Finance Fraud: Buying Back our Future
How the Fed and Wall Street Are Conspiring to Defraud You of Your Wealth Potential
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Hi Medium people, I hope you are doing well and surviving our drastically changed world, stay positive! I’m a speaker who specializes in innovation and trends. In this article, I’m going to take you on a roller coaster ride through the world of finance.
Now, before you click away, let me ask you, are you employed? Do you pay taxes? Are you working toward a better future? If so, this story is for you because it’s high time you learn the unvarnished truth about America’s financial predicament.
In innovation circles, people always talk about “disruption.” Well, guess what? COVID-19 is unquestionably the biggest disruption of modern times. A point I will return to later in this article.
On March 27, Congress passed the $2 trillion Coronavirus Aid, Relief, and Economic Security Act, which cleverly abbreviates to the CARES Act — the largest economic stimulus bill in modern history, more than double the $831 billion American Recovery and Reinvestment Act of 2009, passed during the Global Financial Crisis (GFC). But, as you will see later one, it might as well have been called the “Who CARES Act.”
The CARES Act provides $290 billion in direct payments to taxpayers; $260 billion in unemployment insurance expansion, plus $44 billion in student loan assistance for a total of $604 billion. The centerpiece of this bill is a $1,200 direct payment to those earning up to $75,000 per year.
The stimulus bill also authorizes $350 billion in small business loan commitments as part of the S.B.A.’s 7(a) loan guaranty program.
I like that American workers will receive a much-needed $1,200 payment, while small businesses, which employ 82% of all workers in the U.S., get loan support. However, I’m appalled at what has become a longstanding pattern of financial manipulation.
The CARES Act is a carefully veiled extension of crony capitalism that throws just enough of a bone to the masses to minimize their outrage while institutionalizing corporate America’s fraudulent reliance on extreme debt and leverage. Did I get your attention? 😳
I’m referring to one specific tranche of the CARES pie, the $500 billion earmarked for big business, including $58 billion specifically reserved for the airlines.
The airlines are a perfect example of Wall Street excess. The big four U.S. airlines, American, Delta, Southwest and United, have spent $44 billion on share buybacks since 2012. Now they are getting a bailout of $58 billion, paid for by you and me. 😠
What are share buybacks, you ask? Until 1982, share buybacks were considered a form of market manipulation and, therefore, illegal. After the SEC issued a new ruling that let corporations purchase their own shares, share buybacks exploded.
Between 2008 and 2017, U.S. companies sank $4 trillion of their cash into buying back their own stock, with another $2 trillion from 2017 to 2019, which made corporations the single largest source of demand for American stocks.
Remember Boeing? CARES sets aside $17 billion for “businesses critical to maintaining national security” — which obliquely refers to Boeing, whose name appears nowhere in the bill. Since 2012, Boeing has wasted $43 billion trying to manipulate its own share price.
The company should have invested that free cash flow into its own business while the going was good, or at least set some aside for a rainy day. But nooooooo, why do that when driving up the price of your own stock has so many tangible benefits?
Here’s why buybacks are so attractive:
- They decrease the outstanding pool of shares, thereby boosting the earnings per share metric or EPS. That way, you can fool investors into believing that your earnings are growing while they’re essentially flat.
- Since CEO compensation almost always includes some type of stock deal, higher stock prices mean bigger bonuses.
For James McNerney, who was Boeing CEO in 2012, that meant a big payback. In 2013, McNerney made $23 million in total compensation, including about $8 million in stock. In 2014, as Boeing Chairman and CEO, McNerney boosted his total compensation to $29 million. The next year, McNerney made $39 million from pay and stock sales. A $10 million raise. See how buybacks work?
Here’s a list of companies that spent the most on buybacks, led by Apple’s $240 billion. That could explain how Apple, with little growth, was able to reach the $1 trillion valuation mark.
Bailing Out Wall Street Part 1: TARP
Of course, in many instances, buying shares with company cash was simply not enough for greedy CEOs. That’s when the triumvirate of Fed Chairmen, Ben Bernanke, Janet Yellen and Jerome Powell came in handy. In 2008, the Fed under Bernanke pumped $700 billion to relieve banks of their toxic assets under TARP, the Troubled Asset Relief Program.
