quote:

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If the guarantees work, private speculators, having driven the stock down, will clean up on the upside. And the bank's CEO's will continue to pocket the multi-million dollar salaries that are de rigueur on Wall Street. Call it Wall Street socialism. Their losses are socialized; their profits are pocketed. You and I will pay for their failures. And if conservatives have their way, their families will pocket their successes, without even having to pay a tax for the transfer of the estates we've helped to create.

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quote:

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Hows about some "tough love" for those bankers suddenly in trouble? You know, the sink-or-swim approach of "welfare reform" that Gramm and Clinton applied to poor people to end their addiction to government handouts. Or, perhaps a heavy dose of "faith-based" personal responsibility initiatives to get those knaves who messed up our entire housing market back on the straight and narrow. Sounds ridiculous I know, because nothing but the bleeding-heart, big-government, throw-money-at-the-problem approach will do when it comes to salvaging corrupt corporations.

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quote:

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This week’s Congressional debate on the issue “is going to worry people,” Ms. Schuler said, though she, like most analysts, is confident that Washington will deliver, just as it has in past financial crises like the savings and loan industry bailout of the late 1980s and early 1990s.

Because America’s relations with a host of countries are intricately tied to Fannie and Freddie, the only realistic option open to lawmakers may be to hand the Treasury Department that blank check, analysts say.

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quote:

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The Congressional Budget Office on Tuesday estimated that a government plan to stabilize mortgage giants Fannie Mae and Freddie Mac could cost government coffers an average of $25 billion.

The CBO said it thinks there is probably a better than 50% chance that the Treasury would not need to step in. In addition, it said there is nearly a 5% chance that Freddie and Fannie's losses would cost the government $100 billion.

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quote:

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... we must remember and emphasize that between the savings and loan failures in the 1980s, the billions and billions written off by Citigroup, Merrill Lynch, German banks and French establishments, we observe a common denominator: governments allowed just anybody to do whatever. And that because people listened to those raving lunatics of ultra free market neo-liberalism who would like the culture of privatization to extend to every human activity, up to and including - this is no joke - consumption of the air we ... breathe.

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quote:

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The House of Representatives is set to vote today on the rescue plan for Fannie Mae and Freddie Mac as part of a bill aimed at alleviating the worst housing slump since the Great Depression. Legislators crafted the agreement nine days after Paulson asked for powers to inject capital into Fannie Mae and Freddie Mac to enable them to continue buying mortgages

---

quote:

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General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business.

``Both are in very serious shape and the markets reflect that,'' Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are ``on the verge of bankruptcy,'' he said.

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quote:

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Banks in Colorado, Maryland, Georgia and California top privately-prepared lists of troubled banks being circulated on Wall Street and in Washington.

While the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts.

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quote:

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Ford Motor Co., the world's third- biggest automaker, posted a record quarterly loss of $8.7 billion and accelerated a shift to fuel-efficient vehicles to wean itself from money-losing large trucks.

The second-quarter deficit of $3.88 share compared with a profit of $750 million, or 31 cents, a year earlier. The figure included $8 billion in pretax writedowns for plant closings and the declining value of truck leases at Ford Motor Credit Co. The shares fell as much as 8.6 percent.

Ford said it will convert three North American truck factories to make small cars, sell more European autos in the U.S. and double production of hybrid vehicles. The revamping is a response to record gasoline prices that have ravaged sales of large pickups and sport-utility vehicles and derailed Chief Executive Officer Alan Mulally's turnaround plan.

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quote:

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The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.

We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble.

---

quote:

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Behind the reassuring statements from Paulson and others that the "worst is over" the reality of the credit collapse since August 2007 is a deepening economic contraction which I have said several times in this space will surpass the Great Depression of the 1929-1938 period. A goof friend who is an unemployed homebuilder in a prosperous part of Arizona just sent me the following list of US department retail store closures. It is worth noting that over 70% of the US GDP is consumer spending and that the entire Federal Reserve strategy of Alan Greenspan after the March 2000 collapse of the stock market bubble, was to bring US interest rates to their lowest levels since the 1930’s in order to stimulate consumer spending on credit, i.e. debt, to avoid "recession." Note the scale of the following store closings across America in recent weeks:

Ann Taylor closing 117 stores nationwide.

Eddie Bauer to close more stores after closing 27 stores in the first quarter.

Cache, a women’s retailer is closing 20 to 23 stores this year.

Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide

Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill.

Gap Inc. closing 85 stores

Foot Locker to close 140 stores

Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.

Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.

Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.

Disney Store owner has the right to close 98 stores.

Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.

CompUSA (CLOSED).

Macy's - 9 stores closed

Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery

and Hollywood Video stores in addition to the 520 locations the video rental

chain closed last fall as part of bankruptcy.

Pacific Sunwear - 153 Demo stores closing

Pep Boys - 33 stores of auto parts supplier closing

Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year.

J. C. Penney, Lowe's and Office Depot are all scaling back

Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.

Wilsons the Leather Experts – closing 158 stores

Bombay Company: to close all 384 U.S.-based Bombay Company stores.

KB Toys closing 356 stores around the United States as part of its bankruptcy reorganization.

Dillard's Inc. will close another six stores this year.

---

quote:

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The Federal Reserve's dereliction of duty is central to the financial failures. It betrayed the purpose for which the central bank was first created, in 1913, abandoning the sense of balance the Fed had long pursued and that Congress requires. Most politicians, not to mention the press, are too intimidated to question the Fed's daunting power, but their ignorance is about to compound the problem. Instead of demanding answers, the political system is about to expand the Fed's governing powers--despite its failure to protect us. Treasury Secretary Paulson proposed and Democratic leaders have agreed to make the insulated Fed the "supercop" that oversees not only commercial banks and banking conglomerates but also the largest investment houses or anyone else big enough to destabilize the system. This "reform" would definitely reassure club members who are already too cozy with the central bankers. Everyone else would be left deeper in the dark.

The political system, once again, is rewarding failure. The Fed is an unreliable watchdog, ideologically biased and compromised by its conflicting obligations. Is it supposed to discipline the big money players or keep them afloat? Putting the secretive central bank in charge, with its unlimited powers to prop up troubled firms, would further eviscerate democracy, not to mention economic justice.

If Congress enacts this concept early next year, the privileged group of protected financial interests is sure to grow larger, because other nonfinancial firms could devise ways to reconfigure themselves so they too would qualify for club membership. A very large manufacturing conglomerate--General Electric, for instance--might absorb elements of banking in order to be covered by the Fed's umbrella (GE Capital is already among the largest pools of investment capital). Private-equity firms, with their buccaneer style of corporate management, are already trying to buy into banking, with encouragement from the Fed (the Service Employees International Union has mounted a campaign to stop them). A new President could stop the whole deal, of course, but John McCain has surrounded himself with influential advisers who were co-architects of this financial disaster. For that matter, so has Barack Obama.

