Sunday, July 20, 2008

“Measure of America” report documents social decay of the United States

“Measure of America” report documents social decay of the United States

US ranks 42nd in life expectancy

By Patrick Martin

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A new study released Wednesday, entitled “The Measure of America,” provides a wealth of data demonstrating the profound and deepening social decay of the United States. Commissioned by the Oxfam charity and several foundations, and published by Columbia University Press, the report documents, using government figures, the dramatic decline of American society relative to other advanced industrialized countries and the mounting social disparities within the US.

The study takes the methodology employed by the United Nations Development Report, widely recognized for its insights into the social conditions of less developed countries, and applies it for the first time to the study of an advanced country. The result is a portrait of America that shows much of the country’s population living in conditions that are closer to the “Third World” than to the “American Dream.”

The report analyzes figures provided by the US Bureau of the Census in its 2005 census of economic and social conditions. It thus lags significantly behind the actual deterioration in conditions of life, since the census was taken before the collapse of the sub-prime housing market and the ensuing plunge of the US economy into recession. A report based on today’s conditions would be even bleaker.

The three social scientists who prepared the study constructed an American Human Development Index which includes both median income figures and data relating to health, life expectancy and “access to knowledge” (school enrollment and the proportion of the population with college and professional degrees.) The result is a broader picture of social conditions than would be provided by a purely economic analysis.

In terms of the human development index, the United States has fallen from second place in 1990 (behind Canada) to 12th place. This decline continued through both the Clinton and Bush administrations, with the US falling to sixth in 1995, ninth in 2000, and 12th in 2005.

In certain respects, the decline is even worse. The US is 34th in infant mortality—with a level comparable to Croatia, Estonia, Poland and Cuba. US school children perform significantly below their counterparts in countries like Canada, France, Germany and Japan, and 14 percent of the population, some 40 million people, lack basic literacy and number skills.

Of the world’s 30 richest nations, which comprise the Organization for Economic Cooperation and Development (OECD), the United States has the highest proportion of children living in poverty, 15 percent, and the most people in prison, both in absolute numbers and as a percentage of the whole population. With five percent of the world’s population, the US has 24 percent of the world’s prisoners.

The report notes: “Social mobility is now less fluid in the United States than in other affluent nations. Indeed, a poor child born in Germany, France, Canada or one of the Nordic countries has a better chance to join the middle class in adulthood than an American child born into similar circumstances.”

In overall life expectancy, the United States ranks an astonishing 42nd, behind not only Canada, Australia, New Zealand, Japan and all the countries of Western Europe, but also Israel, Greece, Singapore, Costa Rica and South Korea. The US spends twice as much money per capita on health care as any of these countries, but its citizens live shorter lives.

Two principal contributing factors were identified in the report—the epidemic of obesity, a disease primarily of poverty and miseducation, and the lack of health insurance for 47 million Americans. The report also noted that homicide and suicide are among the 15 leading causes of death in America.

The health crisis in the United States was underscored by a second report, issued Thursday by the Commonwealth Fund, a nonprofit research group based in New York. This study found that 75 million people are either uninsured or under-insured, one quarter of the population. Karen Davis, president of the Commonwealth Fund, focused on the rising cost and diminishing availability of health care. “The central finding is that access has deteriorated,” she said.

A major factor is the immense administrative costs incurred by private insurance companies which spend billions of dollars to avoid paying claims. Much insurance company profit gouging is masked as “administrative” expenses as well. Administrative costs take 7.5 percent of US health care spending, compared to 5 percent in Germany and Switzerland, which also have private health insurers, and 1 percent or less in countries like Canada and Britain that have government-run insurance systems.

Assessing 37 separate healthcare indices, the Commonwealth study found that even in those areas where there was some improvement in absolute terms, other countries had improved by a far greater amount, pushing the US further down the table. For example, the US reduced the number of preventable deaths for people under 75 from 115 to 110 per 100,000 over the past five years. However, other countries, led by France, Japan and Australia, did much better. The US is now last among developed countries in this measure, having just slipped below Ireland and Portugal.

The Measure of America report also documents the widening social gulf within the United States, particularly in geographical terms, as it breaks down the census statistics to provide a table ranking all 50 states and all 438 congressional districts. The report greatly understates the degree of income inequality since the US economic census counts only wage and salary income, leaving out dividends, interest, capital gains and business profit, the principal forms of income for the upper class. But even with these limitations, the findings are devastating.

The executive summary of the report notes that “the average income of the top fifth of US households in 2006 was almost 15 times that of those in the lowest fifth—or $168,170 versus $11,352.” The top one percent of households possesses at least one third of the national wealth, while the bottom 60 percent possess just 4 percent of the total.

The authors observe: “Growing inequality in income distribution and wealth raises a profound question for Americans: Can the uniquely middle-class nation that emerged in the twentieth century survive into the twenty-first century? Or is it fracturing into a land of great extremes?” While not drawing any conclusion, they admit, “the answers to these questions will determine ... the future of America.”

There are staggering disparities in income, health care and educational opportunities from state to state, between urban and rural areas, and between relatively well-off areas like the Northeast and Pacific Coast and impoverished areas like much of the South and the Appalachian region.

The top ten states in terms of median income lie along the Eastern seaboard from Virginia to New Hampshire. The bottom five states include West Virginia and four states of the Deep South: Alabama, Mississippi, Louisiana and Arkansas. It is worth emphasizing that the 2005 census figures were compiled before Hurricane Katrina devastated three of those states.

There are even greater disparities within states and regions. The poorest congressional district in the United States is not in the South, but in the central valley of California, around the cities of Fresno and Bakersfield, where tens of thousands of agricultural laborers toil under conditions not much improved from the time John Steinbeck wrote The Grapes of Wrath.

In the 20th district of California, only 6.5 percent of adults have graduated from college, and the median household income is $16,767, below the US poverty line. Meanwhile, ten of the 20 richest congressional districts are also in California, including the Silicon Valley and the upscale suburbs of Los Angeles and San Diego.

The richest congressional district is New York’s 14th, encompassing Manhattan’s east side: 62.6 percent of the adult population have a college degree and median family income is $51,139 a year (counting only wages, not the income from capital). A short subway ride away in the Bronx is the 16th congressional district, one of the five poorest in the US, where only 8.6 percent of adults have a college degree and the median annual income is $19,113.

Summing up the findings of the report, co-author Sarah Burd-Sharps writes, “Some Americans are living anywhere from 30 to 50 years behind others when it comes to issues we all care about: health, education and standard of living.” While the US remains one of the richest nations in the world, it is “woefully behind when it comes to providing opportunity and choices to all Americans to build a better life.”

Just as revealing as the figures provided by the Measure of America report is the response to it on the part of the American media and political establishment. The report was published by Columbia University, one of the most prestigious American colleges, and its co-authors held a press conference on Capitol Hill to announce their findings. But not a single major daily newspaper carried an account, nor was the study mentioned on any of the evening television newscasts.

The regional press in California reported the dismal last-place ranking for the 20th congressional district, but not the wider findings. And Talk Radio News Service, a web site serving the largely ultra-right talk radio industry, posted an item that turned the findings upside down, under the bizarre headline, “Report: Most Americans doing better than fifty years ago.”

The silence of the media was matched by the silence of the Democratic and Republican candidates for president. Neither Obama nor McCain made mention of the findings, although both have made photo-op appearances in poverty-stricken areas like eastern Kentucky, New Orleans and inner city Detroit.

In that context, it is worth pointing out that Obama’s campaign is making little effort in the five most impoverished states, Mississippi, Louisiana, Arkansas, Alabama and West Virginia. The last four have been virtually conceded to the Republicans. The Obama campaign hopes for a heavy turnout among Mississippi’s large black population to vote for the first major party African-American candidate.

In fact, neither party is able to advance any policy to address the vast decay of American society. The Measure of America and Commonwealth Fund reports are the latest in a series of studies that depict a society—ravaged by poverty, unemployment, illiteracy, ill health and inequality—that is going backward. The sclerotic two-party system cannot provide any answer to the social disaster because it is a corrupt instrument of the financial aristocracy that is plundering the country to pile up ever-greater wealth for itself.

U.S. Financial Breaking Point Soon

Toxic Waste Offerings to Offset Big Losses

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Freddie Mac new Issue quickly approved by SEC, New offerings to absorb big losses, Gold escapes general pounding in the market, home builders sentiment index is at record low, depression is a real threat still

After the markets closed on Friday, the announcement came that Freddie Mac plans to sell $5.5 billion dollars worth of new common and/or preferred shares to private investors, when its current market cap is only 6 billion. Of course, they had to register the new issue with the SEC and get its approval in order to do this, and on Friday, they filed with the SEC, which quickly approved the new issuance. This was no surprise of course because the SEC and Freddie are run by the same kind of people. Freddie recently got caught up on their SEC filings after years of what really amounted to total noncompliance due to what you might call some "major accounting issues" even though technically they were granted an exemption from filing because of their GSE status. So, even before the Treasury injects equity into Freddie by purchasing new issues of its shares with monetized treasury bonds created out of thin air, and/or before Freddie borrows from the Fed on treasury collateral which consists of those same ethereally created treasuries, the elitists plan to draw in new sucker-dupes so that both the current shareholders and new shareholders alike can get blasted with a huge dilution of their stock value. We ask who the suicidal maniacs are who would venture to buy these new issues?

