We have existing laws that make that conduct illegal. Investigate the activity, charge the wrongdoers, prosecute them, get your convictions

TO BE NOTED: From The Market Ticker:

Posted by Karl Denninger in Editorial at 18:10

"Had Enough FRAUD America?

Let's expand a bit on a couple of Tickers from the last couple days; "AIG: More Samurai Swords Please" and "What SCHEME Is AIG", specifically.

This is what I said in May of 2008:

The solution to this entire mess is the same that it was (but not taken) back when the Bank of England was essentially looted, and when our banking system was looted in the early 1900s - find the market participants who have engaged in fraud via various forms, whether they be mortgage bankers handing out liar loans and misrepresenting them as "AAA Prime" paper or whether they be people in the marketplace who initiated the plethora of (false) rumors over the last many years about various companies, irrespective of whether the intent was to drive prices up or down, and prosecute them.

We have existing laws that make that conduct illegal. Investigate the activity, charge the wrongdoers, prosecute them, get your convictions and toss the lot of 'em in prison with a bunch of 7' tall rapists in the exercise yard, no guards, and a $100 video camera in the guard shack.

Then post the "results" on YouTube as a warning to the world - try that again in this country and this is the consequence you will receive.

That will be the last time it happens.

But until we take that sort of step and hold people to account, this sort of "looting operation" will continue, and we the people will continue to get screwed.

And specifically with regards to CDS, in the same article:

The entire claim and chain of events rests on the fact that market participants, up to and including Ben Bernanke at The Federal Reserve, were and are aware that these CDS contracts are in fact fraudulent in that there is no way performance can take place, yet everyone up and down the line is allowing these "assets" to be counted as "money good" on the books of banks and other financial institutions!

THIS is the key item in the debate folks.

The rest of this noise making is mental masturbation and intentional misdirection intended to keep you from asking the tough questions and demanding that existing law be enforced.

Congress and prosecutors across the board, both State and Federal, need to start bringing indictments, starting with the fraudulent accounting.

You can't value something at "par" when you are well-aware that the underlying credit quality has gone straight in the toilet and that there is not a snowball's chance in hell that the "insurance" you bought to protect yourself has no chance of being "money good." As soon as you become aware of the impairment under the law you are required to reserve against it!

While any one company could claim that its insurance is "money good" that's not the point.

Everyone in the marketplace today now has proof that these swaps in aggregate are worthless, with proof of this found in the fact that The Fed claimed under oath exactly that as justification for the Bear Stearns bailout!

So you have a situation here where the entire banking regulatory system has declared these contracts worthless in the aggregate and yet company after company continues to claim in their financial statements and results that these contracts are "money good"!

This is out and out fraud and must be stopped.

We the people are being systematically looted by these people and our prosecutorial apparatus sits on its butt and sips Starbucks Lattes instead of doing their job!

It is time for we the people to say ENOUGH.

Call Congress and demand that they stop this charade here and now. Every firm that has claimed their paper is "protected" by these wraps must be forced to identify the counterparty that currently holds the risk and those parties must be forced to prove that they can pay any and all claims against those policies.

If they can't (and the default case must be "they can't", since that was in fact Bernanke's and Geithner's position under oath!) then those wraps must be considered "doubtful" and reserves must be taken against the underlying credit quality.

Do this and we immediately identify who is broke and who is not, the market finds its proper price for these assets, and as a consequence the market will clear.

Everyone wants to make this whole mess complicated.

Its not.

It is in fact very simple.

The only "complication" is that there are thousands of people who are ripping the American People off wholesale, waving their arms around in the hope that you'll let them get away with it.

Don't fall for it.

Nearly a year ago folks.

There it was, laid out for everyone both in government and here.

In plain, black (digital) ink.

Now I want answers. You should want answers. And if you think that the answer is to flood AIG's derivatives desk with threatening calls, it is not.

It is to flood CONGRESS with calls demanding that this crap STOP.

Right now.

Specifically, we must insist that:

Every person involved with an identifiable criminal offense embedded in here (and I bet we can find plenty) be investigated, indicted, prosecuted AND if found guilty IMPRISONED.

