Monday, September 15, 2008

As Lehman Faces Liquidation, Who Will Protect Us from Plunge Protection?

As Lehman Faces Liquidation, Another One Bites The Dust

By Danny Schechter

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Who Will Protect Us from Plunge Protection?

Congress and The Press Must Probe This Secret “Working Group”

I often think about the alphabet of the financial crisis---a lexicon of terms like plunder—I wrote a book taking off on that idea --- but, also related “P words, pricing, panic and plunge.

I think of this last one spelled this way: plungeeeeeee as in falling off a cliff. And the dictionary sort of backs me up:

plunge |pl?nj| verb 1 [ intrans. ] jump or dive quickly and energetically : our daughters whooped as they plunged into the sea. • fall suddenly and uncontrollably : a car swerved to avoid a bus and plunged into a ravine. • embark impetuously on a speech or course of action : overconfident researchers who plunge ahead. • suffer a rapid decrease in value : their fourth-quarter operating profit plunged 25%.

There are many experts who see this happening today as the markets plunge in value with banks going down and very little going up except prices, foreclosures and unemployment.

Did you know that your government has machinery in place to deal with plunges? It was founded during the heady days of mourning in America—the Reagan Administration.

It was back in l987 when the former movie star in chief signed on to this Executive Order drafted for him. The “Working Group” it set up was quickly labeled the PLUNGE PROTECTION TEAM (PPT).

As the government in effect takes over mortgage giants and wrestles over what to do about the collapse of huge investment banks like Lehman Brothers, with more to come, you know they are on alert 24/7 scrambling to put more fingers in the dyke. (Over the past weekend, the Fed and Treasury Secretary warned the banks to clean up Lehman’s mess or they could be next. As of Sunday, there was no deal and one of American’s oldest investment banks faces liquidation.)

There is a mechanism in place to avoid this type of crisis. In theory! Here are their overt marching orders; the covert mission is still shadowy.

Executive Order 12631--Working Group on Financial Markets

Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:

(1) the Secretary of the Treasury, or his designee;

(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;

(3) the Chairman of the Securities and Exchange Commission, or his designee; and

(4) the Chairman of the Commodity Futures Trading Commission, or her designee. (b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.

Sec. 2. Purposes and Functions.

(a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:

(1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and

(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.

(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.

(c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.

Sec. 3. Administration.

(a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.?

(b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.?

(c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.”</blockquote>

In actual fact, this secret branch of government has a sophisticated war room using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn’t keep minutes. There is no freedom of information access to its deliberations. There are l47,000 entries in Google on this powerful body but I could only access l0.

The reports on it are sketchy including one from the Washington Post:

“These quiet meetings of the Working Group are the financial world's equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government's reaction to a crumbling stock market would have a critical impact on investor confidence around the world.” Remember this an administration that claims to worship an unregulated free market and yet here they are big footing the market.

Noted the Capital Observer, an investor’s blog,” Last week, in the article HYPERLINK ""Stacked Deck, I alluded to the fact that the government might be intervening in the market privately as well as publicly.” It also reported on September llth that the Telegraph—a newspaper in London, natch not Washington, called it a “black arts unit.”

"On Friday, Mr Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit - officially the President's Working Group on Financial Markets - was created after the 1987 crash. It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry "short" traders in the hottest of oils."

As the economy continues its decline, as the markets are rocked by more failures and loss of confidence, as new scandals including a sex for oil Affair in the Interior Department surfaces, shouldn’t we know more about these plunge people (sounds like Pod People) who may be doing to the economy what other branches of our government did so incompetently to Iraq. (Actually, Administration political operative Jim Wilkinson who ran the War for Iraqi Freedom Doha Coalition Media Center in 2003 was for a time the key Bushevik commissar at the Working Group.)

It is time for a Congressional investigation and more media scrutiny. Let’s find out if this “Working Group” helped defuse the crisis or made it worse? Is it rigging markets? New York Magazine suggested there may be a conspiratorial explanation: ?“Of course, the squishy “consult” language has long had conspiracy theorists speculating that it’s just a backroom market-rigging cabal for the Establishment. Or, you could think of it as the Wall Street Superfriends, equipped with X-ray vision to see deep into our financial malaise, and magic lassos to jury-rig the markets back together.” We need to know who was lobbying “the team” and in whose interests they act?

So far, the “financial reforms” imposed since the crisis beganincluding 7 interest rate cuts, injections of capital and rule changes have had little impact. ‘ The NY Fed President Timothy Geithner, architect of The Bear Stearns bailout and the key player in recent high level meetings on Lehman Brothers came out of Kissinger Associates (as did war manager L. Paul Bremer.) In a new policy, the Fed has already agreed to make low interest loans to investment banks as well as commercial banks even though the Fed has no authority over these banks. Duh?

Is their goal to get taxpayers to pay off corporate failures or centralize power as former Treasury Department official Catherine Austin Fitts believes:

“If your goal is total centralized control, this is a great way to achieve it,” she argues. “Between Freddie, Fannie, Ginnie Mae, FHA, VA and the Federal Home Loan Bank Board, the federal government no longer regulates or provides credit to the residential mortgage market - it is the market.”

Before the economy goes down the toilet as some analysts who are predicting a depression now fear, before that final flush, we need to find out how to protect ourselves from the plunge protectors?

Mostly we need financial elites with a different orientation says Trevor Manuel, South Africa’s Finance Minister, and a key player at the International Monetary Fund, "We need elites that plough back, not elites that plunder.”

Danny Schechter, director of In Debt We Trus ( is the author of the just published PLUNDER: Investigating Our Economic Calamity (Cosimo) now available at on-line bookstores.

Record Credit-Default Swaps Surge as Lehman Threatens to Unravel Market

Credit-Default Risk Soars After Lehman Files for Bankruptcy

By Shannon D. Harrington and Abigail Moses

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Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest- growing type of so-called over-the-counter derivative, according to the Bank for International Settlements.

‘‘The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in an interview with Bloomberg Radio yesterday. ‘‘It induces a tremendous amount of volatility and uncertainty.''

The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, rose 37.5 basis points to 189.5 as of 9:45 a.m., according to broker Phoenix Partners Group. The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings jumped 68 basis points to 614, according to JPMorgan Chase & Co. prices.

Bank Risk

Morgan Stanley and Goldman Sachs led an increase in the cost of default protection on U.S. banks after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke ruled out government help for Lehman, triggering concern the government will no longer bail out troubled financial firms.

Credit-default swaps on Morgan Stanley soared 194 basis points to 458 and Goldman Sachs jumped 122 basis points to 321, according to CMA Datavision prices.

Sellers demanded 50 percentage points upfront and 5 percentage points a year to protect the bonds of Washington Mutual Inc. from default on concern that the biggest U.S. savings and loan won't survive the credit crisis, CMA data show.

