NightBlogger

Max Keiser: “You have to look at a country like Iceland that were sold a bunch of bogus bonds by Wall Street and the city of London. The Kroner collapsed, the people are revolting in Iceland, the people are starving in Iceland — this is what’s going to happen in Korea, in China and even to America. Effectively the speculators, the borrowers have taken the system hostage…the banks in America have taken the US economy hostage and they have a gun to the head of the American economy.

Decline and Fall writes…Citi is carrying about $3.3tn in assets on and off their balance sheet. What is $20bn in preferred to that? Indeed, what is loss mitigation on $300bn of assets to that? This looks to me a bandage built to buy time for a bank circling the drain, not the surgery and recovery needed to heal the patient. That opens a line of speculation. If Citi won’t be allowed to fail, why isn’t the deal enough to put its safety beyond doubt? There are several possible reasons, but I’d sadly suspect first that it is because the government is in a bit of denial, still does not comprehend the seriousness of what is happening and just how many multiples of its capital Citi has frittered away. And it is probably getting plenty of help in that delusion from Citi itself, whose executives have unfortunately demonstrated either their lack of comprehension or the depth of their malevolent predatory drive from the start. More

Congressman Paul gives his thoughts on the testimony of Paulson and Bernanke, the New International Reserve Currency; the failure of the dollar standard, gold and where the global economy could go from here.

Steve Lendman
Worse Than the Great Depression?
According to The New York Times, “leaders of 20 countries agreed Saturday to work together to revive their economies, but they put off thornier decisions about how to overhaul financial regulations until next year (when it plans) its next meeting for April 30, 101 days after (Obama) is sworn into office.” Whatever is finally agreed on, this much for certain is clear. Unchanged Washington/Wall Street dominance is planned along with putting the IMF in charge of global “neoliberalizing” with all its destructive fallout.

A Long-Term View on the Depression:

It’s from noted sociologist, social scientist and world-systems analyst Immanuel Wallerstein, now a Senior Research Scholar at Yale where he covers world-systems in three ways:

– the historical development of the modern world-system;

– the contemporary crisis of modern world-economy capitalism; and

– structures and knowledge.

He’s authored numerous books and writes regular commentaries on major world and national topics. A recent October 15 one is titled “The Depression: A Long-Term View.” It’s started in his view. We’re “at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation (or less likely) a runaway inflation, which is simply another way in which values deflate.” What caused it, he asks? Derivatives? Subprime mortgages? Oil speculators? It’s a “blame game of no real importance.”

Understanding it calls for far more revealing factors, such as “medium-term cyclical swings (and) long-term structural trends.” Over several hundred years at least, he describes two major ones. “One is the so-called Kondratieff cycles that historically” lasted 50 - 60 years. The other is called “hegemonic cycles” that are much fewer in number but last far longer.

America contended for hegemony as early as 1873, achieved it fully in 1945, and has been declining since the 1970s. “George W. Bush’s follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of US hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to come.” Nothing can change this.

Kondratieff cycles are timed differently. Its last B-phase ended in 1945, followed by “the strongest A-phase upturn in the history of the modern world-system.” It peaked around 1967 - 73, and headed down. “This B-phase has gone on much longer than previous (ones) and we are still in it.”

Its characteristics are as follows:

– “profit rates from productive activities go down, especially in those types of production that have been most profitable;”

– it directs capitalists to financialization and speculation for higher returns; and

– “productive activities, in order not to become too unprofitable, tend to move from core zones (like America) to (lower cost) parts of the world-system.”

Speculative bubbles are profitable while inflating, but they always burst. “If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be (the Treasury, Fed, IMF, and western European and Japanese collaborators) have intervened in the market regularly and importantly” to shore it up at times of economic disruptions - 1987, the 1989 S & L crisis, 1997 Asian contagion, 1998 Long Term Capital Management debacle, the 2001 - 2002 corporate scandal period, and more than ever today with big unanswered questions whether this time it will work.

It doesn’t matter because we’ve reached the limits of what can be done - “as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.” The present system won’t survive. A new one will replace it. It will not be capitalism as we know it, but may be far worse or far better (more democratic and egalitarian). Determining the outcome is “the major worldwide political struggle of our times.” More

I love this guy and others like him. No staff, no guests, no show, just one astute guy attempting to rally and unite Americans to organize and peacefully protest against the fraud being perpetrated against US citizens. I admire his rebellious spirit to expose the truth, his endeavor to awake Americans from their pathetic, doltish slumber as isolated atoms of consumption. I suspect, however, they all realize that since the entire American political structure itself is corrupt, that congressional members of both parties are bought and sold to the highest corporate bidder, involvement is futile. The only decent candidate wasn’t even allowed to speak at his party’s national convention, Ron Paul.

Karl Denninger
“Now you see it - the truth. Mr. Issa, by the way, is one of the good guys (voted no twice), but the fact remains - when were they intending to TELL US about the $350 billion for FOREIGN SPECULATORS? NEVER, that’s when! I called it SPOT ON before the bill was passed, and now we have the lies - across the board - on full display. Are you pissed yet? You should be. When do the American People stand up and take to the streets (PEACEFULLY!) to demand that this crap stop and EVERYONE INVOLVED in this deception resign?”

Business Intelligence — Legendary global investor Jim Rogers believes the recent dollar gains are temporary and are not based on fundamentals. “The fact that the dollar is gaining rapidly is only temporary,” Rogers recently told a group of private bank clients. “Within a year you’ll have to get rid of the dollar,” he said. Rogers has spent a career being one step ahead of mainstream investment thinking. Amongst his many accomplishments, Rogers was co-founder with George Soros of Quantum Fund. During his ten years with the fund, the portfolio gained more than 4,000%, while the S&P rose less than 50%. All hedge funds were short on the dollar, Rogers said, but because there has been a rapid increase in the dollar’s value against other currencies, fund managers want to buy them now.

“This is temporary, Rogers says. “Fundamentally it is a drama.” Rogers also said US government bonds are extremely overvalued. “They are “the world’s last bubble.” The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke should resign for keeping alive “zombie banks” that should be allowed to fail, he said The Japanese government refused to let financial institutions fail in the 1990s. “It’s 18 years later and their stock market is 75% or 80% below what it was 18 years ago,” he added. “I know we are going to get aggressive rate cuts everywhere, that’s why I’m long short-term government bonds in the US, but shorting long-term government bonds because it’s not going to help, it’s going to add to inflation.”

Rogers admits that silver has been particularly battered down, 35% this year, and perhaps that is why he thinks this precious metal will outperform gold as investors turn to the metal as a hedge against inflation. “Silver will do better than gold,” Rogers recently said. “It’s been beaten down horribly. If you put a gun to my head and said you have to buy one, I would buy silver rather than gold.” Gold may drop as central banks and the International Monetary Fund (IMF) sell the metal to raise cash, said Rogers, who correctly predicted in April 2006 that gold would reach US$1,000 an ounce. The IMF in May ratified a plan that included proposals to sell 403.3 metric tons of gold to reduce a budget deficit. “The IMF has gigantic amounts of gold. Maybe gold is going to go down for a while. If gold does go down, I’m going to buy more,” Rogers said.

“Taxpayers are ‘keeping the zombie alive,’ said Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors and former director of research at the Atlanta Fed. ‘We keep getting deeper and deeper into these holes.’”

China is watching. GM is next.

