Abu Nidal, notorious Palestinian mercenary, 'was a US spy'

I recall Oliver North using the Abu Nidal as the boogie-man of the day to justify his extra-legal activities. It's so ordinary it's almost boring. Evil incarnate revealed to be CIA agent... ho hum...

Telegraph.co.uk:

Secret papers claim the feared assassin was hired to find links between Saddam and al-Qa'ida. Robert Fisk reports

Saturday, 25 October 2008

Iraqi secret police believed that the notorious Palestinian assassin Abu Nidal was working for the Americans as well as Egypt and Kuwait when they interrogated him in Baghdad only months before the Anglo-American invasion of Iraq. Hitherto secret documents which are now in the hands of The Independent – written by Saddam Hussein's brutal security services for Saddam's eyes only – state that he had been "colluding" with the Americans and, with the help of the Egyptians and Kuwaitis, was trying to find evidence linking Saddam and al-Qa'ida.

President George Bush was to use claims of a relationship with al-Qa'ida as one of the reasons for his 2003 invasion, along with Iraq's possession of weapons of mass destruction. Western reports were to dismiss Iraq's claim that Abu Nidal committed suicide in August 2002, suggesting that Saddam's own security services murdered him when his presence became an embarrassment for them. The secret papers from Iraq suggest that he did indeed kill himself after confessing to the "treacherous crime of spying against this righteous country".

The final hours of Abu Nidal, the mercenary whose assassinations and murderous attacks in 20 countries over more than a quarter of a century killed or wounded more than 900 civilians, are revealed in the set of intelligence reports drawn up for Saddam's "presidency intelligence office" in September of 2002. The documents state that Egyptian and Kuwaiti intelligence officers had asked Abu Nidal, whose real name was Khalil al-Banna, to spy for them "with the knowledge of their American counterparts". Five days after his death, Iraq's head of intelligence, Taher Jalil Habbush, told a press conference in Baghdad that Abu Nidal had committed suicide after Iraqi agents arrived at the apartment where he was hiding in the city, but the secret reports make it clear that the notorious Palestinian had undergone a long series of interrogations prior to his violent demise. The records of these sessions were never intended to be made public and were written by Iraqi "Special Intelligence Unit M4" for Saddam. While Abu Nidal may have lied to his interrogators – torture is not mentioned in the reports – the documents appear to be a frank internal account of what the Iraqis believed his mission in Iraq to be. The papers name a Kuwaiti major, a member of the ruling Kuwaiti al-Sabbah family, as his "handler" and state that he was also tasked to "perform terrorist acts inside and outside Iraq". His presence in the country "would provide the Americans with the pretext that Iraq was harbouring terrorist organisations," the reports say.

[. . .]

Copper door handles and taps kill 95% of superbugs in hospitals

...sort of like putting copper strips around plants to stop snails, I suppose...

Dailymail.co.uk:

By Fiona Macrae
Last updated at 1:34 AM on 29th October 2008

Making door handles, taps and light switches from copper could help the country beat superbugs, scientists say.

A study found that copper fittings rapidly killed bugs on hospital wards, succeeding where other infection control measures failed.

In the trial at Selly Oak hospital, in Birmingham, copper taps, toilet seats and push plates on doors all but eliminated common bugs.

It is thought the metal 'suffocates' germs, preventing them breathing. It may also stop them from feeding and destroy their DNA.

Lab tests show that the metal kills off the deadly MRSA and C difficile superbugs.

It also kills other dangerous germs, including the flu virus and the E coli food poisoning bug.

Although the number of cases of MRSA and C difficile is falling, the two bugs still claim thousands of lives a year.

During the ten-week trial on a medical ward, a set of taps, a lavatory seat and a push plate on an entrance door were replaced with copper versions. They were swabbed twice a day for bugs and the results compared with a traditional tap, lavatory seat and push plate elsewhere in the ward.

The copper items had up to 95 per cent fewer bugs on their surface whenever they were tested, a U.S. conference on antibiotics heard yesterday.

Professor Tom Elliott, the lead researcher and a consultant microbiologist at the hospital, said: 'The findings of 90 to 95 per cent killing of those organisms, even after a busy day on a medical ward with items being touched by numerous people, is remarkable.

'I have been a consultant microbiologist for several decades. This is the first time I have seen anything like copper in terms of the effect it will have in the environment.

'It may well offer us another mechanism for trying to defeat the spread of infection.'

Researcher Professor Peter Lambert, of Aston University, Birmingham, said: 'The numbers decreased always on copper but not on the steel surfaces.'

If further hospital-based trials prove as successful, the researchers would like copper fixtures and fittings installed in hospitals around the country.

Doorknobs, taps, light switches, toilet seats and handles and bathroom 'grab rails' could all be ripped out and replaced with copper versions.

Although it is usually thought to be an expensive metal, copper is actually a similar price to stainless steel, the researchers said. Nursing homes and even our houses could also benefit from the metal's ability to wipe out dangerous bugs.

The healing power of copper has been recognised for thousands of years.

More than 4,000 years ago, the Egyptians used it to sterilise wounds and drinking water and the Aztecs treated skin conditions with the metal.

The ancient Greeks also knew of its benefits. Hippocrates, sometimes called 'the father of medicine', noted that it could be used to treat leg ulcers.

Today, copper is a common constituent in medicines including antiseptic and antifungal creams. It is also believed to have anti-inflammatory properties. Many of those with arthritis wear copper bangles.

Although they provide relief to many, there is no scientific evidence that they work.

Copper is present in our diet in trace amounts and plays an important role in the formation of red blood cells and in keeping our blood vessels, nerves and bones healthy.

The research was funded by the copper industry.

Ex-Italian President: Provocateur Riots Then “Beat The Shit Out Of Protesters”

Oh, those wacky, wacky ex-presidents of major countries. They're such jokers.

Prison Planet.com:

Cossiga says Italian government should “do what I did” under Operation GLADIO - infiltrate protest groups with agent provocateurs

Paul Joseph Watson

Thursday, October 30, 2008

Former Italian President Francesco Cossiga has offered a solution to the Italian government in dealing with widespread demonstrations by students and teachers over a cut in state funding of education - use agent provocateurs to start riots and then have the police “beat the shit out of the protesters”.

Cossiga, former Italian President, Prime Minister, Minister of the Interior, and one of the founders of the Operation GLADIO covert intelligence unit, encouraged Silvio Berlusconi and current Minister of the Interior Robert Maroni to “do what I did when I was Minister of the Interior,” namely infiltrate what so far have been relatively peaceful demonstrations, radicalize them, start riots, then engender public support for a heavy-handed police response.

Cossiga’s full statement translated reads as follows.

“Maroni should do what I did when I was Minister of the Interior. University students? Let them do what they want. Withdraw the police from streets and universities, infiltrate the movement with provoking agents ready for anything ["agenti provocatori" is the Italian term] and let them devastate shops, put fire to the cars and put cities to the sword for ten days.

Then, strengthen by people’s support, the sound of the sirens from ambulances will have to overwhelm that from the police and carabinieri [italian military police]. Law enforcement officers should pitilessly beat the shit out of protesters and send them all to the hospital. They should not arrest them since the courts would free them immediately, but they should beat them savagely, and they should beat savagely as well those teachers that incites them: not old professors, just the young school teachers.”

Cossiga is essentially describing the problem-reaction-solution dialectic that he exploited when he was in government. Under the banner of Operation GLADIO, which was unveiled after parliamentary investigations in Italy, Switzerland and Belgium, NATO sponsored secret armies committed acts of violence and terrorism and blamed the attacks on left-wing political movements, allowing far-right governments to seize power in numerous European countries.

“You had to attack civilians, the people, women, children, innocent people, unknown people far removed from any political game,” right-wing terrorist and GLADIO agent Vincezo Vinciguerra explained the so-called “strategy of tension” in sworn testimony.

“The reason was quite simple. They were supposed to force these people, the Italian public, to turn to the state to ask for greater security. This is the political logic that lies behind all the massacres and the bombings which remain unpunished, because the state cannot convict itself or declare itself responsible for what happened.”

