Sunday, November 30, 2008

We're All Screwed

Okay. I'm screwed. My friends are screwed and everybody we know is screwed (financially). What can we do now? Joe Nocera says "The Worst Is Yet to Come" and he presents some impressive evidence.

Today, we are bailing out the banks because of their greedy and deceptive lending practices in the mortgage industry. But this is just the tip of the iceberg. More is coming, I’m sorry to say. Layoffs are being announced nationwide in the tens of thousands. As people begin to lose their jobs, they will not be able to pay their credit card bills either. And the banks will be back for more handouts.
Of course he's only worried about the initial effects on the economy that arise from the disenfranchisement of the worker bees. There is much more pain on the horizon than just that. As a matter of fact, one commenter writes in to say that (some editing was necessary and emphasis marks were added - Ed.):
A tsunami of debt (governmental, corporate and personal insolvency) will swamp the industrialized world as planned. The international banksters are worse than organized crime. They are like corporate locusts on steroids.The U.S. has been set up for a great fall; like Humpdy Dumpty, the U.S. economy is FUBR. As the author stated, the next bubbles to pop will be the credit card as well as the auto and student loan bubbles. People are up to their eyeballs in debt with no way out and no end in sight. Young and old are in hock far beyond their abilty to repay.The path AmeriKKKa is on is unsustainable, this is becoming more evident every day. The Fed (a privately-owned banking cartel answerable to no one) is pumping out trillions of fiat dollars to bail out the banking and Shadow Financial Systems. But the Fed is simultaneously devaluing pre-existing and future dollars (inflation) in the process. There is no pain-free solution to the impending crisis. We could not pay our way out of this even if we wanted to. In the U.S. personal savings are nonexistent, wages are stagnant, jobs are disappearing each month and folks are falling deeper and deeper in debt. (Compound interest is a bitch if you are on the owing side of the ledger.) The bottom could fall out any minute now. When the derivatives and the alphabet entities' Ponzi schemes collapse and finally unravel, all hell will break loose.
"Corporate locusts on steroids" as a description of international bankers wins today's award for Most Colorful Way to Describe the Predators of the Soul. And before you can catch your breath, Mike Whitney comes to the rescue with:
Without any public debate or authorization from Congress, the Federal Reserve has embarked on the most radical financial intervention in history. Fed chairman Ben Bernanke is trying to avert another Great Depression by flooding the financial system with liquidity in an attempt to mitigate the effects of tightening credit and a sharp decline in consumer spending. So far, the Fed has committed over $7 trillion, which is being used to backstop every part of the financial system including money markets, bank deposits, commercial paper (CP) investment banks, insurance companies, and hundreds of billions of structured debt-instruments (MBS, CDOs). America's free market system is now entirely dependent on state resources.
If knowledge in a so-called free society is supposed to bring some type of easing of worries, I fail to see it in his latest delineation of the miseries already inflicted and soon to be increased upon us.
With interest rates at or below 1 percent, Bernanke is "zero bound," which means that he will be unable to stimulate the economy through traditional monetary policy. That leaves the Fed with few choices to slow the debt-deflation which has already carved $7 trillion from U.S. stock indexes and another $6 trillion from home equity. Bernanke will have to use unconventional means to stabilize the system and maintain economic activity in the broader economy.
"Unconventional means?" Like, oh, sending people to live in the local garbage dump and allowing them out to work 80-hour weeks on the minimum-wage chain gangs? I don't want to dwell for too long on this analysis of exactly how bad off we now are, but a couple more paragraphs should do it (and you've just earned your Economics degree (if you read through all of it) - which is more than Tim Geithner, the new Treasury Secretary, has done - which reminds me to ask when did we become a country that didn't expect top Treasury officials to have a solid background in economics and finance? But, whoops, I almost forgot about the omniscient Alan Greenspan). Forgive me.
The Fed also initiated a program to purchase $200 billion of triple A-rated loans from non-bank financial institutions to try to revive the flagging securitization market. It's another risky move that ignores the fact that investors are shunning "pools of loans" because no one really knows what they are worth. The appropriate way to establish a price for complex securities in a frozen market is to create a central clearinghouse where they can be auctioned off to the highest bidder. That establishes a baseline price, which is crucial for stimulating future sales. But the Fed wants to conceal the true value of these securities because there are nearly $3 trillion of them held by banks and other financial institutions. If they were priced at their current market value ($.21 on the dollar) then many of the country's biggest banks would have to declare bankruptcy. So the Fed is trying to maintain the illusion of solvency by overpaying for these securities and providing the financing companies more capital to loan to businesses and consumers. Once again, the Fed is stretching its balance sheet by trying to resuscitate a structured finance system which has already proved to be dysfunctional.
The Federal Reserve Bank (neither Federal, a reserve or a bank) is concealing the true value of these securities for a good reason: they know there is not enough taxpayer money to cover them, no matter how long the printing presses are allowed to print, and they are hoping to resecuritize the market in hopes that another bubble will buy them a little wiggle room into the distant future (when the next "terror war" will buy even more time (to take that personal spaceship to Mars?)). I'm thinking that globalization didn't work as well as they had hoped. Maybe universal globalization?
Last Tuesday's announcement suggests that Bernanke may be dabbling in the stock market already. This forces anyone who is planning to short the market to reconsider his strategy because Bernanke could be secretly betting against him by dumping billions in the futures market to keep stocks artificially high. It just goes to show that all the bloviating about the virtues of "free market" is just empty rhetoric. When push comes to shove this is "their" system and they'll do whatever they can to preserve it. If that means direct intervention; so be it. Principles mean nothing. Bernanke's actions are likely to wreak havoc in the currency markets, too. If currency traders suspect that Bernanke is printing money ("unsterilized liquidity") to rev up the economy, there will be a sell-off of U.S. Treasurys and a run on the dollar. "Monetization" - the printing of money to cover one's debts - is the fast-track to hyperinflation and the destruction of the currency. It's not a decision that should be taken lightly. And it is not a decision that should be made by a banking oligarch who has not been given congressional approval. Bernanke's shenanigans show an appalling contempt for the democratic process. He needs to be reined in before he does more damage. Bernanke's attempts to revive the securitization market is understandable, but it probably won't amount to anything. The well has already been poisoned by the lack of regulation and the proliferation of subprime loans. The problem is that the broader economy needs the credit that securitization produced via the non-bank financials (investment banks, hedge funds, etc.) In fact, the non-bank financial institutions were providing the lion's share of the credit to the financial system before the meltdown. But, now that the 5 big investment banks are either bankrupt or transforming themselves into holding companies (and the hedge funds are still deleveraging), the only option for credit is the banks, and they are incapable of filling the void. The Wall Street Journal estimates that the loss of Bear Stearns and Lehman Bros. will mean "$450 billion in lending capacity missing from markets." Think about that. If we include the other investment banks in the mix, then more than $2 trillion in credit will vanish from the system next year alone. Bottom line, the breakdown in securitization is choking off credit and pushing the country towards catastrophe. If the slide continues, there could be a 40-percent reduction in credit in 2009 making another Great Depression unavoidable.
Screwed tight. Please read the rest of Mike's wisdom-laden essay for further insight. Oh yes, one of the most head-scratching forecasts I've heard today is that Obama was originally selected by the powers-that-be because they needed an entrée to Africa (for their future globalization schemes after its excess population is disappeared). And to think that, previously, I had laughed at the chat that his dressing in African garb was anything more than cultural feelgood. Sayonara (just a little Japanese-economy humor), Suzan

Friday, November 28, 2008

Judas! (No Direction Home)

