Racket exposed by John Sugg CL

It would be the most ironic of ironies, but we'd probably be too dehydrated to laugh.

Should Atlanta plum run out of water – even though the state says we've prayed enough to avoid it – we'd most likely turn to the dolled-up, overpriced, bottled variety. And how rich it'll be when folks learn that often what swishes around in the plastic container is a slightly altered version of what we were watching dwindle away all along.

Like Dasani. The Coca-Cola brand is the second best-selling bottled water product in the United States, right behind Pepsi's Aquafina. And both are, essentially, glorified tap water. Dasani, for example, is the product of what the company calls "reverse osmosis." According to a dazzling animation on the product's website, water is taken from a municipal source – which usually means it's the same water the local community also uses. It is then filtered, purified, treated and tinged with trace minerals such as potassium chloride, salt and magnesium sulfate. Voila – Dasani.

And right up in Marietta, just before where U.S. 41 crosses Canton Road, the soda-pop giant has a plant where humdrum municipal water, pulled from Lake Allatoona and the Chattahoochee River, is morphed through the process, bottled and then shipped throughout the Southeast.

"If people in Atlanta knew that they need to go to the store to buy bottled water because they're asked to conserve, and find out they're buying [municipal water] that's bottled in a Marietta plant ..." says Gigi Kellett of Corporate Accountability International, a big-business watchdog group. "And then these corporations are turning around and selling it to these individuals when they're taking it directly from their source."

This summer, Kellett's group influenced Pepsi to agree to change its labels to more accurately reflect the water's origin. Coca-Cola has said it doesn't think Dasani consumers are confused about the source and continues simply to label the water as "purified."

According to Marietta Power and Water, the Marietta facility at 1091 Industrial Park Drive used nearly 8.4 million gallons of water in November. That's a huge improvement from the same month last year, when it gulped 9.8 million gallons, and a far cry from the Pepsi Gatorade plant in southwest Atlanta – the city's biggest water user – which gobbled up 70.8 million gallons in September alone. The only customer in the Marietta district to top Dasani's consumption was Tip-Top Poultry, a chicken plant three miles down the road. Wellstar-owned Kennestone Hospital followed.

Commercial water users in Marietta get a sweet deal by paying less the more water they use. There is a graduated grid of rates. The first 2,000 gallons a commercial user such as Coca-Cola uses cost a total of $10.61; once that usage reaches a million gallons or more a month, the company pays $2.02 per 1,000 gallons.

Use more, pay less. It's a pricing structure that stands to change later this month when Marietta Power and Water's board considers doing away with the different block systems and charging a flat rate to commercial customers. The Metropolitan North Georgia Water District has urged municipalities to adopt such conservation pricing, but most of them are just now getting around to doing so.

Bottled water is one of marketing's great success stories. According to the Pacific Institute, an Oregon-based environmental-policy center, the $15 billion industry is enjoying tremendous annual growth: 10 percent every year, far outpacing paltry gains for fruit drinks and soda. And water's a moneymaker, too; it doesn't cost much to buy and industry analysts have predicted that after advertising and production, bottled water makes double the profit of carbonated beverages. A 1.25-pint bottle of Dasani costs $1.19 at a local gas station. Compare that with the $2.02 Coca-Cola pays for 1,000 gallons of municipal water to bottle it.

"We have to ask ourselves," says Allen Hershkowitz, senior scientist at the Natural Resources Defense Council, "is it fair to subsidize a company with public water supplies that they then turn around and market, at a time when those public water supplies are at crisis levels?"

The drought has hit at a time when Coke already is embroiled in an international controversy over water rights and findings that global warming may be exacerbated by the plastic industry's energy-intensive business plan. That recently added to a backlash from water works in the United States that launched a massive PR campaign aimed at informing the public that tap water wasn't just safe to drink, but vitally important in terms of health, quality of life and economic development.

And while Gov. Sonny Perdue in late October ordered municipal water providers to cut back 10 percent compared with their average consumption prior to the drought restrictions – a goal that Atlanta and DeKalb County failed to meet – there's still neither a deadline for compliance nor a penalty for missing the cuts.

But records show Dasani cut back and did its part. Coca-Cola, as well as big water users, already are cutting cut back. The company says it's done so at the Dasani plant and across the board, claiming conservation programs since 2002 have cut its water use worldwide by 19 percent. Coke spokeswoman Michele McKillip says the Marietta facility – which also bottles Coca-Cola Classic, Sprite and other drinks – had already reduced water use by 8 percent from 2005 to 2006 and was continuing to cut back by using air-powered rinsers, fixing leaky pipes, ceasing truck washes, and using "dry lubes" on the conveyance line.

"Coca-Cola takes the drought very seriously," McKillip says. "And we share the state and community's concerns. The issue of water is something we've been looking at for a long, long time."

Late Thursday night last week, visible through a plate-glass window to motorists driving by, the bottling operation was humming along. The bottles were in motion. And in the parking lot sat another idling tractor trailer, ready to roll out more of that purified water.

America: The Land of the Drugged

With the story breaking last week about the trainer ratting out all of the players doing steroids, I thought it was time to revisit an article I wrote back in 2005.


National Pastimes, Steroids and Media Circuses

Last week congress was engaged in one of its favorite past times; grandstanding. A congressional panel heard testimony from current and former professional baseball players including Mark McGwire and Sammy Sosa. The biggest buzz-making item to come out of the testimony was Mark McGwire’s refusal to answer the question of whether or not he had taken steroids. His unwillingness to answer the question has fueled speculation that he was in fact taking steroids while chasing Maris’ home run record and his reputation has predictably suffered as a result.

Several observations can be drawn from the hearings that really illustrate the sort of illusory world that Americans live in today. To begin with, the whole circus sideshow was instigated by a book written by former slugger Jose Canseco. Canseco outs a number of player, including McGwire, as taking steroids when he was still in the game. Not surprisingly, Canseco has become the target of much condemnation from managers, owners and players alike, one of which is Curt Schilling.

Schilling has been an outspoken critic of steroids for a number of years; even implying in the past that steroid use in baseball is “rampant”. In last Thursday’s testimony Schilling called Canseco, whose book corroborates Schillings views on steroids, a liar. This is the conundrum that the issue of drugs creates in United States. When an outspoken critic of steroid use brands the one person who openly admits to using steroids as a liar, we begin to see the quandary this issue causes.

The issue, in a broader sense, isn’t solely about steroids; it is about American’s acceptance of certain drugs and their opposition to others. It is a kind of built-in hypocrisy that seems to come with being an American. McGwire’s public conscience wrestling seemed to show a man who was not desirous of being a liar, while struggling with the knowledge that if he did tell the truth, he would be branded a cheat; a dilemma seemingly not shared by his contemporaries. However, the worst hypocrites in this spectacle are the shameless congress members pretending to be the protectors of old-fashioned American values while at the same time accepting enormous amounts of money from the pharmaceutical industry, an industry that shamelessly advertises their drugs even after many are known to be harmful to people’s health.

Americans are bombarded daily with advertisements from the pharmaceutical companies that encourage all manner of drugs to enhance their performance. You cannot watch television for more than ten minutes without being subjected to commercials hocking male sexual arousal pills, like Viagra and Cialis. Schools across the country have become defacto pharmacies dispensing drugs likes Ritalin and adderall to our nation’s children to enhance their concentration. Celexa, Lexapro, Prozac and Zoloft, just to name a few, are now household words. These are all drugs, we are told, that supposedly enhance the quality of our lives and all of these drugs have the full backing and support of the government and Congress especially.

The message that is being sent is clear, it is not only proper to ingest drugs to enhance performance but it is absolutely encouraged. However, when it comes to athletes using drugs to enhance their performance we are supposed to be incredulous that they would even entertain such an idea. What absurdity! Why on earth would anyone be shocked by the revelation that athletes use steroids? Drug use is ingrained in our culture, it is inescapable. We are the most medicated society on earth and yet we still feign outrage that athletes use steroids.