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quote:

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With the combination of high gas prices and a weak economy crippling vehicle sales, the resources of General Motors and the Ford Motor Company are being stretched to the limit.

Both companies have undergone major revampings in recent years, yet they continue to post huge losses. And even as they burn through their cash reserves and slash more costs to stay afloat, the future looks tenuous.

In the latest sign of the deepening troubles, G.M. reported a stunning second-quarter loss of $15.5 billion on Friday because of a continuing fall in United States sales and charges for job cuts, plant closings and the falling value of trucks and sport utility vehicles.

That followed a loss of $8.7 billion reported last week by Ford. Overall sales fell by 13 percent in July.

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quote:

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After two years of upward spiraling defaults, the problems with mortgages made to people with weak, or subprime, credit are showing the first, tentative signs of leveling off.

But with the U.S. economy struggling, homeowners with better credit are now falling behind on their payments in growing numbers. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A, or alt-A, mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate because many homeowners' monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks are tightening their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are alt-A loans, many of which were made to people with good credit scores without proof of their income or assets.

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quote:

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The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron's in Sunday's edition.

Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said -- at least $1 trillion and more likely $2 trillion.

The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron's reported.

He also said there are hundreds of millions of dollars outstanding in home-equity loans that could be worth zero, too.

---

quote:

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Anyone who cares about the health of the US economy should welcome the enactment of the Treasury’s rescue plan for Fannie Mae and Freddie Mac, along with other measures to support the housing market. While there is room for argument about details, the risks to the financial system were too great to allow delay.

No one should suppose, however, that the issue is now satisfactorily resolved, even for the short term. Emergency legislation was necessary because market participants were unwilling to buy Fannie and Freddie’s debt; investors doubted that the government-sponsored enterprises were healthy enough to repay it and did not draw sufficient reassurance from the implicit guarantee of federal support. If their debt proves easier to place now, it is only because this guarantee has been strengthened, not because anything has changed at the GSEs.

[...]

the government should use its new receivership power to protect taxpayers and the financial system. In the process, payments to stock holders, holders of preferred stock and probably subordinated debt holders would be wiped out, conserving cash for the benefit of taxpayers. The GSEs’ borrowing costs would fall considerably, helping prospective homeowners.

In this scenario, the government would operate the GSEs as public corporations for several years. They would then be in a position to extend credit where appropriate to support resolution of the current housing crisis. Once the crisis has passed, the federal government would divide their functions into government and private components, the latter of which would be sold off in multiple pieces. The proceeds could be used to fund the low-income housing support activity that was previously mandated to the GSEs.

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quote:

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Originally posted by Catchfire:
Lawrence Summers, in the Financial Times says punish the shareholders. Nationalize the mortgage industry without compensation

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quote:

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Originally posted by ghoris:
I think the thing that would frustrate me most, were I a resident of the US, is that the government is rushing to bail out people who fantastically over-extended themselves on their mortgages, something caused in part by the government's own failure to regulate the lending market. There's something that does not seem right to me about using public money to bail out people who bought homes they could not afford in the first place. I suppose the argument is that they were aided and abetted by the government in doing so, but still, does the line not get drawn somewhere?

---

They encouraged such overextension with silly policies such as making interest on mortgages 100% tax deductible - an irrational economic policy that is sporadically promoted in Canada.

quote:

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Originally posted by Frustrated Mess:

glug, glug, glug

---

Roubini has maintained an impressive predictive track record on this current economic cycle. Apparently his website is now one of the most visited economic discussion webpages on the net. I wonder how far he'll go.

*****

quote:

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Originally posted by Catchfire:
I attended a talk by Tariq Ali last night, who referenced the Summers article I quoted. Ali said of Summers 'in the olden days, we called this "expropriation".' And now it's showing up in the Financial Times.

---

Good points.

There are conceivable scenarios where nationalizing the banks could be seen as a triumph for social democracy. I've heard communists argue for this before and I always thought they were delusional and utopian. I say communists because I first heard such arguments from representatives of the Communist party. Nw that we see it in The Times, we know there's been a big ideological change, and this is proof that those with their hands on the levers of power realize this is worse than an ordinary recession.

I've seen the concept (nationalizing the banks) from a few sources, so this verbal build up from the ruling classes and their cronies could indicate this is the policy direction the USA is headed in.

But why do you use terminology like "radical social democracy" to describe such a scenario? There's many ways a nationalization of the banks could go against the interests of the lower, middle and working classes. For example, if governments overpaid, and then privatized some time later selling the assets at a discount. As far as I can tell it is only "potential rabid social democracy". An example of governments overpaying might be if say, the US federal government paid a symbolic sum of US$ 1.00 each to take on the assets and liabilities of Wachovia or CitiGroup.

***

Apparently FDR tried to nationalize the banks during the Great Depression, but the supreme court stopped him. Could a Roberts-Scalia supreme court intervene in such a manner as well?

***

What else did Ali discuss?

[ 11 August 2008: Message edited by: 500_Apples ]

quote:

---

Originally posted by Catchfire:
I attended a talk by Tariq Ali last night, who referenced the Summers article I quoted. Ali said of Summers 'in the olden days, we called this "expropriation".' And now it's showing up in the Financial Times.

---

Call it whatever you like. I prefer 'consequences'. The ascension of the Friedmanites in global financial management has allowed an exponential increase in the money supply of countries who lowered interest rates without regard for the consequences of an inflated money supply.

Those consequences are now upon us all because of the dominance of the USD as a reserve currency.What the fiscal poohbahs are now attempting is akin to repealing the Laws of Gravity or, one-legged ass kicking.

The recent rally in the USD is not based on an improving US economy to put a bottom in the US Dollar Index, rather its is based on the pessimistic news that the rest of the global economy is losing steam and that the US is ahead of the recession curve in comparison.

While it is possible that the US can export its way out of the current malaise,one must remember that Japan entered its downturn as the world's top creditor with high personal savings rates. The Japanese experience lasted 10 years and still affects their economy today.

The US, has increased its debt/GDP ratio 350% since 1982, has a multitude of off-balance sheet unfunded liabilities, has taken ALL the toxic non-performing debt of Wall St on its books and has a populace that with no savings and an addiction to consumer credit.

The sub-prime mortgage fiasco is spun as over but another tranche of honey-trap teaser rates are about to reset. Alt-A mortgages (prime mortgages to self-employed individuals etc with good credit and not predicated on stated income) are next under threat.

No-one is talking about the consumer credit time-bomb lurking in the near future.

