Tuesday, September 30, 2008
If the government is looting the treasury to the tune of of $700 billion plus, give the American people the money, not the con artists who got us into trouble in the first place.
We'll use the money to pay off our mortgages, credit card and other debt, and to stabilize the economy.
Instead of the peanuts the government gave us in the "stimulus package", this would have a real benefit, and would largely solve American's economic problems.
Say it Congress, phone it into talk shows, put it in emails and bumper stickers and freeway blogs:
"If You're Looting the Treasury, Give it To US"
The last official act of any government is to loot the treasury. If their looting the treasury, give it to the people.
As a reader named Ron puts it, distributing money to the taxpayers instead of the fat cats has many benefits:
"Pay off your mortgage - housing crisis solved.Bottom line: If the loot is given to the financial elite, it will probably be the last official act of the government. But if it is distributed to the American people, it could create a true and sustainable economic recovery.
Repay college loans - what a great boost to new grads
Put away money for college - it’ll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth"
Monday, September 29, 2008
The financial elite will propose a "new, improved" version of the bailout bill in the next couple of days. Here is some advanced ammunition to use against the proposal:
- Paulson and Congress pretended that the first bailout bill capped the initial round of funding to $200 billion, and capped executive compensation. However, treasury officials have admitted (when they thought the public wasn't listening) that the restrictions on disbursing more than 200 big ones and CEO compensation were lies that wouldn't be enforced (you can listen to their statements yourself: here's part 1 of 5)
- The boys pretended that the bailout was limited to $700 billion. But that was not true (see the final vesion of the bailout proposal on page 40). Indeed, a Bloomberg analyst says that the bailout could balloon to $5 trillion dollars. And remember that "in the months before the March 2003 Iraq invasion, the Bush administration estimated the Iraq war would cost no more than $50 billion", but it will end up costing at least $3 trillion dollars
- The snake oil salesmen said the bailout was needed to save the economy. But most experts who have looked at the bailout said it wasn't needed, wouldn't have worked, and would actually have made the economic crisis worse
Unless the new bailout proposal will actually help Americans, use the above proven lies by the proponents of the original bailout monster to argue that the liars cannot be believed, and that the fruit of the poisonous tree is itself poisonous.
The worldwide financial crisis isn't about the subprime meltdown, although it might have first surfaced there for all to see.
It is not even ultimately about derivatives, although derivatives are by the largest risk numbers-wise (indeed, the nominal value of derivatives dwarfs the size of the world-wide economy).
It is - at core - a crisis of trust.
As long-time financial writer Will Hutton says:
"Such was the break down in trust and sense of panic that some of the most familiar names in British high street banking would not lend to each other at all or, at best, just overnight. Instead, the Bank of England had to supply tens of billions to banks who found the normal sources of funds blocked.
Unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends."
Princeton economist and former Secretary of Labor Robert Reich agrees that Wall Street's biggest problem right now is the collapse of trust:
The problem is, government bailouts, subsidies, and insurance aren't really helping Wall Street. The Street's fundamental problem isn't lack of capital. It's lack of trust. And without trust, Wall Street might as well fold up its fancy tents.
And as prominent economist Nouriel Roubini writes:
"It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this [bailout] plan is totally flawed."
In other words, the financial crisis is worsening because the government is offering proposals based on obvious lies, which will not actually fix anything. Paulson and Bernanke and company are lying - just like the scam artists on Wall Street were lying . . . it's just more of the same.
The crisis will deepen unless real productive manufacturing and service jobs return as the foundation of our economy, honest and transparent accounting is used, and the government stops gaming the system for the benefit of the wealthiest 1%.
As John Carney writes:
"We're probably making things worse. Allowing insolvent institutions to fail and requiring worthless and worth less assets to be fully written down would provide transparency to the market. Instead, we're dedicated to the post-Lehman proposition of "Never Again." The various programs of our government continue to obscure asset pricing and conceal insolvency. This means that you can't trust the market to tell you which firms are failing.
Twisting the arms of bankers to lend to institutions that may be insolvent is a recipe for deepening the crisis. We've just been through a period of malinvestment--we spent too much borrowed money on junk. Borrowing more to spend on junk only digs us in deeper.
Bank lending won't get going again until trust in the markets can be restored. Fighting a Great Depression era problem probably won't help. More transparency, which means more write-downs and failures, is probably necessary if we're going to get through this. Unfortunately, we're still sailing in the opposite direction."
See also this.
The economic crash - as horrible as it is - has a silver lining.
It is a window of opportunity wake Americans up from their comfortable slumber and make them question their government.
Stalin said that dictatorships only last so long as the dictators keep their people well-fed. Americans have been strongly motivated not to question the government because they have been led to believe that if they just follow the party line, they'll get nice jobs, make a bundle of dough, buy into "the American dream". A crash has the possibility to awaken Americans from their long nap. It has the potential to get Americans to open their eyes and start questioning the lies they have been told by our government and their media lapdogs about virtually everything. Indeed, polls show that the economic crisis has increased Americans' distrust in government.
The old systems, institutions and habits are collapsing. This is a window of opportunity to reach people with truth.
Indeed, this is exactly what the elites hope.
Will truth or a resigned survival-based disinterest prevail? It is not yet clear.
But one thing is for sure . . . the game has changed, and there is a huge window of opportunity to spread truth while people's habitual ways of thinking have been knocked for a loop.
America has won a major battle against the financial elite.
The house has rejected the bailout scam. The will of the people - as expressed through thousands and thousands of angry phone calls and faxes to Congress - prevailed.
But the financial elite will regroup and try another attack on the people and the free market . . .
Big Money and their Congress critters will try again, and use dirty tricks and try to pass it when no one is looking.
So we must redouble our efforts to make sure we win the war, as well as just one battle.
Call and thank those who voted no, and tell congress that anyone who voted yes or who votes yes in the future will be kicked out of office, tarred and feathered. And demand that they address the real financial issues, like Iraq (it is bankrupting America, we have to get out), derivatives (by far the largest financial crisis), etc.
Find congress members' contact info here.
Some people have blamed those who oppose the bailout for the crash in the stock market. Are they right?
Well, first of all, the overwhelming majority of Americans rejected the bailout. So if you start trashing those who opposed the bailout, your dissing America.
Second, most experts who have looked at the bailout say it won't work, and will actually make the economic crisis worse.
Third, the bailout doesn't address the fundamental issues which need to be addressed to actually stabilize the U.S. economy, such as the trillions of dollars being spent in Iraq and the phony war on terror, the national debt, derivatives, lack of savings, the loss of our manufacturing base, the fact that the wealthiest people have collected all of the poker chips so that regular people can't keep playing, and gaming of the markets by the super-rich and the government.
