Tuesday, November 25, 2008

Home prices in record plunge

Home prices in record plunge

By Julie Haviv

Go To Original

Prices of single-family homes plunged a record 17.4 percent in September from a year earlier, according to a key S&P index released on Tuesday.

The composite index of 20 metropolitan areas fell 1.8 percent in September from August, according to the Standard & Poor's/Case-Shiller Home Price Indices, and a co-developer of the index said rising unemployment makes the outlook for the hard-hit U.S. housing market even bleaker.

S&P said in a statement that its composite index of 10 metropolitan areas declined 1.9 percent in September from August for an 18.6 percent year-over-year drop, also a record.

Declines in home prices in most areas were greater in September than in August, S&P said.

"This is a pretty gloomy report," Karl Case, co-developer of the index and a professor of economics at Wellesley College, said on a conference call following the release of the report.

And because the Standard and Poor's S&P/Case-Shiller Home Price Indices has not yet accounted for several important factors that have worsened in recent months, led by unemployment, the outlook is darkening further.

"Unemployment is rising rapidly, a primary factor that causes foreclosures to rise and home prices to decline," Case said.

"Plus, some people cannot even get a loan due to the credit crunch, so there are a lot of factors out there that have not even hit these home price numbers yet," he said.

The U.S. housing market is currently suffering the worst downturn since the Great Depression. A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.

The U.S. economy is considered to be either in or on the brink of a recession, and most economists and experts contend that an end to the downward spiral in housing prices is crucial to any recovery.

"House price declines have been at the root of the financial crisis and it appears, as of September, that this decline continued unabated," said Lawrence J. White, professor of economics at New York University's Stern School of Business.

"Until we have some kind of stabilization in the house price sector, we will continue to see problems in the financial sector," he said.

"House prices will probably drop another 10 percent, but I am hopeful that a bottom will be reached in the late spring of 2009," he said.

The rate of home price declines has accelerated on a quarterly basis, too.

In the third quarter, the decline in the S&P/Case-Shiller U.S. National Home Price Index -- which covers all nine U.S. census divisions -- remained in double digits, posting a record 16.6 percent decline versus the third quarter of 2007. This has worsened from annual declines of 15.1 percent and 14.0 percent, reported for the second and first quarters of the year, respectively.

The U.S. National Home Price Index dropped 3.5 percent in the third quarter from the second quarter.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.

As of September, S&P's 10-City Composite is down 23.4 percent from its peak, the 20-City Composite is down 21.8 percent and the National Composite is down 21.0 percent.

Looking at the returns of the U.S. National Index, prices are back to where they were in early 2004.

Phoenix was the weakest market, with an annual decline of 31.9 percent, followed by Las Vegas, down 31.3 percent, and San Francisco, down 29.5 percent. Miami, Los Angeles, and San Diego did not fare much better, with annual declines of 28.4 percent, 27.6 percent and 26.3 percent, respectively.

New York, buoyed by plentiful jobs and big bonuses in the financial sector in recent years, showed a more modest annual decline of 7.3 percent.

But rampant layoffs in the financial sector are going to weigh heavily on home prices in the New York area, Case said.

"Home prices in New York will probably get worse, as it is vulnerable to the contraction in the financial services sector, so the layoffs will probably have a major impact," he said.

Bush Labor Department misled Congress in effort to privatize

Bush Labor Department misled Congress in effort to privatize jobs

John Byrne

Go To Original

President George W. Bush's Labor Department misled Congress in an effort to prove outsourcing jobs to private companies was more efficient than assigning the jobs to government employees, according to a Government Accountability Office report released Monday.

The report (pdf here) found that the Department used fictional projected numbers to improve "savings reports" -- even when real numbers were already available. And when the government did find private firms to take a government job, that employee generally was either reassigned to another task with the same title or promoted.

The effort was called "competitive sourcing," aimed to increase government efficiency by having federal and private organizations compete for providing services. While part of a federal government approach since 1955, the Bush Administration has made the approach a key element of the President's Management Agenda under the Office of Management and Budget.

An investigation revealed, however, that the Labor Department -- under direction from Bush budget officials -- deliberately withheld information about true costs.

According to the report, the Department of Labor "excluded a number of substantial costs in its reports to Congress -- such as the costs for precompetition planning, certain transition costs and staff time and post competition review activities -- thereby understanding the full costs of this contracting approach."

The report noted that this approach was consistent with "guidance" given by the Administration's Office of Management and Budget.

In addition, the report found the Department's "savings reports" were "not reliable: a sample of three reports contained inaccuracies, and others used projections when actual numbers were available, which sometimes resulted in overstated savings."

Most workers were also demoralized as the government tried to find private firms to take over their jobs, the probe found.

Bush Labor Secretary Elaine Chao began having workers compete for their jobs in 2004. Few employees have lost their jobs. But when the government found a private company to take over their position, 84 percent were reassigned to different positions with the same title or were promoted.

Since implementation, 22 employees were laid off or demoted, all of them African American.

The senator who commissioned the report, Iowa's Tom Harkin, along with the House committee that oversees the Labor Department, David Obey, said in a letter Monday that the report proved "the negative impact the Bush Administration's failed policies have had" on the Department.

"Under the direction of this White House, the Department of Labor has increasingly attempted to move work performed by Federal employees to private contractors" and, in so doing, hurt workers' morale and "grossly overstated savings," they wrote. "We look forward to working with the Obama Administration to strengthen the Department of Labor as it undertakes the critical missions of making sure our workplaces are safe; protecting employee pensions, health benefits and rights; and providing workers with the skills they need to compete successfully in the 21st century economy."

Down On The Farm, A Frenzy Over Free Food

Down On The Farm, A Frenzy Over Free Food

In a sign of bad economic times, more than 40,000 show up when a Weld family invites people to gather surplus produce.

By Allison Sherry

Go To Original

Want one more palpable sign of a desperate economy?

An estimated 40,000 people came to a Weld County farm Saturday to collect free potatoes, carrots and leeks.

Cars snaked around cornfields and parallel parked along Colorado 66 and 119 early in the morning to get free food from the Miller family, who farm 600 acres outside of Platteville, about 37 miles north of Denver.

As this prolonged Indian summer continued, the Millers had decided to give away produce because so much was left over at the end of their annual fall festival. Any day now, a few deep freezes would kill it off.

They expected between 5,000 and 10,000 people spread out over a couple of days. Instead, they found themselves on Saturday morning inundated with cars and people with sacks and wagons and barrels ready to harvest whatever was available.

The Millers canceled the second day of the giveaway originally planned for today because, as Chris Miller put it, "the pickins' are very slim now."

At one point, 30 acres of family farmland had become a parking lot. Their crowd estimate of 40,000 plus was based on the number of cars. Sheriff's officials said they "wouldn't be surprised" if that count was accurate.

Traffic was backed up almost to Interstate 25, and police ticketed people who had illegally abandoned their cars in the frenzy.

"Overwhelmed is putting it mildly," Miller said. "People obviously need food."

Evidently, Platteville isn't the only place where this is the case. Last week in Denver, thieves broke into freezers owned by the Park Hill Grandparents Organization and stole Thanksgiving trimmings — including more than a dozen frozen turkeys — set to be donated.