Revised AIG Terms Begin Treasury Transfusions to ‘Zombie’ Firms
(Bloomberg) — The revised bailout of American International Group Inc. marks a new phase in the government’s effort to shore up financial markets: It’s the first time cash from the rescue fund Congress created last month has been committed to a failing company. The Federal Reserve, which saved the insurer from collapse two months ago with an $85 billion loan, yesterday reduced that loan and offered lower rates, while the Treasury chipped in $40 billion from its bank-rescue fund to buy preferred shares. The new terms represent a departure for Secretary Henry Paulson, who until now has said he only wants to invest Treasury funds in “healthy” firms. More

The original quotation comes from the 1948 film The Treasure of the Sierra Madre with Humphrey Bogart, adapted from B Traven’s 1927 novel upon which the movie was based. In one of the scenes in the movie a Mexican bandit leader is trying to convince Fred C Dobbs (played by Bogart) and company that they are the Federales.

Dobbs: ‘If you’re the police where are your badges?’
Gold Hat: ‘Badges? We ain’t got no badges. We don’t need no badges! I don’t have to show you any stinkin’ badges!’

ILARGI
THE AUTOMATIC EARTH
All The Rage
The reason the Fed and Treasury refuse to reveal details about the assets they bought, and are still buying, is not, as they claim, that it is sensitive information, or that it could negatively affect valuations of participating banks, insurers and lenders. We know this because the true reason is revealed in the new and not-improved deal the US government reached last night with AIG. If it would be revealed what is going on behind the doors of the Washington and New York casino bathrooms, a lot of people would get very angry. The AIG accord spells out what will be paid, with taxpayers’ funds, for hundreds of billions of toxic securities and derivatives that are worth zero, close to zero or less than zero (yes, that is possible).

The bail-out plan will pay 50 cents on the dollar for paper that has no value. Perhaps paying 5 cents on the dollar would have been deemed acceptable and defensible (albeit under protest), but paying 10 times or more the realistic remaining value, and using taxpayer money to do it, is simply fraudulous. Keeping AIG alive was already an incomprehensible decision from a long term point of view. Stuffing the carcass with US taxpayer dollars, in order to support the other walking dead, is perverted necrophilia. And I don’t think having intercourse with corpses is all that popular among Americans.

Bloomberg’s court case, which seeks to force Paulson and Bernanke to reveal the assets, the sellers and the valuations, may seem to be valid under the Freedom of Information Act, but don’t forget that one of the stipulations in the original Paulson plan is that Hank the Panky can’t be sued for anything he decides under the plan. The case is perhaps a good test to see how much democracy is left in the US, but one that is by no means certain to lead to a favorable outcome. Don’t forget, the Treasury snuck in a tax change that favors, to the tune of $140 billion, the same parties that profit from the AIG asset valuation outrage. Paulson feels pretty invincible these days. And so do his friends. More

Jim Kunstler
Nervous Nation
This is a nervous nation. Though I’m usually allergic to paranoia, something makes me think that there’s a back office in the US Treasury that is buying the entire Dow Jones Industrial Index at opportune moments — like fifteen minutes before the closing bell — at the direction of Mr. Paulson. He seems to easily spend $50 billion a day on other dubious hand-outs. At that scale, buying the whole Dow would just take his walking-around money. The idea behind it, my paranoid fugue goes, is to jack up the stock market enough around election day to give the dimmer members of the voting public the idea that the financial fiasco is over and happy days are here again. You can’t put this past the Republican party, despite John McCain’s friendly turn on Saturday Night Live, consorting with “the enemy” for laughs.

Apart from that, McCain has run the flat-out most scurrilous campaign I’ve ever seen, despite his reputation as a war hero and a sterling fellow among the senators. He’s run a campaign of malicious innuendo and slander, seemingly aimed at voters who would have trouble qualifying for the Special Olympics. And you have to wonder whether he actually requested Vice-president Dick Cheney to lay that “kiss-of-death” endorsement on him at the last moment. It could only have been better if Mr. Cheney borrowed some trick-or-treater’s Darth Vadar costume for the grand occasion.

What many people are nervous about, of course, is the chance of shenanigans with the voting tally. Just one minor feature of the general paralysis gripping this society has been our inability to get rid of those mischievous Diebold computerized voting machines that leave no paper trail. By the way, these touchscreen voting units are an example of the diminishing returns of technology. There was nothing wrong with the old mechanical units, but by making over-investments in complexity we’ve just created more problems for ourselves. This ought to be a warning to those in the thrall of techno-triumphalism.

People are nervous not just because Mr. Obama might be swindled out of a victory, but because John McCain might get elected. Credibility in his judgment dissolved about eleven minutes after he picked the Bombshell from Wasilla to be a heartbeat away from the oval office. Anyway, the Republican Party needs to crawl off to a dark hole somewhere and either pupate into something better or die — as the Whigs did in 1856. The Republican Party is not through wrecking America. They have three more months to destroy the US dollar and the economy that runs on it. And with Mr. Paulson shoving out pallet-loads of bundled dollars to the likes of JP Morgan, so they can continue doing the very thing that provoked this financial fiasco — lending money recklessly to anyone with a pulse — they might just “get her done!” More

Naomi Klein
In the final days of the election, many Republicans seem to have given up the fight for power. But don’t be fooled: that doesn’t mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700 billion bailout out the door. At a recent Senate Banking Committee hearing, Republican Senator Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. “How much of it do you think may be actually spent by January 20 or so?” Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bailout.

When European colonialists realized that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts. Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments, such as “distressed asset” auctions and the “equity purchase program.” But make no mistake: the goal is the same as it was for the defeated Portuguese—a final frantic looting of the public wealth before they hand over the keys to the safe.

How else to make sense of the bizarre decisions that have governed the allocation of the bailout money? When the Bush administration announced it would be injecting $250 billion into America’s banks in exchange for equity, the plan was widely referred to as “partial nationalization”—a radical measure required to get the banks lending again. Treasury Secretary Henry Paulson had seen the light, we were told, and was now following the lead of British Prime Minister Gordon Brown.

In fact, there has been no nationalization, partial or otherwise. American taxpayers have gained no meaningful control over the banks, which is why the banks are free to spend the new money as they wish. At Morgan Stanley, it looks like much of the windfall will cover this year’s bonus pool. Citigroup has been hinting it will use its newfound $25 billion buying other banks, while John Thain, the chief executive of Merrill Lynch, told analysts that “At least for the next quarter, it’s just going to be a cushion.” The U.S. government, meanwhile, is reduced to pleading with the banks that they at least spend a portion of the taxpayer windfall for loans – officially, the reason for the entire program.

What, then, is the real purpose of the bailout? My fear is this rush of deal making is something much more ambitious than a one-off gift to big business; that the Bush version of “partial nationalization” is rigged to turn the U.S. Treasury into a bottomless cash machine for the banks for years to come. Remember, the main concern among big market players, particularly banks, is not the lack of credit but their battered share prices. Investors have lost confidence in the honesty of the big financial players, and with good reason.

This is where Treasury’s equity pays off big time. By purchasing stakes in these financial institutions, Treasury is sending a signal to the market that they are a safe bet. Why safe? Not because their level of risk has been accurately assessed at last. Not because they have renounced the kind of exotic financial instruments and outrageous leverage rates that created the crisis. Rather, because the market will now be banking on the fact that the U.S. government won’t let these particular companies fail. If they get themselves into trouble, investors will now assume that the government will keep finding more cash to bail them out, since allowing them to go down would mean losing the initial equity investments, many of them in the billions. (Just look at the insurance giant AIG, which had already gone back to taxpayers for a top-up and seems set to ask for a third.)

