Tuesday, June 23, 2009

Financial Crunch! Economic Collapse! (Part 5)

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Arming Goldman With Pistols Against Public:
Goldman Sachs arming with handguns against a populist uprising???
by Alice Schroeder
Dec. 1 (Bloomberg) -- “I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.
I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter” it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names.
While we wait, Goldman has wrapped itself in the flag of Warren Buffett, with whom it will jointly donate $500 million, part of an effort to burnish its image -- and gain new Goldman clients. Goldman Sachs Chief Executive Officer Lloyd Blankfein also reversed himself after having previously called Goldman’s greed “God’s work” and apologized earlier this month for having participated in things that were “clearly wrong.”
Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage.
Pistol Ready
Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife’s jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won’t do you any good. As for carrying a loaded pistol when you venture outside, dream on. Concealed gun permits are almost impossible for ordinary citizens to obtain in New York or nearby states.
In other words, a little humility and contrition are probably the better route.
Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance. In a display of both, Blankfein began to raise his personal- security threat level early in the financial crisis. He keeps a summer home near the Hamptons, where unrestricted public access would put him at risk if the angry mobs rose up and marched to the East End of Long Island.
To the Barricades
He tried to buy a house elsewhere without attracting attention as the financial crisis unfolded in 2007, a move that was foiled by the New York Post. Then, Blankfein got permission from the local authorities to install a security gate at his house two months before Bear Stearns Cos. collapsed.
This is the kind of foresight that Goldman Sachs is justly famous for. Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer. Surely, though, this man who can afford to surround himself with a private army of security guards isn’t sleeping with the key to a gun safe under his pillow. The thought is just too bizarre to be true.
So maybe other senior people at Goldman Sachs have gone out and bought guns, and they know something. But what?
Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and -- oh yes -- the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”
Torn Curtain
There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm’s revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.
This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone’s expense.
Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn’t mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though.
Cool Hand Lloyd
No, talk of Goldman and guns plays right into the way Wall- Streeters like to think of themselves. Even those who were bailed out believe they are tough, macho Clint Eastwoods of the financial frontier, protecting the fistful of dollars in one hand with the Glock in the other. The last thing they want is to be so reasonably paid that the peasants have no interest in lynching them.
And if the proles really do appear brandishing pitchforks at the doors of Park Avenue and the gates of Round Hill Road, you can be sure that the Goldman guys and their families will be holed up in their safe rooms with their firearms. If nothing else, that pistol permit might go part way toward explaining why they won’t be standing outside with the rest of the crowd, broke and humiliated, saying, “Damn, I was on the wrong side of a trade with Goldman again.”
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The secret history of TARP: How Goldman bailed out Goldman ...
Published: August 8, 2009
http://rawstory.com/08/news/2009/08/08/the-secret-history-of-tarp/
Former Treasury Secretary Hank Paulson wasn’t on Goldman Sachs’ payroll when the US government bailed out his former employer, but he may as well have been.
That’s the implication in a New York Times article, published Saturday, that shows President George W. Bush’s last treasury secretary, a former CEO of investment bank Goldman Sachs, had frequent conversations with the current CEO of Goldman during the week of Sept. 16, when the US government handed over $85 billion to rescue the troubled insurance giant AIG.
AIG’s outstanding debts to Goldman Sachs meant that $13 billion of the money handed over to AIG went directly to Goldman Sachs.
“During the week of the AIG bailout alone, Mr. Paulson and [Goldman Sachs CEO Lloyd] Blankfein spoke two dozen times … far more frequently than Mr. Paulson did with other Wall Street executives,” the Times reports.
The revelation is sure to fuel further claims that the $700-billion Troubled Assets Relief Program, or TARP, passed by Congress last fall with the support of both major presidential candidates, Barack Obama and John McCain, was “gamed” by Paulson in order to help out his colleagues at Goldman — and preserve his own reputation, which he made as the bank’s CEO.
Paulson spoke with Goldman’s CEO in an official capacity a total of 26 times before the treasury secretary was granted an “ethics waiver” that allowed him to be in far closer contact with his former employer than would have otherwise been allowed, Reuters notes.
In the five days after Paulson received his “waiver,” on Sept. 16, 2008, he spoke with Goldman’s Blankfein another 24 times.
But Paulson may have done more than help his former employer get bailed out of bad debts — he may have helped orchestrate the demise of his former employer’s competitors.
“Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted,” the Times writes.
Bear Stearns and Lehman Brothers — both investment banks in direct competition with Goldman Sachs — were not bailed out when bad debt forced them to cease operating last year.
“Ad hoc actions taken by Mr. Paulson and officials at the Federal Reserve, like letting Lehman fail and compensating AIG’s trading partners, continue to confound some market participants and members of Congress,” the Times notes.
From the Times article:
Goldman not only received $13 billion in taxpayer money as a result of the A.I.G. bailout, but also was given permission at the height of the crisis to convert from an investment firm to a national bank, giving it easier access to federal financing in the event it came under greater financial pressure.
Goldman also won federal debt guarantees and received $10 billion under the Troubled Asset Relief Program. It benefited further when the Securities and Exchange Commission suddenly changed its rules governing stock trading, barring investors from being able to bet against Goldman’s shares by selling them short.
While spokespeople for the Treasury and for Paulson defend the former treasury secretary’s discussions with Goldman Sachs as necessary given the financial crisis, some scholars and observers say the circumstances are suspicious.
“We don’t know what they talked about,” Samuel L. Hayes, a Harvard Business School professor emeritus, told the Times. “Obviously there was an enormous amount at stake for Goldman in whether or not the A.I.G. contracts would be made whole. So I think the burden is now on Mr. Paulson to demonstrate that there was no exchange of information one way or the other that influenced the ultimate decision of the government to essentially provide a blank check for AIG’s contracts.”
Since the $700-billion TARP bailout, Goldman Sachs has been doing very well for itself. Since several of its competitors disappeared from the market, the Wall Street investment bank has cornered the program trading market; by some accounts, half of all the automatic, computer-based trades done on the New York Stock Exchange are now carried out by Goldman Sachs.
Last fiscal quarter, the company made $100 million from stock trading on each of 46 business days — an all-time record, shattering the previous record of 34 such days, set by Goldman the previous quarter. The company has also been able to re-pay $10 billion of the cash it was handed in the bailout.
The $700-billion TARP bailout has been operating for nearly 11 months, and still has no official ethics guidelines attached to it, the Washington Times reported Saturday.
“An audit released Thursday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), says the Treasury Department is in the final stages of drafting rules on lobbying for bailout money - more than 10 months into the program,” the paper reported.
According to the report cited by the Washington Times, at least three of the financial institutions that applied for TARP money were granted cash despite not meeting the criteria. This, the report said, was due to “qualitative mitigating circumstances.”
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Entering the Greatest Depression in HistoryMore Bubbles Waiting to BurstBy Andrew Gavin Marshall
URL of this article: www.globalresearch.ca/index.php?context=va&aid=14680
Global Research, August 7, 2009
IntroductionWhile there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.
Housing Crash Still Not OverThe housing real estate market, despite numbers indicating an upward trend, is still in trouble, as, “Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.” Further, “the overall market remains very soft [...] aside from speculators and first-time buyers.” Dean Baker, co-director of the Center for Economic and Policy Research in Washington said, “It would be wrong to imagine that we have hit a turning point in the market,” as “There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward.” Foreclosures are still rising in many states “such as Nevada, Georgia and Utah, and economists say rising unemployment may push foreclosures higher into next year.” Clearly, the housing crisis is still not at an end.
The Commercial Real Estate BubbleIn May, Bloomberg quoted Deutsche Bank CEO Josef Ackermann as saying, “It's either the beginning of the end or the end of the beginning.” Bloomberg further pointed out that, “A piece of the puzzle that must be calculated into any determination of the depth of our economic doldrums is the condition of commercial real estate -- the shopping malls, hotels, and office buildings that tend to go along with real- estate expansions.” Residential investment went down 28.9 % from 2006 to 2007, and at the same time, nonresidential investment grew 24.9%, thus, commercial real estate was “serving as a buffer against the declining housing market.”
Commercial real estate lags behind housing trends, and so too, will the crisis, as “commercial construction projects are losing their appeal.” Further, “there are lots of reasons to suspect that commercial real estate was subject to some of the loose lending practices that afflicted the residential market. The Office of the Comptroller of the Currency's Survey of Credit Underwriting Practices found that whereas in 2003 just 2 percent of banks were easing their underwriting standards on commercial construction loans, by 2006 almost a third of them were relaxing.” In May it was reported that, “Almost 80 percent of domestic banks are tightening their lending standards for commercial real-estate loans,” and that, “we may face double-bubble trouble for real estate and the economy.”
In late July of 2009, it was reported that, “Commercial real estate’s decline is a significant issue facing the economy because it may result in more losses for the financial industry than residential real estate. This category includes apartment buildings, hotels, office towers, and shopping malls.” Worth noting is that, “As the economy has struggled, developers and landlords have had to rely on a helping hand from the US Federal Reserve in order to try to get credit flowing so that they can refinance existing buildings or even to complete partially constructed projects.” So again, the Fed is delaying the inevitable by providing more liquidity to an already inflated bubble. As the Financial Post pointed out, “From Vancouver to Manhattan, we are seeing rising office vacancies and declines in office rents.”
In April of 2009, it was reported that, “Office vacancies in U.S. downtowns increased to 12.5 percent in the first quarter, the highest in three years, as companies cut jobs and new buildings came onto the market,” and, “Downtown office vacancies nationwide could come close to 15 percent by the end of this year, approaching the 10-year high of 15.5 percent in 2003.”
In the same month it was reported that, “Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade, as a spending slump forces retailers to trim down to stay afloat.” In the first quarter of 2009, retail tenants “have vacated 8.7 million square feet of commercial space,” which “exceeds the 8.6 million square feet of retail space that was vacated in all of 2008.” Further, as CNN reported, “vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008.” Of significance for those that think and claim the crisis will be over by 2010, “mall vacancies [are expected] to exceed historical levels through 2011,” as for retailers, “it's only going to get worse.” Two days after the previous report, “General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on [April 16] in the biggest real estate failure in U.S. history.”
In April, the Financial Times reported that, “Property prices in China are likely to halve over the next two years, a top government researcher has predicted in a powerful signal that the country’s economic downturn faces further challenges despite recent positive data.” This is of enormous significance, as “The property market, along with exports, were leading drivers of the booming Chinese economy over the past decade.” Further, “an apparent rebound in the property market was unsustainable over the medium term and being driven by a flood of liquidity and fraudulent activity rather than real demand.” A researcher at a leading Chinese government think tank reported that, “he expected average urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008."
In April, it was reported that, “The Federal Reserve is considering offering longer loans to investors in commercial mortgage-backed securities as part of a plan to help jump-start the market for commercial real estate debt.” Since February the Fed “has been analyzing appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and other mortgage assets as collateral for its Term Asset-Backed Securities Lending Facility (TALF).”
In late July, the Financial Times reported that, “Two of America’s biggest banks, Morgan Stanley and Wells Fargo ... threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loan,” as “The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.” The commercial property market, worth $6.7 trillion, “which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.”
The Bailout BubbleWhile the bailout, or the “stimulus package” as it is often referred to, is getting good coverage in terms of being portrayed as having revived the economy and is leading the way to the light at the end of the tunnel, key factors are again misrepresented in this situation.
At the end of March of 2009, Bloomberg reported that, “The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year.” This amount “works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.”
Gerald Celente, the head of the Trends Research Institute, the major trend-forecasting agency in the world, wrote in May of 2009 of the “bailout bubble.” Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.
On May 13, 2009, Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes [...] it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.” Further, “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the 'Bailout Bubble' explodes, the system goes with it.”