And in Lakewood on Saturday, people lined up in the dark at 6 a.m. to collect Thanksgiving boxes, donated by the Jeffco Action Center. By the end of the day, 5,141 people had gotten food — the biggest demand in 40 years.

At the Miller Farm, it never got truly unruly.

They had friends and family members help direct cars. Sheriff's deputies cruised up and down highways trying to move traffic along, after fielding complaints from neighbors.

The family makes most of its money in the summer and fall, visiting 42 farmers markets a week, and hosting a fall festival where relatives charge an entry fee and then teach people about where their food comes from.

Normally, any unpicked produce goes back to the land. But after hearing reports of food being stolen from some nearby churches, the Millers decided to let people take what they wanted for free.

Sandra Justice, a Greeley resident who works at a technology company, brought her mother and son to pick potatoes. The price was nice, she said, but Justice also enjoyed picking her own food in these downtrodden times.

"Everybody is so depressed about the economy," she said, noting she hauled off about 10 bags of vegetables. "This was a pure party. Everybody having a great time getting something for free."

Left Out of the Bailout: The Poor

Left Out of the Bailout: The Poor

By Mark Kukis

Go To Original

As the roster of corporations and financial institutions on line for government bailouts seems to grow, some public policy advocates in Washington D.C. are calling on policymakers to focus more efforts on the nation's poorest. The ranks of the destitute are growing quietly but alarmingly as much of the world focuses on troubles surrounding Wall Street. "Recent data show poverty is already rising quite substantially," says Robert Greenstein, the executive director of the Center on Budget and Policy Priorities. "There is a strong potential for more hardship and destitution than we have seen in this country in a number of decades."

Greenstein's center released a new study on Monday projecting a sharp rise in the number of people living below the poverty line, which is roughly $21,200 annually for a family of four according to Department of Health and Human Services. An estimated 36.5 million Americans currently live below the poverty line, but those numbers will likely increase by as many as 10.3 million if current projections for the depth and duration of the recession hold true. According to the center's analysis, the number of poor children will grow by as many as 3.3 million. And the number of children in deep poverty, those in families living on less than half the wages of the official poverty line, will climb by as many as 2 million. (See pictures from John Edwards' tour of poverty-stricken America.)

Signs of the recession's impact on America's impoverished are increasingly apparent, Greenstein said, pointing to a dramatic rise in food stamp caseloads in recent months. The number of people using food stamps has risen 9.6%, or roughly 2.6 million people, between August 2007 and August 2008, the last period for which data are available. Food banks around the country are reporting longer lines even as donations are falling.

By historical comparison, the expected rise in the number of impoverished in this recession is relatively normal. During the recession years of the 1980s, the number of people in poverty rose by 9.2 million, an increase of more than a third. The recession of the 1990s was not quite as deep but still increased the number of people in poverty by 6.5 million. But those falling into poverty now face harder prospects and need more government help, Greenstein says, because many social safety nets have been cut away since the last economic downturns. (See pictures of the recession of 1958.)

A number of policy changes at both state and federal levels have left basic cash assistance programs scarce, the center's study argues. State general assistance programs were largely eliminated across the country in the late 1980s and early 1990s, except for programs benefiting the disabled. On the federal level, only about 40% of families eligible for cash assistance under the Temporary Assistance for Needy Families program actually receive it. That is about half the percentage of families eligible for the program's predecessor (the Aid to Families with Dependent Children program) that received its benefits during the recessions of earlier decades.

President-elect Barack Obama voiced new concern over the economy Monday when announcing picks for his White House economic team, saying a new economic stimulus package was needed right away in addition to the ongoing efforts to pump more than $700 billion in federal rescue funds into ailing business like Citigroup. There was no indication how any of that round of spending will reach the growing numbers of nation's neediest.

The Truth behind the Citigroup Bank "Nationalization"

The Truth behind the Citigroup Bank "Nationalization"

By F. William Engdahl

Go To Original

On Friday November 21, the world came within a hair’s breadth of the most colossal financial collapse in history according to bankers on the inside of events with whom we have contact. The trigger was the bank which only two years ago was America’s largest, Citigroup. The size of the US Government de facto nationalization of the $2 trillion banking institution is an indication of shocks yet to come in other major US and perhaps European banks thought to be ‘too big to fail.’

The clumsy way in which US Treasury Secretary Henry Paulson, himself not a banker but a Wall Street ‘investment banker’, whose experience has been in the quite different world of buying and selling stocks or bonds or underwriting and selling same, has handled the unfolding crisis has been worse than incompetent. It has made a grave situation into a globally alarming one.

‘Spitting into the wind’

A case in point is the secretive manner in which Paulson has used the $700 billion in taxpayer funds voted him by a labile Congress in September. Early on, Paulson put $125 billion in the nine largest banks, including $10 billion for his old firm, Goldman Sachs. However, if we compare the value of the equity share that $125 billion bought with the market price of those banks’ stock, US taxpayers have paid $125 billion for bank stock that a private investor could have bought for $62.5 billion, according to a detailed analysis from Ron W. Bloom, economist with the US United Steelworkers union, whose members as well as pension fund face devastating losses were GM to fail.

That means half of the public's money was a gift to Paulson’s Wall Street cronies. Now, only weeks later, the Treasury is forced to intervene to de facto nationalize Citigroup. It won’t be the last.

Paulson demanded, and got from a labile US Congress, Democrat as well as Republican, sole discretion over how and where he can invest the $700 billion, to date with no effective oversight. It amounts to the Treasury Secretary in effect ‘spitting into the wind’ in terms of resolving the fundamental crisis.

It should be clear to any serious analyst by now that the September decision by Paulson to defer to rigid financial ideology and let the fourth largest US investment bank, Lehman Brothers fail, was the proximate trigger for the present global crisis. Lehman Bros.’ surprise collapse triggered the current global crisis of confidence. It was simply not clear to the rest of the banking world which US financial institution bank might be saved and which not, after the Government had earlier saved the far smaller Bear Stearns, while letting the larger, far more strategic Lehman Bros. fail.

Some Citigroup details

The most alarming aspect of the crisis is the fact that we are in an inter-regnum period when the next President has been elected but cannot act on the situation until after January 20, 2009 when he is sworn in.

Consider the details of the latest Citigroup government de facto nationalization (for ideological reasons Paulson and the Bush Administration hysterically avoid admitting they are in the process of nationalizing key banks). Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got some $150 billion in US taxpayer funds in the past two months. Ironically, only eight weeks before, the Government had designated Citigroup to take over the failing Wachovia Bank. Normally authorities have an ailing bank absorbed by a stronger one. In this instance the opposite seems to have been the case. Now it is clear that the Citigroup was in deeper trouble than Wachovia. In a matter of hours in the week before the US Government nationalization was announced, the stock value of Citibank plunged to $3.77 in New York, giving the company a market value of about $21 billion. The market value of Citigroup stock in December 2006 had been $247 billion. Two days before the bank nationalization the CEO, Vikram Pandit had announced a huge 52,000 job slashing plan. It did nothing to stop the slide.

