Money Matters

Banking Meltdown Melts Even More

March 25, 2008

Elaine Meinel Supkis

After everyone finished flapping their lips in support of the idea, again, that the financial crisis is over, we can plainly see, it continues onwards, barely pausing with each 'rescue.' The Federal Reserve LLP has yet again, handed out a huge sum of money to keep our banking system from total collapse. Only this was first reported in the Chinese news. We watch rioters in Tibet while they watch our bank account sink into the muck. Guess who gets the last bitter laugh? Sader! He has restarted the fighting in Iraq. Home prices continue to collapse and the worse in housing is yet to come. As I keep pointing out, housing bubbles take a minimum of 5 years to recover. Big ones cant take 20 years.

From Xinhau, the Chinese news service:

U.S. Fed auctions another $50 bln to banks

This was the central bank's eighth auction aimed at injecting more money into the U.S. banking system since mid-December 2007, when the Fed established its Term Auction Facility to deliver short-term funds to banks in need of liquidity.

The series of auctions so far have pumped 260 billion U.S. dollars into the banking system.

The latest auction produced an interest rate of 2.615 percent, lower than the 2.80 percent generated in the previous one, which was held on March 11 and also provided 50 billion U.S. dollars to banks.

There were 88 bidders for a slice of the latest 50 billion U.S. dollars in 28-day loans. Demand was high, with the Fed receiving bids for 88.9 billion U.S. dollars worth of loans.

Demand was high? Eh? What? This means the Central Bank is Grand Central Station. All trains terminate there, don't they? And of course, the Federal Reserve LLP has unlimited potential funds to draw on: the printing press, thanks to Guttenberg. Since the sky is the limit, the Fed isn't too worried yet. They have infinite faith in their godlike powers. Of course, they create global inflation with they use their powers and this is the only curb. One they drive over constantly, incidentally.

S&P/Case-Shiller Home Price Index Falls Record 10.7%

Home prices in 20 U.S. metropolitan areas fell in January by the most on record, a sign the housing recession is deepening, a private survey showed today.

The S&P/Case-Shiller home-price index dropped 10.7 percent from January 2007, after a 9 percent decrease in December. The gauge has fallen for 13 consecutive months.

Price declines will continue as foreclosures add to a glut of unsold properties, and stricter lending rules make it harder to get financing. Declining values leave homeowners feeling less wealthy and with less home equity to borrow against, undermining consumer spending and pushing the economy closer to a recession.

Deflation hits the housing market like a wrecking ball. Of course, inflation is OK so long as assets move up faster than the Fed LLC can print money. When assets fall faster and faster as the Fed LLP prints faster, this is a problem. Some people call this a 'liquidity trap'. If you try to liquidate assets, they fall in value due to everyone trying to do this as fast as possible as prices drop. The panic to rid oneself of an asset as it falls in value feeds more falls and a death spiral results as Bear Stearns learned the hard way.

People are still buying houses. There is still some sort of banking going on right now. But all are bargain hunters, not house hunters. Some of the goofy stories I read about people earning less than $60,000 a year bidding up prices of hovels to $500,000 in California still abound. They often bid up the price not due to competition but to get more money for the brokers who then shared the excess with the buyers and sellers. This should be sending people to prison since it is fraud. And it fueled the raging asset fires. The value of most housing sold last year was fake, not a true market. Just as the bull market on Wall Street and the commodities market climb was fake. Being based on loans, not savings, it drove up the value of things far beyond their true value.

This is the problem: all the investment systems and nest eggs depend ultimately on savings, not debt. When debts accumulate in any investment system, they cause rapid rises in 'values' but also tremendous drops when they have to do margin calls! This force accentuates any falls, often, fatally. This is why, for a few decades, such deals were illegal. The SEC couldn't stop people from running up debts on the value of their homes to play the markets. My neighbors who were much richer than I on paper lost their shirts in the Dot Com collapse and ended up vanishing and being replaced by neighbors who are much more careful, so far!

I hope they don't fall for these lures. But when giant banking houses and financial organizations fell for this sort of scheme, we see a collapse of all our financial systems. And this came only after they maliciously and stupidly got Congress to get rid of laws forbidding this.

Bloomberg:

About $460 billion of adjustable-rate mortgages are scheduled to reset this year, according to analysts at Citigroup Inc.

Half a trillion mortgages must reset? This is why the Fed LLC is dropping rates like a rock! They have to rescue everyone with totally fake interest rates. Basically, the Fed said, 'We must throw the baby out with the bath water'. They will swamp our nation with the exact same stupid low-interest rate loans we just had back in 2005. All, in the hopes that $40,000 a year workers can buy more $500,000 hovels! The idea that these low-quality homes in bad neighborhoods that should be for workers should even be more than $50,000 is the question we should be asking.

Even if rates go to 1%, most of the people who got these loans can't afford them due to one simple fact: raging inflation in energy and food! What could be squeezed into back in 2005 is hopeless today! The fact of inflation has hammered the purchasing power of the working class. Yesterday, while in town, I read a sad story about a factory worker in the Deep South where the Japanese, Korean, German and Chinese are building factories. These pathetic non-union 'right to be slaves' states provide cheap labor.

The man working for Hyundai earned a pathetic $7 an hour. This is barely better than minimum wage. The cars, by the way, sell for about the same price as union-made cars here. And the profits are pure candy for the Korean owners who haul it out to their homeland. It does NOT stay here. Anyway, this poor man was using nearly all his extra income to buy gas! Since all the foreign colonizing powers build in cities, they always build in farmlands far from cities, people working there must commute up to 50 miles to work. And this is killing them.

The unionized jobs are vanishing rapidly and being replaced by $7 an hour workers who can't buy squat. So who will buy things? This is the classic headache of all capitalists. They try to fix this with cheap loans only they can't do this so they give out expensive loans. Credit for $7 an hour workers is around 15-30% per year which kills purchasing power relentlessly. After 20 years of adding more and more backlog debt, they end up broke and dead. And so does the economy.

Junk Bond Losses Top $35 Billion, JPMorgan Sees More

High-yield, high-risk bonds are off to their worst start ever, and the biggest investors say there's no recovery in sight.

Junk bonds have fallen an average 3.9 percent this year, losing about $35 billion, according to data from Merrill Lynch & Co. indexes. Some funds managed by John Hancock Advisers LLC, OppenheimerFunds Inc. and Fidelity Investments are down more than 7 percent, showing that even the largest investors were caught off guard by the collapse.

While the Federal Reserve has slashed benchmark interest rates by 3 percentage points since September, it has been unable to get investors to increase their purchases of the riskiest assets. The declines are choking off financing for speculative- grade companies, boosting defaults. The debt is likely to ``struggle'' for months as the economy enters a recession, according to JPMorgan Securities Inc., the top high-yield research firm in Institutional Investor magazine's annual poll.

And how shall this be fixed? Why, pass all this to the new hedge fund from hell: the Federal Reserve LLP! Now, on to a speech made 2 weeks ago by one of the partners of this limited liability organization, Mr. Kroszner:

Governor Randall S. Kroszner

At the American Bankers Association Spring Summit Meeting, Washington, D.C

March 11, 2008

The Importance of Fundamentals in Risk Management

One of the most basic risk management challenges relates to concentration of risks. From the beginnings of banking, bankers always have had to be cautious to guard against, as the old adage says, "putting all their eggs in one basket." For example, Renaissance bankers learned the lesson--some of them the hard way--that they did better by lending not just to a few merchants active in one trade, but to a range of merchants active in a variety of trades. As risk management techniques grew over the centuries, bankers became more adept at identifying, measuring, and managing risk concentrations, but that does not mean the original problem presented by concentrations--that losses could occur all at the same time--has vanished. Indeed, some bankers occasionally forget that this challenge still exists, usually with unfavorable consequences.

It is also important to note that concentrations in banking include not just basic lending, but also holding securities, trading complex instruments, providing liquidity facilities, engaging in off-balance sheet transactions, and conducting other financial activities. As banks have extended their range of activities and involvement in new markets, they must be particularly mindful of potential for concentrations of risk to arise for a number of reasons. First, any new activity will be less familiar and involve less data and experience for evaluating risk compared with long-standing activities or markets. Second, risk concentrations can be hidden during normal times and may only manifest themselves during times of stress when activities or instruments that might in normal times have little or negative correlation suddenly become correlated, such as with a market-wide increase in the demand for liquidity as we have seen recently. In other words, bankers may have far more eggs jostling around in the same basket, and each of those eggs may be more fragile than originally thought.

These eggs have all turned to scrambled eggs. And was this accidental? Or did the bankers deliberately break these eggs so they could never be unscrambled? Of course, we all know the answer to that: this was deliberate. The rotten eggs can't be separated from the fresh, wholesome eggs if they are all churned together into one big souffle! Alas, the souffle fell when the bankers took it out of the oven.

Now, if I were addressing these bankers, this would have made the news because of all the screaming, hair-tearing, me yelling, 'You are all UNDER ARREST for FRAUD!' And they would throw things at me and I would fling the podium at them in a fit of rage. I would grab one and scream, 'Do you realize, inflation is eating my income AND my savings gets NO VALUE thanks to you clowns?'

Yes, it would be amusing and newsworthy. This partner in the Fed LLP pretends the craven, evil bankers who stupidly destroyed our entire banking system don't know perfectly well, their crimes and their contributions to this disaster. He feels they didn't know what the hell these brilliant brains were doing. YEAH, RIGHT! They didn't understand the 'complex' instruments of monetary torture they devised?

Blame it all on the computer nerds! Yeah, that's the ticket! The ignorant fools running the banks were too stupid to understand the lower level nerds who are their dwarves. With little reward or pay, these dwarves live in deep caves and hammer away at the gold stolen from the Rhinemaiden strumpets. Yes, and the dwarves worked with the giants to make the Derivatives Beast, not the bankers! Like a room full of Wotans sitting in Valhalla, they shovel blame everywhere but where they sit. I want to spank all of them. Smack.

The Fed tries to explain to its reckless, idiot partners, how 'risk' works:

Effective risk management remains sturdy and durable only if supported by strong and independent risk functions that produce unbiased information. [Elaine: HAHAHAHAHA] Empowering independent risk managers results in clear, dispassionate thinking about the entire firm's risk profile, with no favoritism toward any business unit. [Elaine: HAHAHAHA...the plan to kill me via laughter still operative!] Senior managers should encourage risk managers to dig deep to uncover not only risks within each business unit, but also risk concentrations that can arise from the set of activities undertaken by the firm as a whole as well as latent risks--such as hidden risk concentrations that can arise from correlation of risk in times of stress. [Elaine: ARREST THEM!] Such risk management assessments should lead risk managers to point out cases in which certain business lines are assuming too much risk. [Elaine: isn't he a cute stand-up comedian?]

In other words, it is good to have a few people within the institution who--to paraphrase a former Federal Reserve Chairman--know when to take away the punch bowl. [Elaine: ROLL OUT THE BARREL, WE'LL HAVE A BARREL OF FUN!!!] Being the party pooper, however, can be very difficult in any organization,[Elaine: they are FIRED!] and that is why it is crucial for the risk manager to be known as an independent voice who is influential with top management and for top executives, of large or small firms, to set the appropriate "tone at the top" [Elaine: tossing the bosses out of the window without opening it may work here] with respect to the importance of independent and unbiased risk evaluation.

Wheew. Reading this section was a trial. My sides hurt. I wish I was there. My screams of laughter would have disconcerted these stone-faced creeps. So far, the US has been kept in the dark about the noisome activities of these greedy little monsters. People think these sharks are out to save them not strip our nation of everything. People seldom hear about offshore tax havens and offshore banking nor do they hear political speeches about this. Ron Paul has given some good speeches this last month. Crickets are louder at night. And even when Obama decided to commit suicide by suggesting we stop the pirates, note how his star has fallen rapidly from that point onwards.

I once told a boss, his company was going bankrupt. He said, 'We must have an emergency meeting!' Then, as I prepared a program to deal with cost overruns and misspending, he called me and said, 'Something important came up. The meeting in cancelled.' Then, a person much lower in the main office in Chicago slipped me a message, 'The boss and his son decided to go buy a new yacht.' They want off to play with toys! And they got rid of me. And I said, 'Everyone, look for new jobs, you aren't going to get your last month's pay.'

Three months later, boom. Gone! Some former co-workers called to thank me for warning them. The main thing is, they never give warning even if the top people know what is wrong. They either are insane or they don't care. Or they are criminals. This company's biggest selling point was their 'guarantee' which went down the river with them. Zero.

And so it is: the Fed banking authority should be yelling at these clowns. He shouldn't pretend they were clueless. They were most emphatically not. They were RISKY. They thought the scam would run forever.

More Fed LLP foppery:

Limits and controls can be useful tools for creating the right incentives and sending appropriate signals, but they of course need to be tailored individually to each firm. Problems can arise when incentives are not properly structured and appropriate "risk discipline" is not exercised--for example, when limits and controls are not set or, if they are set, when adherence to them is not monitored or enforced. Such controls provide incentives for business-line leaders to assume only the risks that the firm can absorb because they penalize those who try to take on excessive risk or inadequate mitigation in the name of maximizing short-term profit. This is just as true at large international firms as it is at community banks.

They REWARD excessive risk! This is where the profits lie! They don't want low-risk deals, they want the BBB deals that make lots and lots of extra money! Anyone practicing old fashioned banking cautious rules was FIRED! They were emphatically shown the door. And the people listening to this speech are the same clowns who ordered everyone to be as risky as possible.

How did they deal with the gigantic mountain of risk they created? Well, they turned to the Derivative Beast and parked it all there. And then said, 'There is no risk! Let's make even more money with even greater risks!' It is that simple. How on earth can anyone 'self-regulate' when the rewards for doing the worst things are greater than the rewards for being sober and careful?

Fed forges forwards:

Now I wish to consider the third fundamental. Liquidity risk management. Banks, of course, have been managing expected liquidity demands since the beginning of banking itself. Because of its central role in the business of banking, liquidity risk requires rigorous and effective management. Naturally, financial institutions both large and small must pay careful attention to liquidity risks, even if they manifest themselves in different ways.

Regarding recent events, a number of financial firms were surprised by the extent of market disruptions and were forced to take funding actions not anticipated in their contingency funding plans, including some decisions to support affiliates [Elaine: the hedges that all failed] that were based on reputational concerns rather than contractual obligations. At the same time, some institutions were able to avoid more serious problems from these events by aligning treasury functions more closely with risk-management processes and incorporating information from all businesses into global liquidity planning, including actual and contingent liquidity risk. They also made attempts to embed market liquidity premia or apply market liquidity haircuts in pricing models and valuations.
*snip*
As supervisors, we strive to achieve the appropriate balance, recognizing that supervision and regulation has costs and benefits that need to be weighed against one another. For instance, we need to be careful that lending is conducted on a prudent basis, and at the same time, take care not to stifle the provision of credit when it is done properly.

The costs of not regulating: the utter collapse of the entire banking system? Look, we know already, this is costing us over a trillion dollars. And it has barely begun. The toxic leadership failure/noxious banking failure mix is going to cost us not only many trillions of dollars, it will possibly destroy the entire world's economic systems. Now, that is a tremendous price to pay for lack of supervision! So what, if laws and regulations slowed things down?

We saw things speed uphill and now it is roaring downhill! This is unacceptable, to put it mildly. The utter failure of ANY of the banking/investment houses to supervise themselves proves that they need stark, harsh controls! If they don't have this, they end up raiding the bank, wrecking the economy and destroying all our systems. They can't help it! They are drunkards and greedy bastards!

The fact that the Fed still coddles them on this issue sickens me and we should disband the Fed since they are USELESS and let the Security and Exchange Commission run the joint instead.

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Fed Reserve Merges With BlackRock And J.P. Morgan

March 25, 2008

Elaine Meinel Supkis

Slowly, the secret negotiations between the pirates wrecking America's finances and the outlaws running the Federal Reserve are leaking out. Bernanke and Paulson turned the Fed into a LLP! Isn't that cute? Lousy Lopsided Pirates! The deal is, BlackRock, a pirate organization based offshore, of course, will bankroll this deal that is 30:1 billion with the Fed and JP Morgan! Morgan puts one billion into this kitty and the US taxpayers get stuck with 29 billion in losses if these CDOs decline in value! Whoopee. If I wanted to be cheated by con men playing three card monty, I would take Bernanke along. What a tough negotiator! Also, is this legal??? I doubt it.

Fed's 'Loan' For Bear Deal Actually a BlackRock Managed Fund

The New York Fed will take, through a limited liability company formed for this purpose, control of a portfolio of assets valued at $30 billion as of March 14, 2008. The assets will be pledged as security for $29 billion in term financing from the New York Fed at its primary credit rate.

JPMorgan Chase will bear the first $1 billion of any losses associated with the portfolio and any realized gains will accrue to the New York Fed.

If there were any gains possible in any future scenario, do we think for even a minute, the pirates would share 100% of it with anyone? Obviously, all they wanted was some DUPE to take up all the LOSSES. This dupe then gets stuck holding the bag while the bag men rush off to rob another bank. These con men have told us for years, they 'earn' their huge fortunes because they 'work hard' and have to 'take risks.' But the instant any risk rears its ugly horned head, they rush off to their home base shelter: the Federal Reserve. Then they are protected from their own losses. How delightful it must be, to be very risky and then be saved every time! And look: the guys who did this to our economic base all get to keep every penny of their loot. The one billion loss JP takes here isn't their money, it is the money of the poor saps who entrusted their funds to JP. The executives get their cut no matter what happens!

Seeking Alpha:

Specifically, J.P. Morgan is offering financing of $1 billion dollars that is loan-like in one sense — the maximum it will be repaid is its initial investment plus interest ("the primary credit rate plus 475 basis points", currently 7.25 percent) — but equity-like in another sense — J.P. Morgan's billion bears the first loss.

The Fed's ownership stake will be $29 billion, ostensibly in the form of loans at "the primary credit rate, which currently is 2.5 percent and fluctuates with the discount rate". But, that is largely meaningless. If the investment company's assets turn out to be worth less than the principal and interest due the Fed, then the Fed's loan won't be repaid. If its assets appreciate, J.P. Morgan gets paid out, and the rest belongs to the Fed. The only significance of the "interest rate" would be if, as the fund unwinds, asset values are high enough to make only a partial payment to J.P. Morgan. In this case, the interest rate would help determine the split between the Fed and JPM.

Huh? So, if the value of these SIVs don't rise, JP doesn't pay back? What the FFFFFKKKKK???? They only pay us if the funds make them money? Eh? Talk about a deal! Wow. So, if we did this to homeowners, they don't pay the banks back on their mortgages unless and ONLY if the house goes up in value? I once lost $100,000 in a deal during a down market. Perhaps the government should give me back this money with interest. Why should I take any hits like that? Everyone who loses value on their house should stop paying, right? HAHAHA. Talk about bankrupting an entire system!

Seeking Alpha:

I have a simple question, one to which I think taxpayers deserve a simple answer. Will this new "limited liability company" have contingent liabilities to any parties other than the Fed, J.P. Morgan, and BlackRock for ordinary management fees? Will its portfolio consist of any positions that would make the fund a counterparty, potentially with obligations to pay, not merely rights to receive, future cash?

If the answer is no, a plain statement of that would be nice. If the answer is yes, then don't count on the "limited liability" of this investment company to provide taxpayers much protection. It's strikes me as implausible that a fund backed by the Fed would default on obligations to third parties. We've had central banks touted as lenders of last resort, market-makers of last resort, and fools of last resort. We'd better think very carefully before letting the Fed become a derivatives counterparty of last resort.

And here it is yet again: the fearful Derivatives Beast from the Gates of Death! Who will ultimately pay for it? We can see that the pirates who created this monster in the last 10 years did so to protect their vast wealth. This dragon was to sit on the golden hoard and protect it. Only they made this dragon bigger than the next 20 years of all the planetary wealth all nations produce. This is pure insanity. And killing this creature means killing the entire US and European banking systems. Totally. This kills all the currencies involved in creating this creature. It means total default on all future wealth which these pirates tried to seize for themselves.

Look at how they claw at us to save them! In Götterdämmerung, the only way left for the Gods, giants, dwarves and humans can restore the true value of the Ring of Power is to DESTROY THEMSELVES. Brünhilda flings herself on Siegfried's funeral pyre, Valhalla, the entire excuse for all this, burns and crashes, all the gods die and the dwarf is dragged into the deep by laughing Rhinemaidens. The entire four opera series is about how all these characters tried one trick after another to avoid this. Even when the Rhinemaidens beg Loge to tell Wotan, all he has to do is give them back the Ring, he refuses. Because he wanted Valhalla and power!

This is all so heartbreaking, actually. Since the people who cooked up this mess are 'fixing' it by cooking up even bigger messes, the people who pay in the end are the small people. They lose in every possible way. And if we were sane and prevented this vast Valhalla of power, palaces and offshore pirate coves to be erected in the first place, there would be no need for a Final Destruction.

The Debt Shuffle

Lehman’s balance sheet isn’t shrinking, as we’d expect.

Lehman finished the first quarter was total assets of $786 billion, up almost 14 percent from the previous quarter and 40 percent from a year earlier. Other financial institutions are taking down their exposure right now amid the market turmoil to be prudent. Lehman says it wants to. It is not.

Lehman got more leveraged, not less.

The investment banks “gross” leverage hit 31.7 times equity, up from the fourth quarter and way up from last year’s 28.1. According to Brad Hintz, an analyst with Bernstein Research, Lehman’s leverage reached its highest point since 2000. Lehman, like all the investment banks, prefers to look at net leverage, excluding hedges, and that went down. And the firm says that the asset rise was mainly a result of increases in short-term items that have low risk. But we’ve heard a lot of that lately across the financial world. It’s quite simple: The more leverage Lehman has, the less room assets have to fall to wipe out its equity.

Lehman includes debt in its calculation of equity. Say what?

Lehman, instead of having the traditional 10:1 ratio had a 28:1 ratio last year and to keep alive, they went to the Bank of Japan and expanded this to a 32:1 ratio! Soon, they will reach 70:1 and then collapse. But they are already clawing at Wotan, begging Bernanke to please give them a break like JP Morgan got. JP Morgan happens to be one of the world's biggest holders of the value of the Derivatives Beast. Many multiples of trillions of dollars that they don't have, own or have any hope of producing in an emergency. Note also how the Lehman people shoehorn debt into the positive money flow side of the ledger. This is FRAUD. I vividly remember arguments I had with professional financial advisors in the past over the topic, 'Is credit wealth?'

