text:
I'm still working on a considerably longer treatment of the following rant by one of my favorite financial guru mentors, and in lieu of that, which I hope will be finished soon, please enjoy (not really!) Jim Kunstler on what's been blowing around (in the wind) and up(!) until today. (Emphasis marks and some editing were inserted by moi.)
Easthampton Burning?
In the typhoon of commentary that's blown around the world a step behind the financial tsunami that's wrecking everything, two little words have been curiously absent: "fraud" and "swindle."
But aren't they really at the core of what has happened? Wall Street took the whole world "for a ride" and now a handful of Wall Street's erstwhile princelings have shifted ceremoniously into US Government service to "fix" the problem with a "toolbox" containing a notional two trillion dollars.
This strange exercise in financial kabuki theater will shut down sometime between the election and inauguration day, when the inaugurate finds himself President of the Economic Smoking Wreckage of the United States. What will happen?
I have thought for some time that things could get dangerously out of hand in America, despite our exceptionalist notion that we are immune to the common plot-lines of history. For starters, inauguration night will seem more like Halloween, as those two little words fly in to haunt the new president. So, a large and looming question is: who will be appointed the next attorney general of the US (to replace the human sash-weight currently occupying the office), and how soon will the federal marshals be scouring the wainscoted hallways of Goldman Sachs, JP Morgan Chase, not to mention a thousand Greenwich, Connecticut, hedge fund boiler rooms, with man-sized nets?
A story-line is already emerging to the effect that these birds really didn't quite know what they were doing in grinding out that multi-trillion dollar basket of alphabet securities sausage (a theme on Sunday's "60-Minutes" broadcast). Nobody will buy that line of bullshit, though - and certainly not in the courtroom where, for instance, Mr. Hank Paulson will have to answer why his own firm of Goldman Sachs set up a special unit to short its own issues. It will be edifying to see how they answer.
In the meantime, however, millions of Joe-the-Plumber types will have gotten their pink slips, slipped helplessly into foreclosure, watched the repo men hot-wire their Ford pickups, and eaten down the kitchen cupboard to a single box of Kellogg's All-Bran (which had been sitting there for eleven years infested with weevils). They will be watching the official proceedings in the federal courtrooms with jaundiced eyes as they hunch in their tent cities, in the rain, sipping amateur-brand raisin wine bartered for a few snared rock doves. How long before the hardier ones among them venture out to Easthampton with long knives and matches?
It will bring little satisfaction though, and the disappointment could lead to a more inchoate outbreak of civil disorder that would be more like a free-for-all of vengeance and grievance. There will be a great outcry for the new government to "do something!" Perhaps that will finally bring the troops home from Iraq - only for them to find that the Homeland has become Iraq . . . .
If the financial system completes its self-destruction - and that's looking more and more like a real possibility - there will be several pretty awful consequences. One is that the United States will be forced to declare bankruptcy by repudiating its own debt. All those who took refuge in US Treasury bonds and bills will be like folks who sought shelter from a tornado in their out-house. That would go hand-in-hand with a massive currency inflation that is likely to follow the current phase of compressive liquidating deflation -- in which every possible asset is being sold off for less than its face value. That process is self-limiting due to the finite supply of real salable assets. The trillions of dollars injected into (the) system while this is happening must eventually snap-back as people shed the last fungible article and compete for necessary commodities like food and fuel with dollars that are suddenly plentiful but worthless. At some point, the government may have to summon up a new currency. I don't think it will be anything like the "Amero" which the paranoid fringe incessantly mutters about as part of their fantasy in which the US, Mexico, and Canada all join up to become one country. But any "new dollar" would probably have to be backed by gold. As we discover ourselves to be a much poorer nation, one of my correspondents put it: "the bogus risk-swapping economy must be replaced by a net value-added economy." That means actually making things, growing things, and rebuilding things, and that can only begin to happen if we do not stupidly sucker ourselves into a war with other nations who are liable to be extremely ticked off at us for destroying the global economy, but also competing with us for a dwindling supply of resources that are not equitably distributed around the world. This means especially oil. I hope you're enjoying the temporarily cheap prices at the gas pumps, because this is purely a function of the compressive deleveraging that is going on right now, as contracts and positions held in energy markets are being dumped by everybody and his uncle to raise cash to meet margin calls. My guess is that oil and its byproducts will become much more difficult to get in the months ahead -- not just more expensive, but literally not available. The current falling price of oil has little to do with the real supply and demand fundamentals. It's simply a function of the markets being in near-total disarray. We're running on current inventory, and running it down. In the background, all kinds of peculiar and terrible things are happening. The entire apparatus of allocation and distribution is being thrown out of whack. The smaller tanker operations are going bankrupt. The "less-developed" nations are heading back to the 17th-century level of daily life without electricity. The oil exploration and development projects that were planned for hard-to-get oil netting $100-a-barrel minimum -- in places like the deepwater Gulf of Mexico, Siberia, and Central Asia -- are being shelved, which means the world has less of a chance to offset coming depletions in old fields. The bottom line of all this is that we in the US could find ourselves in a situation of shortages, hoarding, and rationing. This would pretty much kill off whatever remains of the previous shuck-and-jive economy - hamburger sales, theme park visits, Nascar weekends - while it makes obvious the failures of our suburban living arrangements (and drives the value of housing there closer to zero). The new president will have to be Franklin Roosevelt on steroids, with some Mahatma Gandhi and Florence Nightingale thrown in. My pet project of restoring the American passenger railroad system might seem pretty minor in the face of all this, but it's at least a place to start that will accomplish several things: allow people and things to get places without cars and trucks; put many thousands of people to work at many levels doing something of direct, practical value; and be a small step in rebuilding confidence that we are a society capable of accomplishing something.
October 27, 2008 in Commentary on Current Events
What Now?