The scale of the hidden losses of perhaps the twenty largest US banks is so enormous that if not before, the first Presidential decree of President Barack Obama will likely have to be declaration of a US ‘Bank Holiday’ and the full nationalization of the major banks, taking on the toxic assets and losses until the economy can again function with credit flowing to industry once more.

Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses. After that, remaining losses will be split between Citigroup and the government, with the bank absorbing 10% and the government absorbing 90%. The US Treasury Department will use its $700 billion TARP or Troubled Asset Recovery Program bailout fund, to assume up to $5 billion of losses. If necessary, the Government’s Federal Deposit Insurance Corporation (FDIC) will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses. The measures are without precedent in US financial history. It’s by no means certain they will salvage the dollar system.

The situation is so intertwined, with six US major banks holding the vast bulk of worldwide financial derivatives exposure, that the failure of a single major US financial institution could result in losses to the OTC derivatives market of $300-$400 billion, a new IMF working paper finds. What’s more, since such a failure would likely cause cascading failures of other institutions. Total global financial system losses could exceed another $1,500 billion according to an IMF study by Singh and Segoviano.

The madness over a Detroit GM rescue deal

The health of Citigroup is not the only gripping crisis that must be dealt with. At this point, political and ideological bickering in the US Congress has so far prevented a simple emergency $25 billion loan extension to General Motors and other of the US Big Three automakers—Ford and Chrysler. The absurd spectacle of US Congressmen attacking the chairmen of the Big Three for flying to the emergency Congressional hearings on a rescue loan in their private company jets while largely ignoring the issue of consequences to the economy of a GM failure underscores the utter lack of touch with reality that has overwhelmed Washington in recent years.

For GM to go into bankruptcy risks a disaster of colossal proportions. Although Lehman Bros., the biggest bankruptcy in US history, appears to have had an orderly settlement of its credit defaults swaps, the disruption occurred before-hand, as protection writers had to post additional collateral prior to settlement. That was a major factor in the dramatic global market selloff in October. GM is bigger by far, meaning bigger collateral damage, and this would take place when the financial system is even weaker than when Lehman failed.

In addition, a second, and potentially far more damaging issue, has been largely ignored. The advocates of letting GM go bankrupt argue that it can go into Chapter 11 just like other big companies that get themselves in trouble. That may not happen however, and a Chapter 7 or liquidation of GM that would then result would be a tectonic event.

The problem is that under Chapter 11 US law, it takes time for the company to get the protection of a bankruptcy court. Until that time, which may be weeks or months, the company would need urgently ‘bridge financing’ to continue operating. This is known as ‘Debtor-in-Possession or DIP financing. DIP is essential for most Chapter 11 bankruptcies, as it takes time to get the plan of reorganization approved by creditors and the courts. Most companies, like GM today, go to bankruptcy court when they are at the end of their liquidity.

DIP is specifically for companies in, or on the verge of bankruptcy, and the debt is generally senior to other outstanding creditor claims. So it is actually very low risk, as the amount spent is usually not large, relatively speaking. But DIP lending is being severely curtailed right now, just when it is most needed, as healthier banks drastically cut loans in the severe credit crunch situation.

Without access to DIP bridge financing, GM would be forced into a partial, or even a full liquidation. The ramifications are horrendous. Aside from loss of 100,000 jobs at GM itself, GM is critical to keep many US auto suppliers in business. If GM failed soon most, possibly even all of the US and even foreign auto suppliers will go under. Those parts suppliers are important to other auto makers. Many foreign car factories would be forced to close due to loss of suppliers. Some analysts put 2009 job losses from a GM failure as high as 2.5 million jobs due to the follow-on effects. If the impact of that 2.5 million job loss is seen in terms of the overall losses to the economy of non-auto jobs such as services, home foreclosures caused and such, some estimate total impact would be more than 15 million jobs.

So far in the face of this staggering prospect, the members of the US Congress have chosen to focus on the fact the GM chief, Rick Wagoner, flew in his private company jet to Washington. The Congressional charade conjures up the image of Nero playing his fiddle as Rome goes up in flames. It should not be surprising that at the recent EU-Asian Summit in Beijing, Chinese officials mooted the idea of trading between the EU and Asian nations such as China in Euro, Renminbi, Yen or other national currencies other than the dollar. The Citigroup bailout and GM debacle has confirmed the death of the post-1944 Bretton Woods Dollar System.

The real truth behind Citigroup bailout

What neither Paulson nor anyone in Washington is willing to reveal is the real truth behind the Citigroup bailout. By his and the Republican Bush Administration’s adamant earlier refusal to take an initial resolute action to immediately nationalize the nine or so largest troubled banks, he has created the present debacle. By refusing on ideological grounds to instead reorganize the banks’ assets into some form of ‘good bank’ and ‘bad bank,’ similar to what the Government of Sweden did with what it called Securum, during its banking crisis in the early 1990’s, Paulson and company have created a global financial structure on the brink.

A Securum or similar temporary nationalization would have allowed the healthy banks to continue lending to the real economy so the economy could continue operating, while the State merely sat on the undervalued real estate assets of the Swedish banks for some months until the recovering economy made the assets again marketable to the private sector. Instead, Paulson and his ‘crony capitalists’ in Washington have turned a bad situation into a globally catastrophic one.

His apparent realization of the error of his initial refusal to nationalize came too late. When Paulson reversed policy on September 19 and presented the nine largest banks with an ultimatum to accept partial Government equity ownership, abandoning his original bizarre plan to merely buy up the toxic waste asset-backed securities of the banks with his $700 billion TARP taxpayer money, he never revealed why.

Under the original Paulson Plan, as Dimitri B. Papadimitriou and L. Randall Wray of the Jerome Levy Institute at Bard College in New York point out, Paulson sought to create a situation in which the US ‘Treasury would become an owner of troubled financial institutions in exchange for a capital injection—but without exercising any ownership rights, such as replacing the management that created the mess. The bailout would be used as an opportunity to consolidate control of the nation’s financial system in the hands of a few large (Wall Street) banks, with government funds subsidizing purchases of troubled banks by "healthy" ones.’

Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today’s market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.

The Levy Economics Institute economists state, ‘It is probable that many and perhaps most financial institutions are insolvent today -- with a black hole of negative net worth that would swallow Paulson's entire $700 billion in one gulp.’

That reality is the real reason Paulson was forced to abandon his original ‘crony bailout’ TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.

That scheme as well is ‘dead on arrival’ as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, ‘announce to the world that they are insolvent.’ On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion ‘will buy only a tiny fraction of the 'troubled' assets.’ That is what the latest nationalization of Citigroup is about.

It is only the beginning. The 2009 year will be one of titanic shocks and changes to the global order of a scale perhaps not experienced in the past five centuries. This is why we should speak of the end of the American Century and its Dollar System.

How destructive that process will be to the citizens of the United States who are the prime victims of Paulson’s crony capitalists, as well as to the rest of the world depends now on the urgency and resoluteness with which heads of national Governments in Germany, the EU, China, Russia and the rest of the non-US world react. It is no time for ideological sentimentality and nostalgia of the postwar old order. That collapsed this past September along with Lehman Brothers and the Republican Presidency. Waiting for a ‘miracle’ from an Obama Presidency is no longer an option for the rest of the world.