I correctly said that ONLY capitalist profit is 'wealth'. Everything else is 'assets' which can shoot up or crash in value. Profits also go up or down but remain 'profits'. One can by assets with profits. But one can only profit off of assets if they inflate. Whereas, profits from capitalism is when it is used with labor, power and machines to create goods which can be exchanged for more than the costs of materials and production. Americans were told for years, it is better to go into debt to use the funds to play markets rather than expanding our value-added industrial base and then enriching the nation via international trade.

I know from reading old newspapers that were sufficiently influenced by intelligent reading of Karl Marx, the concept of value-added profit via international trade was understood by ordinary writers. Since the Russian Revolution, the ability to think, talk or understand simple economics has declined in the West, especially in America where it was nearly eradicated. In the East, understanding the need for liberalism caused a collapse in understanding trade and value. In the West. especially in the US, the collapse in understanding economic liberalism has driven us onto the rocks due to the disconnect from leftist understanding of labor and value.

So the idea grew in the US, that debt could be leveraged into profits nonstop. This is 'inflationary' thinking. For often, the ONLY way to make profits off of commodities and assets like property is to inflate it by lending money below the inflation rate! Which we see the Fed trying yet again. We know that the sudden deflation in prices will slow down and reverse and go back into inflationary rises once the loans are cheap enough. And that is, when it reached Japanese levels of dishonesty.

Federal Home Loan Banks May Buy $150 Billion of Bonds

Federal Home Loan Banks were freed to increase their purchase of mortgage-backed bonds by about $150 billion as part of a government effort to pump money back into a market that slumped as the housing crisis deepened.

Directors of the Federal Housing Finance Board, the banks' regulator, approved the temporary increase today, according to an e-mailed statement. The purchases will be restricted to bonds guaranteed by Fannie Mae and Freddie Mac, the board said.

The approval for Federal Home Loan Banks to increase their purchases comes a week after Fannie Mae and Freddie Mac, the two government-chartered mortgage-finance companies, were cleared to buy at least $200 billion of mortgage securities.
*snip*
About $4.5 trillion of mortgage securities backed by Fannie Mae, Freddie Mac or smaller federal agency Ginnie Mae are outstanding, according to Federal Reserve data.

The 12 banks, know as FHLBs, are cooperatives created by President Herbert Hoover in 1932 to spur mortgage lending. The system's 8,100 owners and customers range from New York-based Citigroup Inc., the largest U.S. bank, to the single-branch Custer Federal Savings & Loan in Broken Bow, Nebraska. Their government ties support top AAA ratings from Standard & Poor's and Moody's Investors Service.

As we slide into a repeat of the Great Depression coupled with the German Weimar Republic, it is interesting that the people who did this to us want to use the last remaining structures build back then as a rescue machine. Fannie Mae, Freddie Mac and Ginnie Mae now hold one tenth of the Derivative Beast's value. This is the basis for the Beast's value, I am guessing? Someone tell me, I am wrong. The US may have $4 trillion in gold value in our vaults but this is due to the gold bubble which seems to be deflating somewhat. So it may be around $3 trillion. The two figures together means we have based this giant protection scheme on these two small rocks.

The Derivative Beast, by the way, isn't there to protect US funds here at home. It was created to protect the OFFSHORE entities, I might suggest. So few people understand this matter! This is why I keep reaching back into mythology to explain it! Wagner wrote his Ring cycle during a period of great economic expansion and crashes in Germany and Austria. The final episodes were premiered right when the Long Depression began in 1873, after all.

By the way, I like the name, 'Custer Bank.' Gives me a feeling of security! As for the major holder of these trillions in loans, many of which are 'underwater', one of them is Citigroup. These guys are as overstretched and underfunded as all the other guys whose ships are sinking. Of course, the Federal Reserves that holds almost no reserves except for Fort Knox, they can form LLPs with all these guys! Then we should change their name from the Federal Reserve Banks to the Fed Rez LLP. We, the taxpaying public, get to back this with the value of all that we own. Germany did this in 1924. To bring back the value of the reichsmark, they based the new value on the inherent value of all land and all buildings in Germany! This was an expropriation of property, in a sense. For example, the dollar is based on the value of all outstanding debts, not on the value of everything we own!

But this is what happens with ownership collapses and the STATE takes over most properties. Note how, in the Great Depression, the Fed insured banks, they didn't form LLP relations with them. On the other hand, they did guarantee savers would be saved if banks collapsed. But if the GOVERNMENT collapses due to too much debt, then no one can be saved, I may suggest. The Fed is not flush. It is deep in the red and falling deeper by the hour. I savaged Mr. Forbes the other day when he stupidly suggested we spend MORE on military adventures we can't afford as well as bailing out all the rich people who made stupid deals. Since both stupidity and stupid deals can reach infinity, this is a stupid proposition. This is why arresting or shoving out all who do stupid infinite deals is step in one in rescuing any economic system.

Swap Users Sing `Your Cheatin' Heart' to Wall Street: Joe Mysak

I instead refer to two class-action complaints filed on March 12 by seven municipalities, including Fairfax County, Virginia, the city of Chicago and the state of Mississippi, one against Bank of America Corp. and another against 35 securities firms for bid-rigging in municipal derivatives.

Get this: The issuers are already working on a settlement with Bank of America.

The lender copped a plea and is ratting everyone out. In February 2007, the bank announced it was cooperating with the federal government in its investigation into anticompetitive practices in the municipal bond industry.

The bank at the time also said it had entered into a ``leniency agreement'' with the Justice Department. This means that Justice won't bring criminal prosecutions against the bank for its role in the scandal surrounding the reinvestment-of- proceeds business.

The collapse of the muni markets was a conspiracy. As I suspected from the first hour. The pirates needed money. They needed someone to give them huge interest rates in return for them creating money out of thin air on a 30:1 ratio base. So the pulled this heist! Right in front of the government's eyes! And they hoped their bribes would prevent anyone in Congress or the White House from raising a stink.

Only this failed. Someone had to pay the piper. We can thank a host of infuriated governors for this. Since they were all endangered by this, they banded together to hammer the SEC and others to investigate. So I am not very happy that the criminals are getting off lightly just so honest taxpayers can get their money back! Arrest these executives! At least, arrest the others who conspired. And who were they?????

HAHAHA. J.P. Morgan and others are sweating with fear! They are rushing about, pulling every trick in the book, calling in all favors. They are all scared that more shoes will hit the floor. I would suggest, there are as many shoes left to fall as there were in Imelda Marco's shoe storage chamber!

Commodities: Latest Boom, Plentiful Risk

“Right now is a very scary time” for commodity market regulators, said Michael Riess, a director of the International Precious Metals Institute, a consultant to commodities investors for more than 30 years. “It’s not a question of overregulating or underregulating. It’s a question of just being swamped by volume, volatility and a dramatic shift toward speculative interests.”

Developments on Wall Street in the last few days underscored the new risks. Both Bear Stearns and its prospective new owner, JPMorgan Chase, are important clearing brokers that process and guarantee their clients’ trades in the commodities markets.

Officials at the exchanges where those trades occur had to monitor Bear Stearns’s financial situation carefully throughout last week to ensure that its cash shortage did not affect its commodity positions or those of its clients.

And what are these commodity markets? I would say, an expression of global inflation! The flood of free money that suddenly spurted into action in the last 10 years has to flow somewhere! And so the entire planet sees billions of innocent people struggle and weep over rising costs of food, energy and raw materials. This is the real inflation that is destroying the purchasing power of billions of humans. Many now struggle between finding food or being able to cook food! Let's look at the NYT charts which I heavily amended:

This flood of inflationary speculation coincides with the Bush tax cuts which were primarily for the rich. And since the US has decided to conspire with pirates ripping off the taxpayers of the US, the flood of both government overspending coupled with Halliburton and others who feed off of Federal spending, moving to offshore pirate coves, we have this flood of money that had to go somewhere. It shoved up not only global property values but all commodities, large and small. And world stock markets!

This lunacy was helped along by two dishonest central banks: the US Federal Reserve LLP and the Bank of Japan which is an arm of the export industry there. Both used super-low rates as global carry trade sources for all the major financial houses which grew and grew and grew ever bigger. And which were allowed to raise their stakes in this global gambling operation to amazing degrees! Putting down pennies on dollars! Now, the whole thing is crashing. And the central bankers are conspiring together to do one thing: KILL INFLATION via KILLING THE COMMODITY MARKETS. This wonderful, new stage is setting the stage for a depression, of course. Because often, the countries making the most loot off of this are the ones that do not have central banking powers that can use the IMF and World Bank and the UN Security Council as tools to enhance powers. They also don't have nuclear bombs. Except for that huge resource pool called Russia.

World dynamics now come back into play: Russia likes rising commodity prices. Russia wants rising commodity prices. Europe, Japan and the US don't. Except the foolish US is no longer a value-added nation, we are a COMMODITY EXPORT nation! So we should want higher commodity prices! Only we import huge amounts of oil so we need low oil prices but high farm prices! We are insane, of course. Once again, the Horns of Dilemma rear their ugly points.

Asahi, a Japanese newspaper's editorial: U.S. financial crisis

Concerns about worldwide inflation are also rising. It is not necessarily ideal for many countries to ape each other by slashing interest rates. The central banks in each country have to make their own difficult decisions.

In light of the teetering global economy, Japan must appoint the next BOJ governor as soon as possible.

It always pays to visit Japanese news! HAHAHA. They want to be the ONLY people who lend below the rate of inflation! They are scared if everyone does this. They want us to have a strong currency and higher rates. But they want us to buy from them. So they will kindly lend us money at a lower rate via the Japanese Carry Trade. But this means, the yen has to be weaker! Like, at 130 to the dollar, not the frightful 96 to the dollar it hit just before the Fed decided to turn itself into a LLP.

And so we continue to try to divine the markets. It looks increasingly like the ruling elites in the G7 need to reduce the commodities speculators. But they won't do this via higher interest rates and higher taxes while shutting down the pirate coves. Instead, the solution seems to be to have the central banks themselves, become conduits for these pirates! Isn't that just pretty?

Yo-ho-ho....THAR SHE BLOWS! Mates, I just spotted the Derivatives Beast rising from the dark depths of the seas. Where is Ahab? His white whale is here!

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Goldman Sachs and J.P. Morgan Try To Palm Off The Derivatives Beast Onto US Public

March 24, 2008

Elaine Meinel Supkis

This article is all about the Derivative Beast, the screwed-up J.P. Morgan raid on Bear Stearns, international banking conspiracies and operatic dwarves and strumpets singing while laughing. I suggest the reason Goldman Sachs didn't lunge for Bear Stearn's throat is simple: the 'rescue' is ILLEGAL. And J.P. has to defend their thing in court now and take all the hazards and blows from this including losing. If this crooked take over is allowed, all hell is going to break lose. The biggest investment houses will complete their coup in our government and use it to take over ALL our banking systems and WE will be holding the tail of the Derivatives Beast, not THEM! See? So we better stop them. Arrest them all.

JPMorgan May Raise Bid for Bear Stearns, NYT Says

JPMorgan Chase & Co. may quintuple its takeover offer for Bear Stearns Cos. to more than $1 billion in an effort to win support from employees and shareholders opposed to the deal, the New York Times said.

JPMorgan is in talks to raise its all-stock bid to $10 a share from $2, the Times said, citing unnamed people involved in the negotiations. The Federal Reserve, which helped engineer the takeover after customer withdrawals crippled the New York-based firm, is uncomfortable with any plan that might be perceived as an investor bailout, the report said.

The original bid, more than 90 percent lower than the securities firm's market value at the start of the month, drew opposition from shareholders led by U.K. billionaire Joseph Lewis. JPMorgan Chief Executive Officer Jamie Dimon met with Bear Stearns employees, who own a third of the company, to seek their support last week.

HAHAHA. I knew this would happen. The 'rescue' operation was really a pirate raid. It hit both our Treasury as well as Bear Stearns. The pirates hoped to sail off into the sunset with a pile of goodies, more power and no responsibilities. A perfect ending to a classic take-down. But too many people saw through this charade. Thanks to online chatter, the people who were first dismayed by this back-stabbing operation were able to counter-organize and stage a battle right on the decks of the burning Bear Stearns pirate ship! Cutlasses flash as cannons boom...the stream of online information and examination as well as the organizing skills of the internet has rallied the troops who man the Bear Stearns ship as well as the raging battle attracted a horde of sharks as well as many other pirate ships have come sailing into the fray!

The DOW is shooting upwards on these battles! Yo-ho-ho and walk the plank, Bernanke and Paulson! Both of these idiots got themselves stupidly involved in this piratical operation by J.Pirate Morgan. Now, they are stuck on Morgan's tub, praying no one notices their probably illegal raid on Bear Stearn's stern. Heh. I am so happy, we get to think of these guys as pirates. All we need now is for the Prince of Whales to come swimming past, looking to see if any of his mom's pirate coves are covered and won't fall in this epic battle.

JPMorgan may be required to guarantee Bear's trades even if shareholders vote down the takeover and seek another bidder, because of a sentence ``inadvertently included'' in the merger agreement, the Times said, citing a person briefed on the talks.

Bear Stearns employees, directors and lawyers are prohibited from seeking an alternative transaction, according to the agreement, which was filed with regulators last week.

Shareholders means that man who lives on a pirate island in the Caribbean. He can and obviously is leading the battle. And he has the behind the scenes cooperation of all the Bears Stearns crew who know they will be thrown to the sharks if Mr. Lewis loses his battle. Frankly, the other investment houses are now very interested in this battle. They figure, either they are next in this war or they are being cut out of the goodies by the J.Pirate organization. So they are hoping for blood in the water and circle this battle hoping to pick someone's bones. Perhaps, even J.P. Morgan's bones.

As I have noted before, the biggest houses are now in danger, themselves. This is why Morgan had to cook a crooked deal with Bernanke and Paulson. These two men should have simply stepped in and taken over Bear Stearns but being the front men for pirates, they thought this was a most excellent opportunity for someone to expand their own treasures. This is why the deal will collapse: it is so obviously illegal and NOT in the public interest!

Far from strengthening these financial piratical organizations, the government should be DISMANTLING them! They are destroying America! They are wrecking the world's banking systems! They are responsible for the creation of and the growth of the Derivative Beast from Hell! First, let's look at the legal aspects:

John P. Hussman, Ph.D.

Why is Bear Stearns Trading at $6 Instead of $2?

Bear Stearns is trading at $6 instead of $2 because unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own. Very simply, Bear Stearns is still in play. Still, when all is said and done, my own impression is that the ultimate value of the stock will not be $2, but exactly zero.

In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity.
*snip*
The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people – the Fed does not, even under Depression era banking laws. The “loan” falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a “loan” to J.P. Morgan was true, J.P. Morgan would be obligated to pay it back, period. The only point at which the value of the “collateral” would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal.

Hussman, like myself, feels this is not following any proper legal path but is blazing a new trail. One that all other financial houses better fight like crazy. As it is, Goldman Sachs has a hammerlock on US politics. The favors they shower upon themselves are legendary. Starting with sweetheart tax cuts. They artfully use lower class unhappiness with severe taxes due to imperial overreach to cut their own taxes at twice the rate the cuts are made for the plebians and peasants. Why didn't Goldman Sachs want the Bear Stearns deal, anyway?

Perhaps, precisely because of the illegality of all this: they knew this would go to court. They knew this would entangle J.P. in a huge legal mess. As J.P. struggles to deal with this legal net cast over them in this raw attempt at taking over illegally, Bear Stearns, the Supreme Court could rule in ways that benefit Goldman Sachs and all this, on J.P.'s bill! What a hoot! Believe me, this smells not only of a nasty deal but also a potential TRAP. As J.P.'s name is blackened like Enron's name, Goldman Sachs can skate over all this, invisible! If I were working for J.P. and was told that Paulson wanted to give me a nifty but very unusual and NEVER BEFORE SEEN deal that involves extra-legal games, I would say, 'Thanks, but no thanks.'

Indeed, from the first, I wondered why GS wasn't going for this deal. Obviously, they saw hazards J.P. ignored. Now, Paulson will either resign or withdraw back into the shadows of his dark cave. Bernanke is going to ignore all this since no one can stop the Fed no matter how insane, stupid, craven or evil they are! Ask Ron Paul about trying to stop or even shame the Fed! IMPOSSIBLE!

Since I have had to tangle with games like this in the past, I know the warning signs. In general, when anyone proposes doing something that skates on very thin legal ice, I tend to say, 'Sorry. If it is such a great deal, why do you want ME to do it?' This prevents fraud so easily, by the way. Very easily.

If the market was “certain to crash” in the event that Bear Stearns failed, then the market is certain to crash anyway, because Bear Stearns wasn't the last shoe to drop – it was one of the first. Unfortunately, we're standing in a shoe store.

HAHAHA. I like that line. This is pure Imelda Marcos. Not only is this NOT a shoe store, it is a private collection of shoes that are ALL ALIKE. And none of them are for people who have no shoes. As for the market crashing, all past rescues did NOT fix anything at all. All of them made things WORSE. The charts show clearly that, as the US struggled to fix the problems that first began to plague us causing the Bretton Woods II devaluation of our dollar and onwards have all gotten worse and worse and worse. A $10 billion budget and trade deficit have ballooned to a $10 trillion trade and $44 trillion deficit/debt total! So we are swimming in red ink and even though all our top financial wizards can put on Dorothy's ruby slippers and click them and say, 'Take me HOME!' and thus, escape to England or France, we can't do this.

Fed's rescue halted a derivatives Chernobyl

When the Federal Reserve stepped in to save Bear Stearns, most people had no idea what was at stake, writes Ambrose Evans-Pritchard

We may never know for sure whether the Federal Reserve's rescue of Bear Stearns averted a seizure of the $516 trillion derivatives system, the ultimate Chernobyl for global finance. "If the Fed had not stepped in, we would have had pandemonium," said James Melcher, president of the New York hedge fund Balestra Capital.

"There was the risk of a total meltdown at the beginning of last week. I don't think most people have any idea how bad this chain could have been, and I am still not sure the Fed can maintain the solvency of the US banking system."

All through early March the frontline players had watched in horror as Bear Stearns came under assault and then shrivelled into nothing as its $17bn reserve cushion vanished.

AND HERE IS PART OF THE TRUTH! The vile, hideous Derivatives Beast lurks in the murk. Let's go back to ancient religions to see who this creature is. Wagner, in his amazing 'Ring Der Nibelungen' cycle nails this on the head. Fafner was the giant who built, along with his brother, Valhalla for Wotan. Wotan wanted to do this based on an ARM loan. Like, 'arm and leg' loan. The giants wanted to be paid. So Wotan had to steal some oil or gold. He went to a pirate named Albrecht. This dwarf stole the magic gold from the lithesome and lovely Rhine maidens who were the elemental force of sex for money, i.e. strumpets and whores.

He basically raided their brothel and took the Rheingold and using his dwarf slaves, turned it into a vast hoard of gold which Wotan stole using tricks. The dwarf cursed him. Wotan wanted to keep control of this money hoard when he gave it to the giants who were stupid but not as stupid as that. They demanded they control this Sovereign Wealth Fund! So Wotan had to give control of the interest rates to the Chinese who turned into a dragon and hauled the loot to a cave. Where the dragon waits for a Siegfried, a total fool, to come along. Then the money can pass into the hands of humans again who waste it, of course, in fighting each other, killing each other, stabbing each other in the back and then everyone dies as the world is destroyed in Götterdämmerung! Whoopee!

The Derivatives Beast is the dragon, Fafner. It is very much connected to global SWF and China's vast army of workers. And it was created by our own Wotans who conjured up this dragon in the hopes it would protect their Valhallas. According to their own mythology, they will never lose money or power if they feed this Beast. It will grow bigger and bigger and sit on their wealth and no economic downturn in the realm of either dwarves or strumpet Rheinmaidens will threaten their celestial palaces! HAHAHA. When I was a child, I fell in love with these operas, by the way. I particularly liked how the Rheinmaidens and the dwarves were prone to singing 'HAHAHA' all the time. None of the humans or gods did that. Only them. So my heart warmed to these characters. Every variation on laughter is used by them. From gay to bitter, even sarcastic laughter when discussing economics and politics with Wotan who can't laugh even when Loge teases him. But I digress, as usual.

Bear Steans collapse may rouse the Derivatives Beast into Götterämmerunging us to death:

To understand why it has torn up the rule book, take a look at the latest Security and Exchange Commission filing by Bear Stearns. It contains a short table listing the broker's holding of derivatives contracts as of November 30 2007.

Bear Stearns had total positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in "notional" terms. The contracts were described as "swaps", "swaptions", "caps", "collars" and "floors". This heady edifice of new-fangled instruments was built on an asset base of $80bn at best.

On the other side of these contracts are banks, brokers, and hedge funds, linked in destiny by a nexus of interlocking claims. This is counterparty spaghetti. To make matters worse, Lehman Brothers, UBS, and Citigroup were all wobbling on the back foot as the hurricane hit.

"Twenty years ago the Fed would have let Bear Stearns go bust," said Willem Sels, a credit specialist at Dresdner Kleinwort. "Now it is too interlinked to fail."

Arrest the executives of Bear Stearns! Arrest anyone who dares to create a derivative base that is greater than all the wealth of the United States, of all the planet earth! They are CRIMINALS. And if they threaten our entire banking system, they are CRIMINALS. If they fall and destroy all of us, they are TRAITORS. The government let them do this and this makes our government COMPLICIT. Arrest anyone involved! Put them all on trial, we did this to Germany and Japan after they tried to destroy the world! We can throw in war crimes to make it even-steven. There is no excuse for this. Everyone who knew about derivatives could see how they were being created at a mad rate that was totally unsustainable.

This had to be stopped, not enabled. The bail out of Bear Stearns enables this process. But even with the government putting the US taxpayer in jeopardy in order to protect these 'inerlinked' Mafiosa-style criminal pirates, I have to suggest, this is ILLEGAL. And should be stopped. If Congress wants to NATIONALIZE all these organizations, then fine: we have the government take over and we can be proper communists. We can import the Chinese rulers and have them rule us, too. Might as well at this point.

Gads. What is the matter here? Is this the miserable end of capitalism in America, once the heartland of capitalism? HAHAHA. As the dwarves and watery strumpets in opera sing.

Fed May Buy Mortgages Next, Treasury Investors Bet

Forget lower interest rates. For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms, say the world's biggest Treasury investors.

Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence. The difference between what the government and banks pay for three- month loans doubled in the past month to 1.95 percentage points.

The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. While purchasing some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.

``An RTC-type structure is interesting, and it may not be that much of a burden on taxpayers in the long run,'' said Barr Segal, a managing director at Los Angeles-based TCW Group Inc. who helps oversee $80 billion in fixed-income assets. The government should purchase the mortgages and reissue ``debt that's backed by the U.S. government and there you go, you've unclogged the drain,'' he said.

OK: a poll. Who do you want to own all houses in America? The government or banks? When do we take all our pennies and melt them down to make into statues of Saddam and Lenin? Make them as big as the Statue of Liberty. Put them on the White House lawn.

What went wrong

The seeds of today's disaster were sown in the 1980s, when financial services began a pattern of growth that may only now have come to an end. In a recent study Martin Barnes of BCA Research, a Canadian economic-research firm, traces the rise of the American financial-services industry's share of total corporate profits, from 10% in the early 1980s to 40% at its peak last year (see chart 1). Its share of stockmarket value grew from 6% to 19%. These proportions look all the more striking—even unsustainable—when you note that financial services account for only 15% of corporate America's gross value added and a mere 5% of private-sector jobs.

At first this growth was built on the solid foundations of rising asset prices. The 18 years to 2000 witnessed an unparalleled bull market for shares and bonds. As the world's central banks tamed inflation, interest rates fell and asset prices rose (see chart 2). Corporate restructuring, wage competition and a revolution in information technology boosted profits. A typical portfolio of shares, bonds and cash gave real annual yields of over 14%, calculates Mr Barnes, almost four times the norm of earlier decades. Financial-service firms made hay. The number of equity mutual funds in America rose more than fourfold.

The US financial industry grew up in the wake of our first bankruptcy in 1974 when we began to run everything in the red. The more we did this, the more we needed the bankers. And since we threw away the concept of sovereignty and balancing the books, we needed more and more powerful bankers to bankroll our reckless spending. And this led to the bankers needing to make more and more reckless loans. And this whole system was then 'insured' by creating the Derivative Beast who lives in the hellish cave where death rules our fates! And this was our 'fix' for ridiculous, outsized Cold War and Hot War spending! And are we spending less and less on the military or more and more?

This process has turned investment banks into debt machines that trade heavily on their own accounts. Goldman Sachs is using about $40 billion of equity as the foundation for $1.1 trillion of assets. At Merrill Lynch, the most leveraged, $1 trillion of assets is teetering on around $30 billion of equity. In rising markets, gearing like that creates stellar returns on equity. When markets are in peril, a small fall in asset values can wipe shareholders out.

The banks' course was made possible by cheap money, facilitated in turn by low consumer-price inflation. In more regulated times, credit controls or the gold standard restricted the creation of credit. But recently central banks have in effect conspired with the banks' urge to earn fees and use leverage. The resulting glut of liquidity and financial firms' thirst for yield led eventually to the ill-starred boom in American subprime mortgages.

And who made this 'money'? Who killed inflation even as we spent money so drunkenly, to the tune of $44 trillion? The answer lies in the Dragon's cave. The Dragon speaks Chinese. The Dragon and Miz Japan both told the US to ignore the need for fundamentals in banking. Lending would be cheap and easy so long as the yen and the yuan are cheaper than the dollar. So long as the flood of goods from the workers of Asia flows, the loans will be OK. But now, the US is struggling with internal collapse and is cutting back on the flows of everything and this is causing the whole thing to collapse. The Western asset markets are controlled by the Asian manufacturing markets pouring goods into the West and collecting fees for this. There are still some industries left in the West. Asia is patient. They hope to suck out the very last industries or better still, own all the industries in the West, then they will change things.

In the news are many stories of these nations buying our industries! Russia, this week, as we shriek at Putin, is buying up some of the last of our steel industries, for example! Isn't that FUNNY AS HELL??? HAHAHA, as the dwarves like to sing.

Goldman, Lehman outlooks cut to "negative" by S&P

Goldman Sachs Group Inc's and Lehman Brothers Holdings Inc's credit rating outlooks were cut on Friday by Standard & Poor's, which said volatile markets could result in lower profit and revenue.

S&P revised its outlook to "negative" from "stable" on Goldman's "AA-minus" and Lehman's "A-plus" long-term credit ratings, suggesting a possible downgrade in one to two years.

The ratings are S&P's fourth- and fifth-highest investment grades, respectively. Lower credit ratings can result in higher borrowing costs.

Goldman is the largest Wall Street investment bank by market value, and Lehman is the fourth-largest.

Goldman Sachs prays that J.P. wins its court cases. But if they lose, GS will pick up the pieces unless they, too, are destroyed by the Derivatives Beast. The Beast plans to eat GS, of course. As soon as it can. Time for magic rings that makes one invisible! I suppose this is the next step; to make the big guys invisible while directing the Dragon's baleful eye towards easier targets like workers and peasants in the world.

The Scandal of the Dollar
New York Sun Editorial

Just when it looked like the financial crisis couldn't get worse, Congressman Henry Waxman, among others, is threatening to mount an investigation into the collapse of Bear Stearns. He is alarmed over the Fed's role in facilitating the liquidation of the investment banking house and delivering its remains to J.P. Morgan Chase. To which we can only say that if Congress wants to find a scandal, the one to look at is the collapse not of Bear Stearns but of the dollar, which in the past seven years has plummeted to less than a 900th of an ounce of gold from the 265th of an ounce it was worth at the start of President Bush's first term.

To discover who needs to be held accountable for this collapse, Congress need only look in the mirror. America's founders were perfectly clear, as they set forth in one of the Constitution's most unambiguous clauses, that it is Congress that has the power "to coin money, regulate the value thereof, and of foreign coin." Maybe Mr. Waxman can subpoena Spiderman to remind him that with great power comes great responsibility. Congress had responsibility to take care of the instrument that is relied on by banks, their customers, foreign governments, merchants, laborers and everyone else to transmit price signals.

Note that this article blames Congress for the mess created by the RULING CLASS. Congress, as we can obviously see, is now so weak, it can't defend the Constitution nor the American people. They are the rubber stamps of the ruling elites. They are like the Soviets: that is the name of Russia's former Congress. Congress gave up on controlling both the budget and the coinage long, long ago. And we won't ever see it again. The people who are making money off of all this will never allow it. This is why they focus so much on the Presidency: billions are spent on gaining the Imperial Crown and to make emperors who obey the rich, not the peons. The peons get their entertainments and bread.

If not, then they get tasered.

Bank of England Seeks to Ease `Strains' in Markets

The Bank of England said it's in discussions with other central banks about how to ``ease the strains'' in financial markets, although it's not considering requiring taxpayers to assume credit risks.

Britain's central bank said it is ``not among'' those that the Financial Times reported earlier today were contemplating the purchase of mortgage-backed securities to smooth lending to consumers after a worldwide surge in borrowing costs. The Federal Reserve also denied it's in discussions to buy such debt.

``We have been examining a number of other options, but it is too early to go into any detail,'' the London-based Bank of England said in a statement. ``The bank is not among those reported today to be proposing schemes that would require the taxpayer rather than banks to assume the credit risk.''

This whole article shows clearly where we are headed. England claims they won't go down our road even though they built this road and are rolling merrily down it. The collapse of the British empire is not done yet, not at all.

Fed Denies Report It's Involved in Talks on Buying Mortgages

A Federal Reserve official denied a newspaper report that the Fed is in talks with foreign central banks about the feasibility of using taxpayer money to buy mortgage-backed securities.

The Financial Times reported today that the discussions among officials at the Fed, the Bank of England and the European Central Bank are part of broader talks about how to ease turmoil in global financial markets. The newspaper didn't say where it got the information.
*snip*
``The Federal Reserve is in close consultation with foreign central bank counterparts concerning liquidity conditions in markets,'' the Fed said March 7.

And why are we sitting here while our central bank openly CONSPIRES with foreign bankers? And who is protecting America? What are the goals of these foreign bankers? Are they interested in stopping the dynamics that are destroying our industrial base? Are they interested in fixing our trade deficits? Are they going to demand we stop our wars and stop our mad military spending?

NO! They want us to continue! They want us to do MORE of this! They want the STATUS QUO back! And we should be fighting all of them, tooth and nail. And Europe better pay attention: THEY ARE NEXT. The same dynamics destroying us will destroy them. And the Revenger of the Dragon will finally come. For we are the ones who destroyed the power, wealth and culture of Asia. Now, it is their turn. And they can unleash the Derivative Dragon any time they want. All they have to do is loosen its leash.

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Steve Forbes Foolery

March 24, 2008

Elaine Meinel Supkis

Steve Forbes sent me a contract. They want to be hooked to my blog in some fashion. Heh. Well, Steve wrote an interesting editorial. It is filled with the nuttiest examination of our present financial and political situation. He wants a stronger dollar but no controls on trade. He wants the status quo back no matter what. And he wants a stronger, more expensive military. And wants us to invade more lands, make more alliances we can't afford. And he wants to talk about the steroid scandal which, in his pea brain, is a major story that he needs to vent about. Even as our banking system burns down, this is his top topic? HAHAHA.

Here's How to End the Panic
Steve Forbes

The Bush administration must take two steps immediately to quickly halt the unending, enervating credit crisis: shore up the anemic dollar and, for the time being, suspend "marking to market" those new financial instruments, such as packages of subprime mortgages.

The weak dollar is pummeling equities, disrupting the economy, distorting global trade and giving hundreds of billions of dollars in windfall revenues--through skyrocketing commodity prices--to our adversaries such as Iran and Venezuela. Not since Jimmy Carter has the U.S. had a President so oblivious to the damage done by an increasingly feeble greenback.

The Federal Reserve can rally the markets for a day or two by finding some new mechanism through which to lend more money to banks and other financial institutions. But this is the proverbial Band-Aid for a patient who is beginning to hemorrhage.

The Administration acts as if the dollar were like the sun, its rising and falling beyond any control. Countless times experience has shown that notion to be false. The U.S. Treasury Department could buy dollars in the currency exchange markets. Our allies would gladly cooperate with such an operation; their exports are being hurt more and more. The Fed could mop up some of the excess liquidity it has created since 2004, even as it makes targeted loans to beleaguered banks and financial houses.

This hysterical editorial by one of our nation's sharks shows clearly how treason works: he wants to restart a very dangerous status quo that is killing our nation by drowning us in debts. Note the highlighted sentence about how very happy all our trade RIVALS will be if we cease using monetary policies to weaken the dollar! He and they will pocket tremendous profits if we cease struggling against the forces that are bankrupting us.

This man, like the pirate who governs Massachusetts, Mitt Romney, makes his money by undermining the US tax system and refusing to do his share in protecting our nation. Both men ran for President hoping to cement their financial powers in the White House. We may as well change our flag to the Jolly Roger, eh? Only the pirates aren't sailing the Seven Seas collecting loot for America. They are collecting loot for themselves. Then, they can live in castles here and be protected from the populace the same way all despotic rulers protect themselves from raging mobs. Note the number of dictatorships in the world. All of them keep offshore bank accounts and squirrel away the loot there. Note how this is true with America. Our rich are offshoring everything they can as fast as possible. Even as money pours into the US, this is tax-free money, the money that can be taxed is flowing OUTWARDS even faster which is why we are in the red on every possible level.

Note Mr. Forbe's rage that wealth is now flowing to commodity-selling nations. Iran, for example. Note also that he considers the nations flooding us with value-added goods are 'allies.' And who floods us with the most of these goods?

China! This man, who spent millions to try to be our ruler and who bankrolls Bush and Cheney, wants this! And this is the secret behind all the rhetoric: the real rulers are anxious to cut deals with China and the Chinese know this. They talk tough in America but come slithering on their bellies to the Chinese. I even told the Chinese, this is how they operate. This is why, after Tiananmen Square when Americans were very outraged, Bush sent a secret delegation to Beijing to reassure the rulers that he stood behind them, not the students. They, in turn, demanded he turn over the students I was sheltering. I refused and told Bush Sr, I would have to be killed if they wanted to deport these students!

I won that fight thanks to CNN and Ted Turner's pledge to back me 100%. This was before CNN was sold to right wingers. Back to Forbes: he is also a supporter and promoter of PNAC, an organization that was killed by the failures of the Iraq invasion which they pushed hard to launch: Project for the New American Century

An initiative of the New Citizenship Project, a 501(c)(3) organization headed by William Kristol (Chairman) and Gary Schmitt (President),[1] the Project for the New American Century is funded in part by such organizations as the Sarah Scaife Foundation, the John M. Olin Foundation and the Bradley Foundation.[6]

Gary Schmitt: "When the project started, it was not intended to go forever. That is why we are shutting it down. We would have had to spend too much time raising money for it and it has already done its job. We felt at the time that there were flaws in American foreign policy, that it was neo-isolationist. We tried to resurrect a Reaganite policy. Our view has been adopted. Even during the Clinton administration we had an effect, with Madeleine Albright [then secretary of state] saying that the United States was 'the indispensable nation'. But our ideas have not necessarily dominated. We did not have anyone sitting on Bush's shoulder. So the work now is to see how they are implemented."

This man and his friends all park their funds offshore at tax havens as much as possible while pushing for a 'flat tax' which means they pay very little in taxes here. Then they can park their funds here again so long as no one interferes with their accumulation of wealth. On top of all this, they want our military to be very strong so they can use it not to protect America but rule the planet! Talk about cheek.

Today, thanks to the war in Iraq rising again the minute the 'surge' falls, the attacks of the natives seeking to destroy us, rise. The US doesn't understand this dynamic any more than the rulers here understand trade. In this case, the Muslims have a program and a goal: the bankruptcy of America. They apply enough pressure to keep us losing money and they track the amounts we lose. They know that pin pricks are the best way to keep our misspending of funds going. The 'street' in Muslim countries know very well how to defeat a great empire. They did this to Russia. They hope to do this to the US. Then, with the foreign invaders defeated, they can deal with their own rulers. They can see how this works in Pakistan, for example.

Back to Steve Forbes and his bizarre beliefs about the situation we are in: he wants it fixed! Fast! Now! He and his gangmembers are all losing money! They want the money to flow into their pockets again no matter what. Like all traitors, he cannot see how, from day one, his plots and schemes are directly responsible for our present banking/financial collapse! He thinks, if we have more foreign adventures, if we have a 'strong' dollar and use monetarism as our main trade tool, we will win! But the problem here is exactly the issue of 'monetarism': I have gone to great lengths to show how, when Europe continued on its imperialist rule of the planet and refused to back down after the disaster of WWI, they tried to flood the world with exports.

And the US protected us from this tsunami of goods by putting up barriers to trade. This meant they had to choose between empire and trade. And guess what they all chose?

Empire! The Brits were forced to retreat from half of Ireland but they invaded Iraq! They had an uprising in India and crushed it and eventually put Gandhi in prison. They suppressed Africans using military force. The French and British were fighting in China and Indochina. And the Japanese decided to expand their imperialism. So Germany itched to do the same. Italy was already planning expansionist wars before 1929. So we had a nest of vipers in Europe still seeking global domination as well as Japan, itching for more wars and ALL of them wanted US to BANKROLL THIS!!!!

Our refusal didn't stop them from their joint follies, of course. When WWII finally rolled around, the British had to have us bankroll them. Thanks to the policy of bombing from the air and destroying enemy industries, all of Europe and Asia lay in ruins after WWII. We then bankrolled the former enemy empires as well as our allied empires and this began a great time for the US. We could export to them and they couldn't flood us with imports. During all this, the British and French fought vicious wars to try to keep their bankrupt empires going. Bit by bloody bit, the natives threw them out. The US decided to not allow the people of Vietnam the right of self-rule and took over from the French. This involved us in the disaster called 'the Vietnam War'. This war bankrupted the US in that it cost us too much in manpower and money and it forced us to drop the defense of our home industries as we struggled to contain communism.

The Cold War was a total disaster for the US. We ceased to understand the difference between 'allies' and 'enemies'. We rushed to strengthen Germany and Japan and in turn, we devised a system whereby both could flood the US with imports. This policy was chosen due to everyone believing the Great Depression was caused by the US defending itself from imports, not from out of control empires seeking funds for wars! So we decided it would make America safer and stronger if we strengthened the empires that sought to destroy us a few years earlier.

Using the fear of communism as a tool, the European empires and the Japanese empire were reborn in an even stronger fashion. Using international organizations, the G7 used the US as their military arm of world domination while at the same time, flooding us with exports. The philosophy backing this is to this very day, supported and promoted by all our major media as well as many universities. Anyone calling for these policies to be reexamined from a new point of view are stifled and smothered.

The propaganda about the US causing the Great Depression continues and this infuriates me a great deal. All stories about it begin with the US stock market collapse. But the fact that the US was supporting the planet as the planetary creditor nation is ignored. And we were the creditor nation because we kept our trade balanced. Not one way in our favor, just BALANCED!

I am a Libra. Her nature is to seek not victory but equality, balance and steady states. She is not Pluto, the god of death and wealth. I am not seeking wealth for America. I am seeking internal stability. And with this, we will help the rest of the planet. The one-way money flow whereby all funds MUST flow through America is not good for us or the world. Like when England wanted US funds and flooding us with trade from them at their profit, the US is an empire that is even worse: we don't even want to bother with flooding anyone with trade OR money! We just want to soak up all the world's monetary profits AND goods and in return, hand out money. Which is just a fancy form of 'IOU' as the dollar says itself. It is for paying debts.

Steve Forbes is a coward and no one in his family is fighting in foreign lands:

The White House has announced that it will be withdrawing troops from Iraq in coming months, a consequence, it says, of the surge's success. The outgoing President, however, is making a mistake that could undermine what the new strategy has achieved--growing stability and an enormous setback to Islamic terrorism.

The withdrawals may have political appeal, but the danger is that they will put even more strain on our overstretched military in Iraq. The new strategy of cleaning out neighborhoods of insurgents and then leaving sufficient forces--ours and the increasingly better-trained Iraqis--behind to prevent the bad guys from coming back has been extraordinarily successful. But the insurgents, though badly squeezed, are still a force to be reckoned with.

Why take a chance by pulling out some of the troops? In fact, we should be increasing the size of our Army and the Marine Corps. We need more troops in Afghanistan, and we need more in Iraq to make sure the job gets done thoroughly. And who knows what new crisis in another part of the world may require U.S. forces?

Note how this fool wishes to stop the economic wheels from grinding. He wants to have the government save the banks from their own follies. Meanwhile, he wants us to march all over the planet, suppressing Tibetan-style uprisings. He doesn't want to pay high taxes but he wants military adventures that bankrupt us. He doesn't mention the huge military hunk of our national budget just like he won't mention our trade deficits. This fool is very rich as well as very smart and had the best education money could buy. But he can't add 2+2. The Forbes people sent me a contract, by the way, they want to be hooked into my blog.

HAHAHA. I wonder if they still want to after this article. I will bite the hand that feeds me if it feeds me BS.

Forbes is not only a fool, he is totally insane:

One of the enduring mysteries of the Bush Administration is why after 9/11 it never truly beefed up the U.S. military, why it tried to fight the war against Islamic fanaticism on the cheap.

I don't find $1 trillion cheap. Not even slightly. Perhaps, in Steve's universe where the Derivative Beast has grown to a massive $500 trillion, this is peanuts. What this monster wants is for the US to not recruit foreign legions to fight our foreign adventures. He wants the draft. This means they can pour millions of men into a deadly war and not even worry about costs. Their own sons won't serve. World War I was an example of powerful people pouring other people's sons into a failing war, endlessly. The Russians rose up and throttled their own rulers. The German army turned on its own officers in the bitter end. But in WWII, no one surrendered and no populations overthrew their governments. Only after the war ended, did the revolutions soar.

Another funny thing here is how Forbes points to Albania as an example for his world view. It has almost no taxes. It is going to join NATO and the EU. And what is our problem with the EU, anyway?

Ah! We are paying the vast majority of the costs for NATO and the Europeans can spend money on industry and trade while we are spending money trying to fight the natives of many Muslim lands! Forbes cannot talk about the US because he hates our nation and what it stands for. His eyes are on foreign lands because he is an imperialist who wishes to rule the planet even if it kills us. So he wants us to die for various adventures he and his ilk hatch. And then we celebrate when a nation figures out how to get rich: one way trade with the US!

Great going, guy. Albania is getting rich, Forbes claims, due to selling COMMODITIES. This nut, earlier in his own editorial, attacks COMMODITY SELLING nations! He claims they are evil! But not Albania! Albania is good. This sort of childish slicing and dicing is a feature of all neo cons. They can't focus on the entire picture. They nit pick while picking nutty notions and hammering them. Albania, by the way, does a great deal of trade with a certain nation: China. As well as Japan. We patrol the seas for these two nations who use our navy to protect their ships as they sail around the world. The US has virtually no native shipping industry anymore. Theirs are the biggest on earth. And Albania knows who is really their customers and it is NOT the US. The US is seeking oil because we consume it. But China and Japan want the raw materials for industry. We need this, too, for our military industries. But even that is being grabbed up by Europe and Asia. The gigantic $35 billion air refueling contract went to nations running huge trade surpluses with us!

Talk about insane. Forbes ends his stroll around the planet with a long screed about the baseball steroids investigations. He is angry about this whole thing. One thing about the Roman Empire: as it collapsed due to out of whack trade, debasing the currency, poor rulers who were demented as well as venal, a public that gave up on dealing with reality, the last things built by the Romans were not walls to stop barbarians, no, they built the biggest stadiums and baths, ever, in 400 AD. And then the entire enterprise collapsed into this long depression we call 'The Dark Ages' where money disappeared and peace turned to bloodshed. The population of Europe collapsed. And the knowledge of science and even reading, itself, nearly vanished.

The foolish fopperies of empire can be a giggle. But not while it is going bankrupt and bleeding to death. This isn't a tragedy, it is an annoyance. The Romans had precious little history to use to understand their own collapse. The previous collapses of Pharaonic Egypt were shrouded in mystery, the pyramids and other giant statues a mute testimony to that imperial power, the collapse of the Minoan Empire was preserved only as a tiny corner of a single siege of Troy, shrouded in mythology. All previous empires collapsed and nothing was left behind. The Greeks did create the Rosetta Stone which they used as a translation device. But even this was lost for 2,000 years!

But now, thanks to scholarship and archeology as well as written history by the Romans themselves as well as one historian from ancient Greece, we have a dim idea how empires collapse. And Steve Forbes illustrates perfectly how empires die: it is mental. The ruling elites go mad. They can't focus on reality. They are easily distracted and they can't add or subtract anymore. And they have hubris. Tons of hubris.

