Monday, September 29, 2008

Dow in record drop on U.S. bailout rejection

International Herald Tribune
Dow in record drop on U.S. bailout rejection
Tuesday, September 30, 2008

By Steven C. Johnson

The Dow industrials plunged on Monday in their biggest decline ever after U.S. lawmakers unexpectedly rejected a $700 billion (377 billion pound) financial bailout, spooking investors who fear for the future of global markets and the U.S. economy.

The Dow lost 778 points, its largest point decline in history, and posted its biggest daily percentage slide since the 1987 stock market crash. The benchmark S&P 500 also had its worst day in 21 years after the House voted down the bailout plan by a count of 228 to 205.

The failure of the bill, which would have let the Treasury buy up bad mortgage debt from struggling banks in an effort to kick-start much needed lending, was seen as crucial to shielding the economy from an even deeper slowdown.

That further unnerved investors who on Monday saw the credit crisis claim several new victims, including Wachovia Corp and a bevy of European banks.

Fear ran deep and widespread, as investors dumped stocks for the relative safety of U.S. government bonds. The Chicago Board Options Exchange Volatility Index , Wall Street's main barometer of investor fear, jumped 39 percent to 48.40, a nearly six-year high, and ended at 46.72 -- a record high.

"I am shocked. Credit markets were struggling even with the prospect this bill was going to get passed. Now the bill doesn't get passed and it just throws one more monkey wrench into the mix," said Bob Doll, global chief investment officer of equities at BlackRock Inc, one of the world's largest asset managers.

The Dow Jones industrial average sank 777.68 points, or 6.98 percent, to 10,365.45. The Standard & Poor's 500 Index dropped 106.59 points, or 8.79 percent, to 1,106.42. The Nasdaq Composite Index lost 199.61 points, or 9.14 percent, to 1,983.73.

The tech-heavy Nasdaq had its worst day since April 2000 when the Internet bubble collapsed. U.S. stock index futures were unchanged.

An index of financial services shares lost 16 percent, while Bank of America Corp fell 17.6 percent to $30.25. Goldman Sachs slid 12.5 percent to $120.70.

"This is bad in a lot of different ways," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading, in Boston. "Short-term, the market is getting crushed, but more importantly, we are telling clients we could be at the beginning of a whole new down phase. There is the potential for the S&P 500 to go all the way down to 1,000."

The bailout's demise comes after U.S. bank Wachovia was forced to sell most of its assets to Citigroup in a deal brokered by the Federal Deposit Insurance Corp.

That followed fast upon fresh signs that financial market turmoil was spreading around the world. European authorities in recent days were forced to step in and rescue a group of banks in Britain, Belgium, Germany and elsewhere.

Global money markets remained paralyzed, even as central banks, including the Federal Reserve, pumped cash into world markets in an attempt to boost liquidity.

Although there were doubts that the government's rescue package would be sufficient to shelter the economy and stem the turmoil's spread, investors said it was a necessary first step to restoring confidence in financial markets.

"We know that whatever they do won't save all the ills from an economic perspective," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia. "But to sit and maintain this sort of limbo is not good, and financial markets are reflecting that."

Technology shares also took it on the chin with Apple Inc's 18 percent slide to $105.26 leading the way after several brokerages slashed their recommendations on the tech bellwether and maker of the iPod.

Shares of Google fell 11.6 percent to $381, near a two-year low hit earlier in the day.

The bailout plan met heavy resistance from Republicans, who balked at the price tag and voted against the bill by a margin of more than 2 to 1. A majority of Democrats voted in favour.

"The problem is the American public resoundingly said 'no,'" said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "It's such a difficult, complex and unprecedented situation, and maybe the average American either doesn't understand it or accept the ramifications of what might happen if (Congress) doesn't come through."

Volume was heavy on the New York Stock Exchange, where about 2.03 billion shares changed hands, above last year's estimated daily average of roughly 1.90 billion. On Nasdaq, about 2.80 billion shares traded, well above last year's daily average of 2.17 billion.

Declining stocks trounced advancing ones on the NYSE by about 30 to 1. On the Nasdaq, decliners beat advancers by more than 6 to 1.

Friday, September 26, 2008

Ron Paul on the Banker's Bailout

Today's commentary elicited a bunch of Ron Paul sightings, including this letter that the Congressmen sent out recently to 'Dear Friends':

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

Wednesday, September 24, 2008

Corruption, Whispers & Receivership

Financial Sense

Corruption, Whispers & Receivership

by Jim Willie, CB. Editor, Hat Trick Letter | September 24, 2008


The United States has transformed itself, the most radical degraded aspects having occurred in the last eight years. Many might object or cringe at repeated mention of the Fascist Business Model implemented by the Clinton Administration, and carried to extreme by the Bush II Administration. It is a harsh departure from Beacon of Freedom. Too bad, fact of life! This merger of state and big business in the midst of a climax, the biggest display of exported financial toxin in modern history, and the disintegration of the financial structure for the nation owning the world reserve currency. The Fascist Business Model has criminal fraud & corruption as its chief characteristic, alienation & resentment as its chief foreign effect, and systemic failure & collapse as its chief outcome. Broad war often follows. How anybody could think the sharing of bank and oil executives with federal government leadership as a move toward progress on the evolution chart, that is moronic. Surely, it is about political power and corruption. The military budget is sacred, and private contractor deals are made without bids. Now five to six energy giants will hog all Iraqi oil service contracts. The terrorism topic is untouchable for dispute. A Coup d’Etat is in progress as the Wall Street conmen and fraud kings have taken implicit control of the USGovt. This will be recognized in time, even while resistance is evident. To me the ongoing drama smacks of a comedy of corruption. US citizens are in shock & awe, while foreigners are aghast in disgust.

Hidden in the bowels of the Lehman Brothers failure cleanup process was a convenient provision. The JPMorgan firm was given $138 billion to settle ‘private accounts’ in what seems like a clear case of corruption, a handout of counterfeit money, enabling JPMorgan to reload for costly credit default swap losses or for costly gold suppression games, or both. Goldman Sachs and Merrill Lynch have succeeded in converting to private banks, just in time to benefit from the trough devised to benefit banks. Is there a secondary benefit of averting legal liability for bond fraud, since now a new financial firm? These are two more egregious examples of the deep collusion in the Fascist Business Model, a theme that has reached climax proportions. The Securities & Exchange Commission, the Commodities Futures Trading Commission, the Debt Ratings Agencies, the military contractors, and professional lobbyist groups work toward rounding out the collusion pentagrams. See a list of dumbfounding factors, angles, stories, and developments at the end of this article, in outline form. The bust continues.

The final battle is underway, for USGovt bailout of practically the entire US banking and mortgage system. Its ancillary businesses like insurance are next. The Credit Default Swap segment represents nitroglycerine soon to be brought under the crippled USGovt aegis. The mega bailout plan puts Wall Street firms first in line to benefit. The plan in my view is the culmination of arrogant criminality, as its architects and promoters are the primary agents for the banking system collapse itself. Only one or two senators in Congress had the stones to confront Treasury Secy Paulson and USFed Chairman Bernanke, calling them on their extreme gall to dictate to Congress on bailout responsibility, when failures by the collection of banksters caused the problems even as their cohorts stand in line for deep financial assistance. The claims by Paulson that taxpayer protection is first and foremost is another total lie. His first priority is to funnel as much public money into Wall Street balance sheets before the grand game is shut down. Another phony call, deep lie, pure nonsense!