Fed Commits $800 Billion More to Unfreeze Lending

Fed Commits $800 Billion More to Unfreeze Lending

By Scott Lanman and Dawn Kopecki

Go To Original

The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers hope the initiatives will bring down the interest rates on mortgages and consumer loans, offsetting the withdrawal of private-sector financing.

“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”

The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and Federal Home Loan Banks after the yield premiums on those securities jumped. It will also buy up to $500 billion of mortgage-backed securities issued by Fannie, Freddie and Ginnie Mae, a government agency that insures bonds.

Fannie and Freddie have about $1.7 trillion of corporate debt outstanding and $4.1 trillion of mortgage-backed securities.

Mortgage Rates

Rates on home loans haven’t fallen even after the Fed cut its key interest rate and yields on benchmark Treasuries tumbled. Average 30-year mortgage rates were 5.98 percent yesterday, little changed from the 2007 average of 5.95 percent, according to bankrate.com.

In that time, the Fed has cut its target rate for overnight loans between banks by 4.25 percentage points, to 1 percent. Bernanke said in a November 2002 speech that as the rate approached zero, the central bank could consider buying mortgage bonds or U.S. Treasuries to finance government spending.

Fannie and Freddie bonds rallied after the announcement. The yield premium on Fannie Mae’s five-year debt over similar- maturity Treasuries tumbled 0.34 percentage point, to 1.02 percentage point, by 2 p.m. in New York, according to data compiled by Bloomberg. Treasuries rallied, with yields on two- year notes tumbling 0.13 point to 1.15 percent, while the 10-year yield dropped 0.25 point to 3.08 percent.

“It’s very important that lending continue to be available” because “the economy is turning down pretty dramatically,” Treasury Secretary Henry Paulson said at a press conference in Washington. He also said $200 billion is just the “starting point” for the Fed’s program to buttress consumer and small-business loans.

Quantitative Easing

The Fed won’t be removing cash from other parts of the financial system to make up for the purchases, government officials told reporters on a conference call. They rejected any comparison with Japan’s so-called quantitative easing effort to combat deflation, saying that the Fed’s objective is to buttress credit markets rather than ramp up money.

“The aim of credit policy is focused on narrowing credit spreads, as opposed to expanding the money supply,” said Mark Gertler, a New York University economics professor who has collaborated with Bernanke on research. “The hallmark of this crisis is unusually high credit spreads which are dampening borrowing and spending across the economy.”

Under the Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion to holders of AAA rated asset- backed securities backed by “newly and recently originated” loans. Those include education-, car- and credit-card loans, and borrowing guaranteed by the Small Business Administration. The Fed hopes to have the TALF running by February.

Buyer Exodus

Private-sector ABS buyers have either disappeared or have shrunk their balance sheets, contributing to the market’s disruption, officials said. Traditional buyers included the structured investment vehicles, set up by Citigroup Inc. and other banks, that have been wound down in the crisis.

Even asset-backed securities that the government already stands behind have been hammered by the exodus of investors.

Bonds backed by payments on government-backed student loans made by the Federal Family Education Loan Program, or FFELP, are trading at 300 basis points more than the three-month London interbank offered rate, according to JPMorgan Chase & Co. data. The premium was 60 basis points in January.

“It can certainly improve credit conditions for consumers,” said Derrick Wulf, who helps manage $70 billion in mostly fixed-income assets at Dwight Asset Management Co. in Burlington, Vermont.

Beyond Banks

The asset-backed securities program is similar to the Fed’s effort to bring down the cost of financing for commercial paper, the short-term debt companies issue to finance payrolls and other expenses, because it goes beyond banks.

“What the Fed has been trying to do is get a sense of what works and what doesn’t work,” Wulf said. “One of the things that has worked is the commercial paper facility.”

“The cheaper that they could issue their debt, the more aggressively they should be able to buy mortgages in the secondary market,” said Alan Bosworth, director of agency trading at Vining Sparks in Memphis, Tennessee.

The Fed may hold the Fannie and Freddie debt and securities until they mature or sell them, with plans to be determined, government officials said on a conference call with reporters.

Treasury Buying

A separate Treasury program for buying debt linked with home loans has already quadrupled, from about $7 billion, a government official said on condition of anonymity.

The Treasury will provide $20 billion of “credit protection” to the Fed for the TALF, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.

Under the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle. The program will stop making new loans at the end of next year unless the Fed Board of Governors extends the program.

Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.

Separately, in a sign of disagreement among Fed officials, seven of the 12 district banks opposed lowering the rate on direct loans to banks before the Oct. 28-29 policy meeting, the central bank said in meeting minutes released today.

Timing of Purchases

The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.

Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.

Treasury staffers are in regular communication with President-elect Barack Obama’s team, officials said. New York Fed President Timothy Geithner, Obama’s pick to be Treasury secretary, was involved in today’s plans, though not in a capacity with the new administration, officials said.

Economic tumble worse than expected in 3rd quarter

Economic tumble worse than expected in 3rd quarter

Go To Original

The economy took a tumble in the summer that was worse than first thought as American consumers throttled back their spending by the most in 28 years, further proof the country is almost certainly in the throes of a painful recession.

The updated reading on the economy's performance, released Tuesday by the Commerce Department, showed the gross domestic product shrank at a 0.5 percent annual rate in the July-September quarter.

That was weaker than the 0.3 percent rate of decline first estimated a month ago, and marked the worst showing since the economy contracted at a 1.4 percent pace in the third quarter of 2001, when the nation was suffering through its last recession.

GDP measures the value of all goods and services produced within the U.S. and is considered the best barometer of the country's economic fitness.

"Consumers and businesses were like deer in the headlights ... frozen," said economist Ken Mayland, president of ClearView Economics.

The new reading on GDP underscores just how quickly the economy deteriorated as housing, credit and financial crises intensified. The economy logged growth of 2.8 percent in the second quarter.

White House press secretary Dana Perino called the lower GDP figure "troubling" and said new government efforts announced Tuesday to boost the availability of auto and student loans, credit cards, home loans and other consumer lending - at cheaper rates - should eventually help spur more consumer spending.

On Wall Street, those new government efforts provided an early lift to stocks, but the Dow Jones industrials were down about 90 points in afternoon trading.

Meanwhile, the Federal Deposit Insurance Corp. said the list of banks it considers to be in trouble shot up nearly 50 percent to 171 during the third quarter - the highest level since late 1995. The FDIC also said that commercial banks and savings institutions suffered a 94 percent drop in third-quarter profits to $1.7 billion. Except for the fourth quarter of 2007, it was the lowest profit since the fourth quarter of 1990.

The FDIC does not reveal the institutions on its "troubled" list, but on average, about 13 percent of them end up failing.

Nine banks failed in the third quarter, decreasing the FDIC's deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter, both below the target minimum level set by Congress. There have been 22 bank failures so far this year compared with three for all of 2007. It's expected that many more banks won't survive the next year of economic tumult.