First, note how the timing of this announcement, which came after markets closed on Friday as just noted above, was the same time frame used for the news about the IndyMac Bank closure. This kind of timing manipulation is used by the elitists whenever they wish to prevent market panic, allow a cooling off period before markets reopen and/or keep as many people from seeing or hearing the announcement as possible as they get underway with their weekends. You can bet your sweet bippy that if precious metals have any bad news, if that were even possible at this point, it would make front page news on Monday just before markets opened. So much for a free press. Instead we get the inane, people's bane, fane-stream media. If Thomas Jefferson were alive today he would be absolutely disgusted at the goings on in our government and in our press right now. In fact, he would most likely call for a revolution! Ron Paul is our Thomas Jefferson, and the elitists are quaking in fear at the revolution in thinking which Dr. No has bravely engendered with his presidential campaign.

Next, note how much US government and Freddie officials obviously believe Freddie to be undercapitalized after claiming outright only days ago that both Freddie and Fannie were and are adequately capitalized. Among those claiming adequate capitalization before this announcement was none other than our beloved Treasury Secretary, Hanky Panky Paulson, on loan from Goldman Sachs, and Senator Chris Dodd from Connecticut, elitist bootlicker and Chairman of the Senate Banking Committee. From their mouths to God's ears. These reprobates give serpents a bad name. If they had been with Adam and Eve in the Garden of Eden, who knows what perverse lies they might have sold to our progenitors? You think we have problems now? We would probably have the Adam and Eve First National Bank. Can you just imagine? These two pieces of work are truly unbelievable. Buck-Busting Ben and Cheney the Wienie round out the new Rat Pack of liars and scalawags.

Then look at what will happen to the price of Freddie's shares. The Freddie share price closed way down at $5.26 on Tuesday based on all the scary bailout news, but ended the week with a price of $9.18 when new sucker-dupes jumped in based on government and fane-stream media hype about a potential bottom in the real estate markets and the patently false and misleading earnings reports of Wells Fargo and Citigroup which left investors with the impression that Freddie and Fannie might not be in as much trouble as everyone thought. Short-covering was another major factor which accounted for the higher share price. The potential for the new proposed Freddie issue was enhanced by the increased stock price because the higher price allowed more capital to be raised using fewer shares, but the new shareholders and old shareholders alike could find themselves owning stock worth substantially less because of the resulting dilution and mounting overall losses from a tanking real estate market, which Freddie admits! Can you believe it? All those new shareholders could end up with an instant haircut! And that does not even take into account the potential for the purchase of new Freddie shares by the Treasury in a bailout situation, which is inevitable! Sometimes we wonder if we are still conscious or whether we have been hooked up to the Goldilocks Matrix pod where everything turns out juuust riiight. As the Mogambo Guru might say: "Hahaha! Morons! Hahaha!"

Somehow, with over a trillion dollars of mystery off-balance-sheet toxic waste assets, Citigroup coughs up only $2.5 billion in losses for the second quarter. Can we suggest that we are more than a little skeptical of this figure? Enough said. The same pathological lies will also be spewed forth for all the other banking fraudsters this quarter. After all, we have incumbents that have to be reelected to keep the Illuminist scam wagon rolling down the road. We recoil in disgust at such unmitigated arrogance in financial reporting. Can you imagine the potential liability of the CPA's involved in this mess? How do these people sleep at night? They probably sleep just fine, because they are all sociopaths, or they wouldn't be working for these elitist institutions.

Gold has been implacable this week. The cartel's best efforts have yielded little more than a brief tamping down of gold below 1,000. Despite the best efforts of the Illuminati, gold is still trading over $950 and silver is still over $18. Despite an $18 dollar per barrel takedown of oil from peak to trough this week, the largest such decline ever, and phony dollar rallies galore, gold is still more than $100 per ounce over its recent lows. The resource stocks have been pounded mercilessly with naked shorting, yet are still maintaining the same levels as two weeks ago on July 3. Lease rates are negative or near zero for both gold and silver, but no one wants to lease gold or silver for subsequent sale due to the potential to get vaporized if any untoward event occurs, such as more bank failures or the outbreak of a war or conflict. The naked shorts of the SLV shares and illegal rationing of Silver Eagles by the US Mint are barely keeping silver from exploding to new highs.

This resiliency in the precious metals has many facets and reasons for support. The CPI and PPI are at 26 and 27-year highs. The Fed pumps $500 billion monthly into the banking system just to keep it from freezing up. M3 rages at 17% to 18%, thus locking in years of hyperinflation no matter what the Fed does. The Fed has no credible way of cutting rates or even threatening to cut them as the ECB hikes to levels that are more than double the Fed funds rate. The dollar is quickly reaching new all-time lows against the euro and has recently scraped up against its all-time lows this past week on the USDX. It is headed for 67 to 68. This presents the potential for establishing a dollar carry trade, which would take the dollar quickly to new lows. All major stock market exchanges around the globe are in Bear Market Territory, having plunged to 20% or more from their most recent highs. Various Arab nations are threatening to break dollar pegs. Wars and threats of wars abound everywhere in Georgia, Kosovo, Iraq, Iran, Syria, Lebanon and North Korea. Inflation is raging worldwide, which means that populations across the globe are quite literally being taxed to death by their governments. This just simply cannot continue. Something is going to break, and soon. Banks are insolvent and failing by the hundreds if not thousands. Hedge funds are on the edge of oblivion. Only a tiny percentage of toxic waste losses in real estate and other asset classes of collateral, which will eventually amount to over $1.4 trillion in the US alone, has to date been recognized by the lying bankster fraudsters. Bonds are producing negative rates of return even based on ludicrously understated official rates of inflation (until this month, when we finally got some data bordering on the truth). Credit markets are frozen, and few can get financing at favorable rates. Banks won't even lend to one another because they do not trust each other's financial statements, which are all bogus. Our financial system is unregulated, opaque and rife with fraud as our Treasury Secretary suggests we hand the reins over to the Fed, the very organization which is the driving force behind our myriad of woes. The fractional reserve multiplier is not working and bank's have had to resort to the commodity markets to make profits, thus driving up food and oil prices and the cost of raw materials. Food riots are breaking out due to the ethanol scam. Consumers are tapped out, are in debt up to their eyeballs, are being laid off by the hundreds of thousands, are being pounded by hyperinflation and crazy gas prices and are defaulting on consumer debts across the board at ever-increasing rates. Civil unrest and the potential for revolution are everywhere. A quadrillion dollar caldera of notional principal for credit default and interest rate swaps bubbles, smolders and churns, waiting to erupt into a world-economy-killing cataclysm.

Fannie and Freddie are imploding, and gargantuan government bailouts to save these owners or insurers of over half the mortgages in the US will drive us to higher rates of inflation and levels of direct taxation that are simply unheard of. These higher levels of inflation and taxation are not as far out in the future as most would think. That is because Paulson and Bernanke, who are oblivious to moral hazards because they are sociopaths, are now trying to dump what will be trillions in losses caused by endless banking scams on an ignorant and unsuspecting citizenry. Rising interest rates due to increased risk and hyperinflation are just around the corner, and double digit interest rates will lock up the real estate markets in a cryogenic state as occurred in the early 1980s. We have gone from being the largest creditor nation in the world to the largest debtor nation in a matter of a few decades as our manufacturing industry and economy have been gutted by free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration. Bubble after asset bubble have been created and destroyed by a malevolent Fed trying to push us toward a one world government, economy and religion as powered by megalomaniacal, satanic trillionaires who have destroyed our middle class, our Constitution and our moral standards in order to drive us into their version of the ideal Platonic society where we all get to become their feudal indentured servants and slaves. Our trade and budget deficits continue to mount with profligate spending on endless wars for profit and pork-loaded legislation. Our nation is bankrupt. Our gold reserves have been stolen, swapped, leased or otherwise compromised. Our Congress, our Executive Branch, or military and our covert agencies are loaded with traitors and perverts who are driving us into a police state complete with a Gestapo and an SS. We torture, maim and kill for fun and profits. We make the Roman Empire at its most decadent look like Shangri-La.

The greatest depression of all time looms at our doorsteps. The barbarians are at the gates, but no one notices or cares. It is nothing short of surreal. Those without gold or silver will make great sport for the barbarians, who also happen to like the "barbaric relic" known as gold, because they are more intelligent than the average US citizen.