Celente further explained that, “Phantom dollars, printed out of thin air, backed by nothing ... and producing next to nothing ... defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the "Bailout Bubble" pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” Celente elaborated, “Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war,” and that, “While we cannot pinpoint precisely when the 'Bailout Bubble' will burst, we are certain it will. When it does, it should be understood that a major war could follow.”
However, this “bailout bubble” that Celente was referring to at the time was the $12.8 trillion reported by Bloomberg. As of July, estimates put this bubble at nearly double the previous estimate.
As the Financial Times reported in late July of 2009, while the Fed and Treasury hail the efforts and impact of the bailouts, “Neil Barofsky, special inspector-general for the troubled asset relief programme, [TARP] said that the various US schemes to shore up banks and restart lending exposed federal agencies to a risk of $23,700bn [$23.7 trillion] – a vast estimate that was immediately dismissed by the Treasury.” The inspector-general of the TARP program stated that there were “fundamental vulnerabilities . . . relating to conflicts of interest and collusion, transparency, performance measures, and anti-money laundering.”
Barofsky also reports on the “considerable stress” in commercial real estate, as “The Fed has begun to open up Talf to commercial mortgage-backed securities to try to influence credit conditions in the commercial real estate market. The report draws attention to a new potential credit crunch when $500bn worth of real estate mortgages need to be refinanced by the end of the year.” Ben Bernanke, the Chairman of the Fed, and Timothy Geithner, the Treasury Secretary and former President of the New York Fed, are seriously discussing extending TALF (Term Asset-Backed Securities Lending Facility) into “CMBS [Commercial Mortgage-Backed Securities] and other assets such as small business loans and whether to increase the size of the programme.” It is the “expansion of the various programmes into new and riskier asset classes is one of the main bones of contention between the Treasury and Mr Barofsky.”
Testifying before Congress, Barofsky said, “From programs involving large capital infusions into hundreds of banks and other financial institutions, to a mortgage modification program designed to modify millions of mortgages, to public-private partnerships using tens of billions of taxpayer dollars to purchase 'toxic' assets from banks, TARP has evolved into a program of unprecedented scope, scale, and complexity.” He explained that, “The total potential federal government support could reach up to 23.7 trillion dollars.”
Is a Future Bailout Possible?
In early July of 2009, billionaire investor Warren Buffet said that, “unemployment could hit 11 percent and a second stimulus package might be needed as the economy struggles to recover from recession,” and he further stated that, “we're not in a recovery.” Also in early July, an economic adviser to President Obama stated that, “The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy.”
In August of 2009, it was reported that, “THE Obama administration will consider dishing out more money to rein in unemployment despite signs the recession is ending,” and that, “Treasury secretary Tim Geithner also conceded tax hikes could be on the agenda as the government worked to bring its huge recovery-related deficits under control.” Geithner said, “we will do what it takes,” and that, “more federal cash could be tipped into the recovery as unemployment benefits amid projections the benefits extended to 1.5 million jobless Americans will expire without Congress' intervention.” However, any future injection of money could be viewed as “a second stimulus package.”
The Washington Post reported in early July of a Treasury Department initiative known as “Plan C.” The Plan C team was assembled “to examine what could yet bring [the economy] down and has identified several trouble spots that could threaten the still-fragile lending industry,” and “the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks.”
Further, “The team is also responsible for considering potential government responses, but top officials within the Obama administration are wary of rolling out initiatives that would commit massive amounts of federal resources.” The article elaborated in saying that, “The creation of Plan C is a sign that the government has moved into a new phase of its response, acting preemptively rather than reacting to emerging crises.” In particular, the near-term challenge they are facing is commercial real estate lending, as “Banks and other firms that provided such loans in the past have sharply curtailed lending,” leaving “many developers and construction companies out in the cold.” Within the next couple years, “these groups face a tidal wave of commercial real estate debt -- some estimates peg the total at more than $3 trillion -- that they will need to refinance. These loans were issued during this decade's construction boom with the mistaken expectation that they would be refinanced on the same generous terms after a few years.”
However, as a result of the credit crisis, “few developers can find anyone to refinance their debt, endangering healthy and distressed properties.” Kim Diamond, a managing director at Standard & Poor's, stated that, “It's not a degree to which people are willing to lend,” but rather, “The question is whether a loan can be made at all.” Important to note is that, “Financial analysts said losses on commercial real estate loans are now the single largest cause of bank failures,” and that none of the bailout efforts enacted “is big enough to address the size of the problem.”
So the question must be asked: what is Plan C contemplating in terms of a possible government “solution”? Another bailout? The effect that this would have would be to further inflate the already monumental bailout bubble.
The Great European BubbleIn October of 2008, Germany and France led a European Union bailout of 1 trillion Euros, and “World markets initially soared as European governments pumped billions into crippled banks. Central banks in Europe also mounted a new offensive to restart lending by supplying unlimited amounts of dollars to commercial banks in a joint operation.”
The American bailouts even went to European banks, as it was reported in March of 2009 that, “European banks declined to discuss a report that they were beneficiaries of the $173 billion bail-out of insurer AIG,” as “Goldman Sachs, Morgan Stanley and a host of other U.S. and European banks had been paid roughly $50 billion since the Federal Reserve first extended aid to AIG.” Among the European banks, “French banks Societe Generale and Calyon on Sunday declined to comment on the story, as did Deutsche Bank, Britain's Barclays and unlisted Dutch group Rabobank.” Other banks that got money from the US bailout include HSBC, Wachovia, Merrill Lynch, Banco Santander and Royal Bank of Scotland. Because AIG was essentially insolvent, “the bailout enabled AIG to pay its counterparty banks for extra collateral,” with “Goldman Sachs and Deutsche bank each receiving $6 billion in payments between mid-September and December.”
In April of 2009, it was reported that, “EU governments have committed 3 trillion Euros [or $4 trillion dollars] to bail out banks with guarantees or cash injections in the wake of the global financial crisis, the European Commission.”
In early February of 2009, the Telegraph published a story with a startling headline, “European banks may need 16.3 trillion pound bail-out, EC document warns.” Type this headline into google, and the link to the Telegraph appears. However, click on the link, and the title has changed to “European bank bail-out could push EU into crisis.” Further, they removed any mention of the amount of money that may be required for a bank bailout. The amount in dollars, however, nears $25 trillion. The amount is the cumulative total of the troubled assets on bank balance sheets, a staggering number derived from the derivatives trade.
The Telegraph reported that, “National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.”
When Eastern European countries were in desperate need of financial aid, and discussion was heated on the possibility of an EU bailout of Eastern Europe, the EU, at the behest of Angela Merkel of Germany, denied the East European bailout. However, this was more a public relations stunt than an actual policy position.
While the EU refused money to Eastern Europe in the form of a bailout, in late March European leaders “doubled the emergency funding for the fragile economies of central and eastern Europe and pledged to deliver another doubling of International Monetary Fund lending facilities by putting up 75bn Euros (70bn pounds).” EU leaders “agreed to increase funding for balance of payments support available for mainly eastern European member states from 25bn Euros to 50bn Euros.”
As explained in a Times article in June of 2009, Germany has been deceitful in its public stance versus its actual policy decisions. The article, worth quoting in large part, first explained that:
Europe is now in the middle of a perfect storm - a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.
Taking the case of Latvia, the author asks, “If the crisis expands, other EU governments - and especially Germany's - will face an existential question. Do they commit hundreds of billions of euros to guarantee the debts of fellow EU countries? Or do they allow government defaults and devaluations that may ultimately break up the single currency and further cripple German industry, as well as the country's domestic banks?” While addressing that, “Publicly, German politicians have insisted that any bailouts or guarantees are out of the question,” however, “the pass has been quietly sold in Brussels, while politicians loudly protested their unshakeable commitment to defend it.”
The author addressed how in October of 2008:
[...] a previously unused regulation was discovered, allowing the creation of a 25 billion Euros “balance of payments facility” and authorising the EU to borrow substantial sums under its own “legal personality” for the first time. This facility was doubled again to 50 billion Euros in March. If Latvia's financial problems turn into a full-scale crisis, these guarantees and cross-subsidies between EU governments will increase to hundreds of billions in the months ahead and will certainly mutate into large-scale centralised EU borrowing, jointly guaranteed by all the taxpayers of the EU.
[...] The new EU borrowing, for example, is legally an ‘off-budget’ and ‘back-to-back’ arrangement, which allows Germany to maintain the legal fiction that it is not guaranteeing the debts of Latvia et al. The EU's bond prospectus to investors, however, makes quite clear where the financial burden truly lies: “From an investor's point of view the bond is fully guaranteed by the EU budget and, ultimately, by the EU Member States.”
So Eastern Europe is getting, or presumably will get bailed out. Whether this is in the form of EU federalism, providing loans of its own accord, paid for by European taxpayers, or through the IMF, which will attach any loans with its stringent Structural Adjustment Program (SAP) conditionalities, or both. It turned out that the joint partnership of the IMF and EU is what provided the loans and continues to provide such loans.
As the Financial Times pointed out in August of 2009, “Bank failures or plunging currencies in the three Baltic nations – Latvia, Lithuania and Estonia – could threaten the fragile prospect of recovery in the rest of Europe. These countries also sit on one of the world’s most sensitive political fault-lines. They are the European Union’s frontier states, bordering Russia.” In July, Latvia “agreed its second loan in eight months from the IMF and the EU,” following the first one in December. Lithuania is reported to be following suit. However, as the Financial Times noted, the loans came with the IMF conditionalities: “The injection of cash is the good news. The bad news is that, in return for shoring up state finances, the new IMF deal will require the Latvian government to impose yet more pain on its suffering population. Public-sector wages have already been cut by about a third this year. Pensions have been sliced. Now the IMF requires Latvia to cut another 10 per cent from the state budget this autumn.”
If we are to believe the brief Telegraph report pertaining to nearly $25 trillion in bad bank assets, which was removed from the original article for undisclosed reasons, not citing a factual retraction, the question is, does this potential bailout still stand? These banks haven’t been rescued financially from the EU, so, presumably, these bad assets are still sitting on the bank balance sheets. This bubble has yet to blow. Combine this with the $23.7 trillion US bailout bubble, and there is nearly $50 trillion between the EU and the US waiting to burst.
An Oil Bubble
In early July of 2009, the New York Times reported that, “The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.” Instability in the oil and gas prices has led many to “fear it could jeopardize a global recovery.” Further, “It is also hobbling businesses and consumers,” as “A wild run on the oil markets has occurred in the last 12 months.” Oil prices reached a record high last summer at $145/barrel, and with the economic crisis they fell to $33/barrel in December. However, since the start of 2009, oil has risen 55% to $70/barrel.
As the Times article points out, “the recent rise in oil prices is reprising the debate from last year over the role of investors — or speculators — in the commodity markets.” Energy officials from the EU and OPEC met in June and concluded that, “the speculation issue had not been resolved yet and that the 2008 bubble could be repeated.”
In June of 2009, Hedge Fund manager Michael Masters told the US Senate that, “Congress has not done enough to curb excessive speculation in the oil markets, leaving the country vulnerable to another price run-up in 2009.” He explained that, “oil prices are largely not determined by supply and demand but the trading desks of large Wall Street firms.” Because “Nothing was actually done by Congress to put an end to the problem of excessive speculation” in 2008, Masters explained, “there is nothing to prevent another bubble in oil prices in 2009. In fact, signs of another possible bubble are already beginning to appear.”
In May of 2008, Goldman Sachs warned that oil could reach as much as $200/barrel within the next 12-24 months [up to May 2010]. Interestingly, “Goldman Sachs is one of the largest Wall Street investment banks trading oil and it could profit from an increase in prices.” However, this is missing the key point. Not only would Goldman Sachs profit, but Goldman Sachs plays a major role in sending oil prices up in the first place.