Elsewhere, the New York-based Conference Board said its Consumer Confidence Index for November rose to 44.9, from a revised 38.8 in October. Last month's reading was the lowest since the research group started tracking the index in 1967 and Americans' views on the economy remain the gloomiest in decades as they grapple with massive layoffs, slumping home prices and dwindling retirement funds.

To revive the economy, President-elect Barack Obama, who takes over on Jan. 20, says a top priority will be working with Congress to enact a massive stimulus package that he says will generate millions of new jobs.

The new, lower third-quarter GDP reading matched economists' forecasts. The downgrade from the initial estimate mostly reflected an even sharper cut back in spending by consumers and less brisk sales growth of U.S. exports.

American consumers - the lifeblood of the economy - slashed spending in the third quarter at a 3.7 percent pace. That was deeper than the 3.1 percent cut initially reported and marked the biggest reduction since the second quarter of 1980, when the country was in the grip of recession.

Consumers are hunkering down amid job losses, tanking investment portfolios and sinking home values, which are making them nervous about spending.

Underscoring the strain faced by consumers, the report showed that Americans' disposable income fell at an annual rate of 9.2 percent in the third quarter, the largest quarterly drop on records dating back to 1947. The government's initial estimate had showed a record 8.7 percent decline in disposable income for the quarter.

Sales of U.S. exports grew at a 3.4 percent pace in the third quarter. That was lower than a 5.9 percent growth rate initially estimated and marked a sharp slowdown from the second quarter's blistering 12.3 percent growth rate. The deceleration reflects less demand from overseas buyers coping with their own economic problems.

Home builders slashed spending at a 17.6 percent pace, marking the 11th straight quarterly cut and fresh evidence of the depth of the housing slump.

Meanwhile, a report on home prices released Tuesday and downbeat earnings results from homebuilder D.R. Horton, showed further deterioration in the housing market. The Standard & Poor's/Case-Shiller U.S. National Home Price Index said that home prices tumbled a record 16.6 percent during the third quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

Fort Worth, Tex.-based D.R. Horton Inc. reported a nearly $800 million loss in its fiscal fourth quarter on slower home sales and more than $1 billion in charges amid a battered housing market.

To help revive the economy, the Federal Reserve is expected to lower interest rates when its meets on Dec. 16, its last session of the year. Last month, the Fed dropped its key rate to 1 percent, a level seen only once before in the last half-century.

So far, though, the Fed's rate reductions, a $700 billion financial bailout package and a flurry of other radical actions have been unable to break though a dangerous credit clog, restore stability to financial markets and help the sinking economy.

The nation's unemployment rate is at 6.5 percent, a 14-year high, and will climb higher. Employers have cut payrolls every month so far this year and more losses are expected in the months ahead. The total of number of unemployed in October was just over 10 million, the most in 25 years.

Given all the stresses, consumers are expected to burrow further, making it likely the economy will continue to shrink through the rest of this year and into 2009, more than fulfilling a classic definition of a recession. That is, two straight quarters of contracting GDP.

Disposable Youth in a Suspect Society

Disposable Youth in a Suspect Society: A Challenge for the Obama Administration

by Henry A. Giroux

Go To Original

Youth and the crisis of the future.

While there is little question that the United States - with its burgeoning police state, its infamous title as the world leader in jailing its own citizens, and its history of foreign and domestic "torture factories" [1] - has moved into lockdown (and lockout) mode both at home and abroad, it is a mistake to assume that the Bush administration is solely responsible for transforming the United States to the degree that it has now become unrecognizable to itself as a democratic nation. Such claims risk reducing the serious social ills now plaguing the United States to the reactionary policies of the Bush regime - a move which allows for complacency in light of the potentially inflated hopes raised by Barack Obama's successful bid for the presidency. What the United States has become in the last decade suggests less of a rupture than an intensification of a number of already existing political, economic, and social forces that since the late 1970s have unleashed the repressive anti-democratic tendencies lurking beneath the damaged heritage of democratic ideals.

What marks the present state of American "democracy" is the uniquely bipolar nature of the degenerative assault on the body politic, which combines elements of unprecedented greed and fanatical capitalism with a new kind of politics more ruthless and savage in its willingness to abandon - even vilify - those individuals and groups now rendered disposable within "new geographies of exclusion and landscapes of wealth" [2] that mark the neoliberal new world order. Nowhere is this assault more evident than in what might be called the "war on youth," a war that not only attempts to erase the democratic legacies of the past, but disavows any commitment to the future.

Any discourse about the future has to begin with the issue of youth because young people embody the projected dreams, desires, and commitment of a society's obligations to the future. In many respects, youth not only register symbolically the importance of modernity's claim to progress; they also affirm the importance of the liberal democratic tradition of the social contract in which adult responsibility is mediated through a willingness to fight for the rights of children, enact reforms that invest in their future, and provide the educational conditions necessary for them to make use of the freedoms they have while learning how to be critical citizens. Within such a modernist project, democracy is linked to the well-being of youth, while the status of how a society imagines democracy and its future is contingent on how it views its responsibility towards future generations. But the category of youth does more than affirm modernity's social contract, rooted in a conception of the future in which adult commitment and intergenerational solidarity are articulated as a vital public service; it also affirms those representations, images, vocabularies, values, and social relations central to a politics capable of both defending vital institutions as a public good and contributing to the quality of public life.

Yet as the twenty-first century unfolds, it is not at all clear that the American public and government believe any longer in youth, the future, or the social contract, even in its minimalist version. Since the 1980s, the prevailing market inspired discourse has argued that there is no such thing as society and, indeed, following that nefarious pronouncement, institutions committed to public welfare, especially for young people, have been disappearing ever since. Those of us who, against the prevailing common sense, believe that the ultimate test of morality resides in what a society does for its children cannot help but acknowledge that if we take this standard seriously, American society has deeply failed its children and its commitment to democracy.

At stake here is not merely how American culture is redefining the meaning of youth, but how it constructs children in relation to a future devoid of the moral and political obligations of citizenship, social responsibility, and democracy. Caught up in an age of increasing despair, uncertainty, and the quagmire of a global financial collapse, youth no longer appear to inspire adults to reaffirm their commitment to a public discourse that envisions a future in which human suffering is diminished while the general welfare of society is increased. Constructed primarily within the language of the market and the increasingly conservative politics of a corporate dominated media culture, contemporary youth appear unable to constitute themselves through a defining generational referent that gives them a sense of distinctiveness and vision, as did the generation of youth in the 1960s. The relations between youth and adults have always been marked by strained generational and ideological struggles, but the new economic and social conditions that youth face today, along with a callous indifference to their spiritual and material needs, suggest a qualitatively different attitude on the part of many adults toward American youth - one that indicates that the young, especially under the Bush administration, have become our lowest national priority. Put bluntly, American society at present exudes both a deep-rooted hostility and chilling indifference toward youth, reinforcing the dismal conditions that young people are increasingly living under.

