Wednesday, October 29, 2008

Who Runs the show?

War, as the liberal intellectual Randolph Bourne famously explained, is the health of the state. That is, it benefits state officials and their dependents, clients, and assorted sycophants at the expense of the rest of us. Many are impoverished by our policies, but a few are enriched. The beneficiaries are the growing administrative, corporate, and military bureaucracies that oversee our ever expanding global presence, in effect a colonial class. This class pursues and secures its economic and social interests by means of directly influencing government policy, operating as an organized force on behalf of the policy of imperialism, so far with remarkable success.

When John McCain sneered at Mitt Romney's business experience as lacking in honor and the spirit of self-sacrifice, he was expressing the "noble" and highly stagy sentiments of this rising class. Forget the free market fervor of the Reagan era, when entrepreneurs were valorized. The new Republican hero is the swaggering caesar.

Is the Iraq war good for the economy?

Well, whose economy? Who benefits from this war, and who loses? Once the American people realize that they're among this war's biggest losers – aside from the Iraqi people, and perhaps the Iranians, too – they'll turn on the beneficiaries with a vengeance. As their savings are eaten up by inflation, and the equity they labored to preserve and increase evaporates into thin air, ordinary Americans are likely to be quite interested in the question: who's responsible?

As the Federal Reserve pumps more funny money into circulation, in a desperate and vain attempt to postpone the crisis of the Warfare State, the single biggest winners are the banks, the most government-protected industry of all, who are the first to be bailed out of any crisis. Oh, perhaps a few will be allowed to go under, but the big ones will be too big to fall, like Bear Stearns. The economic elite will golden parachute its way out of the crisis.

The main beneficiaries of the present system – what Murray Rothbard, the late libertarian theorist and polemicist, called the Welfare-Warfare State – are the new plutocrats. Think of what Ayn Rand referred to as "the aristocracy of pull," the principal villains of her famous novel Atlas Shrugged, i.e., corrupt businessmen who succeeded on account of their political connections rather than their entrepreneurial skill.

Today's aristocracy of pull is the militarized sector of the economy, which is completely dependent on government contracts. Their political Praetorian Guard is represented in Washington by both parties, and, what's more, their partisans dominate think-tanks of the ostensible Left as well as the Right.

The task of those who oppose the new colonialism, which masquerades as global altruism of one sort or another, is to unmask the real motives and connections of a self-interested colonial class, which, in spite of its claim to the mantle of honor and duty to country, is supremely successful at promoting its own interests over and above those of the nation.

~ Justin Raimondo

Monday, October 27, 2008

Bridge to Prison - Stevens Convicted all counts

WASHINGTON (CNN) -- A jury found U.S. Sen. Ted Stevens of Alaska guilty Monday of all seven counts in his federal corruption trial.

The jury found Stevens guilty of "knowingly and willfully" scheming to conceal on Senate disclosure forms more than $250,000 in home renovations and other gifts from an Alaska-based oil industry contractor.

Stevens faces a maximum sentence of up to to 35 years in prison -- five years for each of the seven counts.

Legal experts note the judge has the discretion to give Stevens as little as no jail time and probation when he is sentenced.

He sat expressionless as the seven verdicts were read out at the end of his trial, less than a day after the jury began deliberations from scratch because of a change in jurors.

After the second guilty verdict was read, Stevens' lead defense attorney, Brendan Sullivan, patted his back, leaving his hand there.

As Stevens left the defense area, he and his wife exchanged a kiss on the cheek. Stevens said: "It's not over yet." Stevens' defense team said they will move for a new trial.

Stevens left the courthouse without comment.

"This is a sad day for Alaska and a sad day for Senator Stevens and his family," Alaska Gov. and vice presidential candidate Sarah Palin said Monday.

"The verdict shines a light on the corrupting influence of the big oil service company up there in Alaska that was allowed to control too much of our state. And that control was part of the culture of corruption that I was elected to fight, and that fight must always move forward regardless of party affiliation or seniority or even past service," she said.

Stevens accepted "hundreds of thousands of dollars of freebies" from a major oil services company in his state, acting assistant Attorney General Matthew Friedrich said after the verdict.

"This company was not a charity," he said, saying it solicited Stevens for help in Washington at the same time it was transforming Stevens' single-story A-frame Alaska house into a two-story structure with a deck, new gas grill and other accouterments.

The 84-year-old senator is locked in a tight race for re-election against his Democratic challenger, Mark Begich. Stevens hopes to retain the seat he has held since 1968.

A poll by Ivan Moore Research conducted October 17-19 found Begich slightly leading the race 46-45, within the poll's margin of error of plus-or-minus 4.4 percentage points.

The longest-serving Republican senator in history, Stevens becomes the first senator to be convicted of a felony since 1981.

Judge Emmet Sullivan has scheduled a hearing on any pending motions for February 25.

The charges against Stevens related to renovations on his family home in Girdwood, Alaska. The remodeling was done by his longtime friend, Bill Allen, and Allen's oil industry services company, VECO Corp.

The prosecution accused Stevens of knowingly failing to declare hundreds of thousands of dollars worth of gifts and work on his house in Alaska between 1999 and 2006. Members of the Senate are required to fill out forms each year stating what gifts they have received and from whom.

Stevens' defense said Allen, the senator's friend, had quashed bills without the senator's knowledge. Allen testified that he had done so because he "liked Ted."

The defense said Stevens had paid the bills he received, thinking they covered the full cost of renovating the house in Girdwood, Alaska.

Allen, the government's star witness, earlier pleaded guilty to trying to bribe a number of Alaska state lawmakers, not including Stevens. He is awaiting sentencing.

The jury began deliberations at noon Wednesday, but started anew Monday morning when an alternate replaced a juror who left town abruptly last week because of the death of her father.

The verdict comes after jurors spotted a discrepancy Monday between the government's indictment and a key piece of evidence. The judge declined to throw out the related charge against Stevens

The indictment accuses Stevens of checking "No" in response to a question about whether Stevens or his family had "any reportable gift ... more than $260" in 2001. But the form introduced as evidence in court shows he checked "Yes."

The jury sent out a note on the issue, prompting a debate between defense and prosecution attorneys about what instructions Sullivan should send the jury.

Prosecutors said the error was simply a "typo" on the indictment, and that other charges and evidence covered Steven's alleged failure to disclose the home renovations at issue in the case.

Stevens' defense said the judge should toss out the count that no longer matched the evidence.

