Corruption, Whispers & Receivership

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

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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.

PREFACE

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.

GOLD LAUNCH & USDOLLAR DEMISE

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.

NOTES & WHISPERS IN ILL WIND

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 www.ML-implode.com 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.

And the Band Played On

And the Band Played On
BY ROB KIRBY

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."

and,

“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.

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.

The Bi-Partisan Origins of the Financial Crisis

Shattering the Glass-Steagall Act

By WILLIAM KAUFMAN

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.

REPUBLICANS AGAINST(1): Shelby.

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.

Bail-out hands Pimco $1.7bn payday

By Deborah Brewster in New York

Published: September 9 2008 19:49 | Last updated: September 9 2008 19:49

The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac.

While shareholders in Fannie and Freddie suffered deep losses, the world’s biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr Gross on mortgage bonds issued by the agencies.

Mr Gross had made a big shift out of US Treasuries and corporate bonds over the past year and into agency bonds, betting that the government would support Fannie and Freddie Mac. By May this year, more than 60 per cent of his $132bn fund was in mortgage debt.

Mortgage-backed bond prices rose after the US government seized control of the agencies.

Mr Gross’s fund, which side-stepped the housing market slide, had risen strongly before Sunday’s government bail-out. In the 12 months to August 1, the fund returned 9.2 per cent, beating all of its peers, according to fund tracker Morningstar.

On Monday, the fund rose by 1.3 per cent, or $1.7bn, its biggest one-day rise ever against the Lehman Aggregate Bond index.

Mr Gross, who co-founded Pimco and has managed the Total Return fund since 1987, was one of the first to call for a bail-out of Fannie and Freddie.

In his latest monthly commentary, he also said that the government needed to use more of its own money to support financial markets, or risk a “financial tsunami”.

Mr Gross’ style is to take a macro-economic view and make tactical changes based on short-term movements in the economy.

The recent success of the Total Return fund has helped Pimco to be the only one of the 25 largest mutual fund managers to lift its assets under management in the year to date, according to Financial Research Corporation data to the end of July.

By contrast, several well-respected equity fund managers are suffering in the wake of the government move, which leaves Fannie and Freddie stock almost worthless. Legg Mason’s Bill Miller, Fidelity, Dodge & Cox and Wellington are among the fund managers that had heavy exposure to Fannie and Freddie – and had lifted that further this year, according to Bloomberg data.

Copyright The Financial Times Limited 2008

US Is "More Communist than China": Jim Rogers

US Is "More Communist than China": Jim Rogers

NORTH AMERICA, MORTGAGES, FANNIE MAE, FREDDIE MAC, DEBT, CREDIT, TREASURY, POLITICS AND GOVERNMENT, STOCK MARKET, CHINA, WALL STREET, BANKING, FINANCIALS

By CNBC.com

CNBC.com

| 08 Sep 2008 | 05:28 AM ET

The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is "more communist than China right now" but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday.

"America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it's just bailing out financial institutions," Rogers said.

Stock markets jumped after the U.S. government's decision to launch what could be its biggest federal bailout ever, in a bid to support the housing market and ward off more global financial market turbulence.

But Rogers said in the long term the move spelled trouble.

"This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this," Rogers told "Squawk Box Europe."

European stocks soared on Monday, led by banks. UBS was up 11 percent, BNP Paribas up 8 percent, Credit Agricole up 11.1 percent and HBOS up 13.8 percent.

"You certainly gonna see a huge jump in any financial institutions which owned a lot of Fannie or Freddie … because they don't have to worry about going bankrupt all of a sudden," Rogers said. (Watch the video on the left for the full interview)

"Bank stocks around the world are going through the roof, that's 'cause they've all been bailed out. You don't see the homeowners in Kansas going through the roof 'cause they're not being bailed out," he added.

"A Huge Mess"

However, despite the rally in Asian and European markets, the decision to take over Fannie and Freddie is likely to cause more volatility and needs careful consideration by investors, according to Rogers.

It's rarely good to jump in a moving bus and right now you got a lot of buses moving. I might short some more investment banks in the US, depending on how they rally over the next week, but other than that, I'll just sit and watch," he said.

Rogers, who is short on U.S. bonds, said these are likely to fall while commodities may rally. The two government-sponsored enterprises don't have good loans on their books, because "everybody else took the good stuff and dumped the bad stuff onto Fannie and Freddie," he said.

From 2010, Fannie and Freddie will have to shrink their portfolios by 10 percent a year until they reach $250 billion, to reduce the risk to the taxpayer, according to the Treasury plan. But this may put additional pressure on the housing market, Rogers said.

"That's going to also ensure that house prices continue to go down. It's going to be harder and harder to get a mortgage."

Investors should not pin their hopes on this year's presidential election for a solution to the problems, as none of the candidates is likely to find one, Rogers said.

"This is a big huge mess and neither one of them has a clue what to do next year. It's going to be a mess."

© 2008 CNBC.com

URL: http://www.cnbc.com/id/26603489/

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One Politicians Get's It

Senator Bunning Says Paulson Acts Like Socialist, Should Resign

By Matthew Benjamin

Sept. 9 (Bloomberg) -- Senator Jim Bunning said Treasury Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac, is acting like China's finance minister and both Paulson and Federal Reserve Chairman Ben S. Bernanke should step down.