Steve Forbes is stupidity on steroids. Maybe Congress can investigate him.

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China, Taiwan and Japan Draw Closer Together

3/23/2008

Elaine Meinel Supkis

Each stage of the banking collapse in the West, there has been classic reactions. Disbelief, then small changes, a full panic and then increasingly bigger props are put in place but the inevitable flow of events continues on its downward trajectory. Now we are in the 'who is to blame?' stage. This means discovering what is wrong. But of course, in all these mega-collapses, the true cause is not examined for obvious political reasons. All empires want to spend infinite money on endless wars. Patrolling the planet is very expensive. So of course, there is great denial about all this. As the US empire implodes, we must look at this week's responses to an impossible problem: how to fund an empire without taxing anyone including the empire itself.

Goldman, Lehman outlooks cut to "negative" by S&P

Goldman Sachs Group Inc's and Lehman Brothers Holdings Inc's credit rating outlooks were cut on Friday by Standard & Poor's, which said volatile markets could result in lower profit and revenue.

S&P revised its outlook to "negative" from "stable" on Goldman's "AA-minus" and Lehman's "A-plus" long-term credit ratings, suggesting a possible downgrade in one to two years.

The ratings are S&P's fourth- and fifth-highest investment grades, respectively. Lower credit ratings can result in higher borrowing costs.

Goldman is the largest Wall Street investment bank by market value, and Lehman is the fourth-largest.

Stocks shot upwards on the 'good' news that Goldman Sachs and Lehman Brothers lost 'only' 50% or more in profits. Of course, the truth of the matter is, profits is everything. No one is going to park their Sovereign Wealth Funds in entities that are losing money. Just as no one puts money into government bonds of nations going bankrupt. Except when there is no choice.

The biggest banking houses and financial money makers are all trying to create 'liquidity' for themselves while at the same time, trying to make profits. And they all want safety since they are all in decline but safety has no profits! People don't get huge returns when making sure bets, after all. And even 'sure bets' are never certain. Ask anyone who bet on the Patriots in the last Super Bowl. Since we know there is no such thing as a sure bet and that risky bets have big pay offs but you can lose your shirt, we always stress the need to not throw everything into betting in a casino. One has to have a secure base. Off of this, one can play betting games. And losing means building up one's reserves again for the next cycle of placing bets.

Of course, if several older empires decide that the ONLY way to make money is to play the markets, we get the present mess: The USA and England which fused over the course of the last 100 years, are trying to be mostly betting houses rather than manufacturing/engineering powers. We want to make money off of captured capital rather than capitalizing industrial production. This would be all right if we were offering high interest rate returns on the funds we capture from abroad.

But this is emphatically not the case. The US and England have chosen to be consumer nations that use the financial sector to fund DEBTS which are backed by capital raised by trade rivals. These people, in turn, are willing to give us endless IOUs but only on the basis of allowing free trade to ravage our home industries. A deal with the devil. So here we are on the downslope of a financial collapse brought on by the US and England being unable to repay even hyper-low interest rate loans and in nearly all the discussions this month in the mainstream and lots of other places, one finds virtually no mention of any of this. Here, for example, is a New York Times article trying to explain all this while leaving out war cost overruns and international trade:

What Created This Monster?

It is the private trading of complex instruments that lurk in the financial shadows that worries regulators and Wall Street and that have created stresses in the broader economy. Economic downturns and panics have occurred before, of course. Few, however, have posed such a serious threat to the entire financial system that regulators have responded as if they were confronting a potential epidemic.

As Congress and Republican and Democratic presidential administrations pushed for financial deregulation over the last decade, the biggest banks and brokerage firms created a dizzying array of innovative products that experts now acknowledge are hard to understand and even harder to value.

On Wall Street, of course, what you don’t see can hurt you. In the past decade, there has been an explosion in complex derivative instruments, such as collateralized debt obligations and credit default swaps, which were intended primarily to transfer risk.

The real question here is, why did the US/UK empire do this in the first place? England had to let go of their gold standard after WWI. They were bankrupt. But in denial. So deep was this denial, they continued to expand their empire in the teeth of obvious bankruptcy and then sought to flood captive countries with UK exports that were taxed to pay for the occupation of great nations like India and China. These taxes, like in the US in 1776, led to uprisings and civil wars that the UK was unable to control, much less, stop entirely. Half of Ireland won its independence during this time frame, for example. The highly-structured financial deals and instruments created from 1914 to 1933 were all put into motion in order to prop up British rule of the Seven Seas and millions and millions of captive people. All of these schemes were hinged on one big point: Germany. So long as Germany got loans from the US and then passed them on to England in various ways, all was well.

Let's backtrack a tad here: England and Germany went to war at exactly the same moment that Germany's exports exceeded England's exports in monetary value. So it is here: the Great Depression occurred exactly when Germany recovered enough from WWI, they again, exceeded England's value in exports, making Germany the top European nation in this regard. This, despite having no empire to control, tax and exclusive export sweetheart deals like England had.

The banking systems of both England and the US had ballooned ever since WWI. Unlike Germany who went bankrupt in 1924 and then could relaunch their currency, England struggled to keep the pound afloat on a sea of red ink. During the entire decade, the US struggled to fend of both Germany and England's exports while at the same time, lending very heavily to both. That pre-WWII monetary cycle was obviously doomed. Just as the present cycle is equally doomed.

A dangerous divergence

From The Economist

The world's central banks are worryingly far apart—especially when it comes to inflation and currencies
There are signs that the Fed's policy is prompting some countries to reconsider their links to the dollar. Speculation is rife, for instance, that Qatar and the United Arab Emirates are about to break their pegs. Many Asian countries have already allowed their currencies to rise substantially. China, which abandoned its dollar peg in 2005, has accelerated the pace of the yuan's appreciation. All this is sensible, but in the short term it will make the dollar more volatile as investors worry that emerging-market central banks will be less keen to hold large amounts of dollars.

If American interest rates remain disproportionately low, other emerging markets may resort to controls on capital inflows: last week Brazil's government imposed a 1.5% tax on foreign purchases of fixed-income securities denominated in reais, to assuage the currency's rise. Even so, it will be hard for small, open economies to hit their inflation targets if American policy remains so loose. Inflation targeting itself may be called into question.

Nor are big economies likely to ignore their currencies. The ECB, for all its bluster, may have to loosen sooner than it would wish to in order to stem the euro's rise. Mr Taylor's research suggests that the ECB's deviations from “optimal” policy have been closely correlated with America's short-term interest rates. A percentage-point reduction in the federal funds rate has been associated with a move of a fifth of a point away from the ECB's optimum. Worries about exchange rates, he argues, cause central banks to veer off course.

How worrying all this is depends on its scale. Modestly higher inflation or jumpier currencies seem a small price to pay for preventing the collapse of America's financial system. Alas, modest shifts cannot be taken for granted. The darkest scenario—that investors panic at the Fed's loose policy, sending the dollar into free-fall—is becoming worryingly plausible. A real dollar crash would force the Fed to raise rates, making America's predicament much worse and even sending the global economy into recession. The Fed would face ice as well as fire. And the rest of the world would have a far bigger problem.

Over in Europe, there is hope that the US can find stability on the slippery downward slope. Of course, the only reason the European governments want this is so they can INCREASE EXPORTS. Asia, too, wants the same. And for the exact same reasons. Saudi Arabia and the oil pumping nations are in concert with this wish that the US continues to go deeper into debt, to allow more and more imports and to never retaliate or change course, even slightly. The question here is simple: should the US wish for this?

The answer is obvious: NO. This is our death warrant. We cannot want to go along with all our rivals in this regard since it is destroying our own country. At the same time, we are in denial and are going about the planet, rupturing, invading, boycotting and bombing a host of nations. We support insurrections across the entire planet while at the same time, condemning insurrections within our military-ruled empire. This week, many European empires and the US empire are giddy with joy over the thought that the Chinese empire might have riots and insurrections. Even as NATO struggles to put down insurrections and riots across the planet. And ask for China's help in doing this. China has been nearly totally silent about the NATO nations' banking crisis. The deep anger felt there is going to be expressed explosively if present conditions continue.

As the US continues its grossly unbalanced trade, plunging currency value and growing debts, as the world sink into a possible depression, what is the IMF up to? As usual, I go around the world, seeing if there is equal panic in all Western-based or Western-controlled international institutions. The World Bank and the IMF love to order around, lesser nations. They generate hundreds of reports about the financial hazards of many nations. But are, for the most part, nearly totally silent about the Quartet: the US, Britain, France and Germany. And of course, the fifth wheel, Japan.

IMF Board Endorses Work Agenda on Sovereign Funds

At a meeting on March 21, the Board discussed a proposed work agenda relating to SWFs, which have gained in importance in the international monetary and financial system. The Board discussion provided an opportunity for Directors to discuss these funds, and ways to facilitate the development of a set of voluntary best practices by SWFs. This work would be coordinated with the work of the Organization for Cooperation and Development (OECD) on practices for recipient countries as appropriate.
*snip*
"A better understanding of the role and practices of SWFs and the development of a set of best practices could help countries with SWFs benefit from the experience of other countries, strengthen their domestic policy frameworks and institutions, and further their macroeconomic and financial interests," said Jaime Caruana, Director of the IMF's Monetary and Capital Markets Department.
"Best practices and principles could also help ease concerns about SWFs in recipient countries and contribute to an open global monetary and financial system," he told a press briefing after the Board had concluded its session.

"In our view, the key to a successful result is one that is based on an inclusive, collaborative, and evenhanded effort," he added.

Yes, they are worried about Sovereign Wealth Funds! They spent a lot of time puzzling over this and now want to have RULES for these funds which are purely based on trade profits! If we look for any studies that are like what I talk about daily here, there is nearly nothing. Even as the US goes into a total banking freeze-up, there is nothing. But those countries who are solvent? Ah! They need to be examined and controlled lest something bad happens! As we watch, in disgust, as the entire banking/finance systems of the US and UK slide down the same slope that Japan slid down 15 years ago, the IMF doesn't examine any of this. No, the focus has to be on the sectors of this planet that are profitable.

The nations that control the IMF need to control SWFs. They want to channel these funds into sectors or systems that increase the power of the debtor nations over the creditor nations. They want to look into the books of the creditor nations so they can devise systems for maximizing profits off of the transfer of credit. This way, they can continue the regime of credit expansion without worry about a loss of economic power over the creditor nations. This childish desire has consequences. All the creditor nations are very much aware of the weaknesses of the debtor nations. Indeed, the entire point to all this is to weaken the debtor nations bit by bit and thus, end up dominating them, politically and economically.

Here is the IMF study:

INTERNATIONAL MONETARY FUND

Sovereign Wealth Funds—A Work Agenda

Prepared by the Monetary and Capital Markets and Policy Development and Review
Departments 3. The growth of SWFs has also raised several issues. Official and private commentators have expressed concerns about the transparency of SWFs, including their size, and their investment strategies, and that SWF investments may be affected by political objectives. They
also raise the issue of the expanded role of governments in international markets and industries.
There are also concerns about how growing SWFs fit into the domestic policy formulation of
countries with SWFs, and how their investments might affect recipient countries with shallow
markets. At the same time, countries with SWFs are concerned about protectionist restrictions
on their investments, which could hamper the international flow of capital. Some SWFs have
argued that they are vulnerable to changes in the regulatory climate, and thus have to operate
cautiously as change can be costly.

4. A better understanding of the role and practices of SWFs could help economies
with SWFs to strengthen their domestic policy frameworks and also alleviate concerns and
reduce protectionist pressures. In this regard, the IMFC, in its Communiqué of October 20,
2007, welcomed the Fund establishing a dialogue among and with SWFs, with the goal of
identifying best practices. The Fund is also analyzing the relevant issues for investors and
recipients of SWF flows. A set of best practices could include public governance and
accountability principles, with a view to supporting enhanced understanding of SWF operations
and investments.

PUBLIC governance means the recipients get to control the funds to a much greater degree than they deserve. Instead of viewing themselves as beggars at the gates of the creditor's systems, they wish to be in the driver's seat of the Rolls Royces. Many Third World nations wish to have similar control over the IMF itself. Only they are rebuffed. The creditor nations that lend to these poorer nations want total control over the disbursement of funds and pay back schedules. But these same 'creditor nations' are not all 'creditor nations' at all. Some, like the US, are debtor nations who get loans which are then passed on to the IMF and used as loans to Third World Nations. The US extracts a lot of painful pay-offs from nations unable to pay their debts to the IMF even as the US is the biggest beggar nation on earth! The fury people feel about this is seldom in the news. But it is quite real and is partially why there is little sympathy for the US as we slide into a depression.

Public Support For Fukuda Cabinet Falls To 31% On BOJ Fiasco

TOKYO (Nikkei)--The approval rating of the cabinet of Prime Minister Yasuo Fukuda fell 9 percentage points from February to 31% as the public blamed Fukuda's political miscalculation for the current governor vacancy at the Bank of Japan, the latest Nikkei opinion poll showed.

Japan, China Share Concerns On U.S. Slowdown, Market Turmoil

TOKYO (Kyodo)--Japan and China on Sunday shared their concerns about the U.S. economic slowdown and the ongoing global market turmoil stemming from the subprime woes and agreed to cooperate to shield the Asian economy from any negative impact from the crisis, Finance Minister Fukushiro Nukaga said.

Japan is in the middle of a political crisis. The LDP is unused to sharing power, it being a near-dictatorship. But Japanese disgust with the regime whereby only the working class gets to pay for inflation and thus, neutralize it via pay cuts even as commodities rise in price, there is now no head of the Bank of Japan. This doesn't stop the bank from conspiring with the other G7 banks that are propping up the US banking system. The Japanese, as I have written repeatedly in the past, cannot hold up the US dollar by themselves. Also, China just surpassed the US as the main destination for Japanese exports. The Japanese have been running off to China on their own to make some sort of deal ever since last October. Their hopes of a yen worth 130 to the dollar vanished by then and since then, the yen has only grown stronger and stronger, to their complete horror.

I figured they would finally 'surrender' to China and begin serious negotiations for closer political and economical ties. There is also another huge piece of news most Americans are not aware of and which I predicted, correctly: Taiwan is now going to move much closer to China thanks to the recent elections.

Ma wins Taiwan's leadership election

Ma Ying-jeou, the candidate representing Taiwan's Kuomintang (KMT), won the island's leadership election on Saturday, according to Taiwan media reports.

Ma, former KMT party chairman, and Vincent Siew, got 7.6587 million ballots, or 58.45 percent of the votes, whereas Frank Hsieh of the Democratic Progressive Party (DPP) and his running mate Su Tseng-chang got 5.4452 million ballots, or 41.55 percent of the votes.

The Asian powers know which way the wind is blowing. Japan is quite alarmed that Taiwan is now going to rapidly increase its integration with China's domestic economy. The power tilt is obvious. Back when the US threw the entire problem of North Korea into China's lap, the Chinese have rapidly moved to ease the US out of all positions of leverage. The US can counteract this only by allowing Taiwan, South Korea and Japan even more market shares here in the US. We can counteract the growing power of China only by making the dollar strong vis a vis all the Asian currencies.

And then they ALL flood us with their exports! The IMF and the World Bank as well as the other international banking regulators or systems are supposed to govern not only world finances as well as world trade. The Doha rounds collapsed due to unbalanced trade and the desire of nearly every nation on earth to keep themselves running by exporting to the US. And the US knows perfectly well, the only tool we have to stop this unsustainable trade is to weaken the dollar.

And what happened this week? The world commodity markets suddenly deflated. Across the board. This 'resetting' of global values was very sudden and utterly impossible. The US dropped interest rates. Every time our nation did this, commodity values soared. But not this time. And the fact that all our trade rivals are having secret meetings with each other as well as the fact that our own bankers, financiers and our government are having equally secret meetings, the sudden surge of the dollar vis a vis all currencies even as our floundering has become tremendously obvious to even the most laggard observer, is a sign we are in a new system now.

Market manipulations will perforce, increase. Political tensions will increase. China's grip on power, far from relaxing, will grow greater. If the US hopes to exploit religious or ethnic riots in China, we better be aware of our own precarious condition. We are entangled in the noxious Shi'ite/Sunni ethnic/religious wars on top of the even more toxic Jewish/Muslim struggle for control of the Middle East. And both are bankrupting us much faster than the business in Tibet. Nepal is in the grips of a civil war of Marxists versus the ruling royal family and far from being a support for war in Tibet, it is the opposite. The hopes of Buddhist monks to reestablish a religious dictatorship in Tibet will simply not happen. This is due to the simple fact, the West will not be able to bankroll this if China crashes the dollar and causes the US to declare bankruptcy.

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The Truth About The Great Depression: The US Fends Off Flood of Imports

3/23/2008

Elaine Meinel Supkis

Today, we must examine all the Holy Scriptures of the Great Depression. The ones that claim the US should have saved the European Great Powers who were going bankrupt trying to rule the planet, by letting them flood us with their value-added exports. Our defenses may have made all of us suffer worse but the alternative would have been the US being deindustrialized by 1960 and a third world colony by today. The suffering of the Great Depression saved us from this fate. But today, we are not being destroyed by global trade that is based on false relative monetary values. And the 'rescues' of the last six months have WEAKENED the US FATALLY! Instead of saving us, it has ruined us while increasing our trade woes that caused all this in the first place! This is a long article but I consider this one of my most important ones yet.

Partying Like It’s 1929

By PAUL KRUGMAN

Banks exist because they help reconcile the conflicting desires of savers and borrowers. Savers want freedom — access to their money on short notice. Borrowers want commitment: they don’t want to risk facing sudden demands for repayment.

Normally, banks satisfy both desires: depositors have access to their funds whenever they want, yet most of the money placed in a bank’s care is used to make long-term loans. The reason this works is that withdrawals are usually more or less matched by new deposits, so that a bank only needs a modest cash reserve to make good on its promises.

But sometimes — often based on nothing more than a rumor — banks face runs, in which many people try to withdraw their money at the same time. And a bank that faces a run by depositors, lacking the cash to meet their demands, may go bust even if the rumor was false.

Worse yet, bank runs can be contagious. If depositors at one bank lose their money, depositors at other banks are likely to get nervous, too, setting off a chain reaction. And there can be wider economic effects: as the surviving banks try to raise cash by calling in loans, there can be a vicious circle in which bank runs cause a credit crunch, which leads to more business failures, which leads to more financial troubles at banks, and so on.

That, in brief, is what happened in 1930-1931, making the Great Depression the disaster it was. So Congress tried to make sure it would never happen again by creating a system of regulations and guarantees that provided a safety net for the financial system.

If this story about the Great Depression were even slightly true, why don't bank runs happen all the time? Banks fail nearly every year. Not hundreds but a dozen or so. Did they all perish because of 'runs'? If so, we would see the news. But there was no panic because there were no runs. Banks would simply quietly fold and vanish. Most people today 'hedge' by putting their money only in banks that are insured by the FDIC which was launched in the Great Depression. I remember the Savings and Loan scandals which nearly took down the Bush elder man who had one son involved in Silverado that went belly up. The people who saved there and trusted the son of the President lost everything. This is because the bank was NOT insured by the FDIC. Because this bank was much more risky, they offered as a lure for money, higher interest rates on CDs. People seeking greater profits ran off to risky banks like Silverado and lost everything.

Just as they did today doing nearly the exact same thing! The US taxpayer ended up saving that mess by spending a mere $200 billion. I thought that was a lot of money back then. Especially since the constrictions in the housing markets wiped out $100,000 in profits on my own ledgers. I swore to never vote for any Bushes due to this. I remember that Halloween. In the NYC Halloween Parade, I was dressed as a demon queen with a huge hoop skirt made of Wall Street Journals with 'Read My Hips' spray painted on it. Two friends who worked in the banking system went as a devil and a drunk banker and the devil was dragging the banker around with a chain. We had a lot of fun. People cheered us because people were both scared and angry as yet another recession bore down on us.

Well, we seemed to have learned nothing from the Savings and Loan fiasco. Instead of preventing this sort of thing, the lesson our leaders seemed to have learned was not to be careful with lending but to HIDE loans off the books as fast as possible. The present system of bundling these and then turning them into CDs instantly and then disowning them has replaced the older S&L system of holding mortgages and selling bank CDOs. The SIV method has now collapsed for the exact same reasons the S&L CDs went bad. Someone, somewhere, has to pay the penalty if loans are not honored! What we saw since the dead days of the Bush S&L collapse is a run for cover. Everyone thought they had found 100% safe hedges for loan repayment failures. They even boasted about this. The seemingly cheap loans being handed out were due to a collapse in RISK, they claimed.

But this was all false. As these same people who got rich off of the present S&L collapse clone are saving us again, we are seeing a re-imposition of super-cheap lending as if there is little to no risk! How bizarre is that?

Four Myths About Americas Great Depression

By Ronald Nash 1994:

Foundation for Economic Education
The Foundation for Economic Education (FEE) is a "non-political, non-profit, tax-exempt educational foundation and accepts no taxpayer money. FEE is supported solely by contributions from private individuals, foundations, and businesses and by the sales of its publications," its website states.[1]
FEE was the first modern think tank established in the United States specifically to promote, research and promulgate free market and libertarian ideas. It continues to do so through its monthly magazine, The Freeman, as well as through pamphlets, lectures, and academic sponsorship. It also publishes reprints of classic libertarian texts, and arranges seminars for American public figures.

I like to examine the analysis of more than one school of thought. This provokes thinking on my own part. This is highly suggested to all people interested in figuring things out. One point of view is often a dead end. No human is always right, not even me...hahaha. Far from it. Also, within even the queerest analysis is often a gem of truth. In the case of Mr. Nash, he has half of the Great Depression correct. But he also has a good hunk wrong. And the place this happens is, as usual, concerning 'free trade'. I am against totally unregulated free trade for the simple reason, no nation has ever won the trade wars if they don't play dirty. Since this is so, we must have penalties for such things. And nations wishing to fix things by flooding other nations with money or trade must be prevented one way or another. Our own ancestors wrestled with this over the centuries. It is one of the greater causes of the Revolutionary War and the foundation of our nation, after all. And of course, it is tremendously important. For from the very first, our colonies were established for trade purposes. Cod fishing, beaver skins [for waterproof warm hats during the Little Ice Age], tobacco, sugar, strong, straight oak timber for ships [quaint Medieval houses look that way due to lack of straight oak planking and beams], etc. In return, tea, silk, glass products, brass cooking pots [which are lighter in weight than the heavy iron ones] etc were sent to the colonies. Taxing or balancing this trade was important for England and this led to a rebellion here when the English Crown, to pay for wars against France, raised tax rates on trade from America to England.

