Saturday, October 4, 2008

More of the Same = Infamy ("Is Stupid Really the New Smart?")

Or is "evil" really the new "smart?" I've been thinking since yesterday (while reading Mish and Roubini (please click on the chart above if you've been awaiting your heart attack) as the Congress hurriedly passed the bailout) that things may never get better for those left out of the rah-rah Cheney/Bush outsourced-jobs-so-productivity-grows-with-no-real-income-improvement New American Economy (not in my lifetime anyway). And we are surely stuck with the world which was purposely fashioned by what I've come to think of as the politically-enlightened-and-inspired BushLeagueCheneGang: that peculiar mixture of players on both sides of the political divide who have worked in tandem (to benefit themselves and/or their funders) to bring the taxpayers of the United States of America to this historic economic moment of cliff-hanging disbelief. You may be thinking, but surely the taxpayers will benefit (somehow) from this mind-bogglingly expensive, complicated deal (details of which were not available for public appraisal before the vote (as they were hammered out in the backrooms of the House by "insiders,")) or at least it will contain some sweeteners for those who have been a part of the population who have suffered from the ever-increasing job losses/ongoing economic downturn experienced continuously since the Baker/Cheney/Bush litigation that stole the 2000 election. We, of the left out by the peculiar growth economy of the Bush League, will probably only realize our chance to ever catch up with the others after the cataclysm that will soon be taking place when the recession/depression deepens and many thousands if not millions of people lose their jobs and savings as well as any safe places to put money/investments stateside. Good times to look forward to. I saw this absolute oddity (that screamed to be exposed) take place on TV last weekend, and wanted to bring it out in the open for your appraisal and enjoyment so that you also may ask (as I did at the time to the TV set) why Chris Dodd (D-CT) (who took (unreported) sweetheart loans from the home loan money machine, Countrywide Financial, newly acquired (in July) by Bank of America after Fed approval (in June)), and John Boehner (R-OH) (who has been deeply involved for years in the Rethugli-Con financial scams) couldn't tell George Stephanopolous last Sunday morning why they were afraid that "you'll be afraid if" they "say what Paulson said" to them secretly about the consequences of not passing the bailout? Why possibly would two fully functional, long-term, adult representatives in the Congress of the USA be afraid to have the effects of not passing the bailout plan be known (unless some perhaps, blackmail, were involved)? Now we only have to be afraid of what the effects are from its rapid passing. (As a side note you should be aware that "In 1997 Countrywide spun off Countrywide Mortgage Investment as an independent company called IndyMac Bank. Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run.) I'm surely glad that the leading Democrat as well as his good friend, the leading Rethuglican (just ask them!), have clean hands here. (It's times like this that make me long for the true representatives of the people: the Republicrats.) I often ponder now upon how many people, who thought Bush so charming and clever when he bragged to schoolchildren about being a "C" student ("and look where I am now!"), and that McCain was so brave (not foolhardy), to admit that he graduated fifth from the bottom of his class at the Naval Academy, have changed their minds about the meaning of "clever" and "brave?" Or "is stupid really the new smart?" And how much of a disaster the Sarah Palin interview with Katie Couric and her debate performance were (and the yuk-yuks the ensuing dissection of "the real Sarah Palin" got on CNN (not to mention her revealing trip to "Iraq" (actually Kuwait)). I continue to try to puzzle out the current doctrine of the MSM who worked so hard to misreport everything that occurred during the last 7 1/2 years, and are still loath to tell the truth about what is happening now in the economy, who or what belief system is to blame, and what the implications of it are, thinking all the while that they would vastly benefit from the widespread chanting of the "greed is good" mantra at the feet of the Cheneyites. What did you think about Chris Matthews (as well as Keith Olberman) being replaced by MSNBC at the Rethuglican Convention after he held Pat Buchanan's feet to the fire on "Hardball" over the kid-glove treatment of Sarah Palin? And the chutzpah shown by the yelling Pat Buchanan when he demanded (on what? pain of death?) that Sarah Palin not be questioned so seriously? But . . . on to the important news of the week . . . as Nouriel Roubini reported just before the bailout was passed Friday (emphasis marks and some editing are mine - Ed.):

It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly . . . . I believe that the government will do another Hail Mary pass, with massive guarantees to the short-term commercial credit system and wide open short-term lending by the Fed (2 or 3 times expansion of the Fed balance sheet). If done on a sufficient scale this action will probably work for a while. But none of these financial measures affects the accelerating recession -- which will in turn place more pressure on the financial sector. The run on the shadow banking system is accelerating as: even the surviving major broker dealers (Morgan Stanley and Goldman Sachs (biggest beneficiaries of the bailout)) are under severe pressure (Morgan losing over a third of its hedge funds clients); the run on hedge funds is accelerating via massive redemptions and a roll-off of their overnight repo lines; the money market funds are experiencing further withdrawals in spite of government blanket guarantee. A silent run on the commercial banks is underway. (Only 63% of domestic deposits are insured.) A run on the short term liabilities of the corporate sector is also underway as the commercial paper