It's fascinating to read the commentators in mainstream journals like The Financial Times and The Wall Street Journal all strenuously pretending that "the worst is over" (maybe... we hope... fingers crossed... hail Mary full of grace... et cetera). The cluelessness would be funny if it didn't involve a world-changing catastrophe. All nations that have reached the fork-and-spoon level of civilization are now engineering a vast network of cyber-cables that lead directly from their central bank computers to the Death Star that is hovering above world financial affairs like a giant cosmic vacuum cleaner, sucking up dollars, euros, zlotys, forints, krona, what-have-you. As fast as the keystrokes create currency-pixels, the little electron-denominated units of exchange are sucked out of the terrestrial economies into the black hole of money death. That's what the $700-billion bail-out (excuse me, "rescue plan") and all its associated ventures are about. To switch metaphors, let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle. So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks time will wash back through the global economy leaving a swath of destruction. And then what? The societies of the world will be faced with the task of rebuilding systems of fruitful activity, i.e., real economies based on productive behavior rather than the smoke-and-mirrors of Frankenstein-finance con games. In fact, excuse me while I switch metaphors again, because the Frankenstein story -- the New Prometheus -- is yet another apt narrative to inform us what we have done. We have "played" with financial fire and brought to life a monster now bent on killing us. One question that this metaphor-narrative raises is: when will the angry peasant mob storm the castle with their flaming brands and cries for blood from the makers of this monster? Rather soon, I think. Perhaps, in some countries (maybe the USA, if we're lucky), this will take the more orderly form of systematic prosecutions, bringing to justice persons who perpetrated swindles involving the alphabet soup of investment "products" that have gone bad in so many accounts (and ruined so many individuals, institutions, and governments). I think it has already begun with the inquisitors summoning the shifty Dick Fuld of Lehman Brothers - but there are hundreds of other characters like him out there, who scored untold millions of dollars in activities that were simply grand swindles. I wouldn't be surprised if, eventually, Treasury Secretary Hank Paulson found himself in the dock to answer how come, when he ran Goldman Sachs, there was a special unit in the company dedicated to short-selling the very mortgage-backed securities that another unit in the company was so busy pawning off to every pension fund on God's green earth. Apart from orderly prosecutions (which can certainly turn harsh and cruel), there is the possibility of sociopolitical upheaval - revolution, violence, civil war, war between nations, the whole menu of monkey-human mischief that afflicts mankind. We are not necessarily immune to it here in the USA, despite our cherished notion of exceptionalism, which would have us inoculated against all the common vicissitudes of history. Anyway, prosecution through the courts, while perhaps satisfying the hunger for justice (or, more particularly, revenge), is not a productive economic activity. So, the question begs itself again: what will we do? Under the best circumstances we will reorganize our society and economy at a lower level of energy use (and probably a lower scale of governance, too). The catch is, it will have to be a whole lot lower. I think we'll be very lucky fifty years from now to have a few hours a day of electricity to do things with. The energy story and its hand-maiden, the climate change situation, are both lurking out there beyond the immediate spectacle of the financial fiasco. Both these things imply pretty strongly that the economic relations currently unraveling will not be rebuilt - not the way they were before, or even close to it. The best outcome will be societies that can practice small-scale "process-intensive" organic agriculture and equally small-scale process-intensive modes of manufacture in the context of very local sociopolitical networks. An accompanying hope is that we can remain civilized in the process. Personally, while I recognize the appeal (to others, not me) of the "singularity" narrative, which has the human race making a sudden evolutionary leap into some kind of cyborg-nirvana, I regard it as an utter bullshit fantasy that has zero chance of occurring, given our stark predicament. But returning to the short term, or "the present," shall we say, there is the matter of how the US gets through the election and then the first months of a new government, even while the larger fiasco continues. I'm voting for Mr. Obama. While I believe he will make a much better president than the addled old mad dog Mr. McCain has become, I feel sorry for anyone who is placed nominally "in charge" of things this coming year. The best a President Obama can do is offer some reassurance to a public that is totally unprepared for the convulsion now upon us. Mr. Obama will certainly not have "money" to "spend" on any of the promised social support programs that have been endlessly debated. But he could clearly articulate the reality we're facing, and ask not necessarily for "sacrifice," as the common plea goes, but for something more and better: for bravery and resolute spirit, for intelligence and resilience, for kindness and generosity -- among a people long unused to consorting with the better angels of their nature. He's already begun to set the example by appearing in public with his sleeves rolled up. The change that has been in the air all year - that Mr. Obama has talked so much about - is coming in a bigger dose than anyone expected. I hope we're ready to get with the program.
My new novel of the post-oil future, World Made By Hand, is available at all booksellers.
No back talk!
You still need to vote.
Friday, October 31, 2008
"Fraud" and "Swindle" - Words Not to Be Spoken (Only Thought)
Sunday, October 26, 2008
Did They Do It On Purpose? The Housing Bubble & Its Crash - Engineered by the US Government, the Fed & Wall Street?
First off I want to give props of the year to Watertiger for his graphic depiction of exactly what the last eight years have brought to the U.S. populace (h/t to Driftglass). Watch it and weep. I also seem to remember how the economy, which had been tanking prior to the 2004 election, perked up considerably due to the (Alan Greenspan-) created boom times in the housing market. Well, at least he got rich for his efforts (and to retire comfortably!). I'm only kidding a little. I know he had plenty already put away (but didn't they all?).
And speaking of the last eight years, how many times have you thought recently "Did they do it on purpose? Did the people who benefitted to the tune of hundreds of millions in profits/bonuses from the derivative-driven market chicanery know from the first that the taxpayers would be the debt holders of last resort (and that they could depend on them to mutely accept the consequences)?
Richard Cook at Global Research certainly has thought deeply about this and his history is impeccable. Among many others, one fact seems to stick out like the proverbial sore thumb: the ailing J.P. Morgan Chase, which was bailed out by the thunderstruck taxpayers, paid $1.9 billion for Washington Mutual which had assets of over $300 billion. Nice work if you can get it. (Emphasis marks are mine.)
During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.
When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.
In 2001 the frequency of White House visits by Alan Greenspan increased.
Greenspan endorsed President Bush's March 2001 tax cuts for the rich. More such cuts took place in May 2003.
Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.
The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.
According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed.
Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.
Risk-analysts at the leading credit-rating agencies, such as Standard and Poor's, Moody's, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.
Mortgage companies, with Alan Greenspan's endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.
Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.
Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.
George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.
Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq.
ABC News reports that during this time risk analysts at Washington Mutual, one of the nation's largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department's Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.
In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.
The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.
Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.
The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.
The "toxic debt" from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 trillion of the losses were in retirement savings.
The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.
Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.
As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.
The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington , D.C. , on November 15, after the U.S. presidential election.
The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.
Most major retail chains began to close stores and lay off employees even as the Christmas season approached.
The Washington Post reported on October 23, 2008: "Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation's economic crisis, preparing for what many fear will be a long and painful recession." Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, "the most important spaceflight book of the last twenty years." His website is www.richardccook.com. Comments or requests to be added to his mailing list may be sent to email@example.com. You may access a series of his speeches on YouTube.
And, FYI - U.S. helicopters just bombed Syria.
Saturday, October 25, 2008
"There is no recovery from moral bankruptcy."
As I was bopping around Blogtopia this evening (Saturday, October 25), I was momentarily heartened at finding this simple and succinct description in an honest reaction to Alan "Greenspan's blind spot" (what I have come to see as his "willful blindness"), evident in his testimony to Henry Waxman's House Oversight and Government Reform Committee, which is investigating the Wall Street meltdown (from Tim Rutten at the Los Angeles Times):
The idea of loyalty -- or of just a sort of reciprocal obligation, for that matter -- simply doesn't operate on Wall Street or much of anywhere in American business any more. The notion that CEOs and other executives would forgo a chance to enrich themselves to keep their institutions solvent or their stockholders' investment whole seems quaint in today's environment. That's true even when the executives' good conduct is supposedly guaranteed by an equity stake, as it is in investment banks.
What Greenspan and the rest of the aiders-and-abettors of Wall Street's greed spree don't want to admit is that there's something wrong in the economy and financial system that new regulations on trading and disclosure won't correct. Long before the financial system melted down, American business' share of the social compact melted completely away. The corrosion didn't begin at the top but at the bottom -- with the renunciation of any corporate loyalty toward working men and women. For nearly as long as Greenspan has hovered in the financial stratosphere, U.S. companies have been encouraged to treat their workers like any other "expense." Wall Street has rewarded -- indeed, lionized -- companies "tough enough" to treat workers like the electric bill. Presto! Layoffs became "cost management."
No one begrudges a company about to go out of business the right to cut payroll, but now nobody blinks when a CEO throws people out of work for an uptick in the stock price or to ease the service of ill-considered debt. It's been a long time since anyone who analyzes the economy has been willing to say that it's immoral for a profitable firm to deprive families of their income and health insurance, to strip hardworking men and women of labor's dignity.