Every firm that was unjustly enriched be told that they either return the funds or face a suit for that unjust enrichment and, in the case of a bank (or bank holding company) immediate confiscation by the FDIC and decertification of their federal banking charter.

The Federal Reserve be told that either IT cooperates in this matter and both disgorges its garbage on the balance sheet back to its originators, ceases all non-lending actions and opens its kimono here and forward or its charter will be revoked by Congress and The Fed's function will be subsumed by Treasury.

What I laid forth as my postulate has now been proved correct in the fullness of time.

Gee, Eliot Spitzer is back and says the same thing:

The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation. (No really? - me)

So here are several questions that should be answered, in public, under oath, to clear the air:

What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.

Why weren't the counterparties immediately and fully disclosed?

No kidding.

These bonuses aren't "news" to Geithner (who was at the NY Fed, remember, when this entire AIG mess started) or to anyone else:

WASHINGTON (AP) — Cue the outrage. For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn't until the money was flowing and news was trickling out to the public that official Washington rose up in anger and vowed to yank the money back.

Cut the crap Mr. President, Mr. Geithner and Congress. You are lying and this entire "bonus" game is a smokescreen to try to divert attention from the real theft - nearly $100 billion dollars of taxpayer money that has gone to Goldman and other banks, including foreign banks, to pay off Credit Default Swaps written by AIG that were worthless as the company had no capital behind them. This in turn means that the accounting of these firms has in fact fraudulently overstated earnings - perhaps for years - and still is!

The Fed, OTS and OCC have and had jurisdiction over American banks that bought these products, and were clearly derelict in their duty to prevent these regulated entities from purchasing these CDS from a firm that was unable to prove capital adequacy to cover its bets.

The European regulators have similar jurisdiction over those institutions and similarly have been derelict in their duty.

What the hell are we doing bailing out FOREIGN REGULATORS AND GOVERNMENTS who were derelict in their duty with regards to the institutions under their control?

Finally, TurboTimmy, it is not acceptable for you to simply "deduct" the amount of the bonuses from AIG's "aid package". Uh uh. This entire bonus question is a smokescreen for the massive conflicts of interest where an investment bank buys billions of dollars of "credit protection" from a company, then the CEO goes to work for Treasury and makes sure those contracts are good by siphoning off money from the taxpayer to cover them when the seller turns out to be insolvent.

It is time to hold people to account, here and now, for what certainly looks to me like an intentional and outrageous looting operation conducted against the American Taxpayer for the benefit of covering up the outrageous malfeasance and misfeasance by both American and foreign governments and regulatory bodies.

I refuse to believe this has all been some big accident.

I firmly believe it has been an intentional series of actions and it is time for America and stand up and say NOT THIS TIME YOU WON'T.

How long will you sit for this America before you either obtain proper redress for these actions or go purchase these two items

and prepare to use them?

No more excuses Mr. President, Mr. Bernanke, Mr. Geithner and Mr. Summers.

It is time to cut the crap, because if we don't do the right thing here and now foreigners will do it for us:

Foreigners sold a net $60.9 billion in long-dated U.S. securities in January, after buying $24.3 billion in December. Including changes in banks' dollar holdings, short-term securities and nonmarket transactions, net foreign capital outflows totaled a record $148.9 billion in January, compared with $86.2 billion in inflows in the previous month.

Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp., said the big outflows are a concern and could represent a trend away from the flight to quality that has boosted purchases in U.S. assets in recent months.

"This was a truly awful report, throwing into question the funding of the U.S. current-account deficit," he said in a statement.

Mr. Woolfolk misses the essence of this signal from foreigners. That signal is, quite simply, one of disgust with what is happening over here in the realm of outright theft and fraud, and is best summarized thus:

Stop the looting and start the prosecuting right now or we will take our ball and bat and depart, leaving you with an un-fundable government budget that will be forced to contract by more than 75% within days, along with a smoking hole where your capital markets and economy once were.

Need I remind Ticker readers that I predicted exactly this potential course of action by our government and the potential outcome back when these "bailouts" and "handouts" first began over a year ago?

Time's up folks."