The dollar has rallied,based more on concerted spin by stooges and a typical American contention that if the US sneezes, the rest of the world catches cold.

This is dangerous hubris. The BRIC bloc's intertrade dwarfs its trade with the US. China's trade with the US is only 8% of GDP. Brazil, Russia,India and China have huge infrastructure requirements and together with much of the third world, a populace demanding a better living standard.

quote:

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Two days of hopeful news for the USA's embattled financial industry evaporated Tuesday after JPMorgan Chase (JPM) announced reduced earnings for the second quarter and warned that it had already taken $1.5 billion in mortgage-related losses so far in the third quarter.

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quote:

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The Federal Reserve, the US central bank, has auctioned $25 billion of loans to US banks in the latest bid to improve poor credit conditions in the US.

The bank said on Tuesday the money would be lent at a rate of 2.754 per cent and for an extended period of 84 days, rather than the 28-day period for the previous loans.

The move marks the Reserve's latest attempt to shore up the nation's struggling banking system, as the fallout from the US's mortgage crisis continues.

---

That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.
(end quote)

Or is the increased money supply the spark allowing the speculative creation of the "fake wealth". Love to get this right.

Great thread by the way, FM!

[ 12 August 2008: Message edited by: George Victor ]

quote:

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U.S. foreclosure activity in July rose 55 percent from a year earlier as a slump in once-sizzling housing markets forced yet more borrowers to default on their mortgages, according to a monthly report.
ADVERTISEMENT

Foreclosure filings -- default notices, auction sale notices and bank repossessions -- rose 8 percent from June and 55 percent from July 2007 to 272,171, according to RealtyTrac, which records property in various stages of foreclosure.

That means one in every 464 U.S. households received a foreclosure filing in July

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U.S. inflation accelerated in July, as prices rose 5.6% from a year earlier, the fastest pace in 17 years.

The consumer-price index rose 0.8% from June, reflecting increased prices for food, energy, airline fares and apparel, the Labor Department said Thursday. That followed a rise of 1.1% the month before. Core inflation, which excludes food and energy, advanced 0.3% for the second consecutive month and was up 2.5% from a year before. That is well above the Fed's "comfort zone" of 1.5% to 2%.

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[ 14 August 2008: Message edited by: Frustrated Mess ]

quote:

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Just as central banks manipulate currencies in concert, so gold can be manipulated by massive selling of central bank reserves. Oil and any other market can be manipulated as well. But markets can be manipulated by only so much and for only so long without fixing the underlying problem. There is more bad news coming down the pike, news of such magnitude that no amount of ordinary manipulation is liable to conceal it.

For one thing, roughly $400 billion in ARMs (adjustable rate mortgages) have or will reset between March and October of this year. Assuming 3 to 6 months for strapped debtors to actually hit the wall with their payments, a huge wave of defaults is about to strike, continuing through March 2009 – just in time for the next huge wave of resets, in option ARMs.3 Option ARMs are loans with the option to pay even less than just the interest on the loan monthly, increasing the loan balance until the loan reaches a certain amount (typically 110% to 125% of the original loan balance), when it resets. The $800 billion credit line recently opened to Fannie Mae and Freddie Mac may be not only tapped but tapped out, at taxpayer expense. The underlying problem is little discussed but impossible to repair – a one quadrillion dollar derivatives scheme that is now imploding. Banks everywhere are facing massive writeoffs, putting the whole banking system on the brink of collapse. Only public bailouts will save it, but they could bankrupt the nation.

What to do? . . .

---

quote:

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Investment bank Merrill Lynch may not have to pay UK tax for decades.

The Wall Street giant, which employs 5,500 in the City of London, could be eligible for a tax holiday of more than 50 years after making billions of pounds of losses on 'exotic investments.'

The possibility of such a business escaping tax will astonish households struggling with their personal finances.

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quote:

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The economies of Germany, France and Italy all contracted in the first quarter and may now be in full recession, shattering assumptions that Europe would prove able to shrug off the effects of the credit crunch.

The economies of Germany, France and Italy all contracted in the first quarter and may now be in full recession, shattering assumptions that Europe would prove able to shrug off the effects of the credit crunch
Zapatero has called his cabinet back to Madrid

The picture is darkening so fast in Spain that Prime Minister Jose Luis Zapatero cancelled holidays and called his cabinet back to Madrid yesterday for the first emergency session of its kind since the Franco dictatorship. The crisis meeting agreed to a €20bn (£16bn) blitz on public works, tax cuts, and a mortgage rescue to halt the downward spiral.

Growth has turned negative in Ireland, Denmark, Latvia, and Estonia, while grinding to a halt in Sweden and The Netherlands. Iceland contracted by a staggering 3.7pc. The grim data from Eurostat follows a recession warning in Britain, and shock news that the Japanese economy had shrunk 0.6pc in the second quarter.

---

Bailout fears sink Fannie and Freddie

Investors believe government action could wipe out the value of common shares; Treasury mum on possible rescue. (shares of mortgage giants are down 90 per cent from a year ago.)

[ 19 August 2008: Message edited by: George Victor ]

quote:

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The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.

"The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.

---

quote:

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The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.

---

[ 19 August 2008: Message edited by: Frustrated Mess ]

quote:

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Investors dumped shares of Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) on Monday after a newspaper report said government officials may have no choice but to effectively nationalize the U.S. housing finance titans.

A government move to recapitalize the two companies by injecting funds could wipe out existing holders of the largest U.S. home funding companies' common stock, the weekend Barron's story said. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses.

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http://www.reuters.com/article/marketsNews/idUSN1849493320080818

With this little bit of accounting trickery -

quote:

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The report said an equity injection by the government would be a quasi-nationalization -- without having to put the agencies' liabilities on the U.S. balance sheet, and thus doubling U.S. debt.

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[ 19 August 2008: Message edited by: Doug ]

quote:

---

Originally posted by Fidel:
It sounds to me like Paulson and friends want to take billions worth of pile of shit private sector mortgage debt and sweep it under Fannie and Freddie for U.S. taxpayers to absorb, no?

---

quote:

---

Originally posted by Doug:

Pretty much. Worse yet, that could be the only way to save the financial system from a complete meltdown which would turn the current recession into a depression.

---

There is no way to save the financial system from itself. Whether or not a 'complete meltdown' occurs is in the eye of the beholder but Joe Sixpack is definitely going to become Joe Onetogowith3straws if he carries consumer debt.

Consequences. The consequences of easy credit will have to be borne. Unless the US Treasury and Federal reserve are willing to commit to much higher interest rates (and doom the US economy), the USDollar WILL tank. The latest rally in the USD and corresponding flight from oil and commodities is based on nothing more than hot air and wishful thinking.

