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Margin Calls Emerge as Loans Against Stock Portfolios Used to Buy Homes, Boats and “Pretty Much Everything”

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In a securities-based loan, the customer pledges all or part of a portfolio of stocks, bonds, mutual funds and/or other securities as collateral. But unlike traditional margin loans, in which the client uses the credit to buy more securities, the borrowing is for other purchases such as real estate, a boat or education.

The result was “dangerously high margin balances,” said Jeff Sica, president at Morristown, N.J.-based Circle Squared Alternative Investments, which oversees $1.5 billion of mostly alternative investments. He said the products became “the vehicle of choice for investors looking to get cash for anything.” Mr. Sica and others say the products were aggressively marketed to investors by banks and brokerages.

From the Wall Street Journal article: Margin Calls Bite Investors, Banks

Today’s article from the Wall Street Journal on investors taking out large loans backed by portfolios of stocks and bonds is one of the most concerning and troubling finance/economics related articles I have read all year.

Many of you will already be aware of this practice, but many of you will not. In a nutshell, brokers are permitting investors to take out loans of as much as 40% of the value from a portfolio of equities, and up to a terrifying 80% from a bond portfolio. The interest rates are often minuscule, as low as 2%, and since many of these clients are wealthy, the loans are often used to purchase boats and real estate.

At the height of last cycle’s credit insanity, we saw average Americans take out large home loans in order to do renovations, take vacations, etc. While we know how that turned out, there was at least some sense to it. These people obviously didn’t want liquidate their primary residence in order to do these things they couldn’t actually afford, so they borrowed against it.

In the case of these financial assets loans, the investors could easily liquidate parts of their portfolio in order to buy their boats or houses. This is what a normal, functioning sane financial system would look like. Rather, these clients are so starry eyed with financial markets, they can’t bring themselves to sell a single bond or share in order to purchase a luxury item, or second home. Of course, Wall Street is encouraging this behavior, since they can then earn the same amount of fees managing financial assets, while at the same time earning money from the loan taken out against them.

I don’t even want to contemplate the deflationary impact that this practice will have once the cycle turns in earnest. Devastating momentum liquidation is the only thing that comes to mind.

So when you hear about margin loans against stocks, it’s not just to buy more stocks. It’s also to buy “pretty much everything…”

From the Wall Street Journal:

Loans backed by investment portfolios have become a booming business for Wall Street brokerages. Now the bill is coming due—for both the banks and their clients.

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Parts of California Have Sunk Over a Foot in Eight Months Due to Drought

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California Dreamin’ this is not.

Sounds pretty freakin’ terrifying actually. From Bloomberg:

Land in California’s central valley agricultural region sank more than a foot in just eight months in some places as residents and farmers pump more and more groundwater amid a record drought.

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Rand Paul Op-ed Blasts Donald Trump – Calls Him a “Fake Conservative” and Wannabe “King”

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The most accurate and incisive critique of Donald Trump I’ve seen to-date was a piece written by Jeffrey Tucker last month, and highlighted here in the post: Donald Trump the Demagogue. It’s very important to call out people like Trump for the man he is, so we don’t simply fawn and fall for a narcissist, strongman-type as a way to deal with our societal pain and frustration.

Rand Paul has done a great service by coming out with his own Op-Ed on “the Donald” published at IJReview. Here are a few excerpts:

I ran for office because I was tired of being misled by Republicans who promised conservative government and gave us bank bailouts and more debt. The Wall Street bankers got richer and the American taxpayer got poorer.

The Tea Party erupted over dissatisfaction with false conservatives. It amazes me that anyone in the Tea Party movement could possibly consider Clinton/Reid/Pelosi supporter Donald Trump for President.

I honestly have no idea what Mr. Trump’s real philosophy is. He was liberal before he was conservative, and has openly professed for decades that his views are those of a Democrat.

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464 Americans Have Been Killed by Police in 2015 – Here are Their Stories

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A couple of months ago, I highlighted the horrifying fact that U.S. police killed more civilians in March than UK police killed in 100 years. With May 2015 in the history book, we now have some updated stats, and the results are not pretty. 464 Americans have been killed by police so far this year, which amounts to more than three deaths every single day. If you don’t think this is a problem, I don’t know how to help you.

The Guardian put together an incredible list of all 464 people killed by date, as well as a summary of the circumstances of their deaths.

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Julian Assange on the TPP – “Deal Isn’t About Trade, It’s About Corporate Control”

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It’s mostly not about trade. Only 5 of the 29 chapters are about traditional trade.

– Julian Assange in a recent interview with Democracy Now

I’ve focused a little bit more of my attention on the Trans-Pacific Partnership lately, as the Obama Administration scrambles to attain “fast-track” authority from Congress. The content of this unbelievably dangerous gift to multi-national corporations is being kept secret from the public, and for very good reason. For some background on the TPP and where it stands, see:

Trade Expert and TPP Whistleblower – “We Should Be Very Concerned about What’s Hidden in This Trade Deal”

As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP

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Arizona State Hikes Tuition Dramatically, Yet Pays the Clintons $500,000 to Make an Appearance

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Just last week, I published an article highlighting how UCLA tried to negotiate a reduced rate on a Hillary Clinton speech only to be rebuffed by her representatives in the post, How UCLA Tried to Negotiate a Lower Speaking Fee, but Hillary Clinton Refused and Demanded $300,000. Here’s an excerpt:

Before Hillary Clinton spoke at the University of California at Los Angeles in March, her representatives had a few specifications to negotiate with school officials.