This tethering of the public interest to private companies is the real purpose of the bailout plan: Paulson is handing all the companies that are admitted to the program—a number potentially in the thousands—an implicit Treasury Department guarantee. To skittish investors looking for safe places to park their money, these equity deals will be even more comforting than a Triple-A rating from Moody’s.

Insurance like that is priceless. But for the banks, the best part is that the government is paying them to accept its seal of approval. For taxpayers, on the other hand, this entire plan is extremely risky, and may well cost significantly more than Paulson’s original idea of buying up $700 billion in toxic debts. Now taxpayers aren’t just on the hook for the debts but, arguably, for the fate of every corporation that sells them equity.

Interestingly, Fannie Mae and Freddie Mac both enjoyed this kind of unspoken guarantee before the mortgage giants were nationalized at the start of this crisis. For decades the market understood that, since these private players were enmeshed with the government, Uncle Sam could be counted on to always save the day. It was, as many have pointed out, the worst of all worlds. Not only were profits privatized while risks were socialized but the implicit government backing created powerful incentives for reckless business practices.

Now, with the new equity purchase program, Paulson has taken the discredited Fannie and Freddie model and applied it to a huge swath of the private banking industry. And once again, there is no reason to shy away from risky bets—especially since Treasury has made no such demands of the banks. (Treasury, apparently, does not want to “micromanage.”)

To further boost market confidence, the federal government has also unveiled unlimited public guarantees for many bank deposit accounts. Oh, and as if this wasn’t enough, Treasury has been encouraging the banks to manically merge with one another, ensuring that the only institutions left standing will be “too big to fail,” thereby guaranteed of a bailout. In three different ways, the market is being told loud and clear that Washington will not allow the country’s financial institutions to bear the consequences of their behavior, no matter how reckless. This may well be Bush’s most creative innovation: no-risk capitalism.

There is a glimmer of hope. In answer to Senator Corker’s question, Treasury is indeed having trouble dispersing the bailout funds. So far it has requested about $350 billion of the $700 billion, but most of this hasn’t yet made it out the door. Meanwhile, every day it becomes clearer that the bailout was sold to the public on false pretenses. Clearly, it was never really about getting loans flowing. It was always about doing what it is doing: turning the state into a giant insurance agency for Wall Street—a safety net for the people who need it least, subsidized by the people who will most need state protections in the economic storms ahead.

This duplicity is a political opportunity. Whoever wins the election on November 4 will have enormous moral authority. It should be used to call for a freeze on the dispersal of bailout funds—not after the inauguration, but right away. All deals should be renegotiated immediately, this time with the public getting the guarantees.

It is risky, of course, to interrupt the bailout process. The market won’t like it. Nothing could be riskier, however, than allowing the Bush gang their parting gift to big business—the gift that will keep on taking.

Bob Chapman
International Forecaster
Never underestimate the diabolical ingenuity of the Illuminati. They have been perfecting their techniques for a millennium. They plan decades in advance, and conduct test runs to see how people and markets will react to different types of stresses and manipulations. They see to it that any legislation necessary to achieve their evil objectives is adopted far in advance of the implementation of their criminal schemes to inflict constant and continual fraud on the sucker-dupe sheople. They handpick politicians who can be bribed or who are compromised and then see to their election, thus ensuring that any such legislation is passed by their puppets in government. They act as our “shadow government,” pulling the strings of our official marionettes so as to legalize and legitimize their foul acts before carrying out what would otherwise be deemed maleficent acts of criminality, thus ensuring the successful completion of their various shell games and Ponzi schemes. And if they are unable to pass legislation which would legitimize any part of their intended criminal actions, they needn’t worry in any case, because they have the regulators and courts in their back pockets.

All their efforts are funded by the profits and plunder which they have raped, pillaged and extorted from the people of the world over many centuries of criminal activity, which nefarious dealings include such things as wars for profit, incitement of civil wars and race wars, genocide, murders for profit, gun-running, illicit drug trade, extortion, protection rackets, slavery, prostitution, illegal monopolies and every imaginable fraud and deceitful scheme ever conceived by men, with European, debt-based, fractional reserve banking being the lynchpin of the heinous system they have devised to achieve the total financial impoverishment and abject enslavement of the sheople.

These reprobates and sociopaths are energized by the powers of darkness. They are a malevolent group of megalomaniacal, satanic trillionaires who are hell-bent on forcing the people of the world into an Orwellian police state, a state of feudality where everyone caters to every demented whim and wish of the would-be masters of the universe for money, sex and power. They plan on reducing the world population to a half a billion people in order to achieve their demonic goals, since they believe that any larger size world population would be too difficult to maintain and control in what they refer to as a state of “sustainable development.”

If you do not grasp this foul and fiendish agenda, nothing that is currently happening will make sense to you, and you will remain clueless until it becomes too late for you to do anything about it. It is the purpose of this publication to educate you about this agenda and all the evil plans which these miscreants have in store for you.

The Illuminati own our President and his Cabinet, both Houses of Congress, the judiciary and the media, large portions of state and local governments, as well as the CEO’s and directors of most transnational conglomerates and Wall Street banks and financial institutions. The same is true for all major nations that are a part of Western Civilization, and many nations outside the West are being bent to their will in a variety of ways by utilizing such things as the United Nations, the IMF, the BIS, the WTO and the World Bank to extort what they want from these nations and to plunder their resources.

From these positions of power they control a great many aspects of the sheople’s lives, yet the sheople remain clueless about what they are up to due to media brainwashing, news suppression, misinformation and outright, pathological lying. The dumbing-down of the sheople via our pathetic system of secular public education finishes the job lest any should escape the other methods of mind control. And those who know what these Illuminist miscreants are up to have been unable to effect a change of course because these evil elitists have infiltrated and controlled our national and state election systems for over a century. During that time, they have chosen, and continue to choose, all our major candidates for public office, especially for the Presidency and other federal elective positions. They mercilessly crush all third party opposition and they threaten, intimidate, scandalize, ostracize and/or attempt to make a fool out of any Dumbo and Jackass candidates who refuse to adopt their agenda for a one-world government which they refer to as the New World Order, which in Latin is rendered as “Ordo Novus Seclorum,” meaning a “New Order of the Ages,” all as set forth on the obverse of every one dollar bill, where you will find it under the incomplete pyramid and all-seeing eye of the ancient mystery religions which by and large are now encompassed by the New Age movement.

Our shadow government devises the party platforms for Dumbo and Jackass candidates alike, creating the illusion of a two-party system when in reality there is only one agenda — their agenda — which is split between the two bogus parties, and now they even control our voting machines, courtesy of Diebold. They Illuminati always win no matter who gets elected. Their man is always in office, because they select both candidates, who both tell you whatever you want to hear, and then do whatever their Illuminist masters tell them to do. Yet the sheople somehow are not able to grasp this obvious ploy to steer them into doing whatever the shadow government wants them to do. Just listen to the screams of adulation at political rallies and watch as the silly dolts pass out when their mighty savior candidate walks by. If that doesn’t scare you, nothing will.

Their final objective is to control all aspects of the sheople’s lives, from the cradle to the grave. They consider the people of the world, other than those who are part of their elitist cadre, to be little more than dumb animals and beasts of burden to be worked to the bone for Illuminist fun and profits, only to be discarded later when they are no longer useful, having been slave-driven to death in fascistic labor camps which are ready and waiting to receive their victims as we write this article, courtesy of Halliburton. Their motto is: “Arbeit Macht Frei.” And so we can’t help but wonder why all the admirals and generals from most of the principal NATO countries are gathering in a remote location in New York’s Adirondack Mountains. Do you suppose they are admiring the fall foliage, or catching up on their fishing? Whatever they are up to, we can assure you that it is not good. Martial law and internment camps are looking more and more likely every day.