Like a Rolling Stone (Bob Dylan) There will be no letup folks. With the latest figures in from somewhere (Bloomberg?) estimating that the U.S. bailout is already up to the $8.5 Trillion mark (and yes, you guessed it, they are lying to you about this), with a suggested (theoretical) doable maximum of $12 Trillion, at which time the U.S. GNP will not be able to cover the debts (and therefore will be formally bankrupt), I wonder if Georgie Fame("W")'s fondest friends will still be holding court for him . . . like they continue to as he wends down his path of both environmental and financial destruction, refusing to participate in or urge others to do anything constructive to alleviate the economic/financial suffering he has caused and then allowed to run completely amuck (perhaps completely destroying the credit-worthiness of the U.S. government for years to come - not to mention of most of its citizens for the rest of their lives). I just love those religious leaders, don't you? They surely work hard at bringing those fun "end times" on don't they? Well, financial end times anyway. And if one assumes that Obama's right-of-center to right-wing choices for his team were not just selected, then it's not odd at all to come to the conclusion that the earlier selections of Bill Kristol as a serious commentator at The New York Times and Karl Rove as an objective voice providing election coverage at Fox News were also made (by the Murdoch/IMF-dominated group) with full knowledge of and no worries about what the audience would perceive as their designation by insiders with an eye to the political future. It's become obvious in a very few weeks since the election that Obama is (or has been used as) the hole card by the fancy footwork financial boys who brought us Sleight-of-hand Paulson and his money-changing cohort Fast Benny Bernanke, and that his "change" team guarantees no change at all under Tim (I just love Larry Summers' and Bob Rubin's mentoring) Ge(i)t-Your-Money-Out-Now-heir! If it's true that the whole "liquidity" argument was never the real issue in an economy where no one (now) has the trust equivalence left to actually want to take out a loan again (let alone be allowed to) to restore confidence in an unquestionably rigged stock market, and that no foreign countries want our exports any more than we do, it's no surprise that foreign countries are moving to currencies other than the U.S. dollar, which is now distinctly untrustworthy long term. The "shorting" games ongoing ensure that the American investor will never trust those in charge again. We already know that Greenspan joined The Paulson Group, whose clients were told to short the Greenspan-created subprime market, last February. What more could have been done to convince investors to stay away until those involved were tried and punished? And this becomes increasingly seen as ridiculously unlikely by a populace that up until now had absolutely presumed perfect (somewhat) accountability in the dealings of government officials until "W" ascended the golden staircase and erased all belief in such. Think of the people who will be deemed a bad debt risk that won't be able to borrow again in the foreseeable future (and all of the incompetent and/or criminal institutions that will be made whole), creating a whole new "credit-worthy" definition. Also think of the credit-reporting agencies that will guarantee that these "credit risks" will never recover. Anyone ready for the tent cities/shanty towns that this will require? Paulson and his buddies show by their arrogance that they think no one will ever prosecute them (or even ask embarrassing questions about their actions). Look at the path of destruction of Cheney and Bush's impunity-guaranteeing actions leading the way to this point. If you require further evidence, take a look at the incomparable writer known as Driftglass'! And we won't know the facts concerning this for a while but tonight we were presented perhaps even more manufactured news to take our minds off of our financial plights. Could BRIC be the reason Mumbai was attacked in a possible Mossad (attributed to Pakistani) operation? Never take your eye off the ball. It's still a very long way to Tipperary (January 20, 2009). Mike Whitney is a fine source for all things economically puzzling and he reveals many of the insider secrets and lies here. If this weren't a particularly good explication of the current controversies, I wouldn't waste the space running it. It's not a waste of our time.

The Obama "Dream Team": Rubin-clones And Other Fakers By Mike Whitney November 27, 2008 "Information Clearinghouse" - Things are getting crazier by the day. On Tuesday, Treasury Secretary Henry Paulson announced that the Fed would commit another $800 billion to fight the financial crisis which has spread to the broader economy and is causing sharp declines in consumer spending. The Fed plans to buy $600 billion of mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac and another $200 billion of Triple A bonds from non-bank financial companies that provide financing for consumers. There's just one little hitch, Fannie and Freddie are already owned by the government, so buying the bad paper is like moving the figures from one ledger to another. It's pointless. Except for the fact, that by shuffling the paperwork, Bernanke can drive down long-term interest rates and (hopefully) rekindle flagging home sales. It's quite a trick. And with the other $200 billion he can kick-start the securitization market by purchasing bundles of student loans, credit cards and car loans. Investors have been boycotting the asset-backed securities (ABS) markets for months now which has choked off the flow credit to consumers. So the Fed is trying to unclog the plumbing by stepping in as the lender of last resort. Of course, if the Fed really wanted to get money to consumers there are much easier ways to do it, like cutting the payroll tax or mailing out stimulus checks or issuing tax rebates to couples making under $60,000 per year. But that's not what Bernanke wants to do. The real objective is to reignite securitization because that's the vehicle the investment banks and hedge funds use to increase profits through leveraged bets on odd-sounding derivatives (CDO, MBS, CDS). But no one is buying dodgy securities anymore because no one knows their true value. Until that can be worked out, investors will stay away. That's why Bernanke and Paulson would be better off with a little less liquidity and a little more transparency. Price discovery for structured investments is critical. If investors know the market price, then they'll jump in. If not; it's no dice. Bernanke and Paulson are trying to tackle the financial crisis from the wrong end. This isn't about liquidity or "access to credit", its about confidence. The public's trust has been betrayed a million times over. They've been tricked with WMD, bamboozled with phantom enemies, and cheated with bogus securities. All the surveys say the same thing; public confidence is at an all-time low. As a result, fear and pessimism are more widespread than any time in recent history. People no longer expect tomorrow to be better than today. In fact, they expect it to be worse, and for good reason. The country has broken loose from its moorings and is adrift. There's no accountability at any level of government anymore; it doesn't matter how big or heinous the crime, no one pays. The justice system is a sham. In fact, the D.O.J. is just a weapon for destroying political enemies; that's it. The one noteworthy conviction in the last 8 years was home-decorating guru Martha Stewart. What a joke. In his memoirs, Bush can boast, "At least we got Martha Stewart off the streets." And it's not just the justice system that lacks credibility either; it's the financial system, too. The stampede out of the stock market to US Treasurys shows how quickly trust can turn to panic. The downward spiral of the economy reflects the mood of the country; dark and gloomy. That's not something that can be changed with more liquidity. After all, the economy is more than the sum of its parts, just like people are more than just consumption machines that can be zapped like rats into spending themselves into oblivion. They're sentient beings who can see the deteriorating economic conditions closing in on them and threatening their security. They're scared. Bernanke - the academic - sees the economy through the lens of his research on the Great Depression. He, like many other monetarists, believe that the depression was the result of the one-third contraction in the money supply during the 1930s. It is a widely held view and it could be true. But if that's the case, than why haven't the Fed's myriad lending facilities--which have flooded the financial system with trillions of dollars of liquidity--stopped the markets from crashing and the recession from deepening. Could it be that there were other factors besides just money supply? People are hunkering down for a reason, and its not just lost revenue. They've lost faith in their institutions--the government, the banks, and the media; everybody is in it for themselves, and it shows. Even now, with the economy teetering at the brink of disaster, high-ranking officials like Paulson are still diverting hundreds of billions of dollars from the Treasury to their Wall Street buddies leaving nothing behind but a few scraps for the working stiffs. And Paulson isn't alone either; his Darwinian "dog eat dog" creed is the prevailing ethos of the corrupt oligarchy that runs the country, Republican and Democrat alike, it makes no difference. It's "me first" and the public be damned. If Bernanke really wants to know how the economy is doing, he should pay a visit to any town or city in America. Business is off everywhere; it's not just retail. The restaurants, the gas stations, the dry cleaners; even the casinos are hurting. The lines at the food banks are longer than the unemployment lines, and the only business that's booming is the pawn shops where the family silver is traded away for gas money or a few bucks to blow on groceries. This is what recession looks like from the ground floor where people are struggling to just make ends meet. No more 3-course dinners at Olive Garden and no more $5.25 lattes and cranberry scones at Starbucks. It's Campbells for lunch, Spam for dinner and plenty of wool blankets for evening TV. Does Paulson think he can "turn off" the public's pessimism like a light switch? Does Bernanke think he can get people to spend themselves further into debt by lowering interest rates? It can't be done. And the Obama camp is going to run into the same brick wall. The nation's confidence has been shaken and people are developing a bunker mentality. The truth is, Obama was shoehorned into the White House because the ruling elite saw that the country was slipping into a consumer-led depression. They needed a bright new face to restore confidence and spark optimism during the tough times ahead. But now that he's been elected, they've surrounded him with the very men who, to great extent, created the present crisis. Lawrence Summers pushed for the repeal of the laws which prevented commercial banks from merging with the Wall Street casinos and he also helped to deregulate derivatives trading which now threatens to bring down the entire financial system if a major player, like Citigroup, goes under. Timothy Geithner and Lawrence Summers were central figures in the bubble-driven growth and deregulation mania of the last decade. Their influence factored heavily into the speculation that was brought on by low interest rates, easy credit and massive leverage; the lethal combo that created the present crisis. Their elevation to the top positions in the administration --along with Paul Volcker--proves that the Obama presidency is just more political fakery; a charming and charismatic figurehead placed in front of the executive podium to conceal the machinations of deeply-entrenched interests who are busy rebuilding the trickle-down system from the ground up. There's nothing new here, and certainly nothing progressive. The much-celebrated "Dream Team" is an amalgam of Rubin-clones who used Obama as a land-bridge to the White House to strengthen the status quo and get on with the task of shifting the nation's wealth to Wall Street's economic royalists. The fact is, the Obama star-studded economic recovery team emerges from the same ideological petris-dish as Bernanke and Paulson. Their world view is shaped by the same strong sense of entitlement which will ultimately prevent them from enacting the regulatory reforms that they need to be put in place to restore transparency, confidence and credibility. Instead, they will unleash a torrent of stimulus spending (infrastructure and green technology mainly) followed by unorthodox monetarist/fiscal chicanery (like purchasing stocks on the equities market or buying long-term Treasurys) all of which will hide the fact that they are not forcing the bad debts out into the open so they can be written down and the markets can reestablish equilibrium. No one disputes that Geithner, Summers and Volcker are smarter and more competent than Team Bush, and that, their Keynesian plan to inject massive doses of stimulus into the economy will have a positive effect. But that's as far as it goes. The men behind these remedies are limited by institutional loyalties that will keep them from overhauling the system in meaningful way. Neither Summers, nor Geithner nor Volcker would ever dare to tamper with the revenue-producing system which maintains the orderly division between rich and poor. That just won't happen. So, after the fanfare subsides and Obama's economic team puts its stimulus plan in motion, there should be some marginal uptick in economic activity. But unless the underlying problems are addressed, there's little hope of any lasting recovery. The banks need to take their medicine and write down the losses. Regulators have to decide which institutions are solvent and can be saved, and which are underwater and will have to be shut down. The Obama administration will have to open a bank morgue like the Resolution Trust Corporation (RTC) so the bad assets from failed banks can be sold at auction to the highest bidder. That's the only way to put this whole mess behind us and start to dig out. Putting the securities up for bid will restore confidence and, eventually, lure investors back into the stock market. It will also remove the zombie banks from hanging on and depending on government bailouts. There's a method for unwinding sick banks through restructuring debt. It needs to be put to use. Regardless of what the new administration does, the stock markets will take another leg down between the end of 2009 to early 2010, finding a bottom on the Dow of 4,500 or thereabouts (70% plus declines took place on the NASDAQ following the bust, Japan during the 1990s "lost decade" and the Great Depression. In none of these cases was the bottom reached in the first year) Hedge fund redemptions will force more deleveraging and more wild swings in volatility.