The hard currency of human suffering that impacts children is evident in some astounding statistics that suggest a profound moral and political contradiction at the heart of our culture: for example, the rate of child poverty is currently at 17.4 percent, boosting the number of poor children to 13 million. In addition, about one in three severely poor people are under age 17. Moreover, children make up 26 percent of the total population but constitute an astounding 39 percent of the poor. Just as alarming as this is the fact that 9.4 million children in America lack health insurance and millions lack affordable child care and decent early childhood education. Sadly, the United States ranks first in billionaires and defense expenditures and yet ranks an appalling twenty-fifth in infant mortality. As we might expect, behind these grave statistics lies a series of decisions that favor economically those already advantaged at the expense of the young. Savage cuts to education, nutritional assistance for impoverished mothers, veterans' medical care, and basic scientific research, are often cynically administered to help fund tax cuts for the already inordinately rich.

This inversion of the government's responsibility to protect public goods from private threats further reveals itself in the privatization of social problems and the vilification of those who fail to thrive in this vastly iniquitous social order. Too many youth within this degraded economic, political, and cultural geography occupy a "dead zone" in which the spectacle of commodification exists alongside the imposing threat of massive debt, bankruptcy, the prison-industrial complex, and the elimination of basic civil liberties. Indeed, we have an entire generation of unskilled and displaced youth who have been expelled from shrinking markets, blue-collar jobs, and the limited political power granted to the middle-class consumer. Rather than investing in the public good and solving social problems, the state now punishes those who are caught in the downward spiral of its economic policies. Punishment, incarceration, and surveillance represent the new face of governance. Consequently, the implied contract between the social state and its citizens has been broken, and social guarantees for youth, as well as civic obligations to the future, have vanished from the public agenda. Within this utterly privatizing market discourse alcoholism, homelessness, poverty, joblessness, and illiteracy are not viewed as social issues, but rather as individual problems - that is, such problems are viewed as the result of a character flaw or a personal failing and in too many cases such problems are criminalized.

Poor black youth are especially disadvantaged. Not only do a mere 42 percent who enter high school actually graduate, but they are increasingly jobless in an economy that does not need their labor. Marked as a surplus and disposable population, "black American males inhabit a universe in which joblessness is frequently the norm [and that] over the past few years, the percentage of black male high school graduates in their 20s who were jobless has ranged from well over a third to roughly 50 percent.... For dropouts, the rates of joblessness are staggering. For black males who left high school without a diploma, the real jobless rate at various times over the past few years has ranged from 59 percent to a breathtaking 72 percent." [3] For many poor youth of color, punishment and fear have replaced compassion and social responsibility as the most important modalities mediating the relationship of youth to the larger social order. For instance, a "Black boy born in 2001 has a 1 in 3 chance of going to prison in his lifetime ... A Latino boy born in 2001 has a 1 in 6 chance of going to prison in his lifetime.... [and] although they represent just 39 percent of the US juvenile population, minority youth represent 60 percent of committed youth." [4]

Youth within the last two decades are increasingly represented in the media as a source of trouble rather than as a resource for investing in the future and are increasingly treated as either a disposable population, cannon fodder for barbaric wars abroad, or defined as the source of most of society's problems. As Lawrence Grossberg points out, "It has become common to think of kids as a threat to the existing social order and for kids to be blamed for the problems they experience. We slide from kids in trouble, kids have problems, and kids are threatened, to kids as trouble, kids as problems, and kids as threatening." [5] While youth, particularly those of color, are increasingly associated in the media and by dominant politicians with a rising crime wave, what is really at stake in this discourse is a punishment wave, one that reveals a society that does not know how to address those social problems that undercut any viable sense of agency, possibility, and future for many young people. In spite of the fact that crime continues to decline among youth in the United States, the popular media still represents young people as violent and threatening. When youth are addressed in a more complex term they are either viewed merely as commodities, markets, or simply self-indulgent and irresponsible. Then again, in a society in which politicians and the marketplace can imagine youth only as either consumers, objects, or billboards to sell sexuality, beauty products, music, athletic gear, clothes, and a host of other products, it is not surprising that young people can be so easily misrepresented.

Both the problems that young people face and the sites they inhabit are increasingly criminalized. Under the reign of ruthless neoliberal politics with its hyped up social Darwinism and theatre of cruelty, the popular demonization of the young now justifies responses to youth that were unthinkable 20 years ago, including criminalization and imprisonment, the prescription of psychotropic drugs, psychiatric confinement, and zero tolerance policies that model schools after prisons. School has become a model for a punishing society in which children who violate a rule as minor as a dress code infraction or slightly act out in class can be handcuffed, booked, and put in a jail cell. Such was the case in Florida when the police handcuffed and arrested 6-year-old Desre Watson, who was taken from her kindergarten school to the Highlander County jail where she was fingerprinted, photographed for a mug shot, and charged with a felony and two misdemeanors. Her crime? The six-year old had thrown a tantrum in her kindergarten class. [6] Couple this type of domestic terrorism with the fact that the United States is the only country that voted against a recent United Nations resolution calling for the abolition of life imprisonment without the possibility of parole for children under the age of 16. [7] Moreover, it is currently the only nation that locks up child offenders for life. A report issued in 2007 by the Equal Justice Initiative claims that "there are 73 Americans serving [life] sentences for crimes they committed at 13 or 14." [8]

The Bush administration not only waged a war against youth, especially poor youth of color, it also offered no apologies because it was too arrogant and ruthless to imagine any resistance. For many young people, the future looks bleak, filled with the promise of low-paying, low-skilled jobs, the collapse of the welfare state, and, if you are a person of color and poor, the threat of either unemployment or incarceration. Youth have disappeared from the concerns of many adults, and certainly from the policies that have been hatched in Washington during the last twenty years. In his acceptance speech, President-elect Obama raised the issue of what kind of country young people would inherit if they lived to see the next century. The question provides an opening for taking the Obama administration seriously with regard to its commitment to young people. Young people need access to decent schools with more teachers; they need universal health care; they need food, decent housing, job training programs, and guaranteed employment. In other words, we need social movements that take seriously the challenge of dismantling the punishing state and reviving the social state so as to be able to provide young people not with incarceration and contempt, but with dignity and those economic, political, and social conditions that ensure they have a decent future. Surely, this is an issue that the Obama administration should be pushed to recognize and address. Dietrich Bonhoeffer, the great Protestant theologian, believed that the ultimate test of morality resided in what a society did for its children. If we take this standard seriously, American society has deeply failed its children and its commitment to democracy. The politics and culture of neoliberalism rest on the denial both of youth as a marker of the future and of the social responsibility entailed by an acceptance of this principle. In other words, the current crisis of American democracy can be measured in part by the fact that too many young people are poor, lack decent housing and health care, and attend decrepit schools filled with overworked and underpaid teachers. These youth, by all standards, deserve more in a country that historically prided itself on its level of democracy, liberty, and alleged equality for all citizens. We live in a historic moment of both crisis and possibility, one that presents educators, parents, artists, and others with the opportunity to take up the challenge of re-imagining civic engagement and social transformation, but these activities only have a chance of succeeding if we also defend and create those social, economic, and cultural conditions that enable the current generation of young people to nurture thoughtfulness, critical agency, compassion, and democracy itself.

