Soros: America must lead a rescue of emerging economies

FT Alphaville
....

The US must show the way in protecting the peripheral countries against a storm that has originated in the US, if it does not want to forfeit its claim to the leadership position. Even if Mr Bush does not share this point of view, it is to be hoped the next president will – but by then the damage will be much greater.

...Yeah, what he said... Soros is cool. Let's hope Obama offers him an important very senior post.

On Fire

Humans made fire 790,000 years ago: study | Science | Reuters

Humans made fire 790,000 years ago: study

Mon Oct 27, 2008 9:34am EDT

JERUSALEM (Reuters) - A new study shows that humans had the ability
to make fire nearly 790,000 years ago, a skill that helped them migrate
from Africa to Europe.

  Some decades ago, I had a personal relationship with Fire perhaps akin to that some claim to have with Jesus. This was not the result of premeditation or volition: the organisation of my consciousness moved from its normal mental-egoic intellectual configuration to one dominated mostly by some combination of Jung's Intuitive, Feeling and Sensing functions. During this period I spent a great deal of time in the mountains and along rivers and so forth, and often felt moved to build and gaze a fire. I had experiences involving the Salamander and many others in general conforming to mystical traditions I had a complete lack of exposure to. It was as a result of these experiences that I read a great deal of Jung and eventual found my way to Michael Washburn, whose "Ego and the Dynamic Ground" provided a very satisfying intellectual framework enabling me to try to sort of get my mind around what I had wandered into.

  This was all some decades ago, and these days I am thinking much more about Money in the broad sense than anything mystical, but I never either explained or dismissed that most intense period of my life.

  Reading that human fire-making goes back about 800 thousand years, it struck me that that should be long enough for evolutionary processes to have created a biological basis for the archetypes related to Fire. Subjectively, constellation of an archetype is perceived as contact with something not only independently existent, but more real than reality itself, so to speak. I remain agnostic on the question of whether for example there is a God, elemental spirits, the Old Ones and the Other Side, or whether experiences of these things are just externalisations of basic human psychic hardware developed during millions of years of evolution.

  And now back to Money. While I remain agnostic about the reality of the King of the Salamanders (the damn things are like cats: each one will give you to understand it is the King of them all, the One True Salamander [and I will note that the Old Testament God Jehovah is to me nothing more than a Fire Being with delusions of grandeur: a jealous, passionate angry and above all hungry being]), my opinion of the today's Big Bounce is that I will be shopping for put options tomorrow.

The Fund must act to protect emerging markets

FT.com / Comment & analysis / Comment - The Fund must act to protect emerging markets

The Fund must act to protect emerging markets

  Hear Hear! And the writer is a senior Citigroup manager, no less. I have the impression that Citi has been one of the leading financial houses in exploiting the developing world, so they may be mostly concerned with protecting their investments, but perhaps there is some real concern for "the victims of financial stress that is both not of their making and is beyond their control."

By William Rhodes

Published: October 23 2008 19:26 | Last updated: October 23 2008 19:26

....

After the resolution of the crises of the 1980s and 1990s, many emerging markets implemented key reforms, pursued prudent macroeconomic policies, strengthened banking and financial institutions and built up significant central bank reserves. In spite of their reforms, many of these countries have been caught in the downdraft of this credit crisis. They are the victims of financial stress that is both not of their making and is beyond their control. It could affect their real economies. The situation is deteriorating; these countries should not be left adrift. It would be imprudent to risk undermining the efforts in the Group of Seven leading industrialised countries to stabilise conditions by allowing the strains in emerging markets to evolve into an acute situation. Now is the time to act.

....

The lesson of the Latin American debt crisis and Asian financial crisis is that mechanisms must be put in place rapidly to shore up these vulnerable markets. The International Monetary Fund must assume a leadership role as it has in the past.

The writer is Citigroup senior vice-chairman; chairman, president and CEO of Citibank and first vice-chairman of the Institute of International Finance

Block the Vote:Will the GOP's campaign to deter new voters and discard Democratic ballots determine the next president?

Block the Vote : Rolling Stone

Block the Vote

Will the GOP's campaign to deter new voters and discard Democratic ballots determine the next president?

ROBERT F. KENNEDY JR. & GREG PALAST

Posted Oct 30, 2008 11:10 AM

....

In state after state,
Republican operatives — the party's elite commandos of
bare-knuckle politics — are wielding new federal legislation
to systematically disenfranchise Democrats. If this year's race is
as close as the past two elections, the GOP's nationwide campaign
could be large enough to determine the presidency in November. "I
don't think the Democrats get it," says John Boyd, a voting-rights
attorney in Albuquerque who has taken on the Republican Party for
impeding access to the ballot. "All these new rules and games are
turning voting into an obstacle course that could flip the vote to
the GOP in half a dozen states."

Suppressing the vote has long been a
cornerstone of the GOP's electoral strategy...

  Well, there they go again... Expect the mother of all stock-market crashes if they manage to steal this one: should be good for about minus 3000 on the dow by following Friday.

ACLU questions Army unit’s NorthCom role

ACLU questions Army unit’s NorthCom role - Navy News, opinions, editorials, news from Iraq, photos, reports - Navy Times

The American Civil Liberties Union is questioning the use of an
active Army brigade as an on-call federal response force within the
U.S., arguing that the military is barred from any role in civilian law
enforcement and that the force could be used to help the Pentagon
conduct domestic surveillance.

On Tuesday, the ACLU filed Freedom
of Information Act requests with the Pentagon and Department of Justice
asking for “any and all records” related to the decision to align the
unit under U.S. Northern Command, which is responsible for homeland
defense of the U.S., and the “ongoing and possible use” of the unit,
“including but not limited to contemplated functions; duties;
surveillance activities; and relationship to existing civilian agencies
or personnel or the National Guard.”

The ACLU FOIA request cites a Sept. 30 Army Times online story,
“3rd Infantry’s 1st BCT trains for a new dwell-time mission,” and a
U.S. Army North news release, as its sources for the information.

....

The assignment, the ACLU said, “raises important
questions about the longstanding separation between civilian and
military government within the United States — a separation that dates
to the nation’s founding and that has been reiterated in landmark
statutes, most importantly, the Posse Comitatus Act.”

"The banks simply DONT HAVE THE MONEY TO LEND."

FT Alphaville

Time for the Darwinian flush

Oct 20 08:41
by Paul Murphy

Highlights from the latest Hayman Advisors letter to clients (i.e. the text in full):

October 14, 2008

‘The ultimate result of shielding man from the effects of folly is to people the world with fools.’ Herbert Spencer

What’s Next? It is the “what’s next” that scares us the most.....

Highlights from the latest Hayman Advisors letter to clients (i.e. the text in full):

October 14, 2008

‘The ultimate result of shielding man from the effects of folly is to people the world with fools.’ Herbert Spencer

What’s Next? It is the “what’s next” More…

"The US consumer is finally broke."

Why This Recession Will Be A Doozy

Why This Recession Will Be A Doozy

Henry Blodget | Oct 19, 08 10:22 AM

The last recession was mild. The stock market and corporate profits tanked, but consumer spending--long the major engine of the US economy--danced merrily on through. In recent decades, it has ever been thus: bearish analysts and strategists have been underestimating the voracious spending habits and resilience of the US consumer for 50 years.

Unfortunately, at risk of invoking the four most expensive words in the English language, "this time it's different."  This recession, to quote the great Julian Robertson, will be a "doozy."

