Thursday, July 31, 2008

Financial Crunch! Economic Collapse! (Part 1)

Is Cheney betting on Economic Collapse?
By Mike Whitney
"Information Clearing House" -- -- Wouldn’t you like to know where Dick Cheney puts his money? Then you’d know whether his “deficits don’t matter” claim is just baloney or not.
Well, as it turns out, Kiplinger Magazine ran an article based on Cheney’s financial disclosure statement and, sure enough, found out that the VP is lying to the American people for the umpteenth time. Deficits do matter and Cheney has invested his money accordingly.
The article is called “Cheney’s betting on bad news” and provides an account of where Cheney has socked away more than $25 million. While the figures may be estimates, the investments are not. According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in “a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation.”
Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar. So, while working class Americans are loosing ground to inflation and rising energy costs, Darth Cheney will be enhancing his wealth in “Old Europe”. As Blackburn sagely notes, “Not all ‘bad news’ is bad for everybody.”
This should put to rest once and for all the foolish notion that the “Bush Economic Plan” is anything more than a scam aimed at looting the public till. The whole deal is intended to shift the nation's wealth from one class to another. It’s also clear that Bush-Cheney couldn’t have carried this off without the tacit approval of the thieves at the Federal Reserve who engineered the low-interest rate boondoggle to put the American people to sleep while they picked their pockets. Reasonable people can dispute that Bush is “intentionally” skewering the dollar with his lavish tax cuts, but how does that explain Cheney’s portfolio?
It doesn’t. And, one thing we can say with metaphysical certainty is that the miserly Cheney would never plunk his money into an investment that wasn’t a sure thing. If Cheney is counting on the dollar tanking and interest rates going up, then, by Gawd, that’s what’ll happen.
The Bush-Cheney team has racked up another $3 trillion in debt in just 6 years. The US national debt now stands at $8.4 trillion dollars while the trade deficit has ballooned to $800 billion nearly 7% of GDP.
This is lunacy. No country, however powerful, can maintain these staggering numbers. The country is in hock up to its neck and has to borrow $2.5 billion per day just to stay above water. Presently, the Fed is expanding the money supply and buying back its own treasuries to hide the hemorrhaging from the public. Its utter madness.
Last month the trade deficit climbed to $70 billion. More importantly, foreign central banks only purchased a meager $47 billion in treasuries to shore up our ravenous appetite for cheap junk from China.
Do the math! They're not investing in America anymore. They are decreasing their stockpiles of dollars. We’re sinking fast and Cheney and his pals are manning the lifeboats while the public is diverted with gay marriage amendments and “American Celebrity”. The American manufacturing sector has been hollowed out by cutthroat corporations who’ve abandoned their country to make a fast-buck in China or Mexico. The $3 trillion housing (equity) bubble is quickly loosing air while the anemic dollar continues to sag. All the signs indicate that the economy is slowing at the same time that energy prices continue to rise.
Did Americans really think they'd be spared the same type of economic colonization that has been applied throughout the developing world under the rubric of "neoliberalism"?
Well, think again. The American economy is barrel-rolling towards earth and there are only enough parachutes for Cheney and the gang.
The country has lost 3 million jobs from outsourcing since Bush took office; more than 200,000 of those are the high-paying, high-tech jobs that are the life's-blood of every economy.
Consider this from the Council on Foreign Relations (CFR) June edition of Foreign Affairs, the Bible of globalists and plutocrats:
“60,000 manufacturing plants” in 3 years?!? “Banks, insurance companies, professional-service firms, and IT companies”? No job is safe. American elites and corporate tycoons are loading the boats and heading for foreign shores. The only thing they’re leaving behind is the insurmountable debt that will be shackled to our children into perpetuity and the carefully arranged levers of a modern police-surveillance state.
“Between 2000 and 2003 alone, foreign firms built 60,000
manufacturing plants in China. European chemical companies, Japanese carmakers, and US industrial conglomerates are all building factories in China to supply export markets around the world.
Similarly, banks, insurance companies, professional-service firms, and IT companies are building R&D and service centers in India to support
employees, customers, and production worldwide.” (“The Globally integrated Enterprise” Samuel Palmisano, Foreign Affairs page 130)

Take another look at Cheney’s investment strategy; it tells the whole ugly story. Interest rates are going up, the middle class is going down, and the poor dollar is headed for the dumpster. The country is not simply teetering on the brink of financial collapse; it is being thrust headfirst by the blackguards in office and their satrapies at Federal Reserve.

West risks economic collapse with its ‘paper boom’
By Mark Bourrie, Third World Network Featuures/IPS, 1927/99, July 1999
Canadian economist Jim Stanford says that much of the prosperity of the West is built on investment securities such as stocks, derivatives, mutual funds and commodities futures that have values that bear no relation to the real economy. Money raised by the stock market isn't going into new factories, machinery, job hires, or research. It's lining the pockets of speculators.
Ottawa: The West is in the midst of a paper boom, economic prosperity built on speculation, rather than on creation of real goods and services, says economist Jim Stanford.
In his book Paper Boom: Why Real Prosperity Requires a New Approach to Canada's Economy (published by Lorimer Co. and Canadian Centre for Policy Alternatives, Toronto, 473 pp), Stanford says that, as factories in developed countries become older and research and development slows down, investment shifts from productive enterprises to the casinos of Wall Street and the world risks the kind of economic collapse that it faced in 1929.
The book is written for a Canadian audience, but the economic models it uses fit the economic situations in the United States, Great Britain, Hong Kong, Australia, and other countries where the current economic boom is built primarily on increases in the values of securities, especially those with very high price-to-earnings ratios.
During the past decade, unemployment in Canada has hovered around 10%, with only a slight drop since the 1990-92 economic recession ended. Interest rates, adjusted for inflation, are near an all-time high.
The Canadian dollar has rebounded slightly this year, but has been in a steady decline against the US dollar since the 1970s.
More distressing, Canadian industry was ravaged by the Canada-US Free Trade Agreement of 1988 and the North America Free Trade Agreement of 1994.
Factories moved to Mexico or to the right-to-work states in the south of the US. Workers in many of the factories that stayed behind were threatened with job loss if they tried to negotiate higher wages or went on strike.
And, since 1994, nearly 100,000 public sector jobs have been cut in Canada as local, provincial and the federal governments balance their budgets. Wages for those government workers who still have jobs have been frozen for most of the decade.
Yet Canadians believe they are in the midst of a period of economic prosperity, Stanford says.
Governments are consistently re-elected, and conservative opposition parties blame the decaying buying power of the average wage-earner on high taxes and push for more public sector cuts.
Stanford, a Cambridge-trained economist with the Canadian Centre for Policy Alternatives, a progressive think-tank, asks the question: What do Canadians actually create?
It turns out that Canadian wealth, and much of the prosperity of the West, is built on investment securities such as stocks, derivatives, mutual funds, and commodities futures that have values that bear no relation to the real economy. Money raised by the stock markets isn't going into new factories, machinery, job hires, or research. It's lining the pockets of speculators.
Those financial investments are worth no more to society, ultimately, than the paper they're printed on, Stanford said in an interview.
It is real investments, in real world assets, which are useful to the actual production of valuable goods and services—things like machinery, equipment, computers, factories, offices, shopping malls, infrastructures, mines. Those real investments are a crucial source of job creation.
The connection between financial investment on one hand and real investment on the other has never been more indirect and uncertain than in the 1990s, Stanford says. As the paper economy boomed, the real economy went nowhere. In fact, the paper boom in many ways has had a perverse impact on real growth, on real capital formation, and real job creation.
People and politicians in Canada should worry when the paper economy grew per capita by 40%, while real capital investment in physical plants and research grew by only 4% this decade. Much of that growth was in commodity production, which has prospered from the fire sale prices set by the low Canadian dollar.
Stock markets have virtually nothing to do with real investment by real businesses. Between 90 to 100% of real investment by businesses in Canada is financed internally by their own cash flow, Stanford says.
The paper boom was engendered by the permanent rise in real interest rates engineered since the 1980s, the subsequent slowdown in real economic growth and the fall in capacity utilisation in business, and the sustained fall in business profitability that has been experienced in the post-war era.
At best, the world of finance is mostly a sideshow to the nitty-gritty real world processes of accumulating capital gods, creating jobs, and producing things of real value, he says.
And at worst, of course, the booms and busts of finance can be an actual hindrance to real growth and real investment, especially at times of financial crisis and instability.
Governments, he says, must shift the emphasis of government policy and private entrepreneurship away from the financial sphere and the paper economy, and focus it on real capital accumulation and real growth.
But he also believes tax incentives must be established to reward investment in real capital and dampen speculation in securities.
There's a gap between words and deeds that permeates both right-wing and left-wing views regarding real investment spending, Stanford says.
Conservative politicians wax eloquent about the need to improve the investment climate, but most of their policies are about redistributing the economic pie, not growing it, and, strangely, promoting real investment seems very low on their economic priorities.
Take the issue of tax cuts, he says. This tax revolt has been focused almost exclusively on cuts to personal income tax but economists of all stripes agree that if there's one area where taxes could be cut to create jobs, it's in corporate taxes for re-investment.
About the writer: Mark Bourrie is a correspondent for Inter Press Service, with whose permission the above article has been reprinted.
When reproducing this feature, please credit Third World Network Features and (if applicable) the cooperating magazine or agency involved in the article, and give the byline. Please send us cuttings.
Third World network is also accessible on the World Wide Web. Please visit our web site at
Housing Lenders Fear Bigger Wave of Loan Defaults
By Vikas Bajaj
August 4, 2008
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.
Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.
The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.
The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.
While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.
Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.
“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”
In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.”
Delinquencies on mortgages tend to peak three to five years after loans are made, said Mark Fleming, the chief economist at First American CoreLogic, a research firm. Not surprisingly, subprime loans from 2005 appear closer to the end of defaults than those made in 2007, for which default rates continue to rise steeply.
“We will hit those points in a few years, and that will help in many ways,” Mr. Fleming said, referring to the loans made later in the housing boom. “We just have to survive through this part of the cycle.”
Data on securities backed by subprime mortgages show that 8.41 percent of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35 percent in May, according to CreditSights, a research firm with offices in New York and London. By contrast, 16.6 percent of 2007 loans were troubled in June, up from 15.8 percent.
Some of that reflects basic math. Over the years, some loans will be paid off as homeowners sell or refinance, and some homes will be foreclosed upon and sold. That reduces the number of loans from those earlier years that could default. Also, since the credit market seized up last year, lenders have become much more conservative and have stopped making most subprime loans and cut back on many other popular mortgages.
The resetting of rates on adjustable mortgages, which was a big fear of many analysts in 2006 and 2007, has become less problematic because the short-term interest rates to which many of those loans are tied have fallen significantly as the Federal Reserve has lowered rates. The recent federal tax rebates and efforts to modify more loans have also helped somewhat, analysts say.
What will sting borrowers more than rising interest rates, analysts say, is having to pay interest and principal every month after spending several years paying only interest or sometimes even less than that. Such loan terms were popular during the boom with alt-A and prime borrowers and appeared appealing while home prices were rising and interest rates were low.
But now, some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.
Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights.
“More delinquencies look like they are on the horizon because so few of them have reset,” Mr. Watts said about alt-A mortgages.
The wave of foreclosures is still rising in states like California, where many homeowners turned to creative mortgages during the boom. From April to June, mortgage companies filed 121,000 notices of default in California, up nearly 7 percent from the first quarter and more than twice as many as in the second quarter of 2007, according to DataQuick, a real estate data firm based in La Jolla, Calif. The firm said the median age of the loans increased to 26 months from 16 months a year earlier.
The mortgage giants Freddie Mac and Fannie Mae, which own or guarantee nearly half of all mortgages, are trying to stem that tide. Last week, they said they would pay more to the mortgage servicing companies that they hire to modify delinquent loans and avoid foreclosures.
Delinquencies in prime and alt-A loans are particularly challenging for banks because they hold more such loans on their books than they do subprime mortgages. Downey Financial, which owns a savings bank that operates in California and Arizona, recently reported that 11.2 percent of its loans were delinquent at the end of June, a big increase from the 6.1 percent that were past due at the end of last year.
The bank’s troubles stem from its $6.2 billion portfolio of so-called option adjustable-rate mortgages, which allow borrowers to pay less than the interest owed on their mortgage in the early years. The unpaid interest is added to the principal due on the loan, so over time borrowers can owe more than the initial loan amount. Eventually, when loans grow by 10 percent or 15 percent, the borrowers are required to start paying both the interest and principal due.
Many borrowers who got these loans during the boom had good credit scores, but many of them owe more than their homes are worth. Analysts believe that many will not be able to or want to make higher payments.
“The wave on the prime side has lagged the wave on the subprime side,” said Rod Dubitsky, head of asset-backed research at Credit Suisse. “The reset of option ARM loans is a big event that will drive the timing of delinquencies.”

Wag the Dog: How to Conceal Massive Economic Collapse
Ellen Brown, August 14th, 2008
“I’m in show business, why come to me?” “War is show business, that’s why we’re here.” – “Wag the Dog” (1997 film)
Last week, Fannie Mae and Freddie Mac had just announced record losses, and so had most reporting corporations. Unemployment was mounting, the foreclosure crisis was deepening, state budgets were in shambles, and massive bailouts were everywhere. Investors had every reason to expect the dollar and the stock market to plummet, and gold and oil to shoot up. Strangely, the Dow Jones Industrial Average gained 300 points, the dollar strengthened, and gold and oil were crushed. What happened?
It hardly took psychic powers to see that the Plunge Protection Team had come to the rescue. Formally known as the President’s Working Group on Financial Markets, the PPT was once concealed and its very existence denied as if it were a matter of strict national security. But the PPT has now come out of the closet. What was once a legally questionable “manipulator” of markets has become a sanctioned stabilizer and protector of markets. The new tone was set in January 2008, when global markets took their worst tumble since September 11, 2001. Senator Hillary Clinton said in a statement reported by the State News Service:
“I think it’s imperative that the following step be taken. The President should have already and should do so very quickly, convene the President’s Working Group on Financial Markets. That’s something that he can ask the Secretary of the Treasury to do. . . . This has to be coordinated across markets with the regulators here and obviously with regulators and central banks around the world.” 1
The mystery over what was going on with the dollar the first week in August was solved by James Turk, founder of GoldMoney, who wrote on August 7:
“[T]he banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. . . . So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here’s the proof.
“When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.
“On July 16, 2008 . . . , the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. . . . So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others.”2
Just as central banks manipulate currencies in concert, so gold can be manipulated by massive selling of central bank reserves. Oil and any other market can be manipulated as well. But markets can be manipulated by only so much and for only so long without fixing the underlying problem. There is more bad news coming down the pike, news of such magnitude that no amount of ordinary manipulation is liable to conceal it.
For one thing, roughly $400 billion in ARMs (adjustable rate mortgages) have or will reset between March and October of this year. Assuming 3 to 6 months for strapped debtors to actually hit the wall with their payments, a huge wave of defaults is about to strike, continuing through March 2009 – just in time for the next huge wave of resets, in option ARMs.3 Option ARMs are loans with the option to pay even less than just the interest on the loan monthly, increasing the loan balance until the loan reaches a certain amount (typically 110% to 125% of the original loan balance), when it resets. The $800 billion credit line recently opened to Fannie Mae and Freddie Mac may be not only tapped but tapped out, at taxpayer expense. The underlying problem is little discussed but impossible to repair – a one quadrillion dollar derivatives scheme that is now imploding. Banks everywhere are facing massive writeoffs, putting the whole banking system on the brink of collapse. Only public bailouts will save it, but they could bankrupt the nation.
What to do? War and threats of war have been used historically to distract the population and deflect public scrutiny from economic calamity. As the scheme was summed up in the trailer to the 1997 movie “Wag the Dog” --
“There’s a crisis in the White House, and to save the election, they’d have to fake a war.”
Perhaps that explains the sudden breakout of war in the Eurasian country of Georgia on August 8, just 3 months before the November elections. August 8 was the day the Olympic Games began in Beijing, a distraction that may have been timed to keep China from intervening on Russia’s behalf. The mainstream media version of events is that Russia, the bully on the block, invaded its tiny neighbor Georgia; but not all commentators agree. Mikhail Gorbachev, writing in The Washington Post on August 12, observed:
“What happened on the night of Aug. 7 is beyond comprehension. The Georgian military attacked the South Ossetian capital of Tskhinvali with multiple rocket launchers designed to devastate large areas. Russia had to respond. To accuse it of aggression against ‘small, defenseless Georgia’ is not just hypocritical but shows a lack of humanity. . . . The Georgian leadership could do this only with the perceived support and encouragement of a much more powerful force.” 4
Bruce Gagnon, coordinator of the Global Network against Weapons and Nuclear Power, commented in OpEdNews on August 11:
“The U.S. has long been involved in supporting ‘freedom movements’ throughout this region that have been attempting to replace Russian influence with U.S. corporate control. The CIA, National Endowment for Democracy . . . , and Freedom House (includes Zbigniew Brzezinski, former CIA director James Woolsey, and Obama foreign policy adviser Anthony Lake) have been key funders and supporters of placing politicians in power throughout Central Asia that would play ball with ‘our side’. . . . None of this is about the good guys versus the bad guys. It is power bloc politics . . . . Big money is at stake . . . . [B]oth parties (Republican and Democrat) share a bi-partisan history and agenda of advancing corporate interests in this part of the world. Obama’s advisers, just like McCain’s (one of his top advisers was recently a lobbyist for the current government in Georgia) are thick in this stew.”5
Brzezinski, who is now Obama’s adviser, was Jimmy Carter’s foreign policy adviser in the 1970s. He also served in the 1970s as director of the Trilateral Commission, which he co-founded with David Rockefeller Sr., considered by some to be the “master spider” of the Wall Street banking network.6 Brzezinski, who wrote a book called The Grand Chessboard, later boasted of drawing Russia into war with Afghanistan in 1979, “giving to the Soviet Union its Vietnam War.”7 Is the Georgia affair an attempted repeat of that coup? Mike Whitney, a popular Internet commentator, observed on August 11:
“Washington’s bloody fingerprints are all over the invasion of South Ossetia. Georgia President Mikhail Saakashvili would never dream of launching a massive military attack unless he got explicit orders from his bosses at 1600 Pennsylvania Ave. After all, Saakashvili owes his entire political career to American power-brokers and US intelligence agencies. If he disobeyed them, he’d be gone in a fortnight. Besides an operation like this takes months of planning and logistical support; especially if it’s perfectly timed to coincide with the beginning of the Olympic games. (another petty neocon touch) That means Pentagon planners must have been working hand in hand with Georgian generals for months in advance. Nothing was left to chance.”8
Part of that careful planning may have been the unprecedented propping up of the dollar and bombing of gold and oil the week before the curtain opened on the scene. Gold and oil had to be pushed down hard to give them room to rise before anyone shouted “hyperinflation!” As we watch the curtain rise on war in Eurasia, it is well to remember that things are not always as they seem. Markets are manipulated and wars are staged by Grand Chessmen behind the scenes.

Recession a step closer as economy grinds to a halt for the first time since 1992 with growth at 0%
Last updated at 3:15 AM on 23rd August 2008
Britain slipped nearer recession yesterday when figures showed the economy had finally ground to a halt. For the first time in 63 consecutive quarters going back to 1992, growth was officially zero per cent. The dismal figures put paid to Gordon Brown's boast that the economy had grown in every quarter since Labour came to power.
Recession fears: The UK economy has ground to a complete halt and some experts believe the we are already in a recession
The Office for National Statistics had predicted output for the quarter from April to June to be 0.2 per cent, but even that level of growth could not be achieved.
While a recession technically happens after two quarters of falling economic growth, some experts believe we are already in one.
George Buckley, economist at Deutsche Bank, said: 'The figures are very weak and suggest the UK economy is already in recession.'
Economists warned that the recession would be a prolonged one unless the Bank of England steps in with an urgent cut in interest rates.
Stewart Robertson, of Morley Fund Management, said: 'The Bank needs to do something to prevent a fairly shallow recession from getting worse. They need to cut rates this year.'
Brian Hilliard, of Societe Generale, said: 'This really does put a rate cut firmly on the agenda, although it is unlikely to come until we have seen the peak in inflation.'
The value of the pound also took a battering in response to the economy's stagnation.
Sterling skidded to a near 12-year low against the dollar as investors were scared off. But while pressure is growing on the Bank to cut interest rates to try to kickstart the economy, it has its hands tied in other respects because it is trying to fight the growing problem of inflation.
A rate cut could boost the economy, but would also create further inflationary pressures.
Jonathan Loynes, at Capital Economics, said: 'While the Bank of England expected the economy to slow down this news is still pretty devastating. We see the recession becoming deep as it gathers pace.
'The biggest casualty will be some sizeable job cuts.'
The gloomy figures, which bring an end to the longest period of uninterrupted growth for more than a century, also showed how families have been struggling with soaring energy bills and food costs.
Household spending fell by 0.1 per cent - the lowest level for three years as Britons tighten their belts in the credit crunch.
The track record of continuous economic growth has been one of Labour's greatest achievements since coming to power and the cornerstone of Gordon Brown's success as a Chancellor.
The Shadow Chancellor George Osborne said: 'Now economic growth has ground to a halt and Brown's bubble has burst.
'Millions of people are paying an unfair price for Labour's economic incompetence.'
The housing market slump, squeeze on consumer spending and business investment all point to a grim outlook for UK plc for months to come.
All parts of the economy are suffering with the once-healthy services sector stuttering to just 0.2 per cent growth.
This is its worst performance for almost 18 years.
The U.S. is also following the same economic course with multi-billionaire investor Warren Buffet saying its recessionary woes won't be shaken off until next year.
Buffet, the world's richest man according to Forbes magazine, said: 'You always find out who's been swimming naked when the tide goes out.
'We found out that Wall Street has been kind of a nudist beach.'

Credit crunch may take out large US bank warns former IMF chief
Gary Duncan, Economics Editor and Leo Lewis, Asia Business Correspondent
August 19, 2008
The deepening toll from the global financial crisis could trigger the failure of a large US bank within months, a respected former chief economist of the International Monetary Fund claimed today, fuelling another battering for banking shares.
Professor Kenneth Rogoff, a leading academic economist, said there was yet worse news to come from the worldwide credit crunch and financial turmoil, particularly in the United States, and that a high-profile casualty among American banks was highly likely.
“The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come,” Prof Rogoff said at a conference in Singapore. In an ominous warning, he added: “We’re not just going to see mid-sized banks go under in the next few months, we’re going to see a whopper, we’re going to see a big one — one of the big investment banks or big banks,” he said.
He also suggested that Fannie Mae and Freddie Mac, the struggling US secondary mortgage lending giants, were likely to cease to exist in their present form within a few years.
His prediction over the fate of Fannie and Freddie came after investors dumped the two groups’ shares on Monday after reports suggested that the US Treasury may have no choice but to effectively nationalise them.
The professor also sounded a warning over rising US inflation, which rose last month to its highest since 1991, and criticised the Federal Reserve for having cut American interest rates too drastically. “Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States,” he said.
[Read entire article at:]