Here is a 1920's New York Times article talking about all this. I highlight the nations which are being flooded by British manufactured goods:

So patriotic Americans should always keep in their mind and line of sight, the concept of trade balance. This has been nearly totally missing since WWI. It pops up but a chorus of intellectuals and people getting rich off of unbalanced trade as well as our 'allies' all unite to crush any attempt at dealing with our trade difficulties. Even when people are writing about the Great Depression, they fall into the mantra that the US, when it was in the middle of struggling to fend off a flood of imports from Europe, caused this Depression thanks to cutting down on the flood of imports. The real question someone has to ask is, 'Should the US had run a giant trade deficit to enrich the European Empires during the Great Depression, would there be no Great Depression?'

I would venture to say that the European Powers would have grown back to their pre-WWI extent while the US would have been destroyed and turned into a third world state providing farm goods in exchange for manufactured goods. There would have been no WWII but also, the US would never have been a world power nor gotten richer. We would be re-colonized back in 1945.

This is a shocking concept and perhaps I stand alone in this but HISTORY VINDICATES ME! Our main exports are farm products and we are going down the tubes, deindustrializing rapidly due to a flood of manufactured imports!

Nash:

The higher postwar prices led in turn to an increase in cheaper imports. But this hurt American businesses, which led businessmen, farmers, and labor unions to pressure Congress to do something about foreign competition. This pressure led to two unfortunate tariff acts (tariffs are clearly antithetical to capitalism). The Emergency Tariff Act of 1921 increased duties on such commodities as wool, sugar, and wheat. Another tariff act passed in 1922 imposed the highest duties to that time in the history of the nation. It also gave the President the power to change tariffs as he thought necessary. These high tariffs produced a serious instability in agriculture, other export industries, and the rest of the American economy.

All of this intervention with the economy had the effect of reducing foreign trade. Prospective foreign customers could not buy American products until they accumulated credits; but such credits could be accumulated only after they first sold their products to us, something the increased tariffs made much more difficult. In an effort to offset some of this harm, the government adopted cheap money policies. To make it easier for foreign buyers to purchase American goods (while still making it difficult for them to sell their goods in the United States), bankers floated enormous loans and bond issues in this country. Between the end of World War I and 1929, American lenders provided more than $9 billion in foreign loans, done largely to shore up America’s sagging export markets which had been hurt as a result of earlier interventionist measures (the tariffs) to reduce imports. While the cheap money policy of the twenties produced temporary increases in exports, it was accompanied by a huge burden of internal and international debt.

Pure hogwash. Before WWI, England was the world's creditor nation center. To this day, we talk about the LIBOR funds which are based on London banking lending terms. Not the USIBOR. Why did Europe need loans from the US?

Both England and France were expanding their empires into the Middle East during this time frame! Far from peace reigning supreme, they were battling Muslims all over the place. Propaganda in schools overlook this obvious imperial military activity due to pure racism. We date the start of WWII with Japan and Italy invading parts of Asia and Africa. But England and France were invading Asia and Africa as well as the Middle East back then! Doing the EXACT same colonialist things! But to fight these illegal and amoral wars, they both needed money. Germany was supposed to pay reparations during the 1920's. To do this, they needed loans. The only empire not bankrupt was the USA so we lent them money for reparations which paid England and France to go to war, invading the rest of the planet.

This riled the Germans, who complained that they were punished for imperialist wars but the winners were using their war punishment money to commit war crimes in other lands. On top of this, the reparations were not enough. England and France needed more and more and more money. We see this dynamic today. The US wants loans from China so we can attack them for wanting to control Tibet and Taiwan. I don't see a good end to that little business arrangement.

So America lent to these two bankrupt empires WITH THE PROVISO, THEY BOUGHT US MANUFACTURED GOODS. Which they tried to evade. They wanted loans from us so they could then turn the money into manufactured goods with which they could flood our nation! England and France DID flood their captive colonies! Forced to buy these goods as they underpriced native handcrafts, all of the Asian countries saw their native industries utterly collapse and the flow of money from China and India to England, for example, shot upwards. This triggered revolutions and riots. Gandhi's actions calling for the Indians to produce their own cloth and salt was attacked as revolutionary by the Brits who used military force to stop him. Above all things, they wanted to kill the native Indian cloth industry and force them to accept endless imports!

The US had to protect itself from all this. And during the 1920's the only tool was tariffs. Or we could have done the alternative: NO LOANS. Most commentators focus on only US policies while ignoring world forces when building their case for 'free trade.' And they have won all the arguments so far...FATALLY. As we can see in reality: our trade deficits have ballooned to the point of utter disaster. Yet they tell the same moth-eaten fairy tale about the Great Depression!

Nash:

Often overlooked as a major contributing cause of the Depression was what became known as the Smoot-Hawley Tariff Acts. Even though Smoot-Hawley was not passed until June of 1930, it makes sense to view the measure as a significant cause of the Crash. The bill had been widely discussed and debated in Congress throughout much of 1929. By the autumn of 1929, Wall Street had begun to realize that passage of the tariff bill was inevitable. It also realized that President Hoover would not veto the damaging measure. Hence, it seems clear, the damage from Smoot-Hawley was not confined to the period of time following its passage, as bad as that was. It also had a major effect on events prior to its passage, including the October Crash of the Stock Market.

Our trade partners gave us no choice. The pound was nearly as worthless as the dollar is today. Thus, they could flood us with imports. Things were identical to the way they are today with Japan. The US could either protect the native industrial base or let a potentially hostile empire destroy our own industries. The US would have loved to trade with Europe but Europe wanted COLONIAL style trade with us as the colony like China and India. And were we trading with India? HAHAHA. NO! England had barriers to that! And China: we know about the 'Open Door' business? ALL the European powers tried to lock us out of China, too! So there was considerable anger in the US against England. My own grandfather explained this to me when he taught me about history. This anger has been glossed over, of course, by propaganda since 1941. But it was so strong, even as Hitler bombed England, most Americans were not all that interested in saving England!

Nash:

The economic decline that began at the end of 1929 could and should have been of short duration, if only Hoover and the Congress had acted in an economically responsible way. Unfortunately, they did not. Hoover and his administration were in no mood to admit their mistakes. Had they taken their medicine, paid their dues, and suffered through the severe but limited depression that would have followed, the economy soon would have made the proper adjustments. Instead, the Hoover administration piled error on top of error. Its mistakes plus the blunders of Congress plus the economic malfeasance of the Roosevelt Administration turned what would have been an economic downturn like every other one in the previous history of the country into an economic nightmare that lasted eleven years.

How silly is this? England, France, Germany and Japan were all going bankrupt due to not only WWI but also this massive war raging in...CHINA! They needed loans for MILITARY INVASIONS. They needed WAR MONEY while pretending to be part of the League of Nations. Which stopped not one war. But enabled the victors of WWI to terrorize the world! To pay us for our loans for wars, they wanted to have us be locked out of trade with China, India and the Middle East! This was our 'reward.' We won WWI yet we were supposed to pay for everything via loans AND one way trade! This insane proposal was trounced and for good reason: it stank. My grandfather made this very clear. This is why, all my life, I have had a contrarian view compared to the onslaught of pro-ally propaganda.

Southwest Economy
Issue 4, July/August 2005

Federal Reserve Bank of Dallas

Commodity Money and Fiat Money
Given that the world has experienced globalization on a scale comparable with what we are witnessing today, it seems reasonable to look at how central bankers conducted monetary policy during the earlier era to see what lessons it may hold for contemporary monetary policy. Unfortunately, history offers relatively little guidance on this issue. Here’s why.

A major difference between the current era of globalization and the last era has to do with the monetary institutions. At the turn of the 20th century, most of the world was on a commodity standard; currencies were backed by precious metals, in almost all cases gold. The need to maintain convertibility into precious metals limited the ability of central banks to change interest rates at will; that is, central banks had very limited discretion when it came to monetary policy.

One of the great benefits of the commodity standards that prevailed in the previous era of globalization was that price levels were relatively stable. Periodic inflations were followed by deflations, with the result that over long periods the price level remained nearly constant. There is some debate about whether this greater price stability was accompanied by greater instability of the real economy. The idea of using monetary policy to smooth out the business cycle is very much a by-product of the Keynesian revolution during the interwar period.

To get a sense of just how much nominal stability the gold standard conferred, take a look at Chart 5, which shows the price level in the United States for the past two centuries. It is clear that the level was a lot more stable under the gold standard than it was after its abandonment. Between 1820, when the United States went on the gold standard, and 1932, when the gold standard was abandoned, the average annual inflation rate in the United States was essentially zero. Since 1932, the average annual inflation rate has been about 3.8 percent, although in recent years the rate has been lower than that. However, the greater long-run stability of prices that prevailed when the United States was on the gold standard came at the cost of greater short- and medium-run volatility of inflation rates.[6]

Who dropped the gold standard first? Germany. This was due to losing WWI and having to hand it over to France and England. By 1930, England had to drop the gold standard next. This was due to the above-mentioned wars. England didn't have one day of peace after WWI. The struggle to enlarge their economic domination of Asia and the Middle East as well as Africa meant high bills they couldn't afford. So their grip upon their own currency collapsed as the country went bankrupt right behind Germany's bankruptcy.

Germany had no empire and they shook off their own bankruptcy in just a few years while England remained mired in bankruptcy. The looting of the Jewish citizens of Germany facilitated this process, of course. This was a very evil solution! But one that ALL nations have a habit of doing: looting native populations who are minorities is a classic reaction to bankruptcy and penury.

Here is a headline in the New York Times from BEFORE the Great Depression took hold: 'GERMANY NOW SECOND AS WORLD EXPORTER; Passes Britain in First Six Months of This Lear With $1,870,000,000 Shipments.

November 18, 1929, Monday'. Note the date! Germany was NOT suffering from lack of export trade, they were now #1 right after England who was the former #1. How does that fit our picture of the US halting world trade? Or was this trade ONE WAY, in a competition between England and Germany trying to best each other? This is an important question to remember as we look dispassionately at our own woes today.

Often, when I read analysis concerning history, most people echo earlier propaganda rather than look at real time headlines or pawing through ancient statistical tables. This is both pure laziness coupled with a desire to not rock the boat or learn anything new.

Here is a Dallas Fed chart I have amended to show world events:

The Dallas Fed:

Globalization and Disinflation

A more practical question might be to ask how globalization has impacted inflation. For about a quarter century following the end of World War II, the Bretton Woods system of fixed exchange rates anchored inflation rates around the world. As Chart 6 shows, for about 10 years following the end of World War II not a single country experienced high inflation, which I define as an annual rate in excess of 25 percent. From the late 1950s until the early 1970s, episodes of high inflation were still rather rare. With the collapse of the Bretton Woods system in 1971 and the oil shocks that followed, episodes of high inflation became a lot more common, with no fewer than 49 countries experiencing high inflation in 1994. But note that since then, the number of countries experiencing high inflation has declined to nearly zero. The average inflation rate has also declined, from a peak of more than 35 percent in the early 1990s to less than 5 percent today.

This decline has taken place at the same time that world trade has continued to grow, prompting some analysts to claim that there is a causal link between the two. Cruder versions of this story routinely confuse relative price changes and price level changes. More sophisticated versions look at the political economy of monetary policy and examine how globalization has altered the incentives of central banks to engineer inflation.

One basic story that builds on the insights of Kydland and Prescott goes as follows. [12] In the presence of taxes, tariffs and other regulations that cause economic activity to be lower than it would be otherwise, central banks that are not bound by rules will have an incentive to try to engineer surprise inflations to boost economic activity. Households and businesses understand the incentive of central banks to behave this way and come to expect the higher inflation. The net result is higher inflation with no gain in real economic activity. However, as the taxes, tariffs and regulations that depress economic activity are removed, the incentive of central banks to engineer higher inflation will fall and so, too, will the actual inflation rate. Thus, we might expect to see declining inflation as the world becomes more integrated as a result of deregulation and freer trade.

HAHAHA. I think this fairy tale told by the people who run the Dallas Fed is fit for children but not adults. Look at the top chart! The plunge in global inflation coincides totally with the day the Bank of Japan, desperate to turn around trade with the US and flood us with exports coupled with a strong yen that was killing trade, hit upon the wonderful idea of soaking up dollars via two tools: dumping trade dollars in a FOREX reserve that then weakens the yen. The other being the birth of the carry trade. Until 1995, Japan had normal interest rates. Since then, despite inflation, roiling world markets and flooding the world with cheap loans, they have clung to sub-1% rates no matter what.

This insane policy is rapidly destroying world banking. Yet no bankers are fighting this force. Far from it: THEY ARE NOW ALL IMITATING JAPAN. The number of nations building huge FOREX reserves of dollars shot upwards as the US flooded the world with unbalanced trade-dollars. Let's look at yet another chart from the Dallas Reserve Bank:

And an earlier chart for comparison:

As the rate of money making has soared to the multi-trillions, 'inflation' has collapsed! But something else soared to the trillions: the US trade deficit and the US budget deficit! And here we are: where the other Great Powers wanted us in 1930 but we refused to go there: the US used as a global trade sink-hole while deindustrializing this nation as we become a COLONY again! My god. And who understands this? Besides my grandfather?

The Dallas Fed finishes with a flurry of lies:

Conclusions
This article has shown that in many ways, there is nothing new about globalization. In the years prior to World War I, goods, capital and labor flowed across national borders with the same ease as they do today and, in some cases, with greater ease. [Elaine: THIS IS A TOTAL LIE...the entire business leading up to WWI was due to the Great Exporting Powers rushing around the world, LOCKING UP MARKETS which is why the US was yelling about the 'Open Door' policies!] However, the monetary standard under which globalization took place in the late 19th and early 20th centuries was very different from the monetary standard under which globalization is occurring today. [Elaine: ENGLAND WAS THE GLOBAL CURRENCY AND USED IT AS A WEAPON...EVEN AGAINST THE US ITSELF!] And therein lies the challenge for monetary policymakers.

This article has scratched the surface of what the greater integration of the world economy might mean for monetary policy in the United States and around the world. I reviewed a small subset of the issues that globalization raises for monetary policymakers. There are many more that need to be addressed.

For example, how exactly should we define and measure the phenomenon of globalization? I presented some simple measures of globalization based on export data, capital flows and migration. A more economically meaningful measure of globalization would probably look at consumption volatility as well and the co-movement of consumption in different countries.

How does globalization affect strategy and tactics of monetary policy? Does globalization make the case for an explicit numerical price objective for monetary policy (an inflation target) more or less compelling? How does globalization affect the so-called Phillips curve, that is, the relationship between inflation and unemployment (or something similar) that forms such an important part of many central bankers’ analytical apparatus? There are grounds for thinking that in economies that are more open to trade and capital flows, a decline in the unemployment rate, other things being equal, is associated with a smaller increase in inflation.[13] Of course, there is also a body of thought that argues that even in closed economies the Phillips curve is essentially useless as a guide for setting interest rates, and it is arguably just as useless in an open economy.

I discussed how under a fiat money standard, fixed exchange rates may be preferable to floating exchange rates. Would the United States really be better off if we were to participate in a new system of fixed exchange rates with the dollar, the euro and the yen pegged at 1–1–100, [Elaine: HAHAHA. The Japanese will kami kazi us if we suggest this!} as some have suggested? Should there be more coordination of monetary and fiscal policies between the major economies, or is conversation preferable to formal coordination, as Federal Reserve Board Vice Chairman Roger Ferguson recently suggested?[14]

Has globalization had a strong effect on global inflation, or is the improved inflation performance of the past decade or so due to better policy on the part of central banks around the world? Is China having a restraining influence on U.S. inflation, as some have suggested? Or is it still too small to account for more than a few tenths of a percent of the lower inflation in the United States in recent years, as Federal Reserve Board research seems to suggest?[15]

We fell for the 'cheap imports are better than native industries' ploy first pushed by Great Britain back in 1840. The 'new British' are the Chinese. They are walking the same capitalist path Britain hacked out many years ago. Including brutal suppression of dissent in Ireland/Tibet. For the actions of China today are not even slightly different from British actions 200 years ago. And this is not by accident! The Chinese leadership read a lot of Western histories written by intelligent Westerners and some of them read this news service here. They are not stupid. Now, back to the news to reinforce my contentions here:

Dollar Set for Weekly Gain on Fed Steps to Restore Confidence

The U.S. dollar headed for the first weekly advances against the euro and the yen in a month on speculation Federal Reserve moves to revive lending among banks will restore confidence in financial markets and the economy.

The greenback also strengthened to at least one-month highs versus currencies of commodity producing nations from Norway to Australia after raw materials including gold and oil tumbled the most in five decades. The Fed cut interest rates, agreed to accept a wider range on collateral on loans and extended credit to non-banks for the first time.

``The dollar is enjoying a bounce,'' said Hideki Amikura, deputy general manager of currencies at Nomura Trust and Banking Co. in Tokyo, a unit of Japan's largest brokerage. ``The Fed is working to restore confidence. U.S. investment bank earnings weren't as dire as some predicted.''

Our trade rivals who are destroying us MUST re-establish the status quo. The US, far from struggling to do this too, should be fighting like hell to NOT allow this at all! We should be the agitators here, not the enablers! They will drag the dollar upwards if it KILLS them. They will use every trick in the book so long as the result is this: the US buys their goods and kills our own industrial base. A bad recession is now inevitable. This will reduce world inflows of goods to the US. But it will simply mean our allies will stop buying OUR goods! And we will end up with no advantage: our market share of world trade will NOT grow. And if we go into this recession with our trade partners forcing the dollar upwards, this means we only weaken further! Isn't this utterly insane?

Countries with weak trade statistics usually see their currency devalued. BUT NOT IN OUR CASE. We are the world empire. We can't play these games as England discovered 100 years ago. Either we wake up and stop being childish and figure out how our ONLY TOOL LEFT is tariffs and barriers or we can continue to be colonized until we are a third world power.

Citi Economists: Interest Rate Cuts Ahead… Lots of Them

the U.S. Federal Reserve to cut its key short-term rate, now at 2.25%, to 1% by mid-2008.
the European Central Bank – which has been holding its key rate steady at 4% — to beginning cutting rates before the end of the second quarter and bring them to 3% by early 2009.
the Bank of England, where the key rate is 5.25%, to cut rates to 3.75% by mid 2009.
the Bank of Japan, which has been itching to raise rates from the current 0.5%, to leave them unchanged through 2009.

I have a lot to say about commodities collapsing in the teeth of rising inflation, government interference causing fake interest rates that are below the rate of even the official inflation statistics and this, in both Japan AND the US! The top two world financial powers will both be doing the same, insane thing! With Japan desperate to devalue the yen, on top of it! This cannot be allowed to happen. Let's look at the recent past when Argentina allowed a flood of foreign investment into their country which suddenly dried up while they ran a trade deficit:

Saturday, 27 April, 2002, 00:06 GMT 01:06 UK
Argentines swap pesos for 'Evitas'

Argentina's banks were partially operational for five hours on Friday, but that did not relieve the demand for cash of ordinary Argentines.

After a long and difficult week, banks reopened their doors but mainly to pay pensioners and those on welfare.

Nevertheless it was not possible to withdraw funds and most ATMs remained empty, while people scoured the city in search of a working cash machine.

This hasn't happened to us...YET. But trust me, this is the Chinese plan for us. It will hit as suddenly as it hit Argentina. They had less than a week's warning of bad news before the banking system shut down. The US is being assisted in 'saving' our banking system and we are being allowed to flood the world with over a trillion dollars in new money but ONLY if we let them flood us with trade!

Auction-Rate Market Shrinks By $21 Billion as Borrowers Escape

Municipal borrowers from Wisconsin to California plan to pull at least $21 billion of bonds out of the auction-rate market by May 1 to escape soaring costs, according to data compiled by Bloomberg.

The amount is more than what was sold in any one year before 2002, the data show. About 69 percent of auctions in a market that also includes debt of student lenders and closed-end mutual funds failed to attract enough buyers this week, resulting in interest rates as high as 14 percent. Rates are determined through a bidding process managed by banks typically every 7, 28 or 35 days.

REAL inflation is raging! And we can't wish it away. The government will try to stop this by MORE RED INK. This is FATAL. We cannot do this forever. And note all my musings about the Great Depression: England's red ink from WWI didn't vanish, it grew. For they continued to fight, to seize lands, to steal stuff from Asia, etc. And this FAILED. Spectacularly. And if the US boycotts the Olympics and demands the dismemberment of the Chinese empire...by the way, Taiwan just voted for CLOSER relations with China, not the reverse!!!!...as I predicted correctly, by the way....the Chinese will pull the rug on us. They will be monumentally angry. We are striking at their heart and they MUST do this! They have NO CHOICE. And us?

This won't fix our own problems. For they lie not in China but in Japan and Germany, the nations we 'defeated' in WWII only to turn the tables and escort them into our markets where both have taken over and now dominate us.

Foreigners Sell Most Japanese Stocks Since Black Monday Crash

Foreign investors last week sold the most Japanese shares since the Black Monday market crash in October 1987 after the yen rose to a 12-year high, clouding the profit outlook for exporters.

Outflows from Japanese stocks by foreign investors were 922.7 billion yen ($9.26 billion) on a net basis in the week ended March 14, according to figures released today by the Tokyo Stock Exchange. That was the most since the period ended on Oct. 23, 1987. Japanese stocks have attracted net buying on a weekly basis by overseas investors once this year.

WOW. This won't make news here. The Japanese are flipping out. THEY NEED THE WEAK YEN BADLY. This is very dangerous. If the only solution is to destroy the US, they will do this. Trust me on this.

Greenspan Stands His Ground

Ex-Chairman Says Fed Policies Didn't Cause Current Woes

Regarding the current turmoil, Greenspan said that a market crisis was inevitable. "If it weren't the subprime crisis it would have been something else," he said. That is because an era was ending that had seen "disinflationary forces" from developing countries such as China and a "protracted period" in which there was an "underpricing of risk."

Not all economists are ready to let the former Fed chairman off so easily.

Lee Hoskins, former president of the Cleveland Fed and Fed chairman from 1987 to 1991, says that to find "partial causes" of the credit turmoil, "you have to go back to the Fed's decision to push the federal funds rate down to 1 percent and leave it there for over a year." Hoskins says the Fed "made money very cheap, and we began to see the whole leveraging process we see today. The Fed has to take responsibility for some of that excessive growth."