These are classic symptoms of the American psyche’s need to present itself as steadfastly moral while at the same time giving a wink and a nod to behavior we supposedly don’t tolerate. This is America’s real, national past time

ECB pumps in extra €170bn

By Ralph Atkins in Frankfurt

Published: December 18 2007 11:38 | Last updated: December 18 2007 11:38

Emergency help for financial markets has entered new territory with the European Central Bank pumping-in almost €170bn extra liquidity at below market interest rates in a special operation to head off a year-end liquidity crisis.

The surprise move, which followed last week’s co-ordinated barrage of measures by the world’s central banks to increase market liquidity, suggested the ECB was still frustrated at the failure to ease financial market tensions.

Late on Monday, the ECB announced that it would offer unlimited funds on a two-week basis at an interest rate of 4.21 per cent – significantly below the market rate before its statement. On Tuesday, it confirmed some €348.6bn - the largest ever for an ECB money market - had been allotted, compared with the €180.5bn it had estimated would be needed in normal circumstances.

The ECB move was reminiscent of its operation on August 9, during the earlier stages of the credit squeeze. But that was only for overnight loans.

“This is basically Father Christmas to those who have access,” said Erik Nielsen, economist at Goldman Sachs. “They are bailing out people who have not really adjusted their balance sheets to the new reality.” But Julian Callow, economist at Barclays Capital in London, said the ECB was “simply doing their job at being lender of last resort”.

The ECB had announced that Tuesday’s weekly money market operation would mature on January 4 – covering the year-end when banks will be under pressure to secure a strong liquidity position. Prior to the announcement, the cost of borrowing two-week money hit 4.9 per cent but it fell sharply afterwards as the ECB move in effect put a cap on market interest rate. The ECB said the move was “fully consistent” with its aim of keeping interest rates close to its main policy rate of 4 per cent.

The latest move underlines the limited impact of last week’s co-ordinated central bank intervention and highlights continued operational differences between the ECB and the more incremental Fed and Bank of England. A report by the Bank for International Settlements on Monday revealed the striking variation in money market operations used by central banks.

Turkey Bombs Iraq

Suppose the Russians bombed Alaska, wouldn't that be considered an act of war?

Turkey planes bomb northern Iraq

Large numbers of Turkish fighter jets have bombed suspected Kurdish rebel bases in northern Iraq, reports say.

Turkish officials said the warplanes had targeted the Kurdistan Workers' Party (PKK), in areas near the border.

But officials in northern Iraq said the planes had struck several villages. There were reports that one woman was killed, although this was unconfirmed.

Turkey's deputy prime minister said more strikes against "terrorists" were possible in the coming weeks.

"We, as the government, are resolute to remove this trouble from the agenda of our country," Cemil Cicek told the state-run Anatolia news agency.

Mr Cicek also called on Kurdish militants to lay down their arms and return to their homes, insisting their fight was futile.

Turkey has regularly targeted the PKK inside Iraq in recent months, but this is thought to be the first fighter jet raid outside its own territory.

Previous strikes had used artillery or helicopters.

'Comprehensive campaign'

The Turkish planes struck several targets in different areas of northern Iraq, according to reports. Private Turkish TV reports spoke of "large numbers" planes involved, with numbers ranging from 20 to 50.

The planes hit the regions of Zap, Hakurk and Avasin as well as areas in the Kandil mountains, the military said.

After the night-time strikes ended, artillery barrages continued across the border from the border town of Cukurca in Turkish territory, reports said.

One of the sorties hit an area near the Kandil mountains, a region further away from the border into Iraqi territory, and regularly cited by Turkey as a centre of PKK activity.

Turkey's military said a "comprehensive air campaign" had been carried out at 0100 on Sunday (2300 GMT on Saturday).

"The operations solely target the... terrorist movement. They are not conducted against people living in northern Iraq or local groups not engaged in enemy activity," the military said in a statement.

But local officials in northern Iraq spoke of families fleeing their homes.

A spokesman for Iraqi Kurdish forces said troops were being sent to the Kandil area to check for damage and possible casualties, the AFP news agency reported.

Bitter dispute

Ankara toughened its line against the PKK after a spate of rebel attacks inside Turkey that prompted widespread calls for action.

In October, Turkey's parliament voted to allow the military to launch operations into Iraq to combat the PKK, which had stepped up attacks in Turkey.

Ankara has massed up to 100,000 troops near the mountainous border with northern Iraq, backed by tanks, artillery and warplanes.

But Iraq and the US have urged Turkey not to carry out its threat.

As many as 3,000 PKK members are believed to be based inside northern Iraq. Turkey has accused the local Kurdish authorities of supporting them.

Gold & Mortgage Failure Avalanche

Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Dec 13, 2007

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

An avalanche comes in 2008. Its wreckage will hit both the USEconomy and banking world. The greatest deception in the bank sector this year has been the misrepresentation of the mortgage debacle as a subprime problem. That is akin to calling an iceberg only a problem for what one can see, when 90% of its mass lies below water. Ice is lighter than water. Most mortgage bonds are like acidic stones weighing down bank and investor balance sheets. Wall Street and the USGovt con artists, using tools are fraud and distortion, prefer the public and investment community to think of the 'Subprime Problem' as the source of distress. On mortgage bonds, collateralized debt obligation derivatives, structured investment vehicles, all dominant in the news, reports constantly stress how the problem is traced to subprime mortgages to all those unworthy home loan borrowers who never should have been given such loans, even at higher mortgage rates. The systemic threat, both to the US banking system and USEconomy, has entered a new stage. The remedy addressed is sure to force the USDollar lower and the gold price higher, to occur in the next gear. Breakouts are coming which will seem to lose control, like what was seen in September and October.

OF DESPERATION & FIRE TRUCKS
Official policy in reaction to the USEconomic threat of recession will spill money into every corner and crevice. Gold and mining stocks will benefit. My forecast stated all summer long is that the USGovt maestros will gradually introduce increasingly broader rescue elements, since everything they try at early stages will fail. The USFed remains badly behind the curve, as yesterday they cut the official Fed Funds target rate, but did not sufficiently cut the Discount Window rate that imposes a Stigma Tax. Today, the USFed announced a much broader bank liquidity policy, focused upon more auctions at set rates and a swap line with the Euro Central Bank. They have announced more coordination with the Bank of England, the Bank of Canada, the Swiss National Bank, and the US Federal Reserve. This is part of my forecast. They must have been working all night long.

By summertime 2008, the requirements for a grandiose Resolution Trust platform will be etched more clearly. The key to the gold price lies in two spots: 1) massive monetary inflation to treat the banking problems and prevent recession, 2) realized price inflation in a manner lacking disguise. John Mauldin uses the metaphor of fire trucks being called to the scene. The USFed has been amazingly shamefully slow in recognizing the problems. Stuck in their stupid "inflation versus growth" framework mindset, they miss both the interbank system seizures and home mortgage avalanche coming outside the prime mortgage corral.

The threat to the banking system will be staggering. The threat to the economic system will be broad and deep. The avalanche will expose the combined system as insolvent, broken, in need to total rescue. The damage will necessitate rescue platforms to undermine the entire US$-based monetary system, certainly sufficient to lift gold well past the $1000 level. By the time 2009 approaches, the system will be recognized as totally broken. The new question will be whether that system can indeed be repaired. As measures put in place and debated for consensus approval, the urgently demanded movement should be the particulars on the new Resolution Trust Corporation. The desperation no longer hidden (like on Bernanke's face) will lift gold well past the $1000 mark. The impetus behind the gold price will turn to inflation much more than the US$ counter-lever. All major currencies will be inflating heavily, as seen in recent central bank decisions either to cut official interest rates or to hold steady. Major currencies will begin to be compared in a manner to judge which ones are weaker as they are undermined during stimulus to discourage economic recession and credit flow interruptions.

The new 2008 year will smash that notion, as an absolute avalanche of failed mortgages will slam the bank system and financial sector in general, the majority being prime mortgages. SHOCK & AWE IS RIGHT AROUND THE CORNER ON PRIME MORTGAGES, A FACT THE BANKERS ARE KEENLY AWARE OF!!! The villainous failed mortgages have a few traits in common. These primes are adjustable rate mortgages (ARMs) with harsh resets. They contain destructive features certain to cause as much pain as laughter for their insanity. Recall they are prime mortgages with lax features resembling subprime loans without the higher rates. A reaction to the incredibly flimsy inadequate Subprime Mortgage Freeze Plan, with dire descriptions of the prime mortgage avalanche can be found in the December special report to the Hat Trick Letter, entitled "National Bailout & Looming Mortgage Disaster."

Only 150 to 225 thousand subprime mortgages will be addressed by this flimsy HOPE NOW freeze plan, and nothing among the looming prime mortgages heading for certain default. The innovative mortgage products face ruin. Large cross sections of newer mortgages, written since year 2000, are under-water badly. Their loan balances are much greater than their home values. THE NEW PHENOMENON IN 2008 IS RECOGNITION OF ZOMBIE LOANS, ZOMBIE HOMEOWNERS, ZOMBIE CONSUMERS, AND ZOMBIE BANKS. They are bankrupt without declaration; they are walking dead. An added footnote is needed to this auxiliary HTL special report, tied to accusations of fraud by large mortgage bond investors, both in the United States and foreign institutions.

MOTIVE: AVOID LAWSUITS & FORCED BOND BUYBACKS
The threat of court-ordered forced contractual bond buyback by Wall Street con artists is nearing a reality. If investors engage the Wall Street banker broker dealers in the renegotiation, refinances, and workouts, then those institutional investors will lose the right to sue Wall Street firms, and lose the opportunity to force fraudulent bonds to be bought back at perhaps ten times their current traded prices. Wall Street, given its Fascist Business Model connection with the USGovt, has enlisted Congressional help to place 'Safe Harbor' obstructions to lawsuits, thus absolving the criminal activities perpetrated by Wall Street. The gaggle of Wall Street firms engaged in packaging mortgage bonds, ensuring they contained a 'AAA' false label, colluding with key agencies to misrepresent the sale of securities, has made a bold move to freeze troubled mortgages, and to dupe/lure investors into the process. If they take the bait, they lose the opportunity for remedy on hundreds of billion$ in fraud-ridden bond losses. My contention made for over two years is that the USGovt and Dept Treasury and Wall Street and numerous major icons in the United States embody institutionalized dishonesty. That perception is much more clear in 2007. Legal address and remedy of that institutionalized dishonesty might come in 2008.

Wall Street and other major bankers continue to soil their pants. They realize several looming tragedies:

• Prime 'AAA' mortgage bonds have lost roughly 20% of value
• Innovative flexible adjustable mortgages are due to default in droves
• Enormous growing list of under-water mortgages are beyond rescue
• Big banks are facing dire insolvency threats, as new defaults approach
• Enormous bond writedowns have only begun for big banks
• Insolvency can turn to bankruptcy with more debt rating agency downgrades
• Mortgage bond investors contemplate lawsuits, accusing Wall Street fraud
• Wall Street banks face the prospect of over $1 trillion in mortgage bond buybacks
• Rescue & remedy will trash the USDollar and catapult the gold price

As a preface, one should know that politicians did not advance this plan. The key initiators of the HOPE NOW project were three banks. It was an alliance led by the Federal Deposit Insurance Corp (insurer of banks), along with big banks and their lobbyists from Citigroup, JPMorgan, and Wells Fargo. These banks in my opinion are insolvent, soon to be forced into bankruptcy as the next round of the mortgage debacle unfolds from the 'innovative' adjustable and option laden mortgages. They all face bankruptcy, insured by the FDIC. If lawsuits are filed and that road is traveled, declared bankruptcy is assured. The rescues to save the Ruling Elite will lift gold and trash the USDollar, as much from a new unprecedented round of monetary inflation, as from destroyed image of the US financial system. Freezes never work. When in college, my memory is vivid of the lunatic Nixon Wage Price Freeze. When it lifted, the price inflation rampage was the worst in modern history. My suspicion is that when any mortgage freeze is lifted, both mortgage rates will rise sharply and mortgage bonds will fall sharply in value.

Few have bothered to think about the infectious disease of moral hazard, to consumer and household reactions. Many economic participants will feel left out with the current rescue, against a backdrop of watching colossal fraud go unpunished. They will possibly act destructively, an intentional effort to destroy their credit rating so they can participate in national bailouts. Many live in homes with negative home equity. They might feel above the rules, immune to impact of their actions, engrained in destructive habits, feel powerful from a reprieve, want to be included, or just not care. They will feel they have nothing to lose. The likelihood that property taxes will be paid, water & sewer fees paid, lawns mowed, hedges & trees pruned, garbage removed, broken windows repaired, holes in walls filled, driveway cracks filled, shingles straightened, liens on the property resolved, these are all in doubt in my book. Pride in ownership will turn ugly, into a free ride game. Practicalities are strained to the extreme. A zombie comes to learn to act with disregard, disrespect, and disobedience. Henry David Thoreau wrote 'Civil Disobedience' almost two centuries ago in response to the Spanish Civil War, yet another false flag self-inflicted attack. That was done to the USS Maine vessel off the Cuban coastline. Expect such disobedience to be practiced widely in reaction.

NOT A SUBPRIME PROBLEM ANYMORE
If 'AAA' rated mortgage bonds have lost 20% already, this is not a subprime problem anymore. My contention is that many 'AAA' bonds are likely to lose over 50% of their value, as home collateral value drops another 10%. Wells Fargo announced a whopping $1.2 billion loss from prime second mortgages recently. Remember how people could borrow their entire down payment with an immediate 20% second mortgage out of the gate? Well, they are failing, with Moodys estimating 15% of them to fail. That is on par with the horrendous subprime default rate. The E*Trade bond loss writedowns were not subprime. After taxes and cash infusion is removed from Citadel Investments, the E*Trade fire sale salvaged only 11 cents per dollar on their $3.1 billion prime mortgage bond portfolio. The liquidation damaged the entire market by exposing its low value. This is not a subprime mortgage problem anymore. The debt ratings agencies writedowns have entered a second gear, with some acceleration. They are not only downgrading massive bank portfolios, they are threatening to downgrade the bond insurers such as ACA Capital and MBIA, as well as others. What is a house or business worth when it cannot be insured due to faulty structures? NOT MUCH!!!

FASCIST BUSINESS MODEL ENTRENCHED
However, here is where the real damage comes, as an extension of the Fascist Business Model.
The sickest and often most fraud-ridden banking entities will receive fresh new money, possible USGovt handout infusions. The failures will be rewarded, leaving the successful, honest, competent to struggle or to go begging. Banks will issue fewer prime mortgages. The plan will force extreme focus on subprimes, ignoring primes. Banks will be forced to hold back on funding new loans since old loans must be addressed. In the process, their plan will very possibly accelerate the downside for housing prices. Home inventory levels will continue to rise. Sellers will not find willing buyers so easily capable to make final their loans. The lending institutions in general will be rendered less inefficient. The most glaring example of this principle will be the capital funding of Freddie Mac and Fannie Mae. F&F are failed institutions with broken apparatuses, having operated for years without disclosure, but will dominate the national program if our current leaders have their way. Instead, new financial entities should be created, not revival of broken entities. Inefficient capital usage will be the main feature of this plan.

In my opinion, THE FINANCIAL SYSTEM HAS OFFICIALLY ENTERED CHAOS, with that chaos more widely recognized in year 2008. To be sure, it is an early stage. Massive housing losses have occurred. Even more massive mortgage bond and related credit derivative losses will occur. Rewards are being prepared for the most reckless of participants. Encouraged destruction of credit and credit ratings is possibly around the corner, so that marginal households can participate in freezes, bailouts, or whatever is handed out. Subprime loan failures are the tip of the iceberg. In 2008, the breakdown of numerous other types of mortgages will occur, already in their initial phase. They are NOT subprime mortgages. The mortgage finance sequence of boom, bubble, bust is entering the third stage. Prices for housing properties will revert at least to where they were in 2001 when the insanity began, which was actively encouraged by Greenspan. History tells us that. His fingerprints are everywhere. All subprime mortgage bonds will go to zero in value. All CDO bonds containing subprimes will go to zero in value. All prime mortgage bonds will lose at least half their value. If the national decline in home prices falls over 10% to 15% more, then almost all recently issued prime mortgage bonds might possibly head to zero in value. Few talk about the next destructive factor for mortgage bonds.

Ultimately, a minimum of a $2 trillion bailout is necessary, as mortgage bond losses will be at least that high, especially when considering the leveraged CDO bond losses. The new bigger broader Resolution Trust Corporation must be created as soon as possible without delay. Urgency is here and now. The system is in the process of degradation, sure to lead to some increased disorder. The changes will be similar in England and possibly to some degree Spain, because they went overboard on real estate speculation. England built an economic dependence upon an inflated housing sector. Spain permitted uncontrollable vacation property speculation. Be sure to know that Wall Street firms are in charge of the solution to a disaster that they themselves perpetrated. Wall Street firms will want to be in charge of the bailouts, even the Resolution Trust Corp. Wall Street firms will want to be involved in the grotesque bailouts, since so much corruption and opportunity will be presented. Like the parasites they are, they sense gain. Think Halliburton and the Iraq & Afghan Wars, with profits abounding to insiders on cozy contracts. Think contractors in New Orleans and Hurricane Katrina relief. Think the next RTC administrators, with more huge profits. To even consider the fraud-ridden Freddie Mac and Fannie Mae for serving as the foundation financial agency for secondary market reinvigoration is a travesty. It is a blatant endorsement of the entrenched Fascist Business Model.

FAILED INNOVATION IN MORTGAGES
Anyone who believes the mortgage debacle is limited to subprime loans and bonds has bought hookline & sinker the story trumpeted by Wall Street and the larger banking community. The risk pricing model has broken, with authorities determined not to have the story properly. Instead, it is framed in friendly terminology, distorted to the public and the investment community. The world of bizarre reckless adjustable rate mortgages (ARM) is soon to suffer a publicly visible and horrible implosion. The aftermath of irresponsible 0% down payment mortgages is soon to suffer implosion. The innovative creative flexible mortgages are soon to suffer implosion. No documentation, no income mortgages, unimaginable in normal cultures, are soon to suffer implosion. A vast world of under-water mortgages exists in the United States, soon to suffer implosion. The abuse of second mortgages and home equity loans is soon to suffer implosion. The main focus of attention will be on California, the center of innovation and creativity. Think the American Home Dream turning to a Ball & Chain toward serfdom, the New American Nightmare. Many details are provided in the Hat Trick Letter Special Report.

The key theme with innovative adjustable mortgages is their zombie nature. Resale is hindered, as is refinance, since the property is vastly under-water, loan balance greatly exceeding the home value. A return to similar mortgage loans is impossible, since they no longer exist. A loan rate freeze is a certified prescription for another zombie loan and zombie home title owner. Particular gratitude goes to ScottM in Seattle and that anonymous San Francisco mortgage broker who offered details after his personal experience in approving over $2 billion in mortgage loans himself. His information is appreciated, and needs to be made more public.

Negative amortization mortgage implosion. This type loan has permitted home title owners to pay less than the appropriate interest amount, thus adding to the loan balance. When the loans hit their maximum negative potential allowance, a huge increase is forced which could result in required monthly payments not 20% to 35% higher, but 100% to 200% higher. The full interest requirement kicks in, based upon the full loan balance, having risen. Imagine a $1400 monthly payment shooting to $2800 or $4000!

Prime second mortgages implosion. This type of loan enabled a huge number of home title owners to effectively invest 0% down payment in their original purchase. Many lending institutions have cut off further withdrawals from the home equity source, in a lockdown much like applying a tourniquet to a bleeding limb. Wells Fargo once boasted this spring not to be involved in subprime mortgages, but they possess $84 billion of these worthless loans. Expect Wells Fargo to go bankrupt. The bankrupt banks will not just have Wall Street addresses.

Pay option adjustable rate mortgage implosion. Called 'Option ARMs' in the finance industry, this category will make national news for their insanity in negative amortization features. In volume, they will greatly eclipse the subprime story, since the loan type involves all risk levels of borrowers and all sizes of properties. Again, this feature enabled many people to buy far too large a property. Shocking statistics are cited in the special report, pertaining to these truly reckless loans. Bear in mind that homes have fallen in value, so underwater percentages in extreme cases of these loans might be more than 25%!!! Analysts estimate that on many of these Option ARM loans, home title owners are underwater by 15% to 20%. Many of these loans have seen their balances rise by 7% per year for at least three years. These loans are more disguised subprimes. The negative amortization features act like a timeduse to explode, in a situation offering no hope of refinance, no qualification for other loans, and no equity. They will go bust.

Hybrid interest only adjustable rate mortgage implosion. The hybrids attracted borrowers by offering a fixed low introductory teaser rate for a fixed three, five, or seven years. After that period, they adjust annually. Again, this feature enabled many people to buy far too large a property. The 3/1 (3-year fixed, adjust every 1 year later) began to reset in 2006, with many more in 2007. The 5/1 will begin to reset in 2008, causing a nightmare. Many lenders offered Hybrid ARMs to lower quality borrowers. Plenty such loans did not require income verification. Like the Option ARM, the low teaser rate caused the loan balance to rise during the introductory period, thus leading to vast number of loans being under-water. Again, refinance or new mortgage loans will not be approved. They will go bust.

CONCLUSION
The downtrend in housing prices generally might actually motivate banks and other lending institutions not to make more home loans. A tidal wave of foreclosures comes soon, not related to subprime in any way, with California at the epicenter. Mortgage bond holders of above described abusive INSANE mortgage loans packaged into bonds will suffer massive losses. For some, like Option ARMs, no bond market exists anymore. The banks on the other hand will suffer from the tidal wave of loan losses, much of which is deserved. My only hope is that Wall Street banks suffer their fair share of the pain. Home property values in some metropolitan areas are likely to fall by 30% to 50% from peak, taking them back to 2000 and 2001 levels. THE ONLY SOLUTION IS UNTHINKABLE, A NATIONAL BAILOUT OF THE MAJORITY OF HOME MORTGAGES AND MORTGAGE BONDS, SINCE THE ENTIRE SYSTEM IS BROKEN IRREPARABLY.

The effect on the USDollar and gold price is uncertain, but surely negative for the clownbuck and positive for gold. As Persian Gulf oil producers watch in horror, they will be increasingly motivated to cut their US$ formal currency pegs. The upcoming US mortgage debacle will kill the USDollar as the recognized practiced endorsed world reserve currency, with the abolition of the defacto PetroDollar standard certain. The gold price will rise amidst the absolute hurricane of low pressure asset deflation and colossal monetary inflation to fight it. THE GOLD PRICE IS CONSOLIDATING NEAR AND ABOVE 800, A DISPLAY OF STRENGHT AND RESILIENCE.

My dire forecast for 2008 is that the USDollar DX index will find its way to 65 and the gold price will find its way to $1200 per ounce. A 10% to 15% decline in the USDollar comes. A 30% to 50% rise in gold comes. The positive rub to investors is that as the national emergency becomes more widely recognized, the need to flood the bank & bond arenas, as well as the corporate credit & household arenas, will become broadly understood as desperate. Without that flood, the system will enter a deeper economic recession than already is in progress. Without that flood, the system will see the banking system actually fail.