Derivatives, Fascism and the Almighty Dollar
By Dene McGriff$248%20Trillion%20House%20of%20Cards.html
There is a monetary time bomb ticking out there – that could go off any day now, blowing up the world economy. The shaky dollar, a fascist government and a house of cards brings us to the brink of apocalypse!
The Money Casino
You may not realize it but there is a money casino where the stakes are in the trillions! The world GDP is somewhere around 38 trillion dollars, but there are some high rollers out there gambling with our future. These are known as derivatives--a $248 trillion-dollar market! Warren Buffett, the second richest man in the world believes that "Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
What are derivatives? A derivative is like a bet. A derivative “derives its value” from another asset. It is like covering a $1000 bet with only $10! If you lose, you have to come up with the collateral to cover the bet. Or better yet, you put up a few thousand dollars to make a billion dollar wager. This is a high stakes game and during the 1990’s there were some notable losses from derivatives.
Barings Bank was a stuffy old British Bank founded in 1762. In 1995, a 27 year old trader named Nick Leeson, speculated in derivatives and ended up losing $1.3 trillion, the entire asset base of the bank, bankrupting Barings. A few years later, a hedge fund named Long Term Capital Management nearly went broke but was bailed out by the Federal Reserve. The fund had $4.8 billion in assets but managed a portfolio of over $200 billion and derivatives with a “notional” value of one and a quarter trillion dollars with total derivatives of 4 trillion. It was run by two Nobel prize winning scientists but they lost control by making some bad bets. Orange County in California lost two trillion in a derivatives Scandal – this is still small compared to what could happen.
Bailouts are not without precedent as you may recall the $32 billion Savings and Loan bailout in the 80’s. But the derivative market is nearly 250 trillion – seven times the world GDP and many times greater than all the “money” in the world. There isn’t enough money in the world to bail out a big player.
Thirty percent of those derivatives are held by just three banks: JP Morgan Chase, Citibank and Bank of America. The number one bank, JP Morgan Chase Bank has 43 trillion dollars in derivative exposure – more than the entire GDP of the entire world economy! Chase is in a precarious position. It lost billions in bad loans to companies like Enron, Tyco, Global Crossing and countries like Argentina. This sets up a spiral. The bank’s Standard & Poor’s rating keeps dropping. As Chase’s fortunes keep falling, the rating drops, it has to put up more cash which makes matters worse and causes a liquidity crisis. Banks are interlinked by various derivative positions so if one falls, it will bring the others down like dominoes. If you happen to be a bank and your credit rating drops, the bank has to put up more cash collateral to increase the marker (in book making parlance).
The chart shows American bank derivative exposure and almost 60 percent is Morgan Chase! Their exposure which was only 26 trillion in 2001 and has grown to 43 trillion today! It is not being alarmist to say that this is a time bomb waiting to go off – enough to bring down the global economy.
If Morgan Chase were to fail, a chain of interlocking commitments would break down and other major banks would topple. This would bring down not only banks, but your house, retirement, investments, and possibly even your job.
A failure of this size would dwarf any smaller failures that have gone before. LTMC only had a little over a trillion in derivatives. Banks the size of Chase, Citibank or Bank of America would be too big to bail out.
The housing market is also tied in. It is well known that real estate loan giants Fannie Mae and Freddie Mac are heavily into derivatives. Fannie Mae is the second largest corporation in America in terms of assets and the largest source of home mortgages. Freddie Mac buys mortgages and securities and passes them through as securities and debt instruments to the capital markets. For every $1 they have on their books, they have a $1.70 in derivatives. The danger comes if the market moves against them.
Easy money and foreign investment have kept corporate America, including Freddie Mac and Fannie Mae liquid. In Japan, where the interest rate has been zero for many years, investors borrow for nothing and invest in long term equities which has kept the real estate market booming. Japan is beginning to raise rates at the same time interest rates are rising in Europe and America as a reaction to the inflation caused by the increase of the money supply (printing money out of thin air). Other countries take their trade surplus dollars and buy treasury bonds and dollars (to buy oil with). This comes to about $3 billion a day flowing into the U.S., keeping the 30 year mortgage at record low levels even as the Fed continued to raise rates. But Japan is beginning to raise rates. Iran is switching oil to the Euro. Asian countries which have historically supported the dollar are beginning to diversify their portfolios (meaning they are buying less dollars). Nearly everyone agrees that it is not a sustainable trend for America to absorb over 80 percent of the world’s savings to pay for our trade and government deficits, now amounting to over a trillion dollars a year!
Lies, Damned Lies and Statistics
As we pointed out in a previous article, the government has manipulated the figures to such an extent that the economy appears to be robust and growing instead of being in the precarious house of cards it is. If we used the same reporting standards as we did years ago, unemployment would be 12 percent rather than 4.8. The real consumer price index (CPI) which measures inflation would be at least 8 percent instead of the 1 to 2 percent “core” inflation the government reports. The GDP growth would be negative instead of the 3 to 4 percent claimed by the government and the true deficit would be in the trillions rather than the anemic $319 billion reported. Federal obligations would be measured at 51 trillion dollars instead of the $9 trillion reported (as the national debt). The on and “off the books” expenditures for wars in Afghanistan and Iraq would have cost in excess of a trillion dollars instead of the $450 billion claimed.
While the wages of the average American have fallen in the past four years straight, the wealth of American billionaires grew to $2.6 trillion, up 18 percent. Ten percent of Americans control 70 percent of the wealth. Hearings are going on regarding tax reform again. The talk is that 3% of salary would go into stock market funds, going up to 6%. Just like Seymore, the man-eating plant, in the musical “The Little Shop of Horrors” that would be enough to keep the Stock Market and Corporate America pumped up for years to come as real take home pay continues to dwindle. It should be obvious to Americans that decisions regarding energy, taxes, education, health and war are made for the benefit of corporate America – not the average American! It is probably no accident that many Science Fiction movies of the past have the world being run by a few powerful corporations. (e.g. The President’s Analyst, the Running Man, Max Headroom, Soylent Green, Logan’s Run, Blade Runner, the Matrix, the Terminator, Farenheit 451, not to mention Brave New World and 1984, etc.).
Another word for corporations running a nation is “corporatism” – better known as “fascism”. What’s good for big business (Exxon, Shell, Bechtel, Halliburton, etc.) is now seen as good for America. It doesn’t matter if jobs are outsourced to other countries. Corporate America makes more than ever with the cheap labor. They like using Chinese factory labor and Indian help desks, accounts and engineers. We are talking about greedy global economic elites who don’t care a bit about the American worker. Who benefits from the wars? Who benefits from the oil shortage? (last year the oil companies made a record $150 billion in profits!!!) What programs are being funded (military) and what programs are being cut (social safety net entitlement programs, health, education, retirements, even veteran’s benefits)? All you have to do is follow the money to see where the priorities lie – with the individual or the corporate state.
©2008 Peter James for Congress
A $43 Trillion Dollar Market That Most People Have Never Heard Of
Jacki Zehner
Posted February 12, 2008 10:19 AM (EST)
According to Bill Gross, a fixed income market guru, the size of the credit default swap market is "$43 trillion, more that half the size of the entire asset base of the global banking system." If that is not scary enough he goes on to tell is that "total derivatives amount to over $500 trillion, many of them finding their way"......................well, everywhere.
You are going to be hearing a lot more about these markets in coming weeks and months, which begs the question, why don't most people even know what they are? And more importantly, why should we care?
Bill Gross is a very senior guy at PIMCO, one of the largest fixed income managers in the world. They boast managing over $700 billion of assets, and in my experience as an ex-Goldman Sachs bond trader, they generally do it very well. Bill has been talking for a while now about the "Shadow Banking System" that has developed, which now dwarfs the traditional banking system. He describes how "our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever." Participants in this shadow banking system are in the business of making money, much like their more regulated cousins. They borrow money, leverage it up, and invest in assets to make a positive spread. Sounds simple, until things start to go wrong in the underlying asset, which of course is what is happening now.
At the center of this system is a product little known outside of the world of fixed income traders and investors, called Credit Default Swaps. According to Wikepedia, a "credit default swap (CDS) is a bilateral contract under which two counterparties agree to isolate and separately trade the credit risk of at least one third-party reference entity. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a contingent payment by the seller upon a credit event (such as a default or failure to pay) happening in the reference entity. When a credit event is triggered, the protection seller either takes delivery of the defaulted bond for the par value (physical settlement) or pays the protection buyer the difference between the par value and recovery value of the bond (cash settlement).
Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge against credit events. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spread.
Credit default swaps are the most widely traded credit derivative product. The typical term of a credit default swap contract is five years, although being an over-the-counter derivative, credit default swaps of almost any maturity can be traded. "Now what part of that description did you find the scariest? Was is the fact that this market is $43 trillion according to Gross? Or that all the contracts are based on the CREDIT of the underlying asset? Or the contingent payment based upon a credit event? Or the fact that in most cases the seller can ask for delivery of the defaulted bond? Or that there is no requirement to actually hold any asset or suffer a loss? Each of these questions could take pages and pages to dissect.
The whole system is obviously based on the assumption that your counter-party can in fact make good on the trade. That is why banks are moving quickly to check their counter-party risk and up shore up margin requirements. The prices of the underlying securities have been going down, making net net, some people winners, and some losers. It is the losers we need to worry about as they need to make good on their part of the trade, but will they have the money, the capital, to do so?
As an ex-trader I also find the part about the seller requesting delivery of the security to be particularly alarming. My old trader rule book tells me that you only sell (short) expensive bonds when you have locked up the borrowing, or else you get caught in something called a short squeeze. Knowing that these underlying bonds/loans can be synthetically created at a huge multiple of the underlying asset depending on demand for that asset, this could be really, really, really costly to many, and be very profitable for a few.
Given the size of the market, and the lack of transparency as to who owns what, we really have no idea about the financial impact caused by the deterioration of the underlying assets. This is why we care. One can not look at history to help figure this out either, as we have never had so much credit product outstanding. Where we are currently in the credit markets is fresh territory, uncharted waters, the wild west. The system is so complex and interconnected that it is absolutely impossible for anyone, any firm, any anything, to get their arms around it. Smart people are going to figure out a way to make money from this uncertainly, and less smart people are going to lose a lot.
Bill Gross is warning of the possibility of financial Armageddon as a result of this financial pyramid scheme, along the same line that George Soros, another billionaire who generally knows what he is talking about, came out about a few weeks ago. Both of these wizards of Wall Street have been known to talk to their position, but that does not mean they are not right.
I can't help but think of the movie, The Game, starring Michael Douglas as the playboy multi-millionaire, Nicholas. He thinks he is getting a present from his brother, a Game, that will change his life. "As the movie progresses, evidence mounts that the game is actually an elaborate scheme, but each time Nicholas thinks he has uncovered the truth, he finds a new layer of complexity has been revealed and that his previous assumptions were false."
Let's hope that enough pieces of this financial story get revealed in a timely way to prevent anyone from losing their faith in the overall system. There can be a happy ending, but like Nicholas, Bill, George and others, are having a hard time figuring it out.
Nation’s Financial Industry Gripped by Fear
By Ben White and Jenny Anderson
Published: September 14, 2008
Fear and greed are the stuff that Wall Street is made of. But inside the great banking houses, those high temples of capitalism, fear came to the fore this weekend.
As Lehman Brothers, one of oldest names on Wall Street, filed for bankruptcy protection, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By Sunday night, Merrill Lynch, under mounting pressure, had reached a deal to sell itself to Bank of America for $29 a share or about $50 billion, according to people with knowledge of the deal.
Dinner parties were canceled. Weekend getaways were postponed. All of Wall Street, it seemed, was on high alert.
In skyscrapers across Manhattan, banking executives were holed up inside their headquarters, within cocoons of soft rugs and wood-paneled walls, desperately trying to assess their company’s exposure to the stricken Lehman. It was, by all accounts, a day unlike anything Wall Street had ever seen.
In the financial district, bond traders, anxious about how the markets would react on Monday, sought refuge in ultrasafe Treasury bills. Greenwich, Conn., that leafy realm of hedge fund millionaires and corporate chieftains, felt like a ghost town. Greenwich Avenue, which usually bustles on Sundays, was eerily quiet.
A year into the financial crisis, few dreamed that the situation would spiral down so far, so fast. Only a week ago, the Bush administration took control of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies. Then, before anyone could sigh a breath of relief after that crisis, Lehman was on the brink.
As details of Lehman’s plight began to trickle out on Sunday, the worries deepened that big financial companies might topple like dominoes. Bank of America began discussions to buy Merrill Lynch, the nation’s largest brokerage.
“I spent last weekend watching Fannie and Freddie die. This weekend it was Lehman,” said one longtime Wall Street executive.
By late Sunday, a consortium of banks, working with government officials, announced a $70 billion pool of funds to lend to troubled financial companies.
The rat-a-tat-tat of bad news has frayed nerves up and down Wall Street. “People are just weary,” said another executive. And even more ill tidings loom. Thousands of employees at Lehman are likely to be laid off, casting them into one of the worst Wall Street job markets in years. Other banks are cutting back, too.
Even employees who manage to hold on are likely to make a lot less money this year. Bonuses are not only going to decrease; for many, they will evaporate completely.
While people were stunned by the near collapse of Bear Stearns in March, they were flabbergasted that Lehman, a respected firm with a 158-year history, could be brought to its knees. Many were equally shocked by the downfall of Richard S. Fuld Jr., Lehman’s chairman and chief executive.
“Everyone thought Bear Stearns was a bunch of cowboys; it made sense what happened,” said another executive. “But this is the great Dick Fuld. This is not supposed to happen to Lehman Brothers.”
Many Wall Street executives struggled to draw parallels to the current crisis. The collapse of the junk bond powerhouse Drexel Burnham Lambert in 1991 seems small by comparison, as does the 1998 failure of the big hedge fund Long Term Capital Management.
On Sunday, as the heads of major Wall Street banks huddled for a third day of emergency meetings at the Federal Reserve Bank of New York, many rank-and-file employees were at work in their offices.
“It’s all hands on deck,” said one senior banker.
At hedge funds, analysts worried that investors would rush to withdraw their money.
As a precaution, Wall Street banks have taken the extraordinary step of hiring advisers to assess the impact of the possible bankruptcies of other big financial institutions.
The mood could darken even further this week as several big Wall Street banks report what are expected to be grim quarterly results.
The problems the industry faces are myriad. Mortgage assets that both commercial and investment banks hold on their balance sheets continue to decline in value as potential buyers wait for prices to fall even further and sellers balk at prices being offered. At the same time, revenues from bread and butter Wall Street businesses like debt and equity underwriting and proprietary trading are sliding in a softening economy at home and abroad.
“I have not seen a quarter like this since 2001,” said Meredith Whitney, analyst at Oppenheimer. “And the expense bases at the banks are still built for 2006-style revenues. So the clash of these two things is going to produce the kind of quarter we have not seen in some time.”
Some thought that Merrill Lynch’s sale of $30.6 billion worth of mortgage-related securities in July to the private equity group Lone Star for $6.7 billion (75 percent of which was provided as a loan by Merrill) would unleash a torrent of similar sales. That has not happened.
Big investment groups like Pacific Investment Management Company have put together “vulture” funds worth at least $70 billion to buy distressed assets. So far, not many sales have happened amid a buyer’s strike.
Part of the fear gripping Wall Street is the “who’s next” game. After the collapse of Bear Stearns it was Lehman. After Lehman, many worry about who might be next.
Those who bet on a rebound in financials are getting clobbered. In March, O’Shaughnessy Asset Management, a $9 billion quantitative money management group, started investing in financials and the group continues to add to its portfolio. “We’re patient and we keep buying,” said Jim O’Shaughnessy, chairman and chief executive of the firm.
Mr. O’Shaughnessy created a proxy index of financials to test the performance of previous financial stock routs and recoveries dating back to 1964. The average return for the 20 worst 12 month periods was -34.96 percent. In the last year, through June 30, his proxy index was down 31 percent.
But Mr. O’Shaughnessy is betting on the rally.
In the subsequent one- and three-year periods after those drastic declines, his index rose an average 30.5 percent and an annualized 19.7 percent. “Financials falling out of bed has happened in the past,” he said. “I’m interested in what happens after they crash and burn.”
That strategy has not yet panned out this year. The O’Shaughnessy Dividend fund, which heavily invests in financials, is down 17.2 percent through July 30 compared with a 15.2 percent drop in the Russell 1000 value index. The three-year compounded return through July 30 is 6.5 percent, compared with 2.4 percent for the Russell 1000.
By contrast, hedge funds that continue to short financials (betting their prices will fall) are still performing well. Goshen Investments, a $200 million fund seeded by Tiger Management, is up 35 percent through the end of August, according to one investor. The fund has large short positions in American brokerage firms, European banks and American exchanges. Christopher Burn, founder of the fund, declined to comment.
The Final Destruction of the Middle Class
By Joan Veon
September 15, 2008
The Great 2008 Transfer of Wealth
Americans are confronted with what appears to be the worse economic situation since the Great Depression. What will history say about the U.S. credit crisis turned global financial crisis? At every turn investors are faced with new problems, new crises, and less than desirable solutions which include debt, deflation and a transfer of wealth.
With regard to debt, the American taxpayer has been made the lender of last resort for international bank Bear Stearns and now the two Government-sponsored Enterprises-GSEs, Fannie Mae and Freddie Mac. On top of the $29B for Bear Stearns, Fannie and Freddie’s debt of $5.4T has been effectively transferred to the balance sheet of the USA. This is equal to the entire publicly traded debt of the U.S. which is also the same as the total of America’s mortgage-related assets. In addition to personal debt, every American now has a financial responsibility for Bear Stearns and Fannie and Freddie.
We, the people, have saved the foreign investors such as China which owns $376B, Japan which owns $228B, South Korea which owns $65B, Taiwan which owns $55B, and Australia which owns $33B, from losing faith in America. It is the stockholders, both common and preferred, that have been given the raw end of the deal. While large financial institutions such as JP Morgan, which owns $1.2B of Freddie and Fannie stock, said a complete loss would only erase one or two months of profits, contrast this to smaller banks such as the Central Virginia Bank in Richmond which has $20M in shares of Freddie and Fannie. That type of loss will put them in the same kind of trouble as Lehman Brothers, not enough capitalization. There are 15 other banks that hold 10% or more of their capital in shares of Freddie and Fannie.
The Federal Accounting Standards Board is requiring more stringent standards for banks and savings and loans to maintain a certain amount of capital to protect against insolvency. Those rules are in the process of being changed to conform to international rules issued by the Bank for International Settlements in Basel, Switzerland which Congress has voted on. These rules which were only to pertain to international banks are now being applied to national banks.
Furthermore those in retirement who thought their money was safe—invested in the highest ranked bonds in the country are going to lose their dividends. Depending on the price they invested, they could have principal losses of up to 80 or 90% of their investment. Ouch.The credit crunch began a year ago when the various investment banks both here and abroad stopped buying each others paper, a very uncommon practice between them. As a result of no liquidity for mortgage paper caused by their decision, we have the most serious slowdown in real estate in decades. The decision to not buy mortgage paper includes the sub-prime loans made to home buyers that had no down payment. To relate, I recently met a young Latino who is worried about her home. Five years ago she bought a $370,000 townhouse with $14,000 down. Her interest rate varies causing her monthly payment to jump from $2700 per month to $3500. She cleans houses for a living.
Freddie and Fannie decided they could make more money by buying subprime mortgage paper. Today there is an eleven month inventory of unsold homes. Higher interest rates as a result of the hidden clauses on floating interest rates have put many people in jeopardy of foreclosure. All of these problems have given the Federal Reserve the opportunity to seize total control of powers they did not oversee in order to protect our economy. Perhaps we should ask where the desire to put poor people into homes came from? It was part of the Bush Administration’s policy to conform to the United Nations’ Millennium Development Goals unveiled in the year 2000.
Exacerbating the credit crunch have been the historically high oil prices which have caused pain at the gas pumps and a weak dollar which has made imports more expensive. To counter high oil prices, Americans have drastically reduced how many miles they drive and a number of buying habits. In light of a tight job market and job losses in housing and the automotive industries, we are confronted with higher energy costs to heat and cool our homes, increased costs for food, and the inability to refinance mortgages. Basically the economy is now in deflation. When people stop spending, it moves from deflation to stagflation—no matter how cheap an item becomes, people can’t afford to buy. All this without knowing what the real fall out will be from the bailout of Freddie and Fannie.
The situation we are confronted with did not happen in the last few years, but began in 1913 when a group of cunningly deceitful legislators passed the Federal Reserve Act on December 24 at 11:45 p.m., after those who were opposed went home for Christmas. The entire financial system of the U.S. was transferred from Congress to a private corporation that is NOT accountable to Congress. They create and destroy the business cycle by various means: raising and lowering interest rates. The government of the United States is in bondage to a group of individuals who own the Federal Reserve. The reason why the American people cannot forgive themselves the interest on our debt is because we do not owe it to ourselves we owe it to the Federal Reserve! Every single time since then that the Federal Reserve Act was amended, over 195 times, the Federal Reserve gathered more power over various aspects of our economy. However, they are in the final throes of stripping America of any remaining vestiges of sovereignty as has been laid out in the Treasury “Blueprint for a Modernized Financial Regulatory System.”
The Blueprint was written under the watchful eye of one of America’s most successful international bankers, former Goldman Sachs CEO Hank Paulson, who is now our illustrious Treasury Secretary. Is this not a case of the fox in the chicken coup? Long time investment sage Marty Whitman commented on his actions, “Paulson thinks he is in Russia and is not giving any value to stockholders. It is outrageous that the Treasury Secretary is not giving any consideration to the shareholders.”
The Blueprint calls for key components of our financial system, not currently under Federal Reserve control, to be transferred to them. In order to do this, a number of changes will be necessary which Congress will have to approve. First, it recommends changing the banking charter to include all financial institutions, thus effectively transferring control over “national banks, federal savings associations, and federal [and state] credit union charters.” For your information, Washington Mutual is a savings and loan while Lehman Brothers is and Bear Stearns was an international bank. The Fed is to be given authority over the U.S. Payment and Settlement System thereby controlling the settlement process for securities. It will be given the role of Market Stability Regulator and it will have total control over the market. The Blueprint provides for the entire mortgage system of the U.S. to be federalized and to be under the control of the Mortgage Origination Commission. The Federal Reserve will be part of the Commission. Additionally the Federal Reserve will be given a say in the insurance industry which will be federalized and a new Office of Insurance Oversight will oversee its activities. The Federal Reserve will have a place on the Insurance Oversight commission.
By the time Congress votes on the Blueprint, there will be so many reasons for them to transfer the last vestiges of our financial sovereignty to the Federal Reserve that they will not even have to read the prepared legislation. So far, we have the bailout of Freddie and Fannie by giving Treasury a blank check to act; the Federal Reserve worked all weekend to find a buyer to Lehman, another international bank, their next project might be to rescue Washington Mutual, a savings and loan, and the Fed has been given initial powers to act as the Market Stability Regulator. The only component that is missing is the demise of an insurance company, AIG anyone?
For the record, at the heart of the Blueprint is changing our financial/banking and securities regulatory system from a national system to an international system to bring America into the world governmental system that functions above the nation-states. I have maintained that in order to get Congress to go along, we would have to have a huge problem which would allow Congress to be convinced that they need to act, however, the truth of the matter is they no longer have the power they once had because the majority has been transferred to the Federal Reserve.
History will determine how the final stage was set but I believe it started in 2000 with the Crash of the Nasdaq. Who would have ever thought that a stock would drop 90% in value? About $7T vanished from the balance sheets of investors. But we did not have to worry, as a result of 9/11, the Federal Reserve started to reduce interest rates to 45 year lows to get Americans to support the economy by buying the dream home. We bit the bait. It was the Roaring 20s all over again. At one point in the housing boom, one out of four jobs was created by the housing industry. No one asked if they could afford the debt, they only asked if they could afford the payment: a big difference. They did not ask the right questions about their mortgage because the mortgage industry was not required to disclose to them, when it should have. At one time the mortgage industry was run on honesty and integrity, but that changed too and people have been caught in a terrible snare.
The Bailout of Freddie and Fannie provide us with the latest excitement in the diabolical saga of the raping, robbing, and pillaging of America. Interestingly enough it took place 13 months after the beginning of the credit crunch. Lastly, I have maintained since the beginning of the credit crunch last August that it was planned and managed destruction in order to accomplish the final transfer of America’s financial sovereignty. All of the above only confirms my original suspicion. Sadly, only the strong will survive, only those who did not use their house as a checking account will survive, only those who turn to the Creator of the Universe, the Lord God who created heaven and earth, and His Son, Jesus, will survive in the midst of the Great 2008 Transfer of Wealth.
© 2008 Joan Veon - All Rights Reserved
Financial Crisis Enters New Phase
By Vikas Bajaj
Published: September 17, 2008

