Taxpayers will only have to pay $180,000,000 per year for the facilities that could end up treating them as criminals or worse. It appears from the language of the bill that it’s meant to legalize what they’ve already been doing and the rationale behind the legislation is most likely to serve as a mechanism of control if the authorities need facilities to hold large amounts of dissenting people.
After everything Congress has put the people through these past eight years, it’s unlikely that the bill is meant to help people. As noted by Rogers from Rogue Government, one only needs to take a look at what happened during Hurricane Katrina to see how obvious it is that the government doesn’t care about the people, or for that matter, what they think. These proposed facilities and the proposed legislation will most likely not be utilized for the people’s interest.
These so-called ‘national emergency’ centers would be used in a national emergency only if the national emergency requires a large number of people to be rounded up and detained. If that isn’t the case, why have national emergency facilities built in military installations?
What does Congress know that they aren’t telling us? Haven’t they already inflicted enough damage with their egregious, unconstitutional ‘legislation?’ As noted by The San Francisco Chronicle, what could the government be contemplating that leads it to make contingency plans to detain without recourse millions of its own citizens?
It’s time for the ruling by fear to stop and the ruling by law to begin and it’s time for the rule of law to apply to everyone, including politicians who violate it, not just the rest of us.
Bill Lindner has published a most riveting dissection of what appears to be still on the front burner of the bought-and-paid-for members of Congress who are pretending to represent US. It seems to me upon a quick perusal that it would be a wise move to publicize this essay as much as possible in the hope that an informed and aroused citizenry will demand an immediate halt to these efforts and a repudiation once and for all of this type of undemocratic Congressional activity. Thusly, I am running a good portion of Bill's essay below as a public service.
More Disturbing Legislation Emanating From Congress
Published on 01-29-2009
It has become increasingly clear over the past several years — it’s just become more blatantly obvious since the appointment of the Bush administration to the White House — that the U.S. Congress that is supposed to protect and speak for the people they’re elected to represent has been doing quite the opposite, once again introducing potentially unconstitutional legislation that tramples rights and liberties.
After the attacks of 9/11 — that could and should have been prevented by the Bush administration, but weren’t — the American public was repeatedly served with illegal, unconstitutional ‘legislation’ by a corrupt, complicit Congress designed to destroy Democracy, rights and freedoms. The Bush administration is finally gone, although it will take years to rid the government of the leftover trash, the illegal, unconstitutional legislation isn’t. It’s not surprising when you consider the fact that many in Congress were bought off by large corporations and lobbyists years ago.
Almost a year ago, The San Francisco Chronicle had a report entitled “Rule by fear or rule by law?” that detailed how, since 9/11, seemingly without the notice of most Americans, the federal government has assumed the authority to institute martial law, arrest a wide swath of dissidents (citizen and noncitizen alike), and detain people without legal or constitutional recourse in the event of “an emergency influx of immigrants in the U.S., or to support the rapid development of new programs.”
One has to wonder what kind of ‘new programs’ require the construction and refurbishment of detention facilities in nearly every state of the union with the capacity to house millions of people.
Since 1999, the U.S. government has employed a series of single-bid contracts with Kellogg, Brown and Root (KBR) to build detention camps at undisclosed locations inside the U.S. The same KBR who is responsible for electrocuting U.S. troops in Iraq as well as giving them contaminated supplies that made several of them sick. The government has also contracted with several companies to build thousands of railcars, some reportedly equipped with shackles, allegedly to transport detainees.
Diplomat and author Peter Dale Scott says the KBR contract is part of a Homeland Security plan entitled ENDGAME that sets as its goal the removal of all removable aliens and potential terrorists.
Section 1042 of the 2007 National Defense Authorization Act (NDAA), that never became law, says “Use of the Armed Forces in Major Public Emergencies,” gives the executive the power to invoke martial law, meaning that for the first time in over a century, the president could authorize the use of the military in response to a natural disaster, a disease outbreak, a terrorist attack or any other condition deemed necessary by the President in a situation where its determined that domestic violence has occurred to the extent that state officials cannot maintain public order.
Slow and Methodical Destruction Of Democracy, Rights and Freedoms
The Military Commissions Act of 2006, ramrodded through Congress just before the 2006 midterm elections, “to authorize trial by military commission for violations of the law of war, and for other purposes,” allows for the indefinite imprisonment of anyone who donates money to a charity that turns up on a list of “terrorist” organizations, or who speaks out against the government’s policies. It calls for secret trials for citizens and noncitizens alike.
In 2007, the Bush administration quietly issued National Security Presidential Directive 51 (NSPD-51) to ensure “continuity of government” in the event of what is vaguely called a “catastrophic emergency.” According to the directive, if the president determined that such a state of emergency occurred, he and he alone is empowered to do whatever he deems necessary to ensure “continuity of government,” including everything from canceling elections to launching a nuclear attack.
Senator Jane Harman (D-CA) authored another draconian piece of legislation — that fortunately never became law — known as the Violent Radicalization and Homegrown Terrorism Prevention Act of 2007, passed by the U.S. House of Representatives by a 404-6 margin, that would set up a commission to “examine and report upon the facts and causes” of alleged violent radicalism and extremist ideology, then make legislative recommendations on combatting it.
There is also the egregious USA PATRIOT ACT whose intent is “to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and for other purposes.”
You’ll notice that all the draconian ‘terrorism’ legislation is intentionally loosely defined, leaving plenty of room for the words to be twisted around to suit a particular need. All the ‘legislation’ mentioned above has resulted in nothing more than destroying Democracy, rights and freedoms while slowly and methodically shifting the U.S. towards becoming a police state.
Congress Wants To Authorize & Legalize FEMA Camp Facilities
Apparently the ‘legislation’ mentioned above hasn’t already done enough damage and destruction to America and all who live here.
Lee Rogers from Rogue Government reported on new legislation designed to authorize and legalize FEMA camp facilities. A new bill was introduced in the U.S. House of Representatives called the National Emergency Centers Act or H.R. 645, that if passed into law, will direct the Secretary of Homeland Security to establish national emergency centers otherwise known as FEMA camp facilities on military installations.
The proposed legislation is incredibly disturbing since there is already an apparatus in place to setup nationwide martial law. Even though there are already FEMA detention centers in place, Congress now wants to legalize the construction of FEMA camps on military installations using the excuse that the facilities are for the purposes of a national emergency.
Section 2 of the legislation determines that the Secretary of Homeland Security shall establish not fewer than 6 national emergency centers on military installations to provide temporary housing, medical and humanitarian assistance to individuals and families dislocated due to an emergency or major disaster, to provide centralized locations for training and ensuring coordination of Federal, State, and local first responders, to provide centralized locations to improve coordination of preparedness, response, and recovery efforts of government, private, and not-for-profit entities and faith-based organizations and to meet other appropriate needs, as determined by the Secretary of Homeland Security.
More Dangerous, Loosely Worded ‘Legislation’
Notice there is plenty of leeway and no definition of appropriate needs, other than ‘as determined by the Secretary of Homeland Security.’ That could for all intents and purposes, mean anything. Note that the legislation says the Secretary of Homeland Security shall establish not fewer than 6 national emergency centers on military installations, which implies that they can setup as many FEMA camps as they want as long as there are 6 of them.Read the rest of this essay here.
Thursday, January 29, 2009
Tuesday, January 27, 2009
Lawrence Summers, Timothy Geithner, Nancy Pelosi, Joe Biden et al. are straining at the leash to get the Bailout Ball rolling once again. The stabilization of the financial sector, as elusive as it has been so far, has become the Holy Grail of Economic salvation. That makes $8.5 trillion worth of trying and $0 of result.Julian Barnes informs us in his latest tome about our mortality Nothing To Be Frightened Of:
I heard a specialist in consciousness explain how there is no center to the brain - no location of self - either physically or computationally; and that our notion of a soul or spirit must be replaced by the notion of 'a distributed neuronal process.'I liked his take on this, but the explanation that I liked best before reading his is one I read some time ago in one of E.O. Wilson's masterpieces (and I'm paraphrasing for your extra added enjoyment) that defined all sentient creatures as electrical-chemical mixtures operating from perceived cultural messages gained over the eons of existence through the processes of evolution. So, granted it may be hard for the average citizen to follow.
It's not that I think that many people aren't capable of understanding what is happening right before their eyes, but you've got to take into account that most are not able to organize their neuronal processes as quickly as the most clever scam artists always make necessary. Until they have to.
Andrew Hughes has his own view of this state of consciousness organization, which he shares with us as he tries to fathom how easily the population was and is still being fooled about the current economic/financial meltdown and its ensuing unemployment/poverty/catastrophe end game. I don't think I need to add that he agrees with my prior judgment (which I've hoped is not correct but don't see how it couldn't be). (Emphasis marks are added and some editing was necessary - Ed.)
Idiocy is usually described as "endlessly repeating the same process, hoping for a different result". Lawrence Summers, Timothy Geithner, Nancy Pelosi, Joe Biden et al are straining at the leash to get the Bailout Ball rolling once again. The stabilization of the financial sector, as elusive as it has been so far, has become the Holy Grail of Economic salvation. That makes $8.5 trillion worth of trying and $0 of result. The Knights of the Oval Table are gathered to plan their mission as their beleaguered subjects are trying to batter down the castle gates. It's no small wonder that Geithner wants to get the money out the door as soon as the end of this week.