Glass-Steagall must be reinstated

TO BE NOTED: From The Market Ticker:

"Posted by Karl Denninger in Banking System at 13:30
(Page 1 of 269, totaling 805 entries) » next page

Followup: Reserve Banking

Well that created a stir.... including a couple of bans for people who decided (despite being warned!) that this would NOT turn into their personal version of a place to run conspiracy theories unrelated to the topic (e.g. "The Fed is an illegal xxxx", or even better, "income taxes are unconstitutional")

This is one of the unfortunate realities of Internet discussion forums, and why I don't have comments directly enabled here on The Ticker, instead redirecting them to the forum. There are only 24 hours in a day and despite some people's belief that I'm Borg, I do need to sleep. Trying to spread all this out would make it impossible for me to keep track of it all - so I don't.

One astounding disconnect I have found in those who argue against fractional reserve banking is the utter lack of comprehension of how credit intermediation works. We have become so numb to reality in our life that we don't even notice it any more.

One simple example was found last night; I filled my truck with gasoline, swiping a credit card at the pump. We do this every day and don't think a bit about it - but in fact this is relatively new in our financial system.

Does anyone remember 20, 30 years ago? Most people either paid cash for their fuel or had a company-specific gas credit card. Your SHELL card was worthless at a MOBIL station.

Why?

Because there was no real intermediation of credit as we have today. Banks could not cross state lines in their operation and credit was not, to the degree today, fungible (equivalent) with money.

Today this has all changed. Your credit card is accepted basically everywhere, even though the fact that it says "VISA" on it doesn't tell you which bank issued it - and thus who has to settle that transaction in the ultimate. Electronic networks have made credit and money - that is, actual cash - effectively equivalent.

At the same time fractional lending has made speculative and productive investment possible to a never-before possible degree. You are reading this blog in no small part as a consequence of that - while the Internet Bubble was devastating to those who got caught on the wrong side of it, but for that we likely would not have an Internet as we do today.

Here's the bottom line folks:

• Fractional reserve banking has both costs and benefits.
• The benefits, by and large, appear to this writer to outweigh the costs.
• Attempting to game the costs, however, leads to dramatic and extraordinarily bad outcomes.

Simply put, leverage limits prevent excessive expansion of credit without interfering with the intermediation function that we now find essential in modern life.

Government is, of course, always pressed by business to override these limits in one form or another, because with greater leverage comes greater profits when things go well.

Of course the corollary is that you get greater losses when things go poorly.

One corrective measure we should apply is to set regulatory capital limits as the inverse of leverage. That is, if we have a 6% regulatory capital requirement for 10:1 reserve lending, if someone wants 20:1 they should be required to hold 12%.

If you couple this with two more demands you can effectively eliminate systemic failure risk:

1. Everything you hold as an asset must be traded on a public exchange or have an exposed and public model, both run nightly, with no hidden or off-sheet exposures of any kind.
2. Your regulatory capital ratios must be published and exposed every night.

Immediate seizure and liquidation of any firm that violates limits now provides the safety necessary to insure that depositors are protected, and public exposure of (1) and (2) means that the sort of game-playing we saw with IndyMac, where capital was improperly moved from one reporting period to another, will be immediately detected both by investors and the public at large.

We must also reverse all the game-playing that has plagued the system, including but not limited to the items set forth in the previous Ticker. Glass-Steagall must be reinstated, off-balance-sheet financial games must be banned, and the common crime of fraud in peddling instruments must be prosecuted and enforced, including those people in our government that have intentionally enabled such misdirection and fraudulent accounting."

"reserve banking is fraud." Simply put, "no its not." Let's prove it.

TO BE NOTED: From The Market Ticker:

Posted by Karl Denninger in Banking System at 23:28

Reserve Banking

My screed on "Mark To Market" brought the tinfoil brigade out of the woodwork in spades, and one of their most common "attack points" is that "reserve banking is fraud."

Simply put, "no its not."

Let's prove it.

We'll set our temporal transporter to a world called "TimmyLand", where there are no banks but there is a very trusting government.

We show up and decide to establish a bank, being the only bank in the land. Since the government is very trusting, it does not require us to post any capital to do this - it simply takes our word for it that this is a good, safe and sound business.