Arrest Greenspan. Seriously. This is what happens when we hand over our finances to a crazy man. And Hoskins is right. But he doesn't mention Japan's sub-1% rates. Am I the only one aware of the connection?

SEC probing options activity in Bear Stearns

The Securities and Exchange Commission is investigating the events leading up to the collapse of Bear Stearns (NYSE:BSC - News), specifically a surge in options contracts betting that the investment bank's share price would fall sharply, according to the Wall Street Journal

Citing people familiar with the matter, the paper reported the SEC probe focuses on a surge last week in "put" options that came days before the firm's proposed sale to J.P. Morgan Chase & Co. (NYSE:JPM - News) for stock now valued at about $278.5 million, or $2.32 a share.

A put option allows the buyer of the option the right to sell a certain number of shares in the company at a specific price within a set time. (Reporting by Edward Tobin; Editing by Derek Caney)

Arrest the pirates. J.Pirate Morgan is a good place to start. And don't forget the Goldman Sachs pirates.

As a post script, here are some charts I drew up comparing England's GDP and population growth with the US. Recessions are in red:

Note how the British were in a depression from WWI all the way until 1935. 17 years versus 6 years on our own part. Before WWI, the US had more negative growth periods than England. After 1954, when Britain handed over many of their imperial headaches to the US, their own growth problems vanished! They had downturns when we had them. Note also, they have de-industrialized nearly totally at this point. They are a colony of the US and increasingly, Asia.

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Bank Rescues Means Exact Replication Of Great Depression

March 21, 2008

Elaine Meinel Supkis

Everyone at the very apex of the economic pyramid are celebrating the 'rescue' of Wall Street. Commodities are collapsing thanks to this 'rescue' mission run by the Fed. But cause and effect are harder to see than people expect. The underlying trade/debt problems, far from vanishing, are reaching a critical melt-down stage. Bernanke and his greedy friends all think they have prevented a descent in to a Great Depression II. Instead, the very actions they took to save their own status quo has triggered the exact same forces that created the Great Depression. This is because they misunderstand what the collapse of 1929 was all about: the bankruptcy of the Great Powers, Germany and England, due to excessive war debts which both were unable to pay when Wall Street loaded even more debts on top of that huge mountain of debts. Now we see the Federal Reserve trying to dump more debts on top of our mountain of war and speculative debts.

From Futurecasts.com's excellent 'Great Depression' web page:

On September 15, 1930, the N.Y. Times editorialized:

"Everyone recognizes now that this is not a new economic era, in the sense that old-fashioned principles and penalties of economic law have been abolished. The new inventions in the way of manufacturing credit are seen to have been merely a novel way of repeating the very old practices of abuse of credit."

Abuse of credit: what is this, anyway? Traditional banking rules enforced by a central government which wishes to avoid massive lending bubbles/panics/depressions, the dreaded BPDs, sets rules for banks. One of the most useful rules is the one that prevents lending/holding ratios from dropping below a sensible limit. Banks have to attract some savings in order to lend. Now, in good times with stability and no bubbles, they are permitted to lend at a 10:1 ratio. Ten dollars can be lent on one dollar of savings. This rationalization of money via lending works in normal times. But when banks or QUASI banks such as investment/finance houses are allowed to do what Bear Stearns just did---lending on a 90-1 dollar ratio, it doesn't take much to trigger a complete collapse in any small downturn.

Years ago, I was very disgusted with the wild lending the 1% Fed rate triggered. I said, 'We now cannot afford even the smallest downturn.' Small changes in the direction of money flow or value of assets due to lack of lending ability can have tremendous effects. If the lending doesn't continue ever-faster, it could lead to a total collapse as everyone defaults on previous loans. This is true in all systems. Home buyers who put $0 down on houses have no capacity to sell if a market falls even 1% much less, 20%. Businesses that need ever-greater loans go bankrupt if they can't turn over their previous debts continuously.

Why did the Fed, unlike the dishonest Bank of Japan, raise interest rates in 2005 right at the peak of the lending frenzy?

They were behaving in the classic way: trying to stop a bubble. Of course, this bubble was launched when Greenspan dropped rates to a ridiculous level when the US went to war. The US needed to do this in order to run budget deficits far above even the high rates of previous Republican spend and spend administrations that ignored budget deficits. Running up an extra $4+ trillion in less than 6 years, cutting taxes and giving out money at 1%, this was a hyper-inflationary matrix. To fix this, the Fed in a panic, began to raise rates by 5% until it reached 6%. Of course, this caused all the lending frenzy games to come screeching to a halt. But not after terrible things happened: the entire financial system, increasingly offshore, ran off to the Bank of Japan. The bank was and still is, ignoring real inflation in Japan. The low rates enabled Japanese corporations to expand global market share, the weak yen due to this low rate and a high FOREX rate for holding dollars out of the markets, meant Japanese manufacturers were able to undersell and undercut everyone but fellow Asian nations like China that were doing the same.

So the 6% rate hikes had absolutely no effect on the big bankers and financiers who were generating massive loans. But it did hammer the US real estate market which is not global but internal. The collapse of this particular balloon triggered the meltdown in global finances. The housing bubbles in England and Europe were on the same plot line as the US markets. Now, they too, began their long collapse. Japan, in alarm at its own housing bubble, deliberately collapsed it by making its housing codes nearly impossible to follow. This way, they could keep the sub-inflation level interest rates that benefit the export industries.

So, despite a near-total collapse in banking in the G7 nations, Japan evaded the strictures of higher interest rates. Normally, higher rates trigger savings and recharges the banking industry's reserve accounts. Money ceases to flow to Wall Street or commodity speculation such as the rare metals markets like gold and platinum and instead, the money flows back into the banking system. Only this has been short-circuited by Japan. As the world, during 2006-2007, raised both reserve ratios and LIBOR interest rates, Japan defiantly refused despite obvious inflation. To kill this nascent inflation, Japan crushed worker compensation and killed its housing market, manually, not via rising interest rates.

So the 'carry trade' continued for two more fatal years. I must say, I stood alone for two years, hammering on all this. We cannot stop the economic destruction if we ignore what caused it. The carry trade enabled the banks and financiers to evade higher interest rates and continue lending! So the money supply continued to shoot upwards from 2006-2008. Only with the total collapse of the US housing markets across the board as the frantic Fed tried to kill inflationary Wall Street bubbles by raising rates, did this finally begin to hammer Wall Street and these carry trade maniacs in the banking system! Meanwhile, commodity inflation shot through the roof!

Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke

The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.

The Standard & Poor's 500 Index posted its first weekly gain in a month, and the dollar leapt from its lowest level since 1973 after the Fed stepped in March 16 to rescue Bear Stearns Cos., the fifth-largest U.S. securities firm, and expanded its role as lender of last resort to embrace the biggest dealers in Treasury notes.

Investors who had poured money into gold, oil and corn, seeking a hedge against inflation and a weak dollar, sold commodities to raise cash or buy stocks. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29.

``Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''

Did commodities drop due to lower interest rates? ARE THEY NUTS? The lower the rates, the higher the ability to buy....except for in one case: when the lower rates are ONLY for bankers and financial houses! They are NOT passing this bonanza onwards to the masses of people seeking 1% loans to play speculative games. They are using these super-sub-inflationary loans to HOARD. They need this money to REPLACE LOST PROFITABLE LOANS THAT WENT BANKRUPT.

With this money in hand, they and only they, get these super-cheap loans. They HAVE to make money by turning the Fed Reserve loans into profits via lending at a HIGHER RATE to outsiders. Only outsiders need these 2% loans, too. The Fed gave everyone a great boost in 2003. But this time around, the entire boost will be confined to the con men of the biggest banks and financial companies. And they will boost the value of this by going to Japan. But ONLY if the yen drops vis a vis the dollar!

As I keep pointing out, many traitors here at home WANT unbalanced trade. They make money in many ways off of this mess. They WANT Japan to artificially weaken the yen and have 0.5% interest loans! They WANT Japan to play tricks! They make profits with this scheme. Even if it means destroying the US economy. So we are now in a new matrix, one that is twice as toxic as the old matrix.

We have a weak US dollar made stronger by hyper-holding by not only the Bank of Japan but by all of Europe! Europe is now dropping interest rates to catch up with the US dropping rates. Both Japan and Europe need to flood the US with more 'savings' via 'cheap loans' except the US can't soak up this money caused by our roaring trade deficit. The ONLY cure left for us today is to decrease our trade deficit by ceasing consumer buying. And this is happening, willy-nilly via rising CONSUMER interest rates and fees. The US consumer can't tap into 2% loans. We are increasingly forced into 30% lending traps. And the decline in housing values means we can't increase our mortgages eternally to fund our purchases of foreign imports. And this is the rock bottom problem: US consumers, hammered by lay offs, falling wages, rising health, food and energy costs, are unable to sustain the global trade system which focuses mainly on exports to the US consumer!

The $600 per American scheme hatched by our government is a frantic attempt at restarting the US consumer's consumption of foreign goods. But this can't work unless the commodities market is strangled. And it has been shot in the head. I can't say how, just yet. But I suspect the Wall Street gangs are behind this Tupac Shakur-style drive-by shooting. All I can say today is, something dark and fishy is going on and the gold buyers are going to be forced into insolvency. I warned them a month ago that the people running all our banking systems are aiming to destroy the gold market and the signal was, India and China were beginning to see their gold markets' sales turn from buying to selling off. Too much leveraged money flowed into gold markets as well as oil, etc. Now, the little buyers will be hammered by the Big Guys. Life is unfair. And these people doing this are always unfair. They get to keep all their loot no matter if markets go up or down. After all, they control all the levers of power!

Bloomberg:

Concern that the central bank would let inflation get out of control eased after the Fed cut its key interest rate by 0.75 percentage point on March 18, less than the reduction of at least 1 point that investors had expected.

``Clearly they've gotten some stability,'' said Keith Hembre, a former Fed researcher and chief economist at FAF Advisors Inc. in Minneapolis, which oversees more than $107 billion in assets. ``You have to stand back and say, for the time being, it looks to be a pretty successful combination of moves that have worked.''

This 'stability' is very unstable. This 'stability' is a weak yen/cheap Bank of Japan lending/cheap US Federal lending/high government debt accumulation/Wall Street bubble. I am astonished that a 10% drop in stocks could trigger total meltdown! But this is what happens when everyone is 'over-leveraged' which is smart talk for 'speculating using loans from the Bank of Japan.' Unfortunately, the world matrix has changed. The euro, not the dollar, is now the world's chief currency. The dollar is no longer plunging but this is due to market manipulation, not natural trading. The G7 central bankers are CONSPIRING to raise the value of the dollar. According to the IMF, countries with huge trade deficits are supposed to correct this via dropping the value of their currency. Japan broke this rule by having a very weak yen with RECORD trade SURPLUSES. The more they had surpluses, the weaker they made the yen. They hoped to keep this mal-adjusted system running as long as humanly possible. Ditto, China. The US couldn't drop the value of the dollar against either country due to them both buying our massive government war debts and also holding excess dollars in their FOREX funds. This has not been fixed at all, indeed, Japan recently redoubled parking US dollars in their FOREX reserves which shot up in the last year by over $300 billion. Our trade deficit with Japan is only $60 billion so this was far above that rate and is a signal that they are desperate to make their currency weak despite their huge trade advantage they already enjoy vis a vis the US.

So this stability is dearly bought: the only way the US can correct its trade deficit now is something we all should fear and dread. THE ONLY WAY TO BALANCE TRADE LEFT TO US IS DEPRESSION HERE IN THE USA.

Treasuries' Scarcity Triggers Repo Market Failures

Surging demand for U.S. Treasuries is causing failures to deliver or receive government debt in the $6.3 trillion a day market for borrowing and lending to climb to the highest level in almost four years.

Failures, an indication of scarcity, surged to $1.795 trillion in the week ended March 5, the highest since May 2004, and up from $374 billion the prior week. They have averaged $493.4 billion a week this year, compared with $359.6 billion over the last five years and $168.8 billion back through July 1990, according to Federal Reserve Bank of New York data.

Investors seeking the safety of government debt amid the loss of confidence in credit markets pushed rates on three-month bills today to 0.387 percent, the lowest level since 1954. Institutions worldwide have reported $195 billion in writedowns and losses related to subprime mortgages and collateralized debt obligations since the start of 2007, making firms reluctant to hold anything but Treasuries as collateral on loans.

``It shows you the kind of anxieties that are going on and the keen demand for Treasuries,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York. ``The rise in fails tells us about the inability of dealers to obtain Treasury collateral.''

The bond markets are still malfunctioning. The banking crisis, far from being over, is entering a new stage. This is like watching a ship flounder and sink. The corrections are all making things worse. It is just amazing to me to see how attempts at bailing out the same men and women who put us into hazard is being cheered onwards even as it is painfully obvious that this is totally wrong. Resetting the status quo is doomed to failure since it doesn't address the core problems: the US budget and trade deficits. And moving even more money to offshore pirate coves which is what is happening today, is making both worse!

Goldman Will Reduce Capital Markets Workforce, N.Y. Post Says

Goldman Sachs Group Inc. plans to dismiss as much as 15 percent of its workforce in the capital markets and related support departments, the New York Post reported, citing unidentified people familiar with the matter.

The reductions are likely to come in the division that includes investment banking, debt and equity underwriting and merger advice, the newspaper said. Employees were first notified about the staff cuts on Monday, the Post reported.

Note that layoffs are increasing. These are no longer blue collar jobs. This is the cream of the white collar crop. How can housing rise in value if the people who are at the top of the buying spectrum can't buy due to job insecurity? And banks can't lend to people who might be laid off! This is the logic of our economic system. Banks can't lend easily in downturns due to layoffs! This is why we need solvent governments during GOOD times to have the capacity to take on huge debts in BAD times and thus, keep people employed and prevent a depressionary cycle! The reverse has been true during the last 7 years. As our government and Wall Street boasted about how great our economy was, everything was running in the red. And this means our own government can't run up another $10 trillion in debt in order to save us!

The scheme cooked up this last 6 months was for the Fed to simply create money and hand it over in the hopes this would create a thriving economy. This has OBVIOUSLY failed. For layoffs are accelerating, not decreasing. And the very houses that received most of the super-cheap loans are turning around afterwards and FIRING STAFF and reducing their commerce. They are in a devolving cycle, not a growth cycle. There is more proof of this below.

Fed Bypasses Emergency-Loan Policy on Rate for Securities Firms

The Federal Reserve bypassed its own emergency-lending policies to let securities firms borrow at the same interest rate as commercial banks as the central bank sought last weekend to stave off a financial-market meltdown.

Guidelines revised in 2002 say the Fed should charge non- banks more than the highest rate that commercial banks pay. Instead, Chairman Ben S. Bernanke and his colleagues, in emergency votes on March 16, invoked broader authority in the Federal Reserve Act to give Wall Street dealers the same rate as banks, a Fed staff official said on condition of anonymity.
*snip*
``They certainly pushed the limit,'' said Brian Sack, a former Fed researcher who is now senior economist at Macroeconomic Advisers LLC in Washington. The law probably has ``enough gray area'' to allow the decision, he said.

They basically threw away all rules, regulations and possibly laws. They used every possible tool all the way up to simply handing over billions of dollars to super-wealthy financiers who wanted more money to replace lost profits! And being pirates, they all pocketed this money. As we shall see below:

Goldman Sachs President Winkelried sells $5.2 mln in company shares

Winkelried sold a total of 30,000 shares of the investment bank on Wednesday and Thursday for an average of $173.25 apiece, according to a filing with the Securities and Exchange Commission and data provider Washington Service.

This is Winkelried's first sale of Goldman Sachs shares since January when he sold the same number of shares at an average price of $200.50.

Separately, Vice Chairman Michael S. Sherwood reported selling about $1.28 million in Goldman Sachs shares through a family trust.

HAHAHA. They had to bring in someone, some DUPE to buy their shares they needed to unload! As they fire staff, they stuff their pockets and then board their Mega-yachts and off they sail into the sunset! Mission accomplished! This is what Mazilo did in 2006: he sold very rapidly, half a BILLION in shares to unsuspecting investors. Because he could see all the loans going bad in 2006. He bailed out and still has that money and hasn't been arrested yet.

As the recipients of Federal Reserve largess convert their own stocks into cash, a classic move in deflationary cycles, people are being pitched this happy story at the mainstream media that the banking crisis is over and happy days are here again.

Bank of England answers pleas with £5bn injections

The Bank of England announced an unprecedented series of £5 billion cash injections for the banking sector, after high street bank chiefs pleaded for more liquidity.

The auction yesterday of £10.9 billion by the Bank – £5 billion more than expected – was one of a series of props provided by central banks to the financial community.

The European Central Bank offered €15 billion (£11.7 billion) and the US Federal Reserve said that it would make $25 billion (£12.6 billion) available.

The Bank of England said that it would continue to offer an extra £5 billion of one-week money on top of its usual repo auctions every week until its policymakers decided whether to change lending rates at their next monthly meeting on April 9.

All the G7 banks are heading into deflationary collapse. All are trying to drop interest rates and all have collapsing housing markets! This dynamic was first seen in Japan in 1990. We know what will happen next. A number of commentators like in the New York Times are pitching all this as 'we are NOT Japan.' Only we are Japan, for Japan is part of the G7 banking system. Effects from 15 years ago can come back to whiplash the present. Time is patient when it comes to mega-forces in economics. We have been in this deflationary cycle since the US has tried to kill inflation in 1980. The high rates back then did the job but things eroded badly. So increasingly, the central banks have desperately tried to create deflation and the biggest tool in their bag has been to encourage free trade so that WAGES drop in all the top nations! And this has worked! Perfectly! And is fundamentally the basis for the present collapse into depression. Workers can't tap into profits anymore and so they can't buy manufactured goods much longer.

A good read I am including here. Enjoy.

Main Street Sacrificed to the Gods of Wall Street

By Trader Mark

I was looking through CNNMoney.com, and it is striking to now see the stories of the real effects I outlined long ago really beginning to hit people. [Do the Bottom 80% of Americans Stand a Chance?] But since it's a slow motion implosion it is not sexy like Bear Stearns turning into dust within 72 hours. So I believe it continues to get ignored and/or people are simply ignorant - with the salaries made on Wall Street, it creates a disconnect from Main Street.

What is striking is while the system is pumped with floodgates of paper money, and inflation is constantly pooh poohed as "moderating by 2nd half 2008" - almost all these stories have the common thread of rampant inflation busting frail budgets - keep in mind anecdotal study after study says 70% of Americans live paycheck to paycheck regardless of income strata (as we have greater incomes, our spending expands at similar pace). I am aghast at the CNBC cheerleading (paralleled by countless blogs, economists, and pundits) that the decision to cut 75 basis points instead of 100 is a clear sign the Fed now cares about the dollar and inflation. Pathetic. 75 basis point is a historic type of cut, rarely done in the past. 100 basis points was NEVER done before (don't quote me, but I believe I read that). So this move to only do 75 is "good" for the dollar and "a strike back at inflation"? Really, the logic on The Street is beyond me many times. I find it laughable. Main Street is being sacrificed to the gods so that NYC can be saved. Bottom line, no matter what line of crapola people in NYC says over and over - maybe if they say it enough they will believe it and not feel as guilty.

Now for the scary stuff: the depression being created by the Fed and the Bank of Japan is following nearly exactly, the collapse of the Great Depression. The information below is shocking and horrible. And a warning to us all. In this case, the US is not the creditor nation. We are a combination of England and Germany! And one more thing: we are not going to use tariffs to prevent our markets from being flooded with trade goods. We are going to use LACK OF BUYING POWER to fix this! Which is 10X uglier than tariffs! Trust me on this.

DESCENT INTO THE DEPTHS (1930):

Rebound:

There had been much talk about eliminating short selling. The NYSE now requested lists of all holders of borrowed stock (short sellers). The rush to cover to stay off the list and to realize profits assisted in ending the decline.

The discount rate was reduced again, to 4 1/2%. Congress rushed a tax cut. Rockefeller ordered 1 million shares of Standard Oil at 50. An order for 50,000 shares of U.S. Steel at 150 "pegged" that speculative leader. Its drop from 261 3/4 to 165 had been the bellwether of the crash.

The gyrations quieted. The stock market rallied in quiet trading for the rest of November.

Secured bank loans and borrowing on life insurance policies had each risen about $2 billion.

Bank deposits had been declining all year, for the first time in two decades. Banks reported 1/2 million fewer depositors. [Elaine: note that in the US, the savings rate has been negative for over a year now!]

By December 1, 1929, broker's loans had declined by over 50% to just over $4 billion. But unsecured bank loans were up $2 billion to almost $10 billion. Secured loans by banks were about $8 billion. There was $2 to $3 billion tied up in installment buying. Borrowing on life insurance policies rose over $2 billion to a new total of almost $10 billion. Bank deposits had been declining all year, for the first time in two decades. Banks reported 1/2 million fewer depositors. Both investors and consumers were living off capital, extending themselves further into available supplies of credit.

There was certainly no evidence that an increase in savings had played any role in the ending of the 1920s period of prosperity. Here, too, facts perversely refuse to conform to Keynesian theory.

Exports, imports, railroad car loadings, textiles, auto and steel production, commodity prices, all took big drops in November and went even lower in December. However, employment, wages, and retail sales remained good, and Christmas buying was encouraging.

The November rally continued into December, recouped 1/3 of the stock market loss, only to be hit by renewed unloading of distress stocks by banks and brokers and a large volume of short selling which drove prices down yet again.

Copper, autos, textiles and agricultural commodities were now suffering from accumulated inventories. The financial slump now accelerated the business decline. Steel production nose dived during the holiday season.

The Wall Street prop had been knocked out from under world finances, spreading the effects around the world. Germany and Austria suffered large market declines and increases in unemployment. Paris and London markets were also lower, but the French economy would not be seriously affected until the second quarter of 1930.

Large volumes of short selling? We have seen this since November. The three attempts at saving Wall Street foundered and failed by Thanksgiving. The hope was, the American consumer would go on a spending binge at Xmas anyway. This, of course, didn't materialize. But enough price cutting lured customers into stores giving the impression that all was well and would increase again. So now we go into the New Year with the bears waking up again and preparing to rip up the system that is sick and dying.