The most recent report from the Comptroller of the Currency seems to have gone unnoticed in Washington and the press. If banks are not lending because of increased capital requirements in the face of Credit Default Swaps, other derivatives and loan defaults, then the report goes a long way in describing exactly why.Bank___________Assets____Derivatives__Credit Exposure
_________________________________to Capital Ratio
J.P. Morgan Chase_$1,768,657_/$87,688,008__/400.2
Bank Of America__$1,359,071_/$38,673,967__/177.6
The assets (consist) largely of real estate, residential mortgage, student, car and credit card loans. With the rise in defaulting mortgages, delinquent credit card and other debt, the problem can only get worse. To recapitalize the banks to the point where exposure is low enough to encourage lending would take trillions and that's before any more fallout from the collapsing economy. Lending also requires creditworthy borrowers, the number of which is in a nosedive. The $165 trillion in notional derivatives and the associated credit risk related to $15 trillion in Credit Default Swaps illustrated below is the poison apple that the taxpayer has been forced to bite into.
Bank___________ Total Credit Derivatives
J.P. Morgan Chase__ $9,177,731
Bank Of America___$2,480,672
When the "credit crunch" began and Washington began the rush to solve the problem with taxpayer cash, no accounting of this derivative nightmare was ever brought to bear. In all the deliberations and press releases there was not a single mention of the fact that the primary cause of the bank collapse was due to these "instruments of mass destruction". It was widely discussed in the blogosphere but, like the real reasons for invading Iraq, never made it in to the mainstream media. As with Iraq, one would have to assume that the reason was to obfuscate the facts and cajole a shocked public in to accepting as a remedy whatever was proposed by Paulson, Bernanke and Bush. The latter had to be completely aware of the OCC data at the time and to assume that they did not is simply not credible. It would have been completely obvious that $700 billion would do absolutely nothing to alleviate the crisis. As witnessed in the ensuing months since the TARP bill, how the money was used has been obfuscated and concealed.This was always a scam.
Even as the economic indicators broke one record after another, the recipients of the TARP funds were selling Credit Default Swaps to each other, betting on each other's downfall. They knew the game was up and wanted to profit on the way down as much as they had on the way up. All the major Banks on Wall St. are seeing mounting losses and the failure of one will increase the losses of the other. They are joined at the hip and will fall like a house of cards.
The question begs to be asked, and this is where the cynic in me dominates, what's the plan? When they do fall will the Government nationalize the last one standing for the good of the country and socialize even more of the losses? This would be the coup of the millennium and give birth to a new Governmental paradigm. To have this complete before the economy and society have completely broken down would be a good reason to declare a real National Emergency and declare Martial Law, the legislation, executive orders and infrastructure of which are already in place. How can one not be a cynic when we reflect on what has happened so far?
The numbers are in and the scam stands exposed to those who will look. Which way the story unfolds from here is anyone's guess. But I am ready to bet that Congress will not include the OCC data in the upcoming debate on the next round of cash for the Banks.
Anyone ready to ask for a special prosecutor yet?
Wonder how crowded the Bushies' gated community in Dallas is?
Sunday, January 25, 2009
If you'd asked my opinion based on all the economists that I read, I likely would have responded, "A $750-billion stimulus package? More likely a $3-4 trillion stimulus will be required before we are out of the CheneyanBushes." (The current sum being bandied about now is up to $850 billion, and McCain has already departed from his much-advertised bipartisanship by saying he's going to vote against it.) See bottom of essay for details on TARP 3 and 4.
As I've said before in a variety of venues, I don't believe for one second that the brilliant Rethuglican/NeoCon financial "gurus" were ignorant of what they were wreaking on the inattentive (or just naive) populace (all over the world) to their own enormous benefit. Or that Bernie Madoff acted alone or without a lot of connected aid and advice. If anyone believes that fantastic scenario, seeing the results as they exist just now from the sham credit-squeeze bailout (see figure), we might as well roll up the sidewalks and get out our guns immediately (see the right-wing gun sales for an example of what people do who fear the future) as nobody should be trusted to be smart enough to fathom the correct rescue measures. (And I own several bridges in Brooklyn that I'd like to sell them at a bargain price!)
I'm also still scratching my head over the thought that Obama knows of only one person (one who has committed what in any earlier time would be easily seen as intentional fraud in his personal taxpaying schemes) whom he perceives as the best qualified in the whole country to perform the role of Treasury Secretary, and that this person just happened to be involved in touting the original schemes that brought us to this fiscally-challenged abyss, not to mention that he had Robert Rubin and Larry Summers as mentors ( and especially after Paulsen was finally swept out the door, trailing billion-dollar bills still being snatched by the cartoonish hands of his friends and past Goldman Sachs colleagues, as they played to the open-mouthed astonishment of the enthralled audience).
Why? Are they blind? Or has so much occurred in such a short time that everyone's shell shocked and walking around still dazed? It frightens me that so many in D.C. still seem to know or care so little about economics and finance. Doesn't anyone remember that the book written on the men (and only men) surrounding JFK, who brought on the debacle of the Vietnam War and couldn't stop their activities even when it was obvious that they were headed down a path to infamy, were called The Best and the Brightest as irony? (Sheila Bair is the only one truly qualified on the national stage as far as I can see who would actually be a candidate of change in the position of Treasury Secretary - but she's a girl and for some reason (still) disqualified from consideration, I guess.) But I may be accused of being too dramatic about the choices that are directly in our path, although, for examples of the continuing blindness running amuck in the country, you only need to read some desultory quotes from Frank Rich today.
John Thain, the chief executive of Merrill Lynch
was lionized as a rare Wall Street savior as recently as September, when he helped seal the deal that sped his teetering firm into the safe embrace of Bank of America on the same weekend Lehman Brothers died. Since then we’ve learned that even as he was laying off Merrill employees by the thousands, he was lobbying (unsuccessfully) for a personal bonus as high as $30 million and spending $1.22 million of company cash on refurbishing his office, an instantly notorious $1,405 trashcan included.
. . . Most economists failed to anticipate the disaster, after all, and our tax-challenged incoming Treasury Secretary may prove as evanescent as past saviors du jour. As we applauded Thain in September, we were also desperately trying to convince ourselves that Warren Buffett’s $5 billion investment in Goldman Sachs would turn the tide, and that Hank Paulson, as Newsweek wrote in a cover story titled “King Henry,” would be the “right man at the right time.”
. . . Yet the values of the bubble remain entrenched even as Obama takes office. In the upper echelons, we can find fresh examples of greed and irresponsibility daily even without dipping into the growing pool of those money “managers” who spirited victims to Bernie Madoff.
. . . In less lofty precincts of the American economic spectrum, the numbers may be different but the ethos has often been similar. As Wall Street titans grabbed bonuses based on illusory, short-term paper profits, so regular Americans took on all kinds of debt wildly disproportionate to their assets and income. The nearly $1 trillion in unpaid credit-card balances is now on deck to be the next big crash.
. . . If we’ve learned anything since the election, it is this: We have not remotely seen the bottom of this economy, and no one has a silver bullet to arrest the plunge, the hyped brains in the new White House included.
. . . Last weekend, Bob Woodward wrote an article for The Washington Post listing all the lessons the new president can learn from his predecessor’s many blunders. But what have we learned from our huge mistakes during the Bush years? While it’s become a Beltway cliché that America’s new young president has yet to be tested, it is past time for us to realize that our own test is also about to begin.Jim Kunstler at Clusterfuck Nation begs to disagree with Obama's further bailout plans and urges him to plot a different course. (Emphasis marks were added and some editing was necessary - Ed.)
Surely over the months of transition, someone with a clear head and a fact-laden portfolio has clued-in the new President about the reality-based state-of-the-Union - as opposed, say, to the Las Vegas version, where Santa Clause presides over a whoredom of something-for-nothing economics, and all behaviors are equally okay, and consequence has been sliced-and-diced out of the game . . . where, in the immortal words of Milan Kundera, anything goes and nothing matters. He's pulling for Obama and hopes against hope that "Maybe the power of his rhetoric and his sheer buff physical presence can whip this republic of overfed clowns into shape."
