Sunday, January 25, 2009

Financial Crunch! Economic Collapse! (Part 3)

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Part 1 - 31 July 2008
Part 2 - 20 November 2008
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The Fed Did Indeed Cause the Housing Bubble
Catherine Austin Fitts
March 15, 2009 at 10:03 am
http://solari.com/blog/?p=2293
To: The Wall Street Journal
Re: “The Fed Didn’t Cause the Housing Bubble”
By: Alan Greenspan, former Chairman of the Federal Reserve
Dated: Wednesday, March 11, 2009
Ladies and Gentlemen:
In his article on your opinion page, “The Fed Didn’t Cause the Housing Bubble,” Alan Greenspan attributes the housing bubble to lower interest rates between 2002 and 2005. That’s amazing to me.
My company served as lead financial advisor to the Federal Housing Administration between 1994 and 1997. I watched both the Administration and the Federal Reserve aggressively implement the policies that engineered the housing bubble. These are described at my website and in my on-line book, Dillon Read & the Aristocracy of Stock Profits (http://www.dunwalke.com).
One story, for example, is the following:“In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees — most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.”
From: “Sub-Prime Mortgage Woes Are No Accident”
(http://solari.com/news/announcements/08-07-07/)
One of the dirty little secrets behind the housing bubble is the long standing partnership of narcotics trafficking and mortgage fraud and the use of the two in combination to target and destroy minority and poor communities with highly profitable economic warfare. This model is global. It is operating in counties throughout the world as well as in US communities.
Of all the actions that the Federal Reserve took to engineer this housing bubble, the one that I would note is Mr. Greenspan’s efforts to pacify Congresswoman Waters regarding allegations of government sponsored narcotics trafficking at a time when open Congressional hearings would have contributed to an important discussion of the operations engaging in mortgage fraud in minority communities. See, “Financial Coup d’Etat,” Chapter 16, Dillon Read & the Aristocracy of Stock Profits which was written in 2005 and published in April 2006, drawing from an article I first published in May 1999.
“On December 18, 1997, the CIA Inspector General delivered Volume I of their report to the Senate Select Committee on Intelligence regarding charges that the CIA was complicit in narcotics trafficking in South Central Los Angeles. Washington, D.C. ’s response was compatible with attracting the continued flow of an estimated $500 billion–$1 trillion a year of money laundering into the U.S. financial system. Federal Reserve Chairman Alan Greenspan in January 1998 visited Los Angeles with Congresswoman Maxine Waters — who had been a vocal critic of the government’s involvement in narcotics trafficking — with news reports that he had pledged billions to come to her district. In February Al Gore announced that Water’s district in Los Angeles had been awarded Empowerment Zone status by HUD (under Secretary Cuomo’s leadership) and made eligible for $300 million in federal grants and tax benefits.”
Alan Greenspan is a liar. The Federal Reserve and its long standing partner, the US Treasury, engineered the housing bubble, including the fraudulent inducement of America as part of a financial coup d’etat. Our bankruptcy was not an accident. It was engineered at the highest levels.
Your publication of Greenspan’s breezy and bogus history of the housing bubble insults your readership.
Best Regards,
Catherine Austin FittsAssistant Secretary of Housing - Federal Housing Commissioner, Bush I
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Hit the Reset ButtonElected criminals and Wall Street CrooksBy Online Sunday, March 15, 2009
W.R. McAfee
http://canadafreepress.com/index.php/article/9341
Watch closely. See those elected criminals and Wall Street crooks racing to banks with trillions of “taxpayer” dollars falling out of their pockets?
Those are our dollars.
Listen closely. Hear those same thieves and scam artists telling us if they don’t give this money to their bank buddies and confederates, “. . .the whole world’s financial structure will shut down.”
You believe that?
Since when do we have to bailout out criminal bankers with our money?
Do banks bail out bank robbers with their money?
Am I missing something?
Here’s the drill: I go into debt and pay interest on money they loan me while they invest and prosper on money I loan them interest-free through my bank account.
The trillions lavished on Wall Street—what’s left over from executive bonuses sweetheart deals—will be hoarded by their buddy banks and later doled out to stiffs like us at high interest rates so we can continue in debt and they can continue making billions off our dollars. Focus now. Wall Street-sponsored legislation helped them pull the real estate plug on America; qualifying people that a loan shark wouldn’t touch for billions of dollars to buy millions of homes they couldn’t afford.
The Street then mixed, bundled, certified, and insured these loans with what buyers thought were reputable ratings past corrupt regulatory agencies and sold and resold this worthless paper to thousands and thousands of banks, money trusts, retirement funds—you name it—worldwide. Who in turn sliced, diced, and resold the bundles to others. . .
Got the picture?
Not only did they do this with worthless mortgages, they did it with all manner of things financial.
Called them “derivatives.”
$600 trillion fictitious dollars worth by one estimate. Over a quadrillion by another.
All “toxic” (worthless) paper backed with no assets brought about by “moral hazard” (theft, greed, fraud, lies).
The world’s GDP is only around $71 trillion.
All the money in the world comes short of $600 trillion.
And they want me and you to go the financial bail for these lying, thieving, con-artist-criminal-stump-jumping-shuck-and-jive-the-sky-is-falling scammers? The ones who knowingly and deliberately set this $600 trillion giganticus raticus farcicus loose on the rest of us?
You talking to me?
Hit the reset button.
Wall Street insiders now working in government financial positions have enriched their executive friends still on The Street with our tax dollars, enabling their buddies to pay themselves kingly bonuses and their companies largess to purchase other banks and businesses for pennies on the dollar.
Americans watched in disbelief as these thieves and their confederates and enablers—our elected flim-flammers (through deliberate legislation)—went public with their scam; throwing “bailout” money around like confetti at a V-Day parade.
That money belonged to us.
Us.
And when they ran out of tax dollars they printed trillions more and continued the orgy; telling us it would save institutions “. . .too big to fail . . .” as well as the world’s economy so “. . .Americans could get back on their feet and resume their trek toward the American dream. . .” and into perpetual debt again where we all belong and don’t you worry your pretty little heads none now ‘cause we got it all figured out and it’s all gonna be okay.
There’s sunlight shining in the ship’s hold!
Can you see the bilge rats?
Play make-believe for a moment and imagine if the money given to these criminals by criminals had, instead, been given to the taxpayers—you know, like the ones who had it deducted from their paychecks and profits lo these many years; like, its rightful owners?
What if they’d mailed each family in flyover America a $100,000 stimulus check?
On the day those checks hit the mailboxes, spending and saving would have resumed, home buying would have resumed, demand for goods and services would have resumed, businesses would have resumed, criminal banks would have failed, and honest banks would have prospered. Someone calculated more than ninety percent of the homes in America could have been paid off with the trillions these criminals have stolen from us.
The only thing that would have changed would have been America’s trust in our electeds and their financial handlers—aka the Federal Reserve; a consortium of private bankers headquartered in England and New York—who’ve been stealing money from America’s taxpayers and bribing Congress for the last 96 years.
Who do they think keep economies going?
Financial flim-flammers?
Or independent businesses and working people (at solvent companies) buying products and services they need?
First principle economists need to sear in their brains: If a financial industry’s actions suddenly puts five million people out of work (with more on the way), that economy will fall flat on its face. Every time.
Create a nation of jobless or broke people and everything shuts down.
Every time.
Nothing grows.
Nothing will.
You have to understand: Wall Street and Washington’s criminals have no intention of ever bailing us out.
They’re steering this thing toward a world currency and government controlled by the Bank of International Settlements (BIC) and its Central Banks throughout the world.
Control and print the world’s money and you control the world.
Did you know the Central Banks are the only institutions that print money today?
Did you know America’s founders wrote it into the Constitution that Congress was the only institution that could coin, create, and regulate America’s money?
This right was signed away by Woodrow Wilson in 1913 who sold his soul to a small group of international bankers who wanted to set up a central bank in the U.S.—today’s Federal Reserve—in return for financing his run for president.
The bankers—whose associates and descendants still control the BIS and the world’s Central Banks—wrote the legislation, got it passed that Christmas when most of Congress was away on vacation, and Wilson signed it.
Presidents before him had fought central bankers who wanted control of America’s money. Lincoln. Jackson . Washington.
It dawned on Wilson before he died. “I am a most unhappy man. I have unwittingly ruined my country.”
Regional currencies—or world currencies—are a prelude to an appointed world government under the aegis of the BIS-Central Banks cabal, the Council on Foreign Relations, the Trilateral Commission, Bildebergers, multi-nationals, and the world’s propaganda conglomerates (aka the media).
They’ve secretly determined—because of their wealth—they’re more suited to run the world; their end game being to control the planet’s resources. Own it all. Food, fiber, water, minerals, money, jobs, people, hope.
Air if they could sell it.
Did I mention the BIS and the Central Banks are controlled by a consortium of private bankers headquartered in England and New York? Shades of the old British empire, eh?
If there’s a currency exchange to ameros, euros, nuwos,—whatever—the banks will get to swap before we get the chance.
Which they’ll have in stock when they declare the bank holiday and announce to the rest us, “. . .ya’ll bring them old dollars on in now, ya hear? We’ll give you a good exchange rate. Got to do it for the world economy. . .”
Or words to that effect.
What will the rest of us get?
Not what the banks got.
Time to serve notice.
No more $600 and $1,200 “W-bates.” That’s spittle in our eye (a borrowed phrase from Aleksandr Solzhenitsyn referring to communist propaganda) now that we’ve seen the lies and the magnitude of the theft going on in Washington/Wall Street.
We’re out here with our noses pressed against the bank window watching a bunch of criminals running around inside looting our money; pausing occasionally to flip us off.
I was wondering. . .are there no honest men and women left in America willing to put these thieves, liars, and con-artists in federal penitentiaries?
Like they did the Enron crooks?
Hit the reset button.
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HR-1586: Slight of Hand & Revenge on the BankersBy Dr. Laurie Roth
March 27, 2009
NewsWithViews.com
http://www.newswithviews.com/Roth/laurie158.htm
The bonuses of the big bad evil banking industry must not only be minimized, maligned and shamed but our Government must tax the workers 90% of what they receive after $250,000. They’ll get what’s coming to them I tell you! Recently Rep. Barney Frank and US Sen. Chris Dodd practically had a melt down over the $165 million bonuses. This is precious given that these two wonders of science helped create the sub prime mortgage crisis Sub prime Mortgage Crisis.
This week I interviewed Frank Salvatto who talked about his experience with the “Chicago Way” where means always justify the ends, where lying, bribes and diversion are a way of life in politics. He talked of Obama being born out of this inbred and well coordinated culture of compromise and deception. Check out his telling article.
Let’s look at some of this trickery and deception.
We have heard for months now the tantrums about the huge bonuses of the evil bankers. We have also heard how these big banks are failing and begging for money from congress. Well, of course we were all ticked off at the notion these big dogs would get big bonuses when they were on the Government hand out list which you and I pay for.
There are only a few small problems with our national rage and desperation for revenge against these jerks. We have all been manipulated and played. We were all supposed to think the major banks were greedy, begging for money while giving out ridiculous bonuses. We were all supposed to be in a rage enough that we forgot that the democrats i.e. Rep. Barney Frank and U.S. Sen. Chris Dodd directly caused the sub prime mortgage melt down and that the Democrats under Bill Clinton changed laws to pressure and practically threaten banks to give ridiculous loans to unqualified people who couldn’t pay Bill Clinton's roll in mortgage meltdown. We weren’t supposed to notice the man behind the curtain. This way if we were good little, submissive and angry citizens the Government could steal more money with a 90% tax and control and run the big banks. After all they needed reforms and reigned in didn’t they?
There is only a small problem with all this. It’s not true! I made a few calls this week to very reputable and ethical contacts in the banking industry. They shared a few details neither the media nor this congress would bother to tell us. One of those small details is that all the top banking institutions in our country were ordered to take the 5 Billion each hand out from Tarp funds or no one could take any. A few banks did need it so it put incredible pressure on all of them. It was all or nothing. At least three of the big banks testified that they didn’t need or want the money and they had plenty of reserves. Congress gave them the speech….you all take the 5 billion each or no one gets a thing. They didn’t want the money, nor the controls from congress………..oh well, guess again.
My sources then shared with me that this new bill H.R. 1586 which would charge an employee a 90% tax after $250,000 would decimate the banking industry. The reason this is said to be so destructive is that most of the banking employees in the investment realm earn most of their money with commissions and bonuses. Most of the workers have small base salaries and depend on commissions and bonuses to have an incentive to achieve and make anything of significance. My two sources readily admitted that there is some greed and craziness with some bankers at AIG etc….but the proportional reality of this is that it is with a few not the majority.
I’m all for money being monitored carefully by the Government if it is requested by an industry for an emergency. However, it is a tad different when the entire banking industry has been forced to take 5 Billion each or else. Their employees literally are having any achievement and performance incentive ripped from their hands. This is clearly an immoral and fascist over reach and act of revenge on AIG translated to a whole industry for purposes of taking more banking control.
These bonuses in H.R. 1586 are also retroactive which offers oppression and control on yet another dimension. One of my contacts told me of his Supervisor’s concern that he had already spent his last years bonus on his kids school tuition etc…..now he and many employees like him will have to go into debt to find and return the money.
Violation of our constitution
This kind of bill is also a constitutional violation. This seems to be clearly a bill of Attainder targeting a specific group of people and this is prohibited by Article 1, Section 9, Clause 3 of the Constitution. Does anyone in this congress and administration remember that document or even know what it says?
Finally, grabbing up a tax rate of 90% is psychotically high! This type of crazy tax rate hasn’t been seen since the Kennedy Administration. This would set a dangerous precedent for targeting revenge and control schemes with sky high interest rates for other groups who get caught in the cross hairs Bill of Attainder/tax Rate.
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Economics Lessons for Liberals: InflationBy Margaret Goodwin
March 27, 2009
NewsWithViews.com
http://www.newswithviews.com/Goodwin/margaret102.htm
This past week, the Federal Reserve announced that it’s going to buy $300 billion worth of long-term Treasury bills over the next six months, and $750 billion of mortgage-backed securities, to try to loosen up credit and lower mortgage rates. It was also announced that they’re not going to raise taxes to come up with this additional trillion-plus dollars (on top of the recent bailouts and stimulus bill). Instead, they would just crank up the printing presses and print up the money.
How many things can you find wrong with this picture?
Wasn’t it loose credit that created the current financial crisis they’re purportedly trying to get us out of? Aren’t mortgage-backed securities the “toxic assets” that precipitated the collapse of all those banks and financial institutions that we’re already bailing out with our tax dollars? These are the very building blocks of the biggest Ponzi scheme in economic history, but the Fed, in its infinite wisdom, sees fit to gamble 3/4 of a trillion dollars of our money on the most discredited and dangerous financial instrument ever concocted to dupe unsuspecting investors. Only, at this point, they can hardly be said to be unsuspecting.
We’re supposed to be placated by the fact that, this time, they’re not using our tax dollars, but are printing up the money on their little printing presses. So, therefore, it doesn’t cost us anything, right? That would seem to be what they expect us to believe.
Economics for Liberals, Lesson #1. When the Fed prints new money, it devalues all the money that’s currently in circulation. Printing more money literally dilutes the value of everybody’s savings, investments, salaries, and retirement funds.
Currency has no intrinsic value; it’s merely symbolic of the value of goods and services that can be exchanged. The only way to increase the total value in a system is to increase the production of goods and services that somebody wants to consume. The sum total of the currency in a system represents the sum total of the real value in the system (goods and services produced). The value that each unit of currency represents is the ratio of the total units of currency to the total actual value in the system. When the actual value (goods and services produced) remains stable, but the total units of currency are increased, each unit of currency represents less of the total actual value and, consequently, has less purchasing power. That’s what’s known as inflation.
Inflation is simply another type of taxation. Instead of taxing you on each incremental unit of value you produce, the Fed simply dilutes the value of everything you currently have, as well as every dollar you will earn in the future. It’s an invisible tax, because you don’t see the government taking it away from you. You see higher prices for everything you buy, and you blame the producers. But the producers are paying higher prices for everything they have to purchase to produce what they sell to you.
So everybody’s stuck paying higher prices for everything, but they don’t have any more money. So everybody’s purchasing power is reduced, making everybody, in real terms, poorer than they were before the currency was diluted. That’s because the money that was printed up by the government was not distributed to the people whose currency lost its value, but rather was used to buy whatever the Fed buys with it. — In this case, toxic assets that they know are overvalued.
How do I know with such certainty they are overvalued? Because, if they were not overvalued, they’d be able to be sold on the free market. The very fact that government has to buy them up indicates they’re not worth the price at which the government is buying them.
Economics for Liberals, Lesson #2. The value of an investment is based on the ratio of risk to potential reward. If the risk is greater than the potential rewards, the investment is overvalued and nobody will buy it unless the risk is reduced or the reward potential is increased. In many investments, the risk is simply the risk of losing what you invested, so the risk can be reduced by lowering the price. When a balance is reached between risk and potential, buyers can be found on the free market who are willing to assume the risk.
But, when the government assumes the risk, the people making the decisions aren’t risking their own money. They’re risking the taxpayers’ money, either directly (through taxation) or indirectly (through inflation). In this case, the Fed is cranking up the printing presses and diluting all of our savings, investments, salaries, and retirement funds to purchase investments that are known to be bad before they buy them. If any corporate CFO were to behave that way, knowing what we all know today, they would be fired.
And, to add insult to injury, they think we’re stupid enough to believe it isn’t costing us anything because they aren’t raising our taxes — yet. But the biggest irony of all is that the purpose used to justify this devious machination is to perpetuate the very circumstances (loose credit and easy availability of mortgages) that got us into this economic crisis in the first place.
Just how stupid do they think we are? – And just how stupid are we, to put up with this?
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Enter the maximum wageObama Administration's apparent declaration of war on business
By Klaus Rohrich
Tuesday, March 24, 2009
http://canadafreepress.com/index.php/article/9592
The Obama Administration, known for never letting a crisis go to waste, used the popular outrage over the $165 million in executive retention bonuses paid out by AIG, as the perfect segue to introduce the idea of imposing a maximum wage in the United States. Citing the “Arrogance, Incompetence and Greed” that purportedly represents the ethos of AIG and other Wall St. firms, Mr. Obama has had little trouble inciting incendiary hatred toward executives among America’s larger corporations.
I find it curious that Mr. Obama is so “outraged and angry” over the bonuses, when they were grandfathered into the much vaunted Stimulus Bill that he signed into law on Feb. 18th. Did the President or his minions not know what was in the ‘‘American Recovery and Reinvestment Act of 2009’’ before he signed it into law? Or is it possible that public disclosure of the bonus payments presented Mr. Obama with an ideal opportunity to advance his radical agenda?
In a piece penned March 9th, Bloomberg News columnist Kevin Hassett mused about Mr. Obama’s apparent declaration of war on business, citing the perverse consequences of many of the president’s initiatives.
As I did in these pages back in October of last year, Mr. Hassett wondered whether Barack Obama was a ‘Manchurian Candidate’ planted by some malevolent foreign power to destroy the United States by forever crippling the American economy.
Policy initiatives are driven by ideology not interest in an economic recovery
One sure way to achieve a permanently handicapped US economy is by limiting the amount of money Americans are allowed to earn. Similar experiments in other countries have had disastrous results. The case of Sweden comes to mind when individuals like film director Ingmar Bergman and actress Bibi Anderson were forced to flee the country because of annual income taxes in the 140% range.