The juror who left last week was Juror No. 4, a paralegal in her 40s. She told a U.S. marshal that she had to leave the state for a family emergency after the jury was dismissed Thursday.

Judge Sullivan dismissed the jury Friday morning after the woman left for California, hoping to resume with her on the panel as soon as possible.

Since then, court officials made several unsuccessful attempts to reach the woman. Defense attorneys for Stevens, who was in court Sunday, had asked the judge to put off deliberations another day as they awaited the return of the juror, arguing against inserting an alternate in the middle of the process.

Last week, the judge dealt with another juror issue after the panel sent him a note Thursday accusing juror No. 9 of "violent outbursts" and other misconduct. They asked that she be dismissed, but Sullivan gave what he called a "pep talk" to the 12 and told them to resume their deliberations.

Saturday, October 18, 2008

Wall Street Monsters & Meat

Jim Willie

The tag team of JPMorgan as the monster and Goldman Sachs as its harlot represent a powerful pair that is more responsible for destroying the entire US financial system than 95% of the American public has any awareness. The colossus of JPMorgan is a monster, a predator, nurtured by pond scum. It has gobbled up Chase Manhattan, Manufacturers Hanover, Chemical Bank, Bank One, and more over the past two decades. Their profound presence in keeping the USTreasury Bond yields down can never be understated. They do so by managing 85% of the credit derivatives on the planet. They distorted usury prices, as in price of borrowed money, thus aggravating the LIBOR (London InterBank Offered Rate) market in a very visible manner. The oblong usury prices have contributed mightily to the destruction of the USEconomy itself, created bubbles, killed jobs, and wrecked savings. The ugliest hidden activity for the JPMorgan monster is to manage the Bank of Baghdad, where they manipulate the crude oil price, where drug trafficking money is funneled from Afghan sales, under management by the USMilitary aegis (guys with no uniform stripes or markings). Maybe such illicit money offsets Credit Default Swap losses, making America strong for freedom and liberty. Goldman Sachs is clearly the investment banking agent for the USGovt, given the privilege of insider trading in unspeakable proportions. They manage the Plunge Protection Team efforts to intervene in financial markets, making America strong for freedom and liberty. The new kid on the block is the FDIC. The Federal Deposit Insurance Corp is steering fresh meat into the corralled JPMorgan stockyards for slaughterhouse feeding. The label of harlot might be too kind, especially from the perspective of senior bond holders. But JPMorgan requires fresh meat (capital) periodically, thus making America strong for freedom and liberty. Nevermind the fires caused after its hearty meals and flatulence.

This article discusses the JPMorgan monster, its behavior, and teeth revealed. Robb Kirby (see his website, click HERE) often covers JPMorgan illicit behavior. This article discusses banking system realignments to destroy savings accounts owned by the people, and the Coup d'Etat just completed. The criminals on Wall Street have taken full control of the USGovt financial management, with blank check written by a thoroughly intimidated USCongress, deceived steadily and easily. Threats and intimidation are central to the successful coup. The Ponzi Scheme has been revealed, even as the frail and tattered Shadow Banking System has been revealed. The key to the bailouts is its continued Top Down approach, which favors the Ruling Elite and denies all but crumbs to the people, who have been subjected to a foreclosure revolving door on mortgage loan assistance. Since nothing has been solved from this approach, a total systemic breakdown is assured, whose climax will be the current Administration and the Wall Street executives in charge of the criminal syndicate riding off into the sunset in retirement. Rome burns. Much more detail is provided in the upcoming October report due this weekend. The theme is this subset synopsis article is of criminality, deception, monster exploitation, market corruption, and the collapse of a failed system, whose crescendo represents the greatest financial crimes ever witnessed in modern history. Americans do it big! The proprietary Hat Trick Letter covers much more of recent events, interpretation, and analysis, but here, focus on impropriety.


JPMorgan will require fresh asset meat every several weeks in order to survive, but the process will result in a sequence of severely damaging CDSwap fires. Perversely, the FDIC is their investment banker agent. Two mergers of questionable nature highlight the altered role of the Federal Deposit Insurance Corp (FDIC), which no longer protects bank depositors or their investors, but rather serves JPMorgan Chase. When Bank of America merged with Merrill Lynch, a trend started, one that exposed private stock brokerage accounts. Officially they can be legally borrowed across subsidiary lines. The FDIC averted a failure of Merrill Lynch without the credit default implications. The other event was more blatant, as the FDIC steered Washington Mutual out of bankruptcy failure and into the JPMorgan slaughterhouse. Inside its chambers, JPM gobbled up the WaMu deposits and benefited from ratio improvements. Senior bond holders were crushed, fully denied due process from bankruptcy. The FDIC has become an ugly investment banker lookalike, serving JPM and not the US public. The FDIC owns a pitifully small $45 billion in funds available for bank bailouts, at June count. When the dust clears a year or more from now, many multiples more will be necessary for many bank failures.

The path of JPMorgan growth into a FRANKENSTEIN took radical changes in course after both the failures of Lehman Brothers and recognition that Fannie Mae & Fannie Mae had to be taken over by the USGovt. To halt the run on their bonds, the USGovt acquired the entire F&F Cesspool. The impact hit the Credit Default Swap market immediately. AIG had been weakened one week earlier from the technical default of Fannie & Freddie, which resulted in broad CDSwap payouts. Ripple effects from the Lehman Brothers failure that followed were deep and broad throughout the system, killing AIG. The Wall Street central harlot (Goldman Sachs) advised the USGovt to assume full control and risk of AIG, as GSachs avoided $20 billion in sudden losses in the nick of time, a pure coincidence!

The entire episode with Wells Fargo bidding for Wachovia, in competition from Citigroup, is steeped in comedy with vampire stars. The grapevine in Washington and Wall Street passes word that the Citigroup versus Wachovia wrestling match was actually a sponsored backdoor bailout attempt to save Citigroup, not just Wachovia. Again, the FDIC was the matchmaker. My term has been 'Dead Marrying the Dead' which still holds true, since Citigroup has been dead for one year. Under the original Citigroup proposal, the FDIC had arranged for guarantees of $42 billion for Wachovia debt by the USFed. The new Wells Fargo deal enabled the US taxpayers to get off the hook. The reversal by the FDIC to serve the public has caused gigantic Wall Street problems, as Citigroup now finds itself in a position more perilous than anyone believed. This battle has flip-flopped once, and might again. Citigroup would probably have died if not for the USGovt purchase of bank stocks.