And last but not least, investors who are dumping stocks because a quick "fix" wasn't approved don't understand what is going on. hey don't understand the real, fundamental problems with the economy. For example:
- They don't get that America is broke due to spending trillions in Iraq and trillions more in the phony war on terror, and the bailout would only make matters worse.
- They don't understand that unless the derivatives bomb is diffused, it will take out the world's economy when it explodes, bailout or no.
- They haven't learned that speculation is not real economic growth, and that until America restores its productive economy, it will remain a house of cards in a storm
Are those who oppose the bailout responsible for the stock market crash?
No . . . those who got us into Iraq and the war on terror based on lies, who have run up the national debt into the stratosphere, those who hawked derivatives as a safe bet (including Alan Greenspan), those who have encouraged borrowing instead of saving, those who argued it was good for America to ship our manufacturing jobs overseas, those who have been so greedy that they've taken all the chips, and those who have been gaming the markets are responsible.
Sunday, September 28, 2008
Democratic and Republican congress members are sounding the alarm: tyranny is here.
- Rep. Michael Burgess (R-TX) says:
“I have been thrown out of more meetings in this capital in the last 24 hours than I ever thought possible, as a duly elected representative of 825,000 citizens of north Texas.”
Burgess asks the Speaker of the House to post the bailout bill on the internet for at least 24 hours instead of passing the largest piece of legislation in US financial history in the “dark of night.”
Rep. Burgess’ says, “Mr. Speaker I understand we are under martial law as declared by the speaker last night.” (Note: For an explanation of what he meant by martial law, see this)
- Congresswoman Kaptur (D-OH) says:
Of course, there are many other indications that tyranny has already come to Amerca, including the permanent stationing of U.S. troops inside the country to quell "civil unrest" and the probable suspension of normal constitutional government for a state of emergency "continuity of government" operation.
“My message to the American people don’t let Congress seal this deal. High financial crimes have been committed.
The normal legislative process has been shelved. Only a few insiders are doing the dealing, sounds like insider trading to me. These criminals have so much political power than can shut down the normal legislative process of the highest law making body of this land.”We are Constitutionally sworn to protect and defend this Republic against all enemies foreign and domestic. And my friends there are enemies.”
The people pushing this deal are the very ones who are responsible for the implosion on Wall Street. They were fraudulent then and they are fraudulent now.”
This is not entirely new. In 2006, the Center for Budget and Policy Priorities wrote:
"House leadership invokes 'martial law,' forcing members to vote on key bills without full knowledge of what they are voting on: move represents erosion of the democratic process"Indeed, many people, including high-level politicians, have been warning of tyranny in the U.S. for some time. As three of many examples:
- Former prominent republican congressman Bob Barr stated that the U.S. is close to becoming a totalitarian society and that the Bush administration is using fear to try to ensure that this happens
- Current U.S. Congressman Ron Paul stated, the government "is determined to have martial law", and that the government is hoping to get the people "fearful enough that they will accept the man on the white horse"
- And Former Supreme Court justice Sandra Day O'Connor warned of dictatorship
Saturday, September 27, 2008
An article in CNBC states, "The U.S. Congress and the Bush administration were under intense pressure on Saturday to negotiate a $700 billion rescue".
Who is putting intense pressure on both the White House and Congress to pass the bailout?
Not the American people, who overwhelmingly oppose the bailout.
Not American economists, former treasury secretaries, chairmen of the FDIC, or the Congressional Budget Office, who all say that the bailout won't work, and will actually harm the economy.
So who is putting the intense pressure on our government?
Maybe its just America's financial elite.
But consider that many financial analysts say that the real reason that the government bailed out Freddie and Fannie is because China demanded it. And there were rumors last week that China instructed its banks to stop lending to U.S. banks. The U.S. owes trillions of dollars to China which, along with Japan, Saudi Arabia, and other creditor nations, is keeping America afloat. If they pulled the plug, the U.S. would instantly default on its obligations. See this.
They say that economics and finance are now global. Perhaps corruption, blackmail and tyranny are also.
Friday, September 26, 2008
I previously pointed out that when the Japanese government threw cash at their big banks in the 90's, the banks just horded the money instead of using it to restore "liquidity".
Well, a professor of economics and an expert in liquidity now hints that the entire liquidity "crisis" might be a hoax.
Bloomberg quotes the good professor:
"I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,'' said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.
Are the big banks faking a liquidity crisis because they know that if they act like the financial system is drying up, they'll get a big bailout?
Like a kid who pretends he's sick so he can play hookie from school, are the big players pretending they are financially "sick" so that they can play hookie from the free market?
Forget Republican versus Democratic. That's a false dichotomy. Its the Democrats in Congress who are now trying to pass the fat cat welfare, taxpayer-funded bailout. Forget labels. Forget politics. Forget who should get credit for good ideas. Let's look at substance and do what's best for the country.
House Republicans are pushing a meaningful alternative to the Paulson bailout plan.
CNBC has the story:
This is a chance to stop the taxpayer bailout and to make the scam artists who created the economic mess clean it up.
In a letter to House Speaker Nancy Pelosi, House Minority Leader John Boehner urged that the proposals be "given the consideration they deserve."
The proposals include:
Click Here to Read Boehner's Letter and Republican Proposal
- Wall Street – Not Taxpayers – Should Fund the Recovery
- Private Capital – Not Tax Dollars – Should Be Injected Into Financial Markets
- Immediate Transparency, Oversight, and Market Reform
So call Congress and demand that they support:
(1) Wall Street - not taxpayer - funding of the recovery(Find contact info at Congress.org).
(2) Private - not public - capital injected into the markets
(3) Immediate transparency, oversight and market reform, and
(4) Insist that they clean up the derivatives mess, also.
Thursday, September 25, 2008
The Dallas Federal Reserve Bank President, Former Treasury Secretary, Head of the Congressional Budget Office and Leading Economists All Slam Bailout
The following experts have slammed the bailout:
- The Dallas Federal Reserve Bank President (Richard Fisher) said the proposed bailout would plunge the U.S. government deeper into a fiscal abyss
- The former Secretary of the Treasury (Paul O'Neill) questions the bailout
- The director of the nonpartisan Congressional Budget Office (Peter R. Orszag) said the bailout could deepen the crisis
- The former Chairman of the FDIC (William Isaac) doubts the bailout will work in its current form
- The former head of the Fed's open market operation - the key Federal Reserve program which loans hundreds of billions of dollars to Wall Street companies and banks - said the bailout could make matters worse: "Every time you tinker with this delicate system even small changes can create big ripples . . . . The risks are that the government's $700 billion purchase of assets disturbs markets even more.''
