Category: Richard De Graff

Poor Richard’s Report
How to Cut the Deficit
Washington DC is now one of the wealthiest cities in the Nation. It has become a burial ground of would-be welfare professionals.
I wanted to learn more about the velocity of money from the Federal Reserve Bank of St Louis.
The first article I read started off with two “big words” that I never saw before. Looking them up I discovered that they were biological terms. Then the rest of the article was filled with mathematical equations that only a math student working on his doctorate could understand.
Clearly this individual was writing to show how smart he was. Going to the last page I was hoping for a summary. It was there in a complicated formula that would make Einstein hopping mad. No E=MC2.
The velocity of money is an indicator of how the economy is doing. It measures the turnover of money in the system. Lots of turnover indicates a rising economy. A declining line means the economy is slowing down or the doldrums. Right now it is at the bottom which means to me that QE’s, ZIRPS etc. are nothing but hoarding material for the major banks.
Former Chairman Bernanke is famous for his helicopter speech where he foreshadowed an economic collapse. He, the Fed, would go into a helicopter and dump billions of dollars all over the country. Putting the money into the peoples hands would have been the best route I believe because money goes where it is treated best in a free society.
The electorate in its infinite wisdom elected Democrats in both houses and the President. They gave them a Mandate (?) to protect the banks and unions.
We are unable today to redistribute the wealth to all the people.
Schumpeter’s Law of Creative Destruction; where new business replaces dying businesses. Ideal example: the automobile replaces the buggy whip.
The Federal Reserve has too many employees. President Harry Truman was always looking for a one arm economist- so he could not say “on the other hand”.
Simple procedure; fire the ones who are consistently wrong in their guesses. Keep the ones who are basically on target.
The Department of Energy was started under President Jimmy Carter. Oil is higher today than back in 1978. Nice job. I would reduce them by 90% and merge the remaining into the Department of Transportation. Take the monies saved and reduce the taxes on fuel and also set up a reserve fund to pay down government debt when it comes due.
Merge the Departments of Interior, Commerce, and Transportation. This can be done by early retirements, and duplication of staff and jobs.
The monies saved here would replenish the Social Security System by buying Government bonds and holding them to maturity while collecting the interest. That would make the system solvent, and in a few years payments would be able to increase because of the magic of Compound Interest.
Finally, law makers should abide by the laws they pass. The mistaken notion that they deserve the best because they are helping 300 million people is like I deserve more because I am better than you. Balderdash! That they are serving us is an honor we bestow on them. We pay their salaries.
The above should be for all countries and will help all nations better the people and not the politicians.

Poor Richards Report
Chapter 6
Revise the Federal Reserve Act of 1913
When J P Morgan was testifying before Congress he kept warning them that should pass national banking law. They kept saying “but we have you JP”.
Well in June J P Morgan died and Congress in its infinite wisdom appointed 6 house members and 6 senators to come up with a bill. The members were considered to be of the highest ethical standards of the day. The party lines were split 50 /50 in each branch and they were told not to submit a bill unless the vote was unanimous. 12-0! They had all sorts of advice from all directions including President Wilson. Finally on Dec 23, 1913 they presented the bill to Congress in the morning. They approved by voice note and the Senate had two NO votes. That afternoon President Woodrow Wilson signed it in to law and appointed JP’s right hand man at President of the Federal Reserve Bank of NY. That was the main power base because that bank cleared all international transactions. The Chairman of the Federal Reserve was just a figure head until The Eisenhower Administration.
The main composition of the law was for it to be nonpolitical. Politically free from political bickering. To insure that; it would take a 2/3 vote in the house to remove the chairman.
That is why under pressure Jimmy Carter had to appoint Paul Volcker as the Fed Chairman to his man who had sent the dollar reeling because of the oil crisis. OPEC wanted a basket of currencies because they were losing money with the dollar.
Paul Volcker killed inflation and when his term was up Donald Regan, then Secretary of the Treasury under President Ronald Reagan, advised dumping Volcker because he was a democrat. Probably one the greatest chairmen was being discarded because of political reasons. Then he had the gall to ask who would be a good replacement. That was a hit below the belt. So a mighty chairman recommended an impotent small fry –Alan Greenspan. The new Fed Chairman learned how to speak around corners and confuse most politicians in Congress and the press. They called it “Greenspeak”.
Two lessons we learn from this episode. The head of powerful Brokerage firms (now called banks) are poor candidates to advice presidents or run major agencies or hold cabinet posts. They think money and not people.
All nations should have something similar to the Federal reserve Act and make sure appointment does not occur during major election years.