Large specs have become wise to the manipulations of the PPT in suppression of precious metals and maintain protective derivatives against such manipulations. The next wedding and jewelry seasons in India, the Orient and the Middle East are upon us. Open interest for August gold on the COMEX has gone up over 100,000 contracts in the past month, and there are already 112,500 contracts of open interest for December futures as everyone tools up for a big fall rally. The number of contracts of open interest on Goldman's COMEX gold shorts are at record lows. We still have two weeks before August contracts get rolled over at the end of July, and then all hell will break loose. So take your positions now in gold and silver, or turn green with envy as the rest of us make magnificent profits. It may be now or never. After the elections, there will be a no-holds-barred unraveling of the system, assuming we even have elections, and there is no telling how fast and how high gold and silver could rocket. If you stay on the sidelines, you could miss the whole thing.

If you were wondering about the stock rallies, don't. The yen went wimpy right on cue to support stock markets just as oil was taken down in record fashion to further support stock markets and to suppress precious metals. Since Wednesday, the carry traders have gotten back into it with a reduction of the value of the yen by two yen per dollar and by three and one half yen per euro. Add in the Fed's out-of-control repo pool for funding, the PPT's usual manipulative efforts and the pathological lies shown in banks' financial statements, the drop in oil to support the dollar, and the rally mystery is solved. Elementary, my dear Watson. Note that this was options expiration week, so most of the rally was powered by a short-covering rally ignited by the PPT to drain value from protective derivatives carried by large specs to protect themselves from the PPT. Fortunately for us, most of the specs probably got out when the Dow hit 10,800. Specs should short oil over 140 and a Dow over 12,000. Note that dollars chased from bonds, treasuries and money markets back into foreign stocks usually causes the dollar to weaken. Since this did not happen, it is a clear sign of intervention by the PPT, which will soon subside since they simply cannot keep this pace up for very long in such a gargantuan forex market. Gold and silver are headed much higher, and will now regroup for the final assault on $1,000 for gold and $21 for silver that will take us to new heights and more unexplored territory.

The home builders' sentiment index fell two points in July to record-low 16, with all three components of the survey also dropping to historic lows, the National Association of Home Builders reported Wednesday. At 16, the NAHB/Wells Fargo housing market index shows that only one-in-six home builders has a positive view of the market. New subdivisions have become ghost towns, with current sales dropping off and with the traffic of prospective buyers drying up in recent months. Few builders anticipate any improvement in sales in the next six months.

More doom for global economy

More doom for global economy

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THE global economy is facing the toughest conditions in 25 years, federal Treasurer Wayne Swan has warned.

Mr Swan's comments came as the International Monetary Fund released its latest economic outlook, which described the world economy as being in "a tough spot", and said that the slowdown would be longer and deeper than forecast three months ago.

"The first-quarter slowdown was somewhat less sharp than predicted in the April 2008 World Economic Outlook," the IMF said. "However, recent indicators suggest a further deceleration of activity in the second half of 2008. In advanced economies, business and consumer sentiment have continued to retreat, while industrial production has weakened further. There have also been signs of weakening business activity in emerging economies."

Mr Swan said while global inflation was on the rise, and borrowing costs had risen, Australia was well insulated. "We have highly regarded regulators and do not face the same problems being experienced in the US subprime mortgage market," he said.

He said that the IMF's forecasts for growth in Asian and emerging economies also remained robust. "In particular, the growth outlook for China remains supportive of continued growth in Australia," he said.

World growth is expected to contract from 4.8% in the fourth quarter of 2007 to 3% in the fourth quarter of 2008 before picking up to 4.3% in the final quarter of 2009.

The IMF predicts the US, which has led the slowdown among advanced economies, will continue to grow at 1.3% on an annual basis in 2008, but it says the economy will contract moderately during the second half of 2008 before gradually recovering next year.

The emerging and developing economies are also expected to "lose steam".

"In China, growth is now projected to moderate from near 12% in 2007 to around 10% in 2008-09," the report says.

The IMF is also worried about inflation, and in particular rising food prices in developing countries, which it says are at crisis point and could undermine stability in some countries. But on the positive side, it says demand in emerging economies might be more resilient than projected.

ANZ chief economist Saul Eslake said that the decline in economic activity would act as a brake on interest rate rises in developed economies. "The IMF is saying not to worry as inflation will slow with a slowing economy and if that was advice for individual countries it would be not to lift interest rates because they will be curbed by a decline in output."

But Macquarie Bank chief economist Richard Gibbs said that there still existed the more frightening scenario of slowing growth paired with growing inflation. "The worrying concern is of course … you've got falling output but rising inflation."

BIS Shrapnel director and chief economist Dr Frank Gelber said Australia was not headed for a recession. "In the demand side of the equation, it is business as usual," he said."What we are seeing now is a bit of a crisis of confidence because everyone's reading the newspapers, looking at sharemarkets and thinking it's the end of the world as we know it — it's not."

Eulogy For The "Ownership Society"

Eulogy For The "Ownership Society"

By Mike Whitney

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The Fed's emergency rescue plan for the financial markets is hopelessly flawed. It's a scattershot approach that doesn't address the real source of the problem; an unregulated, unsustainable structured finance system that emerged in full-force after 2000 and spawned a shadow banking system that creates trillions of dollars of credit without sufficient capital reserves. This is the heart of the problem and it needs to be debated openly. The present system doesn't work; it's as simple as that. It makes no sense to provide trillions of dollars of taxpayer money to shore up a system that is essentially dysfunctional. It's just throwing money down a rat-hole.

The Federal Reserve and US Treasury want a blank check to prop up Fannie Mae and Freddie Mac, the two war-horses of the mortgage industry, that currently underwrite nearly 80 per cent of all new mortgages in the US. But by any objective standard both of these GSEs are already insolvent. Thus, the taxpayer is being asked to rescue a failed industry that has been used for private gain so that speculators will not have to suffer the losses. Even worse, Fannie and Freddie have written hundreds of billions of dollars worth of mortgages that have not yet defaulted, but will certainly default within the next two years. This is bound to batter the already faltering economy.

The bad paper held by Fannie and Freddie are mortgages that were made to unqualified applicants who are presently losing their homes in record numbers. Their loans were approved because there was no functioning regulatory body to oversee their issuance and because the mortgages were transformed into complex securities that were sold to credulous investors around the world. The ratings were fixed to meet the requirements of their employers, the investment banks, which marketed these exotic bonds to foreign banks, insurance companies and hedge funds. That puts Fannie and Freddie at the center of a system that needs radical surgery to eradicate the bad paper. If this doesn't happen in a timely fashion, then foreign investors will stop purchasing US debt and the dollar will crash. By creating a backstop for Fannie and Freddie, the Fed is linking US sovereign debt with mortgages and derivatives that are already known to be fraudulent. This is a big mistake. According to Merrill Lynch, the US is already facing a long-term "financing crisis" as the weakening US economy and sluggish consumer spending could signal an end to the $700 billion in foreign investment that covers America's current account deficit. By assuming the GSE's enormous debts, the Bush administration is just speeding this process along and inviting disaster.

Treasury Secretary Henry Paulson has been intentionally oblique about the implications of the proposed bailout. On Tuesday, he delivered a statement in front of the massive stone columns of the Department of the Treasury, a towering monolith that arouses feelings of confidence in rock-solid institutions. He made it clear that Fannie Mae and Freddie Mac would have the "explicit" backing of the US government:

"First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator's process for setting capital requirements and other prudential standards."

It was an impressive performance from a public relations point of view, but it didn't fool anyone on Wall Street. What Wall Street wants is details not blather. Paulson gave no specifics about how much money the government would provide or what the nature of the new relationship would be; conservatorship, recievorship, nationalization? What is it?

The truth is that Paulson was deliberately vague because he and friend Bernanke would like to have it both ways; they'd like to provide a liquidity backstop and an endless line of credit for the two GSE's without formally nationalizing them. That would avoid the further dilution of stock values while keeping the US government from taking another $5 trillion of mortgage debt onto their balance sheet. It is a delicate balancing act, but Paulson seems to think he carried it off. He's wrong, though, and volatility in the stock market proves it. Investors are clearly skittish about the new arrangement. They want to know the facts about the government's commitment. Paulson is discovering that deceiving investors is not as easy as duping the public about fictional WMD or Niger uranium. Sometimes even the dullest person can grasp the most complex matters when it comes to his own money.

Fannie and Freddie have been insolvent for ages, but it hasn't stopped lawmakers from pushing the envelope and loading more debt on their balance sheets. Here's how Barron's summed it up more than six months ago:

"Fannie's balance sheet is larded with soft assets and understated liabilities that would leave the company ill-equipped to weather a serious financial crisis. And spiraling mortgage defaults and falling home prices could bring a tsunami of credit losses over the next two years that will severely test Fannie's solvency.