- Hundreds of leading economists, including numerous nobel prize winners, question the bailout
- Former White House economist (Steve Hanke) adamantly opposes the bailout
- Nobel prize economist and former chief economist of the World Bank (Joseph Stiglitz) opposes the bailout
- A prominent economist (Nouriel Roubini) says "The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."
- A highly-regarded economist (Michael Hudson) says that the bailout is a giveaway that will cause hyperinflation and dollar collapse
- Many other leading economists question the bailout
The following group of prominent economists, including numerous Nobel Prize winners, has written a letter slamming the bailout proposal:
- Acemoglu Daron (Massachusetts Institute of Technology)
- Adler Michael (Columbia University)
- Admati Anat R. (Stanford University)
- Alexis Marcus (Northwestern University)
- Alvarez Fernando (University of Chicago)
- Andersen Torben (Northwestern University)
- Baliga Sandeep (Northwestern University)
- Banerjee Abhijit V. (Massachusetts Institute of Technology)
- Barankay Iwan (University of Pennsylvania)
- Barry Brian (University of Chicago)
- Bartkus James R. (Xavier University of Louisiana)
- Becker Charles M. (Duke University)
- Becker Robert A. (Indiana University)
- Beim David (Columbia University)
- Berk Jonathan (Stanford University)
- Bisin Alberto (New York University)
- Bittlingmayer George (University of Kansas)
- Boldrin Michele (Washington University)
- Brooks Taggert J. (University of Wisconsin)
- Brynjolfsson Erik (Massachusetts Institute of Technology)
- Buera Francisco J. (UCLA)
- Camp Mary Elizabeth (Indiana University)
- Carmel Jonathan (University of Michigan)
- Carroll Christopher (Johns Hopkins University)
- Cassar Gavin (University of Pennsylvania)
- Chaney Thomas (University of Chicago)
- Chari Varadarajan V. (University of Minnesota)
- Chauvin Keith W. (University of Kansas)
- Chintagunta Pradeep K. (University of Chicago)
- Christiano Lawrence J. (Northwestern University)
- Cochrane John (University of Chicago)
- Coleman John (Duke University)
- Constantinides George M. (University of Chicago)
- Crain Robert (UC Berkeley)
- Culp Christopher (University of Chicago)
- Da Zhi (University of Notre Dame)
- Davis Morris (University of Wisconsin)
- De Marzo Peter (Stanford University)
- Dubé Jean-Pierre H. (University of Chicago)
- Edlin Aaron (UC Berkeley)
- Eichenbaum Martin (Northwestern University)
- Ely Jeffrey (Northwestern University)
- Eraslan Hülya K. K.(Johns Hopkins University)
- Faulhaber Gerald (University of Pennsylvania)
- Feldmann Sven (University of Melbourne)
- Fernandez-Villaverde Jesus (University of Pennsylvania)
- Fohlin Caroline (Johns Hopkins University)
- Fox Jeremy T. (University of Chicago)
- Frank Murray Z.(University of Minnesota)
- Frenzen Jonathan (University of Chicago)
- Fuchs William (University of Chicago)
- Fudenberg Drew (Harvard University)
- Gabaix Xavier (New York University)
- Gao Paul (Notre Dame University)
- Garicano Luis (University of Chicago)
- Gerakos Joseph J. (University of Chicago)
- Gibbs Michael (University of Chicago)
- Glomm Gerhard (Indiana University)
- Goettler Ron (University of Chicago)
- Goldin Claudia (Harvard University)
- Gordon Robert J. (Northwestern University)
- Greenstone Michael (Massachusetts Institute of Technology)
- Guadalupe Maria (Columbia University)
- Guerrieri Veronica (University of Chicago)
- Hagerty Kathleen (Northwestern University)
- Hamada Robert S. (University of Chicago)
- Hansen Lars (University of Chicago)
- Harris Milton (University of Chicago)
- Hart Oliver (Harvard University)
- Hazlett Thomas W. (George Mason University)
- Heaton John (University of Chicago)
- Heckman James (University of Chicago - Nobel Laureate)
- Henderson David R. (Hoover Institution)
- Henisz, Witold (University of Pennsylvania)
- Hertzberg Andrew (Columbia University)
- Hite Gailen (Columbia University)
- Hitsch Günter J. (University of Chicago)
- Hodrick Robert J. (Columbia University)
- Hopenhayn Hugo (UCLA)
- Hurst Erik (University of Chicago)
- Imrohoroglu Ayse (University of Southern California)
- Isakson Hans (University of Northern Iowa)
- Israel Ronen (London Business School)
- Jaffee Dwight M. (UC Berkeley)
- Jagannathan Ravi (Northwestern University)
- Jenter Dirk (Stanford University)
- Jones Charles M. (Columbia Business School)
- Kaboski Joseph P. (Ohio State University)
- Kahn Matthew (UCLA)
- Kaplan Ethan (Stockholm University)
- Karolyi, Andrew (Ohio State University)
- Kashyap Anil (University of Chicago)
- Keim Donald B (University of Pennsylvania)
- Ketkar Suhas L (Vanderbilt University)
- Kiesling Lynne (Northwestern University)
- Klenow Pete (Stanford University)
- Koch Paul (University of Kansas)
- Kocherlakota Narayana (University of Minnesota)
- Koijen Ralph S.J. (University of Chicago)
- Kondo Jiro (Northwestern University)
- Korteweg Arthur (Stanford University)
- Kortum Samuel (University of Chicago)
- Krueger Dirk (University of Pennsylvania)
- Ledesma Patricia (Northwestern University)
- Lee Lung-fei (Ohio State University)
- Leeper Eric M. (Indiana University)
- Leuz Christian (University of Chicago)
- Levine David I.(UC Berkeley)
- Levine David K.(Washington University)
- Levy David M. (George Mason University)
- Linnainmaa Juhani (University of Chicago)
- Lott John R. Jr. (University of Maryland)
- Lucas Robert (University of Chicago - Nobel Laureate)
- Luttmer Erzo G.J. (University of Minnesota)
- Manski Charles F. (Northwestern University)
- Martin Ian (Stanford University)
- Mayer Christopher (Columbia University)
- Mazzeo Michael (Northwestern University)
- McDonald Robert (Northwestern University)
- Meadow Scott F. (University of Chicago)
- Mehra Rajnish (UC Santa Barbara)
- Mian Atif (University of Chicago)
- Middlebrook Art (University of Chicago)
- Miguel Edward (UC Berkeley)
- Miravete Eugenio J. (University of Texas at Austin)
- Miron Jeffrey (Harvard University)
- Moretti Enrico (UC Berkeley)
- Moriguchi Chiaki (Northwestern University)
- Moro Andrea (Vanderbilt University)
- Morse Adair (University of Chicago)
- Mortensen Dale T. (Northwestern University)
- Mortimer Julie Holland (Harvard University)
- Muralidharan Karthik (UC San Diego)
- Nanda Dhananjay (University of Miami)
- Nevo Aviv (Northwestern University)
- Ohanian Lee (UCLA)
- Pagliari Joseph (University of Chicago)
- Papanikolaou Dimitris (Northwestern University)
- Parker Jonathan (Northwestern University)
- Paul Evans (Ohio State University)
- Pejovich Svetozar (Texas A&M University)
- Peltzman Sam (University of Chicago)
- Perri Fabrizio (University of Minnesota)
- Phelan Christopher (University of Minnesota)
- Piazzesi Monika (Stanford University)