Read the rest here and weep again.
"I did not forecast a significant decline [in the housing market] because we had never had a significant decline in prices," Greenspan told the committee, adding that the Fed's record of economic foresight remains unequaled. "We can try to do better, but forecasting ... never gets to the point where it's 100% accurate."
Perhaps only an economic education prepares a man to draw as his conclusion from catastrophe the gnomic declaration that fallible human beings are not infallible. Some things, however, are true 100% of the time: Societies in which the few are allowed to fatten themselves without limit on the labor of many are not just; they aren't even particularly productive for very long. Countries -- like companies -- that cling to notions that allow some to pursue their own interests by behaving indecently toward others come to bad ends.
There is no recovery from moral bankruptcy.
Friday, October 24, 2008
Barack Obama: 50-State Sweep?
How many people today understand this to be true?
No one knew better than I that bank deposits were simply a figment of your imagination. Once you gave the money to the bank it became theirs, not yours. To them it was simply nothing more than an electronic ledger transaction, and if they got in trouble, good luck standing in an FDIC line behind millions of other suckers desperately waiting to retrieve your savings.
If the recent and continuing disastrous occurrence(s) in economic fortune(s) of most Americans (let alone the rest of the astonished world), who will rely mainly on their pensions and 401(k) savings plans for retirement means anything politically, I would guess it means a rapid, drastic turn to new leadership. Reading the various websites discussing Obama's creeping progress in so many formerly "red" states (particularly North Carolina (which I've predicted will fall to Obama's positive campaign style) and current surprise, Indiana(!)), I can only think of one scenario: Barack Obama: 50-State Sweep! I'm undoubtedly not the first person to predict something along this heretofore extremely unlikely turn of events, but, as I see it, the new game will be trying to pick states that do not have enough educated/responsible citizens who will realize in time that they should vote for the candidate who will provide the temperament and leadership for building a new, safer, well-regulated financial system (not to mention a quick, safe exit from the Cheney/Bush Wars): Barack Obama. And if he's not your candidate, well, he's all we've got now. Oh yes, and I still think John McCain will want to get rid of (I mean "replace") Scarahy Impaled before November 4, 2008, to at least give his candidacy a fighting chance (and as I believe he is very aware that this is his last campaign, given his overweening pride in his self-perceived virtues (and that he probably doesn't even like her) the odds are even better now). Bets are down.
Is this the end of the world? The fact that I ask this question probably means that it's not. However sometime around 2 AM EST on Friday night it certainly felt that way. The Nikkei which had been plummeting all night on a bad Sony warning, collapsed completely dropping well below the 8000 level, and ending the session -10%. The yen then started a swan dive that culminated in a stomach-churning drop of 150 points in about 15 seconds. At first I was amused at the price action, then thrilled at being able to capture some of the move; then suddenly I became very, very afraid as the full implications of a total global financial meltdown began to dawn on me. A few days earlier I had opened a direct account with the US Treasury, but the documentation would take a few weeks to process, and in the meantime my money was scattered in three separate bank accounts, vulnerable to failure at any time. No one knew better than I that bank deposits were simply a figment of your imagination. Once you gave the money to the bank it became theirs, not yours. To them it was simply nothing more than an electronic ledger transaction, and if they got in trouble, good luck standing in an FDIC line behind millions of other suckers desperately waiting to retrieve your savings. As these dark thoughts ran through my mind, the markets became completely unhinged. EURJPY which only a few hours ago traded at 123.00 was down to 114.00. US stock index futures were shut limit down and my friends on Squawkbox looked frightened. But then I noticed something. The carry pairs had lifted off the lows and were actually running up pre-market despite the fact that the index futures were still locked limit down. I called the guys at CNBC and told them that the open was not going to be as bad as everyone feared. Sure enough after a -500 point open, the Dow stabilized and traded up off the lows for the rest of the day. Panic selling did not materialize, and while no one was celebrating any rallies, for one day at least it appeared that the worst had been averted. Was last Friday just a taste of things to come? Hard to say. I certainly hope not. Every commentator on TV bravely announces that this is NOT the start of the second Great Depression. I tend to agree, if for no other reason than I can't imagine such wanton suffering thrust upon our society. One thing is clear however. We do need radical change in how we govern ourselves and our markets. Last week I was accused my some readers of being a socialist. First of all let me say that "socialist" is not an insult. Most Scandinavian societies with a much better standard of living and far higher life expectancy than ours are democratic socialist societies. So is Canada. Ontario, by the way, has been named the best place on earth to live by a United Nations survey that weighed such variables as wealth, health and social justice. So maybe we should all have a more open mind to the idea of social democracy. The irony however, is that I myself come from Soviet Russia. No one knows the horrors of collectivist thought and the ineptitude of the communist system better than I. I am actually a big believer in free markets, which through competition, produce creative, wonderful products and services we all enjoy. What I despise, are rigged markets. I hate Vegas for that very same reason, because it provides the illusion of success while in fact creating the reality of theft. Unfortunately, over the past decade Wall Street has adopted the Las Vegas model of business and we have all been grifted on a scale far greater than any con job ever done. Rigged markets in my opinion are just as evil as collectivist governments because they concentrate the power in the hands of small group of elite leaders that do not reward merit but promote corruption and graft. As I argued two weeks ago we need free, but fair markets if we are to survive this mess. That means no more side bets in the over-the-counter world. No more shadowy off-shore hedge funds. You want to play? Play by the rules. Disclose your positions and trade only on a centralized exchange where everyone has a fair shot at success and counter party risk is eliminated. Until these changes are made, I am afraid the nightmares of Friday will continue to repeat themselves.Suzan
Thursday, October 23, 2008
Wall Street Bailout 'Bait and Switch'
Today, testifying before a Congressional committee, Alan Greenspan was forced to admit that he had
"made a mistake" in trusting that free markets could regulate themselves without government oversight.
A fervent proponent of deregulation during his 18-year tenure at the Fed's helm, Mr. Greenspan has faced mounting criticism this year for having refused to consider cracking down on credit derivatives, an unchecked market whose excesses partly led to the current financial crisis.
Gee. I've been waiting for those words, and a lot more, but I'm not holding my breath to get much of an apology from Greenspan, who is walking away from the catastrophe he had an inside seat for (and lots of hands-on control of) with more than enough public money to survive until he dies - with pretty good health care to boot! Heck, he'll probably outlive those of us (who are several decades younger than he) who are left to pay the price of his recklessness. Oh, and he says he warned others about their recklessness. (Refer to the end of Baker's essay for the real lesson of Greenspan.)
Dean Baker, Paul Krugman and Robert Reich are my favorite economists who are excellent sources about what is being inflicted on the U.S. populace by the latest financial chicanery. Don't think it's chicanery yet? Read Dean Baker about the sleight-of-hand used in extracting the bailout bill from Congress by promising that there would be "no more big paychecks for incompetent Wall Street bankers" who brought us to this precipice.
Right. (Emphasis marks are mine - Ed.)
Any Pay Cuts on Wall Street Yet?
Tuesday 21 October 2008
Dean Baker
t r u t h o u t Perspective
Congress assured us that there would be no more big paychecks for incompetent Wall Street bankers when they passed their bailout bill. They told us that the tough pay provisions would put an end to the multimillion-dollar payouts to these folks.