Poor Richards Report
Chapter 5
Break Up The Major “Banks”
The Chairman or President of every major bank worldwide is a BASTARD! To become one he had to be one.
Today most heads of banks were brokers. The true banker today thinks only how to make more money. With the checks and balances of yesteryear are now only myths and the power of money can be seen everywhere. The Holy Bible of the Christians cautions against greed all through the Old and New Testaments and many other religious organizations I believe.
The control of the flow of money is of the utmost importance. Eras of easy credit have led to access of wealth into too few hands. Once one has made a million one wants to make more. To do this one must cut corners and expenses at the expense of many.
Eventually politicians have to be bribed to make everything legal. Not ethical, but legal in the eyes of the law.
Unknowingly the public is being bribed by rising markets while manipulation rides the ocean waves. Each wave crashed onshore just before the manipulations sell. Then a new wave emerges with new surfers enjoying the thrill.
Then underneath it all a tsunami comes and everyone wants to sell. But To whom?
It happens in every cycle. The institutions (banks, hedge funds, mutual funds, and large investors that can manipulate a security) who control the flow of funds, beside the government and their agencies, decide to sell along with the average investor, find out there are bids for securities. No buyers. Markets close. It starts with one country and the sellers go the next country.
Finally good old USA! It does not matter how strong the economy is. If the umpires are bribed, eventually the fans will riot.
This is fact. We must act now before the bomb explodes.
We must break up the banks. Every banker with brokerage experience gets shifted to brokerage business. Bankers now become real bankers and make loans and mortgages and service them locally. No more dumping them on Washington D.C.. This will enable banks to pay interest on deposits based upon a percentage of earnings. Certain amounts can be daily at a lower rate while a higher rate can used for long term deposits.
Banks will not be allowed to issue Certificates of Deposits, or borrow money in the open markets, but only from the Federal Reserve. (Banks that have excess funds at the end of the day, lend those funds to another bank that belongs to the Federal Reserve that needs it overnight and pays a small interest fee in doing so.)
All citizens of every country earn a wage with which to live by. These wages are the basis for a country’s strength economically. If the wage earner has faith in the financial institution and their government then they make deposits. If they lack faith, like many Japanese have in the past, they put the cash in the home freezers. Thus the expression – Cold Hard Cash”
Each country needs a strong conservative banking system that will attract deposits from the local community.
Listed below are the crucial areas of reform. Please keep in mind that they are draconian in nature but do we have a choice? It is going to happen sooner or later.

Summary of Bank Break ups more to follow later on.
1. All banks will pay off shareholders at Net Tangible Book Value.
2. Banks will break up into Commercial, Financial, and Savings.
3. No Directors shall be a public office holder or a member of the clergy.
4. Each director will own a portion of the bank based upon book value. Fines will be paid from directors based their percentage of BV holdings.
5. Commercial shall consist of checking accounts, mortgages, local business endeavors that serve the community, county and State.
6. The Financial shall consist of brokerage, bonds , research, distribution of equities to public and private accounts.
7. Savings banks can originate or buy mortgages from commercial banks. They will have the use of money market funds at a lower rate than savings accounts that will pay quarterly.
8. All accounts will be computerized to determine that all legal requirements are being met. This will stop corporations opening several accounts at various banks. This “inspector general” can be paid from funds at the various banks he serves.