- Piskorski Tomasz (Columbia University)
- Rampini Adriano (Duke University)
- Reagan Patricia (Ohio State University)
- Reich Michael (UC Berkeley)
- Reuben Ernesto (Northwestern University)
- Roberts Michael (University of Pennsylvania)
- Robinson David (Duke University)
- Rogers Michele (Northwestern University)
- Rotella Elyce (Indiana University)
- Ruud Paul (Vassar College)
- Safford Sean (University of Chicago)
- Sandbu Martin E. (University of Pennsylvania)
- Sapienza Paola (Northwestern University)
- Savor Pavel (University of Pennsylvania)
- Scharfstein David (Harvard University)
- Seim Katja (University of Pennsylvania)
- Seru Amit (University of Chicago)
- Shang-Jin Wei (Columbia University)
- Shimer Robert (University of Chicago)
- Shore Stephen H. (Johns Hopkins University)
- Siegel Ron (Northwestern University)
- Smith David C. (University of Virginia)
- Smith Vernon L.(Chapman University- Nobel Laureate)
- Sorensen Morten (Columbia University)
- Spiegel Matthew (Yale University)
- Stevenson Betsey (University of Pennsylvania)
- Stokey Nancy (University of Chicago)
- Strahan Philip (Boston College)
- Strebulaev Ilya (Stanford University)
- Sufi Amir (University of Chicago)
- Tabarrok Alex (George Mason University)
- Taylor Alan M. (UC Davis)
- Thompson Tim (Northwestern University)
- Tschoegl Adrian E. (University of Pennsylvania)
- Uhlig Harald (University of Chicago)
- Ulrich, Maxim (Columbia University)
- Van Buskirk Andrew (University of Chicago)
- Veronesi Pietro (University of Chicago)
- Vissing-Jorgensen Annette (Northwestern University)
- Wacziarg Romain (UCLA)
- Weill Pierre-Olivier (UCLA)
- Williamson Samuel H. (Miami University)
- Witte Mark (Northwestern University)
- Wolfers Justin (University of Pennsylvania)
- Woutersen Tiemen (Johns Hopkins University)
- Zingales Luigi (University of Chicago)
- Zitzewitz Eric (Dartmouth College)
They are not alone. See this, this, this, this, this, this, this, this and this.
Wednesday, September 24, 2008
You know the $700 billion price tag of the proposed bailout? Treasury pulled that number out of thin air.
As Forbes writes:
In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."
McCain is making the following threat: "Vote for the bailout or I'll pull out of the election".
Sen. Lindsey Graham, McCain's representative in debate negotiations, said McCain will not attend the debate "unless there is an agreement that would provide a solution" to the financial crisis. Graham, R-S.C., told The Associated Press that the agreement would have to be publicly endorsed by Obama, McCain, the White House and congressional leaders, but not necessarily given final passage by the House and Senate.McCain is trying to blackmail America: Pass the bailout, or the elections won't happen.
CNN is reporting that McCain has "suspended his campaign" and is asking Obama to do the same, due to the economic crisis:
Republican presidential candidate Sen. John McCain announced Wednesday that he is suspending his campaign to return to Washington and focus on the "historic" crisis facing the U.S. economy.
Is this the first step in canceling the elections due to "national emergency"?
Is that part of the reason that the U.S. military is permanently being deployed within the U.S. to deal with "civil unrest" and "crowd control"?
Many of us have been warning about this possibility for years.
Hopefully, McCain's suspension of his campaign is just political posturing, and he will return to the campaign next week. Hopefully, this is not the first step in canceling the election.
I am For the Free Market . . . But if the Government is Going to Stick its Big Nose Into the Market, Here's What It Should Do
I am opposed to the bailout plan because it is socialism. It would deal a mortal blow to the free market and to the rule of law, as Paulson's actions are unreviewable by courts. And Paulson's plan is immoral, because its the fat cats hosing the taxpayer again.
Moreover, it simply won't work.
A hundred billion here or a hundred billion there - while huge sums - are dwarfed by the potential of a crashing credit default swap market, which could very well take out not only the U.S. economy, but the economies of most of the world's developed countries.
I think there is a powerful argument that we should let the markets sort it out for themselves.
However, if governments are going to do anything, they should cancel all credit default swap contracts. The governments of the world should all declare that default swaps are null and void. See this.
The basis for canceling them? Fraud, for one.
People selling credit default swaps got fat and made billions of dollars selling something that no one understood, that no one was overseeing, and that is threatening to bring down the world economy. Indeed, a young, brand new graduate who knew nothing about the real world invented credit default swaps and talked her bosses at JP Morgan into selling them.
And yet they were sold as a relatively safe investment, even though the companies which sold them didn't have the assets to pay out on them. That's fraud.
Warren Buffet calls derivatives "weapons of mass destruction", and they should be treated as such.
Remember that banks and financial houses have hidden their derivatives exposure off the balance sheets. And almost no one understands derivatives:
"Not only [world's richest man] Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't 'figure out'" the derivatives market.Indeed, the government actively helped to hide the derivatives mess since at least 2006. For example, according to Business Week:
"President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations."Again, I am for the free market and for the rule of law. But if the U.S. government is going to stick its enormous nose into the free market, the Paulson bailout plan is not what will help. The one thing the government could do is cancel credit default swaps and persuade allied governments to do the same.
While it is solely Wall Street which would be helped by Paulson's bailout, something that addresses the derivatives mess might help the little guy, too. Remember that Orange County, California, went bankrupt in 1994 because it had invested in bad derivatives. Indeed, I heard that a small fishing village in Norway might have to file for bankruptcy because it had bought derivatives as part of its portfolio. And the pension and retirement accounts of millions of teachers and other middle class people probably contain a lot of derivatives also.
Tuesday, September 23, 2008
In the 1974 comedy Blazing Saddles, Cleavon Little plays the new sheriff in an old Western town. The sheriff is African-American, and when he rides into town for the first time, the townspeople pull out their guns and are about to shoot him.
