Edward Steves and his Million Dollar Gold Arbitrage

June 23, 2011

(FoundingFather1776 Notes:  We live in historic times.  The story below is a PERFECT illustration of how real money (i.e. gold & silver) can protect your wealth in turbulent times of great change.  Please read it carefully and absorb the lesson.  I feel strongly that America is on the precipice of dramatic change, and it is not for the better.  If you have money in the stock market or bonds, GET-OUT NOW!  Withdraw the money from your 401k (while you still can), pay the tax penalties and buy storable food, commodity items, and precious metals.  That is the only way to weather the coming storm and hopefully emerge with some wealth intact.  And don’t forget Boys and Girls, precious metals are not just silver and gold.  “Brass & Lead” are precious metals too….if you catch my meaning.

 The type of changes we as a nation will witness in the next five to ten years will be much greater than the changes that occurred during the Civil War.  America is turning into something wholly unrecognizable to the ideals of our Founding Fathers.  If a functional economy ever emerges from the other side of this mess, do you want to be like your neighbors?  Desperate and bankrupt from following the conventional wisdom?  Or do you want to be like Edward Steves, who was smart enough to see where things were headed and who planned accordingly, creating a vast fortune for himself and his heirs.  The choice is yours. FoundingFather1776)

Article by Jason Kaspar

During the Civil War, an independent thinker from San Antonio named Edward Steves made a savvy business move that would forever change his fortune and that of his family for generations. He made a bet against a dying currency in favor of the only currency that has never failed.

In Texas, truth and myth are often blurred as stories of what the human spirit accomplishes are stretched into tall tales for open camp fires and star filled nights. Perhaps the story of Mr. Steves borders on exaggeration. Perhaps not. In either case, the moral offers a profound lesson in wealth preservation and accumulation.

Steves immigrated to the United States in 1849 from Barmen, Elberfeld, Germany. He ventured into the Texas hill country as a farmer with mediocre success as he battled unpredictable weather, threat of local Indians, and rocky soil.  He scraped every penny, and in early 1861, with an entrepreneurial spirit as big as Texas, he spent his entire savings on a newly invented machine – the first mechanical combine to make it to the South Central Texas region. As fate would have it, this machine arrived on the last ship to make it into Galveston, Texas before the Union blockaded the port in July 1861.  After his mechanical contraption arrived in San Antonio, Steves had a monopoly over the local farmers surrounding the area.

The farmers wanted to pay Steves for the use of his mechanical combine in the local currency, Confederate dollars. He refused. He negotiated to take his payment in kind – a percentage of what his combine would process. Steves then bundled up his portion and regularly set off for Mexico, where he would sell it for gold and silver. This occurred for several years until finally the Civil War ended. The Confederacy collapsed along with the monetary system.  Confederate dollars and Confederate bonds became worthless, sending many individuals into financial ruin.

The end of the Gavelston blockade marked the death of his monopoly, but by that time he had amassed a fortune in gold and silver.  With this fortune, he bought Union dollars and effectively bought back into a working economic system.  In 1866 he launched a lumber company that by 1916 had become the largest millwork operation in the Southwest.  It exists today as Steves & Sons, offering more than 300,000 variations of doors throughout the United States.

In today’s world, most individuals, including investment professionals, have very little understanding of the history and purpose of precious metals as a monetary asset.  Monetary systems have come and gone for thousands of years, but our lives are so cloistered that the probability of living through two entirely different monetary systems seems highly unlikely. As the Steves story illustrates, even in the United States monetary systems collapse and evolve.

The impetuous drive towards globalism and a “world currency” may impact our monetary system more than even the national debt. Initially, the evolution of a system brings chaos.  People cling to staples … land, guns, and food production. As a new system emerges, individuals who have precious metals maintain the capacity to buy back into the new system – buying a home, starting new businesses, regaining the quality of life of the previous system.  After 5,000 years, this continues to remain the ultimate benefit of precious metals. The irony is that a true global currency has always existed in the form of gold and silver.

Unless an investor trades precious metals effectively, which very few can do over a long period of time, precious metals do not generate wealth in a functioning economic system. Gold is a store of wealth not a generator of wealth.  It is much better to own thriving companies that produce a superior return over their cost of capital.  Owning businesses that generate a superior return on invested capital is the way to move up the social status in a functioning capitalist system.  Unfortunately, American capitalism has been compromised and is now sputtering.

Ten years ago I would have argued that the probability of an American monetary collapse over the following decade was zero. The next ten years present far less certainty.  One may disagree whether the probability of a collapse over the next ten years is 2%, 25%, or 60%. But the probability is no longer zero. The criticality of gold and silver as an asset class has reemerged.  The Edward Steves story is an illustrative parable of how to build and preserve wealth when economic systems are in flux.

 

Dark Lords of Student Loan Debt

February 7, 2011

 (FoundingFather1776 Notes: I am a firm believer in education.  Indeed, I think everyone should strive to continue learning until the day they die! 

However, I do NOT support the current trend of leveraging the student and family finances so deeply into debt that you will end up paying for it till the day you die!  This is yet another trick of the banksters – and it has been wildly successful.

I urge everyone that has college bound children to read these two articles carefully.  In lieu of a lifetime of debt servitude, why not suggest your child go to a cheaper school, work for a scholarship and get a job to pay for their education?

They will end up thanking you for helping them escape the bonds of modern “educational serfdom.”

Regards,

FoundingFather1776)

Article by Vox Day

voxday.blogspot.com

Last May, I wrote a column titled “Declining value of college.” While the conclusions it contained are still correct, they were much less forceful than they should have been, thanks to my ignorance of the corrupt federal-university complex that has erected a legal wall of debt slavery around young Americans today.

This is because the value of a college education has not only declined significantly due to the vastly increased supply of college graduates and the reduced quality of degrees provided by the academic institutions that sell them, it has also been slashed by the construction of a methodical system of financial rapine by which the future wages of American college graduates are inexorably, and in most cases, unknowingly, committed to the federal government and a few giant corporate leeches. It is a cynical system in which the university, the college professor, the government and the financial institution all profit at the expense of the young and clueless.

CollegeScholarships.org has provided a detailed infograph that explains how the system methodically grinds up the ambitions of high-school graduates and their parents and converts the graduates into helpless debt-slaves with less recourse or hope of escape from the system than had Victorian debt-prisoners of the 19th century. The dark secret of the college-loan system is that it is not designed to help students pay for college and generate a reasonable interest-profit for the loan provider that will be paid off within a short period of time after the student begins working and receives a degree-enhanced salary. It is specifically designed to keep the graduate on a treadmill of debt that will ideally never be repaid.

This should be readily apparent upon considering the fact that there is presently $850 billion in outstanding student-loan debt in the United States. Since there is a total undergraduate enrollment of 14,473,884 students paying an average of $10,871 to attend college, the total annual cost of all college education is $157.3 billion. This means that past and present students are burdened with 5.4 times more debt than it costs to educate every single current college student enrolled in higher education. Since 44 percent of college students don’t graduate within six years, (and notice how the metric has climbed from four years to six years to artificially raise the graduation rate), the debt is 10 times the cost of educating a single national graduating class.

Thirteen years ago, the college system entered into a death spiral when Congress barred the ability to discharge student-loan debt when filing for bankruptcy. This allowed universities to engage in the same foolish and risky profit-maximizing behavior that the mortgage banks did, secure in the knowledge that the underlying funds that paid for their products were completely guaranteed by the government.

I highly recommend reading the complete document titled “The Student Loan Scheme.” In abbreviated terms, the system is designed to work like this:

1) The private SLM corporation provides a student loan.

2) The student defaults on the loan.

3) The federal government pays the balance of the loan and its interest to SLM.

4) The government sends the debt to a collection agency which adds a collection fee and a commission totaling more than 50 percent to the total. The agency is owned by SLM.

5) The collection agency garnishes wages, income and even Social Security checks. The former student, now a debt-slave, will literally be paying until he dies.

High-school students must learn that no degree, not even one from a top Ivy League university, is worth the gamble of being caught up in this infernal system. And parents must learn that they must deny their children the dubious honor of being sacrificed to the illegitimate gods of educational debt, no matter how desperately their children might plead for the privilege, like innocent Aztec maidens bedazzled by the sun.

 

The Student Loan Swindle… An Interview with Alan Nasser
Mike Whitney

Alan Nasser is professor emeritus of Political Economy at the Evergreen State College in Olympia, Washington. He co-authored “The Student Loan Debt Bubble” along with Kelly Norman, which appeared in CounterPunch.)

MW: Is it possible to “walk away” from a student loan and declare bankruptcy?

Alan Nasser: No, it’s not possible for student debtors to escape financial devastation by declaring bankruptcy. This most fundamental of consumer protections would have been available to student debtors were it not for legislation explicitly designed to withhold a whole range of basic protections from student borrowers. I’m not talking only about bankruptcy protection, but also truth in lending requirements, statutes of limitations, refinancing rights and even state usury laws – Congress has rendered all these protections inapplicable to federally guaranteed student loans. The same legislation also gave collection agencies hitherto unimaginable powers, for example to garnish wages, tax returns, Social Security benefits and -believe it or not- Disability income. Twisting the knife, legislators made the suspension of state-issued professional licenses, termination of public employment and denial of security clearances legitimate measures to enable collection companies to wring financial blood from bankrupt student-loan borrowers. Student loan debt is the most punishable of all forms of debt – most of those draconian measures are unavailable to credit card companies. (Maybe I’m being too harsh. Sallie Mae recently announced that it will after all forgive a debt under either of two conditions: in case the borrower dies or becomes totally disabled.)

MW: Is it fair to say that the student loan industry is a scam that targets borrowers who will never be able to repay their debts? Are these students like the people who were seduced into taking out subprime loans? How much money is involved and how much of that money is either presently in default or headed for default?

Alan Nasser: It’s as fair as fair can be. First, the student loan industry is huge – a large majority of students from every type of school are in debt. Debt is held by 62 percent of students enrolled at public colleges and universities, 72 percent at private non-profit schools and 96 percent at private, for-profit (“proprietary”) schools. It was announced last summer that total student loan debt, at $830 billion, now exceeds total US credit card debt, which is itself bloated to the bubble level of $827 billion. And student loan debt is growing at the rate of $90 billion a year. So we’re not talking small change.

How many of these students are subprime borrowers? That is, how closely do student loans resemble junk mortgages? The answer hinges on three factors: how these loans are rated, how likely the borrower is to repay, and the default rate on student loans.

The ratings of student loans are supposed to reflect the “health” of those loans, defined as the likelihood that the borrowers will default. This is officially measured by what is called the “cohort-default rate”, a very poor instrument because it measures only defaults during the first two years of repayment. What we want is data on lifetime defaults. The Department of Education collects the relevant data, but has misrepresented the facts in its public statements.

In September 2008, then-Secretary of Education Margaret Spellings announced in a news release that default rates on federal loans were “historically low”: only 5.2 percent of recent grads were in trouble. Spellings used the cohort-default rate to arrive at this figure. But the Department’s Inspector General Office employed a more realistic method in its 2003 audit, which calculated lifetime risk. It estimated that over their lifetime between 19 and 31 percent of college freshmen and sophomores would default on their loans (depending on the type of loan and when it was taken on). For community college students, the prospects were grimmer still: between 30 and 42 percent were expected to default. And the future was most discouraging for students at for-profits: between 38 and 51 percent were anticipated to default.

You can see that the default rate among student borrowers is expected to be higher than that for subprime home mortgages.

You might think that these alarming figures would motivate the feds to conduct checks to better assess the creditworthiness of would-be borrowers. But federal loans are doled out with no assessment of whether the borrower will be able to repay. Private lenders do no better. In recent years they have taken to “direct-to-consumer” loans. Loans marketed directly to students typically have higher interest rates and are of course not overseen by the college’s financial aid office. These loans are enormously profitable. In 2007 alone, one company reported making more than $1 million in such loans to Seattle University students. The financial security of the borrowers was of no interest to the lender.

That student borrowers will in fact be in a position similar to subprime mortgage debtors is also indicated in the Bureau of Labor Statistics December 2009 projection of job growth over the next ten years. Most of these jobs will be low paying and will not require a bachelor’s degree.

And don’t think that predatory lenders market loans only to actual students. Potential students are targeted as well. A major mantra nowadays is that the best protection against unemployment is a college education, which has led some private lenders to recruit borrowers……at the unemployment office!

There are a whole lot of subprime student loans out there hanging like a sword of Damocles over the heads of very many college students and grads.

Since the original article appeared, I’ve received an avalanche of comments and stories from former and current students relating their often tragic stories. Here is a representative letter, whose author gave permission to use his name:

“My name is Luther Callahan and I am one of the many many students who believed in the dream of being highly educated in order to provide a good life for my family. Well…my wife and I believed believed in this. I can not find gainful employment. My wife has been furloughed on her job and has not received a raise in five years.

We don’t expect anyone to give us anything this is why we went out and got educated. However, everyone is more than willing to take what we do not have (money). Student loans are due and we can not pay them all. We are receiving the standard threats and are at our wits end as to what to do. Where are the solutions? What is in the works that will alleviate student stress?

Some of the heartless employees of these banks ask outlandish questions like “what was your plan for paying the money back?” I would tell them I did not plan for there to be a global financial meltdown. I had no idea that this would occur. I did not plan for there to be employment freezes and massive layoffs and cuts within my state. We are at a loss and these banks are poised to take everything.”

MW: How is the government assisting this scam?

Alan Nasser: We’ve just seen one way that government aids and abets the lenders, by fudging default rates. But government’s participation in this rip-off goes deeper than that. The Department of Education has its own loan program and, accordingly, a positive interest in defaults. It makes a financial killing on its recovery of defaulted Federal Family Education Loan Program (FFELP) loans.

In a revealing Wall Street Journal Report (“US Gets Tough on Failure to Repay Student Loans – Education Department Wields Heavy Hand in Some Hard-Luck Cases – No Breaks in Bankruptcy Court”, Jan. 6, 2004) John Hechinger reveals that for every dollar the Education Department pays out in default claims, it is able to rake back the entire principal, plus almost 20 percent in interest, penalties and fees. And keep in mind that the value of the default portfolio includes not merely principal plus interest at time of default, but also the interest that continues to accrue after default. Let’s bring this up to date with a glance at Table 4 in the Supplement to president Obama’s 2010 budget. We find that the most recent recovery rate -the amount recovered compared to the amount of the defaulted loan- for defaulted FFELP loans is 122 percent. This is the highest recovery rate for all types of federal loan, and more than twice the rate for the next highest loan category. You get a sense of the relative enormity of Uncle Sam’s looting binge when you look at the recovery rate for credit card defaults – about 25 cents on the dollar.

Alan Collinge of StudentLoanJustice.org has shown that the Department of Education makes more on defaulted loans than it does on loans in good stead. Washington has just as much an interest in encouraging student loan defaults as do, for example, collection companies, which obviously live off defaults. This is exactly what the first president Bush meant when he declared his intention to “run government like a business.” Government itself has become a predatory lender. It has the same incentive to benefit from default as do private lenders.

MW: How do private loan companies benefit from defaults?

Alan Nasser: Here, briefly, is what gives private companies a more than casual interest in default. It was Congressional legislation that screwed students to the benefit of holders of defaulted loans. Legislators put in place a new fee system which permitted holders of defaulted loans to appropriate 20 percent of of all payments from debtors before any of those payments are applied to principal and interest. Because Congress chose to withhold key consumer protections from student borrowers (for details, see below, question 4), the latter are virtually forced to enroll in “loan rehabilitation” programs. The borrower is subject to a form of extortion, whereby (s)he essentially buys her way out of allegedly more severe penalties with payments that are rarely applied to principal or interest on the defaulted loan. These outlays are in effect the price of access to a substitute loan, accompanied of course by additional fees. The new loan is typically larger than the defaulted one. Much as the limp “regulations” on the financial sector deliberately leave room for the kind of risky trading that is likely to bring about a repeat of the September 2008 debacle, the “rehabilitation” process makes it more likely that the debtor will default again.