The desire for punishment, prosecution, and avoidance for benefits has come like a wave. We will see if its legislative delays result in months of grandstanding debate as Rome burns. In haste, the nationalization of the banking and mortgage industry might achieve legislative passage in the same manner as the Patriot Act, without reading its provisions. Pressure builds for passage without examination, with questions and objections regarded as unpatriotic. The next step is for big bold lies of assurances to be given, enough for satisfying sleepy Congressional senators and representatives, few of whom are aware of the deep fraud laced into the banking and asset base being rescued. The plan is being sold as a pre-emptive maneuver to ward off a disaster, providing necessary liquidity ahead of the likely unfolding events instead of providing funds after a bank failure. Fraud’s best friend is amplified liquidity doled out during times of emergency expedience.

One should have noticed on Tuesday that Paulson totally overshadowed a confused bewildered Bernanke, as the seasoned Wall Street conman even answered questions directed at the university rookie. Gentle Ben is totally out of his league when dealing in financial crime syndicate circles. No college courses on syndicates! Bernanke himself is shocked at how wide the ‘Too Big To Fail’ umbrella has become, this from a man who once claimed the subprime mortgage crisis would be contained and not result in any contagion. My retort was to expect total systemic bond contagion, a correct forecast. Bernanke actually is telling Congress today that he expects no inflationary impact from the banking and mortgage bailout program, a truly gigantic package with monstrous inflation implications! The estimated $700 billion bailout cost is laughable, when it will ultimately cost between $1500 and $2000 billion. The entire mega bailout package (let’s be clear) covers the entire US banking industry.

Congressman Ron Paul made a great quote after lecturing the inept misguided and naïve USFed Chairman Bernanke on the high risks of price fixing. The bailout constitutes the quintessential price fix. Ron Paul said, “Most illiquid bond assets are illiquid because they are not worth anything.” The Wall Street fraud kings want the USGovt to pay inflated values for their illiquid worthless assets that clog and obstruct the banking industry. Bernanke actually regards the payment for bank bailouts can come from other funds. He implies the Exchange Stabilization Fund can use its funds. If Plunge Protection Team funds are co-mingled, these funds might be closely connected to USGovt security agency fraud associated with gutting of Fannie Mae. That is a perverse irony! By the way, where is Greenspan, whose fingerprints are on every object being dusted by intrepid examiners. He handed over the reins to a bagholder named Ben, just another dumb university economics professor. To succeed in academic economics circles, one must embrace heresy and weave logic like pretzels.

Paulson is attempting to shove a package down Congressional throats. Bernanke looks in body language like a boy caught in a disaster as his entire neighborhood burned down despite his best (but late) efforts to call in a district full of fire trucks. He actually looks like a man who has slept little in two weeks. To be sure, the Congress has been slow to react to the mortgage and banking crisis, choosing to delay until the new presidential term in office. Congress has become a den of irrelevant men and women owing more to lobbyists than to the people. Their chief function is to apply rubber stamps to directives crafted by others, usually from an array of bankers themselves. Why even GeorgeW himself is aghast!


Events are moving toward climax. The next sequence of events can no longer be regarded as coming from traditional ‘Inside the Box’ solutions. We are way beyond that arena, now firmly in the Twilight Zone. My past forecasts have been verified for bank system collapse, housing market’s unending decline, nationalization of soon everything under the US tainted sun, and finally the New Resolution Trust Corp. The New RTC is being argued as it takes shape. It is called the Troubled Asset Relief Program (TARP). That name conjures up images of the roof tarps that are dotted across the New Orleans landscape from federal programs to repair roofs after Hurricane Katrina. After numerous subcontractor steps, the $150 per square foot allotted by the USGovt resulted in cheap flimsy tarps instead of nice shingled roofs. A better title for the mortgage relief program would be the Securitized Housing Investment Trust (SHIT), offered by an emailer to CNBC. These bond assets are not troubled assets, but rather fraudulent assets. The new finance czar Paulson has asked for a blank check with trust given, laden with low-ball cost estimates, or else the system will surely fail. Why should representatives and elders of Congress trust Wall Street executives? They deserve prosecution, indictment, prison terms, and forced restitution instead. We are witnessing financial treason. Instead, some executives like at Fannie Mae and Freddie Mac received huge severance packages, and Lehman Brothers executives were granted the same. The events are moving toward some upcoming surprises of historical magnitude. Think default and receivership, with foreign control. The massive rollover and refunding requirements from USTreasury Bonds will put monumental strain on the system, which the monetization US$ printing press cannot alone manage. Unless and until foreign creditors step in, the US financial sector will continue to operate like a crime syndicate, since regulatory bodies and law enforcement officials are all part of the coordinated congame.


Many of the overwhelming impressions from the unfolding events are to appear in the October Hat Trick Letter report. First attention must go to paid subscribers. Events is in progress in an accelerated pace, enough to take my breath away on a given day. But rain and cheery faces in Costa Rica straighten me quickly. For more evidence in backing up my claim that private brokerage accounts being open for financial parent firm claim, see the October report also. Numerous (dozens) of emails came in request. The report will show the best information on this subject, with quotes freshly hidden within the US Federal Reserve website. No need to make such stuff up, since the US financial authorities are better than fiction! By the way, if my analysis and forecasts have any advantage over others, it is because my thought process comes from always thinking like a thief. Never think the best thoughts, hope for the best of human dignity, or expect fair play to emerge when forecasting the US financial markets. Their plan seems obviously to gut the system before it fails. Then they blame foreigners. False flag attacks then seal the deal, much like cauterizing a wound with a knife made hot in a bivouac fire.

Here is an outline of topics covered in the next report, due out in the next couple weeks. The date is not set, but the messages are becoming clear. Pardon the brevity of important points, but details are difficult to describe with brievity, and are saved for the next Hat Trick Letter. The ongoing format no longer will be continued as from past issues. Every report is a report of an emergency nature. We are observing the painful steps from failure of a system, with 330 million inhabitants, and commercial tentacles the world over. The four primary features that have pushed the United States into a certain position in Third World status are these:

  1. globalization with deep Western investment in China
  2. insolvency of four pillars of federal, trade, housing, banking
  3. export of fraud with mortgage bonds, mainly to China, Europe, Russia, England
  4. military aggression and annexation with continuous deceit and propaganda.

The many points describe a system broken without remedy, inviting default and receivership. Both are in progress behind the curtains, but on foreign soil. As Mohamed El-Erian of PIMCO (formerly Harvard Univ) said recently, “The unthinkable is thinkable.” Little known to the majority of Americans, foreign disgust grows. Their desire to isolate the United States is growing, in order to protect themselves from financial collapse and further spread of fraud. The German economics experts are saying “The World Shouldn't Have to Bear the Burden for America's Lapses” in Spiegel Online (click here) in a public article.

Listen to my interview this week handled by Contrary Investors Cafe Radio (click here), where we covered several of the topics mentioned throughout this article.


Not exactly mirror images of each other, the gold price and US$ index are moving in typical opposite directions. A peak in the USDollar occurred in early September, at the same time a bottom occurred for gold. The forewarned timing of events turning sharply around in the week of September 15th happened on schedule. Once again, the short rule restriction against bank stocks helped to stem the flow that favored the euro currency rise by 330 basis points on Monday. The USDollar fundamentals have begun to resemble those of a Third World. The USGovt federal deficits are accelerating. The US trade gap has turned toward a rise again. The housing market continues to hurtle down in its price decline, that being the primary force behind the bank collapse. Now finally comes the climax. USEconomic recession is intensifying, notwithstanding absurd USGovt statistics to the contrary. The nationalization movement for Fannie Mae, Freddie Mac, AIG, not to mention the steady handouts to JPMorgan, have assured of continued heavy red ink in deficits to the USGovt federal budget. Monetization under the table to firms like JPMorgan are happening somewhat in the open, but not properly understood by the masses, trained and untrained. The endless war is a sacred cow of bottomless costs, largely to support the other syndicate, the US security agency clandestine trafficking out of Afghanistan. Foreigners watch the heightened risk having become acute. The USDollar will be sold, and gold will be bought. A COMEX delivery default in gold is in progress.


Few are thinking in nonlinear or discontinuous terms. When (not if) the USTreasurys suffer a default, totally assured in my mind, confirmed by my sources of information, the gold price will launch onward and upward in huge steps. Even without a default, the strains on the USGovt budget will result in extraordinary risk either on the USTreasury Bond yield from added supply, OR on the USDollar from cowardly requisite monetization of debt. My conjecture is the first couple fundings for USGovt bailout debt obligations will be done with normal USTreasury auctions, not to mention some off-budget games. The next fundings will be done via pure monetization. The entire nationalization will cost another $1500 to $2000 billion for banks assets and mortgages, on top of another $1000 billion for an array of US industrial and financial giants outside the banking world. The failed US firms like General Motors are already lining up. So foreigners will be expected to foot the bill??? No way! They will pull the plug, or at least diversify in a huge way out of the USDollar and US$-based bonds.


The list of breakdown items, evidence, and criminal overtones is vast.

  1. Money market funds almost caused a seizure earlier this week, which means the banking system almost went into a fatal cardiac arrest episode. The seizures spread across entire the financial system, even to brokerage funds, and extended to foreign banks. The commercial paper market was also affected. The Exchange Stabilization Fund was used, having possible currency implications.
  2. Foreign entities were blocked from participation in both the Lehman Brothers and American Intl Group (AIG) busts, partly to retain control, but also most likely to limit opportunity for foreigners to obtain data, documents, and records of extreme fraud. The Germans pursued the AIG insurance units in a natural acquisition, far more prudent than inefficient USGovt conservatorship.
  3. The USEconomy would move toward a centralized Soviet structure, not socialism, if liberties are curtailed further, especially if martial law is imposed. Rationing is a very real prospect. Watch freedom of speech, assembly, and more.
  4. The nationalization of Fannie Mae puts the $1500 billion documented fraud since 1988 on the national tab. The New Jersey burnout home selling for $230k in a Fannie loan, the micro example, has played out on a national aggregate scale. The subprime mortgage movement used to be the visible portion of the mortgage crisis. The Fannie Mae gigantic fraud has been covered by the greater mortgage crisis, perhaps in a wildly successful multi-year project. Thanks to the intrepid Aaron Krowne of for his shared ideas.
  5. Final banking & mortgage system bailout by the USGovt might not occur until issues are addressed regarding prosecution, confessions, resignations, state’s evidence, and eventually restitution. The concept of RICO law enforcement against Wall Street would be both unprecedented and empty, since most assets have been gutted. No, on second thought, despite objections, the Congress will pass the bailout bill without reading it.
  6. The move to halt home foreclosures is a typical stupid Congressional idea, which might result in civil disobedience and scoffing at mortgage payment on a broad scale. Worse, almost all cost estimates are wrong by a factor of 10x from reasonable forecasts. The pattern is to establish the plan, and deal with cost overruns later. Foreigners are still expected to pay the bills for American deficits anyway.
  7. Watch the Lehman Brothers liquidation process, kept hidden. The dead are still trying to marry the dead in farcical ceremonies. The bond cemetery within the New RTC was crafted when it become clear the Lehman liquidation would kill all of Wall Street. Don’t expect any consummation of such necro-marriages to bear offspring. They will not make love with each, but rather EAT EACH OTHER.
  8. Wall Street firms are now almost all aligned in similar fashion. If one fails, they all suffer the same risk from similar balance sheet of assets. Marking down one firm’s asset in liquidation would result in the failure of all of them. Any USGovt bank bailout has an unintended consequence of instant markdowns in market value of assets held widely throughout Wall Street and bank industry balance sheets. These banks have resisted writedowns in honest accounting, as only a small handful of financial firms have taken losses in earnest.
  9. Any New Resolution Trust Corp for mortgage bailout rescues (a correct big forecast) would ostensibly be managed by the same Wall Street villains who are implicated in massive trillion$ fraud. Expect one in three dollars to be stolen by further fraud, just like the Hurricane Katrina relief efforts. To question their fraud in unpatriotic.
  10. Private brokerage stock accounts can now be borrowed by financial firms, evidence produced in Federal Reserve documents. A gigantic final heist might be in the works, requiring a massive event that provides the cover of confusion like a World Trade Center attack. The Glass-Steagall Act was not repealed without a reason and plan! Its removal enables co-mingling of bank, brokerage, and insurance assets.
  11. A pattern seems evident among failing Wall Street firms. It seems Wall Street firms without extensive stock brokerage accounts are permitted to fail first, leaving private accounts vulnerable. It seems Wall Street firms with big foreign equity ownership are set to fail last, leaving foreigners outside the loop.
  12. The bank short rule restriction once more has been brought back. That emergency measure is as corrupt as possible, a horrible black eye to a nation that claims to be the home of free markets. The re-enacted rule has helped support the USDollar.
  13. Tremendous strong high pressure zones are building on monetary inflation, while tremendous strong low pressure zones are building on asset price decline. The combination will surely make for some of the greatest financial storms in modern history, some already witnessed, and more sure to come.
  14. Much talk has come of continuing independence of US financial firms, when they are beset by insolvency and worsening liquidity problems. The same applies to the USGovt, whose liquidity flow depends upon foreign credit supply. They have been defrauded, treated with hostility in trade and currency management issues, and in the case of Russia, subjected to military aggression and NATO treaty violation.
  15. The totality of events has placed enormous concentrated risk on the USDollar, and consequently on the USTreasury Bond. Expect sharp decline in the US$ and default of the USTBond. Both fraud and nationalization has amplified the pressures.
  16. The Global Energy War has opened a new front in the Global Capital War. Aggressive US actions to secure energy supply have endangered its capital supply. The backlash is not even on the American radar systems, as arrogance prevails. In high commerce and banking circles, the US is being isolated. Many European firms do not return phone calls to US bankers, on orders. An analogy of ‘glow candles for diesel engines’ has been stated for upcoming response to US bankers.
  17. Reports have come from a London source that gold futures contracts are being settled in cash only at the COMEX, rather than with physical gold metal. That leaves would-be buyers without the metal they wish to take on delivery under contract. IS THAT NOT A DEFAULT?
  18. The Hurricanes Gustav & Ike have hit the Southeast region hard, resulting in gasoline rationing. This trend might soon extend nationwide, and broaden to include more items. Hits to AIG and other insurance firms come at a bad time.

