Sit, be still, and listen
for you are drunk
and we are at the edge of the roof
-Rumi
Years ago, while photographing alone in British Columbia's Coast Mountains, I turned to view a high vantage from which I had just made a magnificent exposure. I was shocked speechless to see that I had been standing on a thawing cornice jutting over a deep abyss. If that snow shelf had given way in the melting May sunshine, my corpse would never have been found.
Today, every person on this planet stands exposed on a high and crumbling ledge, undermined by venal men whose depravity mirrors the culture of greed and fear that cheered them on.
It's not just that American household debt now largely exceeds their disposable income. Or that nearly one in every three U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth. Or that the banks who conned them into such unsound purchases with “easy money” have resold this massive debt “just about everywhere, spreading a considerable mass of toxic securities throughout the global financial system,” as a financial blogger dubbed Mr. Greed points out.
It's not even that 40% of about six million subprime mortgages “will likely go into default in the next two years,” as financial guru George Soros told Bloomberg TV. Or that adjustable-rate mortgage defaults “are going to be of about the same magnitude as with subprime mortgages,” Soros continued, “so you'll have maybe five million more defaults facing you over the next several years.” [Reuters Feb 12/08; New York Review of Books May 15/08]
The real deal is something called derivatives.
Calling derivatives, “the greatest Ponzi scheme in history, one that is holding up the entire private global banking system,” Brown explains that derivatives are basically bets that the value of something will rise or fall.
“In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan,” Brown relates. The same Alan Greenspan who declared a national housing bubble "most unlikely."
After voting in favor of deregulating derivatives, Republican candidate John McCain is now demonstrating both his hypocrisy and style of governance by promising that if frantic Republican efforts to rig the vote again in Ohio and other key states propel him past an outraged electorate into the presidency - he would fire Securities and Exchange Commission Chairman Christopher Cox.
That will fix everything!
That's $1,000 trillion, sports fans.
The gross domestic product of actual stuff in all the countries on Earth is only about $60 trillion. Which is why billionaire investor Warren Buffett calls derivatives, "Weapons of financial mass destruction."
“It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots,” Brown reminds us. “The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO.”
Once again, it's bail out your buddies time. But you gentle reader, are plain out of luck.
As you prepare to join more than one million homeless people in the world's recently richest country, recall that the Federal Reserve printing all this bogus cash at breakneck speed “is not actually a part of the U.S. government, Ellen Brown reminds us. “It is a private banking corporation owned by a consortium of private banks.”
In other words, “The banking industry… has just bought the world's largest insurance company, and they used federal money to do it.”
He is not alone in noting how “the greatest nationalization in the history of humanity” has increased its public liabilities by another $6 trillion, and “turned itself into the largest government-owned hedge fund in the world” by taking on a debt-to-asset ratio of $6,000 billion in debt secured by just $200 billion of equity.
Do the math.
And understand that “Comrades Bush, Paulson and Bernanke have now turned the USA into the USSRA - the United Socialist State Republic of America,” Ro goes on. “Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.”
And counting.
As the bailouts continue - Bear Stearns, Lehman Brothers (through the Fed's back door), Fannie and Freddie, AIG, with more to come - and stock (short) sales are outlawed, “These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs,” Ro rants.
By William Thomas
SUCH A DEAL
“What had to be saved at all costs was not housing or the dollar but the financial derivatives industry,” writes economics researcher Ellen Brown. “And the precipice from which it had to be saved was an 'event of default' that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.”
ROUNDUP
Meanwhile, back at the ranch - the one in Texas where GW Bush has spent more than half of his illegitimate presidency - trades in derivative vaporware have grown much, much larger than the entire global economy. The Bank for International Settlements reports that total trades in derivatives representing nothing more than naked speculation currently exceeds one quadrillion dollars.
COMMIE USA?
“This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China,” rails nationally syndicated financial analyst, Nouriel Ro.
Paulson fielding WTF calls from world banks
-Keith Taylor photo
MEANWHILE, BACK ON EARTH INC.
“The world is changing in a very major way,” observes well-read financial blogger, Gail the Actuary. “Oil is in short supply, and this shortage is likely to get larger in the future. It is becoming more and more difficult for both people and businesses to pay back loans, because of the rising costs of oil and food. This situation cannot be expected to go away. In fact, it is certain to get worse in years ahead, as oil supplies become tighter.”
