04-11-2009, 06:53 PM
"LIQUIDATE THE BANKS; FIRE THE EXECUTIVES!"
Mike Whitney
http://informationclearinghouse.info/article22396.htm
On Tuesday, a congressional panel headed by ex-Harvard law professor Elizabeth Warren released a report on Treasury Secretary Timothy Geithner's handling of the Troubled Assets Relief Program (TARP). Warren was appointed to lead the five-member Congressional Oversight Panel (COP) in November by Senate majority leader Harry Reid. From the opening paragraph on, the Warren report makes clear that Congress is frustrated with Geithner's so-called "Financial Rescue Plan" and doesn't have the foggiest idea of what he is trying to do. Here are the first few lines of "Assessing Treasury's Strategy: Six Months of TARP":
"With this report, the Congressional Oversight Panel examines Treasury’s current strategy and evaluates the progress it has achieved thus far. This report returns the Panel’s inquiry to a central question raised in its first report: What is Treasury’s strategy?"
Six months and $1 trillion later, and Congress still cannot figure out what Geithner is up to. It's a wonder the Treasury Secretary hasn't been fired already.
From the report:
"In addition to drawing on the $700 billion allocated to Treasury under the Emergency Economic Stabilization Act (EESA), economic stabilization efforts have depended heavily on the use of the Federal Reserve Board’s balance sheet. This approach has permitted Treasury to leverage TARP funds well beyond the funds appropriated by Congress. Thus, while Treasury has spent or committed $590.4 billion of TARP funds, according to Panel estimates, the Federal Reserve Board has expanded its balance sheet by more than $1.5 trillion in loans and purchases of government-sponsored enterprise (GSE) securities. The total value of all direct spending, loans and guarantees provided to date in conjunction with the federal government’s financial stability efforts (including those of the Federal Deposit Insurance Corporation (FDIC) as well as Treasury and the Federal Reserve Board) now exceeds $4 trillion."
So, while Congress approved a mere $700 billion in emergency funding for the TARP, Geithner and Bernanke deftly sidestepped the public opposition to more bailouts and shoveled another $3.3 trillion through the back door via loans and leverage for crappy mortgage paper that will never regain its value. Additionally, the Fed has made a deal with Treasury that when the financial crisis finally subsides, Treasury will assume the Fed's obligations vis a vis the "lending facilities", which means the taxpayer will then be responsible for unknown trillions in withering investments.
From the report:
"To deal with a troubled financial system, three fundamentally different policy alternatives are possible: liquidation, receivership, or subsidization. To place these alternatives in context, the report evaluates historical and contemporary efforts to confront financial crises and their relative success. The Panel focused on six historical experiences: (1) the U.S. Depression of the 1930s; (2) the bank run on and subsequent government seizure of Continental Illinois in 1984; (3) the savings and loan crisis of the late 1980s and establishment of the Resolution Trust Corporation; (4) the recapitalization of the FDIC bank insurance fund in 1991; (5) Sweden’s financial crisis of the early 1990s; and (6) what has become known as Japan’s “Lost Decade” of the 1990s. The report also surveys the approaches currently employed by Iceland, Ireland, the United Kingdom, and other European countries."
This statement shows that the congressional committee understands that Geithner's lunatic plan has no historic precedent and no prospect of succeeding. Geithner's circuitous Public-Private Investment Program (PPIP)--which is designed to remove toxic assets from bank balance sheets--is an end-run around "tried-and-true" methods for fixing the banking system. In the most restrained and diplomatic language, Warren is telling Geithner that she knows that he's up to no good.
From the report:
"Liquidation avoids the uncertainty and open-ended commitment that accompany subsidization. It can restore market confidence in the surviving banks, and it can potentially accelerate recovery by offering decisive and clear statements about the government’s evaluation of financial conditions and institutions."
The committee agrees with the vast majority of reputable economists who think the banks should be taken over (liquidated) and the bad assets put up for auction. This is the committee's number one recommendation.
The committee also explores the pros and cons of conservatorship (which entails a reorganization in which bad assets are removed, failed managers are replaced, and parts of the business are spun off) and government subsidization, which involves capital infusions or the purchasing of troubled assets. Subsidization, however, carries the risk of distorting the market (by keeping assets artificially high) and creating a constant drain on government resources. Subsidization tends to create hobbled banks that continue to languish as wards of the state.
Liquidation, conservatorship and government subsidization; these are the three ways to fix the banking system. There is no fourth way. Geithner's plan is not a plan at all; it's mumbo-jumbo dignified with an acronym; PPIP. The Treasury Secretary is being as opaque as possible to stall for time while he diverts trillions in public revenue to his scamster friends at the big banks through capital injections and nutty-sounding money laundering programs like the PPIP.
From the report:
"Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability."