You are about to be liberalized into oblivion whether Obama or McCain is elected, so vote for one of the third party candidates for President. Otherwise, prepare for the Fall of the American Empire. You must throw out all Congressional incumbents except for Ron Paul and a handful of others. You can use the vote on the Paulson Ponzi Plunder Plan, also known as the Troubled Assets Relief Program (TARP), or as H. R. 1424, or as the Emergency Economic Stabilization Act of 2008, as a guide to determine who is worth keeping and who is worth throwing out of office.

In our last issue, we gave you the new Illuminist formula for profitability: Profitability = Volatility + Dark Pools of Liquidity + Plunge Protection Team. We see them moving toward a two-tiered Big Sting Two operation.

First note that this new volatility and insider trading, assisted by the PPT, is payola for specs that left the commodity markets so the cartel could have their way with the casinos after the SEC stopped all shorting on some 800 financial stocks and threatened to require public disclosure of short positions, which basically amounted to strong-arming of the large spec hedgies. Note how from September 29 to October 10, the specs were given the opportunity to make enormous profits from trading on inside information provided by the PPT and enhanced by unprecedented volatility, with a grand finale on October 10. This was the elitist’s showing their good faith in the bargain, and they even allowed a rally of gold to 930 so the specs could have one final rally before exiting. Then, in return, over the next two weeks, the specs stayed out of the casinos and the cartel took the whole commodity sector down. The average daily peak to trough for the Dow from September 29 to October 24 was 622.63 points, which is almost double that of the previous 19 trading days, thus allowing for plenty of room to profit from insider trading, and that does not even take into account the many gyrations that take place over the course of any given day. The Dow could have a zero peak to trough, but if it went down 500, and then up 500, there is still plenty of room for profit for those who know which way the PPT is going to take the markets, and when. Also note how, from October 10 to October 24, both gold and silver have come straight down virtually unimpeded, with gold dropping from a high of about $930 to as low as $681, and with silver dropping from a high of about $12.24 down to as low as $8.63, while physical prices remain 50% or more over these manipulated paper prices. Incidentally, on Friday near the end of the trading session, both gold and silver turned around sharply. We also note that almost 12,000 gold option contracts for December of ‘08 were added on the COMEX on Wednesday and Thursday as gold was bottoming, which is very bullish.

The increase in volatility also enables the Illuminist insiders to bail out profitably in pursuit of their Big Sting Two scheme, without having to run the stock markets up to new heights, which is currently impossible due to horrendous economic news and abysmal fundamentals. For instance, if on the one hand you go long the Dow and it rallies 2000 points, or on the other hand you short the Dow and it drops 1500, and then you go long the Dow and it rallies 500 points, either way, your profit is the same. The dark pools allow you to get in and out of positions without the public markets knowing about your transactions, so covering shorts and selling off to lock in profits does not bite into your profits as much. Also, the dark pools are not regulated. They are the stock market’s equivalent of OTC derivatives markets. Since their is no regulation, as long as you do all your insider trades in the dark pool, no one will ever know what you have done as there is no investigation or oversight of these transactions. These dark pools are therefore the perfect insider trading fraud machines, which is the whole reason why they were created. Wait until you see all the losses which the sucker-dupe, non-insider, dark-pool, institutional participants suffer that no one yet knows about because these losses are off market. We see some pensions, mutual funds and hedge funds going down in the not-too-distant future. Insiders will be big winners. Non-insiders will get vaporized.

This period of volatility and market downside, together with drastically reduced commodity prices, which allow the elitists to roll their proceeds from insider trading over into commodities at bargain-basement prices, is just the first phase. A goodly portion of these proceeds will be rolled into the OTC markets via commodity derivatives so that the whole scam is done outside of public view and underneath the radar of regulators without running up commodity prices. First, you do your insider trading in unregulated dark pools, and then roll the proceeds over into unregulated OTC derivative markets. What a scam! It’s freaking perfect!

Now for the second phase. Note how everything the Illuminati are doing right now is funneling money back into the banking system in the form of bank deposits and into treasury bonds to create a demand for them. Incidentally, we note that the bank hoarding may not be due only to a loss of trust and confidence. The banks may be under orders from the Fed to hoard this money until they are told to start lending it again. This is to keep inflation under wraps and to stop gold from going ballistic and exposing the destruction of our economy by the Illuminati and their various henchmen at the Fed, on Wall Street, in corporate America and in our government. This also buys time to figure out where all the losses are, starting with AIG derivative fallout and all the credit default swaps covering vaporized Lehman bonds, some $300 to $400 billion worth.

This replenishment of bank capital is being accomplished with what may be described as a many-pronged approach. First, you have the Paulson Ponzi Plunder Plan kicking in $250 billion in the form of equity injections to the Big Nine fraudster banksters that was supposed to be used to buy toxic waste assets. Then you have the ceiling raised on FDIC insurance from $100,000 to $250,000 to stop depositors from bolting out of weaker fraudster banks and into stronger regional banks, money markets, or foreign banks whose governments have fully guaranteed deposits. Then, you have all the money being flushed out of crashing stock and commodity markets being rolled over into bank accounts and treasury bonds as perceived safe-havens. Next, some toxic waste will be bought up by the US Treasury and the bigger banks will start to use their newfound largesse in the form of taxpayer equity injections and new deposits from the rollover of market liquidations to buy up the smaller banks that stayed out of all the toxic waste, thus enhancing their financial statements via mergers and acquisitions. Finally, you have the FASB allowing fraudsters to continue to mark to model despite Sarbanes-Oxley so they can continue to hide their losses from the public and so everyone can continue to pretend that the subprime, credit-crunch and CDS debacles never happened.

Once this is all in place, there will be one last attempt to re-inflate the system with a sudden surge in lending and speculation to create a final blow-off top to complete the Big Sting Two. Anything they were unable to unload in their previous insider trading will be unloaded in the dark pools behind the backs of the sucker-dupe sheople. The proceeds will be rolled over at first into commodity derivatives in the unregulated OTC to keep commodities from rising too sharply too soon, and then after the Illuminists have sated themselves on their initial positions, they will rollover their proceeds publicly into the commodity markets and send gold and silver to the moon for their fun and profits. Their fun may be spoiled, however, if the Derivative Death-Star decides to detonate before they can re-inflate the markets. Make sure have your precious metals positions in place before this happens so you can join in on their fun, or, if they fail, you can enjoy the price increases that will result as everyone realizes that gold and silver are the only things left that will go up in value while the whole world financial system comes down around everyone’s ears!

Check out the yen. It has gone ballistic. Worldwide stock markets are crumbling. The Nikkei is in total meltdown, and we have joined the Japanese in a sympathetic explosion of US markets. The yen has risen by an astonishing 10 yen per dollar and 20 yen per euro just this week, and as of 6:15 am on Friday, the yen stood at $.918208 yen per dollar and 115.411 yen per euro, up a stupefying 6 yen per dollar and 10 yen per euro just from yesterday’s close. When the yen blew through 93, it hit a 13-year high against the dollar. We are looking at a major bloodbath on Friday. Many already stressed hedge funds will not survive this total massacre of the carry trade. Liquidations have once again caused huge downturns in gold and silver, which is already happening. The whole system has started to unravel again. The Japanese people must be on the verge of committing Hari-Kari en masse.

Fortunately, as the day progressed on Friday, the yen backed off substantially, and the stock markets and precious metals and their shares reversed course. The yen ended at about 94 yen per dollar and 119 yen per euro. The Dow clawed back from a 500-point deficit courtesy of the PPT and the Japanese bankers to end with a loss of 312 points. Gold shot from $681 to $749 before settling at about $730 while silver scooted from $8.63 to $9.69 before settling in at $9.28.