The banks, which have accounted for nearly half of their losses, will need to write off another $800 to $900 billion before its all over. No one knows where they'll get the capital. Unemployment will skyrocket, housing will overshoot to the downside, and there will be the first random incidents of political instability in major US cities. The economy will remain flat on its back for some years into the future. How quickly the markets rebound will depend on how fast Obama's team grasps that the system needs deep structural change and a banking system that is not paralyzed with debt.

Thanks, Mike. We needed that. Suzan


Tuesday, November 25, 2008

Financial/Systemic Collapse - Vast Conspiracy of Knowing Conceit and Outright Lying

And just as many others, myself included, have been writing about this massive developing economic crisis for several years, Samir Amin tries to disperse the smoke by adding some needed introspection and historical perspective to the analysis on my birthday. What a nice present. The main thought that immediately hits me is of the vast conspiracy of knowing deceit and outright lying done by Alan Greenspan and Paulson and Bernanke (and all the rest of the enablers of catastrophe) as they take the public's money under false pretenses - and all the rest of the insiders who knew exactly what lay in store for the poor (largely unknowing) peons of the economic world as a result of their hyperdriven greed-framing of the wheels of capitalism). The secondary thought (although I don't know why it's secondary) is that there is no way they will ever be held accountable or we will get our stolen value back. So it goes.

Financial Collapse, Systemic Crisis? Illusory answers and necessary answers by Samir Amin Global Research, November 23, 2008 World Forum of Alternatives (The original French version is available on our French language website (Paper introducing the World Forum of Alternatives, in Caracas, October 2008) The financial crisis could not be avoided The violent explosion of this crisis did not surprise us; I mentioned it a few months ago while the conventional economists were ignoring its coming development and consequences, especially in Europe. In order to understand it, we must get rid of the conventional definition of the system which qualifies it as “neo-liberal” and “global”. This definition is superficial and masks the essential. The current capitalist system is dominated by a handful of oligopolies that control the basic decisions making of the world economy. These oligopolies are not solely financial; such as the banks or the insurance companies, but include enterprises involved in industrial production, services, transports and the like. The way they are financialiarized is their chief characteristic. We must understand here that the main source of economical decision has been transferred from the production of surplus value in production towards the redistribution of profits between the oligopolies. To that effect the system needs the expansion of financial investments. In that respect the major market, the one which dominates all other markets, is precisely the monetary and financial market. This is my definition of the "financialiarization" of the global system. Such a strategy is not the result of independent "decisions" of banks, it is rather that the choice of the “financialiarized” groups. These oligopolies hence do not produce profits; they just swipe the monopolies’rent through financial investments. This system is extremely profitable for dominating sectors of the capital. Thus, the system should not be qualified "market economy" (which is an empty ideological qualification) but as a capitalism of financialiarized oligopolies. However, financial investment could not continue indefinitely, while the productive basis was growing at a low rate. Consequently, we have the logic of a “financial bubble”, the sheer translation of the financial investments system. The gross amount of financial transactions reaches two thousand trillion alone, while the world GDP is 44 trillion only. Quite a huge multiple! Thirty years ago, the relative volume of such transactions did not have this extent. . . . As a matter of fact, those transactions were directed in general and expressly to cover the operations linked to production, and internal and external trade. The overall outlook of this financed oligopolies system was – as I said previously - the Achilles’ heel of that capitalist structure. The crisis was doomed to be initiated by a financial collapse. Behind the financial crisis, the systemic crisis of the aging capitalism To attract the attention on the financial collapse is not enough. Behind it, a crisis of real economy is standing out, since the financial drift was continuously asphyxiating the growth of the production basis. Solutions brought to the financial crisis can just lead to a crisis of the real economy, i.e. a relative stagnation of the production with its side effects: regression of wages, growth of unemployment, growing precariousness and aggravation of poverty in the Southern countries. We must speak now about depression and no more about recession. Behind this crisis, the systemic crisis of capitalism is looming right after. The pursuit of the model based on the growth of the real economy –as we know it- and of the consumption attached to it, has become, for the first time in history a real threat for the future of humankind and the planet. The major character of this systemic crisis is related to the natural resources of the planet, now less abundant than half a century ago. The North-South conflict constitutes for that reason the central axis of coming struggles and conflicts. The production and consumption-waste system at the moment forbids the access to the world natural resources for the majority of the planet, i.e. the peoples of the South. Previously, an emergent country could take its share of these resources without questioning the privileges of the affluent countries. But today, it is no more the case. The population of opulent countries -15% of the planet’s population- has to monopolize for its own consumption and waste 85% of the world resources, and cannot tolerate that newcomers may reach these resources, since they would provoke shortages for rich people’s standard of living. If the USA has formulated an objective of military control of the planet, it is because, without it, they cannot secure the exclusive access to these resources. As we know: China, India and the South as a whole need them as well for their development. For the USA, they must limit the access and ultimately, there is only one mean: war. On the other hand, to preserve energy sources of fossil origin, USA, Europe and others develop production of bio-fuel projects to a large scale, to the detriment of food production, still accusing the rise of prices. Illusory answers of the governing powers Governing powers, under the rule of financial oligopolies, do not have any other project except to restore the same system. However, their success is not impossible, if they can inject enough liquidities to restore the credibility of the financial investments, and if the reactions of the victims –working classes and nations of the South- remain limited. But, in this case, the system steps back to better jump and a new financial collapse, still deeper, is unavoidable, since the “adjustments” for the management of financial and monetary markets are not wide enough, because they do not question the power of oligopolies. Furthermore, answering the financial crisis by injecting phenomenal public funds to re-establish the security of the financial markets is amusing: first, profits were privatized, if they are jeopardized, the losses are socialised! Reverse, I win, head, you loose. Conditions for a genuine positive answer to the challenges To say that the State’s interventions may change the rules of the game, lessen the drifts, is not enough. We must define the logics of that intervention and its social purpose. Of course, we could come back in theory to the formulas associating public and private sectors, to a mixed economy as it existed during the glorious thirties in Europe and at the time of Bandoung in Asia and in Africa, when State capitalism was largely dominant, accompanied by strong social policies. But this kind of State intervention is not on the agenda. Also, are the progressive social forces able to impose such a transformation? Not yet to my viewpoint. The other choice is the toppling of the oligopolies’ exclusive powers, unthinkable without, finally, their nationalisation leading progressively to the socialisation of their management. End of capitalism? I do not think so. Yet, I submit that changes in classes' relations are possible, imposing adjustment to the capital, in answer to the demands of working classes and peoples. The conditions for such an evolution to occur imply the progress of social struggles, still fragmented and on the defensive position altogether, moving towards a political coherent alternative. In that perspective, the long transition from capitalism to socialism becomes possible. The advances in this direction are obviously always uneven from one country to the other and from one phase to the other. The dimensions of this desirable and possible alternative are numerous and concern all aspects of economical social and political life. I will recall here the general lines of this necessary answer: (Click here for the rest of the essay.)
Everyone knows this? And no one is hitting the streets? Suzan __________________________________

Monday, November 24, 2008

Is This The End (of the Dollar) Beautiful Friend?

