War in the Classroom


By Tabitha Korol       

The year was 2011, and a freshman in Newton South High School, in Newton, Massachusetts, asked her father if it was true that the “Israeli occupation forces” had “imprisoned, tortured and killed” hundreds of Arabic women who had been “active in the Palestinian resistant movement.”  Her father, Tony Pagliuso, asked for the source of this misinformation.  It was her 540-page Arab World Studies Notebook, a highly explosive textbook filled with fabrications, shown to contribute, at least in part, to the marked decrease, from 84 to 57 percent, in student sympathy for Israel. In another textbook, The Cultural Landscape: An Introduction to Human Geography, a question reads, “If a Palestinian suicide bomber kills several dozen Israeli teenagers in a Jerusalem restaurant, is that an act of terrorism or wartime retaliation against Israeli government policies and army actions?”  These are not unique.

The editor, Audrey Park Shabbas, employed by Arab World and Islamic Resources and School Services, authored the volume to improve the Arab image because the truth is unpalatable in Western society, and the Israeli image is scapegoated in the process, consistent with the 1400-year Islamic war against Jews and Western civilization.  Schools also distribute Scholastic’s maps that omit Israel from the modern Middle East.

Other education sources used across America are the Internet’s Flashpoints: Guide to World Conflicts, which identifies Jerusalem as the capital of (the non-existent) Palestine; handouts that omit the numerous and deadly Arab terrorist attacks on Israel; and A Muslim Primer that presents a deceptive, sugar-coated version of the subjugated Muslim woman’s life.  Biased textbooks in use throughout America are World History: The Human Odyssey; World History: Human Legacy; World Civilizations: The Global Experience; A Muslim Primer: Beginner’s Guide to Islam, and more.  I have personally reviewed four textbooks and written exposés accordingly, and many concerned professionals and members of the public are working hard to combat the manipulation of our youth, but the disinformation continues to proliferate.

More than 10,000 teachers attended Shabbas’s hundreds of three-day teacher-training sessions from 2000 to 2006, and were thus persuaded and made skillful at reaching and indoctrinating more than 25 million students over ten years.   Additional corroboration comes from visiting biased speakers, such as the notorious anti-Israel Noam Chomsky, an aficionado of the Iran-supported, world’s most powerful terrorist group/army, Hezbollah, responsible for large-scale bombings and suicide attacks on Americans and Israelis; Linda Sarsour, anti-Semite, jihadi and proponent of FGM (Female Genital Mutiliation); and academia’s Paul Beran, then-director of Harvard University’s Outreach Center, now leader of SHARIAsource, recognized for promoting BDS (boycott, divestment, sanctions) against Israel to the Presbyterian Church.

It took alert parents and involved citizens and intense investigation and reports by The Massachusetts Board of Education, Americans for Peace and Tolerance (APT), the American Jewish Committee and Verité Educate to expose Newton High’s ethical violations and unacceptable practices and to finally have the school admit the Outreach Center’s strong influence.  Key criticism was leveled at Harvard International Review’s Hatem Bazian’s fallacious portrayal of Palestinians as the indigenous victims and Jews as the colonialists; at the textbooks for their academic dishonesty through inaccuracies, false information, plagiarism, deceptive editing, and hate-filled, religious-proselytizing websites; assignments designed to prejudice students toward a suicidal one-state solution for Israel/the West Bank/Gaza, revealed in Miriam F. Elman’s “Palestinian Propaganda is  Infiltrating US Public Schools”; and biases against Israel and the US while sanitizing Islamic ideology and terrorism, explained by Rafael Medoff in Breaking Christian News.

Examples of other schools across the country that inculcate Islamism and unfairness in the classroom include Bellaire High, in Houston, Texas, cited for extreme claims about Israel’s history; Carlmont High in Belmont, California, which invited Linda Sarsour and other anti-Semites to advocate BDS and tutor radical positions against Israel; and La Plata High, a Maryland public school that forces the children to learn about Islam, memorize the Five Pillars of Islam, and recite the Shahada, the Islamic oath of conversion.  By contrast, there is a considerable lack of parallel information being taught about Christianity and Judaism because Islamists precedently announced their aversion and umbrage.  This generation of children is being fed an egregiously biased version of an ideology that is incompatible with democracy and corrosive to our beliefs, morals, and ideals.  Let us be clear: their ultimate purpose is the conversion of our children.