The new year, 1930, dawned bright, cheery and confident. A parade of business, financial, labor, academic and government leaders made page one news with reviews of promising business conditions and future growth. December retail sales reports were quite good. The stock market had edged steadily upwards during the last half of December despite year end cash selling and the continued unloading of the distress stock held by banks and brokers.

Wall Street was openly bullish. Broker's loans moved impressively upwards as hope continued to surge through the breasts of bull speculators. The Big Board actually gained $1.1 billion in December, to a new total value of $64.7 billion. Broker's loans were down to about 6.16% of this tota

As we look at stocks, we can see how they fall only to whip back upwards. But this is not NATURAL. Every sudden shot upwards since October has been due entirely to government interventions by the G7 nations trying desperately to funnel huge sums, now well over a trillion, into the system by hook or crook.

There were great expectations of a quick business revival in the spring of 1930. Credit was ample and available at low rates. Bank rates had been cut sharply by the Federal Reserve Bank and all the major European national banks. Private interest rates had been cut even faster and sharper as people with money found it increasingly difficult to profitably employ it. Not only were business risks rising, the profit inducement to borrow was clearly declining, making the availability of money at sharply declining interest rates increasingly irrelevant.

Now doesn't this ring a loud bell? Alarm bells going off! BZZZZT. They are expecting a quick business revival this time around just like then! And contrary to Bernanke's assertions, the banks DID drop rates like crazy right after the stock market collapse. They were dying to get it all going again! This was top priority. If handing out masses of loans to the biggest banks and financial houses could restart world trade, they were willing to do this. March, 1930, was only a mere 5 months after record highs on Wall Street, after all!

As each drop in interest rates only caused more banks and financiers to turn it into CASH, did they try yet again to restart the lending cycle by making loans ever-easier. People with equity and capable of taking on loans fell for these cheap loans and began to leverage things again. Including the stock market that shot upwards with each infusion.

But the traditional spring trade revival would put everything straight. Hopeful expectations plus what appeared to be a normal increase in business in anticipation of a healthy spring trade pushed Big Board stocks up more than $4 billion in January, 1930, to a new total of $69 billion.
*snip*
Total NYSE stocks reached just under $80 billion by April 10, 1930, making up about 73% of its losses since its September, 19, 1929 highs. The Big Board had surged about $30 billion in five months, a gain of about 65%. Its loss from its September, 19, 1929 highs, was just about 12%. Bond prices were running above 1929 levels, and bond financing was now running at 10 times the rate of stock flotation - reversing the tendency in 1929.

The securities markets had staged a nearly complete recovery by any measure, and, despite weak spots, the domestic economy was doing well. But brokers loans were rising sharply, indicating the speculative nature of much of the recovery. v
*snip*
This was the "spring rally" of 1930. The stock market remained determinedly over optimistic - bouncing back vigorously after each selling climax - rising in expectation of each possible trade turning point - and falling back only when disillusionment became inevitable.

OK: if stocks soar during March and April to regain 65% of what they lost in the previous six months, what shall we all say? Oh my god? How about 'History is a bitch who likes to repeat herself over and over again'?

Copper had been pegged at 18 cents per pound by an international cartel. It had been as high as 24 cents per pound in April, 1929. However, overwhelming stockpiles and sales from secondary sources at lower prices broke the dam. The price dropped to 12 1/2 cents in the beginning of May.

Um, this is too much, isn't it? As the Fed and the bankers rejoice in killing the metals markets and thus, proving that gold, etc, are mere commodities, the fall in value is just another signpost on the road to depression. Why are they pleased with this? They should look at the past and scream, 'We are going the wrong way!'

But the need to kill inflation by hook or crook is all-pervasive. But the simple tool of using rising interest rates is VERBOTEN. So they use the utterly awful tool of dropping rates while strangling the working classes which is pure 1930-depression ethics.

Commodity prices were now sinking like stones - at something more than 2 1/4% per month - with a big decline in April. World money rates had been cut in half since October, 1929, and private lending rates had declined even faster.

This typical whipsawing was killing the margin speculators, both long and short, and was chasing many out of the market.

On June 9, the stock market suffered its sharpest loss of the year as the decline resumed. The next day, short covering and bargain hunters pushed a market recovery of practically all the previous day's loss. But U.S. Steel production declined to 71% and its unfilled orders report showed a dramatic decline. On June 11 an even bigger market drop wasn't stemmed until financial leaders stepped in with big orders for key stocks.

Each crash was followed by a sharp partial recovery as shorts covered and new "bargain hunters" were lured in. The rediscount rate was lowered to 2 1/2% - the lowest level in history - recognizing an already existing fact as there was little demand for Federal Reserve funds. Steel dropped to 65% of capacity, railroad car loadings continued to drop, and other bad news kept coming in. Each rally petered out, followed by a slipping movement, culminating in a sharp selling climax.

Markets never reach bottom until the last bargain hunter is eaten by the last bear. Then the bears depart and the markets lie there, dead. Reviving it is nearly impossible. The destruction of credit and the resulting bankruptcies now continue to burn for several more years. The banking system, far from being saved, now faces total melt down. The banking system limped along after 1930 for 2 more years until it totally fell in 1933. Along with many governments. Millions of people starved to death across the planet. Draconian measures were suggested. One of them being, 'loot the Jews' launched by Herr Hitler in Germany. The Russians launched the 'loot the landowning peasants in the Ukraine', Italy decided to loot Africa. Japan lashed out at China and invaded Manchuria to take over the factories there and cease trade and replace it with slavery. Spain began a revolution which was crushed by the German fascists. The world was set towards WWII.

Dr. Schacht, former president of the Reichsbank, predicted cessation of reparations payments. The flight of capital out of Germany forced an increase in her bank rate to 5% in spite of the worsening Depression. Tariffs, quotas, higher taxes and interest rates were forced on the overburdened German public by the growing burden of her huge debts.

The cumulative effects of reparations payments, massive debts, and the trade war - building up for more than a decade - had destroyed Germany -- and the whole world would pay the price.

We are Germany. We are running for President two war mongers, McCain and Clinton, both of whom want to increase military spending, government debt, cutting taxes, increasing imports and in general, all want to do the same thing so the lack of choice in this critical junction is exactly none. It is now painfully obvious that Obama won't rise to power for the simple reason, he might change something. And NOTHING dares change no matter how tiny. This is because the entire push right now is to restart the dying status quo. The one that China is no longer interested in continuing. Which means it won't continue. No, not at all.

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Dentists Hurt But The Teeth Get Fixed

March 20, 2008---Vernal Equinox Day

Elaine Meinel Supkis

In the middle of a big, nasty storm that has drowned a number of Americans as it has swept across the country,has been flooding my mountain outback. A great time to crack a molar into small pieces. So I had to visit the dentist. They are scary, aren't they? But instead of giving me candy, he takes out drills and huge syringes and then begins to grind, pound and hammer on my molar until it was repaired. And now my jaw hurts like crazy, thus this late story instead of my usual morning story. This reminds us: fixing things often means pain and suffering but if we take pain killers and eat candy, all our teeth rot out. And this is why the Bernanke rescue is a total disaster: it not only didn't fix our broken, rotted teeth, it is going to make them rot even more and perhaps, fall out! Like, we go bankrupt!

Buy Banks as U.S. Financial Crisis Is Over, Bove Says

The U.S. financial crisis is over and the decline in bank stocks offers a ``once in a generation opportunity'' for investors, according to Richard Bove, analyst at Punk Ziegel & Co.

``The last time an opportunity of this nature existed to buy bank stocks this cheap was in 1990,'' Bove wrote in a note to investors. ``This is a once in a generation opportunity.''

The Lutz, Florida-based analyst said the Federal Reserve's rescue of Bear Stearns Cos. and actions to increase banks' access to capital have been ``innovative, dramatic'' and ``brilliant.''

Nothing has been fixed. Nothing has changed. A whole host of financial investment houses and banks in the G7 nations have dropped their losses overboard but ONLY because the central banks have bankrolled them so they don't roll over, dead. This process protected all the players in this game. Not one of them has been forced to cough up any of their ill-gotten gains they gave themselves for deals they brokered. Deals that proved to be very toxic for businesses and investors. These people lost money.

As the lawsuits begin to proliferate as angry investors try to recapture their money which was intercepted by the men and women running the biggest trading/banking houses on earth, we must step back and examine what has happened. Since last August when the dynamo that pushed all those reckless deals broke, the central banks have been making one rescue after another. They have been dropping interest rates to well below anyone's concept of the rate of inflation. They have injected tremendous sums of money into the system to make up for rising losses. The sums must be well over $1.5 trillion, probably reaching to $2 trillion at this point.

Instead of honestly telling us where this cash is coming from, the central bankers are lying. Our own Fed pretends this is non-money in the sense, it is replacing lost funds, not making new ones. But the idea that the funds the vanished were inflationary in the first place and are causing global inflation, is not discussed. As global inflation continues to wreck world economic systems, the central banks are propping up speculative stock markets in the hopes that the flood of money, which I think is around $2 trillion, doesn't all flood into rare metals and oil.

Thus, the focus on boosting global stock markets. The price of gold and oil are dropping at this time. Gold, by the greatest amount. As I keep pointing out, the weapons of the bulls can savage all bears at various times. Bears have to be very patient and retreat whenever a bull is cornered and calls upon all the powers of the government and international trade to boost bull markets. This is why markets don't follow a bell curve. All down markets have huge upsurges that usually are faster and higher than any rise during a bull market.

The downside of all these rescues don't show up for at least 6 months to a year after desperate measures. During the Nixon years, for example, every possible tool to keep markets roaring were used. Including outright wage/price controls. We are entering a nasty part of all inflationary cycles: the government doesn't give money to either the consumer or small businesses. The money is funneled to the big banks and corporations. They then renew the buy-out schemes in order to grow faster than inflation. Money flows like crazy and the effects are felt at the bottom rungs of the economy as raging inflation in food and fuel.

As the interest rates fall to 1% or less for the corporations and the big investment houses, it rises for the ordinary person who has to use Visa cards. As inflation gets a second wind and returns even more ferociously, we have stagflation. Since we know that giving all the biggest money spenders on earth who all use their loans to make more loans, the fundamental inflationary system set in motion by these very investment houses will cause inflation since they will use this money to get loans so they can buy influence, stocks, commodities and corporate control.

The issue of offshore banking and offshore accounts that suck in money and don't pay any taxes is still there. Instead of negotiating with all these pirates who run places like Goldman Sachs of JP Morgan and forcing them to cease and desist in offshore accounting and tax evasion, the Fed and the Treasury are giving them even more money to bleed from our own, more normal, banking system. So the imbalances, the wrong directional flow of money, the disparities and difficulties in the present system are not only not gone but have been given a new lease on life.

The fury and fear of these global financial players was totally fake. I know this because they didn't surrender a thing to be saved. They didn't have to retreat and struggle some more. They played a Mohammed Ali 'Rope-a-dope' boxing scheme. They pretended to be weak, collapsed backwards and then the governments all rushed in to prop them up for free! No one was arrested. No one is being investigated. Nothing was done. Scot free.

Bloomberg notices the elation of these guys and where the money is going:

The money flowing into commodities is ``absolutely enormous,'' James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.

There are 361 commodity funds that had $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, he said.

The rally, according to Paul Touradji of the $3.5 billion hedge fund Touradji Capital Management LP, was a ``buying orgy'' that had inflated prices and increased the risks of a collapse.

Commodities ``have all gone parabolically higher on frenzied money flow,'' New York-based Touradji wrote to clients March 10. ``Unless that money flow continues ad infinitum, in which case prices would go to infinity, then the fundamentals had better be improving as quickly as prices have been, otherwise there is nothing else to keep the markets at these levels.''

Up until yesterday, the money was flowing away from world stock markets and towards the grinding, desperate commodities markets. Far from being without funds, the big investment houses had plenty of money, they just had plenty of debts they couldn't roll over. Since the G7 central bankers rolled over, there is no worry about these debts. They are again, 'off the books'. So the government has soaked up all the negative junk. And now the carry trade can resume as long as the dollar is propped back up again.

The carry trade is all-important here. This is the 'free money' source that can be tapped for infinite loans so long as the secondary loans made with this money can be soaked up by the central banks. So far, the amount is vast. Since the financial houses can run up trillions in dollars in bets and deals, this process can go to infinity if they feel they now have the central bankers' 'number'. Push the panic button and the money floods into their accounts while all the bad deals flow rapidly into taxpayer-supported accounts.

I am not the only person alarmed by all this. Here is an analysis from Kathleen Pender:

There are side effects to financial medicine

But make no mistake: If the feds succeed in preventing a financial collapse, there will be a price to pay
.
"It's hard to say what the unintended consequences will be," says Joshua Rosner, managing director of research firm Graham Fisher.

Economists say they are likely to include some combination of higher taxes, higher interest rates, higher inflation, slower economic growth and a weaker dollar.

Let's remember for a moment what got us into this predicament.

After the stock market crash in 2000 and the terrorist attacks in 2001, the Federal Reserve kept interest rates too low for too long. The federal funds rate stayed at 1 percent throughout 2003, long after the 2001 recession had ended.

Low rates fueled speculation in housing and the creation of new mortgages and mortgage-backed securities that were sloppily underwritten, poorly rated and widely misunderstood. Hedge funds and other investors used these securities to borrow money to buy other assets, creating a mountain of debt atop a small slice of fragile collateral.

Banking regulators, Congress or the Bush administration could have stepped in to restore some sanity to the markets but declined to do so in the name of homeownership and free enterprise.

These rescue operations are occurring more and more frequently. The rates are being hauled downwards with greater energy as the central banks enforce depression-level interest rates on top of a wedding cake of generalized inflation. My dentist, for example, was grousing about how he is being forced to drop prices by using Chinese labor to make crowns and bridges. But the customers are vanishing due to lack of funds for dental work! If no one can afford a dentist due to spending most of their income on other necessities. So teeth decay and the people become more and more ill and eventually need to have all the teeth pulled! Inflation can go subterranean for a long time this way. But commerce suffers. All the offices around my dentist's office were now empty. Just one year ago, all were full. The drop in commerce, the collapse of many businesses, can't be fixed by giving the biggest investment houses trillions in super-cheap loans!

This money will filter into the system it toxic ways. All the big players are laying off people right now. They know the economy itself is in decline. They don't mind playing stock market games while the actual economy collapses. This is just like Japan. Cheap loans for the top people. The money stagnates up there and never reaches the bottom ranks. This could be the final stage of the 'give all the breaks to the tops'.

Pender:

Rep. Barney Frank, D-Mass., has a proposal that would give the Federal Housing Administration (a government agency) up to $300 billion to guarantee refinanced mortgages after their balances have been significantly reduced by the mortgage holder or lender. The plan would also provide $10 billion in government financing to buy and rehabilitate vacant, foreclosed homes.

"We are going to nationalize the mortgage market," says Ken Rosen, chairman of the Fisher Center for Real Estate at UC Berkeley, consultant and hedge fund manager. "It's the outcome of not regulating at the right time."

As much as he dislikes it, Rosen says, it's the right thing to do in the short run. "If they did not stop the credit crisis, we would have something much worse - a meltdown like we had in the '30s," he says. But "it's not a good thing in the long run."

Rosen predicts that when all is said and done, there could be as much as $1 trillion worth of losses in the financial system. He predicts that investors will bear 60 percent of the losses and the government could shoulder the rest.

All the losses are being shifted sideways to the government. This is without the slightest attempt at afixing blame and punishing the ultimate actors who created this mess. The 1930's was not caused just by over-enthusiastic stock brokers or buyers of properties in Florida. The collapse of both the British and German empires and the bankruptcy of Germany were the real causes of the Great Depression. So it is here: the US is going bankrupt. I don't see any way around this: stocks may soar but the bankruptcy moves ever closer. The US is NOT leaving Iraq or Afghanistan. Billions are bleeding every month overseas. The US is egging on a war with Iran that will destroy our economy. And we are edging towards the inevitable Olympic boycott. Any time Russia or China gets to host the Games, the West finds all sorts of reasons to boycott. The US can invade countries and cause tremendous destruction and still host the Olympics.

But not Russia or China. Both are held to a different standard. Because of this, China will probably move to cause us a little problem: they will redirect global monetary flows even more.

Fed Bypasses Emergency-Loan Policy on Rate for Securities Firms

The Federal Reserve bypassed its own emergency-lending policies to let securities firms borrow at the same interest rate as commercial banks as the central bank sought last weekend to stave off a financial-market meltdown.

Guidelines revised in 2002 say the Fed should charge non- banks more than the highest rate that commercial banks pay. Instead, Chairman Ben S. Bernanke and his colleagues, in emergency votes on March 16, invoked broader authority in the Federal Reserve Act to give Wall Street dealers the same rate as banks, a Fed staff official said on condition of anonymity.

Backstopping securities firms, coupled with last week's action to keep Bear Stearns Cos. afloat before its sale to JPMorgan Chase & Co., represent the central bank's first lifelines to institutions other than banks since the Great Depression.

Not only were the 'rescues' unprecedented. They are unusual in every possible way. And this is because the entire system is unglued. And what has actually unglued?

Our trade deficit yawns ever wider. Oil is very expensive, they trumpet the price falling from $111 to $103 a barrel. Whoopee. Gold has collapsed, as I predicted several weeks ago, to the $900 an ounce level. But the future of both is obvious: inflation is going to reassert itself or the collapse will continue downwards. The stock markets will form their third bubble in 10 years but only from a totally fake, totally artificially created by the central banks and utterly inflationary.

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Haircuts, Yachts and The Three Stooges

March 19, 2008

Elaine Meinel Supkis

As Ron Paul explains the Constitution as well as the legal underpinnings of debasing the coinage as our pennies now cost 2¢ to mint, the three stooges running to be our 'leaders' play stupid. Easy enough, I suppose. We get to visit a mega-yacht builder to see what the parasites in the finance industry use to sail around pirate coves. Bear Stearns pirates play bridge the same weekend the company they are or were associated with, flounders and sinks. They both have their multi-millions so they didn't show the slightest emotion as their employees scream and run about the sinking ship. The US government is going to pick up another $200 billion mortgages for the reckless piratical bankers. And the hedgers are suing the hedgees. Heh.

Clinton, McCain, Obama Tiptoe Around Financial Crisis

The three U.S. presidential candidates, after a weekend in which a Wall Street firm almost collapsed and the Federal Reserve took measures to stem a panic, tiptoed around the credit crisis and avoided any criticism of the central bank.

They reiterated previous positions and, in the case of the Democrats, assailed President George W. Bush and his stewardship of the economy, while stopping short of any new proposals to shore up the financial system.

Among Democrats, Illinois Senator Barack Obama renewed a call for middle-class tax cuts while Senator Hillary Clinton of New York stressed her plan for a moratorium on foreclosures. Arizona Senator John McCain, the presumptive Republican nominee, expressed confidence in the Fed.

``The candidates don't seem to know what to make of this situation'' said independent analyst Charlie Cook, publisher of the Washington-based Cook Political Report.

The previous 10 elections I have witnessed or participated in had been rather stupid. But I swear to the gods, THIS election takes the cake for stupidity. And I don't mean the hapless candidates, either. The media is moronic. It is like being trapped in an elevator in a building undergoing both an earthquake, terrorist attack and a major hurricane and the elevator operators are being quizzed about their hairdos, their minister's past sermons, their sex lives and skin color, so help me god. I want to clobber the press. SHUT UP! Stop it! Go away.....forever.

We have so many important things to consider and none of them are up for consideration! As these three little Orphan Nannies all try to tell us what presents they will give us, as they all line up to say allegiance to Saudi Arabia and Israel, as they all strive to show us that they are blander than Wonderbread, all I can say is, 'We are so....doomed.' Perhaps they can shake off all this trivial, stupid stuff and become a semi-functional leader after winning the junior high contest of 'Who is the Teacher's Pet Goat'. But I doubt this now.

It is all very sad, in fact. Because the Republicans were all lockstep in order to get behind whoever they can, there was no real campaign. So Ron Paul, the man the media hated even more than Kucinich, if that was possible, had to finally drop out. With him gone, McCain could happily do his 'bomb, bomb, bomb the economy' and no one would try to stop him.

The Steel Penny

by Ron Paul

Mr. Chairman,

I oppose HR 5512 because it is unconstitutional to delegate the determination of the metal content of our coinage to the Secretary of the Treasury. Under Article I Section 8 of the Constitution, the Congress is given the power to coin money and regulate the value thereof. It is a shame that Congress has already unconstitutionally delegated its coinage authority to the Treasury Department, but that is no reason to further delegate our power and essentially abdicate Congressional oversight as the passing of HR 5512 would do.

Oversight by members of Congress, who have an incentive to listen to their constituents, ensures openness and transparency. This bill would eliminate that process and delegate it to unelected bureaucrats. The Secretary of the Treasury would be given sole discretion to alter the metal content of coins, or even to create non-metal coins. Given the history of Congressional delegation and subsequent lax oversight on issues as important as the conflict in Iraq, it would be naïve to believe that Congress would exercise any more oversight over an issue as unimportant to most members as the composition of coins.

While I sympathize with the aim of Section 4 of this bill to save taxpayer dollars by minting steel pennies, it is disappointing that our currency has been so greatly devalued as to make this step necessary. At the time of the penny's introduction, it actually had some purchasing power. Based on the price of gold, what one penny would have purchased in 1909 requires 47 cents today. It is no wonder then that few people nowadays would stoop to pick up any coin smaller than a quarter.

Congress' unconstitutional delegation of monetary policy to the Federal Reserve and its reluctance to exercise oversight in that arena have led to a massive devaluation of the dollar. If we fail to end this devaluation, we will undoubtedly hold future hearings as the metal value of our coins continues to outstrip the face value.

HR 5512 is a sad commentary on how far we have fallen, not just since the days of the Founders, but only in the last 75 to 100 years. We could not maintain the gold standard nor the silver standard. We could not maintain the copper standard, and now we cannot even maintain the zinc standard. Paper money inevitably breeds inflation and destroys the value of the currency. That is the reason that this proposal is before us today.

Did this speech make the news? Did the news that we are going to have Spartan steel pennies make any news? You know, in ancient Sparta that was always at war, they used iron as coins. Whereas in Athens, they used naked statues of Venus. Heh. Just kidding. They used gold. So, will we be 'bomb, bomb, bomb' Sparta or 'Midas'? Death and steel or gold and wine, women and song? Or in the case of us females, wine, a massage and song?

656' Custom Gigayacht

Everest, a name that pretty much says it all.