POOR RICHARDS REPORT
The Trumpets are Blowing Chapter 4

CAVEAT EMPTOR! BUYER BEWARE!!!!!
The stock market crash of 1973-74 was a beauty. It was caused by Watergate and OPEC and we had to wait in line for gasoline at high prices. All the safeguards put in place in the 1930’s and 1940-41 worked like a charm.
The public was bombarded by the most famous ad. “Merrill Lynch – We are BULLISH on America!”’ It did not say or even mention stocks, but the country. It calmed the public to stay the course of sensible investing.
Meanwhile back on the ranch (Wall Street) they were getting their comeuppance. Everything and everyone that centered on personal gain at the expense of the public and “the common good” got wiped off the street. When all the losses were tallied up the “street” took a 50% “haircut across the board”.
The Congress congratulated itself on a job well done, but failed to hold any hearings on how improve the situation. They left it up to the survivors to assess the damage and improve where there were weaknesses.
The red caution light suddenly turned bright green in the financial districts: the public be dammed. It was “our hide that counts” since they ran the businesses. (The same mantra is now prevalent in the Congress. “We are responsible for 300 million people – we should be paid well for it at the taxpayers’ expense.”)
The first new plot was options. With a little money (easy credit again, but disguised) one could buy a call (option to buy at a set price over set time) or a put (an option to sell a security at a set price or a certain period of time) aided by computers. In the beginning it was a disaster even for major institutions. Firms that had little control over salesmen quietly sunk in the manure pile of greed. New laws and new restrictions were instituted by the wall street. Now only 85% of all trades were losers.
Instead of quietly changing the laws of mutual funds (mainly because the efficiency of computers) mutual funds grew to be mighty aircraft carriers in the sea of investment pools.
Program trading programs were designed to bring money in from staid long term institutional funds. This was the cause of the crash of ’87. The computer whiz kids sat at their desks counting the commissions and forgot to pull the plug. At the end of the day they too got hosed.
The Reagan tax cuts brought more funds flowing everywhere including the markets.
George H W Bush wisely raised taxes a little bit to slow the economy down.
Robert Rubin, then Secretary of the Treasury, (the first of many Goldman Sack’s men to serve high public office officials) came up with a novel way of reducing government debt and taking campaign issue away from Republican candidates. He lowered the capital gains taxes on long term holdings down to as low as 15%. He also wiped out short term trading tax penalties. You were now taxed as ordinary income. The one thing the public hates to do is pay taxes to those bastards in Washington D.C., but 15% is really a deal.
So all the mom and pops nationwide sold their holdings and bought securities that had a better dividend or growth potential. All those receipts reduced the national debt dramatically until 9/11 occurred.
During the Clinton years Sandy Weil, the chairman of Citicorp, convinced Congress to repeal the Glass-Stiegel Act and the last check on Wall Street was dumped into the slimy garbage can of greed.
Now all the safeguards put in place are gone, but the powers that be are wiser than their predecessors. Just Ask Them.
What they have done is to protect themselves after a crisis. They start off protecting the client until it gets messy, then the gloves come off so they can grab the funds with hidden fees and penalties that are a God Given right.
So one final thought, the economy is slowly climbing back into positive territory, but all the safeguards and protections have been trashed.
When this happens it will be from one country to the next. It could start with the United States or Saudi Arabia, or India, or Chile.
One thing is for sure. The Nazi Gestapo of WWII are now our Major Bankers worldwide, and our elected officials are the concentration camp guards while we wait to take a “shower”.
Mark Twain is quoted, “ History doesn’t repeat itself, but it does rhyme”.
Next letter is all the reforms that we need – worldwide – to avoid Armageddon. (Revelations 16:16 Bible New Testament)

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POOR RICHARDS REPORT
Money Market Funds
“There is no such thing as a free Lunch”