The Intense focus on Islamic subjects is carefully selected.  For example, the status of women is profoundly misrepresented, the origin and purpose of their sharia-compliant clothing falsified and unsupported by scholarship.  One author asserts that “Islam and the Quran created major improvements in the status of women,” when the truth is otherwise.  The worst conditions for women are concealed, including the practices of genital mutilation and honor killings; accusations of adultery and stoning; their treatment as property and legal inferiority; endorsed beatings by their husbands; the fact that a woman may have no rights to show her face, walk alone, drive a vehicle or attend schools. International speakers and experts who offer genuine facts, such as Ayaan Hirsi Ali, Anni Cyrus, Brigitte Gabriel, and Noni Darwish, are not among the invitees.

The textbooks elevate Islam over Judaism and Christianity, one being John Esposito’s Islam, the Straight Path, in which he declares that revelations given to the Jews and Christians were false. By contrast, he cites as truth, rather than belief, that God sent Muhammad as his final messenger and that God’s sacred language is Arabic.  Students write about Moslem pilgrimages, including to Jerusalem as “your homeland,” when Jerusalem is never mentioned in the Koran.  Many textbooks explain the rise and spread of Islam as being a successful acceptance of ideas, rather than the result of persecution and wantonly destructive conquerors who beheaded the non-believers, kidnapped the women for forced conversion and sexual slavery, and enriched themselves with appropriated bounty.

The textbooks’ definition of jihad varies from the benign, the spiritual struggle within oneself against sin, to the traditional, the struggle against the enemies of Islam, but the goal is always the same – that of bringing the whole world under Islamic law, as explained by Bernard Lewis. Omitted is the account of hundreds of members of the Jewish Meccan tribe, the Quarayza, beheaded in 627 AD for rejecting Muhammad as Prophet, and the more than 109 verses in the Quran that decree violence and death to Jews and Christians, and the destruction of Israel.

Not found in textbooks is Israel’s history – not 1948, when five surrounding Arab states declared war on the new state of Israel and lost, or 1967, when the Arabs again attacked Israel and lost, leaving behind Arabs who stayed and accepted Israel citizenship and Arabs who fled and remained as stateless pawns, neglected by their brethren.  Mislaid is the number of Jews – between 800,000 and one million – who fled for their lives from Islamic countries, and were absorbed by Israel.  Missing are a timeline that would verify Israel’s attacks as retaliatory to the Arab leaders’ calls to annihilate Israel, and a correct definition of the Israeli-Palestinian conflict as “religious,” as declared in the Quran, confirming that anti-Semitism is integral to the Moslem culture. The textbooks do not explain Islamic terrorism and radicalism as religious precepts of jihad, or the incitement to hate that permeates Palestinian and Islamic society. Palestinians extol terrorism, praise terrorists as heroes and deceased murderers as martyrs after whom streets, cultural events, and public squares are named, and for which parents are handsomely rewarded – with “humanitarian aid” funded by UN countries. Anti-Semitism is endemic to the Koran, and none of this is mentioned.

The correct definition of Islam, with its religious, legal, political, economic, social and military components is a 100% system of life, and the greatest threat to the world.  There are organizations that work to free our schools of Islamic propaganda, but the programs of study have been bought and paid for by the Saudis, and theirs is the agenda.  Hence, the lessons are plagued with poor scholarship, revisionism, and blatant anti-Israel bias, and supported by a corrupt media that fuels the skewed perspective.