Ok, so on the first day I open my doors to the world with no capital and nothing in my empty vault.

Joe walks in and being the trusting man he is, he deposits $100,000.

I now have a balance sheet that looks like this:

Assets	Liabilities
$100,000 [cash]	($100,000) [Joe, Deposit]

Note that I have $100,000 in cash in the vault, and Joe has a piece of paper - a note - that makes him a creditor of my bank for $100,000 with no time-certainty (he didn't take a CD, he just deposited the money into a demand account.)

Now while this government is very trusting, they're not totally stupid. They demand that I keep a 10% reserve - that is, that I fractionally reserve at 10%.

So a few minutes after Joe comes in, Jane walks in and wants to buy a house. She has her eye on a nice $120,000 home and has $30,000 to put down, but doesn't have the rest.

That's no problem, says I. I do some investigation of Jane and find that she has a very good job, and its a very nice house. The one right down the street of the same size sold a month ago for $150,000, so the valuation looks pretty conservative. Jane must be a good negotiator besides. I make the loan @ 6%. Now my balance sheet looks like this:

Assets	Liabilities
$10,000 [Cash]	($100,000) [Joe, Deposit]
$90,000 [Mortgage, Jane, 6%]

Notice that my net balance sheet has not changed. Yet.

But the seller of that house, Rich, doesn't want to sit on $90,000; someone might rob him! He comes into the bank and deposits it. Now my balance sheet looks like this:

Assets	Liabilities
$10,000 [Cash, Joe]	($100,000) [Joe, Deposit]
$90,000 [Mortgage, Jane, 6%]	($90,000) [Rich, Deposit]
$90,000 [Cash, Rich]

Now wait a minute, you protest! How the hell can you take $100,000 and turn it into $190,000? That's fraud you scream.

Uh, I didn't take $100,000 and turn it into $190,000. I took $100,000 and cycled it through my bank twice, leaving $100,000 cash in the bank and for the other $90,000 worth of liabilities, there is an equal value in assets. Both Joe and Rich loaned the bank their money which the bank in turn used in the first case to make a loan to Jane (and still has $81,000 in additional loan capacity which it will use to make another loan to someone else.)

Nor are Joe and Rich's loans to the bank "unsecured"; in fact if you examine banking laws you will find that depositors have a senior claim on all of the bank's assets, behind only the government's interest in redemption for circulation (that is, if the bank has a loan outstanding for currency to cash checks and the like.) The bondholders and others with interest in the bank are subordinate to depositors; the only get paid once the depositors do.

But, you protest, if Joe and Rich both come in and want their money at the same time, the bank doesn't have it!

True.

Does it matter?

No, and here's why.

Jane's mortgage has value. Provided I properly underwrote it, that paper is actually worth more than $90,000 - it is in fact likely worth 102 or 103% of "par", because there's a discounted cash flow in the form of interest payments and so long as the interest charged is higher than the inflation rate (or alternatively, the risk-free return I can obtain in, for example, Treasury bonds of equivalent duration) and the collateral protects against default that paper is in fact more valuable than its $90,000 face value.

So if Joe and Rich both come in at the same time and demand their money, I can sell Jane's mortgage to someone for the $90,000 face value plus a profit, pay both Joe and Rich, and (since I now have no money left in my bank) close my doors. No harm, no foul and no fraud.

(In reality if both Joe and Rich come in and want their cash at the same time I'm more likely to borrow against Jane's mortgage than sell it, but the fact remains that so long as Jane's mortgage plus my vault cash exceeds the value of deposit liabilities, the bank is fine - and there is no fraud.)

Can we dispense with the "fraud" claim now? I think so.

Ok, on to the meat of this thing - fractional reserve banking in general. We've established that it's not fraud to lend money, take a deposit of the money you lend after its spent, and lend part of that again. But wouldn't we have a "safer" economy if there was no fractional reserve banking?

Maybe. But would you want that system?

Let's go back to TimmyLand, the land with no banks, and set one up.

We're going to need a building; let's assume we can lease 3,000 square feet (a small bank) for $20/ft all-in (its not Class-A space, but it's reasonably decent.) That's $60,000 a year in leases.