Last week, Treasury Secretary Henry Paulson mailed $150 billion in checks to the big banks. From that point forward, the CEOs and all the other top executives of these banks are now our dependents. They are living off the tax dollars of schoolteachers in Iowa, truck drivers in Montana and even Joe the Plumber.
It is difficult to understand why we should be taxing people who make $40,000 a year to boost the paychecks of bankers who make more than $1 million a year and in many cases more than $10 million a year. Senator McCain has called Senator Obama a socialist because Obama believes that it is O.K. to impose higher tax rates on rich people than poor people. Senator McCain considers this sort of redistribution unacceptable.
But, if redistribution from the rich to the rest of the country is socialist, what do you call the upward redistribution that Congress approved in the bailout package? It's hard to justify taxing people who make $40,000 a year to benefit bankers who make more than 100 times as much.
The Wall Street bailout was a classic, if totally foreseeable, bait and switch. The public has a real interest in ensuring the continued operation of the financial system. This was threatened by the credit crunch last month. This was the legitimate goal of the bailout.
However, if Congress only wanted to preserve the financial system and not reward the people responsible for the financial crisis, it would have been a simple matter to impose safeguards to ensure that the bank executives were forced to take large pay cuts. While many members of Congress implied that the bill would rein in executive pay, almost all the experts who have examined the provisions on executive pay have concluded that they are largely toothless.
The bailout also did not prevent the banks from paying out dividends to shareholders, as was done in the United Kingdom when they injected capital into their banks. This restriction makes sense not only as a punitive measure but also as a way to help the banks build capital. Every dollar paid out in dividends is a dollar that is not going towards building up capital. Stopping dividend payments should hasten the date at which the banks have sufficient capital without relying on help from the government.
The failure to seriously restrict executive compensation or prohibit dividend payments, coupled with the relatively generous terms given the banks on the capital obtained from the government, shows that the bailout was not just about keeping the financial system operating. It was also about giving money to the banks' executives and their shareholders.
The media seem to think this is all very funny. After having done public relations work to help get the bill through Congress, most major news outlets have not highlighted the fact that no bank executives are likely to get pay cuts as a result of the bailout. Nor have they highlighted the generous terms of the bailout compared to the UK.
The public should continue to follow this issue even if the media does not. They should keep asking the members of Congress who touted the pay restrictions in the bailout bill which executives are getting their pay cut.
The public should also recognize that in the US economy, what you earn has little to do with your ability or the quality of your performance. It matters much more if you can get Congress and Henry Paulson to give you money. Just tell your kids to be sure to make good friends with powerful politicians.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" (http://www.conservativenannystate.org/). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.
Party on, Alan G!
James Taylor Says Join Obama's Campaign "to put our country back on the right track"!
When James Taylor emails you with a request to spend some of your time campaigning for Barack Obama "to put our country back on the right track" . . . what else can you do but volunteer?
We all know that we have some serious challenges to solve: The economy is in rough shape, jobs are disappearing, and quality, affordable health care is out of reach for far too many.
Across the country, folks are realizing that the only way to really tackle these challenges is to work together. If we let ourselves be divided by party, race, or fear, we'll fail. And the stakes are just too high to let that happen.
This spirit of unity and purpose is what Barack Obama's campaign is all about, and it's why I'm a proud supporter.
Dear Suzan,
I grew up in North Carolina. To me, it will always feel like home. And today, I'm not the only one with Carolina in my mind. In fact, the whole country is looking to our state to make the difference.
There's something different in the air this year. I've sensed it in the crowds I've played to, and seen it in the eyes of folks I've talked with. North Carolinians are hungry for a change. And for the first time in a generation, the presidential race could go either way in this state - it's all up to us.
That's why this week I'm doing my part by traveling around the state I love, using my voice to tell everyone I can reach that it's time to vote for change.
And now I'm asking you to do your bit. Find a Campaign for Change office near you and volunteer to talk to voters. The Obama campaign has a plan to win North Carolina, but they need 100,000 volunteer hours to pull it off. I'm going to give as many as I can, and I hope you'll join me.
We all know that we have some serious challenges to solve: The economy is in rough shape, jobs are disappearing, and quality, affordable health care is out of reach for far too many.
Across the country, folks are realizing that the only way to really tackle these challenges is to work together. If we let ourselves be divided by party, race, or fear, we'll fail. And the stakes are just too high to let that happen.
This spirit of unity and purpose is what Barack Obama's campaign is all about, and it's why I'm a proud supporter.
But proud support is not enough right now. We have to get out there, tell folks they can start voting today, and make sure they do. So please, sign up to join me and volunteer as much as you can this week:
Volunteer for Obama!
Together you and I, and the great state of North Carolina, are going to put our country back on the right track.
Thank you,
James Taylor
Email: NC@BarackObama
Tuesday, October 21, 2008
Sufficiently Evil? The Idiots who Rule America
Big business' favorite quote?
Chentleman, you are vorried about the depression. You should not be. For capitalism, a depression is a good cold douche. [By which he meant shower.]
- Joseph Schumpeter
Disagree with Chris Hedges' argument or accept it, the U.S. (and much of the rest of the world) is entering a very dangerous period:
The working class, which has desperately borrowed money to stay afloat as real wages have dropped, now face years, maybe decades, of stagnant or declining incomes without access to new credit. The national treasury meanwhile is being drained on behalf of speculative commercial interests. The government—the only institution citizens have that is big enough and powerful enough to protect their rights—is becoming weaker, more anemic and less able to help the mass of Americans who are embarking on a period of deprivation and suffering unseen in this country since the 1930s. Consumption, the profligate engine of the U.S. economy, is withering. September retail sales across the U.S. fell 1.2 percent. The decline was almost double the 0.7 percent drop analysts expected from consumers, whose spending represents two-thirds of U.S. economic activity. There were 160,000 jobs lost last month and three-quarters of a million jobs lost this year. The reverberations of the economic meltdown are only beginning.
Whether you believe that there may "be a national crisis that allows those in power to instantly sweep away all constitutional rights in the name of national security" or some less invasive activities, you have to admit that the prospects facing the U.S. labor force, looking toward several years of deep recession, are not particularly pleasant.
Our oligarchic class is incompetent at governing, managing the economy, coping with natural disasters, educating our young, handling foreign affairs, providing basic services like health care and safeguarding individual rights. That it is still in power, and will remain in power after this election, is a testament to our inability to separate illusion from reality. We still believe in "the experts." They still believe in themselves. They are clustered like flies swarming around John McCain and Barack Obama. It is only when these elites are exposed as incompetent parasites and dethroned that we will have any hope of restoring social, economic and political order.
The argument made here accepts the premise that if the current oligarchy remains in charge, the U.S. "will either recover the concept of the public good, and this means a revolt against our bankrupt elite and the dynamiting of the corporatist structure, or we will extinguish our democracy."
'Depression' is the word used to describe how the working classes get soaked.
Len Hart, the Existentialist Cowboy, offers a unique purview of the history of recessions and gives us a ground-level read on how the lower classes react to hard times and what may well be in store for at least 85% of us. I believe this essay provides some sharp insight into why the Paulson $750-billion taxpayer bailout (the first(!) bailout) provided no relief to the victims of the plunging stock and housing markets, but instead guaranteed the bonuses for those who had caused it (and a little more background on the 9/11 stock market 'churnings' than the insiders may actually enjoy - notice how the companies on the downside of today's market action were involved in the 9/11 puts and other CIA connections). (Emphasis marks and some editing were added - Ed.)