JPMorgan is a monster predator at work, hidden from view. After the Fannie Mae experience, covering their giant raft of CDSwap contracts, making huge payouts, JPMorgan was close to a bankruptcy. They needed to feed off another bank, to consume private deposits and thus shore up the balance sheet. Lehman Brothers was let go to fail, but its failure would surely trigger a gigantic wave of credit market fires. The Lehman CDSwap resolution has cost roughly $300 billion, paying 91 cents per dollar of coverage on their failed bonds. The Wall Street Powerz permitted Lehman to fail, so as to prevent a JPMorgan failure, thus risking that the fires caused could be contained in CDSwap fallout. The irony is that JPMorgan undoubtedly suffered considerably from that fire in fallout. Now JPMorgan might need another Wall Street failure, for to consume another block of assets, but with yet another ensuing CDSwap fire. JPMorgan is a monster predator at work, soon hungry again. It might be eyeing Morgan Stanley. We might discover a failure in an unexpected place, like a big insurance firm, whose sector condition is not well advertised.

With each big bank failure, whether a commercial bank or investment bank, heavy damage is done to the system. The CDSwap destruction is mostly hidden, with large pillars burned out. We the people hear of the destruction only if and when a major bank fails as a result. No death, no news, however but with potentially significant hidden structural damage. As financial firms pay out vast sums on CDSwaps as in the Lehman case, and the Fannie Mae case, and the Freddie Mac case, the system bleeds capital. Lending suffers. The sequence corresponds to a powerful vicious cycle. JPMorgan will need more deaths to survive, but each death causes more deadly CDSwap fires. JPMorgan is a monster predator at work, which leaves fires on pathways where it last stepped. The best analogy is that CDSwap contract payouts from bond failures are like mini-Hiroshima events that might lead to a bigger such event. Ironically, to save JPM the financial system must destroy the shadow banking system centered in New York City, since Wall Street firms, plus Bank of America are at its center. The system lacks disclosure and transparency, just like Wall Street likes it.

Permit the pathogenesis to proceed further, and the majority of Western bank system must be burned in order to leave JPMorgan as prominent survivor to rule over a scorched empire. This process is a sick consolidation. The bank conglomerate is a major crime syndicate colossus, and center of the drug traffic money laundering, coordinated by security agencies, fully condoned by the US Federal Reserve itself. The AIG story is nowhere complete, the latest being their expensive parties. AIG has caused major complications, another monster that will resurface periodically at feeding time. Personally, my wish is to see the RICO law brought forward, at least to deposit the monster in a cage. In done my way, not a single additional USCongressional bill would be approved and granted for a bailout or rescue without rapid investigation, prosecution, turn to state's evidence, asset seizure, restitution, and imprisonment for dozens of Wall Street executives, starting with Hank Paulson.


Few analysts, pundits, or anchors are aware of the mammoth conflict of interest involved with the USTreasury Bond sales required to pay for all the bailouts. JPMorgan, with the essential aid of Goldman Sachs, plot to bring down the DJIA index and the S&P500 index whenever the USTreasury conducts auctions or needs Congressional passage of key bailout bills. They have sold $194 billion of Cash Mgmt Bills (CMB) in the last two weeks, today $70B, tomorrow another $60B. The big stock declines seen recently work to the BENEFIT of the USTreasury and USFed as agent for auctions. TBill yields are down near zero, in case you have not noticed, with principal prices corresponding almost as high as the bond permits. The USGovt is conducting auctions for TBills at top dollar prices, when its credit rating should be caving in radically upon downgrades. These USTreasurys are destined to enter default at a later date, where the loss to foreign investors will be maximized. Most of the US public has savings dominated by stocks, with little in bonds. So the US public is being fleeced, coming and going, since even money markets contain toxic mortgage bonds. Look for the stock market decline to come to a surprising end when the USGovt has completed the majority of their planned emergency supply sales via auction.

The Wall Street tactics have recently turned more vicious and devious, actually creating volatility, producing fear for political purpose. They accuse hedge funds of driving up the crude oil price, rendering great harm to the USEconomy and US citizens. So they urged unsuccessfully the Securities & Exchange Commission to force hedge funds to reveal their speculative positions. The Wall Street thieves and conmen wish to learn details on hedge fund positions so as to target them illicitly. In a queer twist, JPMorgan has benefited from an interesting double kill. They exploit hedge funds, wreck them, then encourage them into the fold at JPM in brokerage accounts, where their private accounts are rendered vulnerable under the new USFed rules. JPMorgan is a monster predator at work, which is permitted to manipulate markets and clients with total impunity.

There is one more detail. Lest one forget, Goldman Sachs was exempt from the short rule restriction placed on a few hundred financial stocks traded. The reason had something to do with market stability and integrity assurance! Goldman Sachs clearly profited from the ups & down in the Dow and S&P500, lifting stocks after Congressional agreements, pulling them down before those agreements. JPMorgan and Goldman Sachs profit handsomely when the USGovt Plunge Protection Team pushes the stock indexes up with their usual methods. Of course JPM and GSachs are the managers of the PPT efforts. YES, IT IS TIME TO PUKE NOW!!!


The USCongress has been subverted by intimidation and ignorance, maybe bribery. Regulators and law enforcement bodies are mere accomplices. The entire US banking system has undergone an unprecedented grand nationalize initiative, including the financial system, when considering the mortgage and insurance giants. The total bailouts are huge when put into perspective. This is a hidden coup, complete with deep fraud, corruption, and ruin for both prosecutors and whistle blowers. The USDollar is caught in the middle of a black hole scrambled with fraud. Paulson is the new Chancellor of US Inc, Bernanke the new Currency Lithography Manager, and Sheila Bair the Investment Banker (a la Goldman Suchs). Paulson assumes all powers over the financial state from the president, via the banking industry control. The government bailout redemption of $trillion past fraud closes the loop. Bernanke manages all efforts to use printed money for the purpose of buying worthless counterfeited and fraud-laced bonds, buying commercial bonds and posted collateral among businesses, as well as making printed paper products available to foreign central banks in relief of past fraud. Bair will act as the director of slaughterhouse traffic for JPMorgan, which needs a steady supply of bank deposits to offset their destroyed balance sheet from continued credit derivative implosion, thereby betraying the chartered FDIC pledge to protect bank depositors and senior bank bond holders through liquidation procedures, with full recognition of expedience. Hail to the king, long live the king! The US public seems so dumbstruck that it cannot demand even full disclosure of the process, let alone private offshore bank accounts for the new leaders of the successful coup.

