Bail Out Bill Hitting Congress September 26th!

September 21, 2008

Elaine Meinel Supkis

Financial Armageddon will cause the Apocalypse if the US follows Germany and Japan's examples from the Great Depression. The US is going bankrupt. Our banking system is now officially bankrupt. The rescue scheme whereby a deep in debt government bails out a deep in debt banking system always fails. The coup is not complete. We have time to argue with our rulers. I hope people are truly interested in going to DC to lobby against this bail out. Even if no one listens to us. We have to speak out. About going to DC: I now have learned that the deadline for this bail out bill is Sept. 26. If anyone wants to lobby, don't try this unless you are within 250 miles of DC. I just got a donation to help defray my own train ticket there.

First, here is an article from Seeking Alpha. Seems to be a favorite place for me to read someone and then tear them apart.

Preserving U.S. Economy Over Free Markets (Short Sellers)

U.S. policymakers are obviously willing to go to any length to avert a financial Armageddon, including changing the rules of the game in midstream. The latest, of course, was banning short selling in some 800 U.S. stocks, which effectively engineered a massive squeeze on the short sellers and produced a dramatic rebound.

The short sellers are right of course about the rot in the U.S. financial system but they are underestimating policymakers’ ability to pull rabbits out of the hat. And policymakers will keep on ignoring the rulebook and reaching for rabbits as long as it takes, because the alternative is worse. Short selling is a hard way to make money anyway in the stock market — if only because of the long run tendency of stocks to rise by some 7% to 9% annually on average.
*snip*
Let’s acknowledge it: the U.S. is in a desperate competition with upstart emerging economies. The latter have made major inroads by pegging their currencies, suppressing domestic oil prices, banning short selling, currency controls, prohibitions on derivatives/options, and a host of other market manipulations. They aren’t playing by the free-market rulebook either. The U.S. may need to untie the hand behind its back with some interventionist measures of its own — until stability returns.

And here is my reply:

Culture of Life News here!

The collapse of the banking system is due to the collapse in US savings. This is caused by the Fed Reserve keeping interest rates stubbornly below the rate of real inflation for so many years.

When the government unilaterally decided to change how inflation is calculated, especially leaving out food and fuel from the statistics as well as the 'hedonistic' business that overstates value-added price hikes, we now have a malfunctioning system that encourages debt.

This, in turn, as turned the US into a debtor nation that goes about the planet, begging for capital. In turn, our industries are being decimated or sold to foreign powers. Our infrastructure is rotting or being sold to foreign powers. Our jobs are moving overseas while the US economy is pitched to paying interest on a growing Mt. Everest of loans.

Our government has finally thrown in the towel and handed fiscal authority to the bankers who are now attempting to unload all their debt instruments onto the US government. So they can lend us even more money we can't afford to pay back.

The system is profoundly bankrupt. Next: our government will go bankrupt.

About Asia keeping their currencies cheap against the dollar: much of our liquidity that has floated our economy came from the Japanese carry trade. This was due to Japan having two things at once: a near-zero interest rate...despite real inflation in Japan....and Japan's central bank holding nearly a trillion in US dollars in their FOREX reserve system.

China, seeing how Japan ran a huge trade surplus with the US playing this monetary game, copied this exactly. With the desired results. China's trade shot up vis a vis the US. Both nations now hold nearly three trillion in FOREX reserve dollars!

The US Federal Reserve has NO reserves now. They had to resort to using their gold swaps this week. The US refused to do what China and Japan did: buy up yen and yuan and hold them. Now we are holding a bag of bad debts and will go bankrupt.

The US demanded and got the Floating Currency system back in 1974. It was a total disaster back then and is still a disaster. The refusal to return to the gold standard means we go into debt, instead. We can't go into infinite debt. The government bail out of Wall Street and the banks is making debt worse, not better.

It is NOT capitalizing the system since the government itself has no capital. We can sell our military as mercenaries again like Bush Sr. did in Gulf War I. Maybe the Chinese can hire us to do dirty work for them? Or Japan! Guess who won WWII?

Not the US.

We have to review, for the general public, the basic issues which isn't 'How can we lend ourselves more money' but rather, is 'How do we stop the trade and budget deficits and stop going into debt?' The cures being suggested nearly all refuse to address the second question. All efforts for the last year and a half have been to make debts worse, not better. The entire focus of the $700+ billion rescue is to free up banks so they can return to making hideous, stupid buy-up and consolidation deals as well as handing out more mortgages to a saturated, over-priced market!