GLADIO-orchestrated false flag terror attacks, such as the Bologna train bombing in 1980 which killed 85 people, were revealed during the Italian parliamentary investigation as having been overseen by elements of the U.S. intelligence apparatus. At the very least, U.S. intelligence sat on prior knowledge of bombings and allowed them to go ahead.

Cossiga’s call to infiltrate protest groups and provocateur violence, giving the police public backing to “beat the shit” out of them, is a false flag tactic that has been employed numerous times during major protest events around the world.

Indeed, the scenario Cossiga is describing is exactly what happened at the violent 2001 Genoa G8 summit, during which Italian police planted bombs in headquarters being used by protest groups as an excuse to conduct raids and “beat the shit” out of peaceful demonstrators.

A similar tactic was also attempted during last year’s SPP summit protest in Quebec Canada. Canadian police were caught dressed up as rock-wielding anarchists intent on causing riots. Peaceful protesters identified the agent provocateurs and the police later had to admit the fact despite going to the lengths of publicly staging the arrests of their own officers.

Last year, Cossiga drew on his first-hand personal experience in conducting false flag terror operations to declare that 9/11 was an inside job and that this fact was “common knowledge” amongst global intelligence agencies.

John Olagues: The Real Reason Behind the Bail-Out

Truth in Options via Catherine Austin Fitts:

I was just listening to Ron Paul on the latest Bail-Out of banks. He disapproved of the Bail-Out because he claims that it will destroy the financial system as we know it by destroying the dollar's value and creating hyper-inflation. Ron Paul said "you can not just create trillions of dollars out of thin air without creating inflation". Paul's conclusions are based upon the idea of demand pull inflation. This means a situation where excess amounts of money are chasing a static or near static
amount of goods and services. This monetary theory was elaborated upon by Milton Friedman for which he was given the Nobel Prize in 1976. The idea is that when the Money Regulators increase the supply of money, the increase causes consumers to demand more goods and services causing inflation. Suppliers recognize the demand and start producing more goods and services thereby creating jobs and
prosperity. This idea assumes that the increase in the money supply makes its way into the hands of
the consumers who create the extra demand. Freidman claimed that the Federal Reserve allowed or caused the monetary aggregates to decrease by 33% during the 1930s, thereby creating and prolongingthe Rosenvelt depression. However, it is possible that the extra money createdby the Regulators never makes its way to the consumers. If it does not, then there is no extrademand for goods and services and no inflation and no extra production, no extra jobs and no prosperity.

So the question is whether the extra money supply fromthe Bail-Out will reach the consumer/taxpayer. The sad answer is that very little will. Almost the entire Bail-Out will go to the banks and insurance companies, where it is intended to go. Its purpose is to secure holders of bank bonds, the holders of credit default swaps guaranteed byinvestment banks and insurance companies and secure
past and future excessive executive compensation paid by those banks and insurance companies.
The banking and insurance "industries" made sure of that by making enormous campaign contributions to such notables as Senator Christopher Dodd, Chairman of the Senate Banking Committee ($13 million since 1989) and to the lisping Representative Barney "My-o- My" Frank ($2.5 million).

Although the "taxpayers" will get little benefit from the trillion dollar bail-outs, they will get the entire bill as the "taxpayers" will be given more debt to repay with interest.


Now to digress a bit.


Most middle class Americans have substantial home mortgages, large credit card balances and other future required payments of Federal Reserve notes for medical care, insurance, real estate taxes, car payments, gasexpenses and schooling costs for their children.Essentially, the middle class is up to its eyeballs in debt and as a result has a short position in dollars. They are long on houses, cars and investments in the stock and bond markets. For the past year, there has been a short squeeze on people who owe Federal Reserve Notes which has accelerated in the past months as people seek to pay bills and sell assets such as real estate and stocks.

At least the people received some value when theybuilt their own debt and will get something of valuein exchange for future payments if they can indeed make those payments.


Back to the Bail-Out


What the Bail-Out does is saddle the country and all its "taxpayers" with with new trillions of debt and makes it such that every "taxpayer", regardless of how wise, cautious and frugal he may be, owes loads of Federal Reserve Notes (money) to the Federal Reserve Banking system. What will the "taxpayers" receive for this new tax saddle? The answer is that they have received and will
receive nothing. Almost all of the Bail-Out money goes to the corporations whose errand boys like Greenspan, Paulson, Bernanke, Dimon, Mozilo and Fuld carried out the debt trap that was set 9-10 years ago.

This Bail-Out puts a further short squeeze of dollars into play. Perhaps the 50% drop in the price of oil, gold trading below 800 and the recent strong dollar portends more ugly things to come.
Contrary to Ron Paul's forecast of hyper-inflation, which will only take place if the increased money supply goes to the hands of the consumers and does not create a corresponding amount of debt, there may be a severe demand for dollars and hyper-deflation, where the country and the people have no money to buy goods and services but only debts.

The bankers have discovered a way to force the people of America and the world into an intense form of debt slavery and that is the reason for their reckless past lending practices, credit cards for all and now this massive Wall Street Bankers Bail-Out.

In the past, only wars created that amount of national debt. But now those debt creating war mongers have found the more friendly face of public bail-outs.

Report from South Ossetia

Christian Science Monitor:

I survived the Georgian war. Here's what I saw.

I blame Georgia's leaders.

By Lira Tskhovrebova

from the October 8, 2008 edition

Tskhinvali, South Ossetia - In a speech before the United Nations last month, Georgian President Mikheil Saakashvili implored world leaders to set up an international investigation to find out the truth about the war in South Ossetia.

I couldn't agree more. But I think the results of an honest investigation would reveal a very different "truth" than what President Saakashvili claims.

I know this because I was in Tskhinvali, the capital of South Ossetia, on Aug. 7 when Georgian troops marched into the city and killed my friends and neighbors. I huddled with my family in terror for three nights while Saakashvili's tanks and rockets destroyed hundreds of our homes, desecrated cemeteries, gutted schools and hospitals.

I also have good reason not to trust what Saakashvili says. For three days before the attack I had been getting calls from many Georgian friends warning me to get out. They said Saakashvili was planning an attack. Most of the Georgians living in South Ossetia left because they knew what was coming.

On the night of Aug. 7, Saakashvili went on television and assured the frightened civilian population of South Ossetia that he would not attack us. This was long after the time Saakashvili now claims Russians had begun "invading" Georgia.

Ossetians went to bed relieved and thankful for a peaceful night.

Less than two hours later, according to credible international accounts, his artillery, bombers, and three brigades of ground troops unleashed what I can only describe as a fierce hell on our city. In the moment, we knew only our fear as we hid. Afterward I spoke with hundreds of Ossetians to find out what was done to us.

My friend's elderly father tried to douse the flames set by Georgian fire on the home he had built with his hands. His leg was severed by shrapnel from Georgian weapons. He bled to death while his disabled wife crawled from their burning home.

Ossetians saw Georgian tanks firing into basements where women and children hid for safety They saw fleeing families shot down by Georgian snipers. We learned that the Georgian military had used Grad rocket systems and cluster bombs against Tskhinvali.

Yes, I would very much like to see an international commission investigate the truth of what happened.

When I came out from hiding, thanking God that the Russians had saved our lives, I was dismayed by the reaction of the international media to what had happened. There was nothing about Ossetian deaths and the unprovoked horrors inflicted by Saakashvili's military. It made my heart sick.

The truth has been crushed by Georgia's powerful public relations machine as mercilessly as Georgian tanks rolled over the defenseless civilians of Tskhinvali.

I know that Americans are a generous and fair people. But Americans haven't been told the truth about what happened to us. Americans don't understand that Ossetians are an independent, Christian Orthodox people with a deep history in our land. The world talks only about Georgian freedom. What of freedom for my people? Does our suffering, do our voices, mean nothing?

I don't blame the Georgian people for what happened to us. The vast number of Ossetians and Georgians want to live in peace. I blame Georgia's leaders.