The Federal Reserve also rescued AIG from certain bankruptcy with a $182 billion bailout package.
These bailouts were supposed to revive the economy, but all they have done is institutionalize too-big-to-fail policies that put American taxpayers on the hook for the reckless and irresponsible acts of the financial system.
The Fed’s artificially low-interest rates helped fueled the buyback craze. By offering large corporations access to cheap capital, Bernanke and Yellen turned CEOs into cheap money junkies. The quality of investment-grade corporate bonds has crumbled over the past decade. A bond is considered investment grade if it’s rated between AAA and BBB-. The closer to AAA, the safer the bond.
But according to Morgan Stanley, the U.S. has been flooded with BBB-rated bonds. In the past 10 years, the triple-B bond market has exploded from $686 billion to $2.5 trillion, an all-time high.
Corporate addiction led to the issuance of BBB-rated junk bonds used to fund trillions in buybacks that levitated the stock market in a Fata Morgana-like mirage over the past few years while exploding non-financial corporate debt to $10 trillion, a record 47% of U.S. GDP.
Tellingly, one in six companies is now a “zombie” — meaning their interest expenses exceed their earnings before interest and taxes. Yes, my dear YouTuber, according to FactSet, 17% of the world’s 45,000 public companies have not generated enough cash in the past three years to cover interest costs.
In short, the abnormally low cost of borrowing encouraged companies to spend trillions on share buybacks to fake their earnings-per-share growth in what has been a sluggish economic recovery. How much lipstick do you want to put on your pig?
The Fed CARES, NOT!
The saddest part is that the coronavirus crisis will only re-inflate this market bubble. That’s because the Fed plans to inject trillions more of crack cocaine into the veins of corporations, hedge funds and Wall Street bond traders hoping to backstop their ridiculously greedy behavior.
Between summer 2008 and 2009, the Fed increased its balance sheet from $900 million to $2 trillion, an increase of $1.1 trillion. It took the Fed just four weeks to do the same in 2020. In fact, it’s projected that over the next several months, the Fed’s balance sheet will skyrocket to $10 trillion in an attempt to halt the implosion of credit markets.
Ten trillion! Do you know how much that would be if the Fed gave every single American a piece of that pie? $305,810! What do you think would happen to the U.S. economy if every single American, including children and grandma, got a $300,000-plus check? Instead, all that money is going to bail out Wall Street.
Don’t believe me? Let’s dissect the remainder of the bill. The CARES act provides a $454 billion general-purpose fund for big business. The U.S. Treasury plans to put that $454 billion into a Special Purpose Vehicle, or SPV, an off-balance-sheet operation used to conceal underhanded bookkeeping and leverage it up 10x. What does that mean? The Fed will use that $454 billion to borrow 10 times more than the original amount, or $4.5 trillion, to bail out underwater corporations, financial institutions and, yes, banks.
And when I say underhanded, it’s actually written in the law. Guess what the CARES Act explicitly states:
SEC. 4009. TEMPORARY GOVERNMENT IN THE SUNSHINE ACT RELIEF. (a) IN GENERAL.—Except as provided in subsection 8 (b), notwithstanding any other provision of law, if the Chairman of the Board of Governors of the Federal Reserve System determines, in writing, that unusual and exigent circumstances exist, the Board may conduct meetings without regard to the requirements of section 552b of title 5, United States Code, during the period beginning on the date of enactment of this Act and ending on the earlier of— (1) the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 20 U.S.C. 1601 et seq.) terminates; or (2) December 31, 2020.
Translation: The CARES Act repeals the sunshine law for Fed meetings, which is designed to provide visibility into Federal Reserve decisions. Now the Fed can decide who gets what and how much with zero transparency. Welcome to the Banana Republic of the United States!