Is it possible that the U.S. dollar will soon be "not worth a Continental?" Don't disbelieve it too quickly. I still don't see how appointing all the guys implicated in causing the current madness to the most influential positions in the new administration will bring any relief to the people on the bottom who will paying these bills for the next century with dollars worth pennies (Thank you, Robert Rubin, Larry Summers, Tim Geithner, Alan Greenspan and Hankie Paulson.) Paul Craig Roberts assumes a funereal tone as he traces the death of our country's brief reign as an Empire. Mother (country)? I want to kiiiiiiiiiillllllllllllllllllllllllllllllllll you. And they were certainly in there pitching. Suzan _________________________

Sunday, November 23, 2008

The Scam on "The Scam"

Have they made it simple enough for even the "man on the street" to understand yet? (A few smart women have contacted me already to discuss the eeriness of what's happening economically (and politically), but I digress.) You've gotta admire the Obama PR kit so far in evidence. Announce the coming appointment of young people like Tim Geithner (who worked for Kissinger and Associates for three years, joined Bush I's Treasury Dept. in 1988, was appointed to the Council on Foreign Relations and the International Monetary Fund (eventually mentored by Larry Summers) and arranger of the rescue and sale of Bear Stearns in March 2008!), and Austan Goolsbee (Yale and MIT grad who won the NCFL national championship in extemporaneous speaking twice - making him the best TV talker around), and many others who are waaaaaaaay too young (not really) to have been a part of the last seven years of deregulatory criminal foolishness (or is it 16 years or 28 - but who's counting?). By any rational account, none of these "moderate" choices can be really blamed for the current mess (even those who were studying at the knees of the perpetrators), and therefore, Obama starts with a clean slate (and Summers and Volker and Peterson will be introduced much later if need be). If they make it to January 20, 2009, before the real trouble starts. I had no doubt that Cheney was clever (evil) and wouldn't disappear without a quid pro quo (and hasn't been off not planning something even more repellent for the end game) - and that Rove was possibly even more evil - but you've gotta admit this is the perfect scenario to announce before the real madness comes online. And no one, no one believes they are going to make it unscathed to January 20 (without divine intervention). Although one can hope, can't one?
Mike Whitney clues us in on the real scam as to why banks are not lending. I know I'm making a mistake by reproducing the whole article, but I'm always fearful that a few people, who would read the whole thing, won't if they have to click through on the link, so here goes. Trust me. It probably will be the best article you've ever read on why you will soon have no money or retirement savings. And, yes, I know it's toooooooo long. (Emphasis marks and some necessary editing are mine - Ed.)
"The Winter of 2008-2009 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide." Economists Paul Davidson and Henry C.K. Liu "Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy"

This Is Not A Normal Recession: Moving on to Plan B Mike Whitney Global Research November 21, 2008 The global economy is being sucked into a black hole and most Americans have no idea why. The whole problem can be narrowed down to two words; "structured finance". Structured finance is a term that designates a sector of finance where risk is transferred via complex legal and corporate entities. It's not as confusing as it sounds. Take a mortgage-backed security (MBS), for example. The mortgage is issued by a bank (the loan originator) which then sells the mortgage to a brokerage where it is chopped up into tranches (pieces of the loan) and sold in a pool of mortgages to investors that are looking for a rate that is greater than Treasurys or similar investments. The process of transforming debt ("the mortgage") into a security is called securitization. At one time, the MBS was a reasonably safe investment because the housing market was stable and there were relatively few foreclosures. Thus, the chance of losing one's investment was quite small. In the early years of the Bush administration, Wall Street took advantage of the gigantic flow of capital coming into the country ($700 billion per year via the current account deficit) by creating more and more MBSs and selling them to foreign banks, hedge funds and insurance companies. It was (a) real gold rush. Because the banks were merely the mortgage originators, they didn't believe their own money was at risk, so they gradually lowered lending standards and issued millions of loans to unqualified applicants who had no job, no collateral and a bad credit history. Securitization was such a hit, that by 2005, nearly 80 percent of all mortgages were securitized and the traditional criteria for getting a mortgage was abandoned altogether. Subprimes, Alt-As and ARMs flourished, while the "30 year fixed" went the way of the Dodo. Lenders were no longer constrained by "creditworthiness"; anyone with a pulse and a pen could get approved. The mortgages were then shipped off to Wall Street where they were sold to credulous investors. The disaggregation of risk - spreading the risk to many investors via securitization - was as much of a factor in the creation of "the largest equity bubble in history", as the banks lax lending standards or Greenspan's low interest rates. By spreading risk throughout the system, securitization keeps interest rates artificially low because the real risks are not properly priced. The low interest rates, in turn, stimulate speculation which results in equity bubbles. Eventually, credit expansion leads to crisis when borrowers can no longer make the interest payments on their loans and defaults spiral out of control. This forces massive deleveraging and the fire-sale of assets in illiquid markets. As assets lose value, prices fall and the economy enters a deflationary cycle. There are many types of of structured instruments including asset-backed securities (ABS), mortgage-backed securities (MBS), collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) all of which provide a revenue stream from loans that were chopped into tranches and turned into securities. There are many problems with these complex securities, the biggest of which is that there is no way to unravel the individual pools of loans to isolate the bad paper. That's why subprime mortgages had such a destructive affect on the secondary market, because - even though subprimes only defaulted at a rate of roughly 5 percent - MBS sales slumped nearly 90 percent. Why? Former Secretary of the Treasury Paul O'Neill explained it like this: "It's like you have 8 bottles of water and just one of them has arsenic in it. It becomes impossible to sell any of the other bottles because no one knows which one contains the poison." Exactly right. So why weren't these structured debt-instruments "stress tested" before the markets were reworked and the financial system became so dependent on them? Greed. Because the real purpose of these exotic investments is not to provide true value to the buyer, but to maximize profits for the seller by increasing leverage. That is the real purpose of MBS, CDOs and all the other bizarre-sounding derivatives: higher profits with less capital. It's a scam. Here's how it works: A mortgage applicant buys a house for $400,000 and puts 10 percent down. His mortgage is sold to Wall Street, chopped into pieces, and stitched together in a pool of similar loans. Now the brokerage can use the debt as if it were an asset, borrowing at ratios of 20 or 30 to 1 to fatten the bottom line. When Fannie Mae and Freddie Mac were taken into conservatorship by the government, they were leveraged at an eye-popping 100 to 1. This shows that nearly an infinite amount of debt can be precariously balanced atop a paltry amount of capital. This explains why the $4 trillion aggregate value of the 5 big investment banks and the $1.7 trillion value of the hedge funds is now vanishing more quickly than it was created. Once the mighty gears of structured finance shift into reverse, deleveraging begins with a vengeance pulling trillions into a credit vacuum. It all started when two Bear Stearns hedge funds defaulted in July 2006 and there were no offers for their MBS and other structured investments. Panic quickly spread to every corner of Wall Street as the alchemists of modern finance began to see that their worst nightmare might be realized, that trillions of dollars of Frankenstein investments could be worth nothing at all. Since the Bear Stearns funds fiasco, there have been huge explosions in the financial markets. Fannie Mae, Freddie Mac, Wachovia, Washington Mutual, Indybank, AIG, Lehman Bros and other industry giants have either gone under or been forced into shotgun weddings by the FDIC.

The stock market has plunged over 40 percent and suffered wild gyrations not seen since the 1930s. The entire Wall Street landscape has changed completely. Investment banking is no longer a viable business model; the Big 5 have either vanished or transformed themselves into holding companies to escape short sellers.