Saakashvili has persuaded the world that he is a "beacon" of democracy and openness. But he won't even tell his own people the truth. My Georgian friends weren't allowed to see any Russian news sites during the conflict because all of those sites were blocked by Saakashvili's government.

I know we are a small people, and I make no claim to understanding the experts in geopolitics with their theories and pronouncements about the great powers. But I have fought for women's rights in Ossetia for 12 years and I believe in the truth.

In a recent article, Saakashvili cynically dismissed Ossetian suffering and deaths because, he said, Russia had "lied" about how many of my people were killed by the Georgian military.

It breaks my heart to even engage in this discussion. No one – including Saakashvili – knows how many Ossetians were killed by his Army. I have friends who buried loved ones in their backyards because there were no alternatives. Many people are still missing.

Does Saakashvili believe his vicious attack on a civilian city was justified if he only killed a few hundred rather than a few thousand? Do Americans realize that a military trained and equipped by the US government attacked a civilian population as they slept in their beds? Can they justify sending another billion dollars to Georgia and nothing for those Georgia attacked?

I have made an urgent appeal to the world for humanitarian relief for our people at the website helpossetianow.org. I beg the United States and the world to find out the truth. Please hear our voices.

• Lira Tskhovrebova is the founder of the Association of South Ossetian Women for Democracy and Human Rights and has worked for more than a decade to improve relations between people of Georgian and Ossetian descent in the Caucasus.

New Offences: Brown Lawn, Sketching SUVs

Brown Lawn Means Jail Time

Sketching as SUV means possible copywrite infringement; lady held an hour by customs

Next up: Switzerland, Ukraine, Lithuania, Latvia, Korea

Speaking of Iceland...

independent.co.uk:

"Is Switzerland the next Iceland?"

[. . .]

The woes of its banks, and UBS in particular, have rocked Switzerland, where the financial sector accounts for almost 15 per cent of output. The government said it did not intend to hold the stake in UBS for many years and hoped to sell it to private investors soon. It will impose changes in corporate governance and risk controls in return for the state's support.

The capital increase will lift UBS's tier one capital ratio to 11.5 per cent by the end of the year from 10.4 per cent. After its fundraising, Credit Suisse's tier one ratio would have been 13.7 per cent at the end of September, compared with the 10.8 per cent the bank reported.

[. . .]

Like other governments, Switzerland has acted to try to stop the financial crisis wreaking havoc on the wider economy. With banks refusing to lend to each other, the cost and lack of credit for small businesses and corporations threatens to turn the economic downturn into a punishing recession.

"This package of measures will contribute to the lasting strengthening of the Swiss financial system," the government said. "The resulting stabilisation is beneficial for overall economic development in Switzerland and is in the interests of the economy as a whole."

Ukraine and Baltic states also hit hard by the financial crisis

With even the mighty Swiss banking system needing government support, it will come as little surprise that a swathe of emerging market economies are suddenly looking fragile.

Ukraine emerged yesterday as the winner of the title "the next Iceland", with the International Monetary Fund offering the former Soviet republic up to $14bn (£8bn) to shore up its financial system. An IMF delegation landed in the country on Wednesday to try to stabilise the country's battered banking sector and ailing currency, hit hard by the global financial crisis. The central bank was forced to impose restrictions on deposit withdrawals and lending after panicked savers rushed to empty their accounts, draining the banking system of more than $1.3bn. The authorities also had to rescue two key banks and battle a sharp fall in the currency as the stock market plunged.

Ukraine emerged as the biggest crisis after Hungary agreed to borrow up to €5bn from the European Central Bank. Capital Economics warned that there were risks for a swathe of emerging European economies in the Baltics and the Balkans, including Lithuania and Latvia.

Their problem is that they have been living beyond their means by borrowing to finance increases in their standard of living.

Jitters spread to Asia yesterday after Standard & Poor's, the credit rating agency, warned that Korean banks would struggle to repay their debt.

Iceland and Russia: Two Glimpses of the Future

Here are a couple of ominous stories:

www.bloomberg.com:

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

By Chad Thomas

Oct. 13 (Bloomberg) -- After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

``We have had crazy days for a week now,'' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.''

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.

Iceland's foreign currency market has seized up after the three largest banks collapsed and the government abandoned an attempt to peg the exchange rate. Many banks won't trade the krona and suppliers from abroad are demanding payment in advance. The government has asked banks to prioritize foreign currency transactions for essentials such as food, drugs and oil.

[. . .]

I've read that one of Iceland's desparate hopes is that Russia will help bail them out. Then I see this:

www.telegraph.co.uk:

Financial crisis: Moscow supermarket shelves increasingly empty in Soviet era reminder

Russian shoppers have been served an uncomfortable reminder of the Soviet era after finding shelves in some Moscow supermarkets empty, a further sign that the woes of the financial markets have begun to affect the mainstream economy.

By Adrian Blomfield in Moscow
Last Updated: 10:11PM BST 16 Oct 2008

For a generation of Russians who queued daily in the snow for the most basic of staples, the symbolism of a bare supermarket shelf is so powerful that it could potentially destroy the reputation of Vladimir Putin, the prime minister, as saviour of the world's largest country.

The shortages are not yet widespread. Even so, goods have begun to vanish from dozens of Moscow supermarkets over the past fortnight.

At a branch of the supermarket chain Samokhval in southwestern Moscow, a handful of shoppers pushed their trolleys through empty rows of shelves that once groaned under the weight of imported wares.

The deep freezes hummed, although there was nothing to freeze. Only a row of baked beans, a few jars of olives and sealed cupboards filled with vodka and cheap wine interrupted the void.

Unlike in the dying days of the Soviet Union, when the madcap policies of a bankrupt ideology inflicted deprivation across the country, today's shortages are very much rooted in modern Russia's enthusiastic embrace of capitalism.

Samokhval, which has 60 outlets across the capital, is the victim of a credit crunch whose tentacles have spread to virtually all sectors of the Russian economy. With trust a commodity in short supply, distributors have been unwilling to refinance the chain's debts and have stopped supplying.

Similar problems have affected Mosmart, which has 58 outlets and is also suffering from empty shelves.

The breadlines are unlikely to reform any time soon -- most supermarkets seem to be operating almost as normal -- yet such shortages seem extraordinary in a city that revels in its reputation as the world's most expensive.

A consumer boom, built on runaway oil prices, has turned Russians into some of the world's most aggressive spenders.

Yet the global financial crisis and investor jitters over Russia's increasingly aggressive foreign policy and its propensity to intervene in the private sector at the whim of the Kremlin have led to share prices tumbling.

The Moscow stock exchange's main indices lost over nine percent yesterday, and have fallen over two-thirds since touching all-time highs in May.

So rapidly have events moved that many Russians are almost unaware of the meltdown. A government-ordered news blackout of the market's woes has helped perpetuate the ignorance, convincing many that it was only the West that was affected. Tabloids have run stories claiming that Britons are so short of cash they can no longer bury their dead.

Despite the shortages, shoppers at Samokhval seemed either unconcerned or fatalistic.

"Life gets better, it gets worse," said Yevgenia Krasovskaya, a doctor. "Difficult times are followed by good times. Even if there is a little less now, what difference does it make so long as the basics are there? We've been through much worse than in the past." But Samokhval's checkout girls were more pessimistic.

"We're worried," said Svetlana, who would not give her surname as her supervisor was lurking nearby. "The management tells us everything will be ok, but I don't believe it."

JPMorgan Responsible for the Destruction of U.S. Financial System

or so says this post at marketoracle.co.uk. Quite interesting. Here's the end of it, less the sales pitch for the author's newsletter:

Oct 16, 2008 - 05:19 PM

By: Jim_Willie_CB

HIDDEN USGOVT COUP BY WALL STREET

The US Congress has been subverted by intimidation and ignorance, maybe bribery. Regulators and law enforcement bodies are mere accomplices. The entire US banking system has undergone an unprecedented grand nationalize initiative, including the financial system, when considering the mortgage and insurance giants. The total bailouts are huge when put into perspective. This is a hidden coup, complete with deep fraud, corruption, and ruin for both prosecutors and whistle blowers. The US Dollar is caught in the middle of a black hole scrambled with fraud. Paulson is the new Chancellor of US Inc, Bernanke the new Currency Lithography Manager, and Sheila Bair the Investment Banker (a la Goldman Suchs). Paulson assumes all powers over the financial state from the president, via the banking industry control.

