Some US Representatives disagree with the Bailout Bill

In alphabetical order:

Rep. Defazio:




Rep. Kaptur





Rep. Kucinich:






Rep. Paul

The Fraud of the Bailout Bill

Mike Whitney in Online Journal:

There is greater opposition to the Paulson bill than any legislation in the last half century. The groundswell of public outrage is unprecedented, and yet, Congress -- completely insulated from the demands of their constituents -- continues to blunder ahead following the same pro-industry script as their ideological twins in the White House.

There’s not a dime’s worth of difference between the two parties. Not surprisingly, neither Pelosi nor any of the Democratic leadership has even met with any of the more than 200 leading economists who have stated, unequivocally, that the bailout will not address the central problems that are wreaking havoc on the financial system. Instead, they have caved in to Bush’s demagoguery and the spurious claims of G-Sax bagman Henry Paulson, a man who has misled the public on every issue related to the subprime/financial fiasco so far.

There are parts of Paulson’s Emergency Economic Stabilization Act of 2008 that every US taxpayer should understand, even though the media is attempting to keep the details obscured. In sections 128 and 132, the proposed bill will suspend “mark to market” accounting. This means that the banks will no longer be required to assess the worth of their assets according to what similar assets fetched on the open market. For example, Merrill Lynch just sold $31 billion of mortgage-backed securities for $6 billion, which means that similar bonds should be similarly priced. Simple, right? The banks need to adjust the value of those assets on their balance sheet accordingly. This gives investors and depositors the ability to know whether their bank is in bad shape or not. But Paulson’s bill lifts this requirement and allows the banks to assign their own arbitrary value to these assets, which is the same old Enron-style accounting bullsh**.

Paulson’s bill also proposes the “elimination of FASB 157 and 0% reserves.” This is just as sketchy as it sounds.

FASB or Financial Services Regulatory Relief Act reads: “Federal Reserve Banks are authorized to pay banks interest on reserves under Section 201 of the Act. In addition, Section 202 permits the FRB to change the ratio of reserves a bank must maintain relative to its transaction accounts, allowing a zero reserve ratio if appropriate. Due to federal budgetary requirements, Section 203 provides that these legislative changes will not take effect until October 1, 2011.”

Blah, blah, blah. It’s all legal mumbo jumbo to conceal the fact that the banks can continue to operate with insufficient capital, which is why the system is currently blowing up. It all gets down to this: The reason the system is exploding is because the various financial institutions have been allowed -- via deregulation -- to act as banks and create as much credit as they choose without a sufficient capital base. When one reads about massive deleveraging, this relates directly to the fact that under-capitalized businesses were operating with too much debt in relationship to their capital. That’s it in a nutshell. Forget about the CDOs, the MBSs, the CDS and the whole alphabet soup of derivatives garbage. They were all inserted into the system so greedy Wall Street landsharks could expand credit without supervision and balance trillions of dollars of debt on the back of a one dollar bill. This is why Paulson wants to suspend the rules which would bring credibility and trust back to the system. After all, that might impinge on Wall Street’s ability to enrich itself at the public’s expense.

Finally, Nouriel Roubini cites a study by Barry Eichengreen, “And Now the Great Depression,” which points out why Paulson’s $700 billion plan is likely to fail: “Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is NOT the most effective and efficient way to recapitalize the banking system. . . .

“A recent IMF study of 42 systemic banking crises across the world provides evidence of how different crises were resolved. First of all, in only 32 of the 42 cases was there government financial intervention of any sort; in 10 cases systemic banking crises were resolved without any government financial intervention. Of the 32 cases where the government recapitalized the banking system only seven included a program of purchase of bad assets/loans (like the one proposed by the US Treasury). In 25 other cases, there was no government purchase of such toxic assets. In six cases, the government purchased preferred shares; in four cases, the government purchased common shares; in 11 cases, the government purchased subordinated debt; in 12 cases, the government injected cash in the banks; in two cases, credit was extended to the banks; and in three cases, the government assumed bank liabilities. Even in cases where bad assets were purchased -- as in Chile -- dividends were suspended and all profits and recoveries had to be used to repurchase the bad assets. Of course, in most cases multiple forms of government recapitalization of banks were used.” (Nouriel Roubini’s Globl EonoMonitor)

In short, it won’t work. Nor is it designed to work. The bill is just Paulson’s way of carving a silver canoe for himself and his brandy-drooling investor buddies so they can paddle away to some offshore haven while the rest of us drown in a bottomless ocean of red ink.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

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An alternate take on the Bailout

...well, it's different...!

Pablo Ouziel in Online Journal:

If private institutions are requiring money from the taxpayer because their mismanagement is putting the whole economy under risk of collapse, then the bailout should be reframed and converted into the $700 billion bail. The taxpayer should demand that every CEO who requires money from the government be locked up and only released on a bail of $700 billion dollars. Otherwise it is just a blatant joke and an insult to the elementary functioning of a democratic society.

People are being urged by their government to approve legislation, which will ultimately allow the same people who created the mess, to have a blank check to play with the future of the American people. The same people, who until only a few weeks ago were certain that the fundamentals of the economy were solid, are now rushing to ask for funds. They either lied or they had no clue about what was happening. Either way, it would be wise to remove them from their posts before any decisions are made. Maybe Nouriel Rubini should be called up to become chairman of the Fed or treasury secretary, after all he has been one of the few voices making correct calls on events as they have unfolded. Surely, the American people deserve someone with a successful track record, making the calls on the future of their very fragile economy.

There seems to be in this society a rejection of simplicity. If it isn’t fancy enough, we want complicated mechanisms and complicated people telling us how things should be done. To a certain extent, I can understand how that can impress the simplest of minds, but at some point, when the complicated mechanisms and the complicated people have proved to be wrong, they must be removed from positions in which they can cause greater harm. Yet, simplicity always finds a hard sell when it comes to telling people what would seem like coherent first steps.

Here are a few steps which would convert the taxpayer bailout into bail for the prison sentence of irresponsible CEOs. This will at the very least guarantee the safety of the American people, and the restoration of their tarnished democratic ideal. Yes, I am in agreement with policy makers and financial analysts about the fact that legislation has to be approved fast, in order to avoid the complete meltdown of the economic system. However, if those responsible truly agree with this view, they should patriotically accept the demands of the taxpayer. The demands of the taxpayer, as manifestations against the bailout, should state the following preconditions to any agreement:

1. Impeachment of George W. Bush for lying about the fundamentals of the economy.
   
   
2. Ben Bernanke’s immediate removal from his post as chairman of the Board of Governors of the United States Federal Reserve for lying about the fundamentals of the economy.
   
   
3. Henry Paulson’s immediate removal from his post as the United States Treasury Secretary and member of the International Monetary Fund Board of Governors for lying about the fundamentals of the economy.
   
   
4. Immediate arrest of the CEO and CFO of any organization asking for funds from the taxpayer. Bail should be set at $700 billion. Once the markets have stabilized, trials can proceed to determine the guilt or innocence of individuals.
   
   
5. Immediate return of bonuses by management teams in distressed institutions asking for taxpayer funds.
   
   
6. Immediate cancellation of the mortgages of American families owning only one home.

These preconditions might sound harsh, but we are talking about a rushed document, which is the biggest bailout in the history of the world. The last rushed decision of this magnitude created the mess in Iraq. Hopefully, this time around the U.S. taxpayer, after having experienced the harsh consequences of rushed decisions, will be smarter. The difference this time around, is that instead of shooting Iraqis, the Americans are about to shoot themselves in the foot. I do feel for the majority of the American people, who frankly have no clue about what is happening to their cherished country, but apart from writing to them, there is nothing much one can do.

The blatant lies of their elites continue to destory the little crumbs that are still left of what was once the “Great American Dream” and has now become the “Great American Nightmare.” Faced with this scenario, setting bail at $700 billion seems completely reasonable to me.

Pablo Ouziel is a sociologist and freelance write based in Spain.

Elaine Supkis's Tour of the Washington D.C."Bailout" Hearings

We all hear about the goings-on in D.C. But what really goes on there?

For instance, we hear about Paulson and Bernanke meeting with Congress, pleading for their $700 villion+ bailout. What was that really like?

Wouldn't it be nice to hear about it from someone who actually understands more about it than most of the participants? Someone who could explain the arcane financial travails, tracing their roots back into history?

Having endured the "debate" tonight and exhausted my critical facilities, I stumbled upon such a resource, right here in the tubes of the internets. This lady, whose web writing appeared on my screen for the first time just a few weeks ago, undertook the trip to D.C. and wrote it all down, and posted it, complete with photos and illustrations, for our viewing pleasure.

What are her credentials? Who knows? I honestly know only a few snippets of her varied and extraordinary background from what I've read at her website. But her D.C. story (which must have been written and posted in great haste) has a clarity and insight (and humor) that I've rarely encountered. She explains things in the metaphor of mythology, which I find delightful, but might turn you off. I find it helpful in grasping the complexities of the situation.

Here is her trip in four lengthy installments:

the Pre-Bernanke Hearings in DC

The Sphinx And The Hijinks

Bush gives he Democrats the Monkey's Paw

OTC Derivatives Monster Mess Gets Worse

I can only hope you find them as useful as I did.

Mainland Chine Lenders Ordered to Halt Interbank Deals with U.S. Firms

This could be serious...There's not a lot of money involved, yet... but it indicates a trend...

By Jane Cai and Adam Chen

South China Morning Post, Hong Kong
Thursday, September 25, 2008

BEIJING -- Mainland regulators have told domestic banks to stop lending to United States financial institutions in the interbank market in a bid to prevent possible losses during the financial crisis, industry sources said yesterday.

The ban from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to US banks but not to banks from other countries, a source said.

The CBRC was not available for comment yesterday.

The decree appears to be Beijing's first attempt to erect defences against the deepening US financial meltdown after the mainland's major lenders reported billions of US dollars in exposure to the credit crisis.

Lending transactions on the mainland interbank market totalled 10.65 trillion yuan (HK$12.17 trillion) last year, according to the People's Bank of China.

In the first eight months of this year, transactions totalled 10.11 trillion yuan, up 104 per cent from a year earlier.

At the end of last year, the mainland interbank market had 717 members, including banks, securities companies and trust companies.

Another banking source said the CBRC issued the ban after obtaining data about the exposure of mainland banks to bonds issued by bankrupt Lehman Brothers Holdings.

Top officials said they were keeping a close watch on the crisis and warned mainland financial institutions to be cautious in their daily business and overseas expansion.

"The international transaction volume of Chinese banks is not big. Those concerning subprime loans are probably lower than US$10 billion," deputy central bank governor Ma Delun wrote this week in the China Business Post, a People's Bank of China-affiliated newspaper.

But the deteriorating situation in the US has shocked top officials.

Mr Ma said that among the unexpected developments was the effect the crisis was having on normal assets, not just problematic assets; its impact on the whole credit market, not just single products; and its effect on Europe and other nations, not only the US.

The exposure of seven listed mainland banks to bonds related to Lehman Brothers totalled US$721 million.

Mainland banks had US$9.8 billion in exposure to US subprime loans at the end of last year and US$25 billion to Fannie Mae and Freddie Mac by June 30.

The Weiss Research Report to Congress on the Bailout

http://solari.com/blog/docs/Final-Bailout-White-Paper.pdf

I just found it this afternoon, at Catherine Austin Fitts's website. It's the report from Weiss Research, an apparently reputable financial research firm, to Congress, about the "Bailout."

This pdf contains more facts in its 24 pages than I've heard in the media in 10 years. I've removed the footnotes and tried to clean it up a bit. This is just the Summary. The actual report has charts showing which banks are in danger and exactly how much money we're talking about. I've highlighted some interesting facts—probably too many, but, well, what the heck...

Too Little, Too Late to End the Debt Crisis;
Too Much, Too Soon for the U.S. Bond Market

Submitted by
Martin D. Weiss, Ph.D. and Michael D. Larson
Weiss Research, Inc.
to
United States Congress
Senate Banking Committee
and House Financial Services Committee
September 24, 2008

Weiss Research, Inc.

Executive Summary
New data and analysis demonstrate that the proposal before Congress for a $700 billion financial industry bailout is too little, too late to end the massive U.S. debt crisis; and, at the same time, too much, too soon for the U.S. Government bond market where most of the funds would have to be raised.

I. Too Little, Too Late to End the Debt Crisis.

Congress should

1. Disregard data based on the list of troubled banks maintained by the Federal Deposit Insurance Corporation (FDIC). The FDIC’s list currently has 117 institutions with $78 billion in assets. However, based on a broader analysis of recent FDIC call report data, we find that institutions at risk of failure include 1,479 FDIC member banks and 158 thrifts with total assets of $3.6 trillion, or 36 times the assets of banks on the FDIC’s list.

2. Think twice before providing a broad bailout for U.S. debts given the wide diversity of mortgage holders and the great magnitude of the total debts outstanding in the United States. Just-released Federal Reserve Flow of Funds data show that, beyond mortgages, there are another $20.4 trillion in privatesector consumer and corporate debts, plus $2.7 trillion in municipal securities outstanding.

3. Recognize that, among banks and thrifts with $5 billion or more in assets, there are 61 banks and 25 thrifts that are heavily exposed to nonperforming mortgages.

4. Get a better handle on the enormous build-up of derivatives held by U.S. commercial banks.

5. Base any legislation on (a) realistic estimates of the loan amounts already delinquent or in default, and (b) reasonable forecasts of how many more are likely to go bad in a continuing recession.

6. Recognize the inadequacies in already-established safety nets, such as the FDIC for bank depositors, Securities Investor Protection Corporation (SIPC) for brokerage customers, and state guarantee associations for insurance policyholders.

There should be no illusion that the $700 billion estimate proposed by the Administration will be enough to end the debt crisis. It could very well be just a drop in the bucket.

II. Too Much, Too Soon for the U.S. Bond Market.

There should also be no illusion that the market for U.S. government securities can absorb the additional burden of a $700 billion bailout without putting dramatic upward pressure on U.S. interest rates.

The Office of Management and Budget (OMB) projects the 2009 federal deficit will rise to $482 billion. But adding the cost of announced and proposed bailouts, now approximately $1 trillion, it is undeniable that the federal deficit could double or triple in a short period of time, driving interest rates sharply higher and aggravating the very debt crisis that the bailout plan seeks to alleviate.

III. Policy Recommendations to Congress

1. Congress should limit and reduce the funds allocated to any bailout as much as possible, focusing primarily on our recommendation #4 below.
2. If Congress is determined to provide substantial sums to a new government agency to buy up bad private-sector debts, we recommend that the new agency pay strictly fair market value for those debts, including a substantial discount that reflects their poor liquidity.
3. Congress should clearly disclose to the public that there are significant risks in the financial system that the government is not able to address.
4. Rather than protecting imprudent institutions and speculators, Congress should protect prudent individuals and savers by strengthening existing safety nets, including the FDIC for bank deposits, SIPC for brokerage accounts and state guarantee associations that cover insurance policies.

IV. Recommendations to Savers and Investors

Regardless of what Congress decides, savers and investors should continue to invest and save prudently, seeking the safest havens for their money, such as banks with a financial strength rating of B+ or better, U.S. Treasury bills, and money market funds that invest almost exclusively in short-term U.S. Treasury securities or equivalent.

1. The ownership of residential mortgages is dispersed among many different sectors. There are $12.1 trillion in mortgages on single- and multi-family homes in the United States.
2. Fannie, Freddie and GSAs are still at risk. Despite the recent bailouts of Fannie Mae and Freddie Mac, Congress must not lose sight of the fact that these two institutions, along with U.S. government agencies (GSAs), currently hold $5.4 trillion in residential mortgages, according to the Federal Reserve. The fact that these assets already enjoy a government guarantee does not prevent them from continuing to deteriorate and requiring substantially larger funding than currently contemplated.
3. Private sectors and local governments also own residential mortgages in substantial quantities. The bailout plan would also have to cover:

• The issuers of asset-backed securities, now holding $2.1 trillion in mortgages,
• Nonbank finance companies ($426 billion),
  
• Credit unions ($332.4 billion),
• State and local governments ($159 billion),
• Life insurance companies ($61.6 billion), plus
• Private pension funds, government retirement funds and households themselves.

4. Commercial mortgages are now going bad as well. The current debate tends to focus exclusively on residential mortgages. But at many regional and superregional banks, much of the risk is currently in the commercial mortgage sector, where recent data denotes many of the same difficulties as the residential sector. To truly get to the root of the problem, the Administration and Congress cannot exclude these either.

There are $2.6 trillion in commercial mortgages outstanding in the United States. As with residential mortgages, these are also dispersed widely beyond the banking sector — $644 billion held by issuers of asset-backed securities, $263 billion held by life insurers, $65 billion at nonbank finance companies and $37 billion at Real Estate Investment Trusts (REITs).

5. Mortgages are less than half the problem. Although it is true that the current debt crisis in America originated in the mortgage market, it is not accurate to say that the root of the crisis is strictly in this one sector. Rather, the debt crisis has multiple and varied roots, with excessive risk-taking in credit cards, auto loans and virtually every other form of private-sector debt.

There are currently $14.8 trillion in residential and commercial mortgages in America. But beyond mortgages, there is another $20.4 trillion in consumer and corporate debt. This means that mortgages represent only 42% of the privatesector debt problem in America.

6. Local governments could be a higher priority. Overlooking the debt problems of state and local governments could also be a mistake. Indeed, given the essential nature of their services, including the pivotal role they play in homeland security, it could be argued that their credit challenges take priority over those faced by banks, S&Ls and Wall Street firms. Currently, the Fed estimates $2.7 trillion in municipal securities outstanding, most of which have been reliant on a bond insurance system that remains on the brink of collapse.

Arthur Silber lectures us to no avail about Reality and it's Unpopularity

September 23, 2008

Studies in Conformity, Generating Consensus, and Why You Are Not Adults

The superficiality and triviality of our public debates reveal themselves in many ways. I've discussed the mechanisms involved in numerous essays. The response to the current economic crisis, including the response to the "solutions" proposed, presents one of those mechanisms in stark, unforgiving terms.

Insofar as the economic crisis is concerned, I will remind you of the relevant context in exceedingly brief terms. In my rude post the other day, I emphasized that the fundamental flaw in all the "solutions" offered is that those solutions are offered to "fix" a problem that cannot be fixed. To understand this basic point, you require only three sentences from Mike Whitney's analysis. Here they are:

This cycle [in the market] will persist until the bad debts are accounted for and written off or until the exhausted dollar-system collapses altogether.

And:

In truth, there is no fix for a deleveraging market any more than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics.

This is the truth that almost no one will accept.

Denial of the truth envelops our culture like a suffocating fog. People desperately need to understand the consequences of denial of this kind. It is profoundly damaging, and it kills. I have written at length abour our national narcissism, and how that narcissism allows us to deny the immense crime the U.S. government has committed in Iraq. You would think the fact that our government has murdered well in excess of one million innocent people would be front page news every day. Of course, you would be wrong. You might prefer to believe that, since the murder continues as I write this, as it will continue tomorrow and for years to come, there might be one or two decent and humane individuals in Washington who are working ceaselessly to make the slaughter stop. And you might like to think that many Americans would be outraged that our military continues to occupy a nation that we have entirely destroyed, and that Americans would demand that the destruction and death cease immediately.

About all of that, you are terribly, grievously wrong. Most Americans can't be bothered about any of that. Most Americans simply do not care.

The denial extends far beyond the deaths of innocents, although that alone is unbearable to contemplate. Except for stories offered now and then, our media and most Americans similarly cannot be bothered with the lifelong damage caused to American soldiers. Sometimes, that denial leads those soldiers to kill themselves. Most Americans don't care. We don't want to hear about pain of this kind. It upsets us and makes us uncomfortable. I have indicated why you should be prepared to feel upset and uncomfortable about such matters -- see "Let the Victims Speak" -- and why that should be a minimal requirement for a semi-humane society. In a better world, this would not be a difficult test to pass. We fail it miserably.

These are among the reasons for my admonition at the conclusion of an essay I wrote a year and a half ago: "The Elites Who Rule Us." That article discussed in detail why most people are unable to grasp the reality of our ruling class, the makeup of our ruling elite, and the ways in which the ruling class exercises its control. At the end of that lengthy analysis, I wrote:

I suppose I could briefly summarize the argument in the following manner: Grow up. Be adults about this. And for God's sake, be serious.

With very rare exceptions, my plea fell and continues to fall on ears made deaf by choice, on minds that absolutely refuse to consider matters that cause them distress beyond a fleeting moment of slight discomfort. Americans agonize over who will win a ridiculous television show contest, yet they refuse to consider the ways in which they permit the bodies of innocent human beings to be ripped apart every day, just as they refuse to reach out to those whose souls have been damaged beyond repair. Yet I will continue to make my plea, for until we become adults, we will remain mired in the patterns of thought and the immense destructiveness that threaten to rip our world apart once and for all.

The fact that most Americans refuse to grow up and be adults has many results. One of them is critically relevant here: most Americans will not accept that actions have consequences, and that those consequences are sometimes irrevocable. Your prayers will not restore over a million slaughtered Iraqis to life. Your wishes will not instantaneously erase the horrifying memories that make an American soldier unable to sleep, incapable of holding a job, and that make him a stranger to his own family. There are times when our actions lead to results that cannot be undone.

For the moment, I will continue to adopt terms that are commonly used about this phenomenon, although I will refashion them for my own purposes and make them accurate. People often accuse adults who act in the manner I have described as "children." Please note that this is profoundly wrong. It certainly does not describe healthy children. If children are treated with genuine respect and compassion, if they are regarded as full human beings in their own right, they will treat themselves and others with respect and compassion. Almost no parents treat their children in this manner, a subject I have discussed in great detail in my Alice Miller essays, and one I will discuss still further in my new tribalism series.

When people say adults behave and think like children, what they more properly mean is that they behave and think like children who are profoundly damaged -- children who are already made emotionally numb by the typical kind of emotional abuse to which most children are subjected many times a day, children who have been forced to deny their own pain simply to survive, and who are therefore unable to grasp the pain of others. Most adults were once such children; one of the ways the damage reveals itself when they become adults is the denial described above and in many of my articles.

Many children believe that "wishing will make it so," just as they believe that there are no consequences for their actions that cannot be undone. But again, children who believe this are those children who are already damaged. Healthy children do not think in this manner. But most of us were greatly damaged as children, and most of us deny what ought to be unavoidable truths because we learned to do this in our earliest years of life.

Read the three sentences at the beginning about the irrevocable economic consequences now playing out again. These are not difficult ideas. Yet most Americans -- and our entire governing class and almost all commentators and bloggers -- refuse to grasp them. It is as if these ideas are written in a dead language. Certainly, the language is dead to them, for they have made themselves incapable of understanding it. To recognize a truth of this kind threatens the mechanism of denial that lies at the very center of their sense of themselves, at the very center of their identity. So the truth cannot be acknowledged.

To return to the economic crisis in particular, I first repeat the single most important point: the consequences we are now seeing are irrevocable and unavoidable. The bad debts must be accounted for and written off. A problem of massive bad debts and insolvency is not a problem of liquidity. This truth means one thing in terms of the "solutions" proposed: a massive bailout of insolvent financial institutions which includes keeping the bad debts in the system still longer is precisely the wrong action to take. It will not solve the problem, for this problem cannot be solved. But it will accomplish one goal: it will postpone the problem to another day, and it will make the problem worse, and it will cause still greater damage.

Do you know of a single government program that has not exceeded its original estimated cost? It is ridiculous to believe that this proposal will cost $700 billion. When all is said and done, as you will see only a few commentators acknowledge, this program will cost well in excess of one trillion dollars. On top of the national debt that already exists, what do you think this will do to the American economy for decades to come? One of the arguments in my post the other day can be expressed another way. Note how the debate has shifted: we are not debating whether this bailout should occur. We are debating in precisely what manner the bailout should occur. In other words: the only debate that should be occurring has already been consigned to history.

Here are some additional details that confirm the accuracy of arguments I have previously made. Note these passages from the Wall Street Journal:

WASHINGTON -- The Bush administration and the Democratic Congress inched closer to agreement on a $700 billion plan to rescue troubled financial firms, with the Treasury making most of the concessions amid an increasing backlash from a range of economists and lawmakers.

The administration agreed to allow tougher oversight over the cleanup and provide fresh assistance to homeowners facing foreclosure, two Democratic priorities. In addition, negotiators neared agreement on allowing the government to take equity stakes in certain companies that participate in the rescue.

...

One broad area of agreement involves congressional oversight. Rep. Frank said the Treasury agreed to an independent board to monitor the bailout and report on its progress to Congress and the public. The board wouldn't have authority to veto Treasury investment decisions, and the bailout's launch wouldn't be delayed while a board was being put in place.

Compare this to what I wrote the other day:

At this point, does anyone believe "strings" or "oversight" are worth a goddamned thing? Let me remind you of something that no Democrats and none of their defenders wants to be reminded of: the Iraq catastrophe. The Democrats have had the biggest "oversight" mechanism in the world -- or to be precise, in the Constitution -- since early 2007. The Democrats could have cut off all funding for this criminal war and occupation. They will not do it.

They could have impeached Bush, Cheney and several more of the leading criminals. They will not do it.

Add in the pattern the Democrats followed in the FISA debacle, with regard to the Military Commissions Act, and on a host of other questions, and you see what the Democratic opposition is worth. In a word: nothing.

Add in this: everyone, including every Democrat, now agrees that this is a "crisis" requiring action yesterday. Paulson, the Treasury Department, and the other players will have to be able to act immediately, and to act on a massive scale. And they'll get all that -- but with some "oversight." How long will it be until the "oversight" catches up to what these criminals have done, if it ever does? After the fact, will the oversight mechanisms be able to reverse the actions of Paulson and others? What will be the additional costs of having to reverse some/most of those actions after the fact, if it can even be done?

Given the record amassed by this administration -- and given the record amassed by the most pathetic Democratic Congress ever imagined in this or any other world -- "oversight" and "safeguards" aren't worth shit.

You may view this as expressed in an unspeakably rude manner. The fact remains that it is accurate in every detail.

The same fundamental problem will be found in Dodd's proposal. Indeed, the problem is announced at the very beginning: "TITLE I - Authorizing the Treasury Department to Buy Mortgage-Related Assets." Why is Dodd proposing to authorize anyone to buy mortgage-related assets? That is exactly what must not be done, especially in a massive amount and with taxpayers' money.

Dodd's plan is no better with regard to "oversight"; see Section 4 (among other provisions: "The Emergency Oversight Board shall meet 2 weeks after the first exercise of the purchase authority of the Secretary under this Act and monthly thereafter." Yeah, that should do it.). In addition to the fact that the centerpiece of Dodd's proposal is the one action that should not be taken and that will do nothing to "solve" an insoluble problem, is its gross immorality: presenting the bill to American taxpayers who had nothing to do with creating this crisis. And yet, even Paul Krugman claims that Dodd's proposal is "a big improvement over Paulson's plan." Note the language:

The key feature, I believe, is the equity participation: if Treasury buys assets, it gets warrants that can be converted into equity if the price of the purchased assets falls. This both guarantees against a pure bailout of the financial firms, and opens the door to a real infusion of capital, if that becomes necessary — and I think it will.

So it's not "a pure bailout" -- but it's still a bailout, paid for with money extorted from American taxpayers.

In other words, Krugman insists that we solve a problem that cannot be solved -- but that we do it more "efficiently" and "competently." This is precisely the argument that Democrats, liberals and progressives always make -- even with regard to momentous war crimes like the invasion and occupation of Iraq. In still other words: they concede the basic terms of the argument, and argue only over the specific implementation. And then they pretend to wonder why they keep losing the argument. Here's a clue: they keep losing the argument because they never engage it. If Krugman and the many others like him have their way, the immorality and the futility will continue, in economic policy, in foreign policy and in every other area -- but the immorality and futility will be carried out more "efficiently."

It's downright inspiring, that's what it is.

Take a look at a description of the famous Asch experiment in social conformity. Another simple test, as simple as recognizing that certain consequences are unavoidable should be. Yet many people got it wrong. You know perfectly well why they got it wrong:

To Asch's surprise, 37 of the 50 subjects conformed to the majority at least once, and 14 of them conformed on more than 6 of the 12 trials. When faced with a unanimous wrong answer by the other group members, the mean subject conformed on 4 of the 12 trials. Asch was disturbed by these results: "The tendency to conformity in our society is so strong that reasonably intelligent and well-meaning young people are willing to call white black. This is a matter of concern. It raises questions about our ways of education and about the values that guide our conduct."

Why did the subjects conform so readily? When they were interviewed after the experiment, most of them said that they did not really believe their conforming answers, but had gone along with the group for fear of being ridiculed or thought "peculiar." A few of them said that they really did believe the group's answers were correct.

Asch conducted a revised version of his experiment to find out whether the subjects truly did not believe their incorrect answers. When they were permitted to write down their answers after hearing the answers of others, their level of conformity declined to about one third what it had been in the original experiment.

Apparently, people conform for two main reasons: because they want to be liked by the group and because they believe the group is better informed than they are.

The pathetic truth is that most people fear genuine independence more than they fear death itself. So desperate are they for "acceptance" and so fearful of being thought "peculiar," they will deny the evidence of their own eyes and mindlessly repeat the lies and ignorance of others. When it comes to a subject like economics or foreign policy, they think: "Oh, that's so hard! I can't understand that. I'll just listen to what the 'experts' say. They know best."

If events of the last seven years have demonstrated nothing else at all, they should have made absolutely clear that "experts" are often the very last people you should look to for guidance. The experts are precisely those people most likely to repeat "conventional wisdom," that is, the views accepted by the ruling class -- because, by virtue of the fact that they are regarded as experts, they are part of the ruling class.

And now we see it all again. The bailout will be made. You, your children, your grandchildren and their children will pay for it for endless decades to come -- all because there is no brave child to say the emperor is naked. There is certainly no courageous adult like Robert La Follette. We argue over details, but the only argument that matters was concluded before it was begun.

And so, still one more time, I repeat my plea:

Grow up. Be adults about this. And for God's sake, be serious.

posted by Arthur Silber at 11:38 AM

Bailout May Endanger Companies By Revealing Their Insolvencies

I can't believe I just read this.

Analogies spring to mind. Taking the car to the mechanic could make it worse, by finding something wrong with it. Going to the hospital for a checkup could make you sick if you find out you have a disease. Checking your car's gas tank might make you less likely to drive it by revealing that it's empty.

Make up your own.

Personally, I'd like to know my car is about out of gas before heading out across the Great Salt Lake Desert...

Truthout:

Bailout Could Deepen Crisis, CBO Chief Says

Thursday 25 September 2008

by: Frank Ahrens, The Washington Post

Congressional Budget Office director, Peter Orszag, testifies before the House Budget Committee. Orszag warns that the proposed Wall Street bailout could actually worsen the current financial crisis. (Photo: Getty Images)

Asset sales may lead to write-downs, insolvencies, Orszag tells Congress.

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.

During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."

In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.

Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said.

In hearings on Capitol Hill so far this week, criticism of the bailout plan put forward by Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke has largely been restricted to the shape of the $700 billion proposal, how the money will be spent and what sort of oversight Treasury should have.

But Orszag yesterday questioned the wisdom of the plan itself, testifying that "it therefore remains uncertain whether the program will be sufficient to restore trust."

In yesterday's interview, Orszag said, "The key question is: What are we buying and what are we paying for it?"

Orszag offered alternatives, such as equity injections into particularly troubled companies, but allowed that those could lead to further problems, as well. In the end, he said, Congress must pass some sort of relief, if only because Wall Street is expecting it.

"If we did nothing, there is a significant risk of another collapse of confidence in the financial markets," he said.

Then, there is the paperwork cost of the bailout.

The budget office "expects that the administrative costs of operating the program could amount to a few billion dollars per year, as long as the government held all or most of the purchased assets," he testified, without defining what he meant by "a few."

Even as the financial markets rallied Thursday and Friday, Orszag said, the credit situation was so dire that "short-term lending was virtually shut down."

He said that the Treasury was acting as a go-between in short-term lending between banks. Instead of Bank A lending directly to Bank B, as is customary, Bank A no longer had confidence that Bank B could repay the loan.

So Bank A would give the money to the Treasury, which issued a security that was put into the Federal Reserve, which then issued the cash to Bank B.

If the government is forced to intermediate such ordinary transactions, commerce slows, credit confidence remains low, and operational strain is placed on the Treasury and the Fed.

"You don't want them in the middle of every short-term financial transaction," Orszag said.

During questioning before the Joint Economic Committee earlier yesterday, Bernanke acknowledged concerns about the bailout's effect on the budget.

"I think those concerns are very serious," he said. "But it's really a question of alternatives."

Business Week introduces Secretary Paulson to the US

an unbelievably ironic blast from the past... courtesy of a comment from a truthout story:
Business Week, June 12, 2006:

Mr. Risk Goes To Washington
Hank Paulson's profound understanding of risk and reward makes him the perfect pick for the Treasury

What does a Treasury Secretary do? Good question. It's much easier to tick off the things a Treasury Secretary can't do. He can't control the money supply, even though the Treasury Dept. includes the Bureau of Engraving & Printing, which prints the paper currency, and the U.S. Mint, which makes the coins (7.7 billion pennies last year). He can't set tax policy, even though he supervises the Internal Revenue Service. While he controls the Bureau of the Public Debt, he can't expand or shrink the budget deficit. One might say the Treasury Secretary, especially in the Bush Administration, gets all of the scut work and none of the fun.