Why?

Because the US consumer is finally broke.  For thirty years, we piled on debt and then spent almost every new penny we got.  This borrowing spree was made possible by a smorgasbord of no-money-down lending products and ever-appreciating asset prices. Unfortunately, the situation has now changed. The lenders who created those products have now been demolished, and asset prices are falling fast. And this is leaving American consumers with no choice but to cut back.

How finance, insurance, and real estate lobbyists bought a bailout

The American Conservative -- Fire Sale

  I really like these Paleocons. Conservatives trashing McCain, the Hanke-Panke bailout, lobbyists: what's not to like? Keep it up and they might give conservatives a good name.

How finance, insurance, and real estate lobbyists bought a bailout.

By Kelley Beaucar Vlahos

There was little in the federal bailout bill that most Americans could wrap their arms, much less their minds, around. What did strike a chord—and one of the rare notes of consensus—was that greedy executives of failed institutions should have to give up their high salaries and golden parachutes before getting a life raft from Uncle Sam.

But the CEO’s needn’t be too alarmed. The $2 billion their industry has invested in Washington politicians over the last 20 years will likely bring healthy returns. Pesky details like “who” and “how much” to penalize were kicked down the road or left wide open for interpretation—nothing a few fat friends on the right committees and a team of crack lobbyists can’t handle.

---

"highly likely that John McCain suffers from Traumatic Brain Injury (TBI) and Post Traumatic Stress Disorder (PTSD)

The American Conservative -- Head of State

Is there more to John McCain’s rage than just bad temper? A psychotherapist puts the candidate on the couch.

 Yeah, he's a whacko. Notice on the debates how he is really having trouble finding words? His brain hurts, we'll just have to have it out.

Duuuuuuuuuuuuuuuuuuuuuude... Congratulations! Hear Hear! Huzzah! Krugman for SecTreas or Fed!

  I would have just put a comment on his blog, but there are so many (18k) they turned them off. Let's hope Obama has a top job waiting for Paul "The Man" Krugman!

Economics 2008

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008

"for his analysis of trade patterns and location of economic activity"

Copyright © Princeton University
Paul Krugman
USA
Princeton University Princeton, NJ, USA
b. 1953

“The United States is now, in some very general sense, bankrupt”

FT Alphaville » Blog Archive » Kemp: “The United States is now, in some very general sense, bankrupt”

Kemp: “The United States is now, in some very general sense, bankrupt”

Here is a radical proposal from John Kemp, the former Sempra Metals economist, who seems to have had enough “resting” between jobs. His provocative ideas would appear to apply to the UK as well as the US.

First take a deep breath, and recall President Franklin Roosevelt’s wise advice that there is nothing to fear but fear itself.

Then let’s admit something painful: The United States is bankrupt, in the sense that it’s assets (housing stock, corporations and cash flow, plant and machinery) are now worth much less than its liabilities (in the form of mortgage-backed securities, other debt and loan instruments). In particular, large parts of the housing stock are now worth much less than the owners paid for them, and less than the outstanding value of the mortgages, or the collateralised bonds that have been issued against them.

  It is a longish article, and worth reading, so I won't quote bits of it here. He has an interesting global sort of mark-to-market plan to deal with the situation.

The battle lines drawn:There is an all-out war going on between the United States and the EU to define the future face of European banking.’

  Hr. Engdahl appears to be leaning towards deciding that the economic collapse is part of a long-laid plan by the usual suspects. I'm inclined that way also. I think it is possible that their plan has gotten away from them, rather like a biological weapon spreading beyond the target population. What Warren Buffett called financial weapons of mass destruction may turn out to be just that.

Behind the Panic: Financial Warfare and the Future of Global Bank Power

Behind the Panic: Financial Warfare and the Future of Global Bank Power

By F. William Engdahl

Global Research, October 9, 2008

.... There is serious ground to believe that US Goldman Sachs ex CEO Henry Paulson, as Treasury Secretary, is not stupid. There is also serious ground to believe that he is actually moving according to a well-thought-out long-term strategy. Events as they are now unfolding in the EU tend to confirm that. As one senior European banker put it to me in private discussion, ‘There is an all-out war going on between the United States and the EU to define the future face of European banking.’ In this banker’s view, the ongoing attempt of Italian Prime Minister Silvio Berlusconi and France’s Nicholas Sarkozy to get an EU common ‘fund’, with perhaps upwards of $300 billion to rescue troubled banks, would de facto play directly into Paulson and the US establishment’s long-term strategy, by in effect weakening the banks and repaying US-originated Asset Backed Securities held by EU banks. Using panic to centralize power As I document in my forthcoming book, Power of Money: The Rise and Decline of the American Century, in every major US financial panic since at least the Panic of 1835, the titans of Wall Street—most especially until 1929, the House of JP Morgan—have deliberately triggered bank panics behind the scenes in order to consolidate their grip on US banking. The private banks used the panics to control Washington policy including the exact definition of the private ownership of the new Federal Reserve in 1913, and to consolidate their control over industry such as US Steel, Caterpillar, Westinghouse and the like. They are, in short, old hands at such financial warfare to increase their power. Now they must do something similar on a global scale to be able to continue to dominate global finance, the heart of the power of the American Century. .... Paulson seems to have learned from his White House mentor. As co-chairman of Goldman Sachs according to a New York Times account, in 1998 he forced out his co-chairman, Jon Corzine ‘in what amounted to a coup’ according to the Times. Paulson, and his friends at Citigroup and JP Morgan Chase, had a strategy it is becoming clear, as did the Godfather of Asset Backed Securitization and deregulated banking, former Fed Chairman Alan Greenspan, as I have detailed in my earlier series here, Financial Tsunami, Parts I-V. Knowing that at a certain juncture the pyramid of trillions of dollars of dubious sub-prime and other high risk home mortgage-based securities would come falling down, they apparently determined to spread the so-called ‘toxic waste’ ABS securities as globally as possible, in order to seduce the big global banks of the world, most especially of the EU, into their honey trap. They had help. In recent testimony under oath by Mr Lynn Turner, Chief Accountant of the Securities & Exchange Commission (SEC) testified that the SEC Office of Risk Management which had oversight responsibility for the Credit Default Swap market, an exotic market worth nominally some $62 trillions, was cut in Administration ‘budget cuts’ from a staff of one hundred down to one person. Yes, that was not a typo. That’s one as in ‘Uno.’ Vermont Democratic Congressman Peter Welsh queried Turner, ‘... was there a systematic depopulating of the regulatory force so that it was impossible actually for regulation to occur if you have one person in that office? ...and then I understand that 146 people were cut from the enforcement division of the SEC, is that what you also testified to?’ Mr. Turner, in Congressional testimony replied, ‘Yes…I think there has been a systematic gutting, or whatever you want to call it, of the agency and it's capability through cutting back of staff.’ .... It now would appear that the Paulson strategy was to use a crisis—a crisis that was pre-programmed and predictable as far back as 2003 when Josh Bolten became head of OMB—when it exploded, to panic the more conservative European Union governments into rushing to the rescue of US toxic waste assets. .... If the allegation of pre-planned panic, a la the Panic of 1907 is accurate, and it is a big if, then the plan worked…up to a point. That point came over the weekend of October 3, coincidentally the national unification holiday of Germany .... The battle lines drawn What has emerged are the outlines of two opposite approaches to the unfolding crisis. The Paulson plan is now clearly part of a project to create three colossal global financial giants—Citigroup, JP MorganChase and, of course, Paulson’s own Goldman Sachs, now conveniently enough a bank. Having successfully used fear and panic to wrestle a $700 billion bailout from the US taxpayers, now the big three will try to use their unprecedented muscle to ravage European banks in the years ahead. So long as the world’s largest financial credit rating agencies—Moody’s and Standard & Poors—are untouched by the scandals and Congressional hearings, the reorganized US financial power of Goldman Sachs, Citigroup and JP Morgan Chase could potentially regroup and advance their global agenda over the coming several years, walking over the ashes of a bankrupt American economy made bankrupt by their follies. By agreeing on a strategy of nationalizing what EU finance ministers deem are ‘EU banks too systemically strategic to fail,’ while guaranteeing bank deposits, the largest EU governments, Germany and the UK, in contrast to the US, have opted for what will in the longer run allow European banking giants to withstand the anticipated financial attacks from the likes of Goldman or Citigroup. .... By initiating state partial nationalizations across the EU, and rejecting the Berlusconi/Sarkozy bailout scheme, the governments of the EU, interestingly enough this time led by the German, are laying a more sound foundation to emerge from the crisis. Stay tuned, it’s far from over. This is a fight for the survival of the American Century which has been bvuilt since 1939 on the twin pillars of American financial dominance and American military dominance—Full Spectrum, Dominance. ....   F. William Engdahl is author of the book, A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press Ltd) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (www.globalresearch.ca) He may be contacted through his website, www.engdahl.oilgeopolitics.net.