But he quickly puts a gun to his own head, pretends he's scared of his own gun, and says "BACK OFF OR THE AFRICAN-AMERICAN GUY GETS IT!!!" The townspeople are dumb and fall for it, suddenly terrified that he'll kill himself. Here's the scene.
That's what Wall Street is doing with the bailout.
The fat cats on Wall Street are saying "give us a lot of money, and buy all of our bad debt for a lot more than its worth, or Wall Street will get it and we'll go into a depression!"
Are Americans stupid enough to fall for it?
Note: While the scene contains racism, this analogy really has nothing to do with race. If it was a white sheriff, I still would have written about it, because its the principal of threatening one's self to manipulate other people which I'm referring to, not any racial issues. In any event, it was the sheriff - not the townspeople - who was the smart one.
An article in the Army Times reveals that the 3rd Infantry Division’s 1st Brigade Combat Team will be redeployed from Iraq to domestic operations within the United States.
The unit will soon be under the day-to-day control of US Army North, the Army service component of Northern Command. The Army Times reports this new mission marks the first time an active unit has been given a dedicated assignment to Northern Command. The paper says the Army unit may be called upon to help with "civil unrest" and "crowd control".
The soldiers are learning to use so-called "nonlethal weapons" designed to subdue unruly or dangerous individuals and crowds.
This violates posse comitatus and the Constitution. But, hey, we're in a "national emergency", so who cares, right?
Apologists for the bailout plan say that it will have a trickle-down benefit for taxpayers.
But in his testimony to the Senate today, Bernanke pretty much admitted that the bailout isn't aimed at helping taxpayers.
Specifically, as the Wall Street Journal summarizes it:
So Bernanke is arguing against the government purchasing Wall Street's toxic assets at their real price (which would benefit taxpayers) and for the Wall Street firms themselves to set whatever arbitrary price they like, since they "have a view of what they think it's worth" and "it's hard for outsiders to know".
Bernanke used his time to argue for not buying assets at fire-sale prices in the Treasury's $700 billion bailout proposal.***
Mr. Bernanke said the Treasury plan should have taxpayers buy the assets and hold them at close to their maturity value. Removing the assets, he said, would bring liquidity back to markets, unfreeze credit markets, reduce uncertainty and allow banks to attract private capital. (Reuters has a partial transcript)
Forcing assets down to even lower fire-sale prices would protect taxpayers the most, since the government would own the assets below the value if held to maturity. As long as those securities didn’t flat-out default, the government’s purchase would have a substantial upside. However, Mr. Bernanke essentially argued that doing so would hurt markets even further and wouldn’t solve the problem facing the economy. In pushing back against congressional efforts to change the Treasury proposal, Mr. Bernanke said: “We cannot impose punitive measures on institutions that choose to sell assets.” The beneficiaries would be not just the companies selling, but markets and the overall economy, he said.
Still, he acknowledged that the precise approach to doing so hadn’t been determined, arguing for flexibility. “We do not know exactly what the best design is,” and that would come from consultation with experts, Mr. Bernanke said.
“We believe that strong and timely action is urgently needed to stabilize our markets and our economy,” he said.
In subsequent questioning, Mr. Bernanke distinguished between, on the one hand, “fire sale prices,” the ones that prevail “when you sell into an illiquid market” and, on the other, the prices that holders think the assets are really worth, sometimes described as “fundamental” values or “hold-to-maturity” value.
“The holders have a view of what they think it’s worth. It’s hard for outsiders to know,” Mr. Bernanke said. The point of an auction is to reveal those prices.
Further proof of the fact that the bailout is not aimed at helping taxpayers is that even very wealthy, solvent Wall Street (and foreign) firms may get bailout money. See this.
No one could have seen this coming, right?
Well, actually, the White House has admitted that they drew up the bail out plan months ago:
[White House Deputy Press Secretary Tony] Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough.But the government did nothing real to prevent the financial meltdown. Instead, it let the meltdown happen, and now is trying to ram through terrible and counter-productive legislation drafted previously by using fear tactics.
Does this sound familiar? It should.
Monday, September 22, 2008
As we all know, the powers-that-be have used the "Shock Doctrine" to pass anti-American, fascist legislation while the public was in a state of shock.
This applies to economic shocks, as well as physical attacks like 9/11.
Indeed, right now, Paulson and Bernanke are using the shock doctrine to try to ram through legislation that would help out the fat cats at the expense of taxpayers, and give the government control over the free market.
But there is some resistance. For example, Senator Leahy and the New York Times are questioning Paulson's use of shock and awe:
- Senator Leahy said "If we learned anything from 9/11, the biggest mistake is to pass anything they ask for just because it's an emergency"
- The New York Times wrote:
"The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress."
Mr. Paulson has argued that the powers he seeks are necessary to chase away the wolf howling at the door: a potentially swift shredding of the American financial system. That would be catastrophic for everyone, he argues, not only banks, but also ordinary Americans who depend on their finances to buy homes and cars, and to pay for college.
Some are suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq. Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep.
“This is scare tactics to try to do something that’s in the private but not the public interest,” said Allan Meltzer, a former economic adviser to President Reagan, and an expert on monetary policy at the Carnegie Mellon Tepper School of Business. “It’s terrible.”
As Naomi Klein writes:
The only hope of preventing another dose of shock politics is loud, organized grassroots pressure on all political parties: they have to know right now that after seven years of Bush, Americans are becoming shock resistant.
The people don't want it (see this poll showing that only 28% support the bailout; and see this).
Most economists don't want it (see this, this, this, this and this).
Many congress people don't want it (see here and here).
So who wants the bailout?
The only people who want it are the big money boys, the ultra elite, including the Wall Street fat cats and Fed who got us into this mess, and their counterparts abroad who would also be bailed out (see this and this).
It is literally America versus the financial elite.
Under Proposed Bailout, Feds Could Speculate, Nationalize Any Company or Industry, Or Do Anything Else They Want Using Taxpayer Money
The Fact Sheet from the U.S. Treasury states:
So Paulson, in consultation with Bernanke, could "deem it necessary" to "stabilize" the financial markets by buying boat loads of gold. Or by cornering the market in uranium or platinum.
The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.
Or they could decide that they needed to buy Microsoft and Google.
Just like Bush and Cheney have gotten us into oil wars and wars to protect Israel under the guise of being necessary to protect our national defense, Paulson and Bernanke could do anything they want by pretending it is for the stability of the financial markets, especially since no one could challenge their actions in court.
Most people think that the proposed bailout will cost $700 billion. In fact, it is not limited to $700 big ones, and will probably go much higher.
Specifically, Paulson's draft bailout plans says:
"The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time."
That means that Paulson could buy a couple hundred billion worth of assets one day, sell them, and then the next day buy another couple hundred billion, and so on.
The maximum price tag?