It is now evident that we are at war, a war that is being waged in the classroom, with its weaponry aimed at our children’s minds.  The diligent work, “Indoctrinating our Youth,” by CAMERA, Committee for Accuracy in Middle East Reporting in America, has resulted in the removal of some curriculum materials, but not all.  Despite parental rights to know what their children are learning, teaching staff does not provide full disclosure.  And, for every school that removes falsehoods, there are a hundred more that are continuing its use, now beginning at 3rd grade level.  It is up to us to pursue what must be stopped for the sake of our survival as a republic.  Go to www.schoolbias.org or call CAMERA, at 617-377-6911.  To quote a popular phrase, “If you see something, say something.”

 

Bitcoin Still in Trouble


The rally in BitCoin was a perfect 13 weeks up from the last strategic low. It peaked with the Weekly Array the week of 12/18 which was both a Panic Cycle and a Directional Change. However, with the impending ban in South Korea on trading cryptocurrencies, the high of December appears to be at least an important temporary high. A weekly closing back below 9425 will ten to confirm the end of the bull market for now.

South Korean plans to restrict cryptocurrency trading. Bitcoin investors saw the collapse to $13,600 from the previous day trading at $16,500 dollars. South Korea, one of the world’s most important countries for virtual currency trading, wants to ban the opening of anonymous accounts for cyber currencies, among other things. There will also be a new law that will allow regulators to close stock exchanges where Bitcoin & Co. is traded under certain circumstances. “We share the view that cryptocurrency trading is irrationally overheating,” the government said. “We can no longer tolerate this abnormal speculation.”

Nearly a million people are estimated to own Bitcoin. South Korea is very important because it represents around one-fifth of Bitcoin’s global trade. Regulation by South Korea is extremely important. Even the German financial supervision warns that the risk is total loss for investors. Many view this as if it were the Dutch Tulip Bubble since BitCoin cannot be used in the economy in a fair and orderly manner.

Understanding Cycles & Dynamic Inter-connectivity


COMMENT: Mr. Armstrong; I really do not think the world respects your work. I read on your blog there was going to be a bad flu from Australia that would hit Britain. Then a few days later, the headline here is all about what you forecast. You really have to go public and let people support your work in a meaningful way. The world really does need to listen.

All the best from your former home.

EB

REPLY: I understand. I get a lot of emails on this subject. The world is not ready to understand cycles. All the methods of analysis are generally wrong. All the analysts who try to compete with me do so on an OPINION basis, not methodology. They offer their OPINION and pound their chest. This is not about OPINION. This is about global correlation. We all have opinions and they are never 100% perfect. There have been times my personal “opinion” has been proven wrong by Socrates. This is why I always try to make sure “opinion” is separates from a forecast.

How many times have we heard some food is bad for you and then they reverse it a decade later? The standard method of analysis is always trying to reduce everything to a single cause of action. That methodology is lethal to knowledge and the future. It blocks our advancement in every field of science like Global Warming. Let’s see, it has gotten warmer in the past 25 years so that must be because of cars. They start with that assumption and never test the data before 1850 because there were no cars then. Why bother? We know the cause is cars, they say. So look for data to prove the assumption.

This to me is absurd. You can also say everyone who has ever eaten a carrot had eventually died and that means carrots must be long-term deadly. It was assumed that illness was in the blood. So the logical conclusion was to bleed people. If they died, it was never because they took too much blood, but they did not bleed them soon enough.

I just am tired of beating my head against a brick wall. Society has to break and only then will we look to new dynamic interconnectivity that is the path to understanding. There are those in New York City who just cannot stand what I do. They refuse to consider there is a methodology at issue here and prefer to blame me the messenger claiming I have too much “influence” and that is why they are wrong. They would try to kill me if they could since they tried that one before but I survived. Why admit you may be wrong when you can blame someone else for your failures? That, unfortunately, infects a large part of humanity.

Going public is the only way to preserve this research and push it forward for posterity. I have not changed my mind. We were granted our business license in China. It took three years of investigation and that is by no means an easy accomplishment. So we now have the seal of approval from China and that will be the biggest market the other side of 2032. Now we are getting closer to going public

Why Models Fail


 

QUESTION: Mr. Armstrong; Did AIG use the Black-Scholes Model and that is what created the crisis again in 2007?