The hedge funds have been deleveraging with a ferocity that has sent sent stocks and commodities crashing. In one day last week, the stock market plunged 300 points in the morning only to bounce back 550 points a few hours later; a whopping 850 point-spread in one trading day! No one but a madman would dabble in this market. Cautious investors have pulled up stakes and moved to the safety of Treasurys. Meanwhile, the financial tsunami is roaring through the real economy where consumer confidence has plummeted, unemployment is soaring and retail sales have fallen to historic lows. The downdraft from the financial markets has flattened Main Street and set the stage for a humongous $500 billion stimulus package to be delivered in the first few months of the Obama administration. The meltdown appears to be playing out much like Henry Paulson anticipated. According to Bloomberg News : "Shortly after leaving Wall Street as Goldman Sachs' CEO, Henry Paulson was at Camp David warning the president and his staff of "over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street's face and affect the whole economy." (PAUL B. FARRELL, "30 reasons for Great Depression 2 by 2011", MarketWatch) So far, the Federal Reserve has provided nearly $2 trillion through its lending facilities just to keep the financial system upright. The Treasury is currently distributing $700 billion to key banks and other financial institutions that are perceived to be "too big to fail". In truth, the "too big to fail" mantra is a just public relations hoax to conceal the web of counterparty deals that make it impossible for one institution to fail without dominoing through the rest of the system and wreaking havoc. That's why AIG is still on life-support with regular injections of taxpayer money; because it had roughly $4 trillion of credit default swaps (structured "hedges" that are not traded on a regulated exchange) for which AIG does not have sufficient capital reserves. In other words, the taxpayer is now paying the debts of an insurance company that didn't set aside the money to pay its claims. (As yet, No SEC indictments for securities fraud) In fact, the Fed and Treasury are now providing a backstop for the entire structured finance system which is frozen solid and shows no sign of thawing any time soon. This is not a normal recession, which is a downturn in the business cycle and "a period of reduced economic activity" usually brought on by a mismatch between supply and demand. (that ends in two quarters of negative growth) The present situation is much more grave; it is the utter destruction of a system that was developed fairly recently and has proven to be thoroughly dysfunctional. It cannot withstand the effects of tighter credit or adverse market conditions. This is not a cyclical downturn; the structured finance system has collapsed leaving behind a multi-trillion dollar capital hole that is bringing the broader economy to its knees. One by one, we have seen the structured instruments fail; mortgage-backed securities (MBS), collateralized debt obligations (CDOs), credit default swaps (CDS), commercial paper (CP), auction rate securities. Now we are seeing investors boycott anything related to structured investments. This is from Mish's Global Economic Trend Analysis: "There were NO sales of bonds backed by credit-card payments in October, the first time since 1993, when the asset-backed securities market was in its infancy. Yields on top-rated credit card bonds relative to benchmark interest rates reached a record high of 525 basis points more than the London interbank offered rate, or Libor, last week, according to Bank of America Corp. data." Wall Street has turned off the faucet for securitized investments. That market is toast. The only reason that Libor and the other gauges of interbank lending have normalized is because the Fed guaranteed money markets and commercial paper. It has nothing to do with trust between the banks themselves. There is no trust. Even so, the banks are not capable of making up for the vast amount of credit which was produced by the now-defunct investment banks and hedge funds which are constrained by losses of nearly $3.5 trillion; half of their total value. In the best case scenario, bank credit will only shrink 15 or 20 percent, which will put the US on track for a deep "18 month to 2 year" recession rather than another Great Depression. Paulson's attempt to divert $30 billion to non-bank financial institutions to revive loan securitization when there is no appetite among investors for such structured junk is pure folly. More troubling, is that neither Paulson nor Bernanke have a Plan B; an alternate scheme for rebuilding the financial markets on a solid, sustainable foundation rather than low interest rates and pools of debt. Everything they have done so far, suggests that they are focused on one thing alone; inflating another equity bubble. "Inflate or die", as the saying goes; and Bernanke intends to achieve this objective using the same tools that brought us to the brink of catastrophe. Here's a clip from a recent speech by Bernanke which shows his determination to prop up the broken system: "The ability of financial intermediaries to sell the mortgages they originate into the broader capital market by means of the securitization process serves two important purposes: First, it provides originators much wider sources of funding than they could obtain through conventional sources, such as retail deposits; second, it substantially reduces the originator's exposure to interest rate, credit, prepayment, and other risks associated with holding mortgages to maturity, thereby reducing the overall costs of providing mortgage credit." Sorry, Ben, the funding has dried up and the banks have shown no interest in going back to the days of conventional "30-year fixed" mortgages. It's a dead letter. The Fed and Treasury need to stop looking for ways to reflate the bubble and work to restore confidence in the markets by increasing regulation and reducing the amount of leverage that's allowable to 12 to 1. After all, it's no coincidence that AIG, Fannie and Freddie, Lehman Bros, General Motors, General Electric have all fallen off a cliff at the very same time. They are all victims of the same low interest, easy money finance swindle which allowed them to roll over huge amounts of short-term debt at artificially low cost. When Bear blew up; lending tightened, demand weakened, and credit was flushed from the system at an unprecedented pace. Borrowing short for long-term investments is not feasible when credit becomes scarce, but it's not because the banks aren't lending. That's just another myth that keeps the public from seeing what's really going on. As Jon Hilsenrath points out in his Wall Street Journal article, "Banks Keep Lending, but that isn't easing the crisis", that is not the case: "Banks actually are lending at record levels. Their commercial and industrial loans, at $1.6 trillion in early November, were up 15% from a year earlier and grew at a 25% annual rate during the past three months, according to weekly Federal Reserve data. Home-equity loans, at $578 billion, were up 21% from a year ago and grew at a 48% annual rate in three months. . . . The numbers point to one of the great challenges of the crisis. The credit crunch is surely real, but it is complex and not easily managed. Banks are lending, but they're also under serious strain as they act as backstops to a larger problem - the breakdown of securities markets . . . . The worst of the credit crisis is being felt not in banks but in financial markets . . . ." The banks are not to blame. There is a generalized contraction of credit in the non-bank financial system where structured finance has blown up and taken half of Wall Street with it. It's the end of an era. Here's how economist Henry C. K. Liu sums it up in his "Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy": "Neoliberal economists in the last three decades have denied the possibility of a replay of the worldwide destructiveness of the Great Depression that followed the collapse of the speculative bubble created by unfettered US financial markets of the 'Roaring Twenties'. They fooled themselves into thinking that false prosperity built on debt could be sustainable with monetary indulgence. Now history is repeating itself, this time with a new, more lethal virus that has infested deregulated global financial markets with 'innovative' debt securitization, structured finance and maverick banking operations flooded with excess liquidity released by accommodative central banks. A massive structure of phantom wealth was built on the quicksand of debt manipulation. This debt bubble finally imploded in July 2007 and is now threatening to bring down the entire global financial system to cause an economic meltdown unless enlightened political leadership adopts coordinated corrective measures on a global scale." Rome is burning. It's time to stop tinkering with a failed system and move on to "Plan B" before it's too late.

And if you think all the "inside guys" didn't know this, you really are hope-less. Suzan __________________________________

Friday Morning Coming Down? The Lame-Duck Economy

On Friday, Obama says the magic word (Geithner) and down comes the duck with the $100 (h/t to Groucho Marx)! And the market goes up (miraculously) 500+ points (but it's only a temporary northward blip for next week's dreaded market charts). Right-wing radio, however, continues to blare Muslim/communist conspiracy theories, readying us for the night of the blackshirted long knives?