Adding to our woes, we now have hundreds of billions of losses on the credit default swaps that covered Lehman’s bonds floating around in the never-never land of OTC derivatives, totally undisclosed and lurking in the background, waiting to show up as a hidden IED in the year-end financial statements of some very unfortunate financial institutions. The unknown location of the losses that were suffered on CDS’s covering Lehman bonds may destroy what little remains of confidence and trust in the system, as everyone fearfully contemplates the potential for a devastating thermonuclear chain reaction once these losses are finally disclosed early next year. The Derivative Death-Star is running out of the fuel it needs to keep glowing and expanding and to prevent it from imploding, and soon it will collapse into a super-massive financial black hole that will suck the worldwide financial system into it’s ominous, pitch-black singularity. So much for reviving bank lending and credit amongst the fraudsters if this happens. Of course, the fane-stream media has announced that the whole Lehman CDS situation was anticlimactic, that nothing much happened, and that the piddling $6 billion or so lost shows that the CDS markets were run tightly after all — and never mind that a $6 billion loss is mathematically impossible. This is the United Goldilocks Matrix after all. Reality is whatever we the Illuminists say it is. Those hundreds of billions in losses floating in never-never land are just a figment of your imagination.

Note that OPEC cut production by 1.5 million barrels a day, to no effect. Usage is going to drop much faster than they are cutting due to a disintegration of the global economy, which is happening before your eyes. Also, most oil investors feel that OPEC will not follow through on the cuts because they are all desperate for money. We also note that while the dollar has risen from $72 to $87 during the same period that oil dropped from $147 to $64. While most of their currencies are pegged to the dollar, which has gained about 20%, their oil profits have dropped about 55%. That’s not a very good trade off as far as these nations are concerned. A reduction in inflation does not help when revenues are plummeting at almost triple the rate that inflation is being reduced by virtue of a stronger currency. The OPEC nations are not going to tolerate having oil used to produce a euro effect to save the dollar so the US bond and treasury markets do not collapse. They have a lot of treasuries, so they have to be careful, but all the nations are now on to the fact that the US is totally bankrupt and the run for the exits could start at any time. You can expect a new OPEC nation currency like a gold-backed dinar, which could be part of a regional basket of BRIC nation currencies, while the G-7 countries form their own regional basket of currencies, also with some gold backing. Things are about to change quite drastically on the currency scene as OPEC oil producers stick together and Russia potentially takes the place of the US as protector of Arab sheikdoms. Things are getting wild and wooly very quickly.

Jerry Mazza
Online Journal
Let me not keep you in the dark. As Wikipedia states, our money supply has three large components. M1 is physical currency circulating in the economy plus demand deposits (checking accounts). This measure is used by economists to try and quantify the amount of money in circulation. M1 is the most liquid measure of money supply since it only contains cash and assets quickly usable for conversion to currency. Hang in.

M2 is MI + time deposits, savings deposits and non-institutional money-market funds. M2 is a wider category of money than M1. It’s also used to quantify the volume of money in circulation and to explain economic conditions. M3 is the biggie. It’s M2 + M1 + large deposits, institutional money-market funds, short-term repurchase agreements, and other larger liquid assets. It’s the broadest measure of money used to estimate total supply of money in the economy.

The Fed used to publish data on all three money descriptors. But for some strange reason (couldn’t be saving money as they claimed because they never save money), the Board of Governors of the Federal Reserve discontinued publishing data on M3 (which contain all data on M1 + M2 =M3) on March 23, 2006. M3 also included balances in institutional money funds, repurchase liabilities issued by depository institutions and Eurodollars held by US residents at foreign branches of US banks, in fact at all banks in the United Kingdom and Canada.

In other words, M3 tracked what the fat cats were doing with their bucks. You have to think, why would the Fed do this? Of all three categories, M3 was your best bet to track inflation, i.e., to monitor what the Free-Market’s “Invisible Hand” was picking from your pocket through inflation, sometimes called “the hidden tax” because that’s just what it is. When the government runs off some extra funny money rest assured it’s to spend it. And you get the tab.

It would be, as InflationData.com editor Tim McMahon described it, “like writing checks from an account that was empty.” You would end up in the slammer. Nevertheless, that’s what the criminal Fed (and the government) is doing when it creates money out of air. To see the result, go back to Wiki’s Money Supply and scroll down to “Money Supplies Around the World,” the United States chart for M1, M2, M3 since 1959. You will see the widest expansion of dollars is in M3. You might ask yourself where were all the big bucks going.

Also of interest at Wikipedia’s Money Supply is to scroll down to “Bank Reserves at Central Bank,” which discusses how a central bank can ease the flow of money by purchasing government securities in the open market, or tightening the flow by selling securities on the open market and pulling in money. Also, along with that control, up until the 1970s, the government said that banks had to keep a fraction on deposit of what they loaned out. Let’s say that would be $1 on every $10 dollars. This was to prevent a total freeze-up in case of a run on banks, like the one in 1929.

“However,” as Wiki says, “in the 1970s [the Nixon Era] the reserve requirements on deposits started to fall with the emergence of money market funds, which require no reserves. Then in the early 1990s [the GHW Bush era], reserve requirements were dropped to zero on savings deposits, CDs, and Eurodollar deposits. At present, reserve requirements apply only to “transactions deposits“ — essentially checking accounts. The vast majority of funding sources used by private banks to create loans are not limited by bank reserves. Most commercial and industrial loans are financed by issuing large denomination CDs. Money market deposits are largely used to lend to corporations who issue commercial paper. Consumer loans are also made using savings deposits, which are not subject to reserve requirements. These loans can be bunched into securities and sold to somebody else, taking them off of the bank’s books.” Call that the beginning of the end.

“Therefore, neither commercial nor consumer loans are any longer limited by bank reserves. Since 1995 the amount of consumer loans has steadily increased, while bank reserves have generally remained constant . . .” Here, too we find the blueprint for disaster, which actually occurred in the Savings and Loan debacle,” beginning in the Reagan Era, 1981, ending in the GHW Bush era, 91-92. I leave that fiasco for your perusal. The point of it all has to do with Free Market deregulation of bank lending rules and the lack of lending transparency.

Hiding the growing debt

Returning to March of 2006, McMahon points out the US Trade deficit was running about $800 billion annually, meaning we were spending that much more in foreign markets than we were taking in for our exports. We were shipping billions extra overseas, mainly to China, in return for Wal-Mart’s everyday low prices, or, as Wal-Mart currently says, “Live well. Save money.” Sure. McMahon points out the Chinese weren’t buying our goods to lower our trade deficit. Instead they were saving half their GDP (gross domestic product), which would have been about half of $1.1 trillion a year.

The US only tucks away about 13 percent of its GDP (that is government, business and personal) earnings. But Chinese households tuck away about 30 percent of earnings while US households save less than zero. We’ve actually been spending .4 percent more than we earn every year. So, if you wonder what the Chinese have been doing with all the extra bucks, they’ve been buying back our debt, that is in the form of US government Treasuries. In doing that, they’re actually loaning us the money to buy more stuff. So, the big reason to stop publicly tracking M3 was not to advertise that fact.