The USA is functionally bankrupt. We have no money. The pixel "money" being emailed over to the insolvent banks has no basis in reality beyond the quiver in Ben Bernanke's voice as he announces each new injection. . . . Mr. Obama's first task taking stage in the lonely Oval Office should be to get right with his own credo of "change," meaning he'll have to persuade the broad American public that the "change" required to salvage this society runs much deeper, colder, and thicker than they'd imagine in their initial transports over hallelujah-Bush-is-Gone. Many of the familiar touchstones of the recent American experience have got to go. . . . Say goodbye to the "consumer society." We're done with that. No more fast money and no more credit. The next stop is "yard-sale nation," in which all the plastic crapola accumulated over the past fifty years is sorted out for residual value and, if still working, sold for a fraction of its original sticker price. This includes everything from Humvees to Hello Kitty charm bracelets. It will be a very salutary thing if we stop even referring to ourselves as "consumers." This degrading moniker, used for decades unthinkingly by everyone from The New York Times Nobel Prize pundits to the Econ 101 section men of the land-grant diploma mills has been such a drag on our collective development that it has extinguished the last latent flickers of duty, obligation, and responsibility for the greater good in a republic of broken communities shattered by WalMarts. The government will not have to do a thing to bring down the chain stores. History and inertia is already on that case, with the easy-credit racket terminated and new frictions arising over global trade, and even Peak Oil waiting to work its hoodoo behind the scrim of deceptively temporarily low pump prices. The larger question for President Obama is: how can we collectively promote the reconstruction of Main Street, including all the fine-grained layers of retail and wholesale trade. High tech "solutions" are not likely to avail in this.Jim believes that the race for "happy motoring," techno-driven solutions are a blind alley and that the changes "we face in agriculture dwarf even the death throes" of the automobile. "A lot of people are likely to starve in America if we don't get our act together pronto in terms of how we produce the food we eat. Petro-agribusiness faces a set of disturbances that are certain to induce food shortages." Read the rest of this most disturbing and farsighted essay here. Louis Woodhill, an engineer and software entrepreneur, on the Leadership Council of the Club for Growth has a novel approach (some American ingenuity at its finest!) for another "Way to Deal With Toxic Assets:"
For at least four months now, it has been recognized that “toxic assets,” mostly Mortgage-Backed Securities (MBS) for which there is currently no viable market, are clogging up our financial system like plaque clogs up coronary arteries. The actions taken thus far have been piecemeal, half-hearted, and ineffective. Our economy is still in danger of a financial heart attack. Treasury Secretary Paulson was on to something when he pushed his $700 billion “Troubled Asset Relief Program” (TARP) through Congress last year. The advertized purpose of TARP was to buy up toxic assets, thus removing them from the banking system and restoring it to health. Unfortunately, shortly after the TARP funds were voted, the Treasury Department decided that the money could not be used for its intended purpose because there was no way to determine appropriate prices to pay for the toxic assets. By definition, toxic assets are those whose value is so uncertain that there is no functioning market for them. If TARP paid too little for the toxic assets it bought, the banks would not be restored to financial health. If it paid too much, the banks would get a windfall at taxpayer expense. The Treasury Department also realized that in any price negotiation, the banks would know more about the nature and value of the assets than would the people representing TARP. Since abandoning the original concept of buying up toxic assets, TARP funds have been deployed to fight financial fires. Some of the money has even been used to bail out the U.S. auto industry. Meanwhile, the problem of toxic assets clogging up the nation’s financial arteries has remained. Fortunately, there is a way to buy up toxic assets that does not require assessing their value today. It is based upon the indisputable fact that at some point between now and thirty years from now, the value of all of today’s toxic assets will be known with certainty. The Treasury should create a “bad bank” to buy up toxic assets. Let’s call it The Bad Bank of the United States (BBUS). BBUS would buy whatever assets a financial institution wanted to sell to it, paying whatever price the institution asked, up to (say) 80% of par value. The institution would get cash. BBUS would get the toxic assets plus a special contingent variable warrant (CVW), good for common stock in the institution. BBUS would place all of the toxic assets obtained from each institution in a separate account. The cash generated by the assets would be retained in the account and invested in Treasury securities. Each account would be charged interest on the original purchase price of the assets at the Treasury’s cost of funds plus (say) 1% to cover the operating expenses of BBUS. The detailed status of each account would be posted on the Internet. BBUS would wait until all of the toxic assets in a given account had resolved themselves, either by being paid off according to terms or via some default process. At that point, there would be some amount of cash in the account. If this amount was greater than what BBUS had paid for the assets, half of the excess would be returned to the financial institution and half retained by BBUS. If the amount in the account was less than what BBUS paid for the assets, BBUS would exercise the CVW. Each CVW would give BBUS the right to demand that the financial institution that sold it the toxic assets hand over common shares equal in value to any deficit in its account at BBUS. For example, if on the date that the assets in an account were fully resolved the fund had a deficit of $1 billion, the institution would have the option of either paying BBUS $1 billion in cash or handing over common shares with a market value of $1 billion. BBUS would dispose of any shares received as soon as practical. It is possible that there would be financial institutions whose entire market capitalization would be less than the deficit in their toxic asset account at BBUS. In these cases, BBUS and the taxpayers would take a loss. These losses would (potentially) be offset by BBUS’s 50% share of the gains on the accounts that returned more than BBUS paid for the assets. It might seem strange to allow financial institutions to select the toxic assets they sell to the BBUS and to set the prices of those assets up to some maximum. However, financial institutions will have incentives to price these as accurately as they can. If they set prices too high, they forgo current tax deductions and set themselves up for involuntary equity dilution down the road. If they set them too low, they will lose money unnecessarily. Given that the government played a major role in creating the toxic asset crisis in the first place (via an unstable dollar and various laws promoting mortgage lending to sub-prime borrowers), it is not unreasonable that the government assume some financial risk. Under the BBUS plan, participating financial institutions will bear as much of the risk they can bear without impairing their ability to perform their economic function. Because the detailed status of each account at BBUS will be published on the internet, the markets will take into account the projected gains or losses in these accounts in valuing each financial institution. This will feed back into the market price of the institution’s common shares. However, because BBUS will not have recourse against the institution for anything but common stock, this should not impair the credit worthiness of the institution or its ability to raise capital via debt or preferred stock. The BBUS approach would solve the problem of toxic assets once and for all, while minimizing the costs and risks to both taxpayers and financial institutions. It would do this by side-stepping the problem of assigning prices to assets that are deemed toxic specifically because their value is currently so uncertain.The BKT Weekly Special gives us this unsettling bit of financial news from abroad:
The drop in the GBP/USD this week has been nothing short of astonishing. The pair erased more than 1000 points off its price with sterling depreciating by more than 6% against the dollar. Although cable has been in decline since the turbulent markets of last fall, this latest freefall carries a whiff of true panic about it as markets fear that UK government spending schemes to rescue the country's ailing banking sector will put unsustainable stress on the Treasury. The run on the pound was triggered by Prime Minister Brown's latest proposal to spend an additional 50 billion GBP to insure toxic assets of the banks, as well as by the RBS revelation of the largest loss in UK corporate history. Those two events have greatly damaged the markets confidence in UK financial system, sending sterling plummeting as traders question the UK government's ability to successfully float so much fresh public debt as 2009 unfolds. The collapse of global capital markets turned the UK economy from boom to a bust in a blink of an eye. Despite inflation levels that remain above 3%, the BoE has lowered rates from 5.25% to 1.5% in less than 12 months as UK unemployment rolls swelled to 6.1%, and UK finance sector reeled from record losses on credit instruments. Looking forward, there is little hope on the economic horizon. The unbalanced situation of the UK economy persists and should global equities remain in a protracted bear market, the long-term damage is likely to be severe. . . . The very same reasons that felled sterling this week, may also bring down the dollar. Much like the UK economy, the US economy has relied on the financial sector for the majority of its recent economic growth. At its height the US financial sector represented more than 20% of the S&P but the double collapse of US real estate and equity markets have wiped $10 Trillion off household net worth bringing consumer spending to a standstill. With the consumer representing 70% of the US economy this sharp contraction in demand brought all economic growth to a virtual halt. . . . One of the primary suppliers of capital to the US is China and recent capital inflow data indicates that the Chinese have shifted the vast majority of their investment portfolio away from Agency bonds (such as Fannie Mae and Freddie Mac) towards Treasury securities. In other words US now finds itself in a precarious position where a significant portion of its debt resides in short-term obligations subject to rollover risk. Should the Chinese lose faith in the “full faith and credit” of the United States, the downside pressure on the dollar could be enormous as capital flight will surely ensue. To aggravate the situation further, the current stimulus plans of the Obama administration are likely to add an additional $1 Trillion of spending at a time when tax revenues are falling off a cliff. The dangerous combination of record new spending and near total reliance on foreign capital to finance such spending creates the primary risk to the dollar this year. While, the chance of an immediate global run on the greenback appears to be relatively small, since the unit continues to serve as the reserve currency to the world offering the best choice amongst many unpleasant alternatives, currency traders should not be complacent. The vicious run on the pound stands as a stark reminder of how quickly sentiment can change in the FX market. With so much debt outstanding and so much more to be issued, the dollar could indeed become the next “pound” in the currency market and traders should prepare accordingly.TARP 3 and 4 Are on the Way - John Mauldin