* * *


[1] I have taken the term "torture factories" from Angela Y. Davis, "Abolition Democracy: Beyond Empire, Prisons, and Torture" (New York: Seven Stories Press, 2005), p. 50. The United States has 2,319,258 people in jail or prison at the start of 2008 - one out of every hundred and more than any other nation. See The Associated Press, "A First: 1 in 100 Americans Jailed," MSNBC.com (February 28, 2008). Online: http://www.msnbc.msn.com/id/23392251/print/1/displaymode/1098/.

[2] Mike Davis and Daniel Bertrand Monk, "Introduction," in Mike Davis and Daniel Bertrand Monk. eds. "Evil Paradises" (New York: The New Press, 2007), p. ix.

[3] Bob Herbert, "The Danger Zone," New York Times (March 15, 2007), p. A25.

[4] These figures are taken from Summary Report, "America's Cradle to Prison Pipeline," Children's Defense Fund. online at: http://www.childrensdefense.org/site/DocServer/CPP_report_2007_summary.pdf?docID=6001

[5] Lawrence Grossberg, "Caught in the Crossfire" (Boulder: Paradigm Publishers, 2005), p. 16.

[6] "Kindergarten Girl Handcuffed, Arrested at Florida School," WFTV.com. (March 30, 2007). Online: http://www.wftv.com/news/11455199/detail.html

[7] Adam Liptak, "Lifers as Teenagers, Now Seeking a Second Chance," The New York Times (October 17, 2007), p. A1.

[8] Adam Liptak, "Lifers as Teenagers, Now Seeking a Second Chance," The New York Times (October 17, 2007), p. A1.

Fed Bails Out Rich Arabs in Citigroup Deal

Fed Bails Out Rich Arabs in Citigroup Deal

By Cliff Kincaid

Go To Original

For several days there was a fierce national debate over whether American car companies in Detroit deserved $25 billion of taxpayer money and whether American jobs should be saved. The automakers and a union representative were ridiculed, didn't get the money, and were told to come up with a "plan" to save the companies. After backing the $700-billion Wall Street bailout, Bill O'Reilly of Fox News said Detroit didn't deserve any federal money because the car companies had been mismanaged. This was a point made by many in the media.

But Citigroup got $20 billion over the weekend from the Treasury Department without any national debate or discussion at all. The Federal Reserve simply issued a press release on Sunday afternoon announcing that the taxpayers were on the hook not only for the $20 billion but $306 billion in loans to the company. That's on top of a previous $25 billion invested in the company by the Treasury Department.

It will be interesting to see if O'Reilly and other commentators, having excoriated the American automakers, will take issue with the Citigroup bailout, which was subjected to no public debate and no congressional hearings.

Auto company executives may have flown to Washington, D.C. on private jets, as O'Reilly and others noted, but Saudi Arabian prince Alwaleed bin Talal, who has a major stake in Citigroup and also invests in the Fox News parent company, News Corporation, reportedly lives in a $100-million 317-room Riyadh palace. A nephew of Saudi King Abdullah, Alwaleed has been called the "Warren Buffet of the Gulf" and runs the Kingdom Holding Company.

Is this somebody who should be bailed out by American taxpayers?

The Citigroup bailout demonstrates, once again, that the Federal Reserve does anything it wants with our money, with no accountability to the Congress or the American people.

The Federal Reserve is so out of control that it refuses to comply with a legitimate and lawful Bloomberg News Freedom of Information Act (FOIA) request for information about nearly $2 trillion in loans extended to foreign banks and other interests during the current financial meltdown.

Members of Congress, including Rep. Walter Jones and Senator John Cornyn, have expressed outrage at the Fed's conduct.

Jones declared, "At a time when many Americans have serious concerns about their own financial security, it is important for our nation to have confidence in the actions of the Federal Reserve. When taxpayer dollars are used to bail out financial institutions, the American people deserve full disclosure on who receives those funds and under what terms. Americans need to know how their hard-earned dollars are being spent."

Cornyn declared, "Over the past year, the Federal Reserve has taken unprecedented action in the marketplace by providing almost $2 trillion in taxpayer-funded loans to troubled financial institutions. This is in addition to the $700 billion approved by Congress to fund the Troubled Asset Relief Program (TARP). Unfortunately, the Federal Reserve has refused to submit to even the most modest level of transparency regarding its actions. This should trouble taxpayers and policymakers alike. It certainly troubles me."

Announcing the Citigroup bailout, the Federal Reserve said that "With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."

That sounds reassuring. But another and more accurate way to put it is to say that U.S. tax dollars are being pumped into a failed bank to save a Saudi prince. But will the American people be given the true story of the Citigroup bailout?

Consider the fact that Alwaleed, one of the richest men in the world, not only owns a stake in Citigroup but News Corporation, Time Warner (parent of Time and CNN) and The Walt Disney Company (parent of ABC News).

The stories appearing on Monday about the "rescue" of Citigroup suggest that the media are up to their old tricks of masking the looting of American taxpayers and will not bother to investigate what really happened.

Some of the details are available on Alwaleed's website. "Perhaps no single transaction has catapulted Prince Alwaleed to the world's financial stage in as spectacular a fashion as did his acquisition in 1991 of Citibank (subsequently, Citigroup) stocks," notes his website. "Few people could then imagine that a Saudi Arabian, and a royal at that, would burst onto the international scene, seemingly out of nowhere, to invest so heavily in one of the major banks of the world and to help restore it to such health that it would become the leading financial institution in the world."

And now that the firm is in trouble, the Federal Reserve—and by extension, the U.S. taxpayer—comes to his rescue.

Not surprisingly, Alwaleed was included in the "Time 100" 2008 list of most powerful people. "In the mid-'90s, he bailed out Citibank when no one else would step in—including Americans," stated Alwaleed biographer Riz Khan, formerly of CNN and now with Al-Jazeera.

"Saudi prince comes to rescue of Citigroup" was a headline over an article in the UK Guardian on November 20, 2008, when Alwaleed announced that he would increase his stake from about 4 to 5 percent in Citigroup. But that clearly wasn't enough to make a difference. Did he invest more knowing that he would ultimately be bailed out? Will we see any stories on this? Or congressional hearings?

What happened behind closed Federal Reserve doors?

It is important to note that Alwaleed isn't alone. Earlier this year, the story in the Guardian noted, Citigroup "raised more than $50 billion in new capital from sovereign wealth funds and other investors." This included the Kuwait Investment Authority investing $3 billion in Citigroup in January and the Abu Dhabi Investment Authority buying $7.5 billion of securities from Citigroup in November 2007.

"Over the weekend," the British Telegraph reported, in discussing the bailout, "Citigroup was understood to have approached its existing sovereign wealth fund shareholders from the Middle East and Asia to gauge their appetite for buying additional stakes in the bank, as well as holding talks with the US government."

It looks like the foreigners with a stake in Citigroup preferred a U.S. taxpayer bailout. They got something quickly and secretly that the U.S. automakers haven't yet obtained from the Fed, the Treasury Department, or Congress. GM, Ford and Chrysler are American companies in competition with foreigners, who have their own auto production plants on U.S. soil. If Detroit ever gets the money, it will come after intense negotiations and detailed legislation providing conditions for repayment of the money. In exchange for the money, they will be made to resemble the foreign firms.