As a result, the cost of borrowing soared for many companies, while the stocks of Wall Street firms like Goldman Sachs and Morgan Stanley that only a couple of weeks ago were considered relatively strong came under assault by waves of selling. Investors were so worried that they snapped up three-month Treasury bills with virtually no yield and they pushed gold to its biggest one-day gain in nearly 10 years. Stocks fell by nearly 5 percent in New York.
The stunning flight to safety, away from other kinds of debt as well as stocks, could cause serious damage to an already weakened economy by making it more expensive for businesses to finance their daily operations.
Some economists worry that a psychology of fear has gripped investors, not only in the United States but also in Europe and Asia. While investors’ decision to protect themselves may be perfectly rational, the crowd behavior could cause a downward spiral with broader ramifications. “It’s like having a fire in a cinema,” said Hyun Song Shin, an economics professor at Princeton. “Everybody is rushing to the door. You are rushing to the door because everyone is rushing to the door. Clearly, as a collective action, it is a disaster.”
Faltering confidence could have an infectious effect in Asia, whose savings has essentially bankrolled America for decades. “Asia, perhaps more than other markets, is a bit more volatile, a bit more based on sentiment,” said Dan Parr, the head of Asia-Pacific for brandRapport, a consulting firm with an office in Hong Kong. “It doesn’t take much for the man on the street to become very, very concerned.” In early trading in Japan, the Nikkei index fell 3 percent.
Despite government efforts to reassure investors over the last 10 days by rescuing some giant institutions — Fannie Mae, Freddie Mac and American International Group — many investors remain worried that the financial system has been badly battered and that more firms may fail as Lehman Brothers did.
The Federal Reserve has greatly expanded its lending to banks and securities firms this year and is continuing to relax rules that govern financial companies in hopes of alleviating the credit squeeze. Central banks globally are also injecting more money into their economies and lowering reserve requirements for their own institutions out of concern that the problems in the American financial system will inflict further damage.
If the problems in the financial system persist, businesses will have less money to put to work, job cuts will spread and consumers, already fearful, will have less money to spend, knocking the economy down another notch. High borrowing costs will further weaken the housing market, which is still struggling. The Commerce Department reported Wednesday that housing starts fell to their lowest level since early 1991.
Flashes of fear were evident Wednesday as investors clamored for government debt. When investors bid up the price, the yield falls, and it sank on three-month Treasury bills to 0.061 percent, from 1.644 percent a week ago. The yield was the lowest in more than 50 years.
In the stock market, the Standard & Poor’s 500-stock index fell 57.20 points, or 4.71 percent, to 1,156.39, the lowest close in more than three years. The Dow Jones industrial average fell 449.36 points, to 10,609.66.
Worries over financial investments hammered even the well-regarded Wall Street firms of Goldman Sachs, whose shares fell nearly 14 percent, to $114.50, and Morgan Stanley, whose shares dropped more than 24 percent, to $21.75. Now, both firms are reconsidering what their best strategies might be in such a fearful market.
In addition to shares of financial companies like Bank of America, those of other bellwethers like General Electric have also tumbled.
Responding to this pressure, the Securities and Exchange Commission proposed new rules on short selling, or betting on falling share prices, and even suggested that hedge funds and others might have to disclose short positions, a proposal that is likely to meet stiff resistance.
One key overnight lending rate was above 5 percent on Wednesday, more than double its level a week earlier. GMAC, the auto finance company owned in part by General Motors, had to pay interest of 5.25 percent on Wednesday for a form of short-term financing known as one-week commercial paper, up from 4 percent the previous day.
Businesses, stung by high interest rates, may be forced to trim expenses, an ominous turn in a slowing economy with unemployment rates on the rise.
“This is throwing sand in the gears of the economy,” said G. David MacEwen, chief investment officer for the bond department of American Century Investments. “The economy depends on credit to finance homes, automobiles, student loans, and inventories.”
Local governments and other enterprises will feel pressure, too. The city of Chicago and Lincoln Center in New York postponed debt offerings because they would have to pay such high interest rates to investors, said Daniel S. Solender, director of municipal bond management at Lord Abbett & Company.
Diana B. Henriques and Hilda Wang contributed reporting. [Read entire article at:]
Fed’s $85 Billion Loan Rescues Insurer
By Edmund L. Andrews, Michael J. de la Merced and Mary Williams Walsh
September 17, 2008
WASHINGTON — Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.
The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.
With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.
What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.
If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections.
“It would have been a chain reaction,” said Uwe Reinhardt, a professor of economics at Princeton University. “The spillover effects could have been incredible.”
Financial markets, which on Monday had plunged over worries about A.I.G.’s possible collapse and the bankruptcy of Lehman Brothers, reacted with relief to the news of the bailout. In anticipation of a deal, stocks rose about 1 percent in the United States on Tuesday. Asian stock markets opened with strong gains on Wednesday morning, but the rally lost steam as worries returned about the extent of harm to the global financial system.
Still, the move will likely start an intense political debate during the presidential election campaign over who is to blame for the financial crisis that prompted the rescue.
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said Mr. Paulson and Mr. Bernanke had not requested any new legislative authority for the bailout at Tuesday night’s meeting. “The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ ” Mr. Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”
House Speaker Nancy Pelosi quickly criticized the rescue, calling the $85 billion a "staggering sum." Ms. Pelosi said the bailout was "just too enormous for the American people to guarantee." Her comments suggested that the Bush administration and the Fed would face sharp questioning in Congressional hearings. President Bush was briefed earlier in the afternoon.
A major concern is that the A.I.G. rescue won’t be the last. At Tuesday night’s meeting. lawmakers asked if there was any way of knowing if this would be the final major government intervention. Mr. Bernanke and Mr. Paulson said there was not. Indeed, the markets remain worried about the financial condition of major regional banks as well as that of Washington Mutual, the nation’s largest thrift.
The decision was a remarkable turnaround by the Bush administration and Mr. Paulson, who had flatly refused over the weekend to risk taxpayer money to prevent the collapse of Lehman Brothers or the distressed sale of Merrill Lynch to Bank of America. Earlier this year, the government bailed out another investment bank, Bear Stearns, by engineering a sale to JPMorgan Chase that left taxpayers on the hook for up to $29 billion of bad investments by Bear Stearns. The government hoped at the time that this unusual step would both calm markets and lead to a recovery by the financial system. But critics warned at the time that it would only encourage others to seek bailouts, and the eventual costs to the government would be staggering.
The decision to rescue A.I.G. came on the same day that the Fed decided to leave its benchmark interest rate unchanged at 2 percent, turning aside hopes by many on Wall Street that the Fed would try to shore up confidence by cutting rates once again.
Fed and Treasury officials initially turned a cold shoulder to A.I.G. when company executives pleaded on Sunday night for the Fed to provide a $40 billion bridge loan to stave off a crippling downgrade of its credit ratings as a result of investment losses that totalled tens of billions of dollars.
But government officials reluctantly backed away from their tough-minded approach after a failed attempt to line up private financing with help from JPMorgan Chase and Goldman Sachs, which told federal officials they simply could not raise the money given both the general turmoil in credit markets and the specific fears of problems with A.I.G. The complexity of A.I.G.’s business, and the fact that it does business with thousands of companies around the globe, make its survival crucial at a time when there is stress throughout the financial system worldwide.
“It’s the interconnectedness and the fear of the unknown,” said Roger Altman, a former Treasury official under President Bill Clinton. “The prospect of the world’s largest insurer failing, together with the interconnectedness and the uncertainty about the collateral damage — that’s why it’s scaring people so much.”
Under the plan, the Fed will make a two-year loan to A.I.G. of up to $85 billion and, in return, will receive warrants that can be converted into common stock giving the government nearly 80 percent ownership of the insurer, if the existing shareholders approve. All of the company’s assets are being pledged to secure the loan. Existing stockholders have already seen the value of their stock drop more than 90 percent in the last year. Now they will suffer even more, although they will not be totally wiped out. The Fed was advised by Morgan Stanley, and A.I.G. by the Blackstone Group.
Fed staffers said that they expected A.I.G. would repay the loan before it comes due in two years, either through the sales of assets or through operations.
Asked why Lehman was allowed to fail, but A.I.G. was not, a Fed staffer said the markets were more prepared for the failure of an investment bank. Robert B. Willumstad, who became A.I.G.’s chief executive in June, will be succeeded by Edward M. Liddy, the former chairman of the Allstate Corporation. Under the terms of his employment contract with A.I.G., Mr. Willumstad could receive an exit package worth as much as $8.7 million if his removal is determined to be “without cause,” according to an analysis by James F. Reda and Associates.
A.I.G. is a sprawling empire built by Maurice R. Greenberg, who acquired hundreds of businesses all over the world until he was ousted amid an accounting scandal in 2005. Many of A.I.G.’s subsidiaries wrote insurance of various types. Others made home loans and leased aircraft. The diverse array of companies were more valuable under a single corporate parent like A.I.G., because their business cycles offset each other, giving A.I.G. a relatively smooth stream of revenue and income.
After Mr. Greenberg’s departure, A.I.G. restated its books over a five-year period and instituted conservative new accounting policies. But before the company could really rebuild itself, it became embroiled in the mortgage crisis. Some of its insurance companies ended up with mortgage-backed securities on their books, but the real trouble involved the insurance that its financial products unit offered investors for complex debt securities.
Its stock tumbled faster this year as first the debt securities lost value, and then the insurance contracts, called credit default swaps, came under a cloud.
The Fed’s extraordinary rescue of A.I.G. underscores how much fear remains about the destructive potential of the complex financial instruments, like credit default swaps, that brought A.I.G. to its knees. The market for such instruments has exploded in recent years, but it is almost entirely unregulated. When A.I.G. began to teeter in the last few days, it became clear that if it defaulted on its commitments under the swaps, it could set off a devastating chain reaction through the financial system.
“We are witnessing a rather unique event in the history of the United States,” said Suresh Sundaresan, the Chase Manhattan Bank professor of economics and finance at Columbia University. He thought the near brush with catastrophe would bring about an acceleration of efforts within the Treasury and the Fed to put safety controls on the use of credit default swaps.
“They’re going to tighten the screws and say, ‘We want some safeguards on this market,’ ” he said of the Fed and the Treasury.
The swaps are not securities and are not regulated by the Securities and Exchange Commission. And while they perform the same function as an insurance policy, they are not insurance in the conventional sense, so insurance regulators do not monitor them either.
That situation set the stage for deep losses for all the countless investors and other entities that had entered into A.I.G.’s swap contracts. Of the $441 billion in credit default swaps that A.I.G. listed at midyear, more than three-quarters were held by European banks.
“Suddenly banks would be holding a lot of bondlike instruments that were no longer insured,” Mr. Sundaresan said. “They would have to mark them down. And when they marked them down, they would require more capital. And then they would have to go out and raise capital in these markets, which is very difficult.”
Mr. Sundaresan said that for a new market arrangement to succeed, it would have to create a clearinghouse to track swaps trading, and daily requirements to post collateral, so that a huge counterparty would not suddenly find itself having to come up with billions of dollars overnight, the way A.I.G. did.
Wall Street crisis is culmination of 28 years of deregulation
David Lightman McClatchy Newspapers
last updated: September 15, 2008
WASHINGTON — No one cog in the federal government's machine of financial regulation let down the country by failing to prevent the latest shakeout on Wall Street. The entire system did. "They just haven't done a particularly good job," said James Barth, a senior finance fellow at the Milken Institute, a nonpartisan research group based in Los Angeles.
Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer-oriented research group, explained the regulatory lapses more starkly: "The job of regulators is that when the party's in full swing, make sure the partygoers drink responsibly," she said. "Instead, they let everyone drink as much as they wanted and then handed them the car keys."
Analysts and politicians are raising serious questions about the nation's financial regulatory system, which dates to the New Deal era.
On Monday, one Wall Street bank, Lehman Brothers, filed for bankruptcy protection and another, Merrill Lynch, sought comfort by selling itself to Bank of America for $50 billion. Earlier this year, the government helped enable the sale of faltering investment bank Bear Stearns to J.P. Morgan Chase, and more recently took over mortgage giants Fannie Mae and Freddie Mac.
Such troubles were supposed to have been prevented, or at least mitigated, by regulatory systems that the nation began to put in place after the banking system collapsed at the start of the Great Depression.
Many banks at the time were badly wounded by their personal and financial ties to securities trading. The 1933 Glass-Steagall Act, and later the 1956 Bank Holding Company Act, mandated the separation of banks, insurance companies and securities firms.
Those and many other federal laws stabilized the banking and securities markets, but by the 1970s, a stumbling U.S. economy led to a change in America's political-economic values. Ronald Reagan led a movement that came to power in 1980 proclaiming faith in free markets and mistrust of government. That conservative philosophy has dominated America for the past 28 years.
Even after taxpayers had to rescue deregulated savings and loans, or S&Ls, with a $200 billion bailout in the late 1980s, the push to loosen regulation paused only briefly.
In 1999, President Clinton signed the Financial Services Modernization Act, which tore down Glass-Steagall's reforms by removing the walls separating banks, securities firms and insurers.
Under President Clinton and his successor, the government became eager to promote home ownership. Interest rates were low, the market grew for loans to borrowers with weak credit and private-sector mortgage bonds boomed. About 38 percent of those bonds were backed by subprime loans. They are at the root of today's financial crisis.
A generation ago, banks, credit unions and S&Ls issued home mortgages that they retained on their books as an asset. The lenders had a stake in receiving full repayment of the loans from creditworthy borrowers.
But in recent years, mortgages began to be sold to firms that cobbled the loans together to create mortgage-backed securities, or mortgage bonds. Loans to the least creditworthy borrowers carried the highest risk but gave the highest returns, so banks and other institutional investors bought loads of them. Except no one was policing the creditworthiness of the borrowers.
The process helped more people buy homes, and a booming mortgage-bond market, led by investment banks, was in full swing by 2005.
When borrowers who had secured loans with adjustable interest rates, however, found their rates going up, many were unable to pay. That meant that holders of bonds backed by these mortgages were stuck with securities worth much less than their face value — or nothing at all. That created a solvency crisis for the banks that loaded up on them — and virtually all of them had.
Some regulatory agencies issued warnings, but credit-rating agencies still said that the bonds — and the banks that issued and bought them — were safe. It turns out, of course, that many were not.
"There was a view that the secondary market excesses could be prevented by the broader application of risk-evaluation models by the investment firms," said Barry Bosworth, senior fellow in economic studies at the Brookings Institution, a Washington think tank. "In fact, risk evaluation is more of an art than a science, and the (private-sector) institutions fooled themselves," said Bosworth, a former adviser to President Jimmy Carter.
With Congress eager to expand home-ownership, regulators felt pressure to deal lightly with mortgage loans to low-income households, and virtually no one proposed national regulation of non-bank lenders or mortgage brokers.
Had regulators questioned sub-prime lending, they would have been harshly criticized, said Edward Kane, a professor of finance at Boston College.
"Imagine what congressional committees would have said," Kane said. "They would have asked about affordable housing. It was a no-win situation for regulators,"
Warning signs began to appear. At least nine federal agencies oversee some part of the mortgage market, and from 2004 to 2007, at least three had issued warnings about risky loans.
Still, none was willing to end the financial revelry.
"It was another example of an asset bubble that appears periodically. An economy will disregard risk, and when people see another investor making money by investing in an asset, others will throw caution to the wind," explained Nicolas Bollen, professor in finance at Vanderbilt University's Owen Graduate School of Management in Nashville, Tenn.
In such an environment, said Day, of the Center for Responsible Lending: "No one wanted to kill the goose that laid the golden egg."
Three Trillion Dollars Evaporate From China's Stock Market
Close to half of surveyed investors suffered a 70 percent loss
Epoch Times, 2008 Sept 18
China’s benchmark Shanghai Composite Index has lost two thirds of its value from the market’s peak of 6,124 last October. The combined loss of the Shanghai and Shenzhen stock markets has reached 21 trillion yuan (approx. US$3 trillion). Shanghai Security News teamed up with to conduct an online survey, the result showed that 48 percent of investors suffered more than a 70 percent loss. The benchmark Shanghai Composite Index closed at 2,017 on November 20, 2006. Since then China’s stock market continued to shoot up, and the stock index tripled within one short year. By October 16, 2007, the Shanghai A-Share Index hit its peak at 6,124. During that period, tens of millions of ordinary Chinese resolutely invested all of their life savings in the stock market, hoping to get a piece of the pie while the stock market rally continued. The stock market, however has continued to decline ever since, dropping over two thirds of its previous value. The benchmark Shanghai Composite Index sank another 2.9 percent to 1,929 on September 17, after a 5 percent drop the day before. The combined market value of the Shanghai and Shenzhen stock exchanges dropped to 12.64 trillion yuan (approx. US$439 million), suffering a loss of 352 billion yuan (approx. US$51.5 billion) from the previous close. Compared to the combined market value at its peak of 33.62 trillion yuan (approx. US$4.92 trillion), the stock market shrank by 21 trillion yuan (approx. US$3 trillion), suffering a 62.4 percent drop. Over 5,000 investors participated in this online survey. The result showed that only 23 percent were able to exit the stock market, 11 percent had a low percentage (below 50 percent) of their stock left, 20 percent still had a high percentage (over 50 percent) of stock in hand, and as many as 45 percent held all stock they purchased on hand. Some analysts pointed out that China’s market is now in an unprecedented bear market which has caused greater damage to investors than never before. The survey showed that during this round of the crash, only 21 percent of investors suffered a loss below 50 percent, and 48 percent of investors suffered a loss of greater than 70 percent. Among those who took the survey, 47 percent thought that the index will drop to 1,500; 32 percent thought that it will drop to below 1,000, and only 21 percent thought that it will stop falling after it reaches 2,000.
Russia Gives Banks Cash, Halts Stock Trading to Head Off Crisis
By Alex Nicholson and William Mauldin
Sept. 17 (Bloomberg) -- Russia halted stock trading for a second day, poured $44 billion into its three largest banks and relaxed restrictions on lenders to stem the worst financial crisis since the nation defaulted a decade ago.
The central bank slashed reserve requirements for banks, freeing up as much as $12 billion, and the Finance Ministry allowed OAO Sberbank, VTB Group and OAO Gazprombank to borrow the $44 billion for three months. The benchmark Micex index plunged as much as 10 percent, bringing its three-day decline to 25 percent.
Russia's markets are facing the biggest test since the government defaulted on domestic debt in 1998. The decade-long economic boom is fading, foreign investors have pulled at least $35 billion from the nation's stocks and bonds since the five-day war in Georgia last month, and the collapse this week of Lehman Brothers Holdings Inc. and American International Group Inc. prompted a flight from emerging markets.
"I will tell my clients today to continue to abstain from buying Russian assets'' until economic problems are solved, said Zina Psiola, who manages a $1 billion Russian equities fund at Clariden Leu AG in Zurich.
The cost of lending has soared to a record, with the MosPrime overnight rate reaching 11.1 percent today, deterring speculative bets in equities. Russian stocks have lost more than $425 billion in value since reaching an all-time high May 17.
The Moscow-based brokerage KIT Finance said it's in talks with investors to sell a stake after failing to meet some financial obligations related to repurchase agreements.
'Heightened Risk'
"Heightened counterparty risk means that the only place to raise cash is the equity market,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``Every time the market opens we have selling to meet margin calls, which triggers stop-losses, more margin calls and redemptions.''
The cost of protecting bonds sold by Sberbank from default jumped 60 basis points to 3.55 percentage points, according to CMA Datavision prices at 3 p.m. in London. Credit-default swaps on OAO Gazprom, the gas export monopoly, fell 38 basis points to 421. Contracts on VTB Group declined 35 basis points from an all-time high to 6.53 percentage points, according to CMA.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
'Necessary Measures'President Dmitry Medvedev met Prime Minister Vladimir Putin today to discuss developments surrounding the economy.
"The situation is being followed very closely,'' Putin's spokesman, Dmitry Peskov, said in a phone interview. "Necessary measures are being taken.''
Central Bank Chairman Sergey Ignatiev said the cutting of banks' reserve requirements by 4 percentage points will free up about 300 billion rubles. The rate for individual liabilities will fall to 1.5 percent, the rate for foreign bank liabilities will fall to 4.5 percent and the requirement for other liabilities will decrease to 2 percent.
"This is a bigger cut than we expected,'' Natalia Orlova, chief economist at Alfa Bank in Moscow, said by telephone. "This is very good news.''
Ignatiev said the central bank will keep the ruble stable and he has "no doubt'' stocks will rebound. He forecast inflation may accelerate to about 12 percent this year because of the extra cash in the system before slowing to between 7 percent and 8.5 percent next year.
Economic Woes
The ruble has lost 4.8 percent against the dollar since Aug. 8, when Russia sent troops and warplanes into Georgia for a military campaign that led to the worst relations with NATO since the Cold War. Investors have pulled at least $35 billion out of the country since the war, according to BNP Paribas SA estimates.
Oil production, the government's biggest source of revenue, and accelerating inflation are adding to concerns. Crude output is falling for the first time since 1998 and the inflation rate advanced more than expected in August to 15 percent.
Industrial output grew more slowly than economists expected in August and economic growth in the second quarter slowed to an annual 7.5 percent from 8.5 percent in the previous period.
Still, unlike 1998, Russia is ``pretty well prepared'' to weather the turmoil, the World Bank's chief representative in Russia, Klaus Rohland, said today. The economy has grown every year for a decade and its international reserves have surged in the period by almost 50 times to $574 billion.
Banking Investors
International banks have entered the Russian market in recent years. Societe Generale, France's second-largest bank, owns OAO Rosbank, a top 10 retail bank. Commerzbank AG, Germany's second- biggest lender by assets, owns a 15 percent stake in Promsvyazbank and Unicredit SpA, Europe's fourth-biggest bank, recently purchased Moscow International Bank. Raiffeisen International Bank-Holding AG is the largest foreign bank by assets in Russia.
The Finance Ministry yesterday added $20 billion to the interbank lending market.
Sberbank, VTB and Gazprombank ``are market-making banks capable of insuring the liquidity of the banking system,'' the ministry said in a statement today.
Finance Minister Alexei Kudrin said the measures should ``smooth over the shock changes'' in the markets. ``With foreign borrowing stopping, we must soften the impact with additional funds,'' he said on state television.
The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest decline of the 88 indexes tracked by Bloomberg. The dollar-denominated RTS halted trading after similar declines.
"The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone.
To contact the reporter on this story: Alex Nicholson in Moscow at Last Updated: September 17, 2008 12:03 EDT
Bloomberg warns of possible 'next wave' crisis
Wednesday September 17, 7:53 pm ET
By Devlin Barrett, Associated Press Writer
Bloomberg says 'next wave' of financial crisis may be foreigners no longer buying US debtWASHINGTON (AP) -- New York Mayor Michael Bloomberg warned Wednesday a "next wave" of financial pain may come from overseas if foreign entities stop buying U.S. debt.
The billionaire mayor spoke before an audience at Georgetown University, telling them it's not clear who is going to continue buying U.S. debt as financial firms try to cope with a crisis of confidence on Wall Street.
The mayor is scheduled to meet Thursday morning with Treasury Secretary Hank Paulson and Securities and Exchange Commission Chairman Chris Cox.
Before becoming mayor, Bloomberg made a fortune by launching a financial information company that bears his name, and he has more credibility than most politicians on economic matters.
Bloomberg said he was concerned that the credit crisis in the United States may scare off foreign investors that, until now, have been willing to buy debt that the U.S. uses to maintain a deficit.
"It's not clear who's going to be buying our debt," said Bloomberg. "It may very well be that the next wave is going to come back and bite us."
The mayor, a Democrat-turned-Republican-turned independent, regularly criticizes both parties, the Congress, and the White House for what he says is their lack of foresight. He said the current economic crisis is the latest example of the same problem.
"We have on both sides of the aisle, on both ends of Pennsylvania Avenue, thrown caution to the wind. We pay lip service to responsibility," he said, as he sat onstage in an armchair, fielding questions from Georgetown President Jack DeGioia.
Bloomberg had originally planned to give a speech about the economy, but amid the fast-moving events on Wall Street, he scrapped the speech and went with a question-and-answer session instead.
"The systemic problem is we've all gotten into a situation where we want it now, there's no pain ... We keep saying we want to have it, we don't want to pay for it. You can't go on forever not addressing the key issues in this country," like health care and immigration, he said.
Asked about government regulation of the U.S. economy, he said that while some complain it is excessive, the United States has a competitive advantage because in many other countries "you would think that most (corporate financial statements) are just made up."
In fact, just last year the mayor and New York Senator Charles Schumer issued a lengthy report decrying what they saw as overreaching and overly demanding regulation of business.
Back then, Bloomberg and Schumer wrote that enforcement of a 2002 law toughening business reporting requirements "produced far heavier costs than expected (and) has only aggravated the situation," putting the U.S. at a competitive disadvantage with other financial centers like London.
Fast forward to 2008 -- and the meltdown of confidence in U.S. financial markets -- and Bloomberg had many nice things to say about regulation, including the Depression-era Glass-Steagall Act that separated commercial and investment banking, and was scrapped in 1999. As the modern financial sector has struggled, many Wall Street watchers have suggested resuscitating the old law.
Bloomberg did, though, continue to argue for a reordering of the current regulatory thicket.
"The real world has changed," he said, and old government agencies no longer are equipped to monitor companies that offer a combination of services, like insurance and investments and banking.
"All of these industries, the participants all do the same thing so there's a mishmash and there's too many places for things to slip through the cracks. I don't know that the regulators are asleep at the switch. The structure is not suitable for the real world."
Investors Flood Out of Money Markets and Banks to T-Bills
Wednesday, September 17, 2008
By: Greg Brown
As new evidence emerges that major money market funds have significant exposure to the collateralized debt obligation (CDO) crisis, worried investors are withdrawing billions from their banks and money market funds and pouring them into government-backed Treasury Bills, or T-Bills.
As news spread today that the Reserve Primary Fund fell below $1 a share in net asset value because of its losses on debt issued by Lehman Brothers Holdings, cash depositors across the banking and investment sector have been flocking to safer havens.
Early Wednesday, the rate on U.S. Treasurys had fallen to as low as 0.23 percent on three-month T-bills, the lowest since 1954, reports Bloomberg News.
And 30 day T-bills on Wednesday dipped briefly to a zero percent return.
Editor's Note: Monster Financial Disaster. We Warned You First! Read More
Just over a week ago the 90-day T-bill rate stood at 1.71 percent. But huge demand is driving investors into the vehicle, even if the interest rate paid is close to nil.
"The panic going round the money market world is what they've been investing in is not as safe as they thought it would be,'' Dominic Konstam, the head of interest-rate strategy in New York at Credit Suisse Securities, told Reuters.
"If the banks don't want to lend to each other they don't want to lend to the banks. That means where else are they going to put their money — they're going to put it in T-bills for safety.''
As reported more than a year ago, many major market funds are vulnerable to the CDO crisis and it would be doubtful they could hold their value at $1 per share.
Though many money markets hold their $2.5 trillion under management in super-safe T-bills, a number of major funds had veered off into exotic, credit-backed securities.
Bloomberg magazine first detailed an alarming number of big-name funds that had been investing in collateralized debt obligations backed by subprime mortgage loans.
At the time, subprime had grown to represent $11 billion worth of supposedly safe money market funds.
Bloomberg cited Bank of America, Credit Suisse, Fidelity, and Morgan Stanley among such funds, noting they had more than $6 billion worth of subprime debt as of June 2007.
Now comes the news that Reserve Primary Fund, a money-market mutual fund in New York, has "broken the buck," falling to 97 cents a share Tuesday afternoon. The fund is reportedly making investors wait a week to take out money.
Primary Fund assets have fallen to $23 billion, down from $65 billion just a few weeks ago, reports Reuters.
Although the fund was not necessarily directly invested in CDOs, it held debts from Lehman Brothers Holdings, which went into bankruptcy due to subprime lending problems.
Bruce Bent, the chairman and founder of Reserve Primary Fund and the "father" of the money market mutual fund industry, warned the wire service a year ago that too many funds were being managed like stock and bond funds, not as safe cash havens.
"The people who have been managing many of these funds are not money fund managers, not cash managers," Bent said then.
"They are asset managers of different classes of assets, and they have imposed the psychology of managing stocks and bonds on money funds, and they are wrong," Bent said.
But Bent also claimed that his funds had not gone down that track and were immune to the credit crisis.
Bent in 1970 created the first money market fund, The Reserve Fund. No money market fund should invest in subprime debt, he said a year ago.
"It's inappropriate," he said. "It doesn't have a place in money market funds.”
Now, Bent’s Reserve Primary Fund is the first domino to fall.
© 2008 Newsmax. All rights reserved.
Scrambling to Clean Up After A Category 4 Financial Storm
By Steven Pearlstein Washington Post Staff Writer
Thursday, September 18, 2008; A01
You know you're in a heap of trouble when the lender of last resort suddenly runs out of money.
Having pumped $100 billion into the banking system and lent $115 billion more to rescue Bear Stearns and AIG, the Federal Reserve was forced to ask the Treasury yesterday to borrow some extra money to replenish its coffers. If there was any good news in that, it was that investors here and abroad were eager to help out, having decided that the only safe place to put their money is in U.S. government securities. Indeed, demand was so brisk at one point yesterday that, for an investor, the effective yield on a three-month Treasury bill was driven below zero, once the broker's fee was figured in.
This is what a Category 4 financial crisis looks like. Giant blue-chip financial institutions swept away in a matter of days. Banks refusing to lend to other banks. Russia closing its stock market to stop the panicked selling. Gold soaring $70 in a single trading session. Developing countries' currencies in a free fall. Money-market funds warning they might not be able to return every dollar invested. Daily swings of three, four, five hundred points in the Dow Jones industrial average.
What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen -- paper losses measured in the trillions of dollars. Corporate wealth. Oil wealth. Real estate wealth. Bank wealth. Private-equity wealth. Hedge fund wealth. Pension wealth. It's a painful reminder that, when you strip away all the complexity and trappings from the magnificent new global infrastructure, finance is still a confidence game -- and once the confidence goes, there's no telling when the selling will stop.
But more than psychology is involved here. What is really going on, at the most fundamental level, is that the United States is in the process of being forced by its foreign creditors to begin living within its means.
That wasn't always the case. In fact, for most of the past decade, foreigners seemed only too willing to provide U.S. households, corporations and governments all the cheap money they wanted -- and Americans were only too happy to take them up on their offer.
The cheap money was used by households to buy houses, cars and college educations, along with more health care, extra vacations and all manner of consumer goods. Governments used the cheap money to pay for services and benefits that citizens were not willing to pay for with higher taxes. And corporations and investment vehicles -- hedge funds, private-equity funds and real estate investment trusts -- used the cheap financing to buy real estate and other companies.
Two important things happened as a result of the availability of all this cheap credit.
The first was that the price of residential and commercial real estate, corporate takeover targets and the stock of technology companies began to rise. The faster they rose, the more that investors were interested in buying, driving the prices even higher and creating even stronger demand. Before long, these markets could best be characterized as classic bubbles.
At the same time, many companies in many industries expanded operations to accommodate the increased demand from households that decided that they could save less and spend more. Airlines added planes and pilots. Retail chains expanded into new malls and markets. Auto companies increased production. Developers built more homes and shopping centers.
Suddenly, in early 2007, something important happened: Foreigners began to lose their appetite for financing much of this activity -- in particular, the non-government bonds used to finance subprime mortgages, auto loans, college loans and loans used to finance big corporate takeovers. What should have happened at that point was that the interest rate on those loans should have increased, demand for that kind of borrowing should have decreased, the price of real estate and corporate stocks should have leveled off, takeover activity should have slowed and companies should have begun to cut back on expansion.
Mostly, however, that didn't happen. Instead, the Wall Street banks that originally made these loans before selling them off in pieces decided to try to keep the good times rolling -- and, significantly, keep the lucrative underwriting fees pouring in. Some used their own "AAA" credit ratings to borrow more money and keep the loans on their own balance sheets or those of "structured investment vehicles" they created to hide these new liabilities from regulators and investors. Others went back to the foreigners and offered to insure those now-unwanted takeover loans and asset-backed securities against credit losses, through the miracle of a new kind of derivative contract known as the credit-default swap.
As a result, when the inevitable crash finally came, it wasn't only those unsuspecting foreigners who bought those leveraged loans and asset-backed securities who wound up taking the hit. It was also their creators -- Bear Stearns, Merrill Lynch, Citigroup, Lehman Brothers, AIG and others -- who made the mistake of doubling-down on their credit risk at the very moment they should have been cutting back.
We are now nearing the end of the rocky process of uncovering the full extent of the credit losses of the major Wall Street banks and hedge funds. But as Robert Dugger, an economist and partner in a leading hedge fund likes to points out, the markets have only just begun to force some financial discipline on the majority of U.S. households that relied on borrowed money to maintain their lifestyles.
With nobody willing to finance those lifestyles, there are really only two choices.
One is to turn to Uncle Sam to keep the economy and the financial system afloat. Unlike businesses, households and Wall Street firms, the Treasury can still borrow from foreign banks and investors at incredibly attractive rates. And by acting as an intermediary, the Treasury and the Federal Reserve have shown a newfound willingness to use those funds to keep the housing market and the financial system from totally collapsing.
Last spring, the government borrowed $165 billion to send tax rebates to households in an effort to boost consumer spending. Now, some Democrats want to create a new agency that would use money borrowed by the Treasury to recapitalize troubled financial institutions by buying some of their unwanted loans and securities at discounted prices. The same strategy was used successfully during the Great Depression and the savings and loan crisis of the 1990s, and even some Republicans are warming to the idea.
In the end, however, there is only so much the government can borrow and so much the government can do. The only other choice is for Americans to finally put their spending in line with their incomes and their need for long-term savings. For any one household, that sounds like a good idea. But if everyone cuts back at roughly the same time, a recession is almost inevitable. That's a bitter pill in and of itself, involving lost jobs, lower incomes and a big hit to government tax revenues. But it could be serious trouble for regional and local banks that have balance sheets loaded with loans to local developers and builders who will be hard hit by an economic downturn. Think of that, says Dugger, as the inevitable second round of this financial crisis that, alas, still lies ahead.
Dollar falls on bailout uncertaintyGreenback sinks as investors await further details on Washington's plan to rescue the financial services industry
By Ben Rooney, staff writer
Last Updated: September 22, 2008
NEW YORK ( -- The dollar tumbled Monday as investors appeared to have second thoughts about the government's proposed $700 billion bailout plan aimed at stabilizing the nation's financial system.
The 15-nation euro fetched $1.4770 in afternoon trading, up sharply from $1.4492 late Friday. Great Britain's pound jumped to to $1.8572 from $1.8365, and the dollar fell to ¥105.80 Japanese yen from ¥107.22.
Monday's decline marked the steepest one-day drop in the dollar against the euro since the euro-zone currency was formed in 1999.
"Dollar selling intensified across the board as the post-bailout hysteria subsided and questions remain on the details about which banks and credit institutions will be eligible for the purchase of bad debt and the ban on short selling," wrote CMC Markets currency analyst Ashraf Laidi in a note to investors.
The dollar's slide comes as the government plans a massive intervention in the nation's financial markets.
The Treasury Department announced plans late Thursday to use tax dollars to buy soured mortgage-related assets from Wall Street investment firms in an attempt to get the nation's economy back on track.
News of the government's rescue sparked a rally on Wall Street Friday, with the Dow rising 370 points. But stocks slumped Monday as investors awaited further details on the bailout plan and eyed a staggering rise in the price of oil.
Treasury Secretary Henry Paulson urged Congress last week to approve the rescue plan as soon as this week. But Democratic lawmakers have expressed some misgivings about the proposal in its current form.
Senate Democrats circulated an alternative plan Monday that would require the government to receive an ownership stake in the companies it helps. Democrats have also called for the plan to include caps on executive pay and possibly additional economic stimulus measures.
Meanwhile, oil surged more than $25 a barrel at one point Monday, the sharpest one-day increase on record, to trade above $130 a barrel before pulling back and settling at $120.92.
The late day rally came as the current October futures contract is set to expire and a smattering of global supply disruptions put the oil market on edge.
The dollar's decline also fueled the run-up in oil prices. Crude futures are traded in dollars and a softer greenback makes oil a bargain for overseas investors.
"Oil prices are driving everything," said Tom Benfer, vice president of foreign exchange at Bank of Montreal in New York.
The market is questioning what effect the bailout plan will have, but the price of oil has re-emerged as the main factor in the dollar's weakness, Benfer said.
"When oil shoots up, that depresses the dollar," he said.
First Published: September 22, 2008: 3:10 PM EDT
A Bad Bank Rescue
By Sebastian Mallaby
Sunday, September 21, 2008; B07
With truly extraordinary speed, opinion has swung behind the radical idea that the government should commit hundreds of billions in taxpayer money to purchasing dud loans from banks that aren't actually insolvent. As recently as a week ago, no public official had even mentioned this option. Now the Treasury, the Fed and congressional leaders are promising its enactment within days. The scheme has gone from invisibility to inevitability in the blink of an eye. This is extremely dangerous.
The plan is being marketed under false pretenses. Supporters have invoked the shining success of the Resolution Trust Corporation as justification and precedent. But the RTC, which was created in 1989 to clean up the wreckage of the savings-and-loan crisis, bears little resemblance to what is being contemplated now. The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.
The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC's job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system.
In the 1980s, the government did not need a strategy to decide which bad loans to take over; it dealt with anything that fell into its lap as a result of a thrift bankruptcy. But under the current proposal, the government would go out and shop for bad loans. These come in all shapes and sizes, so the government would have to judge what type of loans it wants. They are illiquid, so it's hard to know how to value them. Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. The government would have no better handle on the problem.
In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value. Billions in taxpayer money would be transferred to the shareholders and creditors of banks, and the banks from which the government bought most loans would be subsidized more than their rivals. If the government bought the most from the sickest institutions, it would be slowing the healthy process in which strong players buy up the weak, delaying an eventual recovery. The haggling over which banks got to unload the most would drag on for months. So the hope that this "systematic" plan can be a near-term substitute for ad hoc AIG-style bailouts is illusory.
Within hours of the Treasury announcement Friday, economists had proposed preferable alternatives. Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans. Given a fatter capital cushion, banks would have time to dispose of the bad loans in an orderly fashion. Taxpayers would be spared the experience of wandering into a bad-loan bazaar and being ripped off by every merchant.
Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. Banks don't do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed. Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don't want to signal weakness and they don't want to dilute existing shareholders. A government order could cut through these obstacles.
Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks' bad loans but by buying equity stakes in the banks themselves. Whereas it's horribly complicated to value bad loans, banks have share prices you can look up in seconds, so government could inject capital into banks quickly and at a fair level. The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under.
Congress and the administration may not like the sound of these ideas. Taking bad loans off the shoulders of the banks seems like a merciful rescue; ordering banks to raise capital or buying equity stakes in them sounds like big-government meddling. But we are in the midst of a crisis, and it shouldn't matter how things sound. The Treasury plan outlined on Friday involves vast risks to taxpayers, huge complexity and no guarantee of success. There are better ways forward.
How the Democrats Created the Financial Crisis
Commentary by Kevin Hassett
Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.
Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.
But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.
Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.
In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.
The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them. Turning PointTake away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.
It is easy to identify the historical turning point that marked the beginning of the end.
Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even "on the page'' of allowable interpretations.
Then legislative momentum emerged for an attempt to create a "world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.
Greenspan's Warning
The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie "continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''
What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.
Different World
If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.
But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.
That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''
Mounds of Materials
Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.
But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.
Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.
There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.
Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
To contact the writer of this column: Kevin Hassett at
The $700 Billion Questions
Using the shock doctrine, Wall Street and Washington’s wrecking crew aim to get the most expensive free lunch in American history
By David Sirota
September 22, 2008 Web Only
Treasury Secretary Henry Paulson details what he called "a comprehensive approach" to repairing financial markets on Friday, Sept. 19. (Hold on to your wallet.)
If a museum in the next superpower nation ever commemorates the decline of the last great superpower, it will make the two-and-a-half page bill introduced this week the center of the display.
Just as they do today at the National Archives’ Declaration of Independence exhibit, tourists in the future—perhaps in Beijing, perhaps somewhere else—will line up to see a framed draft of this week’s White House legislation demanding Congress surrender its power of the purse, and give an unelected appointee—in this case, Treasury Secretary Henry Paulson—the power to hand over $700 billion of taxpayer money to “any financial institution,” “without limitation…on such terms and conditions as determined by [him].” In a nation priding itself on separating powers between the branches of government, the bill explicitly states that decisions by Paulson may not even “be reviewed by any court of law or any administrative agency.”
Whether the bill passes or not, the drafting of it—even the mere thinking of it—is the single most clear sign that all of the major tenets of American democracy are on the auction block these days: from constitutional checks and balances, to legislative and judicial oversight to electoral accountability itself.
In the immediate aftermath of what could be the starting gun of a second Great Depression, the public this week will face a wave of propaganda from Washington. Using the same playbook that succeeded in passing the Patriot Act and the Iraq War authorization with almost no questions, politicians will inevitably invoke love of country, fear, loathing and red-alert emergency—all designed to ram this bill into law as fast as possible, with as little scrutiny as possible. Put in book terms, we will see Thomas Frank’s wrecking crew using Naomi Klein’s shock doctrine to justify a bigger free lunch than David Cay Johnston ever imagined.
Here are five key questions we should all be asking:
1) What will prevent the bill from allowing both parties to use the guise of purchasing worthless mortgages to further enrich their largest campaign donors?
Other than a top-line limit of $700 billion, the White House proposal includes not a single reference to how much taxpayers can be forced to pay private investment firms for their worthless mortgages. To the untrained eye, the omission may seem like a minor oversight, but it is almost certainly deliberate not just as a power grab, but in its potential to convert the Treasury Department into a Tammany Hall graft machine with international reach.
Paulson came directly to government from Goldman Sachs, and with these new powers, he could posture as the 21st century’s Boss Tweed, completely free to pay inflated prices for those mortgages as a means of financially rewarding his former Wall Street colleagues who created this mess. And in his initial round of interviews this weekend, he made barely any effort to stem concerns that this is precisely his plan of action. When asked how he would “decide what to buy and what to pay,” he stumbled through an evasive answer, saying “Well, we’re going to have some professional asset managers and some real experts working with us, and we’ll use a — you know, we’re working through the processes.”
Sure, he would have to report semiannually to a presumably Democratic Congress. But that offers almost no safeguard either, as Democrats are just as awash as Republicans in campaign contributions from the companies that would benefit from government overbuying.
Since the deregulatory splurge of the 1990s began, the financial industry has donated almost $600 million to both parties—splitting their donations almost 50-50. That includes an astounding $9.8 million to Democratic presidential nominee Barack Obama, and $6.8 million to Republican nominee John McCain. On top of that is another $500 million dollars in lobbying expenditures in the last decade.
Thanks to the proposal’s omissions, those expenditures could generate a $700 billion return on worthless mortgage investments—well above the 100-to-1 ratio of return on investment that lobbying expenditures typically reap corporate clients in Washington. Alas, in the Halliburton age, such government-corporate profiteering would be anything but rare.
2) How are Americans and investors supposed to feel confident that the crisis will be solved, if the very people who engineered the crisis are being relied on to solve it?
McCain and Obama are campaigning hard on the concept of “change,” and both are playing that message off the Wall Street meltdown. Yet, in brandishing their “change” credentials on economic issues, both are relying on the same cadre of Wall Street and Washington insiders who engineered today’s crisis.
According to Mother Jones, McCain’s campaign is run by at least 83 staffers who have recently lobbied for the financial industry. Their clients included AIG, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, and Citigroup, i.e.. all the major corporations that caused the financial implosion, and who stand to gain from the bailout.
Likewise, McCain’s economic guru is Phil “nation of whiners” Gramm. He is the vice-chairman of the investment bank UBS, which according to the wrote down “more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.” As a Texas senator, Gramm spearheaded Congress’s radical deregulatory agenda in the 1990s, including authoring the bill repealing the Glass-Steagall Act (i.e., the Depression-era law preventing consolidation that many experts say could have prevented, or at least softened, the current emergency).
Obama, meanwhile, has long relied on Gramm’s boss, UBS chairman Robert Wolf, as one of his top economic advisers and fundraisers. Worse, during his emergency meeting to discuss the crisis last week, five of the nine people he said would be directing his response have played a role in the crisis they claim expertise in fixing. They are:
** Former Clinton Treasury Secretaries Robert Rubin (now an executive at Citigroup, which is embroiled in the meltdown) and Lawrence Summers, who the Politico notes both “supported and helped negotiate the bill [repealing Glass-Steagall].”
** William Daley, the Clinton administration architect of corporate-friendly trade pacts like NAFTA and now a top official at J.P. Morgan Chase.
** Gene Sperling, the top economic adviser in the Clinton White House that deregulated Wall Street.
** Paul O’Neill, the former Bush Treasury Secretary, who despite occasionally criticizing the White House, is a lockstep conservative on economics.
Other than Joseph Stiglitz, Obama included not a single progressive, nor even one of the many visionaries like economist Dean Baker, who has for years been predicting exactly this kind of meltdown. Indeed, the one major labor-affiliated economist officially affiliated with his campaign, Jared Bernstein, “was not part of the crisis meeting,” according to the Washington Post.
Just as the media establishment still grants more credibility to humiliated Iraq war proponents than the original—and now vindicated—war critics, both party standard-bearers are telling Americans that the best people to solve the economic conundrum are those who had a hand in creating it. How, exactly, should this fox-in-the-henhouse situation inspire any confidence in Americans or investors that our political leaders are serious about fixing the problem?
3) How is this meltdown a failure of “oversight” if it has almost nothing to do with illegality?
Most politicians and pundits are bewailing the lack of “oversight” that allegedly led us to the brink of disaster. The rhetoric suggests that the real perpetrators were negligent regulators failing to enforce—or “overseeing”—existing laws. And while there’s certainly a bit of that, CBS’s Bob Schieffer said it best when he reported that, “This is not the work of those who broke the law, it is the work of those operating within the law—those who pushed the law to the limit, making loans the law allowed but common sense dictated should not have been made.”
Substituting a debate about “oversight” for a debate about regulation isn’t merely a semantic error, nor a harmless accident. It allows incumbents to avoid culpability for their votes that gutted existing regulations and helps challenger candidates make a deceptive argument claiming the only change necessary is the specific officeholder, not the system of free-market fundamentalism itself. They get to make a self-servingly partisan case while eschewing the wrath of their regulation-averse business donors.
Crushed, of course, is the potential election mandate. Candidates elected on pledges to beef up “oversight” have only to staff agencies with new faces to fulfill their campaign promises, rather than doing the hard work of passing much-needed new laws.
4) When did a crisis suddenly mean that giving away taxpayer cash to campaign donors is laudably apolitical, but spending taxpayer money on taxpayers is inappropriately “political?”
During initial meetings with Congress about the bailout, Treasury Secretary Henry Paulson rejected “calls to include tighter regulations, corporate reforms or limits on executive compensation as part of the measure,” according to the Associated Press. He also stated his opposition to using a fraction of the money to help homeowners struggling with their bills, shore up the social safety net, or stimulate job growth through public infrastructure spending.
Almost universally, his position was praised by lawmakers and reporters as a judicious and apolitical one worthy of bipartisan praise. At the same time, demands to make sure taxpayers get something for their money were labeled unacceptably “political,” divisive and extraneous.
“What you heard last evening is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly,” Banking Committee Chairman Chris Dodd gushed to the New York Times after meeting with Paulson.
Fox News Sunday anchor Chris Wallace praised the White House proposal as “clean” and berated those who he said were trying to “Christmas tree” the bill with relief for homeowners, prompting Sen. John Kyl (R-Ariz.) to enthusiastically agree.
“There is a crisis in our country,” Kyl said. “We’ve got to come together as House and Senate, Democrat and Republican, and deal with this crisis as Americans, for the American people, and not try to bring on all of our political agendas.”
Senate Minority Leader Mitch McConnell (R-Ky.) echoed the sentiment, telling that he does not want the bailout to become a vehicle for other “partisan plans and pet projects.”
This framing comes directly from the financial industry itself. The Wall Street Journal reports that congressional leaders are already meeting with lobbyists from the nation’s largest banks, securities firms and insurers “whose message to lawmakers was clear: Don’t load the legislation up with provisions not directly related to the crisis, or regulatory measures the industry has long opposed.”
So, handing over $700 billion of taxpayer money to Wall Street speculators with no conditions whatsoever is now so supposedly apolitical that reporters and politicians take offense at any suggestion otherwise. Meanwhile, proposing to better regulate Wall Street or help ordinary citizens in exchange for that bailout is an unacceptably partisan “political agenda” inappropriate at a time of “crisis in our country”—as if the wage, housing, and health care crisis afflicting workers, homeowners and families is far less critical to the national welfare than the crisis hitting millionaire speculators.
5) How are we going to pay for this?
In the Bush age of unending deficits, even considering affordability strikes some as silly and old fashioned. But we’re talking about adding $700 billion to the national debt—or $2,000 for every man, woman and child in America. Moreover, if, as bailout proponents say, the ultimate goal of a bank rescue is to keep the credit markets liquid and interest rates under control, then adding $700 billion to the interest-rate-exacerbating national debt seems an odd economic analgesic, to say the least. This is to say nothing about the insanity of responding to what is inherently a debt crisis by simply firing up the national credit card and incurring more debt.
To date, Sen. Bernie Sanders (I-Vt.) is the only lawmaker who has laid out a specific plan to both re-regulate the financial markets and responsibly finance a bailout. He proposes to impose a 10 percent surtax on those making over $500,000 a year, raising roughly $300 billion. “The people who can best afford to pay and the people who have benefited most from Bush’s economic policies are the people who should provide the funds for the bailout,” he said.
How that fiscal conservatism is met on Capitol Hill will expose the real motives—and interests—behind the bailout package.
Paulson's Folly
The current Wall Street rescue plan has some serious failings. Will congressional Democrats (and Republicans) stand up to the treasury secretary?
Robert Kuttner
September 22, 2008
Treasury Secretary Henry Paulson's $700 billion rescue plan puts the two presidential candidates in a curious position. One or both could end up voting against it, at odds with their respective parties.
There is a backlash among some rank-and-file members of both parties against giving Wall Street a blank check, even as most congressional leaders are reluctantly concluding that some kind of bailout is necessary to prevent a financial cataclysm. John McCain spent the week repositioning himself as a born-again populist, railing against Wall Street greed. And by Sunday afternoon, Barack Obama issued a tough set of principles for a bailout, including "No Blank Check for Wall Street"; help for homeowners; and an economic-stimulus plan for working families.
Thus, the stage is set for an epic game of chicken, against a very tight deadline. Will the Democrats insist on some serious help for Main Street and constraints on Wall Street as the price of a deal? Nothing would better highlight the differences between the two parties, or better strengthen Obama's hand. Or will Paulson reject anything other than his own approach -- possibly leaving both candidates to vote against the deal?
As Paulson testifies before key congressional committees Tuesday and Wednesday, and Democrats (and some Republicans) express indignation about the one-sided character of the deal, Wall Street could shudder -- leading Paulson to double down yet again and warn his critics that their hesitancy is leading the economy off a cliff. But there is more than one way to do this deal.
Paulson spent Sunday morning making the round of talk shows, insisting on a "clean" bill uncluttered by regulatory reforms, caps on executive windfalls, refinancing assistance for homeowners, or anything other than unprecedented authority for himself to relieve financial institutions of up to $700 billion in securities that nobody else wants to buy. Paulson spoke as if he had all the cards.
So the key question is what conditions congressional Democrats will extract in return, and whether they will have the political nerve to fight, especially if financial markets grow more panicky with each passing day. At this writing, Nancy Pelosi seems determined to insist on a second stimulus package on the order of $100 billion, including greater relief for homeowners, but there is growing sentiment for some kind of cap on executive pay as well as more assurance that taxpayers, one way or another, will get something back.
The Democrats will be joined by some odd bedfellows. Many leading Republicans in Congress are very skeptical of this deal -- though most want less bailout for Wall Street rather than more relief for Main Street. Rep. Jeb Hensarling, a Republican from Texas, told The Wall Street Journal that a number of Republican conservatives "may very well" oppose the plan. Rep. Mike Pence of Indiana said Friday, "Now's the time for us to be dealing with the root causes of this economic downturn and not simply opening the cash window at the Federal Reserve and writing one bailout check after another."
Speaking on CBS' "Face the Nation" Sunday morning, House Financial Services Committee Chairman Barney Frank said he would want to add several features to the Paulson plan, including relief for homeowners, a new stimulus package, and limits on CEO compensation. Said Frank, "It would be a grave mistake to say that we're going to buy up the bad debt that resulted from the bad decisions of these [private sector] people and then allow them to get millions of dollars on the way out. ... It's kind of hard to tell the average American that we're going to continue to have foreclosures that destabilize neighborhoods and deprive cities of revenues they need, but we're going to buy up the [banks'] bad paper."
The ranking Republican on the Senate Banking Committee, Richard Shelby, appearing with Frank, sounded if anything even more radical than Frank, accusing Paulson of "lurching from crisis to crisis" and helping Wall Street, but doing nothing for the homeowner. Shelby, whose support is crucial to the plan, later issued a written statement that he "remains at this point unconvinced" of the proposal's merits.
The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisers to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration's suspension of normal constitutional safeguards in its conduct of foreign policy and national security.
Though the administration's line is that these securities are not trading because of a crisis of confidence, so many are ultimately backed by loans that will not be paid back that they will eventually be sold for a fraction of their face value. Firms that have marked these securities down or have otherwise gotten them off their books have valued them at around 30 cents on the dollar or less. If Paulson had proposed such a deal in his old job as CEO of Goldman Sachs -- putting $700 billion of the firm's capital at risk in exchange for junk bonds of unknown value -- he would have been fired in short order. But this is merely taxpayer money.
The differences between this proposed bailout and the three closest historical equivalents are immense. When the Reconstruction Finance Corporation of the 1930s pumped a total of $35 billion into U.S. corporations and financial institutions, there was close government supervision and quid pro quos at every step of the way. Much of the time, the RFC became a preferred shareholder and often appointed board members. The Home Owners Loan Corporation, which eventually refinanced one in five mortgage loans, did not operate to bail out banks but to save homeowners. And the Resolution Trust Corporation of the 1980s, created to mop up the damage of the first speculative mortgage meltdown, the savings and loan collapse, did not pump in money to rescue bad investments; it sorted out good assets from bad after the fact, and made sure to purge bad executives as well as bad loans. And all three of these historic cases of public recapitalization were done without suspending judicial review.
What should Congress demand in return for this deal?
Government equity in firms receiving assistance, in rough proportion to the amount of aid extended.
Limits on executive compensation paid by any firm receiving the public aid.
A recapture of the cost to the government, to be extracted from the firm's future profits.
A six-month sunset provision, so that the treasury secretary's bailout authority would expire by next April 1. Any extension would be conditional on across-the-board re-regulation of financial institutions of all types.
Creation of a small independent board, which must review and approve Paulson's proposed deals.
A narrower treatment of court challenges to Paulson's actions.
A parallel program to refinance sub-prime mortgage loans and to provide funding to municipalities and community-based nonprofits to acquire, restore, and repopulate foreclosed properties.
At least $200 billion of new economic stimulus, in the form of aid to states, cities, and towns, for infrastructure rebuilding, more generous unemployment compensation and retraining benefits.
For nearly three decades, conservative Republicans have insisted that the cupboard is bare when it comes to needed social outlay. Conservative Democrats have been hesitant to spend more than token amounts because of concern for the deficit. Now suddenly, spending that will increase the deficit by $700 billion is greased to slide through Congress in less than a week but only because the money is for Wall Street.
Paulson said Sunday that the two cases are not comparable. "This is different than spending money you know you're never going to get back," he told CBS' Bob Schieffer. "This is buying assets, holding assets, and then selling assets." But that is just nonsense. Investing public funds in college education, the health of children, public infrastructure, research and development, or energy independence is money that is far more likely to produce a good return than public investments in the toxic junk of Wall Street. If the economic emergency requires deficit spending, the benefits should be spread. No self-respecting legislator should vote for this lopsided plan in its present form, and a bracing debate should shed light on what the two parties really stand for.
When you think about it, Hank Paulson is about the last person in America who should be entrusted with this emergency infusion of public capital -- because his perspective is entirely that of the bankers who created the mess in the first place. Paulson is treating the U.S. Treasury as a branch office of Wall Street. When I was a proudly liberal graduate student, I used to snicker at my radical classmates who described the government, in Marxian cant, as the "executive committee of the ruling class." Well, there is no better description of the Treasury as operated by Hank Paulson.
Now is the Time to Resist Wall Street's Shock Doctrine
By Naomi Klein
September 22nd, 2008
I wrote The Shock Doctrine in the hopes that it would make us all better prepared for the next big shock. Well, that shock has certainly arrived, along with gloves-off attempts to use it to push through radical pro-corporate policies (which of course will further enrich the very players who created the market crisis in the first place...).
The best summary of how the right plans to use the economic crisis to push through their policy wish list comes from Former Republican House Speaker Newt Gingrich. On Sunday, Gingrich laid out 18 policy prescriptions for Congress to take in order to "return to a Reagan-Thatcher policy of economic growth through fundamental reforms." In the midst of this economic crisis, he is actually demanding the repeal of the Sarbanes-Oxley Act, which would lead to further deregulation of the financial industry. Gingrich is also calling for reforming the education system to allow "competition" (a.k.a. vouchers), strengthening border enforcement, cutting corporate taxes and his signature move: allowing offshore drilling.
It would be a grave mistake to underestimate the right's ability to use this crisis -- created by deregulation and privatization -- to demand more of the same. Don't forget that Newt Gingrich's 527 organization, American Solutions for Winning the Future, is still riding the wave of success from its offshore drilling campaign, "Drill Here, Drill Now!" Just four months ago, offshore drilling was not even on the political radar and now the U.S. House of Representatives has passed supportive legislation. Gingrich is holding an event this Saturday, September 27 that will be broadcast on satellite television to shore up public support for these controversial policies.
What Gingrich's wish list tells us is that the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and "free-market stimulus."
We have seen this many times before, in this country and around the world. But here's the thing: these opportunistic tactics can only work if we let them. They work when we respond to crisis by regressing, wanting to believe in "strong leaders" - even if they are the same strong leaders who used the September 11 attacks to push through the Patriot Act and launch the illegal war in Iraq. So let's be absolutely clear: there are no saviors who are going to look out for us in this crisis. Certainly not Henry Paulson, former CEO of Goldman Sachs, one of the companies that will benefit most from his proposed bailout (which is actually a stick up). The only hope of preventing another dose of shock politics is loud, organized grassroots pressure on all political parties: they have to know right now that after seven years of Bush, Americans are becoming shock resistant.
It all happened before ...
Houston - My favorite thing at the Texas Republican Convention was the advertising in the back of the hall that constituted an almost perfect record of the major scandals, conflicts of interest, and bad public policy that have occurred during the W. Bush gubernatorial administration. There they all were, proudly displaying their gratitude to Bush and the party. It was a near-perfect metaphor for American politics today. Chemical had several of the small billboards for each part of the hall. Dow and the rest of the chemical industry were given one third of the seats on the Texas equivalent of the Environmental Protection Agency when Bush got into office. He appointed a lobbyist for the Texas Chemical Council to the Texas Natural Resource Conservation Commission. This citizen has spent thirty years working for Monsanto. He used his position as one of the top environmental officials of Texas to go to Washington to testify that ozone is benign and to oppose strengthening federal air-quality standards. Being in Houston during the lovely summer ozone season reminds us all how grateful we must be for this kind of zealous watchdoggery of our air quality. Also advertising its gratitude to Bush was TXU, formerly Texas Utilities, which under Bush's deregulation scheme is trying to stick consumers with $3.7 billion in "standard costs" - aka dumb management decisions. Enjoy that on your utility bill. (Molly Ivins, "Who Let the Dogs In?", page 188)
The Bailout Makes A Lot Of Dollars But No Sense
Paulson wants eight hundred billion large
To use as he pleases when he’s in charge.
He knows he’ll be sitting in clover, right?
Because he’s demanding no oversight.
It’s like a drunk driver’s car not being towed
And the guy given free gas & one for the road.
by Tony Peyser
The Bailout is NOT Limited to $700 Billion; Paulson Could Spend Unlimited Taxpayer Money
Monday, September 22, 2008