Fannie and Freddie shareholders will get liquidated via the US treasury taking up a preferred share placement that subordinates other shareholders AND keeps the transaction off the federal balance sheet.

The big rumour is of a major bank or investment house going under. Its quite likely Citigroup, which will have its profitable parts sold off and have its losses underwritten by the taxpayers.

Here's where Joe Sixpack gets the jumbo colonoscopy. The Federal Deposit Insurance Corp doesn't have the reserves to pay Joe. All the Wall St bankers will keep their fees and bonuses and be protected from litigation (hello,Canadian ABCP banksters) but when its time to pay Joe, all he will get is, NOT CASH, but 10 year NON-NEGOTIABLE bonds.

quote:

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“We will not find a bottom until these two companies get nationalized, taken over, confiscated – I don’t really care what you call it,” Cramer said, “and their debt is formally guaranteed.”

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quote:

---

Aug. 29 (Bloomberg) -- Fannie Mae and Freddie Mac fell after Bank of China Ltd., the nation's third-largest bank, said it pared its holdings of the mortgage-finance companies' debt as they faced growing losses and the potential need for a U.S. government bailout.

Fannie ended a six-day, 81 percent rally, falling $1.11, or 14 percent, to $6.84 in New York Stock Exchange composite trading. Freddie, which jumped 88 percent in the four days ended yesterday, dropped 77 cents to $4.51. Both are still down by more than 80 percent year-to-date.

Bank of China's portfolio of the companies' debt was reduced by 29 percent in the past two months, by about $3.14 billion to $7.5 billion as of Aug. 25, the Beijing-based bank said in an earnings report. Holdings of mortgage-backed bonds guaranteed by Fannie and Freddie were cut by 22 percent to $5.17 billion, the bank said, without elaborating on the paring.

---

If the US Treasury attempts to stick foreign investors for the F+F tab, the USD will tank. Therefore, to create the fiction that the US's books are in order, the Treasury will utilise a senior preferred share issue that keeps F+F debt off the books and sticks the US taxpayer with the bill.

China is busy manipulating its currency by quietly increasing the USD reserve requirements of its banks, which is positive for Chinese exports.

Ambrose has the details

In other developments, the US Mint has suspended sales of gold Eagles, South Africa's Rand Refinery has run out of Kruggerrands, Heraeus Holdings Gmbh has a 2 week wait for gold bars and the Johnson Matthey refinery in Salt Lake City is no longer accepting orders for 100 ounce silver bars.

Gold coins,Eagles,Kruggerrands etc and especially the Maple Leaf are sought after because their gold content is guaranteed .9999% pure and they can be sold easily for cash. Bars need to be assayed before a sale is concluded and are less negotiable.

The price of gold is influenced by central bank sales to each other (not into the markets. It is basicly paper gold while physical gold has solid asset value.

The fact that there is such a demand for physical gold indicates that many individuals and entities no longer trust the financial system with their wealth.

[ 29 August 2008: Message edited by: jester ]

[ 29 August 2008: Message edited by: Fidel ]

quote:

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First came the health problems. Then, unable to work, Ada Noda watched the bills pile up. And then, suffocating in debt, the 80-year-old did something she never thought she'd be forced to do.

She declared bankruptcy.

While the bankruptcy filing rate for those under 55 has fallen, it has soared for older Americans, according to a new analysis from the Consumer Bankruptcy Project, which examined a sampling of noncommercial bankruptcies filed between 1991 and 2007.

---

quote:

---

T. Boone Pickens is about to make a killing by selling water he doesn’t own. As he does it, it will be praised as a planet-friendly wind project. After he pulls it off, the media will deride it as craven capitalism. In truth, it is one the most audacious examples of politics for profit, showing how big government helps the biggest business steal from the rest of us. The plotline behind Pickens’ water-and-wind scheme is almost too rich to believe. If it were a movie script, reviewers would dismiss it as over-the-top.

The basic story amounts to this: Pickens, thanks to favors from state lawmakers whose campaigns he funded, has created a new government whose only voters are two of his employers; this has empowered Pickens to more cheaply pump water from an aquifer and, by use of eminent domain, seize land across 11 counties in order to pipe the water to Dallas. To win environmentalist approval of this hardly “sustainable” practice, he has piggybacked this water project onto a windmill project pitched as an alternative to oil.

Pickens’ scheme is a perfect demonstration of why it’s worth asking cui bono — who benefits — from regulatory and environmental initiatives. Last week, this column pointed out that Pickens, before his current lobbying blitz for increased federal support of wind power, built the largest wind farm in the world.

---

quote:

---

Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.

The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars

---

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Paulson will hold a press conference at 11 a.m. today in Washington, according to a statement. Morgan Stanley, hired by the Treasury to probe the companies' finances, concluded the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings are confidential.

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Holders of the companies' common and preferred stock are ``very unlikely to come out of this at all happy,'' and the chief executive officers will be forced out, Frank said. Senior and subordinated debt holders will likely be protected, said other people who were briefed on the plan.

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Reading between the lines, use domestic shareholders for 'common and preferred stock' and foreign debtholders (mostly Asian banks - China)in place of 'senior and subordinated debtholders'.

Its another export of American wealth offshore. Americans shareholders lose their equity and American taxpayers take on the debt.

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Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.

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State and federal regulators shut down Nevada's Silver State Bank late Friday. It was the 11th bank to fail in the U.S. so far this year.

The bank, which was overexposed to risky real-estate loans, had almost $2 billion in assets and 17 branches in Nevada and Arizona.

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Bank of America Corp. abandoned talks to buy Lehman Brothers Holdings Inc., according to a person with knowledge of the matter, less than three hours after Barclays Plc said it wouldn't buy the faltering investment bank.

Bank of America, the biggest U.S. consumer bank, and Barclays, the U.K.'s third-largest lender, had been among the leading candidates to acquire all or parts of New York-based Lehman. The Wall Street Journal reported that Bank of America had entered into merger talks with Merrill Lynch & Co., citing unidentified people.

The two potential bidders pulled out amid a third day of emergency negotiations led by the U.S. Treasury and Federal Reserve. Leigh Bruce, a spokesman for London-based Barclays, confirmed in a phone interview today that his firm had withdrawn. Spokespeople for Bank of America didn't immediately return calls seeking comment.

The U.S. government is racing to find a solution for Lehman before markets open tomorrow, two people familiar with the situation said. Barclays walked away because it couldn't get guarantees from the government or agree on a private-sector deal to mitigate what it called Lehman's ``open-ended'' trading obligations.

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The US government this week seized control of the two mortgage-finance companies, which account for almost half of the home-loan market in the world's biggest economy, to prevent defaults from crippling them. China holds up to $400 billion in the two firms' debt, CICC Chief Economist Ha Jiming said in a report Thursday.