This is not a good thing. At all. We now have a 'consumer' economy and it is consuming our capital. Banks don't have capital, the capital of the US itself has no capital, the savings rate has been negative for a while and back when that happened, I noted that banks were no longer capitalized. Reality stares us in the face so we look away. We think there is some easy solution to too much lending. Hey! Lower interest rates and what happens?

There is more debt! Even savers go into debt if rates are below the rate of inflation. We need to fix the inflation statistics to reflect reality and then we must encourage savings. Period. But alas, debtors hate this and prefer inflation which allows them to pay back previous borrowings with bad money that is worthless.

Bloomber: Treasury Seeks Authority to Buy Mortgages Unchecked by Courts

As congressional aides and officials scrutinized the proposal, the Treasury late yesterday clarified the types of assets it would purchase. Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage- related assets and, after consultation with the Federal Reserve chairman, ``other assets, as deemed necessary to effectively stabilize financial markets,'' the Treasury said in a statement.

The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program.
*snip*
A failure by the government to support the U.S. financial system could lead to ``a depression,'' Senator Charles Schumer, a New York Democrat told reporters yesterday. ``To do nothing is to risk the kind of economic downturn this country hasn't seen in 60 years.''
*snip*
``The consequences of inaction could be catastrophic,'' Senate Majority Leader Harry Reid said in a statement.

``While the Bush proposal raises some serious issues, we need to resolve them quickly,'' he said. ``I am confident that, working together, we will.''
*snip*
Congress, which may pass legislation as soon as Sept. 26, needs to ``make sure there are protections built in for taxpayers,'' said Schumer, a New York Democrat on the banking committee. Lawmakers should ensure ``taxpayers who gave the money will be put ahead of the stockholders, bondholders and others.''

Taxpayers will be at the front of the line? HAHAHA. Nope. They are an amorphous mass. The bribers of Congress are people who Congress keeps on their Rolodexes are NOT the voters. It is the names of the guys who give them money. This very select group of people are the ones who control who stands where in the lineup. And they are at the front with the politicians working as their bodyguards and water carriers. Bit by bit, any protections of the taxpayers takes back seat to protecting the wealth and power of these donors.

Depressions are interesting. I have studied several in hopes of understanding why they happen. Always, war-related spending ceases or a bounty from reparations from winning a war causes a speculative bubble which leads to excessive lending. So we know this is a fact and we know that danger zones exist around wars and war spending. The US system is now set so it is in eternal war mode and this is why we suddenly went off the fiscal cliff. Cutting taxes and dropping interest rates right when we began our misguided 'War on Terror' was insanity.

And this insanity is continuing. Even as Congress is considering this emergency bill, they upped war spending even more. And the candidates are talking tax cuts.

Pelosi, Kerry May Share Investor Pain as AIG Stakes Evaporate

Altogether, 56 senators and representatives had stakes in AIG, Lehman, Fannie Mae, Freddie Mac, Bear Stearns Cos. or IndyMac Bancorp Inc. -- some of the biggest casualties of the market bloodbath -- according to the Center for Responsive Politics. The most recent annual disclosure filings list investments as of Dec. 31, 2007, and reveal the size of holdings only within a range of values. Lawmakers may have sold shares since then.

``Lawmakers, like everyone else in America who has any kind of retirement portfolio or stock holdings, are going to be suffering,'' said Gary Kalman, a lobbyist for the Boston-based U.S. Public Interest Research Group, a consumer-advocacy organization. ``This is a serious issue. We need to have a serious response.''

Congress is full of corrupt millionaires. They all have fingers in the economic pie and are very anxious to protect themselves. NAY. They want PROFITS no matter what and if they can help this along, they do so. They are united with the names on their Rolodex donors in wanting the same thing: profits and more profits no matter how or why. The ideal is for no recessions. Just profits forever.

This annoys the goddesses and their guardian creatures like the three headed dogs. We KNOW that NEVER does ANY economic system go up and up and up. This is impossible. We have to accept the idea of downturns. To prepare for these, we have to have a balanced budget and do deficit spending in BAD times, not GOOD times. We chose to not tax ourselves in good times and now we have bad times and only a huge mountain of debt, not a solvent government like in 1929.

Democratic presidential nominee Barack Obama said in a radio address that he ``fully supports'' Paulson and Fed Chairman Ben S. Bernanke's efforts to stabilize the financial system. The plan, however, should benefit both main street and Wall Street, he said.

Republican Presidential nominee John McCain ``looks forward'' to reviewing the proposal while focusing at least in part on ``minimizing the burden on the taxpayer,'' said Jill Hazelbaker, communications director for the McCain campaign.

The ban on legal challenges of actions by Treasury is ``distasteful, it's unfortunate and it's bad precedent, but this is an emergency and you have to act,'' said Jerry Markham, a law professor at Florida State University and author of ``A Financial History of the United States.''

