Wednesday, September 24, 2008

A world-wide economic collapse may only be days, weeks away

Will the $700 Billion U.S. Government Bail Out Work? History Says It Won't!

Don't be lulled into believing Wall Street and Washington have this financial crisis under control.

A melt down, a world-wide economic collapse may only be days, weeks away. Please take steps immediately to protect yourself and family.

Go To Original

It is often said that those that fail to pay attention to history are doomed to repeat its mistakes.

I wish I could be enthusiastic about the $700 bailout package being proposed but I just can't be. Last night as I was reviewing the news of the day's events, the testimony before Congress by Secretary of the Treasury Paulson and Fed Chairman Bernanke as well as the news about Warren Buffet's $5 investment in Goldman Sachs when I realized there was something very familiar about everything was happening.

All of a sudden I started searching high and low in my personal library in a frenzy. My wife was so taken back she tried get me to tell her what I was so desperately looking for when and then hidden in a corner I found the book I was looking for and had read over 20 years ago... "Panic on Wall Street" by Robert Sobel.

Many are openly scoffing at the notion of a crash like 1929 occurring in this day and age but they really shouldn't. Robert Sobel's book "Panic on Wall Street" shows clearly that the danger is greater now than has ever been before - all one has to do is look at the parallel between the events taking place now on Wall Street, and in Washington and those that took place back in 80 years ago to realize all these emergency steps could STILL be leading us to the biggest economic collapse in history. This amazing book shows why...

In 1929 as Wall Street nose-dived John D. Rockefeller stepped in to buy stock to support the market and much in the same way Warren Buffet is stepping in to buy shares in Goldman Sachs (GS) in a sweetheart deal.

Then a group of large banks came together in 1929 to create an investment pool to support each other. That pool was $20-30 million just like several banks did week which created a pool of $70 billion dollars.

Third, short selling was banned when things started to get really bad and that happened last week. It is time to wake up to reality and protect your assets.

We're being told the financial system almost melted down last Wednesday evening - the reality may be nothing can stop the meltdown based on the lessons of 1929.

You must take steps to protect yourself!

You buy insurance for your house, car and life. Do you buy insurance for your net worth, nest egg or portfolio? If not, then we have to ask the question, "Why not?"

You see it is "crunch time" for the United States and its capital markets much less the markets of the rest of the world. There are two minutes left in the game. The home team (the U.S. market) is down by 4 and if a touchdown is not scored the season is over. Is it that bad? No, it is even worse.

Treasury Secretary Paulson and the billionaires backing this plan are trying to push through a bailout plan for the entire financial system based on a three page document that offers no specifics and is essentially a blank check. Paulson believes in this emergency we need an economic Czar who has the complete power to make the decisions he believes will provide the solution and end to the crisis.

This incomplete nature of the proposal and the amount of power being sought has Congress and the Senate are arguing and fighting over the plan. While the scope and size of the crisis comes to the light of day its "politics as usual" parties on all political sides are fighting to add all sorts of pork. While they fight we are inching closer to a crisis that will make 9/11, the 1987 Stock Market Crash and the Crash of 1929 look pale by comparison. Why am I so negative...

Simple. First there were stock and bonds. Next came along options and then futures. If Wall Street stopped there, then we would not be in the current mess we are in. Instead Wall Street went on to create derivatives that numbered in the hundreds. The most toxic are Credit Default Swaps (CDS). This instrument is pretty simple and may be the next shoe to drop.

Here's how CDS work: A buyer pays money to insure that in the event of a default the buyer would be protected by a seller who took in the premium and invested the returns. The problem is that the biggest seller in this game AIG has become insolvent and they could not make good on their obligations as Lehman, Fannie Mae and Freddie Mac failed in a matter of weeks. The size of this liability is many times the $70 Billion pledged to AIG last week by the U.S. Government. In fact, the risk could be many multiples of the $70 Billion.

This is too dangerous of a situation to ignore. Literally, you could wake up one morning in the very near future to the news that a Domino Collapse over night has shut down the world's banks, brokerage firms, credit cards companies and financial markets. The Dow now trading at over 10,800 when trading opens again could very well open at 7,000 and slide down another 2,000 points as investors try to salvage some liquidity. People who are not prepared will be destitute and those who are prepared and know what to buy in the wake of the financial tsunami will be the next crop of multi-millionaires and billionaires. I'm hoping to guide you through any such situation but FIRST you have to take immediate steps to protect your wealth.

Finally, I must repeat...

Over the past several years I have been recommending, in fact BEGGING you to add PHYSCICAL gold, platinum and silver to your portfolios. In the past I've recommended 15% of your savings. This should now be increased to 30% of your savings in this crisis.

This crisis could blow up at any moment and create a wave of inflationary pressures that literally wipes out the value of the U.S. Dollar and virtually all paper money.

If you're not holding gold and precious metals you're very economic survival is at stake: REGARDLESS OF WHAT THE POLITICIANS PROMISE!

Call immediately and speak to one of my precious metals experts at 1-866-697-4653 and find out which gold, platinum and silver coins I am recommending.

Finally, gold is up another $35 today (and $80 since I wrote to you yesterday)

Has Deregulation Sired Fascism?

Has Deregulation Sired Fascism?