A maximum wage law would result in the flight of talented executives and entrepreneurs out of the United States to other jurisdictions that did not limit one’s ability to earn. Such a law would be a boon to countries like Canada, Australia, Ireland and New Zealand as American businesses and their executives would relocate in droves. It would also result in America becoming a Third World nation, as its wealth would literally disappear overnight.
I no longer believe that Mr. Obama and Congressional Democrats are interested in an economic recovery. I believe that the administration’s policy initiatives are driven by ideology because it isn’t possible for college educated lawyers, such as Barack Obama and Harry Reid not to realize that going into debt for trillions of dollars will eventually destroy the American economy. But then, there is a slight possibility that the Democrats are living in blissful ignorance, given that they have chosen a retarded person to serve as Speaker of the House, a position that’s third in the order of presidential succession.
The current economic crisis has presented a radical regime in Washington with an opportunity of a lifetime. Without realizing what is happening Americans are seeing their country change before their very eyes; from a nation with a proud tradition of innovation and entrepreneurial spirit to a drab and sclerotic bureaucracy where equality of outcome is guaranteed, regardless of effort. The biggest and most devastating loss the current recession is likely to inflict on Americans is the loss of their freedom.
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No cheerleader for propping up greenback at G20 summit
Single world currency, Obama met secretly with Mikhail Gorbachev
By Judi McLeod
Tuesday, March 24, 2009
http://canadafreepress.com/index.php/article/9598
Is the table being set for One World Government rather than speeding the recovery of the worldwide recession at next week’s G20 London summit?
China has now joined Russia in pressing G20 members for a single world currency. The deadly duo, which has blocked all things America at the United Nations, is calling for the same thing: Dumping the US greenback as the international reserve currency for a new global system controlled by the International Monetary Fund (IMF).
So far no calls to protect the greenback by the new occupant of the Oval Office.
Days ahead of the summit, both China and Russia posted their priorities for the new global system on their official websites.
“In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.” (http://www.FT.com, March 23, 2009).
China, of course, can always justify its priority with its recently stated anxiety about U.S. loans now that the US economy seems to have reached its tipping point.
The Kremlin published its priorities Monday for an upcoming meeting of the G20, “calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system,” (The MoscowTimes.com, March 17, 2009).
The Kremlin has persistently criticized the dollar’s status as the dominant global reserve currency and has lowered its own dollar holdings in the last few years. Both President Dmitry Medvedev and Prime Minister Vladimir Putin have repeatedly called for the ruble to be used as a regional reserve currency, although the idea has received little support outside of Russia.
Both are getting a lot of help from Kazakh President Nursultan Nazarbayev, who is calling for the “acmetal” world currency and who now has the backing of the architect of the euro currency, Canadian Nobel-prize winner Professor Robert Mundell.
The easy to forget “acmetal” combines the Greek word “acme”, meaning peak or best and “capital”.
“Call it acmetal in Kazakh. Call it amero in the headed-for-economic-meltdown United States of America,” Canada Free Press wrote on March 13.
The United States is headed to the Summit without a cheerleader, evidenced by the deafening silence of President Barack Obama.
It gets worse.
In the run-up to to the “press the reset button” on U.S. rekindling ties with Russia, it is now known that Obama met secretly with Mikhail Gorbachev last week.
White House spokesman Robert Gibbs would not categorize the meeting as secret. According to him, “The president tends to roam around the larger (White) House and sometimes walks into meetings that weren’t previously on his schedule”.
That means the president just happened to walk in on Gorbachev!
Guess he learned nothing from the random late-night jaunt he made into the White House press corps when he just wanted to say “Good Evening” and went away mad because some reporters asked real questions.
According to Gibbs, Vice President Joe Biden and Gorbachev had been discussing ways of reducing their countries’ respective nuclear arsenals, an issue Obama and Medvedev would talk about when they met in London on April 2.
But Medvedev remained mum about Kremlin plans to publish its priorities calling for the creation of a supranational reserve currency as part of a radical reform of the global financial system?
The Moscow Times states that the Kremlin document also calls for national banks and international financial institutions to diversify their foreign currency reserves. It said the global financial system should be restructured to prevent future crisis and proposed holding an international conference after the G20 summit to adopt conventions on a new global financial structure.
Sounds like it came right out of the United Nations resolutions book as written by UN Poster Boy Maurice Strong with cohorts George Soros and Gorbachev to some.
Meanwhile, Canada, which hopes Obama will live up to his promise to keep trade alive with its biggest trading partner, is one of the Group of 20 industrialized and developing countries, meeting in London on April 2.
As the Hon. Perrin Beatty, President and CEO of the Canadian Chamber of Commerce said at an address at the University of Western Ontario yesterday, ...”there has been a complete failure of political will to overcome protectionist pressures and dismantle impediments to world trade.
Noting the need to remember the lessons of history, Beatty recalled how the value of global trade fell by two-thirds between 1929 and 1934.
“Memories fade, and seventy-nine years later Congress incorporated Buy America provisions in its stimulus package to target the benefits to American companies. It once again ignored warnings about the dangers, including the blunt assessment by Dallas Federal Reserve President Richard Fisher, who warned, `Protectionism is the crack cocaine of economics. It may provide a high. It’s addictive and it leads to economic death.’”
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Fannie Plans Retention Bonuses As Outlined by the GovernmentBy Zachary A. Goldfarb
Washington Post Staff Writer Thursday, March 19, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031803188.html?hpid=topnews
Fannie Mae, the federally run mortgage finance giant, plans to pay four top executives $1 million or more in retention bonuses.
The bonus plan prompted the company's federal regulator to defend compensation decisions the government made when it took over Fannie Mae in September. It comes as American International Group faces public outrage over $165 million in bonuses it awarded last week.
Fannie Mae, which suffered $59 billion in losses last year, has requested $15 billion in taxpayer assistance and has said it expects to need plenty more.
Chief Operating Officer Michael Williams is in line for a $1.3 million bonus. Deputy Chief Financial Officer David Hisey is slated for $1.1 million, while executive vice presidents Thomas Lund, responsible for the mortgage business, and Kenneth Bacon, responsible for housing and community development, are each in line for $1 million.
A fifth of this money was paid in 2008. Executives will receive about 60 percent of the remaining funds this year and, depending on performance, as much as 40 percent next year. These executives earned salaries of $385,000 to $676,000 last year.
Fannie Mae chief executive Herbert M. Allison did not take a salary or bonus in 2008. He received $60,000 largely to compensate for his move to Washington to run the company. He was offered a $900,000 base salary. His 2009 salary and bonus haven't been set.
When it took over Fannie Mae, the government instituted a retention program. Under the program, employees deemed crucial to the company's efforts to carry out government housing plans are eligible to receive retention payments, but some may not receive any.
"Many employees have received significant pay reductions, with no bonuses for 2008 performance and all past stock grants are virtually worthless. This retention program is pay for specific efforts underway now to meet national goals," Federal Housing Finance Agency director James B. Lockhart III said in a statement.
"We started to design a retention plan with a compensation consultant even before the [take over] because it was critical to retain their most important asset -- their employees -- who are being asked to play a vital role in the nation's economic recovery," he said. "As the previous senior management teams left, it would have been catastrophic to lose the next layers down and other highly experienced employees."
FHFA signs off on all major compensation decisions. Freddie Mac hasn't disclosed its retention payments, yet. It is expected to do so in coming months, and its payments should resemble those at Fannie Mae.
Insiders say that a few hundred people at Fannie Mae and Freddie Mac will receive bonuses, and the average bonus should be in the mid-five figures.
It's a big contrast to what Fannie Mae and Freddie Mac employees experienced in the past, when their shares were skyrocketing and stock-based awards were a popular way to compensate employees, from entry-level secretaries to senior staff.
Many of those employees lost small fortunes when the companies' shares collapsed. Stock grants play no role in current compensation practices at the firms.
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Treasurys Are 'Disaster Waiting to Happen': Dr. DoomBy: CNBC.com 17 Mar 2009
http://www.cnbc.com/id/29720589/
The Federal Reserve has no option but to start buying Treasurys as the government's needs for financing are huge, but the government bond market is a disaster in the making, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC.
Federal Reserve policymakers start a two-day meeting on Tuesday, weighing options on how to spur lending to help cash-strapped consumers kickstart the economy.
Economists expect them to leave rates at zero and look to other ways of boosting liquidity, such as buying government bonds – a measure which has already been taken by the Bank of England. "Well I think other central banks have done it already around the world but basically what it amounts to is money printing and in fact I don't think that it will help the bond market at all in the long run," Faber told CNBC's Martin Soong.
The yield on the 30-year Treasurys touched a low of 2.51 percent last year in December but now it is back up at 3.77 percent, he said.
"Yields have already backed up pretty substantially and I tell you, I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high," Faber said.
"The Federal Reserve will have to buy Treasurys, otherwise yields will go up substantially," he said, adding that as their reserves were dwindling, foreign investors were likely to scale down their purchases.
But there will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.
"So we'll go into high inflation rates one day," Faber said.
The stock market is likely to continue its bounce at least for a while, but the outlook is bleak, he added.
"I think we may still have a rally (in the S&P) until about the end of April and probably then a total collapse in the second half of the year sometimes, when it becomes clear that the economy is a total disaster," Faber said.
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China's PM Wen nervous over holding U.S. Treasury bondsBy MARTIN SIEFF
Published: March 13, 2009 at 12:09 PM
http://www.upi.com/news/issueoftheday/2009/03/13/Chinas_PM_Wen_nervous_over_holding_US_Treasury_bonds/UPI-93811236960563/
WASHINGTON, March 13 (UPI) -- A fire bell tolled in the night for the American economy Friday: Chinese Premier Wen Jiabao said his country is worried about just how safe its estimated $1 trillion in U.S. Treasury bonds are.
Wen told Friday's session of the National People's Congress in Beijing he was "definitely a little worried" about China's investments in the United States.
"China is indeed the largest creditor of the United States, which is the world's biggest economy. We are extremely interested in developments in the U.S. economy," Wen said, according to a report from China's official Xinhua news agency.
"The Obama administration has adopted a series of measures to counter the international financial crisis. We are expecting these measures to take effect," Wen said. He stressed what he called China's principle of guaranteeing the "safety, liquidity and good value" of the nation's foreign exchange reserves -- the largest of any nation in the world -- and the importance of cautiously investing the reserves and diversifying in many different places.
"On the foreign-reserves issue, the first consideration is our national interest," Wen said. "But we also have to consider the stability of the overall international financial system, as the two factors are interlinked."
Wen did add a reassuring note: "Currently, our reserves are generally safe."
As long as the dollar is strengthening, as it has been lately, China can feel good about its position. However, economists have raised concerns that U.S. President Barack Obama's gigantic economic stimulus package, backed as it is with a massive increase in government debt, could weaken the dollar -- and threaten China's investment.
Xinhua noted that China's foreign exchange reserves soared to an all-time high of $1.95 trillion at the end of 2008, a far higher figure than Japan, which has the second-highest national reserves, worth $1.03 trillion -- just more than half the Chinese figure.
The U.S. Treasury listed China as owning $681.9 billion in U.S. Treasury bonds in November. This figure was far higher than the $585 billion in U.S. bonds it held in September, an increase of well more than 15 percent in only two months.
On the one hand, this increase appeared to mark a boost in confidence in the future of the U.S. economy, even after the September economic crisis erupted on Wall Street and then spread around the world. But on the other hand, it also indicated that the U.S. financial system and government are now far more dependent on Beijing than they were six months ago.
And as one commentator has observed, the effect of China staying away from even one auction of U.S. Treasury bonds would likely be dramatic; it would certainly send a message.
It seems unlikely China will do that in the immediate future as long as the U.S. dollar continues to rise relative to other major international currencies.
Wen has been critical of U.S. economic behavior before on several occasions. He expressed his concern strongly at the World Economic Forum in Davos, Switzerland, last month.
Ultimately, this is in large part a problem of China's making, too. China's economic model has been intimately tied to buying U.S. debt so that U.S. consumers can drive China's growth by funding its exports.
China was happy to benefit from the growing bubble but doesn't now like the results of it bursting. As a result, the country is now going to have to readjust its development model, relying more on domestic consumption. That will require developing a better social safety net so that Chinese can more confidently spend some of their savings.
President Obama and Secretary of State Hillary Clinton certainly recognize the crucial importance of staying on good terms with China. Clinton visited Beijing on her first trip overseas after taking office. And discussing ways to manage trade and financial relations was at the top of her negotiating list.
Human-rights activists and supporters of the Dalai Lama have decried Clinton's unwillingness to publicly champion their concerns in Beijing, but as the old saying goes, "He who pays the piper calls the tune." Anyone who wants the United States to be able to lecture China and put pressure on it about such issues has to recognize that can't happen as long as the U.S. government and economy are so dependent on Chinese financial support and cheap industrial and manufactured imports.
Obama has said he hopes to cut the record annual government deficit that he inherited from President George W. Bush by 50 percent within the next four years. And there is no doubt that senior Obama administration officials take the issue of national fiscal solvency far more seriously than their predecessors under Bush did.
However, Obama's gigantic spending package is far from reassuring to the Chinese and to other major governments around the world. Financial ministers from the Group of 20 are gathering in London this weekend to lay the groundwork for next month's economic summit. There are differences in how they see fit to handle the crisis.
Japan has backed a U.S. position of coordinated moves to support the world economy, but European ministers have been pushing instead for regulation of the financial sector.
Banque de France Gov. Christian Noyer told the Financial Times in comments published Friday that the United States needs to fix its financial system. Noyer said Europe was more advanced in that regard than the United States.
Therefore, Wen's warning, while measured, was of vast importance. It serves notice to the Democratic masters of the 111th Congress as well as to their Republican opponents that their bipartisan, still-dominant ways of doing business through reckless pork-barrel spending as if there were no tomorrow cannot continue. Tomorrow has just arrived.
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World's richest not so rich, Gates regains top spot
By Claudia Parsons
Wed Mar 11, 2009
http://www.reuters.com/article/topNews/idUSTRE52A78D20090311
NEW YORK (Reuters) - Microsoft Corp founder Bill Gates is the richest man again, overtaking investor Warren Buffett, as the global financial meltdown wiped out $2 trillion from the net worth of the world's billionaires, Forbes Magazine said on Wednesday.
The number of billionaires in the world fell by nearly a third to 793 in the past year, with large numbers dropping off the list in Russia, India and Turkey.
Gates regained his title as the richest man in the world, with $40 billion after slipping to third last year when he was worth $58 billion. Buffett, last year's richest man, fell to second place with $37 billion, down from $62 billion. Mexican telecommunications tycoon Carlos Slim took third place with $35 billion, down from $60 billion.
Collectively, the top three billionaires lost $68 billion in the year to February 13, when Forbes took a snapshot of wealth around the world to compile its annual list of billionaires.
Chief Executive of Forbes Magazines Steve Forbes said that, while few would shed a tear for the plight of a billionaire, it was bad for the economy when entrepreneurs were in trouble.
"Billionaires don't have to worry about their next meal, but if their wealth is declining and you're not creating numerous new billionaires, it means the rest of the world is not doing very well," he told reporters. "The typical billionaire is down at least one third on their net worth."
The net worth of the world's billionaires fell from $4.4 trillion to $2.4 trillion, while the number of billionaires was down to 793 from 1,125.
"It's the first time since 2003 that we have lost billionaires, but we've never before lost anywhere near this number," said Luisa Kroll, senior editor of Forbes.
"It's really hard to find something to cheer about unless you get some perverse pleasure in realizing that some of the most successful ... people in the world ... can't figure out this global economic turmoil better than the rest of us."
New York City replaced Moscow as home to the most billionaires, with 55. Russia, which saw the number of super- rich soar in recent years, suffered among the biggest shocks, with the number of billionaires down to 32 from 87.
What Goes Up Fast, Comes Down FastOther developing countries that saw fast growth in previous years were hit hard as well, including Turkey, where the number of billionaires fell to 13 from 35, partly due to the collapse in the value of the lira currency, and India.
Indian businessman Anil Ambani, the biggest gainer on last year's list, was the biggest loser this time, with $32 billion wiped out over the last 12 months. Ranked sixth last year, he fell to 34 with an estimated wealth of $10.1 billion.
"India took a huge whack," Kroll said, noting that last year Indians held four of the top 10 spots and now only two, and the number of Indian billionaires more than halved to 24.
Of those who remained or returned to the list, 656 saw their net worth fall, 52 held even and only 44 managed to expand their wealth.
The only person in the top 20 who did not lose money was New York Mayor Michael Bloomberg, whose net worth was revised up to $16 billion from $11.5 billion because of a revaluation of his media company, Bloomberg LP, Forbes said. He is now the richest man in New York, jumping from 65 in the world to 17.
Forbes Senior Editor Matthew Miller said that, in the current climate, those who lost only 20 percent of their wealth were doing relatively well; for example members of the Walton family which founded discount retailer Wal-Mart Stores Inc.
"They lost $5 billion each, but Wal-Mart stock hasn't completely fallen off the cliff like everything else," he said.
Another discount retailer riding out the storm was Japan's Tadashi Yanai. His firm Fast Retailing, known for its Uniqlo stores, helped push him from 296th last year to 76th and raised his net wealth to $6 billion from $3.6 billion.
Others who managed to get richer were investors George Soros and Ronald Perelman, as well as short-seller John Paulson, who has profited from the fall in financial stocks, and entertainer Oprah Winfrey who jumped to 234 from 462.
Among those conspicuous by their absence from the list was Facebook founder Mark Zuckerberg, one of last year's stars when he became the youngest self-made billionaire to make the list.
Also dropping out were big name casualties of the financial crisis on Wall Street -- former American International Group Inc chief executive Maurice "Hank" Greenberg and former Citigroup Inc chief executive Sanford Weill.
Allen Stanford, the Texan accused of an $8 billion fraud by U.S. regulators, was also booted off the list.
Crime, however, did not disqualify one notable new entry to the list -- Mexican drug lord Joaquin "Shorty" Guzman, who is among the world's most wanted men and now worth $1 billion. "He is not available for interviews," Kroll said. "But his financial situation is doing quite well."
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45 percent of world's wealth destroyed: Blackstone CEO
By Megan Davies and Walden Siew
Tue Mar 10, 2009
http://www.reuters.com/article/ousiv/idUSTRE52966Z20090310
NEW YORK (Reuters) - Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis.
"Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."
But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.
U.S. Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion.
"In all likelihood, that will have the private sector buy troubled assets to clean the banks out in terms of providing leverage ... so that we can get more money back into the banking system," Schwarzman said.
He expects the private sector to end up making "some good money doing that," but added there were complex issues on how to price toxic assets.
He put part of the blame for the financial crisis to credit rating agencies.
"What's pretty clear is that, if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies," he said.
Rating companies have been the focus of intense criticism for their role in granting top "AAA" ratings for complex bonds that later plummeted in value, resulting in subsequent rating cuts, in many cases to junk status.
"Once you bought into ... the Triple A paper and it turned out to be paper that was in many situations going to end up defaulting, then you really had the makings of a global problem," he said.
Schwarzman said problems were then exacerbated by mark-to- market accounting rules. Those rules ask banks and other financial institutions to price assets at a value related to how they would be sold in the open market.