In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the GOP’s free-market ideology and undermined its claims of competence. And for those on the progressive side of the political spectrum, these are hopeful times. There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now. It’s true that the interregnum will be shorter this time: F.D.R. wasn’t inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days. How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating. . . . Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.
This is the most negative I've noticed Professor Krugman being since he was awarded the Nobel Prize. (See the entire essay below or click on the title link.)
November 21, 2008 The Lame-Duck Economy Paul Krugman Everyone’s talking about a new New Deal, for obvious reasons. In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the G.O.P.’s free-market ideology and undermined its claims of competence. And for those on the progressive side of the political spectrum, these are hopeful times. There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now. It’s true that the interregnum will be shorter this time: F.D.R. wasn’t inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days. How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating. Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago. Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff. How much should we worry about what looks like two months of policy drift? At minimum, the next two months will inflict serious pain on hundreds of thousands of Americans, who will lose their jobs, their homes, or both. What’s really troubling, however, is the possibility that some of the damage being done right now will be irreversible. I’m concerned, in particular, about the two D’s: deflation and Detroit. About deflation: Japan’s “lost decade” in the 1990s taught economists that it’s very hard to get the economy moving once expectations of inflation get too low (it doesn’t matter whether people literally expect prices to fall). Yet there’s clear deflationary pressure on the U.S. economy right now, and every month that passes without signs of recovery increases the odds that we’ll find ourselves stuck in a Japan-type trap for years. About Detroit: There’s now a real risk that, in the absence of quick federal aid, the Big Three automakers and their network of suppliers will be forced into liquidation — that is, forced to shut down, lay off all their workers and sell off their assets. And if that happens, it will be very hard to bring them back. Now, maybe letting the auto companies die is the right decision, even though an auto industry collapse would be a huge blow to an already slumping economy. But it’s a decision that should be taken carefully, with full consideration of the costs and benefits — not a decision taken by default, because of a political standoff between Democrats who want Mr. Paulson to use some of that $700 billion and a lame-duck administration that’s trying to force Congress to divert funds from a fuel-efficiency program instead. Is economic policy completely paralyzed between now and Jan. 20? No, not completely. Some useful actions are being taken. For example, Fannie Mae and Freddie Mac, the lending agencies, have taken the helpful step of declaring a temporary halt to foreclosures, while Congress has passed a badly needed extension of unemployment benefits now that the White House has dropped its opposition. But nothing is happening on the policy front that is remotely commensurate with the scale of the economic crisis. And it’s scary to think how much more can go wrong before Inauguration Day.
So much more. Suzan _________________________________

Friday, November 21, 2008

Are You Ready for the Madness Yet? Detroit Better Be.

If you are already aware that amid their mind-bending historical incompetence, the Rethugli-Cons are best (if you consult history) at the (well-planned, but accidental-looking) screwing up of the incoming administration elected to fix their "handiwork" before the new guys actually get control, then you are ahead of the game. And they are working overtime after this election. The recent trips that Bush has made to South America, the G-20 and the Middle East (not to mention his meeting with Olmert) couldn't be more suspicion laden for a President who knows so little about foreign policy and economics, oould they? Some have been so bold as to suggest that this is another "hand off the catastrophe" moment with the chosen recipient (the smooth marketing strategy) being the "nicest" guy in the room (who is quite busily choosing the old team to aid him in his change program already). As the bad times exacerbate (starting next week!), it may turn out to be "change we can bereave in" according to Mickey Z (a guaranteed maverick) who has a three-step program (which no one believes will ever be implemented) to blunt the Depressive effects: "1. Cut the military budget by 75% 2. Eliminate corporate welfare 3. Return the corporate tax rate back to where it was in the 1950s" I shrink from believing it after such good, positive vibes during the election, but I hate surprises (like another Great Depression (and I detest the Rise of the Clintonistas* - who are unindicted co-conspirators in the main and nothing they did in the 90's benefitted me or anyone I know)), so I'll stick my neck out here. Oh, and to straighten out your confusion at the sight of the leading Democrats letting the auto industry go up in smoke, relax. The Chinese have already been recruited to take over the industry. And, once again, what is too difficult for U.S. business to accomplish stateside will be handily embraced by the grateful-for-the-opportunity Chinese. After all, GM is now worth less than Mattel and the Chinese can purchase it and Chrysler for petty cash (with its $2 Trillion in currency reserves)! And you didn't think the crashing market was benefitting anyone (let alone a company founded by Mao Zedong), now did you? Also, if you still have investments, you might want to take a gander at Treasury Yields Drop to Record Lows as Recession Concern Rises "with two-year notes dropping below 1 percent for the first time, as global stocks slumped and a deepening recession drove investors to the safest assets . . . . 'It’s the continued meltdown of the financial system, lack of action by Washington' . . . . 'There’s no white knight coming to save us.'" (And Joe Galloway agrees.)

Yields have hit record lows since Treasury Secretary Henry Paulson said on Nov. 12 he would abandon plans to use the Troubled Asset Relief Program to buy mortgage assets from banks. The London interbank offered rate has spiked 11 basis points in the three days after Paulson’s shift. Before Paulson’s announcement Libor, which banks charge each other for three- month loans in dollars had fallen for 23 straight days. “Changing the terms of the TARP as suddenly as he did undermined investor confidence,” said Richard Schlanger, a bond fund manager in Boston at Pioneer Investments, which oversees $44 billion. “It’s a frightening situation.” Investors erased more than $33 trillion from global stock markets this year as the U.S., Europe and Japan slipped into recession. . . . Breakeven rates, which show the difference in yields between inflation-linked and nominal bonds, suggest traders are betting the U.S. economy may face deflation over the next two years. The two-year U.S. breakeven rate was minus 4.09 percentage points. “You have the cloak of a declining inflationary environment,” said Tom Tucci, head of U.S. government bond trading in New York at RBC Capital Markets, the investment- banking arm of Canada’s biggest lender. “People are denying it, but we are mirroring the whole Japanese situation and if that’s the case interest rates are going to go a lot lower.”
And then we have this tidbit:
Paul Krugman appearing on Rachel Maddow told the straight unvarnished truth, urging Congress to overcome lame ducks' "not our problem" mentality and confront the immediate need for a bridge loan to keep Detroit's Big Three solvent until a more responsible Obama Administration takes office. Krugman noted that even if it were okay to allow the companies to fail during good economic times, it made no sense to allow them to go belly up and put at risk 1 to 3 million jobs right in the midst of a severe recession. The effect, he added, would be like a huge reverse stimulus, dragging the economy down. Commenting on Congress' willingness to leave the decision to a stupid game of "chicken" with the White House, Krugman added, "We're on the verge of an irreversible decision taken almost in a fit of absence of mind." Of course, the auto execs' flight to DC in their private jets added up to "stupid theatrics," but "that's not the point." Would you want to lose 1 to 3 million jobs and their health benefits just to punish twelve senior exectives? Krugman's right. The Republicans and this White House are perfectly willing to devastate the economy and imperil millions as one last gift to a President Obama, especially if they think they can kill the auto workers union in the bargain. As MSNBC explains, this is also "north versus south" again, in which Jeff Sessions argues that employees in Alabama who don't have health insurance should not be asked to bail out those with health insurance in Michigan. But what that means is that those with insurance should be forced to fail so that everyone can not have health insurance. Brilliant logic, Jeff.
It's gonna be a long two months. Suzan * From Rise of the Vulcans ______________________________________________

Thursday, November 20, 2008

Dan Rather Gets Some! (Justice)

As a former long-time employee of the now defunct Defense and Electronics Systems Division of what used to be the well-respected Westinghouse Electric Corporation, founded in 1886, flowering to over 100,000 employees internationally, and then sold off (after sales of profitable assets and five major layoffs) as a much smaller-profile entity to Northrop Grumman in 1996 (thereby enriching the new management that had wisely decided to sell the engineering/technologically sophisticated, historically significant company for golden parachutes and major-league bonuses, while thoughtfully ridding the company of those pesky obligations to employees (and unions) at the same time: a pre-Enron Enron with similar corrupt practices at the end of the road), I've kept an ear out for developments occurring at CBS, which was purchased by Westinghouse in 1995. Sumner Redstone's Viacom then snapped up CBS in 1999 (bye bye Westinghouse (I thought)), and Dan Rather was unceremoniously dumped in 2005 after a run-in with "W's" hit men, who turned out to have a very close relationship with the CBS management. What a surprise! Although my guess is that Dan knew quite a bit about these connections all along. Looks like some schweeet justice "coming down the road" for Dan the man, if he can only hang in there. ____________________________________________________