A solution comes from foreign creditors that does not require Congressional approval or vote, constituting an event to pull the rug from under the Americans. The avenue will be via bank channels. A receivership committee is being formed. More details are a main feature of the October HTL report. The accumulative debt held by US and foreign entities is so grand, that every single day interest of almost $1 billion is owed to them on a daily basis for the USGovt Treasury and Agency mortgage bonds. If the USGovt were to shut down all operations and provision of services, including military, the USGovt might achieve a balanced budget. It could balance its budget from tax revenue against just the interest expense on debt, with no other official function whatsoever. An interesting concept. Maybe that is part of the next Receivership Committee plan.

Tuesday, September 23, 2008

And the Band Played On

And the Band Played On

To say that events that unfolded in the world’s financial markets last week were ‘unprecedented’ is perhaps a little too cliché. So let us revisit some of the key events which reportedly unfolded in the wake of Lehman’s demise – a fate that was sealed last weekend [Sept. 13 / 14] when last attempts to rescue the storied U.S. Investment Bank hit-the-rocks [or ice, perhaps?].

Lehman’s Demise Was Most Assuredly All-About J.P. Morgan

First off, I found it perversely odd that there were allegedly serious suitors who got to take a peak at the state of Lehman’s finances. Institutions rumored to be involved were Korea Exchange Bank, Barclays and B of A. What stuck in my craw was the widely publicized revelation that,

The Lehman rescue failed because the US government was unwilling to issue guarantees to the potential purchasers.

Ladies and gentlemen, are we to believe that the U.S. Fed and Treasury preferred to shoulder, as it turns out, the bailout of the whole global financial system rather than provide some comfort for a would-be purchaser of Lehman?

This makes absolutely zero sense. But the following does:

Late last week, I wrote about a very strange occurrence – the reporting of J.P. Morgan “transferring” 138 billion dollars to Lehman, after Lehman had already filed for Chapter 11 bankruptcy early last Monday morning.

This bears repeating.

The advance was reportedly “to allow” Lehman to settle securities trades with clients. J.P. Morgan was then immediately reimbursed by the Federal Reserve for the same 138 billion.

What was not originally reported, or likely not understood at the time due to the types of securities that Lehman did most of their business in [Credit Derivatives], it is a virtual certainty that J.P. Morgan [the largest derivatives player in the world with 8.1 Trillion in Credit Derivatives alone] was the “client” [the other side of the Lehman trades that needed to be settled].

The critical piece of information that completes the daisy-chain: The world only learned about J.P. Morgan’s 138 billion advance from a bankruptcy court document, where Lehman was asking the court for the authority to give the settlement of claims of J.P. Morgan “special status.”

Here’s how this flow-of-funds looks visually:


It is highly likely [or a certainty on my planet] that J.P. Morgan was INSOLVENT and was “BAILED OUT” last Monday, September 15, to the tune of 138 billion dollars. This would explain why the Fed and Treasury dictated that Lehman fail – to disguise or otherwise obfuscate the recapitalization of or illicit transfer of 138 billion to A MUCH SICKER, TEETERING ENTITY, J.P. Morgan Chase.

This makes sense. Investment banks are dropping like flies, owing to their involvement in credit derivatives – this is a fact.

J. P. Morgan is – HANDS DOWN – the largest derivatives player in the world with a book of 90 Trillion in notional value on March 31, 2008 – with 9% of the book composed of Credit Derivatives. That amounts to a cool 8.1 Trillion worth of Credit Derivatives. We know this from the Office of the Comptroller of the Currency’s Quarterly Derivatives Report – pg. 24.

As to “how” J.P. Morgan could be insolvent without a public declaration, I remind you of something mentioned in this space on several occasions; it was Dawn Kopecki that reported in BusinessWeek Online, back in 2006, in a piece titled, Intelligence Czar Can Waive SEC Rules,

“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. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”

In this space over the past 4 years, much has been reported concerning charges of interference [by the Federal Reserve and Government] in what are allegedly “free markets.” Officialdom, along with their agents in the controlled mainstream media, has long dismissed these claims as the work conspiracy minded kooks. Then, just last week, the Chicago Tribune published an article – citing a private meeting that economist David Hale had with Fed Chairman Ben Bernanke,

NAPLES, Fla. — Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.

The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.

"Ben, you are playing a very unique role in world economic history," Hale recalled telling Bernanke, an expert in the Great Depression. "You are the first central bank governor of the United States to preside over a recession with no decline in commodity prices."

Bernanke could hypothetically limit inflation in commodities by raising interest rates, a policy that would restrict the flow of money but potentially lead to an avalanche of bank failures. At a financial conference in Florida on Tuesday, Hale, a Chicago-based economist for investment managers, hedge funds and multinational companies, paraphrased the Fed chairman's response.

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."…

Where I come from, when one “loses control” of things – it implicitly means that they previously HAD control of the same.

Ergo; this amounts to confirmation – from Ben Bernanke himself – the Fed and / or Treasury HAS BEEN preoccupied with and actively involved in price suppression in the commodity complex.

Make no mistake, these vain attempts to “rig” or control the global markets alluded to above are primarily responsible to the distortions and dislocations which have destabilized our current global financial order.

To help drive this point home, consider how the Washington Post reported the tone of deliberations between monetary officials on Capitol Hill on Thursday night – Sept. 18th,

Congressional leaders gave bipartisan support to the administration's efforts after a meeting last night with Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke

Paulson and Bernanke presented a "chilling" picture of the state of the financial system, according to a participant in the meeting who spoke on condition of anonymity. Lawmakers were told that the consequences would be grave if they failed to pass legislation by the end of next week. Sen. Harry Reid (D-Nev.) and Rep. Nancy Pelosi (D-Calif.) committed to meeting that deadline.

So it really should come as no surprise that, as the text of Messer’s Paulson and Bernake’s latest “bailout plan” emerged this past weekend, it included such “ripe” stanzas as,

"Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."


“Treasury's actions may also not be reviewed by any court of law or any administrative agency.”

It would now appear that we’ve come full-circle; the duopoly of the Fed / Treasury who have led us into the abyss are now being granted a blank check with no recourse available to anyone. The money changers are now writing their own laws, so it’s all going to be legal [or tolerated, perhaps?] too – at least for now – in America.

