From The New York Post:

Even in Zuccotti Park, greed is good.

Occupy Wall Street’s Finance Committee has nearly $500,000 in the bank, and donations continue to pour in — but its reluctance to share the wealth with other protestErs is fraying tempers.

Some drummers — incensed they got no money to replace or safeguard their drums after a midnight vandal destroyed their instruments Wednesday — are threatening to splinter off.

“F–k Finance. I hope Mayor Bloomberg gets an injunction and demands to see the movement’s books. We need to know how much money we really have and where it’s going,” said a frustrated Bryan Smith, 45, who joined OWS in Lower Manhattan nearly three weeks ago from Los Angeles, where he works in TV production.

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Gold has a long history of being many things to many people.  To some, it is a shiny bauble, to others a commodity, and to still others a currency.  To financial economists, gold is the traditional hedge against inflation.  This month, however, it appears to have assumed a new role: The gold market is now the mirror image of the broad equity markets. And while the tight inverse correlation in day-to-day trading is unlikely to persist for long, this general relationship may be around for quite some time.  Why?  Because headlines notwithstanding, the rapid rise in gold prices is not a short-term speculative bubble, but rather a necessary consequence of our previous bubbles and an appropriate response to the shakiness of sovereign debt.

Contrary to convenient metaphor, financial bubbles do not “burst” when they end.  They unwind.  Consider the plight of the “Internet Bubble” of a decade ago.  As 1999 drew to a close, all seemed rosy in the world of dotcoms.  Christmas shopping brought droves of new consumers into the world of e-commerce, as the amount of business conducted on the Internet skyrocketed, along with e-tailer revenues.  But that revenue growth, while significant, fell far short of the amount necessary to pay outstanding bills.  In other words, folks who had relied upon future revenues to pay past bills were unable to do so.

The suddenly underfunded e-tailers, beset with disastrous balance sheets, had no choice but to defer their IPOs.  Even worse, within a few months they had to turn to their suppliers, mostly web developers and software companies, and offer them a choice: Either defer due dates on all outstanding receivables and allow them to age gracefully, or sue for collections and risk a countersuit.  With their eyes on their own IPOs, the web developers and software companies had little choice but to age their receivables—and pass the dilemma onto their own suppliers, including web hosting services and ISPs.  They too had assumed that future revenues would cover past bills, and they too were disappointed.  As month followed month, the problem flowed outward with each turn of unpaid receivables.  From software it spread to hardware and eventually to telecom.

The demise of large, well-funded companies like Global Crossing and Worldcom—roughly two years into the unwind—finally diffused the losses sufficiently for the broader economy to swallow them.  Investment picked up again, and the economy recovered—with a disproportionate share of the investment flowing into real estate.  Why real estate?  Largely because government policies arising from numerous corners and serving numerous goals made real estate investing appear to combine low risks with high rewards, and low down payments with sizable future debts.  The specific causes of the real estate bubble—like those of the Internet bubble—form a fascinating tale, but one that is tangential to understanding its unwind.  The key to both unwinds was the assumption that lager revenues tomorrow could fund today’s spending, or in a word, leverage.

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As the Central Illinois 9/12 Project has briefly written about in the past, one form of banking in which Shorebank is engaged is microfinance, especially in foreign countries. As this is not a type of finance that is well known to the general public, we will discuss briefly what microfinancing is, how it is used in conjunction with green initiatives and Sharia law, and how Shorebank is using this type of financing in their banking processes.

The Consultive Group to Assist the Poor (CGAP) defines microfinance as simply “the  supply of loans, savings, and other basic financial services to the poor.”  These loans are generally relatively small, but carry with them a high interest rate due to costs incurred by defaulting on loans and the transaction costs that are disproportionate to the size of the loan.  (The cost of manpower and other factors needed to make the loan are the same regardless of the size of the loan – thus for smaller loans, the  percentage of these costs in relation to the amount of the loan is greater.)  Specifically, the microfinancing industry enables people to receive loans when they would not otherwise be able to do so, whether due to poverty, lack of a bank account, inability to provide collateral, and/or inability to prove employment. In 2007, there were 873 microfinance institutions worldwide serving more than 133 million loan recipients.

Microfinance was initially, and oftentimes still is, aimed at providing loans and opportunities to those who otherwise may not have the funds to get a business off of the ground, but microfinance is sometimes tied into other things such as green initiatives. Shorebank, a community development bank whose practices the Central Illinois 912 Project has highlighted before, is a partner in an eco entrepreneurship through a project called “Yurtcozy.” This initiative allows individuals to “offset their carbon footprint” by buying carbon credits which enable a microfinance loan recipient to receive funding  for things such as energy efficient appliances and solar lighting. It may also finance education on clean energy for microfianance recipients and partnerships in green initiatives. Yurtcozy asserts that if the carbon credit purchases were made for all microfinance loan recipients worldwide, then loan recipients could decrease their carbon emissions by 260 million tons, and thirty percent of their income would be unlocked.

One of Shorebank’s first forays into microfinance was through the establishment of Grameen Bank in Bangladesh in 1983. Grameen Bank was founded by Mohammed Yumus, a Noble Peace Prize Recipient in 2006 and 2009 recipient of the Congressional Medal of Freedom from President Obama. Yumus’ description of the features of Grameencredit includes stating that “credit is a right,” and it’s built on “trust” (i.e., social justice in banking.)

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Before the most recent report on Lehman Brothers’ use of Enron-like methods to hide debt from its balance sheet, Greece had recently been accused of similar shenangians.  The sovereign was under scrutiny for swaps it had set up with Goldman Sachs that allowed the nation to mask its real debt load, effectively cooking its books in order to meet the fiscal standards required for admittance into the Eurozone in 2001.  This was not the first time this type of deceptive transaction had been consummated.

The joyfully iconoclastic financial blog Zero Hedge had uncovered a little-known 2001 report by a little-known Italian Economist named Gustavo Piga which showed that Italy had used almost the exact same transactions as those used by the Greeks to mask their finances and gain entrance to the Eurozone in 1997.  For his courageous exposé, most disturbingly Piga’s life was threatened.  Why was this the case?

Piga had been the first to find “…a real-world example of how sovereign borrowers can use derivatives to window-dress public accounts as a means of achieving short-term political goals.”  As the Council on Foreign Relations which collaborated with Piga on the report noted, Italy was able to do this by “taking a cash advance in 1997 against an expected foreign exchange profit in 1998.  Under accounting rules, this is simply impermissible.  Borrowers cannot use loans to anticipate capital gains on a bond.”  The transactions allowed Italy to artifically reduce their deficit in 1997 by increasing their deficit in 1998.

And according to the CFR, what was the significance of this Enron-like Italian book-cooking?

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For the past year, Francis Cianfrocca and Ben Domenech sat down every weekday morning to chat about politics, economics and the shifting global marketplace. For 2010, we’ll shift to recording once a week. We hope you don’t mind, and we’ll still jump in with an emergency episode or two if breaking news demands it. Thanks for listening, and welcome to today’s edition of Coffee and Markets, a weekly podcast from The New Ledger, brought to you by BigGovernment.com.

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Tapper: Question for Gibbs

TAPPER: On the fee for banks, without asking for any details,* how can you guarantee that this, that this fee, tax, levy, whatever it ends up being, is not passed on to consumers and they take another hit when it comes to Wall Street?

GIBBS: Yeah, well, look, obviously, Jake we’ll have a chance to go through the structure of this. The economic team has worked for quite some time on a structure that will ensure that what taxpayers gave to banks to ensure their safety and security, in a time of crisis, is paid back in full. And I can assure you that is one of the things the economic team has taken into account in the structure.