Exploring the worst-case scenario | Reuters

Exploring the worst-case scenario

Sun Oct 12, 2008 3:10pm EDT

By Emily Kaiser

WASHINGTON (Reuters) - The global economy is drawing closer to a dangerous downward spiral and time may be running out for world leaders to find a way to stop it before it inflicts lasting damage.

Economists are beginning to warn of a depression-like cycle where an inability to obtain credit stalls growth, triggering more defaults and still tighter lending terms. Governments have unveiled one unprecedented move after another in the past three weeks to boost confidence and get banks back in business, yet so far nothing has been able to arrest the fall.

The world's richest nations agreed on Friday to do whatever it takes to restore normal order to credit markets that have essentially shut down, choking off the flow of money to borrowers who normally would have no trouble obtaining loans.

  That seems to be the key. Either they get credit moving very soon, or critical mass is reached and a chain reaction of insolvency starts.

  I am presently in Brevard, NC, in the large area of the southeast of the US that was very short on gasoline for a few weeks and essentially completely out for at least a few days or a week, a story that was conspicuously under-reported. Gas is back and has been for some time, and prices are now dropping to national norms (I saw $3.15/gallon today), but roads, stores and restaurants are eerily quiet. Doesn't look like there will be a big xmas sales season in these parts.

"With no desire to exaggerate, this might be considered the financial pre-conditions of a depression," Citigroup economist Steven Wieting wrote in a note to clients.

"Evidence suggests credit rationing is inhibiting day-to-day activities for many firms, with a harsh and worsening backdrop for consumers," he said. "Sadly, some risk exists that financial events could still unfold like a proverbial 'dam break.' This might leave policy-makers treating very serious and lasting damage to the financial system, rather than preventing further erosion."

  Critical mass and meltdown or not. Even if not, extensive damage has already been done.

CONSUMER SPENDING CAVES

Since the bankruptcy of investment bank Lehman Brothers and government rescue of insurer AIG (AIG.N: Quote, Profile, Research, Stock Buzz) in mid-September, U.S. consumer confidence has tumbled almost as sharply as stocks, and spending has slowed dramatically.

  All those retail stores that make two thirds of their money in xmas-season sales? They're gone. Shorting them will be a one-way bet if there is still anything left to short. Since the stuff they are selling mostly all comes from China, it won't directly hit what manufacturing there is in the US, but it should be obvious that seasonal hiring will be low to non-existent except perhaps at Mall Wart and the other major hawkers of the cheapest junk from China that helped dig the debt part of this whole. Then in January if not before, massive layoffs of retail workers is a given. More defaults on consumer debt, more foreclosures, giant sucking sound.

Consumer spending accounts for two-thirds of U.S. economic activity, so if it remains weak, the economy would surely sink into recession, dragging much of the world with it.

  What's with this 'would'? The economy is in recession, whatever the fake government stats say. Consumer spending will continue to slow even if the banking system is saved and the credit markets restart. As bone-dumb as many Americans are, judging by recent Presidential elections, they are not about to run out and spend everything they can right after a stock market crash that now ranks with and may exceed the crash of 1929. It will take six months or a year of stability after a halt to foreclosures and bankruptcies before non-essential expenditures regain favor. It's just that simple.

The bigger risk is that it reinforces and deepens the credit crunch.

Banks are already reluctant to extend credit, primarily because they are paying the price for previous lending mistakes. As that slows economic growth, companies are cutting jobs, which in turn means more people may miss payments on mortgages, credit cards and auto loans, driving up bank losses and forcing them to clamp down even harder on lending.

Once that cycle gets going, it is difficult to stop.

  It is already going. The question is just if it has gone critical or not.

Lena Komileva, head of G7 market economics at Tullett Prebon in London, said there was a risk policy-makers would have to "start again from scratch" if they cannot quickly turn investor sentiment around.

"If this scenario were to unfold, governments would have to effectively nationalize the entire flow of funds in G7 economies and start lending directly to businesses and consumers. Surely, they can do better than this," she said.

Can they? We should know soon. The FT headline is Scramble to avoid collapse. Seeing that headline at FT means it will be a very near-run thing if the radical measures described work, and no great surprise if they don't. In that event, what would be left other than a worldwide program of massive liquidity support (printing money) and direct provision of credit? And then if that doesn't work, it's just plain over and time to let the thing run its course as quickly as possible and make plans for a rebuilding, and most importantly restructuring, of the world economic system.

Soros: The game is out.

Soros sees end of US-led globalized market system | Markets | Bonds News | Reuters

Soros sees end of US-led globalized market system

Sun Oct 12, 2008 3:03pm EDT

By David Morgan

WASHINGTON, Oct 12 (Reuters) - Billionaire investor George Soros predicted on Sunday that the financial crisis would mean the end of a U.S.-led market system that has dominated the global economy with debt and deregulation since the 1980s.

"Globalization, America as the center of the globalized financial markets, was sucking up the savings of the world," Soros said in a CNN interview.

"This is now over. The game is out. It does mean a very serious adjustment for America," added Soros, a staunch backer of the Democratic Party.

  No big surprise, but Soros saying it makes it sort of official.

As world leaders rushed to help banks weather the crisis that has sent stocks into steep decline, Soros blamed the  turmoil on the faith in market forces that began under President Ronald Reagan and British Prime Minister Margaret Thatcher a generation ago.

The notion that markets are self-correcting led to a massive expansion of debt financing that culminated in the sub-prime mortgages that epitomized the easy-money mentality at the root of the disaster, he said.

"This belief became the dominant creed. And this, then, led to the globalization of markets, the deregulation of markets and the increased use of leverage and all the financial engineering," Soros said.

"This whole enormous construct is built on false conceptions," he added. "You can go a very long way. But in the end, reality rears its ugly head and that's what happened now."

