Last night on CNN’s Larry King, I watched Ed Norton promoting the energy-conserving hour long black-out known as Earth Hour scheduled for this Saturday evening. Let’s take it one step further and give the over-taxed raw materials of the earth a breather too. For one day, let’s agree to go debt free. Let’s learn from our religious friends (Mormons, Muslims, and others who fast routinely) to go a day consuming nothing save the gifts that nature has given. Spend nothing that you don’t have in your pocket. Finance nothing. Extend credit only when and where you know that more than adequate bounty is befalling a counterparty. And then watch to see the Colossus crumble. After all, if we cannot model a life free from the debt-laundering nonsense that has enslaved our leaders, we’re ill-prepared to condemn it.

And one more thing – look around your community and find someone who still makes things – a small factory, a bakery, a printing shop, a semiconductor facility, a steel mill, an artist – and spend a few minutes seeing what productivity is again. And then ask yourself – isn’t it time that America re-discovered the value of credit linked to a bountiful, productive future?

Blood Into Gold

CNBC Captured the Inverted Alchemy message in their coverage of the Blood Into Gold release...
http://www.cnbc.com/id/29883286/


Following a meeting with Peter Buffett in January, I had a dream in which I saw all of the attempts at alchemy in the world. In the dream I saw that the only thing that had been successfully turned into gold was the blood of humanity - both those explicitly oppressed and those who are enslaved by their obsessions. Peter and recording artist AKON took that dream and created a masterful song calling for accountability which will be debuted at the UN International Day of Remembrance of the Victims of Slavery and the Transatlantic Slave Trade, March 25, 2009. Please share this video with all you know and join in the effort to see the wealth in the essence of things and people rather than in the gold that from them can be extracted...

http://think.mtv.com/044FDFFFF018195C2001700996974.
(Copy the link and paste it into your browser to avoid the mtv homepage)


Think, Inform, Act....

De-nominating the Common Wealth

The Newtonian impulse to recognize as verifiable and real only that which can be named and measured finds itself at an untenable boundary. Most matter is “dark matter”. Most energy is “dark energy”. Most DNA is “junk DNA”. And most financial products are ephemeral bets against uncertainty – with the majority of them bets against a better future. After all, default swaps accounted for five times the global GDP before they unraveled in 2008. The Bank of International Settlements or BIS – the party responsible for establishing the framework for international banking standards – still puts on an equivalent footing, cash, cash-equivalents, and gold as surety against financial loss. Is it not ironic that in an age defined as the “knowledge economy” we have been entirely unimaginative in how we describe, measure and exchange value?

The time has come to free humanity from the tyranny of reductionism in the denomination of wealth. Part of that process is to carefully examine the consensus myths and their consequences around reflexive norms. Think for a moment. If gold sells for $1,000 per ounce and it takes 22 tonnes of ore to get one ounce, have we honestly priced gold? Could you move 22 tonnes of anything any distance for $1,000? Did we price in the cost of the expropriated land? Did we price in the oppression of labor? Did we price in the only alchemy that inhumanity has perfected – namely turning human blood into gold? Clearly, no. Are cash and cash equivalents a necessity for social exchanges of value or are they the reductionist efficiency for power structures to maintain control (and taxation basis)? Can the BIS bring accountability and transparency to the globe when the G-20 seeks to return to the asymmetries of the past?

The G-20 ministers met in London this weekend as I found myself in a sandstorm in Riyadh, Saudi Arabia. I was puzzled as I saw the economic leaders of the current paradigm struggling to find a path to bring accountability to a process that was explicitly set up to avoid it. Remember, the innovation of a corporation per se was a creation to buffer individuals from the liability of their enterprise. Limited liability and limited accountability go hand in hand. Humanity has a chance to have a voice right now - a clarion call to suggest that we don't want to go back but rather, we want to move forward. We want to have infrastructure built and financed in such a way as to allow for the immediate inclusion of innovation rather than waiting for a bond to expire and an asset to waste. We want to have exchanges between people, communities and cultures which don't have to be reduced to balance sheets. When "goodwill" is written off to zero and tangible assets are tested for impairment, is there any wonder that we aren't evolving into a more transparent and accountable future. The world is more complex than Excel displays it. It's time to take back the dimensionality of humanity and celebrate its complexity in the accountable stewardship to which we are being invited.

The AIG Shell Game – Part 2

If the Government wasn’t at the helm, the SEC would call this a Ponzi scheme


Many of my earlier writings going back to 1998, have pointed to the fundamental “weakest link” in the global capital markets which has been the disconnect between the understanding of collateral and the retail cost of capital leading to precipitous risks to the public and private investor. Long before it was thinkable, I commented to the executives at AIG that their opaque counterparty risk management products were going to result in global market calamity. In contrived bull market enthusiasm, such a warning was unheard. Even now, as President Obama and his team work to stem the hemorrhage of calamity in the markets, there is NO evidence that he or his advisors actually understand where the tumor is that is causing the spreading cancer. So, in an effort to shed some light on this, I’m going to take a basic approach to explain what’s going on and what to do about it.

Philosophically, we need to understand the ubiquitous nature of perceptions of risk and how it has allegedly been managed over the past 75 years. Established in 1933 as part of the Banking Act, the Federal Deposit Insurance Corporation (FDIC) was chartered to shield the public from economic disruption arising from liquidity crises and bank failures. In theory, by building public confidence in bank security, depositors would be comfortable supplying the reserve liquidity (in the form of deposits) to allow banks to issue credit. Sold to the public as a way to insure their safety, the FDIC was and remains, in truth, a tax on the public to incentivize private depositors to fund banks and their operations.