Most people think that the proposed bailout will cost $700 billion. In fact, it is not limited to $700 big ones, and will probably go much higher.Specifically, Paulson's draft bailout plans says:
"The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time."
That means that Paulson could buy a couple hundred billion worth of assets one day, sell them, and then the next day buy another couple hundred billion, and so on.
The maximum price tag?
There is no maximum. Paulson could literally spend unlimited taxpayer monies. And remember that Paulson has already broadened the proposal to include the purchase of non mortgage-related assets.
As Chris Martenson writes:
This means that $700 billion is NOT the cost of this dangerous legislation, it is only the amount that can be outstanding at any one time. After, say, $100 billion of bad mortgages are disposed of, another $100 billion can be bought. In short, these four little words assure that there is NO LIMIT to the potential size of this bailout. This means that $700 billion is a rolling amount, not a ceiling.So what happens when you have vague language and an unlimited budget? Fraud and self-dealing. Mark my words, this is the largest looting operation ever in the history of the US, and it’s all spelled out right in this delightfully brief document that is about to be rammed through a scared Congress and made into law.
Indeed, as written, the feds are only limited to $700 billion at a time in mortgage-related assets. But since they can also buy non-mortgage related assets, the $700 billion language may not even apply to other assets.
Posted by George Washington
Is It True?
... that Paulson demanded a sweat heart tax break of $70 million as a precondition to becoming the Secretary of Treasury.
... that Paulson was playing politics when he showed his personal enmity with Lehman Brothers, which Goldman Sachs has always wanted to destroy.
... that Paulson once told Fortune magazine his favorite hobby is to watch snakes, especially snakes eating mice.
Treasury Secretary Paulson Used To Run Goldman Sachs
I don’t know about you but
For me what would be nice is
Having a guy in charge who
Didn’t help create this crisis.

by Tony Peyser
Keith Richards, Cochroaches, and the Firm of Goldman Sachs
Howard A. Rodman
Posted September 23, 2008
Goldman to Raise Capital, With $5 Billion From Buffett
And in the accompanying story written by Ben White, we can read the following:
The billionaire Warren E. Buffett will invest $5 billion in the investment bank Goldman Sachs, as part of the bank's efforts to raise $7.5 billion in fresh capital, a Goldman spokesman, Lucas Van Praag, said Tuesday. In return, Berkshire Hathaway, the conglomerate run by Mr. Buffett, will receive perpetual preferred shares in Goldman, Mr. Praag said. The preferred stock will pay a 10 percent dividend.
So here's how a real bailout works: Goldman Sachs needs money, Warren Buffet gives them money. In return, Warren Buffet gets stock that pays a ten percent dividend.
Now, for comparison, here's the shell game version. Keep your eye on the pea.
(1) Goldman Sachs gives Hank Paulson seven hundred million dollars (that's seven zero zero comma zero zero zero comma zero zero zero) in salary and bonuses.
(2) Goldman Sachs lends Hank Paulson to the Treasury (now that he can afford to be a public servant).
(3) As the Secretary of the Treasury, Paulson insists that we give Goldman Sachs a lot of money, in exchange for a lot of crap. (If not, we all die.)
(4) Except it's not Hank Paulson's money, it's ours.
(5) If the crap turns out to be crap, we're stuck with it. (And by the way: if it's not crap, why are they so desperate to unload it?)
(6) In four months, Paulson returns to Goldman Sachs.
(7) Paulson receives salary and bonuses from the money we just gave to Paulson to give to Goldman Sachs to give to Paulson.
(8) It's our money. Or was. But we don't get preferred shares. We don't get a ten percent dividend. We don't even get a free copy of The Warren Buffet Way: Second Edition (Paperback). We get crap.
In essence: when Goldman Sachs needs money, and the guy lending the money is rich, they give him something for it. When Goldman Sachs needs money, and the guy lending the money is us, they don't.
Why should they, unless they have to? And the way it stands now, they don't have to.
It's been said that when the dust clears from WWIII, the only things left standing will be Keith Richards, cockroaches, and the investment bank of Goldman Sachs. Having lived long enough to see the Stones, my old New York kitchen, and the events of the past week, I wish I could disagree.
Update - Warren Buffet today tells CNBC he wholeheartedly supports the bailout plan. So: our money goes (for free) to prop up a company he just invested $5,000,000,000 in. Why in God's good earth wouldn't he support it?
Update (2) - And then there's this, from (h/t mogamboguru):
Paulson Debt Plan May Benefit Mostly Goldman, Morgan (Update2)
By Jody Shenn
Sept. 22 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.
``Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.
The guy from BofA is too polite to "identify... particular banks." But isn't; and you don't have to be, either!