But, if the truth be known, a considerable portion of Fannie's losses also came from speculative forays into higher-yielding but riskier mortgage products like subprime, Alt-A (a category between subprime and prime in credit quality) and dicey mortgages requiring monthly payments of interest only or less. For example, Fannie's $314 billion of Alt-A -- often called liar loans because borrowers provide little documentation -- accounted for 31.4% of the company's credit losses while making up just 11.9% of its $2.5 trillion single-family-home credit book. Fannie was clearly looking for love -- and market share -- in some of the wrong places."

Rampant speculation, risky investments, and Enron-type accounting; hardly the stuff of solid portfolios. That's why the two mortgage giants are stumbling headlong towards oblivion despite the Treasury's panicky relief operation. By last Friday Fannie's stock had fallen 47 per cent while Freddie was down 50 per cent. The public may still be in the dark about what is going on, but investors have a pretty good grip on the situation; they can see the great birds are already circling overhead and its just a matter of time before they descend on their prey. Paulson's attempts to muddy the water have amounted to nothing. The fact remains that the two biggest mortgage-lenders in the world are busted and last week's stock sell-off was tantamount to a run on the country's largest bank. Paulson's statement was really nothing more than a eulogy for the mortgage industry; a few heartfelt words over the rigid corpse of a close friend.

When the housing market started to tumble and Wall Street's "securitization" model froze-up, Fannie had to take the lion's share of the mortgages to keep the real estate market hobbling along. In a two year period, between the housing peak in 2005 and 2007, Fannie went from roughly 40 per cent of the market to about 80 per cent. The Congress even enlarged the size of the mortgages they could underwrite from $417,000 to over $700,000. The prospect of bankruptcy never diminished congress's generosity.

Fannie and Freddie currently own or underwrite roughly half of the nation’s $12 trillion mortgage market. Basically, every home mortgage lender depends on them for financing. Their shares are owned by individual investors and banks around the world. Foreign investors have always believed that the GSE bonds were as risk-free as US government Treasuries. Now they are beginning to wonder. (Foreign central banks, led by China and Russia, hold at least $925 billion in U.S. agency debt, including bonds sold by Freddie and Fannie, according to official U.S. statistics)

Whatever happens to Fannie, the loss of investor confidence will send long term interest higher as investors demand bigger returns for the risk they're taking on GSE bonds. That'll put a straitjacket on home sales which are already flagging from soaring inventory and falling prices. Higher rates could bring the whole housing market to a standstill.

The Fed's cheap credit policy under Greenspan created an artificial demand for housing which ballooned into the biggest equity bubble in history. Low interest rates are a subsidy which naturally lead to speculation and asset-inflation. At a certain point, however, the endless debt-pyramiding reaches its apex and the whole mechanism switches into reverse. Now the economy has entered deleveraging-hell where everything is primal blackness and the gnashing of teeth, the flip-side of speculative rapture.

By some estimates, Freddie Mac has a negative net-worth of $17 billion. It's basically insolvent, although Paulson would like to see the charade go on a while longer. Investors purchased another $3 billion of the two GSEs last Monday, but the appetite for failing bonds is diminishing? What's certain is that the collapse of Fannie and Freddie would be a watershed event and a mortal blow to the US financial system. $5 trillion in shaky mortgage-debt can't be easily swept under the rug and ignored. Interest rates on everything would quickly rise; credit would become scarcer, economic growth would shrivel, unemployment would soar, and the dollar will plummet. As the two mortgage giants continue to get whipsawed by higher priced capital and waning investment, US government debt will likely to lose its much-vaunted triple A credit rating. On Friday, credit default swaps on government debt doubled, a sign that investors are losing confidence that the US will be able to manage its twin deficits or pay off its debts. It's the end of the road for Washington's free lunch throng and for a paper dollar that isn't backed by much of anything except music videos, fast food and smart-bombs.

PAULSON'S POWER GRAB

What Paulson is really wants is for congress to allow the Fed to regulate the financial system without congressional oversight. Paulson's so-called blueprint for financial regulation is a blatant power-grab meant to expand the authority of the banking oligarchy giving them unlimited power over the markets. Journalist Barry Grey sums it up like this in his article on "US Bailout of Mortgage Giants: The politics of plutocracy":

"The plan outlined by Treasury Secretary Henry Paulson would give him virtually unlimited and unilateral authority to pump tens of billions of dollars of public funds into the mortgage finance companies. At the same time, the Federal Reserve Board announced that it would allow the companies to directly borrow Fed funds... The Democrats...now march in lockstep with the minority party to rush through laws demanded by Wall Street... The buying of legislators and their votes by corporate interests is carried out openly and shamelessly. Members of Frank’s House Financial Services Committee received over $18 million from financial services, insurance and real estate firms this year. Frank himself raised over $1.2 million, almost half of which came from finance and related industries...Senator Dodd’s top contributor in the 2003-2008 election cycle was Citigroup, followed by SAC Capital Partners. He raised $4.25 million from securities and investment firms.
Senator Schumer’s top contributor was likewise Citigroup. He raised $1.4 million from securities and investment firms, his most lucrative corporate sector."

The smell of political corruption is overpowering, and yet, the plan is moving forward regardless. Even if Paulson's plan worked in the short term, the damage would be enormous. It would place the country's regulatory powers and purse-strings in the hands of the same amoral banksters who created this mess to begin with. It is the fast-track to corporate feudalism on a nationwide scale.

PITFALLS FOR THE GSEs

The biggest problem facing Fannie and Freddie is that wary investors will not roll over the debt of the two companies which will precipitate a collapse. This is where it pays to have people who can be trusted in positions of power. Henry Paulson is the worst thing that ever happened to the US Treasury. Paulson is to finance capitalism what Rumsfeld is to military strategy. To say that Paulson is lacking in credibility is an understatement. Nothing he says can be taken at face-value. When Paulson says "the worst is behind us" or the "subprime crisis is contained" or the Bush administration "supports a strong dollar policy"; most people know it is a fabrication. Besides, Paulson is completely out of his depth in the present crisis. His appearances on TV, with the beads of sweat glistening on his forehead, and his foolish repetition of the same stale mantra is eroding confidence in the financial system and sending waves of panic rippling through Wall Street. Enough is enough. He needs to go.

If the administration was serious about changing direction they would dump Paulson and reinstate Paul Volcker. Whatever one thinks about Volcker, his presence would calm the markets and send a message that the adults were back in charge. But that won't happen. The Bush team still thinks they can finesse their way through the thicket of investor skepticism. That means that catastrophe is inevitable as more and more investors pick up their bets and head for the exits.

TIME IS RUNNING OUT

Whatever the administration decides to do; time is short and they have one chance to get it right. The Treasury needs to find a way to ring-fence the garbage bonds and pray that the investing public won't dump their holdings in a panic run on the market. Either way, it's a gamble and there's no guarantee of success. The Wall Street Journal outlined the doomsday scenario if Paulson's plan fails:

"Falling house prices and nonpaying homeowners cause the value of the trillions of dollars in outstanding debt held by these government-sponsored enterprises (Fannie and Freddie) to plunge. Many banks have balance sheets stuffed full of this paper. They face huge losses, which some can't survive. They and other investors, such as foreign central banks, then dump the GSE paper.

Fannie and Freddie would end up unable to lend, or at least to take up anything like their current 80% share of the U.S. mortgage market, further punishing the reeling housing market. This would add another twist to the spiral of falling prices, credit losses and failing lenders.

What should they do? First, devise a plan -- and fast. There is no time to dither." (Wall Street Journal)

If foreign banks and investors ditch their GSE debt; it will send shockwaves through the global economy. But if the Treasury provides unlimited funding for a sinking operation, it's likely to trigger a sell-off of the dollar. It's a lose-lose situation. For now, bond holders are sitting-tight even though the stock is tanking, but for how long? They've already been taken to the cleaners on hundreds of billions of dollars of mortgage-backed garbage; now there are rumors that the US government won't back agency debt. What kind of shabby shell-game is the US playing anyway?

New York Times:

“If people lose faith in Fannie and Freddie, then the whole system freezes up, and nobody can buy a house, and the entire housing market can crash,” said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. “There’s a fine line between having faith and losing it, and sometimes it’s unclear when it has disappeared. But when investors cross that line, bad things happen very quickly.”

And it affects more than the housing market, too. The bond and equities markets are handcuffed to real estate and they're already listing from the slowdown in investment. The Fed thought they could keep the whole mess from going sideways by opening up "auction facilities" where the banks could get low interest capital in exchange for their mortgage-backed junk. But the banks have curtailed their lending and there's bigger trouble ahead. Bridgewater Associates issued a warning last week that losses to the banking system would exceed $1.6 trillion, four times original estimates and enough to crash the entire banking system. So far, banks have only written down $450 billion, which means that they are only 25 per cent of the way through the current credit storm. Defaults are liable to skyrocket as hundreds of undercapitalized banks turn to a grossly underfunded FDIC ($52 billion in reserves) to cover the losses of their depositors. The prospect of a humongous taxpayer bailout seems nearly unavoidable.