This is a crucial point; the toxic assets are not going to regain their value because their current market price--30 cents on the dollar for AAA mortgage-backed securities--accurately reflects the amount of risk they bear. The market is right and Geithner is wrong; it's that simple. Many of these securities are comprised of loans that were issued to people without sufficient income to make the payments. These "liar's loans" were bundled together with good loans into mortgage-backed securities. No one can say with any certainty what they are really worth. Naturally, there is a premium for uncertainty, which is why the assets are fetching a mere 30 cents on the dollar. This won't change no matter how much Geithner tries to prop up the market. The well has been already poisoned.
Also, according to this month’s Case-Schiller report, housing prices are falling at the fastest pace since their peak in 2006. That means that the market for mortgage-backed securities (MBS) will continue to plunge and the losses at the banks will continue to grow. The IMF recently increased its estimate of how much toxic mortgage-backed papaer the banks are holding to $4 trillion.
The banking system is underwater and needs to be resolved quickly before another Lehman-type crisis arises sending the economy into a protracted Depression. Geithner is clearly the wrong man for the job. His PPIP is nothing more than a stealth ripoff of public funds which uses confusing rules and guidelines to conceal the true objective, which is to shift toxic garbage onto the public's balance sheet while recapitalizing bankrupt financial institutions.
So, why is Geithner being kept on at Treasury when his plan has already been thoroughly discredited and his only goal is to bailout the banks through underhanded means?
That question was best answered by the former chief economist of the IMF, Simon Johnson, in an article which appeared in The Atlantic Monthly:
"The crash has laid bare many unpleasant truths about the United States. One of the most alarming... is that the finance industry has effectively captured our government - a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation; recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression we're running out of time." (The Atlantic Monthly, May 2009, by Simon Johnson)
The banks have a stranglehold on the political process. Many of their foot soldiers now occupy the highest offices in government. It's up to people like Elizabeth Warren to draw attention to the silent coup that has taken place and do whatever needs to be done to purge the moneylenders from the seat of power and restore representative government. It's a tall order and time is running out.
THE LOOTING OF AMERICA
Barry Grey
http://www.wsws.org/articles/2009/apr200...-a10.shtml
The New York Times on Thursday published a front-page article that provides further insight into the economic and class interests that are being served by the Obama administration’s economic “recovery” policies.
Headlined “Small Investors May Be Enlisted in Bank Bailout,” the article outlines discussions between the administration and Wall Street investment firms on structuring the so-called “Public-Private Investment Program” announced last month in a manner that will allow people of modest means to invest in the scheme, whose purpose is to enable the banks to offload their toxic assets at public expense.
When the plan was announced March 23 by Treasury Secretary Timothy Geithner, it sparked a wild rally on the stock market. The Dow Jones Industrial Average rose 497 points when it became clear that the government was offering to provide up to 95 percent of the capital, insure almost all potential losses and virtually guarantee large profits for hedge funds and other financial firms that agree to purchase the bad debts of the banks at inflated prices, with the taxpayers underwriting the windfall for Wall Street and assuming virtually all of the risk.
Thursday’s Times article indicates that opening the scheme up to small investors is seen as a way of providing a “democratic” gloss to what is, in reality, a brazen plan to plunder the public treasury for the benefit of the very bankers and speculators who are responsible for the financial crash. Evidently not seeing a contradiction, the article also makes clear that the bailout measures are being drawn up in the closest consultation with the Wall Street insiders who stand to profit from them.
“Some of the biggest investment managers in the United States,” the Times notes, “including BlackRock and PIMCO, have been consulting with the government on ways to rebuild the country’s broken financial markets.”
The article quotes Steven A. Baffico, an executive at BlackRock, as saying, “It’s giving the guy on Main Street an equal seat at the table next to the big guys.” This is true only in the sense that “Main Street” will be given the opportunity to absorb the bulk of any losses while the “big guys” cream off the best assets and pocket the profits.
There are political concerns behind this effort to create the appearance of offering the general public a cut in the winnings. Hedge fund managers are wary that when, as they anticipate, their partnership with the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) pays off with double-digit profits there will be a public outcry, similar to that which erupted over the AIG executive bonuses. This, they fear, might lead to limits on their compensation, higher taxes on their fortunes or similar intolerable infringements.
More important are definite commercial calculations. By opening up the scheme to the broad public, the private firms chosen by the Treasury to operate the plan stand to increase greatly their take from investor fees. As the Times puts it, “For the investment managers, the benefits are potentially large. These big firms can charge healthy fees to investors for taking part.”
There is one particularly remarkable passage in the Times account. “But the comparison one industry official uses to illustrate the mistake that America must avoid,” the newspaper writes, “is the large-scale privatization in Russia in the 1990s, which involved a transfer of entire industries to a few, well-connected oligarchs. That experience tarnished the idea of free-market capitalism in Russia and undermined its program to move toward a market economy.”