  Indeed. Reagan and W: a bankrupt ideology, and a legacy of bankruptcy. "Why did they hate America SO MUCH?"

Jeffrey Sachs, special adviser to U.N. Secretary-General Ban Ki-moon and director of the Earth Institute at New York's Columbia University, appeared to agree with Soros.

"The age of Reaganism is over," Sachs said in a separate CNN interview. "The no-regulation, low-taxes (philosophy) has broken the back of our economy. We now have to get serious about reconstructing normal government that pays its way and a normal financial sector that's properly regulated."

Treasury Secretary Henry Paulson's embrace of the same "market fundamentalist ideology" has made the Bush administration slow to respond to the crisis, said Soros, who blamed Paulson for not saving the Wall Street firm Lehman Brothers from bankruptcy.

"That's what actually kind of unleashed the current phase of meltdown," he said.

  I guess if Hank had had a $700mn options position in LEH instead of GS, things would have been different.

Soros said U.S. authorities could effectively address the crisis by recapitalizing banks, first with private money, and restructuring home loans to minimize foreclosures. (Additional reporting by David Lawder, Editing by Chizu Nomiyama)

  Which is what Soros and everyone else worth listening to has been saying all along, more or less. But the Bush crime family and their hired hands were too busy looting the Treasury to save the US from bankruptcy.  It appears they are making the right moves in Europe, and may start in the US; it should be clear within a few days if it is too late or not.

Feds listen to Roubini for a change, will support commercial paper market: this may actually help.

FRB: Press Release--Board announces creation of the Commercial Paper Funding Facility (CPFF) to help provide liquidity to term funding markets--October 7, 2008

From the Feds:

Press Release

Release Date: October 7, 2008

For release at 9:00 a.m. EDT

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.

The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day. A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.

By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.

Commercial Paper Funding Facility (CPFF) Terms and Conditions (57 KB PDF)

2008 Monetary Policy Releases

  They are actually doing something! Maybe they don't want to crash the economy after all.

The Fed did nothing over the weekend, then announced ineffectual measures: Depression more likely.

RGE - The Fed keeps on wasting time while the mother of all bank runs is underway

Nouriel Roubini | Oct 6, 2008

Last Friday I pointed out in my “Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs” that we were at the point of a risk of a systemic financial meltdown with the beginning of the mother of all bank runs: stock markets gave a vote of no confidence to the Senate passage of the TARP legislation (equities down 4% on Thursday) and to the House passage of the legislation on Friday (equities down 3% after the passage of the bill in the House). At the same time last week money markets, interbank markets, credit markets were all imploding with all interbank spread at new all time highs, credit spreads going up through the roof and the roll-off of the financing – via commercial paper – of the corporate system.

....

Indeed by last week a mother of all bank and non-bank runs was underway and even a well designed and well implemented TARP (let alone the poorly designed one passed by Congress) could not address the problem of a short term liquidity panic and run.

And with the liquidity and credit and banking crisis hitting European financial institutions this severe crisis was becoming global last week. I then suggested that only radical and urgent action could stop this mother of all runs such as the following ones:

....

- direct Fed lending to the corporate sector via Fed buying the commercial paper that corporates are not able to roll over; and possibly even lending to state and local governments that are a now also facing a roll-off of their maturing short-term liabilities.

 That's pretty much what I said here. Guess it wasn't such a crazy idea after all. One of the primary purposes of government is to keep essential services going. If that means government has to provide credit, then it provides credit. It's just that simple, folks.

- a coordinated 100bps reduction in policy rates by all major advanced economies central bank and, possibly, even some emerging market economies central banks;

Since the crisis of confidence and liquidity was becoming more virulent over the last few days and during the weekend in Europe one would have expected a radical response over the weekend along the lines suggested above by the Fed and other central banks. After all Bernanke stated on Friday that the Fed would do whatever was necessary to deal with the liquidity crisis.

Instead the Fed did nothing over the weekend (before the crucial opening of markets in Asia and Europe) and then announced steps this morning that don’t even start to address the liquidity problems of the financial system....

So the Fed wasted an entire weekend announcing nothing and then announced this morning a set of modest steps that does nothing to address the ongoing silent run on banks and the non-silent run on the short term liabilities of non-banks and of the corporate sector. This at a time when the markets was expecting – given the Friday statement of Bernanke – such radical and urgent policy actions. So no wonder that Asian and European equity markets collapsed at their Monday opening and no wonder that US equity markets are down 5-6% today (as of mid-day). So the time to move is now or, better, it was yesterday or a week or a month ago. Any further delay may lead to an implosion of the financial system and serious damage to the corporate system tilting a severe economic recession in a much more grave economic depression.

  Now we are back to the incompetence-or-intent question. I think incompetence is becoming less and less plausible with each passing day, and the possibility that the Bush thugs are deliberately destroying the economic system more plausible. The proximity to the election cannot be ignored, yet this seems to be hurting McCain; could the economy be crashed rapidly enough to create a state of civil disorder or some other pretext for indefinitely postponing elections? Or perhaps they are simply conducting a scorched-earth policy, with the side benefit that they end up with what money is left and can buy all classes of assets for next to nothing, meaning they end up owning the country regardless of who is President.

More Bank, Less Bucks: A Four Point Plan for the Rescue from Institutional Risk Analytics

These guys really seem to make sense. I'm no expert in this stuff, but they have a straight-out plain-spoken common-sense way of talking that makes me think they are down-to-earth people who really know their stuff.
Also I like that guy in the suit looking out the window on their website.  Reminds me of Detective Columbo, which seems appropriate.

Institutional Risk Analytics

More Bank, Less Bucks: A Four Point Plan for the Rescue
October 6, 2008

"Public opinion made [Herbert Hoover] the villain of the Great
Depression. In fact, the 31st president was a visionary -- but a hopelessly
inept politician… Until early 1931, midway through his presidency, Hoover had
waged a vigorous offensive against the Depression. International events pushed
him back onto the defensive. His overriding goals became damage control and even
national economic self-preservation, as it became clear that the Depression was
not just another cyclic valley, but an historic watershed. Hoover came to
believe that the root cause of the Great Depression was the Great War."

Don't Blame Hoover


Stanford Magazine


David M. Kennedy

Jan/Feb 1999

Watching the financial rescue legislation grind along to
a conclusion reminds us that democracy is not meant to be efficient or pretty.
The end result also makes us think of how our ancestors dealt with the
Great Depression. We think not of FDR, who most Americans associate with the
solution via the New Deal, but of President Herbert Hoover, a tragic figure but one of the
greatest technocrats to ever hold the office of the presidency

Hoover knew what was happening in the country in the early 1930s. He created many of the mechanisms that would be used to deal with it, including the Reconstruction Finance Corporation. But due to
poor communications and other factors, Hoover could not marshal sufficient
resources to act effectively. We've written about the attempts by Hoover to
negotiate with Henry Ford in the days leading up to the collapse of the Detroit
banks in early 1933 in a past issue of The IRA ("How's My Bank or Why One Rating Just
Isn't Enough"), but by then Hoover had been fighting the Depression for over three years. He wrote in the third volume of his memoirs, The Great Depression:

"If we had possessed adequate banking laws and a sound
financial system, we should never have needed the Reconstruction Finance
Corporation, the Home Loan Banks, and the half dozen other government props to
credit, which we were compelled to introduce later on… Our whole economic system
naturally divides itself into production, distribution and finance. By finance I
mean every phase of investment, banking and credit. And, at once I may say that
the major fault in the system as it stands is in the financial system… In this
system I am not referring to individual banks or financial institutions. Many of
them have shown distinguished courage and ability. One the contrary, I am
referring to the system itself, which is so organized, or so lacking in
organization, that it fails the primary function of stable and steady service to
the production and distribution system. In an emergency its very mechanism
increases the jeopardy and paralyzes action of the community… That it has been
necessary for the government, through emergency action to protect us (while
holding a wealth of gold) from being taken off the gold standard, to erect
gigantic credit institutions with the full pledge of government credit to save
the nation from chaos through this failure of the financial system, that it is
necessary for us to devise schemes of clearing-house protections and to install
such temporary devices across the nation, is full proof of all that I have said.
That is the big question. If we can solve this, then we can take in hand the
faults of the production and distribution systems - and many problems in the
social and political system. But this financial system simply must be made to
function first."