What's most disturbing is that nothing has been done to restore the markets to a functional model. The Fed's strategy is still to try to keep the relatively new "structured finance" model (with all it's bizarre-named debt instruments and derivatives) in place even though it failed its first stress-test and has demonstrated that it cannot withstand even moderate downward movement in the market. The current model is kaput; there needs to be a Plan B or the Fed is just wasting its time.

Fannie's demise comes at a particularly difficult time for the banking system. According to a report by Paul Kasriel, Chief Economist at Northern Trust:

"The sharpest 13-week contraction in bank credit” since data were first available in 1973. Banks simply don’t have the capital on hand to avail “themselves of the cheap credit the Fed is offering to fund them at.”....This is what it means to be in a “credit crunch.” Banks have suffered hundreds of billions in losses, forcing them to pull credit out of the economy. Every time you read an article about banks cutting credit lines, exiting lending businesses, or eliminating mortgage products it represents more bank credit drying up." (Option Armageddon, "Understanding Bernanke")

Bank credit is drying up because the capital is being destroyed (from foreclosures and downgraded assets) faster than anytime in history. We are just now feeling the first stiff breezes from a Force-5 deflationary hurricane set to touch down in 2009. Fannie and Freddie are teetering towards insolvency while the country is entering the most vicious downward cycle since the Great Depression. Higher interest rates, negative home equity, mounting credit card debt, auto loan debt, commercial real estate debt and tightening lending standards will only curtail consumer spending more putting greater pressure on the dollar.

The Fed will have to be selective; not everything can be saved. Significant parts of the financial system will be reduced to ashes. It would be wiser to clear the brush away from as many of the solvent institutions as possible and prepare for the worst. Otherwise, the whole system is at risk of contagion. Hundreds of local and regional banks are expected to go under. (the average small bank has 67% of its assets in real estate) It can't be avoided. They are holding too much bad paper and no way to make up for the losses. They're following the same path as the 250 mortgage lenders that vaporised in the subprime meltdown. They couldn't be saved either.

The bigger investment banks are in trouble too. That's why the SEC has finally decided to act as a regulator and go after short-sellers:

"The Securities and Exchange Commission announced an emergency action aimed at reducing short-selling aimed at Wall Street brokerage firms, Fannie Mae and Freddie Mac, and will immediately begin considering new rules to extend new requirements to the rest of the market."

The SEC never took an interest in naked shorting of stocks (or commodities speculators) while its fat-cat friends in the big brokerage houses were raking in billions. Now that many of these same institutions, including Fannie Mae and Freddie Mac, are in the crosshairs, SEC chief Christopher Cox is rushing to their rescue. It is utter duplicity, but it illustrates an important point; the system is cannibalizing itself just like Karl Marx predicted over 100 years ago. Unchecked greed is inevitably self-destructive.

A growing number of market analysts are beginning to notice the storm clouds forming on the horizon. The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months. The Bank of international Settlements (BIS) made a similarly ominous warning that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s. The bank suggests that government officials and market analysts have not fully grasped the financial turmoil that could result from the mortgage crisis and its effects of the global economic system. The body points out that the Great Depression was not anticipated because people ignored the implicit danger of "complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system."

Ron Paul (R-Texas) is one of the few members of congress who has shown that he has a grasp of the impending economic disaster now facing the country if corrective action is not taken swiftly. In a speech he gave last week on the floor of the House, he said:

"There are reasons to believe this coming crisis is different and bigger than the world has ever experienced...The financial crisis, still in its early stages, is apparent to everyone: gasoline prices over $4 a gallon; skyrocketing education and medical-care costs; the collapse of the housing bubble; the bursting of the NASDAQ bubble; stock markets plunging; unemployment rising;, massive underemployment; excessive government debt; and unmanageable personal debt. Little doubt exists as to whether we’ll get stagflation. The question that will soon be asked is: When will the stagflation become an inflationary depression? "

The troubles at Fannie and Freddie are symptomatic of more deeply rooted problems related to abusive lending and the unsustainable expansion of credit. We've now reached our debt limit and the bills must be repaid or written off. The Bush administration is hoping to reflate the bubble by (stealthily) recapitalizing the GSEs, but it won't be easy. As one blogger put it, we have reached "peak credit" and have nowhere to go except down.

Economist Michael Hudson summed it up like this:

"The reality is that Fannie, Freddie and the FHA gave a patina of confidence to irresponsible lending and outright fraud. This confidence game led them to guarantee some $5.3 trillion of mortgages, and to keep $1.6 trillion more on their own books to back the bonds they issued to institutional investors." It was a scam of Biblical proportions and now it is all starting to unravel. Bush's "ownership society" was a cheap parlor trick engineered by the Fed's low interest rates to trigger massive speculation and shift wealth from one class to another. Now, the housing bubble has crashed and the excruciating reality of insolvency is beginning to sink in.

Michael Hudson, again:

"All one hears is a barrage of claims that the government must preserve the financial fictions of Fanny Mae and Freddie Mac in order to 'save the market.' The usual hypocrisy is being brought to bear claiming that all this is necessary to 'save the middle class,' even as what is being saved are its debts, not its assets...The “way of life” that is being saved is not that of home ownership, but debt peonage to support the concentration of wealth at the top of the economic pyramid.
Mortgages are the major debts of most American families. In this role, real estate debt has become the basis for the commercial banking system, and hence the basis for the wealthiest 10 percent of the population who hold the bottom 90 percent in debt. That is what Fannie Mae, Freddie Mac and “the market” are all about." (Michael Hudson; "Why the Bail Out of Fannie Mae and Freddie Mac is Bad Economic Policy", counterpunch.org)

The housing boom never had anything to do with Bush's Utopian-sounding "ownership society". It was always just a swindle to enrich the banking establishment and divert middle class wealth to ruling class elites.

'Massive potential' for global 'financial meltdown'

'Massive potential' for global 'financial meltdown'

Confidence falls in U.S. authorities' ability to ease financial panic

Pedro Nicolaci da Costa

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The nightmare scenario for U.S. economic authorities is here: Confidence in their ability to rescue the country from a housing-led financial panic is now at its lowest level since the crisis began.

This means losses for investors, already totalling nearly half a trillion dollars, could mount even further over the next few months, with implications for business investment and the overall health of the economy.

"You see a massive potential for financial meltdown on a global scale," said T.J. Marta, fixed-income strategist at RBC Capital Markets.

Federal Reserve chairman Ben Bernanke and Treasury secretary Henry Paulson testified before Congress this week on the country's precarious financial state. They were met with unusually fierce questions from lawmakers on the feasibility of a plan to provide extra funding for mortgage finance giants Fannie Mae and Freddie Mac.

"I will use every power in my arsenal to stop this," said Jim Bunning, Republican senator from Kentucky, berating the Treasury initiative in no uncertain terms.

The government's vow to back the institutions largely failed to restore faith in a near-term recovery for battered financial markets. After a momentary jolt higher on Monday, U.S. stocks ended lower. The Dow Jones industrial average on Tuesday slipped below 11,000 for the first time in two years.

U.S. shares did recover on Wednesday, but this was largely due to a rapid retreat in oil prices than any renewed confidence in credit markets or growth prospects.

"People's horizons are moving out to 2009 and they are still not seeing any end in sight and with credit losses increasing that's really not good news," said Steve Goldman, market strategist at Weeden & Co., in Greenwich, Conn.

"The backstop with Freddie Mac and Fannie Mae doesn't deal with heart of the problem: foreclosures, supply."

Fannie Mae and Freddie Mac together own or guarantee about $5 trillion in mortgages, about half of the entire U.S. mortgage market. The bond market's reaction to the Treasury's vow to support the government-sponsored entities was telling. U.S. Treasury bond prices rallied sharply on Tuesday despite a 9.2-per-cent year-on-year jump in producer level inflation, the biggest in almost 30 years.

This counterintuitive reaction for government debt, whose fixed returns make them highly sensitive to inflation, indicates just how frantic investors have become. They would rather hold paper whose value might be eroded over time than face the prospect of immediate losses in risker assets like equity shares or asset-backed bonds.

"No one knows where it is going to end for stocks," said Robert Macintosh, chief economist at Eaton Vance Corp., in Boston. "Talk about a negative tone, no matter what anybody says or does it seems to get worse."

Especially hard hit, U.S. bank shares fell this week to their lowest level since 1996 on fears of seemingly endless losses.

At the forefront of investor worries is the collapse of California-based mortgage lender IndyMac. Regulators seized the company on Friday after a bank run in which customers panicked over the firm's survival withdrew $1.3 billion over 11 business days. This was one of the largest bank failures in U.S. history.

