Food Rationing Begins in America
Fox KPTM 42 News
April 21, 2008
OMAHA (KPTM) - Food shortages and rationing has been a third-world problem as of late, but recently, the phenomenon once thought unthinkable in the United States could start happening.
The New York Sun newspaper is reporting that major retailers on both coasts are limiting customers’ purchases of flour, rice and cooking oil.
The Sun reports that a Costco Warehouse in California ran out of rice, frustrating shoppers. “Where’s the rice?” an engineer from Palo Alto, Calif., Yajun Liu, said. “You should be able to buy something like rice. This is ridiculous.”
The rice that is left is selling at near one dollar a pound, and in some areas, customers report paying about $30 for a 25-pound bag.
Most Costco members were only allowed to buy only one bag. One clerk reportedly dropped two sacks back on the stack after taking them from a customer who tried to buy more than the one bag limit.
“Due to the limited availability of rice, we are limiting rice purchases based on your prior purchasing history,” a sign above the dwindling supply said, the Sun reports.
Shoppers said the limits had been in place for a few days, and that rice supplies had been spotty for a few weeks. A store manager referred questions to officials at Costco headquarters near Seattle, who did not return calls or e-mail messages to the Sun.
A New York Costco reportedly was not restricting rice, but is limiting oil and flour. Rumors floating on the Internet say that bakery owners bought up flour at warehouse stores after their commercial suppliers doubled their prices.
Spiking food prices have led to riots in recent weeks in Haiti, Indonesia, and several African nations. India recently banned export of all but the highest quality rice, and Vietnam blocked the signing of a new contract for foreign rice sales.
The price of rice futures reached record highs in recent days, after skyrocketing over the past two months. The price of wheat in the futures market has been down.
The paper reports that there have been rumors of some buying limits at Sam’s Club warehouses, owned by Wal-mart, but the company says it is not aware of any shortages or limits.
Tuesday, April 22, 2008
Wednesday, April 16, 2008
The Competitive Edge -- A Manufacturing To-Do List for the Next President
The manufacturing sector could be the engine propelling us out of recession -- but do the candidates recognize that potential?
Thursday, May 01, 2008
By Thomas J. Duesterberg
Industry Week
Apart from jibes about losing out to unfair foreign competition and unpatriotic corporate leaders, the 2008 presidential campaign has paid little attention to manufacturing. Given the current perilous state of the U.S. economy, this is surprising. There are good reasons we should expect a closer look at what could help manufacturing in the years ahead.
As we anticipate a recovery from the current recession, the economy is likely to be driven by different motors than in the recent past. Residential construction (and related sectors) will not repeat the kind of boom we saw in the last 15 years. Moreover, consumers will have to find another prop than home equity loans to support their relentless march on the shopping malls and auto showrooms. And Wall Street will have to find a different cash cow than housing finance. With a looming return to record government budget deficits, priming the pump with fiscal policy is also increasingly unrealistic.
Manufacturing has been something of a laggard in the growth picture -- until the last two years. As the current crisis has unfolded, the dollar has steadily lost value. Fortunately, growth outside the United States, led by India, China and Southeast Asia, has picked up the pace. According to economist David Hale, developing countries accounted for 52% of global growth in 2007, and consumer purchasing power in these countries is now about two-thirds that of the United States. All of this is good news for lean and innovative U.S. manufacturers who have chalked up annual export growth of 12% since 2003. Total manufactured goods exports should grow again by double digits in 2008 to over $1 trillion, and the trade account will be a positive addition to U.S. GDP in both 2007 and 2008, for the first time since 1991.
So manufacturing is poised to remain a solid pillar of the U.S. growth machine in coming years. It already is the source of the vast majority of new research and development spending and of patents granted in the United States. We will probably see a halt or even a reversal of the long-term decline of manufacturing as a portion of GDP due to soaring goods exports .... Read the Entire Article
Thursday, May 01, 2008
By Thomas J. Duesterberg
Industry Week
Apart from jibes about losing out to unfair foreign competition and unpatriotic corporate leaders, the 2008 presidential campaign has paid little attention to manufacturing. Given the current perilous state of the U.S. economy, this is surprising. There are good reasons we should expect a closer look at what could help manufacturing in the years ahead.
As we anticipate a recovery from the current recession, the economy is likely to be driven by different motors than in the recent past. Residential construction (and related sectors) will not repeat the kind of boom we saw in the last 15 years. Moreover, consumers will have to find another prop than home equity loans to support their relentless march on the shopping malls and auto showrooms. And Wall Street will have to find a different cash cow than housing finance. With a looming return to record government budget deficits, priming the pump with fiscal policy is also increasingly unrealistic.
Manufacturing has been something of a laggard in the growth picture -- until the last two years. As the current crisis has unfolded, the dollar has steadily lost value. Fortunately, growth outside the United States, led by India, China and Southeast Asia, has picked up the pace. According to economist David Hale, developing countries accounted for 52% of global growth in 2007, and consumer purchasing power in these countries is now about two-thirds that of the United States. All of this is good news for lean and innovative U.S. manufacturers who have chalked up annual export growth of 12% since 2003. Total manufactured goods exports should grow again by double digits in 2008 to over $1 trillion, and the trade account will be a positive addition to U.S. GDP in both 2007 and 2008, for the first time since 1991.
So manufacturing is poised to remain a solid pillar of the U.S. growth machine in coming years. It already is the source of the vast majority of new research and development spending and of patents granted in the United States. We will probably see a halt or even a reversal of the long-term decline of manufacturing as a portion of GDP due to soaring goods exports .... Read the Entire Article
Oil nears $115 a barrel
Apr 16, 2008 12:06 PM
THE ASSOCIATED PRESS
NEW YORK – Gasoline and oil futures prices rocketed to new records Wednesday, propelled by concerns about how much gas will be available during the peak summer months. Crude futures approached US$115 for the first time.
Gas futures prices set records after the Energy Department's Energy Information Administration reported that supplies of the fuel fell by 5.5 million barrels last week, much more than analysts surveyed by Dow Jones Newswires had expected.
The report raised concerns that there won't be enough gasoline to meet demand this summer. May gasoline futures rose 3.58 cents to $2.9168 a gallon on the New York Mercantile Exchange after earlier rising to a trading record of $2.933.
Meanwhile, oil futures rose to a new trading high of US$114.95 after the report said crude inventories fell by 2.3 million barrels last week, compared to the gain analysts expected.
Light, sweet crude for May delivery was up 60 cents at $114.39 a barrel on the Nymex by late morning.
The EIA also reported that inventories of distillates, which included heating oil and diesel, unexpectedly rose last week by about 100,000 barrels. Analysts had expected a sharp decline. That news sent May heating oil futures 0.48 cent lower to $2.2691 a gallon on the Nymex.
At the pump, meanwhile, the U.S. national average price of a gallon of regular unleaded gas rose 1.3 cents Wednesday to a record US$3.399 a gallon – about 89.5 cents US a litre – according to a survey of stations by AAA and the Oil Price Information Service. That's 53 cents higher than a year ago, and is expected to keep climbing along with futures prices and as the summer driving season draws near.
The average national U.S. price of a gallon of diesel, meanwhile, rose a cent to a record $4.129 a gallon, the survey showed.
In Canada, a weekly survey by Calgary-based MJ Ervin & Associates Inc. reported an average price of gasoline in Canada of C$1.185 per litre, up 2.3 cents from a week ago. It was the highest weekly price since September 2005, when pump prices hit $1.26 per litre.
The price in Vancouver was $1.223 per litre, up 0.4 of a cent, while the price in Calgary was $1.153, down 0.1 of a cent. In Toronto, the price was $1.152 per litre, up 3.1 cents.
THE ASSOCIATED PRESS
NEW YORK – Gasoline and oil futures prices rocketed to new records Wednesday, propelled by concerns about how much gas will be available during the peak summer months. Crude futures approached US$115 for the first time.
Gas futures prices set records after the Energy Department's Energy Information Administration reported that supplies of the fuel fell by 5.5 million barrels last week, much more than analysts surveyed by Dow Jones Newswires had expected.
The report raised concerns that there won't be enough gasoline to meet demand this summer. May gasoline futures rose 3.58 cents to $2.9168 a gallon on the New York Mercantile Exchange after earlier rising to a trading record of $2.933.
Meanwhile, oil futures rose to a new trading high of US$114.95 after the report said crude inventories fell by 2.3 million barrels last week, compared to the gain analysts expected.
Light, sweet crude for May delivery was up 60 cents at $114.39 a barrel on the Nymex by late morning.
The EIA also reported that inventories of distillates, which included heating oil and diesel, unexpectedly rose last week by about 100,000 barrels. Analysts had expected a sharp decline. That news sent May heating oil futures 0.48 cent lower to $2.2691 a gallon on the Nymex.
At the pump, meanwhile, the U.S. national average price of a gallon of regular unleaded gas rose 1.3 cents Wednesday to a record US$3.399 a gallon – about 89.5 cents US a litre – according to a survey of stations by AAA and the Oil Price Information Service. That's 53 cents higher than a year ago, and is expected to keep climbing along with futures prices and as the summer driving season draws near.
The average national U.S. price of a gallon of diesel, meanwhile, rose a cent to a record $4.129 a gallon, the survey showed.
In Canada, a weekly survey by Calgary-based MJ Ervin & Associates Inc. reported an average price of gasoline in Canada of C$1.185 per litre, up 2.3 cents from a week ago. It was the highest weekly price since September 2005, when pump prices hit $1.26 per litre.
The price in Vancouver was $1.223 per litre, up 0.4 of a cent, while the price in Calgary was $1.153, down 0.1 of a cent. In Toronto, the price was $1.152 per litre, up 3.1 cents.
Sunday, April 13, 2008
Want to Save the Economy?
Want to Save the Economy?
By Mike Whitney
CounterpunchApril 13, 2008
Insolvency’s dark shadow hangs over Wall Street. One major player, Bear Stearns, has already gone under, and from the looks of it, another investment giant may be on the way down. It’s getting ugly out there. The so-called TED spread*, which measures the reluctance of banks to lend to each other, has begun to widen ominously suggesting that the money markets think another dead body will be floating to the surface any day now.
The ongoing deleveraging of financial institutions and the persistent downgrading of assets has the Fed in a tizzy. Bernanke has backed himself into a corner by stretching the Fed’s mandate to include everyone on Wall Street with a mailing address and a begging bowl. Now he’s taken on the even larger task of fixing the plumbing that keeps credit flowing between the various investment banks. Good luck. There’s plenty of more pain ahead. The IMF expects the final tally will be $945 billion, that means $3 trillion in lost loans for the banks. Bernanke better pace himself; this mess could last for years.
The US subprime fiasco has spiraled into what the IMF is calling "the largest financial shock since the Great Depression." America’s capital markets are on the fritz. The corporate bond market is frozen, the banks are buckling from their losses, and the housing market is in a shambles. No one is buying and no one is lending. Private equity deals are off 75 per cent from last year and no one will touch a mortgage-backed security (MBS) with a ten foot pole. The mighty wheel of modern finance is grinding to a standstill and no one’s quite sure how to rev it up again.
The US consumers are feeling the pinch, too. Credit cards are maxed out, student loans overdue, car payments in arrears, and mortgages entering foreclosure. Also, wages haven’t kept pace with production and and the home-equity ATM has been shut down. Now that the credit tap has been turned off; the American worker is hurting, but no one is offering a bailout or a even helping hand; just a few table-scraps from Bush’s "surplus package". 500 bucks will just about fill the tank of a normal-sized SUV. A new survey from the Pew research Center "Inside the Middle Class-Bad Times Hit the Good Life", shows that working families are in debt up to their ears and that fewer Americans "believe they are moving forward" than anytime in the last half century. The study also shows that most people believe "it’s harder to maintain a middle class life style" and that "since 1999, they have not made economic gains." Average families are struggling just to make ends meet.
That’s why so many people bought homes when they should have opened savings accounts. They were duped into speculating on housing so they could get a chunk of money. It looked like a good way to overcome stagnant wages and crappy hours. The cheer-leading TV pundits offered assurances that "housing prices never go down". It was all baloney. Now 15 million homeowners are upside-down on their mortgages and the very same experts are scolding workers for fudging the facts on their income disclosure forms. It’s all backwards.
No wonder consumer confidence has dropped to record lows. Working people don’t need lectures on saving money; they need a raise. The big-wigs at Bear Stearns are still dining on crab-cakes at the Four Seasons while the working folk are just trying to make their way through Greenspan’s nuclear winter living on beef jerky and Big Gulps. Where’s the justice?
Volumes have been written about the current crisis; subprime-this, subprime that. Everything that can be said about collateralized debt obligations (CDOs) credit default swaps(CDS) and mortgage-backed securities (MBS) has already been said. Yes, they are exotic "financial innovations" and, no, they are not regulated. But what difference does that make? There’s always been snake oil and there have always been snake oil salesmen. Greenspan simply raised the bar a notch, but he’s not the first huckster and he won’t be the last. What really matters is underlying ideology; that’s the root from which this economy-busting hydra sprung. 30 years of trickle down, supply-side gibberish; 30 years of idol worship for the waxy-haired reactionary, Ronald Reagun; 30 years of unrelenting anti-labor, free market, deregulated orthodoxy which inflated the biggest equity-Zeppelin in history.
Now the bubble is hissing out of the blimp and the escaping gas is wreaking havoc across the planet. There are food riots in Haiti, Egypt, and Kuwait. Wherever the local currency is pegged to the falling dollar, inflation is soaring and trouble is brewing. Also, European banks are listing from the mortgage-backed garbage they bought from brokerages in the US and need central bank bailouts to stay afloat. It’s just more fallout from the subprime swindle. Finance ministers in every capital in every country are getting ready for a 1930’s-type typhoon that could send equities crashing and food and energy prices rocketing into the stratosphere. And it can all be traced back to the wacko doctrines of neoliberalism. These are the theories that guide America’s "screw-thy-neighbor" monetary policies and spread financial turmoil to every city and hamlet around the world.
The present stewards of the system are incapable of fixing the problem because they represent the interests of the people who benefit most from the disruptions. Paulson’s latest "blueprint" for the financial markets is a good example; a more pro-business, self-serving scheme has never been put to paper. Gary North sums it up in his article "Really Stupid Loans":
"With the Federal Reserve System’s latest proposal, presented to the public by Secretary of the Treasury Henry "Goldman Sachs" Paulson, the Fed is asking the United States government to make it the Great Protector of Capital….The new proposals will centralize power over finance in the hands of an agency that is officially run by the government but in fact is run by agents of the largest fractional reserve banks. …Regulation by tenured staff economists will not make the system less fragile. It will make it more top-heavy and less flexible..
"Some version of this plan will probably pass in the next Congress. No matter whether it does or does not, the direction is the same: toward an economy controlled by the federal government in conjunction with titular private ownership of the means of production, that is, toward fascism."
(Gary North, "Really Stupid loans" lewrockwell.com)
The whole point is to put the markets in the Fed’s control so that when the next financial crisis arises (from the next swindle) the Fed can bailout the bankers and hedge fund managers without consulting Congress.
Paulson’s plan is a power-play; nothing more. The investment Mafia wants to take over the whole financial system lock, stock and barrel. They want to liquidate the SEC and any other government watchdog and put the investment banks, hedge funds and brokerages on the honor system. It’s the end of transparency and accountability which, of course, are already in short supply.
Currently, Paulson and Bernanke are expanding the balance sheets of the Government Sponsored Enterprises (GSEs) so that Fannie Mae and Freddie Mac will underwrite 85 per cent of all mortgages while FHA will cover 10 per cent more. The mortgage industry is being nationalized to save banking fellowship while the taxpayer is on the hook for another $4.4 trillion of dodgy loans. Paulson doesn’t care if the taxpayer gets stuck with the bill. What bothers him is the prospect that, somewhere along the line, workers will demand higher wages to keep pace with inflation. Then all hell will break loose. Paulson and Co. would rather see the economy perish in a deflationary holocaust than add another farthing to a working person’s salary. He and his ilk take class warfare seriously; that’s why they are winning. But their strategy also creates problems. When wages don’t keep pace with production, demand decreases and the economy falters. That’s what’s happening now and Paulson knows it. Workers are over-extended and can’t buy the things they make. They barely have enough to feed the kids and fill the tank for work. Consumer spending (which is 72 per cent of GDP) is nose-diving at the very same time the Fed’s equity bubble is exploding.