I hate to say 'I told you so' but I told you so! Here is an excerpt from my previous article.
I'll say more next essay about watching Charlie Rose give lap dances last evening (Monday) to the exultant winners of the churned markets: Meg Whitman, John Doerr, James Wolfensohn, Jeffrey Immelt and Anand Mahindra. You'll notice that they all have no problem with saying that they love(d) Bush's policies. I took it as the insider's answer as to why the Supreme Court interfered and chose him as President in the 2000 election.
The video lives here.
Today I'd especially like to thank those who are supporting my efforts.
It's been a tough couple of weeks.
Thank you!
1. Recessions, though not caused by declining stock markets, are always accompanied and often predicted by a plunging stock market. Republicans sell out at the peak, taking their profits. Enough selling will trigger the plunge; less knowledgeable investors begin to follow suit from fear but too late. Last man out loses.
2. Having taken their profits on the upside, a depressed market is but an opportunity for the rich Republican to get back in at lower prices. Guess who sells at the lower price: the poor schmuck who is 180 degrees out of phase and can only dream of being a rich Republican. In reality, those he aspires to join are exploiting him.
3. Very knowledgeable investors make money 'selling short', buying 'put options'. These investors get peak prices for stocks even as the price declines. Illegal insider information is executed with 'calls' and 'puts.' The perpetrators of 9/11, for example, made millions, possibly billions, selling short the stocks of UA and AA. I defy anyone to come up with an 'innocent' explanation. The recipients of those profits had guilty foreknowledge of 9/11. The name 'Buzz' Krongard comes in connection with a known terrorist organization: the CIA.
Now - a planned financial meltdown might have presented the same opportunities. Historically, 'elites' have always emerged richer, stronger from recessions. On the other side of Ronald Reagan's recession of some two years, the rich had gotten richer while the middle class was all but wiped out. The ill-effects of that recession are still seen in the decline of middle class neighborhoods, the permanent loss of manufacturing base and the jobs it created. The profits and volume were most certainly outside norms, proof that those executing the options had precise foreknowledge of the attacks. Those making those profits had "guilty knowledge" of the attacks; they were at the very heart of a murderous conspiracy.
4. Unemployment always goes up in a recession. At the end of a longer recession, companies have the luxury of hiring from a larger labor pool at lower wages and/or salaries. Some companies - citing hard times - may reduce benefits, cut vacation or sick time. Big business must hate good times; it is only during times of full employment that workers have any leverage at all. Offhand I can think of only two times in history that have come close: the Clinton years, and, interestingly, Europe after the Black Death. The labor supply had been depleted by plague. Employers were often forced to accede to worker demands for better conditions, money, a place to live! Serfs had been freed and it marked the beginning of the end for Feudalism and set the stage for 'corporate feudalism,' an age in which we still labor and suffer.
5. Admittedly, many businesses go belly-up during recessions. While lip service is given to 'free markets' and Adam Smith's 'invisible hand,' diehard robber barons hate the 'free market.' They prefer 'monopoly' when they can create one and 'oligopoly' when they can't. Free competition among many sellers is the last thing they want. Recessions are welcomed. It's the 'cold douche,' a ruthless flush, so beloved by Schumpeter and the robber barons of American capitalism.
6. Don't expect recessions to bring down prices. More often, higher prices are the light that is seen at the end of the long, dark tunnel. In other words, those businesses fortunate enough to survive a 'downturn' are in the enviable position of raising prices on the other side. Higher prices benefit businesses that manage, even with government help, to stay in business during a recession. So much for laissez-faire capitalism. Those fortunate businesses now make more money per unit produced and will do so with fewer employees. The world is not so kind to everyone else, primarily smaller businesses and entrepreneurs, freelancers, and worker bees. Prices, we learned in Economics 101, are determined by supply and demand. If the demand is such that the market is quite willing to pay any price for it (prescription drugs, gasoline, certain rents) then demand is said to be inelastic.
7. At the expense of oversimplifying, consumer demand is the arbiter of price only in markets characterized by diffuse competition. Recessions militate against a market of this sort, weeding out all but 'privileged' businesses, primarily those with juicy government contracts or GOP cronies in office. Only in the textbook model, is it assumed that the oligopolist's market demand curve becomes less elastic at prices below a certain point. In markets characterized by the continuing decline in the number of 'sellers,' it is obvious that there are fewer motivations for oligopolists to reduce prices. In such a market, the oligopolist (an aspiring monopolist) makes more money selling fewer units at higher prices than could be earned selling more units at lower prices. How many people are out of a job makes no difference to the American right wing for whom Scrooge is their abiding inspiration.
The American right wing, consulted by slick Madison avenue whiz kids, will never call the American gulag of FEMA camps by the names 'work houses' or 'prisons'. By any name, they are presumably open and ready for those who fall through the gaping cracks. A perpetually depressed economy is a good source of slave labor. Who benefits? KBR? Halliburton?
Recessions/depressions are paid for with the 'blood, toil, tears and sweat' of the working classes without whom nothing would ever get produced and no profit would be realized. This would be a high price to pay even if the benefits were fairly distributed at the end of what is euphemistically called the 'business cycle.' But they never are. It is always the upper classes, recently, the top one percent of the nation, that benefit. It is the 'lower classes' who pay for the recession by suffering the Four Horsemen of Economic Apocalypse: unemployment, lower wages, higher prices and bankruptcy.
The GOP exploits convenient rationalizations that benefit Bush's 'my base.' Some in the GOP will choose to believe, as did Joseph Schumpeter, that depressions are but 'a process of creative destruction' that weeds out 'inefficiencies' in the economy. Others know that not to be true but repeat it anyway just as they had espoused 'supply-side' economics during the Reagan years. It is not 'inefficient firms' that are weeded out. It is the competition. It is what is left of America's working class, it is the millions who will be deprived of education, opportunity, future.
Are there no FEMA camps? Are there no prisons? Then let them die and decrease the surplus population.
—Scrooge (updated)
Monday, October 20, 2008
"Curing" teh Stoopids ("Whiz" Kid Explains)
Andrew Lahde at Lahde Capital Management (heard of him?) waves "Bye-bye" in The Financial Times with your money as he cautions you about the level of your stupidity and how he thinks it can be cured (as if the 3 trillion dollar loss from your savings isn't loud enough). This pathetic plea has its ironic moments as he plays the "pity" card for his lost health and struggle to get into the right schools and jobs so that eventually he'd attain the proper positions to be able to take the bigger fools: Y-O-U. Pity.
As a parting flail, he riffs on the goodness of hemp and how it could save the economy (okay, a part of the economy). As if. Hmm, although I guess if enough people were stoned, the blows would be softer. (Emphasis marks and some editing are mine - Ed.)
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e., idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr. Springer's company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it.
Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, "Feel good. We are working on sustainable solutions," television commercials, nor is it mentioned in ADM's similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won.
At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers.
This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let's stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say goodbye and good luck.
All the best,
Andrew Lahde
Sadly, you may be right.
Sunday, October 19, 2008
SELL OUT! Historic Ponzi Scheme Transfer of Wealth (Pumped & Dumped Chump)
How did we get to this pretty pass? Does it assauge your bad feelings to know that your present (and future) tax dollars were used by ex-Goldman Sachs CEO Hank (Bush's Treasury "Sleight-of-Hand" Secretary) Paulson to drive up the market for one day, which allowed the insiders to get well, and then get out? And that's not aaaaalllllll. Read on for one way to (at least) "save your *ss" (although a few French lessons will not be wasted)!