The M3 went up an annualized 9.4 percent back in 2006 in the first quarter and 17.2 percent by the fourth quarter. Why would the Fed want to deal with it when it could bury it? I’m sure Mr. Greenspan must have felt shocked and terrible about it, but the pain we’re feeling now didn’t come yesterday, out of the blue, with the phony bailout. We’ll be once again bailing out the M3 types, not the M1s or M2s, when the derivative bomb hits. And, after paying the “hidden inflation tax” we’re being served up deflation, recession and a “once in a lifetime economic tsunami” for dessert. Jolly-o!

Nice going Greenie. I hope you and all your pals enjoy buying up our pensions’ bonds and securities, devalued real estate, subprime mortgages, and going to the Cote D’Azur for a few years to get away from it all. This could get really ugly. Or will it be to the Caymans, to those stashed offshore, tax-free accounts, frosted Daiquiris and Caribbean sunshine. But don’t worry. The lynch mob will be here when you get back.

The thing is you could have loosened up the M1 money supply, as my economist friend Dick Eastman says, to ease the purchasing power on that overpriced gasoline and food, that is, while your friends in the club lived high on the hog, sucking up the good times. And, at the same time, we have your good buddy Hank Paulson lining the pockets of his banker friends, hedge fund managers, derivative devils, short-sellers, long-in-the-tooth elites like the Rockefellers, the Rothschilds, and even foreign princes.

Yes, with great sleight of hand, we’ve enabled the stock market to bring us Black Friday with Black Monday, and the volatility of the Perfect Storm, ironically the great liquidity crisis. And our latest $700 billion in tax money paying for all the high rollers to stay high and dry, while we scuffle in steerage, just waiting for the Titanic to hit the iceberg, and to see who gets into the lifeboats. Yes, Mr. Greenbacks, you did a great job of outpacing inflation and debt with obfuscation. The Wizard of the Fed has turned out to be just another felon-in-waiting, along with Dennis Koslowski, the maybe not-so-dead Ken Lay, hopefully Mr. Bernanke and Mr. Paulson, as well.

The disaster dream team

There are others worth a quick mention, the Chinese-speaking New York Federal Reserve Bank President, Timothy Geithner, ex Henry “China Opener” Kissinger’s protégé. Then there’s Goldman sacker John Alexander Thain; Dr. Gerald Corrigan, chairman of Goldman Sachs Counterparty Risk Management Policy Group, actually in charge of creating the risks and fiascos; BlackRock’s former manager of $1.2 trillion in assets, Ralph L. Schlosstein; BlackRock CEO and co-founder Larry Fink, who pioneered mortgage-backed securities (let’s hear it for this genius); John Pickel, president of the International Swaps and Derivatives Association, et al. [Included is an explanation of Securitized Mortgaged Lending and a lovely diagram].

Forgive me if I’ve missed some names, like Mario Draghi, Bank of Italy’s governor, former Goldman sack; or even Joshua Bolten, current White House chief of staff from Goldman.

With a dream team like this, it’s not surprising Goldman Sachs missed the shock of the securitized mortgage collapse and actually showed a 79 percent rise in profits. In fact, back when Paulson was an economist for Goldman, he was outraged that the Chinese had only 4 percent of their capital coming from organized capital markets, when elsewhere two-thirds of capital came in from the usual suspects’ capital markets. The Ultimate Sacker is even encouraging Chinese peasants these days to sell off their hard-won land and move to the cities to work in the slave labor palaces of Wal-Mart’s everyday low-prices.

On and on it goes, including that fact that our shocked Mr. Greenspan (along with Goldman’s Lawrence Summers) was being investigated in September of 2001 for illegal gold transactions, specifically for selling Federal Reserve Gold to friendly Wall Street financiers at below market prices at that time. And wait, what about all that gold that disappeared in the collapse of the World Trade Center’s north tower on the 11th of that month?

So it goes, everything into the rabbit hole, no longer published like the M3 reports, more razzle-dazzle from the folks that brought you today’s mayhem, which was another controlled demolition of our economy, not just a matter of some bad mortgages. By the way, those “bad mortgages” were estimated by Paul Craig Roberts, in his “The Bailout and the Smell Test” to be no more than 10 percent of all the mortgages issued in that time frame.

Feel used, feel abused, feel like someone pulled the plug from your life? The answer is yes, yes, yes. But don’t let it disable you. Be strong. Suck it up. Fight back with the truth. We can’t let these vandals take the beachhead of the economy and gobble up the country we live in and love. There will come a time and you will be asked to act. So be ready, patriot. It’s coming, and not at a local theater near you, but in the streets and on the barricades.

The Mogambo Guru
“It is estimated that there is a 10x multiplier for every dollar the government puts into the banking system”, which translates into the result that this new “$2,250 billion does not equal $2,250 billion in benefits to the economy. It equals $10,000 billion - $20,000 billion….”Every dollar that goes into the banking system will then get lent out to someone, who will then use that dollar to buy goods from someone, who will then use that dollar to hire people.”

Although this ignores the ugly effect of taxes, which inexorably grinds the original dollar down to zero as it goes from hand to hand, it is also a good example of the velocity of money (the number of times per year that a dollar changes hands) and with overtones of the multiplier inherent in fractional-reserve banking, as banks are allowed to loan out a multiple of every dollar of deposits! So a measly 10x multiplier makes me laugh at the estimate of an effective $20 trillion addition to the money supply because the actual reported reserves in the banks of the USA have been, month after month, year after year, the same piddly little $42 billion or so for over a decade! Hahaha!

In the meantime, as those years and years rolled by, bank assets went gigantically up, bank liabilities went gigantically up, but the reported reserves held against those liabilities and assets in the banks hardly changed a dime! Hahahaha! Talk about a multiplier! Hahaha! Of course, this means that another $2.25 trillion shoveled wholesale into the USA economy is actually fodder for an infinite increase in the money supply, just like all the other increases. And it also means that I am NOT coming out of this bunker, except to buy more gold, silver, oil or tasty victuals. Maybe wave to the wife and kids, but that’s it! More

Stephen Lendman
StephenLendman’sBlog
…Maybe not as bad as Ambrose Evans-Pritchard saw them last month in the UK Telegraph. But who knows. He may be right. His September 22 column was headlined: “Crisis may make 1929 look (like) a walk in the park.” He cites meager and fleeting effects from “buckets of liquidity” and quotes economist (92-year old) Anna Schwartz saying “Liquidity doesn’t do anything in this situation. It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue.”

Schwartz also gave the Wall Street Journal an October 18 interview in which she said Treasury and Fed policies are wrong. She repeated that liquidity isn’t the problem. At issue is uncertainty “that the balance sheets of financial firms are credible.” As a result, credit spreads haven’t budged because you don’t know who’s solvent and who isn’t and too many are in the latter category.

Liquidity was the issue in the 1930s when the money supply contracted sharply. Not today with bank problems on the asset side of their ledgers. “All these exotic securities that the market does not know how to value. They’re toxic because you cannot sell them. Your balance sheet is not credible, and the whole market freezes up. We don’t know who to lend to because we don’t know who is sound.” Schwartz is worried that Paulson is trying to save banks, not the system. Insolvent ones and said we shouldn’t “be recapitalizing firms that should be shut down.” They should be allowed to fail. “Everything works much better when wrong decisions are punished and good (ones) make you rich.”

She commented also on what caused the current crisis. Like in the 1920s, it started with a “mania.” In every case, it was expansive monetary policy generating an asset boom. She’s very critical of Alan Greenspan dropping interest rates to 1%. Seeing the negative effect and doing nothing about it. She’s no gentler with Ben Bernanke and accused him of fighting the last war. The result so far is failure. “So my verdict on this present Fed leadership is that they have not really done their job.”