  It doesn't surprise me that they like Hoover. Seems right, somehow.

Here's our suggestion as to how to get the job done to
maximum effect for financial institutions and the larger economy.

First, the Treasury should become a market maker in both the assets and equity of solvent financial institutions. By being prepared to purchase illiquid assets, guarantee same or buy preferred equity
from solvent financial institutions, the Treasury can immediately put a floor
under viable but liquidity constrained financial institutions that are being
driven into default.

  Assuming, of course, that there is no plan afoot to drive them into default and/or into the gaping maw of Citi Bank of Goldman Morgan. They are obviously less cynical than I am. I applaud their optimism and practicality.

Second, the Treasury should display all of the assets held by the rescue fund in real time. Each day, the Treasury should conduct an auction for all of the assets in the fund. It is up to the discretion
of the Treasury whether to accept or reject any bid, but the aggregate results
of the daily auctions should also be published in real time, thereby creating an
indicative market for pricing these assets. Likewise, any preferred equity sold
to any financial institution participating in the program should be displayed in
real time and put up for bid. As former Fed Chairman Alan Greenspan said of the
GSEs several years ago, everything that can be sold should be sold - but at a
price that suits the objectives of the Treasury

  Touchingly optimistic. Real-time transparency. Maybe if Obama wins and his transition team is running the show, otherwise fuggedaboudit. Still, even if they are dreaming, by providing one of many preferable alternatives to the Hanke-Panke plan (which were never to my knowledge mentioned in the media or in Congress), and now that the H-P heist has taken place, providing a sort of critique-in-advance of its implementation, they are fighting the good fight.

Third, while the Treasury needs to run the market process, the FDIC should be given overall authority to manage the assets acquired or preferred equity purchased by the Treasury that is not immediately
sold. The FDIC has the operational experience and personnel to act as general
contractor for the Treasury, and in turn can direct the work of the tens of
thousands of FDIC personnel, other regulators and contractors from the top
accounting, consulting, forensic and IT services firms around the world who
already are being marshaled behind the FDIC's bank resolution efforts.

  I'm definitely with them here. I have no use for the Hanke-Panke crowd at this point, but have nothing against the FDIC. Let them run the show, and maybe the odd hundred-billion here and there will be saved from falling into the pockets of Friends of Hank.

Fourth, the whole point of this legislation is to use the credit of the US to buy time to resolve troubled assets, but the Treasury should not be shy about hitting a reasonable bid or making its fiscal operations aggressively
transparent and inclusive. By letting the markets begin to operate
under the aegis of the Treasury as market maker, it is possible to reverse the
current deflation in asset values and public confidence.

In order to achieve this end, limitations on short selling against financial institutions need to be removed. The best way to discipline unsafe and unsound short selling activity is to enforce existing rules on capital and margin requirements, or tighten same, as with the proposal by theState of New York to begin regulating the sales of credit default swap protection against hedged positions starting January 1, 2009. Once the Treasury creates a capital backstop behind the major banks, the pressure from short-sellers will lessen.

For the continuous auction process to function, the Treasury
and the participating institutions need to see both the longs and the shorts.
Likewise, whatever compromise approach is used by the SEC to modify the
accounting treatment of assets under the fair value accounting rule should be
reflected in the Treasury's auction process. That way we're all on the same
page, yes?

 Yes. Definitely.

It may strike some of you as odd for The IRA to be urging the
government to buy equity in private banks, but as we have argued in numerous
venues over the past several weeks, the probable realized loss rates facing US
banks in the next four quarters are well above 1989-1991 peak levels. The US
government can get involved now, in a way that keeps the majority of assets in
nominally private hands and encourages private capital to participate, or we can
recapitalize these banks in a receivership at 100% public expense. We think the
choice is obvious from a financial and public good perspective.

Just plain-speaking common sense.

As Hoover reflects in his memoirs, the problems facing the US
financial system then and today are practical, not political. If the next
President and the next Treasury Secretary want to fix the economy fast, make the
asset purchase program favor the sale of new equity first, then asset
guarantees, then finally the outright purchase of bad debt at significant
haircuts. The amount of public expenditures under an
equity-focused program will be less because instead of increasing the negative
weight of collapsing leverage, we can again make leverage our friend and help
expand bank balance sheets and the economy via new public and private equity
infusions.

  This sounds like a good long-term plan. I'm not sure it addresses the acute crisis in the credit markets, or rather lack thereof, but maybe it does. I'm no expert, in fact I'm very much learning as I go along, but if I understand the situation correctly a lot of otherwise perfectly viable business are going to start hitting the wall soon, missing their payrolls and falling behind on payables (and seeing the same thing happen to their receivables), if they can't get the affordable commercial paper that they live on. I imagine there are some businesses run by people like me who hate debt so much that they always have piles of liquidity available for normal operations, but probably not many. So while keeping some of the banks alive is all well and good, it is pointless if they don't immediately start providing normal credit both to businesses and individuals. If they won't,then to Hell with them. Any systemically essential enterprise, whether it provides credit, water or electricity, should be seized and government-operated as an emergency measure if they are threatening public health, wealth or stability.
 
  This may sound farfetched and probably is, but when you think about it, every corporation and taxpayer already has an account with the Feds, so the Feds could simply grant credit directly to individuals to pay their mortgages and to businesses to maintain their operations, and simply make the funds disbursed a long-term-payable debit on their tax accounts. Call it whatever you want, it may be preferable to the oncoming wave of bankruptcies and defaults that appear inevitable unless credit flow is resumed. Not that I like the idea, because governments are generally relatively inept compared to well-run enterprises (but there are some areas such as health care where efficient government operation has a much better cost-benefit profile), but given the alternative it's worth a try.

  Unless of course the alternative, an "economic Pearl Harbor" as Warren Buffett called it, is the culmination of a plan rather than an unforseen consequence of unrestrained greed. We should know within the next month or so.

Gasoline on the fire

Shanghai drops as trading resumes, while Tokyo dives - MarketWatch

Shanghai drops as trading resumes, Tokyo slumps

Nikkei hits lowest level since May 2004, Hang Seng loses 3.5%

By V. Phani Kumar, MarketWatch

Last update: 10:47 p.m. EDT Oct. 5, 2008

HONG
KONG (MarketWatch) -- Asian markets tumbled Monday amid concerns about
a raging global financial crisis. Japanese shares were down sharply --
with banks falling hard, and Sony Corp. moving below a five-year low --
and Shanghai-listed stocks dropped as trading resumed after a week-long
holiday.