There are a lot of complaints about the use of the first $350 billion in TARP money. How could (now) former Merrill Lynch Chief John Thain have been so tone deaf as to spend $1.2 million on decorating his office with the company clearly in financial trouble? And some of it apparently after the government was kicking in money? Large bonuses for select managers at the last minute before the merger and subsequent major losses? The list could go on and on. The Obama administration has plans to keep such abuses from happening. I wish them luck, because the next round of $350 billion is just a down payment. (By the way, we should remember the TARP money is intended to be a loan and not a subsidy. Taxpayers should at least have the chance to come out whole. We will see.) Professor Nouriel Roubini and his team at RGE Monitor have been noting in speeches in various venues around the world that they estimate that losses from the financial world could be as high as $3.6 trillion. That is composed of $1.6 trillion in loan losses and another $2 trillion in mark-to-market losses of securitized assets. "U.S. banks and broker dealers are estimated to incur about half of these losses, or $1.8 trillion ($1-1.1 trillion loan losses and $600-700bn in securities writedowns) as 40% of securitizations are assumed to be held abroad. The $1.8 trillion figure compares to banks and broker dealers capital of $1.4 trillion as of Q3 of 2008, leaving the banking system borderline insolvent even if writedowns on securitizations are excluded." Roubini argues that banks will need an additional $1-1.4 trillion dollars in private- and public-sector investments. Then he and colleague Elisa Parisi-Capone lay out in detail how they come up with their numbers. They argue: "Thus, even the release of TARP 2 (another $350 billion) and its use to recapitalize banks only would not be sufficient to restore the capital of banks and broker dealers to internationally accepted capital ratios. A TARP 3 and 4 of up to $1.05 trillion (assuming generously that all of TARP 2 goes to banks and broker dealers) may be needed to restore capital ratios to adequate levels." Even with all the government money added to the banking system, net capitalization of US financial institutions may fall to as low as $30 billion, from around $1.4 trillion before the credit crisis. Let's think about what that means. This same exercise in principal works for England and other European countries. England may be down $2 trillion pounds, which is relatively much larger than the US losses. Senators at the Banking Committee hearings which looked into the appointment of Tim Geithner as Treasury Secretary (and kudos to the five who voted against approving him) were outraged at the problem of giving banks all that TARP money and other Fed commitments, and now they were not lending that money and indeed it looks like they want more! I know this will shock some of my foreign readers, but most of the Senators on the Banking Committee don't really understand the banking system. Here's the problem. The banks are lending. If you look at bank lending numbers, there is growth. The banks, per se, are not the real problem with the lack of lending. The real problem is that we vaporized an entire Shadow Banking System that bought securitized debt in a wide variety of forms: autos, homes, student loans, credit cards, etc. That industry exists no more. Banks over the last ten years became originators of loans, and not actual lenders. They would make the loans and then package them up for other institutions to buy. A pension fund in Norway (or wherever) would look at the rating from Moody's, see AAA, and buy it. Or banks would create off-balance-sheet vehicles (SIVs) to buy their debt and leverage it up, and book some nice profits. In any event, the debt did not end up on the banks' balance sheets for very long. That process was responsible for the majority of debt that was extended over the last decade. Now that process is broken, and it will not be fixed this year or next year or the year after that. We are going to have to come up with new ways of credit creation and debt processing. You can't go to Goldman and tell them to start making auto loans. They simply don't have the people to do that. Now, they used to be able to take auto loans from other actual originators and package them and sell them, but they did not make the loans. And the buyers for much of that securitized auto loan paper are gone. And they are not coming back any time soon without greater transparency and real capital guarantees and higher returns. A Moody's (or any rating agency) rating is not worth the paper, as far as the markets are concerned. In essence, we are asking the banking system, with greatly reduced capital, to do the heavy lifting that all the buyers of securitized debt did a few years ago. And if Roubini is remotely right, they simply do not have the capital to do it. Further, the banks are in a bind. The regulators, properly so, are making sure that banks have adequate capitalization and are marking assets to real market prices. But they simply have less capital to make loans, even with TARP. And the loans that many banks have made are showing higher losses than normal. Maine fishing buddy and bank maven Chris Whalen of Institutional Risk Analytics thinks that loan charge-offs will be twice the 1990 level, or around $800 billion, not far off from Roubini's number. That will force banks to loan less money and raise capital. Not exactly what the Senators want. . . . "There is no easy way out of a debt restructuring. Someone will have to bear the cost of prior bad decisions. The people who should bear the cost are those who made the bad decisions to make the loans or those who financed the people who made the loans. They intended to profit and would have profited if they were right. But they were wrong, so they should lose. The government needs to allow the losers to lose and focus their actions on minimizing the knock-on effects of their failure on people who didn't do anything wrong (to minimize systemic risk). They should then take action to minimize the future exposure of the innocent to the future dumb decisions of the small minority, because no amount of regulation will ever eliminate dumb decisions, so you have to plan for them (through much lower bank leverage limits to cushion losses, bank size limits and non-bank entities playing bank-like roles to improve diversification, safety nets to prevent losers from poisoning the whole system, etc.)."John continues to add insights (and insults) along the line of "bad bank" scenarios:
"But if the 'bad bank' idea could work, why not create a super baaaddd bank? We could use it to get rid of all our mistakes. Writers could unload their bad novels. Businessmen could sweep their errors under its broad carpet. What the heck, let people get out of bad marriages without penalty; the super baaaddd bank could pay the alimony and divorce costs. "The hitch with the bad bank idea is so obvious even a banker could spot it. If the cost of mistakes is reduced, people might make more of them. Like the rest of us, bankers are neither good nor bad, but subject to influence. Unlike metallurgy or particle physics, banking does not have a rising learning curve. It's not science. Instead, it's more like love and gambling ... with a circular learning pattern. They learn ... and then they forget. They get carried away in the boom upswing; then they get whacked when it turns down. "So let them have a good beating. It will give them a lesson that will last a lifetime ... and give the next generation a solid banking sector."This is what you are hearing the Republicans in Congress say. And as it's your life for the next five to ten years, it's not a joke - so everyone needs to be paying attention. And then there's that other nasty upcoming surprise (dollar devaluation or replacement or something worse) to which Joe Biden has been alluding. . . . Suzan ____________________
Friday, January 23, 2009
I believe that Paul Krugman speaks for those of us on the progressive side of the current economic divide when critiquing President Obama's Inaugural address. (Emphasis marks were added and some editing was necessary - Ed.)
Krugman reported that he "ended Tuesday less confident about the direction of economic policy than" he had been when he started out that "morning."
. . . one wishes that the speechwriters had come up with something more inspiring than a call for an “era of responsibility” — which, not to put too fine a point on it, was the same thing former President George W. Bush called for eight years ago.
But my real problem with the speech, on matters economic, was its conventionality. In response to an unprecedented economic crisis — or, more accurately, a crisis whose only real precedent is the Great Depression — Mr. Obama did what people in Washington do when they want to sound serious: he spoke, more or less in the abstract, of the need to make hard choices and stand up to special interests.
That’s not enough. In fact, it’s not even right.
Thus, in his speech Mr. Obama attributed the economic crisis in part to “our collective failure to make hard choices and prepare the nation for a new age” — but I have no idea what he meant. This is, first and foremost, a crisis brought on by a runaway financial industry. And if we failed to rein in that industry, it wasn’t because Americans “collectively” refused to make hard choices; the American public had no idea what was going on, and the people who did know what was going on mostly thought deregulation was a great idea.
. . . On the other hand, Mr. Obama is, as his predecessor put it, the decider. And he’s going to have to make some big decisions very soon. In particular, he’s going to have to decide how bold to be in his moves to sustain the financial system, where the outlook has deteriorated so drastically that a surprising number of economists, not all of them especially liberal, now argue that resolving the crisis will require the temporary nationalization of some major banks.
So is Mr. Obama ready for that? Or were the platitudes in his Inaugural Address a sign that he’ll wait for the conventional wisdom to catch up with events? If so, his administration will find itself dangerously behind the curve.Warren Buffett, the Chairman and CEO of Berkshire Hathaway Inc., said on January 18, 2009, on Dateline NBC that the "US is engaged in an economic Pearl Harbor."
And as "there was hardly any comment by any of our national . . . or . . . leading financial dailies," one observer was left thinking that although the phrase may be open to interpretation, "Whatever it may be, it cannot be good."
. . . recently, this reference to Pearl Harbor by the Neo-cons gave rise to the Global War of Terror in 2001, which postponed the day of financial reckoning by seven years, when President George Bush pumped over US$3 trillion into the war economy.
Recall what the Neo-con think tank, Project for the New American Century foretold: “the process of transforming the US into tomorrow’s dominant force was likely to be a long one, in the absence of some catastrophic and catalyzing event like a new Pearl Harbor.”
September 11 was the catalyzing event, the New Pearl Harbor which enabled the Neo-cons to put into action their plan for global domination. And like the events leading to the original Pearl Harbor, President Bush and his regime were warned by 11 countries and were supplied with specific intelligence in the months before 9/11 but no actions were taken.
It was another day of infamy and the United States was led once again by the nose to embark on a military misadventure in Afghanistan and Iraq. The Global War on Terror was unleashed!
This is the third time that a catastrophic event is invoked to justify a certain course of action.
That it is Warren Buffett who is making this reference is most telling, for he is the hidden economic and financial adviser to President Obama. Warren Buffett has in fact said that Obama is the best man for the job!
Warren Buffett is not the affable businessman that the mass media make him out to be. He is an insider in every sense of the word.
I have said repeatedly for over two years that there is an ongoing global currency warfare and what is at stake is the hegemony of the US dollar. Warren Buffet knows that if the dollar ends up officially as toilet paper, his fortune and that of his global partnership – the hidden manipulators - would be finished.
This message that the US is in an economic Pearl Harbor is meant for the enemy, as yet to be disclosed to the American public. It is a warning no less.
President Obama has echoed the sentiments in the course of his inauguration speech.Paul Craig Roberts elucidates our current dilemma and urges us to pay close attention to who is doing what to whom and why (I should mention that I've agreed with this logic from the beginning of the sham bailout).
The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.
The growth of debt has outpaced the growth of real output. Yet, the solution offered by Obama’s economic team is to expand debt further. This is not surprising as Obama’s economic team consists of the very people who brought on the debt crisis. Now they are going to make it worse.
The unexamined question is: Who is going to finance the next wave of debt?
The US budget deficit for fiscal year 2009 already appears to be on a path to $2 trillion, and that is before Obama’s stimulus program. What we are looking at is a $3 trillion budget deficit if Obama’s program is enacted in time to impact the economy this year.
Foreign countries can finance a $500 billion US budget deficit out of their trade surpluses with the US. But foreigners do not have the funds to finance a US budget deficit in the trillions of dollars, and they would not finance such a deficit even if they had the funds. Foreigners are over-weighted in dollar holdings and prefer to lighten their holding than to add to them. America’s economic prospects are dim as are the dollar’s prospects as reserve currency. An annual budget deficit in the trillions of dollars makes the dollar’s prospects appear even dimmer.
The federal government’s likely solution to the debt problem will be to monetize the debt, that is, the government will finance its deficit by printing money. Debt will be inflated away. But for those Americans without jobs or whose incomes do not rise with inflation, life will be cruel.
Life is already cruel for Americans living on retirement savings. Not only has the stock market bust reduced their wealth by half, but also their remaining assets are producing no income. Interest rates are so low that debt instruments produce no income, and there are scant capital gains in the stock market. Retirees are living by consuming their capital.
A compassionate government would handle the crisis in this way:
The trillions of dollars in credit default swaps (CDS) should be declared null and void. These “swaps” are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers.
The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices.
The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout.
Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.
To preserve the dollar’s status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.
The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates.
This approach to the economic crisis stands in marked contrast with the approach of the gangsters running US economic policy. The gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls.
This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis.Finally, someone has addressed the most serious issue of our time.
What say you, President Obama?
Thursday, January 22, 2009
Prof. Lawrence R. Velvel provides us with more than enough data to give some insight into what will go down as a monumental scam going on in plain sight (for at least eight years).
