On the eve of the European Bailout, HAIRCUTS, are all the rage. What is a haircut? Well, like a spelling bee, I will use it in a sentence first, “Bond holders need to take a 60% haircut.” This means that the bond holders need to take a 60% loss. Now, as I have mentioned before, banks which hold bad sovereign bonds do not like to take losses. They would much rather invent some “smoke and mirrors” solution and pass that loss on to the taxpayers. A real life example, let’s say you bought your house for $200,000 and now it is worth $150,000, you need to take a $50,000 haircut when you sell.

So what is the big deal? When banks take a “haircut”, it is bad for the banks but eventually they get back to business, right?  Nope. Our financial world has something called a Credit Default Swap (remember those from the housing mess?). A CDS is a bet that a country will default. Many financial institutions own CDS on these European countries, for example Greece. If banks take a large Haircut, let’s say 50%, this will in fact: 1. Make them insolvent and 2. Trigger the CDS, because this will be classified a credit event, a default, even if it seems voluntary. So, where does this lead us……

Bailout. The Europeans are in a box. They have no way out. The only way to kick the can a bit further down the road is to institute help from the IMF. This sounds good right?  Wrong again. The United States makes up about 17% of the funds and 16% of the voting rights.  This means if Europe cannot figure out a solution and goes to the IMF for help, we, as taxpayers, will pony up 17% of the bailout funds. No Congressional vote, no commission, no collecting $200 for passing go. Just step up and eat the haircut the banks don’t want to take.

OWS needs to focus on this issue. At some point we (as taxpayers) need to stop bailing out the financial system. The financial system will survive, and we as taxpayers shouldn’t have to risk our tax dollars in the process. Not all banks made bad financial decisions with their bond portfolios. Some were smart but many abused the system and knew if their assets went bad they wouldn’t have to take that dreaded…….HAIRCUT because WE the PEOPLE would be there to take the loss.

Occupy Wall Street turned 1 month old recently. What a difference a month makes. The movement went global this past weekend with OWS protests in many cities here in the US as well as abroad. What is the big deal? I’ll try to answer that.

The movement, recently, is being courted by the Democratic party, but the movement is hesitant to affiliate. The movement now garners nightly news coverage. The movement still has not set an agenda or even specific talking points. All this being true, the movement is gaining momentum.

I wrote in my last OWS article that this was going to be a big deal, and now it seems it is here to stay. It has touched a nerve with people, some of which don’t even know “why” they agree.

I feel the answer to “why” is simple. Inequality. I, like a lot of folks in OWS, believe in a moral compass. A basic moral law is to pay back what you owe. If I borrowed a dollar, I’ll pay it back. If I take debt out on car, house, education etc., I pay it back.

Financial institutions around the world have continued to not pay back what they owe. All the while, the citizens are held to the “paying their debt” standard. The main issue with the banks is that they have assets from mortgages to sovereign debt that is worth .30 to .50 cents on the dollar. They refuse to mark these assets and claim they must transfer their bad debts to governments around the world in terms of expanding debt worldwide (i.e.. expanding the FED’s and Central Governments Balance Sheets).

This is all plays against the backdrop of banks continuing multi-billion dollar quarterly profits. Something doesn’t jive. Banks have bad loans…..mark the loss, move on. No harm no foul. There will be consequences, but no one held banks at gun point to take on this non-performing debt……ESPECIALLY when it was making them money.

The movement continues with many ideas and claims swirling around the word greed. Greed is good when you play by the rules. Yet, it is not fair for banks and other financial institutions to play with one set of rules (they profit they win, they lose we lose), while we the people play by a different set.(profit we win, loss we lose). It is a Zero Sum game.

These protests will continue until the game is fair, or the market will force the rules on the ones who choose not to play by them.