This systemic risk arises from the interconnectedness of everything all the time. “A push on one part of the system will lead to a pull on another part of the system, leading to unanticipated failures,” Gail writes. “As food becomes used as a fuel and as financial products become more complex… higher oil and food prices lead to higher defaults.”
In the face of implacable climate and population shifts, lack of affordable oil also impedes our ability to respond. “Higher oil prices leads to increased pressure to produce more ethanol, which further raises food prices.”
The Fed's frantic willingness to risk hyperinflation by lowering interest rates and encouraging still more borrowing is going to cause an even bigger crash. Because as Ellen Brown points out, when lenders become more aware of peak oil, the already rising risk margin required to protect against more defaults must cause interest rates to rise.
Alan Greenspan has already declared that the world oil supply has peaked lower and sooner than anticipated. Jeff Rubin, chief economist of CIBC World Markets, concurs, saying, "I just don't think we're going to see increases in conventional oil production any more. I think (peak oil) is here." [Wall Street Journal Dec 15/07]
This means more pressure on stressed out money markets, Brown predicts. “Once peak oil is fully recognized though, long-term debt may become unavailable, even for governments.”
As for you and me…
“Oil and food prices are likely to continue to rise, leaving consumers with less to spend on loan payments and consumer purchases. Defaults on mortgages will increase, and there will be increasing problems on loans of all types - including student loans, credit card debt, auto loans, commercial mortgages, and other commercial loans.”
AMERICAN DREAMTIME
Faced with maxed out credit cards and repo men lining up in the front yards of the American Dream, how long will the culture of denial prevail in the United States of Amnesia?
“Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates,” Shedlock blogs. “The word 'money' did not appear at all in his testimony. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?”
This is the same Ben Bernanke who assured us that subprime losses would be less than $100 billion - before write-offs by the Wall Street casino and the banks that supposedly back them rocketed past the $500 billion mark.
Who will cash this reality check?
“And the hits keep coming,” Paul Krugman points out at the New York Times. “The effort to contain the financial crisis seems to be failing. Asset prices are still falling, losses are still mounting, and the unemployment rate has just hit a five-year high. Prices are going up at the checkout counter, but the prices of assets, which are what matter for balance sheets, are dropping fast.”
If everyone tries to sell assets to pay their debts at the same time, the resulting plunge in market prices renders these “fire sales” completely ineffective.
As this “deflation” in assets accelerates, there is what economist Irving Fisher called in 1933, a "stampede to liquidate."
But this deflating bubble is “made especially ugly,” Krugman goes on to relate, because the biggest financial “players” are leveraged to the max, pyramiding trillions of dollars of worthless junk loans on more borrowed billions. [New York Times Sept 20/08]
“The hypocrisy of the Bush administration criticizing Chavez [for nationalizing key components of Venezuela's economy] while defending Paulson and Bernanke should be the stuff of late night stand up comedy. Stalin couldn't have drafted a better plan for central control of the global economy after wreaking such havoc and devastation,” writes a London banker.
“After this week's secret and unaccountable and extra-legal moves by the US financial authorities, I will not be holding any assets in the United States. I do not understand the rules. I doubt any rules will be applied fairly to all the players. I cannot be sure who the umpire works for, or what principles the umpire thinks they should uphold. I will not play the game.” [londonbanker.blogspot.com]
MORE GOOD NEWS
Still, this deepening disaster could prove a boon to humanity. Despite the U.S. media's shameless shilling for a Palin's dangerous lies, while covering up McCain's unique brand of clueless idiocy - not even rigged ballots, and America's deep-seated racism and abiding suspicion of anyone more erudite than a yuck-yucking good ol' boy may shield the Republicans who destroyed America from the ire they so “richly” deserve.
All is not lost.
If someone in American politics can find the votes and the courage to end that country's ruinous wars, and begin “green” initiatives that are already leading to high and happy employment in Germany and Scandinavia, this nightmare may yet pass. And never be repeated.
“By a wide margin, the most effective stimulus is to expand public investment projects, especially at the state and local levels,” Pollin and Garrett-Peltier have found. “A great deal is at stake here. The Iraq War has been about death and destruction. Ending the war could be a first serious step toward advancing a viable program for jobs, healthcare, education and a clean-energy economy.” [Nation Mar 31/08]
And the most attractive emerging market, Mr. Soros?
“At this time, the outlook for India is also very good.” [New York Review of Books May 15/08]
ARE BANKS BECOMING AN ENDANGERED SPECIES?
What now?
“There is only $53 billion in FDIC insurance to cover $6.84 trillion in bank deposits. Indymac will eat up roughly $8 billion of that,” notes economic observer Mike "Mish" Shedlock. “Of the $6.84 trillion in bank deposits, the total cash on hand at banks is a mere $273.7 billion. Those loans cannot be paid back. What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.”
As Mike Shedlock advises: “You Know The Banking System Is Unsound When.... Paulson appears on Face The Nation and says, 'Our banking system is a safe and a sound one.' If the banking system was safe and sound, everyone would know it… There would be no need to say it.
“Paulson asked for 'Congressional authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac' just days after he said, "Financial Institutions Must Be Allowed To Fail." Paulson says Fannie Mae and Freddie Mac are 'essential' because they represent the only 'functioning' part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only 'functioning' part of the mortgage market is insolvent? [globaleconomicanalysis.blogspot.com]
CHOP CHOP
Piling more bad debts atop bad debt, he private, for-profit bank misleadingly called the Federal Reserve believes it must continue chopping interest rates in order to encourage yet more unsecured borrowing.
Better go buy a big wheelbarrow: This could result in runaway inflation.
As anyone who has tried juggling credit cards knows, piling on debt to pay for spiraling debt is a zero-sum game. As Shedlock says, “Government intervention in the stock market can never work. Buying shares in insolvent companies headed for bankruptcy will never make those shares worth anything no matter how many shares the government buys.” [globaleconomicanalysis.blogspot.com]
But with gold prices spiking to nearly $900 an ounce, Russia closing its “plummeting” stock exchanges for a second day, China scrapping its stock trading tax and buying into its three largest banks, and the last two major Wall Street investment banks, Goldman Sachs Group Inc. and Morgan Stanley now under siege - short term commercial loans to every business from Mom and Pop shops to GM are contracting by more than $52 billion every week as banks double the rates on their remaining loans. [CNBC Nightly News Sept 18/08]
Rotten cornices anyone?
OFFSIDES
Wa' happen'd?
It seems that a rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns and Merrill Lynch after the SEC allowed these three firms - plus Goldman Sachs and Morgan Stanley - to more than double their bets. While removing the required assets meant to protect them from defaults.
That was clever.
Now, as the crisis deepens, the panicked SEC has withdrawn requirements that surviving brokerage firms maintain secure AAA ratings from ratings agencies. [nysun.com Sept 18/2008]
“Quick, sell more junk paper!” the SEC is urging. “The taxpayer will pick up the tab.”
But the American taxpayer is tapped out.
BUSH BEGS ANOTHER TRILLION
Panhandling broke all restraints when Bush begged Congress at gunpoint to grant an immediate $500 billion bailout of his buddies. Otherwise, Treasury Secretary Paulson and Fed Chairman Bernanke threatened lawmakers, the financial system is perilously close to collapse. [New York Times Sept 20/08]
At least another $700 borrowed billion will soon be needed to jack up a teetering debt pyramid built on the quicksand of endless wars and worthless paper. [New York Times Sept 22/08]
Bush and Co. have already blown more than $600 billion on their illegal wars, with the eventual tab for maimed veterans, Blackwater mercenaries, Halliburton scams, and replacing a wrecked army certain to add a second trillion dollar debt to the bill already needed to bail out the USS Titanic long enough for this ship of state to reach and sink in very deep water.
The chickenhawks are coming home to roost as they continue handing out another half-trillion dollars every year to their corporate sponsors for a military and domestic spying agencies that are mostly “contracted out”.
“That's more than the combined GDPs of Sweden and Thailand, and eight times federal spending on education,” point out Robert Pollin and Heidi Garrett-Peltier. [Nation Mar 31/08]
Demonstrating once again where their funding comes from, Democrats immediately pledged to approve a plan “involving more money than any single program in history,” AP reports - before Congress adjourns at the end of this week.
WHERE IS ALL THAT MONEY GOING TO COME FROM?
Not the Fed.
“The Fed's run out of money. Seriously. It's broke,” reports the London Financial Times. A statement from its buddies over in the U.S. Treasury reads: “The Federal Reserve has announced a series of lending and liquidity initiatives during the past several quarters… This Temporary Supplementary Financing Program will consist of Treasury bills, apart from Treasury's current borrowing program, which will provide cash for use in the Federal Reserve initiatives.” [ft.com]
Borrow from whom?
“You have to recognize that just controlling money doesn't control credit,” Soros cautions. “You have to take into account the willingness to lend.” [New York Review of Books May 15/08]
In a reckoning that inevitably visits all liars and addicts, the real crisis is in credibility.
“The federal government assumes that it can borrow whatever it wants from foreign lenders at low interest rates for as long as it wants,” says David Walker, former comptroller of the U.S. Government Accountability Office. “That's an imprudent assumption.”
While Wall Street gamblers cheered the latest panicked borrowing, and returned to the tables assured that the American taxpayer will be forced to save them from their own excesses, Nobel Prize-winning economist Joseph Stiglitz warns that the haphazard nature of on again, off again bailouts will discourage investors from risking more money in a New York casino where no one knows who will survive and who will fall.
“We used to believe that America was a country or a government that was based on the rule of law,'' Stiglitz recently told Bloomberg Radio. “Today, we appear to be a law of discretion. Who gets bailed out seems to be totally up to the discretion of Paulson, of Bernanke.” [Bloomberg Sept 18/08]
New York's billionaire mayor and founder of that world-renowned financial information company, Michael Bloomberg now warns that the "next wave" of financial crisis will come from overseas if foreigners stop buying unrepayable U.S. debt.
Bloomberg is scared that foreign investors who have until now been willing to underwrite the burgeoning U.S. debt of endless wars and consumption may be scared off. "It's not clear who's going to be buying our debt," says one of the smartest money men in the States. [AP Sept 18/08]
What is clear is this lending trend. Foreign funds invested $28.5 billion in new capital in the U.S. and allied European financial institutions in the final quarter of last year. IN the first quarter of this year, they ponied up just $19.7 billion. Make that $6.43 billion in the second quarter. So far in this quarter, foreign investment in U.S. debt is just $900 million.
Down from $28.5 billion!
Meanwhile, the cost to hedge against losses on U.S. government debt has risen to record levels after the Treasury's $85 billion buy-out of insurance giant AIG's worthless paper. Swamped with “toxic” paper worth nothing more than its recyclable pulp and ink, once-secure U.S. Treasuries must now offer investors more than double the rates of government debt insurance sold by Austria, Finland or Sweden.
The ongoing meltdown has created “a crisis of confidence in the U.S. government,'' declares Jim Leach, a former Republican U.S. congressman from Iowa, where increased corn-ethanol production intended to buffer spiraling gasoline prices is feeding into food and related financial shortages.
“The costs are unclear partly because the Treasury is effectively keeping some of them off the government's balance sheet by parking them at the Fed,” Leach laments. “That's the same sort of practice that got Citigroup Inc. and other banks in trouble.”
In fact, the U.S. Treasury is paying full price for hundreds of billions of dollars in Level 3 assets. Commonly known as "marked to fantasy" assets, the actual value of this junk paper is “ridiculously” less than their price.
Who will pay when this piper comes due?
Whether you live in Dubuque, Dubai or fabled Timbuktu, the answer is: each one of us, kimosabe.
Is any of this legal? Does the White House care?
Do you?
With help from Mike Shedlock and recent updates, Let's attempt to add the tab so far:
Housing bailout bill: $300 billion
Stimulus checks: $160 billion
"Back door" bailouts done without Congressional authorization,
including "hidden" loans that may never be repaid to Bear Stearns,
Lehman Brothers, et al: $100 billion
Treasury Dept. plan to back money market funds: $50 billion
Fannie Mae $100 billion
Freddie Mac $100 billion
AIG $85 billion
Emergency dollar funding to overseas money markets $180 billion
Emergency cash injections into U.S banking system $55 billion
Latest economic ransom demand: $700 billion
Bottom Line: DOES NOT COMPUTE
IT'S ONLY MONEY
Connect these dots and you get an avalanche.
