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GREED HURTS: CAUSES OF THE GLOBAL FINANCIAL CRISIS
Oskari Juurikkala

“Greed is good,” insisted Gordon Gekko in the 1987 film Wall Street. Most of us disagree. Recent events in the mortgage lending industry prove us right.

The “subprime loan crisis” has been making headlines since it began in August. It refers to the fact that a relatively high percentage of mortgages offered to people with significant probability of default have gone sour.

The moniker is a bit misleading, though. The crisis we are witnessing starts from risky loan deals but will extend to all varieties of credit and risk: consumer loans, credit cards, businesses, and so on. It is just about to heat up but the roots of this crisis were laid years ago.

It’s a credit crisis, but credit per se is not the problem. The problem lies in how credit was traded from one hand to another on an unprecedented scale. This was done through financial innovations called derivatives.

Derivatives are contracts that allow companies to trade risks that derive from some other underlying assets. For example, a currency futures contract lets you to lock into a specific foreign exchange rate. It’s a sensible move if you trade abroad and do not wish to carry the risk of a sudden change in exchange rates.

Recent decades brought much trickier – and riskier – derivatives, such as “over-the-counter credit default swaps (CDS).” Sound complex? It is.

Credit derivatives permit lenders to transfer their credit risks (mortgage defaults) to third parties, such as hedge funds. Thus banks can do more business. In the 1990s and 2000s, credit derivatives became a massive global gamble.

If used properly, derivatives are useful and ethically unobjectionable. They enable efficient risk allocation that benefits all parties concerned. But their abuse is a nightmare. They become a house of cards, built on greed.

Derivatives could, for instance, be used to circumvent regulations that protect investors and the public. These stakeholders lack the time or ability to track the risks taken by companies, which is why financial institutions cannot freely invest in risky asset classes. But through derivatives, many institutions made complex speculative bets without regulators catching on.

If it works, it pays off. Companies make abnormal profits and managers take huge bonuses. If it doesn’t work, someone else will usually pay the bill, such as investors and bank depositors.

Then there’s the Fed, always keen to save bankers by printing more money. The losers are the unsuspecting working and middle classes, whose savings are eroded by inflation. What to do?

One thing we need is better rules. True, we have lots of regulations in financial markets. Some are so complex that most professionals can’t follow them. Often they are equally unhelpful.

Derivatives are a case in point. After Enron, we got the Sarbanes-Oxley Act, which costs fortunes to U.S.-listed companies. Despite this new layer of regulation, abuses are rampant: massive off-balance sheet items, shadowy over-the-counter deals, unrealistic marking-to-model pricing, murky offshore special purpose entities (SPEs). Risk-hiding has become widespread, often with the explicit or tacit approval of regulators.

We need simpler rules, ones that tackle the real issues. But more than rules, we need personal conversion.

Remember Enron? “They broke the law,” people say. Well, yes. They also abused financial derivatives, SPEs and a range of other tricks to hide their excessive risks. But what really destroyed Enron, and made it so dangerous, was its corporate culture. It was infected with institutionalized greed.

The current situation is Enron writ large. We have more derivatives, more leverage, and bigger losses. Wall Street is hardly superior when it comes to generosity and detachment from worldly goods.

The Apostle Paul identified the issue 2,000 years ago: the love of money is the root of all evils (1 Timothy 6: 10). He concurred with Jesus, who said, You cannot serve God and mammon (Matthew 6: 24).

The goods of this world are good. But we have to pursue them in the right order, guided by love of God and neighbor. It applies to personal life and it applies to finance. Wisdom shuns greed. Prudence depends on the moral virtues, as Aristotle taught. Greed is like pride: it blinds.

2008 will be a tough year. We may witness the largest financial crisis in history. We need to study the past to see how we got here. But more than that, we must think about the future.

In order to make finance safe for our children, we need better laws and regulations. This is hard to accomplish, however, and it’s never enough. Unless people – at least most people – are willing to do what is right because it is right, our laws will be objects of mockery and abuse.

First we need a change of heart. Perhaps we’ll then get the laws right too.



PRINTING MONEY FOR WALL STREET
Oskari Juurikkala
http://www.acton.org/commentary/440_prin...street.php

The global financial system is in a deepening crisis, largely due to greedy gambles with complex financial derivatives. The bailout of Bear Stearns Cos., in which the Fed provided $30 billion loan to J.P. Morgan Chase to acquire the investment bank, is only the latest -- and probably not the last -- rescue mission from the central bank. Overall, the response of the Bernanke-led Federal Reserve to the global financial meltdown has been exceedingly simple: lower interest rates.

It is debatable whether that is an effective solution to the problem. It risks destroying the international demand for dollars, and a declining exchange rate would imply rapid price inflation at home as well as increasing pressure on foreign investors to take their money out. Both effects would exacerbate the crisis.

But that is a technical issue. The Fed strategy raises more fundamental issues.