market has effectively shut down with little trading and no issuance or rollover of such debt while corporations have no access to long or short term credit markets and they are therefore facing massive rollover problems (over $500 billion of rollover of maturing debts in the next 12 months). Indeed, the market for commercial paper plummeted $94.9 billion to $1.6 trillion for the week ended Oct. 1 (and down over $200 billion in the last three weeks). Especially banks and insurers were unable to find buyers for the short-term debt: financial paper accounted for most of the decline, plunging $64.9 billion, or 8.7 percent in the last week; but now even non-financial corporations are also experiencing a severe roll-off in the CP market. Discount rates for investment-grade non-financial commercial paper spiked to 599bp for 60 day maturities. More companies are borrowing against or tapping their revolving credit lines. This is largely due to the dislocation caused in the money markets by the failure of Lehman and the subsequent withdrawals from money market funds, which are some of the biggest providers of liquidity in the short term funding/commercial paper. Even the largest corporations are at severe stress: AT&T last week was forced to rely on overnight funding for its treasury operations, as lenders were unwilling to provide more long term financing due to fears in money market funds over investor redemption. Things are much worse for non-investment grade corporations and for small- and medium-sized businesses. As reported today by Bloomberg: Almost 100 U.S. corporate treasurers gathered for an emergency conference call yesterday to warn each other that banks are using any excuse to charge more to renew lines of credit. "Capital is fleeing to safety," said Edward E. Liebert, treasurer of Rohm & Haas Co., who took part in the 90-minute call organized by the National Association of Corporate Treasurers. "Interbank lending is not free-flowing any more," said Liebert, 56, chairman of the Reston, Virginia-based trade group. One bank charged a participant in the call 80 basis points to renew a routine $25 million credit line, according to Liebert, who wouldn't identify the speaker or the company. Rohm & Haas, based in Philadelphia and rated BBB by Standard & Poor's, is paying 8 basis points for a $750 million revolving line of credit provided by 13 banks, the treasurer said. A basis point is 0.01 percentage point. As the U.S. House of Representatives prepares to vote on a $700 billion bailout bill passed by the Senate, global credit markets are being squeezed by banks afraid to lend to each other and to even some investment-grade corporate clients. Treasurers are struggling to keep credit lines open so they can pay employees, fund pension benefits and purchase raw materials. "The banks are really starting to play hardball," said Jeff Wallace, managing partner at Greenwich Treasury Advisors, a financial consultant in Boulder, Colorado. "They don't want to give out any more money to people because they don't have enough capital". Banks are demanding renegotiation of interest charges or lending terms when "routine" amendments are requested on lines of credit, said Thomas C. Deas Jr., treasurer of Philadelphia-based FMC Corp. and an association board member. The money markets and interbank markets have shut down as - despite the Senate passing the bail-out bill - yesterday USD Overnight Libor was still at 268bp after reaching an all-time high of 6.88%; the USD 3m Libor-OIS spread widened to record 270 basis points; EUR 3m LIBOR-OIS spread is at record 130bp; the TED spread is at record 360bps (TED was 11bps one month ago); Money and credit markets are dysfunctional also in emerging markets; and agency bond spreads are also at highs again. So we are now facing: - a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits (where) small depositors are scared; - a run on most of the shadow banking system: over 300 non-bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds restrained only by a blanket government guarantee; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs); - a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over; - a total seizure of the interbank and money markets. This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely. So what needs to be done? Even several hundreds of billion dollars in emergency liquidity support to the financial system by the Fed and other central banks in the last week alone have not been enough to stop the seizure of liquidity in interbank markets and the shut down of financing for the corporate sector as counterparty risk is now extreme (no one trusts any more in this crisis of confidence even the most reputable and trustworthy financial and corporate counterparties). Thus, emergency times where we are at risk of a systemic meltdown require emergency measures. These include the following six ideas (click here to read further):
One comment is more than enough:
From HK, I can concur with what the good Doctor is saying. The market conditions today is as bad as I have ever seen it ( and this includes the Asian Crisis in 1997). It appears we have had capitulation in all asset classes and the only reason the credit market has not crashed is because there are no bids to hit. The deleveraging process has begun in earnest and I sincerely doubt US$700b will be able to stop it. In fact, it might actually make it worse as the market devours the amount in a day. We should see massive amounts of selling from money managers, hedge funds and bank desks alike. The liquidation of Lehman's portfolio definitely has a impact on this. If I am not mistaken, we probably had a massive shock to USD M3 supply this week. The lack available funding sems to indicate that the impact of the massively declining money multipier is finally hitting home. I will certainly be watching tonight to see if the horrendous bailout bill gets passed and see the market reaction into it. I am afraid we may have passed the tipping point and no amount of injections will be able to stop the deleveraging. I am not looking forward to the weekend.