As a result, lenders are hoarding cash and economist Peter Spencer said that global authorities have just weeks to make things right. Instead they’re making them worse. Unless changed, things may start to implode.

Economists like Nouriel Roubini aren’t as dire but nonetheless see grim times ahead. His October 17 commentary echoed them:

– continued negative economic surprises;

– “a major surge in corporate default rates;”

– a weak recovery “as the recession becomes severe” and credit spreads widen;

– “the risk of a CDS (credit default swap) market blowout as corporate defaults” spike;

– hundreds of hedge funds collapsing; liquidation of their assets and the toll on financial markets as a result;

– major insurance companies in trouble;

– “a slow motion refinancing and insolvency crisis for many toxic LBOs;”

– “the risk that other systemically important financial institutions are insolvent” and need expensive rescue packages;

– the continuing vicious circle of falling asset prices; the result of ongoing deleveraging into illiquid financial markets;

– growing numbers of margin calls as asset prices fall; cascading them lower as a result;

– the continuing housing slide “pushing over 20 million households into negative equity by 2009;” and

– the risk of an emerging or developed country experiencing a severe financial crisis; much like Iceland in recent days.

Roubini calls the last factor “crucially important” and cites about 12 or more emerging economies “in serious financial trouble.” Especially in Eastern Europe, including Turkey, but also Korea, Indonesia and Pakistan. The risk of contagion is worrisome as even tiny Iceland (population 300,000) sent tremors globally.

Overall, risks and vulnerabilities remain. They’re growing, not receding. Not a hint of resolution is in sight and observers expressing near-term optimism need a reality check. The best to hope for is a severe, protracted recession. Most likely globally. Further, inadequate measures are in place, and more corrective ones are needed to avoid an economic meltdown. The longer they’re delayed, the worse conditions will get.

Globally we have a severe recession combined with a financial and banking crisis. The result of the largest ever leveraged asset and credit bubbles. Multiple ones in housing, mortgages, credit, equities, bonds, commodities, private equities and hedge funds all simultaneously imploding. There’s no simple or easy way out of this and overwhelming risks of something much more serious loom. Unmentioned in daily business news reporting that instead touts a market bottom and a great time to buy stocks. Leaving unexplained the risk of doing it in a very hazardous climate.

People today should be cautious and demand far more from elected officials than they’re getting. Critical times like these require radical measures. So far only handouts to Wall Street. To fraudsters through what economist Michael Hudson calls a “con game (and an) unprecedented giveaway of financial wealth.” What financial affairs author Ellen Brown brilliantly explains this way:

We seeing “the collapse of a 300 year Ponzi scheme. All the king’s men cannot put the private banking system together again, for the simple reason that (it’s) reached its mathematical limits.” It needs new borrowers but doesn’t have them. This racket has gone on for 300 years “ever since the founding of the Bank of England in 1694.” The whole world now is “mired in debt to the bankers’ private money monopoly.” The dirty game has reached its finite limits. “The parasite has finally run out of its food source.”

World governments are scrambling frenetically as a result. Supplying mountains of credit (liquidity) to support troubled and over-indebted banks. Leaving distressed households high and dry and sticking them with the bill.

Eventually the game will end badly. In this case, a lengthy asset and debt deflation. Long after bankers took the money and ran. Wrecking economies and throwing ordinary people to the wolves. Michael Hudson puts it this way:

“Neither the Treasury nor Congress is helping to resolve this problem.” Newly issued debt won’t re-inflate markets or stabilize the economy. Just the opposite. “As debt deflation eats into the domestic market for goods and services, corporate sales and earnings will shrink,” and so will market valuations. The end result will be “the very bankruptcy that the bailout was supposed to prevent.”

That prospect is nightmarish so here we are. America’s economy is eroding. Government and Wall Street are orchestrating it. Maybe even willfully, and here’s the legacy they’re leaving. The nation “passing from democracy to oligarchy (and steering it is) a bipartisan financial kleptocracy” chuckling all the way to their offshore tax havens. More

Robert Reich’s Blog
The Dow is see-sawing but the reality is that the Bailout of All Bailouts isn’t working. Credit markets are largely still frozen. Despite all the money going directly to the big banks, despite all the government guarantees and loans and special tax breaks, despite the shot-gun weddings and bank mergers, despite the willingness of the Treasury and the Fed to do almost whatever the banks have asked, the reality is that credit is not flowing. It’s not flowing to distressed homeowners. It’s not flowing to small businesses. It’s not flowing to would-be homeowners with good credit ratings. Students are having a harder time borrowing for their tuition. Auto loans are drying up.

Why? Because the underlying problem isn’t a liquidity problem. As I’ve noted elsewhere, the problem is that lenders and investors don’t trust they’ll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years — the derivatives, credit default swaps, collateralized debt instruments, and so on — has undermined all notion of true value.

Many of these fancy instruments became popular over recent years precisely because they circumvented financial regulations, especially rules on banks’ capital adequacy. Big banks created all these off-balance-sheet vehicles because they allowed the big banks to carry less capital.

Paulson is recapitalizing the banks — giving them money directly rather than relying on reverse auctions — largely because he’s come to understand that the banks have taken on so much debt that the reverse auction system he told Congress he would use(designed to place a market value on these fancy-dance instruments) will leave too many banks insolvent.

But pouring money into these banks, expecting they’ll turn around and lend to small businesses and Main Streets, is like pouring water into a dry sponge. Nothing will come out of it because Wall Street is so deep in debt that the banks are using the extra money to improve their balance sheets. They’re hoarding it because their true balance sheets — considering the off-balance sheet vehicles they created over the past several years — are in such rotten shape.

In other words, taxpayers are financing a massive effort to save Wall Street’s balance sheets from Wall Street’s previous off-balance-sheet excesses. It won’t work. It can’t work. The entire effort is merely saving the asses of lots of executives and traders who got us into this mess in the first place, and whose asses should not be saved at taxpayer risk and expense.

What to do? Immediately require the Treasury to stop the broad Wall Street recapitalization, and require Wall Street to lend the money directly to Main Street. At the same time, force Wall Street to write down its true balance sheets: Let the executives and traders take the hit. Let their shareholders and even their creditors take the hit for Wall Street’s collosal irresponsibility. This is the only true way to restore trust. It’s also the only way to save Main Street’s small businesses, homeowners, students, and everyone else.

John Browne
On Monday October 13th, the Dow took the fifth biggest upward leap (in percentage terms) in its history and, most notably, since the 1930’s. It appeared that Paulson and his fellow G-7 finance ministers had solved the credit crisis. Despite the fact that G-7 taxpayers will be stuck with $3.5 trillion of liabilities to support their governments’ bailout plans, the stock markets nevertheless bustled with euphoria. The next day, reality dawned once again, and all markets closed down. The truth is that these enormous bailouts enacted around the world, most notably in the United States, have done little or nothing to tackle the enormous deleveraging that is driving us into a serious recession and, if badly handled, a depression. Increasingly, politicians and commentators are talking about the need for a massive, new stimulus package, likely to cost trillions more dollars.

The extraordinary thing is that virtually no one dares even to mention the real underlying problem–that America has for the past thirty years been consuming more than it produces. During that time, the American consumer, accounting for 72 percent of Gross Domestic Product (GDP), has been financed from the retained earning of foreigners, most notably of China, Japan and more recently Russia. Based on the willingness of these foreign producers to provide the funds, Americans have engaged in an orgy of easy credit and excessive consumption. In short, America is no longer paying its way, and is living off the earnings of its economic neighbors.