POOR RICHARDS REPORT
Money Market Funds
“There is no such thing as a free Lunch”
Way back when Merrill Lynch Pierce Feener and Smith were the top firm on Wall Street, they used their combined creativity to come up with the idea of a daily interest paying money market fund for their special accounts.
Soon everyone was ready to copy them, especially after a major institutional brokerage firm got hit for a million dollar withdrawal. It was paid and the fund maintained the $1. ( It was rumored that the partners came up with cash to maintain the dollar price.)
After that the new industry was off and running with the blessing of the SEC and other banking authorities. No one gave serious thought to the savings bank industry. They paid interest quarterly – not daily.
The Savings Banks operated under very strict rules, where initially the public trust came first and foremost. It was for the general public good. But the computers were fast changing the way “the street” could do business. No one thought long term, probably because the higher priced lobbyists outfoxed the savings industry representative.
Moneys quickly left savings banks as investors sought competitive rates on a daily basis.
I can not figure out why they did not let the savings banks have money market funds too.
They would have paid a different rate too.The government also started The Federal National Mortgage Association (Fannie Mae) where banks could turn over their mortgages to a government agency that had IMPLIED GUARANTEES (GSE’s Government Sponsored Enterprise’s).
WE NEED A CZAR WHO CAN SETTLE DISPUTES BETWEEN AGENCIES.
The theme here is that it would help all the people whether they could qualify or not under normal procedures. Savings banks were now down to buying legal corporate A rated debt(legal) or better. Why should the banker take a on a risky mortgage when he can dump on the government at tax payers expense?
So lets go fast forward a few decades. The Housing bubble has burst along with Fannie Mae and his sister. Savings banks are now buying 100% Treasury Bills and a mortgage is hard to come buy. The money market funds have been buying Trillions of short term debt sponsors by national central banks because the industry is so large and the economy is so weak that short term corporate debt is a sign of weakness- or the debt is too small to be meaningful.
Before anyone knew it Greece and Portugal were having financial problems. This forced major countries to try to help them. Why? Because their banks owned the debt and would fail. So all the problems going on with the Euro has to do with no one regulating and administering to the Money Market funds. Almost anyone can start one and those little fees add up when you are taking in hundreds of millions.
There will be a day soon when the economy is considered strong enough to allow the funds to “break a buck”.
This means that most will trade below $1.00 and a few might go above $1 which would invite a liquidating of orders.
So if you own a money market fund sell. Go to cash. Cash is king. When one has cash one can act on a moment’s notice.
Remember; we might see a day when there is no opening quote- just the letters BW ( Bid Wanted).
During a panic, some stocks might open up at ½ of book value for an initial trade before the smart investors wise up.
Addendum:
The July 24, 2014 FINANCIAL TIMES page 30
SEC APPROVES MONEY FUNDS REFORM
Some face move to floating share price
Bid to prevent runs on the instruments

It took two years and the vote was 3-2 when it should have been 5-0. These are public monies in these funds.
Secondly, banks should not borrow money themselves. They should be debt free.
Thirdly, it is my humble opinion that they are giving the funds to get their “house” in order or it is time to liquidate the fund entirely.
Fourthly, they will be allowed to charge a fee upon redemption which goes against the original intentions.
This will not be a simple procedure or an easy process when you have over 900bn ‘prime’ funds that will be affected by the changes.
Again, these all favor the big wigs. This sucks!
Dump your money market funds as fast as you can.
Cash is king