"The fact that the [U.S. bailout package] has gone through hasn't seen
a freeing up of the credit markets, and because that hasn't happened,
people are wondering what else the government can do now," said Andrew
Sullivan, a sales trader at Main First Securities in Hong Kong.

  The Hanke-Panke Plan at work: gasoline on the fire. And last I heard, Hank isn't going shopping for junk assets for six weeks, meaning past the election. I guess his purchases are not expected to make Republicans popular.

  If the Feds are going to do anything useful, it looks like they have a week, maybe two but probably not, to do it. It looks like the plan is just to keep City Bank of Goldman Morgan going, let everything else crash, then give the overlord-approved survivors lots of cash to buy everything else up at five cents on the dollar.

  It looked like Wells-Fargo was among the favored few (Warren has a big stake in it, but maybe he's not really part of the ruling clique), but with the Feds apparently trying to force the Citi takeover of Wachovia despite WFC making a much better offer which may also cost less or no government money, one has to wonder: why do they hate America so much?

Sudden outbreak of democracy baffles US pundits

Sudden outbreak of democracy baffles US pundits • The Register

....

The outrage isn't the spooky part. The really odd thing is that if you had to rely on the mainstream US newspapers and TV channels - and nothing else - you'd wouldn't know something remarkable was happening. Which is that the Treasury Secretary's Bailout Plan had united parts of America who spend most of their energy hitting each other over the head, in common opposition to the proposal.

....

Conservatives, libertarians, and lefties all raised objections to the Bailout for very sound reasons of their own. The idea that the state should bail out feckless private enterprises offended both conservatives and libertarians, who take moral responsibility seriously. The left wanted their traditional adversaries put in jail, not given a gift of new lease of life with the public's money.

....

All this was reflected on political sites, forums and blogs - but not a hint of this sentiment was expressed by the professional media. So when Congress rejected the Bill on Monday, America's punditocracy expressed its shock. It also reported that the markets were "astonished" - the markets being presumed to have a better grasp of what American citizens want than American citizens themselves.

All week, the media had refrained from comment that might embarrass the political class. In fact, the first professional column I read which was reflected the true feelings of many US citizens around me was written from 3,500 miles away and published in London's Sunday Times.

....

Ouch! Your democracy is hurting my consensus

But even after Monday's vote, the cream of America's pundits couldn't quite face up to what had happened. For example, Thomas Friedman retreated further into his fantasy world, from which he could only radiate disbelief:

We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. "Decoupling" is pure fantasy.

There's a man who's a prisoner of his metaphors. Leaping from "we're all connected" (vaguely... somehow) to "you can't let banks fail" is a jump that can only be made if you think your metaphors have astounding metaphysical properties. Maybe Friedman really believes this. Who knows?

Or take David Brooks, who usually poses as the champion of the proles, except when the proles do something he doesn't approve of. He called the Congressional vote "The Revolt of the Nihilists." The dissenting Congressmen, Brooks wrote,

... showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.

You could see what Brooks really objected to was the natural order of things was being upset - how dare people question "expertise"? Or leaders? People don't know what's good for them. (But of course, David does...)

And to confirm that what really peeved (http://www.nytimes.com/2008/09/30/opinion/30brooks.html?em) him was voters getting uppity, he concluded:

What we need in this situation is authority.

Actually, what we need is an open, rational, and democratic debate about a range of choices - and that's something the political and media elites united to oppose last week.

The media had done all it could to keep awkward questions off the air.

....

The media's role is simply one of providing comfort and propaganda. Tremors in the micro niches are reported in great detail. But when a political earthquake takes place, the media can't even recognise it. It's literally beyond description - the words aren't in their vocabulary.

The result has left us disenfranchised. The same comforting propaganda that reduces people to a convenient aggregation of demographic labels, is quite useless at divining their intentions, when they are so forcefully expressed.

But clearly, now, the era where politicians, journalist and political marketing experts propped each other up is over, and the internet has helped enormously to destroy their power. The micro-marketing is now junk; the court journalism is superfluous, and deep alliances that the elites tell us are unthinkable and impossible( such as between libertarians and parts of the left) will surely emerge.

As I write, however, the Bailout that Americans don't want is returning, this time weighed down with pork barrel sweeteners for everyone from NASCAR track owners to environmentalists. A few minutes ago, it passed: so 21st Century America's brush with democracy may have been a brief experiment.

But wasn't it fun while it lasted? ®

Thanks for your comments - mail 'em in here (mailto:andrew.orlowski@theregister.co.uk?subject).

The Battle Plan II: Sarah "Evita" Palin, the Muse of the Coming Police State

Naomi Wolf: The Battle Plan II: Sarah "Evita" Palin, the Muse of the Coming Police State

Scharansky divided nations into "fear societies" and "free societies." Make no mistake: Sarah "Evita" Palin is Rove and Cheney's cosmetic rebranding of their fascist push: she will help to establish a true and irreversible "fear society" in this once free once proud nation. For God's sake, do not let her; do not let them.

There has been a plan in the works for a very long time to bring down the U.S. economy

"Grand Larceny" on a Monumental Scale: Does the Bailout Bill Mark the End of America as We Know It?

by Richard C Cook

Global Research, October 2, 2008

....

Every reputable economist commenting on the bill opposes it, including NYU’s Nouriel Roubini, who says the plan is "totally flawed." He says the plan is:

"a disgrace: a bailout of reckless bankers, lenders, and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer."

My own view is that the plan is worse than that: a crime; grand larceny on a monumental scale.

Here’s why: We know that the debacle started with homeowner defaults on subprime mortgages and that it has now spread to other types of mortgages as foreclosures spread. We know that the unhealthy use of subprime mortgages started during the Clinton administration, as did the bundling and sale of these mortgages into mortgage-backed securities sold in the financial markets.

What has not been reported is that the Bush administration turned these acts of reckless lending into a national program of mortgage fraud. Soon after George W. Bush became president in 2001, meetings at the White House between Federal Reserve Chairman Alan Greenspan and administration officials became more frequent. According to mortgage industry insiders I have interviewed, direction soon began to come down from the banks to mortgage brokers to falsify borrower income information to allow them to qualify for loans that were otherwise out of reach.

The FBI has investigations underway to prosecute some of these cases of mortgage fraud. But they are not reaching above the brokers’ level. The FBI is not gaining access—or at least they have not reported it publicly—to information about collusion at the political level or at the level of the banks which provided the leveraged funding for mortgage money.

But at the time the housing bubble was inflating, no one was watching. Note that when Secretary of the Treasury Henry Paulson testified before the Senate Banking Committee last week, he said he was shocked to learn when assuming office in June 2006 that no federal agency regulated mortgage lending. Rather this was an area left to the states.

What Paulson did not say was that when the states attempted to intervene, they were blocked by the Treasury Department’s Office of the Comptroller of the Currency. In a February 14 article in the Washington Post written before he resigned, New York governor Eliot Spitzer wrote:

"In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought

Supporting evidence, including actual briefs filed in support of Eliot Spitzer (in my opinion possibly targeted with a honey-trap operation and taken down because of his inconvenient truths), can be seen at the Center for Responsible Lending.

But at the time the housing bubble was inflating, no one was watching. Note that when Secretary of the Treasury Henry Paulson testified before the Senate Banking Committee last week, he said he was shocked to learn when assuming office in June 2006 that no federal agency regulated mortgage lending. Rather this was an area left to the states.