The many differences in political and historical circumstances aside, there is a very real parallel between the plundering of Soviet society by the former Stalinist bureaucrats and their domestic gangster and foreign imperialist allies and the current manner in which the economic crisis in the US is being seized upon by Wall Street and its political instrument, the Obama administration, to further enrich the American financial aristocracy. Indeed, the perpetrators are themselves quite conscious that they are engaged in a similar—although much bigger—looting operation.
The scale and character of the operation are further indicated by another New York Times article published this week. This one, authored by Times financial writer Andrew Ross Sorkin and published on Tuesday, concerns the role of the FDIC in the new bailout scheme.
The article begins by noting that the FDIC was established 76 years ago, in the depths of the Great Depression, to provide a government guarantee, initially up to $5,000 and now up to $250,000, on the bank deposits of small savers. It describes the transformation of the FDIC, under the toxic asset disposal plan of the Obama administration, as follows:
“It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisition of toxic assets.”
In other words, the function of the FDIC is being transformed from guaranteeing the bank deposits of small savers to guaranteeing the investments of multimillionaire investment fund managers. And, as the article notes, this is occurring without a vote by Congress.
The FDIC will be insuring more than $1 trillion in new obligations incurred as the government covers the bad debts of the banks. However, the FDIC’s charter limits the obligations it can take on to $30 billion. The Times article quotes one “prominent securities lawyers” as saying, “They may not be breaking the letter of the law, but they’re sure disregarding its spirit.”
How does the government justify this breach? By calculating the obligations which the FDIC is assuming not at their monetary value, but at their value as “contingent liabilities.” That is, according to how much the FDIC expects to lose from its vast extension of credit to Wall Street firms (in the form of nonrecourse loans, i.e., loans in which the firms put up no collateral of their own, but only the supposed value of the toxic assets they are purchasing).
And what is the sum total of these “contingent liabilities”? Sorkin writes: “’We project no losses,’ Sheila Bair, the chairwoman, told me in an interview. Zero? Really? ‘Our accountants have signed off on no net losses,’ she said. (Well, that’s one way to stay under the borrowing cap).”
What is the significance of this astonishing reasoning? Simply this: The Obama administration, in order to protect the wealth and power of the financial elite, is facilitating and directly perpetrating on a colossal scale the same type of accounting fraud and reckless leveraging that led to the economic catastrophe in the first place.
Who is to pay the price for this looting operation? The answer can be seen in the Obama Auto Task Force’s demands for the liquidation of much of the US auto industry and the brutal downsizing of what remains, combined with the imposition of poverty-level wages on those workers who remain in the surviving plants and the gutting of the pensions and health benefits of retirees. It can be further seen in the administration’s pledge to slash social programs, including Medicare, Medicaid and Social Security.
The administration’s “recovery” plan is a barely disguised scheme to preserve the fortunes of the financial aristocracy, whose interests it represents, by imposing poverty and social misery on the working class.
THE CRASH OF '09, THE COLLAPSE OF '10
Humayun Gauhar
http://www.nation.com.pk/pakistan-news-n...pse-of-10/
Many American analysts are saying that America's real economic collapse could come by the end of this year. "It will come to be known as 'The Crash of 09', they say. Others, especially a Russian political analyst, are predicting its physical collapse too. There's no doubt that the country is up the dirtiest of imaginable creeks without a paddle. But what's amazing is that America remains mired in stunning denial, continuing to make bad situations worse with useless bailout plans and messing around with the world instead of facing up to the reality that its time as a hyper-power is up, that's its economic system has failed and that its only recourse is to end its adversarial doctrine and get out of its lost wars as painlessly and honourably as possible. There's no point in going on flogging dead horses. The only sensible thing that survival demands is to craft a new moral economic and financial system and a moral foreign policy.
The deep recession verging on depression that we have seen so far was caused by the crash in the US housing market. Since other developed industrialised nations, especially of Europe, were aping the shenanigans of unchecked and poorly regulated American bankers and financiers, the collapse of their markets, banks and economies followed like dominoes. Iceland was the first to officially declare bankruptcy. Its GDP is only about $6.5 billion but its banks had lent something like $65 billion while its regulators were asleep on the wheel. Britain has not declared bankruptcy officially but we all know that it is bankrupt for all intents and purposes and none of its banks and financial institutions has any legs left.