By Paul Craig Roberts

Go To Original

Remember the good old days when the economic threat was mere recession? The Federal Reserve would encourage the economy with low interest rates until the economy overheated. Prices would rise, and unions would strike for higher benefits. Then the Fed would put on the brakes by raising interest rates. Money supply growth would fall. Inventories would grow, and layoffs would result. When the economy cooled down, the cycle would start over.

The nice thing about 20th century recessions was that the jobs returned when the Federal Reserve lowered interest rates and consumer demand increased. In the 21st century, the jobs that have been moved offshore do not come back. More than three million U.S. manufacturing jobs have been lost while Bush was in the White House. Those jobs represent consumer income and career opportunities that America will never see again.

In the 21st century the US economy has produced net new jobs only in low paid domestic services, such as waitresses, bartenders, hospital orderlies, and retail clerks. The kind of jobs that provided ladders of upward mobility into the middle class are being exported abroad or filled by foreigners brought in on work visas. Today when you purchase an American name brand, you are supporting economic growth and consumer incomes in China and Indonesia, not in Detroit and Cincinnati.

In the 20th century, economic growth resulted from improved technologies, new investment, and increases in labor productivity, which raised consumers’ incomes and purchasing power. In contrast, in the 21st century, economic growth has resulted from debt expansion.

Most Americans have experienced little, if any, income growth in the 21st century. Instead, consumers have kept the economy going by maxing out their credit cards and refinancing their mortgages in order to consume the equity in their homes.

The income gains of the 21st century have gone to corporate chief executives, shareholders of offshoring corporations, and financial corporations.

By replacing $20 an hour U.S. labor with $1 an hour Chinese labor, the profits of U.S. offshoring corporations have boomed, thus driving up share prices and “performance” bonuses for corporate CEOs. With Bush/Cheney, the Republicans have resurrected their policy of favoring the rich over the poor. John McCain captured today’s high income class with his quip that you are middle class if you have an annual income less than $5 million.

Financial companies have made enormous profits by securitizing income flows from unknown risks and selling asset backed securities to pension funds and investors at home and abroad.

Today recession is only a small part of the threat that we face. Financial deregulation, Alan Greenspan’s low interest rates, and the belief that the market was the best regulator of risks, have created a highly leveraged pyramid of risk without adequate capital or collateral to back the risk. Consequently, a wide variety of financial institutions are threatened with insolvency, threatening a collapse comparable to the bank failures that shrank the supply of money and credit and produced the Great Depression.

Washington has been slow to recognize the current problem. A millstone around the neck of every financial institution is the mark-to-market rule, an ill-advised “reform” from a previous crisis that was blamed on fraudulent accounting that over-valued assets on the books. As a result, today institutions have to value their assets at current market value.

In the current crisis the rule has turned out to be a curse. Asset backed securities, such as collateralized mortgage obligations, faced their first market pricing in panicked circumstances. The owner of a bond backed by 1,000 mortgages doesn’t know how many of the mortgages are good and how many are bad. The uncertainty erodes the value of the bond.

If significant amounts of such untested securities are on the balance sheet, insolvency rears its ugly head. The bonds get dumped in order to realize some part of their value. Merrill Lynch sold its asset backed securities for twenty cents on the dollar, although it is
unlikely that 80 percent of the instruments were worthless.

The mark to market rule, together with the suspect values of the asset backed securities and collateral debt obligations and swaps, allowed short sellers to make fortunes by driving down the share prices of the investment banks, thus worsening the crisis. With their capitalization shrinking, the investment banks could no longer borrow. The authorities took their time in halting short-selling, and short-selling is set to resume on October 3 or thereabout.

If the mark to market rule had been suspended and short-selling prohibited, the crisis would have been mitigated. Instead, the crisis intensified, provoking the US Treasury to propose to take responsibility for $700 billion more in troubled financial instruments in addition to the Fannie Mae, Freddie Mac, and AIG bailouts. Treasury guarantees are also apparently being extended to money market funds.

All of this makes sense at a certain level. But what if the $700 billion doesn’t stem the tide and another $700 billion is needed? At what point does the Treasury’s assumption of liabilities erode its own credit standing?

This crisis comes at the worst possible time. Gratuitous wars and military spending in pursuit of US world hegemony have inflated the federal budget deficit, which recession is further enlarging. Massive trade deficits, magnified by the offshoring of goods and services, cannot be eliminated by US export capability.

These large deficits are financed by foreigners, and foreign unease has resulted in a decline in the US dollar’s value compared to other tradable currencies, precious metals, and oil.

The US Treasury does not have $700 billion on hand with which to buy the troubled assets from the troubled institutions. The Treasury will have to borrow the $700 billion from abroad.

The dependency of Treasury Secretary Paulson’s bailout scheme on foreign willingness to absorb more Treasury paper in order that the Treasury has the money to bail out the troubled institutions is heavy proof that the US is in a financially dependent position that is inconsistent with that of America’s “superpower” status.

The US is not a superpower. The US is a financially dependent country that foreign lenders can close down at will.

Washington still hasn’t learned this. American hubris can lead the administration and Congress into a bailout solution that the rest of the world, which has to finance it, might not accept.