That compares with an upfront cost of 40 percentage points on Sept. 12 and means it would cost $5 million initially and $500,000 a year to protect $10 million in bonds for five years.


The upfront cost to protect AIG bonds from default soared 21.5 percentage points to 34 percentage points, CMA data show.

HSBC Holdings Plc, Europe's biggest bank, rose 29 basis points to 100, the most ever, according to CMA. Barclays, the U.K.'s third-biggest bank, climbed 38 to 170, Zurich-based UBS AG jumped 39 to 175 and Spain's Banco Santander surged 22 to 122.

Losses may reach several hundred million dollars should a major dealer default, Moody's Investors Service said in May. Lehman filed for bankruptcy today after Barclays Plc and Bank of America Corp. abandoned talks to buy the company.

Lehman bondholders may get about 60 cents on the dollar if the U.S. securities firm is forced into liquidation, analysts at CreditSights Inc. said.

Investors in the New York-based company's senior unsecured bonds are likely to get between 60 cents and 80 cents on the dollar, analysts led by David Hendler and Baylor Lancaster wrote in a research note. The notes traded at about 35 cents today. Holders of lower-ranked debt should expect less.

‘Maximum Negative Day'

Contracts on the finance arm of General Electric Co., GE Capital, soared 100 basis points to 318 basis points, CMA data show. GE yesterday repeated in a memo to investors that GE Capital doesn't need to raise external capital, affirmed its profit forecast for the commercial real-estate unit and said its consumer-finance division, GE Money, has ‘‘adequate reserves.''

Merrill Lynch & Co. dropped 135 basis points to 323 after Bank of America, agreed to buy the world's biggest brokerage firm for about $50 billion. Bank of America climbed 52 basis points to a record 211 basis points.

Contracts on Wachovia Corp., the fourth-biggest U.S. bank, rose 110 basis points to 563 and JPMorgan surged 47 to 190.

‘‘Without Merrill, it would have been a maximum negative day for the market,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ‘‘Merrill pulls us back. Its impact is not to be underestimated.''

‘So Far Off the Edge'

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

A gauge of risk in the U.S. leveraged-loan market that falls as credit risk increases dropped 1.9 percentage points to a mid price of 95.1, according to Goldman Sachs. The index is tied to high-yield, high-risk loans.

‘‘We've fallen so far off the edge of the earth right now that we can't even begin to describe what we are seeing,'' said Jim Bianco, president of Bianco Research LLC in Chicago. ‘‘Nobody begins to know what will happen because we've never come to anything remotely close to this before.''

Derivatives such as credit-default swaps are traded between banks, hedge funds, insurance companies and other institutional investors, so the collapse of a market-maker has the potential to wipe out profits made on those contracts that aren't backed by collateral.

‘Potentially Concentrated'

Barclays Capital analysts in February estimated that if a financial institution that had $2 trillion in credit-default swap trades outstanding were to fail, it might trigger between $36 billion and $47 billion in losses for those that traded with the firm. That doesn't include ‘‘large, potentially concentrated'' market value losses others would face, the analysts, led by Arup Ghosh in London, wrote on Feb. 20.

A Lehman bankruptcy ‘‘obviously puts a lot more risk in the market, so it's definitely going to be wider,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York.

The Fed widened the collateral it accepts for loans to Wall Street bond dealers yesterday in an effort to keep financial markets from seizing up. The central bank will accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment- grade debt.

Term Lending Facility

Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment- grade debt securities. The size of the TSLF will also increase to $200 billion from $175 billion, the Fed said.

In addition to the session for netting derivatives, or canceling trades that offset each other, Merrill Lynch, JPMorgan, Bank of America and seven other firms said in a joint statement yesterday that they will provide a total of $70 billion to a borrowing facility aimed at providing liquidity to financial institutions.

‘‘Some people say that ‘yes, when you net up all the Lehman trades it will be less than the gross amount', but we have no idea because we've never attempted anything like this before,'' said Bianco. Dealers also face losses from the government takeover of Fannie Mae and Freddie Mac on Sept. 7, which caused a technical default on the contracts.

The cost of protecting European investment-grade corporate bonds from default jumped. The Markit iTraxx Europe index of 125 companies rose 26.5 basis points to 129, JPMorgan prices show.

A basis point on a credit-default swap contract protecting 10 million euros ($14.2 million) of debt from default for five years is equivalent to 1,000 euros a year.

U.S. Treasuries

Treasuries rose as investors sought the relative safety of government debt. The yield on two-year Treasury notes dropped 37 basis points, or 0.37 percentage point, to a five-month low of 1.84 percent, according to bond broker BGCantor Market Data. The yield is below the Fed's target interest rate for overnight loans between banks, a sign investors are speculating the central bank will lower borrowing costs.

The dollar fell 2.2 percent to 1.056 yen, a two-month low. It rose 0.6 percent to $1.4141 against the euro, after earlier dropping to the weakest in 11 days.

Investors may have had enough warning to limit losses, said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York.

‘‘Market participants have had ample warning on Lehman and have likely already taken the precautions they felt were necessary to guard against risks Lehman's potential failure might pose,'' Crescenzi wrote in a note to clients yesterday.

Netting Trading Session

Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.

Banks and brokers yesterday opened trading desks to enter into derivatives transactions that would offset trades with Lehman in case the firm filed for bankruptcy before midnight. The International Swaps and Derivatives Association said the ‘‘netting trading session'' began at 2 p.m. and continued until at least 6 p.m. New York time. The trades would have been canceled had Lehman not filed for bankruptcy.

While credit-default swaps have grown 100-fold in the past seven years, there's no central clearinghouse designed to help absorb losses from a bank collapse.

The Clearing Corp., the Chicago clearinghouse, isn't set to be completed until at least the end of this year, or early 2009.

‘‘What we've seen this year is regardless of the fundamentals, regardless of efforts made by the Fed and the Treasury to restore confidence, you can't order that up,'' said Martin Fridson, chief executive officer of Fridson Investment Advisors, said in New York.

Lehman Files for Record Bankruptcy, Victim of Meltdown Firm Helped Create

Lehman Files Biggest Bankruptcy Case as Suitors Balk

By Yalman Onaran and Christopher Scinta

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Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.

Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Chief Executive Officer Richard Fuld, who turned the New York-based firm into the biggest underwriter of mortgage-backed securities at the top of the U.S. real estate market, joins his counterparts at Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn't survive this year's credit crunch.

‘‘There is likely to be a domino effect as other firms and individuals who relied on Lehman for financing feel the effects of its meltdown,'' said Charles ‘‘Chuck'' Tatelbaum, a bankruptcy lawyer with Adorno & Yoss in Florida and former editor of the American Bankruptcy Institute Journal. ‘‘The whole thing is frankly frightening for the U.S. economy.''