The coup formalizes a climax to a Ponzi Scheme. A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service bearing true value delivered. With the ongoing steadfast support offered by Alan Greenspan, they were able to maintain an incredible Ponzi scheme. They sold financial toxic waste products in the form of Mortgage Backed Securities (MBS), Collateralized Debt Obligations (CDO), Structured Investment Vehicles (SIV), Unidentified Financial Objects (UFO), and Credit Default Swaps (CDS). My favorite remains the UFOs. The corruption of politicians in Congress enabled the process, with relaxed guidance by the Financial Accounting Standards Board (FASB). The two key ingredients for the Ponzi Scheme are a mythological ideology and a high priest to endorse the game from a credible pulpit. Alan Greenspan claimed legitimacy of the US banking system, blessed credit growth and fractional bank practices as beneficial, and praised risk pricing systems using credit derivatives as sophisticated. The high priest used to be Greenspan, but now a tag team has replaced him. Hank Paulson is the spearhead for the great coup of the US financial system. Usage of short restrictions rules has been key to both instilling instability at necessary times, and raiding hedge funds. USFed Chairman Bernanke swaps USTBonds for any piece of bonded garbage known to mankind. Mammoth placements of leveraged trades by Wall Street firms make for some of the most grotesque insider trading in US history.


The lies, deceit, backroom pressure, and fleecing of the American public is deep. Take the Emergency Economic Stability Act. Most of the initial $250 billion outlay was not devoted to American bankers, but rather to foreign bankers, primarily in Europe and England, and to purchase preferred US bank stocks. The US public was not told about this redirection, which constitutes misallocation, misappropriation, and fraud. Tremendous backroom pressure was exerted at every step. The underlying assets involved in swaps do not even have to be US-based mortgage bonds. The formerly submitted Paulson Manifesto was revived in a power grab, complete with considerable infighting and squabbles, since Morgan Stanley was given favor. The usage of funds to buy investment stakes in the giant US banks is yet another direct Fascist Business Model tactic, assisting banks close to the power center, yet reeking with corruption. The sickening irony is that they have no more money to disseminate and distribute. They cannot reveal their lies until they formally request more Congressional funds. Much discussion has come that the USGovt should adopt the Swedish model in the resolution of the current crisis. Not in a New York minute!! That would require heavy stock and bond losses, and more transparency of scum. Interestingly, the market discounts words as worthless, while bailout actions fail to produce even a positive reaction for a full day, until Monday last week when the Dow Jones Industrial index rose over 900 points. That was clearly Wall Street engineering a profitable short cover rally. Check S&P futures positions beforehand, if you can. The credibility of the USFed is close to being destroyed. On October 15, the same Dow Jones index fell over 700 points, almost 8%. Even the global rate cut was rejected by stock markets, a major insult.

Intimidation of the USCongress has been huge and powerful, similar to when the Patriot Act was passed in 2002. The Congress was actually threatened by martial law in the cities of the United States if the big bailout package was not passed two weeks ago! This was not reported on CNN or CNBC, but C-Span did cover it. The mobilization of the USArmy for civilian control is well known in the past couple weeks. See the Third Brigade back from combat duty in Iraq. This account came from Rep Brad Sherman of California. To achieve supposed financial stability, the nation succumbed to totalitarianism by Wall Street thieves, conmen, fraud kings, and criminals. Instead, the bailout only covered up $trillion fraud. My position has been very stable and consistent, that such tactics are typical characteristics of the Fascist Business Model. The state merges with the large corporations, who proceed to terrorize the citizenry after unspeakable protected corruption and theft. To object is to be labeled unpatriotic!


The top-down approach used to date aids the wealthy bankers, while the homeowners are denied aid. That aid is promised but rarely arrives. The fundamental problem here is that billion$ are devoted to shore up insolvent banks, to redeem their worthless (or nearly worthless) bonds, and to give a giant pass to the executives. Trust has eroded throughout the system. Banks distrust each other's collateral. The result is that eventually the USEconomy will enter not a recession, not a depression, but a DISINTEGRATION PHASE. Despite Bernanke's studious efforts, borrowing from revisionist history, his liquidity is nothing more than bailouts at the top for the perpetrators of the housing bubble and mortgage debacle. The bank system benefits little inside the US walls of finance. A bottom-up approach might have had a chance to succeed, but a top-down approach is a sham. To expect a top-down solution that actually relieves the housing inventory logjam is insane. That is like feeding a teenager with meals placed inside the human rectum, expecting nutrients to find their way to the rest of the body! The credit mechanisms do not travel upward within the pyramid, but rather in the downward direction, starting with a borrower, a good collateralized risk, and an underwritten loan, when plenty of lending capital is available. The US public has bought this stupid 'Trickle Down' philosophy for years, learning nothing. The USEconomy is on the verge of collapsing. Short-term credit is being denied at key supplier intermediary steps, soon to result in recognized disintegration.

The primary practical objective of this corrupt trio (JPM, GSax, FDIC) is to avoid Credit Default Swap fires, which would bring an end to their reign of terror. This USEconomic failure is in progress and is unstoppable. The 1930 Depression resulted after monumental credit abuse from the bottom up, as hundreds of thousands of people leveraged investments 10:1 with stocks primarily. The 2000 Depression will come after monumental credit abuse from the top down, as hundreds of big financial firms leveraged investments by 7:1 and 20:1 with bonds primarily. The most absurd of all is the CDO-squared, leveraging upon leverage. Total seizures have crippled the banking system. Short-term credit has largely vanished, as letters of credit are routinely not honored at ports in the United States. The panic will continue, especially when supplies dry up.


We are witnessing the disintegration cited in my recent forecasts. It is a systemic failure, marred by lost confidence and trust in the entire financial system. Expect foreigners soon to pull the rug from under the American syndicates in control. Several key meetings have already concluded, totally unreported in the US press, which occurred in Berlin Germany. Consider it the Anti-G7 Meeting. Implications are profound, and involved the Shanghai Coop Org tangentially, since its member nations possess so much new commodity supply. Consider it the Anti-NATO group. An important and powerful alternative financial system is soon to spring into action, including high-level bilateral barter. Those who expect the current US Regime to continue their financial terror are in for a big surprise.