Neoliberalism has a twenty-year record of producing the very same economic calamities. Why is this crisis different? Why should the US be spared the same predatory treatment as the many other victims of the global corporate oligarchy? After the Fed’s equity bubble bursts, the corporate vultures will swoop down and buy up vital resources and industries for pennies on the dollar.
Economist Michael Hudson anticipated many of the present-day developments in the financial markets in an amazingly prescient interview in CounterPunch in 2003 called "The Coming Financial Reality":
Michael Hudson: "Free enterprise under today’s financial conditions threatens to bring about an unprecedented centralization of planning, not in the hands of government but by the financial conglomerates and money managers. Whatever government planning power is destroyed becomes available for them to appropriate, with plenty of vigorish left for the politicians whose campaigns they back and who will "descend from heaven" into high-paying private-sector jobs, Japanese style, after having performed their service for the new regime.
Question: The financial regime is nothing but parasites?
Michael Hudson: "The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host’s brain as well. The parasite tricks the host into thinking that it is feeding itself.
"Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called ‘wealth creation,’ as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry." (Michael Hudson, "The Coming Financial Reality", counterpunch, interviewed by Standard Schaefer.)
Bingo. Hudson not only explains how finance capitalism is inserting itself into the governmental power structure but, also predicts that "industrial capital formation" — which is the production of things that people can really use to improve their lives — will be replaced with complex debt-instruments and derivatives that add no tangible value to people’s lives and merely serve to expand the wealth of an entrenched and increasingly powerful investor class.
Finance capitalism has "devoured landlord and industrialist alike" and created a galaxy of seductive liabilities which masquerade as assets. Derivatives contracts, for example, represent over $500 trillion of unregulated counterparty transactions; a "shadow banking system" completely disconnected from the underlying "real" economy, but large enough to send the world into a agonizing depression for years to come.
The goal should be to dismantle this corrupt Ponzi-system, which merely wraps debt in a ribbon, and rebuild the economy on a solid foundation of productive labor, worker solidarity and and above all the redistribution of income and hence purchasing power away from the system which now flow to the top two or three per cent.
Political power has to be taken from the financial mandarins or the disparity of wealth will continue to grow and democracy will wither. We’ve already seen our main institutions — the courts, the congress, the media, and the presidency — polluted by the steady flow of corporate contributions which only serve the narrow interests of elites.
Henry Liu expands on this idea in his excellent article "A Panic-stricken Federal Reserve":
"In the 1920s, the wide disparity of wealth between the rich and the average wage earner increased the vulnerability of the economy. For an economy to function with stability on a macro scale, total demand needs to equal total supply. Disparity of income eventually will result in demand deficiency, causing over-supply. The extension of credit to consumers can extend the supply/demand imbalance but if credit is extended beyond the ability of income to sustain, a debt bubble will result that will inevitably burst with economic pain that can only be relieved by inflation…..More investment normally increases productivity. However, if the rewards of the increased productivity are not distributed fairly to workers, production will soon outpace demand. The search for high returns in a low demand market will lead to consumer debt bubbles with wide-spread speculation …. Today, outstanding consumer credit besides home mortgages adds up to about $14 trillion, about the same as the annual GDP. "
Voila. A strong economy requires a strong workforce and an equitable distribution of wealth. When money is concentrated in too few hands, the political system atrophies and becomes unresponsive to the needs of its people. That’s when the nation’s laws and institutions are reshaped to reflect the ambitions of rich and powerful.
The financial system is doing exactly what it was designed to do, it is crumbling from the decades-long trickle-down experiment. Social programs have been gutted, civil infrastructure is in tatters, legal protections have been savaged, and workers rights have been trounced. Is it any wonder why we’re embroiled in an unwinnable war and the financial system is on its last legs?
The only way to break the stranglehold of Wall Street’s financial Politburo is to level the playing field through greater wealth distribution. That’s the best way to rekindle democracy and make America the land of opportunity again. And it all starts with giving America’s workers a raise.
*Initially, the TED spread was the difference between the interest rate for the three month U.S. Treasuries contract and three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped the T-bill futures, the TED spread is now calculated as the difference between the T-bill interest rate and LIBOR. The TED spread is a measure of liquidity and shows the flow of dollars into and out of the United States (Wikipedia).
By Mike Whitney
CounterpunchApril 13, 2008
Insolvency’s dark shadow hangs over Wall Street. One major player, Bear Stearns, has already gone under, and from the looks of it, another investment giant may be on the way down. It’s getting ugly out there. The so-called TED spread*, which measures the reluctance of banks to lend to each other, has begun to widen ominously suggesting that the money markets think another dead body will be floating to the surface any day now.
The ongoing deleveraging of financial institutions and the persistent downgrading of assets has the Fed in a tizzy. Bernanke has backed himself into a corner by stretching the Fed’s mandate to include everyone on Wall Street with a mailing address and a begging bowl. Now he’s taken on the even larger task of fixing the plumbing that keeps credit flowing between the various investment banks. Good luck. There’s plenty of more pain ahead. The IMF expects the final tally will be $945 billion, that means $3 trillion in lost loans for the banks. Bernanke better pace himself; this mess could last for years.
The US subprime fiasco has spiraled into what the IMF is calling "the largest financial shock since the Great Depression." America’s capital markets are on the fritz. The corporate bond market is frozen, the banks are buckling from their losses, and the housing market is in a shambles. No one is buying and no one is lending. Private equity deals are off 75 per cent from last year and no one will touch a mortgage-backed security (MBS) with a ten foot pole. The mighty wheel of modern finance is grinding to a standstill and no one’s quite sure how to rev it up again.
The US consumers are feeling the pinch, too. Credit cards are maxed out, student loans overdue, car payments in arrears, and mortgages entering foreclosure. Also, wages haven’t kept pace with production and and the home-equity ATM has been shut down. Now that the credit tap has been turned off; the American worker is hurting, but no one is offering a bailout or a even helping hand; just a few table-scraps from Bush’s "surplus package". 500 bucks will just about fill the tank of a normal-sized SUV. A new survey from the Pew research Center "Inside the Middle Class-Bad Times Hit the Good Life", shows that working families are in debt up to their ears and that fewer Americans "believe they are moving forward" than anytime in the last half century. The study also shows that most people believe "it’s harder to maintain a middle class life style" and that "since 1999, they have not made economic gains." Average families are struggling just to make ends meet.
That’s why so many people bought homes when they should have opened savings accounts. They were duped into speculating on housing so they could get a chunk of money. It looked like a good way to overcome stagnant wages and crappy hours. The cheer-leading TV pundits offered assurances that "housing prices never go down". It was all baloney. Now 15 million homeowners are upside-down on their mortgages and the very same experts are scolding workers for fudging the facts on their income disclosure forms. It’s all backwards.
No wonder consumer confidence has dropped to record lows. Working people don’t need lectures on saving money; they need a raise. The big-wigs at Bear Stearns are still dining on crab-cakes at the Four Seasons while the working folk are just trying to make their way through Greenspan’s nuclear winter living on beef jerky and Big Gulps. Where’s the justice?
Volumes have been written about the current crisis; subprime-this, subprime that. Everything that can be said about collateralized debt obligations (CDOs) credit default swaps(CDS) and mortgage-backed securities (MBS) has already been said. Yes, they are exotic "financial innovations" and, no, they are not regulated. But what difference does that make? There’s always been snake oil and there have always been snake oil salesmen. Greenspan simply raised the bar a notch, but he’s not the first huckster and he won’t be the last. What really matters is underlying ideology; that’s the root from which this economy-busting hydra sprung. 30 years of trickle down, supply-side gibberish; 30 years of idol worship for the waxy-haired reactionary, Ronald Reagun; 30 years of unrelenting anti-labor, free market, deregulated orthodoxy which inflated the biggest equity-Zeppelin in history.
Now the bubble is hissing out of the blimp and the escaping gas is wreaking havoc across the planet. There are food riots in Haiti, Egypt, and Kuwait. Wherever the local currency is pegged to the falling dollar, inflation is soaring and trouble is brewing. Also, European banks are listing from the mortgage-backed garbage they bought from brokerages in the US and need central bank bailouts to stay afloat. It’s just more fallout from the subprime swindle. Finance ministers in every capital in every country are getting ready for a 1930’s-type typhoon that could send equities crashing and food and energy prices rocketing into the stratosphere. And it can all be traced back to the wacko doctrines of neoliberalism. These are the theories that guide America’s "screw-thy-neighbor" monetary policies and spread financial turmoil to every city and hamlet around the world.
The present stewards of the system are incapable of fixing the problem because they represent the interests of the people who benefit most from the disruptions. Paulson’s latest "blueprint" for the financial markets is a good example; a more pro-business, self-serving scheme has never been put to paper. Gary North sums it up in his article "Really Stupid Loans":
"With the Federal Reserve System’s latest proposal, presented to the public by Secretary of the Treasury Henry "Goldman Sachs" Paulson, the Fed is asking the United States government to make it the Great Protector of Capital….The new proposals will centralize power over finance in the hands of an agency that is officially run by the government but in fact is run by agents of the largest fractional reserve banks. …Regulation by tenured staff economists will not make the system less fragile. It will make it more top-heavy and less flexible..
"Some version of this plan will probably pass in the next Congress. No matter whether it does or does not, the direction is the same: toward an economy controlled by the federal government in conjunction with titular private ownership of the means of production, that is, toward fascism."
(Gary North, "Really Stupid loans" lewrockwell.com)
The whole point is to put the markets in the Fed’s control so that when the next financial crisis arises (from the next swindle) the Fed can bailout the bankers and hedge fund managers without consulting Congress.
Paulson’s plan is a power-play; nothing more. The investment Mafia wants to take over the whole financial system lock, stock and barrel. They want to liquidate the SEC and any other government watchdog and put the investment banks, hedge funds and brokerages on the honor system. It’s the end of transparency and accountability which, of course, are already in short supply.
Currently, Paulson and Bernanke are expanding the balance sheets of the Government Sponsored Enterprises (GSEs) so that Fannie Mae and Freddie Mac will underwrite 85 per cent of all mortgages while FHA will cover 10 per cent more. The mortgage industry is being nationalized to save banking fellowship while the taxpayer is on the hook for another $4.4 trillion of dodgy loans. Paulson doesn’t care if the taxpayer gets stuck with the bill. What bothers him is the prospect that, somewhere along the line, workers will demand higher wages to keep pace with inflation. Then all hell will break loose. Paulson and Co. would rather see the economy perish in a deflationary holocaust than add another farthing to a working person’s salary. He and his ilk take class warfare seriously; that’s why they are winning. But their strategy also creates problems. When wages don’t keep pace with production, demand decreases and the economy falters. That’s what’s happening now and Paulson knows it. Workers are over-extended and can’t buy the things they make. They barely have enough to feed the kids and fill the tank for work. Consumer spending (which is 72 per cent of GDP) is nose-diving at the very same time the Fed’s equity bubble is exploding.
Neoliberalism has a twenty-year record of producing the very same economic calamities. Why is this crisis different? Why should the US be spared the same predatory treatment as the many other victims of the global corporate oligarchy? After the Fed’s equity bubble bursts, the corporate vultures will swoop down and buy up vital resources and industries for pennies on the dollar.
Economist Michael Hudson anticipated many of the present-day developments in the financial markets in an amazingly prescient interview in CounterPunch in 2003 called "The Coming Financial Reality":
Michael Hudson: "Free enterprise under today’s financial conditions threatens to bring about an unprecedented centralization of planning, not in the hands of government but by the financial conglomerates and money managers. Whatever government planning power is destroyed becomes available for them to appropriate, with plenty of vigorish left for the politicians whose campaigns they back and who will "descend from heaven" into high-paying private-sector jobs, Japanese style, after having performed their service for the new regime.
Question: The financial regime is nothing but parasites?
Michael Hudson: "The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host’s brain as well. The parasite tricks the host into thinking that it is feeding itself.
"Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called ‘wealth creation,’ as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry." (Michael Hudson, "The Coming Financial Reality", counterpunch, interviewed by Standard Schaefer.)
Bingo. Hudson not only explains how finance capitalism is inserting itself into the governmental power structure but, also predicts that "industrial capital formation" — which is the production of things that people can really use to improve their lives — will be replaced with complex debt-instruments and derivatives that add no tangible value to people’s lives and merely serve to expand the wealth of an entrenched and increasingly powerful investor class.
Finance capitalism has "devoured landlord and industrialist alike" and created a galaxy of seductive liabilities which masquerade as assets. Derivatives contracts, for example, represent over $500 trillion of unregulated counterparty transactions; a "shadow banking system" completely disconnected from the underlying "real" economy, but large enough to send the world into a agonizing depression for years to come.
The goal should be to dismantle this corrupt Ponzi-system, which merely wraps debt in a ribbon, and rebuild the economy on a solid foundation of productive labor, worker solidarity and and above all the redistribution of income and hence purchasing power away from the system which now flow to the top two or three per cent.
Political power has to be taken from the financial mandarins or the disparity of wealth will continue to grow and democracy will wither. We’ve already seen our main institutions — the courts, the congress, the media, and the presidency — polluted by the steady flow of corporate contributions which only serve the narrow interests of elites.
Henry Liu expands on this idea in his excellent article "A Panic-stricken Federal Reserve":
"In the 1920s, the wide disparity of wealth between the rich and the average wage earner increased the vulnerability of the economy. For an economy to function with stability on a macro scale, total demand needs to equal total supply. Disparity of income eventually will result in demand deficiency, causing over-supply. The extension of credit to consumers can extend the supply/demand imbalance but if credit is extended beyond the ability of income to sustain, a debt bubble will result that will inevitably burst with economic pain that can only be relieved by inflation…..More investment normally increases productivity. However, if the rewards of the increased productivity are not distributed fairly to workers, production will soon outpace demand. The search for high returns in a low demand market will lead to consumer debt bubbles with wide-spread speculation …. Today, outstanding consumer credit besides home mortgages adds up to about $14 trillion, about the same as the annual GDP. "
Voila. A strong economy requires a strong workforce and an equitable distribution of wealth. When money is concentrated in too few hands, the political system atrophies and becomes unresponsive to the needs of its people. That’s when the nation’s laws and institutions are reshaped to reflect the ambitions of rich and powerful.
The financial system is doing exactly what it was designed to do, it is crumbling from the decades-long trickle-down experiment. Social programs have been gutted, civil infrastructure is in tatters, legal protections have been savaged, and workers rights have been trounced. Is it any wonder why we’re embroiled in an unwinnable war and the financial system is on its last legs?
The only way to break the stranglehold of Wall Street’s financial Politburo is to level the playing field through greater wealth distribution. That’s the best way to rekindle democracy and make America the land of opportunity again. And it all starts with giving America’s workers a raise.
*Initially, the TED spread was the difference between the interest rate for the three month U.S. Treasuries contract and three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped the T-bill futures, the TED spread is now calculated as the difference between the T-bill interest rate and LIBOR. The TED spread is a measure of liquidity and shows the flow of dollars into and out of the United States (Wikipedia).
Saturday, April 12, 2008
CREDIT DEFAULT SWAPS:DERIVATIVE DISASTER DU JOUR
By Ellen Brown
April 10th, 2008
http://www.webofdebt.com/articles/derivative-disaster.php Post your comments here
When the smartest guys in the room designed their credit default swaps, they forgot to ask one thing – what if the parties on the other side of the bet don't have the money to pay up? Credit default swaps (CDS) are insurance-like contracts that are sold as protection against default on loans, but CDS are not ordinary insurance. Insurance companies are regulated by the government, with reserve requirements, statutory limits, and examiners routinely showing up to check the books to make sure the money is there to cover potential claims. CDS are private bets, and the Federal Reserve from the time of Alan Greenspan has insisted that regulators keep hands off. The sacrosanct free market would supposedly regulate itself. The problem with that approach is that regulations are just rules. If there are no rules, the players can cheat; and cheat they have, with a gambler's addiction. In December 2007, the Bank for International Settlements reported derivative trades tallying in at $681 trillion – ten times the gross domestic product of all the countries in the world combined. Somebody is obviously bluffing about the money being brought to the game, and that realization has made for some very jittery markets.