Shares, Bonds

Lehman's filing was made by lawyers from New York-based Weil Gotshal & Manges, led by bankruptcy lawyer Harvey Miller. The case was assigned to U.S. Bankruptcy Judge James Peck, according to court records. Peck was sworn in as a judge in January 2006. Before taking the bench, he served as co-chair of business reorganization at Schulte Roth & Zabel, and prior to that was a partner at Duane Morris, according to the court's web page.

Lehman shares at 9:39 a.m. dropped 92 percent in New York trading to 29 cents from their $3.65 close on Sept. 12. UBS AG, HBOS Plc and Axa SA led a decline of more than 3 percent for European stock markets on speculation a forced sale of Lehman's assets may lead to further writedowns at other banks.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded at an all-time high in North America as investment banks sought to minimize losses from Lehman's collapse. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

60 Cents

Lehman bondholders may get about 60 cents on the dollar if the investment bank is forced into liquidation, analysts at CreditSights Inc. said. The filing is by Lehman's holding company and won't include any of its subsidiaries. Lehman owes its 10 largest unsecured creditors more than $157 billion, including debts to bondholders totaling $155 billion.

The largest single creditor listed in today's filing is Tokyo-based Aozora Bank Ltd., owed $463 million for a bank loan. Other top creditors include Mizuho Corporate Bank Ltd., owed $382 million, and a Citigroup Inc. unit based in Hong Kong owed an estimated $275 million. Lehman listed $639 billion of assets. New York-based Citigroup and The Bank of New York Mellon Corp. are among trustees for bondholders who Lehman owed about $155 billion.

London-based Barclays, which emerged as a leading candidate to acquire Lehman, pulled out first yesterday, saying it couldn't obtain guarantees from the U.S. government or other Wall Street firms to protect against losses on Lehman's assets.

Three Hours Later

Bank of America Corp. withdrew about three hours later, before saying it would acquire New York-based Merrill Lynch. Brokers sought yesterday to consolidate trades linked to Lehman to minimize the impact of a bankruptcy filing.

Founded in 1850 by three immigrants from Germany, Lehman has managed to avert previous potential disasters and was among the handful of U.S. financial firms that had endured for more than a century.

Fuld, the longest-serving CEO on Wall Street, attempted to shore up the firm's finances in the second quarter by raising $14 billion of capital, selling $147 billion of assets, increasing cash holdings and reducing reliance on short-term funding to create a buffer against a bank run.

Instability in the financial and credit markets left Lehman officials struggling to keep the firm afloat, Ian Lowitt, the firm's chief financial officer, said in a court filing in the bankruptcy case. Liquidity problems plagued Lehman earlier this year, he said.

‘‘This loss of liquidity created a chain reaction of adverse economic consequences,'' Lowitt said.

25,000 Employees

Lehman, which has about 25,000 employees worldwide, last week reported the biggest loss in its history and said it planned to sell a majority stake in its asset-management unit, spin off real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence. The efforts failed to stem speculation that the firm's mortgage holdings would lead to more losses.

‘‘The uncertainty, particularly among the banks through which the company clears securities trades, ultimately made it impossible for the company to continue to operate its business,'' Lowitt said in the filing. The firm had sought about $4 billion for the asset-management unit, he added.

The U.S. Treasury and the Federal Reserve negotiated with Wall Street executives for the past three days in New York, trying to strike a deal that would prevent the investment bank from failing before markets open today. Treasury Secretary Henry Paulson indicated that he didn't want to use U.S. taxpayer funds to ease a sale of the company.

Exploring the Sale

Fuld, 62, is exploring the sale of its broker-dealer operation and continues to hold talks on the sale of its asset- management unit, including fund manager Neuberger Berman, the company said today in the statement.

The U.S. Securities and Exchange Commission said customer accounts at Lehman are protected and agency staff will remain at the brokerage firm in the coming weeks.

Securities rules require segregation of Lehman's securities and cash, and accounts are covered by insurance provided by the Securities Investor Protection Corp., the Washington-based agency said last night. SEC employees working inside the broker's office will continue that assignment, the agency said.

‘‘We are committed to using our regulatory and supervisory authorities to reduce the potential for dislocations from recent events, and to maintain the smooth functioning of the financial markets,'' said SEC Chairman Christopher Cox in a statement yesterday.

Units That Fail

Brokerage units that fail usually are handled by the SIPC, which appoints a trustee to liquidate the business and protect its customers. Lehman's customer accounts may also be farmed out to other firms that may protect cash and securities, on the model of the failed junk-bond firm Drexel Burnham Lambert, which filed for bankruptcy in 1990.

Lehman's trades in commodities, derivatives and other financial instruments may be unwound by the bank's counterparties, said Andrew Rahl, co-head of bankruptcy in New York at law firm Reed Smith and a specialist in financial companies.

A liquidation of the brokerage unit might be ‘‘a big mess'' if Lehman used customer accounts to raise cash, and sale and repurchase agreements had to be unwound, Rahl said.

Take Over

The trigger for SIPC to take over the Lehman brokerage would be a freezing of customer accounts, or a Chapter 11 filing that implied the unit was insolvent and its customers might not be able to access their property, the official said.

‘‘First there will be chaos and then an adjustment process as losses distribute themselves through the market,'' said Gilbert Schwartz, a former Federal Reserve attorney and now a partner at Schwartz & Ballen in Washington. ‘‘There won't be any lasting turmoil. Treasury and the Fed have determined that markets have adjusted to the situation since Bear Stearns. If every time a big institution went bust the markets expected the government to step in, no one would ever adapt.''

Ladenburg Thalmann & Co. analyst Richard Bove wasn't as sanguine.

‘‘We will be entering uncharted territory,'' he said. ‘‘Forcing liquidation will set off problems in other companies and markets everywhere.''

Rival Banks

Rival banks and brokers yesterday held a session for netting derivatives transactions with Lehman to reduce uncertainty in that market. That move means canceling trades that offset each other, the International Swaps and Derivatives Association said in a statement. The ISDA includes 218 banks, brokerages, insurance companies and other financial institutions from the U.S. and abroad.

In the U.K., the Financial Services Authority asked banks to disclose their exposure to Lehman, spokeswoman Teresa LaThangue said in a statement today.

Any sale of Lehman's investment management units is subject to court approval and creditor scrutiny under bankruptcy rules, according to Tatelbaum.

‘‘Bankruptcy severs all counterparty contracts, and therein lies the systemic risk,'' said David Kotok, chief investment officer of Vineland, New Jersey-based Cumberland Advisors Inc., which manages $1 billion. ‘‘This would be the first time we've tested how much damage will be done by a bankruptcy.''