Do not depend upon the Legal system to bail you out.
The Law should be above Politics.
New York State Court of Appeals was known as the second best court of the Land. The reason is because until the last 20 years, it never had a decisions reversed by the US Supreme Court.
The reason for this was simple.
In each county when a judgeship was available the attorneys would meet and the potential judges would make their names known. All qualified attorneys belonged to the local Bar Association. They would meet and vote who they believed was the most qualified among them.
Then that candidate would be endorsed by the parties who represented in the Bar Association. They ran unopposed because in theory the LAW was above Politics. For higher judgeship’s the same process was done except the county officer of the Bar Association would vote. Endorsement by the association meant that candidate would run unopposed.
Today, endorsement by the American Bar Association means very little. It is all politics. Very seldom does the US Supreme court have a unanimous decision. They are usually 5/4 split decisions.
Instead of deciding on the merits of the law, they are trying to make laws. That is suppose to be the function of Congress. The Congress makes the law and the Supreme Court validates the law or declares it unconstitutional and sends it back to the Congress.
Since computers and the internet have brought nations closer together we must now work together on a legal system that is fair and just to everyone. In a true democracy the minority is given due consideration providing they are not preaching total destruction of the system.
Members of the liberal and conservative factions of the political parties must unite on the selection of judges. Often Judges have to make decision in cases where they have little expertise and must rely on honest consultation among their peers.
What better way than to be chosen by your peers with the understanding that one will act impartially or face disbarment.

The Trumpets are Roaring
The Banks – Part 3 Continued
President Reagan raised the government guarantee for deposits of savings banks to $100,000 up from a mere $10,000.
This gave the aggressive savings banks a license to steal, because the government would pay $100,000 for each depositor. This led to the savings and loan crisis of 1990. Congress investigated with all kinds of legislation insured to protect depositors during the crisis the President said we should earn our way out of it.
The bottom line was that directors went wild with all kinds of perks which had to be paid back or go to jail.
The next crisis was also man-made. Robert Rubin Secretary of the Treasury under President Clinton decided to lower the capital gains tax to senior citizens with a long term holder of five years to a mere 15%.
Then number one phobia to the general public was paying taxes. So seniors would hold on to their long term holdings with sizable gains to avoid taxes. But 15% meant they could keep 85% of their gains for themselves. An avalanche of sell orders and buy orders hit the market place as seniors switched into more income oriented securities.
Underneath all this hoopla was a sneaky perk for the government. The capital gains taxes skyrocketed and the president’s budget deficits disappeared and the Republican Party lost its number one issue and The President easily won re-election.
The Republicans who rode President Bush’s coattails proved to be the same greedy bastards that the Democrats had been in the past. There were just new pigs sloshing around in their pig pens.
With banks now able to buy brokerage firms AND SOME PAID outrageous fees just to become “too big to fail” (Bank of American – how headquartered in North Carolina buying Merrill Lynch).
The president lied to Congress which has proven Mr. Thain’s testimony before the same committee.
This was a tip off that bankers were now being paid with “Pac moneys” or now legal funds that would forever put them in “their corner”. Under present laws it was legal, but morally and ethically very wrong.
Major Banks were now in control of the Credit Card business and would never have to worry about the Usury Law resurfacing to protect the consumer. Man’s greatest invention (Albert Einstein’s quote) was working for the banks. Brokers were now becoming known as “bankers”. Brokers want their money working for them night and day. A real banker would be more cautious, but they now were in control of everyone’s life style from the ATM money machine to Credit cards.
Ben Bernanke the Federal Chairman was called “helicopter Ben” because of a speech he gave about a future crisis, he would fly all over dumping dollars from helicopters. But when President Obama was elected along with democratic majorities in both houses Bernanke lowered Interest rates to zero, so the bankers could replenish. They continued to hoard and cheat in markets to feather their own nests.
So the general public was left out, except for stocks and bonds.
When there are more buyers in stocks than sellers stocks will go up. More sellers than buys and stocks tend to go down. This can be manipulated by the use of computers and High Frequency Trades (HFT) in stock and commodity markets. This is also illegal, but the continual steady rise in the stock indexes, one had to believe the Federal Reserve; the Treasury Department along with POTUS knew all. They will tell you it is to protect the dollar. The government has the authority to protect the dollar by any means available under the Federal Reserve act of 1913 – but to do it illegally. I doubt that was the intention of the 2013 Congress.
So the bottom line is that the recessions that President Eisenhower used by “pushing on a string”had become worse with each one.
Since we have become so powerful financially almost every nation on earth had copied us bank wise.
Next _ the coming disaster in Money Market Funds.