"Derivatives" are complex bank creations that are very hard to understand, but the basic idea is that you can insure an investment you want to go up by betting it will go down. The simplest form of derivative is a short sale: you can place a bet that some asset you own will go down, so that you are covered whichever way the asset moves. Credit default swaps are the most widely traded form of credit derivative. They are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the "protection buyer" gets a large payoff if the company defaults within a certain period of time, while the "protection seller" collects periodic payments for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to speculate on market changes. In one blogger's example, a hedge fund wanting to increase its profits could sit back and collect $320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims. And there's the catch: what if the hedge fund doesn't have the $100 million? The fund's corporate shell or limited partnership is put into bankruptcy, but that hardly helps the "protection buyers" who thought they were covered.
To the extent that CDS are being sold as "insurance," they are looking more like insurance fraud; and that fact has particularly hit home with the ratings downgrades of the "monoline" insurers and the recent collapse of Bear Stearns, a leading Wall Street investment brokerage. The monolines are so-called because they are allowed to insure only one industry, the bond industry. Monoline bond insurers are the biggest protection writers for CDS, and Bear Stearns was the twelfth largest counterparty to credit default swap trades in 2006.1 These players have been major protection sellers in a massive web of credit default swaps, and when the "protection" goes, the whole fragile derivative pyramid will go with it. The collapse of the derivative monster thus appears to be both imminent and inevitable, but that fact need not be cause for despair. The $681 trillion derivatives trade is the last supersized bubble in a 300-year Ponzi scheme, one that has now taken over the entire monetary system. The nation's wealth has been drained into private vaults, leaving scarcity in its wake. It is a corrupt system, and change is long overdue. Major crises are major opportunities for change.
The Wall Street Ponzi Scheme
The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.2 The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers' private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are "all borrowed up."
When the banks ran out of creditworthy borrowers, they had to turn to uncreditworthy "subprime" borrowers; and to avoid losses from default, they moved these risky mortgages off their books by bundling them into "securities" and selling them to investors. To induce investors to buy, these securities were then "insured" with credit default swaps. But the housing bubble itself was another Ponzi scheme, and eventually there were no more borrowers to be sucked in at the bottom who could afford the ever-inflating home prices. When the subprime borrowers quit paying, the investors quit buying mortgage-backed securities. The banks were then left holding their own suspect paper; and without triple-A ratings, there is little chance that buyers for this "junk" will be found. The crisis is not, however, in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people's money.
The Derivatives Chernobyl
The latest jolt to the massive derivatives edifice came with the collapse of Bear Stearns on March 16, 2008. Bear Stearns helped fuel the explosive growth in the credit derivative market, where banks, hedge funds and other investors have engaged in $45 trillion worth of bets on the credit-worthiness of companies and countries. Before it collapsed, Bear was the counterparty to $13 trillion in derivative trades. On March 14, 2008, Bear's ratings were downgraded by Moody's, a major rating agency; and on March 16, the brokerage was bought by JPMorgan for pennies on the dollar, a token buyout designed to avoid the legal complications of bankruptcy. The deal was backed by a $29 billion "non-recourse" loan from the Federal Reserve. "Non-recourse" meant that the Fed got only Bear's shaky paper assets as collateral. If those proved to be worthless, JPM was off the hook. It was an unprecedented move, of questionable legality; but it was said to be justified because, as one headline put it, "Fed's Rescue of Bear Halted Derivatives Chernobyl." The notion either that Bear was "rescued" or that the Chernobyl was halted, however, was grossly misleading. The CEOs managed to salvage their enormous bonuses, but it was a "bailout" only for JPM and Bear's creditors. For the shareholders, it was a wipeout. Their stock initially dropped from $156 to $2, and 30 percent of it was held by the employees. Another big chunk was held by the pension funds of teachers and other public servants. The share price was later raised to $10 a share in response to shareholder outrage, but the shareholders were still essentially wiped out; and the fact that one Wall Street bank had to be fed to the lions to rescue the others hardly inspires a feeling of confidence. Neutron bombs are not so easily contained.
The Bear Stearns hit from the derivatives iceberg followed an earlier one in January, when global markets took their worst tumble since September 11, 2001. Commentators were asking if this was "the big one" – a 1929-style crash; and it probably would have been if deft market manipulations had not swiftly covered over the approaching catastrophe. The precipitous drop was blamed on the threat of downgrades in the ratings of two major monoline insurers, Ambac and MBIA, followed by a $7.2 billion loss in derivative trades by Societe Generale, France's second-largest bank. Like Bear Stearns, the monolines serve as counterparties in a web of credit default swaps, and a downgrade in their ratings would jeopardize the whole shaky derivatives edifice. Without the monoline insurers' traiple-A seal, billions of dollars worth of triple-A investments would revert to junk bonds. Many institutional investors (pension funds, municipal governments and the like) have a fiduciary duty to invest in only the "safest" triple-A bonds. Downgraded bonds therefore get dumped on the market, jeopardizing the banks that are still holding billions of dollars worth of these bonds. The downgrade of Ambac in January signaled a simultaneous downgrade of bonds from over 100,000 municipalities and institutions, totaling more than $500 billion.3
Institutional investors have lost a good deal of money in all this, but the real calamity is to the banks. The institutional investors that formerly bought mortgage-backed bonds stopped buying them in 2007, when the housing market slumped. But the big investment houses that were selling them have billions' worth left on their books, and it is these banks that particularly stand to lose as the derivative Chernobyl implodes.4
A Parade of Bailout Schemes
Now that some highly leveraged banks and hedge funds have had to lay their cards on the table and expose their worthless hands, these avid free marketers are crying out for government intervention to save them from monumental losses, while preserving the monumental gains raked in when their bluff was still good. In response to their pleas, the men behind the curtain have scrambled to devise various bailout schemes; but the schemes have been bandaids at best. To bail out a $681 trillion derivative scheme with taxpayer money is obviously impossible. As Michael Panzer observed on SeekingAlpha.com:
As the slow-motion train wreck in our financial system continues to unfold, there are going to be plenty of ill-conceived rescue attempts and dubious turnaround plans, as well as propagandizing, dissembling and scheming by banks, regulators and politicians. This is all happening in an effort to try and buy time or to figure out how the losses can be dumped onto the lap of some patsy (e.g., the taxpayer).
The idea seems to be to keep the violins playing while the Big Money Boys slip into the mist and man the lifeboats. As was pointed out in a blog called "Jesse's Café Americain" concerning the bailout of Ambac:
It seems that the real heart of the problem is that AMBAC was being used as a "cover" by the banks which originated these bundles of mortgages to get their mispriced ratings. Now that the mortgages are failing and the banks are stuck with them, AMBAC cannot possibly pay, they cannot cover the debt. And the banks don't wish to mark these CDOs [collateralized debt obligations] to market [downgrade them to their real market value] because they are probably at best worth 60 cents on the dollar, but are being held by the banks on balance at roughly par. That's a 40 percent haircut on enough debt to sink every bank involved in this situation . . . . Indeed for all intents and purposes if marked to market banks are now insolvent. So, the banks will provide capital to AMBAC . . . [but] it's just a game of passing money around. . . . So why are the banks engaging in this charade? This looks like an attempt to extend the payouts on a vast Ponzi scheme gone bad that is starting to collapse . . . .5
The banks will therefore no doubt be looking for one bailout after another from the only pocket deeper than their own, the U.S. government's. But if the federal government acquiesces, it too could be dragged into the voracious debt cyclone of the mortgage mess. The federal government's triple A rating is already in jeopardy, due to its gargantuan $9 trillion debt. Before the government agrees to bail out the banks, it should insist on some adequate quid pro quo. In England, the government agreed to bail out bankrupt mortgage bank Northern Rock, but only in return for the bank's stock. On March 31, 2008, The London Daily Telegraph reported that Federal Reserve strategists were eyeing the nationalizations that saved Norway, Sweden and Finland from a banking crisis from 1991 to 1993. In Norway, according to one Norwegian adviser, "The law was amended so that we could take 100 percent control of any bank where its equity had fallen below zero."6 If their assets were "marked to market," some major Wall Street banks could already be in that category.
Benjamin Franklin's Solution
Nationalization has traditionally had a bad name in the United States, but it could be an attractive alternative for the American people and our representative government as well. Turning bankrupt Wall Street banks into public institutions might allow the government to get out of the debt cyclone by undoing what got us into it. Instead of robbing Peter to pay Paul, flapping around in a sea of debt trying to stay afloat by creating more debt, the government could address the problem at its source: it could restore the right to create money to Congress, the public body to which that solemn duty was delegated under the Constitution.
The most brilliant banking model in our national history was established in the first half of the eighteenth century, in Benjamin Franklin's home province of Pennsylvania. The local government created its own bank, which issued money and lent it to farmers at a modest interest. The provincial government created enough extra money to cover the interest not created in the original loans, spending it into the economy on public services. The bank was publicly owned, and the bankers it employed were public servants. T he interest generated on its loans was sufficient to fund the government without taxes; and because the newly issued money came back to the government, the result was not inflationary.7 The Pennsylvania banking scheme was a sensible and highly workable system that was a product of American ingenuity but that never got a chance to prove itself after the colonies became a nation. It was an ironic twist, since according to Benjamin Franklin and others, restoring the power to create their own currency was a chief reason the colonists fought for independence. The bankers' money-creating machine has had two centuries of empirical testing and has proven to be a failure. It is time the sovereign right to create money is taken from a private banking elite and restored to the American people to whom it properly belongs.
1
"Credit Swap Worries Go Mainstream," nakedcapitalism.com (February 17, 2008); Aline van Duyn, "CDS Sector Weighs Bear Stearns Backlash," Financial Times (London) (March 16, 2008).
2
See Ellen Brown, "Dollar Deception: How Banks Secretly Create Money," webofdebt.com/articles (July 3, 2008).
3
"Monoline Insurance," Wikipedia.
4
Jane Wells, "Ambac and MBIA: Bonds, Jane's Bonds," CNBC (February 4, 2008).
5
"Saving AMBAC, the Homeowners, or the Banks?", Jesse's Café Americain (February 25, 2008).
6
Ambrose Evans-Pritchard, "Fed Eyes Nordic-style Nationalisation of US Banks," International Business Editor (March 31, 2008).
7
See Ellen Brown, Web of Debt (Third Millennium Press, 2008), chapter 3.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Her websites are www.webofdebt.com and www.ellenbrown.com.
April 10th, 2008
http://www.webofdebt.com/articles/derivative-disaster.php Post your comments here
When the smartest guys in the room designed their credit default swaps, they forgot to ask one thing – what if the parties on the other side of the bet don't have the money to pay up? Credit default swaps (CDS) are insurance-like contracts that are sold as protection against default on loans, but CDS are not ordinary insurance. Insurance companies are regulated by the government, with reserve requirements, statutory limits, and examiners routinely showing up to check the books to make sure the money is there to cover potential claims. CDS are private bets, and the Federal Reserve from the time of Alan Greenspan has insisted that regulators keep hands off. The sacrosanct free market would supposedly regulate itself. The problem with that approach is that regulations are just rules. If there are no rules, the players can cheat; and cheat they have, with a gambler's addiction. In December 2007, the Bank for International Settlements reported derivative trades tallying in at $681 trillion – ten times the gross domestic product of all the countries in the world combined. Somebody is obviously bluffing about the money being brought to the game, and that realization has made for some very jittery markets.
"Derivatives" are complex bank creations that are very hard to understand, but the basic idea is that you can insure an investment you want to go up by betting it will go down. The simplest form of derivative is a short sale: you can place a bet that some asset you own will go down, so that you are covered whichever way the asset moves. Credit default swaps are the most widely traded form of credit derivative. They are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the "protection buyer" gets a large payoff if the company defaults within a certain period of time, while the "protection seller" collects periodic payments for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to speculate on market changes. In one blogger's example, a hedge fund wanting to increase its profits could sit back and collect $320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims. And there's the catch: what if the hedge fund doesn't have the $100 million? The fund's corporate shell or limited partnership is put into bankruptcy, but that hardly helps the "protection buyers" who thought they were covered.
To the extent that CDS are being sold as "insurance," they are looking more like insurance fraud; and that fact has particularly hit home with the ratings downgrades of the "monoline" insurers and the recent collapse of Bear Stearns, a leading Wall Street investment brokerage. The monolines are so-called because they are allowed to insure only one industry, the bond industry. Monoline bond insurers are the biggest protection writers for CDS, and Bear Stearns was the twelfth largest counterparty to credit default swap trades in 2006.1 These players have been major protection sellers in a massive web of credit default swaps, and when the "protection" goes, the whole fragile derivative pyramid will go with it. The collapse of the derivative monster thus appears to be both imminent and inevitable, but that fact need not be cause for despair. The $681 trillion derivatives trade is the last supersized bubble in a 300-year Ponzi scheme, one that has now taken over the entire monetary system. The nation's wealth has been drained into private vaults, leaving scarcity in its wake. It is a corrupt system, and change is long overdue. Major crises are major opportunities for change.
The Wall Street Ponzi Scheme
The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.2 The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers' private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are "all borrowed up."
When the banks ran out of creditworthy borrowers, they had to turn to uncreditworthy "subprime" borrowers; and to avoid losses from default, they moved these risky mortgages off their books by bundling them into "securities" and selling them to investors. To induce investors to buy, these securities were then "insured" with credit default swaps. But the housing bubble itself was another Ponzi scheme, and eventually there were no more borrowers to be sucked in at the bottom who could afford the ever-inflating home prices. When the subprime borrowers quit paying, the investors quit buying mortgage-backed securities. The banks were then left holding their own suspect paper; and without triple-A ratings, there is little chance that buyers for this "junk" will be found. The crisis is not, however, in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people's money.
The Derivatives Chernobyl
The latest jolt to the massive derivatives edifice came with the collapse of Bear Stearns on March 16, 2008. Bear Stearns helped fuel the explosive growth in the credit derivative market, where banks, hedge funds and other investors have engaged in $45 trillion worth of bets on the credit-worthiness of companies and countries. Before it collapsed, Bear was the counterparty to $13 trillion in derivative trades. On March 14, 2008, Bear's ratings were downgraded by Moody's, a major rating agency; and on March 16, the brokerage was bought by JPMorgan for pennies on the dollar, a token buyout designed to avoid the legal complications of bankruptcy. The deal was backed by a $29 billion "non-recourse" loan from the Federal Reserve. "Non-recourse" meant that the Fed got only Bear's shaky paper assets as collateral. If those proved to be worthless, JPM was off the hook. It was an unprecedented move, of questionable legality; but it was said to be justified because, as one headline put it, "Fed's Rescue of Bear Halted Derivatives Chernobyl." The notion either that Bear was "rescued" or that the Chernobyl was halted, however, was grossly misleading. The CEOs managed to salvage their enormous bonuses, but it was a "bailout" only for JPM and Bear's creditors. For the shareholders, it was a wipeout. Their stock initially dropped from $156 to $2, and 30 percent of it was held by the employees. Another big chunk was held by the pension funds of teachers and other public servants. The share price was later raised to $10 a share in response to shareholder outrage, but the shareholders were still essentially wiped out; and the fact that one Wall Street bank had to be fed to the lions to rescue the others hardly inspires a feeling of confidence. Neutron bombs are not so easily contained.
The Bear Stearns hit from the derivatives iceberg followed an earlier one in January, when global markets took their worst tumble since September 11, 2001. Commentators were asking if this was "the big one" – a 1929-style crash; and it probably would have been if deft market manipulations had not swiftly covered over the approaching catastrophe. The precipitous drop was blamed on the threat of downgrades in the ratings of two major monoline insurers, Ambac and MBIA, followed by a $7.2 billion loss in derivative trades by Societe Generale, France's second-largest bank. Like Bear Stearns, the monolines serve as counterparties in a web of credit default swaps, and a downgrade in their ratings would jeopardize the whole shaky derivatives edifice. Without the monoline insurers' traiple-A seal, billions of dollars worth of triple-A investments would revert to junk bonds. Many institutional investors (pension funds, municipal governments and the like) have a fiduciary duty to invest in only the "safest" triple-A bonds. Downgraded bonds therefore get dumped on the market, jeopardizing the banks that are still holding billions of dollars worth of these bonds. The downgrade of Ambac in January signaled a simultaneous downgrade of bonds from over 100,000 municipalities and institutions, totaling more than $500 billion.3
Institutional investors have lost a good deal of money in all this, but the real calamity is to the banks. The institutional investors that formerly bought mortgage-backed bonds stopped buying them in 2007, when the housing market slumped. But the big investment houses that were selling them have billions' worth left on their books, and it is these banks that particularly stand to lose as the derivative Chernobyl implodes.4
A Parade of Bailout Schemes
Now that some highly leveraged banks and hedge funds have had to lay their cards on the table and expose their worthless hands, these avid free marketers are crying out for government intervention to save them from monumental losses, while preserving the monumental gains raked in when their bluff was still good. In response to their pleas, the men behind the curtain have scrambled to devise various bailout schemes; but the schemes have been bandaids at best. To bail out a $681 trillion derivative scheme with taxpayer money is obviously impossible. As Michael Panzer observed on SeekingAlpha.com:
As the slow-motion train wreck in our financial system continues to unfold, there are going to be plenty of ill-conceived rescue attempts and dubious turnaround plans, as well as propagandizing, dissembling and scheming by banks, regulators and politicians. This is all happening in an effort to try and buy time or to figure out how the losses can be dumped onto the lap of some patsy (e.g., the taxpayer).