November 17, 2008 Rather’s Lawsuit Shows Role of G.O.P. in Inquiry By JACQUES STEINBERG When Dan Rather filed suit against CBS 14 months ago — claiming, among other things, that his former employer had commissioned a politically biased investigation into his work on a “60 Minutes” segment about President Bush’s National Guard service — the network predicted the quick and favorable dismissal of the case, which it derided as “old news.” So far, Mr. Rather has spent more than $2 million of his own money on the suit. And according to documents filed recently in court, he may be getting something for his money. Using tools unavailable to him as a reporter — including the power of subpoena and the threat of punishment against witnesses who lie under oath — he has unearthed evidence that would seem to support his assertion that CBS intended its investigation, at least in part, to quell Republican criticism of the network. Among the materials that money has shaken free for Mr. Rather are internal CBS memorandums turned over to his lawyers, showing that network executives used Republican operatives to vet the names of potential members of a panel that had been billed as independent and charged with investigating the “60 Minutes” segment. Mr. Rather attracted the ire of Republican bloggers and talk radio in particular after the segment, which was broadcast on a weekday edition of “60 Minutes” in September 2004. It purported to have unearthed evidence about favorable treatment extended to President Bush during his Vietnam-era service in the Texas Air National Guard. The network eventually responded to its critics by saying it could no longer vouch for the authenticity of the documents on which the report had been based. The network also commissioned an investigation led by Dick Thornburgh, a prominent Republican and former United States attorney general, and Louis D. Boccardi, a former chief executive of The Associated Press, not so much to verify the documents, but to determine how the segment got on the air. In its final report, which was issued in January 2005, the panel cited a breakdown in standards by CBS in rushing the Bush segment onto the air but found no evidence of liberal bias in CBS’s preparation of the segment. By the time the panel’s report was issued, Mr. Rather had already announced that, under pressure, he would step down as anchor of “CBS Evening News.” But he did not leave the network until more than a year later. In September 2007, he filed the $70 million lawsuit charging that CBS had violated his contract and that the investigation was compromised. A New York State Supreme Court judge has since jettisoned parts of the suit, including Mr. Rather’s contention that CBS had engaged in fraud. But the judge has permitted Mr. Rather to go forward with the core of his case, including his argument that CBS had limited his work as a correspondent after he left the anchor desk and, in the process, damaged his reputation. The case is on track to go to trial soon, possibly early in the new year. Those who have worked on the case with Mr. Rather, 77, say he has approached it with the zeal of a correspondent trying to report out a “60 Minutes” segment about himself, burying himself in deposition transcripts late into the night and providing his lawyers with road maps of leads he thinks they should pursue. He rarely misses a court hearing on the case. “I want to go the distance,” Mr. Rather said recently over a lunch of chili and cornbread at a barbecue restaurant. “Like any good reporter, I want to get as many as facts as possible; I want to get to the bottom of the story.” Some of the documents unearthed by his investigation include notes taken at the time by Linda Mason, a vice president of CBS News. According to her notes, one potential panel member, Warren Rudman, a former Republican senator from New Hampshire, was deemed a less-than-ideal candidate over fears by some that he would not “mollify the right.” Meanwhile, Mr. Thornburgh, who served as attorney general for both Ronald Reagan and George H. W. Bush, was named a panelist by CBS, but only after a CBS lobbyist “did some other testing,” in which she was told, according to Ms. Mason’s notes, “T comes back with high marks from G.O.P.” Another memorandum turned over to Mr. Rather’s lawyers by CBS was a long typed list of conservative commentators apparently receiving some preliminary consideration as panel members, including Rush Limbaugh, Matt Drudge, Ann Coulter and Pat Buchanan. At the bottom of that list, someone had scribbled “Roger Ailes,” the founder of Fox News. Asked about the assembly of the panel in a sworn deposition, Andrew Heyward, the former president of CBS News, acknowledged that he had wanted at least one member to sit well with conservatives: “CBS News, fairly or unfairly, had a reputation for liberal bias,” and “the harshest scrutiny was obviously going to come from the right.” Other documents, meanwhile, suggest that Ms. Mason, who reported to Mr. Heyward, was getting updates from panel investigators on some of their findings, at a point when CBS News was telling outsiders that the network was staying out of the investigation. Jim Quinn, a lawyer at Weil, Gotshal & Manges who is representing CBS, said in an interview that whatever Mr. Rather had learned in the discovery process would not help his case. He said it was the network that had gained the most ground, especially in persuading the judge to dismiss five of the seven original claims by Mr. Rather, as well any claims against individual CBS executives. CBS is believed to be spending about as much on its defense as Mr. Rather is spending. Mr. Quinn also said CBS would consider asking for a summary dismissal of the case, once the process of discovery had concluded. “Either on summary judgment or at trial, we feel very comfortable we’ll succeed,” he said. “We feel the case is meritless.” Still, Chaim B. Book, a Manhattan employment lawyer who is not connected to the case, said that Mr. Rather and his team had already reached something of a milestone. “Getting through discovery and getting a case significantly closer to trial, in and of itself, is an achievement,” Mr. Book said. “Discovery, besides being expensive and time-consuming, can lead to embarrassing disclosures.” One of Mr. Rather’s initial goals was to compel depositions of many of his former bosses and colleagues under oath. Thus far, in addition to Mr. Heyward and Ms. Mason, his lawyers have questioned Leslie Moonves, the chief executive of CBS; Gil Schwartz, executive vice president of communications for CBS; Sandra Genelius, a former CBS News spokeswoman; and Michael J. Missal, who helped oversee the panel report on behalf of Mr. Thornburgh. Each could conceivably be called to testify in open court, as could Sumner M. Redstone, executive chairman of CBS. (Mr. Rather’s lawyers have expressed interest in deposing Mr. Redstone, a request the judge, Ira Gammerman, has neither granted nor ruled out.) The day after Election Day, the two sides squared off in Judge Gammerman’s courtroom in State Supreme Court in Manhattan over a request by Mr. Rather’s lawyers, led by Martin R. Gold of Sonnenschein Nath & Rosenthal, to gain access to several thousand documents that were used by the investigative panel to compile its report, including notes from interviews and e-mail messages from top executives. Lawyers representing the panel have resisted Mr. Rather’s request for documents, citing attorney-client privilege. At the same time, CBS suggested in its latest filing that Mr. Rather was engaging “in nothing more than an intrusive and expensive fishing expedition.” Read the whole article here.
Of course, there is that new Westinghouse entity that arose fresh and deodorized in 1999, reconfigured as a nuclear company with its slate wiped clean of previous obligations. But we'll discuss that later. Suzan ______________________________

Wednesday, November 19, 2008

John Paulson’s Toast to His Firm’s Fortunes

Do you think it might be a turn-on for billionaires to hold a soiree featuring extremely expensive food and wine immediately after looting the public till to keep family companies afloat (with betting against subprime mortgages as their most recent business strategy)? Well, how about having the ex-Chairman of the Federal Reserve (credited widely with creating the "subprime conditions") as a partner and companion celebrant right after he admitted that he had been wrong about the effects of his actions (and undoubtedly "shocked! shocked! that gambling was going on" in this type establishment)? No? I guess you've got to read The New York Times more closely then. So let's see. First you set up the easy-to-roll market and then you bet against it. I hate to say it, but hasn't this gambit worked before? Do you think there might have been any Rockefeller or Rothschild connections present? (Brrr!) ________________________________

November 19, 2008 Most hedge funds these days are spending their time crying over their losses — when they’re not shutting down. But John A. Paulson instead was celebrating his funds’ performance with more than 100 investors at an opulent dinner Monday night at the exclusive Metropolitan Club in Midtown Manhattan, facing Central Park. The soiree was held in the cozily candlelit dining room of the club, where Mr. Paulson and his firm, Paulson & Company, feted their funds’ good fortune and outlined their next steps amid the market turmoil. And while the institutional investors listened to Mr. Paulson and Alan Greenspan, the former Federal Reserve chairman, a senior adviser to the firm, they also enjoyed choice wine pairings for their dinner. (Bottles of 1999 Chateau Lafite-Rothschild, anyone?) Despite the chilliness of the November evening — and the slashing of bonuses for top Goldman Sachs executives — the crowd at the Metropolitan Club betrayed no signs of the financial distress. The din that spilled from the dining room into the marbled-and-gilt main chamber was filled with laughter. Mr. Greenspan spoke while guests dined on a three-course meal – preceded, of course, by a cocktail reception featuring Krug Grand Cuvee champagne and 2006 Chassagne-Montrachet from Domaine Marc Morey. For dinner? Jumbo crabmeat & avocado, paired with 1999 Haut-Brion; and Colorado rack of lamb with tarragon jus and parmesan polenta cake, paired with 1999 Chateau Margaux and 1999 Lafite-Rothschild (which can fetch more than $500 a bottle). Paulson & Co. can surely afford the luxury. The $36.1 billion hedge fund famously racked up billions of dollars in profit by betting against subprime mortgages. And a thick handout to investors at the dinner detailed just how well the firm has been doing. While the Standard & Poor’s 500-stock index plunged nearly 17 percent in October, the Paulson Advantage fund gained nearly 3.5 percent. The firm’s event arbitrage funds, with $19.1 billion in assets under management, are up more than 19 percent for the year in the unleveraged fund and 30 percent on Paulson Advantage Plus, which is levered 1.5 times. Paulson & Co.’s merger arb funds, which bet on the outcome of announced deals, have also performed well: 6.15 percent for the year in the unleveraged fund and 9.5 percent in the Paulson Enhanced fund, which is levered 2-to-1. Mr. Paulson may also have been celebrating surviving a grilling by Congress. It’s clear that he believes the credit crisis has a ways to go, judging by the pages devoted to charts showing trouble across the debt spectrum. Displayed prominently in the book is a quote from Martin Feldstein, the chief executive of the National Bureau of Economic Research: “The United States has already slipped into a deep recession that could be the most serious since World War II.” How does the hedge fund plan to stay afloat in the short term? By building up cash, maintaining short positions — and preparing to buy up debt for the long term. Prices of prime and Alt-A mortgages have fallen sharply, as have leveraged loans and high-yield bonds, the firm noted. Paulson & Co. is also setting up a recovery fund, meant to provide equity to shore up capital in financial institutions as well as snap up the debt for long positions. Unlike the firm’s merger arbitrage fund, the Paulson Recovery Fund is open, so long as you have at least $10 million to invest and don’t mind a three-stage redemption process that stretches out to 2012. –Michael J. de la Merced and Zachery Kouwe
Le Chaim! Suzan ____________________________