Currently, the fight between the administration and Congress over the bailout is whether the bailout will include the Democrats’ poor constituencies as well as the Republicans’ rich ones. The Republicans, for the most part, and their media shills are doing their best to exclude the ordinary American from the rescue plan.

A less appreciated feature of Paulson’s bailout plan is his demand for freedom from accountability. Congress balked at Paulson’s demand that the executive branch’s conduct of the bailout be non-reviewable by Congress or the courts: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion.” However, Congress substituted for its own authority a “board” that possibly will consist of the bailed out parties, by which I mean Republican and Democratic constituencies. The control over the financial system that the bailout would give to the executive branch would mean, in effect, state capitalism or fascism.

If we add state capitalism to the Bush administration’s success in eroding both the US Constitution and the power of Congress, we may be witnessing the final death of accountable constitutional government.

The US might also be on the verge of a decision by foreign lenders to cease financing a country that claims to be a hegemonic power with the right and the virtue to impose its will on the rest of the world. The US is able to be at war in Iraq and Afghanistan and is able to pick fights with Iran, Pakistan and Russia, because the Chinese, the Japanese and the sovereign wealth funds of the oil kingdoms finance America’s wars and military budgets. Aside from nuclear weapons, which are also in the hands of other countries, the US has no assets of its own with which to pursue its control over the world.

The US cannot be a hegemonic power without foreign financing. All indications are that the rest of the world is tiring of US arrogance.

If the US Treasury’s assumption of bailout responsibilities becomes excessive, the US dollar will lose its reserve currency role. The minute that occurs, foreign financing of America’s twin deficits will cease, as will the bailout. The US government would have to turn to the printing of paper money as did Weimar Germany.

For now this pending problem is hidden from view, because in times of panic, the tradition is to flee into “safety,” that is, into US Treasury debt obligations. The safety of Treasuries will be revealed by the extent of the bailout.

The $700 Billion Bailout Plan's Fine Print

The $700 Billion Bailout Plan's Fine Print

A reformed Wall Streeter sifts through the details of the Troubled Asset Relief Program.

Nomi Prins

Go To Original

Treasury Sec. Hank Paulson's $700 billion bailout plan now has a name: the Troubled Asset Relief Program, or TARP. But even as Capitol Hill debates TARP, few seem to have noticed the proposal item that puts taxpayers on the hook for future bailouts. It's in Section 6, and the key phrase is this: "The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time."

What does "at any one time" actually mean to economists? It means that if everything we American taxpayers buy re-evaluates down to zero, we get to buy more. That's hardly taxpayer "protection." With several hundred billion dollars of write-downs already announced this year by the part of the industry compelled to post their losses, it's a safe bet that $700 billion worth of the junkiest assets in existence will be heading to zero the second they are purchased.

But that's not all the bad news. With Sunday's announcement that Goldman Sachs and Morgan Stanley have decided to become bank holding companies, the last pretense of respect for the Glass-Steagall was dropped.

The Bank Holding Company Act of 1956 prevented bank holding companies from engaging in non-consumer oriented banking activities, like investment banking. It also prohibited such entities headquartered in one state from acquiring banks in another state. The interstate restrictions were gutted in 1994, and the 1999 Gramm-Leach-Bliley Act took care of the rest.

At first this meant that commercial banks could buy investment banks and insurance companies, hence Citigroup (which is a combination of Citibank, Travelers Insurance and Salomon Brothers investment bank), and the latest incarnation waiting to post lots of losses, Bank of America-Merrill Lynch. But even with a new name, Goldman Sachs is still an investment bank, in the same way that a horse by another color is still a horse. Changing its status to bank holding company will mean access to the bailout fund, and give it the ability to buy any commercial bank out there. Which it likely will.

Nonetheless, that looming problem wasn't addressed by Congress Tuesday. Instead, Sen. Chuck Schumer (D-NY) responded to TARP with THOR (Taxpayer Protection, Housing, Oversight and Regulation) and warned, "the financial system is clogged, and if we don't react the patient will suffer a heart attack. So we must act and must act soon…"

Somewhere, Former Treasury Secretary Carter Glass, the co-author of the Glass-Steagall Act of 1933 that separated speculative investment banks from consumer-oriented commercial ones, is turning in his grave.

As much press as the TARP vs. THOR discussion is getting, one voice of reason deserves more attention: Sen. Byron Dorgan's. As he has said, "this proposal looks to me like a stampede in the wrong direction…to reward the very people on Wall Street who created this mess, and who pocketed more than $100 billion over the last several years making it."

In 1999, Dorgan had the foresight to vote against the Gramm-Leach-Bliley Act that repealed the financial protections put in place following the Great Depression. He warned then that a 'financial swamp' would result from "the casino-like prospect of merging banking with the speculative activity of real estate and securities, and that the bill will raise the likelihood of future massive taxpayer bailouts."

Dorgan was spot on. Not only are we trapped in the complex deregulated financial system that resulted, but the bailouts are just beginning.

In advocating new protections similar to the Glass-Steagall Act and the need to address this crisis not just quickly, but correctly, he's likely spot on again. If only the rest of Congress felt the same way.

U.S. Housing Prices Tumble on Home Mortgage Scarcity

U.S. Housing Prices Tumble on Home Mortgage Scarcity

By Kathleen M. Howley

Go To Original

U.S. home prices tumbled in July as the credit crisis that led to this month's toppling of Lehman Brothers Holdings Inc. tightened mortgage standards and slashed real estate lending.

Home purchase prices dropped 5.3 percent, seasonally adjusted, from a year earlier, the Office of Federal Housing Enterprise Oversight said today in a report. The one-month decline from June was 0.6 percent, said Washington-based Ofheo.

Eight out of nine U.S. regions showed declines for the year as lenders tightened requirements after banks posted $523 billion in mortgage-related losses and writedowns worldwide. U.S. Treasury Secretary Henry Paulson this week asked Congress to approve $700 billion to buy the type of investments that forced Lehman Brothers to file for bankruptcy and American International Group Inc. to accept a federal takeover.

''You're still looking at the residual effects of a marketplace that is starved for mortgage money,'' Michael Aronstein, president of New York-based Marketfield Asset Management, said in an interview.

The decline in July from June was greater than the 0.2 percent average estimate of 15 economists surveyed by Bloomberg News. Ofheo now is part of the Federal Housing Finance Agency created by Congress in July to oversee Fannie Mae and Freddie Mac, which own or guarantee $5.4 trillion of mortgage debt. The mortgage buyers were seized by the government two weeks ago to prevent their collapse.

Record Foreclosures

Prices fell the most from a year ago in the study's western region that includes California and Washington, down 18 percent. Florida, Georgia, the Carolinas and states in the South Atlantic region fell 5.2 percent, Ofheo said. In New York, New Jersey and Pennsylvania the drop was 3.5 percent.

Lending for home purchases probably will drop to $930 billion this year from $1.16 trillion in 2007, the Washington-based Mortgage Bankers Association said in a Sept. 11 forecast. The average U.S. rate for a 30-year fixed mortgage probably will be 6 percent in 2008, down from 6.3 percent last year, the trade group said.

Foreclosures and late mortgage payments rose in the second quarter to the highest level in at least three decades, Mortgage Bankers said in a Sept. 5 report.

The share of U.S. homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. Mortgages with one or more payments overdue rose to a seasonally adjusted 6.41 percent from 6.35 percent in the first quarter.

Lending Standards

Three-quarters of U.S. banks surveyed by the Federal Reserve in July said they had tightened lending standards for so-called prime borrowers, their most creditworthy customers. Eighty-five percent of banks offering so-called non-traditional loans, such as interest-only mortgages, said they had raised requirements.

Sales of previously owned homes probably will drop to 5.01 million in the U.S. this year, 29 percent less than 2005's all- time high of 7.08 million, the National Association of Realtors said in a Sept. 9 forecast. Measured monthly, home sales reached a peak in September 2005 at an annualized pace of 7.25 million.

The median U.S. home price will fall by between 4 percent and 7 percent, the Chicago-based trade group said in its forecast. Last year's 1.4 percent drop was the first national decline in the U.S. median since the Great Depression, according to Lawrence Yun, chief economist for the housing group.

Home Resales Drop 2.2 percent

Home Resales Drop; Bernanke Sees Tighter Credit

By Bob Willis

Go To Original

Sales of previously owned U.S. homes fell more than forecast in August and prices dropped the most on record as Federal Reserve Chairman Ben S. Bernanke suggested the housing market may get worse before it gets better.

Sales of existing homes dropped 2.2 percent to an annual rate of 4.91 million units from 5.02 million the prior month, the National Association of Realtors said today in Washington. The median price declined 9.5 percent from August 2007 and the number of properties fell from a record.

Bernanke told lawmakers that lenders will become ‘‘still more cautious,'' with terms on home loans tightening ‘‘significantly.'' The slide in property values threatens to hurt consumer spending, which Bernanke said today would be ‘‘‘sluggish at best'' in coming months.

‘‘You have foreclosures which are pushing prices down, but you have tight credit conditions keeping sales from rising,'' Patrick Newport, an economist a Global Insight Inc. in Lexington, Massachusetts, said in a Bloomberg Television interview. ‘‘Sales are probably going to drop 10 to 15 percent more over the next few months.''

Treasuries rose, pushing yields lower, as the report and Bernanke's remarks added to speculation that the Fed may lower interest rates by year-end to alleviate the worst financial crisis since the Great Depression. Benchmark 10-year notes yielded 3.77 percent as of 10:56 a.m. in New York, down 3 basis points from yesterday. Stocks were higher.

Resales were forecast to fall to a 4.94 million annual rate, according to the median estimate of 73 economists in a Bloomberg News survey. Projections ranged from 4.7 million to 5.15 million.

Bernanke Testimony

Bernanke said today in testimony before Congress that the U.S. is facing ‘‘grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.

‘‘Economic activity appears to have decelerated broadly,'' Bernanke said in remarks prepared for a Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ‘‘Stabilization of our financial system is an essential precondition for economic recovery.''

‘Some Stabilization'

While the prospect of still lower prices is deterring some buyers, Bernanke said there are signs of ‘‘some stabilization'' in home sales. Cheaper prices and lower interest rates ‘‘are making housing increasingly affordable over time,'' he said.

Home resales were down 10.7 percent compared with a year earlier. Resales totaled 5.65 million in 2007.

Today's figures compare with the 4.85 million level reached in June, the lowest in a decade and 33 percent down from the record reached in September 2005.

The number of previously owned unsold homes on the market at the end of August represented 10.4 months' worth at the current sales pace, down from 10.9 months' at the end of the prior month.

There were 4.255 million properties on the market in August, down 7 percent from the prior month, the biggest drop since December 2006.

The median price of an existing home dropped to $203,100 from $224,400 a year ago. For single-family houses, the median price dropped 9.7 percent, the biggest decline since records began in 1968.

Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier.

New-Home Sales

Tomorrow, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 510,000 from 515,000 in July, according to survey estimates. Sales of new homes are down 63 percent from their July 2005 peak.

Today's report showed resales of single-family homes fell 1.4 percent to an annual rate of 4.35 million. Sales of condos and co-ops declined 8.2 percent to a 560,000 rate.

The Northeast suffered a 6.6 percent decline in sales, followed by a 5.3 percent drop in the West. Purchases rose in the Midwest and Southeast.

‘‘Some of the declines in sales were due to tighter lending standards that Fannie Mae and Freddie Mac had imposed prior to the takeover,'' Lawrence Yun, chief economist at the Realtors' group, said in a press conference.

Builders Scale Back

As sales shrank, builders scaled back construction projects to pare swelling inventories. Work began in August on the fewest houses since 1991, the Commerce Department reported last week. The number of building permits issued also fell, signaling construction cutbacks will continue to hurt the economy.

‘‘The biggest issue is consumer confidence in housing right now,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said in a Sept. 19 interview on Bloomberg Television. ‘‘It remains a very challenging environment.''

Hovnanian said sales in ‘‘some select markets,'' such as northern California and the Washington suburbs in Virginia, ‘‘have really started to pick up.'' It's ‘‘absolutely'' too early to call a bottom for the market, he said.

Resales stabilized in recent months as some Americans took advantage of depressed property values. One-third to 40 percent of July purchases reflected distressed properties, including foreclosures, the real-estate agent's group said last month.

Stricter lending regulations and tumbling home prices make it harder for Americans to tap home equity for extra cash. Consumer spending in the third quarter will probably be the weakest since 1991, according to economists surveyed earlier this month.

The housing slump is the ‘‘root cause'' of the turmoil in financial markets, Treasury Secretary Henry Paulson said in testimony before the Senate yesterday. It ‘‘has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy.''

Bernanke joined Paulson in urging lawmakers to quickly pass a $700 billion rescue plan for financial institutions and warned the economy will shrink if markets don't begin functioning normally.

US dollar set to be major casualty of Hank Paulson's bailout

US dollar set to be major casualty of Hank Paulson's bailout

“This may prove to be the dollar’s epochal moment – the moment historians look back at as its major turning point.”

By Edmund Conway

Go To Original

Whether or not tomorrow’s accounts of today’s turmoil prove David Owen of Dresdner Kleinwort right; whether or not this is the beginning of the end of the dollar’s pre-eminence in the world’s central banks and foreign exchanges, the economic landscape has undoubtedly changed forever.

The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.

But as investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable – the US dollar will have to take another major fall.

The dollar rally that began in July and pushed the pound’s value against the greenback significantly lower has come to an abrupt end as markets face up to the fact that the currency will have to absorb the effects of a sudden shocking increase in America’s budget deficit.

When Treasury Secretary Hank Paulson announced that the world’s biggest economy was about to embark on the world’s biggest bail-out for its financial sector, the first concern economists had was about the long-term prospects for the nation’s finances and its currency.

Might the dollar now be vulnerable to a run? In the longer term, might this signal the beginning of the end for the dollar’s status as the world’s reserve currency?

The US Treasury was already planning to borrow $438bn (£237bn) next year to shore up its budget deficit. That could now rise to $1 trillion or more after the cost of the $700bn mortgage rescue fund is taken into account. Budget deficits of that kind are usually enough to scare many foreign investors away, and indeed the dollar slumped 1.1 cents to $1.8441 against the pound yesterday, and in late trading was down almost two cents against the euro at $1.46880.

Ironically, despite the pound’s comparative strength against the dollar – having risen from just above $1.75 in the past few weeks – it remains extremely weak against other world currencies, due to investors’ fears about the UK’s own home-grown problems.

“The magic trillion-dollar deficit is within sight,” says Simon Derrick, of Bank of New York Mellon, “The combination of the fiscal position and loose monetary policy is likely to be significantly dollar-negative. With an expanding supply of US paper they might want to hold something else as their safe haven, which might mean other currencies and might just as easily mean commodities such as gold.”

When a government opens the spending taps and borrows more, investors invariably take flight, fearing that assets denominated in those currencies will lose their value as inflation rises and the currency weakens.

However, with the Treasury still reluctant to spell out precisely how the rescue package, modelled on the late 1980s’ Resolution Trust Corporation, will work, analysts are still unclear about how far the dollar has to fall.

It is likewise still unknown precisely what effect the quasi-nationalisation of Fannie Mae and Freddie Mac will have for the nation’s finances, though the implications will again almost certainly be negative.

According to Mr Derrick, “the sums have changed so quickly on the fiscal side within the space of two weeks, and clearly the outlook for the US economy relative to where people were forecasting before Freddie and Fannie. Investors will also have a radically different outlook for the future.”

The biggest question, however, is whether the reserve managers in central banks in China and elsewhere will treat this as a justification for selling off some of their massive mountain of dollar-denominated investments. If this were to happen, it could cause a catastrophic drop in the US currency, potentially compromising its status as the world’s reserve currency.

However, with the euro area facing its own economic and financial crises, it looks unlikely to be able to step into the breach. This helps explain the leap yesterday in gold and oil prices as investors seek to buy tangible commodities in place of currencies that may easily be devalued in the coming years.

What was perhaps even more worrying for investors was an item in the small print of Hank Paulson’s rescue plan. It said that, separate to the $700bn markets rescue package, the US Treasury would plunder the Exchange Stabilisation Fund – the US currency reserves, established in the 1930s – in order to pay for an insurance scheme for the money markets.

“The Treasury has committed the nation’s FX reserves to supporting the money market industry,” said Chris Turner, head of foreign exchange strategy at ING. “That suggests to us that the dollar has fallen down the list of the administration’s priorities – a worrying development for foreign investors in the US.”

The fund’s cash is being funnelled into a new scheme designed to protect money market mutual funds, which mirrors the Federal Deposit Insurance scheme for consumers’ bank savings. “What worries us is that the US Treasury has committed the nation’s FX reserves at a time when the dollar is exceptionally vulnerable,” said Mr Turner.

Millions spend half of income on housing

Millions spend half of income on housing

By ADRIAN SAINZ and ALAN ZIBEL

Go To Original

Al Ray is so strapped for cash, the only time he eats out is on Wednesday or Sunday, when the local McDonald's sells hamburgers for 49 cents.

Ray lost his engineering job last November, and has been working as high school tutor, scratching out about $1,000 a month — if he's lucky. He struggled to make his $1,400 monthly mortgage payment and $330 monthly homeowners' association fee until May, when he stopped paying.

Ray, 44, is looking for work and renting out a room in his two-bedroom condo in Davie, Fla., for $500, but his monthly income doesn't match his expenses and he's facing foreclosure.

"I barely have money to survive," he said.

Ray is one of more than 7.5 million people — almost 15 percent of American homeowners with a mortgage — who are spending half of their income or more on housing costs, according to 2007 data released Tuesday by the U.S. Census Bureau. That is up from nearly 7.1 million the year before.

Traditionally, the government and most lenders consider a homeowner spending 30 percent or more of their income on housing costs to be financially burdened. But that definition now covers almost 38 percent of American homeowners with a mortgage — 19 million of them.

Though home prices have fallen this year, in the most expensive markets where home prices tripled during the boom, many working families still cannot afford to buy a home.

"We had a bubble," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. "This is a case where we absolutely want the market to adjust."

The data underscore the serious affordability problems in this country and highlight how the slightest financial problem — from a lost job to higher gas prices or insurance premiums — can put a family behind on their mortgages and into the realm of foreclosure.

When home prices fell in the early 1990s, borrowers had more equity in their homes, and were able to escape foreclosure. But now, an estimated 10 million homeowners owe more on their mortgages than their homes are worth, according to Moody's economy.com.

More than 4 million homeowners were at least one month behind on their loans at the end of June, and almost 500,000 had started the foreclosure process, according to the Mortgage Bankers Association.

Cascading foreclosures over the past two years created a domino effect in the lending industry, undermining investor confidence and forcing the Bush administration last weekend to announce the greatest rescue package and market intervention since the Great Depression.

And yet, the deal will not help Dolly Hanna, 51, and her husband, who bought five homes in the San Francisco area over the past 20 years, and were enjoying life during the housing boom by renting them out.

But her husband's overtime at his mechanic's job was cut, and the Hannas now find themselves overextended at a loss of $15,000 per month and trying two sell two of the homes.

With four children, Hanna had been a stay-at-home mom, but Monday she started a job in real estate. They are seeking a renter for two upstairs bedrooms in their primary residence for $1,200.

Getting a loan during the boom was easy, Hanna knows. Too easy.

"All you had to was massage the information enough to fit it into their round hole, and they gave us a mortgage," Hanna said.

In San Francisco, more than one out of five homeowners with a mortgage spends half or more of their income on housing.

That's also true in 13 more of the largest 100 metro areas analyzed by the Associated Press. Other places include California metro areas of Stockton, Los Angeles, Riverside, Oxnard-Thousand Oaks, San Francisco, and San Diego. Also in the top 10 are the Fort Myers, Sarasota and Orlando metro areas in Florida, and New York-Northern New Jersey-Long Island.

But the most cost-burdened homeowners in the country live the Miami-Fort Lauderdale-Miami Beach metro area: 58 percent of homeowners spending 30 percent of their income on housing costs, and 29 percent spending half of their income or more on housing.

Though prices here are dropping, the high cost of land, construction, insurance and property taxes makes living in South Florida too expensive for some.

"Certainly, we hear about people leaving South Florida and going into Atlanta where they can get into a house for less money," Suzanne Weiss, associate director for real estate with Neighborhood Housing Services of South Florida.

To help with the affordable housing stock, Neighborhood Housing Services of South Florida joined forces with a construction company to build homes for low- to moderate-income residents that include energy-efficient appliances and hurricane-resistant windows.