Expect defaults in the COMEX with gold & silver, whose prices for paper vastly diverge from physical, to the anger of foreigners watching. They hold massive precious metals assets. Disparities now contribute to powerful forces, sure to break the current system. Grand systemic changes come. THE RESULT WILL BE A BREATH-TAKING DISCONTINUITY EVENT.

Ironically, the more inner anguish felt on the falling gold & silver prices, the closer we are to a new financial framework, with the USDollar relegated to a Third World role. A REPLACEMENT GLOBAL RESERVE CURRENCY HAS ALREADY BEEN DECIDED UPON. Its launch awaits the proper moment. The Americans are last to know, as usual. The US leaders are under the illusion of being in control!

Tuesday, October 14, 2008

A £516 trillion derivatives 'time-bomb'

Not for nothing did US billionaire Warren Buffett call them the real 'weapons of mass destruction'

By Margareta Pagano and Simon Evans
Sunday, 12 October 2008

The market is worth more than $516 trillion, (£303 trillion), roughly 10 times the value of the entire world's output: it's been called the "ticking time-bomb".

It's a market in which the lead protagonists – typically aggressive, highly educated, and now wealthy young men – have flourished in the derivatives boom. But it's a market that is set to come to a crashing halt – the Great Unwind has begun.

Last week the beginning of the end started for many hedge funds with the combination of diving market values and worried investors pulling out their cash for safer climes.

Some of the world's biggest hedge funds – SAC Capital, Lone Pine and Tiger Global – all revealed they were sitting on double-digit losses this year. September's falls wiped out any profits made in the rest of the year. Polygon, once a darling of the London hedge fund circuit, last week said it was capping the basic salaries of its managers to £100,000 each. Not bad for the average punter but some way off the tens of millions plundered by these hotshots during the good times. But few will be shedding any tears.

The complex and opaque derivatives markets in which these hedge funds played has been dubbed the world's biggest black hole because they operate outside of the grasp of governments, tax inspectors and regulators. They operate in a parallel, shadow world to the rest of the banking system. They are private contracts between two companies or institutions which can't be controlled or properly assessed. In themselves derivative contracts are not dangerous, but if one of them should go wrong – the bad 2 per cent as it's been called – then it is the domino effect which could be so enormous and scary.

Most markets have something behind them. Central banks require reserves – something that backs up the transaction. But derivatives don't have anything – because they are not real money, but paper money. It is also impossible to establish their worth – the $516 trillion number is actually only a notional one. In the mid-Nineties, Nick Leeson lost Barings £1.3bn trading in derivatives, and the bank went bust. In 1998 hedge fund LTCM's $5bn loss nearly brought down the entire system. In fragile times like this, another LTCM could have catastrophic results.

That is why everyone is now so frightened, even the traders, who are desperately trying to unwind their positions but finding it impossible because trading is so volatile and it's difficult to find counterparties. Nor have the hedge funds been in the slightest bit interested in succumbing to normal rules: of the world's thousands of hedge funds only 24 have volunteered to sign up to a code of conduct.

Few understand how this world operates. The US Federal Reserve chairman, Ben Bernanke, tapped up some of Wall Street's best for a primer on their workings when he took the job a few years ago. Britain's financial regulator, the Financial Services Authority, has long talked about the problems the markets could face on the back of derivative complexity. Unfortunately it did little to curb the products' growth.

In America the naysayers have been rather more vocal for longer. Famously, Warren Buffett, the billionaire who made his money the old-fashioned way, called them "weapons of mass destruction". In the late 1990s when confidence was roaring in the midst of the dotcom boom, a small band of politicians, uncomfortable with the ease with which banks would be allowed to play in these burgeoning markets, were painted as Luddites failing to move with the times.

Little-known Democratic senator Byron Dorgan from North Dakota was one of the most vociferous refuseniks, telling his supposedly more savvy New York peers of the dangers. "If you want to gamble, go to Las Vegas. If you want to trade in derivatives, God bless you," he said. He was ignored.

What is a Derivative?

Warren Buffett, the American investment guru, dubbed them "financial weapons of mass destruction", but for the once-great-and-good of Wall Street they were the currency that enabled banks, hedge funds and other speculators to make billions.

Anything that carries a price can spawn a derivatives market. They are financial contracts sold to pass on risk to others. The credit or bond derivatives market is one such example. It is thought that speculation in this area alone is worth more than $56 trillion (£33 trillion), although that probably underestimates the true figure since lax regulation has seen the market explode over the past two years.

At the core of this market is the credit derivative swap, effectively an insurance policy against the default in the interest payment on a corporate bond. One doesn't even need to own the bond itself. It is like Joe Public buying an insurance policy on someone else's house and pocketing the full value if it burns down.

As markets slid into crisis, and banks and corporations began to default on bond payments, many of these policies have proved worthless.

Emilio Botin, the chairman of Santander, the Spanish bank that has enjoyed phenomenal success during the credit crunch, once said: "I never invest in something I don't understand." A wise man, you may think.

Simon Evans

Monday, October 13, 2008

Taking Hard New Look at a Greenspan Legacy

The New York Times
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October 9, 2008
The Reckoning

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest.

“Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation.

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences.

Derivatives were created to soften — or in the argot of Wall Street, “hedge” — investment losses. For example, some of the contracts protect debt holders against losses on mortgage securities. (Their name comes from the fact that their value “derives” from underlying assets like stocks, bonds and commodities.) Many individuals own a common derivative: the insurance contract on their homes.

On a grander scale, such contracts allow financial services firms and corporations to take more complex risks that they might otherwise avoid — for example, issuing more mortgages or corporate debt. And the contracts can be traded, further limiting risk but also increasing the number of parties exposed if problems occur.

Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. In meetings with federal officials, celebrated appearances on Capitol Hill and heavily attended speeches, Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off restrictions.

Ever since housing began to collapse, Mr. Greenspan’s record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation’s real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates. Others have criticized Mr. Greenspan for not disciplining institutions that lent indiscriminately.

But whatever history ends up saying about those decisions, Mr. Greenspan’s legacy may ultimately rest on a more deeply embedded and much less scrutinized phenomenon: the spectacular boom and calamitous bust in derivatives trading.

Faith in the System

Some analysts say it is unfair to blame Mr. Greenspan because the crisis is so sprawling. “The notion that Greenspan could have generated a totally different outcome is naïve,” said Robert E. Hall, an economist at the conservative Hoover Institution, a research group at Stanford.

Mr. Greenspan declined requests for an interview. His spokeswoman referred questions about his record to his memoir, “The Age of Turbulence,” in which he outlines his beliefs.