After already pouring all of the above onto an unquenchable conflagration that must eventually be allowed to burn itself out (hopefully singing the arsonists who set it)… to end the credit crisis, the USA may have to spend another $2 trillion,” says well-known “Market Ticker” commentator Karl Denninger.
“So there's still $1.7-2.7 trillion out there to be cleared in this mess and you are going to get charged for all of it unless you literally take to the phones and the streets right now - this weekend - and stop it.” See him here:
This at a time when the federal government already faces trillion dollar liabilities for invading Iraq and Afghanistan and destabilizing the Middle East, plus tens of trillions more for aging baby boomers who will soon be retiring and collecting Social Security and medical benefits.
AND NOW THIS
In addition to the $700 billion Gordon Gekko bailout about to approved by a panicked Congress, the US Federal Deposits Insurance Corporation, created during the Great Depression to insure bank deposits, may need at least $150 billion in additional taxpayer bailouts as local bank failures mount.
Seven banks collapsed in 2007. So far in 2008, 12 more have folded, with total assets of $42 billion, IndyMac, which had $32 billion in assets when it went into receivership, is the most expensive bank failure the FDIC has ever covered. And that record may not stand for long as taxpayers already fleeced over the oil price-boosting Bush “success” in Iraq, are relentlessly dragged in to bail out more Mr. Bigs of leveraged casino finance, who are already deploying multi-hundred million dollar personal parachutes.
The FDIC's watch list now includes 117 institutions at risk. By the end of 2009, about 100 U.S. banks with collective assets of more than $800 billion will fail. "It's not going to be Armageddon," says Mark Vaughan, an economist and assistant vice president for banking supervision and regulation at the Federal Reserve Bank of Richmond, Virginia. "But it's going to be bad."
As “Doomberg” notes: “The $32 billion IndyMac debacle is taking a large bite out of FDIC reserves, and if scores of other banks fail in the year ahead, the fund will be depleted.”
“It won't take many more failures before the FDIC itself runs out of money,” Bloomberg warns. “The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue.”
"Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold. Our entire economy is in danger," Bush has told his hostage nation.
The unelected president, who stole two national elections through massive vote-rigging, neglected to mention who was responsible for a worsening mess that is rapidly ceding U.S. sovereignty to foreign lenders like Beijing.
Bush also failed to warn taxpayers that they could also “soon be on the hook for uninsured deposits which amount to $2.6 trillion of the $7 trillion held in the U.S. branches of all FDIC member banks,” Bloomberg adds.
Washington Mutual, the biggest thrift in the USA, could be the next bank to go belly up. A federal takeover of WaMu will cost taxpayers billions more. Credit-default-swap traders, who bet heavily on spectacular financial crackups, give WaMu's 2,300 branches a 98% chance of defaulting on their $53 billion junk portfolio of option-adjustable-rate mortgages that allow homeowner to skip payments by adding them to their existing loans.
About $45 billion of the deposits at WaMu aren't insured by the FDIC and will have to be covered with more foreign loans. If any can be found.
In addition to all of these additions, the Treasury has also pledged another $50 billion to insure money market funds that have nothing to do with banking.
Bank United Financial Corp. - Florida's largest bank - is also set to submarine with all hatches open. But get this: Paulson's plan will not reduce the number of banks on the FDIC's watch list.
"We see the prospects for viability increasingly fraying," says frayed analyst David Bishop. Kenneth Rogoff, chief economist of the International Monetary Fund from 2001 to 2003, insists: "The only way to put discipline into the system is to allow some companies to go bust. You can't just have an industry where they make giant profits or they get bailed out. That doesn't make any sense."
[Bloomberg News Sept 25/08]
It does if you happen to be one of the lucky ones pulling a golden ripcord on a parachute paid for by the same folks who lost their homes and retirement nest eggs.
Not to mention their children's children.
Now that's obscene.