That's why many people were surprised when Henry M. Paulson Jr., CEO of Goldman Sachs Group (GS ) -- a power position if ever there was one -- accepted President George W. Bush's request to become the new Treasury chief. Treasury has been so minimized in recent years that most news outlets have been conditioned to downplay it. Most of their accounts of the Paulson nomination were heavy on fluff and devoid of specifics. Paulson was repeatedly lauded for the "credibility" he would bestow on the Administration's economic policy in the eyes of the financial markets. Some commentators opined, hopefully, that he would be a voice for "fiscal responsibility" who would have a "seat at the table" when economic policy was made. Others saw Paulson as a "heavyweight" who could more effectively deliver the Bush Administration's message of economic growth before the November elections.

But all of that chatter misses the true significance of Paulson's appointment. What he'll bring to Treasury, and to Washington, is a more sophisticated understanding of risk and return than his two immediate predecessors had. As Treasury Secretary, he'll be perfectly positioned to explain to Senators and citizens alike the true consequences of various policy choices in such vital areas as free trade, where avoiding risk means falling further behind.

PROFIT MACHINE
Think of Paulson as Mr. Risk. He's one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits. By some key measures, the securities industry is more leveraged now than it was at the height of the 1990s boom. It has also extended its global supremacy since then.

Goldman, under Paulson's leadership, became one of the greatest and most profitable risk-taking machines ever built. Since 1999, when he took over as sole CEO, Goldman has competed with bigger rivals such as Citigroup (C ) and JPMorgan Chase & Co. by being aggressive, making smart gambles, and putting the company's own money into deals. Paulson stresses Goldman's willingness to take risks along with clients in the latest annual report: "Investment banks are expected to commit more of their own capital when executing transactions."

The subject has become an obsession at Goldman: how to find profitable risks, how to control and monitor them, and how to avoid the catastrophic missteps that can bring down whole companies. That means taking on more debt: $100 billion in long-term debt in 2005, compared with about $20 billion in 1999. It means placing big bets on all sorts of exotic derivatives and other securities. And it means holding almost $50 billion in the piggy bank, enough cash and liquid securities to keep the firm going in the event of a financial crisis.

By contrast, Robert E. Rubin, head of the National Economic Council and later Treasury Secretary under President Bill Clinton, was Mr. Prudent. Rubin also came out of Goldman Sachs, but it was a much smaller firm back then, and because Goldman was a private partnership, it had limited access to the public capital markets. That made Rubin far more attuned to the need to preserve and protect capital. Perhaps that's one reason why he pushed for frugality from the very moment he entered government.

The appointment of Paulson, Mr. Risk, as Treasury Secretary is at once ironic and completely appropriate. According to conventional economic wisdom, the single biggest problem the U.S. faces is a massive accumulation of debt. Both liberal and conservative economists warn that the bulging trade deficit, now roughly 6% of gross domestic product, poses a danger of sending the dollar plunging and causing a financial meltdown. The federal budget deficit for 2006 will hit at least $300 billion. And current projections call for Social Security and Medicare to run up enormous deficits in the long run.

Yet Goldman actually has leveraged up faster than the U.S. government in recent years. In 1999, Goldman had about $1.60 in long-term debt for every dollar in net revenue. In the same year, the federal government had $3.10 in debt, mostly long-term, for every dollar in revenue. Today the government has about $3.70; Goldman, around $4.

Clearly, Paulson isn't scared by debt and risk-taking. That might make him the ideal person to grapple with the U.S. economic and fiscal situation, which is more similar to Goldman's than most economists will admit. Facing intense competition from around the world, the only way the American economy can thrive is through risk-taking. Indeed, some economists have characterized the U.S. as a giant venture capital fund that sucks in money from overseas and invests it in high-risk, high-return projects.

OLD ECONOMY THINKING
The two previous heads of Treasury, Paul O'Neill and John W. Snow, came out of the old industrial economy. Before moving to Treasury, O'Neill was head of Alcoa Inc. (AA ), the aluminum giant, and Snow led the railroad giant CSX Corp. (CSX ) -- two industries where growth is slow and borrowing is to be avoided. Paulson comes out of the part of the economy where the U.S. still has a preeminent global position, growth is strong, and borrowing to take advantage of opportunities makes sense.

It's hard to know whether Bush and his staff understood the difference between Paulson and his predecessors when he was first approached several weeks ago. At the time, Paulson said he wasn't interested. He didn't change his mind until he met with Bush on May 20. According to an individual close to Paulson, the President told the Goldman chief he wanted a "very senior person" from Wall Street. He also said he wanted Paulson to play a broader role in his Administration than had previous Treasury secretaries, taking on the role of Bush's "principal adviser" on economic matters and driving economic policy.

Heady stuff. Yet it seems hard to imagine that Paulson will have more than a marginal influence on tax policy, especially if the Democrats make political inroads in November, as seems likely. And the dollar will be affected far more by economic events, such as the course of inflation and growth, than by anything the Treasury Secretary can do.

Instead, what Paulson brings to the Treasury Dept., the Bush Administration, and, in fact, all of Washington, in addition to his understanding of risk, is an ability to communicate its upside and downside.

The importance of risk shows up in virtually every economic issue of the day. Take free trade, a subject that falls under the purview of the Treasury Secretary. Keeping the U.S. open to foreign goods and services is essential for growth, both in this country and abroad. Yet free trade creates risks for Americans. If Paulson can communicate the pros and cons of trade to voters and politicians, he'll do the country a service.

Or consider tax cuts, a subject dear to the President's heart. Whether or not you believe lowering taxes is a good idea, the logic seems clear: Cutting taxes accepts the certainty of a bigger budget deficit today in exchange for a less certain boost to economic growth in the future. A Treasury Secretary who can get that idea across could be highly influential in Washington. Paulson is already on the record as favoring the risk-reward proposition. "I still prefer the situation we're in to a situation without a deficit but with no growth," he told German news magazine Der Spiegel last November.

Within Goldman, Paulson is known as an exceedingly effective communicator. If he can translate Wall Street's language of speculation into something the public and politicians understand, the President's gamble in appointing him will pay off for everyone.

Henry Paulson and the New Yazoo Land Scandal

Counterpunch.org:

A Cautionary Tale About Politicos and Financiers

By MICHAEL HUDSON

Present discussions of the mortgage mess are lapsing into an unreal world. Advocates of the $700 bailout are now rounding up a choir of voices to proclaim that the problem is simply a lack of liquidity. This kind of problem, we are told, can be solved “cleanly” (that is, with no Congressional add-ons to protect anyone except the major Bush Administration campaign contributors) by the Federal reserve “pumping credit” into the system by buying securities that have no market when “liquidity dries up.”