"The crisis has made Chinese officials realize it's a bad idea to put all their eggs in one basket," wrote Hong Kong-based Ha. "This will likely lead to greater diversification of foreign exchange reserve investments."

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Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.

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The churn of a rapidly changing financial landscape left Wall Street cold on Monday, as a late afternoon sell-off sent the stock market to its worst daily loss in seven years.

The Dow Jones Industrial Average plummeted more than 500 points - its worst session since the days after the Sept. 11, 2001 terrorist attacks.

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In actual fact, this secret branch of government has a sophisticated war room using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn't keep minutes. There is no freedom of information access to its deliberations. There are l47,000 entries in Google on this powerful body but I could only access l0.

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By the end, 62-year-old Fuld was Lehman's biggest individual stockholder. Despite the crash, he stands to leave with about $65 million, based on Lehman's Friday morning stock price of $3.73. This tally includes 8.6 million unrestricted shares worth some $32.1 million as of Friday morning – though they had been worth $582 million last November before the credit crunch hurricane struck.

Chuck ("I'm still dancing") Prince left Citigroup with a package said to be worth $40 million. He also received a pension of $1.74 million and another one million stock options – worthless at the time of his departure. Merrill Lynch's Stan O'Neal spent much of last summer perfecting his golf swing, confident that his trusty lieutenants at Merrill could avoid those subprime bunkers. It turned out to be a bad call.

HE WAS ousted last October as the first waves of the credit crunch struck, with a retirement package reckoned at more than $160 million.

Jimmy Cayne, 15 years at the top of Bear Stearns, was said to be on the golf course in June 2006 just as the bank dropped the first of many clangers, with a 10 per cent dive in profits. Worse followed, with the bank having to put up $3.2 billion to try to rescue its imploding hedge fund.

By mid-March last year, when the bank collapsed, Cayne, who would rush from Wall Street by chopper to the private Hollywood Golf Club in New Jersey to play 18 holes before dark, had already relinquished the reins, handing over the chief executive's role to Alan Schwartz.

When Schwartz went cap in hand to the New York Fed for a $30 billion bail-out, Cayne was said to be competing in the North American Bridge Championship in Detroit.

Cayne and his wife, Patricia, sold all their 5.6 million shares in Bear Stearns – worth as much as $1.2 billion in January 2007 – for $61.3 million at the end of March this year. The couple recently bought two adjacent apartments in New York's plush Plaza building for $28.2 million.

He left with a $30 million "golden goodbye" – enough to do up his Park Avenue property and a mock Tudor mansion in Greenwich, Connecticut. But it emerged that the mansion, set in 2.3 acres of land, was surplus to requirements. "It no longer meets his needs,'' said the local estate agent, trying to sell it for $6.15 million. He was forced to cut the asking price.

That's how tough it gets at the top in Wall Street.

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WASHINGTON - The U.S. Federal Reserve agreed Tuesday to an unprecedented $85-billion US loan to American International Group to avert a collapse expected to lead to a global financial calamity.

The deal sealed in a late evening agreement gives the U.S. government a stake of 79.9 per cent in the insurance behemoth in exchange for the loan.

The move came as AIG appeared to be a death spiral after over a week of panic and turmoil in financial markets that led to the failure of investment giant Lehman Brothers and a sale of Wall Street rival Merrill Lynch.

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I enjoyed this comment about all this:

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Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or found to be perverts, these Bush hypocrites who spewed for years the glory of unfettered Wild West laissez-faire jungle capitalism allowed the biggest debt bubble ever to fester without any control, and have caused the biggest financial crisis since the Great Depression.

They are are now forced to perform the biggest government intervention and nationalisations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA.

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From boom to bailout
The US government's decision to risk taxpayers' money was needed to maintain good faith and prevent injustice

The US government's takeover of mortgage giants Fannie Mae and Freddie Mac constitutes a huge bailout of these institutions' creditors, whose losses have ballooned as house prices continue to plummet. With the government now fully guaranteeing Fannie's and Freddie's debts, American taxpayers will have to pay for everything not covered by their creditors' inadequate capital.

(snip)

Most importantly, it is not clear that the bailout will actually impose any net costs on US taxpayers, since it may prevent further systemic effects that bring down the financial sector and, with it, the world economy. Just because systemic effects are difficult to quantify does not mean that they are not real.

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What we have seen is there are no risks. Manage poorly, gamble badly, engage in schemes and frauds, and the government that can't afford health care for its poorest, housing for its veterans, or proper nutrition for its young, has literally trillions for carpet baggers and criminals at the top of the social ladder who talk of hard work, responsibility, and sacrifice for the rest of you, but have their hands out for the tax dollars you pay (they pay next to none themselves) and accept no responsibility or consequences for their actions.

The US government is now looking at having tax payers, the US middle-class, absorb all the bad mortgage debt and free the criminals and hucksters from their mistakes to start all over again.

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The meltdown is a bipartisan affair. Presidential contenders John McCain and Barack Obama each have received millions of dollars from these very companies that are collapsing and are receiving the corporate welfare. President Clinton and his treasury secretary, Robert Rubin (now an Obama economic adviser), presided over the repeal in 1999 of the Glass-Steagall Act, passed after the 1929 start of the Great Depression to curb speculation that caused that calamity. The repeal was pushed through by former Republican Sen. Phil Gramm, one of McCain’s former top advisers. Politicians are too dependent on Wall Street to do anything. The people who vote for them, and whose taxes are being handed over to these failed financiers, need to show their outrage and demand that their leaders truly put "country first" and bring about "change."

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[ 19 September 2008: Message edited by: M. Spector ]

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The U.S. Treasury will propose a $500 billion to $800 billion dollar government program to take toxic mortgage-related assets off the books of U.S. financial firms, banking industry sources said on Friday.

The sources said the government would acquire residential and commercial mortgages and mortgage-backed securities under the proposal, which needs Congressional approval. - Reuters

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If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.

The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."

The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.

But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.

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web of debt

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Today’s credit crisis is very similar to that facing Herbert Hoover and Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s ploy failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and invest. President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war.

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On Tuesday, interbank lending rates spiked upwards causing banks to abruptly stop lending to each other. When banks stop lending to each other, they cannot perform their primary function of transmitting credit to consumers and businesses, and the economy shuts down. That is why the Fed and other members of the western banking cartel made a surprise announcement at 3 AM (EST) Wednesday morning.
From the Fed:

"Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets....The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks."

