Jim Rogers doesn't care for the current Economic Bailout, parts one and two

heck, the guy wears a purple bow tie and a pink shirt. That must count for somethin'....

Bloomberg via YouTube:

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

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

Oct 16, 2008 - 05:19 PM

By: Jim_Willie_CB

HIDDEN USGOVT COUP BY WALL STREET

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

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

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

DECEIT & INTIMIDATION

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

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

TOP DOWN SOLUTION FAVORS THE ELITE

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

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

GOLD & SILVER AWAIT THEIR EXALTED STATUS

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

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

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

Engdahl Thinks Financial Crisis May Have Been Planned

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

www.321gold.com via Elaine Supkis:

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

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

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

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

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

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

Using panic to centralize power

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

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

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

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

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

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

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

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

[. . .]

Paulson Called for Rule Changes that Collapsed US Economy

Jonathan Schwarz in A Tiny Revolution:

In 2000 SEC Testimony, Paulson Recommended "Self-Regulation" For Wall Street, Plus A Rule Change Now Blamed For Collapse

Back in 2000, when Hank Paulson was CEO of Goldman Sachs, he testified in front of the Security and Exchange Commission. Among other things, he lobbied the SEC to enact a "change to self-regulation" for Wall Street. He also urged them to change the "net capital rule" which governed the amount of leverage investment banks could use. The net capital rule was indeed changed in 2004, and is now blamed for the investment banks' collapse.

The Challenge of Technology and Change to Self-Regulation in the United States

The third area for re-examination and reform is the structure of broker/dealer regulation, a function now shared by the SEC and the self regulatory organizations ("SROs"), principally the New York Stock Exchange and NASD Regulation Inc.

[W]e and other global firms have, for many years, urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm. The SEC has made it clear that risk-based capital rules can be implemented only when the Commission is confident that firms employing value-at-risk models have robust credit and risk management policies in place.

For these reasons we think it is time to seriously consider the creation of a single, independent SRO to adopt, examine and enforce a core body of financial responsibility, customer protection and margin rules. We hope and expect that there would be savings generated by economies of scale.

How did Paulson's recommendation to let investment banks borrow much, much more work out?

Here's a story from two weeks ago:

The Securities and Exchange Commission can blame itself for the current crisis. That is the allegation being made by a former SEC official, Lee Pickard, who says a rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns, and Merrill Lynch.

The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults...

The so-called net capital rule was created in 1975 to allow the SEC to oversee broker-dealers...The net capital rule also requires that broker dealers limit their debt-to-net capital ratio to 12-to-1...

In 2004, the European Union passed a rule allowing the SEC's European counterpart to manage the risk both of broker dealers and their investment banking holding companies. In response, the SEC instituted a similar, voluntary program for broker dealers with capital of at least $5 billion, enabling the agency to oversee both the broker dealers and the holding companies.

This alternative approach, which all five broker-dealers that qualified — Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley — voluntarily joined, altered the way the SEC measured their capital. Using computerized models, the SEC, under its new Consolidated Supervised Entities program, allowed the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount.

Who murdered the American economy? It was the CEO, in the 13th Floor Conference Room, with the Prepared Testimony.

—Jonathan Schwarz

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

.

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.

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

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.

Financial Elite Terrorism—Bushco at work

This is mind boggling in it's implications. Let's dissect this a bit...

White House Dispatches Team to Push Economic Bill

September 23, 2008, 10:42 a.m.
By Keith Koffler
Roll Call Staff

---

The White House today is drumming up extraordinary pressure on Congress to approve its plan to enact a $700 billion mortgage bailout fund, suggesting the markets cannot wait much longer and dispatching Vice President Cheney and other top officials up Pennsylvania Avenue to jawbone lawmakers.

Cheney, White House Chief of Staff Josh Bolten and presidential adviser Ed Gillespie are meeting this morning with House Republican conservatives, where a rebellion is brewing against the size and questionable free market credentials of the administration proposal.

Yes, that's right— the opposition is coming from House Republican Conservatives. For a quick education, look up Ed Gillespie in Wikipedia: "When Karl Rove also departed in August, the Washington Post described Gillespie as stepping up to do part of Karl Rove's job in the White House" "He also played an aggressive role as spokesman for the Bush campaign during the vote recount in Florida."

Cheney will later gather with GOP Senators at the regular Tuesday lunch. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, who collaborated in drawing up the proposal, are testifying this morning on Capitol Hill in an effort to defend their handiwork.

But Bush himself continues to do little to explain his plan, and he has refused to be questioned about it.

How much you want to bet he doesn't have a clue what they're doing.

Asked during a telephone briefing for reporters today whether Bush was speaking with lawmakers, White House Deputy Press Secretary Tony Fratto said the president is aware of their concerns but that Paulson is the salesman.

At least, that's what they told Bush.