The government bailout redemption of $trillion past fraud closes the loop. Bernanke manages all efforts to use printed money for the purpose of buying worthless counterfeited and fraud-laced bonds, buying commercial bonds and posted collateral among businesses, as well as making printed paper products available to foreign central banks in relief of past fraud. Bair will act as the director of slaughterhouse traffic for JPMorgan, which needs a steady supply of bank deposits to offset their destroyed balance sheet from continued credit derivative implosion, thereby betraying the chartered FDIC pledge to protect bank depositors and senior bank bond holders through liquidation procedures, with full recognition of expedience. Hail to the king, long live the king! The US public seems so dumbstruck that it cannot demand even full disclosure of the process, let alone private offshore bank accounts for the new leaders of the successful coup.

The coup formalizes a climax to a Ponzi Scheme. A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service bearing true value delivered. With the ongoing steadfast support offered by Alan Greenspan, they were able to maintain an incredible Ponzi scheme. They sold financial toxic waste products in the form of Mortgage Backed Securities (MBS), Collateralized Debt Obligations (CDO), Structured Investment Vehicles (SIV), Unidentified Financial Objects (UFO), and Credit Default Swaps (CDS). My favorite remains the UFOs. The corruption of politicians in Congress enabled the process, with relaxed guidance by the Financial Accounting Standards Board (FASB). The two key ingredients for the Ponzi Scheme are a mythological ideology and a high priest to endorse the game from a credible pulpit. Alan Greenspan claimed legitimacy of the US banking system, blessed credit growth and fractional bank practices as beneficial, and praised risk pricing systems using credit derivatives as sophisticated. The high priest used to be Greenspan, but now a tag team has replaced him. Hank Paulson is the spearhead for the great coup of the US financial system. Usage of short restrictions rules has been key to both instilling instability at necessary times, and raiding hedge funds. US Fed. Chairman Bernanke swaps USTBonds for any piece of bonded garbage known to mankind. Mammoth placements of leveraged trades by Wall Street firms make for some of the most grotesque insider trading in US history.

DECEIT & INTIMIDATION

The lies, deceit, backroom pressure, and fleecing of the American public is deep. Take the Emergency Economic Stability Act. Most of the initial $250 billion outlay was not devoted to American bankers, but rather to foreign bankers, primarily in Europe and England, and to purchase preferred US bank stocks. The US public was not told about this redirection, which constitutes misallocation, misappropriation, and fraud. Tremendous backroom pressure was exerted at every step. The underlying assets involved in swaps do not even have to be US-based mortgage bonds. The formerly submitted Paulson Manifesto was revived in a power grab, complete with considerable infighting and squabbles, since Morgan Stanley was given favor. The usage of funds to buy investment stakes in the giant US banks is yet another direct Fascist Business Model tactic, assisting banks close to the power center, yet reeking with corruption. The sickening irony is that they have no more money to disseminate and distribute. They cannot reveal their lies until they formally request more Congressional funds. Much discussion has come that the USGovt should adopt the Swedish model in the resolution of the current crisis. Not in a New York minute!! That would require heavy stock and bond losses, and more transparency of scum. Interestingly, the market discounts words as worthless, while bailout actions fail to produce even a positive reaction for a full day, until Monday last week when the Dow Jones Industrial index rose over 900 points. That was clearly Wall Street engineering a profitable short cover rally. Check S&P futures positions beforehand, if you can. The credibility of the US Fed. is close to being destroyed. On October 15, the same Dow Jones index fell over 700 points, almost 8%. Even the global rate cut was rejected by stock markets, a major insult.

Intimidation of the US Congress has been huge and powerful, similar to when the Patriot Act was passed in 2002. The Congress was actually threatened by martial law in the cities of the United States if the big bailout package was not passed two weeks ago! This was not reported on CNN or CNBC, but C-Span did cover it. The mobilization of the US Army for civilian control is well known in the past couple weeks. See the Third Brigade back from combat duty in Iraq. This account came from Rep Brad Sherman of California. To achieve supposed financial stability, the nation succumbed to totalitarianism by Wall Street thieves, conmen, fraud kings, and criminals. Instead, the bailout only covered up $trillion fraud. My position has been very stable and consistent, that such tactics are typical characteristics of the Fascist Business Model. The state merges with the large corporations, who proceed to terrorize the citizenry after unspeakable protected corruption and theft. To object is to be labeled unpatriotic!

TOP DOWN SOLUTION FAVORS THE ELITE

The top-down approach used to date aids the wealthy bankers, while the homeowners are denied aid. That aid is promised but rarely arrives. The fundamental problem here is that billion$ are devoted to shore up insolvent banks, to redeem their worthless (or nearly worthless) bonds, and to give a giant pass to the executives. Trust has eroded throughout the system. Banks distrust each other's collateral. The result is that eventually the US Economy will enter not a recession, not a depression, but a DISINTEGRATION PHASE. Despite Bernanke's studious efforts, borrowing from revisionist history, his liquidity is nothing more than bailouts at the top for the perpetrators of the housing bubble and mortgage debacle. The bank system benefits little inside the US walls of finance. A bottom-up approach might have had a chance to succeed, but a top-down approach is a sham. To expect a top-down solution that actually relieves the housing inventory logjam is insane. That is like feeding a teenager with meals placed inside the human rectum, expecting nutrients to find their way to the rest of the body! The credit mechanisms do not travel upward within the pyramid, but rather in the downward direction, starting with a borrower, a good collateralized risk, and an underwritten loan, when plenty of lending capital is available. The US public has bought this stupid ‘Trickle Down' philosophy for years, learning nothing. The US Economy is on the verge of collapsing. Short-term credit is being denied at key supplier intermediary steps, soon to result in recognized disintegration.

The primary practical objective of this corrupt trio (JPM, GSax, FDIC) is to avoid Credit Default Swap fires, which would bring an end to their reign of terror. This US Economic failure is in progress and is unstoppable. The 1930 Depression resulted after monumental credit abuse from the bottom up, as hundreds of thousands of people leveraged investments 10:1 with stocks primarily. The 2000 Depression will come after monumental credit abuse from the top down, as hundreds of big financial firms leveraged investments by 7:1 and 20:1 with bonds primarily. The most absurd of all is the CDO-squared, leveraging upon leverage. Total seizures have crippled the banking system. Short-term credit has largely vanished, as letters of credit are routinely not honoured at ports in the United States. The panic will continue, especially when supplies dry up.

GOLD & SILVER AWAIT THEIR EXALTED STATUS

We are witnessing the disintegration cited in my recent forecasts. It is a systemic failure, marred by lost confidence and trust in the entire financial system. Expect foreigners soon to pull the rug from under the American syndicates in control. Several key meetings have already concluded, totally unreported in the US press, which occurred in Berlin Germany. Consider it the Anti-G7 Meeting. Implications are profound, and involved the Shanghai Coop Org tangentially, since its member nations possess so much new commodity supply. Consider it the Anti-NATO group. An important and powerful alternative financial system is soon to spring into action, including high-level bilateral barter. Those who expect the current US Regime to continue their financial terror are in for a big surprise.

Expect defaults in the COMEX with gold & silver, whose prices for paper vastly diverge from physical, to the anger of foreigners watching. They hold massive precious metals assets. Disparities now contribute to powerful forces, sure to break the current system. Grand systemic changes come. THE RESULT WILL BE A BREATH-TAKING DISCONTINUITY EVENT.