Before the end of the day, the Fed had quadrupled the amount of dollars (to $247 billion) that central banks around the world could access in an effort to loosen up trading between the banks and resume lending to loan applicants and businesses. According to Bloomberg: "The Fed will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets." At first, the stock market reacted positively to the Fed's announcement, but by noon the market was 200 points down and losing altitude fast. It took another surprise announcement by the Treasury Dept -- of a massive government intervention to remove the bad loans and withering mortgage-backed securities from banks' balance sheets -- of to jolt the market out of its funk and send it climbing 410 points higher on the day.

Paulson's emergency session with Congress last night was characterized by lawmakers who attended as "chilling". The situation is much worse than government officials have let on so far. . .

Neither China nor the Saudi princes are buying any more failing investment banks. They'll leave that for the US taxpayer. What started off as a brilliant plan to pedal garbage mortgage-backed paper to gullible investors around the world has suddenly backfired and now threatens to bring the entire system crashing down and change the geopolitical power paradigm for the forseeable future.

On Monday night, Senate Majority Leader Harry Reid was briefed on the gravity of the situation in a secret meeting with the Treasury Secretary and Federal Reserve Chairman. Reid's remarks are the best summary yet of the troubles that lie just ahead. He said, ""We are in new territory, this is a different game...No one knows what to do."

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The Bush administration is asking Congress to let the government buy $700-billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press.

The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would also raise the statutory limit on the national debt from $10.6-trillion to $11.3-trillion to make room for the massive rescue.

But the proposal does not specify what the government would get in return from financial companies for the federal assistance.

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Originally posted by ElizaQ:
This is all just nuts. I can't believe this is happening right in the middle of an election. It's just nuts.

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The reason it's not hurting the Republicans in the election is that the Democrats are cheering Bush on!

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The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.

Staff members from Treasury and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill, where negotiations were likely to be complicated but quick. Democratic Congressional leaders have pledged to approve legislation by the end of this week.- NYT

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[ 20 September 2008: Message edited by: M. Spector ]

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Originally posted by Doug:

The real wonder is why any Republican at all is still electable.

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Not really a wonder. It helps if you think of politics in terms of sporting events rather than politics. You identify the home team, and then you paint your face the appropriate colour and scream like an idiot in the stands. It is all about team identification. In a rational world, the team that demonstrates athletic superiority should receive the accolades, but in the real world they don't, the supporters of the losing team just vow revenge in the next match.

Now, think about all the sporting metaphors that are used in election coverage.

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Originally posted by M. Spector:
Well, Doug and Eliza, wonder no more.

The reason it's not hurting the Republicans in the election is that the Democrats are cheering Bush on!

[ 20 September 2008: Message edited by: M. Spector ]

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No that's not it at all, the sports team analogy works much better.

The homeowner-debtors will now be indebted to the government instead of to the mortgage companies.

Problem solved for the mortgagees. Problem remains for the mortgagors.

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The presidential candidates of both major parties, Republican Senator John McCain and Democratic Senator Barack Obama, quickly signaled their support for the wholesale bailout of the banks and big investors, and prominent congressional Democrats issued assurances that they would obey the demands of [Treasury Secretary] Paulson, Federal Reserve Board Chairman Ben Bernanke and Bush and pass the required legislation by the end of next week.

The immediate line-up of both parties and the media behind the bailout plan for Wall Street stands in the starkest contrast to their indifference and inaction in regard to the plight of millions of American working people, who face a rising tide of home foreclosures, layoffs and sinking living standards. When it comes to the social needs of the people, the universal cry from corporate America and the two parties is, “There is no money,” but when the fortunes of the financial elite are threatened, the full power of the government and unlimited resources are marshaled virtually at a moment’s notice.

There was no suggestion in the statements of Bush and Paulson of any relief for the working class—nothing to stop home foreclosures or help those who have already lost their homes. Rather, hundreds of billions—and more likely trillions—of dollars in public funds will be used to prop up the banks.

The resulting bankrupting of the government will be used to justify a brutal assault on what remains of social programs, including Medicaid, Medicare and Social Security, and demand even greater financial “sacrifices” from workers, whether the next administration is headed by Obama or McCain. Nothing could more clearly demonstrate that behind the façade of American democracy there stands a dictatorship of big business. - WSWS

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[ 20 September 2008: Message edited by: M. Spector ]

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The model for the rescue package being drawn up this weekend by Hank Paulson, the Treasury Secretary, is a bailout of the US banking system in the 1980s.

The savings and loans (S&L) crisis amounted to what was the first collapse of American financial institutions since the Great Depression.

It involved the failure of more than 1,000 such associations with total assets in excess of $500 billion.

The cost of clearing up the aftermath eventually spiralled to about $160 billion, nearly $125 billion of which was funded directly by taxpayers.

The bailout compounded the large US budget deficits of the early 1990s and contributed to the 1990-91 recession.

Savings and loans associations had existed in the United States since the 1800s as local community groups offering deposit accounts and home loans.

The savings and loans crisis had its roots in the deregulation of the industry, which until the late 1970s had been tightly controlled, with strict limits on the rates of interest that could be offered to depositors. But high rates of inflation during the 1970s encouraged many depositors in America to shift their funds out of low-interest savings and loans accounts and into the higher-interest accounts then being offered by so-called money-market accounts, which were invested in government and corporate bonds.

This undermined the financial strength of many associations that were also offering customers long-term mortgages at fixed rates of interest.

New laws introduced in 1980 encouraged them to become increasingly cavalier in their approach to lending just as their deposit bases were crumbling.

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Originally posted by ElizaQ:
As part of giving Bush what he wants the Democrats are also asking for billions to help with mortgagers situation, more money for hurricane relief which again seems to being screwing up but it's not getting much press, money for the auto sector and more money to go to cities for things like infastructure.
I'm not saying there the saints here, but at least it looks like there trying to get something more out of the mess then simply a corporate bailout.

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Whatever the events of this week mean, nobody should believe the overblown claims that the market crisis signals the death of "free market" ideology. Free market ideology has always been a servant to the interests of capital, and its presence ebbs and flows depending on its usefulness to those interests.

During boom times, it's profitable to preach laissez faire, because an absentee government allows speculative bubbles to inflate. When those bubbles burst, the ideology becomes a hindrance, and it goes dormant while big government rides to the rescue. But rest assured: the ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis that will be the rationalisation for deep cuts to social programmes, and for a renewed push to privatise what is left of the public sector. We will also be told that our hopes for a green future are, sadly, too costly.

What we don't know is how the public will respond. Consider that in North America, everybody under the age of 40 grew up being told that the government can't intervene to improve our lives, that government is the problem not the solution, that laissez faire was the only option. Now, we are suddenly seeing an extremely activist, intensely interventionist government, seemingly willing to do whatever it takes to save investors from themselves.

