Friday, April 17, 2009

Financial Crunch! Economic Collapse! (Part 4)

******* *******
The Confidence Game in QuotesPosted by Tyler Durden
Wednesday, June 17, 2009
http://zerohedge.blogspot.com/2009/06/confidence-game-in-quotes.html
Austrian Filter has taken the time to put together all the relevant quotes over the past 2 years that demonstrate how profoundly Bernanke and Paulson have been misrepresenting (or simply misunderstanding) just how extensive the crisis we are in, is. One can only imagine why anyone would ever believe anything Ben Bernanke (or any other vapid disseminator of groundless optimism) has to say anymore, after two years of outright hyperbole and unfounded green shootery.
February 28, 2007 - Dow Jones @ 12,268March 13th, 2007 – Henry Paulson: “the fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained."
March 28th, 2007 – Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,"
March 30, 2007 - Dow Jones @ 12,354April 20th, 2007 – Paulson: "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained.", "All the signs I look at" show "the housing market is at or near the bottom," April 30, 2007 - Dow Jones @ 13,063
May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.” May 31, 2007 - Dow Jones @ 13,627
June 20th, 2007 – Bernanke: (the subprime fallout) "will not affect the economy overall.''
July 12th, 2007 – Paulson: "This is far and away the strongest global economy I've seen in my business lifetime."
August 1st, 2007 – Paulson: "I see the underlying economy as being very healthy,"
October 15th, 2007 – Bernanke: "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions."
February 14th, 2008 – Paulson: (the economy) "is fundamentally strong, diverse and resilient."
February 28th, 2008 – Paulson: "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."
February 29th, 2008 – Bernanke: "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."
March 16th, 2008 – Paulson: "We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."
March 18th, 2008 - Bear Stearns Bailout Announced
May 7, 2008 – Paulson: 'The worst is likely to be behind us,”
May 16th, 2008 – Paulson: "In my judgment, we are closer to the end of the market turmoil than the beginning," he said. May 30, 2008 - Dow Jones @ 12,638
June 9th, 2008 – Bernanke: Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned,
July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, "… in no danger of failing.","…adequately capitalized"
July 20th, 2008 – Paulson: "it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation." July 31, 2008 - Dow Jones @ 11,378
August 10th, 2008 – Paulson: ``We have no plans to insert money into either of those two institutions.” (Fannie Mae and Freddie Mac)
September 8th, 2008 - Fannie and Freddie nationalized. The taxpayer is on the hook for an estimated 1 - 1.5 trillion dollars. Over 5 trillion is added to the nation’s balance sheet.
September 16th, 2008 - $85 Billion AIG Bailout “Loan”
September 19th, 2008 - $700 Billion Bailout Plan Announced
September 19th, 2008 – Paulson: "We're talking hundreds of billions of dollars - this needs to be big enough to make a real difference and get at the heart of the problem," he said. "This is the way we stabilize the system."
September 19th, 2008 - Bernanke: "most severe financial crisis" in the post-World War II era. Investment banks are seeing "tremendous runs on their cash," Bernanke said. "Without action, they will fail soon."
September 21st, 2008 – Paulson: "The credit markets are still very fragile right now and frozen", "We need to deal with this and deal with it quickly.", "The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing."
September 23rd, 2008 – Paulson: "We must [enact a program quickly] in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses, both small and large, and the very health of our economy,"
September 23rd, 2008 – Bernanke: "My interest is solely for the strength and recovery of the U.S. economy,"
October 31, 2008 - Dow Jones @ 9,337
March 31, 2009 - Dow Jones @ 7,609
Austrian Filter conlcudes correctly: "If Bernanke and Paulson were doctors, and our economy was the patient, they would be in jail for malpractice."
*******
Lawmakers Invested in Bailed-Out Firms
Conflict-of-Interest Questions AriseBy Paul Kane and Carol D. Leonnig
Thursday, June 11, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/06/10/AR2009061002565.html?wpisrc=newsletter
Top House lawmakers had considerable holdings in major financial institutions that took billions of dollars in taxpayer bailouts at the end of last year, according to annual financial disclosure reports released yesterday.
From stock holdings to retirement funds to mortgages, more than 20 House leaders and members of the House Financial Services Committee had large personal stakes in the Wall Street powerhouses whose collapse last year led to an unprecedented government intervention in the marketplace. In some instances those lawmakers, like millions of other investors, sold their holdings at steep losses while others retained the stocks at greatly diminished value.
House Speaker Nancy Pelosi (D-Calif.) and her husband lost hundreds of thousands of dollars investing in American International Group, which has received $170 billion in government loans and cash injections, making it by far the largest recipient of federal bailout dollars. Republican Whip Eric Cantor (R-Va.) and his wife held stock, retirement plans and other investments worth at least $183,000 and as much as $495,000 in firms benefiting from federal government rescue efforts, including Goldman Sachs and Morgan Stanley.
At least 18 members of the House Financial Services Committee -- which oversees the banking and housing industries at the core of the economic meltdown -- held stock last year in firms that received federal bailout assistance, according to a review of the forms that were available yesterday.
The release of the annual disclosure forms was not scheduled to occur until tomorrow, but the House clerk's office briefly posted many of them online yesterday, apparently by accident. A firm called LegiStorm captured the data and posted them on its Web site. The Senate will release its forms tomorrow.
The disclosure forms require lawmakers to reveal a broad range of personal holdings and liabilities but not the precise value. Lawmakers are not required to disclose any information about their primary residence, only on rental properties that they own, and they do not have to reveal the terms of those mortgages. Also, Congress requires only that lawmakers list the place of employment and board memberships for spouses, not their annual salaries or director's fees received by spouses.
Some ethics watchdogs were critical of members of Congress for investing directly in companies they oversee. "You wonder if they're voting on things because it's good for the country or because it would increase their personal wealth," said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington.
But other legal experts said lawmakers, like thousands of other voters, are not receiving special treatment. "This illustrates one of the purposes of financial disclosure, and that is for the public to be able to judge whether they think that a particular interest creates at least an appearance of a conflict," said Robert L. Walker, the former chief counsel for the House and Senate ethics committees.
Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, co-authored the $700 billion bailout legislation and continues to oversee its implementation.
Frank is one of the few lawmakers who go beyond what the law requires, disclosing more than 145 pages of month-to-month statements from his accounts with Citigroup Global Markets. Frank does not invest directly in stocks, instead concentrating largely on state and local bonds, with a small amount directed into mutual funds.
Frank's personal portfolio broke about even for 2008 -- at about $1 million -- because of steady gains in bonds. In an interview yesterday, the self-proclaimed "regular Sam Adams" said others should heed his investment advice: "I get a steady 4.5 percent, and I help my state in the process. I'm a patriot, and I'm making money, too."
Other lawmakers were not so fortunate.
The Pelosi family lost between $100,000 and $1 million as AIG's stock tanked last year. Pelosi's husband reported a partial sale of between $1,000 and $15,000 of AIG stock on the last day of December 2008. For all their stocks and other investments, taking the most conservative estimate, the Pelosis lost at least $730,000 as stocks nose-dived and other investments soured, but they made up those losses in other investment gains.
Pelosi, whose husband, Paul, runs the San Francisco investment firm Financial Leasing Services, remains one of the wealthiest members of Congress. Her 22-page disclosure revealed investments in San Francisco condos, a Napa Valley vineyard, a hotel resort in Rutherford, Calif., and a San Francisco limousine business. She reports $100,000 to $1 million in income last year from grape sales at the vineyard.
Some members of the financial services panel also took a hit on companies that required federal bailout dollars. Rep. Thaddeus McCotter (R-Mich.), a member of the GOP leadership and booster of his state's imploding auto industry, watched his holdings in Chrysler plummet. His disclosure forms for the end of 2007 showed he had between $1,000 and $15,000 in company stock, which by the end of last year fell to between $1 and $1,000 in value. After receiving more than $10 billion in federal assistance late last year, Chrysler was guided into bankruptcy by the Obama administration, which helped engineer this week's sale of Chrysler to the Italian carmaker Fiat.
Rep. Carolyn B. Maloney (D-N.Y.) sold all her holdings in Morgan Stanley in March 2008, cashing out her stock for between $15,000 and $50,000 -- holdings that a year earlier were worth between $50,000 and $100,000, records show.
Staff writers Ben Pershing and Philip Rucker, research editor Alice Crites and staff researcher Madonna Lebling contributed to this report.
*******
Northwestern Mutual Makes First Gold Buy in 152 Years
By Andrew Frye
http://www.bloomberg.com/apps/news?pid=email_en&sid=ajf0L9wTPq6Y
June 1 (Bloomberg) -- Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.
“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”
Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.
“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”
Policyholder-owned Northwestern Mutual, based in Milwaukee, ranks third by 2008 life insurance premiums according to data from the National Association of Insurance Commissioners. The data excludes annuities.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net
*******
Japan's shadow finance minister wants single Asian currency
by Miwa Suzuki
May 31, 2009
Agence France-Presse
http://www.asiaone.com/News/Latest+News/Asia/Story/A1Story20090531-145078.html
TOKYO, May 31, 2009 (AFP) - The man who hopes to be Japan's next finance minister envisions an Asia united by a single currency, saying the dollar may no longer reign supreme in future.
The opposition's "shadow finance minister" Masaharu Nakagawa also says he hopes to reshape the world's number two economy into a kinder, gentler place if his Democratic Party of Japan (DPJ) wins elections this year.
"You can't invigorate society only through... the law of the jungle where the strong become stronger," he told AFP. "The same player would always win if there were no handicaps in golf."
Japan's conservative Prime Minister Taro Aso must call elections by September, when the DPJ hopes to topple his Liberal Democratic Party, which has been in power for almost all of the past half century.
In an interview with AFP, Nakagawa outlined some of the changes he would like to make if he becomes finance minister in Asia's largest economy, which is now in the throes of its worst post-World War II recession.
Looking at the broader region, he said Asia should tackle security and economic issues as "a unified community."
"Asian currencies should be unified into a common currency in the course of the region's forming a single economic zone," Nakagawa told AFP.
He did not give a timeframe, saying it would largely depend on economic and political developments in China.
Nakagawa said people must "take into account the possibility that the dollar might not function as the key currency any more in the medium and long term" as the world seeks a new order in the post-Cold War era.
Until an Asian common currency emerges, he said, "the Japanese government should make efforts to have the "Asia zone" use the yen, not the dollar, for trade settlements. It's time for Japan to launch this plan."
Japan's government could extend lending to the International Monetary Fund on condition that it is in yen while guaranteeing bonds by Asian countries if they are denominated in the Japanese currency, he said.
Nakagawa, who turns 59 in June, studied foreign affairs at Georgetown University in the United States in the 1970s. The father-of-four represents a constituency in central Mie prefecture.
He says he is a "generalist" rather than an economic expert.
Speaking more broadly on his vision for Japan, he said the country had followed the United States and its liberalism in the past, but the time had come for the nation to be "more Asian."
"Now is the time for Japan to say what kind of world it would like to create, not to adapt itself to the given circumstances as it has "- since its defeat in World World II, he said.
At home, Nakagawa's vision is in line with the goal of a "compassionate society" advocated by his new party boss, Yukio Hatoyama.
The DPJ has proposed slashing corporate taxes for small companies so that they have a better chance to compete.
The party has said it will spend 21 trillion yen (220 billion dollars) over the next two years to revive the economy, including the tax cuts, payouts for families with children, as well as scrapping expressway tolls.
Prime Minister Taro Aso's government plans spending of 15.4 trillion yen for the current business year to March 2010.
*******
Manipulation: How Financial Markets Really Work
by Stephen Lendman
Global Research, May 29, 2009
http://globalresearch.ca/index.php?context=va&aid=13773
Wall Street's mantra is that markets move randomly and reflect the collective wisdom of investors. The truth is quite opposite. The government's visible hand and insiders control markets and manipulate them up or down for profit - all of them, including stocks, bonds, commodities and currencies.
It's financial fraud or what former high-level Wall Street insider and former Assistant HUD Secretary Catherine Austin Fitts calls "pump and dump," defined as "artificially inflating the price of a stock or other security through promotion, in order to sell at the inflated price," then profit more on the downside by short-selling. "This practice is illegal under securities law, yet it is particularly common," and in today's volatile markets likely ongoing daily.
Why? Because the profits are enormous, in good and bad times, and when carried to extremes like now, Fitts calls it "pump(ing) and dump(ing) of the entire American economy," duping the public, fleecing trillions from them, and it's more than just "a process designed to wipe out the middle class. This is genocide (by other means) - a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts."
Fitts explains that much more than market manipulation goes on. She describes a "financial coup d'etat, including fraudulent housing (and other bubbles), pump and dump schemes, naked short selling, precious metals price suppression, and active intervention in the markets by the government and central bank" along with insiders. It's a government-business partnership for enormous profits through "legislation, contracts, regulation (or lack of it), financing, (and) subsidies." More still overall by rigging the game for the powerful, while at the same time harming the public so cleverly that few understand what's happening.
Market Rigging Mechanisms - The Plunge Protection Team
On March 18, 1989, Ronald Reagan's Executive Order 12631 created the Working Group on Financial Markets (WGFM) commonly known as the Plunge Protection Team (PPT). It consisted of the following officials or their designees:
-- the President;
-- the Treasury Secretary as chairman;
-- the Fed chairman;
-- the SEC chairman; and
-- the Commodity Futures Trading Commission chairman.