Paulson said Congress and the administration must move rapidly.

Before anyone actually has a chance to read the thing. Hey, it worked with the Patriot Act...

“We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy,” Paulson said in remarks as prepared for delivery. “The market turmoil we are experiencing today poses great risk to U.S. taxpayers.”

Fratto said it would be “unthinkable” for Congress not to pass legislation this week, asserting the result would be a “very, very serious situation” for the U.S. economy.

“It shouldn’t take much analysis to remember what happened last week, which was a very serious freeze-up in our credit markets,” Fratto said. “Our financial markets right now do not need uncertainty, they need increased certainty as to how this rescue plan is going to go forward — and that they can be sure that there is a plan to go forward — and that will begin the correction in our financial markets.”

Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough.

And here's the clue. They've been working this thing up for months, waiting for things to get so desparate, so critical, that they could spring it on Congress and then force it through before anyone could take a breath.

If it was so serious, why didn't they discuss it with, oh, maybe the Congressional Republican Leaders? I know, it would be asking too much to expect them to discuss it with the folks who supposedly actually run Congress, the Democrats...

This time they're even trying to scam their own Republicans.

Amid growing criticism of the initiative from multiple quarters, Fratto sought to defend its key principles and argue against changes.

He argued that the proposal is being unfairly characterized as a boon to Wall Street at the expense of Main Street, since credit market difficulties also squeeze average consumers. He minimized the need to help homeowners as part of the package — a key demand of Democrats — saying aiding the credit markets will help on its own and noting that Congress just approved a housing bill that includes assistance.

And Fratto sought to beat back efforts to limit the pay of CEOs whose companies would draw assistance under the legislation, saying it would make it difficult for the plan to work “If you provide disincentives for companies and firms out there that are holding mortgage-backed securities and other securities from participating in the program.”

What part of "rule of law" do they not understand? Apparently, any of it. "Making stupid, economy-threatening scams illegal might make crooks oppose it." Do tell.

Fratto noted that some firms holding troubled securities are otherwise successful. “They were not necessarily irresponsible players, and so you have to be careful how you deal with them,” he said.

Yes, and the Mafia built schools and orphanages...Hitler was kind to children... it is a complex world.

Some protesters and newsreporters exercise their constitutional rights and are beaten and jailed without mercy. No one is too concerned about being careful how they're dealt with...

Mike Morgan chronicles the end of the free market

The two most recent posts by f in full:

Saturday, September 6, 2008

Paulson's Grand Scheme

I've received hundreds of phone calls and emails since Friday afternoon. I was going to wait until after hearing what Paulson dumps on us before commenting, but I need to get a short piece out to try to stem the flow of emails and phone calls.

It is anyone's guess what he is going to do. I've heard from contacts around the globe, and everyone seems to be wondering . . . but for the most part, everyone agrees Paulson is going to reward his fraternity Pals from Goldman Sachs and provide guys like Bill Gross and Wilbur Ross with a huge bail out . . . and even bigger profits.

There appears to be two ways of looking at this.

1 - The Dark Side - Paulson is going to provide a bail out that will cost the taxpayers hundreds of billions, but he will do it in pieces and hide the real story until he is long gone. The scheme will be so enriching to his Pals, that the market will rally hundreds of points on Monday, as Paulson's Pals force the market higher to give the world a false sense of security. Paulson does not care about the public, the taxpayer or the how this effects the world. He is simply under too much pressure from his Pals, and guys like Bill Gross who have buried retirement accounts and pension funds in toxic waste. In the end, it will all blow up in our faces, but Paulson will be long gone and the traders reaping the profits on Monday will be selling to the unwitting masses that will be wiped out a year or two down the road. Think 1929 on steroids.

In fact, this group believes Paulson has already cut a deals with John Mack, Vikram Pandit, Bob Steel, Jamie Dimon, Lloyd Blanfein, Bill Gross, John Thain and their counterparts throughout the Goldman Sachs controlled financial world to invest in Fannie and Freddie alongside the Fed. What escapes the public eye, is that eventually these investments fail . . . and the only losers will be the public. Guys like Gross, Mack, Dimon and Paulson's Pals in high positions at the major financial institutions will be long gone when the fall out destroys the American dream, economy and the very fabric of who we are.

2 - The Lighter Side - The alternative thinkers believe the markets will come down hard on Paulson, beginning with the Asian markets and following through to Europe and America. In fact, they believe the markets have been waiting for this for moment. These folks note that Fannie and Freddie were up sharply when the bail out was first announced Friday, but they turned down and fell sharply. Unfortunately, we can't say the same for the financials and the builders, so I am thinking this group is going to come up short. After all, the two groups that should be 50-75% lower, rose sharply on the news. That's where these thinkers start to think twice. The Plunge Protection Team may have been juiced up over the weekend with some foreign thugs, and Paulson might just overwhelm this group as well.

In this group, about half think Paulson will prevail with his PPT on steroids, while the other half believe the markets will react violently on Monday and finish sharply lower . . . even if they don't start out that way. The hard core group that want to see Paulson pummeled, believe it will start ugly and end ugly. Some even believe the markets will be forced to close and Paulson will resign before finishing his term. Since my clients are on the short side of the market, I like this group . . . but I believe Paulson has already indicated he is going to pull a scheme to reward his Pals.

Criminal - That is the only way to describe what we are witnessing. And the criminals get bolder by the day. For Bill Gross to come out with the commentary he has injected this week, is simply outrageous when you consider what he has been saying and doing for years. And for Paulson to have gained so much power, while still making back room deals with his Pals, is sickening. Our politicians basically gave this one man control over the destiny of the United States of America . . . with no back stop to control his bazooka.

Not Just Fannie and Freddie - What the financial world seems to have forgotten, is the problems don't stop with Fannie and Freddie. First of all, this bail out only involves about half of the US mortgages, and it doesn't even come anywhere close to preventing it from happening again. Second, we are witnessing the demise of the free market system, where we are protecting the greedy bastards at the top, but throwing the system and the financial future of everyone else to the wolves. The right thing to do, would have been to follow the money and go after the thieves. Even Cuomo made it clear he was only in it to secure his spot as Governor of New York.
Doing the right thing was never an option. We saw that in July, when instead of locking up his buddies for violating the short selling rules, Paulson decided to test his control over the world's financial masrkets.

Since Paulson will not do the right thing, the next best thing to do would be to let Fannie and Freddie fail along with the banks. Yes, there would be global pain, but it would be a lot less than what we will experience by trying to protect a few thousand greedy bastards like Paulson and his Pals. I want to say something creative right now, but all I can think of is . . . God Save Us.

Thursday, September 4, 2008

Pasulson - Thief of the Century

History's Greatest Thief - In July when Hank Paulson decided to put an end to naked short selling, he could have simply enforced the rules and sent dozens of traders to jail. But that would have meant sending many of his frat boys to jail. Instead, he decided to give his boys a heads up, and then pull one of the financial world's most successful scams, simply to enrich his friends. He essentially killed the free markets.

End of the Free Market - His excuse was how he wanted to protect the banks being shorted. That's a free market decision. And if people are not following the rules, you throw them in jail. You don't change the rules. Changing the rules was the end of the free market as we know it.

Burning Out of Control - When the wild fires burn through forests, the forests that burn out of control, are the fires where we have not cleaned out the dead wood and brush. This is done in one of two ways. First, we can physically go in and remove it periodically. Second, we can let nature take its course and allow small fires to burn through the brush, doing no damage to the forest. In fact, this makes the forest healthier.

SAME THING FOR BANKS - Yes, absolutely. If we let the free market shut down bad banks, we get rid of the dead wood. If we try to save the bad banks . . . as Paulson and the Fed are doing, we eventually will face a wild fire that we cannot control. It is coming, and the more games Paulson plays, the worse the fire.

Fannie and Freddie are perfect examples. Wachovia, Washington Mutual, Corus, Downey, Vineyard, Regions and hundreds of other banks are also in the dead wood pile. Paulson has been very quiet now for a few weeks. Some say he is trying to hold things together until Election Day. Others say he is scheming with his frat boys to pull off yet another financial coup for his boys . . . at the expense of the American public.

The man is dangerous. He has already proven that, but he also has the magic ring . . . and Bush and the Congress and the Senate are all kissing it.

Bear Stearns - Why was there only one institution willing to step up to the plate? Why did Paulson offer $30B of our money? It wasn't because Bear was too big to fail. We must let the dead wood burn off, no matter how painful it is in the short term. What I am hearing now, is JP Morgan was the bank most exposed to the counter side of Bear Stearn AND many of Paulson's Pals would have been wiped out by letting Bear Stearns fail. Whatever the reason, we should have never bailed out Bear Stearns. That should have been the beginning of the burn off of the dead wood. That might have been the critical point to avoid a complete conflagration.

Markets Will Correct - Despite Paulson's manipulation tricks, the markets will correct. When the markets correct, it will be a violent correction, far worse than the mini-corrections we are seeing roll through the markets now. Paulson will win, because he will line the pockets of all of the big boys on Wall Street. Our pension funds and IRAs will be devastated. Our country will spend 15-25 years recovering. We will recover, but the damage Paulson is doing by allowing the prior corruption of Greenspan and his handlers to continue, will be devastating. In closing, I use the word handlers, because Greenspan was not stupid enough or devious enough to come with his mistakes on his own. And since he is not off in a private jet or lounging on his private island, he probably never realized what Paulson and guys like Paulson running the big institutions were puppeteering Greenspan to do . . . or not do.