When a central bank lowers interest rates, it engages in an activity that is loaded with moral meaning. The jargon of the macroeconomist can be misleading. Lower interest rates are achieved by increasing the money supply, which is basically equivalent to “printing money out of thin air,” and selling it cheaply to the banking community (although technically it is now achieved by creating fictitious accounting entries).

The moral dimension becomes plainer if we consider a private person doing that. It is called fraud. Counterfeit money enriches the fraudster at the expense of the rest of the society. Creating more paper slips does not bring about more economic resources (production or consumption goods), but only serves to redistribute them. The counterfeiter immediately acquires additional money at his disposal, whereas the purchasing power of the money balances of the rest is slowly eroded.

Modern central banking claims to serve lofty goals: high employment, price stability, and economic growth. In fact, it only enriches those who run the system. Sometimes it is the national government. Consider, for instance, Robert Mugabe’s Zimbabwe with its well-over 1,000 percent (and rising) inflation rate.

In other instances, the central bank is a private entity serving the interests of the financial elite. This was true of most central banks historically, including the Bank of England (founded in 1694), which was only nationalized in 1946.

Unbeknownst to many, the 1913-founded U.S. Federal Reserve System also comes under this category. It is a private corporation owned by its member banks, about whose owners little is known. As a special privilege, the Fed has never undergone a complete independent audit, and it is claimed that it keeps some of its records secret.

One may also challenge the lofty goals of central banks. Inflation is largely caused by increasing the money supply. In consequence, inflation encourages living on debt and discourages prudence and thrift.

Moreover, by creating artificially low interest rates, central banks foster damaging boom-bust cycles, as economists Ludwig von Mises and F.A. Hayek demonstrated. The dot.com bubble, which collapsed in 2000, and the real estate and overconsumption bubble, which is coming to an end today, are just the most recent examples.

So much for stability, economic growth, or high employment.

The Old Testament provides some principles on sound money. Complaining of the sins of Judah and Jerusalem, the prophet Isaiah denounced monetary debasement: “Your silver is turned to dross, your wine is mixed with water” (Isaiah 1:22). Likewise, the Lord exhorted the Jewish people: "Do not act dishonestly in using measures of length or weight or capacity. You shall have a true scale and true weights…” (Lev. 19:35-36)

Debasement and tampering with weights and measures have been a temptation throughout the history of money and banking. They are the essence of the more complex methods of monetary inflation practiced today.

Then there is fractional-reserve banking, the use of demand deposit money in lending business. Many economists, including Milton Friedman and others at the University of Chicago in earlier decades, have identified it as the source of banking instability throughout modern times. Fractional-reserve banking was censured already by Roman jurists, who found it dishonest and legally unsound. Yet modern scholarship shows that it was precisely this instability that provided the justification for inflationary central banking.

The Founders of the United States grasped this. In his letters, Thomas Jefferson wrote numerous lines on the problem with unsound money. In an 1817 letter to Josephus B. Stuart, he noted the consequences of paper money: "That paper money has some advantages is admitted. But that its abuses also are inevitable and, by breaking up the measure of value, makes a lottery of all private property, cannot be denied.”

Jefferson likewise understood the problem with unsound banking. In a letter to John Taylor he said: "I sincerely believe\... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." (1816)

These courageous words ring remarkably relevant today. The roots of the current crisis lay in the manipulation of the money of American citizens. More of that will not solve the problem. Will we have the courage to go to the heart of the matter?

Admin

LAROUCHE:BAILOUT ILLEGAL; BANKERS SHOULD BE JAILED
http://larouchepub.com/lar/2008/3513jail_bankers.html

Lyndon LaRouche insisted on March 20 that Congress should conduct an investigation into the criminality of the Federal Reserve and Treasury's bailout of the vaporized speculative "investment" bank Bear Stearns on March 16.

The Emergency Banking Act, passed by Congress on March 9, 1933, provides for government assistance to protect vital banking functions. That assistance is restricted to commercial banks.

Chartered commercial banks make up a vital part of our overall economy, but brokerage houses and investment banks such as Bear Stearns are strictly part of the speculative apparatus that has looted the economy and the population blind. That the Fed stepped in to provide tens of billions of dollars, or more, to save Bear Stearns, is prima facie criminal.

LaRouche charged on March 18 that the bailout represented a case of money laundering that should be prosecuted.

"It smells like another filthy Goldman Sachs scheme," LaRouche said. "I think it is time to increase the social status of our Federal prison population—by sending all those responsible for this abomination to jail.... These guys are cheating."

LaRouche added that the bailout scam "is an obstruction of our plan—the Homeowners and Bank Protection act and the three steps needed to survive," that he had identified in his March 12 webcast.

So far, the House Oversight and Government Reform Committee and the Senate Finance Committee are planning to investigate the actions of the Federal Reserve in providing the bailout of Bear Stearns, MarketWatch and the Wall Street Journal reported on March 19.
  