As Ed Wallace pointed out in an article in Business Week in May of 2008, Goldman Sachs’ report placed the blame for such price hikes on “soaring demand” from China and the Middle East, combined with the contention that the Middle East has or would soon peak in its oil reserves. Wallace pointed out that:
Goldman Sachs was one of the founding partners of online commodities and futures marketplace Intercontinental Exchange (ICE). And ICE has been a primary focus of recent congressional investigations; it was named both in the Senate's Permanent Subcommittee on Investigations' June 27, 2006, Staff Report and in the House Committee on Energy & Commerce's hearing last December. Those investigations looked into the unregulated trading in energy futures, and both concluded that energy prices' climb to stratospheric heights has been driven by the billions of dollars' worth of oil and natural gas futures contracts being placed on the ICE—which is not regulated by the Commodities Futures Trading Commission.
Essentially, Goldman Sachs is one of the key speculators in the oil market, and thus, plays a major role in driving oil prices up on speculation. This must be reconsidered in light of the resurgent rise in oil prices in 2009. In July of 2009, “Goldman Sachs Group Inc. posted record earnings as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.” Could one be related to the other?
Bailouts Used in SpeculationIn November of 2008, the Chinese government injected an “$849 billion stimulus package aimed at keeping the emerging economic superpower growing.” China then recorded a rebound in the growth rate of the economy, and underwent a stock market boom. However, as the Wall Street Journal pointed out in July of 2009, “Its growth is now fuelled by cheap debt rather than corporate profits and retained earnings, and this shift in the medium term threatens to undermine China’s economic decoupling from the global slump.” Further, “overseas money has been piling into China, inflating foreign exchange reserves and domestic liquidity. So perhaps it is not surprising that outstanding bank loans have doubled in the last few years, or that there is much talk of a shadow banking system. Then there is China’s reputation for building overcapacity in its industrial sector, a notoriety it won even before the crash in global demand. This showed a disregard for returns that is always a tell-tale sign of cheap money.”
China’s economy primarily relies upon the United States as a consumption market for its cheap products. However, “The slowdown in U.S. consumption amid a credit crunch has exposed the weaknesses in this export-led financing model. So now China is turning instead to cheap debt for funding, a shift suggested by this year’s 35% or so rise in bank loans.”
In August of 2009, it was reported that China is experiencing a “stimulus-fueled stock market boom.” However, this has caused many leaders to “worry that too much of the $1-trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.”
The same reasoning needs to be applied to the US stock market surge. Something is inherently and structurally wrong with a financial system in which nothing is being produced, 600,000 jobs are lost monthly, and yet, the stock market goes up. Why is the stock market going up?
The Troubled Asset Relief Program (TARP), which provided $700 billion in bank bailouts, started under Bush and expanded under Obama, entails that the US Treasury purchases $700 billion worth of “troubled assets” from banks, and in turn, “that banks cannot be asked to account for their use of taxpayer money.”
So if banks don’t have to account for where the money goes, where did it go? They claim it went back into lending. However, bank lending continues to go down. Stock market speculation is the likely answer. Why else would stocks go up, lending continue downwards, and the bailout money be unaccounted for?
What Does the Bank for International Settlements (BIS) Have to Say?In late June, the Bank for International Settlements (BIS), the central bank of the world’s central banks, the most prestigious and powerful financial organization in the world, delivered an important warning. It stated that, “fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”
The BIS, “The only international body to correctly predict the financial crisis ... has warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates,” as the annual report of the BIS “has for the past three years been warning of the dangers of a repeat of the depression.” Further, “Its latest annual report warned that countries such as Australia faced the possibility of a run on the currency, which would force interest rates to rise.” The BIS warned that, “a temporary respite may make it more difficult for authorities to take the actions that are necessary, if unpopular, to restore the health of the financial system, and may thus ultimately prolong the period of slow growth.”
Of immense import is the BIS warning that, “At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses,” and explaining how fiscal packages posed significant risks, it said that, “There is a danger that fiscal policy-makers will exhaust their debt capacity before finishing the costly job of repairing the financial system,” and that, “There is the definite possibility that stimulus programs will drive up real interest rates and inflation expectations.” Inflation “would intensify as the downturn abated,” and the BIS “expressed doubt about the bank rescue package adopted in the US.”
The BIS further warned of inflation, saying that, “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates,” the BIS said. That will “lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble, sowing the seeds of the next financial boom-bust cycle.”
Major investors have also been warning about the dangers of inflation. Legendary investor Jim Rogers has warned of “a massive inflation holocaust.” Investor Marc Faber has warned that, “The U.S. economy will enter ‘hyperinflation’ approaching the levels in Zimbabwe,” and he stated that he is “100 percent sure that the U.S. will go into hyperinflation.” Further, “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Are We Entering A New Great Depression?
In 2007, it was reported that, “The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.” Further:
The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.
[...] In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be "cleaned up" afterwards - which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.
In 2008, the BIS again warned of the potential of another Great Depression, as “complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.”
In 2008, the BIS also said that, “The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point,” and that all central banks have done “has been to put off the day of reckoning.”
In late June of 2009, the BIS reported that as a result of stimulus packages, it has only seen “limited progress” and that, “the prospects for growth are at risk,” and further “stimulus measures won't be able to gain traction, and may only lead to a temporary pickup in growth.” Ultimately, “A fleeting recovery could well make matters worse.”
The BIS has said, in softened language, that the stimulus packages are ultimately going to cause more damage than they prevented, simply delaying the inevitable and making the inevitable that much worse. Given the previous BIS warnings of a Great Depression, the stimulus packages around the world have simply delayed the coming depression, and by adding significant numbers to the massive debt bubbles of the world’s nations, will ultimately make the depression worse than had governments not injected massive amounts of money into the economy.
After the last Great Depression, Keynesian economists emerged victorious in proposing that a nation must spend its way out of crisis. This time around, they will be proven wrong. The world is a very different place now. Loose credit, easy spending and massive debt is what has led the world to the current economic crisis, spending is not the way out. The world has been functioning on a debt based global economy. This debt based monetary system, controlled and operated by the global central banking system, of which the apex is the Bank for International Settlements, is unsustainable. This is the real bubble, the debt bubble. When it bursts, and it will burst, the world will enter into the Greatest Depression in world history.
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After massive losses, Fannie asks Treasury for $10.7 billionBy Stephen C. Webster August 6, 2009
http://rawstory.com/08/news/2009/08/06/breaking-fannie-mae-asks-treasury-for-another-107-billion/
Taxpayers gave troubled mortgage giant over $44 billion since April, over $101 billion in total
Troubled state-backed mortgage firm Fannie Mae took a massive 14.8-billion-dollar loss in the second quarter, and asked the US Treasury for another 10.7 billion dollars in aid, the company said Thursday.
Fannie Mae and its fellow state-backed lender Freddie Mac have already received hundreds of billions of dollars as part of a virtual government takeover aimed at avoiding their collapse in the wake of the subprime mortgage crisis.
“Today’s results bring the company’s cumulative losses over the last two years to $101.6 billion and will bring its total draw on the Treasury to $44.9 billion since April,” noted Bloomberg.
The latest loss for Fannie Mae came on the heels of a 23.2 billion-dollar loss in the first quarter.
“Fannie Mae said it expects the quality of its assets to worsen further and to continue accumulating losses as it executes President Barack Obama’s efforts to modify or refinance loans for as many as nine million homeowners,” Bloomberg reporter Dawn Kopecki continued.
“Due to current trends in the housing and financial markets, we expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury,” the firm’s quarterly report said, according to The Wall Street Journal. “As a result, we are dependent on the continued support of Treasury in order to continue operating our business.”
The paper continued: “To deal with souring loans, the company said it reached workout deals on 41,000 mortgages during the quarter. Loan modifications made up 40% of the total. Fannie said it expects increased activity under the federal Making Home Affordable program as mortgage services gain experience with it. The company noted trial modifications jumped in July from the second quarter.”
“In one hopeful sign, Fannie Mae narrowed its quarterly loss to $14.8 billion, or $2.67 per diluted share, down from $23.2 billion, or $4.09 per share, in the previous quarter,” noted CNN. “The company lost $2.3 billion, or $2.54 per share, in the second quarter last year.”
“Credit losses from the housing crisis are still to blame for Fannie Mae’s dour results,” the television news network continued. “The company racked up $18.8 billion in credit-related expenses during the latest quarter. However, the company reduced its provision for credit losses to $18.2 billion, from $20.3 billion in the first quarter, because of a slowdown in the increase of estimated defaults and losses per default.”
By market’s close on Thursday, shares in Fannie Mae (NYSE: FNM) were trading at just 79 cents.
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Bailed out Buffett: Buffett firms got $95 billion of bailout cash
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The richest man in the world doesn’t need $95 billion dollars.
But apparently, the companies he invests in did. According to a new report, companies in which Warren Buffett owns sizable minority stakes received a whopping $95 billion in Troubled Asset Relief funding, as Buffett was shilling for investments in common stocks.
To be fair, his holding company, Berkshire Hathaway, has received no government aid. In fact, Berkshire became a major lender in the wake of frozen US credit markets, injecting $5 billion into General Electric, Goldman Sachs and even motorcycle-maker Harley Davidson at hefty interest rates.
A bitter Reuters blogger, however, points out that Buffett’s investment holdings have benefited greatly from taxpayer’s largess. Aside from the nearly $100 billion in taxpayer aid extended to Buffett’s holdings — which include mortgage lender Wells Fargo and Bank of America, credit card leviathan American Express and the bonus-happy brokerage Goldman Sachs — his companies also benefit from $130 billion in FDIC backing for their debt.
“Were it not for government bailouts, for which Buffett lobbied hard,” writes Reuters’ Rolfe Winke, “many of his company’s stock holdings would have been wiped out.”
Buffett owns 27 percent of Berkshire Hathaway, for which he serves as chairman and chief executive for an annual salary of $100,000. He’s known for his frank and simple-worded investment advice, often laced with colorful sexual metaphors.
Winke says Goldman Sachs would have collapsed without government aid it received. The bank recently paid back its TARP funding — seen as an effort both to signal to the markets its financial strength as well as to get out from beneath a bevy of restrictions on company practices, including massive bonus payments to executives.
Without government backing, Winke notes, “banks that couldn’t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder’s equity. With $7 billion at stake, Buffett is one of the biggest of these shareholders.”
“He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb,” the writer adds.
Winke notes that Buffett even complained about the favorable treatment given to his own investment holdings.
“Funders that have access to any sort of government guarantee — banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella — have money costs that are minimal,” Buffett wrote in his annual shareholder letter.
“Conversely,” he added, “highly-rated companies, such as Berkshire, are experiencing borrowing costs that … are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.”
Remarks Winke, “It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.”
Buffett, though, is a strange egg in financial circles: he recently admitted paying just 19 percent in federal income tax, saying it was inappropriately low, and is a major proponent of the estate tax. He’s also the bete noire of some corporate executives, having been a major critic of executive salaries and stock options in years past.
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U.S. Properties Worth $2.2 Trillion at Default RiskBy David M. Levitt
http://www.bloomberg.com/apps/news?pid=20601206&sid=agyb1t2XNasM
July 29, 2009 (Bloomberg) -- About $2.2 trillion of U.S. commercial properties bought or refinanced since 2004 are now worth less than the original price, raising the threat of more foreclosures, Real Capital Analytics said.
Prices have fallen so far that about $1.3 trillion of properties have either lost their owners’ down payment or are close to it, Robert White, president of the New York-based research firm, said in a report. The analysis includes only office, industrial, multifamily and retail properties. Hotels and raw land would “add billions more to the total,” he wrote.