WJ

ANSWER: No. It’s my understanding that AIG developed different models, they called a “Value-at-Risk Model,” (VaR) which used a binomial-expansion-technique to start valuing their positions. I believe the original model was developed at Moody’s. However, like the Black-Scholes Model, it too lacked depth. In model development, it is extremely complex.

Virtually every model created tends to be predominately flat with a minimum of dynamic variables lacking understanding of TIME. Then the testing period lacks the database reflecting all conditions. In the case of Black-Scholes, they back-tested only with data to 1971. If I created a model with only data from 2009 forward, then it would be biased to presume a bull market is normal in the stock market.

The Value at risk (VaR) model is a measure of the risk of investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period such as a day. VaR is typically used by firms and regulators in the financial industry to gauge the number of assets needed to cover possible losses. It obviously failed in 2007-2009 because once again it was not a “normal market condition” for it fails utterly to understand CONTAGION when sound assets are sold to raise cash for other assets that collapse. The assumption of the model is its own nemesis.

For example, if a portfolio of stocks has a one-day 5% VaR of $10 million, this actually means that there is a 5% probability that the portfolio will fall in value by more than $1o million over a one-day period if there is no trading. Therefore, a loss of $1o million or more on this portfolio would be expected on 1 day out of 20 days given a 5% probability. A loss which exceeds the VaR threshold is termed a “VaR breach“.

So you can see, such models are incapable of determining TIME and as a result, they will always fail during a CONTAGION that they cannot see coming.

This is why the bulk of portfolio models fails during a financial crisis. This is also why some of the top Institutional portfolios come to our firm because they have realized that only TIME determines the success of any model and making broad assumptions of probability have ALWAYS failed. If you cannot model TIME and CONTAGION, you will be wiped out during a crisis and VaR will fail just as Black-Sholes.

 

What Did the Pivots Confirm or Deny for 2017?


QUESTION: Marty; At your training seminar you did a couple of year’s ago, you said your pivot numbers will confirm or deny a high. What was the status on the Pivots in the Dow for the close?

PS Another training session would be nice.

GD

ANSWER: The 2006 closing was 12463.15 and the Pivots were 10949.43, 10727.38, and 14234.29. We closed above two and below one leaving the market still bullish looking to higher prices. Then 2007 closed at 13264.82 and now it was below two 13836.74, 10727.38, and 14234.29. The high for that year came in at 14198.10. So we closed under two and above the lowest which indicated it was then turning bearish into 2008.

The 2017 Pivots were 21982.03, 1528.79, and 22282.07 with the closing coming in at 24719.22. Here we closed above all three Pivots indicating it is still long-term bullish. Looking at 2018, the Pivots move to 20202.77, 27434.90 and 28054.53.

We warned back in October 2014: “[W]e are looking at a rally into 2017-2018 with the Dow reaching the 25,000-28,000 level. ”

We can see that we have reached the beginning of our Pivot projections made 10 years ago for this time period. This suggests CAUTION and with our volatility models turning up and a Panic Cycle for 2018, this is not going to be a walk in the park. This will take a lot of skill to trade this one. No emotions and no preconceived expectations. We have to play this by the numbers and cycles – no choice. This is not the time for boasting opinions.

If I have time to do a training session again I will let everyone know. The seat price of $5,000 last time because it is a lot of work and we have to keep the audience in a more intimate session.

Stunning Audacity – Clinton Tweets Support For Iranian Protests She Previously Helped Destroy…


There are times when the audacity of the most political poll-testing opportunist on the planet reaches beyond stratospheric levels of comprehension.  Cue the visual:

Arguably the most consequential failure of the Hillary State Department was in 2009 when the U.S. undermined the Iranian Green Revolution. Not only did the U.S. do nothing to help the opposition against the Iranian regime, but US funding was cut for democratic organizations/programs in Iran under Clinton’s State Department. It was Hillary Clinton who supported the Mullahs in an ill-fated decision to achieve the ridiculous Iranian Nuclear Deal which she was just praising and defending three months ago.

Hello?

Meanwhile the mainstream media apparatus are refusing to even acknowledge the Iranian uprising; apparently because President Trump is supporting their cries for freedom.