THE SUBPRIME HANGOVER
HERE COMES THE $739 BILLION TAXPAYER BAILOUT

Mike Whitney
http://www.informationclearinghouse.info...e19414.htm

"The SEC probe of the securitization of subprime mortgages into collateralized debt obligations (CDOs), announced last summer, has yielded no official enforcement cases....SEC chief, Christopher Cox, along with other top-level administration officials, has cautioned against quick-fire regulatory or enforcement responses to the worsening credit crisis, noting that the market instead should be left to work it out.” Nicholas Rummel, “SEC Drift Said to Prevent Action on Credit Crunch”, Financial Week

That's right. The biggest economic scandal in the last half century, the subprime fiasco, and the “business friendly” stooges at the SEC are still sitting on their hands reciting passages from Milton Friedman instead of dragging crooked banksters off to the hoosegow in leg-irons. Go figure? SEC Chairman, Christopher Cox, has come under withering attack from Senator Christopher Dodd who chairs the Banking Committee and who accuses the SEC of being “asleep at the switch”.

Dodd said the SEC “needs to help restore investor confidence in the markets by more vigorous enforcement, by more comprehensive regulation of credit rating agencies, and increased accountability and transparency of publicly traded companies.” (Financial Week)

“Accountability...transparency” in Bushworld? Nice try, Dodd, but its a losing cause. The Bush administration is not just philosophically opposed to oversight; they've handed over the entire financial system to a cabal of banking scalawags who've turned it into their personal fiefdom. This same cast of fraudsters engineered the subprime swindle and ripped off trillions of dollars from investors around the world. And, don't kid yourself; Bush is proud of the damage he's done by taking a wrecking ball the SEC. For him, it's like a good day at the races. He has no intention of reigning in the crooks or restoring the publics' confidence.

New York Governor Elliot Spitzer has joined Dodd in criticizing the so-called “regulatory agencies” for failing to determine whether any securities laws were broken. In a Washington Post article, Spitzer blasted the SEC's inaction saying that the Bush Administration would be judged by history as a “willing accomplice” to the subprime collapse.

But Spitzer and Dodd are wasting their breath. The culture of corruption from 7 years of Bush misrule has spread like Kudzu to every jag and eddy in Washington. If we were really a nation of laws rather than nincompoops, federal agents would be busy rounding up every investment banker and hedge fund sharpie on Wall Street so they could get to the bottom of the subprime boondoggle. Regulators still haven't even decided whether it was a case of overzealous marketing of dodgy securities or downright fraud. That should be "job one" for the SEC.

The reason all this talk about “regulation” is so important now is that the same banking giants who cooked up the subprime scam have just presented the Bush administration with a $739 billion bailout package they plan to unload on the American taxpayer. According to Sunday's New York Times:

“As losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion. A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble. The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes. To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.”

What Bank of America is proposing is that the US government guarantee the shoddy mortgages that the banks issued to “unemployed shoe-clerks with bad credit” so they could peddle them as Triple A “securities” to unsuspecting investors. Now that subprimes are blowing up at a record pace, the banks need a government bailout before their balance sheets are reduced to cinders.


But what does the poor taxpayer get out of the deal besides soaring inflation, bulging fiscal deficits, and the “warm and fuzzy” feeling that he's helped some tasseled-shoed charlatan keep his larder in the Hamptons full of Dom Perignon and crab cakes?


The reason we're in this mess is because financial innovation and deregulation have driven the markets off a cliff. And that started with the bankers. Financial innovation has nothing to do with the efficient deployment of capital for productive activity. No way. In fact, it is the exact opposite. The financial innovations of the last decade have primarily focused on transforming the liabilities of dubious mortgage applicants into complex debt-instruments which are enhanced with massive amounts of leverage and exotically-named derivatives. The investments banks and brokerage houses fought hard to establish the present system which they call “structured finance”. They spent over $100,000 million lobbying congress to remove the legislative firewall which kept investment and commercial banks separate. Those laws, particularly Glass Steagall, made sure that the public was protected from the Ponzi-scams which proliferated just prior to the Great Depression. But, now, 30 years later, the same scams are back with a vengeance. The cult of free market orthodoxy and Reagan-era flim-flam has put us on track for another stock market crash ala 1929. That's why Bank of America and their buddies in the industry have turned to the administration for a way out. Their flagging balance sheets can't take another year of rising foreclosures and dwindling assets. They need Big Brother to cover their debts and rebuild their capital-base. Otherwise its curtains.

Other versions of the so-called “Rescue Bill” have been floating around Washington for the last three weeks, but they all follow the same basic guidelines. Under one of the plans, 600,000 subprime mortgage-holders, many of whom are already delinquent on their payments or in some stage of foreclosure, would be able to refinance their loans under the Federal Housing Authority (FHA) which would federally guarantee the mortgage in the event of default.