There is no maximum. Paulson could literally spend unlimited taxpayer monies. And remember that Paulson has already broadened the proposal to include the purchase of non mortgage-related assets (and see this).
As Chris Martenson writes:
This means that $700 billion is NOT the cost of this dangerous legislation, it is only the amount that can be outstanding at any one time. After, say, $100 billion of bad mortgages are disposed of, another $100 billion can be bought. In short, these four little words assure that there is NO LIMIT to the potential size of this bailout. This means that $700 billion is a rolling amount, not a ceiling.Indeed, as written, the feds are only limited to $700 billion at a time in mortgage-related assets. But since they can also buy non-mortgage related assets, the $700 billion language may not even apply to other assets.
So what happens when you have vague language and an unlimited budget? Fraud and self-dealing. Mark my words, this is the largest looting operation ever in the history of the US, and it’s all spelled out right in this delightfully brief document that is about to be rammed through a scared Congress and made into law.
Update 1: See the final version of the bailout proposal on page 40.
Update 2: A Bloomberg analyst says that the bailout could balloon to $5 trillion dollars.
Update 3: And remember that "in the months before the March 2003 Iraq invasion, the Bush administration estimated the Iraq war would cost no more than $50 billion", but it will end up costing at least $3 trillion dollars.
Sunday, September 21, 2008
Not only are the fed bailouts giving billions to foreign central banks, but the new $700 billion bailout proposal could bail out private foreign banks as well.
Specifically, a Fact Sheet from the U.S. Treasury says:
Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.
An article from today in Politico explains
"In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night."
An interview in Bloomberg shows why the bailouts won't work:
As details of Treasury Secretary Henry Paulson's plan to revive the U.S. financial system by pumping as much as $700 billion into the markets emerged Sept. 19, bond investor Michael Cheah was reminded of Japan.We already know that Wall Street firms have used fed cash to speculate or to buy failing competitors. As the economic crash gets worse, they may just park it in treasuries to try to save their own hides.
When that country's real estate bubble burst, leaving a trail of bad real estate loans, officials flooded the economy with cash only to see banks hoard the money instead of lending it out. The result has been a series of recessions and persistent deflation for more than a decade.
"Although the government tried to debase the yen by printing a lot of government bonds, the economy went into a standstill,'' said Cheah, an official at the Monetary Authority of Singapore from 1991 to 1999 who manages $2 billion at AIG SunAmerica Asset Management in Jersey City, New Jersey. "The banks used the money to buy safety. I see a repeat happening here. The banks will use it to buy Treasuries.''
Either way, they probably won't use it to keep the system from freezing up and "liquid" or to extend credit to consumers or businesses.
Many commentators have called the Paulson bailout socialism for the wealthy. For example, former senior advisor to the U.S. Treasury and highly-regarded economics professor, Nouriel Roubini, says that Washington’s bail outs are “socialism for the rich, the well connected and Wall Street; it is . . . a corrupt system where profits are privatized and losses are socialized.”
But as leading journalist Robert Scheer notes, this is more like fascism than socialism:
What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as "financial fascism" [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company's corporate ancestor, which made out quite well until Hitler's bubble burst.Indeed, historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social" (page 416). This perfectly mirrors Roubini's statement about the current bailout plan.
Remember that one of the best definitions of fascism is the "merger of state and corporate power". And remember that a significant agenda of fascists is to ensure loyalty from their nation's corporations.
As an article on Wikipedia states:
In general, apart from the nationalizations of some industries, fascist economies were based on private property and private initiative, but these were contingent upon service to the state.Sound familiar?
Fascist governments encouraged the pursuit of private profit and offered many benefits to large businesses, but they demanded in return that all economic activity should serve the "national interest".
Saturday, September 20, 2008
We all know that the Fed is trying to stick the American taxpayers with trillions of dollars in debt (direct or through inflation) to bail out the Wall Street robber barons.
But did you know that they are also trying to get you to bail out foreign gamblers?
An article in the Telegraph states:
"The Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets"
"Another" $125 billion? How much has the Fed already given to foreign banks?
Why are American taxpayers who are already drowning in debt due to U.S. gamblers also being asked to also bail out foreign speculators?
You've heard of "credit default swaps". They are a type of derivative where one person places a bet that a certain company will go out of business, and another person on the other side of the contract places a bet that the company won't go out of business (see this and this).
Well, people are now starting to increase their use of credit default swaps to bet that the U.S. will default on its ability to pay on its treasury debt.
An article in the Telegraph from today includes a here showing credit default swaps on US 10 year treasury debt, and explains:
"Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.
That possibility is still deemed to be quite low. But the ultimate financial question - until recently, unthinkable - is now being asked. Yes siree, the mighty US government could default. That's how much the world has changed."
Congress hopes to pass the $700 Billion bailout bill by Friday, according to an article in Bloomberg.
In case you haven't heard, the bill would not only stick up American taxpayers for an additional $700 billion, but would literally give Paulson and the government fascist powers.
Don't believe me?
Well, as the Bloomberg article notes: "The bill would bar courts from reviewing actions taken under its authority."
Bloomberg includes the following quotes by people who understand the significance of the bill:
It sounds like Paulson is asking to be a financial dictator, for a limited period of time,'' said historian John Steele Gordon . . . .
The Bush administration seeks "dictatorial power unreviewable by the third branch of government, the courts, to try to resolve the crisis,'' said Frank Razzano, a former assistant chief trial attorney at the Securities and Exchange Commission now at Pepper Hamilton LLP in Washington. ``We are taking a huge leap of faith.''
This power grab is so serious that investigative reporter Larisa Alexandrovna calls it "the final stages of the coup".
We have days to stop this bill. March on Congress. Educate and motivate everyone around you. Do everything you can to prevent this disaster before it is too late.
Friday, September 19, 2008
In the movie "Weekend at Bernie's", a couple of young executives try to create the illusion that their murdered boss is alive in order to avoid being questioned about it. They move his arms and legs and pretend he's moving in order to keep the charade going (watch the trailer).
Bernanke, Paulson, the White House and bozos in Congress like Frank and Dodd are pulling a Weekend at Bernie's with the economy. The U.S. economy is dead. America is broke. The derivatives house of cards is falling down. The credit orgy has left the banks hungover and without any money. The American people have tapped out their credit cards and are starting to live on fumes.
But the boys are borrowing trillions more to move the arms of the U.S. economy, to pick up one foot at a time to pretend that it is still moving and breathing.
It is comical. As soon as they pick up the right arm, another part of the body economic slumps . . . . and in picking up that up, the right arm falls again.
The feds brokered the Bear-JP Morgan deal, but then Indymac collapsed. They took over Freddie and Fannie, but then Lehman died. They propped up AIG, but then the money markets collapsed . . .