The scariest thing about it is that things seem to be getting worse rather than better. Gerard Cassidy, another RBC analyst, estimates that more than 300 U.S. banks could close their doors in the next three years, double what he had estimated back in February. Only a handful have failed so far.

With a number of banks set to report earnings this week, Wells Fargo & Co. surprised the market on Wednesday with losses that were less severe than some had feared. Nonetheless, confidence in the overall financial system remains shaky.

Saturated with bad news, investors appear to have thrown in the towel. As they do this, the risks that both consumers and businesses will face further retrenchment at the same time is growing.

Bernanke appeared conscious of this possibility, using his testimony to back away from earlier assertions that the risks to economic growth had diminished.

"The possibility of higher energy prices, tighter credit conditions and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth," he said, even while stressing concerns about inflation.

It recently emerged that the Federal Deposit Insurance Corp., or FDIC, has a secret list of about 90 banks that could run into trouble. Developments surrounding Fannie and Freddie suggest that list could get longer.

US faces global funding crisis, warns Merrill Lynch

US faces global funding crisis, warns Merrill Lynch

The US Treasury is running out of time before foreign patience snaps, writes Ambrose Evans-Pritchard

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Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst. Britain and other Anglo-Saxon deficit states could face a similar retreat by foreign investors.

"Japan was able to cut its interest rates to zero," said Alex Patelis, Merrill's head of international economics.

"It would be very difficult for the US to do this. Foreigners will not be willing to supply the capital. Nobody knows where the limit lies."

Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.

"This is not the time for policy-makers to underestimate, once again, the systemic risks to the financial system and the huge damage this would impose on the economy. Bold, aggressive action is needed, and needed now," he said.

Mr Bethune said the Treasury would have to inject up $20bn in fresh capital. This in turn might draw in a further $20bn in private money. Funds on this scale would be enough to see the two agencies through any scenario short of a meltdown in the US prime property market.


He said concerns about "moral hazard" - stoked by hard-line free-marketeers at the White House and vocal parts of the US media - were holding up a solution. "We can't dither. The markets can be brutal. We have to break the chain of contagion before confidence is destroyed."

Fannie and Freddie - the world's two biggest financial institutions - make up almost half the $12 trillion US mortgage industry. But that understates their vital importance at this juncture. They are now serving as lender of last resort to the housing market, providing 80pc of all new home loans.

Roughly $1.5 trillion of Fannie and Freddie AAA-rated debt - as well as other US "government-sponsored enterprises" - is now in foreign hands. The great unknown is whether foreign patience will snap as losses mount and the dollar slides.

Hiroshi Watanabe, Japan's chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.

But the lion's share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.

Mr Patelis said it was unlikely that any would want to trigger a fire-sale by dumping their holdings on the market. Instead, they will probably accumulate US and Anglo-Saxon debt at a slower rate. That alone will be enough to leave deficit countries struggling to plug the capital gap. "I don't see how the current situation can continue beyond six months," he said.

Merrill Lynch said foreign governments had added $241bn of US agency debt over the past year alone as their foreign reserves exploded, accounting for a third of total financing for the US current account deficit. (They now own $985bn in all.) By most estimates, China holds around $400bn, Russia $150bn and Saudi Arabia and other Gulf states at least $200bn.

Global inflation is now intruding with a vengeance as well. Much of Asia is having to raise rates aggressively, drawing capital away from North America. This may push up yields on US Treasuries and bonds, tightening the credit screw at a time when the US is already mired in slump.

Russia's deputy finance minister, Dmitry Pankin, said the collapse in the share prices of Fannie and Freddie over the past week was irrelevant because their debt has been effectively guaranteed by the US government under the rescue package.

"We don't see a reason to change anything because the rating of the debt of those agencies hasn't changed," he said.

Foreign policy experts doubt that the picture is so simple. Russia is likely to use its $530bn reserves as an implicit bargaining chip in high-stakes diplomacy, perhaps to discourage the US from extending Nato membership to the Ukraine and Georgia.

Vladimir Putin, now Russia's premier, has stated repeatedly that his country is engaged in a new Cold War with the United States. It is clear that Moscow would relish any chance to humiliate the United States, provided the costs of doing so were not too high for Russia itself.

China is regarded as a more reliable partner, with a greater desire for global stability. Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country over 70 times.

Brad Setser, from the US Council on Foreign Relations, said the Chinese have a stake in upholding Fannie and Freddie, not least to ensure that their loans are "honoured on time and in full".

David Bloom, currency chief at HSBC, said fears that regional banks could start toppling after the Fed takeover of IndyMac last week were now the biggest threat to the dollar.

"We have a pure dollar sell-off," he said. "It's a hating competition: at the moment the markets hate the dollar more than they hate the euro, even though German's ZEW confidence indicator was absolutely atrocious."

Activists help condo owner fight eviction

Activists help condo owner fight eviction

Rescue of Fannie, Freddie is no aid to Roxbury woman

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The Bush administration is moving to rescue embattled mortgage backers Fannie Mae and Freddie Mac, but that doesn't help Roxbury native Paula Taylor, not one bit.

The 43-year-old physical trainer failed to pay her mortgage and has been fighting eviction from her condo for nine months. Yesterday, as she waited for a constable charged with her final eviction, she was joined by about 60 friends and housing activists who rallied on her behalf, waving signs and chanting "We shall not be moved."

They were not.

"I'm taking a stand," Taylor said. "Why punish me?"

Thanks to the attention-drawing protest and some last-minute maneuvering by city officials, Taylor will not have to leave her condo, at least for 30 days. Her lender, Countrywide, agreed yesterday to meet with Taylor and a city mediator to discuss her housing predicament.

Steve Meacham - a coordinator at City Life, a Jamaica Plain nonprofit that has organized a half dozen protests on behalf of distressed homeowners - called the outcome a success.

But he and others asserted that while taxpayers are being asked to rescue Fannie Mae and Freddie Mac, evicted homeowners have little recourse. Taylor, for example, only wanted to stay in her condo and rent it until it was sold.

"The eviction [protest] brings a lot of publicity and attention to the inherent contradiction of this situation," Meacham said. "It raises the issue of who's getting bailed out and who's getting stiffed."

Taylor said she bought the condo two years ago for $259,000 with a subprime mortgage from Countrywide, a lending company under fire for issuing such risky loans.

The subprime mortgage collapse has fed a lending crisis and undermined the banking industry, which is one of the reasons the federal government is being asked to step in with taxpayer dollars.

Massachusetts saw 6,676 foreclosure filings reported in May, according to RealtyTrac.

US Representative Barney Frank of Newton, House Financial Services Committee chairman, introduced legislation that would help lenders and homeowners refinance distressed mortgages, avoiding potentially huge losses that can stem from foreclosures. The legislation would also fund a program for cities to buy foreclosed properties and would increase federal support for consumer credit counseling programs.

Taylor said she started missing her mortgage payments last year. She said she struggled to make the payments and fell behind when she began receiving large electricity and gas bills because of improperly wired meters connected to other condos in her building.

Last November, Countrywide put her two-bedroom condo, where she lived with her sister and sister's daughter, up for sale. She was told to vacate the condo, where Taylor also runs her personal trainer business, Triumphant Wellbeing. She didn't. A realtor offered her $2,500 to turn over the keys, she said. She refused. Last week, when a court constable handed her a 48-hour eviction notice, Taylor still didn't budge.

"I was very scared," Taylor said. "But unlike most people, I had people all along coaching me."

Taylor said that during one of her court proceedings she met a City Life worker who agreed to help her. The tenants' rights group helped her get her case reviewed by Harvard Legal Aid and get her case transferred to housing court.

On their advice, Taylor said, she also sent a letter to Countrywide informing it that she would not move and offering to pay market rent. (She would not say what her monthly mortgage payments were, but said she would be willing to pay $1,500 a month in rent.)

Taylor said she never heard back from Countrywide, which was recently acquired by Bank of America. She said lawyers from Harvard Legal Aid and City Life workers who called on her behalf also got no response.

Rick Simon, a spokesman for Countrywide, said the company's lawyers spoke with Taylor earlier this spring, offering to let her live in the condo until June 30, so that Taylor's niece could finish the school year.

"We have a commitment to making the whole process as smooth and compassionate as we can," Simon said.

Last week, after Taylor received a notice that she had 48 hours to vacate the condo, City Life took action, organizing yesterday's protest. When the constable arrived at Taylor's Perrin Street home, he announced that the eviction had been called off.

Mike Kelley, director of the city's Rental Housing Research Center, said he learned of the blockade on Monday night and called Countrywide officials.

He asked them to follow the course outlined earlier this year by Mayor Thomas M. Menino, who asked the largest banks in the city to change their policies and enter mediated negotiations with foreclosed customers. Too often, banks do not negotiate directly with tenants or their lawyers, he said, which works in no one's interest.

"It is our position that banks do have a responsibility to think about the results of their actions on borrowers and neighbors and the cities where they do business," he said. "They should be good corporate neighbors."

Countrywide's Simon said yesterday that it was unlikely the company would let Taylor remain in the condo longer than 30 days. He said the company's first priority is to its investors who want to see the property sold.

"There are a number of issues that prevent us from accepting rent payments," Simon said. "There are legal factors, and . . . it makes it much more difficult to sell a property with a tenant in it."

Why Karl Rove Should Go To Jail

Why Karl Rove Should Go To Jail

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Again last week, we saw the arrogance of former White House advisor Karl Rove when an empty chair sat for him in front of the House Judiciary subcommittee where he was required by subpoena to testify. Not only did he refuse to appear before the committee -- let alone testify -- but he defiantly left the country thereby blatantly ignoring his obligations under the congressional subpoena served on him. When he did return to the country, Rove found the time to gab with TV reporters on a summer press tour in Beverly Hills, but failed to stop by the Judiciary Committee in Washington.

After my ruling that Mr. Rove's claims of immunity are not legally valid, Congressman Conyers and I gave him one last chance to comply with the law. He ignored us. As he let yet another deadline slip by this week, Mr. Rove's disregard for Congress has become intolerable. Mr. Rove needs to understand that he is not above the law and should obey a subpoena just like any other American is required to do.

Mr. Rove should not be able to hide behind the president to avoid the American public. Americans are fed up with this administration flouting the law. They expect Congress to hold people accountable and that is exactly what we intend to do. Letting Mr. Rove get away with this would set a dangerous precedent. I have recommended that we hold Mr. Rove in contempt of Congress. If we need to revive the inherent contempt procedure which gives Congress the authority to arrest those who defy Congressional subpoenas, then so be it.

The courts have made clear that no one, not even the president, is immune from compulsory process. Any person who scoffs at the law and who has committed an offense that is punishable by jail time should be put in jail. This includes Karl Rove.

Congresswoman Linda T. Sánchez is the Chairwoman of the House Judiciary Subcommittee on Commercial and Administrative Law. She represents the 39th Congressional District of California.

Economic Realities Are Killing Our Era of Fantasy Politics

Economic Realities Are Killing Our Era of Fantasy Politics

By Matt Taibbi
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I am a single mother with a 9-year-old boy. To stay warm at night my son and I would pull off all the pillows from the couch and pile them on the kitchen floor. I'd hang a blanket from the kitchen doorway and we'd sleep right there on the floor. By February we ran out of wood and I burned my mother's dining room furniture. I have no oil for hot water. We boil our water on the stove and pour it in the tub. I'd like to order one of your flags and hang it upside down at the capital building... we are certainly a country in distress. -- Letter from a single mother in a Vermont city, to Senator Bernie Sanders

The Republican and Democratic conventions are just around the corner, which means that we're at a critical time in our nation's history. For this is the moment when the country's political and media consensus finally settles on the line of bullshit it will be selling to the public as the "national debate" come fall.

If you pay close attention you can actually see the trial balloons whooshing overhead. There have been numerous articles of late of the Whither the Debate? genus in the country's major dailes and news mags, pieces like Patrick Healy's "Target: Barack Obama. Strategy: What Day is it?" in the New York Times. They ostensibly wonder aloud about what respective "plans of attack" Barack Obama and John McCain will choose to pursue against one another in the fall.

In these pieces we already see the candidates trying on, like shoes, the various storylines we might soon have hammered into our heads like wartime slogans. Most hilarious from my viewpoint is the increasingly real possibility that the Republicans will eventually decide that their best shot against Obama is to pull out the old "He's a flip-flopper" strategy -- which would be pathetic, given that this was the same tired tactic they used against John Kerry four years ago, were it not for the damning fact that it might actually work again. (I'm actually not sure sometimes what is more repulsive: the bosh they trot out as campaign "issues," or the enthusiasm with which the public buys it.)

Naturally we'll also see the "Patriotism Gap" storyline whipped out and reused over and over again. There will also be much talk emanating from the McCain camp about "experience," although this line of attack will not be nearly as fruitful for him as it was for Hillary Clinton, mainly because the word "experience" in McCain's case also has a habit of reminding voters that the Arizona senator is, well, wicked old.

The Obama camp, playing with a big halftime lead as the cliché goes, is going to play this one close to the vest, sticking to a strategy of using larger and larger fonts every week for their "CHANGE" placards, and getting the candidates' various aides and spokesgoons to use the term "McCain-Bush policies" as many times as possible on political talk shows. Obama will also use this pre-convention period to do what every general election candidate does after a tough primary-season fight, i.e. ditch all the positions he took en route to securing the nomination and replace them with opinions subtly (or sometimes not-so-subtly) reconfigured to fit the latest polling information coming out of certain key swing states. Both sides as well as the pundit class will describe this early positioning for combat over swing-state electoral votes as a "race for the center" (AP, July 3: "Candidates Courting the Center"), as if the "political center" in America were a place where huge chunks of the population tirelessly obsessed over semi-relevant media-driven wedge issues like stem-cell research and gay marriage, even as they lacked money to buy food and make rent every month.

The press, meanwhile, is clearly flailing around for a sensational hook to use in selling the election, as the once-brightly-burning star of blue-red hatred seems unfortunately to have dimmed a little -- just in time, perhaps, to torpedo the general election season cable ratings. They are working hard to come up with the WWF-style shorthand labels they always use to sell electoral contests: if 2000 was the "wooden" and ?condescending? Al Gore versus the "dummy" Bush, and 2004 featured that same ?regular guy? Bush against the "patrician" and "bookish" John Kerry (who also "looked French"), in 2008 we?re going to be sold the "maverick" McCain against the "smooth" Obama, or some dumb thing along those lines. Time has even experimented with a "poker versus craps" storyline, feeding off the incidental fact that Obama is a regular poker player while McCain reportedly favors craps, which apparently has some electorally relevant meaning -- and if you know what that something is, please let me know.

We're also going to be fed truckloads of onerous horseshit about the candidate wives. The Michelle Obama content is going to go something like this: the Fox/Limbaugh crowd will first plaster her with Buckwheatesque caricatures (the National Review cover was hilariously over-the-top in that respect) and racially loaded epithets like "baby Mama" (that via Fox News spokeswhore Michelle Malkin, God bless her) and "angry black woman" (via self-aggrandizing, cop-mustached Chicago-based prune Cal Thomas). Next, the so-called "mainstream" press, the "respectable" press, which of course is above such behavior, will amplify those attacks 10 million-fold via endless waves of secondary features soberly pondering the question of whether or not Michelle Obama is a "political liability" -- because of stuff like the Thomas column, and Malkin's quip and the endless rumors about a mysterious "whitey" video. Cindy McCain, meanwhile, will generally be described as a political asset, as the pundit class tends to applaud, mute, stoned-looking candidate wives who have soldiered on bravely while being martyred by rumors of their mostly absent husband's infidelities. It will help on the martyrdom front that McCain launched his political career with her family money and drove her into an actual, confirmable chemical dependency. As long as she keeps gamely wobbling onstage and trying to smile into the camera, she's going to get straight As from the political press, guaranteed.

Some combination of all of these things is going to comprise the so-called "national debate" this fall. Now, we live in an age where our media deceptions are so far-reaching and comprehensive that they almost smother reality, at times seeming actually to replace reality -- but even in the context of the inane TV-driven fantasyland we've grown used to inhabiting, this year's crude cobbling together of a phony "national conversation" by our political press is an outrageous, monstrously offensive deception. For if, as now seems likely, this fall's election is ultimately turned into a Swan-esque reality show where America is asked to decide if it can tolerate Michelle Obama's face longer than John McCain's diapers, it will be at the expense of an urgent dialogue about a serious nationwide emergency that any sane country would have started having some time ago. And unless you run a TV network or live in Washington, you probably already know what that emergency is.

A few weeks back, I got a call from someone in the office of Vermont Senator Bernie Sanders. Sanders wanted to tell me about an effort his office had recently made to solicit information about his constituents? economic problems. He sent out a notice on his e-mail list asking Vermont residents to "tell me what was going on in their lives economically." He expected a few dozen letters at best -- but got, instead, more than 700 in the first week alone. Some, like the excerpt posted above, sounded like typical tales of life for struggling single-parent families below the poverty line. More unnerving, however, were the stories Sanders received from people who held one or two or even three jobs, from families in which both spouses held at least one regular job -- in other words, from people one would normally describe as middle-class. For example, this letter came from the owner of his own commercial cleaning service:

My 90-year-old father in Connecticut has recently become ill and asked me to visit him. I want to drop everything I am doing and go visit him, however, I am finding it hard to save enough money to add to the extra gas I'll need to get there. I make more than I did a year ago and I don't have enough to pay my property taxes this quarter for the first time in many years. They are due tomorrow.

This single mother buys clothes from thrift stores and unsuccessfully tried to sell her house to pay for her son's schooling:

I don't go to church many Sundays, because the gasoline is too expensive to drive there. Every thought of an activity is dependent on the cost.