And of course, there was the matter of Clinton’s $300,000 speaking fee. When officials asked for a price reduction on behalf of the public university, Clinton’s representatives didn’t budge, saying $300,000 was already the “special university rate”…

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This is What Happens if You Defy Curfew – A Shocking 90 Second Video from the Streets of Baltimore

On Saturday night, a man who’s name still seems to be unknown, but who was wearing a “Fuck the Police” t-shirt, came out in front of police past the official curfew. This is what happened next:

The situation in Baltimore is very serious and all Americans should be paying very close attention. In case you missed it, I  recently outlined my thoughts on the topic in the piece: Baltimore as a Microcosm of America.

For related articles, see:

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Accusations Emerge That the U.S. Is Aiding ISIS – The Latest “Conspiracy Theory” Circulating in Iraq

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My belief is, we will, in fact be greeted as liberators.

– Dick Cheney on NBC’s Meet the Press, March 16, 2003

But that enmity for the United States circulates beyond the militias that once fought U.S. soldiers, surfacing also in parliamentary debates and Iraqi media reports and even at the highest ranks of the national armed forces that the United States is aiding.

“Everybody knows that the Americans are dropping supplies to Daesh,” said Brig. Gen. Abed al-Maliki, a senior Iraqi army commander based in the city of Samarra, about 80 miles north of Baghdad, using another term for the Islamic State.

What’s more, he said, during some of the fiercest fighting around Samarra last year, U.S. Special Operations forces dropped behind enemy lines to assist Islamic State militants.

“They came in with parachutes, and they were helping to bomb the city,” he said.

U.S. airstrikes against the Islamic State, he contended, are probably just a cover for efforts to support the group.

“It’s just a show,” he said, sitting in the city’s army command headquarters. “If the Americans want to finish something, they will finish it. If they wanted to liberate Iraq, they could.”

– From the Washington Post article, In Fight for Tikrit, U.S. Finds Enemies on Both Sides of the Battle Lines, March 27, 2015

How do you know your foreign policy is a complete and total destructive nightmare? When the country you supposedly “liberated” not only turns into a horrific war zone, but all sides fighting accuse you of helping the enemy. This seems to be precisely what is happening in Iraq at the moment.

Just last week, I was shocked to read in the Wall Street Journal that the U.S. military was preparing to coordinate action against ISIS in Tikrit, alongside Iranian backed militias. I highlighted this in the post, Can’t Make This Up – U.S. Providing Aid in Fight Against ISIS in Iraq Alongside Iranian Troops. Here’s the key excerpt:

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Meet the Overseas Contingency Operations Account – Washington D.C.’s Crony Capitalist War Slush Fund

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Senate Armed Services Committee Chairman John McCain has called it a “gimmick,” and Democrats complain that larding up the separate war funding bill with extra spending amounts to an “abusive loophole.” Yet so far, the massive increase is likely to remain in this year’s budget.

Another major criticism of the process has been its common use to fund favored projects and other items not directly tied to the war — a trend that has steadily grown over the years as the wars in Iraq and Afghanistan dragged on and the Pentagon loosened the definition of war-related spending.

From 2001 to 2014, nearly $71 billion of nonwar funding was provided through war appropriations, according to the Pentagon’s own definition, the nonpartisan Congressional Research Service reported in December.

– From the Politico article: War Budget Might be Permanent ‘Slush Fund’

Many people will read this post, and posts like it, and shrug their shoulders saying that there’s always going to be corruption. True; however, there are degrees of corruption. When empires such as the U.S. attain a certain level of corruption that reaches the point where it becomes engrained within the fabric of society, and you couple that with zero accountability for the super rich and powerful, you have the ingredients for societal collapse. We are rapidly approaching this point, and I personally don’t think there’s any way to stop it.

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Another Oligarch Preaches to the Peasants – Charlie Munger Says “Prepare for Harder World”

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While several exceptionally wealthy and successful people have admirably come out and spoken passionately of the broken nature of financial markets and the political system, as well as the threat this poses to society in general (think Paul Tudor Jones and Nick Hanauer), there have been several examples of oligarchs coming out and conversely demonstrating their complete disconnect from reality, as well as a disdain for the masses within a framework of incredible arrogance.

I’ve commented on such figures in the past, with the two most popular posts on the subject being:

A Billionaire Lectures Serfs in Davos – Claims “America’s Lifestyle Expectations are Far Too High”

An Open Letter to Sam Zell: Why Your Statements are Delusional and Dangerous

The latest example comes from Charlie Munger, Warren Buffett’s right hand man, who tends to demonstrate an incredible capacity for verbal diarrhea. Recall his commentary on gold: “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939.”  

Moving along, Mr. Munger provided some typically insensitive commentary at an event yesterday in Los Angeles. Bloomberg reports that:

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