This 200 (656’) Meter yacht is appropriately named Everest. The designer, Donald Starkey, thoughts were to design a yacht that would surpass ALL others, and by taking a gigantic leap forward to above 200 meters. It is possible that this could be the largest private yacht for some time to come.

Everest will have accommodations for 36 passengers and guests consisting of 17 apartments and an Owners private penthouse suite on the top deck. Every suite will have private terraces.

There are large lounge areas and a dining room on the aft of the Main Deck with an outside swimming pool and cinema arrangement. All other entertaining facilities include a large gymnasium, well-being center, sauna and steam rooms. The indoor cinema and a beach club has side folding platforms port and starboard and a large drive-in docking facility at the aft end for boats and a small submarine. There is also a dive center included in this area.

A 5 deck high atrium with central staircase and 2 elevators connect all decks, including the sun deck. The sun deck has a shaded dining area and sunning areas with a Jacuzzi tub. There are additional service cores including service elevators on both port and starboard side.

Access via helicopter is possible on the topmost aft deck and also on the forward main deck which includes a platform lowering into a heli-hangar below and possibly 3 cars and associated landing craft.

There are accommodations for approximately 60 crew and 20 staff and operational staff (heli-pilots, security staff etc.) located on the forward lower decks.

As our candidates rush from one rich person to another, seeking debased dollars so they can talk about their hairdressers, preachers and mistresses or in the case of Hillary, her husband's mistresses, heh. Gads, I can't be serious or I will become rather violent. Well, Prince Charles took his former mistress who is now his unhappy wife on such a yacht to the Bermuda pirate cove. It was owned by a financial man who had made his fortune evading taxes. And they had a miserable time since Charles, according to the British media, didn't have 160 servants to boss around so he bothered his poor wife to the point, she wanted to go to Paris and get photographed only no one wants to see her mug.

By the time this election is over, I don't want to see any of these mug's faces, either. One tires of people who are shallow and vain and the media rewards only this sort when it comes to leadership positions. They must have all been peahens in previous lives. Or moles. Or perhaps cockroaches. All I know is, they were not of noble professions.

As Bear Stearns Implodes, Spector Keeps $382 Million

March 19 (Bloomberg) -- Warren Spector, forced out as president of Bear Stearns Cos. last August, may have outdone his former mentor James ``Jimmy'' Cayne as the 85-year-old brokerage firm imploded.

After a spat over politics in 2004, Cayne, then Bear Stearns's chief executive officer, changed the company's deferred compensation plan, prompting Spector to sell $382 million of stock. As of last March, his stake in the New York-based firm had dwindled to 0.06 percent, worth about $8 million when he left.

``In this case, the golden handshake didn't turn into a tin one,'' said Shaun Springer, chief executive officer of London- based recruiting firm Napier Scott Executive Search Ltd.

Spector, 50, faced Cayne again in a bridge tournament in Detroit last weekend. As the competition was coming to a close, Bear Stearns was being sold to JPMorgan Chase & Co. for $291 million, less than the value of its Manhattan headquarters building. Cayne's 5 percent stake has plummeted in value from almost $1 billion last year, when the shares reached their peak price of $170, to about $12 million based on the sale price.

OK: one of these very, very rich creeps is still on the Board of Directors of Bear Stearns and he was playing Old Maid last weekend? GADS. Why don't they give me that sort of loot to goof off? At least I can tell a joke. By the way, Forbes Magazine is interested in me, lord help us all. I wonder if they know how brutal I am? After all, telling jokes is the cruelest form of flattery. They have been chatting off and on with me until today and then sent a contract. Only it is very long and has entangling talk for lawyers which I can read. I wonder. Will they get angry if I draw Miz Risky drinking and carousing? Or me, talking about sex and money in the same sentence? Sex=money. As well as Death. They want us to think, it means life and good morals. Right. Ask Spitzer about that.

Merrill Sues SCA'S XL Unit to Maintain CDO Insurance

Merrill Lynch & Co. sued XL Capital Assurance Inc. to force the bond insurer to honor $3.1 billion of guarantees on collateralized debt obligations as the securities firm attempts to avoid more writedowns of mortgage-backed debt.

``We filed suit to make clear that XL Capital Assurance Inc. is required to meet its contractual obligations,'' Mark Herr, a spokesman for New York-based Merrill, said in an e-mailed statement today.

CDOs, which repackage mortgage bonds and other assets into new securities, were the biggest source of the more than $195 billion of mortgage-related writedowns and losses reported by the world's largest banks and securities firms since the beginning of last year. Merrill's $24.5 billion top the list. Losses may rise if default protection bought from companies such as XL, a unit of Security Capital Assurance Ltd., fails to pay off.

I used to have an ox team. They were huge. They could drag huge trees that weighed literally over a ton without breaking into a sweat. They had huge horns. And they could go through hedges. And barbed wire. And electric fences. So I had to use really strong fences with electrical wire to keep them in but the lightning bolts kept wrecking that, even caught part on fire once. So it is here: hedges are being bulldozed by oxen who are called 'reality'. All the schemes to insure some one else gets to take the hit are hitting the pavement really hard with a loud 'splat'. As I predicted.

It was a mere six months ago, these same guys were boasting, their hedges were thick, plentiful and the Derivatives Beast they fed until it was over $500 trillion dollars, would mean NO ONE would EVER lose any money in any deals! Downturns would disappear! And I thought that was pure madness. And as usual, I was right then they were all sadly deluded. Which is why they think they are worth many millions of dollars, of course.

Fannie, Freddie cleared to pump $200 billion into market

WASHINGTON (Reuters) - The regulator of Fannie Mae (FNM.N) and Freddie Mac (FRE.N) on Wednesday eased capital requirements for the two biggest housing finance agencies, allowing them to pump up to $200 billion into the distressed U.S. mortgage market.

The regulator, the Office of Federal Housing Enterprise Oversight, said it was lowering to 20 percent from 30 percent the amount of extra capital the companies are required to hold. It will also consider further reductions. The 30 percent requirement had been imposed after the discovery of lax accounting and risk controls earlier this decade.

In addition, the companies will begin to raise "significant capital," OFHEO said in a joint statement with Fannie Mae and Freddie Mac. Last year, the companies sold nearly $14 billion in preferred stock.

ALL the mortgages will be Federal soon! All! Every blasted one of them. And the default rate will be so high, it will destroy our nation. Not wreck the yachting experiences of the very rich. It means millions of Americans will see their schools degrade or their services vanish. Right now, children and teachers in California are marching for more money. They want $2 billion dollars which is less than one week's worth of occupation costs in Iraq! But NONE of the candidates want to stop spending this loot on Iraq so the three stooges should go to California and tell the children, 'Go bugger off, you little creeps! We want to bomb, bomb, bomb Iran!' Yes, we must worry about our true priorities.

Goldman, Lehman Reduce Loan Backlog With Discounts

U.S. banks from Goldman Sachs Group Inc. to Lehman Brothers Holdings Inc. have whittled their holdings of leveraged buyout loans to $129 billion from $163 billion at the beginning of the year by offering the debt at discounts, according to analysts at Bank of America Corp.

The decline is a ``ray of hope'' for banks amid a slump in credit markets and a slowing economy, said analysts led by Jeffrey Rosenberg. The firms also have $73.6 billion of high- yield bonds they need to sell, they said.

Banks have been breaking ranks from their lending groups and offering their own pieces of the LBO loans at as little as 80 cents on the dollar to get the debt off their books. New York- based Lehman yesterday said it has reduced its LBO backlog by $6.1 billion to $17.8 billion since the beginning of the year. Goldman Sachs halved its holdings to $20 billion and Morgan Stanley reduced its pipeline by 20 percent.

The bill for this haircut these very rich organizations took will be billed to us. Note how this election was all about the cost of haircuts? Well, this is a multi-billion dollar haircut! How about that, McCain? Obama? Clinton, both male and female? Eh? Goldman Sachs also gave themselves record bonuses. Did they pay for this haircut with that money? HAHAHA. And the cow jumped over the moon and laid an Easter Egg.

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The Fed is just an Extension of the Banking Establishment; The Bear bailout proves it

March 19, 2008

MIKE WHITNEY

One picture tells the whole story. It's a photo of five grim looking men in gray suits staring ahead blankly like they were in the dock with Saddam awaiting sentencing. Every one of them looks downcast and dejected; shoulders rounded and jaws set. This is what desperation looks like, which is why the photo was kept off the front pages of our leading newspapers.

The group took no questions and, as far as the media was concerned, the meeting never happened. But it did happen; and it happened on Monday at the White House at 2PM. That's when President Bush convened the Working Group on Financial Markets, also known as the Plunge Protection Team, to explain their strategy for dealing with deteriorating conditions in the financial markets. The details of the meeting remain unknown, but judging by the sudden (and irrational) recovery in the stock market yesterday; their plan must have succeeded.

The Plunge Protection Team is a panel that includes Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, Securities and Exchange Commission Chairman Christopher Cox, and acting Commodity Futures Trading Commission head Walter Lukken. According to John Crudele of the New York Post, the Plunge Protection Team’s (PPT) objective is to redirect the stock market by “buying market averages in the futures market, thus stabilizing the market as a whole.” In the event of a terrorist attack or a natural disaster, the group's activities could play an extremely positive role in saving the market from an unnecessary meltdown. However, direct intervention into supposedly “free markets” is less defensible when it is merely a matter of saving an over-leveraged banking system from its inevitable Day of Reckoning. And, yet, that appears to be the reason for the White House confab.

The psychology behind the PPT's activities are explained in greater detail by Robert McHugh Ph.D. who provides a description of how it works in his essay “The Plunge Protection Team Indicator”:

The PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with political events that could be perceived by markets as highly negative and cause a decline, need to be prevented by a rally already in flight. To get that rally, the PPT’s key component -- the Fed -- lends money to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer’s account. That buying comes out of the blue at a time when short interest is high. The unexpected rally strikes blood, and fear overcomes those who were betting the market would drop. These shorts need to cover, need to buy the very stocks they had agreed to sell (without owning them) at today’s prices in anticipation they could buy them in the future at much lower prices and pocket the difference. Seeing those stocks rally above their committed selling price, the shorts are forced to buy -- and buy they do. Thus, those most pessimistic about the equity market end up buying equities like mad, fueling the rally that the PPT started. Bingo, a huge turnaround rally is well underway, and sidelines money from Hedge Funds, Mutual funds and individuals’ rushes in to join in the buying madness for several days and weeks as the rally gathers a life of its own. (Robert McHugh Ph.D., “The Plunge Protection Team Indicator”)

“
The powers of the PPT are greatly exaggerated; eventually the liquidity they provide has to be drained from the system. The popular myth that the Fed simply creates as much money as it chooses and spreads it around wherever it likes; is pure rubbish. The Fed has very defined balance constraints. The system is not quite as rigged as many people imagine. According to Bloomberg News, the Fed has already depleted most of its arsenal:

The Fed has committed as much as 60 percent of the $709 billion in Treasury securities on its balance sheet to providing liquidity and opened the door to more with yesterday's decision to become a lender of last resort for the biggest Wall Street dealers.” (“Bernanke May Run Low on Ammunition for Loans, Rates”, Bloomberg)

The troubles in the credit markets and real estate are bigger than the Fed or the PPT; and they know it. The next step is massive government intervention; rate freezes, bailouts and fiscal stimulus. Big government is back; Reaganism has gone full-circle. That doesn't mean that the PPT cannot have an important psychological affect in soothing jittery markets and stalling a system-wide collapse. It just means, that markets will eventually correct regardless of what anyone does. The sharp downturn in the financial markets is the result of unsustainable credit expansion that can't be fixed by the parlor tricks of the PPT. The rate at which financial institutions are deleveraging and destroying capital will inevitably trigger an economic crisis equal to the Great Depression. What is needed is strong leadership and a re-commitment to transparency, rather than the “business as usual” deception of the public that keeps the balls in the air for another day or two.

“Sucker rallies”, like yesterday's 400 point surge on Wall Street just obfuscate the systemic problems that need to be addressed before investor confidence is restored. Blogger Rick Ackerman summed it up succinctly in last night's entry:

These psychotic, 400-point rallies in the Dow do not augur renewed confidence. They are being driven almost entirely by short-covering, and even the otherwise clueless news anchors are starting to dismiss them as meaningless. One of these days, moments after the last surviving bear’s short position has been liquidated, stocks are going to fall so steeply that even the Plunge Protection Team will call for back-up. Then, the financial collapse that so many have been expecting will unfold in just a few days, with enough power to leave the global economy in ruins for a generation.” (Rik's Piks Rick Ackerman)

“
Whether Ackerman's dire predictions materialize or not, there's no denying that the situation is getting worse by the day. In just the last week, two major financial institutions, Carlyle Capital and Bear Stearns, have either gone under or been bailed out wiping out tens of billions in market capitalization. These flameouts increase the rate of the deflation adding to the already-prodigious losses from housing foreclosures, delinquent credit card debt, defaulting car loans, and the accelerating deleveraging in the hedge fund industry. Fortress America has sprung a leak, and capital is escaping in a torrent.

"One thing is for certain, we're in challenging times," Mr. Bush opined on Monday after meeting with his top economic aides. “But we are on top of the situation”.

That's comforting. Bush is all over it.

Yesterday's 75 basis point rate cut by the Fed is a further sign of desperation. The Fed Funds rate is now 2 percentage points below the rate of inflation; a obvious attempt on Bernanke to reflate the equity bubble at the expense of the dollar. Is that why Wall Street was so happy; another savage blow to the currency?

The Fed's statement was as bleak as any they have ever released sounding more like passages from the Book of the Dead than minutes of the Federal Open Market Committee:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen...... uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Today’s policy action..should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain.”

Wall Street rallied on the cheery news.

Also, on Tuesday, the battered investment banks began posting first quarter earnings which were better than expected. Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. beat estimates which added to the giddiness at the NYSE. Unfortunately, a careful reading of the reports, shows that things are not as they seem. The jubilation is unwarranted; it's just more smoke and mirrors.

“Lehman Brothers Holdings Inc. reported a 57% drop in fiscal first-quarter net income amid weakness in its fixed-income business, though results topped analysts' expectations.” (Wall Street Journal)

The same was true of financial giant Goldman Sachs:

“Goldman Sachs Group Inc.'s fiscal first-quarter net income dropped 53% on $2 billion in losses on residential mortgages, credit products and investments ...The biggest Wall Street investment bank by market value reported net income of $1.51 billion, or $3.23 a share, for the quarter ended Feb. 29, compared to $3.2 billion, or $6.67 a share, a year earlier....Results included $1 billion in losses on residential mortgage loans and securities, and nearly $1 billion in losses on credit products and investment losses ...” (Wall Street Journal)

The bottom line is that both companies first quarter earnings dropped by more than a half in just one year alone while, at the same time, they booked heavy losses. Hardly a reason for celebration. The major investment banks remain on the critical list because of the billions of dollars of toxic debt they still carry on their balance sheets. Consider industry titan Goldman Sachs for example, which is sitting on a backlog of bad paper from the subprime/securitization debacle as well as an unknown amount of LBOs (Leveraged buyouts) and commercial real estate deals (CREs) that are heading south fast. Economic's analyst, Mark Gongloff, has compiled some interesting figures in his article “Crunch Proves A Test of Faith For Street Strong”:

All of the brokerage houses are highly leveraged, with a high ratio of assets to shareholders' equity, a sign they have used debt heavily to build up positions in hope of greater returns. Morgan Stanley, which will report Wednesday, had a leverage ratio of 32.6-to-1 at the end of last year, nearly as high as Bear's 32.8-to-1. Lehman was leveraged 30.7-to-1, and Merrill Lynch 27.8-to-1. And the would-be rock, Goldman? It was leveraged 26.2-to-1.”

Remember, Carlyle Capital was leveraged 32 to 1 ($22 billion equity) and went “poof” in a matter of days when it couldn't scrape together a measly $400 million for a margin call. How vulnerable are these other maxed-out players now that the credit bubble has popped and the whole system is quickly unwinding?

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Not very safe, at all. As Gongloff points out:

Based in part on numbers reported at the end of Bear's fourth quarter, estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days.”

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That's right; three days and it was over. Why would anyone think it will be different with these other equally-exposed banks? These institutions are basically insolvent now. The Federal Reserve is making a big mistake by protecting them from the consequences of their speculative excesses. As hyper-inflated assets continue to lose altitude, and structured investments and arcane hedges against default begin to disintegrate; these wastrel institutions will be crushed by a stampede of panicking investors running for the exits. The flight to safety has already begun. Cash is king.

Look what has transpired just since Monday.

“Crude oil, copper and coffee led a decline in commodities that may be the biggest ever recorded on speculation that a U.S. recession will stall demand for raw materials.” (Bloomberg) Yes, all asset classes fall in a deflationary spiral even commodities which many people believe are a safe bet. Not so. In fact, even gold has begun to retreat as hedge funds and other market participants are forced to relinquish their positions.

In other news, Reuters reports:

The yield on U.S. 3-month Treasury bills fell below 1 percent on Monday to levels not seen in 50 years prompted by intense safety bids for cash spurred by the ongoing global credit crunch...Investors were pulling money out of stocks and even the booming commodity market even after the Federal Reserve conducted a fresh round of measures over the weekend to alleviate the credit crisis.”

“
Again, the “flight to safety” as investors recognize the warning signs of deflation. This trend will further intensify even though the Fed will continue to cut rates and real earnings on Treasuries will go negative. In another report from Reuters:

“The Chicago Board Options Exchange Volatility Index or VIX on Monday surged to its highest level in nearly two months as a fire sale of Bear Stearns and an emergency Federal Reserve cut in the discount rate reignited credit fears.

"Fear is higher now than it has been in a long time. Option traders are loading up on index puts in the Standard & Poor's 500 index.” The “Fear Gage, as it is called, is soaring to new heights as credit problems continue to mount and business begins to slow to a crawl.

And, perhaps most important of all: “The cost of borrowing in dollars overnight rose by the most in at least seven years after the Federal Reserve's emergency cut in the discount interest rate stoked concern that credit losses are deepening....The London interbank offered rate, or Libor climbed 81 basis points to 3.86 percent, the British Bankers' Association said today. It was the biggest increase since at least January 2001. The comparable pound rate rose 28 basis points to 5.59 percent, the largest gain since Dec. 31, 2007.” (Bloomberg)

This may sound like technical gibberish geared for market junkies, but it is critical to understanding the gravity of what is really going on. The Fed's rate cuts are not affecting the lending between banks which is actually deteriorating quite rapidly. And, when banks don't lend to each other (because they are worried about getting their money back) the wheels of capitalism grind to a halt. The banks are the essential conduit for providing credit to the broader economy, so there must be traffic between the major lending institutions. The banks are hoarding cash to cover losses on their steadily downgraded mortgage-backed assets and to shore up their skimpy capital reserves. As a result, consumer spending will slow, housing will continue to falter, business will contract and GDP will shrink.

“We know we're in a sharp (decline), and there's no doubt that the American people know that the economy has turned down sharply,” said Henry Paulson on NBC television on Sunday. “There's turbulence in our capital markets and it's been going on since August. We're looking for ways to work our way through it.”

But Paulson is clearly out of his depth. He's just not the man to deal with a crisis of this magnitude. His only interest is bailing out his friends in the banking industry. The interests of workers and consumers are just brushed aside. Has anyone from the Dept of the Treasury (or the Fed) suggested a bailout for the 14,000 Bear Stearns employees who lost not only their jobs but the entire retirement when the company was purchased by JP Morgan?

Of course, not. Because both Paulson and Bernanke take a class oriented approach to the problem that narrows their range of vision and limits their ability to pose viable remedies. They are unable to see the whole playing field. For example, Bernanke assumes that if he keeps cutting rates, he can reflate the equity bubble by reenergizing consumer spending. But that won't happen. First of all, the banks are not passing on the savings to customers. And, second, the banks are only lending to applicants with a flawless credit history. In other words, the Fed's cuts may be good for Bernanke and Paulson's buddies, but they do nothing for either the consumer or the broader economy. Also, as Michael Hudson notes in his latest article “Save the Economy, Dismantle the Empire” (counterpunch.org) the banks are making no attempt to stimulate the economy, but simply turn a profit with capital borrowed from the Fed:

This week the Fed tried to reverse the plunge in asset prices by flooding the banking system with $200 billion of credit. Banks were allowed to turn their bad mortgage loans and other loans over to the Federal Reserve at par value (rather at just 20% "mark to market" prices). The Fed's cover story is that this infusion will enable the banks to resume lending to "get the economy moving again." But the banks are using the money to bet against the dollar. They are borrowing from the Fed at a low interest rate, and buying foreign euro-denominated bonds yielding a higher interest rate--and in the process, making a currency gain as the euro rises against dollar-denominated assets. The Fed thus is subsidizing capital flight, exacerbating inflation by making the price of imports (headed by oil and other raw materials) more expensive. These commodities are not more expensive to European buyers, but only to buyers paying in depreciated dollars.”

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The Fed's strategy has even failed to lower mortgage rates which are pinned to the 30 year Treasury and which has actually gone up since Bernanke began slashing rates. This inability to pass on the Fed's rate cuts to potential mortgage applicants ensures that the housing meltdown will continue unabated well into 2009 and, perhaps, 2010.

In the last few days, the Fed has provided $30 billion to buy up the least liquid speculative debts of a privately-owned business, Bear Stearns, which was leveraged at 32 to 1 and which will remain unsupervised by federal regulators. How does that address the underlying issues of the credit crunch? Are Bernanke and Paulson really trying to put the financial markets back on solid footing again or are they merely expressing their bank-centered cultural bias?

That question was answered in an article on Tuesday by the Wall Street Journal which offered this explanation of the real reasons behind the Bear bailout:

That illusion was shattered Saturday morning, when Mr. Paulson was deluged by calls to his home from bank chief executives. They told him they worried the run on Bear would spread to other financial institutions. After several such calls, Mr. Paulson realized the Fed and Treasury had to get the J.P. Morgan deal done before the markets in Asia opened on late Sunday, New York time.

"It was just clear that this franchise was going to unravel if the deal wasn't done by the end of the weekend," Mr. Paulson said in an interview yesterday.'” (“The Week that Shook Wall Street”, Wall Street Journal)

Ah-ha! So all it took was a little nudge from his banking buddies to put Paulson over the top.

The Bear bailout was engineered to serve the needs of the banking establishment; nothing more. The Federal Reserve and the US Treasury are merely an extension of the financial industry. The Bear bailout proves it.

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