What is wrong with this picture? The reality is that there is much too much liquidity in the system. That is why the yield on U.S. Treasury bills has fallen to just 0.16 percent – just one sixth of one percent! This is what happens when there is a flight to safety. By liquid investors. Many of which are now fleeing abroad, as shown by the dollar’s 3% plunge against the euro yesterday (Monday, Sept. 22).

The question that the media avoid asking is what people are trying to be safe from? The answer should be obvious to anyone who has been reading about the junk mortgage problem. Investors – especially in Germany, whose banks have been badly burned – are seeking to be safe from fraud and misrepresentation. U.S. banks and firms have lost the trust of large institutional investors here and abroad, because of year after year of misrepresentation as to the quality of the mortgages and other debts they were selling. This is Enron-style accounting with an exclamation point – fraud on an unparalleled scale.

How many tears should we shed for the victims? The Wall Street firms and banks stuck with junk mortgages are in the position of fences who believed that they had bought bona fide stolen money (“fallen off a truck”) from a bank-robbing gang, only to find that the bills they bought are counterfeit – with their serial numbers registered with the T-men to make spending the loot difficult. Their problem now is how to get this junk off their hands. The answer is to strike a deal with the T-men themselves, who helped them rob the bank in the first place.

There is a long pedigree for this kind of behavior. And it always seems to involve a partnership between kleptocratic insiders and the Treasury. Today’s twist is that the banksters have lined up complicit accomplices from the accounting industry and bond-rating companies as well. The gang’s all here.

In view of the mass media these days calling Henry Paulson the most powerful Treasury Secretary since Alexander Hamilton, I think it is relevant to look at two leading acts of Mr. Hamilton that represent remarkable precursors of Mr. Paulson’s present $800 billion “cash for trash” deal with the Bush Administration’s major Wall Street campaign contributors.

The two most appropriate parallels are the government’s redemption of “continentals” – paper money issued by the colonies during the Revolutionary War – and the Yazoo land grants. During the Revolution, states had issued paper currency to pay the troops and meet other basic expenses. These paper notes had depreciated, hence the term “not worth a continental” (not least because of large-scale counterfeiting by the British to cause economic disruption here). In the crisis, men with hard cash went around buying continentals at a great discount. In one of the most notorious and debated acts of the Constitutional Convention, the new United States Government redeemed this depreciated paper currency at par.

It was like the Treasury today buying junk mortgages at face value. But it is in the ensuing Yazoo scandal that we find a perfect combination of financial and real estate fraud on a magnitude that helped establish some of America’s great founding fortunes, creating dynastic wealth that has survived down to the present day.

The Yazoo land fraud in Bourbon County, Georgia is one of the most notorious incidents of our early Republic. In January 1795 the state sold 35 million acres to four land companies for less than 1½¢ an acre. This was the result of bribery arranged by James Wilson – whom George Washington subsequently rewarded by naming him to the Supreme Court. (Moral: Crime pays.) To add insult to injury, the state was paid in depreciated currency, the “continentals.” So great was the outcry that a new state legislature was elected, and revoked the sale in February 1796, accusing its beneficiaries of “improper influence.”

But a month before this new legislature was convened, one of the companies (the Georgia Mississippi Land Company) sold over 10 million acres, nominally at 10¢ cents an acre, to the New England Mississippi Land Company, which was quickly organized for just this purpose by some eminent Bostonian speculators, headed by William Wetmore. Only part of the money actually was paid in cash, and the transaction was largely a paper one. The company quickly hired agents to began selling shares to the public. Widespread speculation ensued in many states, each new investor becoming a partisan urging the national and state governments go along with the original fraud.

New fraudsters jumped on board. Patrick Henry (“Give me liberty, or give me death”) headed up the Virginia Yazoo Company, which made a deal with Virginia Governor Telfair to buy twenty million acres of land at a penny an acre – paid for with the worthless continentals. The public was furious, but the “free marketers” of the day asked, what was wealth, anyway, but a reward for risk-taking.

After the Yazoo land was turned over to the federal government in 1803, a series of Congressional investigations reported that the Boston company actually had paid little if any of the purchase price. (This is now called debt leveraging.) But the company sued, and lobbied Congress for over a decade to get compensation for its paper losses – that is, its lost opportunity to profit from the transaction. In 1814, in the turbulent aftermath of the War of 1812, Congress passed an indemnification act compensating them and other Yazoo investors with $8 million of public funds.

This settlement helped establish a fateful legal precedent known as the doctrine of innocent purchasers possessing certain vested rights. The ruling was steered through the Supreme Court by James Wilson, who in 1782 (along with Robert Morris as the bank’s president, and Gouverneur Morris) had obtained from Pennsylvania’s legislature a charter for the Bank of North America on terms similar to those of the Yazoo land claim.

As Charles Beard has pointed out in his classic Economic Interpretation of the Constitution, James Wilson, the two Morrises, and two other bank directors (Thomas Fitzsimmons and George Clymer) acted as delegates to the Constitutional Convention, where they shaped America's laws so as to facilitate their de-accessioning of public property and obtained special rights and charters for banks and other monopolies. (The word “privatization” would take nearly two centuries to enter the lexicon.) After the Bank of North America was so mismanaged that a money panic ensued, Pennsylvania revoked it's charter. Wilson sued, arguing “that the original act was a grant of a VESTED RIGHT. That the charter could not be repealed without ‘IMPAIRING VESTED RIGHTS, and the rights of innocent parties.’ The legislature yielded, and in 1787 it reincorporated the bank. Thus originated the clause that Wilson had inserted in the present constitution forbidding any state to pass legislation impairing the obligation of a contract. And out of it has come Supreme Court decisions that have given this country the blackest record of validated land frauds and bribery known in history,” for it blocked state legislatures and Congress from undoing the results of overt bribery. (The story is told in Thomas L. Brunk, American Lordships, or A Brief Insight into the Suppressed History of Land Sharks and Their Control Over Government and Industry (Sioux City, Iowa, 1927, p. 84).

The Supreme Court had ruled (in response to John Marshall’s pleading the Fairfax land-fraud case in Virginia) that what mattered was not the methods used to obtain a grant or contract, but the fact that innocent purchasers would be injured by repealing such contracts once they had been entered into (Chandler 1945:74,390). Even outright frauds were held irrevocable by subsequent legislation, on the ground that once a business claim was sold to an innocent purchaser, undoing the deal would be unfair. The unwitting buyer would be left holding the proverbial bag. Myers (1936:217) finds this to be “the first of a long line of court decisions validating grants and franchises of all kinds secured by bribery and fraud.”