However, this is only the aperitif. Wait for the crash of US commercial real estate, which analysts think will happen by autumn this year. Shops are closing down and there's no one to rent them. Companies are retrenching and freeing up a lot of office space or closing down entirely and vacating even more precious office space with no one to rent it again. Huge skyscrapers are becoming ghost-scrapers. All this expensive commercial real estate is mortgaged to the hilt. With no rental income coming in, the loans against them will become difficult to service and there will be fearsome default. There's insurance and re-insurance here also and the amounts involved are mind-boggling. No bailout plan would come even close to coping. When the commercial real estate collapse comes, all hell will break loose. And if multinationals like General Motors and Ford call it a day, it won't just be thousands upon thousands of people unemployed (though its heartless to use the word 'just' here). Two entire towns will be become ghost towns. That's terrible. If you count the number of people - wives, children and parents - who are dependent on those incomes, it becomes worse than terrible. It becomes absolutely and totally unconscionable, while corrupt and greedy bankers and the likes of Bernie Madoff have made off with billions - perhaps trillions - of dollars and are still doing so because "our contracts say so."
Then there is Professor Igor Nikolavich Panarin whom I came across in a December 2008 article by Andrew Osborne of the Wall Street Journal no less, not some fly-by-night rag. If he has got it right, next year will come to be known as 'The Collapse of 2010' for that is when the USA will disintegrate into six separate entities. Those six entities, says Prof Panarin, are The California Republic, The Central North American Republic, Atlantic America, The Texas Republic, Hawaii and Alaska going back to Russia.
With millions of Chinese living on America's eastern seaboard (The People's Daily's circulation there alone is over five million) The California Republic, Prof Panarin thinks, will either be part of China or come under Chinese influence. The Central North American Republic will be part of Canada or under Canadian influence, Atlantic America may join the European Union, The Texas Republic will be part of Mexico or under Mexican influence and Hawaii will go either to Japan or China.
Prof Panarin is a former KGB analyst and a Russian professor of political science, Dean of the Ministry of the Foreign Affairs Diplomatic Academy in Moscow and author of several books on geopolitics. Thus one can hardly call him a fruitcake. Actually, he first made this prediction not after the economic meltdown that started last year but in Linz, Austria, in September 1998 in front of 400 delegates at a conference devoted to information warfare and the use of data to get an edge over a rival. Of course it was received with consternation. "When I pushed the button on my computer and the map of the United States disintegrated, hundreds of people cried out in surprise," he says. Later, many delegates asked him to sign copies of the map. Its like when the French political scientist Emmanuel Todd made his famous forecast in 1976 about the collapse of the Soviet Union 15 years before it actually did and many people laughed. But Todd had the last laugh.
Prof Panarin doesn't say that America's collapse is a forgone conclusion. "There's a 55-45 percent chance right now that disintegration will occur," he says. But if it comes it will be driven by three factors - "mass immigration, economic decline and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the US will break into six pieces...He predicts that economic, financial and demographic trends will provoke a political and social crisis in the US. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the Union. Social unrest up to and including a civil war will follow. The US will then split along ethnic lines, and foreign powers will move in." All we Pakistanis thus have to do is hang in there and soon America will not be meddling in our affairs any more, what to talk of General Patraeus's adviser David Kilcullen saying that Pakistan could fall apart in five or six months.
It's not easy to comprehend the collapse of an empire or a superpower. When termites are eating away at their vitals for years one cannot see it. People are too much in thrall of their power, wealth and panoply. Thus when the collapse comes it seems sudden, and takes people by surprise. "I went to sleep last night and when I woke up next morning the Soviet Union was gone." The most powerful war machine ever built couldn't save it. Remember the British Empire on which "the sun would never set"? It set so firmly that only six decades later Britain is not only bankrupt, it has become America's appendage, a third rate power and could itself disintegrate soon with Scotland seceding. The history of the world is replete with the demise of civilisations, empires and superpowers. The graveyards of nations are full of their bones.
That there may be something to what Prof Panarin says is borne out by the fact that the late Bush Administration made contingency plans to impose martial law in case of economic collapse or massive and violent social unrest with blood on the streets. His predictions seem plausible, even probable, if all the dire scenarios come right, as they have thus far. According to Rand Clifford the US has already made plans to "round up insurgent US citizens" and detain them in what are called "Rex 84" camps. Plus they have made "safe facilities" for members of Congress and their families. A report by the Phoenix Business Journal says: "A new report by the US Army and War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks." The Journal's story quote from the War College report: "Widespread civil violence inside the United States would force the defence establishment to reorient priorities in extremist to defend basic domestic order and human security." It needs saying that the military regularly makes plans for the most dire of situations, however seemingly unlikely.
Let Zbigniew Brzezinski, former National Security Advisor to President Jimmy Carter and an early supporter of Barack Obama have the last word. The US is "going to have millions and millions of unemployed people really facing dire straits. And we're going to be having that for some period of time before things hopefully improve. And at the same time there's public awareness of this extraordinary wealth that was transferred to a few individuals at levels without historical precedent in America...hell there could even be riots."
Mike Whitney
http://informationclearinghouse.info/article22396.htm
On Tuesday, a congressional panel headed by ex-Harvard law professor Elizabeth Warren released a report on Treasury Secretary Timothy Geithner's handling of the Troubled Assets Relief Program (TARP). Warren was appointed to lead the five-member Congressional Oversight Panel (COP) in November by Senate majority leader Harry Reid. From the opening paragraph on, the Warren report makes clear that Congress is frustrated with Geithner's so-called "Financial Rescue Plan" and doesn't have the foggiest idea of what he is trying to do. Here are the first few lines of "Assessing Treasury's Strategy: Six Months of TARP":
"With this report, the Congressional Oversight Panel examines Treasury’s current strategy and evaluates the progress it has achieved thus far. This report returns the Panel’s inquiry to a central question raised in its first report: What is Treasury’s strategy?"
Six months and $1 trillion later, and Congress still cannot figure out what Geithner is up to. It's a wonder the Treasury Secretary hasn't been fired already.
From the report:
"In addition to drawing on the $700 billion allocated to Treasury under the Emergency Economic Stabilization Act (EESA), economic stabilization efforts have depended heavily on the use of the Federal Reserve Board’s balance sheet. This approach has permitted Treasury to leverage TARP funds well beyond the funds appropriated by Congress. Thus, while Treasury has spent or committed $590.4 billion of TARP funds, according to Panel estimates, the Federal Reserve Board has expanded its balance sheet by more than $1.5 trillion in loans and purchases of government-sponsored enterprise (GSE) securities. The total value of all direct spending, loans and guarantees provided to date in conjunction with the federal government’s financial stability efforts (including those of the Federal Deposit Insurance Corporation (FDIC) as well as Treasury and the Federal Reserve Board) now exceeds $4 trillion."
So, while Congress approved a mere $700 billion in emergency funding for the TARP, Geithner and Bernanke deftly sidestepped the public opposition to more bailouts and shoveled another $3.3 trillion through the back door via loans and leverage for crappy mortgage paper that will never regain its value. Additionally, the Fed has made a deal with Treasury that when the financial crisis finally subsides, Treasury will assume the Fed's obligations vis a vis the "lending facilities", which means the taxpayer will then be responsible for unknown trillions in withering investments.
From the report:
"To deal with a troubled financial system, three fundamentally different policy alternatives are possible: liquidation, receivership, or subsidization. To place these alternatives in context, the report evaluates historical and contemporary efforts to confront financial crises and their relative success. The Panel focused on six historical experiences: (1) the U.S. Depression of the 1930s; (2) the bank run on and subsequent government seizure of Continental Illinois in 1984; (3) the savings and loan crisis of the late 1980s and establishment of the Resolution Trust Corporation; (4) the recapitalization of the FDIC bank insurance fund in 1991; (5) Sweden’s financial crisis of the early 1990s; and (6) what has become known as Japan’s “Lost Decade” of the 1990s. The report also surveys the approaches currently employed by Iceland, Ireland, the United Kingdom, and other European countries."
This statement shows that the congressional committee understands that Geithner's lunatic plan has no historic precedent and no prospect of succeeding. Geithner's circuitous Public-Private Investment Program (PPIP)--which is designed to remove toxic assets from bank balance sheets--is an end-run around "tried-and-true" methods for fixing the banking system. In the most restrained and diplomatic language, Warren is telling Geithner that she knows that he's up to no good.
From the report:
"Liquidation avoids the uncertainty and open-ended commitment that accompany subsidization. It can restore market confidence in the surviving banks, and it can potentially accelerate recovery by offering decisive and clear statements about the government’s evaluation of financial conditions and institutions."
The committee agrees with the vast majority of reputable economists who think the banks should be taken over (liquidated) and the bad assets put up for auction. This is the committee's number one recommendation.
The committee also explores the pros and cons of conservatorship (which entails a reorganization in which bad assets are removed, failed managers are replaced, and parts of the business are spun off) and government subsidization, which involves capital infusions or the purchasing of troubled assets. Subsidization, however, carries the risk of distorting the market (by keeping assets artificially high) and creating a constant drain on government resources. Subsidization tends to create hobbled banks that continue to languish as wards of the state.
Liquidation, conservatorship and government subsidization; these are the three ways to fix the banking system. There is no fourth way. Geithner's plan is not a plan at all; it's mumbo-jumbo dignified with an acronym; PPIP. The Treasury Secretary is being as opaque as possible to stall for time while he diverts trillions in public revenue to his scamster friends at the big banks through capital injections and nutty-sounding money laundering programs like the PPIP.
From the report:
"Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability."