Whether you comprehend (or agree with) the following discussion, the proposal surely is a better use of your tax dollars than to line the pockets of the guys who gave you this bank run on your money (savings) last week.
Bill Saporito in Time states sadly but with heavy irony that "the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by half a dozen short sellers in Greenwich, Conn., and FedExed to Washington, D.C., to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson . . . . We're about to quasi-nationalize the Detroit auto companies via massive loans because they're a source of American pride, and too many jobs — and votes — are at stake . . . How long before we have national health care? . . . We're now no different from any of those Western European semi-socialist welfare states that we love to deride. Italy? Sure, it's had four governments since last Thursday, but none of them would have allowed this to go on; the Italians know how to rig an economy . . . . You just know the Frogs have only increased their disdain for us, if that is indeed possible. And why shouldn't they? The average American is working two and a half jobs, gets two weeks off and has all the employment security of a one-armed trapeze artist. The Bush Administration has preached the 'ownership society' to America: own your house, own your retirement account; you don't need the government in your way. So Americans mortgaged themselves to the hilt to buy overpriced houses they can no longer afford and signed up for 401(k) programs that put money — where, exactly? In the stock market! Where rich Republicans fleeced them. Put it all together, and the America that emerges is a cartoonish version of the country most despised by red-meat, red-state patriots: France. Only with worse food."
"So yes, while we're still willing to work ourselves to death for the privilege of paying off our usurious credit cards, we can no longer look contemptuously at the land of 246 cheeses. Kraft Foods has replaced American International Group in the Dow Jones Industrial Average, the insurance company having been added to Paulson's nationalized portfolio. Macaroni and cheese has supplanted credit-default swaps at the fulcrum of capitalism. And one more thing: the food-snob French love McDonalds, which does a fantastic business there. They know a good freedom fry when they taste one."
Please feel free to read the rest of Saporito's sweet (for the French) essay here.
Ellen Brown in Global Research reports that (emphasis marks and some editing are mine - Ed.):
On October 15, the Presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market; but omitted from the discussion was what actually caused the credit freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The omission was probably excusable, since the financial landscape has been changing so fast that it is hard to keep up. A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high. Anyone predicting then that a year later the Dow would drop nearly by half and the Treasury would move to nationalize the banks would have been regarded with amused disbelief. But that is where we are today.
Congress hastily voted to approve Treasury Secretary Hank Paulson's $700 billion bank bailout plan on October 3, 2008, after a tumultuous week in which the Dow fell dangerously near the critical 10,000 level. The market, however, was not assuaged. The Dow proceeded to break through not only 10,000 but then 9,000 and 8,000, closing at 8,451 on Friday, October 10. The week was called the worst in U.S. stock market history.
On Monday, October 13, the market staged a comeback the likes of which had not been seen since 1933, rising a full 11% in one day. This happened after the government announced a plan to buy equity interests in key banks, partially nationalizing them; and the Federal Reserve led a push to flood the global financial system with dollars.
The reversal was dramatic but short-lived. On October 15, the day of the Presidential debate, the Dow dropped 733 points, crash landing at 8,578. The reversal is looking more like a massive pump and dump scheme – artificially inflating the market so insiders can get out – than a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which has dried up. The banking scheme itself has failed. As was learned by painful experience during the Great Depression, the economy cannot be rescued by simply propping up failed banks. The banking system itself needs to be overhauled.
A Litany of Failed Rescue Plans
Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank's capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.
The bank bailout plan announced on October 3 involved using taxpayer money to buy up mortgage-related securities from troubled banks. This was supposed to reduce the need for new capital by reducing the amount of risky assets on the banks' books. But the banks' risky assets include derivatives – speculative bets on market changes – and derivative exposure for U.S. banks is now estimated at a breathtaking $180 trillion.
The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined. As one critic said of Paulson's roundabout bailout plan, "this seems designed to help Hank's friends offload trash, more than to clear a market blockage."
By Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He wasn't abandoning his old cronies, but he soft-pedaled that plan in favor of another option buried in the voluminous rescue package – using a portion of the $700 billion to buy stock in the banks directly. Plan B represented a controversial move toward nationalization, but it was an improvement over Plan A, which would have reduced capital requirements only by the value of the bad debts shifted onto the government's books. In Plan B, the money would be spent on bank stock, increasing the banks' capital base, which could then be leveraged into ten times that sum in loans. The plan was an improvement but the market was evidently not convinced, since the Dow proceeded to drop another thousand points from Thursday's opening to Friday's close.
One problem with Plan B was that it did not really mean nationalization (public ownership and control of the participating banks). Rather, it came closer to what has been called "crony capitalism" or "corporate welfare." The bank stock being bought would be non-voting preferred stock, meaning the government would have no say in how the bank was run. The Treasury would just be feeding the bank money to do with as it would. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers' money.
The banks could not be forced to use the money to make much-needed loans but could just use it to clean up their derivative-infested balance sheets. In the end, the banks were still liable to go bankrupt, wiping out the taxpayers' investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not come close to removing the $180 trillion in derivative liabilities from the banks' books. Shifting those liabilities onto the public purse would just empty the purse without filling the derivative black hole.
Plan C, the plan du jour, does impose some limits on management compensation. But the more significant feature of this week's plan is the Fed's new "Commercial Paper Funding Facility," which is slated to be operational on October 27, 2008. The facility would open the Fed's lending window for short-term commercial paper, the money corporations need to fund their day-to-day business operations. On October 14, the Federal Reserve Bank of New York justified this extraordinary expansion of its lending powers by stating:
"The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. . . .
"The U.S. Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the New York Fed in support of this facility."
That means the government and the Fed are now committing even more public money and taking on even more public risk. The taxpayers are already tapped out, so the Treasury's "special deposit" will no doubt come from U.S. bonds, meaning more debt on which the taxpayers have to pay interest. The federal debt could wind up running so high that the government loses its own triple-A rating.
The U.S. could be reduced to Third World status, with "austerity measures" being imposed as a condition for further loans, and hyperinflation running the dollar into oblivion.
Rather than solving the problem, these "rescue" plans seem destined to make it worse.
The Collapse of a 300 Year Ponzi Scheme
All the king's men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top.
The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.
The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers' private money monopoly. As British financial analyst Chris Cook observes: "Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth's resources." The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people's money. Fortunately, we don't need the credit of private banks. A sovereign government can create its own. The New Deal Revisited Today's credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover's plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest.
President Roosevelt used Hoover's new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world's industrial leader after the war. The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (I.O.U.s or debt) and relending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don't have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure. Credit as a Public Utility "Credit" can and should be a national utility, a public service provided by the government to the people it serves. Many people are opposed to getting the government involved in the banking system, but the fact is that the government is already involved. A modern-day RFC would actually mean less government involvement and a more efficient use of the already-earmarked $700 billion than policymakers are talking about now. The government would not need to interfere with the private banking system, which could carry on as before.