Commentary: Bailouts will lead to rough economic ride
By Ron Paul, Special to CNN
23 September 2008
Editor's note: Ron Paul is a Republican congressman from Texas who ran for his party's nomination for president this year. He is a doctor who specializes in obstetrics/gynecology and says he has delivered more than 4,000 babies. He served in Congress in the late 1970s and early 1980s and was elected again to Congress in 1996. Rep. Paul serves on the House Financial Services Committee.(CNN) -- Many Americans today are asking themselves how the economy got to be in such a bad spot.
For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.
Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.
These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.
When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.
Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.
In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.
This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners -- in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers -- builders and other sectors connected to real estate that suffer setbacks.
The government doesn't like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.
I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.
Additionally, the government's actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.
Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.
The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.
It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.
The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.
Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.
Paulson's Market Manipulation Bailout Will Fail Because...
Sep 21, 2008
By: Robert McHugh PhD
The current government market intervention (“manipulation” is probably a more appropriate word) that transpired the past two weeks, reaching crescendo Thursday on a rumor, and Friday on an announcement, is one of the most dramatic since the 1930's.
It really puts into question the notion of U.S. markets being under capitalism, not socialism. The government nationalized Fannie Mae and Freddie Mac last week, announced its intent to nationalize AIG, a component of the Dow 30, this week, and then pulled out all the stops with the Paulson manifesto Friday. Not sure why he didn't nationalize Lehman Bros, unless it was personal, as he came from competitor Goldman Sachs, and enjoyed watching them declare bankruptcy. Okay, maybe I am a bit cynical — maybe.
Before getting into market performance and the forecast, let's cover what we know about this historic redefining of the rules of the game that Paulson has placed on the table for Congress to consider next week:
1) The Securities and Exchange Commission has put a ban on short selling (that is entering into a contract to sell a stock at today's price in the future without owning it now, in effect placing a bet the price of the stock will drop) on 799 financial institution stocks – not on any other stocks, through October 2nd, with the possibility of extending the ban for 30 days. This does not prohibit put options.
2) AIG was tossed from the Dow Industrials and replaced with food giant Kraft on Thursday (presumably to replace a loser with a winner to increase the odds that the closely watched Industrials will rise)
3) The Treasury said it would “insure” up to $50 billion in struggling moneymarket fund investments at financial companies (that are not FDIC insured).
4) The Fed announced they would make “unlimited funds” available to banks to finance purchases of asset-backed commercial paper from money market funds (This will be in the trillions).
5) Banks would be allowed to sell their illiquid bad loan assets to the Treasury in exchange for cash.
What is clear from the getgo, is that this is a bailout of Wall Street, not Main Street, that it is going to cost trillions, not billions, and the bill will be paid by both the American taxpayer, and the American consumer via a higher cost of living.
Yes, this is going to be hyperinflationary. The Treasury will issue notes to the Fed, the Fed will come up with the cash (printed out of thin air), and the cash will be handed to Wall Street.
This process fails miserably to solve the problem, which is the dire financial condition of the average American household.
The trillions of dollars being printed out of thin air should be going to each and every household in America , not just Wall Street. If so, Wall Street would benefit because their toxic assets would metamorphose into quality assets as the American household pays off its debts (cash to Wall Street). But what would you expect when the Treasury Secretary authoring this plan is the former Chairman of the largest Wall Street firm in America , Goldman Sachs, which also happens to be a surrogate for the Plunge Protection Team. Because the plan fails to bailout the American household, it will fail — period. But, fail with an even higher cost of living structure than we have today. This plan assures that the Dollar will tank.
It will lose its value as bad loans are replaced with fresh printed cash. Precious metals will skyrocket as this plan is executed.
As for the lunacy of banning short trading against 799 financial institutions (there are over 10,000 financial institutions in the U.S., so only some are protected from bets they will decline), the Wall Street Journal noted on Friday, “essentially this only allows investors to bet that stocks will rise, and bans investing strategies used by hundreds of mutual funds, pension funds, endowments and governments. These firms use short-selling to protect themselves from unexpected huge losses, some financial firms selling short to offset trades made by their clients so they aren't exposed to large market moves.”
Short selling is not only legal, or should we say it was until Friday, but is necessary, and can be quite good for the markets.
In a short-sale of a stock, what it does is it requires a purchase of that stock by the time the short sale is contracted to close. In effect, short sales create future demand, as shorts must buy stocks, thereby helping stabilize and even push stock prices higher in the future. Further, if there are an abundant number of short positions, a short-covering rally is possible, driving market prices sharply higher.
Banning short selling removes these invisible bids.
Banning short selling is robbing Bears and hedge traders who rightfully are entitled to profits. Without short selling, it will be harder to properly gauge the true value of a stock.
It could create an artificially high market price that will drop far more severely in a future event than otherwise would have occurred.
Banning short selling is essentially a magician's trick to take the focus off his hand. It is a witch hunt. Someone has to take the hit and the Master Planners have decided to blame the shorts, which is pure lunacy.
Shorts had nothing to do with the economic mess this nation finds itself in. The Master Planners continue to equate the economy with Wall Street. They believe if stocks are fine, then the American household is just fine. Nonsense. Shorting is a way of identifying fundamental problems with a company. The health of the economy has nothing to do with whether or not a stock is shorted.
Here's the problem. This government intervention, one that will cost trillions, has failed to bail out the American household, thus is destined to fail, after trillions of new dollars hyperinflate our economy and debase our currency.
The expectations for success are running high, creating a false sense that everything is going to be okay. This sets up a monster financial collapse that will dwarf the risks of today once it becomes clear that this program has failed.
While old assets are swept into the vaults of the Fed in exchange for cash, via the arms of the U.S. Treasury, more bad assets will be created at an even faster pace as the American household, who is income starved, debt laden, and credit report deficient, will soon get hit by another tsunami of higher costs of living, making it impossible to pay their bills on time.
The Master Planners don't give a royal rip about the consumer. For example, Credit Card company schemes have managed to force 30 percent interest rates on what will be forever debt due to technicalities and small print. They mail statements within days of due dates, creating accidental late payments, granting them the right to raise interest rates to 30 percent. They lower credit limits without proper notice, consumers use their cards over the new limit by accident, and get hit with an increase in their interest rates to 30 percent. If they are late, their credit report gets creamed. Yet, now these credit card companies, Wall Street firms, are being bailed out at taxpayers expense to the tune of trillions without doing a darned thing to improve this economy.
The cost of this Paulson manifesto will be trillions on top of the already $600 billion spent in specific corporate bailouts this year.
If they are spending trillions anyway, debasing the Dollar anyway, then the American household should also be bailed out.
A rebate of the past ten years income taxes should be sent directly to each and every household, with the caveat that half of that money must be used to pay off existing debt. If no debts, great, the household gets to keep the entire rebate. Further, the unconstitutional confiscation of wealth known as the real estate tax should be eliminated and replaced with a sales tax. Also, a usury interest rate ceiling of 10 percent should be imposed immediately upon all financial institutions, the key beneficiaries of the Paulson manifesto. The Treasury should begin issuing a new currency that it backs with precious metals, and finally, the Federal Reserve should be abolished. The thinking here is trickle up economics is the medicine that is needed, not more trickle down. [Read entire article at website.]
Has Nancy Pelosi declared martial law?