Yes, if ever there was a bigger example of Trump Derangement Syndrome causing media to contort themselves into hypocritical pretzels, their reaction -or lack thereof- to these protests in Iran would stand as exhibit “A”.

(Via BBC) […] They are the biggest show of dissent since huge pro-reform rallies in 2009. There are reports of two deaths.

There were calls for the removal or death of Iran’s Supreme leader, Ayatollah Ali Khamenei, in the cities of Khoramabad, Zanjan and Ahvaz.

Iran’s Islamic Revolutions Guards Corp is a powerful force with ties to the country’s supreme leader, and is dedicated to preserving the country’s Islamic system.  (read more)

(Fox News, Stephen Miller writes) […] CNN ignored the protests completely, and the explosion on social media until a front page story reporting on not uprisings against the regime, but a pro-government rally and President Trump’s tweet in support of the protestors. If the State Department wants to send a message of solidarity to the protesters in Iran, perhaps it can send them a white truck. Yes, the question has to be asked how such an uprising of thousands against their government would be covered by western media if this were Tel Aviv. We don’t need U.S. Ambassador to the U.N. Nikki Haley defiantly raising her hand to answer that question for us.

The somewhat muted reaction to thousands of people rising up against the Iranian regime can and should be compared to the attention the Arab Spring received in 2010. The scenes coming out of Iran are just as dramatic, if not more so, than those of the Arab uprising.

A woman was caught on videotape screaming “death to Khamenei” at Iranian law enforcement officials – an action that could not only endanger her life, but the lives of her family. But nevertheless, she persisted.

Social media came to a halt when another video was shared on Twitter of a female activist, shedding her hijab and waving a makeshift flag at security forces while standing atop a container.

I’m not exactly sure why an Iranian woman would shed such a garment that we’ve been told by the political left of this country is a symbol of empowerment and feminism. But her body, her choice.

Protesters are shouting “Death to Khamenei,” “Mullahs get lost,” “No more Islamic Republic,” “Clerics return us our country.” They are not shouting “We have economic anxiety”. This is not about economic anxiety. This about revolting against a regime who has exhausted its moral good will, and no longer can lean on a sympathetic United States for more pallets of cash.  (read more)

Russia Responds to the Trump Tax Reform


Russian President Vladimir Putin is also responding to the Trump Tax Reform. Putin has also taken a step to promote the repatriation of capital from abroad. He is now proposing that only a 13% tax on funds retrieved should be abolished. Additionally, he is proposing that there should once again be an amnesty for Russian companies that bring their cash home.

Russia introduced such immunity for past tax avoidance and foreign exchange offenses back in 2014 when the country faced massive capital outflows. That amnesty had been used very little proving to be ineffective. It expired in mid-2016.

China Eliminates Taxation For Foreign Companies Investing in China


China has responded to global competition that is exploding in the wake of the Trump Tax Reform. While domestic news in the USA continues to bash the tax reform on class warfare, the rest of the world is trying to come to terms with what Trump has set in motion. China’s response is to allow foreign companies complete tax-free business on any profits they reinvest in China upping the stakes. Their position was stated by the Ministry of Finance and it is designed to “foster the growth of foreign investment, improve the quality of foreign investment, and encourage foreign investors to continuously expand their investment in China.” The tax exemption applies retroactively from January 1st, 2017 beating Trump at his own game once more. Foreign companies who have paid taxes in China for 2017 will be refunded.

Domestically, companies in China are already complaining about rising costs that are caused by raising taxes. They have warned that this could lead to production relocations. The standard corporate tax rate is 25% in China. In order to benefit from the newly announced tax rebates, foreign companies have to meet several requirements. These include direct investment in industries promoted by the government in Beijing. Also, the money must flow directly to the companies.