The helicopters start to drop money

The helicopters start to drop money

Published: December 12 2007 18:01 | Last updated: December 12 2007 18:01

The central bank helicopters are planning a co-ordinated drop of liquidity on troubled market waters. The money to be dropped now is not that large. But if this does not work, more will surely follow. The helicopters will fly again and again and again.

One point is clear: central banks must be pretty worried to take such a joint action. For what is remarkable about Wednesday’s statement is that five central banks – the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve and the Swiss National Bank – are co-ordinating their (different) interventions. Their hope must be that this action will trigger not panic (”what do the central banks know that I do not?”) but confidence (”now that the central banks are prepared to intervene in this way, I can at last stop worrying”).

Forum

Have central banks done enough to restore confidence in the global financial system? Have your say

It is easy to understand why central banks should have decided to take heroic action. Confidence has fled the markets in a four-month long episode of “revulsion”. As a result, monetary policy is not being transmitted to the ultimate borrowers as central banks wish. Particularly worrying has been the widening of gaps between three-month inter-bank lending rates and policy rates in the dollar, euro and sterling markets. Spreads in the last of these have recently become enormous (at more than 100 basis points).

Yet this is not the only indication of distress: in the US, for example, the spread between the rate of interest on 3-month treasury bills and AA-rated asset-backed commercial paper has widened to 270 basis points from a mere 30 basis points earlier in the year. This is revulsion, indeed.

So why might Wednesday’s co-ordinated interventions succeed where previous actions have not? In a word, the answer is: stigma.

Central banks have become increasingly worried about the unwillingness of banks to borrow from them. These banks reasonably fear that exceptional borrowing is a signal mainly of distress. The hope of the central bankers is that by auctioning funds to a wide group of institutions such anxiety would diminish, if not disappear. That hope is strengthened by the fact that these actions are joint: they are evidently aimed at lifting sentiment rather than saving specific institutions.

Will this work? The answer is that if the fundamental problem in the markets is lack of liquidity (that is, panic), rather than insolvency, and if central banks are believed willing to offer liquidity to solvent institutions without limit at what the latter consider a “reasonable” discount, then symptoms of stress should indeed disappear.

Yet these are both important provisos. In particular, there is good reason to believe that a good part of the stress is caused by worries over solvency, indeed by the reality of threatened insolvency in at least some cases. True, central banks or, more precisely, the treasuries that stand behind them, could eliminate that concern, too, by buying up every piece of paper, good, bad and indifferent. But that would also be an open-ended, possibly very expensive and certainly unpopular bail out.

Moreover, even if today’s stress is indeed a liquidity problem (something that we do not now know), there remains the question of the scale of the intervention required. Assume, for example, that central banks end up buying a vast amount of paper and so providing liquidity to institutions that have deliberately taken on big risks, by lending long and borrowing short. They have then validated those strategies, after the event.

So does the action by the central banks give us good reason to stop worrying? Only if you like huge rescue operations of incompetent bankers, would be my answer. They may well get the markets back into order. They may, in this way, rescue economies from the threat of recessions. But that is not the end of the story. The bigger the rescue has to be today, the more stringent regulation of financial institutons will have to be in future.

Copyright The Financial Times Limited 2007

Tell it like it is, Mortgage Fraud

New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."

Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.

Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?

What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have worked their magic - not five years from now.

Those selling the "freeze" have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures. But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures. Rate freezes are at best a tool for delaying the inevitable foreclosures when even the most optimistic forecasters expect home prices to fall. In October, Goldman Sachs issued a report forecasting an incredible 35 to 40 percent drop in California home prices in the coming few years. To minimize losses, a mortgage bondholder would obviously be better off foreclosing on a home before prices plunge.

The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"

The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.

The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?

Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time.

As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.

Paulson became the U.S. Treasury secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.

Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.

If a mortgage bond investor sues Goldman Sachs to force the institution to buy back loans, could Paulson be forced to testify as to whether Goldman Sachs knew or had reason to know about fraud in the origination process of the loans it was bundling?

It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.

I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as "helping working families stay in their homes." That's why these meetings were secret, and reporters and the public weren't invited.

The next time that Paulson is before the Senate Finance Committee, instead of asking, "How much money do you think we should give your banking buddies?" I'd like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs.

The Goldman report in October suggests that rampant investor demand is to blame for origination fraud - even though these investors were misled by high credit ratings from bond rating agencies being paid billions by the U.S. investment banks, like Goldman, that were selling the bundled mortgages.

This logic is like saying shoppers seeking bargain-priced soup encourage the grocery store owner to steal it. I mean, we're talking about criminal fraud here. We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.

Sean Olender is a San Mateo attorney. Contact us at insight@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL

Home Foreclosures Hit Record High

Thursday December 6, 10:37 am ET
By Jeannine Aversa, AP Economics Writer Home Foreclosures Hit Record High in Third Quarter WASHINGTON (AP) -- Home foreclosures shot up to an all-time high in the third quarter, fresh evidence of the problems afflicting distressed homeowners amid the housing meltdown.

The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released Thursday said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.

More homeowners also fell behind on their monthly payments.

The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said. Payments are considered delinquent if they are 30 or more days past due.

Homeowners with spotty credit who have subprime adjustable-rate loans were especially hard hit. Foreclosures and late payments for these borrowers also reached all-time highs in the third quarter.

The percentage of subprime adjustable-rate mortgages that entered the foreclosure process soared to a record of 4.72 percent in the third quarter. That was up from 3.84 percent in the second quarter. Late payments jumped to a record high of 18.81 in the third quarter, up from 16.95 percent in the second quarter.

The association's survey covers more than 45 million home loans nationwide.

The new figures came as President Bush, accused by Democrats and other critics of not doing enough to help stem the mortgage crisis, was set to unveil a plan Thursday that would allow some homeowners with certain subprime home loans to freeze their interest rate for five years. The plan aims to prevent some distressed borrowers from losing their homes. It also is intended to ease the danger facing the economy from a wave of foreclosures -- something that would further aggravate problems in the housing market.

Homeowners with spotty credit histories or low incomes who took out higher-risk subprime adjustable-rate mortgages have suffered the most distress as the housing market went from boom to bust.

Initially low interest rates that reset to much higher rates have clobbered these borrowers. Analysts estimate that nearly 2 million adjustable-rate subprime mortgages will reset to higher rates this year and next.

Doug Duncan, the association's chief economist, said in an interview with The Associated Press that foreclosures and late payments are likely to stay high or get worse in the coming quarters.

The mortgage meltdown has hit financial companies with billions of dollars in losses from bad subprime mortgage investments. Some lenders have been forced out of businesses. The situation has elevated the odds of the country falling into a recession. It has roiled Wall Street and has offered lots of fodder for Democrats and Republicans to blame each other for the mess.

Against this backdrop, the Federal Reserve next week is expected to slice a key interest rate for a third time this year to bolster the economy.

Duncan said there were a host of factors to blame for the rise of foreclosures and late payments in the third quarter: broad-based declines in home values; the resetting of adjustable-rate mortgages to higher rates; the drying up of credit for subprime and "jumbo" mortgages, those exceeding $417,000; and economic weakness in some parts of the country.

California and Florida -- the two largest states in terms of outstanding mortgages -- were key drivers in the increase in the national foreclosure rates, the association said. The two states together accounted for 33.7 percent of the subprime adjustable-rate loans that entered the foreclosure process in the third quarter. The two states combined also accounted for 42.4 percent of creditworthy "prime" adjustable-rate mortgages that started the foreclosure process.