Tuesday, November 18, 2008

The Crisis Has Hardly Begun

"Apparently, the Democrats still think they are the minority party or else their aim is to supplant the Republicans as the party of the rich."

Democratic Congressional leaders conceded that they would face potentially insurmountable Republican opposition,” reported the NY Times last Friday. Wow! The entire country is steamed up over the Republicans bailing out a bunch of financial crooks who have paid themselves fortunes in bonuses for destroying America’s pensions. Why do Democrats want to protect Republicans from further ignominy by not giving them the opportunity to vote down a bailout for workers? Quick, someone enroll the Democratic Party in Politics 101."
Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan administration, once known as the "Father of Reaganomics," currently a well-versed critiquer of the 9/11 Commission Report, and known Cheney/Bush Impeachment backer has been racing through the streets on his high horse for the past several years trying to alert the citizenry of this "No-Think Nation" that the Neo-Con banshees are coming! Now that they are here, he's "on the money" as to why and what should be done about it. I'm particularly glad that he's addressing (so to speak) the issue of how the original Reagan financial criminals in the 80's abandoned all pretense of protecting workers when they replaced guaranteed pensions with self-directed 401(k)'s that were ready targets for criminal companies like Enron, Worldcom, etc., to easily loot a few years later. (I wish he had also mentioned that Alan Greenspan spearheaded the original "spurious" movement to "save" Social Security back then by increasing FICA taxes solely on the lower-classes (that's economics-speak for people like you and me who have payroll taxes deducted in each paycheck), thereby relieving them of their savings, thus leading to the extra money in the government accounts (after Clinton's terms) that mesmerized the Baker/Bush team into distributing that pile of gold as necessary and virtuous "tax cuts" for the wealthy - but he's got a soft spot for the Rayguns and will probably save that bombshell for later.) You've also gotta give him props for some questionable analogies about how the deficits during the Reagan/Bush I years (and remember how much fun it was paying those off in the 90's?) don't begin to match what economists Krugman and Reich have proposed for this economic earthquake - like those two occasions arise from comparable events (sheesh! - do they?). Arrrggghhh!!! Oh yes, I almost forgot, some sources are estimating that Paulson's fairies have distributed or promised somewhere in the neighborhood of $4 Trillion dollars already (over twice Roberts' figure). (Emphasis marks are mine - Ed.)
Conservative talking heads are saying GM is a “failed business model” unworthy of a $25 billion bailout. These are the same talking heads who favored pouring $700 billion into a failed financial model. . . . GM’s divisions in Canada and Germany are asking those governments for help. It will be something if Canada and Germany come through for the American automaker and the American government doesn’t. . . . The head of the FDIC is trying to get $25 billion - a measly 3.5 percent of the $700 billion for the banksters - with which to refinance the mortgages of 2 million of the banksters’ victims, and Bush’s Secretary of the Treasury Paulson says no. Why aren’t the Democrats all over this, too? . . . Any bailout has its downsides. But if America loses its auto industry, it will lose the suppliers as well and will cease to have a manufacturing sector. For years no-think economists have been writing off America’s manufacturing jobs, while deluding themselves and the public with propaganda about a New Economy based on finance. A country that doesn’t make anything doesn’t need a financial sector as there is nothing to finance. The financial crisis has had one good effect. It has cured Democratic economists like Robert Reich and Paul Krugman of their fear of budget deficits. During the Reagan years these two economists saw doom in the “Reagan deficits” despite the fact that OECD data showed that the US at that time had one of the lowest ratios of general government debt to GDP in the industrialized world. Today Reich and Krugman are unfazed by their recommendations of budget deficits that are many multiples of Reagan’s. Moreover, neither economist has given the slightest thought as to how the massive budget deficit that they recommend can be financed. Both recommend large public spending programs. Krugman puts a price tag of $600 billion on his program. If it takes $700 billion to save the banks and only $600 billion to save the economy, it sounds like a good deal. But this $600 billion is on top of the $700 billion for the banks, the $200 billion for Fannie Mae and Freddie Mac, and the $85 billion for AIG. These figures add to one trillion five hundred eighty-five billion dollars, a sum that must be added to the budget deficit due to war and recession (or worse). What we are talking about here is a minimum budget deficit of $2 trillion. The US has never had to finance a deficit of this magnitude. Where is the money coming from? The US Treasury doesn’t have any money, and neither do Americans, who have lost up to half of their savings and retirement funds and are up to their eyeballs in mortgage and consumer debt. And unemployment is rising. There are only two sources of financing: foreign creditors and the printing press. I doubt that foreigners have $2 trillion to lend to the US. Thanks to the toxic US financial instruments, they have their own bailouts to finance and economies to stimulate. Moreover, I doubt that foreigners think the US can service a public debt that suddenly jumps by $2 trillion. At 5 percent interest, the additional debt would add $100 billion to the annual budget deficit. In order to pay interest to creditors, the US would have to borrow more money from them. Economists and policy-makers are not thinking. This enormous financing need comes not to a well-managed economy that can take the additional debt in its stride. Instead, it comes to an economy so badly managed that there are no reserves. Massive US trade deficits have been financed by giving up US assets to foreigners, who now own the income flows as well. Budget deficits from 6 years of pointless wars and from unsustainable levels of military spending have helped to flood the world with dollars and to drive down the dollar’s exchange value. Consumers themselves are drowning in debt and can provide no lift to the economy. Millions of the best jobs have been moved offshore, and research, design, and innovation have followed them. Considering America’s dependency on imports, part of any stimulus package that reaches the consumer will bleed off to foreign countries. Generally, when countries acquire more debt than they can service, they inflate away the debt. If foreign creditors do not save the Obama administration, the Treasury will print bonds and give them to the Federal Reserve, which will issue money. The inflation will be severe, particularly as Americans will not be able to pay for the imports of manufactured goods from abroad on which they have become dependent. The exchange value of the dollar will decline with the domestic inflation. Once inflation is off and running, the printing press dollars will only have goods made in America to chase after. The real crisis has not yet begun. Paulson should rethink the automakers’ and FDIC’s proposals. A bank produces nothing but paper. Automakers produce real things that can be sold. Occupied homes are worth more then empty ones. Paulson’s inability to see this is the logical outcome of Wall Street thinking that highly values deals made over pieces of paper at the expense of the real economy.
Makes sense to me, but maybe we'd like more of what brought us to this fine mess. After all, if you don't know how to produce anything except deals, why should it occur to you to actually desire for your country to produce anything but? Suzan One last thought on who is currently doing what to whom: (from the Comments to PCR's essay we read the following)
. . . the New York Times had a story on it called: "In Transition, Tangle of Ties to Lobbying" and wrote about the old clan of robbers, who lobbied and now share the profit of their misdeeds. And John O. Brennan is tapped by president-elect Barack Obama to work on the Central Intelligence Agency transition team... He is at present "president and chief executive of the intelligence contractor Analysis Corporation." - President-elect Barack Obama has imposed stricter conflict-of-interest restrictions on his White House transition team than any president before him. But a list of transition team members that his office made public on Friday includes a complicated tangle of ties to private influence-seekers. Among the full roster of about 150 staff members being assigned to government agencies between now and Inauguration Day are dozens of former lobbyists and some who were registered as recently as this year. Many more are executives and partners at firms that pay lobbyists, and former government officials who work as consultants or advisers to those seeking influence.