The fee system is at the heart of the private lenders’ affection for default. It gives to loan guarantors the same kind of interest in default that is so obvious in the case of collection companies. Collinge has analyzed IRS filings of guarantors of federal student loans. It turns out that guaranty agencies average about 60 percent of their income from fees alone. If the default rate declines, so do the fees and income of the guarantors.

The biggest private lenders, like SLM Corporation (Sallie Mae) and Citigroup, have interests comparable to the guarantors’. This is because the latter, as well as some of the biggest collection agencies, are themselves often owned by the lenders. The lender, guarantor and collector thus form a system of interwoven interests: a lender defaults a loan, which then becomes bloated with collection fees, which then generates a flow of revenues to the guarantor and the collector. If the latter two are owned by the lender, we have income continuously flowing to all three – provided that borrowers continue to default, which is made more likely by the process I just described.

Sallie Mae’s 2003 annual report draws a vivid picture of the vast profits made on defaulted loans. The company set an earnings record that year, and the report is explicit that collections on defaulted loans were the golden goose. The company’s 2005 annual report shows that its managed loan portfolio grew by 87 percent between 2000 and 2005. In that same period its fee income grew by 228 percent.

MW: Are former and active-duty members of the military being targeted?

Alan Nasser: I mentioned earlier that 96 percent of students at for-profit schools have taken student loans and that these students are, according to Department of Education studies, most likely to default. These schools target the military market with an aggressive and highly successful recruitment campaign. High numbers of active duty and recently discharged military personnel attend for-profits. 29 percent of military enrollments are in the for-profit sector, and 40 percent of annual tuition assistance to veterans winds up going to proprietary schools. Data from the US Army and Defense Department show that the University of Phoenix, the largest university in North America, is the third largest receiver of education funding from the US Army.

Military personnel are often targeted while still enlisted. They are attracted to the relative ease with which they can attend school, often at night, on the weekends, or for active-duty military, even while deployed. With the recent reduction of troops in Iraq, more service members are returning to the United States. Waiting for them are generous G.I. Bill benefits that allow them to pursue vocational or baccalaureate degrees at accredited colleges. The for-profit sector is poised to corner that market as public institutions squeeze their enrollments, raise tuition and watch public support of higher education dwindle in the current resurrection of pre-Keynesian economic policy.

The job prospects for military personnel at for-profits are predictably poor, which of course contributes to the unmanageability of the substantial debt that many of them incur. A Bloomberg report quotes a retired Marine Corps Colonel who now directs human resources for U.S. Fields Operations at Schindler Elevator Corp., as saying “we don’t even consider” online for-profit degree-holding candidates for the company’s management development program.

MW: Why haven’t the victims of these toxic loans used social networking and campus organizing to fight back against this ripoff? Are there grounds for a class action suit? What about organizing a collective action to withhold loan payment for one month to send a message to the banks?

Alan Nasser: There have been isolated instances of efforts to educate and mobilize. My and Kelly Norman’s original article has been made into a booklet by an Indiana University faculty member, for distribution to the student body. And many readers have forwarded the article to their circle. But the key to effective resistance is organization, and the most likely initiators of organization, the left-of-liberal Left, remains dormant. We can’t even get it together to mobilize an antiwar movement in this age of official permanent war.

During the period of widespread student opposition to the Vietnam war there were intercampus communications networks that helped to bring about nationally coordinated demonstrations and draft resistance. A comparable network, organized around the student debt crisis, could be formed if a few campuses got the ball rolling by developing student and faculty organizations dedicated to informing and mobilizing students and those in solidarity with them to resist debt predation. Your suggestion of a payment moratorium is a good one. One of its chief benefits in my opinion would be to draw attention to the issue as a catalyst for the ultimate development of a broader resistance to the entire regime of austerity and debt peonage that the vested interests are imposing on working people.