A Real Estate Agent speaks

I loved selling RE in the early 90’s after the last bubble blew. The buyers were loyal and really need help sorting through the MOUNTAIN of inventory and were grateful for your time and service finding them a good purchase. Shortly after 2000 everything went to shit (except the money) when the lenders gave money to any chimp with a bananna. Then the sellers acted as if they were doing you a favor by letting you “have the listing” and the buyers would screw you at the drop of a hat no matter how much time and effort you gave to them. Around ‘02 the corruption started in earnest and it really became a game of “SCREW THE FB!!!!”. By the time we got to 05′ I had took the time to finish my Accounting degree and stopped selling to buyers. The corruption (actual blatant law breaking) became so common place with the new agents/lenders/title cos. that those involved assumed that “this is the way it works”… Break the law, get paid… wash, rinse, repeat..

I am getting ready to get my RE brokers license, but don’t think I will ever practice openly again. Will do my own deals, or for friends, but this bubble has crushed my desire to work actively with others that entered the business. I am sure that most of the shukamajivers will get washed out, but it just put a horrible taste in my mouth that will be hard to forget.

S.S. Paulson Rick Ackerman

S.S. Paulson
Iceberg-Bound

For edition of December 04, 2007

We always expected the Fed to pull out all the stops when the U.S. economy began to slip into the void, but we never could have imagined the spinmeisters would invent “mortgage welfare” even before recession had been officially declared. Treasury’s latest plan is designed to make it easier for certain ARMs borrowers to temporarily freeze their starter rates to avoid foreclosure. We know the situation is dire because the big lenders are signing on without even having their arms twisted.

It is of course inconceivable that loosening their grip on their least creditworthy borrowers is going to be a big money maker for companies like Countrywide and Washington Mutual. But profit it most surely not the point. It is appearances that count, and if the inevitable collapse of the U.S. mortgage market can appear to have been pushed back to a later date, that is reason enough for Uncle Sam to waive the daunting regulatory hurdles that might otherwise have impeded this salvage job for years. Paulson’s plan is not merely being fast-tracked, it is being shot out of a legislative cannon.

$100 Billion Pisher Fund

It is so urgent, in fact, that another jerry-rigged relief package, Citigroup’s $100 billion superfund, seems to have been relegated to the back burner. However, we expect that that measure too will be fast-tracked once the ARMs Chanukah present has been bestowed on beleaguered home-“owners.” Morgan Chase and Bank of America are co-sponsors of the superfund, which, like mortgage welfare, is at best a cynical ploy designed to forestall the inevitable. But whereas the ARMs giveaway may buy lenders an extra month or two to rearrange the deck chairs on the S.S. Paulson, the $100 billion superfund is going to get vaporized in, oh, maybe eight minutes.

You can consider that a prediction -- one that follows the old trader’s axiom that “opportunity moves to size.” What this implies is that when you dangle $100 billion of real money in front of securities traders, they will arbitrage it down to nothing faster than you can say “piranha.” Once enacted in to law, that is $100 billion they can count on to be there, and as long the $100 billion offer remains on the tote board, the hedgers will find something to sell short against it.

You can be certain the banks pulled that number out of thin air as an answer to the question, “What kind of figure would impress the public as a ‘serious’ reserve?” A hundred billion dollars may sound like an awful lot of money, but relative to a financial shell game that has put into play more than $500 trillion worth of leveraged financial instruments, it is probably not enough, even, to survive the eight-minute strafing we predicted above.

It's not even the bottom of the first

November 30, 2007

Florida Freezes Its Fund as Governments Pull Out

By MARY WILLIAMS WALSH and MICHAEL M. GRYNBAUM

Seeking to stem a multibillion-dollar run on an investment pool for local governments, top Florida officials voted yesterday to suspend withdrawals from the fund, leaving some towns and school districts worrying about how they would pay their bills.

Local governments in recent weeks have been withdrawing billions of dollars from the fund, fearing losses on investments in debt related to subprime mortgages. The rush to get out of the fund began even though a relatively small percentage of the fund is invested in subprime-related debt, and it is unclear what losses the fund may sustain.

Florida’s troubles were the latest episode in the running crisis in subprime lending that has been troubling the credit markets this fall, hitting homeowners, mortgage providers, hedge funds and Wall Street firms. It was the first time since the problems started that a large state investment pool has been forced to freeze withdrawals.

“If we don’t do something quickly, we’re not going to have an investment pool,” warned Coleman Stipanovich, executive director of the Florida State Board of Administration, which operates the investment fund. He spoke at a special board meeting yesterday, called to decide what to do about the flood of withdrawals.

The state-run fund pools money from local communities so they can get better returns on investments. The Florida fund, known as the Local Government Investment Pool, had about $27 billion in assets until this fall. Its value had fallen to just $15 billion this month because of withdrawals, Mr. Stipanovich told the three-member board, which consists of Governor Charlie Christ; the state attorney general, Bill McCollum; and the state chief financial officer, Alex Sink.

The fund gave back worried investors $3 billion just yesterday, before the window closed, Mr. Stipanovich said.

At the special meeting, the board also considered ways to shore up the investment fund and find emergency money to help cash-short local governments through the crisis. One idea under consideration was tapping into the $137 billion state pension fund for public employees in Florida, which is also controlled by the State Board of Administration.

Mr. Stipanovich called that idea “a wonderful diversifier,” but Ms. Sink said she thought it would transfer too much risk into the pension fund.

“We would be, in effect, bailing out one fund, over which we have no legal obligation, with the star fund of Florida, which is our pension fund,” Ms. Sink said.

The union that represents thousands of public workers in Florida also expressed dismay at the idea of using the pension fund. “When something’s that big, if problems happen it can take a long time to restore the health,” said Doug Martin, legislative director for the American Federation of State, County and Municipal Employees in Tallahassee. The union represents about 120,000 participants in the state pension fund.

Some local officials in Florida who did not get their money out of the fund in time expressed indignation yesterday.

“What the cabinet did was stupid,” said Maryanne Morse, Seminole County’s clerk of the circuit court, as county investment officers are known in Florida.

Ms. Morse said she had withdrawn $240 million of Seminole County’s money after learning the fund had exposure to a type of debt, known as commercial paper, backed by subprime loans — but left another $96 million in place. She said she was bracing herself for what might happen next week, if the board votes to resume withdrawals at a meeting scheduled for Tuesday.

“When they open it again, there is just going to be a tremendous run on the bank,” she predicted.

Ms. Morse said that Seminole County could lose a small amount of its principal and that it would in any case be forfeiting up to $3 million just by moving the $240 million, because the money is sitting in an account that pays less interest. She said the county could delay some capital improvements if it lost money.

But other local officials waved off such concerns. Ed Fry, the clerk of the circuit court in St. Lucie County, said that he had left $140 million — about half of the county’s assets — in the state investment fund and that he did not expect big problems.

“They came through Long-Term Capital Management,” he said, referring to a hedge fund whose collapse jarred Wall Street in 1998. “They came through Enron. They’ll come through this, too.”

Until now, local governments in Florida had considered the fund a safe account that happened to pay a little more interest than a bank would. They praised its convenience, saying that in normal times they could request a withdrawal at 11:00 a.m. and see it arrive in their bank accounts by 3 p.m.

Anyone requesting money after 11:00 yesterday, however, was turned away.

The trouble at the investment fund started at the end of October, and then it began to accelerate.

Leanne Evans, treasurer of the Palm Beach County school district, said that late in October she received a memo from the board’s outside investment adviser, pointing out that the investment pool always seemed to beat its benchmark and suggesting that she look into how it was achieving above-par results month after month. Normally, higher returns can be achieved only by bearing higher risks, and Ms. Evans wanted the district’s short-term money in instruments that were virtually risk-free.

When she made inquiries, she said, she learned that the fund held some commercial paper backed by subprime loans.

“Truthfully, it was a relatively small percentage of the portfolio,” she said. “But it scared a lot of people, because local governments would never invest in that.”

She said the state fund’s formal investment guidelines were far more relaxed than her own local rules. She whisked out the school district’s money on Nov. 2, but said she would put it back again if the state ever tightened its guidelines enough to satisfy Palm Beach school district’s requirements.

Who Didn't Know Rudy Was A Crook?