Given that the fiat U.S. Dollar is the world’s reserve currency, the flagship brand of the global Central Banking Cabal, it is now likely that real “undisclosed” struggle we are all really facing is, perhaps, the global collapse of fiat currency.

Goldman Sachs and Morgan Stanley have been granted banking charters and drinks will be served promptly on the stern of the Titanic.

Monday, September 22, 2008

Even Gingrich Knows Better

Gingrich On Why Bailout Plan Is 'Just Wrong'

Listen Now [5 min 4 sec] add to playlist

Former House Speaker Newt Gingrich
J. Scott Applewhite/AP

Former House Speaker Newt Gingrich, pictured here in January 2008, calls the $700 billion bailout a "very, very bad idea."

All Things Considered, September 22, 2008 · One prominent conservative urging Congress to step hard on the brakes in the $700 billion bailout plan is Newt Gingrich, the former speaker of the House of Representatives.

In Sunday's National Review online, Gingrich writes: "Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess."

In a conversation with NPR's Melissa Block, Gingrich says he thinks the bailout plan is "just wrong," and that "it's likely to fail, and it's likely to make the situation worse over time." A transcript of their conversation follows.

This $700 billion bailout plan, this potential 20-year mess that you're talking about, comes from a Republican administration, comes from your own party. What's happened to Republican faith in small government and free markets?

Well, I think you have a Goldman Sachs chief of staff to the president and the Goldman Sachs secretary of the Treasury. And they convinced the president that the American people ought to send $700 billion to Wall Street, which I think is a very, very bad idea, and I would argue is a very un-Republican idea. I don't understand what they think they're doing.

I think that it's likely to fail, and it's likely to make the situation worse over time. And I think that [U.S. Treasury] Secretary [Henry] Paulson has shown almost no understanding of how a democracy operates. His initial draft would have given him $700 billion of your tax money with no oversight, no judicial review, no accountability. I mean, we're not a dictatorship.

Well, the last time we were promised they were going to save us, it was $300 billion; it was a housing bill. Now we have brand-new liberal Democrats, many of whom — for example [Connecticut Sen.] Chris Dodd — was the largest single recipient of money from Fannie Mae and Freddie Mac, and he is the chairman of the Banking Committee. So the guy who got the most money is now going to write a bill to give taxpayers' money to the people who gave him money. Somehow, I am not reassured.

I don't think the taxpayers should be socked for $700 billion for welfare for Wall Street. I think it's fundamentally wrong, and I think that it is very likely to create a bureaucratic control of our financial system in a way that will cripple us for 20 years.

Secretary Paulson has been consistently wrong for a year-and-a-half. He told us for a year-and-a-half this wasn't a dire crisis; this wasn't going to happen. So the very people who told us for a long time not to worry about it are — I know they're panicked. Whether that means that we should be panicked, I'm not sure. And I think the purpose of the Congress, the purpose of the House and Senate, is to be a check and balance on the executive branch, not to automatically write blank checks.

if I'm wrong, then we're going to have a significant problem. And if I'm right, we're going to have a bigger problem. So I think part of the question is, why can't this be done out in an open debate, have an openly marked-up bill, have the American people know what's being asked of them?

I was just reading an analysis by a very sophisticated person who said that there's been at least one leak from a congressional staff briefing by Secretary Paulson, in which he clearly indicated he intended to buy assets at above their market value. And that — why should the taxpayer do that? I mean, why are we not saying, 'We'll provide enough capital to avoid collapse, but we're not going to provide enough capital to guarantee the profits of Wall Street people' — who, after all, last year, at Goldman Sachs alone had three people each earning $73 million a year. Now, why should we bail them out?

What are you saying the incentive would be for, say, Secretary Paulson or Ben Bernanke to be rushing something through if it weren't urgently needed? What would their motivation be for that?

A couple of things — first of all, they're probably genuinely panicked. And I think that's real. I think they're tired; I think they've been consistently wrong, and now they're looking at a precipice that's very frightening. I think, second, that they have a very Wall Street-centric view of the world. And I think that rather than saying, 'What are the big, profound changes we need to fix America?,' they are saying, 'What are the immediate quick fixes for Wall Street?' — which I think, in the long run, just makes us weaker and sicker.

I think, third, they know that if they don't rush it through, it has no hope, because as the American people learn the details, they're just going to scream at their House and Senate members.

Turn out the lights...

The Party's Over

By Patrick J. Buchanan

19/09/08 "
CS" -- - The Crash of 2008, which is now wiping out trillions of dollars of our people's wealth, is, like the Crash of 1929, likely to mark the end of one era and the onset of another.

The new era will see a more sober and much diminished America. The "Omnipower" and "Indispensable Nation" we heard about in all the hubris and braggadocio following our Cold War victory is history.

Seizing on the crisis, the left says we are witnessing the failure of market economics, a failure of conservatism.

This is nonsense. What we are witnessing is the collapse of Gordon Gecko ("Greed Is Good!") capitalism. What we are witnessing is what happens to a prodigal nation that ignores history, and forgets and abandons the philosophy and principles that made it great.

A true conservative cherishes prudence and believes in fiscal responsibility, balanced budgets and a self-reliant republic. He believes in saving for retirement and a rainy day, in deferred gratification, in not buying on credit what you cannot afford, in living within your means.

Is that really what got Wall Street and us into this mess — that we followed too religiously the gospel of Robert Taft and Russell Kirk?

"Government must save us!" cries the left, as ever. Yet, who got us into this mess if not the government — the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?

For years, we Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt — all are at record levels. And with pensions and savings being wiped out, much of that debt will never be repaid.

Our standard of living is inevitably going to fall. For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.

We are going to have to learn to live again without our means.

The party's over

Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.

But this generation decided that was yesterday's bromide and we must march bravely forward into a Global Economy, where we all depend on one another. American companies morphed into "global companies" and moved plants and factories to Mexico, Asia, China and India, and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers.

As the trade deficits began inexorably to rise to 6 percent of GDP, we began vast borrowing from abroad to continue buying from abroad.

At home, propelled by tax cuts, war in Iraq and an explosion in social spending, surpluses vanished and deficits reappeared and began to rise. The dollar began to sink, and gold began to soar.

Yet, still, the promises of the politicians come. Barack Obama will give us national health insurance and tax cuts for all but that 2 percent of the nation that already carries 50 percent of the federal income tax load.

John McCain is going to cut taxes, expand the military, move NATO into Georgia and Ukraine, confront Russia and force Iran to stop enriching uranium or "bomb, bomb, bomb," with Joe Lieberman as wartime consigliere.

Who are we kidding?

What we are witnessing today is how empires end.

The Last Superpower is unable to defend its borders, protect its currency, win its wars or balance its budget. Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.

What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.

Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

Sunday, September 21, 2008

The Bi-Partisan Origins of the Financial Crisis

The Bi-Partisan Origins of the Financial Crisis

Shattering the Glass-Steagall Act


If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.

The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."

The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.

But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.