Blackstone reported a quarterly loss in February after writing down the value of its portfolio and eliminated its fourth-quarter dividend.
Asked where was a good place to invest, Schwarzman said it made sense to buy cyclical names, which are less exposed to the economic cycles.
He said investors also may find value in debt products, including "senior layers of certain securitizations," where investors can see 15 percent to 20 percent returns, he said.
Geographically, he said there were "pockets of strength" in China, which is committed to getting to an 8 percent growth level, and in India, where the economy is slowing but banks are in good shape.
(Editing by Andre Grenon)
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Warren: Is AIG Bailout Money Going To Pay Off "Speculators"?By Zachary Roth - March 11, 2009
http://tpmmuckraker.talkingpointsmemo.com/2009/03/warren_is_aig_bailout_money_going_to_pay_off_specu.php
Looks like you can add Elizabeth Warren to the growing list of people who want the federal government to tell us more about that latest AIG bailout.
Warren, who chairs the panel that's monitoring bailout spending on behalf of Congress, went on MSNBC's Rachel Maddow Show last night, and all but demanded more disclosure from Treasury Secretary Tim Geithner.
Maddow raised the fact that AIG has reportedly passed bailout money onto its counterparties on those credit default swaps, and that it currently has four PR firms on its payroll. In response, Warren, appearing perhaps more frustrated than in any of her other numerous media appearances over the last few most, responded:
It doesn't seem strange to me, and the fact that it doesn't seem strange to me tells you something really awful about what it's been like to be in Washington for the last few months.
These financial institutions have figured out that they're bleeding red ink, and their best solution is to persuade the Treasury Department to give them lots of money. And when the Treasury Department starts to say, there may be some problems here, the American people don't want to go along with this, then lets see if we can spin the American people on it.
The Treasury Department has not asked for the critical information about where this money has gone, from AIG. We've poured the money into AIG, and it has somehow poured it out the other end. The Treasury Department has not asked, and has not revealed, what it is that's happening with that money.
And so as long as that's the case, maybe some of the money is going to other financial institutions. Maybe some of the money is going to pay off these credit default swaps that are essential for saving other institutions that have counted on it for credit and insurance. And maybe some of where this money is going is just off to speculators, who just played the game of speculation, and would now like to collect a hundred cents on the dollar form their speculations, and collect it indirectly from the American taxpayer.
You can see the video here. (The excerpt quoted above begins around the 9:00 mark.)
The Federal Reserve, which has been at the center of the latest AIG bailout, has declined to reveal much information about the maneuver, including the identity of AIG's counterparties, saying that doing so could affect confidence in the institutions at issue.
Reports by Warren's panel have grown increasingly critical of Treasury's level of transparency and accountability in regard to the bailout.
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Whitney Sees Credit Cards as the Next Crunch: Report
By: Reuters 10 Mar 2009
http://www.cnbc.com/id/29611789/
Prominent banking analyst Meredith Whitney warned that "credit cards are the next credit crunch," as contracting credit lines will lower consumer spending and hurt the U.S. economy.
"Few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is under-appreciated is the role of credit-card availability in that spending," Whitney wrote in the Wall Street Journal.
Although credit was extended "too freely over the past 15 years" and rationalization of lending is unavoidable, what needs to be avoided was "taking credit away from people who have the ability to pay their bills," said Whitney, CEO of Meredith Whitney Advisory Group.
Whitney said available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone, and she estimates over $2 trillion of credit-card lines will be cut within 2009, and $2.7 trillion by the end of 2010.
"Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy," Whitney said.
There is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon, she said.
"Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57 percent contraction in credit-card lines," she said.
Over the past 20 years, Americans have used their credit cards as cash-flow management tools, she said adding that 90 percent of credit-card users revolve a balance at least once a year, and over 45 percent of credit-card users revolve every month.
Whitney said the five lenders which dominate two-thirds of the credit-card market need to work together to protect one another and preserve credit lines to able paying borrowers by setting guidelines on credit.
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AIG Told U.S. Failure May Cripple Banks, Money FundsBy Hugh Son and Scott Lanman
http://www.bloomberg.com/apps/news?pid=20601087&sid=a72q7hFPu5Cs&refer=home
March 9, 2009 (Bloomberg) -- American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.
AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.
“What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,” said the presentation by New York- based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.”
Regulators revised AIG’s bailout last week to ease loan terms and extend $30 billion in fresh capital after the firm posted a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history. Lawmakers are reluctant to give more support beyond the package already in place, worth about $160 billion, because they say regulators haven’t given enough detail about how the funds are being used or when the bailouts will end.
The Fed is “asking for an open-ended check” and is “not going to get” it, Senator Robert Menendez, a New Jersey Democrat, said last week in Congressional hearings.
Global ImpactAIG warned of turmoil around the globe if the government allowed the insurer to fail, adding “it is questionable whether the economy could tolerate another shock to the system that a failure of AIG would produce.” The value of the U.S. dollar might fall, Treasury borrowing costs could rise and the agency would face “doubts about the ability of the U.S. to support its banking system,” according to the presentation, parts of which were reported earlier by the New York Times. The municipal bond market would be stressed and Boeing Co. could lay off workers if AIG’s plane-leasing unit folded, the company said.
“It seems like they’re reaching on this litany of claims they’re making, some of which aren’t supported” by facts, said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “They are correct that without the government stepping in, you’d see big holes blown in the equity of American and European banks.”
Overseas Seizures
Under the scenarios sketched by AIG, European banks that bought credit-default swaps might need to raise $10 billion in capital and could face rating downgrades. Life insurance customers, their faith shaken in the industry, would redeem some of their $19 trillion in U.S. policies, overwhelming firms already weakened by the credit crisis, AIG said.
The $38 billion in support provided by the firm to money- market funds would be in jeopardy, AIG said, possibly forcing some to “break the buck.” The term refers to a money fund that suffers losses so large that it must pay investors less than the traditional $1-a-share value that gives the short-term funds their reputation for safety.
Outside the U.S., where AIG operates in more than 140 countries, a collapse could lead to the “immediate seizure” of its businesses by regulators and could impair “the entire insurance industry within certain regions,” the presentation said, which added that its conclusions were “speculative” and a matter of judgment.
Creating ‘Crisis’ Atmosphere?“Who knows if what they’re saying is true?” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “A lot of it sounds like conjecture, that if AIG collapses the rest of the industry will, too. It’s a way of creating a crisis atmosphere and the sense you have to respond quickly.”
Fed spokeswoman Michelle Smith said the central bank “came to its conclusions based on our own analysis.” The risks associated with an AIG failure were “unacceptably large” and could “deepen the current economic recession,” the Fed said today in a report posted on the Senate Banking Committee Web site. Christina Pretto, an AIG spokeswoman and Isaac Baker of the Treasury declined to comment.
If AIG were forced to liquidate its investments, it would have “enormous downward pressure” on asset classes including municipal bonds, the firm said. The company’s commercial insurance division owns more than $50 billion in muni bonds.
ILFCAIG’s International Lease Finance Corp. is the world’s biggest aircraft lessor by plane value, and its failure would jeopardize $12.5 billion in orders, causing job losses at Chicago-based Boeing. ILFC would have to sell its 1,000 planes at distressed prices, “severely impacting” the aircraft industry. Banks and pension funds holding about $30 billion in ILFC debt would take losses, the company said.
European banks named by AIG as potentially needing capital if the insurer fails include the Royal Bank of Scotland Group Plc, Societe Generale SA, BNP Paribas SA, Banco Santender SA, Danske Bank A/S, Rabobank Group NV, Credit Logement SA and Credit Agricole SA’s Calyon.
Danske Bank has insured a third of its mortgage bonds through AIG, which promises a payout of $200 million in case of “extreme high losses,” the Danish lender said in a statement. The agreement can be annulled in 2010 and AIG has not yet paid out any money, Danske bank said.
Credit Logement Chief Financial Officer Eric Veyront said in a telephone interview that the firm “wouldn’t be directly touched by an AIG failure.” The company estimates it has about 10 million euros at risk “at a maximum” on credit-default swaps where AIG is counterparty, he said.
Buffett Supports AidRabobank sold assets insured by AIG at yearend, effectively ending the contracts, said Raymond Salet, a spokesman for the Utrecht, Netherlands-based bank. The transaction didn’t impact Rabobank’s annual results, he said. Representatives from RBS, Societe Generale, BNP, Santander and Calyon didn’t immediately have comment.
AIG’s latest rescue package includes equity, new credit and lower interest rates on existing loans designed to keep it in business. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner have said the government must prop up AIG to avoid damaging the financial system.
Billionaire Warren Buffett, appearing on CNBC today, said the bailout of “quasi-financial” firms like AIG was necessary, even if everyone dislikes what had to be done to salvage it.
New York Insurance Superintendent Eric Dinallo said at a March 5 hearing he had received the presentation.
Bailout BeneficiariesThe document doesn’t say which other companies have benefited from AIG’s repeated rescues. Goldman Sachs Group Inc. and Deutsche Bank AG were among at least two dozen financial institutions that were paid $50 billion from the bailout funds received by AIG, the Wall Street Journal reported, citing a confidential document and people familiar with the matter whom it didn’t identify.
Goldman and Deutsche got about $6 billion each between September and December, the Journal said. Merrill Lynch & Co., Societe Generale, Morgan Stanley, Royal Bank of Scotland and HSBC Holdings Plc were other counterparties that also received payments, the newspaper said, citing the document.
AIG’s presentation said that without more U.S. help, investment losses would mean “AIG will not be able to repay its obligations” and that cash previously provided by the U.S., which controls a 79.9 percent stake in the insurer, could be lost. Chief Executive Officer Edward Liddy, who took over the top job in September, has vowed that AIG will repay all of its debts to taxpayers.
Potential Job Losses
At AIG itself, failure could have led to dismissals from its workforce of 116,000, the document said. At that level, the staff is unchanged from the end of 2007 before AIG’s bailout. The global credit crunch has led to at least 284,000 job cuts at the rest of the world’s financial companies, according to Bloomberg data.
The insurer’s first bailout package, crafted last September, later grew to $150 billion. After failing to sell enough subsidiaries to repay the government, AIG had to turn to U.S. taxpayers again. The company may need more support if financial markets don’t improve, the Treasury and Federal Reserve said last week in a joint statement.
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$11 Trillion Wipeout: Wall Street's Year-and-a-Half of Dangerous Livingby Aaron Task
Posted Mar 06, 2009
http://finance.yahoo.com/tech-ticker/article/203386/11-Trillion-Wipeout-Wall-Street's-Year-and-a-Half-of-Dangerous-Living?tickers=%5Edji,%5Egspc,GM,C,AIG,XLF,QQQQ
In a fitting end to another desultory week on Wall Street, the stock market did its best to frustrate everyone Friday; first, it failed to sustain an early bounce on not-worse-than-feared jobs numbers, then avoided the cathartic "whoosh" down many were hoping for after the initial rally faded.
After trading as low as 6470, the Dow rebounded to end the day up 32.50 points to 6470. The S&P also managed to eek out a gain to 683 after trading below 667 intraday while the Nasdaq pared much of its early loss before closing down a hair at 1294.
It's hard to remember what transpired in just the past week, during which the Dow and S&P hit their lowest levels since 1997 and 1996, respectively. But it's almost impossible for most of us to remember (much less comprehend) what's occurred in the past year, or since the peak in October 2007.
So here's some (unfriendly) reminders:
The current decline is worse than the 1929-1932 rout.
Based on the Wilshire 5000 Index, the market-cap of U.S. stocks is down $11 trillion since the Oct. 2007 peak, Marketwatch says.
U.S. stocks have lost $1.6 trillion in market-cap since Barack Obama's inauguration, Bloomberg reports.
Nearly 50% of all stocks in the Wilshire 5000, the broadest index of U.S. equities, are trading for less than $5 per share, and 37% are under $3.
As devastating as those statistics are, they fail to capture the psychological damage that's been done by the fall of once hallowed institutions such as Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae and Freddie Mac, as well as those still hanging by a thread like Citigroup and GM.
Still, there's a case to be made that stocks are now actually "cheap" on a long-term cyclically adjusted P/E basis. Yes, it's probably is too late to dump and run, and the market is certainly due for a short-term rally of some substance. But that doesn't mean major averages aren't ultimately going still lower before the worst bear market of many generations runs it course.
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Bair Says Insurance Fund Could Be Insolvent This Year
By Alison Vekshin
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alsJZqIFuN3k
March 4, 2009 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the fund it uses to protect customer deposits at U.S. banks could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.
“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.
“A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”
The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said.
The fund, which lost $33.5 billion in 2008, was drained by 25 bank failures last year. Sixteen banks have failed so far this year, further straining the fund.
Angry Bankers
Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview.
“I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.
“The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” Bair wrote. “We did not want to impose large assessments when the industry and economy are struggling. We searched for alternatives but found none better.”
The agency, which has released the change for 30 days of public comment, could modify the assessment to shift the burden to the large banks “that caused this train wreck,” Fine said. “Community bankers are feeling like they are paying for the incompetence and greed of Wall Street,” he said.
Legal Constraints
Bair dismissed that suggestion.
“For risk-based assessments, our statute restricts us from discriminating against an institution because of size,” Bair wrote.
The deposit insurance fund won’t dry up because the government can get funds from the industry and congressional appropriations, and borrow from the Treasury, Chip MacDonald, a partner specializing in financial services at law firm Jones Day, said today in a telephone interview.
“As a depositor, I am not worried in the least,” MacDonald said. “No one is going to let the FDIC go without any money.”
Consumers should watch this issue closely, said Edmund Mierzwinski, consumer program director at U.S. PIRG, a Boston- based consumer-watchdog group.
“I wouldn’t take their money out of the bank yet,” Mierzwinski said. “If the FDIC is saying that there is this serious problem, then we should all be concerned. I think there is a chance the FDIC is going to have to ask taxpayers for money in the future.”
No Taxpayer FundsBair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion.
“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.”
The FDIC “will revise the interim rule, if appropriate, in light of the comments received,” the agency said in a Federal Register notice.
To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.
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Why States are Shunning AKA's "Stimulus" MoneyBy Lynn Stuter
February 24, 2009
NewsWithViews.com
http://www.newswithviews.com/Stuter/stuter144.htm
Louisiana Governor Bobby Jindal has gone on record, stating his state will not be taking stimulus money that will force expansion of existing programs or the establishing of new programs. Joined by Governors Mark Sandord of South Carolina, Haley Barbour of Mississippi, Sarah Palin of Alaska, Butch Otter of Idaho, Mitch Daniels of Indiana, and Rick Perry of Texas, these governors are voicing concerns about the stimulus money being offered the states by the federal government under H.R. 1, better known as the Porkulus Package or the Piggy Package of Pork Barrel Spending.
In my last article, I stated that the total cost of the Porkulus Package would be $4.06 trillion broken down as follows: $789 billion for the Porkulus loan itself, money that would have to come from the already depressed economy; approximately $744 billion in debt service on that loan and $2.527 trillion in new programs and expansion of existing programs over the next decade.
It becomes apparent that the states are being offered stimulus money with strings attached; that the cost of getting that money is acceptance of federal regulation.
This phenomenon is nothing new; it has been going on, literally, for decades.
It is called federal discretionary grants.
This is how it works.
Congress writes and passes a law; money is appropriated to meet the monetary requirement of the law.
Requests for proposals (RFP) are published. RFPs delineate the terms and conditions the state, county, municipality, or school district (grantee) must meet in order to receive grant money. Prospective recipients write their grant applications to meet the terms and conditions of the RFP. The grant application must then be signed by an individual with the authority to do so, then is submitted to the federal agency administering the grant.
If the grant is accepted by the federal granting authority, grant monies are then awarded, establishing between the grantee and the federal government a de facto contract, legally binding, in which the grantee agrees to the terms and conditions set down by the RFP, including compliance with any laws stated in the RFP.
More often than not, one of the conditions of the RFP governing the grant, is that the grantee agree to fund the balance of the project or program and provide continued funding for the same.
What recipients of these grants have learned is that the federal grant money amounts to pennies on the dollar of the total cost of the grant project or program; that the grants really only represent “seed money”. At the same time, federal terms and conditions, as set down in the RFP, governs the entire project, including continued funding of the project. This is where the $2.527 trillion figure in the Porkulus Package comes from: the amount it will cost state, county and municipalities to continue funding programs and projects after federal seed money runs out. This is why many governors are “picking and choosing” the stimulus money accepted.
This also amounts to federal regulation of state, county and municipal tax dollars and budgets as monies to fund the federal projects after seed money runs out must be generated and allocated, whether the project is a priority or not, and whether the local tax base can afford it.
Many may recall the firestorm that erupted a few years ago over unfunded mandates which is the term used when federal money does not cover the cost of a federal project but the state, county or local municipality is required to continue funding the project or program after federal money runs out, creating a monetary burden the recipient is forced to fund, usually at the expense of priority programs for which they are constitutionally responsible.
Many wonder why infrastructure is crumbling. Unfunded mandates are part of the reason.
The other federal mandate of the RFP is just as deleterious to states, counties and municipalities as the unfunded mandate; that is the number of federal laws the recipient must agree to comply with as condition of receiving the grant money. Many of the laws are not even relevant to the project for which the money is being granted.
This has, over a period of time, resulted in a virtual spider-web effect. If a state, county or municipality accepts a grant, the recipient finds themselves subject to a virtual spider-web of laws that cannot be escaped. The effect is truly that of a fly trapped in a spider web, unable to extricate itself from the sticky mess in which it finds itself entrapped. Entrapping states, counties and municipalities, forcing them to subjugate to federal regulation is the stick that comes with the carrot of federal money.
Witness what happened in 2005 when Utah set about to “repudiate” No Child Left Behind. The feds brought out their rather large hammer and, in the end, the attempt by Utah to repudiate NCLB died a very quiet death. And while the citizens of Utah were not told why, the truth was that had Utah passed the bill to repudiate NCLB, the feds would have cut off federal money to the state.
How much are we talking about?
Several years ago a friend, out of curiosity, requested a printout of the grants received by Washington state. Several days later she received a box in which she found a stack of continuous feed computer paper listing no less than 15 grants per page. The stack of paper was approximately 7.5 inches deep. A ream of paper, 500 sheets, is approximately 2” deep. This would equate to approximately 1875 sheets of paper; no less than 28,125 federal grants, new and continuing.
This gives one some idea of the control the federal government exerts over state, county and local municipalities via discretionary grants.
It is pretty obvious that federal discretionary grants are a way of usurping control that otherwise could not be usurped; they do an end run on the Tenth Amendment.
Enter a move, this year, in several states to reassert state’s rights. Washington state is among several states that have introduced a resolution to do just that (HJM 4009), the resolution, stating in part,
WHEREAS, Today, in 2009, the states are demonstrably treated as agents of the federal government; and
WHEREAS, Many federal mandates are directly in violation of the Tenth Amendment to the Constitution of the United States; and
WHEREAS, The United States Supreme Court has ruled in New York v. United States, 112 S. Ct. 2408 (1992), that Congress may not simply commandeer the legislative and regulatory processes of the states; and
WHEREAS, A number of proposals from previous administrations and some now being considered by the present administration and from Congress may further violate the Constitution of the United States;
NOW, THEREFORE, Your Memorialists respectfully resolve:
… (2) That this serve as a Notice and Demand to the federal government to maintain the balance of powers where the Constitution of the United States established it and to cease and desist, effective immediately, any and all mandates that are beyond the scope of its constitutionally delegated powers.