The tax game is now afoot. The big loser will be Europe because they are far more entangled with the socialist agenda than anyone else with New Zealand and Australia fighting for second place in the uncompetitive tax burden race to the top

MIFiD II Delays…


Talk amongst many traders is that they are so unsure how the new rules and regulations surrounding the implementation of MIFiD II (Markets in Financial Instruments Directive) are to be imposed, that some even said they were keen to extend their holidays until this mess is sorted out. In other words, until they hear that regulators will grant firms a six-month delay for part of the changes about to be implemented for both the company and country, many just do not even know how to conduct business anymore.

The most critical problem surrounding this nightmare is the fact that every trade (with a European Counterpart) will require a LEI (Legal Entity Identifier). This is not such a critical issue for Wall Street Banks since they have already won a 30-month grace period after the SEC requested time to negotiate terms with the EU. Goldman Sachs has installed another of its board members as the top negotiator inside the SEC – Alan Cohen. Goldman Sachs has now three strategic people in the Trump Administration to steer the legislation in their favor both in the USA with restoring Glass Steagall to reduce their competition (Gary Cohen & Steven Mnuchin) and they have now added Alan Cohen, who was their Head of Global Compliance

Not all EU countries have come to terms with LEI’s yet so its no surprise a six-month grace period has been awarded just on its eve! The European Securities and Markets Authority on Wednesday proposed the grace period for a requirement that companies wanting to trade with any party based in the European Union will need a code, known as a legal entity identifier, or LEI. The identifying code is important as it lets firms continue to trade from MiFID’s Jan. 3 start date. Industry groups and regulators have been directing firms to register for months, saying: “No LEI, no trade.”

During the six-month grace period of relief, any investment firms may trade with clients under the condition that before providing services, the firm must obtain the necessary documentation to at least apply for an LEI code on its behalf.

The EU Bad Loan Crisis to Get Much Worse – The Solution = Financial Pandemic


The bad loan (“non-performing loan” (NPL)) crisis in Europe is well known and many have been calling for this issue to be addressed. In Italy, the bad loan crisis has reached 21% of GDP. While NPLs dropped to 4.8% of all loans in the EU as a whole during the first quarter of 2017, they remained well above 40% in Greece and Cyprus, at 18.5% in Portugal, and 14.8% in Italy according to the European Banking Authority.

Now comes the bureaucrats with zero experience to save the day – or is that to create a financial pandemic in the EU? The EU Commission (EUC)  along with the European Central Bank (ECB), want to ensure that banks promptly sell real estate, stocks, bonds and other assets that serve to collateralize loans according to their Mid-term Review of the Capital Markets Union Action Plan.  Member States are required to adopt laws that facilitate the central directive. At this time, any bank cannot just sell a property that secures a loan. The problem is, all loans, whether secured or not, are valued the same.

Once again, all we have is the ECU and ECB desperately trying to prevent a banking crisis as loans in default rise. However, this project is totally incomprehensible for now a well-secured loan which does not pose any particular credit risk in traditional banking can find its collateral sold. Any loan cannot liss a payment in difficult periods even when fully collateralized. This puts the European economy in a serious crisis for if banks begin to sell off collateral, then the entire market will move into crash mode forcing asset values to decline undermining the collateral of other loans. This regulatory logic is just totally insane and is concerned only with EU fiscal policy that does not want to support the banking industry and thus the economy.

All loans have been rated the same in Europe for a long time, no matter if the collateral fully secures the loan or is not even present. If a borrower encounters any problem, the loans are to be downgraded in terms of creditworthiness and must be underpinned by more capital that must be added to the bank reserves. This applies even if the borrowers are economically sound and have sufficient assets but encounter cash flow problems because of the overall economic condition, they can find their collateral being sold off in a manic fashion. The new rules mean that a loan quickly becomes an NPL and banks are to liquidate the collateral ASAP.

If an NPL is equipped with collateral, the bank is now directed foreclose and sell the real estate, securities, and any other collateral according to the EUC and ECB. This means people will be thrown out of their homes if they become unemployed and cannot make a mortgage payment. The loss of a source of income will cause the loan to be classified as an NPL and sold even if the home has just 10% of its value outstanding. The bank must act as if the family were bankrupt and the loan uncollectible.