Great idea, eh? So, now the taxpayer is going to have to pay for the people who lied on their applications (and who really can't afford the homes they're in) so the banks can recoup their losses. This plan doesn't make sense.

Why on earth would the taxpayer want to buy 600,000 subprime mortgages at “current value” when housing prices are falling, inventory is soaring, sales are sagging, foreclosures are at historic highs, and millions of homeowners are expected to simply “walkaway” from their loans?


No thanks. Let the banks go under. They created this mess. Besides, all we're doing is rewarding the people who deliberately destroyed the system. They can fend for themselves. The first order of business should be to restore public confidence; not bail out crooks. “Credibility” matters in a market-based system; especially one that relies so heavily on the hocus-pocus of fractional banking. When trust is lost; the system crashes. End of story. That means it's time to clean house at the SEC. Give everyone a pink slip, two weeks pay and send them home. Then scour the countryside like Diogenes for a few honest men.

Second, people in positions of authority have to be held accountable for their crimes. Millions of investors have lost their life savings or retirement in the subprime/securitzation debacle. Someone's got to go to jail. Apologies just don't cut it. So far, not one CEO has been led off to the Paddy-wagon in handcuffs. It has all been swept under the rug by an administration that has filled every regulatory position in Washington with industry lobbyists, business-friendly tycoons and corporate “yes-men”. The results are just what any sane person would expect; disaster. The financial markets are completely unsupervised; the SEC is just a subsidiary of the multi-national corporations. It has no teeth. If it was really independent; then Cox and his goons would be storming the investment banks with tasers and truncheons. Instead, he spends most his time explaining why he won't enforce the laws and prosecute cases.


And there should be no doubt about who is really responsible for the subprime woes. The investment banks employ some of the country's “best and brightest”. These are sharp guys who have studied at some of our finest colleges and universities. Does anyone really believe that a Harvard MBA---who understands all the fine-points of high-finance--really thought that ignoring all of the standard criteria for prudent lending, and issuing trillions of dollars in loans to applicants who had no job, no collateral, bad credit, and were unable to come up with a few thousand dollars for a down-payment---was a great idea?

Of course not. It was a swindle from the get-go. The reason the banks looked the other way and issued these shaky mortgages was because they didn't really think there was any risk involved. After all, it wasn't their money. They simply repackaged the loans into bonds and sold them off to someone else. No worries. But, does that make them any less guilty?


Consider this: If the banks didn't know that the mortgages were bogus, than why are all the various types of mortgages; including Alt-As, piggybacks, home equity loans, ARMs, prime, and "interest only"---defaulting at the same time? It is not just subprime mortgages that are failing; it runs the gamut.

The reason is obvious; it's because the banks were making windfall profits and didn't want to rock the boat. They knew they were peddling garbage. How could they not know? The banker's primary task in life is to figure out who can pay him back "with interest". And they're pretty good at it, too. So why did they start handing out hundreds of billions of dollars to anyone who could fog a mirror? In fact, it got so out-of-hand that (according to The New York State Commission of Investigation) "a homeless woman earning $10 an hour was recently approved for a $470,000 adjustable rate mortgage". In a similar incident, two Hispanic migrant workers in Bakersfield, California, who made roughly $45,000 in combined income, were approved for a mortgage on a home valued at $725,000.

These aren't innocent mistakes. They're part of a broader pattern to fudge the paperwork so unqualified "high-risk" loan applicants would look like J. Paul Getty and secure a mortgage. That way, the banks could continue to rake in lavish origination fees and maximize their profits.

But then the plan hit a rough patch and the Gravy-train tipped over into the ditch. When the credit storm hit the markets in August, the mortgage securitization went into deep freeze and the easy money from Wall Street dried up. The banks got stuck holding billions of their own bad paper. Now every foreclosure eats into their capital so, they've turned to the government for a handout. Of course, they don't want the public to know what's really going on so they've asked the Bush administration to help them pull the wool over everyone's eyes. According to the New York Times one banking official summed it up like this:

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market.”

Really? So, on top of everything else, the banks want the Bush administration to organize a public relations campaign that will make the multi-billion bailout look like it was designed to help struggling homeowners instead of crafty bankers. Unbelievable. No doubt Team Bush will do whatever they can to help out.

Bank of America's proposed $739 billion bailout is just the first of many hyper-inflationary, economy-busting trial-balloons we can expect to see in the near future. The banking system is in terminal distress; collapsing from hundreds of billions in worthless assets, bad bets, and poor decision-making. Their capital impairment problems were all brought on by themselves. And they should be forced to pay the consequences, whatever that may be. They managed to take a simple, revenue-generating activity like mortgage lending, and turn it into a textbook case of grand larceny. It's pathetic.

In their present condition, many of the banks will be back for another handout in a matter of months. Next will be commercial real estate (CRE) which is already slumping and on its way down. Then it'll be the $160 billion in private equity deals and leveraged buyouts (LBOs) which need refinancing. Then it'll be the maxed-out credit cards, and delinquent student loans and defaulting car loans all of which are failing at a faster and faster pace. It is not just the “structured investment” market that's unraveling now; it's the whole speculative paradigm of hyper-inflated assets, toxic bonds, over-priced equities and bizarre-sounding derivatives which are crashing down in one great debt waterfall. The investment banks are at the very center of the problems. They've played it fast and loose from the very beginning and now they've come up snake-eyes. Tough luck. Only they shouldn't count on a $700 billion freebie from Uncle Sam to make up for their own bad judgment.

Admin

THE END OF THE LINE FOR THE ANGLO-DUTCH SYSTEM
John Hoefle
http://larouchepub.com/other/2008/3513end_of_line.html

When President Richard Nixon took the dollar off the gold reserve standard on Aug. 15, 1971, he effectively ended the Bretton Woods system of fixed currency-exchange rates. Nixon's action, taken at the urging of bankers' boy George Shultz (then director of the Office of Management and Budget), set into motion the creation of the largest financial bubble in history, a bubble the collapse of which is now laying waste to the global banking system and securities markets.

The mantra rising from financial circles after such disasters is that "no one" could have foreseen the "unexpected events" which developed from policies and decisions that "everybody" agreed to at the time. You hear it frequently today, from people ranging from former Federal Reserve chairman Sir Alan Greenspan, to bankers whose allegedly "fundamentally sound" banks vaporize seemingly overnight. Who knew this could happen?

One man did know, and said so at the time, loudly and forcefully. That man is Lyndon LaRouche, who understood the implications of the demise of the Bretton Woods system, and has been campaigning ever since for a return to Bretton Woods-style fixed exchange rates.

LaRouche understood the matter not as a technical one about currencies, but as a fundamental fight between sovereign governments and the imperial oligarchs centered around the British empire and its parasitic Anglo-Dutch Liberal financial system. Any nation which cannot control its own currency is not sovereign, and any nation which is not sovereign is vulnerable to assault and subversion by this oligarchy. Will society be organized for the benefit of all mankind, or will it be organized for the benefit of a small elite who feed off the rest?

LaRouche understood this in 1971, and that understanding formed the basis for the creation of an international political movement to organize mankind to educate and defend themselves. LaRouche scored a stunning victory against prominent economist Abba Lerner at a debate at Queens College in New York, in December 1971, in which he laid bare the fascist roots of Lerner's outlook, and forced Lerner to admit his self-damning belief that had Germany capitulated to the demands of banker Hjalmar Schacht, "Hitler would not have been necessary."

The response from the parasites was immediate and predictable: Never again, they informed LaRouche, would he be allowed to challenge them publicly. Keep your mouth shut and follow the rules, or we will destroy you.

It was a big mistake. Rather than cowering in fear as so many had done, LaRouche decided to fight back, drawing upon his studies of the great ideas of history and his commitment to truth above all else.

Since then, LaRouche and his movement have been attacked by virtually every means in the Venetian tool-kit, from physical assaults to press slanders to prosecutorial frame-ups and even jail; hard blows were landed, but LaRouche persisted, knowing that despite its demonstrated power, the Anglo-Dutch liberal system was crumbling from within, that it would inevitably collapse as a result of its own cannibalistic policies.

That day has arrived. The events of the past year, from the turmoil in the mortgage-related financial markets to the blowout of the banking system, have proven LaRouche's analysis of the Anglo-Dutch Liberal system to be correct. What LaRouche saw as the inevitable result of Nixon's action in 1971, has now exploded upon the world.

Bretton Woods
During July 1944, a United Nations Monetary and Financial Conference was held at the Mount Washington Hotel in Bretton Woods, New Hampshire. The 44-nation conference established what became known as the Bretton Woods monetary system, a key component of which was the establishment of a fixed system of currency exchange rates among nations. Under Bretton Woods, a gold reserve standard was established, with the U.S. dollar pegged to gold at $35 an ounce. This arrangement was the economic bedrock upon which the post-World War II world was rebuilt, led by the industrial might of the United States.

Bretton Woods was a victory for President Franklin Roosevelt, and his view that the post-war world should be free of empires and their colonies. FDR intended to use the power of the United States and other nations to elevate the status of the common man worldwide, and end the domination of the economic royalists. It was a grand vision, and had he lived to implement it, the world would be in far better shape than it is today.

The British were apoplectic at the prospect of a Rooseveltian/American System world, and pulled out all the stops to defeat it. With the death of Roosevelt in 1945, and the ascension of Harry Truman, the empire struck back. The fear of a Soviet attack and the spread of communism was used to create a Cold War environment, under which the British empire became the top strategic ally of the United States, and FDR's grand vision was swept away. In the name of fighting communism, Truman and his Anglophile controllers sold FDR and America down the river. (The parallels to today's "war on terror" should not be missed.)

The British set out to systematically dismantle the American economy, as a way of restoring their own dominance in the world. They had to move slowly, because the memory of FDR and what he had done for the nation was fresh in people's minds, as were the abuses of the economic royalists he had fought, and because the American people would fight back if they understood what was planned.

One of the biggest obstacles to their plan was the Bretton Woods system, and the stability it provided to the U.S. and the global economy. For the British plan to succeed, Bretton Woods would have to be eliminated.

Pandora's Box
Nixon's 1971 decision effectively ended the Bretton Woods system, and introduced the era of speculation which has engulfed the world in the ensuing three decades. Pandora's Box was opened, and the evils of oligarchism were unleashed afresh upon the world.

Neither the United States nor the world has been the same since. Nixon's action, in conjunction with the launching of the rock-drug-sex counterculture and the cartel-building "world company" assaults of 1968, were aimed at destroying the basis for American industrial supremacy and the co-option of America back into the imperial system. The Baby Boomer generation, growing up under the hyped-up fear of thermonuclear annihilation, turned its back on science and sought escape in entertainment, opening the door for the oligarchs to destroy the nation.

Absent Bretton Woods, the oligarchy began to use its immense financial power to manipulate global currencies, and thus nations. The orchestrated oil hoax of 1973-74, with its introduction of financial speculation in the oil market via the spot market, created a huge pool of "petrodollars," with which the City of London could wage war against nations. These petrodollars, combined with the proceeds of the British empire's "Dope, Inc." drug trade, were instrumental in restructuring Wall Street in the 1970s, paving the way for the junk bonds of the 1980s and the derivatives of the 1990s.

The protections put into place under FDR were systematically dismantled, as the American economy was transformed from an industrial power into an economy based upon services and speculation. We became a nation of consumers rather than producers, our manufacturing "outsourced" to nations where labor was cheaper, falling for the lie that this would make us more competitive, when it was actually destroying us. Under the guise of "free markets" and globalization, we turned our own economy into a haven for speculation and the formation of giant corporate cartels, whose allegiance lay not with the nation, but with the financiers. We had become, in essence, that against which we fought the American Revolution.

The End of the Line
As the speculative bubble came to dominate the U.S. and world economies, feeding it became paramount. Among other things, this led to a sharp run-up in real estate values, to provide "wealth" which could be turned into mortgage debt, and then into a wild assortment of securities to be used, with lots of leverage, to play in the derivatives markets. To keep the mortgage-debt flowing, as prices rose into the stratosphere, the bankers repeatedly loosened the requirements for home loans. This process, which was driven by the banks and the derivatives market, ultimately exploded. This was falsely portrayed as a "subprime" crisis, but in reality it was the death throes of the financial system itself.

In mid-2007, the failure of two Bear Stearns hedge funds signalled the collapse of the global securities market, as speculators realized the game was over and began to try to cash out. The market for speculative paper quickly dried up, sending the nominal valuations plunging. The market which had grown phenomenally through leverage, began to collapse in a reverse-leverage implosion. Speculators had borrowed trillions of dollars to place bets, gambling that they would win enough to pay back their loans and still turn a nice profit. This game worked for quite a while, but it quickly turned nasty when the market seized up. Suddenly, the speculators found themselves losing on their bets, leaving no profits to pay off their loans, and thus losing on both ends. Assets began vaporizing by the trillions, and worried lenders began demanding more collateral on margin calls, causing sales of assets which further depressed prices, in a vicious, reverse-leverage spiral.

The "solution" to this blowout adopted by the central banks, was to begin to flood the financial markets with liquidity, through a series of interest rate cuts and cash injections. Though they had sworn to impose discipline on the markets, the central banks quickly capitulated under the pressure of enormous losses, in a hyperinflationary panic. The injections quickly escalated from the billions, to the tens of billions, to the hundreds of billions, as they raced to plug the holes caused by the savage deflation of the valuations in the system. But no matter how much money they injected, the system kept collapsing.

The crisis came to a head in mid-March, when the collapse simply overwhelmed the central banks, leading to the open bankruptcy of Bear Stearns, and with it, the death of the system. The astonishing speed with which the system collapsed can be seen in a series of extraordinary actions by the Federal Reserve over an 11-day period:

On Friday, March 7, the Fed announced that it would increase to $100 billion the amount of money it would loan to depository institutions through its Term Auction Facility (TAF), the special bailout mechanism it created in December to get the banks through the end of the year. To date, the TAF has held seven auctions, two in December which lent $20 billion each, two $20 billion auctions in January, two $30 billion auctions in February, and one $50 billion auction in March, with another scheduled for the week of March 24. Also on March 7, the Fed announced plans for a March 27 auction of $100 billion in repurchase agreements with primary dealers, a group of 20 securities firms with which it deals directly. All of these loans are for 28 days, and the Fed is accepting a wide range of securities as collateral.