Other states include Arizona, Hawaii, Montana, Michigan, Missouri, New Hampshire and Oklahoma. Several other states are rumored to be working on similar resolutions.
What the Piggy Package of Pork Barrel Spending amounts to, in final, in an unprecedented grab for power by Also Known As (AKA) Obama and the federal government, a move to nationalize the United States of America into a soviet socialist republic.
On February 20, 2009, at a gathering of mayors at the White House, AKA was most empathetic, commiserating with mayors over the lack of funding, then singling out Texas mayors, telling them they could lose billions if Governor Rick Perry refused stimulus funds. AKA, however, carefully avoided mention of the federal strings and federal control attached to that money, a condition, however, that did not escape the journalist for The Dallas Morning News, Todd J. Gillman.
What needs to happen to rectify this situation, to reassert state’s rights?
State agencies must be prohibited from apply for or accepting federal discretionary grants.
The 16th and 17th Amendments to the United States Constitution must be repealed.
States must deny the federal government access to citizens or companies residing within the state for the purposes of taxation.
Federal agencies, established in direct violation of the United States Constitution, need to be challenged via the courts.
The United States of America stands on the brink of destruction at the hands of a man who has no allegiance to this country as he is not an American citizen yet sits in the Oval Office. He must be exposed and ousted before he does further damage to this country.
With the signing of the Piggy Package of Pork Barrel Spending, AKA has declared war on the United States in the name of “hope” and “change”. He and his communist and terrorist allies — the likes of William Ayres, Bernadine Dohrn, Frank Davis (his mentor), Jeremiah Wright, Carol Browner, ACORN, Sam Graham-Felsen (Obama’s official blogger and contributor to the Socialist Viewpoint), Rashid Khalidi (PLO operative), Hatem El-Hady (Obama fundraiser whose Islamic fundraising efforts were closed down by the government as terrorist connected) — want nothing so much as they want the destruction of this nation. And they have nothing on the tax dodgers (Tim Geithner, Tom Daschle, Nancy Kileffer), porn sleaze (David Ogden), ethics violators (Rahm Emanuel, Bill Richardson) and terrorist sympathizers (Eric Holder) AKA has appointed or tried to appoint to fill administration positions.
The United States Supreme Court, in refusing to address the illegitimacy of AKA to the Oval Office, is aiding and abetting that destruction.
Meanwhile, the rumble of discontent among the American people is growing louder with each passing day. The recent protests in Mesa, Arizona while AKA was there pontificating about the mortgage bailout wasn’t shown on the lamestream news. Should we be surprised considering truth is not their forte. Pictures can be viewed here. It is very obvious that AKA is not fooling a growing segment of the American population with his empty promises.
Never, in all my years, have I seen people become so disenchanted with a man so quickly. This past week has seen a upsurge in cartoons, articles, even newspaper advertisements castigating the Marxist ideology of AKA and his corrupt minions. The issue of his illegitimacy to the Oval Office is a ball and chain that he cannot and will not get away from.
In this past week, while the Secret Service harassed an Oklahoma City man, Chip Harrison, for having a sign on his truck stating “Abort Obama, not the unborn,” the FBI has done nothing about Mark Ames who has more than strongly suggested someone kill Betsey McCaughey who exposed the AKA plan, in the Piggy Package of Pork Barrel Spending, to force health care providers to supply to the federal government confidential information on patients to be data-based at the federal level, a precursor to nationalizing health care and implementing socialized medicine; Ames claiming Ms McCaughey just wanted to keep the money for her “plutocrat friends.”
The message is very clear: it’s not okay to display signs proclaiming “Abort Obama” but it’s okay to threaten to kill people who oppose AKA’s Marxist policies!
Democracy in action. As James Madison stated in Federalist #10, democracy …
“can admit of no cure for the mischiefs of faction. A common passion or interest will, in almost every case, be felt by a majority of the whole, a communication and concert results from the form of Government itself; and there is nothing to check the inducements to sacrifice the weaker party, or an obnoxious individual. Hence it is, that such Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security, or the rights of property; and have in general been as short in their lives, as they have been violent in their deaths.”
And while Congress dithers, the Supreme Court dawdles, and law enforcement discriminately enforces the law, the fabric of this country is being shredded.
These people are not deserving of the respect their office engenders as they have no respect for their office themselves. Beyond that, they have violated their oaths of office to protect and defend the United States Constitution.
They are traitors, one and all!
Other of my articles concerning federal grants:1 - What Federal Discretionary Grants Mean for Your State
2 - Utah backs off No Child Left Behind
3 - Will Texas Capitulate?
Recommended reading:1. ACORN Trains Citizens to Protest Home Foreclosures
2. Holder advocated regulating Internet speech
3. Rahm’s rent is just the tip of the ethics iceberg
4. Obama’s porn lawyer national security risk
5. Obama destroying the USA to rebuild it in his own image?
6. President Obama is economically insane
7. Rick's Revolution Continues -- CNBC Reporter Responds to White House Criticism -- Video
8. Obama's Housing Plan: CNBC's Rick Santelli and the "Rant of the Year" -- Video
9. Saving America: Time to Hit the Streets?
10. Tax Evasion vs. Tax Revolt
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AIG Seeks More US Funds As Firm Faces Record LossBy David Faber, CNBC Anchor and Reporter
23 Feb 2009
http://www.cnbc.com/id/29353282
American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.
Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.
That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.
In addition, if AIG's book value falls below a certain level, as it seems certain to do, it will trigger default in certain of its debt instruments, say people familiar with the situation.
All of this adds up to a huge headache for the Federal Reserve and Treasury, which have already provided over $150 billion of assistance to AIG.
Talks between the government and AIG are focussed on how the company can swap some of the debt held by the government for equity in AIG.
The problem is that the government's ownership stake cannot exceed its current 79.9 percent, leaving officials to try and find a creative way to transfer value to the US in exchange for AIG reducing its debt so that it can then borrow more from the government to meet its collateral calls.
AIG has borrowed roughly $40 billion from a $60 billion credit facility provided it by the Federal Reserve Bank of New York. If it can find a way to pay that down by swapping equity, it hopes to take it back up to a level that will allow it to meet its collateral and capital calls.
AIG's board is scheduled to meet this Sunday night in hopes of hammering out an agreement with the government. But in case it can't, AIG's lawyers at Weill Gotschal are preparing for the possibility of bankruptcy.
That seems unlikely, but last November, the government took control of many of AIG's credit default swaps and so a bankruptcy of the holding company might not pose the systemic risk it once did.
AIG said in a statement it had not yet reported results and would provide an update when it does so in the near future.
"We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges," AIG said. U.S. Treasury officials declined to comment.
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Just who are the Evil Capitalists?Stimulus Bills actually encourages more irresponsible behavior by Government and sub-prime borrowers
By Otis A. Glazebrook, IV
Monday, February 23, 2009
http://www.canadafreepress.com/index.php/article/8730
I have always thought that President Theodore Roosevelt’s categorization as a “Great” President was vastly overrated. Teddy Roosevelt originated and popularized the war against Capitalism in the United States. While in office Teddy rode roughshod over the Constitution, vastly increasing his Presidential authority by his actions as a “Trust Buster”. He was the first President to attack Wall Street by the passage of his legislation; the Hepburn Act regulating railroad fares.
The limits on railroad rates depreciated the value of railroad securities, a factor in causing the Wall Street panic of 1907. Roosevelt proceeded to replace the pro-business McKinley Administration’s policies with his Trust Busting “Square Deal” by filing 44 lawsuits against major corporations.
Politicians, mostly Democrats in consort with the Big Media have done a masterful job of continuing that war by making every successful entrepreneur and “capitalist” the villains. The TR’s “Square Deal” morphed into his cousin’s “New Deal”.
The “New Deal” is a major part of our current financial mess because this where the concept of Government Sponsored Enterprises GSEs, Freddie Mac and Fannie Mae, was born. (More about them later.) Doesn’t this beg the question: Just who are these evil “capitalist”?
Morgan? Astor? Rockefeller? Mellon? Vanderbilt?
Got a savings account, IRA or a 401-K?
Congratulations you evil bastard you just made the grade.
Let’s get back to basics and ask the question: Just what is capital?
Adam Smith explained it this way in his 1776 book ”The Wealth of Nations”:
Of the Origin and Use of Money: I.4.1” When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.”
In other words the money that you save in one way or another is your “capital”.
It is that excess amount of money you received as compensation for your hard work that most of you put away for the inevitable “rainy day”.
It is Bedford Falls, 1946. It is a “Wonderful Life”.
Then as now, most people can not simply sit down and write a check to purchase their first homes. So, you put your savings in George Bailey’s S & L. What happens to that money? George Bailey takes your money and many other people’s savings, combines these amounts and lends that money to your new neighbor so that he can purchase a house. In return for lending George your money he pays you interest for its use. You might not even own a house yet, you are saving and establishing a relationship with George so that when you have saved enough for a “Down Payment” he will lend you the balance needed for your house.
(For a more dramatic explanation, think of George Bailey’s speech to his depositors on the April, 1933 run on the banks, his wedding day.)
During the mortgage process George investigates the borrower to find out if he/she has the ability to repay the amount loaned plus the cost of the money. (That is interest to you and his operating costs and gasp! his profit.)
If George is prudent in his ability to properly vet the risk he is taking by loaning your money he stays in business because he properly addresses all of the risks involved in making the loan. Just to be sure a “benevolent” government bureaucrat is looking over his shoulder just to be sure that he is following sound accounting and banking practices.
Your money then goes out into the community. It is spent at the lumberyard and with other merchants for lumber, plumbing fixtures, appliances etc. This money also goes to pay the wages of carpenters, masons, electrician and plumbers; everyone involved in construction of that new house. This entire process is repeated multiple times all across the country. Before you know it you have villages, then towns and then cities if enough people follow the same pattern. This is how American prosperity was built.
Some people, inevitability, will not be able to follow through on their loan contract and default. This where risk comes in, if George has done is risk assessment properly these sad situations are few and far between. (Notice that there is no assignment of blame here, people fall behind on mortgages all the time due to unforeseen events.)
In order for George to stay in business and continue to make mortgages available to other families he must foreclose or take back the home to protect your savings and his livelihood.
George takes the house back and sells it to another family that is in a financial position to pay the mortgage off. This time George learns from his past mistake and raises the bar slightly on those future borrowers to whom he is willing to lend your money.
So far, so good.
Now let’s move forward to 1977 and the Community Reinvestment Act. This Act of Congress tells the Government bureaucrat (bank examiner) that he is to ignore past sound banking and accounting procedures and force George into lending your money to people who have not demonstrated an ability to repay loans, for whatever reason.
George resists this whole notion because he has a family now and needs to stay in business. He also does not want to be confronted by you because you will hold him responsible for loosing your money. If enough mortgages go south, or Uncle Billy loses it and Potter steals it, George is responsible. Rightly, so. This is called consequences.
For years George and his fellow bankers are able to resist the Government’s notion of lending your money to the unworthy, simply to make the politicians happy. Remember there are more borrowers out there than there are Georges and borrowers coincidently vote.
In 1992 a new Presidential Administration is voted into office. This new Administration notices the simple fact that there is a large constituency of unworthy borrowers who are also voters. During the first two years of this Administration there is a like minded Congress of the same political party who wish to stay in office. These two branches combine forces and pass many “Legislative changes” to the CRA to serve themselves and their constituency. In short they are using your money to buy votes for their re-election by forcing George into making loans that he would not normally make because he knows that there is little likelihood that these loans will be repaid in a timely fashion. These mortgages then become subject to political calculations rather than the economic calculations of past good banking and accounting practices. If George does not make the proper number of risky loans, it is made clear to him by the U.S. Attorney General and the HUD Secretary that the full force of the federal government would make his future in the banking business untenable in a variety of ways.
George is not an idiot, he knows his business and he recognizes that his best way out of this government induced quagmire is to sell these risky CRA induced (ARM, NINJA and sub-prime) mortgages to Wall Street as Mortgage Backed Securities (MBS) to consortiums because they were backed by (FDR’s “New Deal” created) Government Service Enterprises (Freddie & Fanny). For George this is a “no brainer” he gets rid of his problem of excess risk and he does not lose your money.
George Bailey might be considered the “Evil-Doer” here, were it not for the Government’s extortion. Government regulators gave George a simple choice: go out of business or follow our rules.
As it happens, the new Administration entices these GSE’s into accelerating the proliferation of these risky loans by allowing the management of the GSE’s to pay themselves bonuses based on how many mortgages were bought and sold. At this point it is simply a numbers game, commissions are all that matter, there is no risk assessment.
By 1995, the management of the GSE’s began purchasing MBS loans. The MBSs’ were then (by default) guaranteed by Freddie and Fannie and had an implied “AAA” rating. Risk was not thought to be a factor because the GSE’s were thought to be backed by the “Full Faith and Credit of the United States”. As it turns out they were!
These “AAA” securities were then sold by Bear Sterns and others to Wall Street money managers and insurance companies all over the world. Common sense would dictate that the end buyers of these securities were not aware of the actual risk that they were taking.
Yet, the “Wall Streeters” and other buyers are being blamed by the Politicians, GSE mangers and the “something for nothing borrowers” for this debacle, when the opposite is actually true.
The actual victims of this entire scheme are the unwitting end buyers of these cancer riddled securities (Wall Street) and the U.S. Taxpayer.
No matter way which you slice it, if you are a taxpayer: It’s your money.
Looking for villain? You can either look in the mirror or look to Washington, D.C. where the blame properly lies.
The current long string of “Stimulus Bills” actually encourages more irresponsible behavior by Government and “sub-prime borrowers”, for reasons that should now be clear. To paraphrase President Obama: “It is all your “Skin” in the game.”
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Next Wave of Banking Crisis to come from Eastern EuropeBy F. William Engdahl
URL of this article: www.globalresearch.ca/index.php?context=va&aid=12339
Global Research, February 18, 2009
European banks face an entirely new wave of losses in coming months not yet calculated in any government bank rescue aid to date. Unlike the losses of US banks which derive initially from their exposures to low-quality sub-prime real estate and other securitized lending, the problems of western European banks, most especially in Austria, Sweden and perhaps Switzerland arise from the massive volumes of loans they made during the 2002-2007 period of extreme low international interest rates to clients in eastern European countries.
The problems in Eastern Europe which are just now emerging with full force are, if you will, an indirect consequence of the libertine monetary policies of the Greenspan Fed from 2002 until 2006, the period where Wall Street's asset backed securitization Ponzi Scheme took off.
The riskiness of these eastern European loans is now coming to light as the global economic recession in both east and west Europe is forcing western banks to pull back, refusing to renew loans or ‘rollover' the credits, leaving thousands of borrowers with unpayable loan debts. The dimension of the eastern European emerging loan crisis pales anything yet realized. It will force a radical new look at the entire question of bank nationalizations in coming weeks regardless what nice hopes politicians in any party entertain.
Moody's Rating Service has just announced it ‘might' downgrade a number of western European banks with large exposures to eastern Europe. On the report, the Euro fell to 2 and a half month lows against the dollar.
The Moodys report mentioned especially banks in eastern Europe owned by western European banks including specifically Raiffeisen Zenetralbank Oesterreich and Sweden's Swedbank. The public Moody's warning will now force western banks with subsidiaries in eastern Europe to dramatically tighten lending conditions in the east at just the time the opposite is needed to keep economic growth from collapsing and thereby setting off chair-reaction loan defaults. The western banks are caught in a devil's circle.
According to my well-informed City of London sources, the new concerns over bank exposures to eastern Europe will define the next wave of the global financial crisis, one they believe could be even more devastating than the US sub-prime securitization collapse which triggered the entire crisis of confidence.
As a result of the Moody's warning, west European banks will now likely be selective in supporting their subsidiaries. Moody's report noted that ‘banks in countries that are associated with higher systemic risks might face reduced support.' Western European governments may also establish rules to ensure banks receiving state support are forbidden to aid foreign subsidiaries. This is already the case with Greek banks and the Greek Government. The result is to make a bad situation far worse.
The size of risks are staggering
The amount of loans potentially at risk involve mostly Italian, Austrian, Swiss, Swedish and it is believed German banks. Once the countries of the former Soviet Union and Warsaw Pact declared independence in the early 1990's west European banks rushed in to buy on the cheap the major banks in most of the newly independent east countries. As US interest rate cuts after the stock crisis in 2002 pushed interest rates around the world to new lows, easy credit led to higher risk lending across borders in foreign currencies. In countries such as Hungary Swiss and Austrian banks promoted home mortgage loans denominated in Swiss Franc where interest rates were significantly lower. The only risk at the time was if the Hungarian currency were to devalue, forcing homeowners in Hungary to repay sometimes double the monthly amount in Swiss Francs. That is what has happened over the past 18 months as western banks and funds have dramatically reduced their speculative investments in eastern countries to repatriate capital back home where the mother banks had serious problems caused by the US banking catastrophe. In the case of the Polish Zloty, the currency has dropped in recent months by 50%. The volume of mortgages existing in foreign currencies in Poland is not known but London estimates are that it could be huge.
In the case of Austrian banks, the country faces a rerun of the 1931 Vienna Creditanstalt crisis which in chain-reaction spread to the German banks and brought Continental Europe into the economic crisis of 1931-33. At the recent EU Finance Ministers' meeting in Brussels, Austrian Finance Minister Josef Pröll reportedly pleaded with his colleagues to come up with aEuro150 billion rescue package for the banks in eastern Europe. Austrian banks alone have lentEuro230 billion there, equivalent to 70% of Austria's GDP. Austria's largest bank, Bank Austria, which in turn is owned by Italy's Unicredito along with the German HypoVereinsbank, faces what the Vienna press calls a ‘monetary Stalingrad' over its loan exposure in the east. In a botter historic irony, Bank Austria bought the Vienna Creditanstalt in recent years in its wave of mergers.
According to estimates published in the Vienna financial press, were only 10% of the Austrian loans in the east to default in coming months, it ‘would lead to the collapse of the Austrian financial system.' The EU's European Bank for Reconstruction and Development (EBRD) in London estimates that bad debts in the east will exceed 10% and ‘may reach 20%.'
German Finance Minister Peer Steinbrück reportedly flatly rejected any EU rescue funds for the east, claiming it was not Germany's problem. He may soon regret that as the crisis spreads to German banks and results in far greater costs to German taxpayers. One of the most striking aspects of the present crisis which first erupted in summer of 2007 is the increasingly evident incompetence of leading finance ministers and central bankers from Washington to Brussels to Paris and Frankfurt and Berlin to deal resolutely with the crisis.
The London office of US investment bank, Morgan Stanley has issued a report estimating the total of western European bank lending to the east. According to the report Eastern Europe has borrowed a total of more than $1.7 TRILLION abroad from mainly west European banks. Much of that has been short-term borrowing of less than a year. In 2009 eastern countries must repay or roll-over (renew) some $400 billion, fully 33% of the region's total GDP. As global recession deepens the chances of that are fading by the day. Now western banks are refusing to roll-over such loans, under political pressure and financial pressure back home. The credit window in the east, only two years ago the source of booming profits for the west European banks, have now slammed shut.
Even Russia which a year ago had more than $600 billion foreign exchange reserves, is in a difficult situation. Russian large companies must repay or roll-over $500 billion this year. Russia has bled 36pc of its foreign reserves since August defending the rouble.