This spectacle necessarily raises the question: if the state can intervene to save corporations that took reckless risks in the housing markets, why can't it intervene to prevent millions of Americans from imminent foreclosure? By the same token, if $85bn can be made instantly available to buy the insurance giant AIG, why is single-payer health care – which would protect Americans from the predatory practices of health-care insurance companies – seemingly such an unattainable dream?...

But the crisis we are seeing calls for even deeper changes than that. The reason these junk loans were allowed to proliferate was not just because the regulators didn't understand the risk. It is because we have an economic system that measures our collective health based exclusively on GDP growth. So long as the junk loans were fuelling economic growth, our governments actively supported them. So what is really being called into question by the crisis is the unquestioned commitment to growth at all costs. Where this crisis should lead us is to a radically different way for our societies to measure health and progress.

None of this, however, will happen without huge public pressure placed on politicians in this key period....

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Originally posted by Frustrated Mess:

If you follow the comgressional Democrats under the Bush regime, you find they always make demands that get plenty of press and then they cave and get nothing. Why do they cave? Because it was all PR in the first place. Don't believe me? Review the record.

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Oh I do believe you because I know. Of course it could all be just PR, but honestly what's happening now has completely thrown everything topsy turvy. It's not, business or politics as usual.

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Originally posted by M. Spector:
I would say there is very little evidence for that belief.

Next time there's another financial crisis, President McBama will do the same thing as GW Bush is doing now.

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There isn't going to be a next time. It's more then likely going to be one long financial crisis. These bailouts aren't going to stop it cold. They're merely a bandaid to try to stop it from crashing completely in a short time period. They all know that it's far from over.

I would also say that in terms of evidence, that it's pretty impossible to even have evidence because no one has ever dealt with anything like this. Thanks, but when it comes down to a choice, I would much rather have Obama in there with a remote hope because the guy actually has a brain, then the Neo-Cons and their new theocratic annointed wonder woman, blank slate in there with absolutely no hope whatsoever.

[ 20 September 2008: Message edited by: ElizaQ ]

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Republican presidential candidate John McCain says he is against the Government bailing out struggling banks and other financial companies.

He says the US Federal Reserve should get back to its core business of managing the money supply and protecting the strength of the US dollar.

But his Democratic rival Barack Obama says he will support the plan, as long as it shields American workers as well as banks and big companies.

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Seems your man Obama is more enthusiastic for Bush's bailout than McCain is....

[ 20 September 2008: Message edited by: M. Spector ]

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Originally posted by ElizaQ:
In reference to the Naomi Klein article, I think she is totally right. Now is the best time to talk about it and people are already talking, I read it all over the place. It's all is disarray though because the political discourse has been so messed up for years. People already consider Obama and the Dems socialists, which I always get a giggle at. I think it's going to take more then just a month to break through and reorder the thinking.

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Originally posted by Fidel:

That's right. The U.S. Fed has used its wall of money approach to fending off a collapse for a long time. There's far too many U.S. dollars floating around the world, and now the Saudis and Chinese and sovereign wealth funds around the world are losing confidence in U.S. dollar and other investments. Paulson thought he could get away with bailing out his crony friends on Wall Street and everything would be business as usual. They're in trouble this time. Basel II, fair value accounting, Wall Street - it's finished.

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Yep it is. I agree and the thinking people know this. The most honest thing I think I ever heard coming from a congressman after their meetings was,' No one knows what to do.'
In terms of the discourse I just read a discussion on a Dem supportive board where the Repub trolls coming and screaming about Obama the socialist! The people on the board were like 'Dude' your big guy Bush just pulled the biggest socialist move evah. You guys are socialists now. Then a bunch of spitting a frothing from the trolls and nothing. It's like total cognative dissonance. They don't know what to do with it.

Financial Bailout: America's Own Kleptocracy
The largest transformation of America's Financial System since the Great Depression

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Overnight, the U.S. Treasury and Federal Reserve have radically changed the character of American capitalism. It is nothing less than a coup d'Etat for the class that FDR called "banksters." What has happened in the past two weeks threatens to change the coming century - irreversibly, if they can get away with it. This is the largest and most inequitable transfer of wealth since the land giveaways to the railroad barons during the Civil War era. . .//

A kleptocratic class has taken over the economy to replace industrial capitalism. Franklin Roosevelt's term "banksters" says it all in a nutshell. The economy has been captured - by an alien power, but not the usual suspects. Not socialism, workers or "big government," nor by industrial monopolists or even by the great banking families. Certainly not by Freemasons and Illuminati. (It would be wonderful if there were indeed some group operating with centuries of wisdom behind them, so at least someone at least had a plan.) Rather, the banksters have made a compact with an alien power -not Communists, Russians, Asians or Arabs. Not humans at all.

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The machines employed by hedge funds in particular have given a new meaning to Casino Capitalism. That was long applied to speculators playing the stock market. It meant making cross bets, lose some and win some - and getting the government to bail out the non-payers. The twist in the past two weeks' turmoil is that the winners cannot collect on their bets unless the government pays the debts that the losers are unable to cover with their own money

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“Now the Funds Rate is only 4.5 percent, the dollar is at multi-decade lows, the federal budget is in deficit, and tax cuts are still in effect,” Janszen wrote. “The chronic trade deficit, the sudden depreciation of our currency, and the lack of foreign buyers willing to purchase its debt will require the United States government to print new money simply to fund its own operations and pay its 22 million employees.”

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Remember these names:

Former Senator Phil Gramm, who now advises Senator John McCain and is the person who says that folks who fret about current economic conditions are “whiners”; Clinton Treasury Secretary Robert Rubin, one of whose protégés advises Senator Barack Obama; and Alan Greenspan, former chief of the Federal Reserve.

Gramm, Rubin, and Greenspan made this debacle possible.

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The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That's an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics. That's why Henry Paulson is the worst possible person to be orchestrating the so called rescue project. Paulson comes from a business culture which rewards deception, personal acquisitiveness, and extreme risk-taking. Paulson is to finance capitalism what Rumsfeld is to military strategy. His leadership, and the congress' pathetic abdication of responsibility, assures disaster. Besides, why should the taxpayers be happy that the stocks of Morgan Stanley, Washington Mutual and Goldman Sachs surged on the news that there would be a government bailout yesterday? These banks are essentially bankrupt and their business models are broken. Keeping insolvent banks on life support is not a rescue plan; it's insanity.

No one has any idea of the magnitude of the deleveraging ahead or the size of the debts that will have to be written down. That's because 30 years of deregulation has allowed a parallel financial system to arise in which over $500 trillion dollars in derivatives are traded without any government supervision or accounting. These counterparty transactions are interwoven throughout the entire "regulated" system in a way that poses a clear and present danger to the broader economy. It's a mess. For example, there are an estimated $62 trillion of Credit Default Swaps (CDS) alone, which are basically insurance policies for defaulting bonds. AIG was as heavily involved in CDS as they were in regulated insurance products. So why would AIG sell CDS rather than conventional insurance?

