Wednesday, 12 October 2011 15:07

Why Occupy Wall Street When You Can Control Wall Street? Featured

Here is an interesting video that illustrates the extreme vulnerability of the banks if the "Occupy Wall Street" movement truly gets organized with direction from someone with a deep understanding of the system. You know, someone tall, brown, charismatic and not afraid to really speak the truth...


This video touches upon many taboos in society, business and Wall Street finance... Right up my alley. One of the more interesting topics is that of social class, and how the little naked woman in the video just doesn't have the same impact as Carl Icahn. Careful, now. Don't laugh prematurely. The lightning fast distributed method of communal communication commonly known as social media is truly changing the way thing get done around here. Think about how you are reading this message and who you're reading it from.

One concept that I would like to dwell on this post, but unfortunately will not be able do due to time constraints, is the very real fact that there is NO MIDDLE CLASS! I believe it is a construct created by the capitalist class and their managers to placate the masses and muffle would be insurrectors who would dare attempt to move up the ranks. The reality is everybody is a member of the working class who is not a member of the capitalist class and needs to work for a living. That's right, if you cannot live off of your capital, then you are a working class citizen. Middle class and upper middle class monikers, are just that... monikers. That goes for you doctors, lawyers, accountants and well educated PhDs. You know the old saying about the friends walking down the street in Greenwich. One saw a neighbor and immediately urged the other to hustle across the street. When his friend asked what the rush was, the 1st man replied, I heard that Biff over there is starting to live off of his principle. Long story short, many more of you are members of that 99% than may have been led to believe by those in charge.

As excerpted from Super Brokers form to push Super Broken products to make those with High Net Worth Super Broke

Social Mobility: Unlike the Jefferson's, We're moving on down!

Social class is defined (on this blog) as the amount of control one has over one's socio-economic environment. It is much more than money, although money is a large component. For instance, Barack Obama is in a higher class than Robert DeNiro or Michael Jackson, although Robert DeNiro and Michael Jackson are most likely wealthier (although that is quite debatable after taking into consideration the value of Obama's campaign contribution list and membership database from his social networking site!). Obama's higher class stems from his ability to exert more control over his socio-economic environment. The factors that this author uses to determine class combine (with the associated weights) to create a "socioeconomic index":

Socioeconomic Index=

(Occupation X 12) + (Income source X12) + (Income X 7) + (Wealth X 14) +

(Education X 7) + (Dwelling area X 15) + (Class Consciousness X 7) +

(Housing X 12)

There is a handy dandy BoomBustBlog class model (based loosely upon the Index of Status Charcteristics) available for download for anyone interested in delving  into this further. See boombustblog.com_social_class_model v.7.3 156.00 Kb.

As you can see, wealth is the largest contributor to the class standing, and coincidentally it is the factor
that is the most at risk in this current economic climate. I believe that there will be a significant entry into the upper middle class by those who were once firmly entrenched into the upper classes! While that may not seem like a big deal to many, it is damn big deal to those who are moving down the ladder. This also means, that there will be some space for others to move (relatively speaking) up the ladder. One man's (or woman's) misfortune is another's opportunity. I believe this blog can not only be used to insure and proof against downward mobility
for those in the upper strata, but can also be used by those in the lower, middle and lower upper strata to rise upward a notch or even two. Social Mobility is the name of the game in times of severe dislocation - times like we are experiencing now.

Lower Strata



Working Poor


Middle Strata

Lower Middle Class


Upper Middle Class


Upper Strata

Lower Upper Class

<-- 20% to 30% of BoomBustBloggers are here, roughly 1,000 of you!


Higher Upper Class


Now, in term of wealth (not social class and influence, just wealth) we can split the upper strata into three different categories (there are only two above because of the other factors that come into play when social class or socioeconomic standing is taken into consideration).
There is the poor wealthy, those guys and girls that are just a hair's breath from being pulled into the upper middle class strata due to marginal wealth. This would be the $1m to $10m net worth crowd, who rely on business profits, salary and investment returns for income. The next would be the middle strata of the wealthy, hailing between $10 to $100 million in Net Worth, and then there is the upper strata wealthy at above $100 million. Each of these three strata of wealth represent, in my opinion, distinct behavior tranches in terms of discretionary expenditures, investment, and politics and (what passes as, this is a story for another post) philanthropic activities.