How could this happen? Why was it allowed to continue its questionable operations by the entity (Securities Exchange Commission (SEC)) supposedly ensuring public trust (whose Chairman (Republican-appointed) Chris Cox was allowed to resign on Inauguration Day (yesterday) amidst this scandal), which was set up to stop this very type of abuse (financial chicanery)? These are the questions that our children's children will ask plaintively as they pay off the incurred debts they will inherit along with the investment needed to begin the restoration of the middle class if the economy recovers to that point by their generation (and yes - I know that plenty of people made out very well from all the scams that were going on during the Reagan-Bush Deregulation Madness Fire Sale - my concern is not for those people today, but for the people who always are relied upon to bail out their damage). (Emphasis marks were added and some editing was necessary - Ed.)
Over the years since 1995, Madoff, as often said in the media these days, made steady annual returns - on which one paid ordinary income taxes, not capital gains taxes. The rates of return were unspectacular, especially when compared with the returns made by many hedge funds and, during many years, by mutual funds. But on an annual basis Madoff didn’t lose money, which was a major plus. The idea that he made money every month, however, is misleading. There certainly were some months when he lost money, and there were months when he made very little if anything, say a quarter or a half a percent. There were also months when he made, say, a percent and a half or two percent, or sometimes even a bit more.
The monthly variations made the whole deal look Kosher, at least to an amateur, as did the variations in annual returns. On the all important after-tax basis, the annual returns were generally between seven and ten percent. They therefore were probably not much more than, and often were certainly much less than, the annual returns obtained by investors who bought stocks or mutual funds in order to make capital gains. For capital gains are taxed at much lower rates than the more-than-one third rate applicable to ordinary income, plus principal invested in stocks and mutual funds appreciates tax free - so one gets appreciation upon appreciation, as well as on original, tax free appreciation of principal - until the investment is cashed in, in layman’s language. (One also can’t help remembering that hedge fund managers who were making hundreds of millions or billions per year - one recently made $1.7 billion in a single year - paid a tax rate of only 15% on their earnings.)
Also, every month every investor received a lengthy statement of transactions from Madoff. While I personally lacked the training to fully understand them due to their complexity, accountants did understand them. To the accountants, who of course had the required financial training, they made sense. The idea that someone could be making up complex statements of this nature - and so many of them yet, if the thousands of clients he is recently said to have had is accurate - boggles the mind even today and didn’t even enter the mind then. I personally never heard a whisper of the remotest suspicion of such invention, and can only say it must have taken a corps of aiders and abettors.
The news reports say that something like 20 people worked in Madoff’s “private” office on a separate floor, the 17th, to which no one else in the firm was allowed access apparently. Many of these people must have been involved in making up the false statements and therefore must be co-conspirators even though Madoff supposedly claimed to be doing it himself. (Were his brothers, his two sons, and his niece, all of whom were major figures in his firm, also denied access to the private offices? If they were, didn’t they consider it odd that they, his nuclear family members, with whom he worked closely in the business for years, and to whom he apparently was very close on the personal level, were denied access to the offices? Didn’t it raise their suspicions, even if one assumes, as I frankly don’t, that they were innocent of any knowledge of what he was doing?)
So it went for many years. If one wanted to occasionally withdraw money to meet unusual or other expenses, one always dealt with DiPascali (or his assistant) and the check would arrive promptly. If one wanted to invest more money, one again dealt with DiPascali. This was the way it was until December 11, 2008, when Madoff was arrested. Then a lot of information began coming out that must have been deeply unknown to most investors, including me. The information included the shocking fact that the whistle had been blown on Madoff at least as far back as 1999 or 2000, when an investment professional named Harry Markopolos, who had operated with derivatives, had sometimes used the split-strike conversion strategy, and was mathematically expert, had informed the SEC, both orally and in a memo, of reasons why Madoff’s business could not possibly be on the up and up. Markopolos kept at this until, most recently, 2008, one gathers. As one can see from the long-confidential but now public 2005 version of his memorandum, with the arresting title (no pun intended) “The World’s Biggest Hedge Fund Is A Fraud,” Markopolos gave reason after reason why Madoff’s operation could not possibly be on the up and up. (The 2005 version of the memo will soon be made available at Velvelonnationalaffairs.com.) Many of Markopolos’ reasons were completely comprehensible even to a layman, let alone to financial and regulatory experts. But, as so often during Markopolos’ eight or nine years of trying to get the SEC to act, it did not stop Madoff in 1999 or early 2000, from 2001-2004, in 2005, in 2006 or 2007, in early 2008, or at anytime until December 11th.
Equally amazing was that an article blowing the whistle on Madoff had been written in 2001 for a hedge fund-industry publication called MAR/Hedge (RIP) by a reporter named Michael Ocrant. This journal was something read by those connected with the financial industry, doubtlessly including at least some regulators, but obviously is not something read by the general public. (I personally, like 99.999 percent of the American population I would bet, did not even know it existed.) The article gave many of the most pertinent, comprehensible reasons given by Markopolos, but the readers of MAR/Hedge (RIP) apparently did nothing. Certainly the SEC did nothing.
Also in 2001, a shorter article appeared on Madoff by reporter Erin Arvedlund. The article, which focused on secrecy by Madoff, and ignored some of the signs that even a layman would understand, appeared in Barron’s. That article was mixed in nature, with much that was favorable to Madoff, and even advised readers how to invest in Madoff if they wished to. In any event, though Barron’s must be read by a larger audience than MAR/Hedge (RIP), this article received no general play from the media (and I personally never heard of it until after December 11th, just as I and most others had never heard of Markopolos or Ocrant). And again the SEC did nothing to stop Madoff. (The Ocrant and Arvedlund articles will also be made available shortly at Velvelonnationalaffairs.com.)
After December 11th, however, the media began covering Madoff’s scheme, including the red flags called to the attention of the SEC by Markopolos, several of which were also mentioned by Ocrant and a few of which were mentioned by Arvedlund. I shall focus now on the red flags that would clearly have been of crucial importance even to a layman, had he known of them.
A foremost red flag was that Madoff apparently was not even making the trades of securities shown on the monthly statements. When already suspicious financial experts checked trades shown on Madoff’s statements against actual trades all over the country on the given day(s) - which experts knew could be done and knew how to do - they could find no record of Madoff’s supposed trades. The trades shown on the monthly statements were fictitious, a fact which still seems unbelievable a month after the scandal broke. Experts who checked this got out of Madoff. Wouldn’t you get out if you learned that trades shown on your monthly statement were (amazingly enough) fictitious, had not been made, were purely inventions? The expert SEC apparently checked out none of this, however, so the average investor was again left completely in the dark.
Another red flag discussed by Markopolos was that the options market was not nearly big enough to support the number of puts and calls necessary for the volume of trading in stocks that Madoff claimed to be doing. Madoff had apparently denied this, when asked about it in the past, by claiming he was buying options on the over the counter markets, where they are not totaled. But experts (like Markopolos) said Madoff’s explanation could not be true because the whole options market, on the exchanges, over the counter, or wherever, was not big enough to support Madoff’s trading in securities. By a huge multiple, there simply weren’t enough people who were willing to put enough money at risk in puts and calls to support Madoff’s trades in stocks. This meant that Madoff could not be providing the downside protection, via puts, that was key to the deal, and should have been checked out immediately by the SEC. The SEC apparently did not check it out, however, and the average investor was once again left in the dark.
There was also the growth in the amount of money Madoff was managing. Lots of us were under the impression, fostered in the 1990s, that Madoff was investing for family and friends. We knew nothing of huge feeder funds, of recruitment of investors all over the United States, Europe and South America, or of the fact that he apparently was running 6 to 7 billion dollars by around the year 2000 and tens of billions apparently by 2008. This was all news to me after the scandal struck.
. . . his family, of course, also had close professional and personal relationships with the SEC. His niece, an official of the business, even married an SEC official who had worked on the agency’s minimalistic investigations of Madoff. The family’s relationships with the SEC are, I gather, to be one subject of an investigation being conducted by the SEC’s inspector general.
. . . There were, of course, people on Wall Street who suspected, as did Markopolos, that the Madoff deal was not on the up and up. Suspicions were so strong that their companies refused to do any business with Madoff. I believe Goldman Sachs and J.P. Morgan were two of them.
Over the years since 1995, Madoff, as often said in the media these days, made steady annual returns - on which one paid ordinary income taxes, not capital gains taxes. The rates of return were unspectacular, especially when compared with the returns made by many hedge funds and, during many years, by mutual funds. But on an annual basis Madoff didn’t lose money, which was a major plus. The idea that he made money every month, however, is misleading. There certainly were some months when he lost money, and there were months when he made very little if anything, say a quarter or a half a percent. There were also months when he made, say, a percent and a half or two percent, or sometimes even a bit more. The monthly variations made the whole deal look Kosher, at least to an amateur, as did the variations in annual returns. On the all important after-tax basis, the annual returns were generally between seven and ten percent. They therefore were probably not much more than, and often were certainly much less than, the annual returns obtained by investors who bought stocks or mutual funds in order to make capital gains. For capital gains are taxed at much lower rates than the more-than-one third rate applicable to ordinary income, plus principal invested in stocks and mutual funds appreciates tax free - so one gets appreciation upon appreciation, as well as on original, tax free appreciation of principal - until the investment is cashed in, in layman’s language. (One also can’t help remembering that hedge fund managers who were making hundreds of millions or billions per year - one recently made $1.7 billion in a single year - paid a tax rate of only 15% on their earnings.) Also, every month every investor received a lengthy statement of transactions from Madoff. While I personally lacked the training to fully understand them due to their complexity, accountants did understand them. To the accountants, who of course had the required financial training, they made sense. The idea that someone could be making up complex statements of this nature - and so many of them yet, if the thousands of clients he is recently said to have had is accurate - boggles the mind even today and didn’t even enter the mind then. I personally never heard a whisper of the remotest suspicion of such invention, and can only say it must have taken a corps of aiders and abettors. The news reports say that something like 20 people worked in Madoff’s “private” office on a separate floor, the 17th, to which no one else in the firm was allowed access apparently. Many of these people must have been involved in making up the false statements and therefore must be co-conspirators even though Madoff supposedly claimed to be doing it himself. (Were his brothers, his two sons, and his niece, all of whom were major figures in his firm, also denied access to the private offices? If they were, didn’t they consider it odd that they, his nuclear family members, with whom he worked closely in the business for years, and to whom he apparently was very close on the personal level, were denied access to the offices? Didn’t it raise their suspicions, even if one assumes, as I frankly don’t, that they were innocent of any knowledge of what he was doing?) So it went for many years. If one wanted to occasionally withdraw money to meet unusual or other expenses, one always dealt with DiPascali (or his assistant) and the check would arrive promptly. If one wanted to invest more money, one again dealt with DiPascali. This was the way it was until December 11, 2008, when Madoff was arrested. Then a lot of information began coming out that must have been deeply unknown to most investors, including me. The information included the shocking fact that the whistle had been blown on Madoff at least as far back as 1999 or 2000, when an investment professional named Harry Markopolos, who had operated with derivatives, had sometimes used the split-strike conversion strategy, and was mathematically expert, had informed the SEC, both orally and in a memo, of reasons why Madoff’s business could not possibly be on the up and up. Markopolos kept at this until, most recently, 2008, one gathers.