One final and telling dissection of the taxpayer bailout of the wealthy casino shell game player (which fully explains the look on Paulson's face most of the time) comes from William Cox, noted author, at The Center for Research on Globalization in Betrayed by the Bailout: The Death of Democracy (emphasis marks and some editing are mine):
Locking out most members from all discussions, the congressional "leadership" emerged from their backrooms with legislation that grants Secretary Paulson the ability to spend at least $700 billion to "take such actions as [he] deems necessary" ... " to promote financial market stability." Entrusting tremendous political and financial power (and a ton of borrowed money that taxpayers will have to repay with interest) into Paulson’s sole discretion, members of Congress must have been aware that, prior to his cabinet appointment in 2006, Paulson worked for 32 years at Goldman Sachs, one of the Wall Street firms that stands to benefit greatly from his "actions." Paulson, who cashed out his Goldman stock valued at $575 million to become the Secretary of Treasury (without having to pay any taxes on the sale), earned more than $53 million in pocket change during just his last two years at Goldman Sachs for innovations such as a new line of "Mortgage Backed Securities." Gambling more than a trillion dollars on risky subprime second mortgages, Paulson cleverly converted them into AAA-rated "secure" investments by purchasing guarantees from the American International Group. AIG, coincidentally, was just "bailed out" two weeks ago by Secretary Paulson for $85 billion (of borrowed money that taxpayers will have to repay with interest), averting a devastating loss by Goldman Sachs, who was holding more than $20 billion in otherwise worthless second mortgages. Is it surprising that Lloyd Blankfein, Goldman’s current CEO, was present with Paulson when the decision was made to bailout AIG? The bailout’s $700 billion price tag is only an arbitrary guess by Paulson and is most likely just the first installment of many more to come. Other economists, with more successful track records, believe the total will be much greater, perhaps $5 trillion, as concealed losses are uncovered and foreign companies dump their toxic investment waste into their American offices. In passing the "Emergency Economic Stabilization Act of 2008," Congress ignored the "great concern" expressed by almost two hundred of the nation’s leading economists who pleaded with Congress "not to rush, to hold appropriate hearings, and to carefully consider the right course of action,..." In addition to its ambiguity and long-term effects, the economists believed the bailout plan to be "a subsidy to investors at taxpayers’ expense" and to be "desperately short-sighted." Ultimately, more than 400 top economists, including two Nobel Prize winners, voiced opposition to the bailout. The economists were not alone in being ignored by the politicians. It is widely reported that calls and emails to Congress from constituents were running as high as 300 to one against the bailout. Mike Whitney reports one analyst saying that "the calls to Congress are 50 percent ‘No’ and 50 percent ‘Hell, No’." The percentages adjusted as the stock market tumbled, but public opposition to the bailout remains strong. An AP poll only identified 30 percent of the public in favor of the bailout, and a CNN Money opinion poll found 77 percent of the people believing the bailout would benefit those most responsible for the economic downturn. Who Benefits? The Latin adage, Cui bono, asks "to whose death are you going?" Law enforcement investigators quickly learn that the guilty party can usually be found among those who stand to gain from a murder or other crime. There is no doubt the bailout will most benefit some of the richest and highest paid individuals in the American economy. But, why did the politicians betray the wishes of those who elected them in favor of the criminals who committed the fraud? Perhaps the answer can be found in another Latin phrase, quid pro quo, meaning "what for what; something for something." Individuals working for Wall Street finance, insurance and real estate companies and the companies’ political action committees have contributed more than $47 million to the campaigns of Senator Obama (three of top five sources) and Senator McCain (top five sources), both of whom voted for the bailout. More to the point, Wall Street has contributed more than $1.1 billion dollars to congressional candidates since 2002. Nine of the top ten House recipients of Wall Street largesse, who each received an average of $1.5 million, are on the financial oversight and taxation committees. Even more telling, the bipartisan Congressional "leaders" most responsible for pushing the bailout through Congress, Senators Dodd and Gregg and Representatives Frank and Blunt have taken almost $20 million from Wall Street sources during the last 20 years. Dodd recently