The idea seems to be to keep the violins playing while the Big Money Boys slip into the mist and man the lifeboats. As was pointed out in a blog called "Jesse's Café Americain" concerning the bailout of Ambac:
It seems that the real heart of the problem is that AMBAC was being used as a "cover" by the banks which originated these bundles of mortgages to get their mispriced ratings. Now that the mortgages are failing and the banks are stuck with them, AMBAC cannot possibly pay, they cannot cover the debt. And the banks don't wish to mark these CDOs [collateralized debt obligations] to market [downgrade them to their real market value] because they are probably at best worth 60 cents on the dollar, but are being held by the banks on balance at roughly par. That's a 40 percent haircut on enough debt to sink every bank involved in this situation . . . . Indeed for all intents and purposes if marked to market banks are now insolvent. So, the banks will provide capital to AMBAC . . . [but] it's just a game of passing money around. . . . So why are the banks engaging in this charade? This looks like an attempt to extend the payouts on a vast Ponzi scheme gone bad that is starting to collapse . . . .5
The banks will therefore no doubt be looking for one bailout after another from the only pocket deeper than their own, the U.S. government's. But if the federal government acquiesces, it too could be dragged into the voracious debt cyclone of the mortgage mess. The federal government's triple A rating is already in jeopardy, due to its gargantuan $9 trillion debt. Before the government agrees to bail out the banks, it should insist on some adequate quid pro quo. In England, the government agreed to bail out bankrupt mortgage bank Northern Rock, but only in return for the bank's stock. On March 31, 2008, The London Daily Telegraph reported that Federal Reserve strategists were eyeing the nationalizations that saved Norway, Sweden and Finland from a banking crisis from 1991 to 1993. In Norway, according to one Norwegian adviser, "The law was amended so that we could take 100 percent control of any bank where its equity had fallen below zero."6 If their assets were "marked to market," some major Wall Street banks could already be in that category.
Benjamin Franklin's Solution
Nationalization has traditionally had a bad name in the United States, but it could be an attractive alternative for the American people and our representative government as well. Turning bankrupt Wall Street banks into public institutions might allow the government to get out of the debt cyclone by undoing what got us into it. Instead of robbing Peter to pay Paul, flapping around in a sea of debt trying to stay afloat by creating more debt, the government could address the problem at its source: it could restore the right to create money to Congress, the public body to which that solemn duty was delegated under the Constitution.
The most brilliant banking model in our national history was established in the first half of the eighteenth century, in Benjamin Franklin's home province of Pennsylvania. The local government created its own bank, which issued money and lent it to farmers at a modest interest. The provincial government created enough extra money to cover the interest not created in the original loans, spending it into the economy on public services. The bank was publicly owned, and the bankers it employed were public servants. T he interest generated on its loans was sufficient to fund the government without taxes; and because the newly issued money came back to the government, the result was not inflationary.7 The Pennsylvania banking scheme was a sensible and highly workable system that was a product of American ingenuity but that never got a chance to prove itself after the colonies became a nation. It was an ironic twist, since according to Benjamin Franklin and others, restoring the power to create their own currency was a chief reason the colonists fought for independence. The bankers' money-creating machine has had two centuries of empirical testing and has proven to be a failure. It is time the sovereign right to create money is taken from a private banking elite and restored to the American people to whom it properly belongs.
1
"Credit Swap Worries Go Mainstream," nakedcapitalism.com (February 17, 2008); Aline van Duyn, "CDS Sector Weighs Bear Stearns Backlash," Financial Times (London) (March 16, 2008).
2
See Ellen Brown, "Dollar Deception: How Banks Secretly Create Money," webofdebt.com/articles (July 3, 2008).
3
"Monoline Insurance," Wikipedia.
4
Jane Wells, "Ambac and MBIA: Bonds, Jane's Bonds," CNBC (February 4, 2008).
5
"Saving AMBAC, the Homeowners, or the Banks?", Jesse's Café Americain (February 25, 2008).
6
Ambrose Evans-Pritchard, "Fed Eyes Nordic-style Nationalisation of US Banks," International Business Editor (March 31, 2008).
7
See Ellen Brown, Web of Debt (Third Millennium Press, 2008), chapter 3.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Her websites are www.webofdebt.com and www.ellenbrown.com.
Thursday, April 10, 2008
US Fed prepares to replenish war chest
Independent.co.uk
By Stephen Foley in New York
Thursday, 10 April 2008
Having already pumped $300m (£151m) of extra money into the US financial system, the Federal Reserve is making extraordinary contingency plans in case the credit crisis persists for so long that its own reserves dwindle.
The US central bank is in talks with the Treasury and politicians on Capitol Hill about measures that could buttress its ability to act as lender of last resort. In doing so, it is hoping to answer the nagging fear on Wall Street that the Fed may run out of ammunition to pursue what have so far been roundly applauded efforts to keep the credit markets moving.
While the Fed could lend money to banks without dipping into its reserves, and continue doing so even if reserves run out, this is in effect printing money, and officials fear the inflationary consequences of doing so.
For this reason, officials confirmed yesterday that the Fed is considering ways to replenish its stockpile of US Treasury bonds, which has dwindled from $792bn last July to $487bn last week. Since the credit crisis hit, the Fed has come up with a raft of innovative schemes for lending to the financial markets. In particular, it has begun taking as collateral mortgage-backed securities, which banks have been reluctant to trade while their value has been plummeting alongside the housing market.
One option is for the Fed to take the unprecedented step of issuing debt, which it would then lend on into the credit markets. Another plan is to ask the US Treasury to issue more debt which the Fed could put to work.
Another option would be for the Fed to start paying interest on any excess deposits that US banks have at the central bank. That would set a floor for the interbank lending rate.
Separately yesterday, leading banks promised tougher voluntary standards in an attempt to forestall calls for tighter supervision. The Institute of International Finance, which represents more than 375 banks worldwide, also called for reviews both of current accounting rules which force them to mark assets to market, and of credit agencies.
Josef Ackermann, the chief executive of Deutsche Bank who chairs the IIF, said: "Many firms need to improve their risk management, liquidity management and conduit underwriting approaches significantly." The IIF report came before G7 meetings that are scheduled to discuss financial regulation.
By Stephen Foley in New York
Thursday, 10 April 2008
Having already pumped $300m (£151m) of extra money into the US financial system, the Federal Reserve is making extraordinary contingency plans in case the credit crisis persists for so long that its own reserves dwindle.
The US central bank is in talks with the Treasury and politicians on Capitol Hill about measures that could buttress its ability to act as lender of last resort. In doing so, it is hoping to answer the nagging fear on Wall Street that the Fed may run out of ammunition to pursue what have so far been roundly applauded efforts to keep the credit markets moving.
While the Fed could lend money to banks without dipping into its reserves, and continue doing so even if reserves run out, this is in effect printing money, and officials fear the inflationary consequences of doing so.
For this reason, officials confirmed yesterday that the Fed is considering ways to replenish its stockpile of US Treasury bonds, which has dwindled from $792bn last July to $487bn last week. Since the credit crisis hit, the Fed has come up with a raft of innovative schemes for lending to the financial markets. In particular, it has begun taking as collateral mortgage-backed securities, which banks have been reluctant to trade while their value has been plummeting alongside the housing market.
One option is for the Fed to take the unprecedented step of issuing debt, which it would then lend on into the credit markets. Another plan is to ask the US Treasury to issue more debt which the Fed could put to work.
Another option would be for the Fed to start paying interest on any excess deposits that US banks have at the central bank. That would set a floor for the interbank lending rate.
Separately yesterday, leading banks promised tougher voluntary standards in an attempt to forestall calls for tighter supervision. The Institute of International Finance, which represents more than 375 banks worldwide, also called for reviews both of current accounting rules which force them to mark assets to market, and of credit agencies.
Josef Ackermann, the chief executive of Deutsche Bank who chairs the IIF, said: "Many firms need to improve their risk management, liquidity management and conduit underwriting approaches significantly." The IIF report came before G7 meetings that are scheduled to discuss financial regulation.
IMF says US crisis is 'largest financial shock since Great Depression'
Heather Stewart in Washington
guardian.co.uk,
Wednesday April 9 2008
This article was first published on guardian.co.uk on Wednesday April 09 2008.
It was last updated at 16:18 on April 09 2008.
America's mortgage crisis has spiralled into "the largest financial shock since the Great Depression" and there is now a one-in-four chance of a full-blown global recession over the next 12 months, the International Monetary Fund warned today.
The US is already sliding into what the IMF predicts will be a "mild recession" but there is mounting pessimism about the ability of the rest of the world to escape unscathed, the IMF said in its twice-yearly World Economic Outlook. Britain is particularly vulnerable, it warned, as it slashed its growth targets for both the US and the UK.
The report made it clear that there will be no early resolution to the global financial crisis.
"The financial shock that erupted in August 2007, as the US sub-prime mortgage market was derailed by the reversal of the housing boom, has spread quickly and unpredictably to inflict extensive damage on markets and institutions at the heart of the financial system," it said.
After warning earlier this week that the world's financial firms could end up shouldering $1 trillion (£500bn) worth of losses from the credit crunch, the IMF said it expects the US to achieve GDP growth of just 0.5% this year, and 0.6% in 2008, with the housing crash getting even worse.
Simon Johnson, the IMF's director of research, said later the key risk to the forecasts was the danger of a vicious circle emerging, as house prices continue to fall, dealing a fresh blow to the banks, and exacerbating the problems in the markets. "Sentiment in financial markets has improved in recent weeks since the Federal Reserve's strong actions with regard to investment banks. But we have seen how strains in markets can quickly become reinforcing, and the possibility of a negative spiral or 'financial decelerator' remains a possibility." ... Read the Entire Article
guardian.co.uk,
Wednesday April 9 2008
This article was first published on guardian.co.uk on Wednesday April 09 2008.
It was last updated at 16:18 on April 09 2008.
America's mortgage crisis has spiralled into "the largest financial shock since the Great Depression" and there is now a one-in-four chance of a full-blown global recession over the next 12 months, the International Monetary Fund warned today.
The US is already sliding into what the IMF predicts will be a "mild recession" but there is mounting pessimism about the ability of the rest of the world to escape unscathed, the IMF said in its twice-yearly World Economic Outlook. Britain is particularly vulnerable, it warned, as it slashed its growth targets for both the US and the UK.
The report made it clear that there will be no early resolution to the global financial crisis.
"The financial shock that erupted in August 2007, as the US sub-prime mortgage market was derailed by the reversal of the housing boom, has spread quickly and unpredictably to inflict extensive damage on markets and institutions at the heart of the financial system," it said.
After warning earlier this week that the world's financial firms could end up shouldering $1 trillion (£500bn) worth of losses from the credit crunch, the IMF said it expects the US to achieve GDP growth of just 0.5% this year, and 0.6% in 2008, with the housing crash getting even worse.
Simon Johnson, the IMF's director of research, said later the key risk to the forecasts was the danger of a vicious circle emerging, as house prices continue to fall, dealing a fresh blow to the banks, and exacerbating the problems in the markets. "Sentiment in financial markets has improved in recent weeks since the Federal Reserve's strong actions with regard to investment banks. But we have seen how strains in markets can quickly become reinforcing, and the possibility of a negative spiral or 'financial decelerator' remains a possibility." ... Read the Entire Article
Wednesday, April 9, 2008
Crude tops $111 after supply report
Bloomberg News
Wednesday, April 9, 2008
NEW YORK: Crude oil rose above $111 a barrel in New York and gasoline surged to a record after a government report showed that U.S. supplies unexpectedly dropped.
Crude oil inventories fell 3.15 million barrels to 316 million last week, the first decline since February, the Energy Department said. A 2.3-million-barrel gain was forecast, according to a Bloomberg News survey. Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell.
"The crude stock draw was obviously the big surprise and leaves supplies too tight for comfort," said Antoine Halff, head of energy research at New York-based Newedge USA. "Refineries are operating at a very low rate and we still didn't get an inventory gain."
Crude oil for May delivery rose $2.71, or 2.5 percent, to $111.21 a barrel in late morning trading on the New York Mercantile Exchange. Prices are up 81 percent from a year ago. Futures prices rose to a record $111.80 a barrel on March 17.
Gasoline for May delivery climbed 5.8 cents, or 2.1 percent, to $2.8084 a gallon. Futures reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.
U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to a record $3.343 a gallon, AAA, the largest U.S. motorist organization, said Wednesday on its Web site ... Read the Entire Article
Wednesday, April 9, 2008
NEW YORK: Crude oil rose above $111 a barrel in New York and gasoline surged to a record after a government report showed that U.S. supplies unexpectedly dropped.
Crude oil inventories fell 3.15 million barrels to 316 million last week, the first decline since February, the Energy Department said. A 2.3-million-barrel gain was forecast, according to a Bloomberg News survey. Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell.
"The crude stock draw was obviously the big surprise and leaves supplies too tight for comfort," said Antoine Halff, head of energy research at New York-based Newedge USA. "Refineries are operating at a very low rate and we still didn't get an inventory gain."
Crude oil for May delivery rose $2.71, or 2.5 percent, to $111.21 a barrel in late morning trading on the New York Mercantile Exchange. Prices are up 81 percent from a year ago. Futures prices rose to a record $111.80 a barrel on March 17.
Gasoline for May delivery climbed 5.8 cents, or 2.1 percent, to $2.8084 a gallon. Futures reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.
U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to a record $3.343 a gallon, AAA, the largest U.S. motorist organization, said Wednesday on its Web site ... Read the Entire Article
Monday, April 7, 2008
Debasing the Dollar - We All Pay for It!
By David Whitehead
Business Insider Magazine
April 7, 2007
As the financial crisis ignited by the sub-prime mortgage blowout sinks the economy into what promises to be a pronounced recession of undeterminable depths, the Federal Reserve has responded with massive expansions of the money supply. Recent highlights include a 75 basis point cut in the Federal Funds Rate in March and to what amounts to a $270 Billion commitment to back the Bear Sterns bailout.
As inflation fears mount, the one bright light is a reduction of the trade deficit and a boost for U.S. exports dovetailing on enhanced global demand for U.S. labor. In fact, BMW is launching an ambitious $750 million plant expansion in South Carolina that will create 500 new U.S. jobs as they are cutting even more positions in Germany. However, this dearth of good news hardly compensates for the thousands of U.S. factories that have been permanently shut down over the last three decades. I wouldn’t count on this turning into a reversal of the long-term de-industrial process unless things get so bad our position is degraded to “developing nation” status.
In fact, the good news for exporters and a limited number of American workers who will benefit from the new opportunities created by the dollar’s devaluation alludes to what on balance is bad news for all who depend on the U.S. dollar. You see, everyone who uses dollars, including American consumers and global entities that must hold dollars because it is still the international reserve currency, are rapidly losing an enormous amount of purchasing power.
In fact, international critics have sardonically called this phenomenon the “backhanded imperial tribute.” They are forced to hold dollar reserves to purchase petroleum through the OPEC system, they export goods that are later paid for in devalued dollars that buy less and they can’t help but notice we are most interested in spreading “freedom and democracy” and combating “evil” in nations that hold enough petroleum reserves in their ground to blow out the dollar on their own if they go renegade from the system.
So what does this mean for American consumers? These aggressive actions aimed at reviving the economy that are generally lauded in the financial press are really getting funded in a backhanded way most people don’t pay attention to. When the Fed arrives like Santa Claus to give us more “currency” to pay our bills, they are really stealing buying power from all who depend on the dollar. The Fed’s actions are shorting creditors abroad to the point that the only thing standing between the United States and nations that want the Euro to be the next reserve currency is our ability as a superpower to intimidate them. That’s what it has really come down to.
Yes, America is an incredible market to sell consumer goods produced everywhere. But this is not because we can really afford them. There reaches a point when you’re investing so much more in a nation than you will never get back just to keep the system going that you are going to have to scale back at some point and develop other markets with consumers who can actually pay you properly without running up enormous trade deficits.
I find it ironic that nations many would consider to be America’s enemies, probably with the exception of Iran, aren’t that anxious to topple the American empire because global financial networks are so intertwined that it is hard to say how the rippling affect would damage economies around the world. Globalization has already created a one-world society in that sense. The question is: with so many entities committed to global financial processes centered on an unsustainable dollar-spending U.S. consumer market, how will the cause and effect play out as the mess unravels? That’s the question no one really wants to see answered in real time.
But is it time the general public wakes up, gets beyond the political pabulum and learns how the game is really played. There are so many things we acquiesce to simply because we don’t fully understand how it affects us. The great deception is how the limited amount of information presented to us about monetary policy both here and abroad distorts our viewpoints about how our wealth streams really work.
We once lived in a world where nations primarily imported essentials they didn’t have and produced most things they used domestically. The economy of every sovereign nation was balanced on its own merits and backed by bullion it mined or purchased itself and protected as steadfastly as its armies protected its borders. These days they allow global investors to speculate with it!
Globalization has brought us developing nations that do most of the producing, consumer nations that do most of the consuming and inter-connected central banks that issue the currency we spend through a mostly for-profit privatized system. But the most nefarious caveat is the fact our political leaders need to take all of these things into consideration in their decision-making, which compromises powers entrusted to them by their constituents and their national sovereignty in ever-increasing ways. This has not just increased the power of the private sector in ways that even most conservatives would consider inappropriate. It has blurred the lines between public and private power globally in addition to the relevance of national boundaries. And by concentrating the processes that have historically created wealth in the producer nations, we have seen enormous levels of public and private sector debt mounting in the consumer nations, which has been most prolific in the United States.
So the devaluing of the dollar will reduce some of that debt. But it shortchanges everyone who holds dollars at the same time. Some of the lost wealth will be made up though increased exports and newly created job opportunities. But we have a massive hole to climb out of and I wouldn’t anticipate a smooth repositioning of the economy despite any aggressive action by regulators. By staving off the inevitable with shortsighted gimmicks, they will make final reckoning that much worse.
David Whitehead is the Publisher of Business Insider Magazine
Business Insider Magazine
April 7, 2007
As the financial crisis ignited by the sub-prime mortgage blowout sinks the economy into what promises to be a pronounced recession of undeterminable depths, the Federal Reserve has responded with massive expansions of the money supply. Recent highlights include a 75 basis point cut in the Federal Funds Rate in March and to what amounts to a $270 Billion commitment to back the Bear Sterns bailout.
As inflation fears mount, the one bright light is a reduction of the trade deficit and a boost for U.S. exports dovetailing on enhanced global demand for U.S. labor. In fact, BMW is launching an ambitious $750 million plant expansion in South Carolina that will create 500 new U.S. jobs as they are cutting even more positions in Germany. However, this dearth of good news hardly compensates for the thousands of U.S. factories that have been permanently shut down over the last three decades. I wouldn’t count on this turning into a reversal of the long-term de-industrial process unless things get so bad our position is degraded to “developing nation” status.
In fact, the good news for exporters and a limited number of American workers who will benefit from the new opportunities created by the dollar’s devaluation alludes to what on balance is bad news for all who depend on the U.S. dollar. You see, everyone who uses dollars, including American consumers and global entities that must hold dollars because it is still the international reserve currency, are rapidly losing an enormous amount of purchasing power.
In fact, international critics have sardonically called this phenomenon the “backhanded imperial tribute.” They are forced to hold dollar reserves to purchase petroleum through the OPEC system, they export goods that are later paid for in devalued dollars that buy less and they can’t help but notice we are most interested in spreading “freedom and democracy” and combating “evil” in nations that hold enough petroleum reserves in their ground to blow out the dollar on their own if they go renegade from the system.
So what does this mean for American consumers? These aggressive actions aimed at reviving the economy that are generally lauded in the financial press are really getting funded in a backhanded way most people don’t pay attention to. When the Fed arrives like Santa Claus to give us more “currency” to pay our bills, they are really stealing buying power from all who depend on the dollar. The Fed’s actions are shorting creditors abroad to the point that the only thing standing between the United States and nations that want the Euro to be the next reserve currency is our ability as a superpower to intimidate them. That’s what it has really come down to.
Yes, America is an incredible market to sell consumer goods produced everywhere. But this is not because we can really afford them. There reaches a point when you’re investing so much more in a nation than you will never get back just to keep the system going that you are going to have to scale back at some point and develop other markets with consumers who can actually pay you properly without running up enormous trade deficits.
I find it ironic that nations many would consider to be America’s enemies, probably with the exception of Iran, aren’t that anxious to topple the American empire because global financial networks are so intertwined that it is hard to say how the rippling affect would damage economies around the world. Globalization has already created a one-world society in that sense. The question is: with so many entities committed to global financial processes centered on an unsustainable dollar-spending U.S. consumer market, how will the cause and effect play out as the mess unravels? That’s the question no one really wants to see answered in real time.
But is it time the general public wakes up, gets beyond the political pabulum and learns how the game is really played. There are so many things we acquiesce to simply because we don’t fully understand how it affects us. The great deception is how the limited amount of information presented to us about monetary policy both here and abroad distorts our viewpoints about how our wealth streams really work.
We once lived in a world where nations primarily imported essentials they didn’t have and produced most things they used domestically. The economy of every sovereign nation was balanced on its own merits and backed by bullion it mined or purchased itself and protected as steadfastly as its armies protected its borders. These days they allow global investors to speculate with it!
Globalization has brought us developing nations that do most of the producing, consumer nations that do most of the consuming and inter-connected central banks that issue the currency we spend through a mostly for-profit privatized system. But the most nefarious caveat is the fact our political leaders need to take all of these things into consideration in their decision-making, which compromises powers entrusted to them by their constituents and their national sovereignty in ever-increasing ways. This has not just increased the power of the private sector in ways that even most conservatives would consider inappropriate. It has blurred the lines between public and private power globally in addition to the relevance of national boundaries. And by concentrating the processes that have historically created wealth in the producer nations, we have seen enormous levels of public and private sector debt mounting in the consumer nations, which has been most prolific in the United States.
So the devaluing of the dollar will reduce some of that debt. But it shortchanges everyone who holds dollars at the same time. Some of the lost wealth will be made up though increased exports and newly created job opportunities. But we have a massive hole to climb out of and I wouldn’t anticipate a smooth repositioning of the economy despite any aggressive action by regulators. By staving off the inevitable with shortsighted gimmicks, they will make final reckoning that much worse.
David Whitehead is the Publisher of Business Insider Magazine
More than 50 percent chance of U.S. recession: Greenspan
Sun Apr 6, 2008 6:14am EDT
By Sonya Dowsett
MADRID (Reuters) - There is more than a 50 percent chance the United States could go into recession, former Federal Reserve chairman Alan Greenspan told El Pais newspaper in an interview published on Sunday.
However, the U.S. has not yet entered recessionary state marked by sharp falls in orders, strong rises in unemployment and intensive weakening of the economy, he said.
"We would have to see signs of this intensification: there are some, but not many yet," he said. "Therefore ... I would not describe the situation we are in as a recession, although the chances that we'll have one are more than 50 percent."
A sharp downturn in the U.S. housing market has led to a full-blown credit crisis that has reverberated throughout the U.S. financial system ... Read the Entire Article
By Sonya Dowsett
MADRID (Reuters) - There is more than a 50 percent chance the United States could go into recession, former Federal Reserve chairman Alan Greenspan told El Pais newspaper in an interview published on Sunday.
However, the U.S. has not yet entered recessionary state marked by sharp falls in orders, strong rises in unemployment and intensive weakening of the economy, he said.
"We would have to see signs of this intensification: there are some, but not many yet," he said. "Therefore ... I would not describe the situation we are in as a recession, although the chances that we'll have one are more than 50 percent."
A sharp downturn in the U.S. housing market has led to a full-blown credit crisis that has reverberated throughout the U.S. financial system ... Read the Entire Article
Why food prices will go through the roof in coming months
By F. William Engdahl
Online Journal posted on www.infowars.com
April 5, 2008
A deadly fungus, known as Ug99, which kills wheat, has likely spread to Pakistan from Africa, according to reports. If true, that threatens the vital Asian Bread Basket including the Punjab region.
The spread of the deadly virus, stem rust, against which an effective fungicide does not exist, comes as world grain stocks reach the lowest in four decades and government subsidized bio-ethanol production, especially in the USA, Brazil and EU are taking land out of food production at alarming rates. The deadly fungus is being used by Monsanto and the US Government to spread patented GMO seeds.
Stem rust is the worst of three rusts that afflict wheat plants. The fungus grows primarily in the stems, plugging the vascular system so carbohydrates can’t get from the leaves to the grain, which shrivels. Ug99 is a race of stem rust that blocks the vascular tissues in cereal grains including wheat, oats and barley. Unlike other rusts that may reduce crop yields, Ug99-infected plants may suffer up to 100 percent loss.
In the 1950s, the last major outbreak destroyed 40 percent of the spring wheat crop in North America. At that time governments started a major effort to breed resistant wheat plants, led by Norman Borlaug of the Rockefeller Foundation. That was the misnamed Green Revolution. The result today is far fewer varieties of wheat that might resist such a new fungus outbreak.
The first strains of Ug99 were detected in 1999 in Uganda. It spread to Kenya by 2001, to Ethiopia by 2003 and to Yemen when the cyclone Gonu spread its spores in 2007. Now the deadly fungus has been found in Iran and according to British scientists may already be as far as Pakistan.
Pakistan and India account for 20 percent of the annual world wheat production. It is possible as the fungus spreads that large movements could take place almost overnight if certain wind conditions prevail at the right time. In 2007, a three-day wind event recorded by Mexico’s CIMMYT (International Maize and Wheat Improvement Center), had strong wind currents moving from Yemen, where Ug99 is present, across Pakistan and India, going all the way to China. CIMMYT estimates that from two-thirds to three-quarters of the wheat now planted in India and Pakistan are highly susceptible to this new strain of stem rust. One billion people live in this region and they are highly dependent on wheat for their food supply.
These are all areas where the agricultural infrastructure to contain such problems is either extremely weak or non-existent. It threatens to spread into other wheat producing regions of Asia and eventually the entire world if not checked.
FAO world grain forecast
The 2007 World Agriculture Forecast of the United Nations’ Food and Agriculture Organization (FAO) in Rome projects an alarming trend in world food supply even in the absence of any devastation from Ug99. The report states, “Countries in the non-OECD region are expected to continue to experience a much stronger increase in consumption of agricultural products than countries in the OECD area. This trend is driven by population and, above all, income growth — underpinned by rural migration to higher income urban areas . . . OECD countries as a group are projected to lose production and export shares in many commodities . . . Growth in the use of agricultural commodities as feedstock to a rapidly increasing biofuel industry is one of the main drivers in the outlook and one of the reasons for international commodity prices to attain a significantly higher plateau over the outlook period than has been reported in the previous reports.” [my emphasis — w.e.]
The FAO warns that the explosive growth in acreage used to grow fuels and not food in the past three years is dramatically changing the outlook for food supply globally and forcing food prices sharply higher for all foods, from cereals to sugar to meat and dairy products. The use of cereals, sugar, oilseeds and vegetable oils to satisfy the needs of a rapidly increasing biofuel industry, is one of the main drivers, most especially the large volumes of maize in the US, wheat and rapeseed in the EU and sugar in Brazil for ethanol and bio-diesel production. This is already causing dramatically higher crop prices, higher feed costs and sharply higher prices for livestock products.
Ironically, the current bio-ethanol industry is being driven by US government subsidies and a scientifically false argument in the EU and USA that bio-ethanol is less harmful to the environment than petroleum fuels and can reduce C02 emissions. The arguments have been demonstrated in every respect to be false. The huge expansion of global acreage now planted to produce biofuels is creating ecological problems and demanding use of far heavier pesticide spraying while use of biofuels in autos releases even deadlier emissions than imagined. The political effect, however, has been a catastrophic shift down in world grain stocks at the same time the EU and USA have enacted policies which drastically cut traditional emergency grain reserves. In short, it is a scenario preprogrammed for catastrophe, one which has been clear to policymakers in the EU and USA for several years. That can only suggest that such a dramatic crisis in global food supply is intentional.
A plan to spread GMO?
One of the consequences of the spread of Ug99 is a campaign by Monsanto Corporation and other major producers of genetically manipulated plant seeds to promote wholesale introduction of GMO wheat varieties said to be resistant to the Ug99 fungus. Biologists at Monsanto and at the various GMO laboratories around the world are working to patent such strains.
Norman Borlaug, the former Rockefeller Foundation head of the Green Revolution, is active in funding the research to develop a fungus resistant variety against Ug99, working with his former center in Mexico, the CIMMYT and ICARDA in Kenya, where the pathogen is now endemic. So far, about 90 percent of the 12,000 lines tested are susceptible to Ug99. That includes all the major wheat cultivars of the Middle East and west Asia. At least 80 percent of the 200 varieties sent from the United States can’t cope with infection. The situation is even more dire for Egypt, Iran, and other countries in immediate peril.
Even if a new resistant variety were ready to be released today, it would take two or three years’ seed increase in order to have just enough wheat seed for 20 percent of the acres planted to wheat in the world.
Work is also being done by the USDA’s Agricultural Research Service (ARS), the same agency which co-developed Monsanto’s Terminator seed technology. In my book, Seeds of Destruction, I document the insidious role of Borlaug and the Rockefeller Foundation in promoting the misnamed Green Revolution, as well as patents on food seeds to ultimately control food supplies as a potential political lever. The spreading alarm over the Ug99 fungus is being used by Monsanto and other GMO agribusiness companies to demand that the current ban on GMO wheat be lifted to allow spread of GMO patented wheat seeds on the argument they are Ug99 stem rust resistant.
Online Journal posted on www.infowars.com
April 5, 2008
A deadly fungus, known as Ug99, which kills wheat, has likely spread to Pakistan from Africa, according to reports. If true, that threatens the vital Asian Bread Basket including the Punjab region.
The spread of the deadly virus, stem rust, against which an effective fungicide does not exist, comes as world grain stocks reach the lowest in four decades and government subsidized bio-ethanol production, especially in the USA, Brazil and EU are taking land out of food production at alarming rates. The deadly fungus is being used by Monsanto and the US Government to spread patented GMO seeds.
Stem rust is the worst of three rusts that afflict wheat plants. The fungus grows primarily in the stems, plugging the vascular system so carbohydrates can’t get from the leaves to the grain, which shrivels. Ug99 is a race of stem rust that blocks the vascular tissues in cereal grains including wheat, oats and barley. Unlike other rusts that may reduce crop yields, Ug99-infected plants may suffer up to 100 percent loss.
In the 1950s, the last major outbreak destroyed 40 percent of the spring wheat crop in North America. At that time governments started a major effort to breed resistant wheat plants, led by Norman Borlaug of the Rockefeller Foundation. That was the misnamed Green Revolution. The result today is far fewer varieties of wheat that might resist such a new fungus outbreak.
The first strains of Ug99 were detected in 1999 in Uganda. It spread to Kenya by 2001, to Ethiopia by 2003 and to Yemen when the cyclone Gonu spread its spores in 2007. Now the deadly fungus has been found in Iran and according to British scientists may already be as far as Pakistan.
Pakistan and India account for 20 percent of the annual world wheat production. It is possible as the fungus spreads that large movements could take place almost overnight if certain wind conditions prevail at the right time. In 2007, a three-day wind event recorded by Mexico’s CIMMYT (International Maize and Wheat Improvement Center), had strong wind currents moving from Yemen, where Ug99 is present, across Pakistan and India, going all the way to China. CIMMYT estimates that from two-thirds to three-quarters of the wheat now planted in India and Pakistan are highly susceptible to this new strain of stem rust. One billion people live in this region and they are highly dependent on wheat for their food supply.
These are all areas where the agricultural infrastructure to contain such problems is either extremely weak or non-existent. It threatens to spread into other wheat producing regions of Asia and eventually the entire world if not checked.
FAO world grain forecast
The 2007 World Agriculture Forecast of the United Nations’ Food and Agriculture Organization (FAO) in Rome projects an alarming trend in world food supply even in the absence of any devastation from Ug99. The report states, “Countries in the non-OECD region are expected to continue to experience a much stronger increase in consumption of agricultural products than countries in the OECD area. This trend is driven by population and, above all, income growth — underpinned by rural migration to higher income urban areas . . . OECD countries as a group are projected to lose production and export shares in many commodities . . . Growth in the use of agricultural commodities as feedstock to a rapidly increasing biofuel industry is one of the main drivers in the outlook and one of the reasons for international commodity prices to attain a significantly higher plateau over the outlook period than has been reported in the previous reports.” [my emphasis — w.e.]
The FAO warns that the explosive growth in acreage used to grow fuels and not food in the past three years is dramatically changing the outlook for food supply globally and forcing food prices sharply higher for all foods, from cereals to sugar to meat and dairy products. The use of cereals, sugar, oilseeds and vegetable oils to satisfy the needs of a rapidly increasing biofuel industry, is one of the main drivers, most especially the large volumes of maize in the US, wheat and rapeseed in the EU and sugar in Brazil for ethanol and bio-diesel production. This is already causing dramatically higher crop prices, higher feed costs and sharply higher prices for livestock products.
Ironically, the current bio-ethanol industry is being driven by US government subsidies and a scientifically false argument in the EU and USA that bio-ethanol is less harmful to the environment than petroleum fuels and can reduce C02 emissions. The arguments have been demonstrated in every respect to be false. The huge expansion of global acreage now planted to produce biofuels is creating ecological problems and demanding use of far heavier pesticide spraying while use of biofuels in autos releases even deadlier emissions than imagined. The political effect, however, has been a catastrophic shift down in world grain stocks at the same time the EU and USA have enacted policies which drastically cut traditional emergency grain reserves. In short, it is a scenario preprogrammed for catastrophe, one which has been clear to policymakers in the EU and USA for several years. That can only suggest that such a dramatic crisis in global food supply is intentional.
A plan to spread GMO?
One of the consequences of the spread of Ug99 is a campaign by Monsanto Corporation and other major producers of genetically manipulated plant seeds to promote wholesale introduction of GMO wheat varieties said to be resistant to the Ug99 fungus. Biologists at Monsanto and at the various GMO laboratories around the world are working to patent such strains.
Norman Borlaug, the former Rockefeller Foundation head of the Green Revolution, is active in funding the research to develop a fungus resistant variety against Ug99, working with his former center in Mexico, the CIMMYT and ICARDA in Kenya, where the pathogen is now endemic. So far, about 90 percent of the 12,000 lines tested are susceptible to Ug99. That includes all the major wheat cultivars of the Middle East and west Asia. At least 80 percent of the 200 varieties sent from the United States can’t cope with infection. The situation is even more dire for Egypt, Iran, and other countries in immediate peril.
Even if a new resistant variety were ready to be released today, it would take two or three years’ seed increase in order to have just enough wheat seed for 20 percent of the acres planted to wheat in the world.
Work is also being done by the USDA’s Agricultural Research Service (ARS), the same agency which co-developed Monsanto’s Terminator seed technology. In my book, Seeds of Destruction, I document the insidious role of Borlaug and the Rockefeller Foundation in promoting the misnamed Green Revolution, as well as patents on food seeds to ultimately control food supplies as a potential political lever. The spreading alarm over the Ug99 fungus is being used by Monsanto and other GMO agribusiness companies to demand that the current ban on GMO wheat be lifted to allow spread of GMO patented wheat seeds on the argument they are Ug99 stem rust resistant.
Shoppers' fear shakes U.S. economy
ANNE D 'INNOCENZIO
Associated Press
April 4, 2008
The gloomiest outlook for the economy in 35 years may be forcing Americans to live with what they have and save up for what they want.
Lynda Nicely has been living in a sparsely furnished rental apartment in a Milwaukee suburb since October while she saves enough money for furniture at a second-hand store. And when temperatures soar this summer, she plans to buy a fan, not an air-conditioner.
"I am a little rattled, " said the 28-year-old resident of West Allis, who took a second job as a waitress and plans to hoard three months worth of emergency cash just in case she loses her primary job in public relations.
A growing number of anxious people across all income segments are shopping at less-expensive stores, reacquainting themselves with the library, paying down credit-card debt and cutting back on new clothes and cars, vacations and meals out.
The psychology of the American consumer has turned as worries heighten about the job market, the slump in real estate and soaring daily living costs.
Industry followers say shoppers ' fear, which has been escalating since last July, could very well worsen what ails us.
Such spending cuts could be "a self-fulfilling prophesy " and could hasten the economy 's slide, said Lynn Franco, director of The Conference Board Consumer Research Center.
"I don 't think (the spending slump) has bottomed out, " said Candace Corlett, principal at consulting firm WSL Strategic Retail. "Shoppers are learning a new behavior: how to resist temptation. There is a lot of fear out there. " ... Read the Entire Article
Associated Press
April 4, 2008
The gloomiest outlook for the economy in 35 years may be forcing Americans to live with what they have and save up for what they want.
Lynda Nicely has been living in a sparsely furnished rental apartment in a Milwaukee suburb since October while she saves enough money for furniture at a second-hand store. And when temperatures soar this summer, she plans to buy a fan, not an air-conditioner.
"I am a little rattled, " said the 28-year-old resident of West Allis, who took a second job as a waitress and plans to hoard three months worth of emergency cash just in case she loses her primary job in public relations.
A growing number of anxious people across all income segments are shopping at less-expensive stores, reacquainting themselves with the library, paying down credit-card debt and cutting back on new clothes and cars, vacations and meals out.
The psychology of the American consumer has turned as worries heighten about the job market, the slump in real estate and soaring daily living costs.
Industry followers say shoppers ' fear, which has been escalating since last July, could very well worsen what ails us.
Such spending cuts could be "a self-fulfilling prophesy " and could hasten the economy 's slide, said Lynn Franco, director of The Conference Board Consumer Research Center.
"I don 't think (the spending slump) has bottomed out, " said Candace Corlett, principal at consulting firm WSL Strategic Retail. "Shoppers are learning a new behavior: how to resist temptation. There is a lot of fear out there. " ... Read the Entire Article
Oil price edges up on Opec stance
The BBC
Oil prices have climbed towards $107 a barrel as the rally seen late last week continued.
US light, sweet crude rose 59 cents to $106.82 a barrel, having leapt $2.40 on Friday. London Brent crude, meanwhile, gained 33 cents to $105.22.
The rises were helped as producer group Opec reiterated that it saw no need to increase output.
Investors have also been looking to move out of the weak dollar and into commodities, pushing up the oil price.
"Oil supply to the market is enough and high oil prices are not due to a shortage of crude but rather it is because of the decrease in the dollar's value, shortage of refinery capacity and some political tensions in the world," Opec secretary general Abdullah al-Badri said.
Commodities are viewed as an attractive alternative investment to dollars.
The dollar weakened in relation to the euro on Friday after official data showed US employers cut 80,000 jobs in March - the biggest monthly job decline in five years.
When the dollar weakens it becomes cheaper for foreign buyers to invest in commodities, which are priced in the US currency.
Oil prices have climbed towards $107 a barrel as the rally seen late last week continued.
US light, sweet crude rose 59 cents to $106.82 a barrel, having leapt $2.40 on Friday. London Brent crude, meanwhile, gained 33 cents to $105.22.
The rises were helped as producer group Opec reiterated that it saw no need to increase output.
Investors have also been looking to move out of the weak dollar and into commodities, pushing up the oil price.
"Oil supply to the market is enough and high oil prices are not due to a shortage of crude but rather it is because of the decrease in the dollar's value, shortage of refinery capacity and some political tensions in the world," Opec secretary general Abdullah al-Badri said.
Commodities are viewed as an attractive alternative investment to dollars.
The dollar weakened in relation to the euro on Friday after official data showed US employers cut 80,000 jobs in March - the biggest monthly job decline in five years.
When the dollar weakens it becomes cheaper for foreign buyers to invest in commodities, which are priced in the US currency.
Sunday, April 6, 2008
Fed's interest rate games could destroy the dollar
By Tim O'Brien
The Detroit News
Federal Reserve Chairman Ben Bernanke has reduced the key federal funds rate six times in as many months -- reducing the cost for major borrowers significantly. This combines with providing $270 million in funding, plus $30 billion in additional guarantees, for JP Morgan Chase to buy Bear Stearns Cos.
"Helicopter Ben" is living up to the nickname he earned after he remarked in a 2002 speech that he would stave off a recession even if he had to drop money from helicopters to do it.
The results of these policies have been destructive. The dollar is collapsing not only against foreign currencies -- we're now at par with the Canadian dollar and rocketing toward a 2-1 deficit against the Euro -- but also against commodities. Gold was passing the $1,000-an-ounce landmark, silver $20. Even industrial metals like copper and zinc are fetching record prices.
Now, a spike in a particular commodity -- say, for instance, $100-per-barrel oil -- can be attributed to a shortage. But when they all move dramatically and simultaneously, it's the purchasing power of our money that has gone down.
In fact, the increasing cost of even the base metals recently prompted Edmund Moy, director of the United States Mint, to propose further debasing the copper and nickel-plated, zinc slugs we call coins by substituting color-coated steel.
"Never before in our nation's history has the government spent more money to mint and issue a coin than the coin's legal tender value," he claimed in testimony at a recent hearing before the House Financial Services Committee's panel on monetary policy. But the U.S. mint continues to issue 1-ounce Gold Eagle coins currently worth about 18 times their $50 legal tender value.
The beginning of the end for money "as sound as a dollar" was the creation of the Federal Reserve less than a century ago. The final blow came during the Nixon administration when our money's last tie to anything of intrinsic worth was severed with the decree that even Silver Certificate currency would no long be redeemable in specie ... Read the Entire Article
The Detroit News
Federal Reserve Chairman Ben Bernanke has reduced the key federal funds rate six times in as many months -- reducing the cost for major borrowers significantly. This combines with providing $270 million in funding, plus $30 billion in additional guarantees, for JP Morgan Chase to buy Bear Stearns Cos.
"Helicopter Ben" is living up to the nickname he earned after he remarked in a 2002 speech that he would stave off a recession even if he had to drop money from helicopters to do it.
The results of these policies have been destructive. The dollar is collapsing not only against foreign currencies -- we're now at par with the Canadian dollar and rocketing toward a 2-1 deficit against the Euro -- but also against commodities. Gold was passing the $1,000-an-ounce landmark, silver $20. Even industrial metals like copper and zinc are fetching record prices.
Now, a spike in a particular commodity -- say, for instance, $100-per-barrel oil -- can be attributed to a shortage. But when they all move dramatically and simultaneously, it's the purchasing power of our money that has gone down.
In fact, the increasing cost of even the base metals recently prompted Edmund Moy, director of the United States Mint, to propose further debasing the copper and nickel-plated, zinc slugs we call coins by substituting color-coated steel.
"Never before in our nation's history has the government spent more money to mint and issue a coin than the coin's legal tender value," he claimed in testimony at a recent hearing before the House Financial Services Committee's panel on monetary policy. But the U.S. mint continues to issue 1-ounce Gold Eagle coins currently worth about 18 times their $50 legal tender value.
The beginning of the end for money "as sound as a dollar" was the creation of the Federal Reserve less than a century ago. The final blow came during the Nixon administration when our money's last tie to anything of intrinsic worth was severed with the decree that even Silver Certificate currency would no long be redeemable in specie ... Read the Entire Article
Friday, April 4, 2008
80,000 Jobs Cut in March; Unemployment Rate Rises
By MICHAEL M. GRYNBAUM
Published: April 4, 2008
The economy shed 80,000 jobs in March, the third consecutive month of rising unemployment, presenting a stark sign that the country may already be in a recession.
Sharp downturns in the manufacturing and construction sectors led the decline, the biggest in five years. The Labor Department also said employers cut far more jobs in January and February than originally estimated.
The unemployment rate ticked up to 5.1 percent from 4.8 percent, its highest level since the aftermath of Hurricane Katrina in September 2005. More Americans looked for work than in February, when many simply took themselves out of the job market. But employment opportunities remained sparse.
“Three months in a row of payroll job losses and a sizable negative revision: these are clear signs that the job market is in recession,” said Jared Bernstein, an economist at the Economics Policy Institute. “I’m hard-pressed to imagine anyone who would raise doubt to that at this point.”
In the last 50 years, whenever there has been an employment downturn like the one of the last few months, a recession has followed ... Read the Entire Article
Published: April 4, 2008
The economy shed 80,000 jobs in March, the third consecutive month of rising unemployment, presenting a stark sign that the country may already be in a recession.
Sharp downturns in the manufacturing and construction sectors led the decline, the biggest in five years. The Labor Department also said employers cut far more jobs in January and February than originally estimated.
The unemployment rate ticked up to 5.1 percent from 4.8 percent, its highest level since the aftermath of Hurricane Katrina in September 2005. More Americans looked for work than in February, when many simply took themselves out of the job market. But employment opportunities remained sparse.
“Three months in a row of payroll job losses and a sizable negative revision: these are clear signs that the job market is in recession,” said Jared Bernstein, an economist at the Economics Policy Institute. “I’m hard-pressed to imagine anyone who would raise doubt to that at this point.”
In the last 50 years, whenever there has been an employment downturn like the one of the last few months, a recession has followed ... Read the Entire Article
Thursday, April 3, 2008
Wall Street is Getting More Salacious Than the Tabloids
By David Whitehead
Business Insider Magazine
Our normally arcane financial markets are getting more salacious press these days than Britney Spears. However, I would expect investors to start pulling their hair out before they ceremoniously shave their heads. Pretty soon the $45 trillion teetering on credit default swaps will sound more exciting to average Americans than Mr. Spitzer’s dalliance with a high-cost prostitute (despite what you’ve read elsewhere, high-class is seriously questionable here).
Folks who rarely follow this stuff are now asking difficult questions, which is encouraging. Although this trend is extremely healthy for the long-term health of our financial system, the added transparency is an extraordinary annoyance for those who run it. Industry professionals with a lot of money riding on the markets are selectively anesthetizing their gray matter in a desperate search for good news. Confusion is rampant not because this financial crisis is so tough to figure out but because the people best qualified understand it are scared to identify and critique its root causes in the central banking system. The mainstream press is getting less timid about going deep in their coverage of financial issues, but that is primarily because details normally buried behind the headlines are springing to the surface faster than people can properly analyze them. In fact, the Bear Sterns debacle hit the media like a freight train and now we’re waiting to see what blows up next.
Our current Federal Reserve Chair Ben S. Bernanke has inherited problems his predecessors never dreamed of and so far he is simply putting out fires with no real plan for fixing the long term problems that created this crisis in the first place.
The Fed’s strategy to overhaul the financial regulatory system absurdly calls for the head fox to guard the hen house rather than the team of foxes we currently distinguish as “regulators.” The key flaw with their strategy is the fact the Federal Reserve is primarily a private for-profit central banking system. Its institutional structure has far too many conflicting interests rooted in the internationally controlled banking groups that actually own it. These are the folks who cultivate extraordinary wealth from convulsions in geopolitical and global financial systems they are in a unique position to anticipate. How can a group with an institutional structure like that be trusted to regulate the rest of the financial community when it sorely needs proper checks and balances itself? This is something they have always fought successfully to avoid using financial clout no government institution can touch.
The derivatives markets literally managed to securitize garbage heaps and obtain triple “A” ratings for them! They deceived global investors into believing they were making solid financial investments, while in reality they were buying something no better than junk bonds. Now people like myself are calling their financial advisors to find out if we own any of these toxic mortgage backed securities that might be concealed in our investment programs. I found none in my own IRA, but some of the companies I am invested in bought the stuff, which isn’t comforting.
The damage to the trust required for average citizens who want to invest in Wall Street will take some time to mend. The regulatory changes proposed as of this writing sound like window dressing, yet they bestow a dangerous level of power to the central bankers that created the bubbles that led us down this road in the first place.
The Federal Reserve prefers to work from behind the scenes and I am sure there are powerful people who are not pleased “helicopter” Ben has achieved celebrity status for his well-publicized money drops to deliver financial relief tempered by mounting inflation that is already starting to get noticed.
Does this sound as if the world as we know it is about to end? It does only if you can’t imagine a world without the almighty U.S. Dollar. But despite our ethnocentric allegiance to our institutions, the dollar, like every currency ever conceived, is mortal and potentially finite.
Should the Fed run out of places to beg, borrow and steal from the global economy to keep our currency afloat as the rest of the world casts their greenbacks aside settling on a new reserve currency less burdened by debt, hyperinflation would become unavoidable. I know there are Keyensian types out there who think our internal economic activity is strong enough for us to ride through this. However, if you don’t need bullion or hard industries at home to generate real wealth, then why all the borrowing, deficits and debt that’s gone on for the last 30 years? The new thinking for many economists espouses that old fundamentals no longer matter, but the point is no one in the history of the world has ever sustained an economy built on a foundation of mounting debt. Has anything happened during the last three decades that cancels out the rest of economic history? I doubt it and the fundamentals don’t seem to be going away as everything happening now has been predicted for years. The only surprise for people like me is how long it took for everything to start falling apart. When a friend engaging in offshore investments first alerted to the terminally ill dollar in the mid nineties, I was told the economy would blow out by 2004. Well, it’s 2008 and the snowball is starting to gain size and speed.
Weimer Germany blew out it’s currency printing fiat money to pay war debts, but despite the old photos of people carrying their money in wheel barrels in the early twenties, they managed to borrow enough money from the very enemies whom they owed war reparations for Hitler to launch World War II with extraordinary force 15 years later. I’m not kidding! Read the 1,300 pages of the late Carroll Quigley’s epic “Tragedy and Hope” and your mouth will drop when you read that tidbit among other obscure facts most historians thought you didn’t need to know.
This is the kind of direction global financial markets can take us if left to their own devices unless governments genuinely under the control of their own people and untainted by lobbying muscle have the courage to confront powerful financial institutions and keep them in check. I don’t mean constraining them to the point they can’t be profitable. I mean we need cool heads taking the long view to make sure what they create is in the national interest, not predatory on other sovereign nations and most importantly—sustainable. Unfortunately, our economy, and the global economy for that matter, hasn’t functioned that way in anyone’s living memory. We are at the point where we need to invent something new to rediscover the greatness of our past.
David Whitehead is the Publisher of Business Insider Magazine
Business Insider Magazine
Our normally arcane financial markets are getting more salacious press these days than Britney Spears. However, I would expect investors to start pulling their hair out before they ceremoniously shave their heads. Pretty soon the $45 trillion teetering on credit default swaps will sound more exciting to average Americans than Mr. Spitzer’s dalliance with a high-cost prostitute (despite what you’ve read elsewhere, high-class is seriously questionable here).
Folks who rarely follow this stuff are now asking difficult questions, which is encouraging. Although this trend is extremely healthy for the long-term health of our financial system, the added transparency is an extraordinary annoyance for those who run it. Industry professionals with a lot of money riding on the markets are selectively anesthetizing their gray matter in a desperate search for good news. Confusion is rampant not because this financial crisis is so tough to figure out but because the people best qualified understand it are scared to identify and critique its root causes in the central banking system. The mainstream press is getting less timid about going deep in their coverage of financial issues, but that is primarily because details normally buried behind the headlines are springing to the surface faster than people can properly analyze them. In fact, the Bear Sterns debacle hit the media like a freight train and now we’re waiting to see what blows up next.
Our current Federal Reserve Chair Ben S. Bernanke has inherited problems his predecessors never dreamed of and so far he is simply putting out fires with no real plan for fixing the long term problems that created this crisis in the first place.
The Fed’s strategy to overhaul the financial regulatory system absurdly calls for the head fox to guard the hen house rather than the team of foxes we currently distinguish as “regulators.” The key flaw with their strategy is the fact the Federal Reserve is primarily a private for-profit central banking system. Its institutional structure has far too many conflicting interests rooted in the internationally controlled banking groups that actually own it. These are the folks who cultivate extraordinary wealth from convulsions in geopolitical and global financial systems they are in a unique position to anticipate. How can a group with an institutional structure like that be trusted to regulate the rest of the financial community when it sorely needs proper checks and balances itself? This is something they have always fought successfully to avoid using financial clout no government institution can touch.
The derivatives markets literally managed to securitize garbage heaps and obtain triple “A” ratings for them! They deceived global investors into believing they were making solid financial investments, while in reality they were buying something no better than junk bonds. Now people like myself are calling their financial advisors to find out if we own any of these toxic mortgage backed securities that might be concealed in our investment programs. I found none in my own IRA, but some of the companies I am invested in bought the stuff, which isn’t comforting.
The damage to the trust required for average citizens who want to invest in Wall Street will take some time to mend. The regulatory changes proposed as of this writing sound like window dressing, yet they bestow a dangerous level of power to the central bankers that created the bubbles that led us down this road in the first place.
The Federal Reserve prefers to work from behind the scenes and I am sure there are powerful people who are not pleased “helicopter” Ben has achieved celebrity status for his well-publicized money drops to deliver financial relief tempered by mounting inflation that is already starting to get noticed.
Does this sound as if the world as we know it is about to end? It does only if you can’t imagine a world without the almighty U.S. Dollar. But despite our ethnocentric allegiance to our institutions, the dollar, like every currency ever conceived, is mortal and potentially finite.
Should the Fed run out of places to beg, borrow and steal from the global economy to keep our currency afloat as the rest of the world casts their greenbacks aside settling on a new reserve currency less burdened by debt, hyperinflation would become unavoidable. I know there are Keyensian types out there who think our internal economic activity is strong enough for us to ride through this. However, if you don’t need bullion or hard industries at home to generate real wealth, then why all the borrowing, deficits and debt that’s gone on for the last 30 years? The new thinking for many economists espouses that old fundamentals no longer matter, but the point is no one in the history of the world has ever sustained an economy built on a foundation of mounting debt. Has anything happened during the last three decades that cancels out the rest of economic history? I doubt it and the fundamentals don’t seem to be going away as everything happening now has been predicted for years. The only surprise for people like me is how long it took for everything to start falling apart. When a friend engaging in offshore investments first alerted to the terminally ill dollar in the mid nineties, I was told the economy would blow out by 2004. Well, it’s 2008 and the snowball is starting to gain size and speed.
Weimer Germany blew out it’s currency printing fiat money to pay war debts, but despite the old photos of people carrying their money in wheel barrels in the early twenties, they managed to borrow enough money from the very enemies whom they owed war reparations for Hitler to launch World War II with extraordinary force 15 years later. I’m not kidding! Read the 1,300 pages of the late Carroll Quigley’s epic “Tragedy and Hope” and your mouth will drop when you read that tidbit among other obscure facts most historians thought you didn’t need to know.
This is the kind of direction global financial markets can take us if left to their own devices unless governments genuinely under the control of their own people and untainted by lobbying muscle have the courage to confront powerful financial institutions and keep them in check. I don’t mean constraining them to the point they can’t be profitable. I mean we need cool heads taking the long view to make sure what they create is in the national interest, not predatory on other sovereign nations and most importantly—sustainable. Unfortunately, our economy, and the global economy for that matter, hasn’t functioned that way in anyone’s living memory. We are at the point where we need to invent something new to rediscover the greatness of our past.
David Whitehead is the Publisher of Business Insider Magazine
Wednesday, April 2, 2008
Bernanke Nods at Possibility of a Recession
By STEVEN R. WEISMAN
The New York Times
WASHINGTON — In his bleakest economic assessment to date, the Federal Reserve chairman, Ben S. Bernanke, said Wednesday that the American economy could contract in the first half of 2008, meeting the technical definition of a recession, and he encouraged Congress to help homeowners caught up in the mortgage crisis.
While not endorsing any specific housing proposals, Mr. Bernanke made clear that the weakness in housing remained the single biggest drag on the prospects for an economic recovery and said that it was up to Congress to act.
In fact, Senate Democrats and Republicans reached a general agreement Wednesday afternoon on legislation to help Americans in danger of losing their homes, underscoring the political urgency that lawmakers have faced since last month, when the Fed intervened to coordinate the sale of the brokerage firm Bear Stearns to JPMorgan Chase.
In separate comments, Mr. Bernanke went further than he had in the past, suggesting that the Fed would remain aggressive and vigilant to prevent a repetition of a collapse like that of Bear Stearns, though he said he saw no such problems on the horizon.
Even without additional authority from Congress, Mr. Bernanke said the Fed had already established “on-site” teams of monitors for investment banks to make sure that they adhered to sound practices, and he urged Congress not to dilute the Fed’s authority on such matters.
By the end of his comments, it was also clear that he and the Fed were not entirely pleased with the “blueprint” for regulatory changes issued on Monday by the Treasury secretary, Henry M. Paulson Jr.
That proposal called for an overhaul and consolidation of the financial regulatory system. The Fed chief, in an almost classic case of damning with faint praise, said Mr. Paulson’s blueprint was “a very interesting and useful first step” for Congress to consider ... Read the Entire Article
The New York Times
WASHINGTON — In his bleakest economic assessment to date, the Federal Reserve chairman, Ben S. Bernanke, said Wednesday that the American economy could contract in the first half of 2008, meeting the technical definition of a recession, and he encouraged Congress to help homeowners caught up in the mortgage crisis.
While not endorsing any specific housing proposals, Mr. Bernanke made clear that the weakness in housing remained the single biggest drag on the prospects for an economic recovery and said that it was up to Congress to act.
In fact, Senate Democrats and Republicans reached a general agreement Wednesday afternoon on legislation to help Americans in danger of losing their homes, underscoring the political urgency that lawmakers have faced since last month, when the Fed intervened to coordinate the sale of the brokerage firm Bear Stearns to JPMorgan Chase.
In separate comments, Mr. Bernanke went further than he had in the past, suggesting that the Fed would remain aggressive and vigilant to prevent a repetition of a collapse like that of Bear Stearns, though he said he saw no such problems on the horizon.
Even without additional authority from Congress, Mr. Bernanke said the Fed had already established “on-site” teams of monitors for investment banks to make sure that they adhered to sound practices, and he urged Congress not to dilute the Fed’s authority on such matters.
By the end of his comments, it was also clear that he and the Fed were not entirely pleased with the “blueprint” for regulatory changes issued on Monday by the Treasury secretary, Henry M. Paulson Jr.
That proposal called for an overhaul and consolidation of the financial regulatory system. The Fed chief, in an almost classic case of damning with faint praise, said Mr. Paulson’s blueprint was “a very interesting and useful first step” for Congress to consider ... Read the Entire Article
IMF Says U.S. In Worst Economic Crisis Since Great Depression
By Paul Joseph Watson
http://www.prisonplanet.com/
Wednesday, April 2, 2008
The International Monetary fund has slashed odds that the world is facing a financial recession and admits that the U.S. is in its worst economic crisis since the Great Depression, as the body revised forecasts for economic slowdown.
The Washington-based lender gave a 25 percent chance that global growth will drop to 3 percent or less this year or next, a figure described s equivalent to a global recession.
The forecast marks the third time the IMF has reduced projections for economic growth since July, with chances of a harsh global recession becoming increasingly likely.
"The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,” the statement said. "The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression,” states the report.
"The IMF’s forecast is now below the world economy’s longer- term trend so there is certainly some significance in what it is now seeing,” said Andy Cates, a global economist at UBS in London told Bloomberg News. "The world economy is slowing quite considerably and will be very different from what we’ve become accustomed to.”
Roger Nightingale, global strategist at Pointon York Ltd. in London, said the IMF were behind the curve in only just beginning to discuss what is already unfolding.
"The IMF only really forecasts these things after they’ve begun,” he told Bloomberg Television. "You’ve got America, Italy and several other European countries and one or two Asian countries, actually in or very close to recession, and yet the IMF just now begins to talk about this phenomenon."
The IMF’s prediction follows a report by the Congressional Budget Office in Washington, which suggests that "In the fiscal year starting in October, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s."
A story about the dismal forecast by the London Independent entitled, USA 2008: The Great Depression, describes how getting food on the table "is a challenge many Americans are finding harder to meet."
http://www.prisonplanet.com/
Wednesday, April 2, 2008
The International Monetary fund has slashed odds that the world is facing a financial recession and admits that the U.S. is in its worst economic crisis since the Great Depression, as the body revised forecasts for economic slowdown.
The Washington-based lender gave a 25 percent chance that global growth will drop to 3 percent or less this year or next, a figure described s equivalent to a global recession.
The forecast marks the third time the IMF has reduced projections for economic growth since July, with chances of a harsh global recession becoming increasingly likely.
"The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,” the statement said. "The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression,” states the report.
"The IMF’s forecast is now below the world economy’s longer- term trend so there is certainly some significance in what it is now seeing,” said Andy Cates, a global economist at UBS in London told Bloomberg News. "The world economy is slowing quite considerably and will be very different from what we’ve become accustomed to.”
Roger Nightingale, global strategist at Pointon York Ltd. in London, said the IMF were behind the curve in only just beginning to discuss what is already unfolding.
"The IMF only really forecasts these things after they’ve begun,” he told Bloomberg Television. "You’ve got America, Italy and several other European countries and one or two Asian countries, actually in or very close to recession, and yet the IMF just now begins to talk about this phenomenon."
The IMF’s prediction follows a report by the Congressional Budget Office in Washington, which suggests that "In the fiscal year starting in October, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s."
A story about the dismal forecast by the London Independent entitled, USA 2008: The Great Depression, describes how getting food on the table "is a challenge many Americans are finding harder to meet."
Monday, March 31, 2008
Chaos on Wall Street
The big banks' fear of big losses is threatening to bring down the entire system, with dire consequences for all of us. Here's what's going on, and what we can do about it.
By Allan Sloan, senior editor at large
(Fortune Magazine as Publsihed on CNN Money) -- What in the world is going on here? Why is Washington spending billions to bail out Wall Street titans while leaving struggling homeowners to fend for themselves? Why are the Federal Reserve and the Treasury acting as if they're afraid the world may come to an end, while the stock market seems much less concerned? And finally, what does all this mean to those of us who aren't financial professionals?
Okay, take a few breaths, pour yourself a beverage of your choice, and I'll tell you what's happening - and what I think is going to happen. Although I expect these problems will resolve themselves without a catastrophic meltdown, I'll also tell you why I'm more nervous about the world financial system now than I've ever been in my 40 years of covering business and markets.
Finally, I'll tell you why I fear that the Wall Street enablers of the biggest financial mess of my lifetime will escape with relatively light damage, leaving the rest of us - and our children and grandchildren - to pay for their misdeeds.
We're suffering the aftereffects of the collapse of a Tinker Bell financial market, one that depended heavily on borrowed money that has now vanished like pixie dust. Like Tink, the famous fairy from Peter Pan, this market could exist only as long as everyone agreed to believe in it.
So because it was convenient - and oh, so profitable! - players embraced fantasies like U.S. house prices never falling and cheap short-term money always being available. They created, bought, and sold, for huge profits, securities that almost no one understood. And they goosed their returns by borrowing vast amounts of money ... Read the Entire Article
By Allan Sloan, senior editor at large
(Fortune Magazine as Publsihed on CNN Money) -- What in the world is going on here? Why is Washington spending billions to bail out Wall Street titans while leaving struggling homeowners to fend for themselves? Why are the Federal Reserve and the Treasury acting as if they're afraid the world may come to an end, while the stock market seems much less concerned? And finally, what does all this mean to those of us who aren't financial professionals?
Okay, take a few breaths, pour yourself a beverage of your choice, and I'll tell you what's happening - and what I think is going to happen. Although I expect these problems will resolve themselves without a catastrophic meltdown, I'll also tell you why I'm more nervous about the world financial system now than I've ever been in my 40 years of covering business and markets.
Finally, I'll tell you why I fear that the Wall Street enablers of the biggest financial mess of my lifetime will escape with relatively light damage, leaving the rest of us - and our children and grandchildren - to pay for their misdeeds.
We're suffering the aftereffects of the collapse of a Tinker Bell financial market, one that depended heavily on borrowed money that has now vanished like pixie dust. Like Tink, the famous fairy from Peter Pan, this market could exist only as long as everyone agreed to believe in it.
So because it was convenient - and oh, so profitable! - players embraced fantasies like U.S. house prices never falling and cheap short-term money always being available. They created, bought, and sold, for huge profits, securities that almost no one understood. And they goosed their returns by borrowing vast amounts of money ... Read the Entire Article
US credit crunch hits education as banks abandon student loans
From The Times
March 31, 2008
Suzy Jagger in New York
One of America’s leading banking associations has given warning that the United States faces a growing educational apartheid as some lenders withdraw from student loans amid new evidence that the credit crisis has spread across all types of borrowing.In the past fortnight, some banks, including HSBC, have pulled out of the $85 billion (£42 billion) a year US student loans market, fuelling anxiety that the turmoil that hit debt markets on Wall Street last summer is spilling over into the wider economy and making credit more difficult to secure for ordinary American households.In the US, many undergraduates take out a federal guaranteed loan and top up their financial needs with a private loan from lenders such as Bank of America, JPMorgan Chase and Citi-group. In the academic year 2005-06, $17 billion in private student loans was used to finance higher education ... Read the Entire Article
March 31, 2008
Suzy Jagger in New York
One of America’s leading banking associations has given warning that the United States faces a growing educational apartheid as some lenders withdraw from student loans amid new evidence that the credit crisis has spread across all types of borrowing.In the past fortnight, some banks, including HSBC, have pulled out of the $85 billion (£42 billion) a year US student loans market, fuelling anxiety that the turmoil that hit debt markets on Wall Street last summer is spilling over into the wider economy and making credit more difficult to secure for ordinary American households.In the US, many undergraduates take out a federal guaranteed loan and top up their financial needs with a private loan from lenders such as Bank of America, JPMorgan Chase and Citi-group. In the academic year 2005-06, $17 billion in private student loans was used to finance higher education ... Read the Entire Article
Speculative Onslaught. Crisis of the World Financial System:
The Financial Predators had a Ball
Financial Tsunami, Part V
by F. William Engdahl
Global Research, February 23, 2008
Colossal Collateral Damage
The multi-trillion dollar US-centered securitization debacle began to unravel in June 2007 with the liquidity crisis in two hedge funds owned by Bear Stearns, one of the world’s largest and most successful investment banks. The funds were heavily invested in sub-prime mortgage securities. The damage soon spread across the Atlantic to a little-known German state-owned bank, IKB. In July 2007, IKB’s wholly-owned conduit, Rhineland Funding, had approximately €20 billion of Asset Backed Commercial Paper (ABCP). In mid-July, investors refused to rollover part of Rhineland Funding’s ABCP. That forced the European Central Bank to inject record volumes of liquidity into the market to keep the banking system liquid.
Rhineland Funding asked IKB to provide a credit line. IKB revealed it didn’t have enough cash or liquid assets to meet the request of its conduit, and was only saved by an emergency €8 billion credit facility provided by its state-owned major shareholder bank, the Kreditanstalt für Wiederaufbau, ironically the bank which led the Marshall Plan reconstruction of war-torn Germany in the late 1940’s. It was soon to become evident to the world that a new Marshall Plan, or some financial equivalent, was urgently needed for the United States economy; however, there were no likely donors stepping up to the plate this time.
The intervention of KfW, rather than stopping the panic, led to reserve hoarding and to a run on all commercial paper issued by international banks’ off-books Structured Investment Vehicles (SIVs).
Asset Backed Commercial Paper was one of the big products of the asset securitization revolution fostered by Greenspan and the US financial establishment. They were the stand-alone creations of the major banks, set up to get risk off the bank’s balance sheet.
The SIV would typically issue Commercial Paper securities backed by a flow of payments from the cash collections received from the conduit’s underlying asset portfolio. The ABCP was a short-term debt, generally no more than 270 days. Crucially, they were exempt from the registration requirements of the US Securities Act of 1933. ABCPs were typically issued from pools of trade receivables, credit card receivables, auto and equipment loans and leases, and collateralized debt obligations ... Read the Entire Article
Financial Tsunami, Part V
by F. William Engdahl
Global Research, February 23, 2008
Colossal Collateral Damage
The multi-trillion dollar US-centered securitization debacle began to unravel in June 2007 with the liquidity crisis in two hedge funds owned by Bear Stearns, one of the world’s largest and most successful investment banks. The funds were heavily invested in sub-prime mortgage securities. The damage soon spread across the Atlantic to a little-known German state-owned bank, IKB. In July 2007, IKB’s wholly-owned conduit, Rhineland Funding, had approximately €20 billion of Asset Backed Commercial Paper (ABCP). In mid-July, investors refused to rollover part of Rhineland Funding’s ABCP. That forced the European Central Bank to inject record volumes of liquidity into the market to keep the banking system liquid.
Rhineland Funding asked IKB to provide a credit line. IKB revealed it didn’t have enough cash or liquid assets to meet the request of its conduit, and was only saved by an emergency €8 billion credit facility provided by its state-owned major shareholder bank, the Kreditanstalt für Wiederaufbau, ironically the bank which led the Marshall Plan reconstruction of war-torn Germany in the late 1940’s. It was soon to become evident to the world that a new Marshall Plan, or some financial equivalent, was urgently needed for the United States economy; however, there were no likely donors stepping up to the plate this time.
The intervention of KfW, rather than stopping the panic, led to reserve hoarding and to a run on all commercial paper issued by international banks’ off-books Structured Investment Vehicles (SIVs).
Asset Backed Commercial Paper was one of the big products of the asset securitization revolution fostered by Greenspan and the US financial establishment. They were the stand-alone creations of the major banks, set up to get risk off the bank’s balance sheet.
The SIV would typically issue Commercial Paper securities backed by a flow of payments from the cash collections received from the conduit’s underlying asset portfolio. The ABCP was a short-term debt, generally no more than 270 days. Crucially, they were exempt from the registration requirements of the US Securities Act of 1933. ABCPs were typically issued from pools of trade receivables, credit card receivables, auto and equipment loans and leases, and collateralized debt obligations ... Read the Entire Article
April Fools: The Fox To Guard The Banking Henhouse
by Dr. Ellen Brown
Global Research, March 31, 2008
[author's website at http://www.webofdebt.com/]The Federal Reserve, which has been credited with creating the current housing bubble and bust just as it created the credit bubble of the Roaring Twenties and the bust of 1929, is now to be given vast new powers to oversee regulation of the banking industry and promote "financial market stability." At least, that is the gist of a Treasury Department proposal to be presented to Congress on Monday, March 31, 2008. Adrian Douglas wrote on LeMetropoleCafe.com, "I would like to think that this is some sort of sick April Fools joke, but, alas, they are serious! What happened to free markets?"1
In fact, what happened to regulating the banks? The Treasury's plan is not for the private Federal Reserve to increase regulation of the banking system it heads. Au contraire, regulation will actually be decreased. According to The Wall Street Journal:
"Many of the [Treasury's] proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation. According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms. . . . Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. . . . The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets."2
"securities products" include the mortgage-backed securities, collateralized debt obligations, credit default swaps, and other forms of the great Ponzi scheme known as "derivatives" that have been largely responsible for bringing the banking system to the brink of collapse. But these suspect products are not to be more heavily scrutinized; rather, their approval will actually be "streamlined" and may be automatic if they are being traded in "foreign markets." The Journal observes that the Treasury's proposal was initiated last year by Secretary Henry Paulson not to "regulate" the banks but "to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system. His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders." "streamlining" the rules evidently meant eliminating any that "clashed" with the Fed's goal of allowing U.S. banks to be more "competitive" abroad. The Journal continues:
"While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation. The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings. . . . And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security."
Regulating fraudulent, predatory and overly-speculative banking practices has been left to the States, not necessarily by law but by default. According to then-Governor Eliot Spitzer, writing in January of 2008, state regulators tried to regulate these shady practices but were hamstrung by federal authorities. In a February 14 Washington Post article titled "Predatory Lenders; Partner in Crime: How the Bush Administration Stopped the States from Stepping in to Help Consumers," Spitzer complained:
"several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive 'teaser; rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
"Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers. . . . [A]s New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices . . . .
"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye. . . . The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). . . . 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."
Less than a month after publishing this editorial, Spitzer was out of office, following a surprise exposé of his personal indiscretions by the Justice Department. Greg Palast observed that Spitzer was the single politician standing between a $200 billion windfall from the Federal Reserve guaranteeing the mortgage-backed junk bonds of the same banking predators that were responsible for the subprime debacle. While the Federal Reserve was trying to bail them out, Spitzer had been trying to regulate them, bringing suit on behalf of consumers.3 But Spitzer has now been silenced, and any other state attorneys general who might get similar ideas will be deterred by the federal oversight under which banking regulators are to be "consolidated."
The Federal Reserve under Alan Greenspan deliberately enabled and permitted the derivatives debacle to take down the dollar and America's credibility. Greenspan is now lauded, feted and awarded at the White House and on network television, and takes a victory lap tour promoting and signing his book and celebrating his multimillion dollar book deal, enjoying his knighthood status in England and hero status on Wall Street. And as the falling debris of the American economy still piles up around us, the very agency that enabled disaster is now seeking to consolidate ultimate authority and accountability to itself, and through centralization and arrogation of power, eliminate all those pesky little Constitutional and State regulations and agencies, recalcitrant governors and the last few whistle blowers, so that the further abuse of power can be streamlined through one agency only. That agency is to consist of an alliance of the banking powers and the executive branch, a perfect formula for the institutionalization of continual abuse.
Perhaps Spitzer was lucky that he was the target only of a character assassination. When Louisiana Senator Huey Long challenged the Federal Reserve and fought for the State's right to oversee its own financial affairs in the 1930s, he was assassinated with bullets. Long's local assertion of decentralized State powers, as provided for in the Tenth Amendment to the Constitution, enabled the State of Louisiana to loosen the grip of the corporations on the State's wealth and allowed the setting up of schools and public institutions that elevated the people of the State and placed its "common wealth" back into the hands of its citizens, while providing employment and education. The Constitution reserves to the States and the people all those powers not specifically delegated to the federal government, arguably including the creation of money itself, which is nowhere specifically mentioned in the Constitution beyond creating coins. (See E. Brown, "Another Way Around the Credit Crisis: Minnesota Bill Would Authorize State Banks to Monetize; Productivity," www.webofdebt.com/articles, March 23, 2008.) But in this latest attempt at expanding the Federal Reserve's already over-expansive powers, we see clear evidence that the Wall Street and global banking powers have no intention of allowing their plans to be reined in by the Constitutional powers of the States and the people. Instead, they intend to fill up the moat and pull up the draw bridge on their feudal powers, and let the serfs shiver outside the gates for as long as they will put up with it.
NOTES
1
Adrian Douglas, "PPT to Come Out of the Closet," www.lemetropolecafe.com (March 29, 2008).
2
Edmund Andrews, "Treasury's Plan Would Give Fed Wide new Power," New York Times (March 29, 2008).
3
Greg Palast, "Eliot's Mess" www.gregpalast.com (March 14, 2008).
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Her websites are http://www.webofdebt.com/ and http://www.ellenbrown.com/.
Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown
Global Research, March 31, 2008
[author's website at http://www.webofdebt.com/]The Federal Reserve, which has been credited with creating the current housing bubble and bust just as it created the credit bubble of the Roaring Twenties and the bust of 1929, is now to be given vast new powers to oversee regulation of the banking industry and promote "financial market stability." At least, that is the gist of a Treasury Department proposal to be presented to Congress on Monday, March 31, 2008. Adrian Douglas wrote on LeMetropoleCafe.com, "I would like to think that this is some sort of sick April Fools joke, but, alas, they are serious! What happened to free markets?"1
In fact, what happened to regulating the banks? The Treasury's plan is not for the private Federal Reserve to increase regulation of the banking system it heads. Au contraire, regulation will actually be decreased. According to The Wall Street Journal:
"Many of the [Treasury's] proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation. According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms. . . . Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. . . . The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets."2
"securities products" include the mortgage-backed securities, collateralized debt obligations, credit default swaps, and other forms of the great Ponzi scheme known as "derivatives" that have been largely responsible for bringing the banking system to the brink of collapse. But these suspect products are not to be more heavily scrutinized; rather, their approval will actually be "streamlined" and may be automatic if they are being traded in "foreign markets." The Journal observes that the Treasury's proposal was initiated last year by Secretary Henry Paulson not to "regulate" the banks but "to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system. His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders." "streamlining" the rules evidently meant eliminating any that "clashed" with the Fed's goal of allowing U.S. banks to be more "competitive" abroad. The Journal continues:
"While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation. The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings. . . . And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security."
Regulating fraudulent, predatory and overly-speculative banking practices has been left to the States, not necessarily by law but by default. According to then-Governor Eliot Spitzer, writing in January of 2008, state regulators tried to regulate these shady practices but were hamstrung by federal authorities. In a February 14 Washington Post article titled "Predatory Lenders; Partner in Crime: How the Bush Administration Stopped the States from Stepping in to Help Consumers," Spitzer complained:
"several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive 'teaser; rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
"Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers. . . . [A]s New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices . . . .
"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye. . . . The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). . . . 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."
Less than a month after publishing this editorial, Spitzer was out of office, following a surprise exposé of his personal indiscretions by the Justice Department. Greg Palast observed that Spitzer was the single politician standing between a $200 billion windfall from the Federal Reserve guaranteeing the mortgage-backed junk bonds of the same banking predators that were responsible for the subprime debacle. While the Federal Reserve was trying to bail them out, Spitzer had been trying to regulate them, bringing suit on behalf of consumers.3 But Spitzer has now been silenced, and any other state attorneys general who might get similar ideas will be deterred by the federal oversight under which banking regulators are to be "consolidated."
The Federal Reserve under Alan Greenspan deliberately enabled and permitted the derivatives debacle to take down the dollar and America's credibility. Greenspan is now lauded, feted and awarded at the White House and on network television, and takes a victory lap tour promoting and signing his book and celebrating his multimillion dollar book deal, enjoying his knighthood status in England and hero status on Wall Street. And as the falling debris of the American economy still piles up around us, the very agency that enabled disaster is now seeking to consolidate ultimate authority and accountability to itself, and through centralization and arrogation of power, eliminate all those pesky little Constitutional and State regulations and agencies, recalcitrant governors and the last few whistle blowers, so that the further abuse of power can be streamlined through one agency only. That agency is to consist of an alliance of the banking powers and the executive branch, a perfect formula for the institutionalization of continual abuse.
Perhaps Spitzer was lucky that he was the target only of a character assassination. When Louisiana Senator Huey Long challenged the Federal Reserve and fought for the State's right to oversee its own financial affairs in the 1930s, he was assassinated with bullets. Long's local assertion of decentralized State powers, as provided for in the Tenth Amendment to the Constitution, enabled the State of Louisiana to loosen the grip of the corporations on the State's wealth and allowed the setting up of schools and public institutions that elevated the people of the State and placed its "common wealth" back into the hands of its citizens, while providing employment and education. The Constitution reserves to the States and the people all those powers not specifically delegated to the federal government, arguably including the creation of money itself, which is nowhere specifically mentioned in the Constitution beyond creating coins. (See E. Brown, "Another Way Around the Credit Crisis: Minnesota Bill Would Authorize State Banks to Monetize; Productivity," www.webofdebt.com/articles, March 23, 2008.) But in this latest attempt at expanding the Federal Reserve's already over-expansive powers, we see clear evidence that the Wall Street and global banking powers have no intention of allowing their plans to be reined in by the Constitutional powers of the States and the people. Instead, they intend to fill up the moat and pull up the draw bridge on their feudal powers, and let the serfs shiver outside the gates for as long as they will put up with it.
NOTES
1
Adrian Douglas, "PPT to Come Out of the Closet," www.lemetropolecafe.com (March 29, 2008).
2
Edmund Andrews, "Treasury's Plan Would Give Fed Wide new Power," New York Times (March 29, 2008).
3
Greg Palast, "Eliot's Mess" www.gregpalast.com (March 14, 2008).
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Her websites are http://www.webofdebt.com/ and http://www.ellenbrown.com/.
Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown
Fed May Nationalize Banks
Ambrose Evans-Pritchard
UK Telegraph
March 30, 2008
The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.
A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region’s economy to its knees.
It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.
Scandinavia’s bank rescue proved successful and is now a model for central bankers, unlike Japan’s drawn-out response, where ailing banks were propped up in a half-public limbo for years.
advertisement
While the responses varied in each Nordic country, there a was major effort to avoid the sort of “moral hazard” that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.
Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country’s top four banks - Christiania Bank and Fokus - were seized by force majeure ... Read the Entire Article
UK Telegraph
March 30, 2008
The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.
A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region’s economy to its knees.
It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.
Scandinavia’s bank rescue proved successful and is now a model for central bankers, unlike Japan’s drawn-out response, where ailing banks were propped up in a half-public limbo for years.
advertisement
While the responses varied in each Nordic country, there a was major effort to avoid the sort of “moral hazard” that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.
Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country’s top four banks - Christiania Bank and Fokus - were seized by force majeure ... Read the Entire Article
Subscribe to:
Posts (Atom)