We need three tellers, one branch manager and one loan officer. Figure $40,000 (all-in cost, including taxes, health insurance, etc) for the tellers, $60,000 for the branch manager and loan officer (heh, we're cheapskates!); that's $250,000 a year in labor.

We need computer gear to keep track of our books, and we need a long-term lease on a vault, since we're not open 24x7, utilities, and other sundries. Call that another $40,000 a year all-in.

We've got a gross operating cost of $350,000 a year.

Now let's assume we capitalize this bank with $5 million dollars of our hard-earned money (heh, I've got some cash, I'm gonna open a bank!)

What's a reasonable "return on investment" for those funds?

I would argue that 10% is reasonable. After all, if I invest in this business I could lose everything. I can get 5% tax-free in Munis, which on $5 million is somewhere around 8% or so taxable. Add a small premium for working 14 hour days (as opposed to the munis that leave me sipping Mai Tais by the pool all day) and 10% is actually quite low.

But this means I need to make $500,000 pretax, and I start with a deficit of $350,000 in operating expenses; ergo, I need to be able to gross $850,000 annually for this business venture to make sense.

Now let's assume I cannot fractionally reserve. That is, I can't loan out deposited funds (I must reserve them all), only those funds that I have as paid-in capital.

So I can loan out, at best, my $5 million dollars. Once.

I thus must make on that $5 million dollars $850,000 in interest charges to make this enterprise worthwhile.

That means that on average I must charge 17% interest, and this assumes that I never make a bad loan! If there's a bad loan here and there in the mix then the average interest rate must of course be high enough to cover that too. In all probability I need to charge an average rate of around 20%, net-on-net.

This means your mortgage rate is about 15%, car loans are 20% interest, credit cards are 30% (and not only when you don't pay either), and on and on and on.

That sucks, to be blunt. With those sorts of interest rates nobody's going to be borrowing anything, because they simply can't afford to.

But what if I can fractionally reserve?

Then it gets much better.

Let's take the $5 million and run it "to extinction" on a 10% fractional reserve system. In this case I can have around $50 million in loans outstanding at the maximum, but note that I still only need to make the same $850,000, because my capital at-risk is $5 million, not $50 million.

Now my average "net interest margin" must only be 1.7% to make a reasonable amount of money after charge-offs and similar events.

Heh, that's not so bad!

Now I can pay interest on deposits such as savings accounts and CDs, I can offer 6% home mortgages and 7 or 8% car loans. I can offer 10% credit cards. If I pay 2% in interest for the deposits that people place with me, my net interest margin on that mortgage is 4% - well into the safe zone - and this means that I can have a few loans go bad without going bust. I can thus take a bit more risk and do loans with 20% down instead of 30%, and perhaps not force you to prove six or 12 months of segregated cash reserves - just in case you lose your job.

In fact, if you think about this you'll quickly realize that banking in a fractional reserve system is a nicely profitable business - without doing anything dangerous at all.

Without using unreasonable leverage, without gaming the system, without any sort of nonsense I can make a very nice chunk of money.

But you know there is never a free lunch, right?

There is a cost to fractional reserve banking, and it comes from the law of exponents.

See, nobody will loan you money at less than the expected growth rate in the economy. They'd be nuts to; the law of basic business balance says that you can't get something for nothing. Remember, the banker has to pay his operating costs, and that money must come from you, the borrower.

So let's assume that the average economic growth is 3% annually. Let's further assume that the average loan is made at 6% annually.

Well, now we've got a problem; over 30 years $100 in "base economic output" turns into $243.

But over that same 30 years $100 in "interest expense" turns into $574!

It doesn't start out all that different. After five years its $116 for growth and $134 for interest. That's a difference of 16%. But over 30 years its nearly a double.

What this means is that over time the net percentage of output required to cover debt increases, all things being equal.

This is the mathematical principle of exponents, otherwise known as "compounding" in the investing and banking world.

Not all loans are productive. Some are made to do things like buy a machine that makes car parts, and as such the output gain from the machine grossly exceeds the interest cost. That productive investment, financed with debt, doesn't get the person who takes it out in trouble, because his personal growth in productivity exceeds the interest cost.