“The sad fact is that many of these assets are healthy performing assets,” said Dan Fasulo, managing director of Real Capital. “Conditions have changed so much in the lending arena that many owners are going to have significant troubles refinancing.”
The report details the magnitude of the crisis in commercial real estate, where the collapse of securitized mortgages have combined with the recession to send prices plummeting and push landlords into default. U.S. commercial property prices are down 35 percent since the peak in October 2007, according a survey from Moody’s Investors Service.
The real estate market is stalled because buyers and sellers are far apart on values, said Raymond Torto, global chief economist at CB Richard Ellis Group Inc., the world’s biggest commercial property brokerage.
‘Fire Sale’ Prices
“This is the big conundrum,” he said in an interview. “Just how much is out there at fire sale prices? And of course the fact that people believe and expect fire sale prices means nobody buys, which is another part of the problem.”
Buyers are interested in acquiring prime properties that are fully occupied, he said. Instead many buildings for sale have a lot of empty space, he said.
“People don’t want to sell unless it’s an extreme case, like Worldwide Plaza,” he said. Three private investment groups acquired the 47-story tower in Manhattan after Deutsche Bank AG seized the property from developer Harry Macklowe. The 1.8 million square-foot tower has about 700,000 empty square feet, one of the biggest spaces on the market in New York.
Even relatively conservative buyers are getting caught by falling values, according to Fasulo. He cited 333 Bush St., a 43-story tower in downtown San Francisco, whose owners, Hines Interests and Sterling American Property Inc., plan to surrender the building to its lenders. The move came after the main tenant, the law firm Heller Ehrman LLP, filed for bankruptcy.
‘Prominent People’The partnership paid $281 million for the skyscraper in 2007, near the top of the market.
It’s “quite significant” that Hines and Sterling would find themselves having to give a building back, said Torto.
“These are prominent people,” he said. “It’s not like they’re Joe Speculator.”
Properties that were typically leveraged at 70 percent to 80 percent would have had tough times refinancing “even if prices held firm,” White wrote in the report. Few lenders are now willing to advance more than 50 percent to 60 percent of value in this market, he said.
About $124 billion of commercial properties have fallen into default, foreclosure or bankruptcy since prices started falling, Real Capital said. Less than 10 percent of distressed properties have resolved their financing issues and lenders have been slow to take action against property owners.
“The phrase ‘pretend & extend’ has recently entered the vernacular,” White wrote.
To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.
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Foreclosure Chart of the Day
US: 1.5 million home foreclosures to date is just "tip of the iceberg" according to Center for Responsible Lending. 13 million more expected by 2014.Posted by: Felix Salmon
July 29th, 2009
http://blogs.reuters.com/felix-salmon/2009/07/29/foreclosure-chart-of-the-day/
The chart comes from the Center for Responsible Lending:
According to Congressional testimony from CRL director Keith Ernst, the 1.5 million homes which have already been lost to foreclosure are just the tip of the iceberg compared to the 13 million total foreclosures expected over the five years from end-08 to 2014. He adds:
Many industry interests object to any rules governing lending, threatening that they won’t make loans if the rules are too strong from their perspective. Yet it is the absence of substantive and effective regulation that has managed to lock down the flow of credit beyond anyone’s wildest dreams. For years, mortgage bankers told Congress that their subprime and exotic mortgages were not dangerous and regulators not only turned a blind eye, but aggressively preempted state laws that sought to rein in some of the worst subprime lending. Then, after the mortgages started to go bad, lenders advised that the damage would be easily contained. As the global economy lies battered today with credit markets flagging, any new request to operate without basic rules of the road is more than indefensible; it’s appalling.
He also has a relatively simple idea which I think would help a lot in getting servicers to actually implement the loan modifications they say they’re committed to doing:
One way to help with the various concerns just listed is to create a mediation program that would require servicers to sit down face-to-face with borrowers to evaluate them for loan modification eligibility. Similar programs are at work in several jurisdictions across the country, and they can be very helpful to ensure that homeowners get a fair hearing and that all decisions are made in a fair and transparent way.
I fear that Congress is beginning to get reform fatigue, after so many attempted solutions have failed. But that’s no reason to stop trying new things — in fact, it’s a good reason to try even harder.
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U.S. Budget Is Scrutinized by a Big Creditor
By DAVID E. SANGER
Published: July 28, 2009
http://www.nytimes.com/2009/07/29/us/politics/29sanger.html?_r=3&hp
No sooner had President Obama greeted nearly 200 of the bankers, bureaucrats and policymakers who could make or break his economic plans on Monday than they started grilling his economic team with the hardest questions about his economic strategy.
How long are these huge deficits sustainable, they wanted to know. How long do you keep stimulating the economy, and when do you break for the exits? If the dollar nosedives compared other major currencies, what’s the administration’s Plan B?
The questions were mostly asked in Chinese — by a delegation from Beijing that, diplomatic niceties aside, has come to check in on the investment of more than $1.5 trillion that China has made in United States government-issued securities.
“We are concerned about the security of our financial assets,” China’s assistant finance minister, Zhu Guangyao, said with uncharacteristic bluntness during a briefing for reporters covering the “U.S.-China Strategic and Economic Dialogue” on Monday.
It was a comment that underscored how much the global financial crisis has changed the subtle balance of power in meetings of “the G-2,” the shorthand now used to describe sessions between the world’s largest economy and its fastest-rising economic power. Gone, probably forever, are the days when American delegations would show up in Beijing with advice about how the Chinese could become a “responsible stakeholder” in the world — the phrase coined by the Bush administration. The demands that the Chinese let their currency appreciate, clean up their banks or get rid of the subsidies for state-owned enterprises have been toned down.
You do not talk to your biggest creditor that way — especially when you have a record-sized loan application pending.
Throughout the two-day conference, which ends Tuesday, the subtext has been that Mr. Obama must persuade more than just Blue Dog Democrats, moderate Republicans and skeptical economists that he has a plausible long-term plan to bring down a record-breaking federal deficit. He also has to convince the occupants of the Great Hall of the People, whom he needed to show up at this week’s $200 billion Treasury auction, and the many auctions that will follow.
They will show up — but the lingering question for the next few years is how often, and how enthusiastically they will bid.
There is little real danger, despite the periodic warnings from cable-television doomsayers, that the Chinese will sell off their huge holdings in American debt. As one senior Chinese official involved in the country’s investment strategy put it several weeks ago, “As the biggest holder of Treasuries, we would suffer the most from starting a panic.” The euro and the yen do not seem especially attractive — China’s most expensive import is oil, and oil is still priced in dollars.
But domestic pressure is growing on the Chinese government to proceed with care. One of the first big investments by China’s state-run sovereign wealth fund was a $3 billon stake in the Blackstone Group; when it went sour two years ago, the Chinese press printed angry screeds about how the government had gambled and lost the country’s assets.
When Fannie Mae went into freefall last year, Chinese officials were on the phone to the United States Treasury, demanding an explanation about how their investment in the mortgage agency’s bonds would be protected. There were no threats made about the future of Chinese investments in the United States, but the message was clear. Ultimately, China was protected when the Bush administration took over control of the housing lender in September, one of the government’s first steps to try to halt a broader financial implosion.
Now, with the immediate crisis past, China’s questions have taken a different turn. The sessions yesterday — attended by the Treasury secretary, Timothy Geithner; by the chairman of the Federal Reserve, Ben Bernanke; and by the director of the National Economic Council, Lawrence H. Summers — were dominated by questions about how quickly the United States could halt the huge deficit spending.
“I think there were serious questions about what the economic outlook is, what our plans are for withdrawing some of the stimulus — you know, when we think the right time to do that is, to bring our fiscal deficit down to a sustainable level,” the Treasury’s coordinator for China affairs, David Loevinger, said on Monday evening.
The administration, Mr. Loevinger said, brought along Peter Orszag, the budget director, to make the case to the Chinese. He “was very clear — and he was also backed up by Summers on this — that the fiscal stimulus we’ve put in place was necessary and it’s the right thing and it’s designed to extend through 2011, but it’s not sustainable at the current rate and that we’re committed by the end of the Obama administration to bring it down to a sustainable level,” he said.
Even five years ago, it would have been hard to imagine any administration trotting out its budget director to justify fiscal strategy to the Chinese. But as Mr. Obama said, slightly amending a phrase that once was commonly used to describe the United States-Japan relationship, the interchange between the America and China now is as “important as any bilateral relationship in the world.”
Mr. Obama has a big agenda for it — joint action on global warming, on containing North Korea and Iran, on nudging the Chinese away from their neuralgic views of Taiwan and Tibet. So far the Chinese have insisted that they have no plans to use their financial leverage to influence American policy — just as Mr. Obama has said he will not use the government’s role as the majority shareholder in General Motors to dictate what kind of cars the company makes.
Skeptics abound on both pledges. Financial crises can change the balance of power as surely as wars do — but it may be a few years before we know how that power is employed.
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U.K. Economy Shrank by 0.8% in the Second Quarter
By Jennifer Ryan
http://www.bloomberg.com/apps/news?pid=20601068&sid=aXYO.hL6LqCk#
July 24 (Bloomberg) -- The U.K. economy shrank more than twice as much as economists forecast in the second quarter as a record annual slump in construction, banking and business services kept Britain mired in the recession.
Gross domestic product contracted 0.8 percent from the first quarter, the Office for National Statistics said today in London. Economists predicted a 0.3 percent drop, according to the median of 32 forecasts in a Bloomberg News survey. From a year earlier, the economy shrank 5.6 percent, the most since records began in 1955.
Prime Minister Gordon Brown’s Labour Party trails the opposition Conservatives in polls less than a year before an election as the recession drives up unemployment. Bank of England policy maker Andrew Sentance said yesterday that the British economy may start to pick up in the second half of 2009.
“It’s a very sizeable recession indeed,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “I think we’ve seen the worst, but what will the post-recession environment look like? There is a risk in the medium term that growth will be weaker than we’re used to.”
The pound dropped as much as 0.5 percent against the dollar after the report. The U.K. currency traded at $1.6466 as of 12:20 p.m. in London.
Today’s report is the first among the Group of Seven nations for the second quarter. The International Monetary Fund forecasts the U.K. will contract 4.2 percent this year, compared with 4.8 percent in the euro area and 2.6 percent in the U.S.
‘Return to Growth’Brown said today that the Group of 20 nations need to take steps to revive the world economy.
“We are at a point where banks have been stabilized, but we don’t yet have a strategy for a return to growth,” Brown said at the opening of a meeting in his office in London.
Brown, who must call a general election by June, has trailed David Cameron’s Conservatives in every opinion poll this year. A July 19 survey by Ipsos-Mori Ltd. showed the ruling party lagging the biggest opposition party by 16 points.
“Today’s figures are fresh evidence of the sheer scale of the global downturn we’re fighting,” said Liam Byrne, a junior Treasury minister. “But they also show the pace of slowdown is easing compared to the winter, which is why we remain cautious but confident that growth will return towards the end of the year.”
The data show the economy has now shrunk by 5.7 percent since the recession began last year. That compares with a total 6 percent slump in the recession period that ended in 1981, the statistics office said.
Annual Decline
Construction fell 2.2 percent on the quarter and 14.7 percent from a year earlier, which was the biggest annual drop since records began in 1948. Business services and finance slumped 0.7 percent on the quarter and had a record annual decline of 4.4 percent, the statistics office said.
While the government has committed as much as 1.4 trillion pounds ($2.3 trillion) to revive lending and rescue banks such as Royal Bank of Scotland Group Plc, it hasn’t stopped joblessness from increasing. Unemployment in the quarter through May increased by 281,000, the most since records began in 1971. The jobless-benefit roll has reached 1.56 million, the most in 12 years.