What Paulson did not say was that when the states attempted to intervene, they were blocked by the Treasury Department’s Office of the Comptroller of the Currency. In a February 14 article in the Washington Post written before he resigned, New York governor Eliot Spitzer wrote:

"In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules. But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation."

Why did the Bush administration do this? The only possible answer is that it had every intention of producing the housing bubble, one that had the effect of not only inflating the cost of homes and real estate but also pumping billions of dollars of borrowed cash into the economy through mortgage and home equity loans.

Emphasis on intention is the author's, not mine.

.....

What happens next?

Well, it is already happening. In the post-bubble era there will be no more economic engines for the American economy. A long term recession and depression are inevitable, and they are expected by those in the know. In fact, there has been a plan in the works for a very long time to bring down the U.S. economy, and it will be happening over the coming months.

This is why the government is also preparing to implement martial law, or something close to it, in case public unrest breaks out. We will likely also see a clampdown on free speech, the right to protest, and use of the internet. Federal facilities are being prepared all around the country to backstop state prisons and local jails that are already bursting at the seams.

This is the plan, so people need to begin to take whatever measures they can to cut their cost of living, get out of debt, and protect themselves and their families.

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, "the most important spaceflight book of the last twenty years." His website is www.richardccook.com. Comments or requests to be added to his mailing list or to purchase his special report on the 2008 election may be sent to EconomicSanity@gmail.com.

Wanted for High Crimes and Misdemeanors including Election Fraud: Karl Rove. Bounty of $100,000 paid.

VELVETREVOLUTION.US :

Today, VR offered a $100,000 reward for information from whistleblowers who have knowledge of election related criminal activity by Michael Connell, Randy Cole, Karl Rove and others.The full ad will be published this week in the Akron newspapers and you can see it here. The information must result in a conviction.

Git'em! Hang'em high, the treasonous dogs!

Hey Asian and Arab Creditors: the $10 Trillion will never get repaid. Just so you know.

National debt topped $10 trill this week: The Swamp

The Gross National Debt

by Frank James

There were no fireworks so a lot of people probably missed it. We even forgot to mention it here on The Swamp when it happened though we saw the reports. Anyway, on the last day of September, the national debt hit $10 trillion plus.

President Bush signed legislation in July that raised the debt ceiling to $10.615 trillion. Meanwhile, the financial bailout legislation passed by the Senate last night would raise the debt ceiling further to $11.315 trillion.

From the desk of H-Ross Parot:

OK now, Chinese people? Great to see you in space. Enjoy the Moon and Mars: looks like you'll have them all to yourselves. But now, see, about that $10 trillion? See, you need to understand that the US is like a drunk who just got throwed out of the bar for the last time. See now, he owes everyone including the bartender as much money as they would loan him, and they were already sick of him picking fights with everyone his bookie Wolfowitz sicked him on, and finally he ran out of money, credit and booze and just fell over and they threw him out in the parking lot and he's just a-lyin' there in a big puddle of puke, and of course Wolfowitz is long gone, probably in Taiwan by now.

Now, y'all can go on "loaning" him money as long as you want, but you need to understand, in case there is any doubt, that what you're really doing is giving it to him. I mean, let's get real here, Chinese people: when was the last time you got paid back by a drunk lying in a puddle of puke in the parking lot?

Anyways, the Olympics were great, your spacewalk was great, and I'm sure you'll do at least as good a job of running the world as we did. Probably a lot better. I mean, y'all have been around for like five thousand years, so you must be doing something right.

Oh, and sorry about the $10 trillion or whatever it is now (meaning more). Looks like we're just tapped out for the next hundred years or so.

The American financial Superpower crumbles before our eyes.

Financial Tsunami: The End of the World as We Knew It

by F. William Engdahl

Global Research, September 30, 2008

As the details of the present crisis reveal, there are huge ideological fault lines making for chaos and a potential meltdown of the Laissez Faire financial system. That present system, which was built on the back of Wall Street financial and banking deregulation since 1987 when Alan Greenspan, a devout follower and close friend of radical individualist Ayn Rand, became Wall Street’s man at the Federal Reserve for almost 19 years, is over now with the failure of the Henry Paulson $700 billion bailout scheme.

They passed the new deep-fried version today, but it is irrelevant, except that by increasing the supply of treasuries, which are already absorbing liquidity fleeing MM and other deposit accounts which fund commercial paper, it will worsen the current credit freeze. $700bn worth of gasoline on the fire, to save Hank's $700mn in Goldman options.

Governments worldwide now face no alternative but to begin the painful process of putting the financial genie back in the bottle and re-regulating an out-of-control financial system. The failure of the UK Government and the US Government to address that fundamental issue is behind the present crisis of confidence.


A brief look at history

The Great Depression in Germany in 1931 began with a seemingly minor event—the collapse of a bank in Vienna, Creditanstalt, that May. For readers interested in more on the remarkable parallels between that crisis and that of today, I recommend the treatment in my earlier volume, A Century of War: Anglo-American Oil Politics and the New World Order.

....

The rest is history, the tragic history of the greatest most destructive war of the 20th Century, with all the suffering that ensued. At that time in history, the American banking elite saw itself, despite a stock market crash and Great Depression in America, as standing at the dawn of a new American Century.

The decline of the American Century

Today, in 2008, some 77 years later, a German Finance Minister stands before the Bundestag announcing the end of that American Century. Today the German government encourages a fusion of Dresdner with Commerzbank. Today Deutsche Bank, which some years ago acquired Bankers Trust in New York in a merger wave, appears to be in a stronger position than its American counterparts as Wall Street investment banks, some more than 150 years old as the venerable Lehman Bros., simply vanish in a matter of days. The American financial Superpower crumbles before our eyes.

....

The business of taking deposits and lending by banks had been split during the Great Depression from the business of underwriting and selling stocks and bonds—investment banking—by an act of Congress, the Glass-Steagall Act of 1933. The law was passed amid the collapse of the banking system in the United States following the bursting of the Wall Street stock market bubble in October 1929.

That Glass-Steagall act was a prudent attempt by Congress to end the uncontrolled speculative excesses of the Roaring Twenties by New York finance. It established the Federal Deposit Insurance Corporation to guarantee personal bank deposits to a fixed sum that restored consumer confidence and ended the panic runs on bank deposits.

In November 1999, after millions spent lobbying Congress, the New York banks and Wall Street investment banks and insurance companies won a staggering victory. The US Congress voted to repeal that 1933 Glass-Steagall Act. President Bill Clinton proudly signed the repeal act with Sandford Weill, the chairman of Citigroup.

The repeal allowed commercial banks such as Citigroup, then the largest US bank, to underwrite and trade new financial instruments such as Mortgage-Backed Securities (MBS) and Collateralized Debt Obligations (CDOs) and establish so-called structured investment vehicles, or SIVs, that bought those securities. Repeal of Glass-Steagall after 1999, in short, enabled the Securitization revolution so openly praised by Greenspan as the "revolution in finance." That revolution is today devouring its young.

....