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Lehman Brothers files for Chapter 11 protection

Lehman Brothers files for Chapter 11 protection


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Lehman Brothers, a 158-year-old investment bank choked by the credit crisis and falling real estate values, filed for Chapter 11 bankruptcy protection from its creditors on Monday and said it was trying to sell off key business units.

The filing was made in the U.S. Bankruptcy Court in the Southern District of New York by Lehman Brothers Holdings Inc., the bank's holding company. The case had not yet been assigned to a judge.

Lehman's last hope of surviving outside of court protection faded Sunday after British bank Barclays PLC withdrew its bid to buy the investment bank.

Lehman learned at a last-minute meeting on Friday with federal officials that it would not be getting any emergency funding to give it the liquidity it needed, Chief Financial Officer Ian Lowitt said in an affidavit.

Lehman fell under the weight of $60 billion in soured real estate holdings and tighter a credit market that forced it to seek court protection.

As the company's financial health deteriorated over recent months, Lowitt said Lehman had "explored various options to restructure operations, reduce overall cost structure, and improve performance." He said executives took a two-pronged approach to saving the company: selling its investment management division and separating troubled real estate assets from the rest of the company.

"Management believed that divorcing the real estate assets from the rest of the company would relieve the pressure on the company," he said in the affidavit.

In an effort to calm the markets, Lehman announced its third-quarter results on Wednesday — a week earlier than planned — but Lowitt said that "did little to quell the rumors in the markets and the concerns about the viability of the company."

He said the uncertainty made it impossible for Lehman to continue outside of court protection.

The filing had been made so hastily that the company had not yet filed motions by Monday morning that are typically made on the first day, such as asking the court for permission to continue paying employees.

Many Lehman employees seen entering its headquarters in Midtown Manhattan tucked their chins down to avoid talking to the media and others who had lined up behind metal barriers in front of the building.

Some carried empty shopping, tote bags or gym bags in to the office. Some walked in with ties undone or wore more casual polo shirts than they may have otherwise.

Filing for Chapter 11 protection allows a company to restructure while creditor claims are held at bay. The company most likely chose to file under Chapter 11, rather than a Chapter 7 liquidation, so that it could retain more control over the selling off of assets, said Stephen Lubben, the Daniel J. Moore professor of law at Seton Hall Law School. In a Chapter 7 filing, the court would immediately appoint a trustee to take over the case.

"I'm sure they think they could conduct a better liquidation themselves, and that's probably true," Lubben said.

The investment bank had said earlier that none of its broker-dealer subsidiaries or other units would be included in the Chapter 11 filing. It says it is exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit. That means customers of its broker-dealers will not be subject to claims by creditors in the bankruptcy case.

In its bankruptcy petition, Lehman listed Citigroup among its biggest unsecured creditors, with about $138 billion in bonds as of July 2. The Bank of New York Mellon Corp. was listed as holding about $17 billion in debt.

Lehman said that as of May 31, it had assets of $639 billion and debt of $613 billion.

Military Industrial Complex 2.0

Military Industrial Complex 2.0

Cubicle Mercenaries, Subcontracting Warriors, and Other Phenomena of a Privatizing Pentagon

By Frida Berrigan

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Seven years into George W. Bush's Global War on Terror, the Pentagon is embroiled in two big wars, a potentially explosive war of words with Tehran, and numerous smaller conflicts – and it is leaning ever more heavily on private military contractors to get by.

Once upon a time, soldiers did more than pick up a gun. They picked up trash. They cut hair and delivered mail. They fixed airplanes and inflated truck tires.

Not anymore. All of those tasks are now the responsibility of private military corporations. In the service of the Pentagon, their employees also man computers, write software code, create integrating systems, train technicians, manufacture and service high-tech weapons, market munitions, and interpret satellite images.

People in ties or heels, not berets or fatigues, today translate documents, collect intelligence, interpret for soldiers and interrogators, approve contracts, draft reports to Congress, and provide oversight for other private contractors. They also fill prescriptions, fit prosthetics, and arrange for physical therapy and psychiatric care. Top to bottom, the Pentagon's war machine is no longer just driven by, but staffed by, corporations.

Consider the following: In fiscal year 2005 (the last year for which full data is available), the Pentagon spent more contracting for services with private companies than on supplies and equipment -- includingGovernment Accountability Officeservices has increased by 78% in real terms. In fiscal year 2006, those services contracts totaled more than $151 billion. major weapons systems. This figure has been steadily rising over the past 10 years. According to a recent report, in the last decade the amount the Pentagon has paid out to private companies for

Ever more frequently, we hear generals and politicians alike bemoan the state of the military. Their conclusion: The wear and tear of the President's Global War on Terror has pushed the military to the breaking point. But private contractors are playing a different tune. Think of it this way: While the military cannot stay properly supplied, its suppliers are racking up contracts in the multi-billions. For them, it's a matter of letting the good times roll.

What a Difference a War Makes

As we prepare to close the book on the Bush presidency, it is worth exploring just how, in the last seven-plus years, the long War on Terror has actually helped build a new, privatized version of the Pentagon. Call it Military Industrial Complex 2.0.

Consider fiscal year 2001, which conveniently ended in September of that year. It serves as a good, pre-War on Terror baseline for grasping just how the Pentagon expanded ever since -- and how much more it is paying out to private contractors today.

Back then, the Pentagon's top 10 suppliers shared $58.7 billion in Department of Defense (DoD) contracts, out of a total of $144 billion that went to the top 100 Pentagon contractors. Number 100 on the list was The Carlyle Group with $145 million in contracts. Keep in mind, of course, that this was the price of "defense" for a nation with no superpower rival.

Fast forward to 2007 and the top 10 companies on the Pentagon's list of private contractors were sharing $125 billion in DoD contracts, out of a total of $239 billion being shared among the top 100 contractors. The smallest contract among those 100 was awarded to ARINC and came in at $495 million.

In those seven years, in other words, contracts to the top 10 more than doubled, the size of the total pay-out pie increased by two-thirds, and the lowest contract among the top 100 went up almost four-fold.

Just as revealing, almost half the companies on the Pentagon's Top 100 list in 2007 were not even on it seven years earlier, including McKesson, which took in a hefty $4.6 billion in contracts and MacAndrews and Forbes which garnered $3.3 billion.

And here's a fact that makes sense of all of the above: Given the spectrum of services offered and the level of integration that has already taken place between the Pentagon and these private companies, the United States can no longer wage a war or even run payroll without them.

These have been the good times for defense contractors, if not for the military itself. Since September 2001, many companies have made a quantum leap from receiving either no Pentagon contracts or just contracts in the low hundred millions to awards in the billion-dollar range. Here are just a few portraits of companies that are booming, even as the military goes bust.