It is a rake’s progress and can not last much longer, especially as the creditor nations, such as China, will soon need their own money back in order to finance their own leap to ‘developed’ economy status. Millions of words have been spoken over the last month alone about how America must solve its economic and financial problems. But the stark realities that will result from massive deleveraging in the face of a massive recession have been barely considered. Apparently, no one dares to mention it.

We feel our readers should maintain an acute awareness of these underlying problems, particularly as the Presidential candidates, financial regulators and Wall Street cheerleaders appear bent on concealing the underlying truth. The $3.5 trillion thus far committed to lubricate the credit markets have yet to produce any meaningful result. Even that vast total is unlikely to be sufficient to meet the tidal wave of bad loans yet to hit the banking system.

As the massive Bush-Greenspan credit orgy deleverages, corporate profitability is likely to fall dramatically, driving stock prices still lower, further eroding personal retirement accounts. Once confronted with unemployment and bleak prospects, even those who have been model financial citizens will be forced to default on credit card debts, auto and personal loans and, of course, home mortgages. The tsunami of defaults crashing into our banking sector will ultimately overwhelm all government attempts to contain the damage. As the mighty American economy shrinks, other countries, such as China, will see their export earnings fall. They may have to sell parts of their vast holdings of U.S. Treasury bonds, driving still higher the cost of dramatically increased U.S. Government borrowing.

On average and adjusting for inflation, U.S. equities have under-performed badly in this century. This will continue until America restructures itself to produce more than it consumes. Meanwhile, the short-term Treasury bonds of hard currency governments, some offering negative yields, will continue to perform well in capital appreciation against the U.S. dollar. China is likely to experience genuine, profitable systemic growth. However, in 2008 its stock market has fallen by some fifty percent. As a result, China and the BRIC countries could present good investment opportunities as we move into 2009.

As the recession deepens, gold could fall in price, at least in the near to medium term. But, the world’s financial system will remain precariously balanced for some time, which will create a floor for gold. Furthermore, the vast amounts of ‘monopoly’ money now being injected into the major economies will eventually show up as inflation, possibly even threatening the viability of paper currency. Prudent investors will continue to hold a major allocation in gold.

Financial Times
In the case of the Fortunate Nine, the injection of capital is through (non-voting) preference shares yielding a ridiculously low interest rate (5 percent as opposed to the 10 percent obtained by Warren Buffett for his capital injection into Goldman Sachs). Without voting shares, the government has no voice in the running of these banks. It also has no seats on their boards. By contrast, in the Netherlands, the injection of €10bn worth of subordinated debt into ING bank comes with a price tag that includes two government directors on the board and a government veto over all strategic decisions by the bank.

In addition, in the case of the Fortunate Nine, there are no attractively valued warrants (options to convert, at some future time, the preference shares into ordinary shares at a set price or at a price determined by some known formula). Quite the opposite, the preference shares purchased by the US state, can be repurchased after three years, at the banks’ discretion, on terms that are highly attractive to the banks. The US tax payer is not only getting a lousy deal compared to private US investors like Buffett, (s)he is also doing much worse than the British tax payer in the UK version of Paulson’s capital injection (£37 bn so far out of provisional budget of £50bn). The UK preference shares have a 12 percent yield and come with government-appointed board members.

Even in the cases of AIG, Fannie and Freddie, unsecured senior creditors did not have to take an up-front haircut. Worse than that, even holders of junior debt and subordinated debt could come out of this exercise whole. There were no up-front haircuts, charges or mandatory debt-to-equity conversions.

That, I would argue, is scandalous, both from a fairness perspective and from the point of view of the moral hazard this creates, by boosting the incentives for future reckless lending to elephantesquely large financial enterprises. Unless not only the existing shareholders of the banks benefiting from these capital injections but also the holders of the banks’ unsecured debt (junior and senior) and all other creditors of the bank (with the possible exception of retail depositors up to some appropriate limit) are made to pay a painful penalty for investing in excessively risky if not outright dodgy ventures, we are laying the foundations of the next systemic crisis, even as we are struggling to escape from the current one. More

Stephen_Lendman
Lincoln refused to pay bankers usurious rates to finance the Civil War and got Congress to pass the 1862 Legal Tender Act. It empowered the US Treasury to issue “greenbacks” that were interest-free because government printed its own money. When Lincoln was assassinated in 1865, the “Greenback Law” was rescinded. A new national banking act was passed, and the government once again had to pay interest to bankers.

On June 4, 1963, President Kennedy issued executive order (EO) 11110 giving the president authority to issue currency. He ordered the treasury to begin printing “United States (Treasury) Notes” to replace “Federal Reserve Notes.” He began a process to let government control its own money and no longer private bankers under the guise of the Federal Reserve. Months later, Kennedy was assassinated. Once Lyndon Johnson took office, he rescinded EO 11110 and reestablished the current system.

Today’s Fraud and the 1913 Federal Reserve Act’s Privatization of Money Creation

Most people think the Federal Reserve is a government agency, subject to its control. It’s sometimes mistakenly called a quasi-governmental decentralized central bank to disguise its real identity and purpose. Its Eccles building headquarters compounds the subterfuge. Below it’s stripped away.

The Federal Reserve is a private for-profit banking cartel. Owned and run by major banks and Wall Street in each of its 12 Districts. It was created and operates in violation of Article 1, Section 8 of the Constitution that states that Congress alone shall have the power to create money and regulate its value. In 1935, the Supreme Court ruled that Congress cannot constitutionally delegate this power to another authority, but, in fact it did.

On December 22, 1913, between 1:30 - 4:30 AM, the Federal Reserve Act was shepherded through a special Congressional Conference Committee. Then voted on and passed the next day. Two days before Christmas with many members gone and most others with no time to read or consider this momentous document.

By enacting this law, Congress and President Woodrow Wilson defrauded the public. Wilson later said (when it was too late to matter) he made a mistake and “unwittingly ruined my country.” This from a man who was an intellect. Trained in the law. A PhD in political science and president of Princeton University in his earlier years.

The Federal Reserve Act gives private bankers the most important of all powers. The one most of all that governments should never relinquish. The authority to print money. Control its supply. Its price through the Fed Funds rate and how it influences the whole yield curve. Loan it out for profit, and charge government interest on its own money. It’s later returned minus operating expenses and a guaranteed 6% profit. Taxpayers foot the bill. An early and continuing example of wealth transfer from the public to powerful bankers. Illegally sanctioned by Congress and the president.

The Fed literally creates money out of nothing. Expands or contracts its supply as it wishes - with no government oversight or control. Gold once backed it until Nixon closed the gold window in August 1971. Suspended dollar convertibility into the metal, and ended compliance with the Bretton Woods core provision. The US dollar became fiat currency. Mere paper. Backed by nothing except the faith of the issuing authority.

Given today’s crisis, that faith is fast eroding and is to blame for dollar weakness. Mostly because of profligate policies by private bankers running the country’s monetary policy for their own gain. The grandest of grand thefts along with today’s all-consuming fraud. Backed by the full faith and credit of the government, and up to now at least, with most people none the wiser. More

Peter_Schiff
Euro Pacific Capital
The current stock market crash has spurred a vital national debate about the causes and catalysts of the Great Depression. The dominant school of thought believes that the stubborn refusal of then president Hebert Hoover to intervene after the stock market crash of 1929, and his preference for free market solutions, led directly to the ensuing decade-long catastrophe.

Through this lens, our leaders assure us that the most recent raft of government measures will prevent another episode of bread lines, Hoovervilles and pencil salesmen. As usual they have it completely wrong. In my view, the Depression was created precisely because Hoover followed the path that our government is now taking.

When the stock market bubble of the Roaring Twenties (which was creat