Under Sec. 2, its "Purposes and Functions" were stated as follows:
(2) "Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
(1) the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and
(2)....governmental (and other) actions under existing laws and regulations....that are appropriate to carry out these recommendations."
In August 2005, Canada-based Sprott Asset Management (SAM) principals John Embry and Andrew Hepburn headlined their report on the US government's "surreptitious" market interventions: "Move Over, Adam Smith - The Visible Hand of Uncle Sam" to prevent "destabilizing stock market declines. Comprising key government agencies, stock exchanges and large Wall Street firms," this group "is significant because the government has never admitted to private-sector membership in the Working Group," nor is it hinting that manipulation works both ways - to stop or create panic.
"Current mythology holds that (equity) prices rise and fall on the basis of market forces alone. Such sentiments appear to be seriously mistaken....And as official rhetoric continues to toe the free market line, manipulation has become increasingly apparent....with the active participation of selected investment banks and brokerage houses" - the Wall Street giants.
In 2004, Texas Hedge Report principals Steven McIntyre and Todd Stein said "Almost every floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seen the PPT in action in one form or another over the years" - violating the traditional notion that markets move randomly and reflect popular sentiment.
Worse still, according to SAM principals Embry and Hepburn, "the government's unwillingness to disclose its activities has rendered it very difficult to have a debate on the merits of such a policy," if there are any.
Further, "virtually no one ever mentions government intervention publicly....Our primary concern is that what apparently started as a stopgap measure may have morphed into a serious moral hazard situation."
Worst of all, if government and Wall Street collude to pump and dump markets, individuals and small investment firms can get trampled, and that's exactly what happened in late 2008 and early 2009, with much more to come as the greatest economic crisis since the Great Depression plays out over many more months.
That said, the PPT might more aptly be called the PPDT - The Plunge Protection/Destruction Team, depending on which way it moves markets at any time. Investors beware.
Manipulating markets is commonplace and as old as investing. Only the tools are more sophisticated and amounts involved greater. In her book, "Morgan: American Financier," Jean Strouse explained his role in the Panic of 1907, the result of stock market and real estate speculation that caused a market crash, bank runs, and hysteria. To restore confidence, JP Morgan and the Treasury Secretary organized a group of financiers to transfer funds to troubled banks and buy stocks. At the time, rumors were rampant that they orchestrated the panic for speculative profits and their main goals:
-- the 1908 National Monetary Commission to stabilize financial markets as a precursor to the Federal Reserve; and
-- the 1910 Jekyll Island meeting where powerful financial figures met in secret for nine days and created the private banking cartel Federal Reserve System, later congressionally established on December 23, 1913 and signed into law by Woodrow Wilson.
Morgan died early that year but profited hugely from the 1907 Panic. It let him expand his steel empire by buying the Tennessee Coal and Iron Company for about $45 million, an asset thought to be worth around $700 million. Today, similar schemes are more than ever common in the wake of the global economic crisis creating opportunities to buy assets cheap by bankers flush with bailout cash. Aided by PPT market rigging, it's simpler than ever.
Wharton Professor Itay Goldstein and Said Business School and Lincoln College, Oxford University Professor Alexander Guembel discussed price manipulation in their paper titled "Manipulation and the Allocational Role of Prices." They showed how traders effect prices on the downside through "bear raids," and concluded:
"We basically describe a theory of how bear raid manipulation works....What we show here is that by selling (a stock or more effectively short-selling it), you have a real effect on the firm. The connection with real value is the new thing....This is the crucial element," but they claim the process only works on the downside, not driving shares up.
In fact, high-volume program trading, analyst recommendations, positive or negative media reports, and other devices do it both ways.
Also key is that a company's stock price and true worth can be highly divergent. In other words, healthy or sick firms may be way-over or under-valued depending on market and economic conditions and how manipulative traders wish to price them, short or longer term.
The idea that equity prices reflect true value or that markets move randomly (up or down) is rubbish. They never have and more than ever don't now.
The Exchange Stabilization Fund (ESF)The 1934 Gold Reserve Act created the US Treasury's ESF. Section 7 of the 1944 Bretton Woods Agreements made its operations permanent. As originally established, the Treasury ran the Fund outside of congressional oversight "to keep sharp swings in the dollar's exchange rate from (disrupting) financial markets" through manipulation. Its operations now include stabilizing foreign currencies, extending credit lines to foreign governments, and last September to guaranteeing money market funds against losses for up to $50 billion.
In 1995, the Clinton administration used the fund to provide Mexico a $20 billion credit line to stabilize the peso at a time of economic crisis, and earlier administrations extended loans or credit lines to China, Brazil, Ecuador, Iceland and Liberia. The Treasury's web site also states that:
"By law, the Secretary has considerable discretion in the use of ESF resources. The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s....the Secretary (per) approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."
In other words, ESF is a slush fund for whatever purposes the Treasury wishes, including ones it may not wish to disclose, such as manipulating markets, directing funds to the IMF and providing them with strings to borrowers as the Treasury's site explains:
"....Treasury has often linked the availability of ESF financing to a borrower's use of the credit facilities of the IMF, both to support the IMF's role and to strengthen assurances that there will be timely repayment of ESF financing."
The Counterparty Risk Management Policy Group (CRMPG)
Established in 1999 in the wake of the Long Term Capital Management (LTCM) crisis, it manipulates markets to benefit giant Wall Street firms and high-level insiders. According to one account, it was to curb future crises by:
-- letting giant financial institutions collude through large-scale program trading to move markets up or down as they wish;
-- bailing out its members in financial trouble; and
-- manipulating markets short or longer-term with government approval at the expense of small investors none the wiser and often getting trampled.
In August 2008, CRMPG III issued a report titled "Containing Systemic Risk: The Road to Reform." It was deceptive on its face in stating that CRMPG "was designed to focus its primary attention on the steps that must be taken by the private sector to reduce the frequency and/or severity of future financial shocks while recognizing that such future shocks are inevitable, in part because it is literally impossible to anticipate the specific timing and triggers of such events."
In fact, the "private sector" creates "financial shocks" to open markets, remove competition, and consolidate for greater power by buying damaged assets cheap. Financial history has numerous examples of preying on the weak, crushing competition, socializing risks, privatizing profits, redistributing wealth upward to a financial oligarchy, creating "tollbooth economies" in debt bondage according to Michael Hudson, and overall getting a "free lunch" at the public's expense.
CRMPG explains financial excesses and crises this way:
"At the end of the day, (their) root cause....on both the upside and the downside of the cycle is collective human behavior: unbridled optimism on the upside and fear on the downside, all in a setting in which it is literally impossible to anticipate when optimism gives rise to fear or fear gives rise to optimism...."
"What is needed, therefore, is a form of private initiative that will complement official oversight in encouraging industry-wide practices that will help mitigate systemic risk. The recommendations of the Report have been framed with that objective in mind."
In other words, let foxes guard the henhouse to keep inventing new ways to extract gains (a "free lunch") in increasingly larger amounts - "in the interest of helping to contain systemic risk factors and promote greater stability."
Or as Orwell might have said: instability is stability, creating systemic risk is containing it, sloping playing fields are level ones, extracting the greatest profit is sharing it, and what benefits the few helps everyone.
Michel Chossudovsky explains that: "triggering market collapse(s) can be a very profitable undertaking. (Evidence suggests) that the Security and Exchange Commission (SEC) regulators have created an environment which supports speculative transactions (through) futures, options, index funds, derivative securities (and short-selling), etc. (that) make money when the stock market crumbles....foreknowledge and inside information (create golden profit opportunities for) powerful speculators" able to move markets up or down with the public none the wiser.
As a result, concentrated wealth and "financial power resulting from market manipulation is unprecedented" with small investors' savings, IRAs, pensions, 401ks, and futures being decimated from it.
Deconstructing So-Called "Green Shoots"Daily the corporate media trumpet them to lull the unwary into believing the global economic crisis is ebbing and recovery is on the way. Not according to longtime market analyst Bob Chapman who calls green shoots "Poison Ivy" and economist Nouriel Roubini saying they're "yellow weeds" at a time there's lots more pain ahead.
For many months and in a recent commentary he refers to "the worst financial crisis, economic crisis and recession since the Great Depression....the consensus is now becoming optimistic again and says that we are going to go from minus 6 percent growth to positive growth in the second half of the year....my views are much more bearish....The problems of the financial system are severe. Many banks are still insolvent."
We're "piling public debt on top of private debt to socialize the losses; and at some point the back of (the) government('s) balance sheet is going to break, and if that happens, it's going to be a disaster." Short of that, he, Chapman, and others see the risks going forward as daunting. As for the recent stock market rise, they both call it a "sucker's rally" that will reverse as the US economy keeps contracting and the financial system suffers unexpected or manipulated shocks.
Highly respected market analyst Louise Yamada agrees. As Randall Forsyth reported in the May 25 issue of Barron's Up and Down Wall Street column:
"It is almost uncanny the degree to which 2002-08 has tracked 1932-38, 'Yamada writes in her latest note to clients.' " Her "Alternate Hypothesis" compares this structural bear market to 1929-42:
-- "the dot-com collapse parallels the Great Crash and its aftermath," followed by the 2003-07 recovery, similar to 1933-37;
-- then the late 2008 - early March 2009 collapse tracks a similar 1937-38 trajectory, after which a strong rally followed much like today;
-- then in November 1938, the market dropped 22% followed by a 26% rise and a series of further ups and downs - down 28%, up 23%, down 16%, up 13%, and a final 29% decline ending in 1942;
-- from the 1938 high ("analogous to where we are now," she says), stock prices fell 41% to a final bottom.
Are we at one today as market touts claim? No according to Yamada - top-ranked among her peers in 2001, 2002, 2003 and 2004 when she worked at Citigroup's Smith Barney division. Since 2005, she's headed her own independent research company.
She says structural bear markets typically last 13 - 16 years so this one has a long way to go before "complet(ing) the repair process." She calls the current rebound "a bungee jump," very typical of bear markets. Numerous ones occurred during the Great Depression, 8 alone from 1929 - 1932, some deceptively strong.
Expect market manipulators today to produce similar price action going forward - to enrich themselves while trampling on the unwary, well-advised to protect their dollars from becoming quarters or dimes.
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday - Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.
*******
Grand Theft Auto: The Bankruptcy of General Motorsby Greg Palast
June 1, 2009
http://globalresearch.ca/index.php?context=va&aid=13812
Grand Theft Auto: How Stevie the Rat bankrupted GMScrew the autoworkers.
They may be crying about General Motors' bankruptcy today. But dumping 40,000 of the last 60,000 union jobs into a mass grave won't spoil Jamie Dimon's day.
Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders - led by Morgan and Citibank - expect to get back 100% of their loans to GM, a stunning $6 billion.
The way these banks are getting their $6 billion bonanza is stone cold illegal.
I smell a rat.
Stevie the Rat, to be precise. Steven Rattner, Barack Obama's 'Car Czar' - the man who essentially ordered GM into bankruptcy this morning.
When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what's left. That's the law. What workers don't lose are their pensions (including old-age health funds) already taken from their wages and held in their name.
But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi.
Here's the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replace by GM stock. The percentage may be 17% of GM's stock - or 25%. Whatever, 17% or 25% is worth, well ... just try paying for your dialysis with 50 shares of bankrupt auto stock.
Yet Citibank and Morgan, says Rattner, should get their whole enchilada - $6 billion right now and in cash - from a company that can't pay for auto parts or worker eye exams.
Preventive Detention for PensionsSo what's wrong with seizing workers' pension fund money in a bankruptcy? The answer, Mr. Obama, Mr. Law Professor, is that it's illegal.
In 1974, after a series of scandalous take-downs of pension and retirement funds during the Nixon era, Congress passed the Employee Retirement Income Security Act. ERISA says you can't seize workers' pension funds (whether monthly payments or health insurance) any more than you can seize their private bank accounts. And that's because they are the same thing: workers give up wages in return for retirement benefits.
The law is darn explicit that grabbing pension money is a no-no. Company executives must hold these retirement funds as "fiduciaries." Here's the law, Professor Obama, as described on the government's own web site under the heading, "Health Plans and Benefits."
"The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits."
Every business in America that runs short of cash would love to dip into retirement kitties, but it's not their money any more than a banker can seize your account when the bank's a little short. A plan's assets are for the plan's members only, not for Mr. Dimon nor Mr. Rubin.
Yet, in effect, the Obama Administration is demanding that money for an elderly auto worker's spleen should be siphoned off to feed the TARP babies. Workers go without lung transplants so Dimon and Rubin can pimp out their ride. This is another "Guantanamo" moment for the Obama Administration - channeling Nixon to endorse the preventive detention of retiree health insurance.
Filching GM's pension assets doesn't become legal because the cash due the fund is replaced with GM stock. Congress saw through that switch-a-roo by requiring that companies, as fiduciaries, must
"...act prudently and must diversify the plan's investments in order to minimize the risk of large losses."By "diversify" for safety, the law does not mean put 100% of worker funds into a single busted company's stock.