Recognizing how well the “public interest” insurance premium "tax" argument worked to entice depositors to support the U.S. banking infrastructure, other similar structures were equally incentivized. For example, the Pension Benefit Guaranty Corporation (PBGC) formed by the Employee Retirement Income Security Act of 1974, like the FDIC, receives its reserve funding through insurance premiums paid by the public. Like the FDIC, the PBGC is in a position of near illiquidity. While more indirect, federal tax policy has funneled the majority of tax-deferred investments into IRAs, 401(k)s, and other defined benefit programs which have consolidated asset allocations into a very limited swath of financial products – the bulk of which are bonds. This incentive has been used as a way for the Federal government to underwrite corporate and municipal debt without telling the public that they're actually being charged a tax. After all, the theory goes, this is an investment in the future productivity of the country. Which would be great it we had a GDP. This was, at inception, supposed to insure against wild volatility swings in equity markets and other investment products. However, this “risk management”-based-on-insurance strategy built a catastrophic risk overhang into the market which is moments away from full failure.

Heralded as financial market innovation by brokers and academics alike, many saw pools of cash sitting in conservative yield financial products during the bull run of the late 90s and again in the first half of this decade as wonderfully under-utilized. Since most of the public didn't really "need" their money until retirement, the accountability for where it was double and triple leveraged wouldn't really matter, would it? As long as S&P, Moody’s, and Fitch were willing to sell their ratings to prop up unsubstantiated investment products and bless them as investment grade, conservative investment managers of reserve accounts leveraged these public insurance policies against increasingly ephemeral financial products. Among the providers of liquidity were insurance companies (like AIG, MBIA, FGIC, Ambac, and FSA) who used premium deposits (not income) as the collateral for short-term credit guarantees joined by a host of life insurance companies around the world. Also getting in the act were endowments from major universities, sovereign pensions like Singapore’s Central Provident Fund (CPF) or Canada’s Pension Plan Investment Board, and anyone else who had contractual requirements (supported by tax deferral policies) to hold the public’s money for future obligations.

Unfortunately, few people understood that these pension and annuity obligations were being put at risk and, since the managers of such programs were being incentivized to leverage their reserves for promises of short-term gains, they were being seduced into deepening their exposure by providing ever greater amounts of credit insurance. Credit insurance, by the way, is an interesting, Ponzi-like program where to gain investment grade ratings so that fixed income buyers can purchase bonds, other fixed income accounts (pensions, annuities, and insurers) provide balance sheet support for a fee. This fee – a credit insurance premium itself - is then used to support income which, in turn, is invested. Like any Ponzi scheme, the racket works as long as there are buyers and until the risk matures. Then, like every Ponzi scheme, the house of cards falls.

So imagine the irony when the house of cards begins to crumble. Based on their reports today, March 9, 2009, the FDIC has $41 billion. Not to worry. With over half of that set aside for the next 12 months of losses alone, Sheila Bair, the person at the helm of the FDIC has cast any concern for premium collection aside now saying that the FDIC has the “full faith and credit of the United States government”. “We can’t run out of money,” she said in a Reuters report.

On the same day of this announcement, the newly-minted federally insured bank, General Electric corporation, announced TLGP and FDIC backed debt in the amount of $8 billion to add to their existing Aaa (Moody’s) and AAA (S&P) corporate bonds. Why does the U.S. government need GE to originate these products? Well, quite simply, because it’s desperately trying to get someone to plug the gap in investment grade bond instruments to fulfill the quasi-statutory demands of pensions who are now both illiquid and, with the down-grading of credit insurance providers, no longer holding investment grade investments. Bottom line, there is insufficient inventory for annuities, pensions, endowments and other conservative long-term buyers to remain out of default so the government is attempting to shore this up with, you guessed it, a Ponzi-scheme. Is it any wonder that the SEC is making so much noise about the Madoff's of the world to distract from their own more egregious program? In short, the GE deal is part and parcel of the AIG cover-up.

The cover-up is quite simple and profound. Few, if any tax deferred pensions, annuities or endowments now have the funds to redeem their current or future obligations. If the public were to find this out, it would be a disaster far worse than we’ve already seen. Imagine a Depression-era run on pensions. Foreign investors, as evidenced by the Saudi Arabian, Singaporean, and other sovereign funds’ losses in the Citigroup bailout, no longer have an appetite to buy U.S. government debt so the U.S. government is pulling out its last chip before complete insolvency – shore up pensions with faux corporate debt. The problem with this strategy is simple. As soon as we see that the insurance liabilities at present outstrip the U.S. Government’s “full faith and credit”, the collapse is visible and there’s nowhere to hide. The very companies that were put in place to protect the investments of the public have long ago placed your deposits at risk, taken their fees, and are, by and large, in technical or actual default to you, the private citizen. Now, your pension fund is trying to buy FDIC-backed bonds and other fixed income products with your money. This is another bailout tax and you should not participate in it.

What can one do? Quite simply, an immediate review of tax-deferred investments is of immediate import. And by immediate, I mean today. Any investments that are covered under credit insurance programs should be carefully considered and probably re-rated as speculative. At this juncture, it appears prudent to review all equity investments which have balloon maturity debt (many companies financed acquisitions from 2002-2005 with short term maturing bonds and commercial paper) and exit them in favor of equities issued by companies which have reproducible revenue coming from essentials for health, food and food security, and logistics and an innovation pipeline supporting future efficiencies. And finally, realize that all of this problem grew out of the fear of the 1930’s and anything built on a foundation of fear will not yield good fruit. It’s time that we look forward, not at a fix of the old, but at the new. We are beginning to build the Idigna network which will allow the reintroduction of commodities and essentials as well as the introduction of innovation futures which will pay premium prices for creative new production into the new economy that is coming. We would love to enter into a dialogue with you on how these new (albeit inspired by ancient approaches) products can help you weather the storm.

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