Pretty soon, the government will have to start playing both sides in conversations. You know, one government-operated company will "do business" with another government-operated company, so that it looks like there is commerce happening.
Here's a great email (slightly edited) from CS to Mike Shedlock:
"I am almost shaking as I write this for what is happening to the capital markets, this country, and the free world. The impact of the past two weeks' action in the financial markets, if not reversed by cooler heads, will have irreparably changed the world in a way that only terrorist attacks and acts of war have in the past.Its worth reading the rest of Mish's article.
Nationalizing Fannie Mae and Freddie Mac, providing an emergency quasi-legal bridge loan to AIG, temporarily banning short-selling on all stocks in the US, and instituting an RTC-type entity to handle the toxic waste of the financial system is economic violence on a grand scale.
The long-term cost of these actions to dollar holders will likely be in excess of $1 trillion. The basic premise of a free economy is one governed by laws and not men, where property rights are respected, where individuals are free to make contracts with each other, and where honesty and transparency exist in the marketplace. It's questionable whether any of these currently exist in the economy of the United States.
[L] et me provide a partial list of entities responsible for the financial mess we find ourselves in:
Fractional-reserve banking, which is inherently unstable and entirely a confidence game
Congress for passing the Federal Reserve Act and creating the Federal Reserve, the third central bank in the history of the US
Woodrow Wilson for using the Fed to finance World War 1
Benjamin Strong, the President of the Federal Reserve Bank of New York from 1914-1928, for inflating the money supply in the '20s to help out Great Britain which led to the Great Depression
Herbert Hoover for his economic intervention from 1929-1932. He was not laissez-faire by any means.
John Maynard Keynes for laying the foundation of a miseducated public
FDR for banning private ownership of gold, enacting the New Deal, creating Social Security and Fannie Mae, and exacerbating the Great Depression
The FDIC for lulling the American public into a false sense of security regarding their bank deposits and training the public to unquestionably trust the financial system
LBJ for the guns and butter of the '60s
Nixon for severing all ties between the US dollar and gold
Reagan's intellectual duplicity, using free market, small government rhetoric while turning the US into a chronic debtor nation
Alan Greenspan, one of the most duplicitous, arrogant, and incompetent individuals in the history of the United States. If I had to pin this crisis on any one man, it would be he.
George W. Bush for cutting taxes while raising spending and his full embrace of Cheney's doctrine of "deficits don't matter"
Ben Bernanke for following the Greenspan doctrine to its inevitable conclusion
The heads of Fannie Mae and Freddie Mac for using artificially low borrowing costs to create systemically-dangerous housing institutions
Christopher Dodd and Barney Frank for beating the socialist drum
Christopher Cox for thinking a ban on short-selling will solve anything
Hank Paulson for folding the hand he was dealt
The ratings agencies for rubber stamping garbage assets as AAA
The heads of the major banks and brokerages on Wall Street for turning a blind eye as their institutions were taking on massive leverage that threatens to take down the financial system
The hedge funds that levered up structured finance to dangerous levels
Generations of lawmakers for kicking the looming financial crisis can down the road
Home buyers who lied about their income and creditworthiness
Predatory lenders who put people into mortgages they could never afford
Thursday, September 18, 2008
Speaking at an event organised by the German Marshall Fund in Washington, Ms Rice acknowledged that Georgia had fired the first shots in the breakaway region of South Ossetia.
"The Georgian government launched a major military operation into Tskhinvali [the capital of South Ossetia] and other areas of that separatist region," she said.
"Regrettably, several Russian peacekeepers were killed in the fighting," she added.
Wednesday, September 17, 2008
America is spending so much money it doesn't have that even the mainstream press is starting to question the dogma that the U.S. is too big to fail. For example:
- CBS News asks "Who'll Bail Out Uncle Sam?"
- Forbes asks "Is The U.S. Broke? Now that the federal government has bailed out Fannie and Freddie, who's going to bail out the federal government?"
- The New York Post writes in a front-page story:
"The next issue for concern in the battered economy is whether there are going to be buyers for the nation's billions in debt, Mayor Bloomberg said yesterday. . . . "Who's buying our debt? It's these overseas funds, these sovereign-wealth funds, these overseas hedge funds. They are in trouble now. So it's not clear who is going to be buying" US Treasury bills, he said."
- Reuters is covering the story of a leading Chinese state-run newspaper saying that - threatened by a "financial tsunami" -the world must consider building a financial order no longer dependent on the United States
- Bloomberg quotes a portfolio manager saying "It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative [to the size of the American economy]".
- And in July - long before the bailout of AIG and the hundreds of billions in additional comittments by the government- the San Francisco Chronicle wrote:
"As the Bush administration proposes backstopping mortgage giants Fannie Mae and Freddie Mac with a $300 billion line of credit and Congress contemplates another economic stimulus, the question is who will bail out the government?
'People seem to think the government has money,' said former U.S. Comptroller General David Walker. 'The government doesn't have any money.'
A rare consensus has developed across the political spectrum that the government's own fiscal affairs are precarious, with an astonishing $53 trillion in long-term liabilities, according to the Government Accountability Office."
In his book "Secrets of the Temple: How the Federal Reserve Runs the Country", leading journalist William Greider said that the economy is like a poker game. He said that it is human nature to want to get all of the chips, but noted that - if one person does get all of the chips - the game ends.
In other words, the game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone's money, the game ends.
The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed.
No wonder billionaire George Soros says that the way US Treasury Secretary Henry Paulson was handling the situation was "very reminiscent of the way the central bankers talked in the 1930s", the time of the Great Depression.And no wonder Nobel-prize winning economist Joseph Stiglitz stresses putting poker chips back in the hands of the little guy (for example, by strengthening unemployment insurance).
This is not a question of big government versus small government, or republican versus democrat. It is not even a question of Keynes versus Friedman (two influential, competing economic thinkers).
It is a question of focusing any government funding which is made to the majority of poker players - instead of the titans of finance - so that the game can continue. If the hundreds of billions or trillions spent on bailouts had instead been given to ease the burden of consumers, we would have already recovered from the financial crisis.
Monday, September 15, 2008
[AIG revealed that] auditors had questioned whether it properly valued its derivatives portfolio, raising new questions about accounting practices at one of the world's largest insurance companies.What's happening with AIG now? And what would its failure mean? A money manger explains in a New York Times op-ed:
The disclosure sent AIG shares down 11.33 percent and cast doubt on the company's previous contention that it did not face major problems stemming from the credit crisis that has slammed other financial institutions.
We "believe AIG management will have an extremely difficult time regaining investor confidence," Standard & Poor's wrote Monday in a note.