This is dangerous business: The Rattner plan opens the floodgate to every politically-connected or down-on-their-luck company seeking to drain health care retirement funds.
House of RubinPensions are wiped away and two connected banks don't even get a haircut? How come Citi and Morgan aren't asked, like workers and other creditors, to take stock in GM?
As Butch said to Sundance, who ARE these guys? You remember Morgan and Citi. These are the corporate Welfare Queens who've already sucked up over a third of a trillion dollars in aid from the US Treasury and Federal Reserve. Not coincidentally, Citi, the big winner, has paid over $100 million to Robert Rubin, the former US Treasury Secretary. Rubin was Obama's point-man in winning banks' endorsement and campaign donations (by far, his largest source of his corporate funding).
With GM's last dying dimes about to fall into one pocket, and the Obama Treasury in his other pocket, Morgan's Jamie Dimon is correct in saying that the last twelve months will prove to be the bank's "finest year ever."
Which leaves us to ask the question: is the forced bankruptcy of GM, the elimination of tens of thousands of jobs, just a collection action for favored financiers?
And it's been a good year for SeƱor Rattner. While the Obama Administration made a big deal out of Rattner's youth spent working for the Steelworkers Union, they tried to sweep under the chassis that Rattner was one of the privileged, select group of investors in Cerberus Capital, the owners of Chrysler. "Owning" is a loose term. Cerberus "owned" Chrysler the way a cannibal "hosts" you for dinner. Cerberus paid nothing for Chrysler - indeed, they were paid billions by Germany's Daimler Corporation to haul it away. Cerberus kept the cash, then dumped Chrysler's bankrupt corpse on the US taxpayer.
("Cerberus," by the way, named itself after the Roman's mythical three-headed dog guarding the gates Hell. Subtle these guys are not.)
While Stevie the Rat sold his interest in the Dog from Hell when he became Car Czar, he never relinquished his post at the shop of vultures called Quadrangle Hedge Fund. Rattner's personal net worth stands at roughly half a billion dollars. This is Obama's working class hero.
If you ran a business and played fast and loose with your workers' funds, you could land in prison. Stevie the Rat's plan is nothing less than Grand Theft Auto Pension.
It doesn't make it any less of a crime if the President drives the getaway car.
*******
US Dollar Hegemony over China and Russia
by Bob Chapman
Global Research, May 30, 2009
http://globalresearch.ca/index.php?context=va&aid=13781
The Chinese and Russians are the laughing stock of the US and European Illuminists at the G-20 meetings concerning talk about a new world reserve currency to supplant the dollar. With China's gold reserves of about a thousand tons and Russia's five hundred tons, they are like penny ante poker players trying to get in on a thousand dollar ante game. They need five to ten thousand tons of gold reserves just to be an average player in "The Big Game," much less a leading and influential player. The rest of their foreign exchange reserves are denominated in fiat currencies, which are all practically worthless except for the euro and Swiss franc. The euro has about 5% backing of gold and the Swiss could have 25% backing if they again desired gold backing. China has about two trillion dollars worth of foreign exchange reserves, while Russia has about 400 billion dollars worth. It does not take a math genius to figure out that two trillion times nothing is still nothing. They are creditors who hold worthless bonds and notes. Big deal. Their only trump card is that they can make gold skyrocket and the dollar tank before the Illuminists are ready to take our financial system down. This is where their real leverage lies.
The talk about yuan and rubles as part of a world currency basket is just noise, like a bunch of clanging cymbals making cacophonous sounds, because they have very little gold backing. At best, unless China and Russia add many thousands of tons of gold to their reserves to back up their currencies, the yuan and ruble will get some regional play, as a run-up to a world currency. This is just hubris to distract us from the true agenda, which is the formation of a single world currency.
While gold suppression is the Fed and the US Illuminists' number one priority, it is not their number one problem. So what is their primary problem? It is how to transition from the dollar to a world currency without losing too much of the powers and privileges that can only be attained by having sole control over the world's reserve currency. They can't figure out how to share this power with the other Illuminist enclaves in setting up a new world currency without substantially reducing their own power. This is a conundrum for them.
China and Russia are both well aware that they must acquire substantially more gold if they want to have any say on the matter of a world currency. The trick is, how to acquire new gold reserves without sending gold on a moon-shot or causing harm to the dollar by dumping dollars for gold. This is the opposite of what the Fed and US Treasury want, at least for now, until they are ready to take the system down to pave the way for a world currency and a one world government. So the Chinese and Russians are now at loggerheads with the US and European Illuminists. What China and Russia need to do in their own best interests is an anathema to the Fed and the US Treasury. This may explain the IMF gold sale rumors. China wants more gold, and this would be a way to grab a large chunk without running the gold price up, which would make the Fed go ballistic.
The US and European Illuminists are also in a cat fight, because the European enclave controls more gold than the US elitists, so naturally they do not believe that the system of dollar hegemony, and all the privileges that go with it, should be continued any longer.
You might be tempted to think that, in reality, the US gold reserves and, for that matter, central bank gold reserves around the world, are not what the central banks claim them to be, due to leasing and outright sales, so the US and European Illuminists are in no better position than the Chinese and Russians with respect to the debate about a new world reserve currency. You would be dead wrong if you thought that. Why, you might ask? Let's discuss that.
Never mind that the roughly eight thousand tons of US gold is stolen or hypothecated, because the US and European Illuminists stole a large portion of it, or they bought it at fire-sale prices and still have it in their secret vaults in Switzerland and off-shore in safe-haven countries. Who do you think was doing all the buying during the London Gold Pool of the late 1960's, just for starters, which was fueled by Fort Knox gold provided courtesy of President Johnson, who was an elitist bootlicker and one of the most evil men of the 20th century? Why do you think US coin melt from the Depression is showing up in London gold vaults? Rumors still abound that the Rockefellers, with President Johnson's help, stole a large portion of the Fort Knox gold during the London Gold Pool days, and those rumors could well be true based on what we have heard from some of our subscribers who used to work at Fort Knox. Could that explain why one of Rockefeller's secretaries, who blabbed about them acquiring some of the US gold, "accidentally" fell out of a high rise building? Could it be that President Johnson was grateful for Rockefeller's help in eliminating the pesky President Kennedy when he tried to put their precious Fed out of business via Executive order 11110? We'll let our subscribers decide!
The same is true for the European gold holdings and the holdings of other central banks around the world, which are a fraction of what they claim, perhaps with as little as five thousand tons remaining out of some thirty thousand tons officially claimed by all central banks, including the privately owned US central bank, the Fed, via its so-called gold certificates, which are claims on the US Treasury gold. Rest assured that much of this gold was leased out and sold not just to jewelers, but to the US and European Illuminists as well. In addition, much of this central bank gold was either pilfered outright, or was virtually given away by people like Gordon Brown of England, the King of Fire-Sale Gold, who sold half of the UK national gold reserves to the Rothschilds and other Illuminists at the bottom of the gold market. The remainder of the UK gold reserves is probably leased out and gone to oblivion like the US gold. The people in the UK are minus eight billion and counting on that one, while the Rothschilds are on the plus side of that equation.
And who do you think were buying a large portion of the gold sold under the Washington Agreement and its various renewals? We'll give you three guesses.
And who owns all the secret gold that has been stolen in various wars, conquests, pogroms, genocides and religious inquisitions over the many centuries, that don't show up in the World Gold Council's figures? And who owns all the scrap gold that was melted down in the last gold craze of the late 1970's and early 1980's for which no records were kept? And who owns all the old investment gold held by families of old wealth that was secretly moved from the US to Europe after the Great Depression on a tip-off from FDR that he was going to render gold ownership illegal in the US. They got a nice profit when FDR bumped the gold price from $20 an ounce to $35 dollars an ounce, didn't they? Who owns all this unaccounted for gold. Again, we'll give you three guesses. We can assure you that it is more than the 2% unaccounted for by the World Gold Council.
Then there is the 26,500 tons of gold which the World Gold council allocates to private investment. Just who do you think most of those private investors are anyway? They are US and European Illuminists, that's who. They own tens of thousands of tons. Either they own it, or their central banks own it. The US and European Illuminists can shuffle their gold back and forth between themselves and their central banks as they see fit, since none of them are ever meaningfully audited. So if the Chinese and Russians want to play in this high stakes game, they need to buy lots of gold, and very quickly. The window of opportunity to buy gold on the cheap has already closed. Hyperinflation is on its way. They are too late to the cheap gold party. Buy gold now, before China and Russia try to accrue the amount of the gold required to ante up in "The Big Game" so they can have a say on the new world economy that will emerge in the aftermath of the current catastrophe.
China is caught in a dollar trap. If they try to unload dollars, they destroy the remainder of their holdings, so they have to keep vacuuming up a large portion of the dollars that are being dumped in the form of treasury bonds to support criminal zombie bank bailouts and rampant socialistic welfare spending which the US government euphemistically calls a stimulus package. If China doesn't keep sucking up dollars, the US will have to monetize more and more treasury bonds to "save the economy," which is another euphemism for the socialization of Wall Streets losses courtesy of the US taxpayer. The top 19 banks, including the legacy banks, get all the money they want to shore up balance sheets and to take over the smaller fry, while the smaller fry get nothing, not even loans from the larger criminal zombie institutions who can't wait until they fail so they can absorb them at pennies on the dollar. The Fed now determines which financial institutions live or die by bestowing taxpayer largesse on who they may, but heaven forbid that they should have to account for what they are doing with that largesse. We need to audit and end the Fed, just as Ron Paul has requested via new legislation that is getting ever more sponsors.
China and Russia are in a very poor position monetarily, at least as bad as Europe and the US, perhaps even worse. They have no business pushing their weight around when their gold reserve holdings are inconsequential. So what if they are creditors. The debts owed to them are denominated mostly, or at least substantially, in dollars, which are becoming ever more worthless as Emperor Obama throws lavish dollar bailout parties for the rich bankers and the social welfare recipients, while the middle class and non-anointed upper class, which could reduce the ensuing inflation caused by these lavish dollar parties via increased production, are given token relief.
China has tens of millions of young men out of work, and if the US dollar, US treasuries and US economy go down, and inflation shows its ugly head due to dollar dumping and/or US treasury-shunning, we can assure you that the US consumers' demand for Chinese goods will drop off a cliff. You haven't seen anything yet when it comes to reductions in consumer demand. Wait until hyperinflation and double digit interest rates hammer the world economy. When the US consumer finally goes south for the last time, this will put tens of millions more out of work in China, and there will be violence and revolution if that happens. De-coupling is a myth that has been thoroughly shattered.
While China is in a dollar trap, Russia is in an oil trap. The Illuminati still control the price of oil, so Russia is at their mercy as well. There recent financial market experience was an absolute disaster as oil tanked. Their markets were a shambles, and had to be closed down many times to stop panic selling and to control speculative short-selling. They had to spend down a large portion of their reserves to support the ruble and their financial markets. They are hardly in a position to dictate terms regarding a world currency. If they try to bully Europe with natural gas, this will backfire. The price of oil will then drop to $15 a barrel.
Why are we paying interest to the Fed on money that is being created out of thin air to save the privately owned Fed itself, as well as its member institutions, which are receiving interest themselves from the Fed on the taxpayer money being loaned to them to shore up their balance sheets so they can continue to function without being shut down? We're paying interest while they're earning interest? Does that sound fair to you? Talk about moral hazard! And these are the same institutions that have conspired with the Fed to destroy our financial system to make way for a one world government, which is a euphemism for an Orwellian police state. We are certainly not paying this interest to ourselves as the media morons would have us believe, but to the anointed Illuminist financial institutions, which continue to privatize profits even while losses are being socialized to bail them out. The common and preferred stock which taxpayers own in these companies is worthless, a fact which is being covered up and hidden from investors by use of deceitful financial statements that allow assets, with the blessing of our "regulators," to be carried at mark-to-model values, meaning that these assets are whatever the criminal zombie financial institutions say they are. So, America, you will never collect a penny from any of these stocks, which are all worthless because trillions in losses are being hidden until such time as these institutions are allowed to fail so we can have one big honking central bank that makes the Fed look like a pipsqueak. So much for paying interest to ourselves. This is nothing less than outrageous, and Congress had better put a stop to this soon, end the Fed, and start issuing interest free currency via our Treasury, or they will suffer the wrath of the American people.
*******
*******
IRS tax revenue falls along with taxpayers' income
By John Waggoner, USA TODAY
30 May 2009
http://www.usatoday.com/money/perfi/taxes/2009-05-26-irs-tax-revenue-down_N.htm
Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says.
When the economy slumps, so does tax revenue, and this recession has been no different, says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been."
For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago.
"These are staggering numbers," Lynch says.
Big revenue losses mean that the U.S. budget deficit may be larger than predicted this year and in future years.
"It's one of the drivers of the ongoing expansion of the federal budget deficit," says John Lonski, chief economist for Moody's Investors Service. The Congressional Budget Office projects a $1.7 trillion budget deficit for fiscal year 2009.
The other deficit driver is government spending, which, the AIER's report says, is the main culprit for the federal budget deficit.
The White House thinks that tax revenue will increase in 2011, thanks in part to the stimulus package, says the report from AIER, an independent economic research institute. But it warns, "Even if that does happen, the administration also projects that government spending will be so much higher each year that large deficits will continue, and the national debt held by the public will double over the next 10 years."