That means Mnuchin & Sons have secretly transformed the U.S. Treasury into a hedge fund, one that’s staggeringly more generous to Wall Street and corporate America than the measly $604 billion bailout hardworking Americans get, and the $350 billion promised to small business, as it literally hands out trillions in risk-free money to pretty much anyone who can figure out how to tap it.
Are you hopping mad yet? Don’t believe this is happening? Guess what non-believers? The central bank already took the unprecedented step of buying ETFs, or Exchange-Traded Funds, which are investment funds traded on stock exchanges, much like stocks. What next? Will the Fed buy corporate shares too? It’s time to rebel, people. Stay tuned for an idea at the end of this story.
Debt: The Everything Bubble
Yet all this liquidity or funds may, or may not, be enough to offset the risk of a global crash, which is leveraged roughly 3-to-1, according to CFO.com. Yes, the global debt-to-GDP ratio hit a new, all-time high of 322% in the third quarter of 2019, with total global debt reaching a staggering $253 trillion. People, I want you to know that all central banks in the world combined do not have sufficient liquidity to backstop that house of cards.
And this massive mountain of debt is growing at a fast clip now that the Fed is buying $125 billion in bonds, and who knows what else, either directly or via its designated investment henchmen at Blackrock, every single day. So, just add trillions more to that global debt shit show.
In case you’re still unclear on the concept, all these “stimulus” packages are not going directly to the people for one simple reason: that’s not their purpose. Instead, the goal is to provide trillions in corporate welfare, in turn forcing the Treasury to issue trillions and trillions in debt, which the Fed will have to monetize or else interest rates are guaranteed to explode.
Meanwhile, senators who received dire warnings about the coronavirus from the intelligence community in private briefings, sold their stock before the market’s collapse. That’s called insider trading, which is illegal. It’s another troubling demonstration of the corruption of America’s ruling class. 😖
Is it any surprise that more than 80% of household stock ownership is controlled by the wealthiest 10% of American households, which includes said senators.
The people responsible for the global financial crisis brought on by their mortgage fraud scheme used market fear and panic to force a feckless and corrupt congress to pass TARP and dozens of other rigged bailout schemes to provide a façade of recovery. There never was a recovery. Our fast-growing mountain of debt is concealed in a smokescreen of buyback-fueled hubris, that is until the coronavirus showed up in 2020.
The coronavirus undoubtedly presents a massive disruption to the Wall Street apparatchik. No one knows what the longterm effects of the COVID-19 scourge will be. However, we do know that with 90% of the U.S. population under lockdown, the American economy is rapidly collapsing.
According to the Federal Reserve Bank of St. Louis, the U.S. unemployment rate could reach a staggering 32% in the second quarter with 47 million workers laid off due to the virus outbreak. 😥
That means that as many as one-third of you reading will either become or remain unemployed. As I mentioned at the start of this article, market upheaval presents the best platform for disruptive innovation. And as I have shown here, there’s no doubt that America needs to reinvent its financial system.
Instead of merely reading this article, I ask you to join me in brainstorming a solution. I want you to use your time in quarantine to help me create an activist entity that puts Americans first, not last. We need a name for this movement. I suggest that whatever label we choose the word “innovation” is included, so we signal loudly that we want change, not lip service.
If you’re drawn to the idea of becoming a changemaker, please email me at email@example.com. Let’s stop the trillions of dollars flowing into the hands of the rich and powerful while we all suffer and labor in the trenches to make ends meet.
Let’s put a halt to the far-too-generous handouts to Wall Street and corporate America and stop this Ponzi scheme before we all become too impoverished to prevent this trainwreck. Like America’s elite who refuse to let this crisis go to waste, we should also band together to stop corrupt financiers from siphoning off all of America’s wealth to their own benefit. 😡
America’s future lies in your hands. Do you want Wall Street to continue its financial rape and pillage of citizens, or will you stand up for your rights?
As they say in “Westworld,” you have a new core directive. If you like my crusade to uncover the truth, please subscribe to my YouTube channel and give this idea some serious thought. Thanks for your support, financial freedom fighters! 👏
Thanks for reading, if you would like to help me start an organization to spur financial innovation in America, please contact me at firstname.lastname@example.org.