Policy makers unanimously voted on July 9 to keep the key interest rate at a record low of 0.5 percent and said they will review the size of their 125 billion-pound plan to print money in August, when they publish forecasts on growth and inflation.
Quarterly Predictions
The bank will “make a judgment about whether we need to add further to that stimulus” once the new quarterly predictions are available, Sentance said yesterday in an interview. “The economy is already benefiting from a big monetary stimulus as we go into the second half of this year and next year.”
Former policy maker David Blanchflower said in an interview on Bloomberg Television yesterday that the economy may not be through the worst, and the central bank risks stifling the recovery were it to raise rates or reverse the bond-purchase program prematurely.
“My worry is that the tightening comes too soon and people kill off any recovery that’s coming,” he said. “It’s very early days to say that you know the endgame is even in sight.”
To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net
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Guaranty Bank may face federal controlFriday, July 24, 2009
By BRENDAN CASE / The Dallas Morning News bcase@dallasnews.com
http://www.dallasnews.com/sharedcontent/dws/bus/stories/072409dnbusguaranty.3bfc4f2.html
Austin-based Guaranty Financial Group Inc. probably can't continue as a going concern, the company said Thursday.
Its subsidiary, Guaranty Bank, is "critically undercapitalized" after recent write-downs related to its mortgage-backed securities portfolio. Guaranty's primary shareholders are unwilling to inject additional capital, the company said.
"In light of these developments, the company believes that it is probable that it will not be able to continue as a going concern," Guaranty said in a filing with the U.S. Securities and Exchange Commission.
Guaranty Bank has agreed to be taken over by federal banking regulators, but a takeover has not yet occurred. Guaranty could end up as the largest U.S. bank failure of the year so far. Guaranty Bank's board continues to operate, but the federal Office of Thrift Supervision "is exercising a significant degree of control over what had heretofore been the functions of the board," Guaranty Financial said in the filing.
Guaranty Bank's customer deposits remain fully insured up to Federal Deposit Insurance Corp. limits, the bank and regulators say. The FDIC's standard insurance amount is $250,000 per depositor.
"We continue to work with our regulators," Guaranty said in a statement. "We are focused on providing the best customer service possible and believe we can avoid any disruptions to our customers. As a member of the FDIC, Guaranty depositors enjoy the same coverage as customers of other FDIC member banks."
Outside bankers interpreted Guaranty's filing as an acknowledgement that the bank has lost its struggle to stay in business. They added that regulators may be negotiating with buyers interested in Guaranty's business, although the company said any transaction would not be expected to result in proceeds for shareholders.
"The game is over as an independent company," said Jim Gardner, a longtime banker who is now chairman of Commerce Street Capital LLC, a Dallas-based investment banking firm. "The shareholders are wiped out and the government is calling the shots."While Guaranty is technically based in Austin, its top executives work in Dallas. The bank has about 160 branches in Texas and California.
The bank's assets include a weakened loan portfolio and a large chunk of mortgage-backed securities, many based on risky California mortgages.
In its filing Thursday, Guaranty Financial said it wrote down the value of its mortgage-backed securities and took accounting charges of about $1.5 billion.
The write-downs left it with a core capital ratio of negative 5.78 percent as of March 31 and a total risk-based capital ratio of 5.52 percent.
Guaranty was spun off from Temple-Inland Co. of Austin in late 2007, a move sought by Temple-Inland shareholder and New York billionaire Carl Icahn.
A year ago, Guaranty picked up a $600 million additional investment from Icahn and Dallas billionaire Robert Rowling.
In April, Guaranty said banking regulators ordered it to raise its capital levels.
In June, it said it might seek an unusual "open bank assistance" plan, in which its shareholders would inject additional capital and regulators would absorb some of its losses.
Earlier this month, Guaranty said it had assets of about $14.4 billion as of March 31.
The largest bank failure so far this year was Florida-based BankUnited FSB, which had assets of $12.8 billion when it went down in May. An investor group acquired nearly all its assets.
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Put the Monster to Sleep...Stimulate ThatBy Dr. Laurie Roth
July 10, 2009
NewsWithViews.com
http://www.newswithviews.com/Roth/laurie173.htm
Now we are talking a second stimulus bill apparently because the Viagra and candy we threw out to the special interests and big boys in the last one didn’t work right. The American public thought there was supposed to be a benefit to them and jobs, wrong! Unemployment is almost up to 11% now, California is giving out IOUs and emptying their prisons of serious illegal alien criminals, while paying to send them back to Mexico so they can come back and commit more crimes. The US prisoners get to stay put but the illegal alien guys get their way paid back to their country according to attorney Steve Eichler of www.faxdc.com. As usual, US citizens are chopped liver and all other groups and invaders are special. Then there is are glowing housing and retail industry which is moving like a pregnant turtle on drugs.
Now we want to infuse more glorious help to the economy to help it recover. You mean funding underground, green turtle tunnels under Florida roads didn’t do it? What about helping the special mice in the Bay area….at least Pelosi would make it happen…no? What about the emergency of funding and fixing over 30 bridges to practically nowhere? At least drunks could now ride to the bar and country club.
Warren Buffett has even compared the first stimulus package to viagra and candy. He said on Good Morning America that the first plan didn’t really help the American people and we needed another one.
This congress wants to tackle another stimulus bill, with their fixation on big government and wasted, “pay back” projects? At this rate we should outlaw the word stimulation! Perhaps instead we should send sedatives to congress instead of T bags!
Underground bridges for special turtles isn’t going to fix and save our economy and country. We are in a severe recession if not full-blown depression! People won’t start buying up products and cars until they feel their job is stabilized or they can even find one…. preferably that doesn’t get paid with IOUs.
The American people aren’t used to this kind of pull back and sacrifice in their personal lives. Hundreds of thousands are losing their jobs and homes on a regular basis and searching for answers. You can’t just go get everything you want right now!
The sad but liberating truth is that we must all get creative, look at our resources more efficiently and stop spending on rubbish. Secure your food supply and shelter. Buy cheaper brands, budget and think bulk. Look at your resources, who you know, jobs in your area and services you might do that someone is not doing where you live. Ask for the order and job several times and remember often a no is just an invitation for more information about you. In times like this remembers the squeaky wheel really does get the grease.
Recovery on small medium and large levels will not be about spending more money we don’t have but about vision, thinking outside the box, discipline and being willing to work. We must stop wasting and focusing on our “wants” in a time of crisis if we are to recover on a personal, state and federal level.
Have we not learned a thing with this first crisis bill, full of Disneyland rides to nowhere? Most of our leaders from the President on down define and view, financial, national emergencies ONLY AS TAKE OVER OPPORTUNITIES FOR THE GOVERNMENT? They have played and are playing on the naitivity, fear and stupidity of the American people, many of which who don’t know real history and how take overs occur.
Desperation, created crisis, distraction and neediness are the only things needed for dictators to emerge and take over. We saw it with Mussolini, Hitler and Stalin to name a few. None of these evil giants came in threatening to sieze land, guns, rights and lives. These were the saviors of their time, so the folks thought…….perhaps you know enough history to know how the real story turned out for these guys.
Suck it up! Remember what freedom and our constitution looks like. We must get our vision clear again and work with others in your area, state by state to get back our House, Senate and Executive branch. We can do it. We have swung far left into big Government before with Jimmy Carter, Bill Clinton and others. We can recover and repair this time if we can re-establish our vision and get to work.
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video
Florida Congressman Alan Grayson Laughs in Ben Bernanke's Face
video
Congressman Stearns: Mr. Paulson, how do you have any credibility?
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AIG Seeks Clearance For More Bonuses
$2.4 Million in Executive Payments Due Next WeekBy Brady Dennis and David Cho, Washington Post Staff Writers
Friday, July 10, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/09/AR2009070902702.html?hpid=topnews
American International Group is preparing to pay millions of dollars more in bonuses to several dozen top corporate executives after an earlier round of payments four months ago set off a national furor.
The troubled insurance giant has been pressing the federal government to bless the payments in hopes of shielding itself from renewed public outrage.
The request puts the administration's new compensation czar on the spot by seeking his opinion about bonuses that were promised long before he took his post.
AIG doesn't actually need the permission of Kenneth R. Feinberg, who President Obama appointed last month to oversee the compensation of top executives at seven firms that have received large federal bailouts. But officials at AIG, whose federal rescue package stands at $180 billion, have been reluctant to move forward without political cover from the government.
"Anytime we write a check to anybody" it is highly scrutinized, said an AIG official, who declined to speak on the record because the negotiations with Feinberg are ongoing. "We would want to feel comfortable that the government is comfortable with what we are doing."
The payments coming due next week include $2.4 million in bonuses for about 40 high-ranking executives at AIG, according to administration documents from earlier this year. Though the actual sum may have changed since then, the payments are much smaller than those that caused the upheaval in March.
Still, officials at AIG and within the government see them as a land mine.
Feinberg, who previously managed the government's efforts to compensate the families of those killed in the Sept. 11 attacks, has the power to determine salaries, bonuses and retirement packages for all executive officers and the 100 most highly paid employees at firms such as Citigroup, Bank of America, General Motors and AIG.
AIG's upcoming payments do not fall under Feinberg's official purview, as they involve bonuses delayed from 2008. Feinberg is charged with shaping only current and future compensation. As a result, some Treasury Department officials believe they are under no obligation to offer an advisory opinion in this case, which could leave AIG officials to decide the matter on their own, according to a person familiar with the talks.
In November, AIG's top seven executives, including Chairman Edward M. Liddy, agreed to forgo their bonuses through 2009. Then, in March, facing pressure from Treasury Secretary Timothy F. Geithner and other government officials, the company restructured its corporate bonus plans for the remaining top 50 executives. As part of this agreement, the senior executives were to receive half their 2008 bonuses -- which totaled $9.6 million -- in the spring, with another quarter disbursed on July 15 and the rest on Sept. 15. The last two payments would depend on whether the company made progress in revamping its business and paying back bailout money to taxpayers.
The exact range of the payments due this month to AIG executives was unclear in company disclosure filings.
AIG's proxy statement filed last month explains why AIG initially instituted the retention payments. The company stated that after the federal bailout began in September, "we needed to confront the fact that many of our employees, perhaps the majority, knew that their long-term future with us was limited, and our competitors knew that our key producers could perhaps be lured away. . . . Allowing departures to erode the strength of our businesses would have damaged our ability to repay taxpayers for their assistance."
The Treasury declined to comment specifically on the bonuses due this month. In a statement, a department spokesman said, "Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives. . . . We are not going to provide a running commentary on that process, but it's clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance."
Feinberg did not respond to an e-mail seeking comment.
The recent discussions between the company and Feinberg illustrate how politically sensitive the bonuses have become, both for AIG and for the Obama administration. No development in the government's bailout of financial firms has angered lawmakers and ordinary Americans more than the disclosure in mid-March that the global insurer was paying more than $165 million in retention bonuses. They were aimed at retaining 400 employees at AIG Financial Products, the troubled unit whose complex derivative contracts nearly wrecked the global insurance giant.
Ultimately, some of these employees vowed to return more than $50 million -- but not before the resulting firestorm threatened to undermine the government's effort to rescue the financial system. Lawmakers, including key allies of the administration, sponsored bills that would have levied harsh taxes on AIG and other bailout recipients offering bonuses to their executives.
Afraid of such congressional action, firms rushed to pay back federal aid, while others shied away from cooperating with the government in some of its bailout programs. Some initiatives had to be scaled down as a result.