“It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade,” Mr. Greenspan writes. “The worst have failed; investors no longer fund them and are not likely to in the future.”

In his Georgetown speech, he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably.

“In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market.

A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.

An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith.

As the nascent derivatives market took hold in the early 1990s, and in subsequent years, critics denounced an absence of rules forcing institutions to disclose their positions and set aside funds as a reserve against bad bets.

Time and again, Mr. Greenspan — a revered figure affectionately nicknamed the Oracle — proclaimed that risks could be handled by the markets themselves.

“Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury,” recalled Alan S. Blinder, a former Federal Reserve board member and an economist at Princeton University. “I think of him as consistently cheerleading on derivatives.”

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Mr. Greenspan opposes regulating derivatives because of a fundamental disdain for government.

Mr. Levitt said that Mr. Greenspan’s authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead.

“I always felt that the titans of our legislature didn’t want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth,” Mr. Levitt said. “I don’t recall anyone ever saying, ‘What do you mean by that, Alan?’ ”

Still, over a long stretch of time, some did pose questions. In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks.

Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

In his testimony at the time, Mr. Greenspan was reassuring. “Risks in financial markets, including derivatives markets, are being regulated by private parties,” he said.

“There is nothing involved in federal regulation per se which makes it superior to market regulation.”

Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. “The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said.

But he called that possibility “extremely remote,” adding that “risk is part of life.”

Later that year, Mr. Markey introduced a bill requiring greater derivatives regulation. It never passed.

Resistance to Warnings

In 1997, the Commodity Futures Trading Commission, a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives.

Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.

Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ms. Born declined to comment. Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury.

“All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.”

Mr. Greenberger asserts that the political climate would have been different had Mr. Rubin called for regulation.

In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger. Mr. Summers said he could not recall the conversation but agreed with Mr. Greenspan and Mr. Rubin that Ms. Born’s proposal was “highly problematic.”

On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.

Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were “joined at the hip on this,” he said. “They were certainly very fiercely opposed to this and persuaded me that this would cause chaos.”

Ms. Born soon gained a potent example. In the fall of 1998, the hedge fund Long Term Capital Management nearly collapsed, dragged down by disastrous bets on, among other things, derivatives. More than a dozen banks pooled $3.6 billion for a private rescue to prevent the fund from slipping into bankruptcy and endangering other firms.

Despite that event, Congress froze the Commodity Futures Trading Commission’s regulatory authority for six months. The following year, Ms. Born departed.

In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.

Mr. Greenspan, according to lawmakers, then used his prestige to make sure Congress followed through. “Alan was held in very high regard,” said Jim Leach, an Iowa Republican who led the House Banking and Financial Services Committee at the time. “You’ve got an area of judgment in which members of Congress have nonexistent expertise.”

As the stock market roared forward on the heels of a historic bull market, the dominant view was that the good times largely stemmed from Mr. Greenspan’s steady hand at the Fed.

“You will go down as the greatest chairman in the history of the Federal Reserve Bank,” declared Senator Phil Gramm, the Texas Republican who was chairman of the Senate Banking Committee when Mr. Greenspan appeared there in February 1999.

Mr. Greenspan’s credentials and confidence reinforced his reputation — helping him to persuade Congress to repeal Depression-era laws that separated commercial and investment banking in order to reduce overall risk in the financial system.

“He had a way of speaking that made you think he knew exactly what he was talking about at all times,” said Senator Tom Harkin, a Democrat from Iowa. “He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?”

In 2000, Mr. Harkin asked what might happen if Congress weakened the C.F.T.C.’s authority.

“If you have this exclusion and something unforeseen happens, who does something about it?” he asked Mr. Greenspan in a hearing.

Mr. Greenspan said that Wall Street could be trusted. “There is a very fundamental trade-off of what type of economy you wish to have,” he said. “You can have huge amounts of regulation and I will guarantee nothing will go wrong, but nothing will go right either,” he said.

Later that year, at a Congressional hearing on the merger boom, he argued that Wall Street had tamed risk.

“Aren’t you concerned with such a growing concentration of wealth that if one of these huge institutions fails that it will have a horrendous impact on the national and global economy?” asked Representative Bernard Sanders, an independent from Vermont.

“No, I’m not,” Mr. Greenspan replied. “I believe that the general growth in large institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.”

The House overwhelmingly passed the bill that kept derivatives clear of C.F.T.C. oversight. Senator Gramm attached a rider limiting the C.F.T.C.’s authority to an 11,000-page appropriations bill. The Senate passed it. President Clinton signed it into law.

Pressing Forward

Still, savvy investors like Mr. Buffett continued to raise alarms about derivatives, as he did in 2003, in his annual letter to shareholders of his company, Berkshire Hathaway.

“Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers,” he wrote. “The troubles of one could quickly infect the others.”

But business continued.

And when Mr. Greenspan began to hear of a housing bubble, he dismissed the threat. Wall Street was using derivatives, he said in a 2004 speech, to share risks with other firms.

Shared risk has since evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn.

The Wall Street debacle that swallowed firms like Bear Stearns and Lehman Brothers, and imperiled the insurance giant American International Group, has been driven by the fact that they and their customers were linked to one another by derivatives.

In recent months, as the financial crisis has gathered momentum, Mr. Greenspan’s public appearances have become less frequent.

His memoir was released in the middle of 2007, as the disaster was unfolding, and his book tour suddenly became a referendum on his policies. When the paperback version came out this year, Mr. Greenspan wrote an epilogue that offers a rebuttal of sorts.

“Risk management can never achieve perfection,” he wrote. The villains, he wrote, were the bankers whose self-interest he had once bet upon.

“They gambled that they could keep adding to their risky positions and still sell them out before the deluge,” he wrote. “Most were wrong.”

No federal intervention was marshaled to try to stop them, but Mr. Greenspan has no regrets.

“Governments and central banks,” he wrote, “could not have altered the course of the boom.”

Tuesday, October 07, 2008

Fed to start buying commercial paper

By Chris Giles in London,Tony Barber in Brussels, Michael Mackenzie in New York and James Politi in Washington

Published: October 7 2008 14:33 | Last updated: October 7 2008 18:47

Ben Bernanke on Tuesday opened the door to further US interest rate cuts on a day that saw the Federal Reserve moving to bypass banks and lend directly to American companies in an unprecedented attempt to unfreeze the money markets.