Ironically, the more inner anguish felt on the falling gold & silver prices, the closer we are to a new financial framework, with the US Dollar relegated to a Third World role. A REPLACEMENT GLOBAL RESERVE CURRENCY HAS ALREADY BEEN DECIDED UPON. Its launch awaits the proper moment. The Americans are last to know, as usual. The US leaders are under the illusion of being in control!

How the Stock Market Works

A poignant parable from the comments section after an article in Alternet:

How the Stock Market works...

Posted by: Gisele on Oct 11, 2008 7:21 AM

Once upon a time, in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.

The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

The man increased his price to $25 each and the supply of monkeys became so scarce that it was an effort to even see a monkey, much less catch one. The man now announced that he would buy monkeys for $50! However, Since he had to go to the city on some business, his assistant would now buy on his behalf.

While the man was away the assistant told the villagers. 'Look at All these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each.' The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again and once more there were monkeys everywhere.

Now do you understand why and how the stock market works?

Engdahl Thinks Financial Crisis May Have Been Planned

He thinks the Germans might have a good strategy - the Italians not so good.

www.321gold.com via Elaine Supkis:

Behind the panic:
Financial Warfare over future of global bank power

F. William Engdahl
www.engdahl.oilgeopolitics.net/
Oct 10, 2008

What's clear from the behavior of European financial markets over the past two weeks is that the dramatic stories of financial meltdown and panic are deliberately being used by certain influential factions in and outside the EU to shape the future face of global banking in the wake of the US sub-prime and Asset-Backed Security (ABS) debacle. The most interesting development in recent days has been the unified and strong position of the German Chancellor, Finance Minister, Bundesbank and coalition Government, all opposing an American-style EU Superfund bank bailout. Meanwhile Treasury Secretary Henry Paulson pursues his Crony Capitalism to the detriment of the nation and benefit of his cronies in the financial world. It's an explosive cocktail that need not have been.

Stock market falls of 7 to 10% a day make for dramatic news headlines and serve to foster a broad sense of unease bordering on panic among ordinary citizens. The events of the last two weeks among EU banks since the dramatic state rescues of Hypo Real Estate, Dexia and Fortis banks, and the announcement by UK Chancellor of the Exchequer, Alistair Darling of a radical shift in policy in dealing with troubled UK banks, have begun to reveal the outline of a distinctly different European response to what in effect is a crisis 'Made in USA.'

There is serious ground to believe that US Goldman Sachs ex CEO Henry Paulson, as Treasury Secretary, is not stupid. There is also serious ground to believe that he is actually moving according to a well-thought-out long-term strategy. Events as they are now unfolding in the EU tend to confirm that. As one senior European banker put it to me in a private discussion, 'There is an all-out war going on between the United States and the EU to define the future face of European banking.'

In this banker's view, the ongoing attempt of Italian Prime Minister Silvio Berlusconi and France's Nicolas Sarkozy to get an EU common 'fund', with perhaps upwards of $300 billion to rescue troubled banks, would de facto play directly into Paulson and the US establishment's long-term strategy, by in effect weakening the banks and repaying US-originated Asset Backed Securities held by EU banks.

Using panic to centralize power

As I document in my forthcoming book, Power of Money: The Rise and Decline of the American Century, in every major US financial panic since at least the Panic of 1835, the titans of Wall Street - most especially until 1929, the House of JP Morgan - have deliberately triggered bank panics behind the scenes in order to consolidate their grip on US banking. The private banks used the panics to control Washington policy including the exact definition of the private ownership of the new Federal Reserve in 1913, and to consolidate their control over industry such as US Steel, Caterpillar, Westinghouse and the like. They are, in short, old hands at such financial warfare to increase their power.

Now they must do something similar on a global scale to be able to continue to dominate global finance, the heart of the power of the American Century.

That process of using panics to centralize their private power created an extremely powerful, concentration of financial and economic power in a few private hands, the same hands which created the influential US foreign policy think-tank, the New York Council on Foreign Relations in 1919 to guide the ascent of the American Century, as Time founder Henry Luce called it in a pivotal 1941 essay.

It's becoming increasingly obvious that people like Henry Paulson, who by the way was one of the most aggressive practitioners of the ABS revolution on Wall Street before becoming Treasury Secretary, are operating on motives beyond their over-proportional sense of greed. Paulson's own background is interesting in that context. Back in the early 1970's Paulson started his career working for a rather notorious man named John Erlichman, Nixon's ruthless adviser who created the Plumbers' Unit during the Watergate era to silence opponents of the President, and was left by Nixon to 'twist in the wind' for it in prison.

Paulson seems to have learned from his White House mentor. As co-chairman of Goldman Sachs according to a New York Times account, in 1998 he forced out his co-chairman, Jon Corzine 'in what amounted to a coup' according to the Times.

Paulson, and his friends at Citigroup and JP Morgan Chase, had a strategy it is becoming clear, as did the Godfather of Asset Backed Securitization and deregulated banking, former Fed Chairman Alan Greenspan, as I have detailed in my earlier series here, Financial Tsunami, Parts I-V.

Knowing that at a certain juncture the pyramid of trillions of dollars of dubious sub-prime and other high risk home mortgage-based securities would come falling down, they apparently determined to spread the so-called 'toxic waste' ABS securities as globally as possible, in order to seduce the big global banks of the world, most especially of the EU, into their honey trap.

They had help. In recent testimony under oath by Eric Dinallo, the Superintendent of the New York Insurance Department at the AIG Bailout Oversight Hearing, into the AIG rescue by Paulson, Dinallo testified that funding cutbacks in recent years directed by the Bush-Cheney Administration had reduced the responsible department that should regulate or watch over the $80 trillions in Asset Backed Securities (ABS), which included the toxic sub-prime and Alt-A mortgage securities and much more. The Bush Administration took the staff from more than one hundred people down to one---yes that was not a typo. One as in 'uno.'

[. . .]

The Housing and Economic Recovery Act of 2008: An Analysis by Catherine Austin Fitts

Scoop.co.nz:

The US Housing Bill 2008: Parts I - IV

Thursday, 21 August 2008, 5:40 pm
Column: Catherine Austin Fitts

Catherine Austin Fitts' Mapping the Real Deal series
See also: Parts I, II, III IV, V, VI, VII, VIII and IX

Part I – Overview

I have had several requests to comment on the Housing and Economic Recovery Act of 2008.

This afternoon, I read hundreds of pages of bill language. Essentially, my take on the bill is that Fannie Mae and Freddie Mac have issued more debt than can be paid back, so the "solution" is to have the United States government essentially assume responsibility for this debt until the fact that the government cannot service its own debt is addressed.

By clearly signaling to the market that the U.S. government stands behind Fannie Mae and Freddie Mac, this new law increases the national debt from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed to the $800 billion increase provided for in the debt-limit increase accompanying the bill). Not surprisingly, a lot of pork needs to be added to pay a lot of people to go along.

A more appropriate bill title would be the Housing and Economic Takeover Act of 2008. Rather than declaring the New World Order, we are apparently going to legislate it sector by sector.

Here is the bill language:

Housing and Economic Recovery Act of 2008

Here is a rosy summary from the Senate Finance Committee:

Senate Finance Summary – Housing and Economic Recovery Act of 2008

The best overview so far is from Larry Lindsey. Lindsey was one of the more excellent governors of the Federal Reserve. Lindsay had to resign from the Bush Administration in 2002 as director of the National Economic Council when he had the good sense to warn that the Iraq War would be expensive.

Hank Paulson's Fannie Gamble

As Lindsay points out, the number of porky add-ons in this bill are stupefying. Bloomberg provides a review of one:

Fed Loans to Banks Made Easier By Fannie Mae Rescue

Part II – Nation State or Investment Syndicate?

One of the instructive features of the housing bill is the nature of creditor politics that is a subtext on housing and mortgage politics these days. One investment newsletter this weekend reported that there are $947 billion of Fannie and Freddie paper listed as being held in foreign exchange reserves worldwide, of which $100 billion is held by Russia.