As one can see from the long-confidential but now public 2005 version of his memorandum, with the arresting title (no pun intended) “The World’s Biggest Hedge Fund Is A Fraud,” Markopolos gave reason after reason why Madoff’s operation could not possibly be on the up and up. (The 2005 version of the memo will soon be made available at Velvelonnationalaffairs.com.) Many of Markopolos’ reasons were completely comprehensible even to a layman, let alone to financial and regulatory experts. But, as so often during Markopolos’ eight or nine years of trying to get the SEC to act, it did not stop Madoff in 1999 or early 2000, from 2001-2004, in 2005, in 2006 or 2007, in early 2008, or at anytime until December 11th. Equally amazing was that an article blowing the whistle on Madoff had been written in 2001 for a hedge fund-industry publication called MAR/Hedge (RIP) by a reporter named Michael Ocrant. This journal was something read by those connected with the financial industry, doubtlessly including at least some regulators, but obviously is not something read by the general public. (I personally, like 99.999 percent of the American population I would bet, did not even know it existed.) The article gave many of the most pertinent, comprehensible reasons given by Markopolos, but the readers of MAR/Hedge (RIP) apparently did nothing. Certainly the SEC did nothing. Also in 2001, a shorter article appeared on Madoff by reporter Erin Arvedlund. The article, which focused on secrecy by Madoff, and ignored some of the signs that even a layman would understand, appeared in Barron’s. That article was mixed in nature, with much that was favorable to Madoff, and even advised readers how to invest in Madoff if they wished to. In any event, though Barron’s must be read by a larger audience than MAR/Hedge (RIP), this article received no general play from the media (and I personally never heard of it until after December 11th, just as I and most others had never heard of Markopolos or Ocrant). And again the SEC did nothing to stop Madoff. (The Ocrant and Arvedlund articles will also be made available shortly at Velvelonnationalaffairs.com.) After December 11th, however, the media began covering Madoff’s scheme, including the red flags called to the attention of the SEC by Markopolos, several of which were also mentioned by Ocrant and a few of which were mentioned by Arvedlund. I shall focus now on the red flags that would clearly have been of crucial importance even to a layman, had he known of them. A foremost red flag was that Madoff apparently was not even making the trades of securities shown on the monthly statements. When already suspicious financial experts checked trades shown on Madoff’s statements against actual trades all over the country on the given day(s) - which experts knew could be done and knew how to do - they could find no record of Madoff’s supposed trades. The trades shown on the monthly statements were fictitious, a fact which still seems unbelievable a month after the scandal broke. Experts who checked this got out of Madoff. Wouldn’t you get out if you learned that trades shown on your monthly statement were (amazingly enough) fictitious, had not been made, were purely inventions? The expert SEC apparently checked out none of this, however, so the average investor was again left completely in the dark. Another red flag discussed by Markopolos was that the options market was not nearly big enough to support the number of puts and calls necessary for the volume of trading in stocks that Madoff claimed to be doing. Madoff had apparently denied this, when asked about it in the past, by claiming he was buying options on the over the counter markets, where they are not totaled. But experts (like Markopolos) said Madoff’s explanation could not be true because the whole options market, on the exchanges, over the counter, or wherever, was not big enough to support Madoff’s trading in securities. By a huge multiple, there simply weren’t enough people who were willing to put enough money at risk in puts and calls to support Madoff’s trades in stocks. This meant that Madoff could not be providing the downside protection, via puts, that was key to the deal, and should have been checked out immediately by the SEC. The SEC apparently did not check it out, however, and the average investor was once again left in the dark. There was also the growth in the amount of money Madoff was managing. Lots of us were under the impression, fostered in the 1990s, that Madoff was investing for family and friends. We knew nothing of huge feeder funds, of recruitment of investors all over the United States, Europe and South America, or of the fact that he apparently was running 6 to 7 billion dollars by around the year 2000 and tens of billions apparently by 2008. This was all news to me after the scandal struck. . . . his family, of course, also had close professional and personal relationships with the SEC. His niece, an official of the business, even married an SEC official who had worked on the agency’s minimalistic investigations of Madoff. The family’s relationships with the SEC are, I gather, to be one subject of an investigation being conducted by the SEC’s inspector general. . . . There were, of course, people on Wall Street who suspected, as did Markopolos, that the Madoff deal was not on the up and up. Suspicions were so strong that their companies refused to do any business with Madoff. I believe Goldman Sachs and J.P. Morgan were two of them.
Tuesday, January 20, 2009
North Carolina received its first sustained snowfall of the year early on Inauguration Day, a fitting happenstance for this state (which usually sees little snow and therefore comes to a screeching halt when it does - enabling everyone to see the Inauguration ceremonies), as one that moved from the red to the blue column during this extremely tight and hard-fought election, and assured Obama's ultimate triumph. I can vouch that much of NC was applauding exuberantly that powerful, joyous, crowd-pleasing and tear-beckoning speech of triumph overcoming great adversity (which as clichéd as it sounds was really what it was all about) - reminding me so much of Dr. King's speeches in tenor if not in tone - along with the rest of the country and the world (and how about that bow to "nonbelievers" Obama included?) as everyone I saw today was smiling and almost singing with joy about the day's events. Even the white people (humor).
Listening to the Queen of Soul singing "My Country 'Tis Of Thee" was one of the unexpected pleasures of today's Inaugural moments until I began to listen closely to the new President's revolutionary plans for our country and "the ground . . . shifted beneath" our feet. It was a speech that resonated with every sentence. No words were wasted with platitudes or feel-good drivel. Against the solemn, disapproving critical tones of teh talking heads, I heard a momentously important and heart-touching speech (with a warning about possible harsh consequences for past behavior) that will be widely read and discussed by those who appreciate fine thought and its articulation for years into the future (or at least until the novelty of an African-American President with excellent communications skills ceases to exist).
Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because we the people have remained faithful to the ideals of our forebears, and true to our founding documents.
So it has been. So it must be with this generation of Americans.
That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.
These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land — a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.
* (Continued at bottom of page.)Even right-wing-designated inarticulate (or just careless?) Chief Justice John Roberts' screwup of Obama's Oath of Office couldn't stop the positive vibes emanating from the record two million participants. The Bush love affair continued on CBS under Bob Scheiffer's and Katie Couric's tutelage. Andy Card, Dan Bartlett and even Hillary-excuser Vernon Jordan were allowed to comment on all the action before the events began (but no solely pro-Obama representative was included in this in-group). Jordan was even reminded that he had told Obama "this wasn't his year." (It was Hillary's, of course, said Katie.) Katie showed us again (and she should be thanking Sarah Palin every day on her hands and knees for making her look professional for once) why she would have never been chosen by actual qualifications for this position with her mispronunciations, touting of teh Bushies at every opportunity and misstatements of historical facts - ending with a wistful comment about "W"'s last "poignant" moment as he looked back from the helicopter before departing "despite his low poll numbers." (Sigh!)
Rick Warren, perhaps the poorest bit of political strategy you can accuse President Obama of lately (although who knows whether or not it will make a difference with that crowd in the future), began the celebration on a flat note and came across as the same bigoted, loud mouth the right-wing has grown to know and love as he spoke waaaaaay too long and said nothing worth remembering. The benediction was on a totally higher note.
And then we consider the always-present Fawning Corporate Media message. Ever wonder why Bob Schieffer is always CBS's man on the political "spot" (not to mention the unabashed touter of right-wing politicians' arguing points on Sunday Morning's "Face the Nation")? Particularly the way he defended Bush's Katrina response which Bush had tried to highlight in a speech as misunderstood right before the inauguration? You might take a look at his brother Tom for a broad hint (according to Russ Baker's Family of Secrets (read it!)), the "former Texas state representative once dubbed one of the 'ten worst legislators' in Texas by Texas Monthly," who helped to engineer the land and financing "welfare for billionaires" Texas Rangers deal that made "W" a very rich failure. For his "thank-you," Bush appointed him "ambassador to Australia and then to Japan."
Along with Bush's lawyer in the Rangers deal, James Doty, the Baker Botts lawyer working for the Saudis, the person who recruited Tom Schieffer also represented both the American oil industry and the Saudis. James C. Langdon Jr. was a Washington attorney who ran the energy practice for the prominent Dallas firm of Akin, Gump.I don't believe our boy Bobby uttered one sentence that he didn't tie to teh goodness of the Bushies' manners and grace regarding the Obamas' entry into their (and the people's) residence. Unless it was his sweetheart comments about Senator Lindsay Graham of South Carolina being the "most astute political observer" evah and how even he said that maybe (just maybe) both parties "could start working together" for the common good (or some such ridiculous sentiment from right wingers). (Insert sound of bleching from viewers here.)