This is a crucial point; the toxic assets are not going to regain their value because their current market price--30 cents on the dollar for AAA mortgage-backed securities--accurately reflects the amount of risk they bear. The market is right and Geithner is wrong; it's that simple. Many of these securities are comprised of loans that were issued to people without sufficient income to make the payments. These "liar's loans" were bundled together with good loans into mortgage-backed securities. No one can say with any certainty what they are really worth. Naturally, there is a premium for uncertainty, which is why the assets are fetching a mere 30 cents on the dollar. This won't change no matter how much Geithner tries to prop up the market. The well has been already poisoned.
Also, according to this month’s Case-Schiller report, housing prices are falling at the fastest pace since their peak in 2006. That means that the market for mortgage-backed securities (MBS) will continue to plunge and the losses at the banks will continue to grow. The IMF recently increased its estimate of how much toxic mortgage-backed papaer the banks are holding to $4 trillion.
The banking system is underwater and needs to be resolved quickly before another Lehman-type crisis arises sending the economy into a protracted Depression. Geithner is clearly the wrong man for the job. His PPIP is nothing more than a stealth ripoff of public funds which uses confusing rules and guidelines to conceal the true objective, which is to shift toxic garbage onto the public's balance sheet while recapitalizing bankrupt financial institutions.
So, why is Geithner being kept on at Treasury when his plan has already been thoroughly discredited and his only goal is to bailout the banks through underhanded means?
That question was best answered by the former chief economist of the IMF, Simon Johnson, in an article which appeared in The Atlantic Monthly:
"The crash has laid bare many unpleasant truths about the United States. One of the most alarming... is that the finance industry has effectively captured our government - a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation; recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression we're running out of time." (The Atlantic Monthly, May 2009, by Simon Johnson)
The banks have a stranglehold on the political process. Many of their foot soldiers now occupy the highest offices in government. It's up to people like Elizabeth Warren to draw attention to the silent coup that has taken place and do whatever needs to be done to purge the moneylenders from the seat of power and restore representative government. It's a tall order and time is running out.
THE LOOTING OF AMERICA
Barry Grey
http://www.wsws.org/articles/2009/apr200...-a10.shtml
The New York Times on Thursday published a front-page article that provides further insight into the economic and class interests that are being served by the Obama administration’s economic “recovery” policies.
Headlined “Small Investors May Be Enlisted in Bank Bailout,” the article outlines discussions between the administration and Wall Street investment firms on structuring the so-called “Public-Private Investment Program” announced last month in a manner that will allow people of modest means to invest in the scheme, whose purpose is to enable the banks to offload their toxic assets at public expense.
When the plan was announced March 23 by Treasury Secretary Timothy Geithner, it sparked a wild rally on the stock market. The Dow Jones Industrial Average rose 497 points when it became clear that the government was offering to provide up to 95 percent of the capital, insure almost all potential losses and virtually guarantee large profits for hedge funds and other financial firms that agree to purchase the bad debts of the banks at inflated prices, with the taxpayers underwriting the windfall for Wall Street and assuming virtually all of the risk.
Thursday’s Times article indicates that opening the scheme up to small investors is seen as a way of providing a “democratic” gloss to what is, in reality, a brazen plan to plunder the public treasury for the benefit of the very bankers and speculators who are responsible for the financial crash. Evidently not seeing a contradiction, the article also makes clear that the bailout measures are being drawn up in the closest consultation with the Wall Street insiders who stand to profit from them.
“Some of the biggest investment managers in the United States,” the Times notes, “including BlackRock and PIMCO, have been consulting with the government on ways to rebuild the country’s broken financial markets.”
The article quotes Steven A. Baffico, an executive at BlackRock, as saying, “It’s giving the guy on Main Street an equal seat at the table next to the big guys.” This is true only in the sense that “Main Street” will be given the opportunity to absorb the bulk of any losses while the “big guys” cream off the best assets and pocket the profits.
There are political concerns behind this effort to create the appearance of offering the general public a cut in the winnings. Hedge fund managers are wary that when, as they anticipate, their partnership with the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) pays off with double-digit profits there will be a public outcry, similar to that which erupted over the AIG executive bonuses. This, they fear, might lead to limits on their compensation, higher taxes on their fortunes or similar intolerable infringements.
More important are definite commercial calculations. By opening up the scheme to the broad public, the private firms chosen by the Treasury to operate the plan stand to increase greatly their take from investor fees. As the Times puts it, “For the investment managers, the benefits are potentially large. These big firms can charge healthy fees to investors for taking part.”
There is one particularly remarkable passage in the Times account. “But the comparison one industry official uses to illustrate the mistake that America must avoid,” the newspaper writes, “is the large-scale privatization in Russia in the 1990s, which involved a transfer of entire industries to a few, well-connected oligarchs. That experience tarnished the idea of free-market capitalism in Russia and undermined its program to move toward a market economy.”