In Poland, 60% of all mortgages are in Swiss francs. The Polish zloty has just fallen in half against the Swiss franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this same story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. This crisis, for European banks comes atop their losses in US real estate securities. In is the next wave of the crisis that is about to hit. Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. Europeans account for an astonishing 74% of the entire $4.9 trillion portfolio of loans to emerging markets. They are five times more exposed to this latest crisis than American or Japanese banks, and they are 50pc more leveraged according to the IMF.
Whether it takes months, or just weeks, Europe's financial system now faces a major test and the situation is complicated by the fact that when the rules of the European Central Bank were finalized in the late 1990's, governments could not agree to surrender total national central banking powers to the new ECB. As a result, in this first test of the ECB in a systemic crisis, the bank is unable to act in the same manner as say the Federal Reserve and fiull the role of lender of last resort or to flood the markets with emergency stimulus.
By some estimates the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty. The EBRD estimates that eastern Europe needs at leastEuro400bn in help to cover loans and prop up the credit system.
Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans. The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its ownEuro155bn reserve, forcing it to sell its gold reserves to raise cash.
The recent IMF $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is going towards default, leaving Unicredit, Raffeisen and ING facing disaster. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.
Perhaps most alarming is that the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU.
Clear at present is that for small-minded political reasons, Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU ‘union bonds' should the debt markets boycott Italy's exploding public debt, hitting 112% of GDP next year, just revised up from 101%.
F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press), and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (www.globalresearch.ca ). His new book, Full Spectrum Dominance: Totalitarian Democracy in the New World Order (Third Millenium Press) is due out at end of March. He may be contacted through his website: www.engdahl.oilgeopolitics.net.
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$65.5 Trillion in Debt
Imposing socialism on AmericaBy Alan Caruba
Wednesday, February 18, 2009
http://canadafreepress.com/index.php/article/8578
Yesterday, a man who has been President less than one month in office has signed a piece of legislation rammed through a Congress which probably not one single member has read. It spends billions on what most people of reasonable intelligence understand to be little more than “pork” projects designed to consolidate political power within the Democrat Party.
Why did the Democrats vote for it? Because they could. And because they are all essentially socialists who have now successfully imposed socialism on America.
Jerome R. Corsi, the author of “Obama Nation”, recently calculated that, “The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively has placed the U.S. government in bankruptcy…” Total obligations exceed four times the annual U.S. gross domestic product (GDP), and the amount is more than the entire GDP of the world.
The nation, since the 1970s has veered from Richard Nixon who took the nation off the gold standard, to the far Left politics of Jimmy Carter who pleased no one, to the recession recovery engineered by Reagan. The caretaker administration of George H.W. Bush was replaced by the centrist political philosophy of Bill Clinton who would later take credit for Republican reforms instituted when the GOP regained control of Congress. What followed were two terms of George W. Bush which no more resembled conservatism than an elephant resembles a mouse.
We have arrived at the administration of Barack Hussein Obama, a man whose vital documents are not merely unavailable to Americans for examination, but who is waging a major legal battle to keep them that way. Do you think, perhaps, he has something to hide?
Throughout it all, from the days of Franklin Delano Roosevelt until the present, Americans have more than happily voted for either party offering a government program that would dole out money to them for any reason. FDR’s Social Security and Truman’s Medicare is now mostly paid for by swapping IOUs between various government agencies and departments. There’s little actual cash to keep these programs going.
It would be easier if we could just lay the blame on a particular President, but all have participated and Social Security is widely described as “the third rail” of politics. Credit Bush43 for trying to getting a program going that might actually allow people to have some control of the money taken from them to allegedly fund it.
So, since this is a republic and a democracy, the blame rests ultimately with the American people. We, Americans, voted for these people or at least for some of them.
In his second inaugural address on January 21, 1985, Ronald Reagan said, “An almost unbroken fifty years of deficit spending has finally brought us to a time of reckoning, We have come to a turning point, a moment for hard decisions. I have asked the Cabinet and my staff a question, and now I put the same question to all of you: If not us, who? And if not now, when? It must be done by all of us going forward with a program aimed at reaching a balanced budget. We can then begin reducing the national debt.”
The answer to Reagan’s question by way of George H.W. Bush was William Blythe Clinton who was voted into office by way of saying, “No, Ron, not now and not here.”
So we have all reached a point in our nation’s history where, sooner than we may believe, other nations are going to seriously question whether they want to buy the Treasury notes we want to sell in order to borrow more and more trillions.
A spokesperson for the Chinese government put it quite succinctly, “We hate you.” The U.S. dollar will shortly begin to resemble Zimbabwean money which is utterly worthless.
At the intense urging of President Obama the U.S. Congress has engaged in what can only be called either herd mentality or “magical thinking”; the belief that other nations will bail us out of our financial crisis when, in fact, we have created and spread it like a virus to the entire world.
Note that the Republican Party, with three notable exceptions, unanimously rejected the “stimulus” bill. Too late! They had eight years of the Bush Administration to not act like Democrats. Too late!
Neither Socialism, nor Communism work at all, but even Capitalism has its limits. The game is over.
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Top Four Merrill Bonus Recipients Got $121 MillionBy Karen Freifeld
http://lib.store.yahoo.net/lib/realityzone/UFNmerrillpaid3p6b.html
Feb. 11 (Bloomberg) -- Merrill Lynch & Co.’s top four bonus recipients received a combined $121 million just before the firm was acquired by Bank of America Corp., according to New York Attorney General Andrew Cuomo.
In all, Merrill “secretly and prematurely” awarded $3.6 billion in bonuses, with Bank of America’s “apparent complicity,” Cuomo said in a Feb. 10 letter to Representative Barney Frank, the Massachusetts Democrat who heads the House Committee on Financial Services. The letter was made public today as chief executives from the eight largest U.S. banks face off against lawmakers at a committee hearing in Washington.
Cuomo, a Democrat, has been examining whether Merrill broke securities laws when it paid the bonuses. He also is cooperating with Special Inspector General Neil Barofsky in a federal probe of executive pay at banks that got money from the U.S. Treasury’s Troubled Assets Relief Program.
“One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding,” Cuomo said in the letter.
‘Gigantic Bonuses’
Cuomo, who has subpoenaed the testimony of former Merrill Lynch Chief Executive Officer John Thain and Bank of America Chief Administrative Officer J. Steele Alphin, said in the letter he would require top officials to answer the question. He said he plans to seek the testimony of other top executives at the firms.
Cuomo said the $3.6 billion in bonuses were distributed to “a small number of individuals.” He said Merrill “chose to make millionaires out of a select group of 700 employees,” and that an even smaller group was awarded “gigantic bonuses.”
After the top four recipients received $121 million, the next four received a combined $62 million, he said, and the next six a combined $66 million. He didn’t identify the recipients.
Overall, the top 149 people who got bonuses received a combined $858 million, according to Cuomo’s letter, and 696 people got bonuses of $1 million or more.
Merrill Lynch was an independent company last year, Scott Silvestri, a spokesman for the combined company, said in an e- mailed statement. Merrill management proposed and its compensation committee approved incentives, according to the statement.
Incentive Pool Cut 80%
“Bank of America did urge the bonuses be reduced, including those at the high end,” Silvestri said in the statement. “Although we had a right of consultation, it was their ultimate decision to make. In addition, a substantial amount of the Merrill bonuses were contractually guaranteed.”
Bank of America said its top eight senior executives took no “incentive compensation” in 2008. At the next level, the annual incentive pool was reduced by 80 percent, it said.
Cuomo said he is probing whether the bonus payments violated New York’s debtor-creditor laws and whether the lack of disclosure violated the state’s Martin Act, New York’s principal securities law. He also said the payments and their timing raised questions about whether the firms’ senior officials and boards of directors violated their fiduciary obligations.
Cuomo said Merrill and Bank of America must have been aware in December that fourth-quarter and yearly earnings results were “disastrous.” Merrill reported Jan. 16 that it lost $15.31 billion in the fourth quarter alone and $27 billion for the year.
Asked about Cuomo’s letter that said Merrill secretly and prematurely moved up the bonuses, apparently with Bank of America’s complicity, Frank said this morning on CNBC that Bank of America CEO Kenneth D. Lewis will be at today’s committee hearing, and “obviously we will expect him to address this.”
“ I am very disappointed in what we learned about Merrill,” said Frank, who hadn’t yet seen the letter. “I think Mr. Thain caused a lot of damage to the climate in which we’re trying to operate.” The Merrill bonuses were reported earlier today in the New York Daily News.
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Counties brace for missed payments from stateJohn Wildermuth, Chronicle Staff Writer
Tuesday, February 10, 2009
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/02/09/MN7715QD8H.DTL
(02-09) 19:57 PST -- California's budget woes will sweep over the state's 58 counties this week when they get promises instead of checks for $89 million in anticipated payments for welfare, food stamps and other services.
The move will be a devastating blow to the counties, which must serve more and more people looking for government help as the economy craters and jobs disappear, said Paul McIntosh, executive director of the California Association of Counties.
With local governments every bit as battered as the state, little cash is available to cover the deficit.
"It's a huge concern," McIntosh said. "There are counties that only have a couple weeks of cash on hand and could have trouble meeting payroll."
While state Controller John Chiang insists that social services money is only being delayed for a month and will be repaid in March, a spokeswoman for the controller said the normal March payments might then have to be delayed for a month if no budget agreement has been reached.
But county officials are unsure when, or even if, they will see those state payments.
Many counties are planning to go to court as soon as that first payment is missed. San Francisco will join a lawsuit set to be filed by San Diego and Sacramento counties, arguing that Chiang must release funds that already have been appropriated by the Legislature in the state budget.
Other counties are taking the fight even further. Los Angeles and Colusa counties have talked about hanging on to tax payments and other funds that normally go to the state, while Riverside County plans to ask the courts to allow it to close social service programs until California resumes its payments.
A first stepFriday's deferred payment is just the first step, Chiang warned. The state's cash crunch means that the counties also won't get an $83 million payment scheduled for Feb. 25 .
"The controller shares the counties' frustration," said Hallye Jordan, a spokeswoman for Chiang. "But he has to defer payment on everything to make sure there's money for mandated expenses like debt service, education, pensions and payroll."
The state requires counties to provide foster care programs, adult protective services, welfare payments and a laundry list of other social services and normally provides much of the money to run them. But while the legal requirements remain, the money has disappeared.
"Some counties just can't afford to front the state a loan," McIntosh said.
Covering costs
Contra Costa County, for example, can cover its costs for this month and probably for March, "but past March we're in real trouble," said Joe Valentine, the county's director of employment and social services. "We could end up having to make some hard decisions."
The $9.6 million monthly shortfall isn't something that Contra Costa can cover for long, especially because it's facing its own $30 million budget gap this year.
"If we're at the end of February and don't have a budget and won't get payments until April, discussions about the future of our programs will have to start," Valentine said.
The state's long-term budget problems already have stretched county resources. Since 2001, the state has not approved a cost-of-living increase for most social service programs, forcing counties to make up the difference.
$1 billion gap"The gap between what the state pays and what the programs cost already is about $1 billion statewide," said Trent Rhorer, executive director of San Francisco's Human Services Agency. "That's starting to have effects on counties."
The deferrals don't hit all counties equally. San Mateo County, for example, has reserves to cover any state shortfalls until September, while many of the smaller counties could find themselves in trouble as soon as that first check doesn't arrive.
But all the counties, regardless of their financial position, are angry that the state government is using them to spackle over its own budget woes.
"The state is mandating programs, so it's their responsibility to fund those programs," said San Mateo County Supervisor Mark Church. "They're making it difficult to provide services to people who need them now more than ever."
Governor asks judge to order more worker furloughsGov. Arnold Schwarzenegger asked a judge Monday to order the state controller to extend furloughs to 13,000 employees who work for elected state officials.
Last week, the governor put 238,000 workers on unpaid leaves twice a month through June 2010 to save the cash-crunched state $1.4 billion.
Sacramento Superior Court Judge Patrick Marlette ruled last week that Schwarzenegger's order allowing the furloughs did not cover state officers, such as Treasurer Bill Lockyer and Attorney General Jerry Brown, because they "were not parties to these matters."
The state officers have refused to follow the governor's order, arguing that he doesn't have authority over their offices. Schwarzenegger says twice-monthly furloughs for workers in those offices would save the state an additional $152 million in the next 17 months.
- Matthew Yi
E-mail John Wildermuth at jwildermuth@sfchronicle.com.
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Stimulus is a Bad Idea
By Jack H. Swift, Esq.
February 8, 2009
NewsWithViews.com
http://www.newswithviews.com/Swift/jack105.htm
Congress is poised once again to do what it does best. It is going to spend astronomic amounts of money it does not have. From a debt perspective, this can only make our current economic problems worse.
From our founding until 1981 our government only managed to accumulate $1 Trillion in debt. Since 1981, our modern Congress has added an additional $9.6 Trillion. Without consideration of the bailout program and this proposed stimulus plan, the government’s debt was 70% of our annual gross domestic product. The annual interest on this debt is an annual expense in excess of $400 billion. A staggering 45% of that government debt is owed to foreign nations.
If the underlying problem to our economic situation is fundamentally one of insolvency, adding additional debt service obligations can only compound the problem. We cannot borrow our way to prosperity.
Senator Shelby of the Senate Banking Committee observed that Congress can’t hope to fix our economic problem until Congress figures out what the problem is.
Initially the American public was told that the problem was one of inability of our banking systems to provide adequate credit availability to fund our commerce. Congress, against the wishes of the American public, borrowed $800 billion to give the banks and financial institutions. This did not cure the problem. It failed because a lack of credit availability wasn’t the problem. Ford and General Motors shut down their 2008 model production runs six months early not because of a lack of financing for orders for new cars. The problem was a lack of orders. This was months before there was any word of any credit crisis.
The word now is that the fundamental problem is one of lack of confidence of the consumers. They are reluctant to undertake more financial obligations in view of an uncertain economic future.
There is a lot of merit to this argument. Way back in the days of the OPEC oil embargo I was engaged in auto sales and I saw a definite correlation of sales to a lack of current bad economic news. But it misses the real point at issue in our crisis.
Prior to the downturn in our economy in the 1970s, automobile financing was generally limited to a term of 36 months. This was well justified on the basis that the depreciation of the asset being financed occurred so rapidly that financing for a longer term wound up an unsecured loan. The runaway inflation of the late ‘70s and early ‘80s led to a cost of cars that produced monthly payments on 36 month terms that people could not afford. In order to sustain sales, there was a fundamental change in auto financing. There followed 48 month, 60 month, and 72 month loans to purchase the cars. Even those terms did not keep up with the rising magnitude of the monthly payments required. There followed the shift to leasing as an alternative to buying, with accordingly lower payments. All of this suggests to me that the problem is fundamentally a lack of capacity on the part of the consumer to take on additional credit obligations. As a nation of consumers, we appear to be maxed out on credit.
In 1999 American household debt amounted to about $6 trillion. By 2006 it doubled to $12 trillion. This is not simply a function of population growth. As a percentage of disposable income, it had grown from 75% in 1985 to 150% in 2007.
This conclusion that we are maxed out would seem to be reinforced by the experience with President Bush’s tax rebates. These provided no stimulus to the economy because people used the refunds to pay debts. If the consuming public cannot take on additional debt because of an incapacity to pay the debt it already has, making more credit available is not the answer. The real problem is that consumer debt so far this decade has grown twice as fast as consumer income. The government cannot borrow its way to prosperity. Likewise the consumer can only finance so much prosperity as he can make the payments on. Again, as a nation of consumers, we are maxed out on credit.
Because the situation is indistinguishable from a homeowner using a credit card to make his mortgage payment, the credit problem solution proposed by the stimulus is nothing less than a gigantic Ponzi scheme that has already reached its point of implosion.
Likewise it is urged that something needs to be done and the usual solution is to throw massive amounts of money at the problem. This is again a smoke screen which will do us far more long term harm than we can afford. Besides borrowing, the plan is to give borrowed money to the public by way of government jobs, either directly by expansion of the civil service, or indirectly by way of government contracted work.
This will produce a fundamental change to the structure of our society. Before this crisis began, in our state of Oregon approximately 25% of the work force was employed in sectors producing commodities which upon sale make money: farming, manufacturing, and construction. There was another 25% employed in civil service: federal, state, and local. Civil servants contribute nothing to the economy and their compensation must be paid by the remainder of the work force. The remaining 50% is employed in service industries whose only real function is the transfer and redistribution of money that someone else has already made: trades, banking, retail sales, insurance, real estate. Notably, the stimulus plan contemplates extensive spending for schools (teachers and administrators are direct civil servants), for police (more direct civil servants) and for government construction (indirect civil servants). Curing the unemployed problem in the production sector by providing employment in the government sector, either directly or indirectly, will only provide more burden upon the remaining production sector who must pay the taxes to payroll government employment. Yet another Ponzi scheme that is unsustainable.
At the same time, our social justice elitists, presented with an unrestrained opportunity to implement their plans for social reform, are using the frantic hype to introduce unfunded long term social welfare. These programs will be unfunded liabilities for the federal government like Social Security and Medicare. These off the books liabilities will have to paid by future generations. It is reported that of our 305 million population, only 140 million file tax returns and, of those, roughly a third pay no taxes. If one pays no taxes, it suggests one had no income.
The present reality is that less than 1/3 of the population is paying to maintain the other 2/3.
This cannot work out. Socialism, democratic or otherwise, is the quintessential Ponzi scheme.
The bottom line on the stimulus package is that it is a bad idea. The American consumer cannot afford the additional credit required to stimulate consumption. The American taxpayer cannot afford the additional taxes required to pay the government’s credit liability. This will not save the economy. It will only hasten our bankruptcy.
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Is Obama Bailing Out Big Pharma's Busting Bubble?By Byron J. Richards, CCN
February 7, 2009
NewsWithViews.com
http://www.newswithviews.com/Richards/byron171.htm
Bubble economics has become a painful financial lesson for America and the rest of the world. Will we learn from our mistakes? Will we get smarter about recognizing bubbles before they burst, so that the air can be let out of them in a less painful manner? It appears that our new president, in his passion to provide health care for everyone, is about to pump hot air into a bubble that is ready to explode under the weight of its own fraud and lack of results. The magnitude of this problem is on par with the scope of our mortgage meltdown mess, yet the problem is quietly flying under the radar – mostly due to denial. Sound familiar?
A free economy works well when its members roll up their sleeves and put in a hard day’s honest work. It suffers when those in leadership or control con the system for excessive personal profit or when members are lazy or seek something for nothing.
On February 4, 2009 President Obama signed a bill expanding the Children’s Health Insurance Program to cover eleven million children, calling it a “a down payment on my commitment to cover every single American.” Big Pharma has spent millions lobbying for this legislation. Why? Because it is a cash cow for dispensing unproven and dangerous psych meds at taxpayer expense.
Big Pharma rakes in billions of fraudulent money from this legislation ever year, and now it has been expanded. Additionally, rampant overuse of antibiotics, antacids, and immunizations has created an asthma epidemic in our children. And now the medical profession wants children on statins! In my opinion, this type of care is not worth having – and if someone wants it taxpayers should not foot the bill. Until physicians actually understand their oath to “first do no harm,” they should be kept as far away from children as possible – except for emergency needs.