The rationale for letting the "Big Three" fail is that we don't need American car companies anymore. On the other hand, we need foreign money and foreigners to invest in our country and our firms.

This is America today—a country that is losing its ability to manufacture things but has to continue to pander to rich Arabs and the Chinese Communists for money just to survive. In addition to our jobs, savings and investments, it looks like our sovereignty and national pride are being sacrificed as part of this process.

Whether the financial meltdown has been engineered or not—and there are major questions about its timing, just six weeks before the national elections—it will be up to President Obama to manage America's transition into this New Global Order. With his background in Marxism and extensive Wall Street contacts and associations, he seems perfectly suited for the task.

But the powers that be, including those in the media, have simply assumed that the American people will meekly go along with the demise of their nation. That may be a miscalculation, if they manage to find a voice or voices in the media.

Citizens’ Economic Stimulus Plan; Stop Paying Credit Card Debt

Citizens’ Economic Stimulus Plan; Stop Paying Credit Card Debt

By Richard C. Cook

Go To Original

Now to the Wall Street bailouts, the plan for the government to purchase preferred shares in banks, and the takeovers of Fannie Mae, Freddie Mac, and AIG, may be added the intention announced last night that the government will throw another $20 billion at Citibank, the nation’s largest financial institution.

The announcement came after Citibank’s stock fell 60 percent last week to $3.77 a share. Of course it won’t help the 50,000 people Citibank is laying off, but, what the hey, no plan is perfect.

Meanwhile, almost nothing has been done to help the consumers within the producing economy who have lost trillions of dollars in the stock market crash, seen the value of their homes fall in many cases below what they owe on their mortgages, and lost jobs or health benefits through the escalating recession. Fannie Mae, which over the weekend sponsored a Walk for the Homeless in Washington, D.C., an event that drew thousands of participants, had announced the previous day that it was placing a moratorium on further home foreclosures until after the Christmas and New Year’s holidays. Wow, thanks.

But what then? Everyone agrees that the recession will be long and deep, not only in the U.S. but in nations that export to us. The Federal Reserve can only go so far in cutting interest rates, because at a certain point nations such as China which have floated the Federal deficit will no longer lend.

Besides, what good are low interest rates if borrowers can’t even afford to repay the principle, which is the situation so many of us find ourselves in today? Japan found that out in the 1990s, leading to a recession that lasted a decade.

So what are ordinary people to do who have families to feed, rent or mortgages to pay that are still inflated from the collapsed housing bubble, unmet medical or insurance expenses, or may be trying to get their kids through college? Should we go deeper into debt when U.S. households, businesses, and government already owe in the neighborhood of $60 trillion (excluding federal unfunded debt liabilities), almost five times the GDP? Banks have cut back on lending anyway.

Then there are the jobs programs. The Senators who bowed down to Secretary of the Treasury Henry Paulson when he came to extort $700 billion for Wall Street scolded the Big Three automakers who came seeking help in salvaging an industry that still employees millions. But maybe by cutting worker wages and benefits the carmakers will be able to limp along a while longer.

Or maybe we should wait to see if president-elect Barack Obama gets his economic stimulus plan through Congress after he is inaugurated. Granted the plan may result in some new jobs a few years down the road once the additional federal borrowing to pay for it works its way through the economy. But will America still be alive by then?

Ladies and gentlemen, the financial system has destroyed America. And really and honestly, the folks in Washington, both those arriving and those departing, don’t know what to do.

I have argued in recent articles that the government should implement what I have modestly called the “Cook Plan,” whereby a dividend similar to the Alaska Permanent Fund would be paid to every U.S. citizen at the rate of $1,000 per month in vouchers for food, housing, and other necessities of life.

This dividend would be paid out of the U.S. Treasury, where I used to work, from an emergency self-financed account without recourse to taxes or government debt. The dividend would constitute each citizen’s fair share of the producing potential of the economy, as advocated by Social Credit reformers in the British Commonwealth nations for decades. The vouchers could then be deposited in a new network of community savings banks that would revitalize local economies through lending at zero-percent interest, charging only administrative fees and a small amount of lending insurance for access to capital.

Such a system would provide recompense for the vast amounts of money stolen from citizens’ pockets due to a lifetime of borrowing from financial institutions which are now looting our children’s and grandchildren’s heritage to pay for generations of abuse. This abuse has taken place under a debt-based monetary system by which banks create money out of thin air, then charge the rest of us interest to utilize it for survival. This system has operated for almost a century under the auspices of a Federal Reserve System accountable to no one.

The “Cook Plan” would bring real reform to a system that has collapsed. The plan would begin to correct the primary cause of the recession, which is the steep decline of consumer purchasing power.

Of course I am not so deluded as to believe Congress or the incoming Obama administration would implement it. Why would the politicians turn against a financial system which paid their way into office? As indicated by the announcement that Obama will appoint Timothy Geithner, president of the Federal Reserve Bank of New York, as his treasury secretary, it’s the banking system that will continue to oversee the government, not the other way around. Even so, I would be happy to explain the "Cook Plan" to Mr. Geithner - for free.

But the citizens must do something. How can we just sit and wait while the financial monopolists smother the economy to death in order to protect their wealth and privileges? The least they could do is declare a moratorium on debt payment until the economy is functioning again or cancel the most egregious types of debt-abuse, such as credit card or student debt.

But they are not likely to do this either. So citizens’ can be forgiven if they simply stop paying. Many home purchasers are already doing this—turning in the keys to their homes and driving away. Who can blame them?

But the worst of the debt may be credit card debt, where the controls on interest rates and penalty charges were lifted long ago and the government stopped providing a tax deduction for interest paid. In many cases, interest on credit cards is 28 percent or more, which means that even by making the minimum required payment, consumers see their balances grow each month. That the politicians could continue to allow such evil to exist is astounding but proves who their masters are.

So until real relief is forthcoming, citizens who are in distress should simply destroy their credit cards and stop paying the monthly bills. People are already doing this. Arrearages and defaults are climbing, and credit card debt is starting to be viewed as the next bubble to burst. But so what? If people have to use a credit card, that means they can’t really afford to buy whatever it is they think they want. If they can afford it, they should use a debit card instead.

Then tell the credit card company you cannot pay. Ask them to write off some or all of the debt, and if they want to take you to court, go on your own and defend yourself. You don’t need a lawyer, and you don’t need anyone’s permission. You also don’t need to go through the horrendous “reformed” bankruptcy system the credit card companies got Congress to pass in 2005. Failure to pay credit card debt is not, thank God, a crime in this country, and there are no debtors’ prisons—yet.

Besides, if people do not pay credit card debt, that money remains in circulation. So default is actually a form of patriotism in today’s trying circumstances. And the credit card companies really don’t lose anything, since the money didn’t exist before they lent it to people who are now broke.

Where I used to live in the country in rural Virginia, the story was going around about a farmer who fell down in the pen where he was feeding his pigs, and the pigs ate him. That is what has been happening in this country. The financial industry which is now swilling at the public trough has been eating alive a nation that was once “the land of the free and the home of the brave.”