Elaine and Catherine and why war is big money

I collect all these odd articles from around the net, and certain folk have become favorites sources of mine, although they normally inhabit separate little corners of the internet. It is therefore nice when one of them mentions another of them.

Elaine Meinel Supkis:

Catherine Austin Fitts doesn’t concentrate on foreign news to the degree that I do this but her coverage of the US perspective of this Great Unwinding is full of rich details and tying together important matters and this article is a typical example: the mess in the Pentagon is very much one of the root causes of not only our economic collapse but the collapse of our imperial powers. Obama just made the #2 man in the Pentagon, a lobbyist who pushed for more and more spending. This is a clear sign that the Pentagon Milch Cow will continue to eat up most of our tax dollars and give us red blood and red ink aplenty.

I keep pointing out that the ‘mistakes’ and ‘glitches’ in systems are deliberately encouraged, widened and exploited. When people find holes in the walls leading to the Cave of Wealth and Death, they get out pick axes and open them wider. In the case of the Pentagon, the concept of a Cave where there is vast wealth but also death, is obvious! For, the only way to make real big money is to start bigger wars! And if there is infinite money, there will be infinite wars.

A great example is WWI: all the major empires fighting that stalemate war had an outside source of funding. The brand new Federal Reserve is a private bank. European bankers helped engineer its creation. Working with the US branches of European banks, they were able to funnel epic amounts of money.

As millions of European soldiers died hideous deaths in massive trench warfare, the money paying for that butchery flowed like a gushing river, from America. No one wanted to surrender or negotiate because no one had to raise taxes to keep fighting. They all merrily collected IOUs to American banks. This caused the Great Depression when none of them could even pay back the interest owed on these loans.

The Pentagon has figured out how to suck down infinite sums without infinite soldiers dying. By killing mostly civilians in small wars across the globe, the money lending to the Pentagon can flow effortlessly without citizens even noticing this since none of this appears to be paid for via tax collections. I wish to thank Catherine, by the way, for detailing the process by which these accounting methods used by our government, work. We can easily fix this and it is impossible to fix this since this is how so many people who bribe Congress and the President get their wealth! Just like the noxious cycle of voting for billions of dollars for Israel feeds corruption as Israel uses some of this money to funnel it back to Congress again.

How many ways does this look like a war crime, part 2

Elaine Meinel Supkis continues to educate me by drawing together a host of disparate news items and explaining them in the context of history.

That last post of mine shows the ship that was rammed, trying to bring relief to civilians, civilians who legally, democratically elected a government that has been denounced by our illegally elected one.

As Elaine points out, some countries have asked for humanitarian help to be allowed into Gaza. Several countries have the navies to actually force their way in, and would if they were serious about helping out. But only one country is actually doing anything about it.




That country is Iran.

Their supply ship, carrying 2000 tons of food, medicine, and "other" was to leave today, and get to Gaza in 12 to 14 days.

Elaine halfway expects WWIII to start at that point.

Elaine explains how "free trade" has killed her town

Elaine Meinel Supkis:

[. . .]

This week, Israel is bombing Gaza to smithereens. But Israeli flower importers are building more and more greenhouses to raise the exact same flowers our own town used to raise in identical greenhouses. But our greenhouses stand empty while Israel’s business grows, just for example. Israel and Columbia where the US spends a fortune ‘fighting drug growers’ has utterly destroyed the Berlin, NY rose growing business.

The deals the US made over and over again were all designed to help other nations not just build businesses which is fine with me, but to build EXPORT businesses focused mainly on exporting to the US. This is killing our nation. The photo at the top of this story, for example, is the door of one of the newest and biggest greenhouses built here in Berlin just one decade ago. It is not merely empty, it is being destroyed by snow, wind, rain and vandalism.

We may as well have planes dropping bombs on us. Our community, which used to have thriving stores of every sort, is now nearly an economic ghost town and all of this has happened not 100 years ago but in the last decade.

[. . .]

Thomas Friedman's econimic thoughts may be evolving

Elaine Meinel Supkis:

Thomas Friedman’s World Is Flat Broke: Politics and Power: vanityfair.com

It would be easy to dismiss today’s rant (however spot-on it might be) by New YorkTimes columnist Thomas Friedman as yet another ideological tirade against the U.S. automobile industry. But based on the bad news coming out of shopping-mall owner General Growth Properties [GGP], it is no wonder Friedman is feeling crankier than usual. That’s because the author’s wife, Ann (née Bucksbaum), is an heir to the General Growth fortune. In the past year, the couple—who live in an 11,400-square-foot mansion in Bethesda, Maryland—have watched helplessly as General Growth stock has fallen 99 percent, from a high of $51 to a recent 35 cents a share. The assorted Bucksbaum family trusts, once worth a combined $3.6 billion, are now worth less than $25 million.

But don’t expect Friedman to go from Beirut to Jerusalem begging for money. The distinguished columnist (and former New Establishment member) is still said to get at least $50,000 per speaking engagement on top of the millions he makes writing best-sellers.

He lost 99% of his wealth? This is good news. I wonder if he will finally figure out that he was a fool, a knave and a bastard? He is totally at fault here. The mess that ate up his wealth is the same that is eating all wealth: too much debt. The organization that allowed this beastly man to live in a mansion and ride in a private jet and lecture us little people from his high perch was all based on debt.

[. . .]

When stocks were at $70, I bet old Friedman felt like a king. Well, I hope he enjoys his new pauper status. Maybe he can write a book about how great it is to be protected rather than ravaged by exterior forces. Maybe this fool will connect more than two dots and figure out how his wife’s stocks became a bubble. For what we are looking at is where just one part of the massive Japanese carry trade lending flowed: to any organization willing to sop it up. This flood of funny money is now vanishing and so all the stocks that fed off of it are falling off the exact same cliff.

Average Change in Annual Houshold Income in Various Countries

from a tiny portion of a long post by Elaine Meinel Supkis:

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

Elaine Supkis has some good news for banks

...and some frightening news about the relationship between China and the US.

(Elaine's blog has become the first blog I check every day.)

Elaine Meinel Supkis in Money Matters:

Last month, Vohs wrote:

The yield difference between 10-year treasury notes and 30-year conventional mortgages is closing in on the 22 year high reached in March. This means that conventional mortgages have not been this profitable since 1986. Naturally, this reflects the distressed state of the housing market, but it also reflects the reward that can be reaped by well financed and prudent lenders. I still believe that the greatest returns for the remainder of this year can be found in the banking sector. Every excess dollar that does not go into consumption and therefore go to Asian economies, will stay in the country and will be used to pay off debt. The great unwind will benefit the banks.

The destruction of the Derivatives Beast and its feeders and enablers will definitely benefit NORMAL banks. Traditional banks run the less-profitable, old-fashioned way will be back and stronger than ever. They do have to fear everyone pulling all money out of all banks. I see people online shrieking that we all should pull our money out of all banks. This will definitely destroy the system. But we must not panic. For the people involved in this mess are very specific and easy to arrest. They are sitting in the offices of all the top investment banks listed at the MarkIt site. Some of them took their golden parachutes and jumped out of the magical flying piggy bank. But we know where their palaces are and they, too, can be arrested. If offshore, we can use our navy and air force to run them to ground.

Here is an anonymous but very astute take on all this from China:

How China could wreck the US economy

The recent bailout package being approved in the US Congress needs to be viewed in the context of the spurt in the accumulation of forex reserves of China by about $500 billion in the last six months to about $2 trillion in aggregate.

This gargantuan build-up of forex reserves by China has strangely received very little attention of economists, policy analysts, currency traders and, of course, geo-strategists around the world.

Why is China engaged in this exercise? What could be its implications on the on going global financial crisis? Could China trip the bailout package announced by the US last week? Crucially what are the implications for the existing global order?

What is intriguing in the Chinese forex reserve build-up is that both trade surplus and foreign direct investment account only for a part of this gargantuan pile. After adjusting for all known sources of reserve accretion, experts conclude that approximately an excess of $200 billion could have flown into China as 'hot money' -- read inexplicable flow of funds -- in this period.

The Economist -- in one of its issue in recent months -- quotes Michael Pettis, an economist working in China, who explains how and why hot money flows into China. According to Pettis, hot money comes into China when companies overstate FDI and over-invoice exports.
*snip*
What is worrying the Americans is that China accounts for about one-fourth of the global forex surpluses and are the counterparts of the US current account deficit. Put simply, while China accumulates forex reserves, the US accumulates a corresponding debt. And the Americans are aware that it is the Chinese are the biggest accumulators of the US treasury bonds.

What is indeed intriguing is that a country -- the US -- that prides on being 'independent' of other countries, especially in security affairs, is now caught in a quagmire as it has to be constantly in the good books of the Chinese government if it wants to avoid a sudden shock.

Countries that hold large US dollar denominated forex reserves have a powerful tool in their arsenal -- they could wreck American financial markets at a mere click of a mouse by selling their dollar holdings. Imagine China with a holding nearly $2 trillion worth of treasury bonds seceding to sell the same overnight.
*snip*
All this is not pure economics as it is made out to be. Rather, it was and remains a well-planned economic, political and military strategy of the Chinese

Sounds like this guy knows me! Heh. And yes, this is a very well-planned strategy of the Chinese communist leadership! They hatched it long ago and I witnessed the egg laying. I warned the State Department, I tried to get this talked about on TV since 1986 and I am totally locked out of the system because the guys who are busy destroying our nation for the Chinese don't want to hear this. They want to believe they are NOT traitors but great patriots who just happen to be lining their own pockets.

Which was part of the Chinese plan. Alas, I must have talked too bitterly about how easy it is to bribe US negotiators, politicians and officials! Well, we walked into this trap, ourselves. We can't blame the Chinese for taking advantage of our own moral failings. Time for us to grow up and behave.

After we kill the Derivatives Beast and arrest all the bankers who created this monster.

Elaine Supkis explains why Insurance can promote Recklessness amongst the Reckless

Elaine Supkis at Money Matters:

Ron Paul: Buying bad debt is the wrong solution

(CNN) -- Paul: Well, we need to do a lot, but a lot differently. We have to recognize how we got into this problem. We have too much debt. We have too much malinvestment.

Roberts: OK, OK. So we recognize all of the things that got us here. But, right now, today, what would you do, if not this bill?

Paul: You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market to adjust prices downward. And that's what we're not allowing to do.

If there are too many houses and the prices are too high, the sooner we get the prices down to the market level, as soon as we quit trying to encourage more housing -- this is what we're doing. They're trying to stimulate houses and keep prices high. It's exactly opposite of what we should do.

So, we should get out of the way and not buy up bad debt. There's illiquid assets, but most of those are probably worthless. They're mostly derivatives. And we're sticking those with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there's no doubt about it, for a year. But if we keep propping a system up that's not viable, we're going to have a problem for decades, just like we did in the Depression. That's what we're on the verge of doing.

[. . .]

Roberts: So what do you then think of this idea of raising the limit on [FDIC] insurance to $250,000, from its current cap of $100,000?

Paul: Well, on the short run it will calm the markets. People will feel better. I might even personally feel better for a week or two.

But I know that long term, it's the wrong thing to do. I opposed this in the early '80s when they went from 30 [thousand dollars] to 100 [thousand dollars], saying it would lead to more problems like this with malinvestment. It would cover over the mistakes. And the same thing will happen.

But if we raise it to 250 [thousand dollars], people are going to feel better, then it will keep the bubble going for a little while longer and putting more pressure on the dollar. If the dollar lasts longer, then finally the world will give up on the dollar -- and then we will have a big problem that nobody has even really begun to think about.

Roberts: A lot of people might hope that you're wrong with your projection.

Paul: I do too. I hope I'm wrong.

Roberts: You tend to be right on these things on occasion, though. Dr. Paul, it's good to talk to you. Appreciate it.

Ron is right about insurance. There are several important things to remember about insurance: too much makes for recklessness. For example, if people get unlimited insurance to build on earthquake or tsunami zones, they will cheerfully build flimsy stuff in these places. If homeowners have unlimited insurance to build in tornado or hurricane zones, they will ignore Mother Nature and pile on expensive and totally hopelessly functional buildings in these zones. It is OK to build where things can be destroyed! But to ask everyone to PAY for the mess is totally wrong in the long run. There has to be limits or everyone will be reckless and bankrupt any system doing this too much.

There has to be a price to be paid! During one housing collapse, from 1974-1980, many building owners would pile on insurance on a building and then hire arsonists to torch them. Much of NYC saw arson this time frame. All it took was passing a law concerning insuring buildings too much and it stopped. So here we are, across the planet, frightened governments are insuring more and more bank accounts...NO MATTER HOW RECKLESS THE BANKERS WERE!

Banks like Wachovia offered high returns on savings because they were being reckless with their lending. Now, people lose their accounts. The government wants to prevent the total loss of savings so they had the FDIC protect the little people of the middle class. But this is being rapidly expanded to protect the rich. This, in turn, encourages them all to be increasingly careless in search of bigger and bigger returns. Balance is lost!

[. . .]

As Cash Leaves, Money Funds Sign Up for U.S. Protection

Less than a week after the Treasury Department announced its ad hoc insurance program for money market funds, some of the nation’s largest mutual fund companies have already announced that they are signing up for coverage.

Those companies include Charles Schwab, Federated, Morgan Stanley, Putnam Investments, BlackRock and JPMorgan Chase. Several other companies said they would most likely enroll before the deadline on Wednesday.

But despite this new government safety net, investors have continued to pull cash out of money funds, especially the so-called prime funds, which have the widest latitude to provide short-term credit to banks and businesses.

According to iMoneyNet, a research firm, almost $80 billion was withdrawn from prime funds even after the new guaranty plan was announced on Sept. 19.
*snip*
All told, money fund assets have shrunk by $100 billion, to $3.33 trillion, over the last three weeks, and prime funds have dwindled by more than $370 billion, to $1.6 trillion.

Damn, they are now insuring PIRATES as well as gnomes! These investment bankers created the Derivatives Beast in order to insure themselves against losses. This is the 'hedging' all the offshore hedge fund hell hound pirates were yapping about all this time. Now that it has turned on them, they are running to our government which they have been bankrupting, seeking safety.

This stinks, big time. All their loot remains offshore! They want to protect this stuff while demanding the government they defrauded spend its energy on protecting them, not us. I remember last year when the US was boasting that all world money was flowing into US based accounts. But this was a lie. The HEADQUARTERS of the pirates were in the US. But the holding points for the loot was all offshore in Queen Elizabeth's pirate coves. The entire system is based on negative wealth flows whereby wealth flows OUT of the US, not INTO the US. This is very significant.

Credit was given to the US so that DEBTS were flowing into the US, NOT WEALTH. This is very simple and to stop it, equally simple. The US navy simply has to sail to all the pirate islands and seize them and the computers there. As well as the postal boxes. Then, locks are put on everything. Then the land forces of the government can enter the towers in NYC and elsewhere and seize the rest. But this won't happen because our government is owned, lock, stock and gun barrel, by these pirates who get their own way at every turn.

This is obvious with the feeding frenzy in DC this week. Once it was decided on Monday that the ONLY way to save our economic system is to let wild overspending slosh over everything combined with making money out of thin air, the top blew on this volcano. Note that there is now NO regard whatsoever to balancing any budgets even slightly. Instead, the feeling is, 'Hey, let's go all the way! WHO CARES? We have infinite credit!'

Zurichers Say UBS `Won't Go Bankrupt' Like Swissair

(Bloomberg) -- Hartmuth Wetzel stood in front of UBS AG's headquarters in Zurich, watching a flat-panel screen through a window for signs of a rebound in the Swiss bank's shares.

``UBS won't go bankrupt,'' said the 65-year-old industry consultant, who was debating the financial crisis in a crowd of mostly middle-aged men nervous about the fate of Switzerland's largest bank. Wetzel said the stock had already fallen too much for him to sell it, and besides, he has his cash in the bank. ``That's my hope.''

Writedowns of $44 billion, the most by any European lender, helped cut 70 percent off UBS's market value from its peak last year and eroded confidence in the country's third-largest private employer, which traces its roots back more than 150 years. UBS, which says the three keys in its corporate logo signify confidence, security and discretion, this year reported the first outflows of client assets in almost eight years, driven by Swiss customers.

When the gnomes of Switzerland sold a huge amount of their gold reserves, I said, 'This is the end of Switzerland as a great banking power'. And so it goes. They wanted to prove that gold was useless. Instead, they proved themselves useless.

Latin America Economic Boom Threatened as Credit Freeze Deepens

(Bloomberg) -- Latin America's fastest economic expansion in 30 years may be coming to an end as the global credit crunch stunts investment and squeezes demand for the region's commodities.

``We're in a serious economic crisis,'' Colombian Vice President Francisco Santos said in an interview in his Bogota office. ``Financing is going to get scarcer and scarcer, and that means that investment is going to be difficult to attract.''

The region's growth in 2009 may be cut to less than 3.3 percent, from 4.6 percent this year, according to economists at Barclays Capital. The slowdown will make it harder to further reduce poverty that's fallen to its lowest levels since before the ``Lost Decade'' of the 1980s in which countries borrowed more than they could repay.

All bubbles are the same. For the last 500 years, we have a clear record as to how they develop and collapse. Yet no one learns. Even when people swear they will be sober and careful, once some great banking power decides to run riot, they all run riot. The present bubble popping started in China, not the US. China, not the US, decided to raise reserve ratios of the bankers. China, not Europe, decided it was time to push down the wild stock markets.

This has changed the flows of the planet and the frantic efforts to keep this bubble from popping is just making things worse, not better. We KNOW how this will end: all the profits of the bubble economy must be eaten by one of the divine beings who control our fates. We can't keep it. The INFRASTRUCTURE this built will remain if we don't go insane and destroy all if it, too, in massive world wars. But History gets the last laugh. Humans nearly always destroy this in massive wars when bubbles pop! We can't help ourselves. This is because we are not only a species that likes to build, we are killers who like to destroy.

Watch any child playing at building blocks or sand castles. Always, the child or its playmates end up knocking it all back down.

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.

Is this the week the US economy melts down?

There are so many interesting articles that I can't seem to stop reading. It's like watching a trainwreck in slow motion.

Or it's like this. I've thought for years that having George Bush and Company, Inc., running things was like having a drunken underage frat boy driving the bus with all your loved ones aboard, veering off the road, and nearing the edge of a precipice. Well, now we've officially driven off the edge. The wheels have left the ground. The bus is hurtling through space. What will happen when it hits bottom? I can't help but watch.

According to all the folk I can find who seem to know what's happening, every Fed bailout of crooks and theives just digs the chasm the bus is falling into that much deeper. Here's a selection of excerpts from astoundingly dismal and horrific posts for your entertainment:

First, a gaggle of links from today's Online Journal—

The Final Meltdown Explained:

Today’s banking crisis is the THIRD trillion dollar plus US-caused financial meltdown in the last 20 years. Each one of these crises came into being through the same basic mechanism . . . the fraudulent over-valuing of financial assets by Wall Street -- with a “wink and a nod” (and sometimes a lot more) from the White House and Congress.

The fraudulently valued assets stimulate the economy, impart the illusion of health and then, inevitably, the fraud goes too far and the whole house of card comes painfully crashing back to earth.

The three trillion dollar plus frauds were:

Fraud #1: The so-called “Savings and Loan Crisis” of the late ’80s

Fraud #2: The so-called “Tech Bubble” of the late ’90s

Fraud #3: The so-called “Credit Crisis” of today

How the scam works

The mechanism of these frauds is simplicity itself. Take a shaky financial asset and blow up its value and then sell as much of it as you can. In the “Savings and Loan Crisis,” the instrument was junk bonds. In the “Tech Bubble” it was Internet stocks. In the “Credit Crisis” it was individual mortgages collected into pools and then resold to investors.

In each case, normal, well established “bread and butter” financial principles were consciously thrown away by Wall Street with no hint of protest from federal regulators.

[detailed descriptions of the three trillion dollar scams follow...]

Mike Whitney : Grasping at Straws—

On Friday morning, Senator Christopher Dodd, the head of the Senate Banking Committee, was interviewed on ABC’s “Good Morning America.” Dodd revealed that just hours earlier at an emergency meeting convened by Secretary of the Treasury Henry Paulson and Federal Reserve chairman Ben Bernanke, lawmakers were told that “We’re literally maybe days away from a complete meltdown of our financial system.” Dodd added somberly, that in his three decades of serving in public office, he had “never heard language like this.”

The system is at the breaking point, and despite Wall Street’s elation over the proposed $1 trillion dollar bailout to remove toxic mortgage-backed debt from banks’ balance sheets, the market is still correcting in what has become a vicious downward cycle. This cycle will persist until the bad debts are accounted for and written off for or until the exhausted dollar-system collapses altogether. Either way, the volatility and violent dislocations will continue for the foreseeable future.

[. . .]

The malfunctioning of the markets and the freeze-over in the banking system are the outcome of a massive credit unwind instigated by trillions of dollars of low interest credit from the Federal Reserve, which was magnified many times over via complex derivatives contracts and extreme leveraging by speculative investment bankers. This has generated the biggest equity bubble in history. That bubble is now set for a ”hard-landing” which is the predictable result of an unsupervised marketplace where individual players are allowed to create as much credit as they choose.

If Paulson is not removed and his rescue plan scrapped altogether; the dollar will lose its position as the world’s reserve currency and the US government will face a historic funding crisis as foreign sources of capital dry up. That will thrust the country into a hyper-inflationary depression.

Jerry Mazza: Financial terrorism: US taxpayers bail out Wall Street criminals—

“If you want to know who to blame for the past 5 years of naked shorting, you only have two places to look: the financial brokers themselves, and the nonfeasance of a feckless SEC.” And so what goes around comes around.

But now you know. We’re under attack. Even my conservative broker said, “Somebody is making money on this.” That is just the way certain individuals made millions on 9/11, having foreknowledge of the coming event, by betting on Morgan Stanley (located in the North Tower), United and American Airlines’ stock to tank, and by betting on defense industry stocks to zoom up. The real revelation here is that the market and its so-called protective systems are offering us about as much protection from foreign and domestic attack as NORAD’s air-defense system did on 9/11. America once more is under fire.

As on that day, Cheney was in the White House bunker directing activities, and Bush was stranded somewhere listening to some school children read a goat story. And above them, some financial elites were pulling the strings to pull down the American economy and make us less than a banana republic for their continued picking. Seven years later, hardly anything has changed.

Why Elliot Spitzer was Assassinated:

The US news media failed to draw the obvious connection between the bizarre federal law enforcement investigation and leak campaign about the private life of New York Governor Spitzer and Spitzer's all out attack on the Bush administration for its collusion with predatory lenders.

While the international credit system grinds to a halt because of a superabundance of bad mortgage loans made in the US, the news media failed to cover the details of Spitzer's public charges against the White House.

Yet when salacious details were leaked about alleged details of Spitzer's private life, they took that information and made it the front page news for days.

Then some links from what have become some of my other favorite sites...

Elaine Supkis: Bailout Bill Hitting Congress September 26!

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

IOZ: Gladitorial Combat and Other Entertainments—

400 point daily swings aren't indicative of, whadayacallit, a functioning market, but of a gang of panicked, headless chickens reacting to any bit of data with no holistic, synthetic, systemic analysis of just what the fuck is going on. Traders have absolutely no idea what they're doing, thus the wild gyrations. The notion that this is a "liquidity crisis" spurred on by sad-sack psychology, that the solution consists of a billion here, a trillion there in public-sector capital, is only that much more indicative that the geniuses running the store can't even read a balance sheet. I mean, the largest single financial entity in the world, which is the United States Federal Government is trying to rescue the so-called private economy by a.) absorbing trillions of dollars in debt obligations and b.) making multi-billion-dollar, off-the-books cash payouts from its own treasury. That ain't psychology; it's catastrophe.