[AIG's auditor] concluded that AIG had a material weakness in its internal controls over financial reporting relating to the fair valuation of credit default swap portfolio obligations of AIG Financial Products.
S&P cut its price target on AIG shares by 38 percent to $43 and downgraded the shares to "sell" from "buy." It said the company's problems with valuing the derivatives portfolio were "very troubling" and that the lower price target - a discount to AIG's peers - was "warranted in light of these disclosures."
Note: this explanation is admittedly somewhat of an oversimplification. However, it does accurately reflect the centrality of derivatives to the economic crisis.
Late Monday, A.I.G. was downgraded by the major credit rating agencies . . . . This credit downgrade could require A.I.G. to post billions of dollars of additional collateral for its mortgage derivative contracts.
Fat chance. That’s collateral A.I.G. does not have. There is therefore a substantial possibility that A.I.G. will be unable to meet its obligations and be forced into liquidation. A side effect: Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression.
A.I.G. does business with virtually every financial institution in the world. Most important, it is a central player in the unregulated . . . credit default swap market that is reported to be at least $60 trillion in size.
If A.I.G. collapsed, its hundreds of billions of dollars of mortgage-related assets would be added to those being sold by other financial institutions. This would just depress values further. The counterparties around the world to A.I.G.’s credit default swaps may be unable to collect on their trades. As a large hedge-fund investor, A.I.G. would suddenly become a large redeemer from hedge funds, forcing fund managers to sell positions and probably driving down prices in the world’s financial markets. More failures, particularly of hedge funds, could follow.
Remember the Bush-Cheney supporters who pretended to spontaneously protest the Miami-Dade 2000 election recount, but were really high-level Republican aides and staffers?
Well, Jim Wilkinson was there:
"Jim Wilkinson, a spokesman for the Bush recount team who was present at the protest outside the Miami-Dade canvassing room, says that there was nothing orchestrated about the protest. 'There were between 80 and 100 of us' outside the room, Wilkinson said, 'and it was a very emotional group of young people. But they thought the election was being held behind closed doors.' Hence they all walked outside the canvassing room and protested -- emotionally, but spontaneously, Wilkinson said."The same Wilkinson "helped to manage the program of embedding reporters in combat units" during the Iraq War, and has been a part of numerous other Bush administration propaganda and dirty tricks efforts. He's so bad that a reporter from Texas said Wilkinson "used techniques first perfected by Stalin".
Would you give someone like Wilkinson the keys to your car? Would you give him the keys to the economy?
Well, it turns out that Wilkinson is one of the key players of the Working Group on Financial Markets (better known as the "Plunge Protection Team" or PPT).
As the Telegraph notes, the PPT has broad powers:
It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry "short" traders in the hottest of oils.Indeed, Treasury Secretary Paulson, the head of the PPT, appointed Wilkinson as his chief of staff and:
"Ordered Jim Wilkinson ... to 'oversee the creation of a Treasury Command Center to track markets world-wide and serve as an operations base in a crisis'! (Wall Street Journal)"Given that shady characters like Wilkinson are part of the PPT, I agree with journalist Danny Schetcher when he calls for a probe of the PPT by Congress and the press and writes:
In actual fact, this secret branch of government has a sophisticated war room using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn't keep minutes. There is no freedom of information access to its deliberations.
We need to know who was lobbying "the team" and in whose interests they act.
Is their goal to get taxpayers to pay off corporate failures or centralize power as former Treasury Department official Catherine Austin Fitts believes?:
"If your goal is total centralized control, this is a great way to achieve it," she argues. "Between Freddie, Fannie, Ginnie Mae, FHA, VA and the Federal Home Loan Bank Board, the federal government no longer regulates or provides credit to the residential mortgage market -- it is the market."
Before the economy goes down the toilet, as some analysts who are predicting a depression now fear, before that final flush, we need to find out how to protect ourselves from the plunge protectors.
Sunday, September 14, 2008
In an unprecedented move, the Fed and the International Swaps and Derivatives Association allowed derivatives trading today, on a Sunday, to "reduce risk associated with a potential Lehman . . . bankruptcy."
Lehman holds $ 800 billion in derivatives.As the very even-keeled and level-headed chief executive of Pimco, the world's biggest bond fund, said:
"This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today's highly disrupted financial markets, the unthinkable is thinkable."What is the "unthinkable" he's referring to?
Another great depression. Perhaps even a world-wide depression.
To see why derivatives are the key to the financial crisis in the U.S. and the world, and why the Fed allowed derivatives trading today, read this.
Update: Bloomberg today writes:
"Bond-default risk soared worldwide as the collapse of Lehman Brother Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel."
Saturday, September 13, 2008
The FBI claims that mail-sorting equipment crushed the killer anthrax in the letters to Senators Daschle and Leahy down to a fine powder.
Is that possible?
Well, the anthrax spores in the Daschle letter were 1.5 to 3 microns, according to the Washington Post (and see this).
There are 25,400 microns in an inch.
Mail-sorting equipment is generally built to handle letters at least 1/4 inch thick. Correspondingly, U.S. Postal Service guidelines allow letters to be up to 1/4 of an inch thick.
The following U.S. Postal Service chart shows the standard size and thickness of letters that can be handled by mail-sorting machines:
|Height||3-1/2 inches||6-1/8 inches|
|Length||5 inches||11-1/2 inches|
|Thickness||0.007 inch||1/4 inch|
Here is one of the U.S. Postal Service's mail sorting machines which actually processed an anthrax letter in 2001 (although not the one which processed the Leahy and Daschle letters):
What does this all mean?
1/4 of an inch equals 6,350 microns. So the FBI is trying to say that a mail-sorting machine which is designed to process letters 6,350 microns thick crushed something down to 3 microns . . . 2,116 to 4,232 times smaller than the type of envelope sorting machines are designed to handle (the smaller number is compared to 3 micron thick anthrax powder and the larger is compared to 1.5 micron powder) .
I don't know about you, but my mail isn't crushed into oblivion when I get it.
On the other hand, the LA Times hints at a more likely explanation:
"Since the early 1990s, U.S. Army scientists at Dugway Proving Ground in Utah have made small quantities of weapons-grade anthrax that is virtually identical to the powdery spores used in the bioterrorist attacks that have killed five people, government sources say."
"Dugway’s production of weapons-grade anthrax, which has never before been publicly revealed, is apparently the first by the U.S. government since President Nixon ordered the U.S. offensive biowarfare program closed in 1969. Scientists familiar with the anthrax program at Dugway described it to the Baltimore Sun on the condition that they not be named."
"Dugway’s weapons-grade anthrax has been milled to achieve a concentration similar to that sent in a letter to Senate Majority Leader Tom Daschle, according to a source. The strain found in those letters is indistinguishable from that used most often by Dugway."