Paulson’s impressive interest conflicts

The actions of Treasury Secretary Paulson since the first outbreak of the Financial Tsunami in August of 2007 have been directed with one apparent guiding aim—to save the obscene gains of his Wall Street and banking cronies. In the process he has taken steps which suggest more than a mild possible conflict of interest. Paulson, who had been chairman of Goldman Sachs from the time of the 1999 Glass-Steagall repeal to his appointment in 2006 as Treasury head, had been one of the most involved Wall Street players in the new securitization revolution of Greenspan. Naming him to head the Government agency now responsible for cleaning up the mess left by Wall Street greed and stupidity was tantamount to putting the wolf in charge of guarding the hen house as some see it.

....

In mid September, in between other dramatic failures including Lehman Bros., and the bailout of Fannie Mae and Freddie Mac, Paulson announced that the US Treasury, as agent for the United States Government, was to bailout the troubled AIG with a staggering $85 billion. The announcement came a day after Paulson announced the Government would let the 150-year old investment bank, Lehman Brothers, fail without Government aid. Why AIG and not Lehman?

What has since emerged are details of a meeting at the New York Federal Reserve bank chaired by Paulson, to discuss the risk of letting AIG fail. There was only one active Wall Street banker present at the meeting—Lloyd Blankfein, chairman of Paulson’s old firm, Goldman Sachs.

Blankfein later claimed he was present at the fateful meeting not to protect his firm’s interests but to ‘safeguard the entire financial system.’ His claim was put in doubt when it later emerged that Blankfein’s Goldman Sachs was AIG’s largest trading partner and stood to lose $20 billion in a bankruptcy of AIG. Were Goldman Sachs to go down with AIG, Secretary Paulson would have reportedly lost $700 million in Goldman Sachs stock options he had, an interesting fact.

....

Power and greed are the only visible juice driving the decision-makers in Washington today. Acting in the long-range US national interest seems to have gotten lost in the scramble. As I wrote last November in my Financial Tsunami five part series on the background to today’s crisis, all this could be foreseen. It is what happens when elected Governments abandon their public trust or responsibility to a cabal of private financial interests. It will be interesting to see if anyone in Washington realizes that lesson. Whatever next comes out of Washington, however, one thing is clear, as reflected in what German Finance Minister Peer Steinbrück told the Bundestag. This is the end of the world as we knew it. The American financial Superpower is gone. The only important question will be what and how will the alternative be.

F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press Ltd.) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (www.globalresearch.ca). He may be contacted through his website, www.engdahl.oilgeopolitics.net.

LIBOR bid only, no offer; a scramble for cash - really really scary; The Treasury Tarp plan is an irrelevance

RGE - Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs

Nouriel Roubini
|
Oct 3, 2008

It is now clear that the US financial system - and now even the
system of financing of the corporate sector - is now in cardiac arrest
and at a risk of a systemic financial meltdown. I don’t use these words
lightly but at this point we have reached the final 12th step of my
February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred).

• LIBOR bid only, no offer.
• Commercial paper market shut down, little trading and no issuance.
• Corporations have no access to long or short term credit markets -- hence they face massive rollover problems.
• Brokers are increasingly not dealing with each other.
• Even the inter-bank market is ceasing up.

We are indeed at the cardiac arrest stage and at risk of the mother of all bank and non-bank runs....

Last time Americans were sold on an imminent threat requiring unchecked executive authority, we got a bloody quagmire

The American Conservative -- Fourteen Days

As we go to press, Congress is poised to give Treasury Secretary Henry Paulson 5 percent of our GDP to make the worst possible investment. He wants taxpayers to take out Wall Street’s trash—and pay $700 billion for the privilege.

Sound familiar? Last time Americans were sold on an imminent threat requiring unchecked executive authority, we got a bloody quagmire. Now the rush is on again. Congress is balking at the massive outlay, but Representative Average, from the 4th district of Wherever, is a little fuzzy on how derivatives work. So when the Fed chairman and Treasury secretary say that if he doesn’t play along, it’s economic Armageddon—don’t forget that the election is just two months away—he’ll give them what they want.

Our friends at The Nation have discovered a kind of socialism that they don’t like, the kind that involves banks. Give the leading magazine of the Left points—it’s right about bailouts that nationalize risk while keeping profits private. William Greider calls this “Goldman Sachs Socialism,” though it turns out he favors outright communism over Paulson’s puny measures: “Washington should literally take control of the banking and finance sector and employ its emergency powers to oversee and direct these private, profit-making enterprises.”

Who’s to blame for the unfolding financial crisis? According to many conservatives, poor black people and, of course, Democrats.

National Review Online indicts President Carter’s Community Reinvestment Act for the meltdown. The CRA emboldened community organizers—like you-know-who—to force banks to make loans to uncreditworthy minorities, you see. Terry Jones of Investor’s Business Daily blames Clinton’s “multicultural housing policy” and his mandates to increase home ownership among blacks and Hispanics.

Nothing excuses politically correct credit, but did community organizers really force lenders to infect all financial markets by repackaging their bad mortgages into securities? Did poor blacks invent credit default swaps?

  The neocons are a treasonous pack of swine, but these paleo-conservatives at The American Conservative Magazine seem like a pretty decent bunch of folks on the whole. I'm mostly more in agreement with The Nation, and it is nice to see it regarded cordially by the paleo-cons. I've long since concluded that if there is any hope for the US, it lies in an alliance between the Left and paleo-cons (Ron Paul, for example) with an agreement to disagree on things like socialised medicing and so forth and settle such issues once the country is saved from the neocons and the Fascists for Jesus and the like.

Nouriel Roubini: Wash, rinse, repeat, lose your house: a universe-eating financial black hole.

Nouriel Roubini:

I was today on a webcast conference call organized by RiskMetrics together with Barry Ritholtz and Zach Gast.

The events of the last few weeks say we’re one accident away from a systemic financial meltdown,” says Roubini. He points to previous accidents that nearly caused a universe-eating financial black hole: Bear Stearns in March, Fannie and Freddie in July and Lehman and AIG a couple of weeks ago. “We’re seeing the beginning of a silent run on the shadow and traditional banking system,” he says. “There’s a generalized panic” in the financial markets.

“We are literally one step away from collapse of entire financial system and even the corporate system.”

Barry Ritholtz:

This is shaping up to be a “generational bear market,”not a typical bear market. We have a severe recession, with a credit
crunch. We’re just starting to see the effects of credit on the real economy.

“My concern is what disaster are we gonna be dealing with 3, 4, 5 years from now that will be the consequences of giving Wall Street’s most reckless players a pass?”

Zach Gast at RiskMetrics:

There are loans still sitting, overpriced, on bank books. When you
move away from fair-value accounting, people lose confidence in your
numbers and it gets harder to get capital. Moving away from mark-to-market accounting, as the banking sector seems anxious to do, will be a net negative for banks.

“Many institutions would be insolvent if we fully fair-valued their assets,” says Gast.

This bailout is probably best for the money center banks. They’re the ones holding trading securities. They’ve already taken the hits to
earnings. This hurts the regional banks and others still holding assets at cost basis. Setting a lower market price will hurt their capital
adequacy in “a big way.

What a surprise. Good for the money-centers (Citi Bank of Goldman America), makes the smaller fish more digestible. Is it just that the Bush-Neocon Crime Gang will keep on looting even if the building is on fire, or something more? 9-1-1 was really essential to them, "a latter-day Pearl Harbor", without which they couldn't have executed the long-planned attacks on Iraq and the Constitution; is the current decompensation of the financial system, accompanied by massive consolidation in banking and concentration of wealth, yet another essential Pearl Harbor?