At the moment it is very popular for Americans to hate Wall Street – and with good reason. However, be careful what you wish for. Wall Street exists to coordinate investment in the private sector, leverage the power of money to expand business productivity, and consequently to produce jobs for Americans and the rest of the world – so that you can buy whatever you want in exchange for what you have produced. Investors help make this possible, and expect a piece of the pie.
A bubble is a fraudulent product with a sustained revenue source that does not produce a legitimate or desired result. It sucks up money and acts like a parasite on true productivity, eating pie that wasn’t earned. In the case of the financial products provided by Wall Street, various players created fraudulent investment products with no real value and sold them as if they were legitimate.
Investors around the world bought them, providing the bubble funding. Consumers went along with it, using the money to buy houses they couldn’t afford while acquiring additional possessions with Monopoly-money credit. The price of housing soared on the back of this fraudulent bubble, providing temporary financing to fuel real jobs for the economy. The problem with all bubbles is that there is a day of reckoning. And that day has come.
The Health Care Bubble
Many are now blaming the lack of regulation on Wall Street for the bursting economic bubble. This implies that greater amounts of regulation would solve the problem and prevent it from happening again. However, laws are typically bubble makers. This is because those with money, often obtained by a bubble in the first place, use that money to lobby for laws that lock in their bubble. And this gets me to the story of the Big Pharma health-care bubble – a story driven by the opposite problem of Wall Street – too much regulation getting in the way of health while flowing hundreds of billions of taxpayer dollars into a black hole.
Hospitals profit only when beds are full. Last year in the beginning of February, like this year, hospitals were lamenting over the lost profits from the lack of a vigorous flu season. Yes, it’s true, unless a lot of people get really sick in the next few months hospitals will be in big financial trouble.
Doctors can only make money when people come to see them; which doesn’t happen that often when people are well. When doctors get people well they lose business. No wonder they swear by vaccination programs. And Big Pharma can only make money on drugs when people have to take them endlessly – not when people are made well by a treatment. Hundreds of billions of dollars are in play.
Most of us in the field of natural health call this the sickness industry. Yes, I know, there are legitimate health care needs and expenses. That is not my point. We have more than a slight problem on our hands, as several hundred thousand Americans are killed each year by the fraud within this industry. No war has ever taken such a toll, especially from an enemy that is not even openly identified. Regulations and laws, both state and federal, are used to buy cover for this fraudulent and murderous bubble world – sanctioning it as legal.
The problem is far worse than public health officials care to admit. Denial is always needed in order to perpetuate a bubble. Injuries and deaths are swept under the rug. They are typically blamed on the patient’s underlying health, not on the treatment that caused further problems.
The health-care bubble has been building for a century. It has reached the breaking point due to high profile disasters like Vioxx. There are currently numerous bubble-related drug scandals under investigation, causing the general public to be more afraid of bubble treatments pushed on them by their bubble-trained doctors. FDA management is most often a co-conspirator, pitting itself against the more prudent advice of its safety scientists. FDA management is a revolving door with the industry it is supposed to regulate, and FDA managers typically move on to take high-paying jobs in the health-care bubble economy.
Scientific journals have been hijacked by the bubble gangs, their integrity lost. Research universities are on the bubble payroll, as are key doctors around the country. Professional organizations like the American Medical Association and the American Heart Association are little more than organized bubble gangster mobs. Most doctors live in fear of their licensing boards. The Big Pharma bubble economy is like house building gone wild – is it too big an industry to let fail?
The problem with the health-care bubble can be summed up by asking one simple question: Where is the result of actual health produced from services and treatments? No business can survive without help when it routinely fails to produce the result or product that is expected – why should health care be any different?
This phony industry can only be sustained if the costs of its services and products are paid for by others – and these health care costs are already a major drag on productivity and competitiveness for all Americans (costing lots of jobs). Obama was told by the health care industry that it would take at least two years to try to rein in the fraud in this system before a national health care system could even have a chance – and that is just the blatant fraud – nobody is looking into how deep the rabbit hole actually goes.
Obama is not listening and is instead taking the opportunity of the financial meltdown to orchestrate his health care agenda through “stimulus” spending, locking in hundreds of billions of dollars of new yearly funding for this bubble. Republicans argue that such spending doesn’t create enough new jobs. And Democrats argue that any spending stimulates the economy. Since Democrats are now in control, they will stimulate the economy in a way that reflects their health-care objectives.
The problem that neither political party seems to be addressing is: What happens when stimulus spending is fueling another major bubble that is about ready to burst?
Obama is Likely to Expand the Health Bubble
During the McCain and Obama debates the question was asked, “Is health care a right or a privilege.” Obama said it was a right.
It is of course very admiral for a wealthy society to do whatever it can to help its members in need – there obviously must be some form of a safety net based on a country’s ability to pay. Accidents, serious acute illness, and many health problems beyond an individual’s control should be the priorities for such care.
Health care expenses are never discussed in a meaningful way because there are too many politically incorrect elephants in the room. No politician, Republican or Democrat, will ever get elected or re-elected actually talking about the real issues as they alienate large blocks of voters who want something for nothing.
The noose around the neck of democracy comes at the point when the non-productive reach such numbers that they realize they can vote themselves a free handout – redistributing wealth from the productive into a bottomless pit. We are now on that doorstep.
For example: our obesity epidemic is causing a diabetes and heart disease epidemic – with unbelievable health costs that are scheduled to skyrocket in the coming years – not to mention lost productivity. Yet, this problem is self-induced in the majority of cases. And it is more often self-induced by the low income sector of society – meaning those that don’t pay taxes in the first place. Who is going to pay for their care? Result: class and race warfare.
Then we have seniors addicted to the Big Pharma medication bubble, many of whom are already on fixed incomes. The medications they think they need do little more than suppress symptoms while making their health worse over time. Who is going to pay for their care? Result: generation warfare.
Then we have the new entry to the health bubble – super expensive biotech drugs that manipulate gene switches that buy time, but, like their predecessors, don’t cure anything. Big Pharma is betting the house on this future. These drugs can extend the life of a cancer patient four-six months – just long enough to bilk the families of their life savings. Who is going to pay for this type of care? Result: certain national economic ruin.
Even if society could reach consensus on such issues, it still comes back to the question of who will pay for it. How can that question be answered when the current health care system is a major bubble of fraud getting ready to blow its gasket? How can we pour money into health care when the current system is perverted – profiting from people being sick and staying sick? While treatments can change numbers on paper, they often fall far short of producing health.
Is Your Health Based on a Sub-Prime Mortgage?
Economists tell us that we must spend, spend, spend to get out of the current mess. In the next breath they tell us that if we had saved more in the first place and hadn’t become a plastic nation of spenders we wouldn’t be having such a hard time right now. And at some magical time in the future we are supposed to stop spending so much and start saving. Moral of the story: if we all would have spent more prudently, saving more as we went along, and bought only what we could afford, then we wouldn’t have helped fuel the current economic bubble.
Apply this idea to your personal health. You should have health reserves – is there anything in them? You should have energy reserves, structural reserves, antioxidant reserves, and an overall state of fitness. Do you? Or have you spent everything into a state of wear and tear, inflammation, fatigue, and declining health? And whose fault would that be?
The more this latter question is answered by pointing the finger away from oneself, the greater our collective problem with health as a society. The more people count on a “free” quick-fix medication that must now be taken forever, the greater our problems.
In my view, rights are earned. Their foundation is hard work, honesty, personal integrity, and doing what you know is right as often as you can. When these concepts are applied to being healthy then individuals eat better, exercise more, enjoy a healthier lifestyle, and manage stress better. They are also much more able to be productive and add value to the financial prosperity of the collective group – while incurring less health care costs.
As a health writer I do what I can to help those who want to follow such a path. I am constantly exposing the fraud within the Big Pharma bubble. I spend many hours trying to explain natural health options to those who want to know. I appreciate all those who are trying to do the same. And we all hope there will be enough of us to weather the coming storm.
Health Freedom in Jeopardy
Natural options for health are in direct competition with the forces that are driving the Big Pharma bubble. It is David vs. Goliath. The natural health forces have little political lobbying clout – it’s mostly a grassroots effort that could be blown away at any time if not for the will and resolve of its members.
While there are individual politicians in both parties (not many) who are allies of natural health – politicians are overall not in tune with the people on this issue and are locked into bubble economics and consequent law making.
Republicans don’t rally behind natural health because they are handsomely paid by Big Pharma to sustain its profits as the priority. Democrats don’t rally behind natural health because the concepts of freedom and choice are at odds with socialized medicine and strict control over public health policy and treatments – key principles of health care for everyone.
Democrats, like Republicans, are also influenced by the Big Pharma bubble lobby and its band of affiliate organizations. And Democrats like regulation to accomplish their objectives. Key Democratic members of Congress have routinely expressed a desire to increase cumbersome regulations for natural health.
The Big Pharma bubble will burst, as all bubbles eventually do. It won’t go down without a fight. Be ready to defend your rights. The coming years will be a battle as Big Pharma tries to obliterate any and all competition in a last ditch effort to retain its false power and profits.
It certainly would be nice if Obama didn’t inadvertently help Big Pharma perpetuate its crimes, but the handwriting is on the wall. Even if Obama understood the nature and scope of the Big Pharma bubble, addressing the issue would delay any movement towards national health care in the foreseeable future. That would appear to be too high a political price tag. What we are seeing is an effort to prop up the Big Pharma bubble with enough spending to keep it going long enough to implement drastic health care reform. Unfortunately, the reform is not based on any financially sustainable model of quality care. The question is not will the bubble burst, the question is when.
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Congress risks criticism over luxury retreat trips
By Laurie Kellman
Feb 5, 2009
http://apnews.myway.com/article/20090206/D965NUO81.html
WASHINGTON (AP) - Members of Congress were quick to shame corporate executives for over-the-top extravagance during the economic crisis, flying private jets and taking luxury junkets. But some lawmakers are strolling fancy resorts spending tens of thousands of taxpayer dollars and mingling with lobbyists.
"We're very mindful" of perceptions, House Democratic Caucus Chairman John Larson told reporters Thursday camped outside of the sprawling Kingsmill Resort & Spa in Williamsburg, Va., where House Democrats spent about $100,000 on their three-day annual retreat. "It's serious and it's from morning till night. We've been dwelling, rightfully, on the economy," said Larson, D-Conn.
Republicans and Democrats in the House have passed new rules governing such trips even as lawmaker say the events are useful for negotiating public policy. But with a nation tightening its belt and already fatigued by stories of corporate excess, perceptions matter these days in Washington. Congress risks shattering its glass house throwing stones.
"If it's a luxurious setting or if there's particularly high level entertainment, then they are running into the same problem," said Meredith McGehee of the Campaign Legal Center, a government ethics watchdog group. "They don't get that these are tough economic times, that Americans are struggling and they need to do their part."
Wells Fargo took that point when The Associated Press reported this week that bank was rewarding its top performers with a lavish conference in Las Vegas, just after the company received a $25 billion bailout from taxpayers. After criticism from Congress, Wells Fargo canceled the getaway.
Democrats and Republicans defend the trips as valuable for the relationships they strengthen and they say details of such retreats are cleared in advance by the House ethics committee and comply with all rules and laws. Lawmakers pay their own expenses at the House retreats, including room rental, and may use their campaign re-election funds.
Democrats spend taxpayer money on their retreat but do not permit lobbyists to accompany them. The public pays for a charter train from Washington to Williamsburg for many of the 200 members who attend, as well as conference rooms, security and catering.
The round-trip fare on Amtrak is $90 or more. Catered dinners at Kingsmill cost at least $60 per person. Kingsmill's rooms at this time of year start at $119 a night. Democrats will not disclose the exact costs of this year's retreat, though group discounts for travel, food and lodging are common.
Republicans spend no public money on their retreat, which occurred last month at the historic Homestead resort in Hot Springs, Va., spokesman Matt Lloyd said.
Lawmakers pay for their own transportation and room costs, roughly $190 per night, including food, according to one Republican who attended but spoke on condition of anonymity because details of the trip were not made public.
But Republicans allow special guests to join them: lobbyists who are part of the Congressional Institute, a nonprofit organization that arranges events for both political parties. They pay $25,000 to join the institute, which allows them to attend the first night's dinner at the Republican retreat as well as other events throughout the year.
More than 300 people attended the dinner, including 136 Republican House lawmakers and 45 others - mostly lobbyists- from the institute's private sector advisory committee, said the group's president, Mark Strand. The institute also pays the costs of some congressional staffers who attend.
But what about those ugly perceptions of lobbyists meeting privately with lawmakers in posh surroundings?
"If we were paying for spas, if we were paying for golf outings, then you might have a point," Strand said. He said lobbyists are discouraged from talking about business on behalf of their clients during the retreat.
Associated Press writers Ann Sanner in Washington and Liz Sidoti in Williamsburg, Va., contributed to this report.
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Obama Nothing But A Poser
Williamsburg resort: Ostentatious consumption at taxpayer expense
By Dr. Frederick Meekins Sunday, February 8, 2009
http://canadafreepress.com/index.php/article/8276
According to a Washington Times story titled “Obama Now In Combat Mode”, the President is headed to a posh Williamsburg resort where he and the politburo will wallow in luxury ringing their hands about the deteriorating economy.
It is estimated that the trip will cost at least $80,000 with this tabulation arrived at by factoring in the $70,000 it will cost Democratic leaders to charter an Amtrak train to the event and the $11,000 for food and the $7,000 spent on entertainment at this leftist orgy back in 2003.
If these frauds were really interested in addressing the nation’s problems, they’d drive there themselves, pack their own snacks, and go outlet shopping on their own dime like the rest of us when on break.
Better yet, they don’t need to go there at all because what are they going to do over the course of a single weekend that they don’t get done the rest of the week while they are in Washington?
Readers need to be reminded that the President going to this event was the candidate who at one time lamented about the American people eating what we wanted, driving SUV’s, and keeping our homes at 72 degrees.
Real leadership consists of not placing a set of expectations upon those following you that you yourself are not willing to abide by.
If President Obama was anything more than a poser, he would refuse to participate in this ostentatious consumption at taxpayer expense.
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Canada's $75 Billion Dollar Bank BailoutThe $64 Billion Federal Budget Deficit is intended to Finance Canada's Chartered BanksBy Michel Chossudovsky
URL of this article: www.globalresearch.ca/index.php?context=va&aid=12007
Global Research, January 25, 2009
The Conservative government has leaked the details of Tuesday's budget. They have announced a $64 billion deficit.
The Harper government, which has consistently committed itself to a "balanced budget", now claims that deficit spending is required to boost the economy at the height of a major economic recession.
Does this constitute a turnaround in federal government economic policy?
Is the government really committed to running a budget deficit with a view to stimulating demand and reversing the tide of economic decline.
Or is there a hidden agenda? A modest $500 million farm modernization program, a $1 billion fund "to send workers from hard-hit industries back to school", the reduction in the Goods and Services Tax (GST)... The figures do not seem to add up to a staggering $64 billion.
Where is the bulk of the money going? These budget allocations do not explain the dramatic increase in the budget deficit.
Bear in mind that barely a month ago, Finance Minister Jim Flaherty had projected "a $2.3-billion surplus for the current fiscal year" (Edmonton Sun, December 24, 2008) Canada's Bank Bailout.
The 64 billion dollar budget deficit should come as no surprise.
It is directly related to a 75 billion dollar bank bailout program for Canada's chartered banks, announced, virtually unnoticed four days before the October Federal election.
The bank bailout received close to no media coverage; its budgetary implications were not analyzed.
In a statement by Prime Minister Harper on October 10, the bank bailout was casually presented as a commitment by the Federal government to purchase an initial $25 billion in "secure" bank mortgages from the Canadian chartered banks. The transaction would be implemented through Canada Mortgage and Housing Corp:
"Canada Mortgage and Housing Corporation (CMHC) will purchase up to $25 billion in insured mortgage pools as part of the Government of Canada's plan, announced today, to maintain the availability of longer-term credit in Canada." (Canada Mortgage and Housing Corporation Supports Canadian Credit Markets, CHMC Press Release, 10 October 2009)
The decision implies a money transfer into the coffers of Canada's financial institutions. The money is "fungible" and can be used by the banks as they see fit:
"The federal government's [initial] $25-billion takeover of bank-held mortgages to ease a growing credit crunch faced by the country's financial institutions is not a bailout similar to recent moves made in the United States and other Western countries, Conservative Leader Stephen Harper said Friday."This is not a bailout; this is a market transaction that will cost the government nothing," he told reporters at a campaign rally in Brantford, Ont., ahead of Tuesday's federal election."We are not going in and buying bad assets. What we're doing is simply exchanging assets that we already hold the insurance on and the reason we're doing this is to get out in front. The issue here is not protecting the banks." (CBC News October 10, 2008, emphasis added)
The 25 billion dollar allocation was announced four days prior to the elections. Two days following the federal elections, the first mortgage purchase took place leading to an initial cash injection of 5 billion into the coffers of the chartered banks.
Barely a month following the federal election, on November 12 2008, another $50 billion allocation was announced.
It received no news coverage. Moreover, opposition party leaders did not analyze the official statement of the Ministry of Finance. The likely consequences of the Canada bank bailout on the federal fiscal structure were not the object of discussion or political debate.
The text of the official statement reads as follows:
"The Honourable Jim Flaherty, Minister of Finance, today announced the Government will purchase up to an additional $50 billion of insured mortgage pools by the end of the fiscal year as part of its ongoing efforts to maintain the availability of longer-term credit in Canada.This action will increase to $75 billion the maximum value of securities purchased through Canada Mortgage and Housing Corporation (CMHC) under this program."At a time of considerable uncertainty in global financial markets, this action will provide Canada's financial institutions with significant and stable access to longer-term funding," said Minister Flaherty. (The Main Wire, November 12, 2008).
At the height of the election campaign, Prime Minister Harper stated emphatically that: "this is not a bailout... it will cost the government nothing." (CBC News, October 10, 2008).
According to Finance Minister Jim Flaherty: "This program is an efficient, cost-effective and safe way to support lending in Canada that comes at no fiscal cost to taxpayers."(Ibid)
Yet Fiance Minister Flaherty contradicts his own statement when he acknowledges that the project will drive up the public debt:
Under the proposal, Ottawa plans to sell a combination of government bonds and other public debt instruments to raise the $25 billion. Then CMHC will ask the banks and other financial institutions to ascertain how much debt they would like to sell to the agency, using a process known as a reverse auction. ...
Flaherty said the action would "make loans and mortgages more available and more affordable for ordinary Canadians and businesses."(Ibid)
The official Ministry of Finance statement confirms that the bailout will be financed by the Treasury. The necessary funds requiring the issuing of government debt in the form of T-Bills and government bonds will be transferred to CHMC, which will then channel in the form of mortgage purchases to the chartered banks:
"The first tranche of the program, for purchases up to $25 billion, was announced on October 10. These purchases will be completed by November 21. Under the initiative announced today, Canadian financial institutions will have access to up to an additional $50 billion of longer-term funding, bringing the total for the IMPP to $75 billion. The extension of the IMPP will be financed through increased issuance of Treasury bills and bonds. The Government will be consulting with market participants about the operational plan in the coming weeks." Ministry of Finance, Government of Canada Announces Additional Support for Canadian Credit Markets 2008-090 (November 12, 2008)
First Tranche: October 10: 25 billion. Already disbursed.