That sounds low to me. However, since these are "reported" figures, we will work with them. Can you imagine the politics of a Fannie Mae or Freddie Mac bankruptcy when their largest investor also has nuclear bombs, submarines, and satellites? Also, can you imagine the politics if the Russians bought their Fannie Mae and Freddie Mac securities with IMF and other foreign-engineered "bailout" loans arranged contingent on a secret agreement that a portion of the proceeds would be used to buy Fannie Mae and Freddie Mac debt?

I once had a senior Russian official encourage me to switch sides, so to speak. I told him that no one ever accomplished anything by betraying their country, and that working inside is the best way to address policies gone off kilter. It was not until we parted company that I realized that I had been speaking with a representative of one of Fannie Mae's largest investors.

Chinese Government Is Top Foreign Holder of Fannie Mae, Freddie Mac Bonds

Report on Foreign Portfolio Holdings of U.S. Securities, as of June 30, 2007, published April 30, 2008 by U.S. Treasury, Federal Reserve Bank of New York, Board of Governors of the Federal Reserve System

Part III – Your House Is Bigger Than My House

When I was Assistant Secretary of Housing and Federal Housing Commissioner, then Secretary of HUD Jack Kemp asked me to his office for a private discussion. He explained that he was concerned that I was standoffish and did not socialize with the other political appointees, the "principal staff," at the agency.

I was surprised and noted that I had invited the principal staff to my house for cocktails or brunch five times, and with one exception none of them had ever reciprocated. I noted, in fact, that I had invited Jack all five times and he had never once come. He looked at me with shock and said,

"I would never come to your house. Your house is bigger than my house. I would find it castrating."

I tell you this story because it is very difficult for hardworking, busy people who are subject to the discipline of market forces to fathom what is going on in Washington these days.

It is not in most people's experience to witness a complete breakdown of financial controls that does not impair one's ability to continue to borrow more money—indeed, access to more money is near infinite (see "The Military Holds the Dollar Up"). And this situation is combined with decision making driven by personal profit and imagined sexual potency.

This state of affairs can exist only when it serves the interests of those who are quite clear-thinking and far more powerful than those who work in the Administration. You can attack and take over a country. Or you can simply let it borrow itself to death in a financial coup d'etat. Recent history suggests that the second is infinitely more profitable for the victor.

Part IV – The Profits of Playing Ball

The housing bill brings up a number of important questions about the risks and rewards that result from government subsidy and bailouts.

One recent market commentator pointed out that Fannie Mae and Freddie Mac executives were allowed to keep the big bonuses they made engineering the housing bubble and bankrupting the companies.

One of the examples given was Jamie Gorelick, (1, 2) who joined Fannie Mae as vice chairman from 1997 to 2003 after engineering the move to private for-profit prisons as deputy attorney general in the Clinton Administration. Gorelick's name received national attention as a member of the 9-11 Commission and close advisor to Hillary Clinton.

Gorelick got Fannie Mae compensation and bonus payments of $26 million, which she gets to keep.

However, the bill stipulates that Americans at risk of foreclosure who get a mortgage workout must share future equity capital gains with the government.

Cathering Austin Fitts: Factors Driving the Stock Market Down

News & Commentary,

October 10, 2008 at 9:10 am

There are numerous factors driving the stock market down. Here are a few important ones:

1. Debt overhang: We have issued far more debt than we can pay back. This is being used, among other things, to reengineer fundamental laws, governance and rights globally. The debt overhang and the governmental changes it is being used to engineer (financial coup d’etat) are bad for stock markets and broad-based private property rights.

2. Absence of good pricing data: Large financial institutions have no way of accurately pricing outstanding risk of a significant amount of complex instruments. Among others things, history is proving that they cannot trust the chain of trust: bankers, auditors, lawyers. As a result, their ability to transact and loan to each other freezes. In one sense, think of this as the price of the absence of integrity within the system.

3. Economic warfare: We are experiencing the first planetary “pump and dump” — we are now in the dump phase. The largest or craftiest financial institutions with access to and control of sovereign government intelligence and resources are able to subsidize themselves and gain market share and control of tangible assets by driving down shares of other financial institutions and companies.

4. Individual investors are leaving the party: Remember when your parents would not allow you to go to a party that did not have adult supervision? Given the refusal of the government to use enforcement powers to enforce the laws or to protect market integrity, the stock market lacks the equivalent of adult supervision.

5. Corruption tax: Centralization and corruption are expensive for everyone but the insiders … and the number of insiders is shrinking.

an anonymous comment on the Catherine Austin Fitts Blog:

anonymous because of content..

Oct 10th, 2008 at 1:01 pm

Catherine,

After steering this person to your writings, he replied:

I’ve read excerpts of her writings, which are as detailed and insightful as any you’ll ever read regarding the symbiotic relationship between our government, “mainstream” economy, and crime (and virtually all that it entails, including covert “nation building”… or destroying depending upon how you look at it)

Allow me to provide a narrow example. One of my best friends is a Federal Drug Enforcement agent. He did a tour in one of the most dangerous countries in the world, XXXXXX . He was there for X years.

His primary job while there was to raid the Columbian forests of cocaine farms and labs. They’d get “tips”, and then they’d be given the “green light” to go in, flying low over the canopy by helicopter, and to do “jumps” so as to seize these properties, drugs, etc. (but very rarely people).

In doing so over the years, my friend always told me that it was far more dangerous being off-duty in the cities than it was doing “drops” into the jungle. Occasionally, a jumper would get hung up in the canopy, but I think in eight years their choppers were shot at once. Moreover, “every single time” they seized a farm or lab it was clear that the occupants “knew they were coming”. On many occasions, while flying through the jungles they’d discover camps or farms that were occupied – where they could actually make arrests. However, they were not allowed to raid these camps, without “proper authorization”.

At first my friend was terribly frustrated by this, but it didn’t take him long to realize that much of this exercise was “choreographed” by the Columbian government and our own, which if looked at from the perspective of someone such as Fitts makes perfect sense (as well as anyone with half a brain).

While my friend’s job remained very dangerous, it was in essence a public relations job as much as anything else, designed to give the appearance of a “war on drugs”. They could have seized more property and made more arrests, but they were not allowed to.

This is a simple, but perfect example of how it works. Not just in South America, where it’s as rampant as anywhere in the world, but virtually everywhere – and represents a critically huge part of our global economy – as many well known American corporate brands benefit directly from the drug trade, by laundering their moneys.

Think about it, remember when the war on drugs was being described as the “scourge of America ” and out nation’s biggest problem. Well, it hasn’t gone away. In fact, it’s gone relatively unchanged. We’ll circle back as the media will jump on it a bit, they’ll be a hearing on Capitol Hill, then we’ll legislate and throw some money at it with a press conference to follow – to re-convince everyone that there is, indeed, a “war on drugs” – and then we’ll all forget about it again.

Interestingly, up to this point we’ve done little to undermine the Heroine trade in our ‘war’ in Afghanistan, which represents more than 50% of the Afghan economy – and the lifeblood of the Taliban, and to a lesser extent Al Qaida. Wonder why that is?”

I met a man who was in the military and refused a mission because he was expected to kill people who were disrupting the drug trade. He was thrown in the brig and discharged. He refused to murder innocents. He told them that he signed on to protect the Constitution and this was not protecting the Constitution.

A great primer on Derivatives from Sepetmber 30

Fortune magazine via money.cnn.com via Elaine Supkis:

The $55 trillion dollar question

The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster?

By Nicholas Varchaver, senior editor and Katie Benner, writer-reporter

Last Updated: September 30, 2008: 12:28 PM ET

(Fortune Magazine) -- As Congress wrestles with another bailout bill to try to contain the financial contagion, there's a potential killer bug out there whose next movement can't be predicted: the Credit Default Swap.

In just over a decade these privately traded derivatives contracts have ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they've played a critical role in the unfolding financial crisis. First, by ostensibly providing "insurance" on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.