Two business days later, on Tuesday, March 11, the Fed announced the creation of a new Term Securities Lending Facility (TSLF), to lend up to $200 billion in Treasury securities to the primary dealers, again in 28-day loans against a wide range of collateral. The Fed also expanded swap lines it had previously established with the European Central Bank and the Swiss National Bank, raising the amounts to $30 billion with the ECB and $6 billion with the SNB. These measures were coordinated with the G-10 central banks.


On Friday, March 14, the Fed and the Treasury helped arrange an emergency loan, of an unspecified amount, to Bear Stearns through J.P. Morgan Chase.


On Sunday, March 16, the Fed announced yet another new lending facility, this one to loan an unlimited amount to the primary dealers, beginning March 17. The Fed lowered the primary credit rate (discount rate) by a quarter-point, to 3.25%, and lengthened the maximum time for such loans to 90 days from 30 days. The Fed also agreed to guarantee $30 billion of virtually worthless securities held by Bear Stearns, as part of its "shotgun marriage" takeover by J.P. Morgan Chase.


Finally, on Tuesday, March 18, the Fed cut the primary credit rate another three-quarters point to 2.5%, and cut the Fed funds target rate by a similar amount, to 2.25%. The Fed has cut the Fed funds rate five times since September, when it stood at 4.75%.
Hyperinflationary Bailout
At the same time that the Fed is pouring money into the system with unprecedented speed, the government is moving ahead with a series of bailout measures designed to transfer the losses of the banking system to the public. In addition to the hundreds of billions of dollars of loans given to the banks through the Federal Home Loan Banks, the government is using the Federal Housing Administration to refinance and insure mortgages, and expanding the role of Fannie Mae and Freddie Mac in buying larger mortgages, effectively putting the taxpayers on the hook for the huge real estate losses working their way through the system. On top of that, we have the Bush stimulus plan and the apparent intervention by the Fed to keep the stock market from collapsing.

The futility of this approach was demonstrated by the fact that, despite all the interventions, the Fed was unable to prevent the collapse of Bear Stearns, the fifth-largest investment bank in the nation. We have now entered what is, in effect, an open-ended bailout of the U.S. banking system, in which the hundreds of billions spent so far will soon turn into trillions.

The fatal flaw in this approach, as LaRouche has warned, is that it is inherently hyperinflationary. That hyperinflation has already begun, and the money pumped into the bailout—money which serves no economically useful purpose—will only accelerate the process. This means that the faster the government pumps in the money, the faster the value of the dollar will collapse, and the faster the global economy will collapse. (For a pedagogical lesson on hyperinflation, we recommend the reader log on to the LaRouche Political Action Committee website, www.larouchepac.com, and view the 80-minute video "Firewall: In Defense of the Nation-State.")

Time for LaRouche
It has taken 37 years for the process set into motion by Richard Nixon in 1971 to destroy the global economy. During that entire period, LaRouche and his international political movement have been a consistent voice for reason, organizing in the streets and in the halls of government for a return to the sound economic policy of the American System, and an end to Anglo-Dutch Liberalism.

We have now reached the point where all of us must decide: Do we go back to what works, or do we descend into fascism and chaos, and a new Dark Age? That is the question we ask you to keep in mind, as you read the following reports.



Admin

ECONOMIC SUICIDE CLUB MEETS IN WASHINGTON
http://larouchepac.com/news/2008/04/03/e...ngton.html

A meeting of the Economic Suicide Club was held today on Capitol Hill, in the chambers of the Senate Banking Committee. Among the prominent members in attendance were Fed Chairman Ben Bernanke, SEC Chairman Chris Cox, Treasury Under Secretary Robert Steel, New York Fed President Tim Geithner, JP Morgan Chase CEO Jamie Dimon and Bear Stearns CEO Alan Schwartz. Master of Ceremonies for the occasion was Sen. Chris Dodd (D-CT). One after another, the members steadfastly defended their suicidal economic policy, often with more vigor than might be expected from people with such a pronounced death wish. Afterwards, they all attended a posh dinner in honor of Nero, and his brave determination to keep fiddling while Rome burned.

The gaunt figure of Death stood patiently outside the room. Asked how he intended to lure the club members to their new destination, Death replied, "That is easy. I just promised them they'd get their money on the other side. They can't wait to go."

"You can bank on it," he added, in his distinctly British accent.


THE ECONOMIST SPEAKS ITS MIND, WITH A MOUTHFUL OF JELLO
http://larouchepac.com/news/2008/04/03/e...jello.html

The cover feature in The Economist now on the newsstands (March 29-April 4), is "A 14-Page Special Report on the Future of American Foreign Policy," headlined "All Change?" and "After Bush," which amounts to a British Empire view of what's ahead for the United States. One theme runs throughout the six sections, namely, that the "rivals" of the U.S. are Russia and China. "America's relations with Russia are likely to get even cooler than they are now." As for China, "America, in short, will come face to face with a country that might become its greatest rival in the 21st century."