Second Tranche: November 12: 50 billion.
The total is a staggering $75 billion handout to the chartered banks, financed through the emission of public debt. What we are dealing with is an amount equivalent to approximately 4.6 percent of Canada's Gross Domestic Product (GDP). (1,639. 54 billion in 2008 at current prices)
The initial $25 billion tranche has already been disbursed and nobody in Canada seems to be concerned.
Government Financing Its Own IndebtednessThe recipients of the bank bailout are also the creditors of the federal government. The chartered banks are the brokers of the federal public debt. They sell treasury bills and government bonds on behalf of the government. They also hold a portion of the public debt..
In a bitter irony, the banks lend money to the federal government to finance the bailout, and with the money raised through the sale of government bonds and T-Bills, the government finances, via the CHMC, the bank bailout. It is a circular process. The banks are the recipients of the bailout as well as the creditors of the State. The federal government is in a sense financing its own indebtedness.
While the Canadian bailout procedures differ from those of the US Treasury under the Troubled Assets Relief Program (TARP), they essentially serve the same purpose. Both programs contribute to bank centralization and the concentration of financial wealth.
Under TARP, some 700 billion dollars bailout money was allocated to major Wall Street banks. Canada's population is slightly less than 11 percent of that of the US. The numbers are consistent. The 75 billion dollar Canadian bailout is slightly less (numerically US dollar for Can dollar) than 11 percent of the US 700 billion bailout under TARP
No Parliamentary DebateThe $700 billion US bank bailout under the Troubled Assets Relief Program, was the object of debate and legislation in the US Congress.
In contrast, in Canada, the granting of 75 billion dollars to Canada's chartered banks was implemented at the height of an election campaign, without duly informing the Canadian public.
Canada's media and financial press bears a responsibility in this regard. The matter was barely mentioned. It passed virtually unnoticed a few days before a federal election.
Media coverage was minimal. There was no parliamentary debate. No discussion, no debate as one would have expected from the opposition parties at the height of an election campaign as well as in its aftermath.
Nobody seemed to have noticed. Most Canadians do not know that there was a 75 billion dollar bailout of Canada's financial institutions.
The decision was casually presented as an effort "to ease the credit crunch" and encourage Canadian banks "to loosen their purse strings and extend more lending to businesses and consumers."
The impact, however, is likely to result in exactly the opposite: the centralization and concentration of financial wealth to the detriment of the real economy..
Mergers and Acquisitions
We are not dealing with a Keynesian style deficit, which stimulates investment and consumer demand, leading to an expansion of production and employment.
While, the bank bailout is a component of government expenditure, it does not constitute a positive spending injection into the real economy.
Quite the opposite. The bailout is a handout to the banks. It contributes to financing the restructuring of the banking system leading to a massive concentration of wealth and centralization of banking power.
The bailout money will be used by Canada's chartered banks to consolidate their position as well as finance the acquisition of several "troubled" financial institutions in the US. (See text box below)
The Destabilization of the Federal Fiscal StructureThis is the most serious public debt crisis in Canadian history.The bank bailout potentially destabilizes the federal fiscal structure. It leads to a spiraling budget deficit, which must be financed at tax payers expense. The entire structure of public spending is affected including federal-provincial transfers. The (federal) public debt is slated to increase by 14 % over a two year period. The provincial debts are also likely to increase dramatically.
The 75 billion dollar bailout is to be partially financed by increasing the public debt.
The Minister of Finance has intimated that further measures are envisaged "to bolster the availability of credit" with the government "injecting capital into banks if necessary." (Bloomberg, January 23, 2009) It is worth noting that in addition to the $75 billion, the government has pledged "to backstop more than $200 billion in interbank lending so banks can boost their lending capacity." (Toronto Star, December 13, 2009). The implications of this decision remain to carefully analysed. What we can expect is a combination of budgetary compressions coupled with an increase of the public debt. Most categories of federal expenditure (excluding defense) are likely to be affected.
The federal fiscal structure is in jeopardy. The budget deficit finances the bank bailout.
What is likely to occur are more government "handouts" to banks and corporations coupled with a massive austerity program and a spiraling public debt.
The size of the public debt is also affected by the economic crisis. Company layoffs and bankruptcies seriously affect the revenues of the State. Unemployed people and bankrupt companies do not pay taxes. The increase in unemployment and the contraction in salaried earnings will backlash on tax revenues, which in turn contributes to exacerbating the fiscal crisis both at the federal and provincial levels.
Canadian Banks': Selected Acquisitions (2008) In 2008, TD Canada Trust acquired Commerce Bancorp of New Jersey in the second largest Canadian M&A deal valued at $8US.6 billion.(Market Wire, Jan 12, 2009).
Royal Bank's (RBC) New York subsidiary RBC Centura acquired Alabama National Bancorp. for a modest $1.6 billion. "The Federal Reserve Board approved the acquisition on Feb. 5, 2008. (Florida Today, February 12, 2008)
In October 2008, Royal Bank announced that "it has completed the acquisition of ABN AMRO 's Canadian commercial leasing division, which provides equipment financing to Canadian corporations. (October 2, Canada Newswire).
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Only governments can save us from “supposed” economic crisisBy Dr. Tim Ball
Wednesday, January 28, 2009
http://canadafreepress.com/index.php/article/7978
Henry George said “The state, it cannot be repeated too often, does nothing, and can give nothing, which it does not take from somebody.” Put this with George Bernard Shaw’s point that, “A government which robs Peter to pay Paul can always depend on the support of Paul” and you have a terse assessment of what is happening as governments convince us that only they can resolve the supposed economic crisis.
I say supposed, because it is important to step back and consider the way numbers are used and abused. While it is a tragedy for the 7 percent who are unemployed this means 93% are working. While it is hard for the 3% who lost their homes through foreclosure this means 97% are making their payments. A very long list of such distortions of catastrophe is easy to compile. No, I am not a Pollyanna, but a balanced focus is essential.
When we consider the amount of money being thrown at these problems, wouldn’t it have been cheaper in the case of the mortgages at least, to simply buy out those in default and write legislation to reduce the possibility of defaults in the future? What is happening appears to confirm H. L. Mencken’s comment that, “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.“ Clearly the ‘crisis’ is seen as an opportunity for greater government control and that is no surprise to many. However, what is interesting is the method of resolution.
Bernie Madoff is alleged to have operated a Ponzi scheme, defined in Wikipedia as, “a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit.” His scheme foundered when concern about the recession led to some asking for their money back. Madoff had reduced his ability to persuade new investors and was quickly exposed, as the cycle of investment and profit was broken. It appears he made two major mistakes, offering too high a rate of return and assuming a constant rate of growth in the economy. Of course, they are necessary mistakes for the scheme to work. A few people recognized that constantly high rate of return was unnatural but their voices were drowned in the stage whisper volume that caused greed to overcome fear and common sense. To paraphrase Shaw, Madoff robbed Peter (subsequent investors) to pay Paul (early investors) and thus depended upon the support of Paul.
The last part of the definition implies that the fraudulent part of the scheme is that early investors receive money not obtained from profit. Nonetheless, they profited from their investment and the government didn’t hesitate to tax it as profit. Presumably, if Madoff obtained initial investments with high interest and then reduced and varied the interest so it was still an attractive return that better reflected market conditions the scheme might not have failed. Ideally, if he had a method of guaranteeing continued new investment to his scheme it would not have failed.
I am not an economist, although some think that weather and economic forecasts are equally unreliable. However, I am a very small investor and a citizen who is struggling to understand why some things are acceptable in one area and not in others. Why most of us struggle to manage, but failures are rewarded from my and my descendants’ diligence. Part of the answer is in the activity and who is participating. For example, during the cold war the action of commandeering an airplane in flight was classified by the direction you made it fly. Go in one direction and you were a hijacker, go in another direction and you were a political refugee.
The big question I’m struggling with is the difference between the proposed massive government bailouts and a Ponzi scheme? The government is taking money from future generations (Peter) to provide rewards (profits) to current generations (Paul). They have the general support of Paul. It also fits the definition because it is achieved without profit. As far as I can determine, the only difference is the government has the ideal situation of being able to guarantee continued new investment. They do this through taxing power or printing more money. It is in essence the perfect Ponzi scheme because they have absolute control.
Something is only funny if it is at least 80% true. The best humor identifies inconsistencies and inanities that most people recognize as true. As usual the absolute distillation of contradictions are captured in bumper stickers. “Don’t steal, the government doesn’t like competition.” or in pithy observations like G. Norman Collie’s “To make certain that crime does not pay, the government should take it over and try to run it.” In his inaugural address, Obama said it wasn’t a matter of more or less government but whether the government worked. While I admire his resolve to be the first to make government work, he is confronted by history that shows that government can’t work and in most cases make situations worse. It certainly was fully understood by architects of American democracy. As Thomas Paine said, “Government even its best state, is but a necessary evil; in its worst state, an intolerable one.” Thomas Jefferson said, “That government is best which governs the least, because its people discipline themselves.”
While Obama is at the front of the charge he is not alone. Government bailouts precede him and support comes from all sides of the political spectrum. The focus is on increasing consumption, but as 18th century economist Jean Baptiste Say noted, “It is the aim of good government to stimulate production, of bad government to encourage consumption.” The biggest challenge is that all these schemes will require more new departments, larger departments, and both mean more bureaucrats. Once they are established they will gradually evolve to perpetuating the problems.
Fundamental truths are being made meaningless. For example, what ever happened to the home truth that ultimately you cannot spend more than you make? Things are so distorted that Polonius’ warning in Hamlet, “Neither a borrower nor a lender be” becomes laughable as the government becomes by far the largest entity doing both.
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Global banks join clamour for bailouts
Jenny Booth
January 29, 2009
From Times Online
http://business.timesonline.co.uk/tol/business/economics/wef/article5610807.ece
The crisis facing banks was sharply underlined today when Russia's second-biggest bank admitted in Davos that it was seeking a bailout and Germany indicated that it was coming round to the idea of "bad banks" to hive off toxic debt.
Russian banks have been badly hit by the global economic crisis, which has hammered the country’s stock, bond and currency markets. A number of its smaller banks have already failed, and some of its biggest lenders may need capital injections.
Speaking at the World Economic Forum in Switzerland, Andrei Kostin, the chief executive of VTB, Russia's second-largest bank, said that the lender may issue preference shares this year as part of a 200 billion rouble (£4 billion, $5.7 billion) state recapitalisation.
“There is no final decision yet on the size of the capitalisation,” Mr Kostin said. “We think that 200 billion roubles would be the right decision.
"The capitalisation is linked to an additional share issue which takes about half a year in Russia, so we think the decision should be taken now. There are different options, including the issue of preference shares.”
Mr Kostin said he hoped VTB could break-even for 2008 under international accounting, but that it was too early to forecast 2009 results. He said non-performing loans totalled about 3.8 per cent but VTB was using forecasts for bad loans for 10 per cent, for planning purposes.
“The worst scenario is up to 10 per cent,” he said.“The reason for the crisis in the Russian banking sector is quite different to in the West. In Russia, a major problem is the inability of companies to return debts.”
VTB has to pay about $7 billion in foreign debt this year and will seek to refinance some of it, he said.
“We will negotiate for refinancing but we think we will have enough liquidity for this year,” said Mr Kostin.
“Frankly speaking, this year it will be very difficult for Russian companies to find funding abroad, with the exception of major companies who have a state guarantee, or some of the oil companies.”
Several governments, including America and Britain, have been forced to step in to rescue their banks from collapse as credit markets dried up after banks began to reveal they made multibillion-dollar losses on mortgage-backed assets originating in the United States.
One of the ideas Barack Obama, the US President, is seriously considering is for the government to set up a "bad bank" where ailing institutions would be allowed to dump their bad loans and toxic assets.
The idea has gained some international interest. In Germany, Peer Steinbrueck, the finance minister, told a newspaper today that there would be no state “bad bank” set up to take banks’ toxic assets off their books, but individual banks might each consider such a remedy.
“In recognition of the effects of bad assets on a bank’s balance sheet, the question arises of whether each individual institute should not have the possibility to remove problem assets from its balance sheet and to start over again,” he said.
Yesterday George Soros, the international financier who is one of the few people still to be making money through the financial crisis, said that what was needed in America was even more radical - not so much a bad bank, as a good bank where only sound assets were invested, so that it could attract confidence.
Mr Soros said that President Obama's $825bn fiscal stimulus package and his proposals for a bad bank might ease the situation, but were only palliatives.
“They need a thorough reorganisation of the mortgage system and you have to replenish the equity of the banks,” said the Hungarian-born speculator-turned philanthropist.
“That now would require an injection of about a trillion and half dollars - much more than if they had done it previously under the TARP (the $700 billion Troubled Asset Relief Program agreed by Congress last year). The well has been poisoned by the way the TARP money was used.
"It needs a good bank/bad bank solution, but I would do it differently than what is proposed," he went on.
“I would keep the capital of the banks together with the bad assets in the bad bank, and then create a new bank with the good assets of the bank and the recapitalise that, giving the shareholders the right to put in more money. Without this the banks will not lend, because they know there is a lot of deterioration coming.”
Earlier Mr Soros told a press lunch that the “financial structure we used to take for granted has collapsed” and everyone was in a“state of shock” as the financial storm spread internationally and into the real economy.
He said the bankruptcy of Lehman Brothers investment bank last September was a “watershed event” and that the financial system was now on “artificial life support.”
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Obama's New Bank Giveaway
Is this administration's bank policy Bush-3 – or Clinton-5 or Reagan 8?By Michael Hudson
URL of this article: www.globalresearch.ca/index.php?context=va&aid=12092
Global Research, January 29, 2009
After (1) threatening for eight years that the prospect of a trillion-dollar deficit spread over a generation or so is sufficient reason to stiff Social Security recipients and abolish debts to the nation's retirees, and (2) after the Bush administration provided $8 trillion over the past three months in cash-for-trash swaps of good Treasury bonds for Wall Street junk derivatives, the Obama Administration is now speaking of (3) some $2 to $4 trillion more to be given in just the next week or so.
Not a single Republican Congressman went along, just as Rep. Boehmer refused to support the Bush bailout on that fatal Friday when Mr. McCain and Mr. Obama debated each other over marginal issues not touching on the giveaway, which both candidates passionately supported. The Party of Wealth sees the political handwriting on the wall, for which the Party of Labor seems happy to take all responsibility. This probably is the only place where I'd like to see "bipartisanship." Watch the campaign contributions flow for an index of how well this will pay off for the Democrats!
How many families would like a "give-back" on every bad investment they've ever made? It's like a parent coming to a child who has just broken a toy, saying "That's all right. We'll just go out and buy you a new one." This from the apostles of "responsibility" for poverty, for mortgage debtors owing more than they can afford to pay, for people who get sick and can't afford medical care, and for states and cities now left high and dry by the fiscal wipe-out that the Bush-Obama "cleanup" has foisted onto the economy. No do-over for anyone but the hundred or so billionaires who have just been endowed with enough free money to become America's ruling elite for the rest of the 21st century.
After spending a lifetime denouncing socialism as inherently unfair, Wall Street is now doing a hideous parody – as if "socialism for the rich" were not an oxymoron in the first place. Certainly the banks are not being "nationalized." Giving away the largest sum of spendable securities in history without direct managerial power that goes with ownership is not "nationalization." Ask Lenin.
Now that the details of the new, larger but definitely not improved bank giveaway of between $2 and $4 trillion more have been leaked out in time for Wall Street's Davos attendees to celebrate, we may ask whether, financially speaking, the Obama Administration should best be thought of as Bush-3 – or indeed, whether it is still on a pro-creditor trend that may better be traced as Clinton-5, or perhaps even Reagan-8. Since 1980 the financial sector has made a sustained money grab at the expense of labor and "taxpayers." More accurately, it has been a debt grab, on the opposite side of the balance sheet from assets.
Backed by Mr. Summers, Boris Yeltsin's Harvard Boys transferred trillions of dollars of Russian mineral wealth and public enterprises into the hands of kleptocrats. That was an asset transfer, pure and simple. In 1997, to be sure, the IMF gave Russia a loan that immediately disappeared into the kleptocrats' bank accounts, to be paid out of subsequent oil-export proceeds. But assets were the name of the game. Today's U.S. giveaway has a new twist. The analogy is the "watered stocks" and bonds that railroad magnates and Wall Street emperors of finance gave themselves and their political mouthpieces, simply adding the interest coupons and dividends onto the prices charged the public as if they were real "costs." Today's version – "watered Treasury bonds" – are being created on the public sector's balance sheet. "Taxpayers" must pay bear the interest charges – leaving less for the infrastructure investment that Mr. Obama suggests we may need.
The Bush-Obama bailout bore "small print" already has given Wall Street a decade's tax-free status by letting it count its financial losses against its tax liability. So not only has there been a great fiscal giveaway, there has been a tax shift off finance onto labor and industry. States and localities already have begun to announce plans to sell off roads and airports, land and other public assets to the financial sector in order to finance their looming budget deficits (which localities are not allowed to run under present legislation). No federal funding has been granted to finance the cities as their tax receipts plunge. There has been a token amount to relieve some low-income families saddled with junk mortgages. But this does not involve actually giving them a spendable money "bonus." Their role is simply to be trotted out like widows and orphans used to be, as justification to bail out banks for their bad gambles on currency, interest rates and bond derivative gambles. Insolvent debtors are merely passive vehicles to get a book-credit of mortgage relief that the government will turn over in their name to their bankers to make these institutions whole.
Whole, and then some! Chris Matthews just reported his statistic of the day (January 29): $18.4 billion in Wall Street bonuses, paid for out of the government giveaway.
This is called "saving the economy." That is as much an oxymoron as "socializing the losses." Socializing the losses would mean wiping the mortgages and other bank loans of debtors off the books. These giveaways are to keep the debts on the books, but for the government to buy them and make the creditors whole – while a quarter of real estate has fallen into Negative Equity as its debts are not being bailed out but kept on the books. The economy's "toxic waste" remains. But a matching volume of new waste is being created and given to a few hundred families. No wonder the stock market soared by 200 points on Wednesday, led by bank stocks!
In the seemingly frenetic ten days since Mr. Obama took office, it is beginning to look as if his good political decisions regarding Guantanamo, Iraq, employee rights to sue for employer wrongdoing, are sugar coating for the giveaway to Wall Street, a quid pro quo to avert opposition from his Democratic Party constituency. At least this seems to be their effect. To accuse Mr. Obama of a giveaway would seem at first glance to contradict the basic thrust of his actions – or would be if one did not take into account his appointments of Larry Summers at the White House and the conspicuous leadership role in the bailout played by Barney Frank in the House and Chuck Schumer in the Senate.
There is a simple way to think about what has happened – and why it won't help the economy, but will hurt it. Suppose the new $4 trillion "bad bank" works. The government shell will give away Treasury bonds for bad bank loans and derivatives gambles, without the government "marking to market." (So much for the pretense that giving Wall Street credit is "free market" policy. But the alternative to free markets does not turn out to be "socialism" at all, even if "socialism for the rich." There are worse words for it, which I won't use here.)
The real question is what the Wall Street elite will do with the money. From Chuck Schumer and Barney Frank through Larry Summers, the Obama administration hopes that the banks will lend it out to Americans. Borrowers are to take on yet more debt – enough to start re-inflating house prices and making homes yet more unaffordable, requiring buyers to take on yet larger mortgages. Larger mortgages at rising prices are supposed to help the banks rebuild their balance sheets – to earn enough to compensate for their gambling losses.