The incredible feeling of glee that accompanied the viewing of the black limousines bearing the old guard away for the last time was overwhelming to this observer.
And then, of course, there were all the firsts. So many women for the first time in elected positions (I won't list them because it goes on and on - yay!), Joe Biden becoming the first Catholic Vice President and, of course, the first African-American President and First Family. (Senators Kennedy and Byrd have been reported in the last few hours to be improving after both were hospitalized after being negatively affected by the cold and stress of the day's events.)
In the expected right-wing rush to get out of town from the fine reporters at Crooks and Liars we learn that:
Fox's Brit Hume said that little will come from Democrats' attempts to investigate Bush officials who politicized the Justice Department.
"We've heard John Conyers, one of the most liberal members of the American body politic, wants to hold investigations. He's held many farcical investigations in the past. The likelihood is they will go nowhere and end up being an embarrassment to the Congress and the Democrats in charge there," said Hume.If I hadn't been reading Russ Baker's Secrets of the Bush family I wouldn't think that Brit had inside information (ha!).
That paragon of public service, Ed Gillespie, provides us some valuable insight into the new bipartisanship:
From CNN's new State of the Union, Ed Gillespie suddenly loves him some bi-partisanship and is against nasty partisan attacks. Coming from one of the nastiest, most partisan administrations which subscribed to the Karl Rove/Lee Atwater school of politics, this is pretty rich. Now it's not good for the country to act that way. Gee Ed, thanks for coming around to that way of thinking now that the Democrats are in charge. Mighty kind of you.
. . . I do think, and I encourage my fellow Republicans and people who share my more conservative philosophy that we not fall prey to trying to retaliate from the kind of viciousness and the kind of bitter attacks, personal attacks against President Bush that we saw from the left in the past eight years.
We can make a stand on principle. And we can oppose on policy without - you know, engaging in that kind of harsh, personal, nasty rhetoric. It's not good for the process. It's not good for the country.
To a new world!
* (President Obama's fine speech continued below.)
Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America — they will be met.
On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.
On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics.
We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free and all deserve a chance to pursue their full measure of happiness.
In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of shortcuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.
For us, they packed up their few worldly possessions and traveled across oceans in search of a new life.
For us, they toiled in sweatshops and settled the West; endured the lash of the whip and plowed the hard earth.
For us, they fought and died, in places like Concord and Gettysburg; Normandy and Khe Sanh.
Time and again these men and women struggled and sacrificed and worked till their hands were raw so that we might live a better life. They saw America as bigger than the sum of our individual ambitions; greater than all the differences of birth or wealth or faction.
This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.
. . . What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. Those of us who manage the public's dollars will be held to account — to spend wisely, reform bad habits, and do our business in the light of day — because only then can we restore the vital trust between a people and their government.
Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control — and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart — not out of charity, but because it is the surest route to our common good.
As for our common defense, we reject as false the choice between our safety and our ideals. Our founding fathers ... our found fathers, faced with perils we can scarcely imagine, drafted a charter to assure the rule of law and the rights of man, a charter expanded by the blood of generations. Those ideals still light the world, and we will not give them up for expedience's sake. And so to all the other peoples and governments who are watching today, from the grandest capitals to the small village where my father was born: know that America is a friend of each nation and every man, woman, and child who seeks a future of peace and dignity, and that we are ready to lead once more.
Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint.
We are the keepers of this legacy. Guided by these principles once more, we can meet those new threats that demand even greater effort — even greater cooperation and understanding between nations. We will begin to responsibly leave Iraq to its people, and forge a hard-earned peace in Afghanistan. With old friends and former foes, we will work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet. We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.
For we know that our patchwork heritage is a strength, not a weakness. We are a nation of Christians and Muslims, Jews and Hindus — and non-believers. We are shaped by every language and culture, drawn from every end of this Earth; and because we have tasted the bitter swill of civil war and segregation, and emerged from that dark chapter stronger and more united, we cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve; that as the world grows smaller, our common humanity shall reveal itself; and that America must play its role in ushering in a new era of peace.
To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West — know that your people will judge you on what you can build, not what you destroy. To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist.
Read the rest here.
Sunday, January 18, 2009
"Well in our country," said Alice, still panting a little, "you'd generally got to somewhere else - if you ran very fast for a long time, as we've been doing."
"A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"
"If I wasn't real," Alice said - half laughing through her tears, it all seemed too ridiculous - "I shouldn't be able to cry."
"I hope you don't suppose those are real tears?" Tweedledum interrupted in a tone of great contempt.
- Alice Through the Looking GlassPicture, if you will, sometime back in history a gathering of middle-aged men almost whispering to each other in solemn tones:
"First we shell shock them. Then we shell shock them again. And again . . . and again . . . and again . . . ."
"By the time we've plucked them clean, and are well packed for more golden shores, we'll bring out the dancing clown as our final coup de grace to keep them guessing (and make them feel a little bit sorry for his plight) as we board our quickly departing planes, and if history's any guide at all, they'll be tenderly waving goodbye, hoping to see us again real soon."
Well, maybe not that soon. Even John Boehner, as he continues to grind out the Rethuglican chant of "We did it, and we're not even gonna make an attempt to help you clean it up!" sounds like he's getting a little bit tired of defending the last eight years with the standard sorry political verbiage.
It was a shrill and very effective gambit - and one that looked for a while like a sure long-term winner.
"Smoke and mirrors" - a phrase that always comes to mind when speaking in polite political circles of the last eight years - usually signifies a condition that directs the audience's attention in one direction while pulling off a fast number on them in the other. Sad to say, this hardly needed to be very sophisticated with this crowd, who had been terrorized in a few minutes into losing their grasp of reality for over eight years; the most revealing part being that they never even complained much as their savings disappeared during the warmaking, and the underpinnings to their society were gradually shown to be a fantasy of political salesmanship.
We watch the coverage of those clever guys slowly walking away, smiling faintly at the bumfuzzled audience with their money and secure retirement firmly ensconced in their back pockets, as the easily bamboozled let them glide away, and some even applaud politely.
And almost simultaneously (once again) a "major" news story (plane mysteriously crashes into the Hudson in sub-freezing weather with all passengers gingerly disembarking amazingly enough on camera without serious injuries) erupts ferociously and captures the short attention spans. What is it with colorful plane crashes and the linkage to those "I had other priorities instead of military service during wartime" dissembling "leaders?"
Judging by his actions so far, Obama has done absolutely nothing but continue the transfer of wealth from the American taxpayer to his Wall St. campaign contributors. In the middle of the celebration, we might pause to consider this warning: The U.S. Economy is being Marched to the Gallows - predictions of hyperinflation, dollar decline and civil unrest. (Emphasis marks were added and some editing was necessary - Ed.)
The upcoming Financial Stimulus package courtesy of the new Economic Dream Team has left numerous economists and analysts quaking in their boots.
We are seeing predictions of hyperinflation, the destruction of the dollar, the flight of U.S. creditors, the prospect of widespread civil unrest and a descent into a Greater Depression.
Small business owners have stood up and discredited the tax incentives that were meant to convince them to ignore market reality and open the door to new employees. The measures that supposedly address the enormous foreclosure problem seem to change from day to day and only work to the advantage of the banks. Obama and Bush have just signed off on an additional $20 billion in cash and $118 billion in asset guarantees for Bank of America which already received $25 billion last year and is now choking on Merrill Lynch's losses. The President-Elect and his new Stimulus Czars are not paying attention and are proceeding to continue the same destructive formula adopted by Paulson.
The media bombardment is in overdrive to convince the public that herein lies the path to salvation. First we had the guarantee that three million jobs would be created out of thin air only to be bumped up to four million. These are nice round media-friendly numbers which have no basis in reality. With each passing day the sands are shifting on exactly how the money will be spent.
Ben Bernanke's speech at the London School of Economics on January 13, confirmed that the emphasis has now shifted to bailing out the banks one more time by buying more toxic assets to clean up their collapsing balance sheets. After seeing $8.2 trillion vanish to Insurance, Banking and a moribund auto industry with absolutely no concrete result except for the tightening of credit, the increasing losses of Big Banking and the GM chairman having to queue for his airline ticket, the Fed, backed by Obama, continues to beat the dead horse.
The scariest aspect of this is the speed at which this 18-wheeler disaster is being driven toward the rabbits in the headlights. We haven't yet seen any senators or reps being threatened with the imposition of martial law, but we have seen Obama threaten to veto his own fellow Democrats if they do not rubber stamp the proposals he has been instructed to deliver. Nobody has even taken a vote yet and already the gloves are off. Bailout Bill One and the Patriot Act were pushed just as hard. The only legislation that gets the hard sell seems to involve either stealing the taxpayer's money or their rights.
There has been absolutely zero positive impact on the real economy as the increasingly horrific indicators continue to mount and the prospect of an unprecedented Depression continues to rise over the horizon. Economic reality was left on the back burner and the capital that could have paid for Obama's fantastical "stimulus" plan 5 times over has been wasted on the imploding financial sector, who no doubt will be back for more.According to the latest figures, the cost of the Bush era: $11.5 trillion (which now must be paid for during the Obama years).
Because the median U.S. household income is about $50,000, readers may have trouble grasping the concept of spending trillions.
For context, let's compare two cases of extraordinary spending under Bush.
After the Sept. 11 attacks, Washington pledged $22 billion to help rebuild in lower Manhattan. At the time, that sum sounded enormous. It was more than one-fourth of the $80 billion budget that New York state had adopted a month before. Though some called for even more aid, the country at large was satisfied that this response was adequate to cope with calamity on a colossal scale.
Oh, how far we've come.
In early October of 2008, Congress appropriated $700 billion to rescue Wall Street's financial institutions. Once that was done, the sky was the limit, and the numbers became dizzying.