The Fed’s move into the market for commercial paper – short term debt issued by companies and others to fund day-to-day operations – represents a dramatic expansion of its role of lender of last resort, but its extraordinary action failed to calm nerves in feverish markets.

Although global stock markets initially regained some poise after Monday’s severe falls, the Fed’s action had little initial effect on money markets and the S&P 500 index was down a further 2.47 per cent in afternoon trading in New York. Overnight bank-borrowing costs jumped and bank shares in Europe slumped for a second day, partly on talk that European governments would soon take individual action to recapitalise banks at the expense of shareholders.

In a speech in Washington DC, Mr Bernanke, Fed chairman also appeared to signal further rate cuts to tackle the financial crisis, saying it would “need to consider whether the current stance of policy remains appropriate” although he stopped short of explicitly signalling that the main US interest rate would be cut from 2 per cent.

Earlier, the Fed said it would set up a new Commercial Paper Funding Facility to buy three-month debt from banks and non-financial companies.

“This facility should encourage investors to once again engage in term lending in the commercial paper market...[and] lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper,” the Fed said in a statement.

After the news, overnight rates on commercial paper eased, but interest rates for longer-term lending remained elevated. Analysts welcomed the Fed’s move to kickstart lending in the $1,600bn commercial paper market which has shrunk by an eighth in the past three weeks.

”This action will help mitigate the risks of an even sharper deterioration in the economy,” said TJ Marta, strategist at RBC Capital Markets.

One of the more positive signs after the announcement was a sign that some of the flight to the safety of government bonds was diminishing. The yield on the two-year US Treasury note rose 9bp to 1.49 per cent, but this level still well below the current Fed funds rate of 2 per cent.

In Europe the sense of crisis deepened as EU finance ministers, meeting in Luxembourg, agreed that governments should be free to take part in bank rescues, so long as support is temporary, shareholders’ rights are diluted, and the effects of rescues do not spill over from one country to another.

In Britain, the prime minister, chancellor, Bank of England governor and chairman of the Financial Services Authority met last night to finalise plans for a publicly backed recapitalisation plan for Britain’s banks to be announced before the markets opened on Wednesday.

Britain’s bank shares suffered a second terrible day with Royal Bank of Scotland and HBOS equities plunging 39 and 42 per cent respectively.

Iceland‘s national crisis intensified as the government nationalised Landsbanki, its second largest bank, guaranteeing domestic deposits but international creditors, sought a €4bn loan from Russia and tried to peg its currency. An team from the International Monetary Fund is already in the Reykjavik but the Fund has not yet been approached by the government.

Spain announces emergency fund

By Victor Mallet and Mark Mulligan in Madrid

Published: October 7 2008 18:57 | Last updated: October 7 2008 18:57

Spain on Tuesday became the latest European nation to take unilateral measures to deal with the world’s deepening financial crisis, announcing a €30-50bn emergency fund to provide liquidity to the financial system by buying Spanish bank assets.

José Luis Rodríguez Zapatero, the prime minister, told a hastily convened news conference that the temporary fund was designed to provide credit for borrowers starved of funds by the seizing up of interbank lending.

He also announced a fivefold increase in the Spanish government guarantee for bank deposits, raising the amount to €100,000 from €20,000 so that “individuals and companies can have full confidence in the security of their savings”.

The fund, whose details will be fleshed out during the regular cabinet meeting on Friday, will be managed by the Spanish treasury to buy the assets of financial institutions.

He stressed that the idea was not to rescue or restore to health the domestic financial system – where institutions were both solvent and solid, even in the current crisis – but to make financing available for companies and individuals so that economic activity and job creation could continue.

The fund, he said, would complement the European Central Bank’s weekly funding auctions, which have been heavily used by Spanish banks, and would buy “healthy assets, not toxic ones”.

Mr Zapatero added: “Credit makes the economy work. Without credit, there is no investment. And without investment there is no economic activity today, nor growth and job creation tomorrow.”

Spanish ministers have called for a concerted European approach to restore confidence in the banks and unblock the interbank market, and have privately criticised the unilateral moves of countries such as Germany and Ireland to provide support to their own banks.

On Tuesday, however, Spain’s Socialist government decided to join the rest and make its own national plan, although Mr Zapatero claimed it was in keeping with European guidelines.

“All European economies are being affected by the fact that the interbank and credit markets are not working properly,” he said. “This makes it difficult for financial institutions to capture resources and restricts the flow of credit to companies and families.

“It is therefore essential that this government helps make credit available to citizens and companies through Spain’s financial institutions.”

Mr Zapatero, who has already met senior commercial bankers and was due to meet trade union leaders on Tuesday night, said he would discuss the matter with the opposition Popular party.

Iceland acts to guarantee deposits

By Tom Braithwaite in Reykjavik

Published: October 6 2008 11:01 | Last updated: October 7 2008 07:21

Iceland on Monday drew up sweeping powers allowing it to nationalise banks and sack executives as the government said it would not flirt with national bankruptcy by taking on debt to prop up the ailing financial sector.

Geir Haarde, prime minister, said in a national address that the financial regulator would be given authority to dictate a bank’s operations and could force mergers and bankruptcies.

”We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy,” he said. It would not be responsible for the country to take on debt to shore up banks in their current form.

The krona fell as much as 45 per cent against the euro in advance of Mr Haarde’s speech and shares in Iceland’s banks were suspended from trading.

”We’re taking the interests of the population as a whole ahead of the interest of the banks and their shareholders and providing the economy with a functioning payments and liquidity system,” Mr Haarde said.

Bankers at Kaupthing and Landsbanki, the country’s two biggest banks, reacted with shock. ”At the moment we are just trying to evaluate what it all means,” Sigurjon Arnason, joint chief executive of Landsbanki, told the Financial Times. He said he did not know if Landsbanki would be nationalised.

”It’s conceivable that some [banks] will not be able to function without our... intervening,” Mr Haarde said. The government last week took a 75 per cent stake in Glitnir, the third largest bank, in what may be a template for further part-nationalisations.

However, Kaupthing said on Monday night that it had been granted a loan by the central bank – believed to be about €500m – suggesting that it may continue as the only Icelandic bank with significant international operations.

Mr Haarde had approached other world leaders for help – among them Gordon Brown, UK prime minister – to solve a liquidity emergency in Iceland’s banking system, but the global problems meant no feasible proposals were forthcoming.

”In a situation like this it’s turning out that it’s every man for himself, every country for itself... That’s what we’re doing,” he said.