But some loans are made to finance consumption; the person who borrows to buy a bigscreen TV or a vacation as just two examples. There is no particular productivity increase in such a purchase.

As the "spread" between production and net interest expense rises, the economy falters. A higher and higher percentage of the loans ultimately cannot be paid back, even productive loans, because the net interest expense over time exceeds the productive gain of the person who takes them out. The presence of this ever-widening spread, which is inherently part and parcel of fractional reserve banking, means that recessions are necessary and more importantly, some people who have taken out loans and some people who made loans must, during those recessions, go bankrupt.

That is the purpose of a recession - to clear out the excess indebtedness along with excess capacity, resetting downward the "spread" between net interest expense and gross output (GDP).

This is mathematically necessary for any monetary system to remain stable in which fractional reserve lending is used. Should government attempt to prevent (or shorten) recessions by manipulating liquidity (that is, "make it better Joe!" when times get tough), or worse, try to "spend its way out" of a recession, preventing the imprudent or simply unlucky from going broke all that happens is that the system becomes more and more "backloaded" with excessive debt carrying costs that have not been cleared.

Eventually these costs overwhelm the ability of government - or anyone else - to paper them over and you get the sort of collapse we are seeing now.

The math always wins, and the more you stretch the rubber band the worse the snapback hurts.

Does this mean that we should get rid of fractional reserve banking?

Not necessarily.

There is nothing particularly wrong with it; it comes with both costs and benefits. Certainly, the ability of a farmer to borrow at 5% to plant his field, instead of at 20% (which he could not afford, and thus he would not plant all of his acreage) is tremendously to the weal and wealth of society. Certainly, the manufacturer who buys a machine with debt that produces toasters contributes to the benefit of society. And we, of course, like being able to buy houses and cars at reasonable interest rates.

But we must recognize that just as fractional reserve banking contributes to booms, it brings the necessity of busts.

Proper regulation of leverage and prudential standards for lending prevent those booms from getting out of control, and thus limit the ugliness of the busts - but make them inevitable at an earlier date.

That is, the benefit of reserve banking (the availability of credit on reasonable terms for a wide variety of purposes) comes with the cost that those who use credit to finance consumption ("pulling forward demand") or engage in speculation are likely to go broke during the inevitable busts; they are those who are in effect gambling with their use of credit and when the cyclicality catches up with them, they (and those who loaned to them) will be the ones who go under.

Our failure over the last 20 years is not found in the principle of reserve banking. It is, rather, found in the complete and utter refusal to accept the cyclicality that is a necessary component of reserve banking systems - to accept the costs that come with the benefits.

Instead of accepting these facts we have gamed the system in an attempt to prevent the inevitable costs from coming to fruition with actions such as:

• Gramm-Leach-Bliley, which repealed Glass-Steagall, allowing banking leverage to cross into investment services, where it should have remained tightly regulated.
• Sweep account exemptions put into effect for banks that made reserve requirements nearly meaningless, allowing more leverage expansion than was lawful under a proper reserve implementation.
• Removal of leverage limits from investment banks.
• Refusal to regulate both sellers and buyers of leveraged derivatives, such as the CDS that AIG sold, then providing "back door bailouts" to the counterparties for the demonstrably-unsound paper they wrote.
• Granting of "23A Exemptions", which circumvented limits on related-party capital tie-ups by banking entities.
• The recent authority granted to The Fed to set reserve requirements on banks anywhere, including to zero.
• The continued levering up of The Fed's and Government's balance sheets, essentially without limit, in an attempt to prevent the unwinding of the excesses of the previous 20 years (since mid 2007)

All of these actions and more are simply attempts to forestall what mathematics tells us is an inevitable process, and one that gets far worse the longer we delay it.

Our problems today are no different than they were in 1929 or 1873. We have once again refused to accept the mathematical inevitability that comes with the system of finance and banking we (and the rest of the world) have chosen for hundreds of years, and instead of enforcing prudent regulation up and down the line, including in our government itself, we have once again tried to game the outcome.

Unfortunately you can't game mathematics - no matter what you decree, 2 + 2 will always equal 4.