If a small business experiences a decline in sales because of the economic deflation in Europe, the business is classified as a higher risk. The existing securities used to collateralize the business loans are sold and the current account credit is repaid as “NPL”. Many small businesses pledged the owner’s home to back the business. Under these new rules, the small business will be liquidated and the owner will lose their homes as well. The implication of these rules means that a small business will not be able to expand and hire people when the risk is far too great. Economically, the new rules will undermine the economy even more and send Europe into a deeper recession while causing collateral values to decline.

Under these rules, a massive sale of land and real estate would most likely result. Asset values will decline as was the case during the Great Depression as banks would generate lower revenues from the realization of collateral only further causing the banking crisis to spiral downward into a complete debt crisis in Europe.

 

The crisis gets even worse where there are family members who co-signed for a mortgage. The friend or family member who co-signed the loan is now required to make all the payments and if they do not, then their assets will be seized and sold as well. What these bureaucrats fail to comprehend is that assets will collapse rapidly because other banks will be unwilling to finance loans for someone else to buy the property being sold off at auction. During the Great Depression, farmland fell to even less than 10% of its value because the only buyers were those who had cash.

The banks are supposed to sell NPL, but under a massive force liquidation, asset values will collapse. They assume that such a sale would be one property at a time that would not impact the overall market. Under these rules, we will see the deleveraging of private debt in Europe on a grand scale.

The EU’s policy of classifying all loans for the slightest problem as a risk explains why bank overseers are talking about €800 billion to €1 trillion euro in NPLs exist among the European banks. There is no distinguishment between fully-collateralized and non-collectible loans. Nor do bureaucrats comprehend the true meaning of a “non-performing loan” that is temporary and one that could never be repaid. Bureaucrats are not capable of understanding the economy nor do they comprehend that the entire economy is leveraged. Most people buy their home on credit, not cash.

Bureaucrats also fail to understand that NPLs since the financial crisis of 2008/2009 are not exactly the crisis they assume. In truth, irrecoverable loans would have to be written off long ago since the bank balance sheets under current auditor rules. Therefore, the current NPLs are generally good loans that can be serviced according to the usual banking practice that are experiencing cash flow problems. The EUC is demanding banks sell all NPLs, secured or unsecured.

Under these rules, there is little interest in the secondary market for the purchase of NPLs from banks, which are typically sold off at a discount. With no viable secondary market, Member States are to set up so-called “Asset Management Companies” (AMCs) to buy and sell NPLs. State subsidies are recommended – “of course only insofar as they do not contradict the EU prohibitions on state subsidies”. How to resolve this contradiction, the commission does not say. It also calls for the creation of service companies to service the loans. This is taking a problem and turning it into a crisis with more bureaucrats making decisions.

Back in 2008, banks sold off loans which were called “asset-backed securities” (ABS). This only accelerated the crisis because the loans were managed by computers that automatically defaulted on the entire loan with the slightest delay. The result was clear. Many families lost their homes without necessity and small businesses had to close. Then the banks were sued in legal proceedings for selling damaged loans. Here too, we have a strict rule that someone behind on a mortgage will be immediately declared an NPL.

The NPL agencies and service agencies for loan management envisioned by the EUC and ECB will effectively take over the portfolios of the banks in a forced ABS. The banks will, therefore, outsource the risks to government-run agencies. This will be the official institutionalized ABS structure. The scheme is that these bureaucratic institutions will somehow be better at managing loans and will magically require no capital since they will sell the assets and then pay the bank. In this way, the allocation of new loans should be made possible in their mind. As always, the government does not understand the marketplace or the economy and assume that asset prices will not decline in the face of incompetent government sale of assets.

This scheme has failed to address the problem that when selling loans, the selling bank will still retain part of the risk of a loss in capital based upon the sale price achieved by the government. This is replacing banks with experience with bureaucrats yet the banks will suffer the losses taken by the bureaucrats.

The NPLs are far greater in the southern region of the EU. This measure will only intensify the call for separatism. The new rules are more-likely-than-not going to set off a new phase of the debt crisis and nurture it into a Financial Pandemic.