Sanders got letters from working people who have been reduced to eating "cereal and toast" for dinner, from a 71-year-old man who has been forced to go back to work to pay for heating oil and property taxes, from a worker in an oncology department of a hospital who reports that clinically ill patients are foregoing cancer treatments because the cost of gas makes it too expensive to reach the hospital. The recurring theme is that employment, even dual employment, is no longer any kind of barrier against poverty. Not economic discomfort, mind you, but actual poverty. Meaning, having less than you need to eat and live in heated shelter -- forgetting entirely about health care and dentistry, which has long ceased to be considered an automatic component of American middle-class life. The key factors in almost all of the Sanders letters are exploding gas and heating oil costs, reduced salaries and benefits, and sharply increased property taxes (a phenomenon I hear about all across the country at campaign trail stops, something that seems to me to be directly tied to the Bush tax cuts and the consequent reduced federal aid to states). And it all adds up to one thing.

"The middle class is disappearing," says Sanders. "In real ways we're becoming more like a third-world country."

Here's the thing: nobody needs me or Bernie Sanders to tell them that it sucks out there and that times are tougher economically in this country than perhaps they've been for quite a long time. We've all seen the stats -- median income has declined by almost $2,500 over the past seven years, we have a zero personal savings rate in America for the first time since the Great Depression, and 5 million people have slipped below the poverty level since the beginning of the decade. And stats aside, most everyone out there knows what the deal is. If you're reading this and you had to drive to work today or pay a credit card bill in the last few weeks you know better than I do for sure how fucked up things have gotten. I hear talk from people out on the campaign trail about mortgages and bankruptcies and bill collectors that are enough to make your ass clench with 100 percent pure panic.

None of this is a secret. Here, however, is something that is a secret: that this is a class issue that is being intentionally downplayed by a political/media consensus bent on selling the public a version of reality where class resentments, or class distinctions even, do not exist. Our "national debate" is always a thing where we do not talk about things like haves and have-nots, rich and poor, employers versus employees. But we increasingly live in a society where all the political action is happening on one side of the line separating all those groups, to the detriment of the people on the other side.

We have a government that is spending two and a half billion dollars a day in Iraq, essentially subsidizing new swimming pools for the contracting class in northern Virginia, at a time when heating oil and personal transportation are about to join health insurance on the list of middle-class luxuries. Home heating and car ownership are slipping away from the middle class thanks to exploding energy prices -- the hidden cost of the national borrowing policy we call dependency on foreign oil, "foreign" representing those nations, Arab and Chinese, that lend us the money to pay for our wars.

And while we've all heard stories about how much waste and inefficiency there is in our military spending, this is always portrayed as either "corruption" or simple inefficiency, and not what it really is -- a profound expression of our national priorities, a means of taking money from ordinary, struggling people and redistributing it not downward but upward, to connected insiders, who turn your tax money into pure profit.

You want an example? Sanders has a great one for you. The Senator claims that he has been trying for years to increase funding for the Federally Qualified Health Care (FQHC) program, which finances community health centers across the country that give primary health care access to about 16 million Americans a year. He's seeking an additional $798 million for the program this year, which would bring the total appropriation to $2.9 billion, or about what we spend every two days in Iraq.

"But for five billion a year," Sanders insists, "we could provide basic primary health care for every American. That?s how much it would cost, five billion."

As it is, though, Sanders has struggled to get any additional funding. He managed to get $250 million added to the program in last year's Labor, Health and Human Services bill, but Bush vetoed the legislation, "and we ended up getting a lot less."

Okay, now, hold that thought. While we're unable to find $5 billion for this simple program, and Sanders had to fight and claw to get even $250 million that was eventually slashed, here's something else that's going on. According to a recent report by the GAO, the Department of Defense has already "marked for disposal" hundreds of millions of dollars worth of spare parts -- and not old spare parts, but new ones that are still on order! In fact, the GAO report claims that over half of the spare parts currently on order for the Air Force -- some $235 million worth, or about the same amount Sanders unsuccessfully tried to get for the community health care program last year -- are already marked for disposal! Our government is buying hundreds of millions of dollars worth of Defense Department crap just to throw it away!

"They're planning on throwing this stuff away and it hasn?t even come in yet," says Sanders.

According to the report, we're spending over $30 million a year, and employing over 1,400 people, just to warehouse all the defense equipment we don't need. For instance -- we already have thousands of unneeded aircraft blades, but 7,460 on the way, at a cost of $2 million, which will join those already earmarked for the waste pile.

This is why you need to pay careful attention when you hear about John McCain claiming that he's going to "look at entitlement program" waste as a means of solving the budget crisis, or when you tune into the debate about the "death tax." We are in the midst of a political movement to concentrate private wealth into fewer and fewer hands while at the same time placing more and more of the burden for public expenditures on working people. If that sounds like half-baked Marxian analysis... well, shit, what can I say? That's what's happening. Repealing the estate tax (the proposal to phase it out by the year 2010 would save the Walton family alone $30 billion) and targeting "entitlement" programs for cuts while continually funneling an ever-expanding treasure trove of military appropriations down the befouled anus of pointless war profiteering, government waste and North Virginia McMansions -- this is all part of a conversation we should be having about who gets what share of the national pie. But we're not going to have that conversation, because we're going to spend this fall mesmerized by the typical media-generated distractions, yammering about whether or not Michelle Obama's voice is too annoying, about flag lapel pins, about Jeremiah Wright and other such idiotic bullshit.

Bernie Sanders is one of the few politicians out there smart enough and secure enough to understand that the future of American politics is necessarily going to involve some pretty frank and contentious confrontations. The phony blue-red divide, which has been buoyed for years by some largely incidental geographical disagreements over religion and other social issues, is going to give way eventually to a real debate grounded in a brutal economic reality increasingly common to all states, red and blue.

Our economic reality is as brutal as it is for a simple reason: whether we like it or not, we are in the midst of revolutionary economic changes. In the kind of breathtakingly ironic development that only real life can imagine, the collapse of the Soviet Union has allowed global capitalism to get into the political unfreedom business, turning China and the various impoverished dictatorships and semi-dictatorships of the third world into the sweatshop of the earth. This development has cut the balls out of American civil society by forcing the export abroad of our manufacturing economy, leaving us with a service/managerial economy that simply cannot support the vast, healthy middle class our government used to work very hard to both foster and protect. The Democratic party that was once the impetus behind much of these changes, that argued so eloquently in the New Deal era that our society would be richer and more powerful overall if the spoils were split up enough to create a strong base of middle class consumers -- that party panicked in the years since Nixon and elected to pay for its continued relevance with corporate money. As a result the entire debate between the two major political parties in our country has devolved into an argument over just how quickly to dismantle the few remaining benefits of American middle-class existence -- immediately, if you ask the Republicans, and only slightly less than immediately, if you ask the Democrats.

The Republicans wanted to take Social Security, the signature policy underpinning of the middle class, and put it into private accounts -- which is a fancy way of saying that they wanted to take a huge bundle of American taxpayer cash and invest it in the very companies, the IBMs and Boeings and GMs and so on, that are exporting our jobs abroad. They want the American middle class to finance its very own impoverishment! The Democrats say no, let's keep Social Security more or less as is, and let that impoverishment happen organically.

Now we have a new set of dire problems in the areas of home ownership and exploding energy prices. In both of these matters the basic dynamic is transnational companies raiding the cash savings of the middle class. Because those same companies finance the campaigns of our politicians, we won't hear much talk about getting private industry to help foot the bill to pay for these crises, or forcing the energy companies to cut into their obscene profits for the public good. We will, however, hear talk about taxpayer-subsidized bailouts and various irrelevancies like McCain's gas tax holiday (an amusing solution -- eliminate taxes collected by government in order to pay for taxes collected by energy companies). Ultimately, however, you can bet that when the middle class finally falls all the way down, and this recession becomes something even worse, necessity will force our civil government -- if anything remains of it by then -- to press for the only real solution.

"Corporate America is going to have to reinvest in our society," says Sanders. "It's that simple."

These fantasy elections we've been having -- overblown sports contests with great production values, decided by haircuts and sound bytes and high-tech mudslinging campaigns -- those were sort of fun while they lasted, and were certainly useful in providing jerk-off pundit-dickheads like me with high-paying jobs. But we just can't afford them anymore. We have officially spent and mismanaged our way out of la-la land and back to the ugly place where politics really lives -- a depressingly serious and desperate argument about how to keep large numbers of us from starving and freezing to death. Or losing our homes, or having our cars repossessed. For a long time America has been too embarrassed to talk about class; we all liked to imagine ourselves in the wealthy column, or at least potentially so, flush enough to afford this pissing away of our political power on meaningless game-show debates once every four years. The reality is much different, and this might be the year we're all forced to admit it.