WASHINGTON - September 28, 2008 - Rep. Michael Burgess (R-TX) reports from the floor of the House that the Republicans have been cut out of the process and called unpatriotic for not blindly supporting the fraudulent bailout. He says the only debate has been about what talking points to use on the American people. The most ominous revelation is when he claims the Speaker has declared martial law.
“I have been thrown out of more meetings in this capital in the last 24 hours than I ever thought possible, as a duly elected representative of 825,000 citizens of north Texas,” Said Congressman Burgess.
Burgess asked the Speaker of the House to post the bailout bill on the Internet for at least 24 hours instead of passing the largest piece of legislation in U.S. financial history in the “dark of night.”
The most frightening part of Rep. Burgess’ one-minute floor speech is when he says, “Mr. Speaker I understand we are under Martial Law as declared by the speaker last night.”
Rep. Marcy Kaptur (D-Ohio) warns the American people about Constitutional enemies of the Republic and the fraudulent trillion(s) dollar bailout.
“My message to the American people is don’t let Congress seal this deal. High financial crimes have been committed.”
“The normal legislative process has been shelved. Only a few insiders are doing the dealing, sounds like insider trading to me. These criminals have so much political power they can shut down the normal legislative process of the highest law making body of this land.”
“We are Constitutionally sworn to protect and defend this Republic against all enemies, foreign and domestic. And my friends, there are enemies.” Rep. Kaptur called Pelosi and Paulson CRIMINALS!
“The people pushing this deal are the very ones who are responsible for the implosion on Wall Street. They were fraudulent then and they are fraudulent now.”
Cash for Trash
by Paul Krugman
22 September 2008
Some skeptics are calling Henry Paulson’s $700 billion rescue plan for the U.S. financial system “cash for trash.” Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq.
There’s justice in the gibes. Everyone agrees that something major must be done. But Mr. Paulson is demanding extraordinary power for himself — and for his successor — to deploy taxpayers’ money on behalf of a plan that, as far as I can see, doesn’t make sense.
Some are saying that we should simply trust Mr. Paulson, because he’s a smart guy who knows what he’s doing. But that’s only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes — justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us.
So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:
1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.
2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.
3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.
4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”
The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis?
Well, it might — might — break the vicious circle of deleveraging, step 4 in my capsule description. Even that isn’t clear: the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital.
Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?
The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.
That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)
But Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review “by any court of law or any administrative agency,” and this adds up to an unacceptable proposal.
I’m aware that Congress is under enormous pressure to agree to the Paulson plan in the next few days, with at most a few modifications that make it slightly less bad. Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.
But I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.
Bailout tests how much the American public will tolerate theft
Sean Olender
Tuesday, September 23, 2008
Treasury Secretary Paulson's edict to create a $700 billion fund to buy worthless mortgage securities from agitated wealthy bond investors is nothing short of a final step on the path to the end of the republic. The secretary claims he can only be effective if his decisions are beyond judicial review.
Our government and its owners appear to be testing how much the American public will tolerate. A few years ago, no one could have imagined that the silent majority would quietly accept thefts of this magnitude from a government that stopped tiny payments to single mothers with poor children in the name of welfare reform because the program's $10 billion cost was breaking the federal budget.
This isn't socialism, it's fascism.
If the public allows this theft, then it will signal to powerful forces that they can essentially do anything, because the American public has become so mushy-headed that it will stand up for nothing. When power discovers that those from whom it would exact payment are powerless, its viciousness increases infinitely.
Our politicians appear on television and say, this is an emergency, so we have to do this now and talk about it later. And then later is too late.
It is not just a $700 billion bailout, it is a $700 billion fund that can have no more than $700 billion in liabilities at any one time. Maybe Goldman Sachs can sell mortgage-backed securities to the fund at 80 cents on the dollar and then the fund will liquidate the securities by selling them back to Goldman for 50 cents on the dollar. Then Goldman can sell them back to the fund for 85 cents on the dollar. That would be a good business, especially if no court can review it.
Our enemy has revealed itself, and it is our own government. The concentration of such outrageous power in government - the power to take the equivalent of half our annual federal budget and give it to anonymous investors - is nearly reaching the point at which it may not be revoked.
It is only natural that we, dreaming of the possibility of our own riches, acquiesced in some of these financial schemes. Of that, we should not be ashamed. Many Americans may now be thinking, "But suppose someday I am a wealthy bond investor worth $50 million?" But you are not a wealthy bond investor and the value of your house and stock investments is going to drop, regardless of how much tax money the government gives to wealthy bond investors. This bailout is essentially the federal government saying to creditors, "Because the American consumer appears to be refusing to pay his debts, we will buy your claims on the consumer, and exchange them for money created by issuing Treasury bills, which is our promise to extract that money from American consumers using our taxation authority."
Some day our children will call on us to explain how our republic was lost. I cannot imagine the shame of facing a grown child to explain, "Foolishly, I thought I would get some of the money, too."
Because the American public has not been introduced to methods for controlling its government for generations for generations, I will suggest one called a general strike. This fundamental democratic power is where everyone decides to send a message to the government by not going to work, to school, shopping, nowhere.
At this point in our history, very bad things are going to happen regardless of what we do. There is no government action that can alleviate the discomfort we must endure because of the wild speculation and reckless borrowing that ensued. What's coming is inescapable. This is the critical time when charlatans among us will promise they can save us from the inevitable if we only allow them the power they need to save us. They are lying. It is time to earn our freedom. It is time to remind the government that we are Americans and we have a history of subjecting tyrannical governments to unpleasant consequences.
Goldman Sachs Socialism
September 23, 2008
Wall Street put a gun to the head of the politicians and said, Give us the money--right now--or take the blame for whatever follows. The audacity of Treasury Secretary Henry Paulson's bailout proposal is reflected in what it refuses to say: no explanations of how the bailout will work, no demands on the bankers in exchange for the public's money. The Treasury's opaque, three-page summary of plan includes this chilling statement:
"Section 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." In other words, no lawsuits allowed by aggrieved investors or American taxpayers. No complaints later from ignorant pols who didn't know what they voted for. Take it or leave it, suckers.
Both political parties may submit to this extortion because they don't have a clue what else to do and bending over for Wall Street instruction, their usual posture, seems less risky than taking responsibility. Paulson and Bernanke evoked intimidating pressure for two reasons. The previous efforts to restore investor confidence had all failed as their slapdash interventions worsened the global panic. Besides, the Federal Reserve was running out of money. Nearly three-fifths of the Fed's $800 billion portfolio is now loaded down with junk--the mortgage securities and other rotten assets it took off Wall Street balance sheets. The imperious central bank is fast approaching its own historic disgrace--potentially as discredited as it was after the 1929 crash.
Despite its size, the gargantuan bailout is still designed for the narrow purpose of relieving the major banks and investment houses of their grief, then hoping this restores regular order to economic life. There are lots of reasons to think it may fail. The big boys are acting, as usual, in self-interested ways since the government allows them to do so. Washington's money might pull firms back from the brink--at least the leaders of the Wall Street Club--but that does not guarantee the banks will resume normal lending, much less capital investing. The financial guys may well hunker down, scavenge the wreckage for cheap profits and wait for the real economy to get well. Likewise, global investors--China, Japan and other major creditors--have been burned and may step back from pumping more capital in the wobbly house of US finance.
Secrecy and opacity are crucial to achieve Wall Street's purposes. It could allow Paulson to overpay his old pals for near-worthless assets and slyly recapitalize the damaged banks while telling public and politicians the money is to save the system. To achieve this, Wall Street needs to keep control of the process whoever is elected president (the Wall Street Journal recommends John Thain, ex-chief of the New York Stock Exchange to succeed Paulson). Not everyone will be saved, of course, but high on the list of endangered nameplates is Goldman Sachs, Paulson's old firm. The high-flying investment house looks doomed by these events. The Fed quickly agreed to convert Goldman and Morgan Stanley into banks. Think of Paulson's solution as Goldman Sachs socialism.
The most hopeful comment I heard from an astute economist was by Nouriel Roubini of NYU, who has been darkly prescient during this crisis. The bailout should help, he told the Times. "The recession train has left the station, but it's going to be 18 months, instead of five years," he said. Hope he's right, but voters are unlikely to regard this as fair return on their $700 billion. The bandits will be back in business and partying, while the victims are still gasping for air.
If Paulson's gamble fails--just as possible--then maybe government will finally undertake forceful intervention rather than friendly solicitude for Wall Street. Washington should literally take control of the banking and finance sector and employ its emergency powers to oversee and direct these private, profit-making enterprises. If any bankers do not wish to play, cut them off from any public assistance (and wish them good luck). Then government can exercise temporary supervisory powers that force banking to cooperate with economic recovery by sustaining lending and investment to the real economy. Washington can put profit on hold.
Order full stop to the many financial gimmicks and accounting illusions that led to inflated lending and falsified asset valuations. Unwind the complicated time bombs known as credit derivatives and shut down this lucrative line of business. Meanwhile, instead of throwing millions of homeowners and debtors out of their homes and into bankruptcy, hold them harmless temporarily so people can work out reasonable terms for recovery. Finally, force-feed new life into the real economy with government spending on public projects and capital formation. How much spending? Rescuing America from irresponsible Wall Street is worth whatever it costs to save the bloodied bankers.
Tuesday, September 23, 2008
CEO pay: What those involved in the financial meltdown made
East Bay Business Times - by Mike Sunnucks and Chris Casacchia
As Congress considers a $700 billion bailout for Wall Street and the banking sector, there are calls to restrict the pay and severance packages for CEOs at investment houses, banks and mortgage lenders poised to be benefit from the plan put forward by U.S. Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke.
Executives from some of the major investment and commercial banks involved in the financial upheaval and bailout earned hefty paychecks last year, according to proxy statements outlining their salaries, bonuses and stock options:
§ Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman (OTC: LEHMQ) filed for Chapter 11 Bankruptcy protection earlier this month.
§ Goldman Sachs (NYSE: GS), which Sunday gained Federal Reserve Bank approval to become a bank holding company, paid its chairman and CEO, Lloyd Blankfein, $70 million last year. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5 million and $71 million, respectively.
§ American International Group’s chief executive, Martin Sullivan, got a $14 million compensation package in 2007. He was ousted in June. The insurance giant (NYSE:AIG) is on the receiving end of an $85 billion federal bailout. Edward Liddy took over as AIG’s chief executive earlier this month.
§ Morgan Stanley Chairman John Mack earned $1.6 million. Chief Financial Officer Colin Kelleher got a $21 million paycheck in 2007. Morgan Stanley (NYSE: MS) also received approval to become a banking holding company, a shift that allows Morgan and Goldman to bring in bank deposit assets which offer more-solid financial footing.
§ Merrill Lynch CEO John Thain was paid $17 million in salary, bonuses and stock options in 2007. Merrill (NYSE: MER) is being acquired by Bank of America Corp. (NYSE: BAC). BofA CEO Kenneth Lewis earned $25 million in 2007.
§ JP Morgan Chase & Co. Chairman and CEO James Dimon earned $28 million in 2007. Chase (NYSE: JPM) acquired troubled investment house Bear Stearns earlier this year with the federal government promising to take on as much as $30 billion in Bear assets to help get the deal done.
§ Fannie Mae CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac, Richard Syron, brought in $18 million. The federal government announced earlier this month it was taking over the mortgage backers with Herbert Allison to serve as Fannie CEO and David Moffett the new CEO at Freddie.
§ Wachovia Corp. Chairman and CEO G. Kennedy Thompson received $21 million in 2007. He was succeeded by Robert Steel as CEO in July. Steel is slated to get a $1 million salary with an opportunity for a $12 million bonus, according to CEO Watch. Wachovia (NYSE: WB) is one of the banks that could be sold in the midst of the financial crisis.
§ Seattle-based Washington Mutual (NYSE: WAMU) will pay its new CEO, Alan Fishman, a salary and incentive package worth more than $20 million through 2009 for taking the helm of the battered bank, according to the Puget Sound Business Journal.
§ CEOs of large U.S. corporations averaged $10.8 million in total compensation in 2006, more than 364 times the pay of the average U.S. worker, according to the latest survey by United for a Fair Economy. In 2007, the CEO of a Standard & Poor’s 500 company received, on average, $14.2 million in total compensation, according to The Corporate Library, a corporate governance research firm. The median compensation package received was $8.8 million.
Stocks crushed
Dow down 778, worst point drop ever, after the House rejects the $700 billion bank bailout plan.
By Alexandra Twin, senior writer
Last Updated: September 29, 2008
NEW YORK ( -- Stocks skidded Monday afternoon, with the Dow's nearly 778-point drop being the worst single-day point loss ever, after the House rejected the government's $700 billion bank bailout plan.
Stocks tumbled ahead of the vote and the selling accelerated on fears that Congress would not be able come up with a fix for nearly frozen credit markets. The frozen markets mean banks are hoarding cash, making it difficult for businesses and individuals to get much-needed loans. (Full story)
According to preliminary tallies, the Dow Jones industrial average (INDU) lost 777.68, surpassing the 684.81 loss on Sept. 17, 2001 - the first trading day after the September 11 attacks. However the 7% decline does not rank among the top 10 percentage declines.
The Standard & Poor's 500 (SPX) index was down 8.7% and the Nasdaq composite (COMP) 9.1%.
"The stock market was definitely taken by surprise," said Drew Kanaly, chairman and CEO of Kanaly Trust Company, referring to the House vote. "If you watched the news stream over the weekend, it seemed like it was a done deal. But the money is being held hostage to the political process."
Stocks had fallen from the get-go Monday morning. In addition to expectations for the bailout, there was also news that troubled Wachovia had to sell its banking assets to Citigroup. A number of European banks also collapsed.
But the possibility that the House won't pass the bailout plan caused stock losses to accelerate.
"It's a huge disappointment," said Jack Ablin, chief investment officer at Harris Private Bank.
Ablin said the fact that stocks were down more than 200 points this morning ahead of the vote indicated that there was already skepticism that the plan would pass.
Although another version of the plan will likely go before Congress, investors are concerned that passing the bill could be a more drawn-out process.
And they are worried about how effective the proposed plan would be anyway, said Alan Gayle, senior investment strategist at RidgeWorth Investments.
"We are charting new territory in policy tools and implementation with this program and there's no guarantee that it will work," Gayle said.
"That a number of institutions haven't been able to last through the negotiations adds to the uncertainty," Gayle said, referring to Washington Mutual's failure on Friday and the buyout of Wachovia Monday.
Stocks are also extremely choppy and volatile as Wall Street moves to the end of the third quarter. Financial institutions and funds are expected to have their books settled before Wednesday, so there is a lot of last-minute scrambling, Gayle said.
Treasury prices rallied, sending yields lower, as investors sought safety in government debt.
Government rescue plan: Congress had supposedly reached a compromise on the $700 billion bank bailout plan Sunday, but the House voted against the bill Monday.
The bill is based around Treasury Secretary Henry Paulson's initial plan to buy up bad mortgage debt from banks as a means of getting them to lend to each other again. However, Congressional lawmakers added provisions to protect taxpayers and enable them to benefit if the companies do as well. (Full story)
On Monday, President Bush and Federal Reserve Chairman Ben Bernanke praised the bill and urged Congress to pass it quickly.
Investors also remained skittish amid more bank turbulence - and banks continued to hoard cash.
Meanwhile, the Federal Reserve and other central banks around the world announced steps Monday to make billions available to troubled banks. [Read entire article at:]
Bank bailouts sweep Europe
European governments, including Belgium, Netherlands, Luxembourg and Britain, intervene to prop up weakened banks as crisis deepens.
September 29, 2008
LONDON (AP) -- European governments had to step in with a flurry of major bank bailouts from Iceland to Germany as fear and turmoil from the U.S. credit crisis spread through the financial system.
Even as U.S. lawmakers were preparing to vote on a massive $700 billion (&euro490 billion) rescue of their own banks, the governments of Belgium, the Netherlands and Luxembourg took partial control late Sunday of struggling bank Fortis NV (FORSY), while Britain seized control of mortgage lender Bradford & Bingley (BDBYF) early Monday.
German credit lifeline
Germany organized a credit lifeline for blue-chip commercial real estate lender Hypo Real Estate Holding AG, while Iceland's government took over Glitnir bank, the country's third largest.
The rapid-fire European bailouts were quickly followed by news that U.S. financial giant Citigroup Inc (C, Fortune 500). was acquiring the banking operations of troubled Wachovia Corp., (WB, Fortune 500) the latest U.S. financial institution to fail or be sold. Citigroup will absorb losses of up to $42 billion in a government-facilitated takeover.
European shares fell heavily and money markets remained frozen, with banks refusing to lend to each other for all but the shortest periods.
"All banks are having difficulty with long-term loans and short-term financing. It's difficult to say which could be affected," said UniCredit economist Alexander Koch in Munich.
"Despite the rescue packages in the U.S. (and Europe), that doesn't fully correct the problem. I see the problem flowing until late next year," he added.
Fortis shares fall
Shares in Fortis, Belgium's largest retail bank, continued to fall Monday after Belgium, the Netherlands and Luxembourg agreed to an &euro11.2 billion ($16.4 billion) bailout package late Sunday to avert a run on the bank. The three governments took a 49% stake in exchange and demanded Fortis sell the stake it had bought in ABN Amro a year ago for &euro24 billion - a move that many analysts believe started its troubles.
The bailout was meant to restore confidence in the bank before the reopening of markets on Monday after a tumultuous week of imploding share values at Fortis.
There was little likelihood of that, however, amid news of other European rescue packages and investor skepticism about the effectiveness of a tentative deal in Washington on a plan to buy banks' bad assets and stabilize the financial system.
In Britain, the government nationalized its second bank this year, taking over Bradford & Bingley's £50 billion ($91 billion) mortgage and loan books and paid out £18 billion ($33 billion) to facilitate the sale of its savings business, including its entire retail branch network, to Spain's Banco Santander.
"We will do whatever it takes to ensure the stability of the British financial system," British Prime Minister Gordon Brown told reporters.
"We will continue to do whatever is necessary over the next few days in very difficult times, in turbulent times throughout the world, to ensure that British financial stability is maintained."
Europe's No. 2 bank
Santander, the second largest bank in Europe, said it will pay £612 million ($1.1 billion) for Bradford & Bingley's 197 branches and £20 billion of deposits.
Britain earlier this year nationalized Northern Rock, but not until after the mortgage lender suffered a damaging run on its deposits by spooked customers. The government is keen to move quicker to avert any repeat of that situation.
The biggest U.S. bailout in history, which goes to the House for a vote Monday and to the Senate later in the week, would give the administration broad power to use taxpayers' money to purchase billions of home mortgage-related assets held by cash-starved financial firms. A decision to break up the total amount into smaller stages may have limited its effectiveness in reassuring markets, one analyst said.
"The fact the funds won't be released in one lot, but instead a series of tranches, is certainly detracting from its appeal and this, combined with the very visible scars of the credit squeeze, will again weigh on sentiment," said Matt Buckland, a dealer at CMC Markets.
In Iceland, the government took control of Glitnir bank, the country's third largest, buying a 75% stake for &euro600 million ($878 million) in a move it said was to ensure broader market stability.
Central Bank of Iceland chairman David Oddsson said that Glitnir, which has operations in 10 countries, would have collapsed if the authorities had not intervened.
German commercial property lender
In Germany, Hypo Real Estate Holding AG became the first German blue-chip company to seek a bailout in the global financial crisis, securing a line of credit of up to &euro35 billion ($51.2 billion) aimed at shielding Germany's No. 2 commercial property lender as the meltdown expanded in Europe.
The government's Finance Ministry said it provided the hefty credit in a consortium with several other banks, though it did not identify them. It said that none of the banks were foreign.
Who Predicted U.S. Economic Collapse One Year Ago?
Four Videos to Watch
America in It's Greatest Crisis Since the Great Depression
By Frosty Wooldridge
October 2, 2008
Denver's radio talk show host Peter Boyles of, said, “America is in the greatest crisis since the Great Depression.”
How do you suppose we arrived at this moment?
Take a guess at America’s number one export in the past 10 years! Food? Oil? Steel? Textiles?
Nope! America’s #1 export: debt, IOUs, arrears, jobs, negative balance sheets!
We stand nostril-deep and up to our eyeballs in national and international debt. As my brother Howard, who walks the Halls of Congress weekly, said, “This will be the year of ‘troubles’. We’ll find ourselves in more and more troubles as bankers and investors demand their markers.”
As Time Magazine’s Justin Fox said, “Debt explains why things are such a mess right now.”
Who brought us this mess? For starters, look to President Bush, Senator Harry Reid, Speaker Nancy Pelosi and the rest of our 535 members of our U.S. Congress. Let’s not forget the Federal Reserve! Its hand in skewering Americans rivals the Robber Barons of the late 1800s. If you look back to 1913, the Robber Barons pulled their greatest coup when they slid the Federal Reserve into law.
Mark Twain said, “When our Congress is in session no man’s money or possessions remain safe.” Why so much debt?
Every year, we shell out $700 billion to pay for gasoline that vanishes in smoke. Next to that, we pitch another $700 billion into the money coffers of India and China in trade deficits. Folks, that’s $1.4 trillion cascading like Niagara Falls OUT of our country year in and year out.
Added to that, our $9.4 trillion federal debt costs us in excess of $400 million daily in interest payments that land into the hands of the lenders. China holds $1.1 trillion of our T-bills. We borrow $2 billion daily from foreign investors to float our debt ridden economy. Our consumer debt exceeds $2 trillion.
On top of that, U.S. taxpayers shell out $346 billion in their money to pay for medical, food, educational and incarceration costs for an estimated 20 million illegal aliens. To make matters worse, legal and illegal migrants send $80 billion annually back to their home countries. Talk about bleeding the Golden Goose to death!
Our military industrial complex spends billions of dollars to maintain 572,000 military personnel on 700 bases in 130 countries around the world. While we cringe at the $700 billion bailout, this week, the House passed a military spending bill costing us $612 billion, but with Homeland Security appropriations, the bill rounds out at $1 trillion. We spend that money at $12 billion monthly in Iraq and Afghanistan.
At an average of $6 billion annually, U.S. taxpayers gave $84.8 billion of their money thus far to Israel. Since 1979, Egypt received $50 billion from U.S. taxpayers. Zero in return; absolutely zero!
Per orders from the Clinton and Bush Administrations for the past 16 years, mortgage brokers found easy access to ‘no down payment’ loans to anyone that featured a heartbeat and could make their mark on a contract. Whether they showed proof of being an American citizen with the ability to pay their mortgages made no difference. Ultimately, estimates range from five million to many more illegal aliens gained U.S. mortgages with no down payment. They piled two or three families into single family homes. They degraded neighborhoods that dropped property values that drove out American citizens.
Few appreciate that taxpayers spend $50.6 billion annually to house 2.3 million criminals at $22,000 each prisoner. (Bureau of Justice Statistics) We pay more for prisons than maintaining our educational systems.
When you look at our major export being debt and jobs, you understand that we cannot continue on this path. America faces the 21st century with daunting limitations after two centuries of unlimited growth. We face an economic paradigm that can no longer continue. We must move toward steady state economics. (
Will we continue toward certain failure, i.e., collapse? Will we keep building air craft carriers and maintain 700 military bases around the world? Will we keep exporting jobs and importing $700 billion worth of trade deficits annually? Will we move toward electric cars and alternative energy or allow ourselves to run this civilization over a cliff?
Kirk Peffers in the Denver Post said, “You couldn’t fit a credit card between McCain and Obama’s foreign policy positions. No real differences on Russia, Georgia, NATO, Israel, Iran, Vietnam, North Korea, or, as Obama called it, “projecting U.S. power around the world. No criticism of having U.S. bases in 130 countries. Neither candidate has learned the No.1 lesson for the 20th century: Empires are over. We are like Rome 300 A.D., or London, 1935.”
This nations spirals into deeper and deeper “troubles” because we keep buying air craft carriers and forging wars while we allow our citizens, cities, schools and infrastructure to rot, decay and degrade. We keep importing millions of poor and uneducated the third world and expect what—a cultural and intellectual renaissance?
Let’s stop building up Iraq, Israel, Egypt and other countries. Let’s spend our money on our country. Whatever we do, we must create a vision of our civilization today for any chance for a tomorrow for our children.
The Fake $700 Billion Bailout Rescue Plan
By: Devvy Kidd, October 2, 2008
© 2008 -
Few things shock me anymore, I'm sad to say. However, Monday, September 29, 2008, was something to behold. Not only didn't the insidious "bail out" pass in the U.S. House of Representatives, but a substantial number of Americans put up such a ruckus, it had to have had a very chilling effect on the shadow government. As I watched the DOW tank to -777, I wondered why the Bush Administration's PPT (Plunge Protection Team) didn't step in and stop the dive. It occurred to me why the money cartel may have decided not to intervene. The American people would come home from work, already worried about the economy, see the stock market had tanked big time and panic.
Immediately following the vote, all the finger pointing began with what can only be described as behavior attributable to kindergartners. Pelosi went on record saying the Democrats would not pass this "end of the world legislation" unless they got "cover" from a bipartisan vote with a large enough number of Republicans. I kid you not, that's what this flaky female upchucked. Not to be outdone, millions by now have seen Republicans respond to allegations that some of them voted against the bill because of Pelosi's rancorous criticism of Bush and the GOP right before the vote.
Both sides began a propaganda campaign, aided and abetted by fact challenged media and cable news network hot shots like Bill O'Reilly and McCain pimp, Sean Hannity. Nazi Minister of Propaganda, Joseph Goebbels, must be cackling from Hell. The mantra took on a form and text that has been virtually unchanged for three days as I write this column; it has been repeated by Obama and McCain shamelessly. As I write this, Obama is on the senate floor spewing the same propaganda: If this rescue plan doesn't get passed, small employers won't be able to make payroll on Friday. College students won't be able to pay tuition. Businesses can't borrow. Americans won't be able to buy a car or home. Commerce will stop. These key sentences have been repeated over and over and over.
Without question, the situation is bleak as thousands of us have written for years. Maria Bartiromo, CNBC financial expert (whose credibility came into question regarding her cozy relationship with Citigroup), stated on MSNBC, September 30, 2008, and I'm paraphrasing: Banks aren't lending and until the banks are "recapitalized," they won't loan. Couples with perfect credit will have trouble getting a home mortgage, never mind those with 'a problem.'
In other words, because these massive lending institutions and banks have been caught with cooked books and gross mismanagement, the American people must bail them out to "recapitalize," reward incompetence and perhaps even criminal activity. Americans who should never have qualified for home loans should be given special treatment at the expense of those who have never been able to buy a home (or don't want one), or who make their loan payments on time.
I called our federal credit union today to inquire about a car loan; I'm not buying, just doing research. They said they're loaning and happy to help me out. I called our federal savings bank to inquire about a home mortgage; I'm not buying, just doing research. Well, they certainly are making loans. I see Countrywide's current ads seeking home buyers. I have no doubt that credit has tightened up considerably, but banks and lending institutions are supposed to be cautious with depositors and stock holders money. If they make bad loans and bad decisions, like any other business, they fail. Yes, we're talking about banks here, but in a free market system which works best, government bail outs, while not only being unconstitutional, will never solve the problem.
While the majority of Americans are at work (or school) during the day and with time at a premium, many are not able to see anything other than the scare tactics we've seen this past week. While millions of Americans (Bravo!) hit the phones, faxes and emails to Congress, many more don't see the big picture or understand just how complicated the system has become: A behemoth bringing down our country, drowning we the people in debt. Please remember that while you and I and our children are "recapitalizing" these lenders and banks, the bad debt is still there. With this vote, the government is going to unconstitutionally buy all this used toilet paper.
Since my last column, the national debt has now risen above $10 TRILLION dollars. The people's purse is overdrawn in numbers most people can't comprehend, yet Congress is jumping out of their skin to write even more hot checks to bail out bad businesses and the list will continue to grow. Despite the new "loans" given the big auto makers last week from an empty treasury, the outlook is bleak: June 20, 2008. General Motors Death Watch 181: Bankruptcy. "Meanwhile, despite their political influence, the United Auto Workers will not be happy; the Mother of All Health Care VEBAs will not be funded. Period. The union will have to make do with what they have. DT figures the rest of the OPEB (Other Post-Employment Benefits) also face a grim, under-funded future."
Why the shrill insistence that "something" get done before Congress adjourns? Why the massive push to "cobble" together a bill before Congress goes out of session for a three month vacation? The DOW took a dive on Monday, but on Tuesday closed up 485, recovering much of the loss from the day before. While Congress was closed to celebrate the Jewish holiday, Rosh Hosana, the market worked on its own. Back on October 3, 2006, Michael Nystrom, penned an excellent piece titled, The Dow's Phony High, where he pointed out:
"But look beyond the headlines, and you see a different story. While the Dow hit a new high today, not a single of its component stocks did. Interesting, isn't it? The index is at a new all time high, but 70% of its components are down 20% or more!"
Where did this $700 billion dollar number come from? It's been repeated ad nauseum. When one considers these inept public servants (both parties) turned a blind eye until the problem blew up in their faces right before they were ready to adjourn for the year, don't they wonder how this $700 billion dollar price tag was suddenly thrown out there? Perhaps this will solve the puzzle for them:
"Our buddy from two lifetimes ago, Carl Lavin over at, points out a fascinating paragraph buried in a story on his web site late last week by Brian Wingfield and Josh Zumbrun.
"You know, this $700-billion figure that exploded into everyday political parlance almost as fast as Sarah? The $700-billion "cost" of resolving the financial crisis and restoring confidence and liquidity in the credit markets starting this morning?
"The $700-billion figure that Senate Democratic Majority Leader Harry Reid first said he could really use McCain's help with, but then the Arizonan took him up on it and Reid suddenly said the Republican would only get in the way and anyway, Reid said, he already had a done deal, except he didn't and the Nevadan ended up being the embarrassed one?
"The $700-billion figure that won't really end up being anywhere near the actual cost because no one knows what all those mortgaged properties are really worth now anyway? Which is the whole problem in the first place because the institutions holding that paper don't know the value of what they're holding either, which is why everyone suddenly got so frightened?
"That $700-billion figure that won't really last because eventually the feds will sell off what they're buying and might even make a profit in the end as they did with the Chrysler bailout warrants years ago? You know where that very important $700-billion figure came from?
"Here's a quote from that Forbes story: "It's not based on any particular data point," a Treasury spokeswoman told Tuesday. "We just wanted to choose a really large number." They made it up to be sufficiently ginormous to frighten everyone into rapid action. And it worked."
A Treasury spokes mouth said the $700 billion dollar figure was made up. The number is fake! These elitists who run our lives believe in their arrogance they could simply pluck a big enough number out of the sky and the American people would swallow it out of fear. It sort of worked because as the old saying goes, You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.
Headlines around the world the past week have screeched bank bail outs in many other countries blaming the U.S., and demanding our Congress pass this $700 billion dollar hoax. I don't think enough Americans understand just how convoluted and massive are the connections between the unconstitutional, privately owned "Federal" Reserve and other global financial institutions. How many Americans know this private banking cartel is being audited by another corrupt mega outfit called the International Monetary Fund --- unlawfully funded with billions annually from the sweat and labor of the American people: "In fact, the United States now supplies $27 billion of funds to the IMF at an annual cost to the taxpayer of $1.9 billion--an expenditure conspicuous by its absence in the Federal budget and a hidden element in our deficit and debt."
Skipped over part of article to this point. Watch the video mentioned in this next paragraph. See if you agree that it certainly makes more sense that the many lies found in the media regarding this issue.
And, now for the kicker which I covered in a recent column. Please watch this eight minute video in which you will find out one of the hidden reasons for this massive push to get these bills pushed through: hundreds of billions of dollars will go to bail out foreign investors like communist China. This short video contains a brief segment from CNBC (1:46 seconds into clip) and you can bet key "leadership" in Congress, Obama and McCain all know the bottom line. Remember the headlines last week? China stops its banks from lending to U.S. banks. Either Congress pony's up or no more credit. How does it feel to be pushed around by the Reds?
The vote passed in the counterfeit U.S. Senate last night. (Roll call of votes here.) Not for the fake figure of $700 billion, but $850 billion dollars with loads of pork --- including funding for mental health issues! The final senate bill is over 400 pages; few senators had time to read it, but voted for it. Feinstein's office received 95,000 calls; 85,000 against the bail out, but she voted for it anyway. Why wouldn't she? Her and her husband, Richard Blum, are tight in the sheets with commie China. [Read entire article at:]
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse [money] from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits the public treasury with the result that a democracy always collapses over lousy fiscal policy, always followed by a dictatorship. The average of the world’s great civilizations before they decline has been 200 years. These nations have progressed in this sequence: From bondage to spiritual faith; from faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependency; from dependency back again to bondage.” - Alexander Tytler, 1770 Scottish professor
Avoid Civil War, Vote Out Political Criminals
By Andrew C. Wallace
October 3, 2008
“For the first time in my adult life I am proud of my country”-men for becoming a little aware of how badly they are being manipulated. Officials in government, corporations and media, along with illegals, who caused this destruction, should plan on running for their very lives. Government officials who refuse to comply with the Constitution and desires of the People have no legitimate power, they are Criminals, Rogues, Usurpers and Traitors.
It is now urgent that we vote politicians out of office who ignore demands of more than 75% to 90% of the people by unconstitutionally giving hundreds of billions of dollars to their corporate paymasters as follows:
1. Unconstitutionally allowing illegals to invade and remain for corporate profits, but at great cost to Americans in lost jobs, blood and treasure.
2. Unconstitutionally voting for so called Free Trade deals like NAFTA to eliminate American jobs for corporate profits.
3. Voting for 10 visa and other immigration programs to replace American workers.
4. Now voting for a 700 billion dollar bailout for both foreign and domestic corporations responsible for the meltdown. This is in addition to a much larger amount of credit being given by the Private Federal Reserve Bank without fanfare. All of this without Constitutional authority, while ignoring the demands and welfare of almost 100% of the people. Hundreds of Economists say this cash infusion will reward the greedy who caused and profited from the meltdown while prolonging it with additional losses for the people. The Senate in its arrogance just added another 150 billion dollars to the bailout bill which included a lot of pork.
5. The only possible result is massive inflation resulting in worthless money, economic collapse and extreme suffering by the people. This is a perfect plan for the left, leading to a communist takeover.
6. This could not occur without the treasonous exercise of unconstitutional authority and expenditures by government officials.
This is the end game, where traitors take what they have not already stolen using the privately owned and unconstitutional Federal Reserve Bank, with support of corrupt rogue officials in Judicial, Legislative, and Executive branches at all levels of government who refuse to obey our constitution and laws. A few specifics of this Tyranny and high Treason are as follows:
* Without actions by the unconstitutional Federal Reserve Bank this meltdown would have been impossible; it is privately owned by corporate elites using unconstitutional Federal Reserve Notes as currency to steal our assets and impoverish us.
* The unconstitutional Federal Reserve Bank enabled and extended the Great Depression using deflation and their private owners bought what they wanted for next to nothing, and they are doing it again, but now they are using inflation..
* This Criminal Conspiracy (RICO) of government, corporate and media has reduced the value of our unconstitutional money to the point where it now requires more than three times as many dollars to buy gold currency as it did in 2000, which effectively raised our cost of living and is reducing value of our pensions, savings and investments to zero.
* Our Military and Police must refuse any orders from the rogue officials to deny citizens their Constitutional Rights or they may provoke a civil war and be tried as war criminals.
* This destruction of our economy is caused by unconstitutional actions by government and the private Federal Reserve Bank. It is a failure of unconstitutional government socialism (fascism and communism), not free enterprise and capitalism.
* Bailout of corrupt bankers and investors will be at great cost, unconstitutional and devastating to the people. A bailout would do nothing either for Money and Interbank Markets that are close to a systemic meltdown. Again, corporate elites take the profits and their employees in Congress shift losses to the people. Read Nouriel Roubini.
* Fannie Mae, Freddie Mac, and everyone in real estate caused the meltdown and made millions. They were empowered by the private Federal Reserve Bank and unconstitutional laws to fund toxic mortgages and to donate millions to politicians. Banks were forced to accept a large percentage of unqualified loans. Our government paid ACORN and others millions to teach unqualified people, including illegals, how to game the system for mortgages and to commit massive voter fraud. This was not Capitalism, it was fraud, and another example of the failure of Socialism.
* Stockholders in Fannie and Freddie lost everything, but our government protected the 376 Billion Dollar investment by China, with our money.
* Ron Paul, the only one in congress who understands Economics said; Congress should reject this bailout because it is an immoral theft from taxpayers, it is unconstitutional and bad Economic policy. It is also money down a rat hole and will only make the dollar crisis that much worse The true crisis is the pending collapse of the fiat dollar system. Ron Paul’s comments appear to be shared by every Economist in the country who is not associated with the criminals.
* Much of what the Federal Government does is simply unconstitutional and the average citizen has no access to justice, none. We must regain control of Congress so we can impeach and prosecute the criminals in all branches and levels of government.
* The wealthy, everywhere in the world know what is going on and they are buying gold and silver bars and coins so fast that there is a serious shortage.
Our government has unconstitutionally allowed Millions of Americans to be either murdered, killed, raped, robbed or molested by illegals so corporations could profit from cheap labor, mortgage scams and theft. The obvious objective is the continuing reduction in our standard of living to the point where Americans live and die homeless, hungry and in pain as slaves in the North American Union ruled by a Corporate New World Order.
The traitors can only take my country over my dead body, and the bodies of millions of other patriots, American citizens are the most heavily armed and trained in the world. But, our objective is to defeat the traitors with the rule of law as long as we have sovereignty, before the people really feel the pain from the loss of everything and react with uncontrolled rage and bloodshed.
Our own history and experience is proof that the solution to our problems is simple; comply with dictates of our Constitution.
After reading this, if you think my use of “Criminal, Usurper, Rogue and Traitor” are not proper descriptive terms for most politicians, then you are a brainwashed fool.
This was only meant as an outline so you could see the big picture, those who desire the brutal truth in great documented detail should read recent articles by these experts: Alan Stang, Devvy Kidd, David Stoddard, John Slagel, Michael Cutler, Greg Evensen, Jim Schwiesow, Dennis Cuddy, Frosty Wooldridge, Dave Daubenmire, Tom DeWeese, Jon Ryter, Deanna Springola, Lynn Stuter, Berit Kjos, Betty Freauf, Cliff Kincaid, Chuck Baldwin, Edwin Vieira, CJ Graham, Joan Veon, Patrick Wood, Laurie Roth, Michael Shaw, Niki Raapana, Dennis Cuddy, et al.
Bailout Vote Constitutional? - 401(k)s Bleed
By: Devvy October 6, 2008
© 2008 -
It's almost difficult to describe in mere words what happened last week in Washington, DC. That Blitzkreig is today's definition of shock and awe. When the enemy hits you at a speed you may not have time to get ready for is exactly what the money masters planned when they dropped the bail out swindle into the laps of a body of individuals (Congress), with a few exceptions like Congressman Ron Paul, R-TX, who have virtually no understanding of the subject matter. In cases like sodomite, Barney Frank, D-MA., whose male sex partner was a senior exec at Fannie Mae, Frank should be investigated by the Department of Justice along with Sen. Christopher Dodd, D-CT.
Despite the overwhelming opposition of we the people across this land, Congress passed another nightmare. If you haven't seen the breakdown, it is here. Note the the part which gives the IRS immunity from federal laws, more power to snoop into your life and make your personal income tax information as exposed as a newborn baby. You will see this wasn't just a "rescue" to recapitalize banks, it is more massive pork ridden debt slapped on our backs.
Notice on page 298 of the bill, there are provisions for the film and motion picture industry. What does this have to do with bailing out banks? How about page 300 that provides exemption from excise taxes for wooden arrows made for children? Or, how about Section 504 regarding income from Exxon Valez settlements? Here's more on the swindle: GREEN ALERT: Hidden Carbon Tax Provisions in Paulson’s Bailout 2.0. "This appears to be an attempt by global warming fanatics to lay the foundation for an economy-killing carbon tax just like the “cap-and-tax” system that is now destroying European industry. If you think the Mother of All Bailouts is bad, just wait till you see the carbon tax. Get ready to reduce your standard of living drastically." Reading this bill was like a nightmare that wouldn't end. How many members of Congress actually read the entire 451 pages? Most likely, they just paid attention to the sections that would satisfy those who bought their favors.
And further on in the article, we read:
This new bill using an old number fails in the House, goes to the unlawfully seated Senate, they pass it, off it goes to the House where it passed last Friday. Nice, neat, slick. But is it constitutional? The bill did originate in the House, but in my eyes, what we saw was yet more chicanery by a body of public servants who care nothing for truth, honesty, integrity or the U.S. Constitution. We know that the U.S. Treasury made up the $700 billion dollar figure; they simply wanted to "pick a big enough number." Now, we have Pelosi's gangsters in the House using back door methods to ram a bill down out throats that is so heinous, these fools simply don't realize what they've done to the American people.
401(k)s. For almost three weeks, popular financial guru's on both the tube and Internet have been telling people these bail out bills would not have any effect on their pension plans or 401(k)s. Keep investing in the stock market and don't touch those 401(k)s! While speaking to my attorney friend out in DC over the weekend, he told me a friend of his checked his 401(k) and found it had lost 47% last week. That's not the only one. Another man I know lost $35,000 of his 401(k) last week and a wonderful lady who emails me all time, Nettie, said her husband's 401(k) had lost almost $60,000 and she was very worried about his mental health. They're in their late 60s and it's too late for them to start over. My heart bleeds to read these emails. [Read entire article at:]
Beware of the Red Dot
by Alan Stang
October 8, 2008
I pledge allegiance to Goldman Sachs, and to the conspiracy for which it stands, one racket under Paulson, Communist and indivisible, with eviction and poverty for all.
The battle of the bailout is over. We lost. Despite the unprecedented opposition, despite everything we did, I doubt that many of my readers and listeners thought we could win. Now we need to analyze what happened, what it means and, most important, where it could take us. We do have some hints.
First, consider that the people of this country have never before expressed such rage, such antipathy to a bill. According to one report, the people were 300 to one against it. One Member of Congress received 15,000 messages about it. Ten were in favor. Another said 95% of the messages he got were opposed. According to one analyst, “the calls to Congress are 50 percent ‘No’ and 50 percent ‘Hell, No.’”
There has not been anything like it in the history of the country. So, the fact that Congress could impose this financial version of the Dresden firebombing in the face of such historic voter opposition – the fact that Congress could in effect spit in your face – is proof that representative government in the country is gone. The vote in Congress expressed the fact that we have government by coup; that the actual purpose of “representation” in Washington is to conceal its absence. Most people now see that.
Second, consider the nature of the opposition. Many bills have faced enormous opposition in Congress, yes. The opposition, however large, came from the group(s) the bill targeted. Here the opposition came from every identifiable group, racial, financial, cultural, sexual, geographical, etc. Indeed, like a natural disaster that cares nothing for the politics of the victims in its path, it left jumbled allegiances and loyalties like piles of wrecked furnishings behind.
For instance, Republican Congressmen Tom Tancredo, enemy of the illegal alien invasion and former candidate for President, along with John Shadegg, who recently responded to pleas from his constituents and decided not to retire, both voted for the coup. Liberal Democrats Loretta Sanchez, who stole “B-1 Bob” Dornan’s seat, and Brad Sherman, who was my Congressman when we lived in the San Fernando Valley, both voted against it.
Along these lines, both Senator B. Hussein Obama and el Senador Juan McCain voted for the coup. Why? Here are the top ten corporate PAC contributors to both candidates:
Communist Candidate A - Goldman Sachs $739,521, UBS AG $419,550, Lehman Brothers $391,774, Citigroup Inc $492,548, Morgan Stanley $341,380, Latham & Watkins $328,879, Google Inc $487,355, JPMorgan Chase $475,112, Sidley Austin LLP $370,916, Skadden, Arps et al $360,409
Communist Candidate B - Merrill Lynch $379,170Citigroup Inc. $287,801Morgan Stanley $249,377Wachovia Corp. $147,456Goldman Sachs $220,045Lehman Brothers $115,707Bear Stearns $108,000JPMorgan Chase $206,392Bank of America $133,975Credit Suisse $175,503
Yes, I know that by now regular readers are long since familiar with my tricks, so I admit this is another. Notice that both Communist candidates are properties of the financial beneficiaries of the coup. They both belong to Goldman Sachs, one of them even more so. Which one is that? Paulson sent $739,521 to Senator Hussein, who wouldn’t pick his nose unless Hank approved. What was that you said about “change?”
Senator Chris Dodd, bottom half of the famous “waitress sandwich,” led the coup in the Senate. Congressman Barney Frank led it through the House. Barney is a butt jumper. For years, the butt he jumped belonged to Herb Moses, a top official at Fannie Mae. Was that why Barney kept saying Fannie was fine? Barney was too busy to notice that another faggot was running a buggery business in his apartment. Barney was as “surprised” as anyone when the faeces hit the fan. Both Barney and Chris are supported royally by Wall Street.
The fact that the opposition was so vast and so varied means that millions who knew nothing now know a lot more. What do they know? For the first time, they understand that the Constitution is dead, exactly as late Republican Congressman Henry Hyde and el presidente Jorge W. Boosh have tried to tell us.
The Federal Reserve has been illegal from the instant it was enacted, because the Act gives the money power to the Fed. The Constitution – the law – gives the money power exclusively to Congress. But Congress lacks the power to give away its power. The coup compounds the original crime and makes it worse. Congress has no power to do what it did. This is what Congressman Ron No Such Candidate Paul has been saying. Now do you see what he was talking about? The only real solution is to abolish the Fed.
A corollary of that realization is that crime does pay if it is big enough. That is what you should now be teaching your kids. Sure, holding up a Seven Eleven is risky and stupid. To get into the really big money – safely – go into the rackets: politics or banking. There is no more law. You know something is right, if you can get away with it. If you can’t, it’s wrong.
Now go back to Congressman Brad Sherman. Remember, Brad is no kind of “right wing extremist.” He certainly is not a Republican. Liberal Democrat Sherman says that during the confrontation about the coup in the House, “a few members were even told there would be Martial Law in America if we voted no.” That’s right; that is what Brad Sherman says Madam Peelousy threatened.
What is martial law? It is military rule by decree. No more wasting time with votes; no more stupid voting for the wrong thing. Meanwhile, the Army acknowledges that the Northern Command may call upon the 3rd Infantry Division’s 1st Brigade Combat Team to help with “civil unrest and crowd control.” In the horrifying wake of martial law in the South after Lincoln’s Communist War to Destroy the Union, Congress forbade it in the posse comitatus law – and then repealed it under pressure from el presidente Boosh.
Put all that together with the Halliburton concentration camps, completed, equipped, fully staffed, but empty, waiting for millions to concentrate. Who? Probably not illegal aliens, because they are not there. So, if you subtract illegal aliens, you have citizens. Are they the target of the camps? Are they destined to be concentrated? What could we logically expect?
This is what I fear, not – not – not what I want. The coup is not a solution. The fiscal disaster will get worse. As I write, the collapse intensifies. Shortages, crime and chaos will erupt. Pressure to concentrate for our “protection” will intensify. Again, among our population of 300 millions there are millions newly awakened; some of them would decline to be concentrated, decline violently. How many?
I don’t know. A very small percentage. Would you believe maybe one percent? Whew! That’s a relief. Only one percent! Yes, but one percent of 300 million is three million. Three million! Who? Heavily armed re-loaders, professional military, who now know that Paulson and Helicopter Ben Bernanke, chairman of the non Fed non Reserve, are the enemy. What would happen if Peelousy & Company keep pushing?
Yes, I am perfectly aware that the conspiracy for world government, which has nationalized our police, wants a confrontation it can use as an excuse for suppression. That is precisely why I do not, why I always avoid confrontation. But the martial law advocates have put everything they need for the purpose in place. They didn’t do so for practice. The fact that benign Brad Sherman and many others like him are talking like this for the first time apparently means the conspirators intend to go all the way. Martial law is all over the internet. At some point Mr. Push will meet Mr. Shove. [Read entire article at:]
The world is at severe risk of a global systemic financial meltdown and a severe global depression
Nouriel Roubini
Oct 9, 2008
The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.
On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.
There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficit and/or large fiscal deficits and with large short term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.
The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.
At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the US and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the US and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.
And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.
At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
This disconnect between more and more aggressive policy actions and easings and greater and greater strains in financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March the rally in equity, money and credit markets lasted eight weeks; when in July the US Treasury announced legislation to bail out the mortgage giants Fannie and Freddie the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the US government the rally lasted one day and by the next day the panic has moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion the market did not even rally for a day and instead fell 5%. Next when the $700 billion US rescue package was passed by the US Senate and House markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next as authorities in the US and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.) the stock markets and the credit markets and the money markets fell further and further and at an accelerated rates day after day all week including another 7% fall in U.S. equities today.
When in markets that are clearly way oversold even the most radical policy actions don’t provide rallies or relief to market participants you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.
At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:
- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
- massive and unlimited provision of liquidity to solvent financial institutions;
- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
- a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
- a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
- an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.
At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression. At this stage central banks that are usually supposed to be the "lenders of last resort" need to become the "lenders of first and only resort" as, under conditions of panic and total loss of confidence, no one in the private sector is lending to anyone else since counterparty risk is extreme. And fiscal authorities that usually are spenders and insurers of last resort need to temporarily become the spenders and insurers of first resort. The fiscal costs of these actions will be large but the economic and fiscal costs of inaction would be of a much larger and severe magnitude. Thus, the time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.
The Quadrillion Dollar Powder Keg Waiting to Blow
Posted: October 11 2008 Derivatives at the heart of the crisis, catastrophic losses are inevitable, financial system headed for oblivion, the new world disorder, EU doomed, Credit Default Swaps at the heart of the problem, Plunge Protection Team history, coverups for globalization failures, Bloodbath for the Yen,
The heart of the current crisis is the quadrillion plus derivative market. Roughly half of these derivatives are listed on exchanges, but the other half are on the totally unregulated, totally opaque, poorly documented and mostly naked (no reserves or collateral given to secure performance) OTC derivatives market. The subprime and Alt-A mortgage debacles, and the soon to be recognized prime mortgage debacle, are little more than a side show with what will become their one to two trillion in losses which the Phony-Fraudie nationalization and the Paulson Ponzi Plunder Plan are meant to address, albeit futilely. However, the real estate derivative problems created by these debacles have been important catalysts leading to the loss of confidence that is preventing banks from lending to one another, because these problems, like a Zippo lighter on high flame, metaphorically speaking, have lit the fuse leading to the quadrillion dollar powder keg waiting to blow any day now, and Hanky Panky and Helicopter Ben are running around like raving, corporatist, fascist lunatics trying to stomp out the lit fuse before the whole world financial system goes up in a blaze of glory.
It is this powder keg that has everyone trembling with fear and foreboding, because the inevitable losses will be catastrophic, with losses which may exceed the entire world's GDP, thus obliterating the balance sheets of every major Wall Street commercial bank, including the Fed itself, while virtually every major bank and financial institution in nations throughout the world join them on the receiving end of a destructive juggernaut of loss, insolvency, failure and bankruptcy. In the aftermath, most will be nationalized. All of Western Civilization is about to become a smoldering collection of fascist police states. The entire world financial system is headed for oblivion, and there is nothing on earth that can stop it. All they can do currently is try to delay and hide the destruction so that they can continue to milk their Ponzi system dry, ripping off the sheople in one final orgy of fraud and profligacy before the government and financial system are merged into an all-powerful super-entity that will rule all non-insider institutions with an iron fist. Frankly, from what we have seen lately, we are already there. The final step to nationalization of our financial system will be little more than a formality. Their intention is to take total control, to make markets do whatever pleases them, thus creating their own reality.
The Paulson Ponzi Plunder Plan is the first installment of their final attempt to bankrupt the sheople, who they hope to beat into submission by hyper-inflating and Weimarizing them with bailout after bailout, ad nauseam, knowing full well that these bailouts are futile and useless.
The Illuminati will now attempt to force the poor, hapless sheople into a fascist police state as the next giant step toward the creation of a New World Disorder called Novus Ordo Seclorum (a New Order of the Ages), as set forth on the back of every dollar bill under the all-seeing eye overlooking the unfinished pyramid, both symbols of the new age, the occult and the ancient mystery religions. What else would you expect from the satanic trillionaires who hope to become the new lords of the universe. Nice try fellas, but we suspect that God, the current and eternal Lord of the Universe, has other plans. Many of their own henchmen are going to go down in the chaos to follow, but the raving madmen we refer to as the Illuminati will gleefully sacrifice them on the alter of world government.
The New World Disorder is the hope and dream of the Illuminati which they have been planning for centuries. But we believe that something is going to happen on the way to that Forum, and that in the end they are all going to end up "swingin' in the breeze." Their plans are unraveling. The destruction is far greater than they had planned. The whole plan is going up in smoke thanks to the bungling of their "Chaos" henchmen in our government and on Wall Street. To think that they attempted to use naked credit default swaps to cover bonds and derivatives secured by houses borrowers could not afford on such a gargantuan scale tells you everything you need to know about their financial acumen. They even permitted ownership of derivatives by those who did not own the underlying assets to be hedged (known as "dry derivatives," which are essentially the equivalent of insurance policies taken out on someone or something in whom the policy holder has no insurable interest), thus turning the world's financial markets into a giant gambling casino, with the added bonus that many unscrupulous people were put into a position where they could force an event that would give them a big payoff without suffering any pain on their end. In essence, by coming up with all these obtuse, Byzantine, rocket-scientist-created derivatives, the smugly clever Illuminati have finally outsmarted themselves.
Then there is the one-rate-fits-all plan in the now-doomed European Union. What a freaking blooper that was! We have been saying that this conglomerate banking scheme could not work from the inception of this ill-conceived union of what are very diverse and culturally unique nations, but of course no one listened. They have so thoroughly destroyed the financial system that there is now no hope of keeping the EU together. The plan did not even work well in a period of substantial prosperity, and now they are going to attempt to keep the plan going in circumstances, which are the antithesis of prosperity. Good Luck! If they hadn't allowed their system to be corrupted by all these financial weapons of mass destruction, out of their unending, boundless greed to milk their sheople, they might have had a shot at preserving the EU and then moving on to world government. Now they are the proud owners of 75% of all the toxic waste derivatives produced by the American branch of the Illuminati. And they have piles of banking bonds covered by credit default swaps issued by AIG, and by who knows what other zombie entity, so their stock and bond ratings, as well as their cost of capital, are in serious jeopardy. As the implosion of these derivatives transpires, the majority of their economies are going down in flames as inflation, recession, and eventually depression set in, adding to their already substantial woes. Their fascist dream is about to go up in flames along with their precious EU, the revived British Mercantilist system and the debt-based, fractional reserve Ponzi scheme of the evil European bankers and their Black Nobility clientele. Their American counterparts will fare little better.
Note that the major Wall Street investment banks, all leveraged to the hilt, are now all gone, whether by bankruptcy, buyout or change of charter. Goldman Sachs, the only investment bank, which has retained its namesake, other than the bankrupt Lehman Brothers, is on the verge of going under in a Bear Stearns-like squeeze on their liquidity and net equity. The recent demise of all these investment banks is just the first round. Things are going to get much worse as the money from the Paulson Ponzi Plunder Plan gets doled out to the various Illuminist toadies. The latest idea, suggested by the Bank of England (what a feeling of confidence we get knowing that this bastion of financial acumen supports this idea!) and now adopted by Hanky Panky, is to make liquidity injections into the fraudster banks in return for equity positions, such as preferred stock ownership. What a joke. Like that is going to chase the credit default swap monster away and restore a feeling of safety and confidence so banks can start lending again. We have news for you. Even the bondholders of these toxic waste sites are going to get vaporized, so the sheople stockholders can expect to get a Big Zippo. At least by acquiring toxic waste assets we might have an outside chance of picking up some chump change later, but with this new plan to fleece the sheople, you are throwing your money down a rat hole. We are told that this will get the money to where it is needed faster. The only "faster" we see is the rate at which taxpayers will get fleeced.
All these toxic cesspool repositories are headed for bankruptcy and nationalization. All you will be doing is keeping people employed with exorbitant salaries and bonuses as they continue to rip you off with insider trading and fraudulent derivative schemes. These witless, pipe-dreaming dolts seem to think that they can get their fractional reserve multiplier going again as the Illuminati try to reinvigorate and re-inflate rampant market speculation along with their profligate money and credit system. They seem to think they can re-inflate the otherwise tanking real estate markets, using their perfect fraud machines, Phony and Fraudie, because they no longer have to worry about ticking off wealthy, influential and politically connected entities that own their stocks. All losses that are suffered by Phony and Fraudie will now go directly to the sheople, do not pass Go, do not collect $200.
What are these people thinking? Again we say: "It's the swaps, stupid!!!" The credit default swaps will be the first to blow as we move from hundreds of billions to trillions in quarterly losses. That will send risk into the ozone while the bailouts send inflation into the stratosphere. And that of course means double-digit interest rates are on the way, which are the main fuse leading to the interest rate swap powder keg, which is the largest of all the derivative powder kegs by notional value, and thus by potential loss. Take JP Morgan Chase for example, and their $90 trillion derivative portfolio by notional value. Let's say that $50 trillion are in interest rate swaps. If they have even a mere two percent overhang where they have to pay out variable rates of interest on two percent more of their total interest rate swaps than the portion of swaps on which they are, by contrast, receiving variable rates of interest, they could suffer horrendous losses that could easily put them under. Let's say that everything balances at 4%. But now rates move to 14% as everyone totally ignores the rates set by the central banks sending LIBOR and T-Bill rates to unheard of levels, which are the types of rate indexes commonly used in these swaps. (Note that corporate debt in Europe, due to the lack of so-called insurance from credit default swaps, has already doubled from previous lower single digit rates into much higher double-digit rates in the 12% area). Two percent of $50 trillion is a trillion dollars of notional value overhang on which you are now paying out ten percent more, and ten percent of one trillion is $100 billion, a killer loss. That would put them under. Even an overhang of only one half of one percent pumps out a loss of $25 billion. And what if the overhang is 5%, or 10%, or 20%? With an overhang of 20%, we hit one trillion in losses. Now, what if rates go to 24%? And this is only one bank! As you can see, assuming that the system can survive the credit default swaps, which we very seriously doubt, we will be jumping out of the fire only to land face down in a red-hot frying pan.
It is only fitting that the credit-default swaps lie at the heart of the problem, which the fraudster banks now face. When you look at what has been done by these reprobates in the past, this is a most fitting fate for them. First, they had President Reagan pass an Executive Order in 1988 forming the President's Working Group on Financial Markets so they could manipulate markets 24/7 with the PPT. That was forced by the 1987 Stock Market Crash, an event orchestrated by the Illuminati to convince everyone that we had to have an interventional team to stop such extreme market gyrations. Then Slick Willie does away with Glass-Steagall in 1999 to do away with the system of checks and balances that allowed banks to pass on paper that was falsely rated as AAA on to their patsy clients. Then for a double whammy, Slick Willie leaves OTC derivatives unregulated with the passage of the Commodity Futures Modernization Act in 2000, so Wall Street could write insurance policies called credit default swaps without having to comply with annoying, silly and burdensome rules requiring such things as loss reserves or an insurable interest. These were all passed to cover up the devastating losses our economy was suffering on account of free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration.
The PPT moved our markets, contrary to what market fundamentals would indicate, to give the appearance of prosperity when we were really getting hammered by the free trade agenda. Our government chimed in with their deceitful and fraudulent economic statistics by use of hedonics. Then credit default swaps were used to falsely suppress interest rates by insuring the risk of default for potential investors, and never mind that there were no loss reserves, collateral or requirement of an insurable interest. AAA credit was assigned to otherwise risky companies based on Ponzi scam bond insurers who were insuring bonds with little or nothing to back up their promises. If our corporations were forced to pay the higher rates demanded by the market without the benefit of these swaps, our corporate earnings would have been dismal, and would have reflected the losses suffered by the globalist free trade agenda. Then the falsely rated subprime derivatives were created so that Wall Street could earn oodles of fees, commissions and spreads by continually rolling over the same money which they were borrowing short-term and lending long-term. These earnings helped to boost our GDP and thus to further cover up the losses being suffered by our bloodied manufacturing sector as everyone became Walmart greeters and hamburger flippers instead of being tool and die makers and machinists and as 5 million of our best-paying jobs were moved overseas. Let's hear it for the Illuminist free trade agenda. Yeah, rah.
It appears that for whatever reason the Illuminati now want Obama to become president instead of McCain. The current financial carnage is of course being associated with Caligula, and since McCain is a Caligula Clone, by association he gets hit vicariously with voter ire. Listen to the two of them promise to save the borrowers who were given mortgages based on fraudulent information about their financial circumstances. Let's bail them out too. Why should the fraudsters on Main Street be treated any differently than the fraudsters on Wall Street? Now we will have equal opportunity bailouts. It's enough to make you puke. Worse yet, Obama is the biggest recipient of big banking largesse in the form of campaign contributions, especially from Fannie and Freddie, and he actively encouraged these organizations to pump out mortgages to people who could not afford them. Fortunately for Obama, McCain is not much better.
So what's going down in Illuminati town? In pondering the current pounding of gold and silver, we smell lots of rats. We hold out to you the following potential scenario: On September 15 and 16, the Illuminati thought they had the precious metals markets under wraps, driving gold below $800 per ounce and silver below $11 per ounce, in anticipation of their coming announcement of the Lehman Brothers and Merrill Lynch debacles that were made public late on September 16. Then the specs go wild, and gold is up $90 in one day, giving the Illuminists a collective myocardial infarction. As punishment for such insolence, on Friday, September 19, the SEC takes away their right to short 800 financial companies, a big money maker. They are told to butt out, or they will never get to place another short again, but if they cooperate, they will get the mother of all crashes, which they can short with impunity. Note how open interest in COMEX gold futures declined from 398,386 contracts on September 15 to 321,021 on October 8. Yet the price of gold during this period kept pressing past $900, which means that there was some short-covering to the tune of some 77,000 contracts. The specs under threat from the SEC, are told to butt out while the commercials cover their shorts. They are told that a crash is on its way, so they short all the non-financials, and stay out of the commodity markets. Then the Paulson Plan is introduced around September 20, and prior to the vote, the markets are crashed to make it look like a "no" vote will send us into the deepest depths of Mordor, knowing all along that markets will be crashed anyway no matter how Congress votes. Fortunes are being made shorting with knowledge of when markets will be crashed. A short-covering rally occurs on Tuesday, September 30, as word is received that the Paulson Plan will be reconsidered and probably passed, but insiders know this is all for show as roughly half of Monday's 777 point loss on the Dow is recovered. Markets are crashed again on October 1 and 2 erasing Tuesday's gains, those being the two days leading up to the second vote on October 3, to convince Congressional boneheads that the Paulson Plan must be passed to save the markets, and when the vote starts to look positive on October 3, up the markets go in the early going that day just before the vote in order to give our bribed and threatened Congressional morons the impression that markets will rally if the Paulson Plan is passed. Congressional dimwitted idiots pass the bill, and the markets nose-dive, all as planned. On October 6, paragon of virtue Jim Cramer scares the living daylights out of retirees, telling them they must get out of the markets. Panic hits the streets, and the cascade of losses is under way. The shorts are now cleaning up and are rolling in dough, but of course that was not enough for them. The Paulson Ponzi Plunder Plan also calls for an end to the ban on shorts against financials just before midnight on Wednesday, October 8, and because the specs have all been good little boys, the SEC lets the ban on shorts expire even though they could have extended it another week. The bloodbath continues on Thursday and Friday as the financials get bombed, the specs are fat and happy, and down go gold and silver while the grateful specs look the other way. Meanwhile, the carry trade is unwound and both the dollar and the yen go ballistic due to the crashes around the globe which send traders into yen and dollars to buy Japanese and US treasuries, respectively, and the yen even outperforms the dollar, causing precious metal liquidations by thoroughly bloodying carry traders while the stronger dollar hits the metals also. And of course, just as we predicted, oil gets hammered below 80, giving more dollar support through the euro effect, and reducing the need for gold and silver as a hedge against higher oil costs.
The Raping of the American Investor
By Joan Veon
October 13, 2008
Transferring wealth through the myth of buying and holding an investment
When I was a college student, I had a gall bladder attack late in the evening and went to the Emergency Room. There a good looking intern became my temporary doctor. Not only did he check me out, but he called in 3 or 4 of his colleagues to also check me out. It was not until 10 years ago, that I realized I had been severely violated in the name of medicine by four young men looking for fun during their shift.
The American people have just been severely violated in the name of the 2008 Credit Crisis. In the arena of investing, the concept of “buying and holding” a security has been gold. The idea being that the “market always comes back.” However, the problem is that you have to wait for the market to come back which may take years and you might break even. Last Friday one of the business channels interviewed a financial expert said that buy and hold was best. How could she even think that when stocks dropped 18% for the week? And the month before, they dropped 20%. Friday, October 10, saw a new historic high and low in intraday market swings totaling over 1000 points. Maybe if we use inflation, it is equal to the October 1987 market crash of 500 points. However, both the market and you and I are in new territory. For those of us who did not live during the Great Depression, this is new.
People who adhere to a “buy and hold” strategy don’t realize that in a time of market declines the ones that sold took your gain as they realized the gain. Those who hold their investments watch as it declines and their gains vanish. Selling high is one of the easiest transfers of wealth. To illustrate this principle, think of the market as a glass of root beer. At the top you have the fizz and underneath the fizz is the liquid. Buy and hold is the liquid as it supports the fizz. The people who trade in order to lock up gains and minimize losses comprise the fizz. In order for the fizz to fizz, it is dependent on the liquid in order to do take their gains. When I posed this question a number of years ago to a panel of imminent economists and even a U.S. Congressman at the World Economic Forum, they did not want to address my question.
In the last twenty or so years, more people have gotten into the market due to the fact that our government passed the Monetary De-Regulation Act in 1980. That law did several things: (1) it erased any ceilings of interest that a bank had to pay on deposits and (2) it allowed them to charge the going interest rate that the market would bear. It also allowed Americans to invest overseas and for foreigners to invest in America. In reality, it facilitated a flood of investors into the stock market who normally would have stayed in the bank, but because the interest was so low, they took the risk and went into the stock market. The 1980 law also facilitated Mafia rates on credit cards because it allowed banks to pay going rates. This was a win-win for the market.
Interestingly enough, the dollar dropped to historic lows against the euro over the past three years and now, surprisingly, it is strengthening—just in time for those who bet on the euro to take their gains. Foreign money coming into the U.S. from all the other countries who have also suffered large declines in their stock market will flee to a bigger, safer country. How fortunate for the U.S. that our dollar has turned around at this fortuitous time.
The investors which sold all or part of their positions now have cash and a higher return than those who held, and with their cash, they can now capitalize on the next up in the market. The only way those who held can take advantage of the next market rise is to sell at huge losses. You know what they say, cash is king.
However, the situation we find ourselves in is not only with the hugh loss in potential profits, but a complete devaluation of everything we own: real estate, stocks, bonds, antiques, art, houses, cars, etc. Once the American people realize what has happened, they will sell when it is too late, thus fueling another 1929.
Is world government political only or is it financial? In the case of a communist take over, it is political first and then financial. However, in the case of a banking or credit crisis, it is economical. No guns, no bullets, and no physical invasion. This time it is not Marx, Lenin, Trotsky, or Mao that have won, it is the banking system that has won. They will take all the spoils, not country by country, but globally!
As I have written before, the process to transfer us into total world government is not over. First we had the banking crisis which has now facilitated the stock market drop. While some of the business channels led us to believe we would have a market rally after the bailout bill was passed, we did not. Instead the market dropped 18%. The stage is now set for step two of the Paulson Punch: the adoption of the Treasury Blueprint for a Modernized Regulatory System. When implemented, the Federal Reserve, a private corporation, will take direct control of various pieces of America’s financial assets: the insurance system, the mortgage system, the Payment and Settlement System of Wall Street, and they will become the Market Stability Regulator ( They will also transfer all credit unions, savings and loans, State chartered banks, and thrifts to their oversight. While I don’t know the exact value, the Blueprint document states $31T for everything but the real estate. In other words, when Congress passes the Blueprint, every aspect of our financial system and holdings will be under Federal Reserve control.
Again, this is without any physical violence. The banking system is about to become the biggest victor in world history. Recently former Federal Reserve Governor Alice Rivlin indicated that the structure of government would have to change, given what is occurring in the financial system. It is very obvious that once the Federal Reserve has control of all our assets that Congress will not be necessary but to rubberstamp, as they have done in the past, anything the Federal Reserve wants.
The young men who violated me probably laughed and made jokes that a young, naïve woman did not understand what they were doing. Hopefully it will not take America 20 years to figure it out the real truth of what is happing to them today.
© 2008 Joan Veon - All Rights Reserved
Outrage Leads AIG To Cancel Second Luxury Retreat
Ritz Carlton Event was Booked for Next Week
By Joseph Rhee
October 9, 2008
Battered by outrage over the $440,000 it spent on a luxury retreat less than a week after the federal government loaned it $85 billion dollars, the giant AIG Insurance Company says it has called off plans to hold a second retreat next week at the exclusive Ritz-Carlton Resort in Half Moon Bay, California.
The Ritz-Carlton outing, like the earlier one, was to reward top independent insurance agents, which the company called a "standard industry practice."
"I am somewhat relieved to hear that AIG has canceled their Ritz-Carlton conference, which was nothing less than a slap in the face of the American people," said Rep. Elijah Cummings (D-MD). "I cannot fathom how in the same day the very same day that AIG asked the government for another $37.8 billion loan, the company would even consider moving forward with plans to host another large conference at another luxury resort."
Critics from President Bush's spokesperson to Senator Obama have denounced AIG for holding an expensive retreat at a time of economic crisis. The criticism has been "demoralizing" within AIG said Nicholas Ashooh, a spokesperson for AIG, "but we have to recognize that we're in a different environment and we have to adjust to that.
AIG says it has instructed its worldwide managers to re-scrutinize how money is being spent. "We're certainly reviewing all our expenditures in light of financial circumstances and the fact that taxpayer dollars are helping to support AIG as we get through this difficult credit crisis," said Ashooh.
Despite calling off the Half Moon Bay event, AIG says it will still have to pay for cancellation fees. While the company would not specify how much money would be lost, a standard room at the Ritz Carlton, Half Moon Bay costs over $400 a night.
"We'll certainly lose some money in cancellation fees, but it's just beyond the point of trying to conduct these meetings given the uncertainty that's taking place," said Ashooh.
Copyright © 2008 ABC News Internet Ventures
$39 billion: The Wall Street bonuses for the big five investment banks last year
By Faiz Shakir on Sep 22nd, 2008, ABC News
In 2007, Wall Street’s five biggest firms — Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley — paid a record $39 billion in bonuses to themselves.
That’s $10 billion more than the $29 billion loan taxpayers are making to J.P. Morgan to save Bear Stearns.
Those 2007 bonuses were paid even though the shareholders in those firms last year collectively lost about $74 billion in stock declines — their worst year since 2002.
These company executives are still fiercely fighting to protect their pay. Politico notes that the Bush Treasury Department is “resisting efforts” by House Democrats “to impose pay limits on Wall Street executives and bankers.”
Cronytopia: What the World Knows -- and Americans Don't -- About the Bailout
Written by Chris Floyd
18 October 2008
Readers of The Guardian were greeted with this leading story -- front-page, up top -- on Saturday morning: Wall Street banks in $70bn staff payoutPay and bonus deals equivalent to 10% of US government bail-out package
Having laid out the thrust of the story very plainly in the headline and sub-head, the paper then detailed the way that the Bush-Obama bailout (the most apt moniker for a scheme devised by the top echelons of the bipartisan elite) is yet another inside job by the Beltway bandits who move in and out of the revolving door between "public service" and vast feeding troughs of Cronytopia. So while Americans looking at the nations's "leading newspaper," the New York Times, found a vast belching of psychobabble and personal gossip about Cindy McCain taking up the front page, the rest of the world was learning this:
Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.
The Guardian errs a bit in that last sentence, of coure. Almost all of the "conditions" mentioned in connection with the bailout have no teeth whatsoever, no enforcement mechanism, no real penalities. They are more properly termed "suggestions," or rather, "PR exercises that we hope our Wall Street lords will deign to at least pretend to follow for a short time, until the heat is off."But still, the meat of the story is solid indeed. And how did the British newspaper find out what America's "paper of record" -- and the countless media outlets that follow its lead -- seems not to know? By looking at publicly available documents and connecting the dots: journalism, in other words.
Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.
The Guardian's perusal of the Big Banks' public paperwork reveal what has long been obvious to anyone with eyes: the massive bonuses to top execs and reckless traders have no connection whatsoever to the company's performance. Quite the opposite, in fact. As the paper notes in a particularly egregious example, the bonuses offered to Morgan Stanley's top dogs were greater than the entire stock market value of the entire company, after the firm's worth had been destroyed by, er, Morgan Stanley's top dogs.
The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has
collapsed....In the first nine months of the year Citigroup...accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m.
Think of that: burning your company's $15 billion pile of cash down to a handful of ashes still gets you more than $6 billion in easy money.The UK bailout plan is somewhat more rigorous: the government has actually forced a few top bank brass to resign, and has taken a controlling or substantial role in actually running several banks -- as opposed to the American plan, which consists largely of buying watered stock in a few big beasts while giving them the keys to the treasury to pay for their continuing bonus binges.But this is not to say that the UK plan is not also a mug's game rigged for incestuous insiders. All the Nobel-wreathed claptrap about Gordon Brown as the "saviour" of the global economic system is the usual hero-worship from afar that so often afflicts Americans when it comes to the UK. (Look how Tony Blair swans around in the States, gathering honors, teaching at Yale, etc., when he hardly dares show his face in his own country.) The government's Financial Services Authority, the supposed watchdog over the British bailout, is stuffed with haughtily-titled insiders who come straight from the institutions they are supposed to be regulating -- and were themselves responsible in many cases for bringing on the crisis back when they were grazing in Cronytopia.But, as always, the Brits are small fry when compared to the other half of the "special relationship." As the indispensible Pam Martens details in CounterPunch, the Bush-Obama bailout is an intensely incestuous insider's club made up of the very authors of the massive economic collapse. This includes -- most emphatically and no doubt deliberately -- the people appointed by Goldman Sachs gamester turned Treasury Secretary Henry Paulson to "represent taxpayer interests" in the gargantuan give-away:
...we learn from the U.S. Treasury web site that it has hired the law firm of Simpson, Thacher & Bartlett to represent our taxpayer interests going forward at a cost to us of $300,000 for six months work. But we’re not allowed to know their hourly wages; that information has been blacked out on the Treasury’s contract. Curiously, the Treasury has named in its contract the specific lawyers it wants to work for us. Two of those are Lee A. Meyerson and David Eisenberg. Mr. Meyerson has been a central player in facilitating the bank consolidations that have led to the present train wreck, including building JPMorgan Chase from the body parts of Chemical Bank, Chase Manhattan and Bank One.
Mr. Eisenberg has played a central role in the proliferation of the credit derivatives blowing up on the books of the Frankenbanks created by Mr. Meyerson. Here’s what the Simpson, Thacher & Bartlett web site says about its relationships and Mr. Eisenberg’s work:
“The Firm’s practice benefits from established relationships with all of the
major investment banks…Mr. Eisenberg is responsible for creating the
asset-backed practice at the firm and has represented clients involved in the
structuring of the first asset-backed commercial paper program, the first public
offering of credit card-backed securities by a bank and the first offering of
asset-backed securities supported by dealer floor plan loans…Mr. Eisenberg
represents JPMorgan Chase Bank, as issuer, in its ongoing program of public
offerings of its credit card receivables backed notes. In addition Mr. Eisenberg
represented JPMorgan Chase Bank in connection with the issuance of notes backed
by commercial loans and in connection with its offerings of Leveraged Notes for
Credit Exposure, a credit derivative product. Mr. Eisenberg has also represented
underwriters, issuers and sponsors of modeled index catastrophe bonds. Mr.
Eisenberg has represented sellers and buyers of credit protection in connection
with synthetic securitizations of consumer loans, commercial loans and high
yield bonds.”
This is an unconscionable conflict of interest given that JPMorgan Chase is receiving $25 billion of taxpayer funds under this bailout and that the program is very likely to be buying the very toxic waste for which Mr. Eisenberg wrote legal opinions and assisted in proliferating.
It is an unconscionable conflict, but as we know, "conscience" is not an operative concept on the commanding heights of Cronytopia.
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency." - John Maynard Keynes, The Economic Consequences of the Peace, (1919)
October 17, 2008
Banks Are Likely to Hold Tight to Bailout Money By LOUISE STORY and ERIC DASH
Even as the government moves to plug holes in the nation’s banks, new gaps keep appearing.
As two financial giants, Citigroup and Merrill Lynch, reported fresh multibillion-dollar losses on Thursday, the industry passed a grim milestone: All of the combined profits that major banks earned in recent years have vanished.
Since mid-2007, when the credit crisis erupted, the country’s nine largest banks have written down the value of their troubled assets by a combined $323 billion. With a recession looming, the pain is unlikely to end there. The problems that began with home mortgages, analysts say, are migrating to auto, credit card and commercial real estate loans.
The deepening red ink underscores a crucial question about the government’s plan: Will lenders deploy their new-found capital quickly, as the Treasury hopes, and unlock the flow of credit through the economy? Or will they hoard the money to protect themselves?
John A. Thain, the chief executive of Merrill Lynch, said on Thursday that banks were unlikely to act swiftly. Executives at other banks privately expressed a similar view.
“We will have the opportunity to redeploy that,” Mr. Thain said of the new capital on a telephone call with analysts. “But at least for the next quarter, it’s just going to be a cushion."
Granted, the banks are in a deep hole. For every dollar the banks earned during the industry’s most prosperous years, they have now wiped out $1.06.
Even with the capital from the government, analysts say, the banking industry still needs to raise around $275 billion in light of the looming losses.
But Treasury Secretary Henry M. Paulson Jr. is urging them to use their new capital soon. On Monday, Mr. Paulson unveiled plans to provide $125 billion to nine banks on terms that were more favorable than they would have received in the marketplace. The government, however, has offered no written requirements about how or when the banks must use the money.
“There is no express statutory requirement that says you must make this amount of loans,” said John C. Dugan, the comptroller of the currency. “But the economics work so that it is in their interest to do so.”
Mr. Dugan added that he would not examine how the banks used the money, but he said their actions would “be open to the court of public opinion.”
The banks could use the money from the government for any number of things. Some analysts say the banks may use it to acquire weaker competitors. Others say they might use it to avoid painful cost-cutting. And still others say the banks may sit on the capital.
Lenders have been pulling back on credit lines for businesses, mortgages, home equity loans and credit card offers, and analysts said that trend was unlikely to be reversed by the government’s money.
“I don’t think that the market wants to see that capital being put to work to leverage the business up again,” said Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month. “My expectation is it’s quarters off, not months off, before you see that capital being put to work.”
Many banks are still plagued by past excesses. Losses on a variety of different types of loans of all sorts are growing and spreading beyond the country’s borders. Citigroup and Merrill Lynch have each lost money every quarter in the last year, as deteriorating assets wiped out revenue. [Read entire article at:]