The Treasury would not need to bail out the banks, which could be left to those same free market forces that have served them so well up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would then own a string of banks, which could be used to service the depository and credit needs of the community. There would be no need to change the personnel or procedures of these newly-nationalized banks. They could engage in "fractional reserve" lending just as they do now. The only difference would be that the interest on loans would return to the government, helping to defray the tax burden on the populace; and the banks would start out with a clean set of books, so their $700 billion in startup capital could be fanned into $7 trillion in new loans. This was the sort of banking scheme used in Benjamin Franklin's colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result. Like the Pennsylvania bank, a modern-day federal banking system would not actually need "reserves" at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply "the full faith and credit of the United States," something the United States should be able to issue directly without having to draw on "reserves" of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the "reserves" for a newly-reconstituted RFC. Rather than creating a separate public banking corporation called the RFC, the nation's financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations' financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed "liquidity" to produce what Jim Rogers calls "an inflationary holocaust." As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people's needs in its stead. Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are http://www.webofdebt.com and http://www.ellenbrown.com.
Now we really need a drink.
Friday, October 17, 2008
North Carolina Has "Jumped the Shark"
Yes, I know you've been told that North Carolina is a red state, and that although the race has tightened recently, it still could be an easy win that the Rethugli-Cons will take without breaking much of a sweat due to the prevalence of the Charlie Black-run Jesse Helms mob that still wields major clout throughout the area.
But . . . I've got some news for you. You better think (again)!
I'm predicting that North Carolina "jumped the shark*," three weeks before the election, and it won't even be close. Remember the shark that Fonzie jumped and why it was important enough to coin a phrase meaning something that has passed its peak? I may be stretching the definition a little (okay, I am (it's a cute video!)), but I don't believe North Carolina will return to unwitting allegiance to the Repugni-Cons' fold in the immediate future. I'm writing today to alert you about the effort being made by the organizations that have banded together throughout North Carolina to campaign en masse for Obama (my membership to MoveOn.org is finally paying off!). So many organizations, so little time. I've had a visit every few days by people from different organizations "just making sure" that I'm "registered and know where and when" I "may vote," and "if I'm not registered, not to worry, because North Carolina let's you register and vote at the same time up to the Saturday (November 1) before election day (November 4)."
Oh yes, and one more rather impressive news flash: Liddy Dole is being sent back to D.C. . . . to live with her husband without the title Senator before her name (and a lot less of the gold in her campaign chest if her recent "desperation" ad campaign is any sign)! North Carolina five-term state Senator Kay Hagen is kicking some Repugno-they-can't-*ss with her ads of the two old-timers who trade Liddy barbs with one saying she's "92 - votes with Bush 92% of the time" and the other saying "No, she's 93 - she is rated 93rd in effectiveness in the Senate." Cute. Deadly.
So, North Carolina's red period is over: a result of a change in demographics leaving a voting populace who are no longer fooled by the Rethugli-Con.
Block the Vote
Rolling Stone (#1064)
Robert F. Kennedy, Jr., and Greg Palast
Don't worry about Mickey Mouse or ACORN stealing the election. According to an investigative report out today in Rolling Stone magazine, Robert F. Kennedy Jr. and Greg Palast, after a year-long investigation, reveal a systematic program of "GOP vote tampering" on a massive scale.
- Republican Secretaries of State of swing-state Colorado have quietly purged one in six names from their voter rolls.
Over several months, the GOP politicos in Colorado stonewalled every attempt by Rolling Stone to get an answer to the massive purge - 10 times the average state's rate of removal.
- While Obama dreams of riding to the White House on a wave of new voters, more then 2.7 million have had their registrations REJECTED under new procedures signed into law by George Bush.
Kennedy, a voting rights lawyer, charges this is a resurgence of 'Jim Crow' tactics to wrongly block Black and Hispanic voters.
- A fired US prosecutor levels new charges - accusing leaders of his own party, Republicans, with criminal acts in an attempt to block legal voters as 'fraudulent.'
- Digging through government records, the Kennedy-Palast team discovered that, in 2004, a GOP scheme called "caging" ultimately took away the rights of 1.1 million voters. The Rolling Stone duo predict that, this November 4, it will be far worse.
There's more:
- Since the last presidential race, "States used dubious 'list management' rules to scrub at least 10 million voters from their rolls."
Among those was Paul Maez of Las Vegas, New Mexico - a victim of an unreported but devastating purge of voters in that state that left as many as one in nine Democrats without a vote. For Maez, the state's purging his registration was particularly shocking - he's the County Elections supervisor.
The Kennedy-Palast revelations go far beyond the sum of questionably purged voters recently reported by the New York Times.
"Republican operatives - the party's elite commandos of bare-knuckle politics," report Kennedy and Palast, under the cover of fighting fraudulent voting, are "systematically disenfranchis[ing] Democrats."
The investigators level a deadly serious charge:
"If Democrats are to win the 2008 election, they must not simply beat McCain at the polls - they must beat him by a margin that exceeds the level of GOP vote tampering."
(Note - Kennedy and Palast are releasing, simultaneously with the Rolling Stone investigative report what they call, the vote-theft 'antidote': a 24-page full-color comic book, Steal Back Your Vote, which can be downloaded or obtained in print from their non-partisan website, Steal Back Your Vote.)
(For updates and video reports, go to Rolling Stone, Greg Palast and Steal Back Your Vote.)Jumping the shark is a colloquialism used by TV critics and fans to denote that point in a TV show or movie series' history where the plot veers off into absurd story lines or out-of-the-ordinary characterizations, undergoing too many changes to retain the original appeal of the series. Shows that have "jumped the shark" are typically deemed to have passed their peak.
And the North Carolina Rephewni-Con days will soon be in the past.
Please take a look at the problems inherent in this election that were so intelligently dissected by Mark Crispin Miller on Bill Moyers Journal earlier this evening as they discussed the standards for voter verification.
Topics discussed were: "interfering with registration drives," "caging voters," "vote suppression" and a huge menu of extremely ingenious devices to try to make the turnout small (Rethug inspired), and, of course, "election fraud" by companies like Diebold with close ties to the Rethugs. We learn that "touchscreens are the worst" and that "optical scanners are just as insecure as the paperless machines;" that "oversight is lax to nonexistent" and that the "capacity for stealing elections today is infinitely greater than it has ever been." There is extensive treatment of the fraudulent Acorn nonscandal, and Mark personally vouches that Acorn has been quite scrupulous about the verification procedures accorded to its voter registration. Also of note is that as of 2007, the Department of Justice (DOJ) has prosecuted only 120 cases of voter fraud, so who would interpret that as a great problem? Right. The DOJ (Bush/Cheney-infected).
The latest breaking news is the investigation by Robert F. Kennedy, Jr., and Greg Palast released today in Rolling Stone that if the Democrats expect to win the election they must win "by a margin that exceeds the level of GOP vote tampering."
Thursday, October 16, 2008
U.S. Has Debt of Over $55 Trillion - Hidden Agenda in Bailout? H E L P
It's the real thing
From Paul Krugman's blog we see:This chart comes from Calculated Risk, still my favorite housing-and-credit-bust site. It shows nominal and real retail sales, and shows that consumer spending is now plunging at serious-recession rates.
This reinforces a point I've been trying to make: even if the rescue now in train succeeds in unfreezing credit markets, the real economy has immense downward momentum. In addition to financial rescues, we need major stimulus programs.
The chart (to the left) shows the rate of growth of industrial production over the previous year — and it doesn't even fully reflect the credit crunch yet. I confidently predict that this slump will be nasty, brutish, and long.
Yes, Krugman is my favorite (but you knew that already). Did you catch his riff on Thomas Hobbes' (modern founder of the social contract tradition) Leviathan critique that the life of man in his natural state before a central government was formed is "solitary, poor, nasty, brutish, and short?"