``I sincerely believe that Henry Paulson and Ben Bernanke should resign,'' said Bunning, a Republican from Kentucky on the Senate Banking Committee. ``They have taken the free market out of the free market.''

Paulson and the federal regulator for Fannie and Freddie placed the two largest U.S. mortgage-finance companies in a government-operated conservatorship on Sept. 7, ousting their chief executives and eliminating their dividends. Treasury also may purchase up to $200 billion of stock in the firms to keep them solvent.

``We no longer have a free market in the United States, we have a government controlled free market,'' Bunning said in an interview. Paulson, a former chief executive officer of Goldman Sachs Group Inc., ``is acting like the minister of finance in China.''

Bunning, 76, criticized Paulson's successful effort in July to obtain congressional authority to pump unlimited amounts of money into Fannie and Freddie to keep them afloat.

``When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turned out it was socialism here in the United States,'' he told Paulson at a July 15 Senate Banking Committee hearing.

Following Paulson's Sept. 7 announcement of the takeover of Fannie and Freddie, Bunning said he now feels like a citizen of China.

Former Phillies Pitcher

``No company fails in communist China, because they're all partly owned by the government,'' said the former pitcher for the Philadelphia Phillies.

Bunning accused Paulson of deception when he told Congress in July that the Treasury's plan would instill such confidence among investors that it would never have to be used.

Paulson ``saw and knew what was happening, and didn't tell the truth to the banking committee,'' Bunning said yesterday.

Treasury spokeswoman Michele Davis didn't respond to requests for comment.

Bunning, a critic of former Fed Chairman Alan Greenspan, faults Bernanke for lax supervision of the mortgage market.

The Fed chief waited too long to require lenders to change how they write mortgages, Bunning said. ``I mean he just did it two months ago. Come on.''

When asked if he expects more multibillion dollar rescues by Treasury, Bunning said, ``You bet I do.''

He said Paulson on Sept. 7 should have detailed an overhaul in the business model of Fannie and Freddie.

Bunning predicted in July that, contrary to statements by the Treasury, Paulson would provide capital to Fannie and Freddie.

``Every time we propose and do something, it always gets used,'' he told Paulson at the July banking committee hearing.

To contact the reporters on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net.

Paulson's Quick Draw

Peter Schiff
Sep 9, 2008

Treasury Secretary Henry Paulson, the man who said that subprime was contained and that the Bazooka in his pocket would never be used, now assures us that the bailout of Fannie Mae and Freddie Mac will be costless to taxpayers. Despite the near euphoria that the plan has sparked on Wall Street, the move will go down in history as the biggest policy blunder of all time, and will be credited as a pivotal point in the financial collapse of the American economy. The ultimate cost to Unites States citizens will be in the range of hundreds of billions of dollars, perhaps more.

The original idea that gave birth to Freddie and Fannie, which is to make housing more affordable to average Americans, should now be seen as farcical. Their new goal is to keep housing prices high. Absent Freddie and Fannie, housing prices would fall sharply and the mortgage market would stabilize. Americans would once again be able to buy affordable houses with mortgages they could actually repay - just like their grandparents did. Instead they will keep overpaying for houses, burdening themselves with excessive payments in the process, and ultimately sticking taxpayers with the bill when they default.


There is absolutely no substance to Paulson's insistence that based on the government's first claim on the future profits of Fannie and Freddie, the plan offers protection for taxpayers. There will be no future profits, just more heavy losses. Americans will now have unlimited ability to continue to overpay for houses and commit to mortgages they can't afford. In fact, the plan ensures that eventual public sector losses will vastly exceed those that would have befallen the private sector in a free-market resolution.

Paulson claims that his goal is to stabilize the mortgage market. But the best way to do so would be to allow housing prices to fall to a market clearing level. As long as home prices remain artificially high, the risks of mortgage lending will keep credit tight, and the high costs of mortgage payments will keep potential buyers on the side-lines. With private lenders justly cautious, the government intends to hold open the lending spigots, without the pesky concerns over losses or financial risk. The hope is that the new lending will prevent home prices from falling further. It won't work. The government "solution" will simply delay the fall of artificially high home valuations and temporarily preserve the illusion of prosperity.

In order to preserve current home prices, the government will be forced to maintain the lax lending standards that got us into this mess in the first place. Since all the losses will now be borne by taxpayers, those lax standards will be much more problematic. The moral hazard that existed prior to this bailout has become that much more hazardous. Every mortgage now insured by Fannie and Freddie is the equivalent of a U.S. Treasury bond. This allows anyone to borrow on the full faith and credit of the U.S. government so long has the money is used to buy a house. In addition, mortgage lending will now be a government function, run with Post Office-like efficiency.

Of course the biggest collateral damage caused by Paulson's bazooka is the large hole ripped through the already tattered U.S. Constitution. If the government can do this, does anyone believe there is anything it can't do? In effect the Federal government now has absolute power to corrupt absolutely.