Because, just like the banks, AIG could maximize its profits by minimizing its capital cushion. In other words, it didn't really have the capital to pay off claims when its CDS contracts began to blow up. If it had been properly regulated, then government regulators would have made sure that it was sufficiently capitalized with adequate reserves to pay off claims in a down-market. Now taxpayers will pay for the lawless system which men like "industry rep" Henry Paulson put in place. That's deregulation in a nutshell; a system that allows Wall Street banksters to create credit out of thin air and then run weeping to Congress when their swindles backfire.

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Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis.

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And this bail out, or rather massive shift of wealth, will not prevent a recession or worse. It will make it worse. Have you read Klein's take on it?

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It would be a grave mistake to underestimate the right's ability to use this crisis -- created by deregulation and privatization -- to demand more of the same. Don't forget that Newt Gingrich's 527 organization, American Solutions for Winning the Future, is still riding the wave of success from its offshore drilling campaign, "Drill Here, Drill Now!" Just four months ago, offshore drilling was not even on the political radar and now the U.S. House of Representatives has passed supportive legislation. Gingrich is holding an event this Saturday, September 27 that will be broadcast on satellite television to shore up public support for these controversial policies.

What Gingrich's wish list tells us is that the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and "free-market stimulus."

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Originally posted by martin dufresne:
Well, I spoke with my broker today - he phoned me to advise me to rapidly unload a Citigroup-backed bond - and he says that they have "started the photocopier in Washington" and the value of the U.S. dollar is about to plummet, which should cause it to be abandoned and replaced by oil and gold as the worldwide money standard.
I am thinking of picking up a small farm, couple of goats, wind turbine, good ground water if I'm lucky...

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Yeah my Dad has some money in a US money account, he's been watching the dollar. I keep telling him, get it out of there, seriously. Of course what do I know. Anyways he got a call from the bank guy today and is going in tomorrow to transfer it.

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Originally posted by Frustrated Mess:
There is no escaping the consequences unless you're a bankster in which case this bailout will ensure other's will bare the consequences for your irresponsibility.

And this bail out, or rather massive shift of wealth, will not prevent a recession or worse. It will make it worse. Have you read Klein's take on it?

http://www.commondreams.org/view/2008/09/23-1

The best solution is to let the investors fail and hold those responsible to account, including politicians, and rebuild the system with the proper checks and balances to ensure it won't happen again.

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[ 23 September 2008: Message edited by: martin dufresne ]

[ 23 September 2008: Message edited by: ElizaQ ]

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About $32 billion of ABCP issued by special non-bank trusts has been frozen for about a year - much of it held by Canadian pension plans. Smaller amounts are held by companies and individuals.

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FBI Probes Possible Fraud at Collapsed Firms

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The FBI has opened preliminary investigations into several financial institutions whose collapse created chaos on Wall Street, law enforcement officials tell ABC News.

Investigators are probing investment bank Lehman Brothers and insurer American International Group, or AIG, for possible fraud, according to law enforcement officials.

A senior official tells ABC News that lending giants Freddie Mac and Fannie Mae are in the government's sights, as well.

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I'm thinkin' the Bush administration's plans for a quick bailout may run into a bit more resistance now.

[ 23 September 2008: Message edited by: pogge ]

About friggin' time. The same Americans who, ten years ago, would have said the rest of the world was just a bunch of socialist ninnies are finally realizing why the rest of the world has more government regulation than they do.

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Steve Ebels hasn’t been that hurt by the recent stock market roller-coaster ride because he no longer has much to lose.

Ebels, who owns a heating business, said he already lost much of his life savings when a general contractor he was doing work for went belly up, leaving Ebels with a pile of bills for materials and labor he had already invested in the project.

And that is perhaps the biggest reason why Ebels, 51, would like to see the failed Wall Street titans pay for the actions that have led to this crisis. If he has to start over because of a soured business deal, he figures, so should they.

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The Republican Study Committee (RSC), a faction of small-government House conservatives led by Rep. Jeb Hensarling of Texas, has released an alternative plan for dealing with the Wall Street crisis, in opposition to the $700 billion bailout being proposed by the Treasury Department.

The stripped-down plan advocates a two-year suspension of the capital gains tax and calls for pull privatization of Fannie Mae and Freddie Mac, which were taken over by the federal government earlier this month.

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According to The Hill, the RSC argues that the bailout plan "fundamentally alters the nation's free-market system in that it broadly socializes firms' money-losing mortgage assets and places the U.S. on a slippery slope whereby profits will also be nationalized."

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Originally posted by DrConway:
First fear, then loathing, toward Wall Street

About friggin' time. The same Americans who, ten years ago, would have said the rest of the world was just a bunch of socialist ninnies are finally realizing why the rest of the world has more government regulation than they do.

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Don't think that this guy really gets it...

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Michael Danter, 45, thinks the government did the right thing by coming to the aid of a few financial institutions, in an effort to maintain some measure of confidence in the U.S. financial system.

Still, he thinks the top executives at companies getting federal aid should pay for their misdeeds in the form of a substantially smaller paycheck, especially since the savings could be enough to save a couple thousand regular workers their jobs.

“I know they work hard and I’m not into this socialism, but what’s enough? One million? Two million?” he asked.

Still, despite the current crisis, in general Danter said he’s against more regulation of the financial markets. The physician, who lives in St. Louis, also has no plans to get out of the stock market, especially since retirement is still a long way off for him.

“As far as I’m concerned, this is a good time to buy,” he said.

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So punish the evildoers and lets get on with it!!!

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Albeit evidence of a systemic risk has not been established, vast public resources have so far been devoted to bailouts at the expense of growth-generating spending. The Fed has been pouring billions of dollars into financial institutions, buying worthless paper, and incurring huge losses. To quote Paulson "I am convinced that this bold approach [that is creation of the MFI] will cost American families far less than the alternative - a continuing series of financial-institution failures and frozen credit markets unable to fund economic expansion."

Contrary to Paulson’s claim, domestic credit is still expanding at a fast rate, at 9% per year as of July 2008, and the notion of frozen markets cannot be supported by Fed’s published monetary data. Banks have excess liquidity and are still extending loans to safe customers. Certainly they are no longer in the mood of reigniting a new speculative euphoria by lending to speculator and impaired credit.

And contrary to Paulson’s belief, the MFI will in the end cost American families more than other alternatives. As Philip Stephens from the Financial Times put it, it is horrifying to think that the huge liabilities of failing institutions have now been loaded on to the backs of taxpayers: a case, as far as speculators are concerned, of heads, we win, tails you lose.

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