received $6 million in contributions during his presidential primary campaign, and Frank has collected $720,000 this year. Other key players also have been well compensated this year: Congressman Kanjorski received $755,000 and Congressman Bachus banked $704,000. Who Loses? The ordinary, hard-working voters, who were opposed to the bailout, and their children and grandchildren, will be the ones who will ultimately have to repay, with compound interest, the money that will have to be borrowed to give away to Wall Street bankers. The bailout was "sweetened" in the Senate by another $110 billion in tax relief and renewable energy incentives to get enough House votes for passage; however, only the temporary one-year slowdown of the Alternative Minimum Tax offered any succor to the middle-class workers affected by it. The bailout raises the debt ceiling to $11.3 trillion, or about $37,524 for each man, woman and child in the United States. How is this burden ever going to be repaid? Workers already know their wages are falling, their jobs are at risk, their health care, food and fuel costs are skyrocketing, and they are being kicked out of their apartments and homes because they can’t pay the rents and mortgages. Didn’t each member of Congress have a sworn duty to rescue the millions of Americans suffering from the reckless gambling of Wall Street moguls, rather than to reward an obscene excess of greed? Foreclosure Rescue At least six million homeowners will probably default on their mortgages this year and next, and millions more will have their equity wiped out by declining property values. More than 770,000 homes have been seized by lenders since 2007, and 91,000 families were just kicked out of their homes in August. These American homeowners were betrayed by their elected representatives! The only provision in the bailout legislation to remotely "benefit" homeowners whose homes are being foreclosed upon only "encourages" mortgage service companies to modify mortgages. Paulson is required to "maximize assistance for homeowners ... and minimize foreclosures"; however, he also has to ensure that the government doesn’t incur any additional costs. Thus, there’s little or no hope of any meaningful benefit to distressed homeowners resulting from the bailout. The legislation could have required the government to directly purchase the defaulting mortgages and to adjust them to the reduced value of the property, as was done in the Great Depression. Instead, Paulson is authorized to purchase the complex derivatives (Wall Street’s gambling debts) piled on top of the original mortgages. The difference is whether homeowners or Wall Street receives the benefit of the bailout. Bankruptcy Rescue More than 4,476 Americans filed for bankruptcy every day during August, the highest number since changes in the law in 2005 made it much more difficult, and even impossible in many cases, to obtain debt relief. More than a million, increasingly elderly, people will petition for bankruptcy this year. These destitute Americans were betrayed by their elected representatives! Under the current law, bankruptcy judges do not have the power to modify mortgages of a petitioner’s primary residence, irrespective of how the mortgages have been sliced, diced and repackaged. The bailout could have provided judges with the authority, in appropriate cases, to adjust the amount secured by the mortgage to the value of the property and to adjust the interest rate to a reasonable percentage. Unemployment Rescue New claims for unemployment benefits rose to 493,000 last week, the highest level in seven years. The economy has already lost 605,000 jobs thus far this year, and it dumped 159,000 payroll jobs just during September, the greatest drop in five years. These unemployed Americans were betrayed by their elected representatives! Although the House of Representatives passed an economic stimulus bill that would fund job creation and extend jobless benefits for long-term unemployed workers on September 26th, the Senate failed to pass its own stimulus bill on the same day. President Bush has promised to veto the legislation if passed. The bailout legislation could have provided for an extension of jobless benefits, but it didn’t. Homeless Rescue More than 750,000 and as many as a million Americans are homeless today, and the numbers are increasing dramatically. The National Coalition for the Homeless reports that homelessness is growing because of foreclosures, loss of jobs, and the rising price of fuel and food. These homeless Americans were betrayed by their elected representatives! Homeless sites are appearing all across the country as people with no place to stay are pitching tents and huddling together for support and protection. Their plight did not receive any consideration by the Congressional leadership that rammed the bailout through Congress. Hunger Rescue The most recent report by the Department of Agriculture found that in 2006, 35.5 million