This disgraceful bow to the banking industry, eagerly signed into law by Bill Clinton in 1999, bears a major share of responsibility for the current banking crisis. Here's the complete roll call of shame:

REPUBLICANS FOR (52): Abraham, Allard, Ashcroft, Bennett, Brownback, Bond, Bunning, Burns, Campbell, Chafee, Cochran, Collins, Coverdell, Craig, Crapo, DeWine, Domenici, Enzi, Frist, Gorton, Gramm (Tex.), Grams (Minn.), Grassley, Gregg, Hegel, Hatch, Helms, Hutchinson (Ark.), Hutchison (Tex.), Inhofe, Jeffords, Kyl, Lott, Lugar, Mack, McConnell, Murkowski, Nickles, Roberts, Roth, Santorum, Sessions, Smith (N.H.), Smith (Ore.), Snowe, Specter, Stevens, Thomas, Thompson, Thurmond, Voinovich and Warner. DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.


DEMOCRATS AGAINST(7): Boxer, Bryan, Dorgan, Feingold, Harkin, Mikulski and Wellstone.

NOT VOTING: 2 REPUBLICANS (2): Fitzgerald (voted present) and McCain.

The House Democrats were no less enthusiastic in their endorsement of this invitation to plunder--the repeal passed there by a margin of 343-86, with the Donkey Party favoring the measure by a two-to-one margin, 138-69. Current House speaker Nancy Pelosi managed not to register a vote on this one, so great was her fear of offending her party's corporate paymasters even though she knew passage was a sure thing.

According to Wikipedia, many economists "have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before using loopholes in Glass-Steagall that allowed for temporary exemptions. With lobbying led by Roger Levy, the 'finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, ' according to the Center for Responsive Politics. ' These industries succeeded in their two decades long effort to repeal the act. ' "

This lust for banking largesse is as wanton among Democrats as Republicans--right up to the current presidential campaign. According to the Phoenix Business Journal,

Obama and McCain . . . have accepted a substantial amount of campaign money from Wall Street bankers, investment and securities firms and their executives during this election cycle.

Investment firms have donated $9.9 million to Obama and $6.9 million to McCain this campaign thus far, according to the Center for Responsive Politics. Commercial banks have given Obama $2.1 million and McCain $1.9 million. Private equity firms and hedge funds have given Obama $2 million and McCain $1.4 million, according to CFRP.

Lehman Brothers, Goldman Sachs, JP Morgan Chase & Co., UBS and heavyweight law firm DLA Piper are among Obama's top contributors. JP Morgan acquired Bear Stearns with the federal government taking on as much as $30 billion Bear assets as part of the deal. McCain's top donor sources include Merrill Lynch, Goldman Sachs, Citigroup and Blank Rome and Greenberg Traurig LLP law firms.

So . . . the next time a mass-media-lulled Democrat ridicules Ralph Nader for arguing that there are few significant differences between the two major parties on the truly important issues, you might refer them to this atrocity, along with all the other ones.

Saturday, September 20, 2008


*** “Is the United States no longer the global beacon of unfettered, free-market capitalism?” asks the International Herald Tribune .

“We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have imagined itself doing in its wildest dreams,” says Ron Chernow, a leading American financial historian.

Where has he been? Where have they all been? They might as well be a spider watching a couple make love; he sees the action but has no idea what is going on.

The Bush Administration has been the most liberal administration since Franklin Roosevelt. It has added more debt, more restrictions, more jackass programs, wars, spending, humbugs and bamboozles than any U.S. government in half a century. The one thing it hasn’t done is raise taxes to increase federal revenues; thank God. But it spent the money anyway!

Not that we’re complaining. Far from it. We’ve enjoyed the show.

Besides, our role here at The Daily Reckoning headquarters is not to gripe and moan...but merely to try to understand. How is it possible for a “conservative” government to nationalize the insurance business? What comes into the heads of “conservative” leaders that makes them want to spend a half trillion they don’t have bailing out investors? Why would any U.S. official with his wits about him want to raise the possibility of war with Russia...over Georgia? Maybe Atlanta would be worth defending...and even there we have our doubts. But Tbilisi?

How does it work? How do people come to think such things? We don’t know, but we have a theory:

People come to think what they must think when they must think it.

In other words, history follows certain patterns. Not predictable. Not exact. But broadly reflecting the inherent blockheadedness of the race...and generally in line with historical precedents.

America is in a period of imperial decline. Its economy is slipping. It citizens are getting poorer, both absolutely...and relative to the rest of the world. The “smart” thing to do would be to hunker down, cut costs, bring troops home, reduce Medicare and Medicaid, raise interest rates, encourage saving and give the country time to get back on its feet it could enjoy its relative decline with good grace.

But that’s not the way history works. Did Alexander stop at the Hellespont? Did Napoleon stop at the Rhine? Did Hitler stop at the Oder? George Bush I stopped at the border of Iraq. But George W. Bush, under the sway of the neocons, kept going. His mission: to destroy the U.S. empire.

No, of course...he doesn’t know that’s his mission. He’s an agent of change...a useful idiot, as Lenin would have said...a stooge...willing to do what isn’t so smart, but what helps the course of history along to its end.

And now, we have a financial crisis. Does the government respond like Andrew Mellon in the ’20s? “Liquidate labor...liquidate the banks...liquidate the farmer...” said Mellon, willing to let the chips fall where they may. No. That would be smart. Get it over with. Move on. But because the U.S. economy is in a long-term decline, moving on is the last thing people want. In the ’20s, the United States could let chips fall...because it had a growing, dynamic economy. Other chips would rise up quickly. But now it must try to keep the chips from falling...because it is mature...aging...decaying. It wants to hold keep things avoid change.

That’s why socialism is so attractive to offers the illusion of safety and stability.

Friday, September 19, 2008

Goodnight Irene

09/18/2008 12:44 PM


'The World As We Know It Is Going Down'

By Marc Pitzke in New York

Panic is the word of the hour on Wall Street. Now even Morgan Stanley is fighting for survival. The commercial bank Wachovia and China's Bank Citic are being discussed as possible rescuers. The crisis has led President Bush to cancel a trip.

For traders, now might just be the worst of times.

For traders, now might just be the worst of times.

The original plan actually called for humor. On Wednesday evening, actress Christy Carlson Romano was supposed to ring the closing bell on the floor of the New York Stock Exchange (NYSE) to mark her debut in the Broadway musical "Avenue Q." She plays two roles on stage -- a romantic kindergarten assistant, and a slutty nightclub singer.

After that day on the floor, the stock traders could have used a bit of comic relief. But it was not to be. Instead of Christy Carlson Romano, a NYSE employee in a joyless gray suit stood on the balcony and silently pressed a button. The bell rang and he disappeared. No waving, no clapping, none of the usual jubilation.

By the end of Wednesday, no one here was in the mood for laughter. The bad news on Wall Street was coming thick and fast. All the US indexes were crashing again after Tuesday's brief and deceptive breather. In its wild, rollercoaster ride, the Dow Jones lost about 450 points, which was almost as much as it lost on Monday, the most catastrophic day on US markets since 2001.

Investors were turning their back to the market in droves and fleeing to safer pastures. The price of gold broke its record for the highest increase in a one-day period.

Panic Is the Word of the Hour

Traders abandoned the NYSE temple visually defeated and immune to the TV crews waiting. The disastrous closing prices were flickering on the ticker above the NYSE entrance: American Express -8.4 percent; Citigroup -10.9 percent; JPMorgan Chase -12.2 percent. American icons, abused like stray dogs. Even Apple took a hit.

"I don't know what else to say," stammered one broker, who was consoling himself with white wine and beer along with some colleagues at an outdoor bar called Beckett's. Ties and jackets were off, but despite the evening breeze, you could still make out the thin film of sweat on his forehead. His words captured the speechlessness of an industry.

Things got worse after the markets closed. Washington Mutual, America's fourth-largest bank, announced that it had started the process of putting itself up for sale. The Wall Street Journal reported that both Wells Fargo and the banking giant Citigroup were interested in taking over the battered American savings bank.

And then came the announcement that would dominate all of Thursday's market activities: Morgan Stanley -- the venerable Wall Street institution and one of the last two US investment banks left standing -- had lost massive amounts and was fighting for survival. Media reports were saying that it was even in talks about a possible bail-out or merger. Rumor had it that possible suitors might include Wachovia or China's Bank Citic.


"Folks," economist Larry Kudlow, a host on the business channel CNBC begged his viewers that evening, "don't give up on this great country!"

End of an Era

In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that's changing. Bear Stearns, Lehman Brothers, Merrill Lynch -- overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and -- at least in Morgan Stanley's case -- have prepared themselves for the end.

"Nothing will be like it was before," said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. "The world as we know it is going down."

Many are drawing comparisons with the Great Depression, the national trauma that has been the benchmark for everything since. "I think it has the chance to be the worst period of time since 1929," financing legend Donald Trump told CNN. And the Wall Street Journal seconds that opinion, giving one story the title: "Worst Crisis Since '30s, With No End Yet in Sight."

But what's really happening? Experts have so far been unable to agree on any conclusions. Is this the beginning of the end? Or is it just a painful, but normal cycle correcting the excesses of recent years? Does responsibility lie with the ratings agencies, which have been overvaluing financial institutions for a long time? Or did dubious short sellers manipulate stock prices -- after all, they were suspected of having caused the last stock market crisis in July.

The only thing that is certain is that the era of the unbridled free-market economy in the US has passed -- at least for now. The near nationalization of AIG, America's largest insurance company, with an $85 billion cash infusion -- a bill footed by taxpayers -- was a staggering move. The sum is three times as high as the guarantee provided by the Federal Reserve when Bear Stearns was sold to JPMorgan Chase in March.

The most breathtaking aspect about this week's crisis, though, is that the life raft -- which Washington had only previously used to bail out the mortgage giants Fannie Mae and Freddie Mac -- is being handed out by a government whose party usually fights against any form of government intervention. The policy is anchored in its party platform.

"I fear the government has passed the point of no return," financial historian Ron Chernow told the New York Times. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."

Bush Cancels Trip

The situation appears to be so serious that George W. Bush cancelled two domestic trips he had planned for Thursday on short notice. Instead, the president will remain in Washington to discuss the "serious challenges confronting US financial markets." He said the president remained focused on "taking action to stabilize and strengthen the markets." Bush had originally planned to travel to events in Florida and Alabama.

So far, the US presidential candidates have made few helpful remarks about the crisis other than the usual slogans. Both are vaguely calling for "regulation" and "reform" -- bland catchphrases almost universally welcomed with applause.

Republican Party presidential candidate John McCain had the most to say. On Monday, he said "the foundation of our economy" was "strong," adding that he opposed a government-led bailout of US insurer AIG. But now he's promising further government steps "to prevent the kind of wild speculation that can put our markets at risk." McCain's explanation for the current crisis: "unbridled corruption and greed."

But Democratic presidential hopeful Barack Obama didn't move past superficialities, either. "We're Americans. We've met tough challenges before and we can again."

What else are they supposed to say? After all, US presidents have very little influence on stockmarkets. And Wall Street is expecting the status quo for the next president. On Wednesday an almost palpable mix of tension and melancholy filled the air above New York's Financial District. The beloved trader bar Bull Run was half empty, and many tables were free at fine-dining establishments like Cipriani, Mangia and Bobby Van's, which are normally booked days in advance.

At the side entrance to Goldman Sachs on Pearl Street, limo chauffeurs sat waiting for their customers, still above in their office towers cowering over the accounts. "If they go under," said Rashid Amal, who works as a chauffeur for a firm called Excelsior, "then I will soon be out of a job, too."

Sunday, September 14, 2008

Atlas Keeps on Shrugging

SoCal train wreck toll rises to 17, with 135 hurt

LOS ANGELES (AP) — Emergency crews found more victims early Saturday in the mangled wreckage of a commuter train that smashed head-on into a freight train, raising the death toll to 17 in the deadliest U.S. passenger train accident in 15 years.

Distraught relatives and friends of passengers awaited word on their loved ones as rescue workers delicately dismantled a crushed Metrolink passenger car in search of victims.

The search was expected to last into Sunday.

"Clearly the injuries are going to mount and so are the fatalities," Mayor Antonio Villaraigosa said.

The cause of the Friday afternoon collision in suburban Chatsworth had not been determined.

A total of 135 people were injured with at least 82 taken to hospitals, many in serious or critical condition, fire officials said.

Worried relatives and friends gathered at nearby Chatsworth High School to wait for news, and the hallways occasionally erupted with sobbing as some learned that loved ones had died.

Debra Nieves was concerned about her sister, Donna Remata, 49, who worked in downtown Los Angeles.

"That was her train and she's not home," said Nieves, 41, of Long Beach. "But until I find out for sure that they found her, I'm not going to leave."

The impact rammed the Metrolink engine backward into a passenger car, which rested on its side with the engine still inside it early Saturday, and accordioned the freight train cars. Two other Metrolink cars remained upright. Crews had to put out a fire under part of the train.

During the night, the teams used hydraulic jacks to keep the passenger car from falling over and other specialized rescue equipment to gently tear apart the metal.

Bulldozers were used to raise the commuter train's engine and timbers were slid beneath it as firefighters worked to free a body pinned under the engine.

Fire Capt. Steve Ruda said the goal was to eliminate every piece of metal and gradually work into the passenger spaces of the double-decker rail car.

"There's human beings in there and it's going to be painstaking to get them out," Ruda said. "They'll have to surgically remove them."

His firefighters had never seen such carnage, he said.

"It's the worst feeling in the world because you know what you're going to find," said fire Capt. Alex Arriola, who had crawled into the bottom of the smashed passenger car. "You have to put aside the fact that it's someone's husband, daughter or friend."

Officials said there were 222 people on the Metrolink train and three Union Pacific employees aboard the freight train.

Asked how the two trains ended up on the same track, Steven Kulm, a spokesman for the Federal Railroad Administration: "We are nowhere near having any information on that."

Kulm said the federal investigation will be headed by the National Transportation Safety Board, while his agency will conduct a review of whether any federal rail safety regulations were violated.

Union Pacific spokeswoman Zoe Richmond said it is common in California for freight and commuter trains to use one track.

"You see it a lot in California where commuter trains share tracks with freight trains," Richmond said, adding she couldn't speculate about the cause of the crash.

Leslie Burnstein saw the crash from her home and heard screams of agony as she ran through a haze of smoke toward the wreckage. She pulled victims out one by one.

"It was horrendous," said Burnstein, a psychologist. "Blood was everywhere. ... I heard people yelling, screaming in pain, begging for help."

Metrolink spokeswoman Denise Tyrrell said the Metrolink train left Union Station in downtown Los Angeles and was headed northwest to Moorpark in Ventura County. The trains collided at about 4:30 p.m. in the Chatsworth area of the San Fernando Valley, near a 500-foot-long tunnel underneath Stoney Point Park.

On the north side of the tunnel, there is a siding, a length of track where one train can wait for another to pass, Tyrrell said.

"I do not know what caused the wreck," said Tyrrell who broke down crying and was shaking. "Obviously two trains are not supposed to be on the same track at the same time."

Until Friday, the worst disaster in Metrolink's history occurred on Jan. 26, 2005, in suburban Glendale when a man parked a gasoline-soaked SUV on railroad tracks. A Metrolink train struck the SUV and derailed, striking another Metrolink train traveling the other way, killing 11 people and injuring about 180 others. Juan Alvarez was convicted this year of murder for causing the crash.

That was the worst U.S. rail tragedy since March 15, 1999, when an Amtrak train hit a truck and derailed near Bourbonnais, Ill., killing 11 people and injuring more than 100.

The Sunset Limited was involved in the worst accident in Amtrak's 28-year history. On Sept. 22, 1993, 42 passengers and five crew members died when the train plunged off a trestle into a bayou near Mobile, Ala. The trestle had been damaged minutes earlier by a towboat.

Friday, September 12, 2008

One Flew Over the Cuckoo's nest an interview with Sarah Palin

Alaska Gov. Sarah Palin, emerging from media silence for her first serious interview as the GOP vice presidential pick, said today that the United States might have to go to war if Russia were to invade Georgia again.

And on the seventh anniversary of the Sept. 11 attacks, she appeared entirely unfamiliar with the Bush Doctrine, the central foreign policy tenet of the current administration, which asserts the right to wage preventative strikes in the wake of such terrorist attacks.

Palin made her statements during an interview with ABC "World News" anchor Charlie Gibson in which she was pressed on her foreign policy credentials and knowledge. Additional Gisbon interviews with Palin will be broadcast today on ABC.

Palin said she favors admitting Georgia and Ukraine to NATO. Asked if the United States would have to go to war if Russian again invaded Georgia when it was a NATO member, Palin said, "Perhaps so. I mean, that is the agreement when you are a NATO ally, is if another country is attacked, you're going to be expected to be called upon and help."

"And we've got to keep an eye on Russia. For Russia to have exerted such pressure in terms of invading a smaller democratic country, unprovoked, is unacceptable," she told Gibson. Russia invaded Georgia after the ex-Soviet republic invaded the separitist region of South Ossetia.

Palin said she had insights into U.S. relations with Russia because "they're our next-door neighbors, and you can actually see Russia from land here in Alaska ... from an island in Alaska."

During the interview, in Fairbanks, Alaska, Palin acknowledged that she had never met a leader of a foreign country and that she had visited only Canada and Mexico before a trip to Kuwait and Germany to visit U.S. troops last year.

"But, Charlie, again, we've got to remember what the desire is in this nation at this time. It is for no more politics as usual, and somebody's big fat resume that shows decades and decades in that Washington establishment, where, yes, they've had opportunities to meet heads of state."

But she insisted she was ready to be Sen. John McCain's vice president - and, if necessary, president of the United States.

"I answered (McCain) 'yes' because I have the confidence in that readiness and knowing that you can't blink, you have to be wired in a way of being so committed to the mission, the mission that we're on, reform of this country and victory in the war, you can't blink," she said.

Throughout the interview, Palin appeared prepared, though she stuck to carefully constructed talking points. In one segment, asked to explain what the country should do if Israel struck Iranian nuclear facilities, she repeated three times that the United States cannot "second-guess" what Israel must do to defend itself.

But she seemed off balance when asked about the Bush Doctrine - which includes preventive war, spreading democracy to eliminate terrorism and brandishing power to force other countries into line.

Asked if she agreed with the Bush Doctorine, she asked, "In what respect, Charlie?"

Said Gibson: "What do you interpret it to be?"

Palin: "His world view."

Gibson: "No, the Bush Doctrine, enunciated September 2002, before the Iraq War."

Palin answered that she believed the president "has attempted ... to rid this world of Islamic extremisms, terrorists who are hell-bent on destroying our nation."

After Gibson informed her of the doctrine's definition of "anticipatory self-defense" against any country that might attack the United States, she replied: "If there is legitimate and enough intelligence that tells us that a strike is imminent against American people, we have every right to defend our country. In fact, the president has the obligation, the duty to defend."

Asked if that meant a right to go to conduct across-border attacks without the approval of the Pakistani government, Palin said, "We have got to have all options out here on the table."

Palin - who has spoken in her church about U.S. troops being "on a task that is from God," was asked if she believed the United States is fighting a "holy war."

She deflected the question and said she was merely quoting Abraham Lincoln, adding, "I would never presume to know God's will."

The interview was broadcast in three parts over the next two days. ABC's "World News," "Good Morning, America," "Nightline" and "20/20" will all feature the interview.

The broadcasts will include biographical footage of Palin and coverage of her 19-year-old son, Track, who is scheduled to be deployed to Iraq this week.

Prior to today, the GOP governor was virtually inaccessible to reporters on critical issues like national security, terrorism and the economy.

In the week since she accepted the nomination at the Republican National Convention, Palin has stuck mostly to the script reprising her widely praised speech - and has not taken media questions when appearing at the side of her running mate.

The protective cocoon surrounding her has provided a sharp contrast to GOP presidential candidate McCain, who has had a generally warm relationship with media at his events, where he has welcomed their questions.

The McCain team - which had used women surrogates like former Hewlett Packard CEO Carly Fiorina to fight back against what it described unfair news coverage of Palin, has created a "Truth Squad" to protect her from charges in the media. And it has surrounded her with seasoned Bush operatives and media handlers to prepare her for Gibson and the coming debate with Democratic vice presidential candidate Sen. Joe Biden.

Rick Warren, pastor of the Saddleback Church - the evangelical mega-church that recently hosted McCain and Democratic candidate Sen. Barack Obama - said this week that Palin had called him to ask advice related to that scrutiny, the Hill newspaper reported.

Warren, speaking to a Los Angeles radio station, said that "the question I asked her was, 'How can I pray for you?' " The pastor said Palin "asked me to send her some Bible verses on how do you deal with the unfair, unjust attacks and the mean-spirited criticism that comes in."

E-mail Carla Marinucci at