URS Corporation: This engineering, construction, and technical services firm based in San Francisco employs more than 50,000 people in 34 countries. A publicly-held firm, which recently acquired Washington Group International, it had numerous reconstruction contracts in Iraq. More than 40% of the company's revenue ($5.4 billion in 2007) comes from the federal government. Between 2001 and 2007, its Pentagon contracts increased more than a thousand fold (by 1,400%) from $169 million to $2.6 billion.

URS began the War on Terror at number 91 on the Pentagon's Top 100 list. It is now number 15.

Electronic Data Systems Corporation: Founded by political maverick Ross Perot, EDS is a global technology services company headquartered in Plano, Texas. In March, the Pentagon awarded it a $179 million contract to provide information technology support services to the Pentagon's Defense Manpower Data Center, its central archive of all kinds of data on personnel, manpower and casualties, pay and entitlements, as well as the whole gamut of financial information. The company -- which employs 139,000 people in 65 countries -- boasted $22.1 billion in revenue in 2007. Computer giant HP bought EDS in August 2008.

In 2001 the company occupied slot 71 on the DoD's Top 100 list with $222 million in contracts. By 2007, it had climbed to number 16 with $2.4 billion in contracts, an increase of almost 1,000%.

Harris Corporation: This communications and information technology company is headquartered in Melbourne, Florida, and employs 16,000 people. Harris boasted $4.2 billion in revenue in 2007, with more than one-quarter of that ($1.6 billion) coming from Pentagon purchases of communications and electronics capabilities like Falcon II high-frequency radio systems.

When the Global War on Terror began, Harris had a modest $380 million in Pentagon contracts (and was number 43 on that top 100 list); over the last seven years, it has steadily risen in rank and now is number 30.

KBR: Gaming the System

The United States first heard the phrase "military industrial complex" during President Dwight David Eisenhower's January 17, 1961 Farewell Address. As he left public office, our last general-turned-president warned that the "conjunction of an immense military establishment and a large arms industry is new in the American experience" and its influence -- "economic, political, even spiritual -- is felt in every city, every Statehouse, every office of the Federal government…

"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist."

If, in many ways, Ike's comment is still applicable, in the last 47 years the Military Industrial Complex (MIC) he described has evolved in startling ways -- and massively. Today, it does more than wield influence; it has created unparalleled dependence and unrivaled profit.

What this means in practice can be illustrated by KBR, a privately-held company that does not publish quarterly reports. Nonetheless, its recent history provides an object lesson in what the MIC 2.0 can do for the profitability of a private contractor.

KBR has shadowed the U.S. military every step of the way through the invasion and occupation of Iraq: first as Kellogg Brown and Root, a subsidiary of Halliburton (for which Dick Cheney was once CEO), and then as KBR, an independent company. It has, in fact, made its corporate fortune on the Pentagon's now infamous "no-bid," "cost-plus contracts." Since December 2001, KBR has been working for the Pentagon under the Logistics Civil Augmentation Program (LOGCAP) -- a multi-billion dollar agreement that guarantees the company those cost-plus profits for fulfilling contracted tasks.

This huge and sweeping contract was awarded without the rigors of the competitive marketplace. Its "no-bid" nature was a sign that KBR was anything but a run-of-the-mill Pentagon contractor. A second sign lay in the Pentagon's acceptance of that cost-plus arrangement. A rarity in the business world, "cost plus" means that the more a job costs, the more profit the company pockets. Professor Steve Schooner, a contract expert at George Washington University Law School, commented, "Nobody in their right mind would enter into a contract that basically says, 'come up with creative ways to spend my money and the more you spend the happier I'll be.'" Under this contract, the Pentagon has doled out $20 billion to KBR to build and staff facilities for military personnel in Iraq and provide food and other necessities to U.S. troops there.

Ironically, the Pentagon isn't even getting what it paid for… not by a long shot. KBR's fraudulent activities have, according to the Government Accountability Office, included the failure to adequately account for more than a billion dollars in contracted funds; the leasing of vehicles to be used by company personnel for up to $125,000 a year (despite the fact that these vehicles could have been purchased outright for $40,000 or less); the purchase of unnecessary luxuries such as monogrammed towels for use in company-run recreation facilities for military personnel; the overcharging for fuel brought into Iraq from Kuwait for military use; the charging to the Pentagon's tab three to four times as many meals as were actually consumed by U.S. military personnel; and the provision of unclean water for U.S. troops.

All of these abuses came to light thanks to investigations by Representative Henry Waxman (D-CA), the Pentagon's own Office of the Inspector General, and others, but Halliburton and its former subsidiary got off with little more than such wrist slaps as the revocation of the fuel supply contract and of KBR'S exclusive LOGCAP contract for Iraq. That was recently divided into three parts and put out to bid. KBR was, however, allowed to join the bidding, and is now sharing the contract with DynCorp and Fluor Corporation. Each company has received a $5 billion contract that includes nine one-year options for renewal that could be worth, in total, up to $150 billion, according to Dana Hedgpeth of the Washington Post.

The most recent of many black marks against KBR came when members of Congress and investigators charged that substandard electrical work by company employees in showers at military bases in Iraq had resulted in the electrocution deaths of 16 American soldiers.

To understand what privatization means in action at the Pentagon, consider just one modest example of the corruption that infects KBR and how it was addressed. In 2004, the company submitted requests for reimbursement on more than one billion dollars in charges that Army auditors deemed "questionable," in part because they weren't backed up by reliable records. Charles Smith, the Army official managing Pentagon contracts, refused to approve the payments and threatened to levy fines against the company if it did not get a better handle on its spending. Later, he told James Risen of the New York Times that KBR had "a gigantic amount of costs they couldn't justify. Ultimately, the money that was going to KBR was money being taken away from the troops."

Despite his 31 years with the Army, and without notice, Smith was transferred from his post, while the requested payments were subsequently sent to KBR. According to the New York Times, the Army argued that "blocking the payments to KBR would have eroded basic services to the troops. They said that KBR had warned that if it was not paid, it would reduce payments to subcontractors, which in turn would cut back on services."

In other words, the Pentagon -- in charge of hundreds of billions of dollars and more than a million personnel in and out of uniform -- was essentially held hostage by a company which threatened to withhold services that (just to be clear) had been pretty shoddy to begin with.

Senator Robert Byrd (D-WV) saw the problem: "We have found ourselves dependent on profit-oriented companies for even the day-to-day basics of feeding and housing our troops, [and] for carrying out a myriad of other functions of the mission, including security. These kinds of contracts opened the door for every manager to game the system in order to maximize profits."

And game the system they do. For example, the sort of corruption that seems endemic to KBR has created a profitable new market for another kind of private military corporation -- one specializing in oversight and accountability.

After the Army replaced Smith, it hired RCI Holding Corporation to review KBR's records. Smith says the private company "came up with estimates, using very weak data from KBR," while ignoring audit information gathered within the Pentagon. While KBR was subsequently awarded high performance bonuses and a portion of that new 10-year contract with the Army, Serco (RCI Holding's parent company) also received a new contract -- to continue to oversee KBR's contracts.