Source of wealth

Net Worth

Lower strata wealthy (High net worth)

Service professionals, corporate executives, entrepreneurs,

Salaries, stock options, restricted stock, small business
profits, investment returns

$1 m to $10 m

Middle strata wealthy (Very High Net Worth)

Corporate executives, entrepreneurs, inheritors

Business ownership, investment returns, salaries, restricted
stock, stock options

$10 m to $100 m

Upper strata (the truly

Entrepreneurs, inheritors, very few CEOs

Business ownership, investment returns

$100 m to several $billion

A trip to practically any decent sized yacht club or recreational vehicle port reveals the relatively stark differences in discretionary spending behavior. The first strata can be found in the 36 ft. to 68 ft. yacht docks (where a captain is optional, but not mandatory and you really don't need a crew). The second strata can be found 50 ft to 120 ft docks, where captains, crews and semi-custom fiberglass boats abound. The third strata are almost exclusively in the super yacht category, where the carrying cost alone for these (basically waste of money) fully custom built hulls and vehicles are about million a year to start with. You can also see the other social economic strata as well, upper middle class in the 20 to 35 ft boats, the middle and working class in the considerably smaller fishing boats - as opposed to the ultra fast Viking and Hatteras deep sea fishers, etc. It is an interesting and instructional study in social studies and anthropolgy just walking along your local docks! Once you are aware of how these things break down, you will see many settings in a different light.

The dark purples, deep greens and reds are most likely the general demographic to get hit hardest.
Fortunately, those who follow this BoomBustBlog closely, either personally or through their advisor, should have seen a net increase in networth rather than a net decrease. This has hurt non-BoomBustBloggers in this demographic tranche significantly, and will hurt them even farther. At the same time, let's hope that the opinion and research that I bring to the blog helps, because many will need it. Download The new Socio-economic stratification model

And The European Bank Run Continues...

As excerpted from the article titled above, we find corroborating evidence that the common man/woman can indeed elicit significant cooperation from Wall Street baks, for those very same banks' institutional counterparties are quite skittish as it is. As a matter of fact, we are seeing the makings of an insitutional run right now, one that will easily be exacerbated if retail depositors pull their money out as well.

Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional), read the balance of this article for perspective, then populate the assumptions and inputs with what you feel is realistic. I'm sure you will come up with conclusions similar to ours. Below is sample outout from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)


Bloomberg reports: Lloyd’s of London Pulls Euro Bank Deposits

Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution.

“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”

European banks and their regulators are trying to reassure investors and customers that lenders have enough capital to withstand a default by Greece and slowing economic growth caused by governments’ austerity measures. Siemens AG (SIE), European’s biggest engineering company, withdrew short-term deposits from Societe Generale SA, France’s second-largest bank, in July, a person with knowledge of the matter said yesterday.

Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions.

Simply fuel to the fire... As excerpted from my bank run post yesterday: Most Headlines Now Show French Bank Run …

Siemens shelters up to €6bn at ECB: Siemens withdrew more than half-a-billion euros...matter told the Financial Times. In total, Siemens has parked between €4bn ($5.4bn) deposit cash directly with the ECB. Siemens’ move demonstrates the impact of the eurozone... By Daniel Schäfer in London and Chris Bryant and Ralph Atkins in Frankfurt...

... As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style":

The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors.  In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!


...The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks. If the panic doesn’t stem from the US, it could come (or arguably is coming), from the other side of the pond. The Telegraph reports: UK banks abandon eurozone over Greek default fears

UK banks have pulled billions of pounds of funding from the euro zone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.

 Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to euro zone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the euro zone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.

One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the euro zone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.

Make no mistake - modern day bank runs are now caused by institutions!

Make no mistake! And just for those who cannot catch the hint... Reuters reports:

Bank of China halts FX swaps with some European banks

The European banks include French lenders Societe Generale (SOGN.PA), Credit Agricole (CAGR.PA) and BNP Paribas (BNPP.PA), and Bank of China halted trading with them partly because of the downgrading from Moody's, the sources said.

Another Chinese bank said it had stopped trading yuan interest rate swaps with European banks.

The sources declined to be identified because they were not authorized to speak with the media.

Contacted about this move by the Chinese banks, spokespeople for Societe Generale, UBS and BNP Paribas declined comment. Credit Agricole was not reachable for comment.

One of the sources said that Bank of China's decision may apply across its branches, including the onshore foreign exchange market.

"Apart from spot trading, all swaps and forwards trading (with the European banks) have been stopped," one source who is familiar with the matter told Reuters.

A step by step tutorial on exactly how it will happen....

Again, I believe the next big thing, for when (not if, but when) European banks blow up, is the reverberation through American banks and how it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

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