Americans lived in households with insecure food supplies and the numbers were increasing. At risk children numbered more than 12.6 million, and African Americans and Hispanic Americans suffered at higher rates than the national average. In 2006, 9.6 million Americans had to frequently skip meals or eat too little, and often had to go without food for a whole day. Today, as members of Congress voted to reward the richest and most greedy members of our society, they ignored those without the most basic necessity for survival. This morning, they rewarded the most powerful and best-fed members of our society, and gave no thought to the helpless children who will go to bed hungry tonight. Food banks who serve as the last resort for the hungry are running out of food. They are having to reduce rations and to dip into emergency supplies of staple items. There are reports of a 40 percent increase in requests for food assistance and a 30 percent drop in supplies. These hungry Americans were betrayed by their elected representatives! The bailout could have increased the amount of federal assistance for food banks in the Emergency Food Assistance Program, but it didn’t. The Consequences The real estate bubble that has been driving the United States economy has now popped, and there is no replacement engine to transport America’s consumer society down the highway to happiness. Americans are facing the mother of all depressions; it will be hard and it will last a long time. What are all of these homeless, hopeless, and hungry people going to do? Many have already exercised their First Amendment right to petition their government for the redress of grievances. A majority of the members of Congress, the two presidential candidates, and the President paid no attention to the economic experts and the thousands and thousands of voters who protested the bailout and who begged them to rescue the people rather than the rich and powerful. The people can always take to the streets in protest, and they probably will do so in growing numbers as the economic circumstances become more harsh. The U.S. government is already planning for the eventuality – not with the helping hand of supplemental legislation to help with mortgages, jobs, shelter or food, but with the mailed fist of military suppression. The Army Times reports the current deployment within the United States "homeland" of an "on-call federal response force for natural or manmade emergencies or disasters, including terrorist attacks." The Army acknowledges that the Northern Command may call upon the 3rd Infantry Division’s 1st Brigade Combat Team to help with "civil unrest and crowd control." With almost a trillion dollars picked from their pockets to reimburse reckless Wall Street gamblers, many Americans righteously feel betrayed tonight. A majority will elect a new president one month from tomorrow, and most will wait to see who it will be, and what if anything he can or will do to alleviate their suffering. There are others, undoubtedly, who agree with the Supreme Court’s recent decision that the Second Amendment right to bear arms is individually held, and who believe that the use of their personal weapons is justified to overthrow a government that betrays them and which destroys their very means of existence. The right of legitimate self defense is recognized by every criminal law in America. Perhaps democracy in the United States is not dead; if not, it’s on its deathbed. Resuscitation in the form of responsible representation is possible, but time is growing short. William John Cox is a retired supervising prosecutor for the State Bar of California. As a police officer he wrote the Policy Manual of the Los Angeles Police Department and the Role of the Police in America for a national advisory commission. Acting as a public interest, pro bono lawyer, he filed a class action lawsuit in 1979 on behalf of every citizen of the United States petitioning the Supreme Court to order the other two branches of the federal government to conduct a National Policy Referendum; he investigated and successfully sued a group of radical right-wing organizations in 1981 that denied the Holocaust; and he arranged in 1991 for publication of the suppressed Dead Sea Scrolls. His 2004 book, You’re Not Stupid! Get the Truth: A Brief on the Bush Presidency is reviewed at You're Not Stupid, and he is currently working on a fact-based fictional political philosophy. His writings are collected at The Voters, and he can be contacted at
For your viewing enjoyment, here is the lineup of the "Yays and Nays" of the Wall Street Bailout vote that just ruined your retirement (and the rest of your life). Notice how many progressives voted "Nay!" Even my (very distant) cousin in Alabama voted "Nay!" Have a great (and possibly your last) weekend! Suzan P.S. Anyone putting a shekel or two in the PayPal bottle will be rewarded with a special place in Heaven, which I will prepare upon my own arrival.

No comments: