Tuesday, September 30, 2008
Posted by Editor
September 30, 2008
Min Zeng and Mark Gongloff report.
If you only watch the stock market, where the Dow was recently up more than 250 points, you might get the mistaken impression all is well with the world on the Tuesday after the latest Black Monday.
But, as has often been the case during this crisis, credit markets are singing a different tune. Overnight dollar Libor rates more than doubled to 6.875%, as banks hoarded cash for the quarter end amid signs the financial crisis was spreading. It’s more than a little ironic that while investors are buying banks’ stocks — shares were up sharply across the sector — banks themselves were unwilling to buy each others’ shortest term debt.
Banks are so desperate for funds that they paid 11% for $30 billion in overnight funds from the European Central Bank, up from 3% just Monday.
Sure, a second round of dollars from the ECB and a 28-day injection of funds from the Fed helped calm the worst panic (indeed, the ECB’s $50 billion offer drew just a bit more than $30 billion in bids, and the rate fell back to 0.50%; while fed funds are now trading at 3.0% rather than the 7.0% high we saw them at earlier), but we’re a long way from normal.
Lena Komileva, economist at broker Tullet Prebon, notes the premium for overnight liquidity is “out of control,” making it hard for central banks to instill confidence in the future.
In short, credit is frozen, in part because institutions are hoarding liquidity for the end of the quarter.
Monday’s Epic Fail on Capitol Hill would seem to be hurting too — except credit was worsening even before the $700 billion bailout bill died, notes Brian Reynolds, chief market strategist at WJB Capital.
Need more geeky proof just how little trust is around? The three-month Libor/OIS spread — which compares the rate at which banks are prepared to lend to each other to the expected benchmark interest rate set by the Fed — widened to a record 246.75 basis points from around 218 basis points Monday.
And it isn’t just Wall Street. The commercial paper market, where companies raise short-term financing, also felt the pressure of tightening conditions. One trader at a primary dealer said volumes are holding up around Monday’s levels, but overnight rates on asset-backed commercial paper jumped to 6% to 7.5% from 2% for better-rated companies on Monday.
It isn’t helping that today is the last day of the third quarter, bringing banks’ efforts to get their books in order to a head.
Another Poll on CNN.
'What should Congress do now that the bailout bill has been defeated in the House?'
1) Draft a new rescue plan-------------------41%---------77106
2) Let risk-taking financial institutions fail--59%---------110245
Total Votes: 187351
Sunday, September 28, 2008
Thursday, September 25, 2008
By Kevin Hamlin
Sept. 25 (Bloomberg) -- Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.
``We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''
An agreement is needed so that no nation rushes to sell, ``causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations.
China, Japan, South Korea and others should meet soon to seal a deal, said Yu, a former academic member of the central bank's monetary policy committee. The talks should involve finance ministers, central bank governors and even national leaders, he said.
``Whether some kind of agreement between them to continue to hold Treasury bills is viable, I'm not sure,'' said James McCormack, head of sovereign ratings at Fitch Ratings Ltd in Hong Kong. ``It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it's something to be avoided.''
The global credit crisis, triggered by a housing slump in the U.S., has saddled financial companies with more than $520 billion in writedowns and losses, collapsing Bear Stearns Cos. and Lehman Brothers Holdings Inc. in the process. Insurer American International Group Inc. and mortgage giants Fannie Mae and Freddie Mac also were rescued by the government.
U.S. Treasury Secretary Henry Paulson is urging Congress to pass a $700 billion plan to remove devalued assets from the banking system. Federal Reserve Chairman Ben S. Bernanke said Sept. 24 that the U.S. is facing ``grave threats'' to its financial stability.
China's huge holdings of U.S. debt means it must bear a large proportion of the ``burden of sorting things out'' in the U.S., Yu said. China is not in a hurry to dump its U.S. holdings and communication between the two nations every ``couple of days'' is keeping Chinese leaders informed and helping to avoid a potential panic, he added.
``China is very worried about the safety of its assets,'' he said. ``If you want China to keep calm, you must ensure China that its assets are safe.''
Yu said China is helping the U.S. ``in a very big way'' and added that it should get something in return. The U.S. should avoid labeling it an unfair trader and a currency manipulator and not politicize other issues, he said.
``It is not fair that we are doing this in good faith and are prepared to bear serious consequences and you are still labeling China this and that, accusing China of this and that,'' he said. ``China knows what to do. We don't need your intervention.''
The U.S. financial crisis had taught China a lesson and that was: ``Why are we piling up these IOUs if they may default?'' China's economic expansion strategy, which emphasizes export growth that has led to trade surpluses and the accumulation of $1.81 trillion in foreign-exchange reserves, is the main problem, said Yu.
``Our export-growth strategy has run its natural course,'' he said. ``We should change course.''
China should stop intervening in the foreign currency markets and thus allow rapid appreciation of the yuan, he said. While this would cause pain for exporters, China could ease the transition by using its strong fiscal position to aid those who lose their jobs. It also should stimulate domestic demand to offset lower income from overseas sales.
Without yuan appreciation, China will continue to accumulate foreign reserves, which means further accumulating ``IOUs from the U.S.,'' said Yu. ``This is paper and it may default and it will not increase China's national welfare.''
If China doesn't allow the yuan to appreciate and continues to promote export-led growth it will lead to confrontation with the U.S. and Europe, Yu said.
To contact the reporters on this story: Kevin Hamlin in Beijing at firstname.lastname@example.org
Last Updated: September 25, 2008 01:45 EDT
Dallas Federal Reserve Bank President Richard Fisher said the proposed $700 billion rescue of financial institutions backed by Fed Chairman Ben S. Bernanke would plunge the U.S. government deeper into a fiscal abyss.Kiss Bernanke Goodbye
The plan by Treasury Secretary Henry Paulson to buy troubled assets from financial institutions would put "one more straw on the back of the frightfully encumbered camel that is the federal government ledger," Fisher said today in the text of a speech in New York. "We are deeply submerged in a vast fiscal chasm."
Fisher made the comments as the central bank expands its role in the biggest government intrusion into markets since the New Deal, with Bernanke trying to persuade Congress to approve Paulson's bailout plan.
Bernanke has already cut the benchmark interest rate at the most aggressive pace in two decades, invoked emergency powers to loan to securities firms and pumped billions of dollars into banks to try to restore liquidity. Also, the central bank loaned $85 billion this month to American International Group Inc.
"The seizures and convulsions we have experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too-tight monetary policy," Fisher said to the New York University Money Marketeers Club.
"I was, and I remain skeptical, that lowering the fed funds rate is the most effective antidote," he said. "Rates held too low, too long during the previous Fed regime were an accomplice to that reckless behavior."
Bernanke day's are now numbered. Goodbye and good riddance.
Kiss the Paulson plan goodbye too. It is now dead on arrival.
The banking system needs another $500 billion to survive beyond the $700 billion rescue plan being contemplated by Congress, said Pimco founder Bill Gross.
Gross said on CNBC that the government bailout plan will help free up bank balance sheets so they can start lending again, but will provide only about $50 billion in real capital to the system.
"The plan goes far but it doesn't go far enough in terms of recapitalization," he said. "The banking system and the investment banking system in total really requires about $500 billion more. Where that comes from is still up in the air."
The Federal Reserve will need to step in to quell fears of counterparty risk-- the worry that one partner in a deal won't hold up its end--and provide assurance that it will be a clearinghouse to make sure transactions get done, Gross said.
"There's a lack of trust anywhere in terms of other counterparties," he said. "The Fed to a certain extent has to assume this level of counterparty risk. It has to be a clearinghouse. Otherwise things don't get done."
On the economy, he predicted tough sledding in 2009, with an unemployment rate of 7 percent that he called "not tragic but certainly not good for the millions of Americans who are going to be out of jobs."
Gross supports the bailout proposal but said the government will find itself with more work to do.
"We're all in favor of this program," he said. "We've advocated it. To suggest otherwise is something I shouldn't do, but I think there are additional steps that need to be taken down the road."
Jobless claims pushed to 7-year high
Thursday September 25, 8:57 am ET
The department said new requests for jobless benefits for the week ending Sept. 20 increased by 32,000 to a seasonally-adjusted 493,000, much higher than analysts' expectations of 445,000.
Wall Street was more focused on Washington, though, where lawmakers and the administration appeared to be moving closer to a $700 billion bailout package for the financial system. Stocks were headed for a moderately higher open.
The two hurricanes added about 50,000 new claims in Louisiana and Texas, the department said. The four-week moving average, which smooths out fluctuations, rose to 462,500.
Even excluding the effects of the hurricanes, jobless claims remain at elevated levels. Weekly claims have now topped 400,000 for ten straight weeks, a level economists consider a sign of recession. A year ago, claims stood at 309,000.
The number of people continuing to draw jobless benefits last week was 3.54 million, up 63,000 from the previous week and nearly a five-year high. The four-week average of continuing claims was 3.49 million.
Hurricane Gustav first had an impact on jobless claims for the week ending Sept. 13. The department said Thursday that Louisiana reported an increase in claims of 18,409 during that week, mostly due to Gustav.
The financial crisis, falling home prices and slowing consumer spending continue to apply the brakes to the U.S. economy. The unemployment rate jumped unexpectedly to 6.1 percent in August, the highest level in five years.
Last week, drug maker Schering-Plough Corp. said it plans to cut 1,000 sales jobs to reduce costs, part of a 10 percent reduction in staff announced in April. Also, the nation's largest chicken producer, Pilgrim's Pride Corp., announced it would reduce 100 jobs besides the 600 job losses it previously announced.
Tuesday, September 23, 2008
Tuesday , September 23, 2008
Leading senators of both parties are expressing strong reservations about the administration's financial bailout plan despite pleas from the treasury secretary and Federal Reserve chairman for quick passage.
Sen. Chris Dodd, a Connecticut Democrat, said on Tuesday, "What they have sent us is not acceptable."
Sen. Richard Shelby, an Alabama Republican, said, "We have got to look at some alternatives."
The response came after Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers they risk a recession with higher unemployment and increased home foreclosures if they fail to pass the Bush administration's $700 billion plan to bail out the financial industry.
Bernanke sketched a scenario in which neither businesses nor consumers could borrow money as President Bush and top lawmakers leaders in both parties voiced hope for agreement within days on a plan to ease the crisis.
"Nobody is happy" about the bailout request, said House Majority Leader Steny Hoyer, D-Md., although he spoke of possible passage of legislation by the weekend.
"Nobody wants to have to do this," agreed Rep. John Boehner of Ohio, the Republican leader. He said he was hopeful of a quick agreement, despite withering criticism from conservative GOP lawmakers, some of whom likened the plan to socialism.
With the stock market headed lower in early afternoon, the stakes were unmistakable. Treasury Secretary Henry Paulson said Congress must pass the legislation this week.
"I understand speed is important, but I'm far more interested in whether or not we get this right," said Dodd, D-Conn., presiding over a a hearing by the Senate Banking Committee banking panel where Bernanke joined Paulson in appealing for quick legislation.
"There is no second act to this. There is no alternative idea out there with resources available if this does not work," he added.
Bernanke's remarks about the risk of recession came in response to a question from Dodd, who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration's unprecedented request.
"The financial markets are in quite fragile condition and I think absent a plan they will get worse," Bernanke said.
Ominously, he added, "I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way."
GDP is a measure of growth, and a decline correlates with a recession.
Across the Capitol complex, Vice President Dick Cheney and Jim Nussle, the administration's budget director, met privately with restive House Republicans, some of whom emerged from the session unpersuaded.
"Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," said Rep. Joe Barton, R-Texas.
Added Rep. Darrell Issa, R-Calif., "I am emphatically against it."
Dodd and other key Democrats have been in private negotiations with the administration since the weekend on legislation designed to allow the government to buy bad debts held by banks and other financial institutions.
Despite expressions of unhappiness in both parties, the prospects for legislation seemed strong, with lawmakers eager to adjourn this week or next for the elections. The legislation that the administration is promoting would allow the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy.
Differences remained, though, including a demand from many Democrats and some Republicans to strip executives at failing financial firms of lucrative "golden parachutes" on their way out the door.
The administration balked at another key Democratic demand: allowing judges to rewrite bankrupt homeowners' mortgages so they could avoid foreclosure.
Paulson, seated next to Bernanke at the committee hearing, objected strongly when Sen. Chuck Schumer, D-N.Y., asked if $150 billion might be enough to get the program started, with a promise of more to come.
Paulson said that would be a "grave mistake," and would fail to give the markets the confidence they needed to rebound.
Paulson repeatedly fielded questions from committee members asking why taxpayers should accept the burdens of a bailout.
"You worry about taxpayers being on the hook?" he replied at one point. "Guess what — they're already on the hook." Paulson suggested that the fallout from the credit crisis was so dire it would hit people in their pocketbooks unless forceful action were taken. Moreover, the flawed and outdated regulatory system, which didn't catch abuses, needs to be overhauled, he said.
Despite the unresolved issues, President Bush predicted the Democratic-controlled Congress would soon pass a "a robust plan to deal with serious problems." He was speaking to the United Nations General assembly.
Stocks held steady in pre-noon trading on Wall Street as Paulson told senators that quick passage of the administration's plan is "the single most effective thing we can do to help homeowners, the American people and stimulate our economy."
But even before Paulson could speak, lawmakers expressed unhappiness, criticism of the plan and — in the case of some conservative Republicans — outright opposition.
Sen. Richard C. Shelby of Alabama, the panel's senior Republican, was even more blunt. "I have long opposed government bailouts for individuals and corporate America alike," he said. Seated a few feet away from Paulson and Bernanke, he added, "We have been given no credible assurances that this plan will work. We could very well spend $700 billion, or a trillion, and not resolve the crisis."
Sen. Jim Bunning, R-Ky., added, "This massive bailout is not a solution. It is financial socialism and it's un-American."
But Bernanke said action by lawmakers "is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy."
A third witness, Securities and Exchange Commission Chairman Christopher Cox, urged Congress to regulate a type of corporate debt insurance that figured prominently in the country's financial crisis.
"I urge you to provide in statute the authority to regulate these products to enhance investor protection and ensure the operation of fair and orderly markets," he said. The debt insurance is known as credit default swaps.
So far this year, a dozen federally insured banks and thrifts have failed, compared with three last year. The country's largest thrift, Washington Mutual Inc., is faltering.
The U.S. has taken extraordinary measures in recent weeks to prevent a financial calamity, which would have devastating implications for the broader economy. It has, among other things, taken control of mortgage giants Fannie Mae and Freddie Mac, provided an $85 billion emergency loan to insurance colossus American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.
The Oppenheimer & Co analyst cut her outlook on U.S. banks and expects further dividend cuts and capital raises.
Whitney also said home prices were not close to bottoming and expects prices to ultimately be at least 25 percent lower from current levels. She expects homeownership rate to decline further.
The analyst also noted that unemployment was up over 40 percent year-on-year in key states, and said unemployment is "headed materially higher."
Given that over 12 percent of the U.S. GDP is driven by state and local government spending, and with many key states' 2009 budgets being under-funded, governments will be forced to cut costs and this will weigh significantly on GDP, Whitney said.
"Credit market disruption has had underappreciated consequences on the economy... A virtual suction of liquidity has occurred in the credit and lending markets, and consumer and corporate credit is already showing the effects," Whitney wrote in a note to clients.
"Since the onset of the credit crisis, over $2 trillion less liquidity has flown through the U.S. domestic capital markets than during the same time period a year prior," she added.
Analyst Whitney forecast a third-quarter loss of 36 cents a share for Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz). She had a prior profit view of 8 cents a share.
Whitney widened her third-quarter loss forecast for Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) to 31 cents a share from 15 cents.
She cut third-quarter earnings estimates for Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) to 40 cents a share from 75 cents, for JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) to 21 cents a share from 40 cents a share, and for Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) to 13 cents a share from 17 cents.
Shares of Citigroup closed at $20.01 Monday on the New York Stock Exchange, while those of Bank of America closed at $34.15.
Shares of JPMorgan closed at $40.80, Wachovia's at $18.75 and Wells Fargo's at $35.18. (Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy)
Last modified: 2008-09-23 08:15:22 by passivesf
What if the bailout plan doesn't work?
Eamon JaversTue Sep 23, 6:33 AM ET
Lawmakers raised doubts Monday about what would be the largest government bailout in American history, but a bigger, more terrifying question lurked right under the surface: What if it doesn’t work?
Failure, says one insider, is not an option.
“The alternative is complete financial Armageddon and a great depression,” said a former Federal Reserve official. “Where do they go after this? Well, the U.S. government could nationalize the banking system outright.”
A few months ago, that idea would have been laughed out of the room.
But no one’s laughing anymore.
While almost no one wants to dwell publicly on the possibility that a $700 billion package could simply be too small to forestall a financial meltdown, privately some aides were already thinking of what the government might do if the Treasury plan passes but fails.
In a statement Monday, President Bush said that “the whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector and retirement accounts.”
What the president didn’t say is that the whole world will be watching to see not just if Washington can act but whether Washington’s actions can still make a difference.
Under the current plan, the U.S. government will buy up to $700 billion in assets from private holders on Wall Street. That would help banks stabilize their balance sheets, and in theory provide an incentive for banks to begin extending credit among themselves again — a critical component of a functional financial system.
So what’s Plan B?
There really isn’t one.
If this week’s bailout doesn’t work, the government will probably have no choice but to continue to buy assets. There’s no one left to pick up the tab. “The private sector got us into this mess,” said House Financial Services Committee Chairman Barney Frank (D-Mass.). “The government has to get us out of it.”
Getting us out of it would likely mean buying up even more debt in the markets if the $700 billion fails to turn things around. That could include credit card debt, which is securitized and sold on Wall Street the same way as home mortgages, car loan debt and even commercial real estate debt, until the problem begins to recede or the taxpayers gain effective control over the nation’s banking system.
So how will leaders know whether it’s working or not?
Traders and Washington insiders will look at credit market indicators to gauge their progress. One number in particular will be the focus of enormous attention on the day the bill passes: the difference between the interest rate offered by the federal government and the rates private banks charge when they loan money to one another.
If confidence is returning to the credit markets, the spread between the two numbers should begin to narrow as the banks’ rate — known by the acronym LIBOR — falls. But if the credit market is still in distress, the spread will widen.
In theory, traders should be able to see the results of any congressional legislation within minutes of news of the bill’s passage hitting Wall Street.
Here’s the good news: Already, just based on the news that Treasury is working on the proposal, the spread has been narrowing this week, down from the dramatic highs of last week. That means the market is pricing in an expectation that Congress will act and that the action will work.
If everything goes smoothly, it is even possible that taxpayers will profit from the deal in the long run, as the underlying assets accumulate value over the coming years and the government is able to ultimately sell them back into the market at higher prices than it’s paying now. Of course, it’s also possible that the values will never come back, in which case taxpayers would be on the hook.
The specific details of the package were a moving target on Monday, and congressional Democrats tangled with administration Republicans over the exact makeup of the bill.
Said Senate Banking Committee Chairman Chris Dodd (D-Conn.): “The last thing any of us want is to be back here in a month coming up with some new plan because this didn’t work. It’s important that we act quickly, but it’s more important that we act responsibly.”
That’s congressional code for: “Hey, wait a minute.”
The Banking Committee’s ranking Republican was of a similar mindset. “I am concerned that Treasury’s proposal is neither workable nor comprehensive, despite its enormous price tag,” said Sen. Richard Shelby of Alabama. “In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts.”
Ultimately, the negotiations will come down to doling out huge new powers, including:
• Buying Power: This is the cornerstone of the proposal — allowing Treasury to buy up to $700 billion of privately held assets in the market. The original proposal called for buying power to be limited to “mortgage-related” assets, but a later draft expanded that to allow the government to purchase any “troubled assets.” There’s a staggering difference in authority between the two phrases, and it is a moving target as of press time. The banking industry generally favors the second version, but that potentially exposes taxpayers to much higher costs.
• Managing Power: Under the Bush administration’s plan, Treasury would hire private managers to handle the hundreds of billions of dollars’ worth of assets it will soon own. But Treasury was silent on whether those managers would be able to actually negotiate directly with homeowners who hold the troubled mortgages. Democrats would go further and demand that bankruptcy judges be given the ability to renegotiate those failing mortgages on behalf of homeowners. This will be one of the more contentious sideshow fights of the negotiations.
• Global Power: Under one version of Treasury’s proposal, the government would have the power to buy assets from any institution in the world that it deemed worthy of a bailout.
• Pay Power: Democrats on Capitol Hill say they want the final plan to include restrictions on payouts to the executives of the financial institutions that take the taxpayer lifeline. Paulson says he doesn’t like this idea, but it may be tough for elected officials to oppose this populist carve-out in an election year.
• Equity Power: Democrats would like the government to get shares in the financial institutions that take federal help — effectively giving taxpayers ownership stakes in the nation’s largest banks and providing them with a huge windfall if those institutions prosper in future years.
• Oversight Power: Treasury’s initial proposal included very little room for congressional oversight of the new effort, calling for reports to be sent to the Hill just twice per year. That isn’t flying with Democrats or many Republicans on the Hill; if a bill makes it through Congress, it will almost certainly have much stronger oversight provisions.
Sunday, September 21, 2008
U.S. Treasury Widens Scope of Bad-Debt Plan Beyond Mortgages
By Dawn Kopecki
Sept. 21 (Bloomberg) -- The Bush administration widened the scope of its $700 billion plan to avert a financial meltdown by including assets other than mortgage-related securities.
The U.S. Treasury submitted revised guidance to Congress on its plan, referring to its proposal to purchase so-called troubled assets, a change from its original plan for investments tied to home loans, according to a document obtained by Bloomberg News and confirmed by a congressional aide.
The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset.
Firms that are headquartered outside the U.S. will now be eligible, in another change from the guidance sent to Congress yesterday, according to the document. The size of the plan remains unchanged.
To contact the reporter on this story: Dawn Kopecki in Washington at email@example.com
Well now we have it - since this is a proposed bill (public) and in the interests of fair use, blank">here you have it as reported by Fox:
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ___________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.—The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.—The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for—
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.—The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.—The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.—The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.—The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.—The term mortgage-related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.—The term Secretary means the Secretary of the Treasury.
(3) United States.—The term United States means the States, territories, and possessions of the United States and the District of Columbia.
Let's disassemble this monster piece by piece.
First, this is a de-facto nationalization of the entire banking, insurance, and related financial system. Specifically:
"(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;"
That's right - every bank and other financial institution in the United States has just become a de-facto organ of the United States Government, if Hank Paulson thinks they should be, and he may order them to do virtually anything that he claims is in furtherance of this act.
This might include things like demanding that a bank or other financial institution sell him its paper, even if it forces that firm to collapse and be assumed by the FDIC!
You didn't buy any bank stocks last week did you?
"(a) Authority to Purchase.—The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."
This, at first blush, would seem to indicate that only American firms would be covered. Nothing is further from the truth. If the Chinese wish to unload some of their purchased toxic sludge they merely sell it to, oh, Goldman Sachs for 40 cents on the dollar and then Goldman sells it to the Treasury for 50. This, under the black letter of the law here, is perfectly legal, which means that one must assume that Paulson will in fact foist off all the bad paper on world markets that was originally based on a mortgage in the United States, while allowing his banker buddies here to loot the taxpayer by acting as an intermediary in the transaction!
"(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;"
Contracts can (and presumably will) be "no bid, no solicitation" and given to whomever Secretary Paulson favors, without regard to the public interest or normal competitive bidding processes. Must be nice to be a "Friend of Hank."
"In exercising the authorities granted in this Act, the Secretary shall take into consideration means for—
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer."
Notice which comes first.
"(c) Sale of Mortgage-Related Assets.—The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act."
Having bought these securities for any price Mr. Paulson would like (and he can compel institutions to sell at his demanded price as noted above!) he can then sell those assets at any price he wishes, to anyone he wishes. It certainly is nice to be a "Friend of Hank", and it most certainly sucks if you're not.
"The Secretarys authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time"
This is clever and nobody in the mainstream media has figured it out.
If you think the cost of this bill is $700 billion, you're wrong. The cost is actually infinite and the entire bill constitutes a giant money-laundering scheme.
Paulson can (and presumably will) buy up to $700 billion of these "assets", then sell them. Let's say he decides to buy them at 60 cents on the dollar and sell them for 10. You, the taxpayer, will eat the fifty cents, for an immediate cost of $350 billion dollars.
Having done so, he is then authorized to do so again, since the $700 billion is no longer on the government's balance sheet.
In fact, he can do this without limit, other than possibly due to the federal debt ceiling, which of course Congress will raise any time we get close to it. Oh yeah, this bill does that right up front too. No need to bother with it the first time around.
Folks, $700 billion isn't even close to the total cost of this monster.
If Paulson and his successor decide to, they could literally cycle all $5.3 trillion of Fannie and Freddie's debt through this scheme, potentially sticking the taxpayer for 20% or more of the total, plus as much private debt on various bank balance sheets as they can manage to nationalize until (and possibly beyond) the point where the bond market tells him to go to hell.
Bottom line: This bill gives Paulson the ability to nationalize an UNLIMITED amount of private debt and force YOU AND YOUR CHILDREN to pay for it.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
If you are a bank, investor, or other entity who is forcibly gang-raped by Secretary Paulson due to his actions as "King" (crowned by Congress) under this law, you are unable to seek redress in the courts or by administrative action.
The claim is that this is intended to "promote confidence and stability" in the financial markets.
It will do no such thing.
It will instead strike terror into the hearts of investors worldwide who hold any sort of paper, whether it be preferred stock, common stock or debt, in any financial entity that happens to be domiciled in the United States, never mind the potential impact on Treasury yields and the United States sovereign credit rating.
I predict that if this passes it will precipitate the mother and father of all financial panics, although exactly when the "short bus" riders who inhabit the equity market will figure it out remains to be seen.
If they have an IQ larger than their shoe size it will commence at 9:30:01 AM Monday morning, although given history and the lack of intelligence displayed by the crooning media market euphoria may continue until the first couple of firms are dismantled by Paulson's newly-crowned Kingly powers with the scraps handed out to his favored few.
The best part of this outrageous fraud is that those who get bent over the table can't even sue - their only recourse will be the (literal) deployment of pitchforks and torches.
That Paulson and Bernanke circulated this document, irrespective of what actually gets reported out onto the floor of the House and Senate (if anything) tells you everything you need to know about his intentions and the safety of your financial assets in the United States markets.
That this "proposal" hasn't resulted in Congress calling for both Bernanke and Paulson to resign for their blatant attempt to crown Paulson King tells you everything you need to know about Congressional integrity as well.
My advice: Don't be caught with any stock or debt instruments linked to a United States financial firm in your portfolio past 9:30 AM Monday morning.
Saturday, September 20, 2008
The financial crisis is over. The economic crisis has begun.
The "solution" reverberating from Washington to Wall Street, amid the celebratory atmosphere in the financial markets, must be put in perspective. It represents yet another massive wealth transfer from the United States to far flung corners of the globe.
How could it be otherwise? Can one legislate new wealth into existence? Does the action by the federal government create any more products and services or capacity to produce them in the United States? If the action to be undertaken in Washington is to revive the credit markets, shouldn't we ask who exactly holds the credit?
Net net, the US is a debtor. The rest of the world, its creditor. Government action to boost the value of the credit, then, benefits the rest of the world. While the media dwell on certain high-profile beneficiaries of this transfer of wealth, there is little examination of from whom the wealth is being transferred and by what means.
Some lip service is paid to "the taxpayer," but virtually none to those who will pay the most. Most of the burden will fall - as it has in the recent past - at the gas pump, the grocery store, the monthly bill. That is, in the form of the inflation tax. It is very popular with politicians as it makes someone else appear to be the tax collector. Such taxes are borne disproportionately by the American middle class.
The markets are already sniffing this out. As the bailouts have intensified, oil prices have resumed their rise. By the time we are staring down the $200 barrel, few will connect the dots back to this day. And of all the world's financial markets, those that are up the most already are those of BRICOPEC:
Russia, Brazil Lead Record Emerging Market Gain; Bonds Rally
By Denis Maternovsky and Fabio Alves
Sept. 19 (Bloomberg) -- Emerging-market stocks surged the most in 20 years and currencies and bonds soared after central banks pumped cash into credit-markets, shoring up confidence and luring investors back to riskier assets.
Russia, China and Brazil led the rally. more...
The United States' creditors, who have begun to balk at extending yet more and more credit, may now get that boost of "confidence" needed to allow the debtor to work his way deeper into the hole. As will their middle man, the US financial system. The markets attempts to stop the decline have thus been kicked a bit further down the road.
Editor's addendum: On the short selling rules imposed today, two notes. One, we extend our sympathy to Mike Morgan who we tried to warn against shorting financial stocks. This regime – we think it is fair to at this point time to stop calling it an administration – knows no limits in the business of market controls. Two, politicians forget that a short seller is a buyer albeit at a lower price. Take him away and in a market panic there are no buyers at all. A market can in theory then fall to zero. You've been warned.
September 18, 2008
Crash of 2008--The Party's Over
By Patrick J. Buchanan
The Crash of 2008, which is now wiping out trillions of dollars of our people's wealth, is, like the Crash of 1929, likely to mark the end of one era and the onset of another.
The new era will see a more sober and much diminished America. The "mnipower" and "Indispensable Nation" we heard about in all the hubris and braggadocio following our Cold War victory is history.
Seizing on the crisis, the left says we are witnessing the failure of market economics, a failure of conservatism.
This is nonsense. What we are witnessing is the collapse of Gordon Gekko ("Greed Is Good!")) capitalism. What we are witnessing is what happens to a prodigal nation that ignores history, and forgets and abandons the philosophy and principles that made it great.
A true conservative cherishes prudence and believes in fiscal responsibility, balanced budgets and a self-reliant republic. He believes in saving for retirement and a rainy day, in deferred gratification, in not buying on credit what you cannot afford, in living within your means.
Is that really what got Wall Street and us into this mess—that we followed too religiously the gospel of Robert Taft and Russell Kirk?
"Government must save us!" cries the left, as ever. Yet, who got us into this mess if not the government—the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?
For years, we Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt—all are at record levels. And with pensions and savings being wiped out, much of that debt will never be repaid.
Our standard of living is inevitably going to fall. For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.
We are going to have to learn to live again without our means.
The party's over
Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.
But this generation decided that was yesterday's bromide and we must march bravely forward into a Global Economy, where we all depend on one another. American companies morphed into "global companies" and moved plants and factories to Mexico, Asia, China and India, and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers.
As the trade deficits began inexorably to rise to 6 percent of GDP, we began vast borrowing from abroad to continue buying from abroad.
At home, propelled by tax cuts, war in Iraq and an explosion in social spending, surpluses vanished and deficits reappeared and began to rise. The dollar began to sink, and gold began to soar.
Yet, still, the promises of the politicians come. Barack Obama will give us national health insurance and tax cuts for all but that 2 percent of the nation that already carries 50 percent of the federal income tax load.
John McCain is going to cut taxes, expand the military, move NATO into Georgia and Ukraine, confront Russia and force Iran to stop enriching uranium or "bomb, bomb, bomb," with Joe Lieberman as wartime consigliere..
Who are we kidding?
What we are witnessing today is how empires end..
The Last Superpower is unable to defend its borders, protect its currency, win its wars or balance its budget. Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.
What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.
Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.
Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.
An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.
What the Greatest Generation handed down to us—the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved—the baby boomers, oblivious and self-indulgent to the end, have frittered away.
Friday, September 19, 2008
Radical bailout plan has a jawdropping price tag
By TOM RAUM and JEANNINE AVERSA, Associated Press Writers 6 minutes ago
Struggling to stave off financial catastrophe, the Bush administration on Friday laid out a radical bailout plan with a jawdropping price tag — a takeover of a half-trillion dollars or more in worthless mortgages and other bad debt held by tottering institutions.
Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow-Jones industrials average rose 368 points after surging 410 points the day before on rumors the federal action was afoot.
A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared, "The risk of not acting would be far higher."
The administration is asking Congress for far-reaching new powers to take over troubled mortgages from banks and other companies, including purchasing sour mortgage-backed securities. Administration officials and congressional leaders are to work out details over the weekend.
Congressional officials said they expected a request for legal authority to buy up the bad loans, at a cost in excess of $500 billion to the government. Democrats were discussing whether to try to attach middle class assistance to the legislation, despite a request from Bush to avoid adding controversial items that could delay action. An expansion of jobless benefits was one possibility.
In other major steps, the Treasury Department and Federal Reserve moved to give money-market mutual funds the same kind of federal protection, at least temporarily, that now applies to savings and checking accounts and certificates of deposit at banks. Money-market accounts sold through retail banks are already FDIC insured.
The spreading global selling panic had started to threaten some money-market funds, usually thought of as rock-solid investments. Administration officials feared a run on these funds, held by millions of Americans.
"Every American should know that the federal government continues to enforce laws and regulations protecting your money," Bush said at the White House. The 75-year-old Federal Deposit Insurance Corporation now insures savings and checking accounts and certificates of deposit up to $100,000.
Separately, the Securities and Exchange Commission acted to block short-selling in financial securities. That is a trading method that bets the value of stocks will go down. It has been blamed for accelerating the plunge in stock prices of banks and other financial institutions.
"This is a pivotal moment for America's economy," Bush said. "In our nation's history, there have been moments that require us to come together across party lines to address major challenges. This is such a moment."
Congressional leaders of both parties welcomed the administration's bold moves, after a series of ad hoc rescues.
The talk on the presidential campaign trail, barely six weeks before the election, was of bipartisanship, too.
Democrat Barack Obama said it was critical that leaders in both parties work in concert. "Truly, we are all in this together," he said.
GOP presidential nominee John McCain said leaders should put aside partisan differences and "any action should be designed to keep people in their homes and safeguard the life savings of all Americans."
The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance. That includes the rescue of investment bank Bear Stearns in March, the takeover of mortgage giants Fannie Mae and Freddie Mac earlier this month and the takeover of the world's largest insurance company, American International Group, just this week.
But the contagion continued to spread, bringing political consensus that drastic and comprehensive federal action was needed.
There are precedents for such a federal takeover.
In the late 1980s, the government created the Resolution Trust Corporation to tackle the savings and loan crisis. It acquired the defaulted mortgages, foreclosed real estate and other assets of nearly a thousand failed S&Ls, restoring order and stability to the system. Resolving that crisis took six years and $125 billion in taxpayer money — roughly equal to $200 billion in today's dollars.
And there was the Reconstruction Finance Corporation, a Depression-era relief program formed in 1932 by President Hoover that tried to revive the market by giving loans to banks and other businesses.
On Friday, Treasury Secretary Henry Paulson gave few details about the structure of the new program. Asked about an overall price tag, he said, "hundreds of billions" of dollars.
Congressional leaders said they were ready to move quickly but still needed details of the administration plan. For instance, there was no indication of what the government would get in return from financial companies for the federal assistance.
Paulson and Federal Reserve Chairman Ben Bernanke briefed lawmakers in both parties on the idea by conference call Friday.
In a session with House Democrats, they described a plan where the government would in essence set up reverse auctions, putting up money for a class of distressed assets — such as loans that are delinquent but not in default — and financial institutions would compete for how little they would accept for the investments, said Rep. Brad Sherman, D-Calif., who participated in the call.
"You give them good cash; they give you the worst of the worst," Sherman said of the plan, which he complained that Bush and his economic advisers were trying to panic lawmakers into rubber-stamping.
Paulson rejected Democrats' calls to include tighter regulations, corporate reforms or limits on executive compensation as part of the measure, Sherman said. "He's doing his best to paint a picture of the sky falling, and then he says, because the sky's falling, you have to do it my way."
Paulson said the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary impact while protecting taxpayers as much as possible.
"I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson. "The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing."
Bush said simply, "We must act now."
"America's economy is facing unprecedented challenges. We're responding with unprecedented measures," Bush declared, standing in the White House Rose Garden with Paulson, Bernanke and Christopher Cox, chairman of the Securities and Exchange Commission.
Shortly after his remarks, Bush called congressional leaders with whom the administration will be working on the final plan. He spoke to Senate Majority Leader Harry Reid, D-Nev., House Speaker Nancy Pelosi, D-Calif., Senate Republican leader Mitch McConnell of Kentucky and House GOP leader John Boehner of Ohio.
The administration wants to see a package emerge from the weekend, to lend calm to Monday morning's market openings, said Keith Hennessey, the director of the president's economic council. The goal is to have something passed by Congress by the end of next week, when lawmakers recess for the elections.
Paulson said Fannie Mae and Freddie Mac will step up their purchases of mortgage-backed securities to help provide support to the crippled housing market. He also said the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crises.
"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford," Paulson said.
Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money-market mutual funds. And the Federal Reserve announced it would expand its emergency lending program to help support the $3.4 trillion in total assets of the funds.
On Wednesday alone, investors had pulled more than $89 billion from money-market funds, according to iMoneyNet, publisher of the newsletter Money Fund Report.
The government's actions could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has come to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.
European Central Bank, Swiss National Bank and Bank of England also offered up more cash Friday. The three banks put a combined $90 billion into money markets.
Associated Press writers Julie Hirschfeld Davis, Martin Crutsinger, Andrew Taylor, Marcy Gordon, David Espo and Jim Abrams in Washington and Joe Bel Bruno in New York contributed to this report.
Wednesday, September 17, 2008
he Potential End Of America's Government
Watch that video.
Watch it twice, three times if you have to. Go look at the other video, and the other Ticker referenced in there.
Now understand that there is no solution to this fast and vicious destruction of America's financial markets and financial companies until and unless the lying stops.
It has NOT stopped and in fact has gotten materially worse.
Folks, this meltdown will not stop until either:
* ALL financials mark everything to the market, ALL OTC derivatives are traded on an exchange or declared void, and ALL balance sheets are transparent so we can determine who is broke and who is not.
* The market has completely imploded with every financial stock worth zero as the hedge funds and others short each in turn into the ground, forcing each to be bailed out in turn.
Those are the ONLY TWO CHOICES.
Nothing else HAS WORKED and nothing else WILL WORK. With each bailout you simply give people another target and a new way to kill the next company in line. This process will proceed from firm to firm until NONE ARE LEFT and credit availability in the economy is ZERO.
The Fed has expended more than half of their balance sheet, in excess of four hundred billion dollars. It has not stopped the cascade.
The Government has spent nearly a trillion dollars we do not have in bailouts and other miscellaneous nonsense. It has not stopped the cascade.
Indeed, all that has happened is that the velocity of the crash has accelerated dramatically.
There is NO WAY to fix this through adding "more liquidity" - the problem IS AND HAS BEEN THE LIQUIDITY in that this allows BANKRUPT companies to continue to operate and LIE instead of forcing them into the open where they can be liquidated under Chapter 11.
We are here precisely because of the intentional provision of far TOO MUCH liquidity by Alan Greenspan and now by Ben Bernanke.
You cannot solve someone's drinking problem by giving them another bottle of whiskey!
THE LIQUIDITY SWAMP MUST BE DRAINED.
We cannot have a "financial system" that is based on fraud and theft. We cannot have "financial institutions" that claim to be solvent when they in fact are not unless they are able to make up values that are much higher than the REAL value for their so-called "assets".
Wayne Angell was on "Fast Money" tonight claiming that the balance sheet of The Fed is "infinite" and that "they can't be downgraded."
Wayne, you need to be charged with treason for spewing that crap on national television.
Sure, "in theory" The Fed's balance sheet is infinite - they can coordinate with Treasury to print as much money as they want.
So was Weimar Germany's.
The word for what Wayne was promoting on Fast Money this evening is HYPERINFLATION where you find that a wheelbarrow is worth more than all the $100 bills you can stuff into it.
Does anyone remember how hyperinflation worked out for them? I seem to remember a gentlemen with the first name of "Adolf" that the world got out of that little exercise of an "infinite balance sheet."
Why does this path inevitably lead to political failure? Because as soon as lenders discern that this is occurring they shut off credit entirely.
Think about it - you have $1,000 to lend out. You detect that the government is printing and intentionally devaluing your money. If you lend it out at 10% interest but the government is hyperinflating at 100% a year, you lose about half of the money's value every year! So if you lend me that $1,000 when I pay you back you can only buy half as much as you could before! For obvious reasons you're not going to allow that - you will instead immediately spend your $1,000 on something of physical value such as land before it can be debased.
Hyperinflation kills all credit availability instantly for this reason and any credit-based economy immediately implodes. This results in enormous and immediate mass unemployment and a resulting rupture of the social and political fabric of a nation.
As for not being able to be downgraded, you obviously didn't hear S&P today, which stated quite clearly that the United States "AAA" credit rating is not a right and must be earned. Can't be downgraded eh? Oh yes The Fed can be - along with everything else.
Folks, we require over $2 billion a day in foreign investment in order to pay our bills.
This is what came out from China today:
"BEIJING, Sept 17 (Reuters) - Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
"Infinite Balance Sheet" eh? See what foreign governments think of that sort of garbage?
Please understand - if foreign governments withdraw their support of our government funding via either scaling back their Treasury purchases or outright refusal to buy (or worse, they dump them on the market into this "fear spike" we're seeing now), we are absolutely and instantaneously screwed.
Michael Bloomberg, one of the few intelligent commentators out there (and a billionaire by his own hand) said exactly the same thing today:
"WASHINGTON (AP) — New York Mayor Michael Bloomberg is warning a 'next wave' of financial pain may come when foreign entities stop buying U.S. debt.
The billionaire mayor is speaking to an audience at Georgetown University, telling them it's not clear who is going to continue buying U.S. debt as financial firms try to cope with a crisis of confidence on Wall Street."
Mr. Bloomberg sees the same thing I do, but he's a bit more polite than I am about it.
Then there was S&P which made this quite clear as well:
"The $85 billion bailout of AIG on Tuesday by the U.S. Federal Reserve "has weakened the fiscal profile of the United States," S&P's John Chambers told Reuters in an interview.
"Lack of a pro-active stance could have resulted in further financial stress and put pressure on the U.S. triple-A rating," Chambers said. "There's no God-given gift of a AAA rating, and the U.S. has to earn it like everyone else."
Is that clear enough?
Congress MUST ACT RIGHT DAMN NOW.
Congress MUST stop The Fed and Treasury from printing any more money. The institutions that are insolvent must be forced into the open and put through bankruptcy.
We CANNOT wait until the next Congress and the election to stop this nonsense; that's five months in the future. By then The United States could easily be quite literally broke and forced into a hyperinflationary spiral!
Debt that cannot be paid must be defaulted.
Yes, this is painful.
Yes, it will hurt.
But as you can see it is already hurting plenty; the "alternative" isn't working and CAN'T WORK, as I've been pointing out for over a year!
We CANNOT get a true value on the market until this occurs.
It is NOT POSSIBLE.
In the BEST CASE if we do not act NOW, take your salary and assets and cut them by 30%. Everything else - cost of food, gas, electricity, etc - remains the same.
Worst case? Divide your salary and assets by three, but again, your costs remain the same.
If you are in the lower income echelon, you will go broke and become homeless.
If you are middle class, you will be living in a tenement or trailer. If you're lucky. If you currently own a home, you won't any more.
If you are upper-middle class, you will fall to lower-middle class, and all your luxuries will disappear. No more Lexus or nice vacations.
If you are "well off", you will be living in a modest home, what we now call "middle class", and some of you will go broke outright, because your "well off" status has been achieved with leverage - which will blow up in your face.
If you find this unacceptable you must act TODAY to stop the government from proceeding down the path we are on.
Your choices are:
1. DO NOTHING and your employer and you will lose access to credit. As he or she does, you will lose your job and ultimately everything you own.
2. GET ACTIVE RIGHT NOW - on the phone with Congress, Treasury, The President and the Candidates. Take to the streets. Organize a general strike with your friends and neighbors, and buy nothing for a day or even a week. Make clear to your representatives that you INSIST that they stop this fraud and nonsense, forcing all of the fraudsters and phony balance sheets and lies into the open, along with removing all of the regulators who intentionally turned a blind eye to this mess, including but not limited to Geithner, Bernanke and Paulson.
If you do nothing, you will get #1, or worse, The Government will continue to face bailout after bailout until the printing reaches a point that foreign governments say "no mas" - at which point our government's ability to fund itself - and our current way of life and representative government ends.
Clinton fundraiser backs McCain over Obama
By ANN SANNER, Associated Press Writer2 hours, 30 minutes ago
A top Hillary Rodham Clinton fundraiser threw her support behind Republican John McCain on Wednesday, saying he will lead the country in a centrist fashion and accusing the Democrats of becoming too extreme.
"I believe that Barack Obama, with MoveOn.org and Nancy Pelosi and Howard Dean, has taken the Democratic Party — and they will continue to — too far to the left," Lynn Forester de Rothschild said. "I'm not comfortable there."
Rothschild is also a member of the Democratic National Committee's Platform Committee. She said she would be stepping down from her position on the committee but will not switch political parties.
She praised McCain for working with Democrats to pass legislation and for standing up to President Bush on the Iraq war.
"I just ask, who has Barack Obama ever stood up to? And that troubles me a lot," she said.
Rothschild also disputed Obama's argument that a McCain administration would be an extension of Bush's presidency. Democrats cite McCain's own account of having voted in support of Bush's policies 90 percent of the time.
She said the Arizona senator has broken with Bush to support funding for stem-cell research and to curb greenhouse gas emissions.
"It is the classic cheap shot. Just not true," she said.
Rothschild said she was also excited by the prospect of a woman being in the White House, even though she and Republican vice presidential nominee Sarah Palin disagree on issues. The Alaska governor opposes abortion except in the case of a threat to the mother's life. Rothschild said she supports abortion rights.
"I believe that the McCain-Palin government will be a centrist government," Rothschild said. "It's not going to be an ideological government."
Rothschild is a member of the DNC's Democrats Abroad chapter and splits her time living in London and New York. She was one of Clinton's top fundraisers, bringing in more than $100,000 for her presidential campaign. She built a multimillion-dollar telecommunications company before marrying international banker Sir Evelyn de Rothschild.
Rothschild said she has not discussed her support for McCain with Clinton.
"I'm sure she is not pleased with what I'm doing today," she said. "But you know what? I have to do what I believe in."
Sunday, September 14, 2008
The Mother of All Mondays
Posted by Tim Annett
Investors world-wide have rarely rolled out of bed to face a Monday morning quite like the one they’ll contend with this Monday.
Sundays have long been host to important corporate news, from big mergers to bankruptcies. But this weekend, in an extraordinary meeting that recalled the summit called ten years ago amid the meltdown of hedge fund Long-Term Capital Management and J. Pierpont Morgan’s efforts more than 100 years ago to rescue a series of ailing banks, Wall Street’s most senior deal makers and regulators raced to find a deal that would keep storied Lehman Brothers Holdings from collapse. At this hour, their efforts have yet to yield any fruit. Barclays, which had come to be viewed over the weekend as the most likely bidder for the badly ailing Lehman, pushed away from the bargaining table on Sunday. The main impediment appeared to be that the U.S. government is reluctant to backstop a deal, as it had amid the Bear Stearns meltdown in March.
If Lehman can’t find a life raft, it could lead to turmoil in the credit markets as traders rework credit-default swaps and other trades with Lehman at their center. Credit-default swaps traders were called to work Sunday, the Wall Street Journal reported, for a special trading session that would let Lehman counterparties offset their positions against each other. Equity markets could also be roiled Monday. The crumbling of a major Wall Street institution is likely to shake badly the confidence of investors who had hoped the Street would make it through the credit crisis without yet another large firm being swallowed up. What’s more, the economic backdrop looks dimmer than it did in March when Bear Stearns was pushed into the arms of Jamie Dimon.
Any forced selling of stocks or other securities by hedge funds and other big investors linked to Lehman could further destabilize the markets. Market sentiment has been fragile for months, causing wild gyrations that have given equities little chance to establish momentum in one direction or the other. Investors have skipped in and out of Treasurys and other safe-haven bets and money that were pushed into commodities bets has suffered amid the jarring drop in the price of oil and other raw materials since July.
One possible Lehman suitor, Bank of America, has reportedly meanwhile taken up merger talks with another brokerage giant that has been battered by the credit crisis – Merrill Lynch. Strategically, a union of Bank of America and Merrill Lynch would merge BofA’s sprawling retail banking business with Merrill’s vast brokerage network. Bank of America has a deep well of capital due to its massive deposit base. A deal could chase at least some of the gloom swirling around the financial sector because of Lehman. Merrill shares were slammed last week alongside Lehman.
Adding to the whorl, American International Group (whose shares were also clobbered last week amid growing concern about the extent of its losses on CDS and other derivatives) plans to disclose a restructuring on that Monday that is likely to include the sale of major assets, including its aircraft-leasing business, International Lease Finance Corp., the Journal reported today. The insurance giant, a component of the Dow Jones Industrial Average, is hoping to raise more than $10 billion. The company has already raised $20 billion in fresh capital this year.