I suppose this is all bad for my retirment account, but damned if I'm not enjoying it. Watching market apologists who believe that the storm is going to blow over and the ship right itself sometime in the next forty-odd days get swept overboard, food for crabs, is going to be even better. I caught a brief snippet of Kudlow the other day and thought to myself, Now there is a man with blood in his stool. At this point, these motherfuckers better hope the Large Hadron Collider swallows the fucking world. It's their only hope.

Jonathan Schwarz at A Tiny Revolution: Upside To The Bailout—

With all the gloom and doom about giving Hank Paulson $700 billion to hand out to his friends, with no oversight of any kind, it's easy to miss the upside to the bailout.

For instance:

1. An early proposal that would have allowed Wall Street executives to literally eat 100 million Americans has been discarded as "politically unfeasible."

The Plunge Protection Team in Action

And the comparison to 1929...

Elaine Supkis:

Here is the Nikkei at 9pm EDST:

In just one hour, a fall of over 500 points! Wow. Here is the US stock markets today:

Due to interference of the Plunge Protection Team, it took all day to fall the same rate as Japan. This whole business utterly echoes the Great Depression's cycles. Here is a graph that shows clearly how the bubble/bust cycle operates:

Just like back then, once the bubble pops, the actions of the bankers and the government as well as the bell-weather buffoons at the Federal Reserve created this jagged graph. Note all the red lines I added: these were 'rescue operations'. Each one came after a set period of time. About six months apart. Each infusion of new money and new deals would cause the markets to shoot upwards but never to the previous highs. Each high is lower than the previous one. This gives all graphs of recessions and depressions the same graphic lines downwards. Once it hits bottom, it can crawl there for a long time. Assuming all bottoms=bull markets is foolish.

This is because the see-saw decline decimates both bears and bulls. The people with money to speculate with are fewer and fewer and more cautious each cycle. We see the warning flags of this caution in government bond markets. This is the 'rush to safety'. Only in this case, there is no safety since the governments themselves, especially Japan, England and the US, are heading towards bankruptcy. The Japanese do have lots and lots of bonds from the US and England but this simply makes them more vulnerable. For Japan is carrying a huge government debt just like the US and England. The three G7 nations owe collectively almost $30 trillion. This is a lot of money.

Again, this is just a tiny part of a long long article explaing in the ongoing financial catastrophe in terms of Greek Gods. Very entertaining and ghastly.

Ekaine Supkis explains the Inflationary Aspect of the Fannie Mae Bailout

I have a sinking feeling that this lady knows what she's talking about. Maybe.

Elaine Supkis at Culture of Life News:

...The rescue of Fannie Mae is very inflationary. Note that ALL the news stories boast about his this legendary rescue will mean CHEAPER LOANS. Oh, goodie. The goddess of Inflation is licking her chops.

Dell said to consider sale of factories

(MarketWatch) -- Dell Inc. reportedly might sell its factories as part of a strategy to overhaul its production model to cut more than $3 billion in annual costs within the next two years.

The Wall Street Journal reported Friday that Dell could sell its factories within the next 18 months to contract manufacturers, most of which are based in lower-cost Asian countries. Dell has about 60 manufacturing or research facilities in 20 countries.

The sale of its factories would suggest Dell is still groping for ways to accomplish its goal of improved profits despite the return last year of founder Michael Dell to the role of chief executive.

Venancio Figueroa, a Dell spokesman, said the company wouldn't comment on "rumors and speculation." Figueroa repeated that Dell has said it wants to work more closely with manufacturers in order to "reduce costs and make products in a timely fashion."

Dell is selling all its factories to...THE CHINESE! Oh, lord. I remember talking to the Chinese officials about this in the 1980's. We agreed that ownership always evolves into the hands of the people who hold the physical manufacturing base. And so it is: the Chinese had no money and had to nearly enslave themselves to the G7 powers to gain these factories. But being very hard working and extremely intelligent and well-educated, they used their mental pry bars to separate the G7 capitalists from their own factories and even their own research facilities!