The new doctrine provided a motive for privatizers to cash in quickly by selling out shares of fraudulent transactions to speculators and other buyers, who could then ask the state to “make them whole” for having injured them in revoking their wrongful purchase! Likewise today, polluters and real-estate holders are suing the government to be compensated for public laws that prevent them from making money by violating ecological and other real-estate regulations. Their demand is to be made whole for gains they allegedly would have been able to make had such public laws not been passed!

The “innocent purchaser” and “vested interest” doctrines made it hard to undo fraud, if only because the alternative was to restore the misappropriated asset from the stock-buying public to the state. The Supreme Court ruled it preferable to let the first thief legitimize his fraud, leaving the “innocent buyers” in possession of the stolen property. Possession became, ipso facto, nine-tenths of the law. The moral of this story was that once you obtain public assets, even through bribery, it is yours, at least if you make the transaction complicated enough and involve enough “innocent parties” to make any restoration of the status quo ante hopelessly complicated.

The Yazoo incident is only exceptional for its size and the fact that it became a precedent for future practices. In 1835 the Senate Committee on Lands reported: “The first step necessary to the success of every scheme of speculation in the public lands, is to corrupt the land officers, by a secret understanding between the parties that they are to receive a certain portion of the profits.” Sixty years later, in 1895, Iowa's Governor William Larrabee wrote on how the system had been perfected (largely by the railroad robber barons): “Outright bribery is probably the means least often employed by corporations to carry their measures. ... It is the policy of the political corruption committees of corporations to ascertain the weakness and wants of every man whose services they are likely to need, and to attack him, if his surrender should be essential to their victory, at his weakest point. Men with political ambition are encouraged to aspire to preferment, and are assured of corporate support to bring it about. Briefless lawyers are promised corporate business or salaried attorneyships. Those in financial straits are accommodated with loans. Vain men are flattered and given newspaper notoriety. Others are given passes for their families and their friends. Shippers are given advantage in rates over their competitors. The idea is that every legislator shall receive for is vote and influence some compensation which combines the maximum of desirability to him with the minimum of violence to his self-respect. … The lobby which represents the railroad companies at legislative sessions is usually the largest, the most sagacious and the most unscrupulous of all. … Telegrams pour in upon the unsuspecting members. … Another powerful reinforcement of the railroad lobby is not infrequently a subsidized press and its correspondents.”

Gustavus Myers’ History of the Great American Fortunes (1936, pp. 218ff.) gives the details of this and other frauds that have shaped American history. The moral is that great gifts to insiders have effects that will last centuries. That is what is being threatened today with Mr. Paulson’s “clean” giveaway to his Wall Street clients.

The moral is that there is a great danger in having a Treasury Secretary represent insider financial interests rather than the national interest.

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

Thinking of buying foreign currency to save your dollars?

A few months back I considered doing just that. Looks like I may have missed my chance.,

Catherine Austin Fitts's blog:

Slow Burn Capital Controls

Catherine and News & Commentary,

September 15, 2008 at 6:09 pm

A broker reported to me today that their clearing agent is requiring them to mark purchases of AAA sovereign bonds denominated in foreign currencies as “speculative” investments.

Pressure to do this apparently is coming from the U.S. Securities and Exchange Commission (SEC). This means if Congress and the administration request that the SEC take action to “stop speculation” a mechanism will be in place to insure that U.S. investors cannot protect themselves from a falling dollar.

Lest capital controls domestically inspire you to leave the country, you may want to educate yourself about the exit tax that was passed by Congress in the Heroes Act of 2008.

Mike Morgan analyzes Paulson's call to Buffett

Tuesday, September 23, 2008

Paulson Calls In Buffet

Very sad times. Remember the Maria Bartiromo interview with Buffet, when he slipped and said Paulson called him on the big Sunday a couple of weeks ago? Many people wondered why Paulson would call a private citizen to discuss Fed matters? Obviously, we now know.

Sham Deal - Buffet gets special stock with a 10% dividend and he gets the right to by another $5B at $115, when the stock was trading at $125 and the deal makers knew it would spike on this kind of news. So why didn't Goldman set a higher price on the stock? Buffet would have never done the deal. He probably cut this deal with Paulson himself when they spoke on that funky Sunday.

Conspiracy? - We have never witnessed anything like this, with rule changes and special deals and the biggest thief in the world, running the financial world. The Buffet deal could only have been done if Goldman had a new business model . . . because the old business model was busted. Voila, they have a new business model as of Sunday night courtesy of King Henry . . . and less than 48 hours later, Buffet come in with $5B.

Someone needs to question that Sunday conversation. Someone needs to question this Sunday's move to bring Goldman under the Fed's wings as a commercial bank. Someone needs to question the very deal struck with Buffet. But no one will.

Main Street or Wall Street? - The price of Buffet's stock is at $4,300 for Class B and $128,800 for Class A . . . because he doesn't want to deal with Main Street. And Warren Buffet stands to lose more in a market crash than any person on the planet. Warren Buffet's deal with Goldman is just another example of the power of Paulson and his Wall Street fraternity.

Free Markets Will Prevail - Eventually, the free market will prevail. Eventually, the markets will crash. But once again, the market will bubble up on the Buffet news. Paulson is truly brilliant. There could not have been a better moment than now to pull this card out of his sleeve. After today's Hearings, Paulson was cooked and he was going to be the focus of the media tonight. Not anymore. Now the focus will be on the household name of Warren Buffet and his purchase of stock. But . . . and this is a HUGE but . . . Even though the consumer and the PPT will be back in there buying tomorrow, nothing has changed. The toxic stuff is still there. We have not resolved anything. This just give Wall Street more time to suck up the dollars and more time to trade in and out of pension fund portfolios.

Ban On Short Sellers - Maybe we need to question why a sham deal like Buffet's should be allowed. It is the opposite of what we saw with short sellers, but at least the short sellers were all dealing on a level playing field. In fact, the deal would not have been done at all if Paulson did not instruct Cox to ban short selling.

Paulson Crossed the Line - Why has no one yet publicly questions why Buffet has a private call from the Secretary of the Treasury about a company the guy ran as COO and CEO . . . and government business with a private citizen involved in Wall Street so heavily. This was a private deal with our top government guy in the mix. If we thought we had stinky fish yesterday, we have super-stinky fish today.

I hope you will all take a moment to write your Senators and Congressmen again, because market manipulations like this will destroy everything we have ever dreamed of. Wall Street is pulling out all stops to make sure Main Street crashes . . . so Wall Street can come back in and pick up the pieces for next to nothing.

Tomorrow . . . The markets will probably rally on the Buffet Bail-Out, but eventually the stink will overcome even Warren Buffet. He had no choice. If no one stepped up to the plate tonight, it was all over tomorrow. And he would have suffered huge losses. We already saw that this afternoon. Obviously, Paulson still has weapons. We just never dreamed he had so many fraternity brothers. I think this deal will come back to haunt even Buffet, because there is so much more to be written . . . and even great men (or formerly great men) can't stop Mother Nature or the Free Markets.