One month ago, protesters gathered in Zuccotti Park to Occupy Wall Street; although this rally has generated a blitz of media coverage, many Financial District workers seek clarity on the organization’s ambitions. Some activists are adamant about ending capitalism, while others simply want to stop government intervention into markets.
Enter John Tabacco, CEO and Founder of LocateStock, an electronic platform that provides guaranteed “stock locates” for investors of all sizes. A recognized professional, Tabacco is an invited expert on economic issues for the US Senate Banking and Judiciary Committees, as well as the US House of Representatives Financial Services Committee. His firm, LocateStock, has processed more than 82 million short sale locate transactions and 380 billion shares for short sale approval – without any failed client audits.
An outspoken Staten Island native, Tabacco has appeared on CNBC, Fox Business News and MSNBC, among other media outlets. He recently caught up with Examiner.com to offer some productive ideas for Occupy Wall Street protesters; Tabacco sees the movement as well-intended, but suggests a more concise mission for those supporting it.
Tabacco is also one of very few experts willing to comment on the US Government’s unprecedented ponzi scheme. In the following Q&A, he explains to readers what is actually happening right now, and the disastrous consequences Americans may face.
What is the US Government specifically doing to manipulate markets right now?
The US Government is engaged in systemic market manipulation through irresponsible and historically unprecedented monetary policy; by continuously printing money (and creating it digitally), the US Dollar has been devalued, and this causes commodities to artificially inflate, because they are globally traded in Dollars.
Furthermore, the US Government borrows money from enemies, such as China, that is used to stimulate banks with practically zero-interest government loans. Banks then use that same money to purchase US Government Instruments; this is akin to a ponzi scheme, as banks are able to borrow money from Uncle Sam at essentially 0% interest, and then lend the same exact funds back to Uncle Sam at 2-3% interest.
This free money ponzi-like scheme, coupled with zero-return savings accounts, causes the stock market to be the only venue for investors to seek return. While the banks engage in risk-free government sponsored profit making, investors are forced to tune to Capital Markets to get any sort of return.
In the past, we have seen tech and housing bubbles, and to me, the worst is yet to come in the form of a government bubble. How long will enemies like China lend us cash to engage in irresponsible federal spending and irrational government sponsored market stimulation programs?
The US is staring down insurmountable deficits, and the growing reliance on China as our lender of last resort puts us in a position of being beholden to a foreign entity that despises all things American – particularly Capitalism and Democracy. The question is not if China will flex its muscles, and begin to reign in US Treasury purchases, the question is when.
China doesn’t even need to sell any of its existing portfolios of Treasuries to cause market mayhem; all it needs to do is stop buying them. When China does this, the US cost of borrowing will increase, and the Fed will be forced to raise benchmark rates from zero, thereby eliminating the current profit strategy major financials are relying on. It will also send shock waves through the global economy.
As for the US Government, it is putting out public statistics that are extremely propagandist and misleading. Take unemployment for example – the US Government continues to pump out misleading numbers on the country’s rate of unemployment, which is deflated by hypothetical assumptions on new businesses being created – this is called the birth/death model.
The Bureau of Labor and Statistics uses this model each month and it is basically a guess on how many new companies were formed; in turn, it applies a supposition that those businesses will be hiring a pre-defined number of employees. In essence, the birth/death model adds phantom jobs to almost every monthly report, and this manipulates the already-putrid unemployment numbers. The highly publicized U-3 official unemployment rate is 9.1%, but the true measure is more accurately reflected in the U-6 figure, which is much less publicized, as it counts both unemployed and underemployed (those working part time, but seeking full time employment).
The U-6 number actually stands closer to 20%, and even that is artificially lowered by another BLS numerology trick, wherein they stop tracking those labeled discouraged workers. These are people who have exhausted their unemployment insurance benefits, and have officially given up on looking for work; somehow, the US Government finds it appropriate to allow the perceived number of unemployed people to be dropping, even though the number of actual long-term unemployed continues to increase.
There comes a point where the BLS decides that some long-term unemployed people are no longer worthy of being counted in government statistics. These policies and public relations strategies, which have defined Obama-nomics for the last 3 years, are leading our once great country down the path to what I like to refer to the next bubble as: Obama-geddon.
[Ed. Note: For more information on Obama-geddon, read this October 2009 interview with trends forecaster Gerald Celente.]
How serious is the level of exposure that US banks have to European debt?
The level of exposure to the Euro crisis is serious and not being fully explained. All of the foreign banks have trading and derivative exposure to US financial institutions. I think the seriousness is not easily defined, as the banks and institutions have been unable to enunciate their derivative risk and exposure themselves. How can anyone have any certainty as to global exposure when the institutions themselves have not been able to clearly define what they see their real risks as? There is a huge systemic risk to the US banking system as the Euro crisis continues to simmer.
Based on the emerging landscape, will the Euro survive as a currency and political union over the long term?
I don’t think the Euro can survive on a long-term basis; the agreement entered into by EU members specifically defines a debt-to-GDP level that countries must stay below. EU nations – particularly Greece – have willingly used structured products to mask the level of debt they hold on paper; this makes them appear to abide by EU membership terms. Now that many EU members are on life support, they also face higher borrowing costs amid slowing global growth. It seems the only strength in the region is Germany.
Germany has continued to bail out its neighbors because they are relied upon to buy German goods; however, we have recently seen many EU trading partners show decreased consumption. If this continues, it will hit Germany’s growth engine and appetite to extend further bailouts. Why continue to bail out neighboring trade partners as their consumption of German goods decreases?
There is only so much of the EU Germany alone can carry. At some point, the German populous will speak up as their country is weakened due to bailouts for overspending neighbors. When it becomes politically unacceptable for the Merkel Administration to justify EU member bailouts, the EU and its currency will begin to fall apart.
Do you think Occupy Wall Street will actually produce changes in societies?
No. The OWS movement is raging against the wrong machine: protesters are in Downtown Manhattan raging against banks when they should be in Washington DC raging against an administration that continues to support big bank bailouts for those deemed Too Big to Fail. The protesters are making noise and expressing outrage, which is their right – and it’s commendable – but they’d be better off channeling that energy into results-driven strategies.
For example, if the OWS movement hates big banks so much, why not organize their followers, nationally and globally, to express outrage by short selling the stocks of those banks? An organized strategy to short sell big bank stocks would define their enemy; should those enemies come under pressure due to short selling, they will be exposed as weak. If they are in fact weak and need more handouts, the Obama Administration will then have to decide if it’s worth bailing out the so-called 1% against the wishes of the remaining 99%.
I see an added value here as well; government officials, especially those who have publicly supported the OWS movement, will be caught between a rock and hard place. They will have to demonstrate, through actions, their support of the 99% – or the oft-chided 1%. In this scenario, OWS leverages an intelligent and cohesive strategic operation that exposes vulnerability in the banking system, while forcing the US Government to either stand with them, or continue along with the same old path of bailouts of big banks.
An organized movement to engage in a sound trading strategy of shorting fundamentally weak banks would produce more of a change than standing in a park, and raging against the working men and women of the Financial District. My office is 2 blocks from Zuccotti Park, and the working people I know and see every day couldn’t care less that they are there.
It’s not doing a single thing to change the daily routine or behavior of anyone I know, but I can tell you this: a marked downturn in the stock price of one of the big US banks would get a lot of people’s attention, and then the protestors would have channeled their movement into a force of change.
Is Bank Transfer Day on Saturday, November 5 an actual threat to big banks?
It could pose a significant threat if OWS protestors and others actually organize a critical mass effort. Some of the US banks are extremely undercapitalized, and an organized movement to pull deposits from them could have a major impact; the results would be similar to those produced by a concerted fundamental equity short selling strategy that generates profits for OWS.
Bank Transfer Day seems to be a better solution than standing in the street with a sign – that’s not going to make a long-term impact. Hitting them where it hurts in the pocket book is a much more sound way to protest and express dismay with big banks.
What is necessary to fix US financial markets? Is it a return to Glass-Steagall, or massive derivatives reforms, as some suggest?
The government needs to get out of trying to stimulate markets; they need to dial down the regulatory minutia, and allow businesses to grow without so much governmental regulation and bureaucracy. We need to pass legislation that clearly defines macro risk parameters for financial institutions, and let free markets do the rest.
Almost everything run by the government is dysfunctional, so anyone advocating government intervention into what were once free markets is outrageously confused. Such actions will result in the US being a weakened superpower beholden to the lenders of the world. Our creditors, in turn, will eventually use our debt as a means of increasing their authority over our national policies.
Recently, China began to make comments that the US needs to spend more carefully; to me, that was a shot across the bow, and is only a precursor of things to come. When they start to say, “We will not lend anymore, unless you do […],” the day of reckoning will truly be upon us.
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