And so dependency begets deeper dependency, while corruption, incompetence, and callous indifference become ever more ingrained in the military way of life.

During his first presidential campaign, George W. Bush identified ChristHarvard, no less), he has done a much better job of applying the profit-first principles of Donald Trump and Jack Welch than exemplifying the man from Galilee who promised the rich young man "treasure in heaven" once he sold all he owned and gave it to the poor. As president, Bush has brought a corporations-can-do-no-wrong perspective to the Oval Office and quickly sought to give the private sector an ever freer rein over a smorgasbord of public works and services. Today, the military sector leans remarkably heavily on private corporations to perform what used to be their basic functions, from war to disaster relief to washing the dishes. KBR is just one multi-billion dollar example of the MBA presidency's legacy. as his favorite political philosopher. But as the first American President with a Masters of Business Administration (and from

Beyond Blackwater: The Pentagon's Cubicle Mercenaries

The new Complex 2.0 regularly employs companies whose job it is to send armed mercenaries into action beside U.S. soldiers or to guard U.S. diplomats and high military officers. Fighting wars for hire has become an essential part of the Pentagon's MO since 2001, and the Blackwater employee gunning through Baghdad in a Kevlar vest, a kafiyah, and wrap-around shades is the ultimate symbol of the new moment.

But there's another dimension of the Bush era's privatization surge at the Pentagon that has gotten far less coverage: Private military firms are also doing the paperwork of war. According to a March 2008 GAO report, Additional Personal Conflict of Interest Safeguards Needed for Certain DoD Contractor Employees, in offices throughout the Department of Defense, cubicle mercenaries in startling numbers are working shoulder-to-shoulder with uniformed military staff and federal employees.

The Government Accountability Office (GAO) looked at 21 different Pentagon offices and found that private contractors outnumbered Department of Defense employees in more than half of them. In the engineering department of the Missile Defense Agency, for example, employees from private contractors made up more than 80% of the work force. The GAO found that contractors were responsible for carrying out a wide range of tasks and were not subject to federal laws and regulations designed to prevent conflicts of interest -- including the rules that concern personnel who want to take positions with companies they had awarded contracts to as federal employees.

Another March 2008 GAO report assessed the Army's Contracting Center of Excellence where private contractors made up less than 20% of the workforce. The average hourly cost of an employee from a private contractor, however, was more than 26% higher than that of a government employee. Similar disparities in pay can be seen even more starkly in Iraq, where a soldier is paid little more than minimum wage, while a private military contractor can earn well above $100,000 a year tax-free.

For perhaps the ultimate contrast in military privatization, consider this: Testifying at a Congressional hearing in July, Blackwater CEO Erik Prince offered a ballpark estimate for his annual salary -- "more than a million." He assured Representative Peter Welch (D-VT) that he would "get back" to him with a more exact figure. Welch noted at the time that General David Petraeus -- then responsible for more than 160,000 U.S. military personnel in Iraq -- earned $180,000 a year.

Privatization at the Bottom

Once private companies take on military and war-making tasks, where does the buck stop? It is not uncommon, for example, for a company hired to perform a service for the Pentagon to subcontract part of the job to another company, which may then subcontract part of its task to a third. Who, then, is in charge? When something goes wrong, who is culpable?

A recent investigation by Craig and Marc Kielburger, Canadian co-founders of the NGO Free the Children, and Toronto-based journalist Chris Mallinos found that KBR has subcontracted to more than 200 different firms -- many based in Kuwait -- to transport materials into Iraq.

One result of this: The United States has ended up paying companies that are essentially enslaving Filipinos, Sri Lankans, and other "third country nationals" who drive supplies into Iraq. In a recent article in Epoch Times, the trio recount a series of fact-finding trips to Kuwait to meet with dozens of South Asian and Filipino men "recruited to the Middle East with the promise of good jobs, only to be hired by Kuwaiti transport companies driving into Iraq." A Filipino described how Jassin Transport and Stevedoring Company -- one of KBR's sub-subcontractors -- took his passport, nullified the contract he had signed in the Philippines, and issued him a new contract written in Arabic. Employees were "given an ultimatum: sign or be abandoned." Then they were handed the keys to unarmored tractor-trailer trucks and told to drive fast along roads known to be dangerous. The authors concluded that these companies "openly flout U.S. labor laws by using cheap imported labor, withholding employee passports and housing workers in decrepit conditions."

Officially, nothing like this is supposed to happen. The Philippines, Nepal, and other countries bar their citizens from taking work in Iraq. In 2006, the Defense Department actually issued stricter regulations forbidding such labor trafficking, and KBR and other companies pledged that they and their subcontractors would follow local labor laws. But regulations or no, the truth is that the Pentagon is no longer really in control of the process, and sub-sub-subcontracting is how you make the big money in places like Iraq.

Oh… and despite hearings, investigations, and legislation, Congress isn't in control either. In an attempt to address the privatization of the military, for example, the Senate's Democratic Policy Committee has held a total of seventeen hearings on waste, fraud, and corruption in Iraq. Representative Henry Waxman's Oversight and Government Reform Committee has made the role of congressional gadfly respectable. Hearings in both the House and Senate have offered riveting, sometimes shocking, inside-the-Beltway theater, but subsequent legislation created to make decent Pentagon reporting and oversight a reality, close gaping loopholes in accountability, criminalize fraud, and curb some of the worst abuses of private contractors has proven well-meaning but hopelessly weak and ineffective in practice.

Is MIC 3.0 in our Future?

President Bush will leave office boasting that the United States has the most powerful and professional military machine in the world. We have paid dearly for this machine in the past seven-plus years. The bill for all that might and muscle comes to more than $3.8 trillion since 2001 -- plus another $900 billion plus for actually flexing it in Iraq, Afghanistan, and elsewhere.

And if the U.S. military machine is now both oversized and staggeringly expensive, it is also more prone to breakdown in a more dangerous and unstable world. So think of George W. Bush's legacy to us as a Pentagon bloated almost beyond recognition and crippled by its dependence on private military corporations.

As for Bush's legacy to the Lockheed Martins, the KBRs and the Pentagon's whole "Top 100" crew, it's been money beyond measure, enough to leave them all hard at work on Military Industrial Complex 3.0. They naturally want to make sure that the money continues to pour into their ever upgrading war machine, no matter who takes over the White House in 2009.