Other cities and states are also taking action.

In Illinois, a network of 15 nonprofit housing groups gives free advice to struggling homeowners seeking to avoid foreclosure amid rising mortgage payments.

In New England, an affordable housing program funded by the Federal Home Loan Bank of Boston awards grants and low-interest loans to communities to encourage affordable-housing initiatives for very low- to moderate-income households.

And in Las Vegas, the Nevada Fair Housing Center is helping Rita Harvey renegotiate her mortgage from $2,700 to around $1,800 per month.

Harvey, 64, lives on about $3,300 a month in social security and disability payments for herself and her four disabled grandchildren. She nearly lost her home this summer after her adjustable rate mortgage payment jumped.

"I did not understand that in two years, this would adjust out of control," she said. "Nobody deserves what I've had to go through."

Too Big to Fail and Too Small to Matter

Too Big to Fail and Too Small to Matter

Norman Solomon

Go To Original

These times provide a crash course on the corporate state:

If a company like AIG is too big to fail, the government will rescue it. Mere people - too small to matter - are expendable.

The insurance industry is too big to fail. A person's health is too small to matter, so - when it fails due to the absence or loopholes of insurance coverage - that's tough luck.

The Defense Department is too big to fail. The people it's killing in Iraq and Afghanistan are too small to matter.

The US nuclear arsenal is too big to fail. The Nuclear Non-Proliferation Treaty, undermined by Washington, is too small to matter.

Overall, the warfare state is too big to fail. The virtues of peace are too small to matter.

Agribusiness is too big to fail. Family farmers are too dirt-small to matter.

The leverage for the US Treasury to subsidize Wall Street is too big to fail. The leverage to subsidize mothers and children kicked off welfare is too small to matter.

The political momentum for bailing out corporate America is too big to fail. The political momentum for funding adequate payment rates from Medicaid to reimburse healthcare providers is too small to matter.

The oil conglomerates are too big to fail. Global warming is too small to matter.

The prison industry is too big to fail. The need for preschool is too small to matter.

Corporate power is too big to fail. The ordeals of working people and want-to-be-working people are too small to matter.

Human worth as maximized by dollars: too big to fail. Human worth as affirmed by humanistic values: too small to matter.

The current odds of pumping at least several hundred billion taxpayer dollars into corporate America: too big to fail. The current odds of launching a massive federal jobs program: too small to matter.

Such priorities and mindsets are in overdrive at the intersection of Pennsylvania Avenue and Wall Street. But a basic shift in government priorities is possible. That's what happened three-quarters of a century ago, when a progressive upsurge prevented the re-election of President Herbert Hoover - and then effectively mobilized to pressure the new occupant of the White House.

After campaigning in 1932 on a middle-of-the-road Democratic platform, Franklin Roosevelt went on to become a president who denounced the "economic royalists" and made common cause with working people and the unemployed. People across the country organized for social change. In the process, you might say, the power of progressive movements became too big to fail.

Something like that could happen again.

Democrats to let offshore drilling ban expire

Democrats to let offshore drilling ban expire

By ANDREW TAYLOR

Go To Original

House Democrats will allow a quarter-century ban on drilling for oil off the Atlantic and Pacific coasts to expire next week.

Appropriations Committee Chairman David Obey is telling reporters that language continuing the moratorium will be omitted this year from a spending bill to keep the government in operating funds after Congress recesses for the election.

Republicans have made lifting the ban a key campaign after gasoline prices soared beyond $4 a gallon this summer and public opinion turned in favor of more drilling. President Bush lifted an executive ban on offshore drilling in July.

The Interior Department estimates there are 18 billion barrels of recoverable oil beneath coastal waters now off-limits.

Anti-war veterans unfurl 'Arrest Bush/Cheney' banner at National Archives

Anti-war veterans unfurl 'Arrest Bush/Cheney' banner at National Archives

Archives

Go To Original

At 7:30 a.m. this morning, they climbed a nine-foot fence to occupy a 35-foot-high ledge at the National Archives.

And five members of the Veterans for Peace organization have been there ever since. They say they're veterans of Vietnam and Iraq, anti-war activists, and soldiers for a cause who plan to fast for 24 hours in protest of the Bush administration.

Seeking the criminal prosecution of George W. Bush and Dick Cheney, the organization distributed "Citizens' Arrest Warrants" to tourists waiting in line to enter the archives, which houses the key documents of U.S. history: the Declaration of Independence, the Constitution and the Bill of Rights.

In a press release, the group described the reasons for its protest:

Bush and Cheney’s serial abuse of the law of the land clearly marks them as domestic enemies of the Constitution. They have illegally invaded and occupied Iraq, deliberately destroyed civilian infrastructure, authorized torture, and unlawfully detained prisoners. These actions clearly mark them as war criminals. Accountability extends beyond impeachment to prosecution for war crimes even after their terms of office expire....

We are not conducting ourselves in a disorderly manner; our action is well-ordered and well-considered. We are not trespassing; we have come to the home of our Constitution to honor our oath to defend it.

So far, authorities have not interfered with the peaceful protest or the sign.

Yes, there's a sign. A 22-foot-by-x8-foot banner draped across the Constitution Avenue side of the archives says, “DEFEND OUR CONSTITUTION. ARREST BUSH AND CHENEY: WAR CRIMINALS!”

Here's the video.

EPA Won't Remove Rocket Fuel From Water

EPA Won't Remove Rocket Fuel From Water

Go To Original

The Environmental Protection Agency has decided there is no need to rid drinking water of a toxic rocket fuel ingredient that has fouled public water supplies around the United States.

EPA reached the conclusion in a draft regulatory document not yet made public but reviewed Monday by The Associated Press.

The ingredient, perchlorate, has been found in at least 395 sites in 35 states at levels some scientists say could interfere with thyroid function and pose developmental health risks, particularly for babies and fetuses.

The EPA document says that mandating a cleanup level for perchlorate would not result in a "meaningful opportunity for health risk reduction for persons served by public-water systems."

The conclusion, which caps years of dispute over the issue, was denounced by Democrats and environmentalists who accused EPA of caving in to pressure from the Pentagon.

"This is a widespread contamination problem, and to see the Bush EPA just walk away is shocking," said Sen. Barbara Boxer, a Democrat who chairs the Senate's environment committee.

Lenny Siegel, director of the Center for Public Environmental Oversight in Mountain View, Calif., added: "This is an unconscionable decision not based upon science or law but on concern that a more stringent standard could cost the government significantly."

The Defense Department used perchlorate for decades in testing missiles and rockets, and most perchlorate contamination is the result of defense and aerospace activities, congressional investigators said last year.

The Pentagon could face liability if EPA set a national drinking water standard that forced water agencies around the country to undertake costly cleanup efforts. Defense officials have spent years questioning EPA's conclusions about the risks posed by perchlorate.

The Pentagon objected strongly Monday to the suggestion that it sought to influence EPA's decision.

"We have not intervened in any way in EPA's determination not to regulate perchlorate. If you read their determination, that's based on criteria in the Safe Drinking Water Act," Paul Yaroschak, Pentagon deputy director for emerging contaminants, said in an interview.

Yaroschak said the Pentagon has been working for years to clean up perchlorate at its facilities. He also contended that the Pentagon was not the source of as much perchlorate contamination as once believed, noting that it also comes from fireworks, road flares and fertilizer.

Benjamin Grumbles, EPA's assistant administrator for water, said in a statement that "science, not the politics of fear in an election year, will drive our final decision."

"We know perchlorate in drinking water presents some degree of risk, and we're committed to working with states and scientists to ensure public health is protected and meaningful opportunities for reducing risk are fully considered," Grumbles said.

Grumbles said the EPA expected to seek comment and take final action before the end of the year. The draft document was first reported Monday by the Washington Post.

Perchlorate is particularly widespread in California and the Southwest, where it has been found in groundwater and in the Colorado River, a drinking-water source for 20 million people. Its also has been found in lettuce and other foods.

In absence of federal action, states have acted on their own. In 2007, California adopted a drinking water standard of 6 parts per billion. Massachusetts has set a drinking water standard of 2 parts per billion.

Why Eliot Spitzer was assassinated

Why Eliot Spitzer was assassinated

The predatory lending industry had a partner in the White House

Mortaging America's future
for a quick buck

This video was originally posted in March of 2008

It's one of the most amazing displays of journalistic incompetence and malpractice in recent memory.

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

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

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

To the 9/11 fiasco, the Iraq War, the travesty of the federal response to Hurricane Katrina, and the shredding of the US Constitution, we can now add a deliberate and reckless undermining of the credit and banking system of the US to the list of Bush administration "accomplishments."

No external enemy, or group of external enemies, could have done as much harm to the nation as this group has in less than eight years.

Hey, do you think it's a coincidence that a Bush was involved the last time the US banking industry fell into a black whole because of White House-facilitated fraud?

There's actually a lot of money to be made blowing up banks. Here's how Bush Sr. and his friends in the Mafia and CIA profited from it the last time:

Roots of the Savings & Loan Scandal

Part One

Part Two



Banking - Bush style

Regular Brasscheck TV viewers know that throughout its second term, the Bush administration actively interfered with states that attempted to enforce their own state lending laws.

Bush & Co. used the Office of the Controller of the Currency to sue states like New York to stop them from going after predatory lenders.

Bush Jr. is not the first Bush to get "hands on" involved in shaping the lending industry to his will.

Many know that one of this brothers, Neil, was part of a spectacular Savings & Loan failure in the 1980s.

What far fewer people are aware of is how deeply the CIA, organized crime and, George Bush Sr. were involved in the Savings & Loan disaster which caused US taxpayers and estimated trillion dollars plus.

The term of art for these kinds of operations is a "bust out."

The scam works as follows: an organized crime group takes over a business, borrows as much as it can in the business' name, fails to pay vendors and then disappears with all the cash.

The Bush family and its associates in organized crime and the CIA have figured out how to run this scam on a multi-hundred billion dollar level using the entire US banking system as its playground.

When you consider that Reagan was probably out of it from Day One of his term and that Bill Clinton is a close associate of George Bush Sr., the Bush crime syndicate has been influencing when not outright running the executive branch continuously since 1980, which, perhaps not so coincidentally, marks the earliest days of the credit bubble the economy is now having serious trouble digesting.