The government may have a hard time trimming spending to reduce the deficit when the recession ends. The 77 million Baby Boomers— those born in 1946 through 1964 — will start tapping their federal retirement benefits soon, which means increased government outlays for Social Security and Medicare.
"It will be doubly difficult for federal government to reduce expenditures and narrow the deficit as rapidly as they did following previous recessions," Lonski says. At the end of the last major recession, in 1981, Boomers were in their 30s. Their incomes were expanding, as was their appetite for goods and services.
The Boomers now are in their 50s and 60s and unlikely to keep increasing incomes for long, which means that revenue from income taxes could flatten in the next few years. Also, Lonski says, they are more likely to save for retirement than spend — and consumer spending is a big driver of the economy.
"The American consumer led us out of previous recessions with some semblance of gusto," Lonski says. "They're too old to do it now."
*******
Leap in US debt hits taxpayers with 12% more red inkBy Dennis Cauchon, USA TODAY
29 May 2009
http://www.usatoday.com/news/washington/2009-05-28-debt_N.htm
Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.
The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.
That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.
The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.
"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.
USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.
Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.The numbers measure what's needed today — set aside in a lump sum, earning interest — to pay benefits that won't be covered by future taxes.
Congress can reduce or increase the burden by changing laws that determine taxes and benefits for programs such as Medicare and Social Security.
Rep. Jim Cooper, D-Tenn., says exploding debt has focused attention on the government's financial challenges. "More and more, people are worried about our fiscal future," he says.
Key federal obligations:
Social Security. It will grow by 1 million to 2 million beneficiaries a year from 2008 through 2032, up from 500,000 a year in the 1990s, its actuaries say. Average benefit: $12,089 in 2008. • Medicare. More than 1 million a year will enroll starting in 2011 when the first Baby Boomer turns 65. Average 2008 benefit: $11,018.•Retirement programs. Congress has not set aside money to pay military and civil servant pensions or health care for retirees. These unfunded obligations have increased an average of $300 billion a year since 2003 and now stand at $5.3 trillion.
*******
U.S. Expected to Own 70% of Restructured G.M.
By MICHELINE MAYNARD and DAVID E. SANGER
May 27, 2009
http://www.nytimes.com/2009/05/27/business/27auto.html?_r=2&hp
*******

*******
DETROIT — In better times, many employees of General Motors called their company “Generous Motors” because of its rich benefits.
Now G.M. may stand for something else: Government Motors.
The latest plan for the troubled automaker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 percent of a restructured G.M.
Including the more than $20 billion that has already been spent to prop up G.M., the government will provide G.M. at least $50 billion to get the company through Chapter 11, people with direct knowledge of the situation said Tuesday. By some estimates in Detroit, tens of billions beyond that amount may be required.
The United Automobile Workers, meanwhile, will hold up to 20 percent through its retiree health care fund, and bondholders and other parties will get the remaining share. Shareholders would be virtually wiped out.
Although it has been clear for weeks that Treasury would have a majority stake of a reconstituted G.M., a 70 percent share — a figure that could still change — is higher than what had been expected.
The prospect of a G.M. effectively owned by the government raises a number of thorny questions. Countless policy decisions — on matters such as fuel economy standards, tax incentives to replace aging cars and green technology initiatives — will present conflicting interests.
For example, with $30 billion invested in G.M. and Chrysler thus far, would the government tip the scales in favor of those companies when buying vehicles for its fleets? Will Ford find itself at a disadvantage, since it has turned down federal money?
There are cultural challenges, too. Can the government help turn around a company known for its bureaucratic approach to business?
Aides to President Obama have consistently said they would be reluctant shareholders, and they plan no operating role in the company.
“No one is going to put U.S. government employees on the G.M. board,” one person close to the ongoing discussions said on Tuesday.
The day-to-day running of the firm, this person said, would be left to professional managers, and the government would not be involved in decisions about closing factories, renegotiating contracts or selecting product lines.
But that may not be so easy. Already, members of Congress have been calling Steven Rattner and Ron Bloom, who are running the auto task force, to complain about the closing of Chrysler and G.M. dealerships in their states.
As factories close or move, those calls most likely will grow more intense, in part because members of Congress will have a hard time explaining to constituents how the government could own 70 percent of the company and still have no control over deciding which factories stay open and which are closed.
Mr. Obama’s representatives may also feel compelled to weigh in on the design of new models to achieve his goals for greater fuel efficiency and lower emissions.
“Every decision down to what material is used in the bumpers will be seen, rightly or wrongly, as government-influenced,” said one person who was a consultant to Mr. Obama’s task force. But clearly the administration will have oversight to select or remove management as it already had in ousting Rick Wagoner as chief executive in March.
Back in December, Mr. Obama, as the president-elect, suggested that he wanted to avoid an uncontrolled bankruptcy. Now, only five months later, his White House is embracing it as a highly efficient solution, given the quick if painful bankruptcy of Chrysler.
“G.M. is a more complicated company,” said one person familiar with the government’s strategy discussions with G.M. “It is global, and much bigger. Every day we come upon a question with G.M. that didn’t exist in Chrysler, which is a pretty simple company.”
While G.M.’s aid does not approach the $180 billion that American International Group received from the government, the tab dwarfs the $18 billion that Mr. Wagoner estimated the company would need last year when he appeared before Congress.
The government plan calls for the creation of a new G.M., with its better assets like Cadillac and Chevrolet, that might emerge from bankruptcy by the end of the summer. The rest of G.M. would be sold or liquidated in a process that could take much longer.
As recently as last month, G.M. said in a regulatory filing that it expected the U.A.W.’s health care trust, called a Voluntary Employee Beneficiary Association, or VEBA, to receive 39 percent of the company, bondholders 9 percent, shareholders one percent, and the rest going to the Treasury.
The U.A.W. negotiated a bigger stake at Chrysler, with a retiree health care trust expected to own 55 percent of the company once it emerges from bankruptcy.
The union made clear to its members Tuesday that its leverage with G.M. was limited.
“Without government financial assistance, G.M. would surely fail, with devastating consequences including massive plant closures and a probable liquidation of the company,” the U.A.W. told its members. Bondholders, who hold $27 billion in G.M. debt, were unhappy with the plan because it gave them a much smaller stake than the U.A.W. trust, to which G.M. owes $20 billion.
Bondholders finished voting early Wednesday, and G.M. said later that not enough of them had agreed to a debt swap. G.M. said it needed 90 percent to accept, or otherwise it would file for bankruptcy.
Despite their protests, some legal experts say that G.M. and the government are likely to prevail in bankruptcy court because the company would not be alive today without its loans.
“It is unfair treatment, and I think the bondholders are being discriminated against,” said Evan D. Flaschen, chairman of the financial restructuring group at the law firm Bracewell & Giuliani. “But the government has also put in more than $15 billion into G.M., so in a real sense it’s theirs to allocate.”
Meanwhile, union members are voting on a sweeping series of contract changes similar to those already approved at Ford and Chrysler. Under them, U.A.W.’s trust would receive 17.5 percent of G.M., and a warrant equal to another 2.5 percent of G.M. at a later time.
The union also is receiving an additional $9 billion in a note from G.M. and preferred stock in the new company, to go with its other shares, which it conceded the fund might not be able to sell for years.
Separately, a federal district court judge denied on Tuesday a motion in Chrysler’s bankruptcy case, filed by three Indiana state funds, that would have effectively derailed the company’s pending sale to Fiat.
*******
On Obama's Chopping Block: It's The Turn of General MotorsThe greatest single attack on American workers since the Great Depression
By Shamus Cooke
URL of this article: www.globalresearch.ca/index.php?context=va&aid=13703
Global Research, May 22, 2009
The alarm bells should be ringing day and night about what's being prepared at General Motors — the ripple effects could produce tidal waves.
The Obama administration has made no secret about its plans for GM: the Chrysler bankruptcy was the “test case,” and now Obama's Wall Street buddies inside the Auto Task Force plan to replicate it. The vast implications of the Chrysler bankruptcy went unnoticed by the mainstream media, concerned as it was with the convenient hype provided by Swine Flu.
The real swine, however, are those preparing the greatest single attack on American workers since the Great Depression, the precedent of which will reverberate loudly through business-labor relations in the country — that is, if workers at GM and its parts suppliers don't put a stop to it.
Why was Chrysler so important? Most significant was the fact that workers were scared into accepting large wage and benefit reductions. They were told by the U.A.W. “leaders” that, unless workers conceded to accepting the wages and benefits of non-union workers, bankruptcy would be unavoidable. The workers conceded, and the very next day it was announced that the company was headed towards bankruptcy. It is unimaginable that Gettlefinger and the other U.A.W. leaders did not know this was coming, since they spend considerable time back-slapping with Obama.
This is but one of a long list of treacheries provided by a Gettlefinger-led U.A.W. and his obsession with making GM a better “global competitor.” Just as in 2007, autoworkers were scared into making drastic concessions to “save jobs,” and soon thereafter jobs were slashed by the thousands.
Now, the U.A.W.-owned healthcare fund called VEBA is likely to emerge as the majority share owner of Chrysler, a company whose stock is basically worthless and whose future is cloudy at best. And although the U.A.W. is the majority owner, they will have only one voice on the GM board, ensuring that they'll be entirely ignored.
Applying this type of “restructuring” to GM is hard to imagine. GM is a global conglomerate with factories and suppliers all over the world — a monster when compared to puny Chrysler. The new sell-out labor contract being negotiated between Gettlefinger and Obama on 5/21/09 has yet to be released to the public, though the results have already been leaked, and they would be crushing for GM workers, in a “...deal that would cut [GM's] labor costs by more than $1 billion a year and reduce its $20 billion pledge to the United Auto Workers to cover health-care obligations [by ten billion]...” (Wall Street Journal, May 19, 2009).
Not only this, but 20,000 more GM jobs would be cut. Dealerships and suppliers all over the world would close as well, producing immediate job losses in the hundreds of thousands, and indirect job losses that are impossible to calculate.
Also, GM will likely be split into two companies: one that will build cars with cheap labor for the world marketplace and the other consisting of factories and machinery that will be sold for scrap metal. Instead of this tremendous productive power being used to create a much more rational mass transit system, the company is downsizing itself, laying off thousands of workers and filling landfills.
After all is said in done, the U.A.W. would have a 39 percent ownership stake in GM, giving Gettlefinger an ownership perspective, with a stake in forcing additional cuts on his members to increase share prices and keep the company competitive. Logic like this is unavoidable if one cannot look beyond the narrow horizons of the market economy, where one can only win on the world marketplace if they race fastest to the bottom.
What was Obama's reaction to the incredible hardship his labor policy will inevitably produce on workers? This pain was entirely ignored, and instead, Obama attempted to smear a cheap “progressive” gloss over his right-wing labor policies by holding a press conference to gloat over the future of fuel efficient vehicles and electric cars.
Gettlefinger himself shamelessly attended the event, while he and some short-sighted environmentalists fawned over Obama's every word. No mention was made how Americans would be able to afford these new fuel efficient cars.
And this is the crux of the matter: Obama's autoworker precedent will encourage other companies to destroy union contracts via bankruptcy; the stage is being set for a colossal attack on the American working class. Already wage cuts are being implemented throughout the U.S., alongside massive unemployment — Obama's technique is simply a way to hasten the process, so that the speed and scope of the recession is equally matched by reductions in wages and benefits.
The economic crisis has put corporations into “fight or flight” mode. In order for them to stay “viable” on the world market, they are slashing wages and benefits, led by Obama and the Wall Street insiders among his administration. It will take a U.A.W. rank and file upsurge to repel these attacks, aided by workers everywhere, since labor in general now faces incredible challenges. They could demand the nationalization of the auto industry so that workers would be bailed out, not the banks. Then these companies could be retooled in order to produce not only mass transit vehicles but an alternative energy infrastructure that could both save jobs and help save the planet from global warming.
Obama cannot be “pressured” into doing the right thing. He's surrounded himself with people representing the big corporations and banks, entities that are intrinsically anti-worker. The Democratic Party must also be tossed aside, since their total silence on this most important of issues is one of utter complicity. Labor must now, more than ever, take an independent stance in defending their interests. The fate of the labor movement hangs in the balance.
Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action (www.workerscompass.org). He can be reached at shamuscook@yahoo.com
*******
Japan’s economy suffers record plungeJapan's economy has suffered its worst quarterly performance since records began more than five decades ago as it continues to struggle with the economic crisisBy Danielle Demetriou in Tokyo 20 May 2009
http://www.telegraph.co.uk/finance/financetopics/recession/5353297/Japans-economy-suffers-record-plunge.html
The world's second largest economy experienced a quarterly 4 per cent shrink in its gross domestic product (GDP) reflecting the continued impact of the recession on the export-dependent nation.
Hit hard by a global plunge in demand for cars and technology, Japan's economy shrank 15.2 per cent in the first quarter compared to last year, according to Cabinet Office figures.
The contraction eclipses that of other industrialised nations: the nation's GDP slide was more than double the 1.6 per cent recorded in the US and significantly higher than Europe's record 2.5 per cent.
A weakening in domestic demand has been the biggest contributor to Japan's decline, with consumer spending dropping 1.1 per cent and business investment plunging a record 10.4 per cent during the same period.
As companies continue to cut spending due to diminished demand, the number of underused factories and workers was continuing to grow, according to Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo.
"There is a huge problem of over capacity," he said. "That means capital spending is not likely to pick up." While the contraction is the biggest for Japan since records began in 1955, hopes have been raised that the economy will soon start to rebound following a slight surge in industrial production in March.
Last month, consumer confidence also rose to a ten-month high and factory output increased for the first time since September. As exports start to stabilise and the government's stimulus plan takes effect, there are cautious hopes that the economy might record its first growth in a year this quarter.
However, analysts have warned that any recovery is likely to be fragile in an on-going climate of thousands of job cuts, diminished domestic demand and factory closures in the worst post-war recession to hit the economy.
Hiroshi Watanabe, senior economist at Daiwa Institute of Research, said: "The deterioration in domestic demand has just started. But external demand probably hit bottom in the first quarter. "Both exports and output are expected to rise in April to June. So I'd expect positive growth in the current quarter. From July to September, stimulus packages will boost growth, so I expect the economy to continue recovering mildly for the rest of the year."
*******
Feds to inject $7.5B more into GMACDavid Shepardson / Detroit News Washington Bureau
Wednesday, May 20, 2009
http://www.detnews.com/article/20090520/AUTO01/905200376/Feds-to-inject-$7.5B-more-into-GMAC
Washington -- The Treasury Department is preparing to announce as early as today that it will invest an additional $7.5 billion in GMAC LLC in a deal that could allow the U.S. government to hold a majority stake in the Detroit-based auto finance company.
GMAC, whose financial good health is key to providing loans for consumers to buy General Motors Corp. and Chrysler LLC vehicles, has been in talks for several weeks to secure additional capital. It had hoped to close the deal last week.
In December, the U.S. Treasury invested $5 billion in GMAC by buying preferred stock in the finance company. That stock carries a 9 percent dividend, but has no voting rights. Treasury also loaned GM nearly $900 million to buy GMAC stock.
If the Treasury exercised its options from those investments, which would give it voting rights, it could own about 35 percent of GMAC, a person familiar with the matter said Tuesday.
The person said the additional $7.5 billion could allow the Treasury Department to claim a majority stake in GMAC, if it chose to do so. The percentage of that potential ownership stake is unclear.
Treasury Secretary Timothy Geithner said this month that the government was preparing to provide "substantial support" to GMAC. The Treasury Department has said it will infuse more capital into GMAC to allow it to assume lending operations for Chrysler dealers and consumers from Chrysler Financial. GMAC was supposed to take over lending for Chrysler Financial on May 15, but that is on hold until it obtains government aid.
The Treasury and Federal Reserve Board this month announced GMAC needs $11.5 billion in additional capital reserves as the result of government stress tests. The additional assistance to be announced this week is likely not the end of government support for GMAC.
GMAC spokeswoman Gina Proia said Tuesday the company was still in talks with Treasury about the amount of the financial support -- both for its capital requirements and to take over lending for Chrysler.
"Clearly, those are two areas where we are focusing on and we are having dialogue about support," Proia said.
By Thursday, GMAC is set to complete reconstituting its board of directors. Its major shareholders -- including GM -- are also working to divest their holdings to no more than 9.9 percent of GMAC's stock as part of the agreement that allowed GMAC to become a bank holding company, and thus eligible for federal bailout funds. GM no longer has any representation on GMAC's board, even though it temporarily holds 60 percent of GMAC.
GMAC said earlier this month that it was working to shore up its capital.
"Ensuring the availability of credit to consumers and businesses is a key component in stabilizing the economy and a top priority at GMAC," said GMAC chief executive officer Alvaro G. de Molina. "We support the government's efforts to shore up the banking system and expect that the additional capital raised will further strengthen GMAC and aid in achieving our strategic objectives."
GMAC seeks to obtain the additional capital by Nov. 9, and said it would file a plan with the Federal Reserve Bank of Chicago on how it will do so by June 8.
*******
Dollar stops being Russia's basic reserve currency19 May 2009
Source: Pravda.Ru
http://english.pravda.ru/business/finance/107581-dollar_russia-0
The US dollar is not Russia’s basic reserve currency anymore. The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent, The Vedomosti newspaper wrote.
The dollar has thus lost the status of the basic reserve currency for the Russian Central Bank, the annual report, which the bank provided to the State Duma, said.
In accordance with the report, about 47.5 percent of the currency assets of the Russian Central Bank were based on the euro, whereas the dollar-based assets made up 41.5 percent as of the beginning of the current year. The situation was totally different at the beginning of the previous year: 47 percent of investments were made in US dollars, while the euro investments were evaluated at 42 percent.
The dollar share had increased to 49 percent and remained so as of October 1. The euro share made up 40 percent. The rest of investments were based on the British pound, the Japanese yen and the Swiss frank.
The report also said that the reserve currency assets of the Russian Central Bank were cut by $56.6 billion. The losses mostly occurred at the end of the year, when the Central Bank was forced to conduct massive interventions to curb the run of traders who rushed to buy up foreign currencies. The currency assets of the Central Bank had grown to $537.6 billion by October 2008. Therefore, the index dropped by almost $133 billion within the recent three months.
The majority of Russian companies, banks and most of the Russian population started to purchase enormous amounts of foreign currencies at the end of 2008. The dollar gained 16 percent and the euro 13.5 percent over the fourth quarter. The demand on the US dollar was extremely high, and the Central Bank was forced to spend a big part of its dollar assets, experts say.
The change of the structure of the currency portfolio of the Bank of Russia has not affected the official peg of the dual currency basket, which includes $0.55 and 0.45 EUR.
The investments of the Bank of Russia in state securities of foreign issuers have been considerably increased, the report said. About a third of Russia’s international reserves are based on US Treasury bonds.
Russia became one of the largest creditors of the US administration last year, the US Department of the Treasury said. Russia increased its investments in the debt securities of the US Treasury from $32.7 billion as of December 2007 to $116.4 billion as of December 2008.
*******
Britain sinks into deepest deflation since 1948
The British economy sank deeper into deflation last month to the lowest level in more than 60 years as the effect of falling house prices and lower mortgage repayments escalatedBy Angela Monaghan
19 May 2009
http://www.telegraph.co.uk/finance/financetopics/recession/5348943/Britain-sinks-into-deepest-deflation-since-1948.html
Inflation on the Retail Prices Index (RPI) measure, which includes housing costs, dropped sharply to -1.2pc in the year to April, from -0.4pc in March, the Office for National Statistics (ONS) said on Tuesday.
It was the lowest RPI figure since records began in 1948, and weaker than economists had expected.
Jonathan Loynes at Capital Economics said the inflation figures served as a reminder that "excessively low inflation, or deflation, is still a bigger risk over the next few years than a rapid rise in inflation."
The main driver of the fall was lower mortgage interest payments following the Bank of England's decision to cut interest rates by half a percentage point to 0.5pc in March, the ONS said.
Other contributing factors were falling house prices and rental costs, lower council tax costs, lower gas and electricity bills and falling food prices.
Housing-related costs fell by a total of 12.1pc in the year to April.
Although in the short term falling prices will appeal to consumers, RPI is used to calculate wage increases so the sharp fall in April is likely to add to downward pressure on salaries already caused by higher unemployment and falling corporate profits.
"As a result, many workers are likely to wage freezes or even pay cuts," said Howard Archer, chief UK economist at IHS Global Insight.
Deflation poses a further threat to the economy if people expect prices to fall further and put purchasing plans on hold which can, if the trend persists, lead to lower output and even more job losses.
The Consumer Prices Index (CPI), which excludes housing costs and is the Government's preferred measure of inflation, fell to 2.3pc in April from 2.9pc in March. The number fell back mainly because of lower utility bills and food prices.
Although CPI is now close to the 2pc target, it is expected to fall to below 2pc in the coming months as oil prices remain relatively low, utility and food bills fall further, and retailers reduce prices to attract customers. Once it falls below target the Bank of England expects it to remain there over the next three years, it indicated last week.
"It looks as if the disinflationary impact of the recession has started to overwhelm the inflationary impact of the weaker currency," Credit Suisse analysts said.
*******
Six Insurers Named to Get U.S. Taxpayer AidBy ERIC DASH and DIANA B. HENRIQUES
Published: May 14, 2009
http://www.nytimes.com/2009/05/15/business/economy/15insure.html?_r=2&partner=rss&emc=rss
Six major insurance companies have received preliminary approval to get billions of dollars in fresh capital as part of the government’s financial rescue program, a Treasury Department spokesman confirmed on Thursday.
The department said the Hartford Financial Services Group, Prudential Financial, Lincoln National, Allstate, Ameriprise and Principal Financial Group have all received approval for capital infusions, subject to terms still to be negotiated.
The Hartford, in a statement released late Thursday, said it was told it could receive $3.4 billion under the program.
Applying for the additional capital “was a prudent step for the Hartford, particularly given the continued economic uncertainty,” said Ramani Ayer, the company’s chairman and chief executive.
“These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation’s history,” Mr. Ayer continued. The other companies did not immediately provide details about the status of their application.
Under the program, each company is eligible to receive investments worth up to 3 percent of its total assets. Based on the Treasury formula, the amount of capital available to the other companies would be at least several billion dollars each.
While the extension of additional capital to insurers had been widely expected, these are the first companies that have been identified to receive aid after the near-collapse of American International Group. According to the Treasury spokesman, Andrew Williams, these insurers qualified for capital infusions under the department’s Capital Purchase Program because each had restructured itself as a bank holding company and met the November deadline for the program.
Hundreds of other financial institutions are still in the pipeline for review and will be approved on a rolling basis, the Treasury Department said.
As the financial crisis erupted last fall, A.I.G. became the first insurer to receive substantial government aid before a broad-based program to help financial firms was established. Its problems stemmed from complex derivatives that greatly increased its obligations to its trading partners.
This recent group of insurers is far less troubled than A.I.G., but they still have been hurt by the collapse in real estate prices. Amid the housing boom, many insurers invested in complex mortgage-related securities that have since turned sour, weakening their balance sheets.
Indeed, several insurance companies took extraordinary steps to qualify for taxpayer money, which has become even more attractive as the economic environment has worsened.
For example, Lincoln National and the Hartford both bought up smaller banks to qualify as savings banks, which made them eligible for government support.
The insurers followed investment banks Goldman Sachs and Morgan Stanley, which received emergency waivers from the Federal Reserve to become bank holding companies last fall.
GMAC, the auto lender, and American Express, the credit card company, also have transformed themselves into banks to qualify for government support.
“You want the regulatory program to be as broad as possible,” said Scott E. Talbott, a lobbyist for the Financial Roundtable, a group of the nation’s biggest financial services companies. “If all it took was regulatory gymnastics, that expands the program.”
The Capital Purchase Program is part of the sweeping bailout of financial institutions that grew out of the panic that hit in mid-September.
At that time, the Treasury Department, with the backing of the Federal Reserve chairman, Ben S. Bernanke, asked Congress for $700 billion to buy up mortgage-backed securities whose value had dropped sharply or had become impossible to sell, in what he called the Troubled Asset Rescue Plan, or TARP.
As the financial crisis worsened, the TARP plan was modified and expanded to include various support programs set up by the Treasury and the Federal Reserve, ranging from an ad hoc temporary guarantee program for money market funds to the purchase of preferred shares in various financial institutions.
*******
GM shares fall to 76-year low after execs dump stockMay 12, 2009
By Soyoung Kim and David Bailey
http://www.reuters.com/article/businessNews/idUSTRE54B3ZM20090512
DETROIT (Reuters) - General Motors Corp stock plunged more than 22 percent to a 76-year low on Tuesday, a day after GM's top executives dumped their shares as the automaker heads toward a bankruptcy or a restructuring that would all but wipe out existing shareholders.
Six GM executives, led by former GM vice chairman and product chief Bob Lutz, disclosed on Monday that they sold almost $315,000 in stock and liquidated their remaining direct holdings in the automaker.
The automaker's shares were down 22 percent, or 31 cents, at $1.13 on the New York Stock Exchange Tuesday. The stock had fallen to as low as $1.09 earlier, a price not seen since 1933 in the midst of the Great Depression.
The stock sale underscores the pressure on GM with less than three weeks remaining for the embattled automaker to win deals to slash debt and operating costs with its major union and bondholders to avoid bankruptcy.
GM is headed for either a bankruptcy filing by a government-imposed deadline of June 1, or an out-of-court restructuring that would wipe out current stockholders by flooding the market with new shares to pay off creditors.
The automaker's stock could be worthless in a bankruptcy or worth less than 2 cents a share if it proceeds with plans to issue shares to creditors led by the U.S. Treasury Department, the company has said.
"It's a lose-lose situation as far as we see it, and the shares kind of seem to have been doing a levitating magic trick and just staying up there in the $1.50 to $2.00 range," Standard & Poor's equity analyst Efraim Levy said.
"Given that there is a two-week deadline coming there should be additional downside pressure," Levy said.
"At this point the differentiation is that you are rooting for a recovery on GM the company where there is hope, but as far as the GM shareholders, there is no real positive outlook."
GM Shares 'Worthless'
Last week, GM detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.
The debt-for-equity exchange would make the U.S. government, which has provided $15.4 billion of loans to keep GM afloat since the start of the year, the majority shareholder of a restructured automaker.
The plan would also leave GM stockholders with 1 percent of the equity.
The automaker, historically was one of the powerhouses in the Dow, the most widely known measurement of U.S. stocks. It has been on the index since 1925 and has stayed despite the dramatic fall in its stock price.
GM's market capitalization as of Tuesday was about $690 million, making it the smallest component in the Dow Jones industrial average by market cap. By contrast, Chevron Corp has a market capitalization of about $136 billion.
GM has lost $88 billion since its turnaround efforts began in 2005 under former Chief Executive Rick Wagoner.
GM was first listed on the Dow in 1915. Journal editors removed it -- as they did more frequently back then -- adding it again in 1925, and it has remained ever since.
Only U.S. conglomerate General Electric Co has been in the Dow Jones industrial average longer than GM. GE was an original component in 1896 and like GM was dropped for a period before returning to stay in 1907.
******* *******
Freddie Mac needs another $6.1B in aidTotal bailout comes to $51.7 billion as mortgage financier reports a $9.9 billion quarterly loss.By Tami Luhby, CNNMoney.com senior writer
May 12, 2009
http://money.cnn.com/2009/05/12/news/companies/Freddie_results/index.htm?postversion=2009051218
NEW YORK (CNNMoney.com) -- Freddie Mac asked for another $6.1 billion in government aid Tuesday, after reporting a $9.9 billion quarterly loss.
Including the most recent request, Freddie Mac (FRE, Fortune 500) has drawn $51.7 billion of its $200 billion lifeline from the Treasury Department. Last quarter, when it reported a loss of $23.9 billion, the company asked the government for $30.8 billion.
Quarterly results at the troubled mortgage finance company, which was taken over by the federal government in September, were dragged down by rising credit losses and writedowns on the deteriorating value of its mortgage-backed securities.
"This was another difficult quarter for Freddie Mac, as declining home prices and the weak economy continued to take a toll on our results," said Freddie Mac Interim Chief Executive John Koskinen.
"While we expect coming quarters to be difficult, we are seeing preliminary signs of slowing in home price declines as low mortgage rates and high affordability take hold, and conforming mortgage credit to prime borrowers continues to be widely available," he said.
Its loss came to $3.14 per share, up from $0.66 per share a year ago, when its net loss was $149 million.
On Friday, sister company Fannie Mae reported a first-quarter loss of $23.2 billion, or $4.09 a share, and said it was requesting $19 billion in additional aid.
Rough quarterFreddie Mac has had a difficult time in recent months. David Moffett, whom the federal government appointed to oversee the finance company, resigned in March but returned a month later as a consultant after Freddie Mac's acting chief financial officer David Kellermann died from an apparent suicide.
With its delinquency rates rising to 2.29% in its single-family loan portfolio from 0.77% a year ago, Freddie increased its provision for credit losses to $8.8 billion, up from $1.2 billion a year ago.
It took a writedown of $7.1 billion on its mortgage-backed security portfolio.
The company benefited from lower funding costs, allowing it to record net interest income of $3.9 billion, up from $2.6 billion a quarter ago. It also recognized gains of $3.8 billion on its derivative portfolio.
More loan modifications
The Obama administration is leaning heavily on Freddie Mac and Fannie Mae (FNM, Fortune 500) to help struggling homeowners and lift the housing market out of its crisis. Freddie implemented on March 4 the administration's refinancing program, which allows homeowners with little or no equity to refinance, and its loan modification initiative, which lets eligible borrowers lower their monthly payments to 31% of pre-tax income.
The company modified more than 24,620 loans in the first quarter, up from 17,700 in the previous quarter and 4,250 a year ago. It also put nearly 10,500 troubled borrowers into repayment plans and entered into 1,850 forbearance agreements and 3,100 pre-foreclosure sales.
It also purchased or guaranteed $148 billion in mortgage loans and mortgage securities, financing more than 500,000 single-family homes and 70,000 units of rental housing. Its single-family refinancing purchase volume surged to about $95 billion, nearly quadruple the previous period's, thanks to super-low mortgage rates.
*******
Nation's top banker will be on Jekyll
May 09, 2009
http://www.tradingmarkets.com/.site/news/Stock%20News/2318752/
(The Brunswick News - McClatchy-Tribune Information Services via COMTEX)
When Ben Bernanke, chairman of the Board of Governors of the Federal Reserve System, speaks to staff members of the Federal Reserve Bank of Atlanta Monday on Jekyll Island, he may address some of the same issues that the original organizers of the Federal Reserve System encountered as they began laying the groundwork for what would become the United States' central bank.
It was November 1910 when U.S. Sen. Nelson Aldrich, a Republican of Rhode Island, chair of the National Monetary Commission and a business associate of industrialist J.P. Morgan, convened a secret meeting of some of the leading financial minds of the day -- under the illusion of the group taking a 10-day duck hunting trip on Jekyll Island.
The nation had been in a financial crises that had Wall Street brokerage houses collapsing and the U.S. Treasury pumping money into failing banks.
That meeting on what then was a private island owned by some of the nation's wealthiest industrialists developed the concept for what would eventually become the Federal Reserve Bank, which was signed into law by President Woodrow Wilson on Dec. 23, 1913.
The Federal Reserve Bank of Atlanta is holding its three-day 2009 Financial Markets Conference at the Jekyll Island Club Hotel, which was catapulted into history as the nominal founding spot for the Federal Reserve Bank.
Bernanke will address the conference at 7:30 p.m. Monday in the hotels' Grand Dining Room, said Pierce Nelson, a spokesperson for the Federal Reserve Bank of Atlanta.
"The Jekyll Island Club was chosen for the conference because it provided a good venue for the group of policymakers, academics and financial industry practitioners to come together," Nelson said.
The conference, which will draw about 100 people, will discuss what Nelson refers to as the timely topic of "financial innovation and crises."
Just as that initial group of men did in 1910, all but a few of the the conference's attendees will be staying at the Jekyll Island Club Hotel.
Unfortuntely, the group is too large to meet in the Federal Reserve Room of the hotel. Nelson said the conference will be held in other areas of the building, with Bernanke's address being in the Grand Dining Room of the hotel.
Representatives from other branches of the Federal Reserve Bank, universities, think tanks, such as the American Enterprise Institute and organizations, including the International Monetary Fund, will also address the conference.
The Federal Reserve Bank of Atlanta is one of 12 regional federal reserve banks in the United States that, along with the Board of Governors, in Washington, D.C., make up the Federal Reserve System. The Federal Reserve System helps formulate monetary policy, supervise and regulate banks and bank holding companies, and provide payment services to financial institutions and the federal government.
--A slowdown in layoffs may signal that the worst in job losses is over for the economy.
*******
Under Restructuring, GM To Build More Cars Overseas By Peter Whoriskey, Washington Post Staff Writer
Friday, May 8, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/07/AR2009050704336.html
The U.S. government is pouring billions into General Motors in hopes of reviving the domestic economy, but when the automaker completes its restructuring plan, many of the company's new jobs will be filled by workers overseas.
According to an outline the company has been sharing privately with Washington legislators, the number of cars that GM sells in the United States and builds in Mexico, China and South Korea will roughly double.
The proportion of GM cars sold domestically and manufactured in those low-wage countries will rise from 15 percent to 23 percent over the next five years, according to the figures contained in a 12-page presentation offered to lawmakers in response to their questions about overseas production.
As a result, the long-simmering argument over U.S. manufacturers expanding production overseas -- normally arising between unions and private companies -- is about to engage the Obama administration.
Essentially in control of the company, the president's autos task force faces an awkward choice: It can either require General Motors to keep more jobs at home, potentially raising labor costs at a company already beset with financial woes, or it can risk political fury by allowing the automaker to expand operations at lower-cost manufacturing locations.
"It's an almost impossible dilemma," said former labor secretary Robert B. Reich, now a professor at the University of California-Berkeley. "GM is a global company -- so for that matter is AIG and the biggest Wall Street banks. That means that bailing them out doesn't necessarily redound to the benefit of the U.S. or American workers.
"More significantly, it raises fundamental questions about the purpose of bailing out these big companies. If GM is going to do more of its production overseas, then why exactly are we saving GM?"
The administration has aroused similar complaints by shepherding a merger between Chrysler and Italian automaker Fiat. But it has extracted a promise from Fiat that it will build small cars in the United States.
The complaints about GM's operations portend a potentially larger argument, a political dispute led in part by the United Auto Workers.
"The bottom line is GM would rather pay $2 an hour -- and it's a slippery slope downward," said Alan Reuther, the UAW's legislative director. "If GM is going to be getting government assistance, they ought to be maintaining their manufacturing footprint in the U.S. rather than going off to China, Mexico and South Korea."
Labor costs in those countries are far lower. While paying a U.S. autoworker with benefits costs about $54 an hour, a South Korean worker earns about $22 an hour, a Mexican worker earns less than $10 an hour and some Chinese workers can earn as little as $3 an hour, industry sources said.
On Tuesday and Wednesday, GM chief executive Fritz Henderson met with legislators and sought to ease their concerns over the overseas operations.
He emphasized that the company, which is shuttering factories at home, is also canceling projects in Mexico, Russia and India.
He also assured legislators that none of the figures are final, and that negotiations with the union are ongoing.
"We continue to work closely with GM, UAW, and all the stakeholders to further refine and develop GM's plan," a Treasury spokesman said.
The U.S. government has loaned GM $15.4 billion. But billions more are expected to be invested, and under the current plan, it will be the majority owner of the company.
The company forecasts that between 2010 and 2014, as the recession recedes, its U.S. sales will rise from 2.4 million to 3.1 million.
Most of that growth -- about two-thirds of it -- will occur in the United States. But about one-third of that growth will come from other countries, mostly Mexico and South Korea.
Those proportions roughly reflect how GM builds the cars it sells in the United States today -- about two-thirds come from the United States and one-third from other countries.
According to the figures shared with lawmakers, the percentage of GM's U.S. sales of cars built in the United States dips from 67 percent in 2009 to 61 percent in 2012. Yet the company projects that by 2014 the percentage will rebound to 66 percent.
Under the viability plan, "the U.S. percentage stays roughly the same," Henderson said in an interview last week.
But the union and some legislators object that the company's U.S.-funded revival should not help pay for expanding foreign operations. Moreover, they believe that planned cuts in Canadian production -- down 23 percent -- will have direct effects on U.S. jobs because the U.S. and Canadian auto industries are so intertwined.
"If you are shutting down plants in this country, U.S. tax dollars should not go for building plants in other countries," said Sen. Sherrod Brown (D-Ohio), who was among those who met with Henderson.
But company officials and industry analysts have long argued that, even putting aside the issue of labor costs, it makes logistical sense to build some cars in other countries, even if they are destined for sale in the United States.
Take, for example, the Chevrolet Spark, a tiny car that GM sells in South Korea and elsewhere in Asia. In the next few years, the company plans to send some of those cars -- which are built in Changwon -- to the United States for sale.
But since only about 5 percent of the car's market will be in the United States, the manufacturing will remain in South Korea.
Analysts who study the auto companies and their global operation warn against allowing political passions to obstruct GM's efficiency.
"If we start making political decisions with the auto industry, we're going to be in tremendous trouble," said Michael Robinet, vice president of global vehicle forecasts at CSM Worldwide.
*******
401(k)s Hit by Withdrawal FreezesInvestors Cry Foul as Some Funds Close Exits; Perils of Distressed Markets
By ELEANOR LAISE
MAY 5, 2009
http://online.wsj.com/article/SB124148012581385199.html
Some investors in 401(k) retirement funds who are moving to grab their money are finding they can't.
Even with recent gains in stocks such as Monday's, the months of market turmoil have delivered a blow to some 401(k) participants: freezing their investments in certain plans. In some cases, individual investors can't withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401(k) plans.
When Ed Dursky was laid off from his job at a manufacturing company in March, he couldn't withdraw $40,000 from his 401(k) retirement account invested in the Principal U.S. Property Separate Account.
That fund, which invests directly in office buildings and other properties, had stopped allowing most investors to make withdrawals last fall as many of its holdings became hard to sell.
Now Mr. Dursky, of Ottumwa, Iowa, is looking for work and losing patience. All he wants, he said, is his money.
"I hate to be whiny, but it is my money," Mr. Dursky said.
The withdrawal restrictions are limiting investment options for plan participants and employers at a key time in the markets. The timing is inconvenient for the number of workers like Mr. Dursky who are laid off and find their savings inaccessible.
Though 401(k) plans revolutionized the retirement-savings landscape by putting investment decisions in the hands of individuals, the restrictions show that plan participants aren't always in the driver's seat.
Individual investors mightn't even be aware of some behind-the-scenes maneuvers causing liquidity problems in their retirement plans. Many funds offered in 401(k) plans lend their portfolio holdings to other investors, receiving in exchange collateral that they invest in normally safe, liquid holdings.
The aim is often to generate a small but relatively reliable return that can help offset fund expenses. But in recent months, many of the collateral investments have gone haywire, prompting money managers to restrict retirement plans' withdrawals from the lending funds.
Some stable-value funds also are blocking the exits. These funds, available only in tax-deferred savings plans such as 401(k)s, typically invest in bonds and use bank or insurance-company contracts to help smooth returns. But in cases of employer bankruptcy and other events that can cause withdrawals, these funds can lock up investor money for months at a time.
Investors in the Principal U.S. Property Separate Account said they understood the risk of losses, but didn't think their money could be locked up for months or years. Most participants in the 15,000 plans holding the fund haven't been able to make any withdrawals or transfers since late September.
"To sell property at inappropriately low prices in order to generate cash for a few would hurt the majority of investors and violate our fiduciary obligations," said Terri Hale, spokeswoman for Principal Financial Group Inc., the parent of the fund's manager. The fund, which had $4.3 billion in net assets at the end of April, still is making distributions for death, disability, hardship and retirement at normal retirement age.
As of April 28, redemption requests that had yet to be honored totaled nearly $1.1 billion, or roughly 26% of the fund's net assets. Principal doesn't anticipate that it will make any distributions to investors who have requested redemptions until late 2009 or beyond, Ms. Hale said. Meanwhile, the fund continues to fall, declining 25% in the 12 months ending April 30.
Some investors have lost hope of recovering their money. Judith Sterner, a 69-year-old part-time nurse, had more than $12,000 in the fund when she tried to transfer that balance to a money market last fall. But her transfer was denied, and her stake has since declined to less than $10,000.
"This $12,000 represents a year of my retirement money that I don't have," said Ms. Sterner, of Morton Grove, Ill.
Principal still allows new investors into the fund. It categorizes the U.S. Property account as a fixed-income investment, alongside much stodgier funds holding high-quality bonds. New investors are warned of potential withdrawal delays, Ms. Hale said. As for the fixed-income categorization, she said, "a substantial portion of the account return is based on income streams from rents, and its returns have been comparable to fixed-income funds."
While the problems selling real-estate investments are relatively straightforward, withdrawal restrictions related to securities lending stem from far more obscure practices.
Funds often lend out portfolio holdings, through a lending agent, to other investors. These borrowers give the lender collateral, often amounting to about 102% of the value of the securities borrowed. Some of the collateral pools in which funds invest this collateral held Lehman Brothers Holdings Inc. debt and other investments that plummeted in value or became hard to trade in the credit crunch.
Though agents who coordinate funds' lending programs share in profits from securities lending, the risk of such collateral-pool losses falls entirely on the funds that have lent the securities and, ultimately, retirement plans and other investors holding those funds.
The problems have limited retirement plans' ability to get out of securities-lending programs, though participants' withdrawals generally haven't been affected.
Retirement plans offered to employees of energy company BP PLC last fall tried to withdraw entirely from four Northern Trust Corp. index funds engaged in securities lending. Certain holdings in Northern's collateral pools had defaulted, been marked down, or become so illiquid that they could only be sold at low values, according to a BP complaint filed in a lawsuit against Northern Trust.
The BP plans halted new participant investments in the funds and asked to withdraw their cash so it could be reinvested in funds that don't lend out securities.
But under restrictions imposed by Northern Trust in September, investors wishing to withdraw entirely from securities-lending activities would have to take their share of both liquid assets and illiquid collateral-pool holdings, according to a Northern Trust court filing. BP rejected that option, and the companies still are trying to resolve the matter in court.
Northern Trust's collateral pools are "conservatively managed" and focus on liquidity over yield, the company said.
State Street Corp. in March notified investors of new withdrawal restrictions in its securities-lending funds. Until at least the end of the year, plans can make monthly withdrawals of only 2% to 4% of their account balance, the notice said.
Plans wishing to withdraw entirely from lending funds will have to take a slice of beaten-down collateral-pool holdings.
"Given the current state of the fixed-income market, we felt it was prudent to put some well-defined withdrawal parameters in place," said State Street spokeswoman Arlene Roberts.
*******
Did Bernanke and Paulson Commit Bank Fraud?Written by Thomas R. Eddlem
Tuesday, 28 April 2009 03:17
http://www.thenewamerican.com/economy/commentary-mainmenu-43/1054
New revelations from the New York State Attorney General’s office have all but proven that Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Hank Paulson committed bank fraud crimes in the case of the Merrill Lynch/Bank of America merger that took place last year. New York State Attorney General Andrew M. Cuomo revealed that Paulson and Bernanke illegally suppressed adverse financial data on the merger and threatened to replace the Bank of America CEO and board of directors if the company backed out of the Merrill Lynch merger. “Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke,” Cuomo wrote in an April 23 letter to Congress.
The two companies signed a tentative merger agreement September 15, 2008, but the agreement included a “Material Adverse Change” (MAC) clause that would allow Bank of America (BofA) to escape the merger if BofA financial officers found undisclosed financial information that would hurt BofA while looking at Merrill Lynch’s books. Bank of America shareholders approved the agreement with the MAC clause December 5, 2008. The final merger was to take place January 1, 2009.
But on December 14, BofA financial officers informed CEO Kenneth Lewis that Merrill Lynch’s quarterly losses would be $3 billion more than expected (the $9 billion in expected losses ended up being a $15 billion loss — a $6 billion increase over what stockholders expected and approved). Three days later Lewis informed U.S. Treasury Secretary Hank Paulson by phone that Bank of America planned to exit the merger using the MAC clause. Paulson urged Lewis to get on an airplane and visit his office.
Lewis met with Paulson and Bernanke December 21, where Lewis was told he would be replaced if BofA exercised the MAC clause. “I can’t recall if he said ‘we would remove the board and management if you called it’ or if he said ‘we would do it if you intended to,’” Lewis told Cuomo. Then Bank of America Chief Executive Officer Kenneth Lewis tried to “deescalate” the conflict by saying he’d talk to his board. Lewis also testified he was instructed not to reveal the staggering Merrill Lynch losses to his stockholders: “I was instructed that ‘We do not want a public disclosure,’” Lewis told Cuomo’s office. Lewis took it as a demand to defraud his stockholders, a demand that he and his board of directors complied with.
The BofA board met the next day to discuss the disastrous merger, and the minutes revealed: “The Treasury and Fed state strongly that were the Corporation [Bank of America] to invoke the material adverse change (“MAC”) clause in the merger agreement with Merrill Lynch and fail to close the transaction, the Treasury and Fed would remove the Board and Management of the Corporation.”
That decision by Lewis and his board led Bloomberg.com financial columnist Jonathan Weil to comment in a particularly insightful column: “As for Lewis and the rest of Bank of America’s board, it’s a foregone conclusion that their word is now mud. The more honorable and legally appropriate path for them would have been to resign rather than participate in the cover-up.”
But more than just honor was violated. The law was violated as well. According to bank fraud laws, Paulson, Bernanke, Lewis, and his board of directors committed bank fraud against their stockholders. The Justice Department’s Criminal Reference Manual says of the bank fraud law: “The elements of the offense of making a false statement are: (1) making a false statement or willfully overvaluing property or security knowing the same to be false, (2) for the purpose of influencing in any way the action, (3) of the enumerated agencies and organizations.”
Bank fraud laws are so severe that an actual loss of stock value needn’t be actualized in order for criminal bank fraud to take place, according to the Justice Department Criminal Reference Manual. “The mere probability of loss to the bank is sufficient to establish intent to injure, and neither a possibility of future benefit to the bank nor restitution is a defense.” Of course, Bank of America did experience a serious financial injury. The stock price tanked from about $30 per share in September down to $5 per share in March, an 87 percent loss of value, and the otherwise financially secure Bank of America needed billions in federal bailout money just to survive.
Senator Chris Dodd told CNN that hearings on Cuomo's revelations may be warranted, though Weil noted, “Senate Banking Committee Chairman Christopher Dodd took V.I.P. loans from Countrywide Financial Corp., now a subsidiary of Bank of America.” So what are the chances that a serious investigation will take place?
Weil correctly points out: “Knowing what we know now, how could you ever trust anything Bernanke says again?” He also appropriately wonders openly whether current Treasury Secretary Timothy Geithner (then the New York Federal Reserve Bank chairman and number two man on the Fed’s Open Market Committee) was involved in the deal, or if he was somehow incompetently unaware of what was going on right under his nose. Either way, the government’s financial leadership in Washington right now is untrustworthy at best and felonious at worst.
In the mythology of the left, unregulated “free enterprise” as a financial system failed under the Bush administration. The Bank of America/Merrill Lynch fraud case authoritatively proves that mythology false. Laissez-faire free enterprise was pretty much the opposite of what happened on Wall Street during the financial boom and subsequent bust. The failure was caused by government, which in this case nearly bankrupted the largest bank in America when top government officials engaged in criminal fraud and leveled ugly political threats that — if they had been made by Mafia functionaries — would be prosecuted under racketeering laws.
*******
What Caused the Economic Crisis?
By Alexander Floum
URL of this article: www.globalresearch.ca/index.php?context=va&aid=13335
Global Research, April 24, 2009
Examiner.com
Warren Buffett called them “weapons of mass destruction” in 2003.
President Bush said they had to be regulated. So did the chairman of the Securities and Exchange Commission, and the current head of the Federal reserve.
As did the G-20 group of the world's 20 richest nations.Former Federal Reserve Chairman Alan Greenspan - after being one of their biggest cheerleaders - now says they are dangerous.
And a Nobel prize-winning economist said they should be “blown up or burned”, and we should start fresh.
What Are They Talking About?
What are the above-listed folks talking about?
A financial instrument called “credit default swaps” (CDS for short).
CDS are like an insurance contract, where the purchaser buys "insurance" that a company won't go out of business from a seller. If the company stays in business, the purchaser pays premiums to the seller, but if the company goes belly up, the seller has to pay the face value of the CDS "policy".
Why are CDS so dangerous?
According to the experts, CDS were largely responsible for bringing down Bear Stearns, AIG (and see this) and other giant financial companies.
Indeed, many leading experts say that CDS were the main cause of the financial crisis. As just 3 examples:
· Newsweek called CDS "The Monster that Ate Wall Street"
· Former SEC chairman Christopher Cox said "The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis''
· And - as mentioned above- a Nobel economist is so concerned about them that he thinks that existing CDS contracts must be "blown up or burned"
I'll explain the reason that CDS are so dangerous in a future post (basically, they let the financial players to pretend that they had less risk, less stretched-too-thin leverage, and more stability then they really did). But for now, just keep in mind that some of the world's top financial experts say that they are extremely dangerous. They are not the only cause of the financial crisis, but they are one of the main causes.
*******

*******
But at least the risks from CDS are over, right?Not exactly . . .
Credit default swaps continue to bring down large companies, partly because they make it less likely that the companies can restructure.
And one of the main reasons that banks have been hoarding the bailout money instead of lending to consumers it because of CDS. Wall Street firms and banks have been hoarding cash. As the Financial Times wrote on October 7th:
Banks are hoarding cash in expectation of pay-outs on up to $400bn (£230bn) of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and -dealers.
And as Fox News put it:
Massive positions are just starting to be unwound in the credit default swaps market as tens of billions of dollars worth of these contracts are now getting settled in the aftermath of several high-profile flops.Banks are hoarding cash in expectation of expected payouts on anywhere from $200bn to $1 tn–no one knows the amount, adding to volatility–for defaulted credit derivatives linked to the collapse of Lehman Brothers, the government's seizure of mortgage giants Fannie Mae and Freddie Mac, the government's rescue of American International Group, and the failure of Washington Mutual.
And guess where most of the AIG bailout went? Yup - to corporations which bought CDS from AIG. $13 billion dollars worth of the bailout money paid to AIG went to Goldman Sachs for CDS contracts. $40 billion dollars worth of AIG's bailout money (and see this) went to foreign banks for CDS contracts. (Even AIG's former chief said that the government used AIG "to funnel money to other institutions, including foreign banks").
Unless something is done to change things, taxpayers may have to continue shelling out bailout money to keep bailing out CDS contract-holders.
Well, At Least the Regulators are Bringing CDS Under control so That They Can't Cause Damage Indefinitely. Right?Unfortunately, regulators have so far caved into lobbying pressure from those in the CDS industry, and have failed to take any decisive action to reign CDS in.
As Newsweek writes:
Major Wall Street players are digging in against fundamental changes. And while it clearly wants to install serious supervision, the Obama administration—along with other key authorities like the New York Fed—appears willing to stand back while Wall Street resurrects much of the ultracomplex global trading system that helped lead to the worst financial collapse since the Depression.
At issue is whether trading in credit default swaps and other derivatives—and the giant, too-big-to-fail firms that traded them—will be allowed to dominate the financial landscape again once the crisis passes. As things look now, that is likely to happen. And the firms may soon be recapitalized and have a lot more sway in Washington—all of it courtesy of their supporters in the Obama administration...
The financial industry isn't leaving anything to chance, however. One sign of a newly assertive Wall Street emerged recently when a bevy of bailed-out firms, including Citigroup, JPMorgan and Goldman Sachs, formed a new lobby calling itself the Coalition for Business Finance Reform. Its goal: to stand against heavy regulation of "over-the-counter" derivatives, in other words customized contracts that are traded off an exchange...
Geithner's new rules would allow the over-the-counter market to boom again, orchestrated by global giants that will continue to be "too big to fail" (they may have to be rescued again someday, in other words). And most of it will still occur largely out of sight of regulated exchanges...
The old culture is reasserting itself with a vengeance. All of which runs up against the advice now being dispensed by many of the experts who were most prescient about the crash and its causes—the outsiders, in other words, as opposed to the insiders who are still running the show.
Credit default swaps may continue to deepen the economic crisis and prevent a recovery - and cause future crises - unless regulators stand up to the lobbyists and take real action to reign them in.
*******
China’s Economy Rebounds on Paper OnlyBy Tian Yuan, Epoch Times Staff, Apr 21, 2009
http://www.theepochtimes.com/n2/content/view/15709/
The United States is now over 15 months into the global financial crisis.
The unemployment rate is at 8.5 percent, its highest level in 25 years. The S&P/Case-Shiller Home Price Indices released on March 31 shows a continued downward spiral in the prices of existing single-family homes across the country. Retail sales in March tumbled, and there is little evidence that the recession will soon abate.
These are clear indications that United States is still in a deep recession. In other words, there is no light at the end of the tunnel yet.
Yet, somehow, numbers released by Beijing suggest that the Chinese economy has already bottomed out and has started to rebound. In March, some commodity imports, such as iron ore, coal, and oil reportedly rose dramatically.
The Purchasing Managers’ Index (PMI) released by the National Bureau of Statistics of China, a measure of activity in the manufacturing sector, climbed to 52.4 in March from 49.0 in February, the first time the PMI has seen expansionary territory since the beginning of the recession.
Over the Easter weekend, the Chinese Communist Party Premier Wen Jiabao echoed this newly found optimism. According to the state-controlled media, he said that the economy showed “better than expected positive changes in the first quarter,” due to stimulus spending and some regions “are in a process of gradual recovery.”
Numbers Don’t Add Up
While Chinese customs data could not be independently verified, some financial firms have released their own version of the Chinese PMI. Data from Credit Lyonnais Securities Asia (CLSA) showed a completely different trend than the official Chinese figures.
From February to March, China’s PMI actually sank from 45.1 to 44.8,according to CLSA. Hard economic measures, such as export and energy consumption from the Chinese government, are more apparent. Chinese exports continued a precipitous fall. In the first quarter of 2009, exports declined almost 20 percent annualized.
Total electricity consumption in China has decreased 1.4 percent. Without major improvements in energy efficiency and productivity in China, this can only point to a contracting economy. At the same time, the ability of Chinese companies to pay their suppliers was rapidly deteriorating, “significantly increasing the risk of doing business in China,” warned the Coface Group, one of the world’s biggest credit insurers, in a Financial Times report.
These data suggest that real expansion has yet to happen in China. To put it mildly, “China is in a recession regardless of what the highly massaged official numbers claim,” wrote Nouriel Roubini, a professor of economics at New York University, on his Web site.
Over-Reliance on Exports
Consumer spending only accounts for a tiny portion of GDP in China, as opposed to the United States, where consumers drive 70 percent of the U.S. GDP.
Without strong domestic demand for products and services, China’s growth increasingly relies on its exports, which currently amount to 40 percent of its GDP. A new study by Li Cui and his co-authors at the Hong Kong Monetary Authority found that Chinese exports were largely responsible for job growth and investment in recent years. If the export market continues to worsen, as the global recession takes its toll on foreign consumers, a rebound of China’s economy is highly unlikely, according to the study.
The 4 trillion yuan ($586 billion) stimulus recently announced in China was mostly spent on building highways and other infrastructure projects. So far, the biggest impact has been to boost employment and revenues at state-run construction companies and suppliers of building materials.
Even if the proclaimed rebound in recent months is real, there is a possibility that China’s recovery could be “W-shaped” or even “L-shaped.” A “W-shaped” recovery signifies a double recession with a temporary rebound in between, and an “L-shaped” recovery is no recovery at all.
Cao Jianhai, a professor at the Chinese Academy of Social Sciences, told the Financial Times that urban residential property prices in China would halve in the next two years from their levels at the end of 2008, followed by many years of stagnation.
Recovery Can’t Wait
In the United States, we’ve seen how the recent housing market meltdown caused massive losses in the financial markets, and the net worth of many families evaporated over night. If Cao’s prediction comes true, China’s economy may not see the light of day for many years to come.
Economic recovery is only a matter of time in the United States.
The Chinese regime, however, does not have the luxury to wait. Over the last 20 years, the communist regime has played a game of “prosperity for power” with the Chinese people meant to quell social instability.
The rules of the game are simple: the regime delivers economic growth and steady improvement of living standards, and the people, in exchange, turn a blind eye and deaf ear to social injustice, wide-spread government corruption, and a ruthless crackdown on political dissidents, spiritual groups, and people who petition the government for change.
Officials in Zhongnanhai, the official leadership compound in Beijing, must now be asking themselves, “When the recession becomes long term and the government cannot deliver what is promised, why would the Chinese people honor their part of deal?”
Immediately before the Tiananmen Square Massacre in June 1989, Deng Xiaoping, the then-dictator of China, famously announced his willingness to “kill 200 thousand people to gain 20 years stability.”
Those 20 years are now up.
*******
Goldman Sachs Buries Losses to Beat the Estimates14 April 2009
http://lib.store.yahoo.net/lib/realityzone/UFNgolssachburriesloss.html
That canny crew at Goldman Sachs does it again.
Last night in a surprise move Goldman announced their earnings early, showing a surprising profit of $1.8 billion, beating the Street estimate handily. The bulk of their profit purportedly came from speculative trading for their own accounts, using 'cheap FDIC guaranteed funds.'
Goldman also took the opportunity to announce a new stock issue designed to allow shareholders to help them pay back their government TARP funds. Since Goldman is putting aside 50% of its profits for employee bonuses even now, while they are still holding government subsidies, the reasons for this are obvious.
What was not reported last night is that Goldman had changed their reporting periods to begin the 1st quarter in January 2009 when they declared themselves to be a bank holding company. Prior to that, their fiscal 2008 year ended on November 30.
This made the month of December 2008 an 'orphan month' that was ignored in the financial headlines.
Goldman took this opportunity to realize some hefty writedowns in that December one month report, to the tune of approximately $1.3 Billion in pre-tax losses.
So, to earn an impressive $1.8 Billion in the first quarter, Goldman disposed of their losses in a largely ignored December filing. This facilitated their share offering with the 'wonderful earnings news' which Matt Miller of Bloomberg referred to approximately every five minutes as "blowing away their numbers.
"However, this morning, Matt did mumble something about Goldman "maybe not blowing away their numbers."
Goldman did nothing illegal in their management of their earnings, both in the way in which they parsed the losses into a 'stub month' which was ignored, or in their decision to time an early announcement of 'exceptional profits' with a stock offering. But the financial press handled this badly, and considering the huge debt and forebearance Goldman owes to the government and the public it was not befitting a major institution with strong ties to the Obama administration. The only thing getting blown away around here are the shareholders, taxpayers, and anyone else who buys what Wall Street in general is selling these days.
The banks must be restrained and the financial system reformed before we can have a genuine economic recovery.
*******
Bailouts and Manipulations: Save Wall Street, at the Expense of Main StreetBy Larry Chin
URL of this article: www.globalresearch.ca/index.php?context=va&aid=13183
Global Research, April 14, 2009
Online Journal
Wall Street is in the midst of a huge rally, primarily sparked by two recent occurrences.
The first was the “surprising” announcement that Citigroup, JP Morgan Chase and Bank of America -- major “zombie” banks laden with “toxic assets,” on the verge of collapse, and the recipients of billions in government (US taxpayer) bailout money -- mysteriously posted profits this year. Wells Fargo, regarded as one of the healthier big banks, and a recipient of $25 billion, also reported a profit last week, rallying the stock markets again before the Easter holiday.
We now know, based on insider reports from securities traders, that a massive fraud and manipulation by AIG funneled “bailout” funds (US taxpayer money) to AIG's counterparties, the very same big “toxic” banks that are now posting profits: Exclusive: Big Banks' Recent Profitability Due to AIG Scam?
The second big event occurred when the Obama administration and Congress threw out the “Mark to Market” rules. Banks and financial institutions, which by law were previously obligated to price, or “mark,” the toxic holdings to the current market price (honestly take huge losses), now have carte blanche to magically erase all of these losses, and price these toxic assets however they wish.
In other words, Wall Street has been given the green light to lie -- with the full blessing of the Obama administration and Congress. “Toxic assets”? Gone, just like that.
In yet another example of collusion and cover-up, federal regulators have told the nation's largest banks to “keep quiet” about their performance in the Obama administration's “stress tests”: Feds tell banks to keep quiet on outcome of stress tests
This blatant cover-up, ordered at the top, prevents negative news from spoiling the bogus Wall Street rally. Obama himself will announce the results later, after he and his economic minions have had a chance to “manage” the data.
So much for accountability. So much for transparency and disclosure. So much for the populist hot air and propaganda gases spewing from the Obama administration, Ben Bernanke's Federal Reserve, Tim Geithner, and Larry Summers.
The momentum from the latest fabrication and the latest fraud must not be broken. The worst is over, according to the new noise, and the constant “are we there yet?” yammering from CNBC. No, it's already time for The Recovery, despite the fact that the worst economic crisis since the Great Depression began mere months ago, and despite the fact that the “toxins” -- the magnificent bubble of derivatives, leverage, hedging and other interlocking Ponzi finance schemes that began the crisis to begin with -- are still out there, still unpopped.
The books are cooked and the numbers are faked anyway. Why not? Who's going to know?
So while the US auto industry is strong-armed into massive restructuring, and the common people of Main Street are told to get used to the suffering, Wall Street is not only given a free pass, but the additional gift of back-door swindles and a massive cover-up.
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.
The CRG grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: crgeditor@yahoo.com www.globalresearch.ca contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. Online Journal , 2009
*******
The RAT hiding deep inside the stimulus billBy: Byron York, Chief Political Correspondent
02/20/09
The far-reaching — and potentially dangerous — provision that no one knows about.
You’ve heard a lot about the astonishing spending in the $787 billion economic stimulus bill, signed into law this week by President Barack Obama. But you probably haven’t heard about a provision in the bill that threatens to politicize the way allegations of fraud and corruption are investigated — or not investigated — throughout the federal government.
The provision, which attracted virtually no attention in the debate over the 1,073-page stimulus bill, creates something called the Recovery Accountability and Transparency Board — the RAT Board, as it’s known by the few insiders who are aware of it. The board would oversee the in-house watchdogs, known as inspectors general, whose job is to independently investigate allegations of wrongdoing at various federal agencies, without fear of interference by political appointees or the White House.
In the name of accountability and transparency, Congress has given the RAT Board the authority to ask “that an inspector general conduct or refrain from conducting an audit or investigation.” If the inspector general doesn’t want to follow the wishes of the RAT Board, he’ll have to write a report explaining his decision to the board, as well as to the head of his agency (from whom he is supposedly independent) and to Congress. In the end, a determined inspector general can probably get his way, but only after jumping through bureaucratic hoops that will inevitably make him hesitate to go forward.
When Iowa Republican Sen. Charles Grassley, a longtime champion of inspectors general, read the words “conduct or refrain from conducting,” alarm bells went off. The language means that the board — whose chairman will be appointed by the president — can reach deep inside a federal agency and tell an inspector general to lay off some particularly sensitive subject. Or, conversely, it can tell the inspector general to go after a tempting political target.
“This strikes at the heart of the independence of inspectors general,” Grassley told me this week, in a phone conversation between visits to town meetings in rural Iowa. “Anytime an inspector general has somebody questioning his authority, it tends to dampen the aggressiveness with which they pursue something, particularly if it’s going to make the incumbent administration look bad.”
I asked Grassley how he learned that the RAT Board was part of the stimulus bill. You’d think that as a member of the House-Senate conference committee, he would have known all about it. But it turns out Grassley’s office first heard about the provision creating the RAT Board last Wednesday, in a tip from a worried inspector general. It wasn’t until Friday morning — after the bill was finished and just hours before the Senate was to begin voting — that Grassley discovered the board was in the final text. “This was snuck in,” Grassley told me. “It wasn’t something that was debated.” Snuck in by whom? It’s not entirely clear. “I intend to get down to the bottom of where this comes from,” Grassley vowed. “And quite frankly, it better not come from this administration, because this administration has reminded us that it is not about business as usual, that it is for total transparency.”
Maybe not this time. When I inquired with the office of a Democratic senator, one who is a big fan of inspectors general, I was told the RAT Board was “something the Obama administration wanted included in this bill.” When I asked the White House, staffers told me they’d look into it. So for now, at least, there’s been no claim of paternity.
The RAT Board has all sorts of other things wrong with it. For one thing, it’s redundant; there is already a board through which inspectors general police themselves, created last year in the Inspectors General Reform Act. For another thing, it could complicate criminal investigations stemming from inspector general probes. And then there’s the question of what it has to do with stimulating the economy.
But none of that matters now. It’s the law.
Last Friday, when he learned the RAT Board was in the final bill, Grassley wanted to voice his objections on the Senate floor. But there was no time in the rush to a vote, so Grassley’s statement went unread. “It’s fitting that the acronym for this board is RAT,” he was prepared to tell the Senate, “because that’s what I smell here.”
*******