Go To Original

"I told all four that there were going to be some times where we don't agree with each other. But that's OK. If this were a dictatorship, it'd be a heck of a lot easier, just so long as I'm the dictator." Gov. George W. Bush (R-TX), President-elect, December 18, 2000

Fascism: A philosophy or system of government that is marked by stringent social and economic control, a strong centralized governmentheaded by a dictator, and often a policy of belligerent nationalism; oppressive or dictatorial control. usually

A little over a week ago, these united States of America took another gigantic step towards Fascism when the U.S. Department of Treasury and the unconstitutional, privately owned "Federal" Reserve" bailed out two more private corporations ostensibly to calm fears in the market:

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," Paulson said in a statement. "Their support for the housing market is particularly important as we work through the current housing correction."[1]

This would be accomplished in a plan Il Duce would applaud:

"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," Paulson said. "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."[1]

Rounding out the stringent economic control is 'a strong centralized government' awash in agencies with powers never intended when the U.S. Constitution was ratified:

"The ousted chief executives of Fannie Mae and Freddie Mac have the potential to exit with golden parachutes, but the government could cut the strings. The new regulatory agency that seized control of the mortgage-funding giants and forced out their chief executives Sunday has broad but untested power to prohibit severance payments. Under federal law, it could do so on a variety of grounds, including if it found that the former executives were responsible for the companies' financial troubles.

"We are working through the compensation issues and have nothing to say at this time," Federal Housing Finance Agency spokeswoman Corinne Russell said by e-mail yesterday."[2]

Compensation for CEOs who ran their corporations into the ground will be rewarded by a massive injection from the sweat off your back despite the rhetoric:

"The severance packages could be worth as much as $14.9 million for Richard F. Syron, the former Freddie Mac chairman and chief executive, and as much as $9.8 million for Daniel H. Mudd, the former Fannie Mae chief executive, said David M. Schmidt, a senior consultant for the executive pay consultancy James F. Reda & Associates."[2]

Is this good for America? Not according to some of the finest minds in this country who truly understand the danger of what just happened:

"In the latest example of financial market madness, the recent government “bailout” of Freddie Mac and Fannie Mae has perversely resulted in a sharp rise in the value of the U.S. dollar. If the markets were functioning rationally, the transference of staggering new liabilities to the U.S. Treasury would have been immediately seen as catastrophic for the dollar. Instead the markets have ignored the obviously negative long-term implications and have remained fixated my worst fears, and increase the chances for a hyper-inflationary outcome....

"Had the government done the right thing and not guaranteed Freddie and Fannie debt, I believe we would now be experiencing an outright financial crisis. The dollar would be falling sharply along with real estate prices, the government has merely delayed the crisis. The borrowed time will cost us dearly, as the day of reckoning will now likely involve much steeper losses for our currency.

"The Freddie and Fannie takeover does nothing to address the underlying problems that forced the companies into bankruptcy in the first place. All of the bad mortgage debt still exists. In fact, based on this bailout, there will be trillions more in bad mortgages insured over the next few years. The only thing that has changed is how the losses will be distributed. Instead of falling solely on bond holders, who had chosen to invest in mortgage debt, they will now be dispersed among U.S. taxpayers and all holders of U.S. dollars, who made no such choices."[3]

The jackals feeding on the American people and the fruits of their labor do not care and neither does Congress. On September 28, 2004, I wrote yet another column warning Americans Congress would do nothing; many more were to follow. On March 17, 2005, Dr. Edwin Vieria, began writing his brilliant analysis on the coming financial meltdown and the only real solutions. And, still, Americans voted back in the same Congress to fix a problem they continue to ignore. Where was Congress ten days ago to stop this lunacy?

Doris Matsui [D-CA] Corrine Brown [D-FL] Barney Frank [D-MA]

Mazie Hirono [D-HI) Randy Neugebauer [R-TX] Hillary Clinton [D-Ny]

Why wasn't Nancy Pelosi standing on the House floor demanding her colleagues halt this latest bail out? Probably because her colleagues are holding paper from those two corporations and to deflect the blame from this House of Incompetents:

"According to the Center for Responsive Politics, 28 lawmakers had between $598,100 and $1.7 million of their own money invested in the two companies last year. Of them, 12 members of Congress owned between $60,800 and $246,700 of stock in the two companies, which is practically worthless now that the government has seized Fannie Mae and Freddie Mac to keep them afloat as more of their customers in 2007, worth between $537,400 and $1.5 million. (Lawmakers disclose their finances in ranges, annually, making it difficult to determine their assets' precise values.) Rep. Mary Bono (R-Calif.) held bonds in the companies worth between $126,050 and $365,000, making her investments in Freddie Mac and Fannie Mae more valuable than those of any other member of congress.

"Four members of either the House Financial Services Committee or the Senate Banking, Housing and Urban Affairs Committee were invested in these companies: Rep. Carolyn McCarthy (D-N.Y.),who held $32,216 in bonds; Sen. Mike Enzi (R-Wyo.), who held at least $2,002 in bonds; Sen. Charles Schumer (D-N.Y.), with at least $2,002 in stocks; and Rep. Ron Klein (D-Fla.), who held at least $1,001 in bonds.

"Republican presidential candidate John McCain, who called the federal bailout "outrageous" (but necessary), also reported having up to $10,000 invested in the two companies--up to $9,000 worth in bonds and up to $1,000 worth of stocks."[4]

Just like the 151 members of Congress who directly benefit financially from the war in Iraq; click here. For that matter, where was Barack Hussein Obama, aka Barry Soetoro, aka Barry Obama, aka Barack Dunham, and aka Barry Dunham or Juan McCain? Dr. Edwin Vieira comments:

"So far, whatever remedy the Administration, McCain, or Obama has proposed has presumed that the General Government in Washington and its pet banks in the Federal Reserve system must keep America's present hypertrophic financial bubble expanding indefinitely, or at least prevent it from significantly contracting in the near future. So they advocate such policies as "bail outs" of both private and public enterprises (Bear Stearns, Fannie Mae, and Freddie Mac being the most prominent so far) and pitiful "stimulus packages" of some "free" cash for average Americans, all effected through the injection of new "liquidity" into the markets in the form of Federal Reserve's endless inflation of the supplies of currency and credit..

"....That candidates for the highest office in the land - not to mention the incumbent - would be making reform of the Federal Reserve System the central issue in the presidential campaign and the most important task to how the Federal Reserve operates; why it endangers America's economic, political and social stability; and what steps must be taken gradually and safely to return this country permanently to a constitutional monetary system based upon gold and silver, which will prevent public officials and bankers thereafter from redistributing wealth from society to special interest groups through manipulations of currency and credit.