"If CDS had been taken out of play, companies would've said, 'I can't get this [risk] off my books,'" says Michael Greenberger, a University of Maryland law professor and former director of trading and markets at the Commodity Futures Trading Commission. "If they couldn't keep passing the risk down the line, those guys would've been stopped in their tracks. The ultimate assurance for issuing all this stuff was, 'It's insured.'"

Second, terror at the potential for a financial Ebola virus radiating out from a failing institution and infecting dozens or hundreds of other companies - all linked to one another by CDS and other instruments - was a major reason that regulators stepped in to bail out Bear Stearns and buy out AIG (AIG, Fortune 500), whose calamitous descent itself was triggered by losses on its CDS contracts (see "Hank's Last Stand").

And the fear of a CDS catastrophe still haunts the markets. For starters, nobody knows how federal intervention might ripple through this chain of contracts. And meanwhile, as we'll see, two fundamental aspects of the CDS market - that it is unregulated, and that almost nothing is disclosed publicly - may be about to change. That adds even more uncertainty to the equation.

"The big problem is that here are all these public companies - banks and corporations - and no one really knows what exposure they've got from the CDS contracts," says Frank Partnoy, a law professor at the University of San Diego and former Morgan Stanley derivatives salesman who has been writing about the dangers of CDS and their ilk for a decade. "The really scary part is that we don't have a clue." Chris Wolf, a co-manager of Cogo Wolf, a hedge fund of funds, compares them to one of the great mysteries of astrophysics: "This has become essentially the dark matter of the financial universe."

***

AT FIRST GLANCE, credit default swaps don't look all that scary. A CDS is just a contract: The "buyer" plunks down something that resembles a premium, and the "seller" agrees to make a specific payment if a particular event, such as a bond default, occurs. Used soberly, CDS offer concrete benefits: If you're holding bonds and you're worried that the issuer won't be able to pay, buying CDS should cover your loss. "CDS serve a very useful function of allowing financial markets to efficiently transfer credit risk," argues Sunil Hirani, the CEO of Creditex, one of a handful of marketplaces that trade the contracts.

Because they're contracts rather than securities or insurance, CDS are easy to create: Often deals are done in a one-minute phone conversation or an instant message. Many technical aspects of CDS, such as the typical five-year term, have been standardized by the International Swaps and Derivatives Association (ISDA). That only accelerates the process. You strike your deal, fill out some forms, and you've got yourself a $5 million - or a $100 million - contract.

And as long as someone is willing to take the other side of the proposition, a CDS can cover just about anything, making it the Wall Street equivalent of those notorious Lloyds of London policies covering Liberace's hands and other esoterica. It has even become possible to purchase a CDS that would pay out if the U.S. government defaults. (Trust us when we say that if the government goes under, trying to collect will be the least of your worries.)

You can guess how Wall Street cowboys responded to the opportunity to make deals that (1) can be struck in a minute, (2) require little or no cash upfront, and (3) can cover anything. Yee-haw! You can almost picture Slim Pickens in Dr. Strangelove climbing onto the H-bomb before it's released from the B-52. And indeed, the volume of CDS has exploded with nuclear force, nearly doubling every year since 2001 to reach a recent peak of $62 trillion at the end of 2007, before receding to $54.6 trillion as of June 30, according to ISDA.

Take that gargantuan number with a grain of salt. It refers to the face value of all outstanding contracts. But many players in the market hold offsetting positions. So if, in theory, every entity that owns CDS had to settle its contracts tomorrow and "netted" all its positions against each other, a much smaller amount of money would change hands. But even a tiny fraction of that $54.6 trillion would still be a daunting sum.

The credit freeze and then the Bear disaster explain the drop in outstanding CDS contracts during the first half of the year - and the market has only worsened since. CDS contracts on widely held debt, such as General Motors' (GM, Fortune 500), continue to be actively bought and sold. But traders say almost no new contracts are being written on any but the most liquid debt issues right now, in part because nobody wants to put money at risk and because nobody knows what Washington will do and how that will affect the market. ("There's nothing to do but watch Bernanke on TV," one trader told Fortune during the week when the Fed chairman was going before Congress to push the mortgage bailout.) So, after nearly a decade of exponential growth, the CDS market is poised for its first sustained contraction.

***

ONE REASON THE MARKET TOOK OFF is that you don't have to own a bond to buy a CDS on it - anyone can place a bet on whether a bond will fail. Indeed the majority of CDS now consists of bets on other people's debt. That's why it's possible for the market to be so big: The $54.6 trillion in CDS contracts completely dwarfs total corporate debt, which the Securities Industry and Financial Markets Association puts at $6.2 trillion, and the $10 trillion it counts in all forms of asset-backed debt.

"It's sort of like I think you're a bad driver and you're going to crash your car," says Greenberger, formerly of the CFTC. "So I go to an insurance company and get collision insurance on your car because I think it'll crash and I'll collect on it." That's precisely what the biggest winners in the subprime debacle did. Hedge fund star John Paulson of Paulson & Co., for example, made $15 billion in 2007, largely by using CDS to bet that other investors' subprime mortgage bonds would default.

So what started out as a vehicle for hedging ended up giving investors a cheap, easy way to wager on almost any event in the credit markets. In effect, credit default swaps became the world's largest casino. As Christopher Whalen, a managing director of Institutional Risk Analytics, observes, "To be generous, you could call it an unregulated, uncapitalized insurance market. But really, you would call it a gaming contract."

There is at least one key difference between casino gambling and CDS trading: Gambling has strict government regulation. The federal government has long shied away from any oversight of CDS. The CFTC floated the idea of taking an oversight role in the late '90s, only to find itself opposed by Federal Reserve chairman Alan Greenspan and others. Then, in 2000, Congress, with the support of Greenspan and Treasury Secretary Lawrence Summers, passed a bill prohibiting all federal and most state regulation of CDS and other derivatives. In a press release at the time, co-sponsor Senator Phil Gramm - most recently in the news when he stepped down as John McCain's campaign co-chair this summer after calling people who talk about a recession "whiners" - crowed that the new law "protects financial institutions from over-regulation ... and it guarantees that the United States will maintain its global dominance of financial markets." (The authors of the legislation were so bent on warding off regulation that they had the bill specify that it would "supersede and preempt the application of any state or local law that prohibits gaming ...") Not everyone was as sanguine as Gramm. In 2003 Warren Buffett famously called derivatives "financial weapons of mass destruction."

***

THERE'S ANOTHER BIG difference between trading CDS and casino gambling. When you put $10 on black 22, you're pretty sure the casino will pay off if you win. The CDS market offers no such assurance. One reason the market grew so quickly was that hedge funds poured in, sensing easy money. And not just big, well-established hedge funds but a lot of upstarts. So in some cases, giant financial institutions were counting on collecting money from institutions only slightly more solvent than your average minimart. The danger, of course, is that if a hedge fund suddenly has to pay off on a lot of CDS, it will simply go out of business. "People have been insuring risks that they can't insure," says Peter Schiff, the president of Euro Pacific Capital and author of Crash Proof, which predicted doom for Fannie and Freddie, among other things. "Let's say you're writing fire insurance policies, and every time you get the [premium], you spend it. You just assume that no houses are going to burn down. And all of a sudden there's a huge fire and they all burn down. What do you do? You just close up shop."

This is not an academic concern. Wachovia (WB, Fortune 500) and Citigroup (C, Fortune 500) are wrangling in court with a $50 million hedge fund located in the Channel Islands. The reason: A dispute over two $10 million credit default swaps covering some CDOs. The specifics of the spat aren't important. What's most revealing is that these massive banks put their faith in a Lilliputian fund (in an inaccessible jurisdiction) that was risking 40% of its capital for just two CDS. Can anyone imagine that Citi would, say, insure its headquarters building with a thinly capitalized, unregulated, offshore entity?

That's one element of what's known as "counterparty risk." Here's another: In many cases, you don't even know who has the other side of your bet. Parties to the contract can, and do, transfer their side of the contract to third parties. Investment firms assert that transfers are well documented (a claim that, like most in the world of CDS, is impossible to verify). But even if that's true, you're still left with the fact that a given company's risks are being dispersed in ways that they may not know about and can't control.