Rudy calls billing 'perfectly appropriate'
By: Ben Smith
November 29, 2007 10:05 PM EST

Former New York Mayor Rudy Giuliani and his senior aides Thursday blamed anonymous bookkeepers for his administration's practice of billing the travel expenses for his personal security detail to obscure city agencies.

But a top aide was unable to say why Giuliani’s administration and his successor's rebuffed questions from the city's top fiscal watchdog in 2001 and 2002. City Comptroller William Thompson said Thursday his auditors were “stonewalled” by the Giuliani administration when they inquired about the unusual billing procedures, which he called "disturbing."

Instead, Giuliani and his aides focused their attention on the issue of whether the unlikely divisions of the mayor's office had been reimbursed — not why the expenses were billed to out-of-the-way agencies such as the New York City Loft Board in the first place.

Politico reported that the bills included expenses incurred on 11 trips to Southampton, where the woman who would become Giuliani’s third wife had an apartment, as well as for campaign travel during his abortive 2000 Senate run.

Giuliani said that the "perfectly appropriate" practice of funneling his security detail's expenses through the mayor's office was begun in the mid-1990s to speed payments that had been delayed in police bureaucracy.

"The police department would sometimes ... be slow in payment," he told CBS' Katie Couric. "City Hall would pay it first, then the police department would reimburse every single penny of it."

A spokesman for Mayor Michael Bloomberg confirmed that the police department reimbursed the mayor's office for its expenses. The spokesman, Stu Loeser, declined to comment on Giuliani's claim that the billing practice was unremarkable, or that it predated the period examined by Politico, which coincided with Giuliani's affair with Judith Nathan.

Giuliani was not asked directly why payments went through offices like the Loft Board and the Assigned Counsel Administrative Office, rather than directly through the mayor's office.

A top campaign aide who was his City Hall chief of staff, Anthony Carbonetti, said he simply doesn't know the reason.

"It was a bookkeeping exercise," he said in an interview with Politico. "Why it was done this way, I don't know."

Carbonetti also said he was unaware that the city comptroller had sought explanations for some of the billing during Giuliani's last year and early in the term of his successor.

"I couldn't even tell you who that correspondence went to," he said.

”When [the auditors] tried to get answers to the questions, they were getting stonewalled by City Hall and this is in the previous administration, under the Giuliani administration. They were not giving answers," Thompson said Thursday. "This isn't the normal practice that we see now in other agencies. ... These are disturbing trends that we made the Bloomberg administration aware of, and it's clear that ... they haven't repeated the same mistakes, they haven't used the same processes of the former administration."

In 2001, Giuliani was on hostile terms with the former city comptroller, Alan Hevesi, and a Giuliani aide suggested the election-year climate may have contributed to the lack of cooperation.

In the interview with CBS, Giuliani referred to the Politico account as a "totally false story."

However, neither he nor his aides have questioned any of the facts reported by Politico.

Politico editor-in-chief John F. Harris said in a statement: “This was a fair and carefully reported story. We gave the Giuliani campaign ample opportunity to dispute the story or comment on our reporting before publishing and they did not do so. Since the story ran, we have not heard from the campaign disputing any substantive aspect of the story.”

Model won't accept dollars

With earnings of more than $30 million a year, she rarely wakes up for much less than $100,000 a day. Now Gisele Bundchen has decided to stay in bed unless she's paid in euros.

In a dispatch to dismay loyal fans of the greenback, Bloomberg news agency reported today that the Brazilian supermodel is telling prospective employers that she no longer accepts American dollars.

Ms Bundchen reportedly asked Proctor & Gamble to pay her in euros when she signed a deal to represent Pantene hair products back in August. The Brazilian weekly Vega reported that she will also get euros for a recent deal with Dolce & Gabbana to promote the designers' new perfume.

"Contracts starting now are more attractive in euros because we don't know what will happen to the dollar," Patricia Bundchen, the model's manager and twin sister, told Bloomberg.

Ms Bundchen is in good company. The US dollar has lost around one-third of its value since 2001 and is trading at record lows against the euro, Canadian dollar and Chinese yuan. It is at its cheapest for 26 years against the pound sterling.

Bloomberg put Ms Bundchen alongside the billionaire investors Warren Buffett and Bill Gross "at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means".

Citigroup's day of reckoning

Prince out as chairman and CEO as nation's largest bank discloses possible additional subprime mortgage writedowns of up to $11 billion.

November 4 2007: 8:55 PM EST

NEW YORK (CNNMoney.com) -- The meltdown in the housing market hit Citigroup, the nation's No. 1 financial services company, Sunday as it announced the departure of chairman and chief executive Charles Prince and a possible $11 billion in additional subprime writedowns.

"It is my judgment that given the size of the recent losses in our mortgage- backed securities business, the only honorable course for me to take as chief executive officer is to step down," Prince said in a statement issued by Citigroup. "This is what I advised the board."

Former Treasury Secretary Robert Rubin, a board member and chairman of the executive committee for the nation's largest financial services firm, was named chairman of the board. Sir Win Bischoff, who heads Citigroup (Charts, Fortune 500)'s European unit, will serve as interim CEO until a permanent successor is named.

Citigroup also said it expects a reduction of between $8 billion and $11 billion in the fair value of its exposure to the subprime mortgage market. It said it expects to take a fourth-quarter writedown on the reduction, although the size of the writedown will depend on future market conditions.

The company said the decline in its subprime portfolio, which totals about $55 billion, came as the result of rating agency downgrades and other market developments since the end of September.

Citigroup said it will not cut its dividend and expects to regain its financial balance - meeting its capital ratio targets - by the second quarter of 2008.

The company also said that because of the uncertain nature of market conditions, it doesn't plan to issue any updates about its mortgage situation until fourth-quarter figures are released in January, and that it doesn't plan to issue forecasts for any future reporting periods.

Citigroup said Prince retired from the top positions. The weekend has been rife with talk of his departure as Citigroup's board met to consider his fate.

Prince's is the second high-profile Wall Street departure in the last week. Stanley O'Neal resigned as chairman and CEO of Merrill Lynch (Charts, Fortune 500), the nation's largest brokerage firm, last Tuesday.

The company said a committee will search for a successor as CEO. That committee will consist of Rubin and three other board members: Alcoa Inc. (Charts, Fortune 500) chairman and CEO Alain Belda, TFF Study Group consultant Franklin Thomas and Time Warner Inc. (Charts, Fortune 500) chairman and CEO Richard Parsons. Time Warner is the parent of CNNMoney.com.

"We intend to complete our search for a new CEO as expeditiously as possible, reviewing qualified CEO candidates from outside as well as within our organization," Rubin said in a statement.

Among Rubin's first acts as the new chairman is the creation of a new unit aimed at managing the subprime situation.

"A new unit, the sole focus of which will be on managing the assets related to sub-prime mortgage securities and their resultant exposures, has been established," Rubin said in the Citigroup statement. "This unit will be separate from the other parts of our capital markets and banking business."

Rubin began his career with Goldman Sachs, rising to the position of co-chairman before leaving to join the administration of President Bill Clinton in 1992. After serving two years as the head of Clinton's National Economic Council, Rubin succeeded Lloyd Bentsen as Treasury Secretary in 1995.

He was given much of the credit for the economic growth of the Clinton years, and worked closely with then Federal Reserve Chairman Alan Greenspan.

Rubin left the White House in 1999, and joined Citigroup soon thereafter.

According to Citigroup, Bischoff rose through the ranks of the investment firm Schroders PLC. When it was taken over by Citi's Salomon Smith Barney unit in 2000, Bischoff became head of Citi Europe.

Citi reported a sharp drop in earnings on Oct. 15 that Prince at the time termed "disappointing." The firm had already announced $3 billion in writedowns because of bad investments in securities backed by subprime mortgages, as well as tighter credit market conditions. To date, Citi has reported subprime and trading losses totaling just under $6 billion.