But this neglects the fact that today's looming depression is caused by debt deflation. Families, businesses and government having to spend more wage income, profits and tax revenues on debt service instead of buying goods and services. So why is the solution to this debt overhead held to be yet MORE debt? Is there not something crazy here?
The government's solution, placed in its hands by the financial lobbyists, is to bail out the bankers and Wall Street while leaving the "real" economy even more highly indebted. All this talk about "more credit" being needed, all this begging of banks to lend more money and then extract yet more interest and amortization from the economy, is leading it even deeper into the debt hole. It is not helping families repay their debts. And indeed, homeowners whose mortgages already exceed the market price of their property are not going to be able to borrow more.
It would take only $1 trillion or so – or simply to let "the market" work its magic in the context of renewed debtor-oriented bankruptcy laws – to cure the debt problem. But that obviously is not what the government aims to solve at all. It simply wants to make creditors whole – creditors who are, after all, the largest political campaign contributors and lobbyists these days.
The most important thing to understand about the present economic crisis is that it was not necessary technologically, politically or fiscally. Government at the state, local and federal levels are strapped for funds – but only because the natural source of taxation, land rent and monopoly rent and the user fees from public enterprise have been financialized. That is, whereas property taxes used to finance about three-quarters of state and local budgets back in 1930, today they supply only about a sixth. The shrinkage has not been passed on to homeowners and renters or commercial users. Prices for homes and office buildings are set by the marketplace. The rise in market price has been pledged to bankers as mortgage interest. The financial sector thus has replaced government as recipient of the economic surplus – leaving the public sector starved of cash.
The financial sector also has replaced the government as economic planner. This role has followed from its monopoly in credit creation, which turns out to be the key to resource allocation.
Bank credit is created freely. Governments could do the same. Indeed, this is what the U.S. Treasury did during America's Civil War, when it issued greenback credit.
If today's looming economic depression is a manmade (that is, lobbyist-financed) phenomenon, then what policy is needed as a remedy?
2009 Bailout.
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The Collapse of Capitalism and the Gold Safety Net
By: Darryl R Schoon
Jan 21, 2009
http://www.marketoracle.co.uk/Article8374.html
For Ponzi schemes to succeed, they must expand faster than the request for redemptions. If they do not, they will collapse. This is what happened to Bernard L Madoff Investment Services, the largest Ponzi scheme in history. The same is about to happen to capitalism.
Although capitalism is not a Ponzi scheme, credit-based economies, sic capitalism, and Ponzi schemes share the same fatal flaw. Both must constantly expand or they are in danger of collapse. Today, because capitalist economies are no longer expanding, but contracting, their continued contraction will lead to collapse.
Pundits Pundidiots & PredictionsDr. Philip Tetlock, author of Expert Political Judgment (Princeton University Press, 2005), has done remarkable work regarding the ability to accurately predict future events. In a highly disciplined scientific study, Dr. Tetlock had asked experts to predict future events and over 20 years analyzed their predictive accuracy and methodology of thinking.
Tetlock’s study concluded that experts are no better in predicting the future than anyone else; in fact, the better known the expert, often the lower the ability to accurately predict. Louis Menand’s review of Tetlock’s Expert Political Judgment in The New Yorker perhaps says it best:
..Tetlock claims that the better known and more frequently quoted they [experts] are, the less reliable their guesses about the future are likely to be. The accuracy of an expert’s predictions actually has an inverse relationship to his or her self-confidence, renown, and, beyond a certain point, depth of knowledge.
On March 2, 2007, Dr. Tetlock spoke to the Positive Deviant Network by speaker phone as he was unable to attend in person. Martha and I were in the audience along with other members of the PDN.
The previous day we had distributed my 148 page analysis of the US and global economy to the PDN. In How To Survive The Crisis And Prosper In The Process, The Time of the Vulture, I had predicted prices of US and global real estate would fall 40 to 70 % and the stock market 70 to 90 %, plunging the US and perhaps the world into another Great Depression.
At the time in the early spring of 2007, there was no evidence of an impending economic disaster. The next day when the feedback came back from the PDN, it was neither pleasant nor positive. Perhaps it was a variant of the “shoot the messenger” syndrome, but there was loud and vocal opposition to the dire economic predictions I had made. Later that day, again by speaker phone, when PDN members were given the opportunity to engage in a dialogue with Dr. Tetlock, PDN member Dr. James Hardt, a neuroscientist and researcher on the effect of brain waves on human consciousness took the opportunity to say that he had read my economic analysis and found it remarkable.
The comment by Dr. Hardt was especially meaningful as Dr. Hardt had scored far higher than all other PDN members in both knowledge-based and predictive tests. The PDN experience underscored the fact that the truth—when unpleasant and predicted—is rarely welcome in any venue.
The reason why pundits are popular is not because they tell the truth. Pundits are popular because they tell people what they want to hear, the truth not withstanding. The unpleasant truth is that the truth when unpleasant has never been popular.
In the past, I would have laid the cause of America’s ignorance of economic issues at the foot of corporate and government interests who gain the most in today’s corrupt environment. But the truth is the present state of ignorance and corruption could not have occurred without the abiding and willing denial of the America people.
Americans themselves have chosen denial, sound bites and slogans over substantive discourse and understanding. While in the short term it has been easier to do than the alternative, i.e. to think, in the long term it will prove fatal.
The bill for collective denial and ignorance is coming due in America; and, when it is paid—as it will be—America will never be the same. Nor, will the world
The Last Stage of Capitalism and Ponzi FinanceLike Ponzi schemes, capitalist economies must constantly expand or they will collapse. This is because capitalism is a system wherein credit-based money has been substituted for real money, i.e. savings-based money such as gold and silver; and credit-based money soon turns into compounding debt.
The end of such systems has always been bankruptcy. When credit-based economies contract, governments, businesses and families are no longer able to pay the principal and compounding interest on their debt and economic collapse results.
The current system began when the Bank of England, England’s central bank, started issuing credit-based paper banknotes in place of gold and silver in 1694. This system was transferred by private bankers to America in 1913 in the form of the Federal Reserve Bank, the US central bank equivalent of the Bank of England.
The credit-based central bank system then spread after WWII to the rest of the world. As the credit-based system spread, so too did the resultant compounding debt and now, the day of reckoning for everyone has arrived.
Why is Everyone Surprised?When credit-based capitalist economies contract, they are unable to pay and service previously incurred debt. This is now happening in the US, the UK, the EU and Japan. After economic contraction, corporate, individual and government bankruptcy comes next. After sustained economic contraction, systemic collapse occurs.
Alan Greenspan, the pundit’s pundit for much of the last three decades, presided over much of the expansion of global credit during and after the 1980s, an expansion that led to extraordinary and unsustainable levels of global debt.
The truth is levels of US debt have been untenable for much longer than we believe. Buckminster Fuller stated that the US was actually bankrupt in the 1930s, and that we have only postponed the realization of such and the inevitable day of reckoning by various forms of ledger sheet cheating.
While Alan Greenspan reigned as chief pundit for those who believed his economic prognostications to be true, the man who really understood our credit-based economy was Hyman Minsky, a little-known economist who, unlike Greenspan, happened to be right.
Hyman Minsky’s perhaps greatest contribution to the current economic dialogue is his “financial instability hypothesis”, which postulates that when capitalist systems mature, they became increasingly unstable.
Minsky’s theory did not sit well with those in government and Wall Street who presided over increasingly mature capitalist markets. They instead much preferred the more positive outlook of Alan Greenspan, “the thinking man’s Abby Joseph Cohen”, who publicly saw only a “bit of froth” as the greatest financial storm of the century, the next Great Depression, was brewing.
If Alan Greenspan was a Cardiologist All His Patients would be DeadIn Minsky’s “financial instability hypothesis”, the ability to pay the principal and interest on debt is the critical marker. There are three types of “units” in Minksy’s financial instability model, each type/unit more unstable than the previous.
The first type, hedge financing units, possess the ability to pay both principal and interest payments from existing cash flow. This is the optimal mode. The second type, speculative finance units, cannot repay principal payments but can meet their existing obligations by” rolling over” their debt.
The third type in Minsky’s model are Ponzi units which can only pay down debt by selling assets or by borrowing. This is the most common form of debt repayment today. This is because as per Minsky’s model, capitalist markets are now mature—perhaps overly mature and somewhat incontinent and beginning to smell—and have thus made the progression from hedge to speculative to Ponzi finance.
Bernard Madoff's Brother SamIn 1960, from the very beginning when Bernard Madoff first began soliciting money, the end of his scheme was destined. But because Bernard Madoff was unusually bright and capable, his Ponzi scheme lasted far longer and was far more successful than any such previous scam.
The same can be also said for the Ponzi scheme of Bernie’s brother, Sam, aka “Uncle Sam”. But unlike Bernie, Uncle Sam did not think up his scheme on his own. He was acting as the agent of the original schemers in England who realized that England’s economy was no longer expanding as it had previously in the 18th and 19th centuries.
So, in the early 20th century, in 1913, the original schemers convinced Uncle Sam to run the same scheme in America that had been so profitable to them in England. The scheme was capitalism, def. commerce in combination with capital markets founded on credit-based paper money issued from a central bank.
The scheme was to profit by indebting businesses, entrepreneurs, workers and savers and government and, as bankers, the schemers would get rich off the hard work, savings and productivity of others; and, in the US, their scheme worked as well as it had in England.
As the economy expanded and the nation became increasingly indebted, bankers became increasingly wealthy. It is no coincidence that the “financial services sector, sic the paradigm of parasites” recently comprised the largest share of both the UK and US economies, economies which correspondingly had the lowest rate of savings in the world.
It is also no coincidence that as the indebtedness of each nation grew the share of economic activity and the exorbitant salaries and bonuses of bankers grew as well. Unfortunately for the host and parasite in capitalist economies, there is a limit to how much a parasite can safely take from the host before the host dies, a limit only discovered after the process has gone too far.
In December 2008, the end came for Bernie’s Bernard L Madoff Investment Services. In 2009, the same will happen to his brother, Sam who is now using Ponzi finance to pay for US borrowing. In 2009 or some time shortly thereafter, the credit-based paper money scheme of bankers, sic capitalism, will bring down what but a few decades ago was the most powerful economy in the world, the United States of America. Uncle Sam, just like his brother Bernie, is toast.
“Look, they’re circling the wagons.”“But we’re not in the circle.”“Thought you would be?”
When wagon trains would come under attack, the wagon masters would “circle the wagons” for protection. Such is happening today as capitalism itself is now under attack.
What Americans are finding out, however, is that only the bankers are currently inside the circle—bankers are now the only ones being protected, the very ones responsible for the crisis in the first place. Observers and especially Americans might believe that something is wrong with this picture.
What they do not understand is that the picture is a perfect reflection of the power dynamic underlying capitalism. Bankers could not have accomplished their nefarious ends had they not first secured the full cooperation and protection of government.
This they did in England when they promised King William they would extend all the credit he wanted to wage his wars. This was replicated in the US when private bankers staged a midnight coup by passage of the Federal Reserve Act in 1913 which illegally transferred the right to issue money from government into the hands of private bankers.
This is the reason the US government has first protected the bankers, not the public, in this crisis. Bankers give government the unlimited credit that governments overspend, thereby indebting the nation and future generations into perpetuity. The US government bailout of bankers, TARP, is “owe-back” time.
The rest is history, or is about to become so. When people have their eyes shut and their minds closed, they will not see nor understand what is happening to them. Trust me on this, although many will not understand what is about to happen, it will not prevent it from happening.
What we are about to experience is an economic tragedy in personal terms that will exceed anything in recent memory. Even the Great Depression of the 1930s will not equal what is now about to be; and those who thought their adherence to a belief system about God was faith are now about to find out the difference.
Ignorance Denial ConsequencesUncle Sam is now engaged in the same activity that caused Bernie’s investors so much trouble, the use of Ponzi finance to pay bills. It is estimated that the US deficit may increase this year by two trillion dollars. As recently as 1980, the total US debt after 200 years was only $980 billion dollars.
Now, 28 years later, US indebtedness will probably exceed $12 trillion, a very, very large sum—unless of course it is not going to be paid back. The truth is all countries are now running deficits and all major economies have determined that extraordinary levels of fiscal stimulus are needed to avert a global deflationary collapse.
Where is all the money going to come from? While some economic answers are difficult to come by, the answer to that question is very simple. The currencies of all countries are now fiat, meaning they are but paper coupons printed at will by their governments.
The answer is: Governments will print the money they need.
It is said that Fed Chairman Ben Bernanke studied the Great Depression and concluded the road not taken was the correct answer to what would have prevented the Great Depression, that infinite liquidity could have prevented the deflationary collapse if made available in time.
Ben Bernanke’s answer closely resembles that which would be given by a focus group of New York heroin addicts, that only an unlimited and immediate supply of heroin would offset the irreparable pain and harm that would otherwise result if nothing is done.


Helicopter Ben is Affectionately Known as Needle Ben to the Credit Junkies on Wall Street
The Expiration Date Written in Invisible Ink on Paper Money will be Determined by the Speed of the Printing Presses

When will the yen go to zero?
When will the dollar disintegrate?
When will the pound become worthless?
When will the time be too late?
Listen to the speed of the presses
As money is made overnight
The faster the presses are running
The closer the time will be for flight
But no one can tell the hour
When money will lose its worth
For the future is still too cloudy
And tomorrow’s yet to be birthed.
But the day is coming so trust me
Don’t trust the money they print
Whether a dollar a euro or peso
It ain’t comin’ out of a mint
It’s printed with ink on some paper
But it used to be silver or gold
When money was more than a promise
Not a fraud that we’ve been sold
The Printing Presses are RunningThis process has already begun. M1, the measure of “narrow money aggregates”, the amount of cash and coins in circulation and in overnight deposits has been rising in the past six months.
M-3, the broadest measure of monetary aggregates is no longer made public by the US government. But M-3 will explode upwards as governments seek to provide even more credit to deflating markets, a fact the US government does not want known.
M-1, Narrow Money Aggegates
13 Week Rate-of-Change. US Federal Reserve
Week ending June 9, 2008 - 0.1 %
Week ending July 28, 2008 + 2.9 %
Week ending Aug 25, 2008 + 6.2 %
Week ending Sept 29, 2008 + 8.8 %
Week ending Oct 27, 2008 +14.8 %
Week ending Nov 24, 2008 +22.6 %
Week ending Dec 29, 2008 +32.2 %
Ben Bernanke’s antidote to a US deflationary depression may well result in hyperinflation. Hyperinflation will spell the end of the US currency because hyperinflation removes all remaining vestiges of confidence in paper money.
Confidence is the essential ingredient in the global con game called capitalism now being run by bankers and their unwitting co-conspirators in government, a game that is now about to end.
In the near future, paper money will become increasingly worthless as all governments increase the printing of their respective currencies hoping to prevent deflationary forces from progressing. Governments will be helpless to do so but this will only cause more money to be printed in the futile hope of containing that which cannot be contained.
No experiment with paper money has every worked. The primary intent has always been to spend what does not exist. This underlying intent will in the end destroy whatever paper money has built in the interim.
Were it not for the safety concerns about the ink used in the printing of paper money, in the future the best use for paper money would be as toilet paper—of course, the quality of the paper would have to be much improved in order to gain wider acceptance.
Freedom Versus Fraud a Crash Course in the Austrian School of Economics
Bernard Madoff’s fraud lasted 48 years and took in $50 billion. However, the monetary fraud perpetrated by bankers in collusion with government has lasted far longer and has taken in far more than Bernie’s home grown Ponzi scheme—and the pain and losses will be commensurately greater as well.
Ludwig von Misis, Carl Menger, Eugen von Böhm-Bawerk, and Friedrich Hayek are the best known proponents of the Austrian School of Economics. Like Hyman Minsky, they are not as well known as John Maynard Keynes, Milton Friedman and Alan Greenspan. The reason being is that they served the truth whereas Keynes, Friedman and Greenspan served power.
From Wikipedia:Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, the smallest possible imposition of coercive (especially government-imposed) commercial transactions and the maximum openness to individual choice (including free choice as to the voluntary means of exchange).
What most do not understand is that today’s markets are not free. Believing they are free and being told it is so is not the same as being so. Government intervention occurs no less in today’s capitalist markets than it did in yesterday’s communist markets. The only difference being method and subtlety.
The manipulation of the gold price, intervention in foreign exchange markets, the raising and lowering of interest rates, the use of tax incentives to promote/distort economic activity are all signs of government intervention. Compared to communism, capitalist markets indeed appear free. Compared to free markets, capitalism is a rigged game.
Gold Modern Economics and the TruthWe are now approaching the end-game, the resolution of past economic sins that cannot be banished by government intervention. Indeed, it is government intervention at the direction of bankers that caused today’s problems. More of the same will only result in more of the same.
The bankers’ scam could not have happened had not King William allowed England’s bankers to replace England’s gold and silver coins with paper bank notes in 1694. Capitalism’s resultant empire known first as imperialism and later as globalization lasted 315 years. It is now about to end.
As paper currencies increasingly lose value, the price of gold and silver will rise. As those in government know all too well, gold and silver move inversely to the value of paper assets in fiat systems.
Economics is not rocket science and neither is fraud. But “modern economics” is a misnomer, modern economics is a monetary fraud clothed in the guise of free markets. If you truly want to be free, this is something you might want to think about—that is, if you want to think.
Professor Fekete and the AustriansProfessor Fekete was responsible for bringing the major figures of the Austrian School of Economics to my attention. When this era is over, when the excessive debt created by excessive credit has swept away the hubris of Keynes and Friedman, the Austrians will have been vindicated by history.
The theories of the Austrian School were dismissed in the universities that taught that gold and the gold standard were relics of a bygone era, relics which had no relevance to the financially sophisticated markets of today.
Recent events have proved the universities wrong and the Austrian School of Economics right. I am forever indebted to Professor Fekete for his introduction to these theories, theories which clearly explain the events of today.
I still remember the article in which Professor Antal Fekete pointed that that bank access to cheap credit would not prevent systemic deflationary collapse in these times. That such a policy would result in bankers borrowing freely at the trough of government credit but the credit would not be passed on. Instead, it would be used by banks to invest in bonds and other “safer” financial assets.
This is exactly what is happening today and I can do no more than to suggest that those seriously interested in this crisis to further acquaint themselves with Professor Fekete’s writings, and if possible, to attend his upcoming lectures March 27-29 in Szombathely, Hungary. I will also be giving a talk. For information, contact GSUL@t-online.hu.
Lies will seek you out, but the truth must be sought.
Faith, gold and silver will be priceless in the days ahead.
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Banned Video: Timeline shows Bush, McCain warning Dems of financial mess
This video shows that George Bush tried to warn Congress in 2002 that this economic crisis was coming, if something was not done. But congress refused to listen, along with Barney Frank. This video says it all.
The liberal AMERICAN media did not want this video on You Tube, so they had Time Warner threaten a law suit (proprietary rights) if it was not taken off. This link is of the same video but is routed through Canada .
Democrats Were Warned & Consistently Blocked Reform--Way back in 2001. The Bush Administration raised red flags. In 2008, Bush warned the Democratic majority 17 times that there was a looming crisis and that mortgage giants Fannie Mae and Freddie May were in a financial crisis.
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