Disbelief: Traders on the floor of the Stock Exchange in Japan struggle to believe their eyes as stocks plunged 9.6 per cent

Wall Street's 'Disaster Capitalism for Dummies'14 reasons Main Street loses big while Wall Street sabotages democracyBy Paul B. Farrell, MarketWatch
Last update: 7:10 p.m. EDT Oct. 20, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, we're dummies. You. Me. All 300 million of us. Clueless. We should be ashamed. We're obsessed about the slogans and rituals of "democracy," distracted by the campaign, polls, debates, rhetoric, half-truths and outright lies. McCain? Obama? Sorry to pop your bubble folks, but it no longer matters who's president.
Why? The real "game changer" already happened. Democracy has been replaced by Wall Street's new "disaster capitalism." That's the big game-changer historians will remember about 2008, masterminded by Wall Street's ultimate "Trojan Horse," Hank Paulson. Imagine: Greed, arrogance and incompetence create a massive bubble, cost trillions, and still Wall Street comes out smelling like roses, richer and more powerful!
Yes, we're idiots: While distracted by the "illusion of democracy" in the endless campaign, Congress surrendered the powers we entrusted to it with very little fight. Congress simply handed over voting power and the keys to trillions in the Treasury to Wall Street's new "Disaster Capitalists" who now control "democracy."
Why did this happen? We're in denial, clueless wimps, that's why. We let it happen. In one generation America has been transformed from a democracy into a strange new form of government, "Disaster Capitalism." Here's how it happened:
Three decades of influence peddling in Washington has built an army of 42,000 special-interest lobbyists representing corporations and the wealthy. Today these lobbyists manipulate America's 537 elected officials with massive campaign contributions that fund candidates who vote their agenda.
This historic buildup accelerated under Reaganomics and went into hyperspeed under Bushonomics, both totally committed to a new disaster capitalism run privately by Wall Street and Corporate America. No-bid contracts in wars and hurricanes. A housing-credit bubble -- while secretly planning for a meltdown.
Finally, the coup de grace: Along came the housing-credit crisis, as planned. Press and public saw a negative, a crisis. Disaster capitalists saw a huge opportunity. Yes, opportunity for big bucks and control of America. Millions of homeowners and marginal banks suffered huge losses. Taxpayers stuck with trillions in debt. But giant banks emerge intact, stronger, with virtual control over government and the power to use taxpayers' funds. They're laughing at us idiots!
Amazing isn't it, Wall Street's Disaster Capitalists screwed up, likely planned or let happen this meltdown and recession. Yet America's clueless taxpayers just reward them by giving the screw-ups massive bailouts, control over more than $2 trillion of tax money, and the power to clean up the mess they made. Oh yes, we are dummies!
This end game was planned for years in secret war rooms on Wall Street, in Corporate America, in Washington and the Forbes 400. Democracy is too cumbersome. It had to be marginalized for Disaster Capitalism to take over. Reagan, Bush and Paulson were Wall Street's "Trojan Horses."
Naomi Klein summarizes the game in "Shock Doctrine: the Rise of Disaster Capitalism." This "new economy" generates enormous profits feeding off other peoples' misery: Wars, terror attacks, natural catastrophes, poverty, trade sanctions, subprime housing meltdowns and all kinds of economic, financial and political disasters. Natural (Katrina) or manmade (Iraq), either way "disaster capitalism" creates fortunes.
So you, me and the other 300 million better get out of denial. America is no longer a democracy. Voting is irrelevant. Best case scenario: We're a plutocracy, a government ruled by the wealthy, the richest 1%, the Forbes 400, the influential wealthy elite, while the other 99% are their "servants." Meanwhile, the inflation-adjusted income of wage-earners has declined for three decades.
Worst case scenario: America's no democracy and as a result of the meltdown and the surrender of our power to Wall Street's new Disaster Capitalism we are morphing into what one WWII dictator called "corporatism," a "merger of state and corporate power," kind of like what's going on now with Goldman Sachs' ex-boss as de facto president.
Wolves in sheep's clothing
Yes, a strong charge. But like a lot of our readers, I don't like what's happening to America. I'm a patriot. I volunteered for the Marines. Served four years. Volunteered for Korea. I don't like how our freedoms, rights and value system are being subverted in the name of greed, arrogance, self-righteous intolerance and other false gods.
We know for the last eight years disaster capitalists ignored obvious warnings of a coming meltdown. They apparently planned it. They road the bull, got very rich. Now they have the ultimate disaster capitalist weapons, trillions in tax money, virtual control of government.
That's why I fear we're on the edge of a dangerous line between Wall Street's version of disaster capitalism and a toxic "merger of state and corporate power." The wolf is in sheep's clothing. Wall Street pretends we're a democracy. Yet America more closely resembles the kind of "corporatism" that Laurence W. Britt wrote about five years ago in Free Inquiry magazine.
We adapted his historical analysis of 14 key traits for today's discussion. Notice how they have a huge impact your investments and retirement:
1. Wall Street rich get first priority
Think "bailout." Wall Street's greedy con game spins out of control globally. Millions of homeowners misled, lose. Who gets hundreds of billions first? Wall Street's con men.
2. National security obsession
Think of the expansion of executive powers in the name of national security: Preemptive wars, wiretapping private citizens, Gitmo, torture; driven by a dark wealthy neocon elite.
3. Superpower with massive military
Think of our $3 trillion Iraq/Afghan War. Disaster capitalists love the thrill of military power. We outspend all nations, over half the federal budget to strut before the world.
4. Extreme nationalism
Signs are everywhere: Flags, lapel pins, "support the troops" slogans, all to get huge military budgets passed. Challenge them and you're un-American and unpatriotic.
5. Rally the masses by scapegoating enemies
Think "axis of evil," mushroom clouds, "Islamofascists," more terrorist attacks on the homeland. Propaganda creates "enemies" in the public's mind and distracts from real issues.
6. Corruption and cronyism
Think earmarks, no-bid defense contracts, paid mercenaries outnumbering military in Iraq, superlobbyist Jack Abramoff, biofuels, bridge to nowhere, millions donated to campaigns.
7. Obsession with crime
Think of prison-building as just another investment opportunity, rather than focusing on reforming our criminal justice system. Stoke irrational fear of criminals and extremists.
8. Labor and low wages
Think corporate earnings versus the wages paid to workers. No "trickling down," leaves more for tricklers: Rich insiders, stockholders. Wages dropping as CEO salaries skyrocket.
9. Contempt for human rights
Think of abuses of habeas corpus, loss of right to trial, bogus charges, plus "demonizing" the victims, all in the name of national defense and homeland security.
10. Mass media manipulation
Think of leaking false information, Joseph Wilson, Valerie Plame, Scooter Libby, Colin Powell's United Nation's testimony, Condoleezza Rice's mushroom clouds, WMDs, all to suppress the truth.
11. Obsession with sexism
Think of paternalism, antigays, antiabortion, subordinate women -- then codify the system as the law of the land reinforcing a male-dominated society, punish violators.
12. Disdain for intellectuals
Think of conservative intellectuals Francis Fukuyama and Bill Buckley. Contrast them to Sarah Palin and Joe Sixpack conservatism, Bush's funding cuts for arts and science education.
13. Religion in government
Think of all the faith-based programs versus antiscience in drug approvals, creationism vs. evolution, Ten Commandments enshrined in public buildings, public money to churches.
14. Fraudulent elections
Think of police and prosecutorial intimidation and threats to voters, challenging minority voters, ballots disappearing, party election officials committing outright fraud.
Yes, officially America is still a democracy. We have enough signs and rituals to support that illusion. But the truth is America has become a plutocracy run by and for the wealthy. And since Wall Street's Disaster Capitalism coup de grace, we are rapidly morphing into a dangerous new government.
For more, read Britt's original article, then add comments here: Was the meltdown planned by Wall Street's Disaster Capitalists?
So When Will Banks Give Loans?
October 25, 2008
“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”
It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.
Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.
The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist. “Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.” Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. [Read entire article at:]
Bailout Expands to Insurers
Treasury to Take Stakes in Firms as Distress Spreads Beyond Banks
By David Cho, Binyamin Appelbaum and Zachary A. Goldfarb, Washington Post Staff
Saturday, October 25, 2008; A01
The Treasury Department is dramatically expanding the scope of its bailout of the financial system with a plan to take ownership stakes in the nation's insurance companies, signaling new concerns about a sector of the economy whose troubles until now have been overshadowed by the banking industry, government and industry sources said.
Insurers, including The Hartford, Prudential and MetLife, have pushed the Bush administration to include them in the plan. Many firms have taken losses from mortgage-related securities and other investments and are struggling to replenish their coffers.
Government officials worry that the collapse of a major insurer could further destabilize the financial system because of the crucial role the companies play in backstopping a wide range of financial transactions, although the direct impact on holders of car, life and other insurance policies would be modest, industry officials said.
The new initiative underscores the growing range of problems that Treasury is scrambling to address with the $700 billion allocated by Congress this month. The shape of the plan has changed repeatedly since Treasury Secretary Henry M. Paulson Jr. introduced it last month as an effort to rescue banks by buying their troubled mortgage-related assets. That original mandate has now been pushed aside by a plan to take equity stakes in banks and insurance companies, and other businesses are lobbying to be included.
The government has been forced to expand the plan partly because the federal guarantees previously given some institutions, such as banks, have put other companies and financial sectors at a disadvantage, making them less attractive to uneasy investors.
The government's power to choose winners and losers in the crisis was illustrated yesterday when the Cleveland-based bank National City was forced to sell itself when regulators turned down its request for a Treasury investment after deciding the firm was too weak to save, according to people familiar with the matter. Instead, the Treasury gave $7.7 billion to PNC Financial Services Group to help buy National City. It did not require that the money be used for new lending, the stated purpose of the government plan. PNC, which has a major presence in the Washington region, would become the fifth-largest bank in the country by deposits.
Treasury officials yesterday backed away from plans to publicize a new round of investments in about 20 large regional banks over concerns that firms not on the list would be perceived as unhealthy and punished by investors. Capital One of McLean, SunTrust of Atlanta and KeyCorp of Cleveland are among the banks that will receive government funding, according to people familiar with the matter. Other banks are now free to make their own announcements, as PNC did yesterday.
The cost of saving the country's largest insurer continues to rise. Senior managers at troubled insurance giant American International Group warned the Federal Reserve yesterday that the company would probably need more taxpayer money than the $123 billion in rescue loans the government has provided, according to two sources familiar with the private talks. [Read entire article at:]
Panel grills credit raters over inflated ratingsInternal docs show executives knowingly gave undeserved AAA ratings
The Associated Press
Thurs., Oct. 23, 2008
WASHINGTON - Executives and employees at the major credit ratings agencies were often aware of problems in the AAA grades awarded to thousands of mortgage-related securities whose downgrades helped plunge the nation into a financial meltdown.
At the same time, according to documents from the big credit ratings agencies presented at a House hearing Wednesday, pressure from bond and securities issuers translated into inflated ratings that put investors at risk. The companies — Standard & Poor, Moody’s and Fitch, Inc. — made enormous profits as they evaluated a ballooning number of mortgage-backed bonds, many of which were given top marks as long as housing prices went up.
In a presentation made to the Moody’s board of directors a year ago, top executive Raymond McDaniel warned that company employees sometimes “drink the Kool Aid” and gave in to pressure for undeservedly high ratings, even as the weaknesses of the mortgage-backed securities were becoming apparent.
The executive also warned that the issuers of mortgage-related securities awarded business to companies that produced inflated assessments and that other participants in the market wanted them as well.
“It turns out that ratings quality has surprisingly few friends: issuers want high ratings; investors don’t want ratings downgrades; shortsighted bankers labor shortsightedly to game the ratings agencies,” McDaniel told the Moody’s board.
“The story of the credit rating agencies is a story of colossal failure,” said Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee.
The California Democrat said, “Millions of investors rely on them for independent, objective assessments. The rating agencies broke this bond of trust, and federal regulators ignored the warning signs and did nothing to protect the public. The result is that our entire financial system is now at risk.”
The executives of the big credit ratings agencies testified that virtually no one predicted the plummeting values in the housing market and mortgage-related securities. They were caught unprepared when housing prices fell and their ratings models proved flawed. [Read entire article at:]
Crisis in prime mortgages on horizon
Posted Nov 03 2008,
by Todd Harrison
The private sector is actively engaging the mortgage crisis with the first broad-based, systemic attempt to prevent foreclosure. Both Bank of America and JPMorgan are attempting to help hundreds of thousands of troubled homeowners with massive loan modification efforts.
Regulators and bank executives are operating under the assumption that reducing foreclosures will slow record drops in home prices. In turn, this will help stabilize the financial system -- and, by extension, the economy as a whole. This logic isn't necessarily flawed -- but it's reactive, rather than proactive, which is what's most needed now.
Most foreclosures are concentrated in regions where homebuilders like Centex, KB Homes and Lennar built huge developments, using cheap financing to help fuel speculation and massive over-valuation. These areas, especially those where homes were purchased by lower income buyers, are being decimated by delinquencies and repossessions.
This, however, is widely known. What's less well-understood is the storm that’s brewing on the horizon: Trouble in the prime mortgage market -- where borrowers with good credit are starting to miss payments with alarming frequency -- is looming on the horizon.
Recent delinquency data indicates that while defaults on subprime loans are occurring at a less frenetic pace than in recent months, prime borrowers are starting to feel the pinch. In early September -- before the financial crisis accelerated in October -- the Mortgage Bankers Association released its quarterly delinquency data, concluding:
"The increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans. Thus the foreclosure start numbers will likely be increasingly dominated by prime ARM loans."
There is still a vast misconception that only “subprime” people maxed out credit cards, took out loans they couldn’t afford, and were generally reckless with their personal finances.
This couldn’t be further from the truth.
As the economic slowdown swirls outward into the broader economy, cracks are starting to form in established neighborhoods that have thus far experienced minimal home price depreciation. Many of these areas experienced stratospheric appreciation -- just as their subprime neighbors did -- but the strong job and stock markets insulated middle- and upper-middle income homeowners from rising interest payments and the slowing economy.
As mortgage underwriting requirements have tightened in recent months, home buying has slowed in these more well-to-do areas. This trend is being masked by spikes in the distressed sales driving broad housing market indicators.
As layoffs continue, homeowners in these areas will be forced to sell for the first time in years. The illiquidity in these markets means it will take just a few such sales to readjust prices dramatically downward. Homeowners that don’t sell by choice, particularly if they’ve accumulated equity in their homes, are apt to be less picky about their price.
Furthermore, it’s likely the recent onslaught of modification programs, tomorrow’s election, and pundits’ continued obsession to call a bottom in housing will encourage buyers to step back into the market. Increased sales transactions -- even if they continue to be concentrated in distressed areas -- will fuel the perception that the housing market is stabilizing.
This is likely to encourage a fresh round of selling, as anxious homeowners leap to take advantage of “improving” market conditions. This new supply won’t necessarily offset inventory that’s kept off the market by preventing foreclosures on a unit-to-unit basis; instead, the supply will simply crop up in different neighborhoods.
The subprime mortgage crisis may indeed be waning; its final battles are now being aggressively fought in Washington and bank boardrooms across the country. The prime wave, however, is just beginning to crest.
2 more banks go belly-up
Regulators close down Franklin Bank, a Houston bank with $5.1 billion in assets, and Security Pacific Bank of California, with assets of $561 million, raising the tally of failed banks this year to 19By Catherine Clifford, staff writer, and Tami Luhby, senior writer
Last Updated: November 8, 2008
NEW YORK ( -- The tally of failed banks in 2008 rose to 19 as the government announced that a Texas and a California bank had been shuttered Friday night.
Franklin Bank, a Houston, Texas-based bank and Security Pacific Bank, a Los Angeles, Calif.-based bank were shut down by state regulators Friday, marking the 18th and 19th bank failures this year.
Franklin Bank (FBTX) had total assets of $5.1 billion and total deposits of $3.7 billion as of Sept. 30, 2008, according to a statement on the Federal Deposit Insurance Corp.'s Web site.
Ironically, Lewis Ranieri, the 61-year-old co-founder and chairman of parent Franklin Bank Corp., is credited with inventing mortgage-backed securities two decades ago, the AP reported, back when he worked at Salomon Brothers, where he is a former vice chairman.
Franklin Bank Corp. just Sunday said it had received proposals for transactions to strengthen Franklin Bank's capital position and was keeping regulators informed of the talks' progress, according to the Associated Press.
Security Pacific Bank had total assets of $561.1 million and total deposits of $450.1 million as of October 17, 2008, according to the FDIC.
Prosperity Bank (PRSP), based in El Campo, Texas, will assume all of the deposits of the failed Texas bank, including those that exceed the insurance limit and brokered accounts. Depositors of the failed bank will automatically become depositors of Prosperity.
In addition to taking over the deposits of the failed Franklin Bank, Prosperity will purchase $850 million of assets. The FDIC will retain the remaining assets to dispose of later.
Pacific Western Bank of Los Angeles will assume all of the deposits of Security Pacific Bank and will purchase approximately $51.8 million of the assets. The FDIC will hold on to the remaining assets to dispose of later.
The failed Houston bank's 46 offices will open as branches of Prosperity under normal hours, including Saturday hours. The deal will give Prosperity more than 170 banking locations in Texas.
Security Pacific's four branches will reopen on Monday as branches of Pacific Western.
Customers of both banks should continue to use their existing branches, according to separate press releases on the FDIC's website. Dan Rollins, president of Prosperity Bank, in a statement said records will be fully integrated during the first quarter of 2009.
"The customers will be able to go about their business as usual; they will be able to access their money and use their ATM/debit card, Internet banking, bill pay service or other electronic banking services beginning Saturday morning," said Rollins.
Security Pacific customers can continue to access their funds via ATM, checks or debit cards, according to the FDIC.
In Friday's announcement about Franklin Bank, the FDIC said that the cost of its failure to the Deposit Insurance Fund will be between $1.4 billion and $1.6 billion.
Meanwhile, Security Pacific's failure, the third in California this year, will cost the FDIC $210 million. The FDIC said that for both banks, acquisition of their deposits was the least costly resolution.
Smaller regional banks have been under pressure as the financial crisis continues to take its toll.Prosperity Chief Executive David Zalman said in a statement that his bank was "committed to taking care of their existing and new customers during this volatile time in the financial industry."
A Quiet Windfall For U.S. Banks
With Attention on Bailout Debate, Treasury Made Change to Tax Policy
By Amit R. PaleyWashington Post Staff Writer
Monday, November 10, 2008; A01
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.
Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said.
The Treasury itself did not estimate how much the tax change would cost, DeSouza said. [Read entire article at:]
$700B Bailout Won't Be Used As Planned
November 12th, 2008
Associated Press
Paulson says troubled assets will not be purchasedBy Martin Crutsinger, AP Economics
WASHINGTON – Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned.
Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.
He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.
Paulson said that 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.
“This market, which is vital for lending and growth, has for all practical purposes ground to a halt,” Paulson said.
The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was “not the most effective way” to use the $700 billion bailout package, he said.
The announcement marked a major shift for the administration which had talked only about purchasing troubled assets as it lobbied Congress to pass the massive bailout bill.
Paulson said the administration is exploring other options, including possibly injecting more capital into banks on a matching basis, in which government funds would be supplied to banks that were able to raise money on their own.
The bailout money also should be used to support efforts to keep mortgage borrowers from losing their homes because of soaring default levels, he said.
A proposal to have part of the bailout funds used to guarantee mortgages that have been reworked to reduce monthly payments for borrowers is an approach the administration continues to discuss, but Paulson did not announce that it would be adopted. Federal Deposit Insurance Corp. Chairman Sheila Bair has pushed for that approach…
Suddenly it’s a bailout of and credit card debt and car and student loans? Oh, and to give people houses for free?This is insanity.
Socialist insanity.
No Bailout For Detroit
By Jon Christian Ryter
November 14, 2008,
Socialist President-elect Barack Hussein Obama who campaigned on message of "change," promising the downtrodden masses that he would be their Robin Hood—taking from the rich and giving to the working class. Instead, he has torn another page from the FDR playbook and is about to reincarnate sitting president George W. Bush into a 21st century Herbert Hoover, letting Bush take the blame for bailing out Detroit before he leaves office. This will allow Obama to take the socialist high ground and rail against Big Business Republicans, further damaging the GOP's chances of regaining seats in the midterm election of 2010.
Bush will try to cut a deal with Obama to save some of his executive decisions that he knows Obama will negate on January 20, 2009 during his first hour as the 44th President of the United States. Even though both Bush and Obama live in the world of the super elite where handshakes are more binding than signed contracts, the current president should realize that Obama is a consummate liar whose word is not his bond. Regardless what promises are made between the two in the sanctity and secrecy of the Oval Office, Obama will not keep any promises that contravenes the agenda he has planned for the first 100 days of his administration.
Obama, who let Sen. John McCain take the blame for the financial crisis that started with Obama's street advocacy in Chicago in 1992 when he strong-armed local banks to provide risky loans to minorities, threatening to brand the bankers as racists if they did not. Obama, as both a State Senator and a US Senator, worked with Fannie Mae executives to guarantee what would become known as "subprime loans," creating an industry that both the Clinton and Bush-43 Administrations latched onto in desperation as the US jobs-exports "industry" went into full swing as Detroit moved their plants from the American continent to China. Construction, not factory work, became the number one industry in the United States. Home construction created jobs. But newly-constructed homes needed to be sold.
It can honestly be said that Barack Hussein Obama, who strong-armed Illinois banks to provide risky mortgage loans to minority buyers who lacked credit standing, was instrumental in creating the subprime mortgage industry. The loans generated by Obama's street advocacy in the early 1990s were backed by Fannie Mae. Obama's advocacy in Illinois became the model for the subprime mortgage industry that was jump-started by Bill Clinton and continued, to its demise, under George W. Bush who ultimately got the blame for its collapse. The pitfall—loaning money to people with credit histories that show they will default on their loans—were concealed by the Congressional Black Caucus and the Democratic leadership which actually believes that people who refuse to work should be granted economic equality paid for by sweat equity of those who slave to provide a better life for their families.
On the top end of the handout scale, while Congress—which will not be back in town until next week—was on "election recess," the Democratic congressional leadership quietly met with Detroit automakers and agreed to funnel $25 billion of the $700 billion taxpayer-financed bank bailout to GM as General Motors stock plummeted to $3.36 per share.
Once the world's largest automaker, GM executives told House Speaker Nancy Pelosi [D-CA], House Majority Leader Steny Hoyer [D-MD], Fred Upton [R-MI] co-chairman of the Congressional Auto Caucus (the token Republican to make it a bipartisan effort) and other senior Democrats that they were going to have to lay off 5,500 workers almost immediately because the automaker said it feared they would run out of cash before the end of the year. (The bailout would give GM over $4.5 million per job saved.) And, to make the prospects even more dismal, GM warned that GM's "...future path is likely to be bankruptcy-like." (Perhaps GM could borrow from DiTech, their wholly-owned, cash-flush mortgage finance company.)
Even with the impassioned pleas of the Speaker of the House and Senate Majority Leader Harry Reid [D-NV] begging Bush to include the automaters in the Treasury's bailout program (which was conceived and enacted into law to stabilize banks which had gotten badly burned from the subprime mortgage business they were forced, by law, to underwrite), the Bush-43 Administration has resisted calls from the Democratic leadership to further indulge Ford, GM, and Chrysler. Bush-43 officials reminded the Democratic leadership that Detroit already received $25 billion in low-interest loans to "jump-start" the auto industry. What Bush should have given them was booster cables and a battery charger. (If you recall, GM and Ford both cried wolf in 2005 and again in 2006 because their profits slipped. GM claimed to have lost $10 billion because of rising healthcare costs. Screaming mass layouts both auto makers got top union officials to agree to wage cuts for current employees and both jettisoned healthcare coverage for retirees. When Vegas casino magnate Kirk Kerkorian bought 10% of GM's stock he commented that GM CEO Rick Wagoner had done a "...great job warehousing cash." When GM cried wolf the first and second time, they had over $50 billion in cash reserves.
That aside, let me pose a question. What would be your prospects of getting a loan from your friendly neighborhood bank if you walked in and told them you needed a loan because it was likely you were going to go bankrupt next year? I mean, if banks were still actually in the business of loaning money to ordinary citizens. Silly me. Instead of jumpstarting the economy with that $700 billion, the bailout money is being used by solvent banks to buy insolvent banks and get tax writeoffs that exceed the prices they paid for the failing banks. But then, back to my original question. The answer? Zero. Zip. Nada.
Let's take off the rose-colored glasses and look at this picture in stunning black and white. The US auto industry is failing because...well, it's no longer the US auto industry. It likes to call itself the American auto industry because it's an all-encompassing hemispheric "American" entity. The Big-3 has plants in Canada, Mexico and now, in South America. They claim their cars are all "American-made" when they are showcased in US dealerships because, being transnationalists, they no longer distinguish between the United States, Mexico and Canada—or Brazil and Argentina.
The world has become their global smorgasbord.
In an era of rising gas prices, Ford, GM and Chrysler failed to read the proverbial tea leaves. Failing to take a lesson from history when vehicle downsizing during gas crisis of the 1970s was the economic rule of thumb, Detroit (a euphorism for the auto industry even though almost no cars are made in the Motor City), did the opposite. It not only continued to build gas guzzling monster trucks and SUVs, it even made them bigger. As much as 80% of the inventories of Ford, GM and Dodge were extended cab pickup trucks and oversized SUVs. If you wanted a traditional passenger car without waiting six weeks for delivery you bought a Toyota, a Honda or a Hyundai—all of which are more "American" than the American car sitting in your driveway if that car was made in 1999 or later. In 2006 there were 7.6 million motor vehicles sold in the United States. Of those, 5.5 million—including Ford, Chrysler and GM—were imported under NAFTA regulations. What that means is that only 2.1 million of the vehicles that were purchased by US consumers were actually built in the United States by US labor. And, about 75% of those domestic cars and trucks were actually Japanese or Korean branded vehicles: Toyota, Honda and Hyundai.
So here's the $25 billion question. Why in the world should the US taxpayers bail out Detroit? There are virtually no jobs at stake because there are virtually no Ford, Chrysler or GM passenger cars or trucks made in the United States. If the Big-3 need a quick fix from government, they need to ask Beijing, Ottawa, Mexico City, Buenos Aires or Brasilia. If the governors in the states where what few Big-3 vehicles are built want to kick in State money to make Detroit's financial statements look better for investors by erasing the losses that stupid auto designers who decided to upsize their vehicles when the world was downsizing, caused, so be it. Those governors can answer to the voters in their States.
However, the American people—i.e., US citizens—should not be expected to bail out international companies who, collectively, have more money than those collective taxpayers. Unless, of course, there is a quid pro quo for the taxpayers. What quid pro quo? If GM wants a $25 billion bailout, here's the price: close down all manufacturing plants in China, Mexico, and Brazil and return those jobs to the United States. The same goes for Ford and Chrysler. Jobs for money. It sounds like a good idea to me.
Get the Stocks
Friday, November 14. 2008
Posted by Karl Denninger
Not the kind you buy on an exchange.
The kind you put in the public square.
This morning on CSPAN I watched Kashkari be asked repeatedly (under oath) whether or not there was an active person or group inside Treasury who was working on alternative plans to buying "distressed mortgage assets" prior to the plan's passage.
Kashkari never directly answered the question.
It was the most important question of the morning, because if that plan was in place before the bill was passed then what was represented to Congress by Paulson, Bernanke (and now we learn Cheney was in those meetings too) was less than truthful.
Paulson just skewered himself and Treasury on CNBC - he said that "by the time the bailout was passed buying distressed assets was no longer viable." (approx: 1:00 PM CT)
But Paulson did not come to Congress and tell them he inteneded to rip out entire portions of the bill and substitute other intentions before the bill was passed - even though he just said on national television that he knew that his original claimed strategy was not viable before the passage of the bill.
Congress, there's your answer to whether or not you were lied to.
We are left with one and only one question: are you going to act on this and protect the American people or not?
Washington's $5 Trillion Tab
Elizabeth Moyer, 11.12.08, 5:15 PM ET For all the fury over Treasury Secretary Henry Paulson's $700 billion emergency economic relief fund, it seems downright puny when compared to the running total of the government's response to the credit crisis.
According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system.
The estimate includes many of the various solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp., as the credit crisis continues to plague banks and the broader markets.
The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available.
The Fed also took on tens of billions in debt, including $29 billion in debt of Bear Stearns, and made $60 billion of credit available to American International Group. It is committing $22.5 billion to set up a special purpose vehicle to manage some of AIG's residential mortgage-backed securities, and it is financing $30 billion of a second fund to hold $70 billion of multi-sector collaterized debt obligations on which AIG wrote credit default swaps.
The Treasury, in addition to the $700 billion raised in the Emergency Economic Stabilization Act, agreed to guarantee money market funds against losses up to $50 billion, will inject $40 billion of capital into AIG and is backing the conservatorship of Fannie Mae and Freddie Mac, to the tune of $200 billion.
The FDIC, meanwhile, is guaranteeing $1.5 trillion of senior unsecured bank debt.
Not included in the total are the Fed's long-existing discount window lending to commercial banks, the mortgage modification plan announced by regulators on Tuesday, support for the Federal Home Loan Banks and a myriad of other programs.
Paulson and Bernanke have tried any number of ways to stop the free fall in housing prices and unfreeze the credit markets, with limited success. Rates that banks charge each other for three-month loans have dropped to 2.1% over the corresponding Treasury security, from their high of 4.8% in October. But lending is contracting as banks brace for rising credit costs and corporate borrowers hunker down.
The Treasury has turned its focus from attempting to buy troubled assets from banks, which was the original intent of the October Emergency Economic Stabilization Act, to injecting capital in the form of preferred equity stakes.
It started out with $125 billion worth of investments in eight major U.S. banks and has since expanded the program to an increasingly broad range of financial and nonfinancial companies. And with just $60 billion left of its initial $350 billion authorization under the emergency act, the Treasury faces a growing number of companies--including Detroit's automakers--begging for assistance.
David Hendler, an analyst at CreditSights, says it looks as if government is left holding the bag, and of course that translates into everyone.
"The losses have to be taken, but no one wants to take them," Hendler said at a conference Wednesday, speaking about the banks and their handling of troubled assets. "It seems like the taxpayers are going to be taking a good portion of that."
Lobbyists Swarm the Treasury for Piece of Bailout Pie
November 12, 2008
WASHINGTON — When the government said it would spend $700 billion to rescue the nation’s financial industry, it seemed to be an ocean of money. But after one of the biggest lobbying free-for-alls in memory, it suddenly looks like a dwindling pool.
Many new supplicants are lining up for an infusion of capital as billions of dollars are channeled to other beneficiaries like the American International Group, and possibly soon American Express.
Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington’s legal and lobbying establishment into a mad scramble.
The Treasury Department is under siege by an army of hired guns for banks, savings and loan associations and insurers — as well as for improbable candidates like a Hispanic business group representing plumbing and home-heating specialists. That last group wants the Treasury to hire its members as contractors to take care of houses that the government may end up owning through buying distressed mortgages.
The lobbying frenzy worries many traditional bankers — the original targets of the rescue program — who fear that it could blur, or even undermine, the government’s effort to stabilize the financial system after its worst crisis since the 1930s.
Among the most rattled are community bankers.
“By the time they get to the community banks, there may not be enough money left,” said Edward L. Yingling, the president of the American Bankers Association. “The marketplace is looking at this so rapidly that those who have the money first may have some advantage.”
Adding to the frenzy is the possibility that the next Congress and White House could change the rules further. President-elect Barack Obama has added his voice by proposing that the struggling automakers get federal aid, which could mean giving them access to the fund — something the Treasury secretary, Henry M. Paulson Jr., has resisted.
Despite the line outside its door, the Treasury is not worried about running out of money, according to a senior official. It has no plans to ask lawmakers to free the second $350 billion of the rescue package during the special session of Congress that could begin next week.
That could limit the pot of money available, at least until the next Congress is sworn in next January. Meanwhile, the list of candidates for a piece of the bailout keeps growing.
On Monday, the Treasury announced it would inject an additional $40 billion into A.I.G., amid signs that the government’s original bailout plan was putting too much strain on the company. American Express won approval Monday to transform itself into a bank holding company, making the giant marketer of credit cards eligible for an infusion.
Then there is the National Marine Manufacturers Association, which is asking whether boat financing companies might be eligible for aid to ensure that dealers have access to credit to stock their showrooms with boats — costs have gone up as the credit markets have calcified. Using much the same rationale, the National Automobile Dealers Association is pleading that car dealers get consideration, too.
“Unfortunately, I don’t have a lot of good news for them individually,” said Jeb Mason, who as the Treasury’s liaison to the business community is the first port-of-call for lobbyists. “The government shouldn’t be in the business of picking winners and losers among industries.” [Read entire article at:]
Continued at Financial Crunch! Economic Collapse! (Part 2) posted on 20 November 2008.

This is the onset of stagflation; the dreaded combo of a slowing economy and inflation.
Welcome to Bush’s 21st Century gulag; third world luxury in a
Guantanamo-type setting.