One by one, US or European ownership of things in China is collapsing. The fall of the Chinese stock market is actually part of this process. The Chinese government doesn't want foreign money pouring into Chinese futures markets! The US begs for this money. China forbids it. The US is going bankrupt. China is getting richer.

Japan's Bonds Decline on U.S. Rescue of Fannie Mae, Freddie Mac

(Bloomberg) -- Japan's 10-year bonds declined the most since May after the U.S. government seized control of the two largest U.S. mortgage-financing companies, easing concern that a yearlong credit crisis will worsen.

The takeover of Fannie Mae and Freddie Mac set off a surge in Asian stocks and a drop in government debt, lifting Japan's 10-year yields to the highest in almost five weeks. Treasury yields had the biggest gain in two months. Demand for debt was also limited before the Ministry of Finance sells 1.9 trillion yen ($17.5 billion) in five-year notes at an auction tomorrow.

``We are closer to seeing the end'' of the credit crisis, said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets. ``It was a good step in the right direction and the stock market reacted positively and the bond market reacted negatively.''
*snip*
``There will be an unwinding of flight-to-quality and that will translate into selling pressure in the JGB market,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo. The plans to buy Fannie and Freddie ``may put the brakes on the financial market turmoil.''

Japan's bonds are the poor men of the bond world. Since these bonds are trapped in a 0% interest system from hell, they are basically worthless to anyone but the insane. This is why Japan's government is falling, by the way. The LDP can't keep creepy sons of former war criminals in office for more than a year! HAHAHA. Kiss them all goodbye and good riddance.

Mitsubishi Chemical: Ready To Accept Investment From Middle East

TOKYO (Nikkei)--To secure a stable supply of crude oil at low cost, the company is prepared to accept investments from oil-producing countries in the Middle East as long as the Japanese firm retains management control.

Japan has one of the largest trade profits on earth. And are going bankrupt due to this 0% interest banking system. Now, they are reduced to begging OPEC to buy them up, please! This is funny as hell. Oil is very expensive in Japan because of the fake depression which enables the cheap lending. And now, Japan pays a heavy premium for oil. They are desperate to fix this while keeping the yen weak! Note how their stocks shot up today due to the yen weakening against the dollar.

This is PURE BUNK: the dollar is NOT stronger due to the US government now taking on trillions more in obligations. Yet, this is how our trade rivals have shoved things into a backwards system that works totally contrary to the monetarist theories of Floating Currencies!

Wall Street Trading Gets Zero Value From Lehman, Merrill Owners

(Bloomberg) -- Lehman Brothers Holdings Inc. is trying to sell its fund-management unit to cover further mortgage- related writedowns. If it does, what's left won't be worth much, based on how investors value the firm.

Lehman's market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors' valuation of the rest of the third-biggest U.S. securities firm is zero.

After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.

Now Lehman will be zeroed-out. The Silver State Bank which babysat McCain's son, Andrew, has just gone bankrupt. Many banks will declare bankruptcy soon. And all will flock to the Federal Reserve and the US government to be funded, saved or given vast powers to create even more credit out of thin air. I don't see any sane resolution of all this. Each banking collapse of the last 60 years has been worse than the ones before it to the point, we are now comparing this series of collapses to the Great Depression.

This is because nothing is ever fixed. The fix is not in the banking system, it is in the nature of our own empire. We cannot afford to have the world's biggest military spending. We can't afford thousands of bases all over the planet. We can't afford to run the US like the Soviet Union. We are in trouble and the only door to safety is to drop this notion of ruling the earth.

It is no shock to me to see that one of the cities with the highest crime rates is Washington, DC. Once we leave all the government buildings, we enter vast, dying slums filled with abandoned buildings. Virtually no businesses. No hope. Wave after wave of 'prosperity' washes over America and our national capital remains mired in poverty. Now, the backlash of all this wild spending that gave the illusion of wealth will crash over our entire nation. Soon, we may all be living in clones of the Washington, DC slums.