As the currency plummeted, Antje Praefcke, analyst at Commerzbank, said Iceland faced a ”balance of payments crisis”. ”We would also not be surprised to see the Icelandic krona lose its function as a medium of payment,” she said.

Landesbanki ISLLAIS:ICX

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As of Oct 07 2008 17:00 BST. Quotes are delayed by at least 20 minutes.

Friday, October 03, 2008

U.S. Sheds 159,000 Jobs; 9th Straight Monthly Drop

October 4, 2008

The American economy lost 159,000 jobs in September, the worst month of retrenchment in five years, the government reported on Friday, enhancing fears that an already pronounced downturn had entered a more painful stage that could last well into next year.

Employment has diminished for nine consecutive months, resulting in the elimination of 760,000 jobs, according to the Labor Department report. Most of that occurred before the trauma of recent weeks, when a string of prominent Wall Street institutions nearly collapsed, prompting the government to propose a $700 billion rescue package.

“It’s a dismal report and the worst thing about it is that it does not reflect the recent seizure that we’ve seen in the credit markets,” said Michael T. Darda, chief economist at MKM Partners, a research and trading firm in Greenwich, Conn. “There’s really nothing good about this report at all. We’ve lost jobs in nearly every area of the economy, and this is going to worse before it gets better because the credit markets have deteriorated basically on a daily basis for the last few weeks.”

Only a few weeks ago, some economists still held out hopes that the economy might recover late this year or early next. But with the job market now swiftly deteriorating and fear dogging the financial system, what optimism remained has given way to the broad assumption that 2008 is a lost cause.

Most economists have concluded that, even in the rosiest outlook, the economy will continue to struggle well into next year. As anxiety spreads that banks may continue to hoard their dollars regardless of a rescue package from Washington, depriving businesses of capital needed to expand, more pessimistic forecasts call for the economy to remain weak through all of next year, before a hesitant recovery in 2010.

“This is an economy in recession, and every dimension of the report confirms that,” said Ethan S. Harris, an economist at Barclays Capital. “This has been preceded by a slow-motion recession. Now we’re going into the full-speed recession that will last somewhere between three and five quarters.”

For the first eight months of the year, the economy lost an average of about 75,000 jobs each month. September’s report more than doubled the damage, heightening the sense that an already weak economy has become even more frail.

As real estate prices have fallen over the last two years, American households have tightened up, curbing their spending. Businesses have cut payrolls in response to weakening sales, taking more paychecks out of the economy and weakening spending power further. Now that downward spiral is turning faster.

“Before the crisis took hold, the deterioration was worsening, and it sets us up for some really grim news in the immediate future,” said Robert Barbera, chief economist at the research and trading firm ITG. “Credit was already hard to get in early September. But it’s really impossible to get now as we enter the fourth quarter of the year.”

The government’s monthly snapshot of the labor market detailed a relentless assortment of woes afflicting American working families.

Manufacturing lost 51,000 jobs in September, bringing the decline so far this year to 442,000 and more than 4 million since 1999. Retailers lost 35,000 jobs in September. The construction sector shed 35,000 jobs. Employment in transportation and warehousing slid by 16,000.

Jobs in financial services dropped by 17,000 in September and have slipped by 172,000 since employment peaked in that part of the economy in December 2006. And that was before the bankruptcy of the Wall Street titan, Lehman Brothers; the bailout of the mortgage financiers, Fannie Mae and Freddie Mac; the fire sale of Merrill Lynch to Bank of America; the near disintegration of the insurance giant American International Group; and the government takeover and sale of Washington Mutual.

Health care remained a rare bright spot in the economy, adding 17,000 jobs in September. Mining added 8,000 jobs.

The unemployment rate remained steady at 6.1 percent, but economists said this reflected the fact that the official jobless rate does not count people who have given up looking for work. Over the last year, the unemployment rolls have swelled by 2.2 million, to 9.5 million.

Unemployment rose to 11.4 percent among African-Americans in September, and to 19.1 percent among teenagers, after the worst summer job market on record.

Over all, the number of people officially considered unemployed who lost their jobs — as opposed to those on temporary layoffs or who left work voluntarily — increased by 347,000 in September, to 5.2 million.

In Charlotte, Mich., Sean Schwartz, 26, has been out of a job for nearly two months since his stint as a construction worker ended with the completion of a storage bin for a corn seed plant. His $750-a-week paycheck has been replaced by a $620.10 unemployment check, every other week.

The father of a 2-year-old girl, Mr. Schwartz and his wife — who works at Wal-Mart — are expecting a new baby, a boy, in December. As the weeks pass and his job search turns up little beyond fast-food jobs at a fraction of his previous earnings, they are becoming anxious.

“We’re not getting the bills paid,” Mr. Schwartz said, estimating that they are behind as much as $5,000 on medical bills for his daughter and his wife’s prenatal care.

He thinks about traveling to another state for work, but he does not want to be away for the birth of his son.

“It’s rough,” he said. “There’s nothing really out there.”

People who are out of work are staying jobless longer. More than 21 percent of those receiving unemployment checks have been without work for more than six months, up from 17.6 percent a year ago, according to the Labor Department’s report.

The report amplified the sense that the nation’s economic downturn is hacking away broadly at tens of millions of families — even those that have not suffered the loss of a job.

The number of Americans working part time because their hours were cut or they could not find a full-time job increased by 337,000 in September to 6.1 million — a jump of 1.6 million over the last year.

Over the last year, average weekly wages for some 80 percent of the American work force have risen by a meager 2.8 percent, with the gains more than reversed by increases in the prices of food and fuel.

“This economy is just not creating near enough economic activity to generate job wage or income growth,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “That has serious living standards implications.”

The pressures are worsening. On Friday morning, banks needing to borrow from other banks were having to pay nearly 4 percent more than the Treasury pays in interest on savings bonds, reflecting the unwillingness of financial institutions to part with their dollars as the reckoning from an age of speculative excess goes on. That spread was greater than in the last two recessions and greater than after the 1987 stock market crash.

Even as Washington remained consumed with bailing out troubled financial institutions to try to make money flow more freely, analysts said the jitters would probably remain, with banks continuing to hang on to their dollars and more jobs evaporating from American life.

“The economy is clearly going to get worse before it gets better, with or without the rescue plan,” said Stuart G. Hoffman, chief economist at PNC Financial Services in Pittsburgh. “The rescue plan prevents it from getting much worse, but it’s too late to prevent a recession.”