The many differences in political and historical circumstances aside, there is a very real parallel between the plundering of Soviet society by the former Stalinist bureaucrats and their domestic gangster and foreign imperialist allies and the current manner in which the economic crisis in the US is being seized upon by Wall Street and its political instrument, the Obama administration, to further enrich the American financial aristocracy. Indeed, the perpetrators are themselves quite conscious that they are engaged in a similar—although much bigger—looting operation.
The scale and character of the operation are further indicated by another New York Times article published this week. This one, authored by Times financial writer Andrew Ross Sorkin and published on Tuesday, concerns the role of the FDIC in the new bailout scheme.
The article begins by noting that the FDIC was established 76 years ago, in the depths of the Great Depression, to provide a government guarantee, initially up to $5,000 and now up to $250,000, on the bank deposits of small savers. It describes the transformation of the FDIC, under the toxic asset disposal plan of the Obama administration, as follows:
“It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisition of toxic assets.”
In other words, the function of the FDIC is being transformed from guaranteeing the bank deposits of small savers to guaranteeing the investments of multimillionaire investment fund managers. And, as the article notes, this is occurring without a vote by Congress.
The FDIC will be insuring more than $1 trillion in new obligations incurred as the government covers the bad debts of the banks. However, the FDIC’s charter limits the obligations it can take on to $30 billion. The Times article quotes one “prominent securities lawyers” as saying, “They may not be breaking the letter of the law, but they’re sure disregarding its spirit.”
How does the government justify this breach? By calculating the obligations which the FDIC is assuming not at their monetary value, but at their value as “contingent liabilities.” That is, according to how much the FDIC expects to lose from its vast extension of credit to Wall Street firms (in the form of nonrecourse loans, i.e., loans in which the firms put up no collateral of their own, but only the supposed value of the toxic assets they are purchasing).
And what is the sum total of these “contingent liabilities”? Sorkin writes: “’We project no losses,’ Sheila Bair, the chairwoman, told me in an interview. Zero? Really? ‘Our accountants have signed off on no net losses,’ she said. (Well, that’s one way to stay under the borrowing cap).”
What is the significance of this astonishing reasoning? Simply this: The Obama administration, in order to protect the wealth and power of the financial elite, is facilitating and directly perpetrating on a colossal scale the same type of accounting fraud and reckless leveraging that led to the economic catastrophe in the first place.
Who is to pay the price for this looting operation? The answer can be seen in the Obama Auto Task Force’s demands for the liquidation of much of the US auto industry and the brutal downsizing of what remains, combined with the imposition of poverty-level wages on those workers who remain in the surviving plants and the gutting of the pensions and health benefits of retirees. It can be further seen in the administration’s pledge to slash social programs, including Medicare, Medicaid and Social Security.
The administration’s “recovery” plan is a barely disguised scheme to preserve the fortunes of the financial aristocracy, whose interests it represents, by imposing poverty and social misery on the working class.
THE CRASH OF '09, THE COLLAPSE OF '10
Humayun Gauhar
http://www.nation.com.pk/pakistan-news-n...pse-of-10/
Many American analysts are saying that America's real economic collapse could come by the end of this year. "It will come to be known as 'The Crash of 09', they say. Others, especially a Russian political analyst, are predicting its physical collapse too. There's no doubt that the country is up the dirtiest of imaginable creeks without a paddle. But what's amazing is that America remains mired in stunning denial, continuing to make bad situations worse with useless bailout plans and messing around with the world instead of facing up to the reality that its time as a hyper-power is up, that's its economic system has failed and that its only recourse is to end its adversarial doctrine and get out of its lost wars as painlessly and honourably as possible. There's no point in going on flogging dead horses. The only sensible thing that survival demands is to craft a new moral economic and financial system and a moral foreign policy.
The deep recession verging on depression that we have seen so far was caused by the crash in the US housing market. Since other developed industrialised nations, especially of Europe, were aping the shenanigans of unchecked and poorly regulated American bankers and financiers, the collapse of their markets, banks and economies followed like dominoes. Iceland was the first to officially declare bankruptcy. Its GDP is only about $6.5 billion but its banks had lent something like $65 billion while its regulators were asleep on the wheel. Britain has not declared bankruptcy officially but we all know that it is bankrupt for all intents and purposes and none of its banks and financial institutions has any legs left.