And if you're really fond of inside hype.
Bill Maher Quizzes David Walker (yes, that David Walker!)
Bill Maher, interviewing former U.S. Comptroller General David Walker, extracts from him that the U.S. currently has a debt of over 55 Trillion (meaning over $480,000 per household), and that no one (anywhere - certainly not anyone running for President of the U.S.) has provided the leadership necessary to confront this situation and offer a plan for addressing it rationally. (And yes, they took down the debt clock in NYC this week because it didn't have enough digits to show the true figure, which General Walker says has not been correct in a long time - not even close (it was over 40 Trillion dollars wrong).)
Even better Paul the K info on our current financial mayhem causers:
There are all sorts of connections between the Nixon administration and the Bush administration. But here's one I didn't know about: Hank Paulson was John Ehrlichman's assistant in 1972 and 1973.
Maybe you have to have lived through Watergate to know what that means.
Ever since I got my first look at "Hank" Paulson I've thought "something wicked this was comes." I was a member of Nature Conservancy before it was taken over by the corporate interests, so I know first hand a little bit about the effects of a corporate "green" strategy. Imagine my surprise to see what's on Paulson's bio:
Henry M. Paulson is the United States Treasury Secretary and member of the International Monetary Fund Board of Governors. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs, one of the world's largest and most successful investment banks.
Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972. He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973. He was nominated by U.S. President George W. Bush to succeed John Snow as the Treasury Secretary on May 30, 2006. On June 28, 2006, he was confirmed by the United States Senate to serve in the position.
Paulson has been described as an avid nature lover. He has been a member of the Nature Conservancy for decades and is the organization's Board chairman and co-chair of its Asia-Pacific Council. In that capacity, Paulson worked with former President of the People's Republic of China Jiang Zemin to preserve the Tiger Leaping Gorge in Yunnan province. He donated $100 million worth of his Goldman Sachs stock to a family foundation dedicated to conservation and environmental education. Notable among the members of President Bush's cabinet, Paulson is a strong believer in the effect of human activity on global warming and advocates immediate action to decrease this effect.
And then, to further lighten your load today, there's always Paul Craig Roberts' happy-go-lucky take on everything in general: Does the Bailout Pass the Smell Test?
The explanation that has been given for the financial crisis does not match up with the solution that has been devised. Moreover, the windows into the crisis offered by the authorities are opaque rather than transparent.
The only clarity we have is that the crisis is resulting in financial concentration and that the bailout constitutes a massive raid by financial crooks on both taxpayers and central bank reserves in the US and Europe.
The public monies that are being directed to private financial institutions are huge. . . .
The US now has four separate bailouts underway, $800 billion for banks, $200 billion for Fannie Mae and Freddie Mac, $85 billion for the insurer AIG, and $25 billion for the US auto industry. These figures add to more than $2.1 trillion.
Some of these public monies are for purchasing troubled paper assets. Others are to be directly injected into the banks as public supplied capital for private financial institutions, an ironic outcome for the free market ideology that resulted in the deregulation of the US financial system. . . .
How is it possible that a financial crisis of such magnitude hit with such suddenness and urgency, catching finance ministries and central banks unaware?
The popping of the US real estate bubble could not produce worldwide systemic financial crisis without the mark-to-market rule, short-sellers, and a great deal of hype and orchestration. . . .
The US Congress held no hearings on the crisis and consulted no independent experts. Congress responded dumbly to the financial crisis, just as it did following 9/11 when the Bush regime handed it the PATRIOT Act and the Afghan invasion. To secure Congress' acquiescence to the Paulson bailout, the Bush regime used threats of meltdown and martial law to panic Congress into turning over vast amounts of money for which accountability is lacking. The hype behind the Paulson bailout is the financial version of the mushroom cloud evocation used by the Bush regime to panic Congress into accepting the US invasion of Iraq. Is yet another hidden agenda at work?
The authorities have blamed subprime mortgages for the crisis. Why then does their solution fail to address the problem of the mortgages? Instead, the solution directs public money into an increasingly concentrated private financial sector, the management of which is not only vastly overpaid, but also has escaped accountability for the financial chicanery that, allegedly, threatens systemic financial meltdown unless bailed out by the taxpayers.
Read on (brave sailor)!
And, whoops! Joe-the-Plumber turns out not to have a license, and although he owes $1200 in back taxes, he thinks McCain is the candidate with his best interests in mind. Par for the course? Fore!!!!!


text:
Mark Rogers takes mound against Arizona
Phoenix -- There are still three weeks to go before the Brewers break camp and head to Milwaukee but it could be an important start Thursday for Mark Rogers when he takes the mound for an exhibition game against Arizona at Maryvale Baseball Park.
Rogers is vying for a spot in the starting rotation and has yet to get command of his pitches. He issued four walks in two innings in his last outing against Team Italy, though that was a 9:30 a.m. outing in which he had trouble getting going.
Rogers is out of minor-league options and therefore would have to go through waivers to be sent to the minors. If healthy, it is unlikely that he'd go unclained, so if Rogers does not make the rotation he could move to the bullpen, at least temporarily.
The Brewers are 5-6 in Cactus League play after a 7-6 win Wednesday over Seattle. The game today will be broadcast over the radio at WTMJ-620(AM).
Todd Rosiak and I also will be doing live in-game chatter.
- Jonathan Lucroy withheld from lineup because trade talks 'progressing'
- Jonathan Lucroy not in Brewers' lineup
- Jonathan Lucroy in lineup; Ryan Braun out
- Jonathan Lucroy has right to block trade to Cleveland
- Craig Counsell wants Jonathan Villar to learn lesson
- Brewers look to take series from Diamondbacks
- Brewers place Jacob Barnes on DL, recall Michael Blazek
- Keon Broxton, Jake Elmore get starts in outfield
- Having to shut down Domingo Santana again 'a big setback'
- Jean Segura, Rickie Weeks return to Miller Park

subset: commoncrawl


text:
Hey there people. Today I am putting up a tutorial on a cow. Yup, that's it a plan ol' cow. After all, these animals give us the very milk we drink with our cookies and cake. And don't forget were steak comes from, those juicy cuts of rib eye, mmm. I bet most of you don't even know how many cows we have existing on earth right now.., 1.3 million wow that is a lot of mooing going on. A male is called a bull and the female of course is called a cow. Another word used for these animals is cattle. Now cattle, like us have one stomach, but unlike us they have four chambers. These chambers are a very important part of the cows digestive system, the names of the compartments are, rumen, omasum, abomasums, and reticulum. Now, everyone knows that cows get milked by hand right; wrong they use machines on them in most milk developing plants. The only place they really use their hands now a days is in other small countries or on small farms and such. When cattle get pregnant they carry their calves for nine months, just like humans. Cows are indeed partially blind all though they have some concept of color. You can find a cow just by driving through the country side on a warm summer's afternoon with the windows down and the wind blowing on your face. I wanted to add the cow to the farm animal pile. My goal is to contribute at least one tutorial in the farm animal category every month. This tutorial is pretty basic it teaches you "how to draw a cow", step by step, but not just any cow an oreo colored one, you know what to do with the cookies. Anyway there are only 7 steps and the instructions are easy to follow. If you have any questions drop me a comment and I'll be sure to get back to you. Have fun ya'll.
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