It doesn't help that CDS trading is a haphazard process. Most contracts are bought and sold over the phone or by instant message and settled manually. Settlement has been sloppy, confirms Jamie Cawley of IDX Capital, a firm that brokers trades between big banks. Pushed by New York Fed president Timothy Geithner, the players have been improving the process. But even as recently as a year ago, Cawley says, so many trades were sitting around unfulfilled that "there were $1 trillion worth of swaps that were unsettled among counterparties."

Trade settlement is not the only anachronistic aspect of CDS trading. Consider what will happen with CDS contracts relating to Fannie Mae and Freddie Mac. The two were placed in conservatorship on Sept. 7. But the value of many contracts won't be determined till Oct. 6, when an auction will set a cash price for Fannie and Freddie bonds. We'll spare you the technical reasons, but suffice it to ask: Can you imagine any other major market that would need a month to resolve something like this?

***

WITH WASHINGTON SUDDENLY in a frenzy of outrage over the financial markets, debating everything from the shape and extent of the mortgage plan to what should be done about short-selling, the future for CDS is very blurry. "The market is here to stay," asserts Cawley. The question is simply: What sorts of changes are in store? As this article was going to press, SEC chairman Christopher Cox asked the Senate to allow his agency to begin regulating CDS - mostly, it should be said, to rein in short-selling. And the SEC separately announced that it was expanding its investigation of market manipulation, which initially targeted the short-sellers, to CDS investors.

Under other circumstances, Cox's request might have been met with polite silence. But the convulsions over the mortgage bailout are so dramatic that they are reminiscent of the moment, soon after the Enron scandal, when Congress drafted the Sarbanes-Oxley legislation. The desire to blame short-sellers may actually result in powers for Cox that, until very recently, he showed no signs of wanting. Should legislators wade into this issue, the measures most widely seen as necessary are straightforward: some form of centralized trading or clearing and some form of capital or reserve requirements. Meanwhile, New York State's insurance commissioner, Eric Dinallo, announced new regulations that would essentially treat sellers of some (but not all) CDS as insurance entities, thereby forcing them to set aside reserves and otherwise follow state insurance law - requirements that would probably drive many participants from the market. Whether CDS players will find a way to challenge the rules remains to be seen. (ISDA, the industry's trade group, has already gone on record in opposition to Cox's proposal.) If nothing else, the New York law may provide additional impetus for the feds to take action.

For now, the biggest impact could come from the Financial Accounting Standards Board. It is implementing a new rule in November that will require sellers of CDS and other credit derivatives to report detailed information, including their maximum payouts and reasons for entering the contracts, as well as assets that might allow them to offset any payouts. Anybody who has tried to parse CEO compensation in recent years knows that more disclosure doesn't guarantee clarity, but any increase in information in the CDS realm will be a benefit. Perhaps that would limit the baleful effect of CDS on (must we consider it?) the next disaster - or even help us prevent it.

First Published: September 30, 2008: 11:34 AM ET

Catherine Austin Fitts votes to execute Goldmann Sachs

a post and a couple of clarifying comments—

An E-Mail to a Member of the Research Team at Goldman Sachs

Catherine and Daily Musings,

October 7, 2008 at 1:10 am

Solari.com:

Harry:

Thank you for the opportunity to be on your e-mail list. I appreciate your generosity and hard work.

I am writing to ask you to unsubscribe me from your list. I value your research reports. However, it would be hypocritical of me to accept them.

I believe in death penalties for private corporations and partnerships. My vote for one of the first to be executed is Goldman Sachs.

You and your colleagues have helped to build and manage a machinery that has committed treason and genocide on a breathtaking scale. The history of Goldman Sachs over the last two decades is living proof that it is possible to kill with a financial system and a pen.

The fact that you don’t understand what you and your colleagues are doing is breathtaking. It raises more than a few questions about whether you understand what is really behind the flow of funds you track and publish.

The question before us is who will pay the price of the mess that you and your colleagues have had such a significant hand in creating:

Who will lose their business and who will keep it?
Who will lose their job and who will keep it?
Who will lose their home and who will keep it?
Who will lose their reputation and who will not?
Who will lose their family and who will not?
Who will lose their health and who will not?
Who will lose their future and who will not?
Who will lose their life and who will not?
Who will lose their freedom and who will not?

My plan for bailing out the country would include asserting common law offsets against the assets of the NY Fed member banks and all of their partners and employees who benefited up to an amount sufficient to repay $4 trillion missing from the US government, to fund losses caused by the manipulation of the precious metals markets and to fund claims of fraudulent inducement and fraud on mortgages and mortgage securities. To fund the offsets, I would propose to seize the offshore and onshore assets of those who created the mortgage bubble and derivatives mess in the first place.

Frankly, I see no reason why millions of poor people around the world should pay a global tax through the dollar and US treasury and agency securities for which the American people are liable, so you and your colleagues can continue to live in comfort and luxury without concern that you will be held accountable to the same standards of enforcement applied to the people who live in the communities wrecked by the mortgage, money laundering and financial fraud that made you and your clients so powerful.

It seems to me if anyone should lose their business, jobs and home, it is you and your colleagues.

Sincerely Yours,

Catherine Austin Fitts

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Carolyn

Oct 7th, 2008 at 4:19 pm

Re: common law right of offset. A right at “common law” is one that comes about through court precedent rather than a statute. Many, if not most, common law rights came into being before we had statutes, i.e., from England. Sometimes common law rights exist side-by-side with similar, or even the same, constitutional or statutory rights that are in “code” form. An attorney would argue in court for the common law right either when there is no statute or when the statute is more limited than the broader common law right.

A right of offset is just the right of one who holds the property of another (e.g., a bank) to seize that property to satisfy a debt or liability incurred by the owner of the property. So, for example, the IRS has the right to set off your tax refund against taxes otherwise due and unpaid. Similarly, if you have a savings account at a bank as well as a credit card with the same bank and you don’t pay the amount due on your credit card, the bank can apply (or “set off”) the amount in your savings account against the debt. Catherine is applying this concept in the case of member banks of the NY Fed on the theory that because the Federal Reserve Bank of New York is the depository for the US government, its members are responsible, or liable, for the “lost” $4 trillion of government money. As I understand her statement, she is suggesting that the federal government should seize, by means of an accounting offset, funds owed to the member banks by the US Government as a reimbursement to the American people for their loss. In that case, the banks whose money was seized would then have to sue the government and prove that they did not owe that money to the government in order to recover the amounts seized.

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Richard

Oct 7th, 2008 at 4:35 pm

My dear Ms Fitts: You go girl…I have only one legal point concerning your continuous desire to recoup “the $4 trilion missing from the US government” ( I assume the Defense Dept. budget ). And that is: How would you deliver as discovery the accounting books of the Pentagon to corroberate the numbers? Furhermore, how would you also include the names of the actual banks to which the moneys were transfered? I am in complete favor of the recoupment of the vast ceo and executive officers abundant bonuses and pay to repay this admitted loss. Love your work. I’m falling asleep listening to you on coast to coast ( 2 am EST ), as I wake at 5 am…. be well and stay well, Richard

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catherine

Oct 7th, 2008 at 11:45 pm

Richard:

The NY Fed as depository for the US government is responsible for federal government bank accounts. According to US reports, US government agencies have over $4 trillion of undocumentable adjustments. Those are transactions that can not be proved to be authorized by the Congress, pursuant to the constitution. If you follow the common law rights of offset asserted in the Hamilton Securities case (see http://www.dunwalke.com/gideon), I would argue that the NY Fed banks are responsible for effecting unauthorized transactions. In theory, we do not have to prove where the money went or have the detail. We can assert our right to to that amount and proceed with offsets.

Such offsets could take the form of extinguishing outstanding debts, even taxes due. So you don’t get cash back from the parties involved. You simply extinguish what you owe.

If you combined such offsets with local tax escrows and local currencies, a lot could shift.