The issue of bonuses, which had earlier been viewed by officials as minor relative to the larger problems in the financial system, began to consume the attention of top officials within the Treasury and Federal Reserve. Geithner attended long meetings to review payments, even those for low-ranking AIG executives.
Separately this week, a Citigroup analyst warned that AIG might be worthless to shareholders if or when it ever pays back the billions it owes the U.S. government.
"Our valuation includes a 70 percent chance that the equity at AIG is zero," Joshua Shanker of Citigroup wrote in a note to investors. He cites the continuing risks posed by the company's exotic derivative contracts, called credit-default swaps, and its sale of assets at low prices. AIG's stock plummeted by more than 25 percent yesterday.
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AIG May Have Zero Value After Rescue, Citigroup SaysBy Erik Holm and Hugh Son
http://www.bloomberg.com/apps/news?pid=20601213&sid=a.SanYh6Y1EY
July 9 (Bloomberg) -- American International Group Inc., the insurer bailed out four times by the government, fell the most in nine months after Citigroup Inc. said the firm may have no value left for shareholders after repaying the U.S. AIG plunged $3.62, or 28 percent, to $9.48 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop since September 2008. The insurer has lost more than half its value after implementing a 1-for-20 reverse stock split when trading closed June 30.
“Our valuation includes a 70 percent chance that the equity at AIG is zero,” said Joshua Shanker, an analyst at Citigroup, in a note to investors late yesterday cutting his price target on the New York-based insurer by more than half.
Departing Chief Executive Officer Edward Liddy is under pressure from lawmakers to sell assets to help repay the $182.5 billion rescue package that was required to prop up the insurer after losses on credit-default swaps tied to U.S. home loans. The company said last week that other derivatives, backing about $193 billion in assets for European banks, could have a “material adverse effect” on AIG’s results.
“The company has not been forthcoming about the sequence of events that would result in a loss” on the European contracts, Shanker said. “Even a proportionally small loss could be significant.”
Liddy said last month at the firm’s annual meeting that the insurer has an “excellent chance” of repaying the government. Liddy’s remarks echo comments he made to Congress in May when he said the company can pay back a government credit line and $40 billion stock investment within five years. The insurer may need more time if markets worsen, he said then. Christina Pretto, a spokeswoman for AIG, declined to comment.
Motivation ‘Compromised’
Liddy has announced deals to raise about $6.7 billion in asset sales since the first rescue in September and said he may hold public offerings for stakes in AIG units after the company struggled to sell the businesses in their entirety. Liddy, appointed to run the company after AIG agreed to turn over a stake of almost 80 percent to the U.S., said in May he plans to step down once a successor is found.
“The CEO’s motivation and ability to lead may be compromised by his preparations to transition the company’s top seat to another,” Shanker said.
AIG’s board approved the reverse split after the company plunged more than 95 percent in the past two years, saying that a higher price may attract institutional investors who don’t typically buy shares trading for less than $5.
‘Financial Woes’Investors are betting against the stock in “anticipation of future financial woes,” Shanker said, lowering his price target to $14 from $36. He said the company has a 20 percent chance of continuing to operate as a scaled-back commercial insurer, a 5 percent chance of restructuring its government agreement again, and a 5 percent chance of restructuring its capital position using divestitures.
Shareholders may have no value left if AIG is forced to sell its assets and can’t command prices that exceed the insurer’s liabilities, a scenario that has a 60 percent chance of occurring, according to Shanker. He said there is also a 10 percent chance of insolvency, which may also wipe out investors.
“We remain skeptical regarding AIG’s ability to pay off its debt in full, particularly as it loses cash flows of sold off or spun off operations,” Shanker said. The company has sold a business covering cars in the U.S., Canadian life operations, an equipment guarantor and its majority stake in reinsurer Transatlantic Holdings Inc.
Short Selling
The government’s rescue includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and an investment of as much as $70 billion. AIG plans to reduce its debt under the credit line by $25 billion by handing over stakes in two non-U.S. life insurance units, the insurer said last month. AIG has tapped about $40 billion from the line.
The insurer isn’t likely to repay the full amount it owes senior unsecured bondholders, according to a Barclays Capital report. Senior unsecured bondholders hold $59.2 billion of AIG debt, analysts led by Maneesh Deshpande said in a note to investors. The insurer will have to repay borrowings on its credit line with the Federal Reserve before paying back its bonds.
AIG was cut to “sell” by Standard & Poor’s equity analyst Catherine Seifert yesterday on the prospect that more investors will bet against the stock. The split “may ease the mechanics of shorting AIG shares,” Seifert said. She previously rated the shares “hold.”
Short selling is when hedge funds and other investors borrow shares and then sell them betting their price will fall. If it does, they buy the shares back at the cheaper price, return them to the lender of the shares and keep the difference.
To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.
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Whose Country is it anyway? A political-economic oligarchy has taken over the United States of AmericaBy Prof. John Kozy
URL of this article: www.globalresearch.ca/index.php?context=va&aid=14226
Global Research, July 4, 2009
A political-economic oligarchy has taken over the United States of America. This oligarchy has institutionalized a body of law that protects businesses at the expense of not only the common people but the nation itself.CNN interviewed a person recently who was seriously burned when his vehicle burst into flames because a plastic brake-fluid reservoir ruptured. Having sued Chrysler, he was now concerned that its bankruptcy filing would enable Chrysler to avoid paying any damages. A CNN legal expert called this highly likely, since the main goal of reorganization in bankruptcy is preserving the company's viability and that those creditors who could contribute most to attaining that goal would be compensated first while those involved in civil suits against the company would be placed lowest on the creditor list since compensating them would lessen the chances of the company's surviving. This rational clearly implies that the preservation of companies is more important than the preservation of people. Of course, similar cases have been reported before. The claims of workers for unpaid wages have often been dismissed as have their contracts for benefits.
But there is an essential difference between a business that lends money or delivers products or services to another company and the employees who work for it. Business is an activity that supposedly involves risk. Employment is not. Neither is unknowingly buying a defective product. Workers and consumers do not extend credit to the companies they work for or buy products from. They are not in any normal sense of the word “creditors.” Yet that distinction is erased in bankruptcy proceedings which preserve companies at the public's expense.
Of course, bankruptcy is not the only American practice that makes use of this principle. The current bailout policies of both the Federal Reserve and the Treasury make use of it. Again companies are being saved at the expense of the American people. America's civil courts are notorious for favoring corporate defendants when sued by injured plaintiffs. Corporate profiteering is not only tolerated, it is often encouraged. The sordid records of both Halliburton and KBR are proof enough. Neither has suffered any serious consequences for their abysmal activities in Iraq while supplying services to the troops deployed there. Even worse, these companies continue to get additional contracts from the Department of State. “A former Army chaplain who later worked for Halliburton's KBR unit ... told Congress ... ‘KBR came first, the soldiers came second.'" [http://www.halliburtonwatch.org/news/deyoung.html] Again, it's companies first, people last. But Major General Smedley Butler made this point in 1935. [See http://www.scuttlebuttsmallchow.com/racket.html] And everyone is familiar with the influence corporate America has over the Congress through campaign contributions and lobbying. For instance, “the U.S. Chamber of Commerce has earmarked $20 million over two years to kill [card check].” [http://www.latimes.com/news/nationworld/nation/la-na-card-check4-2009jun04,0,7195326.story?track=rss] Companies expect returns on their money, and preventing workers from unionizing offers huge returns. And on Thursday June 4, 2009 USA Today reported that, “Republicans strongly oppose a government run [healthcare] plan saying it would put private companies insuring millions of Americans out of business. ‘A government run plan would set artificially low prices that private insurers would have no way of competing with,' Senate Minority Leader Mitch McConnell, R-Ky, said ... .” (Kentucky ranks fifth highest in the number of people with incomes below poverty. Why is he worried about the survival of insurers?)
The profound question is how can any of it be justified?
President Calvin Coolidge did say that the business of America is business and the American political class seems to have adopted this view, but the Constitution cannot be used to justify it. The word “business” in the sense of “commercial firm” occurs nowhere in it. Nowhere does the Constitution direct the government to even promote commerce or even defend private property. The Constitution is clear. It was established to promote just six goals: (1) form a more perfect union, (2) establish justice, (3) insure domestic tranquility, (4) provide for the common defense, (5) promote the general welfare, and (6) secure the blessings of liberty to ourselves and our posterity. Of course, the Constitution does not prohibit the government from promoting commerce or defending private property, but what happens when doing so conflicts with one or more of its six purposes? Shouldn't any law that does that be unconstitutional? For instance, wouldn't it be difficult the claim that a bankruptcy procedure that protects business and subordinates or dismisses the claims of workers and injured plaintiffs establishes justice? How can spending trillions of dollars to save financial institutions and other businesses whose very own actions brought down the global economy be construed as establishing justice or even promoting the general welfare when people are losing their incomes, their pensions, their health care, and even their homes? These actions clearly conflict with the Constitution's stated goals. Shouldn't they have been declared unconstitutional? Although the Constitution does provide people with the right to petition the government for a redress of grievances, it does not clearly provide that right to organizations or corporations and it certainly does not provide to anyone the right to petition the government for special advantages. Yet that is what the Congress, even after its members swear to support and defend the Constitution of the United States, allows special interest groups to do. Where in the Constitution is there a justification for putting the people last?
How this situation could have arisen is a puzzle? Haven't our elected officials, our justices, our legal scholars, our professors of Constitutional Law, or even our political scientists read the Constitution? Have they merely misunderstood it? Or have they simply chosen to disregard the preamble as though it had no bearing on its subsequent articles? Why have no astute lawyers brought actions on behalf of the people? Why indeed?
The answer is that a political-economic oligarchy has taken over the nation. This oligarchy has institutionalized a body of law that protects businesses at the expense of not only the common people but the nation itself. Businessmen have no loyalties. The Bank of International Settlements insures it, since it is not accountable to any national government. (See my piece, A Banker' Economy, http://www.jkozy.com/A_Bankers__Economy.htm.) Thomas Jefferson knew it when he wrote, “Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gain.” Mayer Amschel Rothschild knew it when he said, "Give me control of a nation's money and I care not who makes the laws." William Henry Vanderbilt knew it when he said, “The public be damned.” Businesses know it when they use every possible ruse to avoid paying taxes, they know it when they offshore jobs and production, they know it when the engage in war profiteering, and they know it when they take no sides in wars, caring not an iota who emerges victorious. IBM, GM, Ford, Alcoa, Du Pont, Standard Oil, Chase Bank, J.P. Morgan, National City Bank, Guaranty, Bankers Trust, and American Express all knew it when they did business as usual with Germany during World War II. Prescott Bush knew it when he aided and abetted the financial backers of Adolf Hitler.
Yet somehow or other the people in our government, including the judiciary, do not seem to know it, and they have allowed and even abetted businesses that have no allegiance to any country to subvert the Constitution. Unfortunately, the Constitution does not define such action as treason.
America's youthful students are regularly taught Lincoln's Gettysburg Address and are familiar with its peroration, “we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government: of the people, by the people, for the people, shall not perish from the earth.” If that nation ever existed, it no longer does. And when Benjamin Franklin was asked, “Well, Doctor, what have we got—a Republic or a Monarchy?” he answered, “A Republic, if you can keep it.” We haven't. What we have ended up with is merely an Unpublic, an economic oligarchy that cares naught for either the nation or the public.