However, this is only the aperitif. Wait for the crash of US commercial real estate, which analysts think will happen by autumn this year. Shops are closing down and there's no one to rent them. Companies are retrenching and freeing up a lot of office space or closing down entirely and vacating even more precious office space with no one to rent it again. Huge skyscrapers are becoming ghost-scrapers. All this expensive commercial real estate is mortgaged to the hilt. With no rental income coming in, the loans against them will become difficult to service and there will be fearsome default. There's insurance and re-insurance here also and the amounts involved are mind-boggling. No bailout plan would come even close to coping. When the commercial real estate collapse comes, all hell will break loose. And if multinationals like General Motors and Ford call it a day, it won't just be thousands upon thousands of people unemployed (though its heartless to use the word 'just' here). Two entire towns will be become ghost towns. That's terrible. If you count the number of people - wives, children and parents - who are dependent on those incomes, it becomes worse than terrible. It becomes absolutely and totally unconscionable, while corrupt and greedy bankers and the likes of Bernie Madoff have made off with billions - perhaps trillions - of dollars and are still doing so because "our contracts say so."
Then there is Professor Igor Nikolavich Panarin whom I came across in a December 2008 article by Andrew Osborne of the Wall Street Journal no less, not some fly-by-night rag. If he has got it right, next year will come to be known as 'The Collapse of 2010' for that is when the USA will disintegrate into six separate entities. Those six entities, says Prof Panarin, are The California Republic, The Central North American Republic, Atlantic America, The Texas Republic, Hawaii and Alaska going back to Russia.
With millions of Chinese living on America's eastern seaboard (The People's Daily's circulation there alone is over five million) The California Republic, Prof Panarin thinks, will either be part of China or come under Chinese influence. The Central North American Republic will be part of Canada or under Canadian influence, Atlantic America may join the European Union, The Texas Republic will be part of Mexico or under Mexican influence and Hawaii will go either to Japan or China.
Prof Panarin is a former KGB analyst and a Russian professor of political science, Dean of the Ministry of the Foreign Affairs Diplomatic Academy in Moscow and author of several books on geopolitics. Thus one can hardly call him a fruitcake. Actually, he first made this prediction not after the economic meltdown that started last year but in Linz, Austria, in September 1998 in front of 400 delegates at a conference devoted to information warfare and the use of data to get an edge over a rival. Of course it was received with consternation. "When I pushed the button on my computer and the map of the United States disintegrated, hundreds of people cried out in surprise," he says. Later, many delegates asked him to sign copies of the map. Its like when the French political scientist Emmanuel Todd made his famous forecast in 1976 about the collapse of the Soviet Union 15 years before it actually did and many people laughed. But Todd had the last laugh.
Prof Panarin doesn't say that America's collapse is a forgone conclusion. "There's a 55-45 percent chance right now that disintegration will occur," he says. But if it comes it will be driven by three factors - "mass immigration, economic decline and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the US will break into six pieces...He predicts that economic, financial and demographic trends will provoke a political and social crisis in the US. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the Union. Social unrest up to and including a civil war will follow. The US will then split along ethnic lines, and foreign powers will move in." All we Pakistanis thus have to do is hang in there and soon America will not be meddling in our affairs any more, what to talk of General Patraeus's adviser David Kilcullen saying that Pakistan could fall apart in five or six months.
It's not easy to comprehend the collapse of an empire or a superpower. When termites are eating away at their vitals for years one cannot see it. People are too much in thrall of their power, wealth and panoply. Thus when the collapse comes it seems sudden, and takes people by surprise. "I went to sleep last night and when I woke up next morning the Soviet Union was gone." The most powerful war machine ever built couldn't save it. Remember the British Empire on which "the sun would never set"? It set so firmly that only six decades later Britain is not only bankrupt, it has become America's appendage, a third rate power and could itself disintegrate soon with Scotland seceding. The history of the world is replete with the demise of civilisations, empires and superpowers. The graveyards of nations are full of their bones.
That there may be something to what Prof Panarin says is borne out by the fact that the late Bush Administration made contingency plans to impose martial law in case of economic collapse or massive and violent social unrest with blood on the streets. His predictions seem plausible, even probable, if all the dire scenarios come right, as they have thus far. According to Rand Clifford the US has already made plans to "round up insurgent US citizens" and detain them in what are called "Rex 84" camps. Plus they have made "safe facilities" for members of Congress and their families. A report by the Phoenix Business Journal says: "A new report by the US Army and War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks." The Journal's story quote from the War College report: "Widespread civil violence inside the United States would force the defence establishment to reorient priorities in extremist to defend basic domestic order and human security." It needs saying that the military regularly makes plans for the most dire of situations, however seemingly unlikely.
Let Zbigniew Brzezinski, former National Security Advisor to President Jimmy Carter and an early supporter of Barack Obama have the last word. The US is "going to have millions and millions of unemployed people really facing dire straits. And we're going to be having that for some period of time before things hopefully improve. And at the same time there's public awareness of this extraordinary wealth that was transferred to a few individuals at levels without historical precedent in America...hell there could even be riots."