Alan Nasser is professor emeritus of Political Economy at The Evergreen State College in Olympia, Washington. He can be reached at nassera@evergreen.edu.

Mike Whitney lives in Washington state. He blogs at graspingatstraws.blogspot.com

counterpunch.org

Hitler Responds to the Tucson Shooting

January 25, 2011

Alex Jones: A Warning to the Enemies of the First & Second Amendments

January 12, 2011

FoundingFather1776 Notes:

Alex Jones is fired up…and we should be too!  We need to say NO to tyranny, and NO to more laws taking away our rights… all because of some lunatic that went on a killing spree. 

NO to Gun Control! No to Banker Bail-outs! No to Internet ID! No To the patriot act! No to TSA Naked body scanners and gropings! No to Tyranny!

No!

No!

No!

Mass Animal Deaths Necessitate Painfully Ridiculous Explanations

January 7, 2011

In a stunning display of mental gymnastics, the main-stream-media spinmeisters have been forced to come up with ever more absurd explanations for the rash of mass animal deaths appearing around the globe.

Dead birds by the thousands have fallen from the sky in Arkansas, Texas, Louisiana, Maryland, Sweden & Italy.  Masses of dead fish have appeared in the waters of Arkansas, Florida, Maryland and elsewhere.

Here is a very good article summarizing the carnage.  Take a look:  http://www.dailymail.co.uk/news/article-1344913/Animal-death-mystery-Two-MILLION-dead-fish-wash-Maryland-bay.html

Dear Readers, your humble author cannot state the reason for all this carnage.  I simply do not know.  What I *do know* is that the explanations being put forth by the “authorities” and their media lackeys are complete and total BALONEY!

How Dumb do they think we are?  Apparently pretty freakin’ dumb!  Let’s review some of the explanations we have been given shall we?

Let’s see. so far, we’ve got:

* It’s cold – so birds and fish are dropping dead by the thousands (because it has NEVER been cold before….right?)

* Fireworks on New Year’s Eve (Yeah….funny!)

* “Upward flying hail” (A+ for creativity on that one)

* “Hypoxia” also known as “Lack of oxygen” (I never realized birds could accidentally fly above the earth’s atmosphere and die of “Hypoxia.”)

* Movement of the Magnetic North Pole towards Russia (The birds and fish must have decided to commit suicide rather than become crypto-commies!)

Do you believe ANY of those excuses are plausible?  Do you believe any of them are accurate?  If so…I hate to say it but……

Let me tell you what I *do* know:

* Chemtrail spraying goes on almost daily in all the areas where these die-offs have occurred.

* Some witnesses describe the birds being “knocked out of the sky” and initial necropsies revealed they had died of “blunt force trauma” WHILE IN THE AIR!

* The Government and Main-stream-media lie to us each and every day on virtually every topic.  This blog is replete with evidence of their whoppers; I try not to beat a dead horse, but every “official” pronouncement on fluoride, banking, unemployment, terrorism, 9/11, housing, the Federal Reserve, vaccines, etc. etc. is a blatant lie!  An in-your-face-you-stupid-sheep-bold-faced-lie!  Comprende amigo?

* The Government is actively involved in weather-manipulation.  They don’t care what the consequences are…they want to play God.  Even backwards oil Kingdoms are getting in on the act: http://www.dailymail.co.uk/sciencetech/article-1343470/Have-scientists-discovered-create-downpours-desert.html

Here is a declassified Air Force Research paper from 1996 entitled “Weather as Force Multiplier: Owning the Weather in 2025″

* The Government admits that HAARP exists, yet claim it is just for “Research” – however when Jesse Ventura, former Navy Seal, former Governor of Minnesota and US Citizen asked to tour the HAARP “research” facility in Alaska, he was turned away in no uncertain terms:

I believe these “flockalypse” deaths are related to chemtrails and other insidious activities.  I believe the media whores are contorting their brains trying to come up with explanations that have an air of plausibility to the ignorant masses…..but it is getting harder for them.

I believe we need to wake-up more people to the lies that are being force-fed down their throats.

Yours in Freedom,

FoundingFather1776


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