. . . The new administration is already expected to inherit a $1.2 trillion deficit from Bush. The stimulus package would add to that record-breaking number.
. . . Where has all the money gone? Here are five areas where Bush has approved massive outlays of taxpayer money.
Wall Street bailouts: $6 trillion
When the real-estate bubble burst, Wall Street collapsed too. Starting with Bear Stearns in March, investment banks fell like dominoes, done in by overexposure to mortgage-backed securities. We're still sifting through the damage. But we know U.S. taxpayers are among the biggest losers.
In hopes of stanching the bleeding, the federal government has spent or put at risk approximately $6 trillion. True, a big part of that number reflects the government's purchase of securities that may actually yield a profit one day. Critics of this enormous commitment will point out that it has yet to produce any solid evidence of a turnaround in the economy's slide, while the Bush administration's apologists argue that, without such a commitment, the news would have been much worse.
The best-known aspect of this epic spending spree is the U.S. Treasury's $700 billion Troubled Assets Relief Program, whose remit has included purchasing so-called toxic securities, giving banks cash and helping Detroit automakers avoid bankruptcy.
But TARP, as the program is known, is just the tip of the iceberg.
The Treasury also gave $300 billion in guarantees for struggling Citigroup, poured $200 billion into Fannie Mae and Freddie Mac when officials seized the mortgage giants to prevent their bankruptcy, and granted an additional $50 billion in temporary guarantees to keep investors from pulling out of money market funds. Again, a guarantee doesn't necessarily mean the Treasury will actually spend the money. But that money is at risk, and that's taxpayer money.
The Federal Reserve has also been busy. Central bankers have said they could purchase as much as $1.3 trillion of commercial paper from nonfinancial companies to make sure businesses have the working capital they need in an environment where banks are hesitant to lend. The Fed has committed an additional $1 trillion to a variety of credit facilities designed to encourage banks to loosen up - from outright loans to banks, to purchases of securities backed by consumer credit, to $600 billion to buy securities backed by prime mortgages - a move that knocked standard home loan rates down to 5%.
. . . Among other federal rescue measures we have the Federal Deposit Insurance Corp.'s decision to guarantee as much as $1.4 trillion in interbank loans, $300 billion for the Federal Housing Administration to insure mortgages in danger of foreclosure and a $150 billion aid package for insurance giant American International Group.
A lot of the guarantees that have been made will never come into play; just making a guarantee usually does the trick, if it's the Federal Reserve speaking. Here is some more good news: Some of the government's crisis-related investments may actually prove profitable. Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington, believes the government could see a profit of $500 billion from stock dividends and the appreciation of stocks. Just remember, that's peanuts in this game.
There are other variables that complicate the picture on a similar scale. The federal government is on the hook for $5 trillion of debt that Fannie Mae and Freddie Mac underwrote. The two companies themselves hold only a third of that debt, Kogan said, so it's unclear what the taxpayer's ultimate liability will be there.
Also unclear is how the Wall Street bailout money is being spent. The Treasury has been reluctant to monitor how banks are using TARP funds, and the Fed has refused to name the recipients of its loans, arguing that naming names would undermine the health of the companies in question.
"It's a lot of money going out the door, with basically no public knowledge of it whatsoever," said Dean Baker, a co-director of the Center for Economic and Policy Research in Washington.
About $600 billion of the Fed's $1.3 trillion plan to buy commercial paper has been spent, Baker said. But the Fed won't say who has received that cash.
"People are making and losing fortunes depending on whether the Fed will buy their commercial paper," Baker said. "We should know what they're doing."
. . . The searches for Osama bin Laden in Afghanistan and for weapons of mass destruction in Iraq have morphed into occupations. So far, the U.S. has spent around $860 billion on both, according to the Congressional Budget Office.
But Harvard University professor Linda Bilmes and Nobel laureate Joseph Stiglitz of Columbia University say the agency is underestimating the tab. In their book, "The Three Trillion Dollar War" they claim Iraq will be far costlier.
Modern technology and medicine have kept U.S. deaths in these conflicts low, compared with previous wars, but tens of thousands of wounded soldiers will require taxpayer-supplied health care for years, said Bilmes, who served as an assistant secretary of commerce in the Clinton administration. Factoring in those benefits, replacement of worn-out hardware and other hidden bills, Bilmes and Stiglitz believe the real price for Iraq is $3 trillion.
That money hasn't been reinvested in the U.S. economy as mush as possibly expected, partly because of outsourcing by U.S. companies, Bilmes said. One example is construction company KBR, which used shell companies in the Cayman Islands to avoid payroll taxes.
"A dollar that is spent on a road is a dollar which has a multiplier," Bilmes said. "You have better roads. Whereas a dollar spent on a Malaysian contractor to do laundry doesn't help the U.S."
. . . In 2001 and 2003, Bush signed legislation that cut taxes, much to the benefit of the affluent. The first cut was designed to help the economy after the Internet bubble collapsed. The second was to boost growth after the 2001 recession ended.
Kogan estimated the tax cuts have cost the Treasury $1.7 trillion in revenue to date. Of course, that may not be one bit disturbing to the taxpayers who've watched their tax bills go down. The only problem is, the cuts have been critical in opening up the gargantuan budget gap that Obama will face.
Because Bush did not reduce spending, Washington has paid about $265 billion in interest on loans to cover the lost revenue. So the $1.7 trillion in tax cuts really cost around $2 trillion.
Meanwhile, Bush increased deficit spending, incurring more debt service. Bush's expansion of Medicare drug benefits for the elderly, for example, cost around $130 billion, of which $10 billion was debt service between 2006 and 2008, said Kogan, of the Center on Budget and Policy Priorities.
"If some of this spending had been paid for by tax increases, then there wouldn't have been interest costs," he said. "But none of it was. We had tax cuts and spending increases."
. . . When Hurricane Katrina hit the Gulf Coast in 2005, New Orleans' levees gave way, and the city was inundated. Stories of survivors trapped in the Superdome and incompetence at the Federal Emergency Management Agency transformed the natural disaster into a national disgrace.
Katrina, along with Hurricane Rita soon after, cost about $270 billion, by some estimates. In Louisiana alone, officials said the hurricane destroyed $100 billion in property, shrank the state's economy by $80 billion and required $20 billion in local emergency relief.
Those figures don't include damages in other states, including communities that absorbed refugees fleeing the city. They also don't count the continuing costs of rebuilding the Big Easy.
FEMA has given $50 billion to Gulf Coast states, a spokesman said. The Army Corps of Engineers is spending $14 billion to upgrade levees, according to the agency's Web site.
Meantime, the Louisiana Recovery Authority is spending $10 billion in recovery efforts that include homeowners retrofitting their houses, for example.
. . . New York City lost about $95 billion because of the Sept. 11 attacks, according to a 2002 report by City Comptroller William Thompson Jr.
That price tag includes costs associated only with New York: $22 billion to replace the World Trade Center, $65 billion in lost economic activity in the three years after the attacks and $9 billion in the human potential that disappeared when the hijackers killed 2,819 people in Manhattan - a calculation that illustrates why economics is called the dismal science. It does not include Washington's $22 billion in aid.
Outside New York, the tragedy cost plenty. Kogan estimated that Bush spent about $140 billion on related nonmilitary measures, such as the creation of the Department of Homeland Security.
The approximate total of $260 billion does not include the damage wrought and lives lost on 9/11 at the Pentagon or in Pennsylvania, or money spent on preparedness by state and local governments and private industry. It also doesn't include the continuing losses associated with the vacant World Trade Center site, which housed as much office space as downtown Atlanta.
In other words, we're still paying for 9/11.And in other news:
Investors dump $89B in U.S. securities in historic fire sale.
The deep river of private money that helped knit together the global economy has abruptly dried up, new government figures show.
As the global financial crisis grew more severe this summer, foreigners sold almost $90 billion of U.S. securities — the greatest quarterly fire sale by overseas investors since the government began keeping track in 1960. U.S. investors also are retrenching; they unloaded about $85 billion worth of foreign holdings in the quarter, says the Commerce Department's Bureau of Economic Analysis.
"We've had a global panic. Everyone is pulling their money home," says economist Adam Posen of the Peterson Institute in Washington, D.C.
That's bad for economic growth in the U.S. because it threatens to starve capital-hungry companies and entrepreneurs. But it's especially serious for emerging-market countries that rely heavily on outside financing. Capital flows into countries such as South Korea, Turkey and Brazil were evaporating even before the mid-September Lehman Bros. bankruptcy made things worse.
The reversal of private capital flows signals an abrupt end to a nearly two-decades-long era of financial globalization, says economist Brad Setser of the Council on Foreign Relations. Private flows into and out of the U.S. for purchases of stocks, corporate bonds and federal agency bonds have dropped from around 18% of economic output to near zero "in a remarkably short period of time," Setser says.
The past five quarters — roughly since the August 2007 onset of the financial crisis — private foreign investors have been net sellers of U.S. securities. The turnabout represents a dramatic change from the first half of 2007 when foreign purchases of U.S. securities other than Treasuries averaged about $250 billion per quarter.
The past two quarters also have seen an about-face in cross-border bank flows as institutional investors found lenders unwilling to extend credit. In the first quarter of 2008, foreigners deposited more than $79 billion with U.S. banks. That flow reversed in the second quarter, as foreigners withdrew a staggering $256 billion, and the outflow continued in the third quarter with an additional $147 billion. Likewise, banks in the U.S. brought home more than $151 billion in the quarter, as overseas institutions repaid loans.
"Institutional investors, including banks, across the board are pulling their capital back home," says economist Eswar Prasad of the Brookings Institution.
One bright spot: Foreign central banks continue to spend heavily on U.S. government securities, allowing the U.S. to finance the gap between what it produces and consumes.Suzan