To argue that the United States of America is a failed state is not difficult. A nation that has the highest documented prison population in the world can hardly be described as domestically tranquil. A nation whose top one percent of the people have 46 percent of the wealth cannot by any stretch of the imagination be said to be enjoying general welfare (“generally true” means true for the most part with a few exceptions). A nation that spends as much on defense as the rest of the world combined and cannot control its borders, could not avert the attack on the World Trade Center, and can not win its recent major wars can not be described as providing for its common defense. How perfect the union is or whether justice usually prevails are matters of debate, and what blessings of liberty Americans enjoy that peoples in other advanced countries are denied is never stated. A nation that cannot fulfill its Constitution's stated goals surely is a failed one. How else could failure be defined? By allowing people with no fastidious loyalty to the nation or its people to control it, by allowing them to disregard entirely the Constitution's preamble, the nation could not avoid this failure. The prevailing economic system requires it.
Woody Guthrie sang, “This Land Is My Land, This Land Is Your Land,” but it isn't. It was stolen a long time ago. Although it may have been “made for you and me,” people with absolutely no loyalty to this land now own it. It needs to be taken, not bought, back! America needs a new birth of freedom, it needs a government for the people, it needs a government that puts people first, but it won't get one unless Americans come to realize just how immoral and vicious our economic system is.
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Five Banks Are Seized, Raising U.S. Failures This Year to 45By Margaret Chadbourn
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCbHA.m7rikc
June 27 (Bloomberg) -- Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures.
Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.
Wilshire Bancorp’s Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement.
Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, the FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said.
The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.’s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency.
“The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said. “The agreement also is expected to minimize disruptions for loan customers.”
Regulators have seized the most U.S. banks this year since 1993. The U.S. economy has shed about 6 million jobs since the recession began in December 2007. Foreclosure filings surpassed 300,000 for the third straight month in May, according to RealtyTrac Inc.
To contact the reporter on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net.
Last Updated: June 27, 2009 00:00 EDT
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What the Big Banks Have WonRegulatory Captureby Mike Whitney
Global Research, June 26, 2009
http://globalresearch.ca/index.php?context=va&aid=14119
The trouble started 24 months ago, but the origins of the financial crisis are still disputed. The problems did not begin with subprime loans, lax lending standards or shoddy ratings agencies. The meltdown can be traced back to the activities of the big banks and their enablers at the Federal Reserve. The Fed's artificially low interest rates provided a subsidy for risky speculation while deregulation allowed financial institutions to increase leverage to perilous levels, creating trillions of dollars of credit backed by insufficient capital reserves. When two Bear Stearns hedge funds defaulted in July 2007, the process of turbo-charging profits through massive credit expansion flipped into reverse sending the financial system into a downward spiral.
It is inaccurate to call the current slump a "recession", which suggests a mismatch between supply and demand that is part of the normal business cycle. In truth, the economy has stumbled into a multi-trillion dollar capital hole that was created by the reckless actions of the nation's largest financial institutions. The banks blew up the system and now the country has slipped into a depression.
Currently, the banks are lobbying congress to preserve the "financial innovations" which are at the heart of the crisis. These so-called innovations are, in fact, the instruments (derivatives) and processes (securitization) which help the banks achieve their main goal of avoiding reserve requirements. Securitization and derivatives are devices for concealing the build-up of leverage which is essential for increasing profits with as little capital as possible. If Congress fails to see through this ruse and re-regulate the system, the banks will inflate another bubble and destroy what little is left of the economy.
On June 22, 2009, Christopher Whalen, of Institutional Risk Analysis, appeared before the Senate Committee on Banking, Housing and Urban Affairs, and outlined the dangers of Over-The-Counter (OTC) derivatives. He pointed out that derivatives trading is hugely profitable and generates "supra-normal returns" for banking giants JP Morgan, Goldman Sachs and other large derivatives dealers. He also noted that, "the deliberate inefficiency of the OTC derivatives market results in a dedicated tax or subsidy meant to benefit one class of financial institutions, namely the largest OTC dealer banks, at the expense of other market participants." As Whalen testified:
"Regulators who are supposed to protect the taxpayer from the costs of cleaning up these periodic loss events are so captured by the very industry they are charged by law to regulate as to be entirely ineffective....The views of the existing financial regulatory agencies and particularly the Federal Reserve Board and Treasury, should get no consideration from the Committee since the views of these agencies are largely duplicative of the views of JPM and the large OTC dealers."
Whalen's complaint is heard frequently on the Internet where bloggers have blasted the cozy relationship between the Fed and the big banks. In fact, the Fed and Treasury are not only hostile towards regulation, they operate as the de facto policy arm of the banking establishment. This explains why Bernanke has underwritten the entire financial system with $12.8 trillion, while the broader economy languishes in economic quicksand. The Fed's lavish gift amounts to a taxpayer-funded insurance policy for which no premium is paid.
Whalen continues:
"In my view, CDS (credit default swaps) contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists."
No one understands these instruments; they are deliberately opaque and impossible to price. they should be banned, but the Fed and Treasury continue to look the other way because they are in the thrall of the banks. This phenomenon is known as "regulatory capture".
Credit default swaps (CDS) are a particularly insidious invention. They were originally designed to protect against the possibility of bond going into default, but quickly morphed into a means for massive speculation which is virtually indistinguishable from casino-type gambling. CDS can be used to doll-up one's credit rating, short the market or hedge against potential losses. CDS trading poses a clear danger to the financial system (The CDS market has mushroomed to $30 trillion industry) but the Fed and other regulators have largely ignored the activity because it is a cash cow for the banks.
Whalen again:
"It is important for the Committee to understand that the reform proposal from the Obama Administration regarding OTC derivatives is a canard; an attempt by the White House and the Treasury Department to leave in place the de facto monopoly over the OTC markets by the largest dealer banks led by JPM, GS and other institutions....
The only beneficiaries of the current OTC market for derivatives are JPM, GS and the other large OTC dealers.... Without OTC derivatives, Bear Stearns, Lehman Brothers and AIG would never have failed, but without the excessive rents earned by JPM, GS and the remaining legacy OTC dealers, the largest banks cannot survive and must shrink dramatically." (Statement by Christopher Whalen to the Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance, and Investment, United States Senate, June 22, 2009)
The Geithner-Summers “reform” proposals are a public relations scam designed to conceal the fact that the banks will continue to maintain their stranglehold on OTC derivatives trading while circumventing government oversight. Nothing will change. Bernanke and Geithner's primary objective is to preserve the ability of the banks to use complex instruments to enhance leverage and maximize profits.
The banks created the financial crisis, and now they are its biggest beneficiaries. They don't need to worry about risk, because Bernanke has assured them that they will be bailed out regardless of the cost. Financial institutions that have explicit government guarantees are able to get cheaper funding because lending to the bank is the same as lending to the state.
Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com
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Bankster “Holiday” Planned for September?By Kurt Nimmo
Global Research, June 24, 2009
infowars.com
http://globalresearch.ca/index.php?context=va&aid=14077
Bob Chapman’s influential International Forecaster is reporting on the possibility of a so-called “bank holiday” planned for late August or early September. According to Chapman’s sources, U.S. embassies around the world are selling dollars and stockpiling money from respective countries where they operate.
FDR imposed a "bank holiday" soon after taking office. It resulted in the government stealing gold from the American people and giving them useless fiat paper money in return.
“Some US embassies worldwide are being advised to purchase massive amounts of local currencies,” writes Harry Schultz, “enough to last them a year.” Schultz publishes the Harry Schultz Letter, an international investment, financial, economic, and geopolitical newsletter named as “Newsletter of the Year” by Peter Brimelow of Market Watch in 2005 and 2008.
Schultz believes the global elite are in the process of engineering an FDR-style “bank holiday” of undetermined length in order to “sort-out the bank mess” and impose new bank rules.
On March 5, 1933, in the depths of the banker engineered “Great Depression,” newly elected Franklin Roosevelt declared a “bank holiday” that forced banks closed for four days. Roosevelt then rammed the Emergency Banking Act through the legislature. Passed by Congress on March 9, the act granted FDR near dictatorial control over the dealings of banks. It also allowed the Secretary of the Treasury the power to compel every person and business in the country to relinquish their gold and accept paper currency in exchange.
On March 10, Roosevelt issued Executive Order No. 6073, forbidding people from sending gold overseas and forbidding banks from paying out gold. A few weeks later, on April 5, Roosevelt issued Executive Order No. 6102 ordering Americans to deliver their gold and gold certificates to the Federal Reserve bank in exchange for paper fiat money.
In other words, FDR engaged in one of history’s greatest rip-offs — that is until now.
FDR not only ripped-off the American people, but foreigners holding dollars as well, thus ensuring the “Great Depression” would spread around the world like a bankster engineered contagion.
As Schultz notes, another forced “bank holiday” will likely lead to a formal devaluation of the already broadsided U.S. dollar. “But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies,” which he feels is more likely.
In fact, this is precisely what the globalist have in mind. In March, the media reported the IMF was poised print billions of “global quantitative easing” dollars to be dubbed global “super-currency” to address the (bankster engineered) economic crisis. “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them,” declared Simon Johnson, former chief economist at the IMF.
Can you say inflation?
It is no secret the elite have envisioned a global currency for some time now. In 2007, the director of international economics at the Council on Foreign Relations stated that the dollar and the euro are but temporary currencies. “It is the market that made the dollar into global money – and what the market giveth, the market can taketh away. If the tailors balk and the dollar falls, the market may privatize money on its own,” Benn Steil pontificated.
More like the banksters taketh away — and not only money but national sovereignty as well because a global currency will demand an end to “monetary nationalism.”
Or as Richard N. Haass, president of the Council on Foreign Relations, has said, “states must be prepared to cede some sovereignty to world bodies if the international system is to function.”
Mr. Schultz believes a “bank holiday” would suit the burning desires of the international bankster elite. It will lead to “nationalization,” which is a polite word for brazen thievery. It will allow the government — owned lock, stock and barrel by the global elite and run by their corrupt whores and cronies — to rape secured creditors and bondholders. Nationalization is the unfettered process of grabbing up of insurance companies, mortgage companies, banks, medical care, and car companies and handing them over to the monopoly men.
During the FDR “bank holiday,” Schulz notes, “thousands of banks never reopened; it was a face-saving way of shutting them down. I would guess the same would occur today; thousands have little or no net value, loaded with debt, bad mortgages.”
In order soften the nation up for the coming pillage, the Obama administration has proposed a plan to give the privately-owned and unaccountable Federal Reserve complete regulatory oversight across the entire U.S. economy. The new rules would see the Fed given the authority to “regulate” any company whose activity it believes could threaten the economy and the markets — that is to say if it “threatens” the monopolistic interests of the bankers.
“Obama’s regulatory ‘reform’ plan is nothing less than a green light for the complete and total takeover of the United States by a private banking cartel that will usurp the power of existing regulatory bodies, who are now being blamed for the financial crisis in order that their status can be abolished and their roles handed over to the all-powerful Fed,” write Paul Joseph and Steve Watson. “The government is ready to hand over everything to a monolithic private corporation and a gaggle of bastard banker offspring, that have gobbled up an amount close to the entire GDP of the country in taxpayers’ money and figuratively stuck the middle finger up regarding questions over where that money has gone.”
A “bank holiday” would work wonders for any “regulation” the Fed and the bankers have in mind. It would compliment the criminal consolidation now underway. It would allow them to finally and formally devalue the dollar and usher in a global “super currency” of control and enslavement.
A Bob Chapman subscriber added a little dinger to the prospect of the banks going dark. The subscriber claims to have overheard two men in FEMA jackets talking with a police chief in California, all who agreed that the federalization of police around the country — a process largely complete — will be required if the banks are shuttered in late August or early September because it will get “ugly” out there.
No doubt. Because the sort of enduring and polite American who weathered the “Great Depression” is now in seriously short supply.
If Mr. Schultz’s prediction is correct, we can expect riots in bank foyers and ultimately martial law to be imposed.
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Japanese Trade Implosion Continues Exports Fall 41%Yves Smith
Tuesday, June 23, 2009
http://www.nakedcapitalism.com/2009/06/japanese-trade-implosion-continues.html
Japan once had robust exports and a de facto two-tier economy. Yet the image of the dreadful domestic economy dominated as Japan has been characterized as having a lost nearly two decades. I've long harbored the suspicion that Japan played up the stagnant domestic economy so no one would bust its chops over its booming exports.Those days are past, finished by the one-two punch of the global downturn and Japan's strong yen. It is puzzling that the yen continues at these lofty levels, given the dreadful prospects for the economy and the fact that the Bank of Japan has signaled it will intervene if it has to, as it did successfully in 2003. Japanese banks are also not as strong as they are perceived to be. Although they are not mired in crappy structured credit deals, the flip side is their equity bases depend in part on cross shareholdings in other Japanese companies. If the Nikkei falls far enough, the banks are undercapitalized. Note also the last paragraph of the story, which raises questions about the Chinese recovery.From Bloomberg (hat tip DoctoRx):
Japan’s exports fell at a faster pace in May, extending the nation’s deepest trade slump since World War II.Shipments abroad dropped 40.9 percent from a year earlier, more than April’s 39.1 percent decline....The median estimate of economists surveyed was for a 39.3 percent decrease. From a month earlier, exports fell 0.3 percent, the first deterioration since February.....“The question remains: will this be a typical recovery in terms of the magnitude of the rebound?” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “The pessimists say there are still headwinds from lingering financial stress in a lot of places.”....Bank of Japan Governor Masaaki Shirakawa said this month that, although the recession probably bottomed last quarter, he is “cautious” about the prospects for a sustained recovery...“With the world economy in recession it’s a tough story for Japan,” said Jan Lambregts, head of financial markets research at Rabobank International in Hong Kong. “The U.S., the euro zone, the rest of Asia have to recover, and then Japan can benefit.”The World Bank this week downgraded its forecast for global growth, saying the world economy will shrink 2.9 percent this year, worse than the 1.7 contraction predicted in March. Fewer capital inflows and less direct investment will mean “increasingly grave prospects” for developing nations, the lender said...Nor has China’s recovery been enough to revive earnings for Japan’s exporters. Hitachi Construction said this month that sales in China haven’t improved as much as the company had anticipated. The world market for digging equipment will contract by more than a third in the first half of the business year and rebound by only 6 percent in the second half, according to company President Michijiro Kikawa.
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Insiders Exit Shares at the Fastest Pace in Two YearsBy Lynn Thomasson and Michael Tsang
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aflROe0Pe0QM
June 22, 2009 (Bloomberg) -- Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.
Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show. Amgen Inc. Chairman and Chief Executive Officer Kevin Sharer and five other officials sold $8.2 million of stock. Christopher Donahue, the CEO of Federated Investors Inc., and his brother, Chief Financial Officer Thomas Donahue, offered the most in three years.
Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.
“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock- price levels,” said Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC Bank, the unit of Royal Bank of Canada that oversees $33 billion in client assets. “They’re taking advantage of this bounce and selling into it.”
Banks Downgraded
The S&P 500 slid 2.6 percent to 921.23 last week, the first weekly decline since May 15, as investors speculated the three- month jump in share prices already reflected a recovery in the economy and profits. Stocks dropped as the Federal Reserve reported that industrial production fell in May and S&P cut credit ratings on 18 U.S. banks, saying lenders will face “less favorable” conditions.
The S&P 500 slid the most in two months today, losing 3.1 percent to 893.04 at 4:05 p.m. in New York, after the Washington-based World Bank said the global recession this year will be deeper than it predicted in March.
Insiders increased their disposals as S&P 500 companies traded at 15.5 times profit on June 2, the highest multiple to earnings in eight months, Bloomberg data show. Equities climbed as the U.S. government and the Fed pledged $12.8 trillion to rescue financial markets during the first global recession since World War II.
Executives at 252 companies in the S&P 500 unloaded shares since March 10, with total net sales reaching $1.2 billion, according to data compiled by Princeton, New Jersey-based InsiderScore, which tracks stocks. Companies with net sellers outnumbered those with buyers by almost 9-to-1 last week, versus a ratio of about 1-to-1 in the first week of the rally.
Bear Stearns“They’re looking to take some money off the table because they think the rally will come to an end,” said Ben Silverman, the Seattle-based research director at InsiderScore. “It’s the most bearish we’ve seen insiders, on a whole, in two years.”
The last time there were more U.S. corporations with executives reducing their holdings than adding to them was during the week ended June 19, 2007, the data show. The next month, two Bear Stearns Cos. hedge funds filed for bankruptcy protection as securities linked to subprime mortgages fell apart, helping trigger almost $1.5 trillion in losses and writedowns at the world’s biggest financial companies and the 57 percent drop in the S&P 500 from Oct. 9, 2007, to March 9, 2009.
Insider selling during the height of the dot-com bubble in the first quarter of 2000 climbed to a record $41.7 billion on a net basis, according to data compiled by Bethesda, Maryland- based Washington Service. The sales coincided with the end of the S&P 500’s bull market and preceded a 2 1/2 year slump that erased half the value of U.S. equities. [Read the entire article at: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aflROe0Pe0QM]
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Gold sold like chocolate from German vending machinesShoppers in Germany will soon be able to buy gold as easily as bars of chocolate after a firm announced plans to install vending machines selling the precious metal across the country.By Murray Wardrop
17 Jun 2009
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5554972/Gold-sold-like-chocolate-from-German-vending-machines.html
TG-Gold-Super-Markt aims to introduce the machines at 500 locations including train stations and airports in Germany.
The company, based near Stuttgart, hopes to tap into the increasing interest in buying gold following disillusionment in other investments due to the economic downturn.
Gold prices from the machines – about 30 per cent higher than market prices for the cheapest product – will be updated every few minutes.
Customers using a prototype "Gold to go" machine at Frankfurt Airport on Tuesday had the choice of purchasing a 1g wafer of gold for €30, a 10g bar for €245, or gold coins.
A camera on the machine monitors transactions for money laundering controls.
Thomas Geissler, who owns the company behind the idea, said: "German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons. They have twice lost everything.
"Gold is a good thing to have in your pocket in uncertain times."
Interest in gold has risen during the financial crisis, particularly in Germany, according to GFMS, the London-based precious metals consultancy.
Retail demand reached an estimated 108 tonnes in 2008, up from 36 tonnes in 2007 and 28 tonnes in 2006.
Jens Willenbockel, an investment banker who saw the machine while passing through the airport, told the Financial Times that he believed there could be a market for the venture.
"Because of the crisis there is a lot of awareness of gold," he said. "It is also a great gift for children – for them getting gold is like a fairytale."
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JPMorgan Analysts Predict 60% House Price Decline for High Endby CalculatedRisk on 6/16/2009 01:30:00 PM
From Bloomberg: Millionaire Homes’ May Lose Value Until 2012
Tuesday, June 16, 2009
http://www.calculatedriskblog.com/2009/06/jpmorgan-analysts-predict-60-house.html
... “Tighter lending standards and the lack of cheap financing for these borrowers continue to be key issues,” the New York- based [JPMorgan Chase & Co. analysts] wrote [in a June 12 report], referring to “jumbo” mortgages. That’s after so-called interest-only and option adjustable-rate loans were a “major driver” of soaring values, they said. ...“Currently, we have national home prices bottoming in 2011,” they said. “However, prices for more expensive homes may not bottom out until 2012, and ultimately result in peak-to- trough declines in excess of 60 percent (compared to 40 percent nationally).” “California is probably worse than other states, but higher-priced homes in general are going to be a problem,” Sim said in a telephone interview today.
Most of the low end sales are "one and done" (the seller is a bank), and this will lead to a dearth of move up buyers. This lack of move up buyers, and tight financing will impact demand for the mid-to-high end. Although the percentage of foreclosures will be less in the high end areas than the low priced areas, the foreclosures are still coming (see Alt-A Foreclosures in Sonoma and Foreclosure Resales: Slow in High Priced Areas )
However I disagree with the JPMorgan analysts on the relative price declines. Prices increased more in percentage terms in the low priced areas of California (like the Inland Empire and Sacramento) than in the high priced coastal areas. So prices will probably fall further in percentage terms from the peak in the low priced areas. Also, I think the price declines will occur over a longer period in the high priced areas (like the JPMorgan analysts), so the nominal price declines will be less (assuming a little inflation). But those are minor details - I agree there are further substantial price declines ahead.
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Capital One Unadjusted Charge Off Rate Hits Record 9.91%
Posted by Tyler Durden
Monday, June 15, 2009
http://zerohedge.blogspot.com/2009/06/capital-one-unadjusted-charge-offs-hits.html
A number you won't hear much about on CNBC: Capital One's official annualized U.S. credit card net charge-off rate hit 9.41% for May, however as footnote (1) advises, the real charge-off rate was actually 9.91%, a record for the company. Companies will fudge anything and everything for even 30 days worth of green shoots - in the meantime Ken Lewis will upgrade the stock and issue 3 equity follow-ons while State Street orchestrates a short squeeze. From the footnote:
A change in bankruptcy processing resulted in an improvement in the U.S. Card charge-off rate that is reflected in the May results. The impact was approximately 50 basis points. While our internal guidelines require bankrupt accounts to be charged off within 30 days, our practice had been to charge off customer accounts within 2 to 3 days of receiving notification of bankruptcy. Due in part to an increase in the volume of bankruptcies, we have extended our processing window to improve the efficiency and accuracy of bankruptcy-related charge-off recognition. The new process remains within Capital One’s internal guidelines, as well as FFIEC guidelines that bankrupt accounts must be charged-off within 60 days of notification.
Just a reminder that a mere 3 months ago the charge off rate was just over 8% - a 20% deterioration in 12 weeks and accelerating.
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Foreign demand for US financial assets fallsBy Martin Crutsinger, AP Economics Writer
Monday, June 15, 2009
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/06/15/national/w061107D12.DTL&feed=rss.business
Foreign demand for U.S. bonds fell 80% last month as world loses confidence in the dollar. Treasury Secretary Geithner raises interest rates to keep from losing more investors but lies about the reason. He says it is because the economy is improving (!)WASHINGTON, (AP)
Foreign demand for long-term U.S. financial assets fell in April as both China and Japan trimmed their holdings of Treasury securities.
The Treasury Department said Monday that net purchases of stocks, notes and bonds obtained by foreigners fell to $11.2 billion in April, from $55.4 billion in March.
China, the largest holder of U.S. Treasury securities, trimmed their holdings to $763.5 billion in April, from $767.9 billion in March. Japan, the second largest holder of Treasury securities, reduced their holdings to $685.9 billion, from $686.7 billion a month earlier.
Treasury Secretary Timothy Geithner traveled to Beijing earlier this month to assure the Chinese government that the Obama administration is determined to get control of an exploding U.S. budget deficit, which is projected to hit a record $1.84 trillion this year.
China's holdings of Treasury securities represent about 10 percent of America's publicly held debt.
The administration has said while its aggressive moves to fight the recession and a severe financial crisis will push up the budget deficit temporarily, it intends to reduce the deficit as soon as the economic situation permits.
With the government's borrowing needs soaring, there have been some concerns that foreign interest in holding U.S. debt might falter, causing interest rates to rise.
The administration contends that recent increases in the interest rates for U.S. Treasury securities were not a sign of investor unease but a reflection of improving economic conditions.
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video
Rolling Stone: The Great American Bubble Machine (Part 1)
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Rolling Stone: The Great American Bubble Machine (Part 2)
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Rolling Stone: The Great American Bubble Machine (Part 3)
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Rolling Stone: The Great American Bubble Machine (Part 4)
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Rolling Stone: The Great American Bubble Machine (Part 5)
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