``What you don't want happen is to have lawsuits that will slow things down and cause problems,'' he said.
*snip*
The Bush administration seeks ``dictatorial power unreviewable by the third branch of government, the courts, to try to resolve the crisis,'' said Frank Razzano, a former assistant chief trial attorney at the Securities and Exchange Commission now at Pepper Hamilton LLP in Washington. ``We are taking a huge leap of faith.''

And it is certainly a coup. More than one online commentator has noted that the US is moving rapidly from 'Free capitalist society' towards Stalinism. The police state security systems, eternal wars and government-controlled banks and industries is very Stalinist or Naziism. Nationalsocialism is not the correct model since it involved looting the world to make Germany rich. The US is looting the world to make multinational corporations rich.

Next is a goofy story put out by ABC news. A year ago, this same story was published. Today, it is ABC's turn to run it again. I consider this story to be a warning to the US, who actually holds the gold and our status as guards for the owners who own us:

Just a Few Blocks From the Bustle of Wall Street Sits $200 Billion in Gold

Just a few blocks away from all the turmoil and panic of the stock market sits the world's largest stockpile of gold. Deep under the streets of Manhattan sits more gold than "James Bond" villain Goldfinger could ever imagine.

And I recently got a private tour inside the little-known vault.

Nearly $200 billion worth of gold rests on bedrock five stories underground, 30 feet below the city's subway system, inside the Federal Reserve Bank of New York's vault.
*snip*
There are roughly 540,000 gold bars belonging to 48 foreign central banks and 12 international organizations such as The International Monetary Fund or The Bank for International Settlement. The United States has about 5 percent of its gold stored there.

Fed officials were very tight-lipped about who owns what gold. Accounts are just identified by number, not name.

The Fed stores the gold for free but depositors pay $1.75 for each bar that is moved.

We defend these mysterious people for free. Many of these people are NOT governments, they are BANKS. And offshore banks, to boot. As well as political officials in Africa, Europe, Asia, South America as well as Americans who want to be anonymous. Note the location: Wall Street. Note the fact that this gold is NOT paying rent nor is it enriching the bankers who are the AMERICAN TAXPAYERS. No, this gold is used for 'gold swaps' and it sits inert in its Cave of Death while we protect it.

The owners can play with it at their leisure. Note that the government is NOT seizing this gold! They are focused on dumping even more debts on future taxpayers in the US.

Global Firepower:

China's Gold Reserves: $1,493,000,000,000
US Gold Reserves: $65,890,000,000

Look at that! China's gold reserves are 22 times greater? I think Global Firepower is actually talking about the FOREX reserves, not the gold reserves. I do know that China is hoarding gold just as Russia is hoarding gold. The US is not hoarding gold, it is guaranteeing gold security which is quite different. During WWI and WWII, the US used gold parked in the US as security for lending money for paying for WWII. But afterwards, the countries that wanted their gold back had to basically pay the interest on the WWII loans.

Here are some shocking graphs from the Federal Reserve:

It is obvious that a $700 billion bandaid can't fix this mess. These are terrible graphs. Clearly shows a bankrupt banking system.

From Australia: No bank is safe in this alarming atmosphere

BE very, very careful. There are reports the US Federal Deposits Insurance Commission is running out of money. Chairman Sheila Blair has been forced to issue a statement. "US banks are overwhelmingly safe and sound and the Government fund used to cover insured deposits will be adequate to absorb any losses, even high losses," she says.

But Brian Bethune, US economist at consulting company Global Insight, said: "Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund."

Christopher Whalen, senior vice-president and managing director of Institutional Risk Analytics, said: "We've got a … retail bank run forming in this country."

The FDIC works only if the system is properly capitalized. As banks lent wildly, the FDIC wanted to raise the cost of insurance. But the banks called their buddies who tried to prevent this. Our entire system is undercapitalized compared to risk. This is systematic and universal.

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Comments

[W.C. Varones]

How about some obvious, common sense safeguards?

1) Treasury gets extremely dilutive warrants from any bank that touches this facility. This is what happened at AIG: the taxpayers may lose a lot of money, but at least Wall Street's profit from the scheme is minimized and the taxpayers get something back in a best-case scenario.

2) Executive compensation is capped at any bank that touches this facility. Nobody makes more than 10x or 20x the median employee, and no more stock options. Maybe even a clawback for ill-gotten gains during the bubble. Executives don't go along? Push them out.

3) A huge new program for the Justice Department to prosecute mortgage fraud and securities fraud for everyone that caused this problem, from Angelo Mozilo and investment bankers all the way down to speculators who committed fraud on their loan applications.

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