"Unfortunately, that these events are not taking place proves that most top-ranking public officials and politicians are neither patriotic nor competent."[5]

The nonsense being fed to the American people by Obama and McCain is little better than sawdust blowing in the wind. Obama is a Marxist who wants to strip you of every last penny in your wallet, and McCain, in his own words, knows nothing about the economy; see short video. Experts who deal in the markets are finally uttering the dreaded word:

"The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday. "We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange."[6]

This toxic path of bailing out private corporations took a foot hold back in 1983 with Chrysler and the camel's backside is now in the crowded tent. It's odd, however, that Congress and the Department of Treasury pick and choose which private corporations they wish to keep from the frying pan. Two major industries, automobile and mortgage lending, got the big jolt, so why didn't Congress and the FED jump to save ENRON, one of the biggest energy concerns in America at the time? Actually, the 7th largest corporation with a market capitalization of nearly $60 billion dollars. Didn't those ENRON employees who were sold "buy our stock, it's solid!" by Ken Lay, matter to Congress when they lost everything - many at retirement age left with nothing? (See links below) Why wasn't ENRON "back stopped"?

The layoffs will continue while Congress votes to bring in another 550,000 cheap foreign workers! The economy will continue to stagnate because as the American people are squeezed to meet just basics like food, clothing and a roof over their heads, the less disposable income they have to inject into the economy. The "Ho, ho, ho kiss under the mistletoe" retailers won't see many gifts under their tree this year. Increasing numbers of Americans have lost faith in the system; for tens of millions, their credit is like the Kalahari during a bad rain year. Also, traditionally (no pun intended), the pink slips usually roll out in December. As bankruptcies were already up 29% in a 12-month period by August, how much will those strapped Americans drop to give retailers that all important boost at the end of the year?

A thousand more "economic stimulus packages" will do nothing; it's akin the emptying the ocean with a teaspoon. This past wave of foreclosures will birth new ones and Americans will continue to sink into quicksand while Obama and McCain blather on with their gibberish. Congress will continue spending when the people's purse is overdrawn $9.6 TRILLION dollars.

For those of you who might have missed Carolyn Lochhead's September 12, 2004, column, Speeches Ignore Impending U.S. Debt Disaster, you will see nothing has changed this election cycle with the two front runners and their VP picks as they ignore the warnings from four years ago.

"Laurence Kotlikoff, Economics Chairman at Boston University, who has written abundantly on this subject, offers up a shocking response on how to close a $51 trillion dollar fiscal gap: "To give you idea how big the problem is, you'd have to have an immediate and permanent 78 percent hike in the federal income tax." More than double the payroll tax, immediately and forever, from 15.3 percent of wages to nearly 32 percent; Raise income taxes by two thirds (roughly 78%), immediately and forever; Cut Social Security and Medicare benefits by 45 percent, immediately and forever;"[7]

I must repeat myself in hopes that new readers will grasp how dire the situation is: Every penny spent to bail out these private corporations has to be borrowed since there is no money in the treasury. How do you write a $100 million dollar check to Freddie and Fannie when your bank account is already overdrawn $9.6 TRILLION dollars? The hundreds of thousands of Americans who are the beneficiaries of these bail outs, mortgage freezing and other madness by Congress for votes, simply no longer care about the constitutional issues. They're desperate and want only to be saved.

What private corporation will be next? How about I start a corporation which sells diapers. I mean, the country can't do without them, just like we need automobiles and mortgage lenders. Officers of the Corporation follow my lead making stupid business decisions while paying ourselves a king's ranson in salary and over extending ourselves, until, uh, oh, we're in trouble. I call Helicopter Ben Bernanke and he bails out my company by stealing from you. See what I mean? At some point the whole thing blows just like a balloon with too much air.

Mega-billionaire, world government advocate, George Soros, is busy buying gold. Why? When he's not busy buying Democrats, his knowledge of financial markets is legendary; synopsis at bottom. If you are as concerned as you should be, I recommend you call Eric at El Dorado Gold and talk to him. Learn why gold is the only refuge as a hedge against the hyper inflation that can eat a country alive fast as a falling star. How safe is your 401(k)? Oh, yes, there are supposed to be safeguards in place. Are you sure? With all these corporations fudging their numbers until it's too late, Americans would do well to question now. What about pension plans? A very troubling post appeared on Le Metropole Cafe a few days ago:

"Bill - a friend of mines girlfriend works a N.Y. trading desk for Lehman - she tells my friend today that $8B has been evaporated from the employees pension fund and that the company has told office staff that an announcement will be forthcoming before the Asian markets open this Monday."[8]

I shudder to think this is true, but I suppose we'll find out soon enough. It appears others are also concerned about pension funds:

"Now we know. The giant black hole of derivatives at JPM is about to become the size of Jupiter. With the utter failure of Fannie and Freddie (a culmination of what I predicted 12 years ago) Fannie and Freddie’s massive derivatives portfolios can now be hidden from public scrutiny. These trillions of derivatives, which in likelihood have already failed, can now be whitewashed with the able assistance of the US taxpayer. Also the true values of their mortgage portfolios gets deep-sixed. This is no doubt the single largest financial failure in the history of the world. The Fed had every reason to previously discontinue M-3 reporting.

"Can you imagine what is about to happen to the dollar supply once this catastrophe starts getting paid for? The derivatives may now become hidden from view, but the inflationary implications will become VERY evident. Another ominous problem facing FNM and FRE is a collapse in their pension plans and retirement funds. Retirees and current employees holding FNM/FRE stock will get wiped out, however a pension fund collapse would mean open revolt. This is another side-bailout I see coming."[9]

I encourage you to read the link one below (Warning) because the worst is yet to come and just like the top sand in the hour glass, it will come.


1 - Feds To 'Backstop' Fannie Mae and Freddie Mac
2 - Ousted Fannie, Freddie CEOs Could Still See Big Paydays
3 - Last Gasp of a Doomed Currency
4 - Congressmen Who Were Invested
5 - USA Tomorrow Newspaper, Issue Two, Dr. Edwin Vieira, Jr.
6 - Bailouts Will Push US Into Depression
7 - Lochhead related column
8 - Le Metropole Cafe (for serious investors)
9 - The Fannie/Freddie Mess

1 - Internet book I highly recommend ($9.95) No Foreclosures - this can help you stay in your home while you work with lenders


1 - WARNING by Congressman Ron Paul at the Financial Services Hearing
on Sovereign Wealth Funds DIMP Subcommittee September 10, 2008
2 - Congress' recent $300 billion housing bill is a theft of taxpayer money.
3 - Job cuts announced by U.S. employers last month jumped
12 percen
t over a year ago
4 - Retail Sales Unexpectedly Drop 0.3%
5 - August foreclosures hit another record high
6 - Consumer debt defaults looming large
7 - 50% Of BofA's Builder Loans 'Troubled'
8 - Global meltdown means just that; who gets to be the last domino?
9 - FDIC: 117 troubled banks

ENRON: No oceans of money from Congress or the FED

1 - Enron - The Smokin' Cannon Of 9/11?
2 - Enron, Cheney, 9/11, Live Hijackers, & Dead Microbiologists
3 - Enron, 9/11, Lay, Schwarzenegger & Oregon's Water