The same day it reported results it joined with rivals JP Morgan Chase (Charts, Fortune 500) and Bank of America (Charts, Fortune 500) to set up a rescue fund to try to buy up to $100 billion in debt in an effort to prevent a fire sale of subprime assets. The U.S. Treasury Department helped facilitate the creation of the fund, popularly referred to as the Wall Street "superfund" after the EPA trust fund designed to clean up toxic waste sites. Citi was seen as leading the effort.

But the fund has been criticized by a wide range of economists, including former Federal Reserve Chairman Alan Greenspan, as a market-distorting structure that could add to, rather than answer, investors' doubts about the securities and end up making the problems worse.

Prince had seemed to have the support of the Citigroup board throughout the market turmoil. But investors were less confident in the firm. Shares have lost nearly one third of their value since the end of May, almost twice the drop seen in the KBW Bank Stock index over that time. The Dow Jones industrial average, of which Citigroup is a component, is down less than 1 percent during the same period.

Prince, 57, was paid just under $26 million in salary, bonus, stock and other benefits, according to Citi's filings. Information about any payments he may receive due to his departure was not immediately available.

He had 1.6 million shares of Citi stock as of Feb. 28, according to company filings, and options for another 1 million shares. If those options were all exercised, his holdings would be worth nearly $100 million based on Friday's closing price.

He had been named CEO of Citi in 2003 and assumed the chairman post in 2006 with the retirement of Sandy Weill, who created Citigroup when the financial services firm he created, Travelers, bought Citibank in 1998.

Prince came to Citi from the Travelers side of the merger. He had joined a predecessor of that firm in 1979 known as Commercial Credit Company, working his way up to executive vice president of the firm by 1996. In 2000, he was named chief administrative officer and by 2001 the chief operating officer of the financial services conglomerate.

He began his business career as an attorney at U.S. Steel (Charts, Fortune 500) in 1975.

These are our allies?

ISLAMABAD, Pakistan (CNN) -- Hours after declaring a state of emergency Saturday, Pakistani President Pervez Musharraf ordered troops to take a television station's equipment and put a popular opposition leader under house arrest.

Musharraf also suspended the constitution and dismissed the Pakistan Supreme Court's chief justice for the second time.

On Sunday, police arrested the Javed Hashmi, the acting president of ex-Prime Minister Nawaz Sharif's opposition party was arrested, along with 10 aides, The Associated Press reported. Hashimi was arrested when he stepped outside his house in the central city of Multan, AP reported.

The country is at a critical and dangerous juncture -- threatened by rising tensions and spreading terrorism, Musharraf said in a televised address to the nation after declaring martial law.

As Pakistani police patrolled the streets of the capital, Islamabad, Musharraf said his actions were "for the good of Pakistan."

There was quick condemnation from within and outside his country.

The Supreme Court declared the state of emergency illegal, claiming Musharraf -- who also is Pakistan's military chief -- had no power to suspend the constitution, Chief Justice Iftikhar Mohammed Chaudhry said.

Shortly afterward, government troops came to Chaudhry's office and told him the president had dismissed him from his job.

Justice Abdul Hameed Dogar was quickly appointed to replace him, according to state television.

It was the second time Chaudhry was removed from his post. His ousting by Musharraf in May prompted massive protests, and he was later reinstated. See a timeline of upheaval in Pakistan »

Musharraf complained in his speech that the media -- which he made independent -- have not been supportive, but have reported "negative" news.

Early Sunday, two dozen policemen raided the offices of AAJ-TV in Islamabad, saying they had orders to take the station's equipment.

The government also issued a directive warning the media that any criticism of the president or prime minister would be punishable by three years in jail and a fine of up to $70,000, said Talat Hussain, director of news and current affairs for AAJ.

U.S. Secretary of State Condoleezza Rice -- who is in Turkey for a conference with Iraq and neighboring nations -- said The United States doesn't support any extra-constitutional measures taken by Musharraf.

"The situation is just unfolding," Rice said. "But anything that takes Pakistan off the democratic path, off the path of civilian rule is a step backward, and it's highly regrettable."

A senior Pakistani official said the emergency declaration will be "short-lived," and will be followed by an interim government.

Martial law is only a way to restore law and order, he said.

Mahmud Ali Durrani, Pakistan's ambassador to the United States, agreed.

"I can assure you, he will move on the part of democracy that is promised ... and you will see that happen shortly."

Musharraf was re-elected president in October, but the election is not yet legally official, because the Supreme Court is hearing constitutional challenges to Musharraf's eligibility filed by the opposition.

Under the constitution, Musharraf couldn't run for another term while serving both as president and military leader.

The court allowed the election to go ahead, however, saying it would decide the issue later.

Some speculated that the declaration of emergency is tied to rumors the court was planning to rule against Musharraf.

Musharraf has said repeatedly he will step down as military leader before the next term begins on November 15 and has promised to hold parliamentary elections by January 15.

Meanwhile, popular opposition leader Imran Khan said early Sunday that police surrounded his house in Lahore, barged in and told him he was under house arrest.

Musharraf also had Khan placed under house arrest during a government crackdown in March 2006.

Asked about Musharraf's actions Saturday, Khan said, "We are going to oppose this in every way."

"None of us accept ... this whole drama about emergency."

Former Prime Minister Benazir Bhutto -- who arrived in Karachi Saturday from Dubai, where she had gone to visit her family -- described a "wave of disappointment" at Musharraf's actions.

Bhutto -- who returned to Pakistan last month after several years in exile -- wants to lift her Pakistan People's Party to victory in January's parliamentary election in the hope she can have a third term as prime minister.

The nation's political atmosphere has been tense for months, with Pakistani leaders in August considering a state of emergency because of the growing security threats in the country's lawless tribal regions. But Musharraf, influenced in part by Rice, held off on the move.

Musharraf, who led the 1999 coup as Pakistan's army chief, has seen his power erode since the failed effort to oust Chaudhry. His administration is also struggling to contain a surge in Islamic militancy.

Coming to Wall Street - a $10B hit

Deutsche Bank analyst sees mortgage fallout affecting earnings through end of year; Merrill, Citi to be hit hardest.

By Grace Wong, CNNMoney.com staff writer

November 2 2007: 11:02 AM EDT

LONDON (CNNMoney.com) -- Banks are likely to mark down another $10 billion of mortgage assets in the fourth quarter, according to one analyst's estimates.

Deutsche Bank analyst Michael Mayo said in a note Thursday that banks and brokerages are likely to see their earnings pressured through the rest of 2007.

Merrill Lynch & Co. Inc. (Charts, Fortune 500) and Citibank Inc. (Charts, Fortune 500) are expected to be hit the hardest. Mayo estimated each bank would write down $4 billion in the fourth quarter.

He said Bear Stearns Cos. Inc. (Charts, Fortune 500), Morgan Stanley (Charts, Fortune 500), Bank of America Corp. (Charts, Fortune 500) and Wachovia Corp. (Charts, Fortune 500) are also likely to take markdowns.

Banks have taken massive hits from risky mortgage securities in the third quarter. Merrill Lynch wrote down $7.9 billion, and Citi took a $2.2 billion markdown due to mortgage-backed securities and credit trading losses.

Fears of more writedowns have stoked credit worries and raised investor anxiety. The Dow Jones industrial average plummeted 362 points on Thursday - its fourth-biggest point decline of the year - and kept falling on Friday.

Stocks in the financial services sector led declines. Merrill stock sank 8 percent in morning trading on Friday. Citi shares fell about 2 percent and are at their lowest level in more than four years.

The pain from the subprime wipeout isn't likely to abate anytime soon. Mayo said mortgage problems could cut bank earnings by 10 to 25 percent over the next two to three years.

The crisis has turned up the heat on Wall Street CEOs. Merrill chief executive Stanley O'Neal stepped down earlier this week amid mounting criticism of the firm's risk management practices. Citi's Chuck Prince and Bear Stearns' James Cayne are also facing scrutiny.