Are there friends for America's future? The Economist states, "The most obvious reason for optimism is that Germany and France are now led by Angela Merkel and Nicolas Sarkozy, not Gerhard Schroeder and Jacques Chirac. Ms Merkel has smoothed American-German relations and distanced Germany from Russia. The change in mood has been even more dramatic in Paris, once the capital of European anti-Americanism."

In classic geopolitical mode, The Economist makes no mention at all of the relations of the United States to the imperial designs of London.

"What a difference a bungled war makes..." The Economist recounts the decline of the USA, and its tarnished global image, etc. How to regain stature? "The most obvious way to do that is to play a more active role in combating global warming", and resist the dangers of economic isolationism.

Any decent American patriot should remember that it was, in fact, Tony Blair's "bungled war" plan which failed. And, global warming? May we suggest some Jello; that might help the global turd that the British Empire might never pass.

THE CONGRESS LACKS THE MORAL COURAGE TO CALL THE BEAR STEARN'S BAILOUT ILLEGAL
http://larouchepac.com/news/2008/04/03/c...illeg.html

Not a single senator on the Senate Banking, Housing, and Urban Affairs Committee had the courage to bring up the issue of the illegality of the March 16 Federal Reserve bailout of Bear Stearns during a hearing to investigate the bailout held on Thursday April 3. The committee hearing was chaired by fascist Felix Rohatyn controlled Senator Christopher Dodd. Members of the Senate Banking Committee could not have claimed that they were unaware of the illegality of the Bear Stearns deal since in the past two weeks the LaRouche Youth Movement had distributed Lyndon LaRouche's statement on the illegality of the deal to every office in the Congress and the Senate. This is yet another graphic example of what LaRouche has said about the need to mass organize the lower 80 percent to provide the leadership to the Congress. Congress is asleep at the switch.

During the hearing, Federal Reserve Chairman Ben Bernanke endorsed Senator Dodd's impotent bill, which is not a solution to the housing crisis or general economic breakdown. When told of this endorsement, Lyndon LaRouche commented, that Bernanke's endorsement of Dodd's bill proves that "Dodd is getting feeble-minded. Dodd is shifting his seat from Connecticut to New York's Orchard Street where he is putting himself up for auction."

Treasury Secretary Paulson was not present at the hearing by his testimony defending the Bear Stearns bailout was read by Under Secretary of Treasury for Domestic Finance Robert Steele. Lyndon Larouche commented on Paulson saying, "Paulson is stupid, and has been working for certain interest for so long, he doesn't know how to do anything else. He is a whore. That is his problem. They are destroying the country."







Admin

DO WE REALLY WANT A THIRD WORLD WAR?
Helga Zepp-LaRouche
http://larouchepac.com/news/2008/04/05/d...-want.html


Whoever had the idea of holding the GroßeNagiaZ (Greatest NATO Summit of All Time) in the modern and super-ugly Tower of Babel in Bucharest, which, at 330,000 square meters, is the second-largest building in the world after the Pentagon, must have a macabre sense of humor. Indeed, the monstrous building--about 3,000 official delegates and an equal number of journalists only required one-third of the gigantic structure for the summit--was built according to the wishes of the megalomaniacal dictator Nicolae Ceausescu, who was, however, overthrown and executed before the structure could be inaugurated. According to unconfirmed rumors, it was the old, established PR firm Dracula Ltd., which took charge of the whole organization of the mega-events, from promotion and decoration, to catering (especially the excellent drinks), and including the graphic design of the famed fire-writing on the wall at the gala dinner in commemoration of Belshazzar and his
Romanian successor.

But irony aside: The April 2-3 NATO summit in Bucharest, which was supposed to transform NATO essentially into an imperial global organization, is only one element of a breathtaking escalation of the strategic situation. Behind the scenes of the daily escalating financial collapse, the financier oligarchy of the British empire is trying to throw the principal opponents of the Anglo-American empire into chaos. Thus we have the orchestrated and violent campaign against China, as well as the unrelenting British campaign against Russia, and Putin personally, and the attempt to bring Zimbabwe back under colonial control. It is therefore evident, that the geostrategy behind this global policy of provocation is being carried out regardless of the consequences--or is even intended to build up an enormous factor of rage against London and Washington, among countries such as China, Russia, India, and others. If a totally different policy is not placed on the agenda, a new world war looms, which threatens to become even more horrendous than the world wars of the 20th Century.

At the NATO summit in Bucharest, the entire imperial agenda was supported by all the NATO members, with the exception of the issue of admitting Georgia and Ukraine,
"at this point in time.'' Thus the admission of Croatia and Albania, and the French reintegration into NATO; the stationing of anti-missile defense systems and radar installations in Poland and the Czech Republic; the reinforcement of NATO troops in Afghanistan by 700 French soldiers; the integration of NATO's military structure with the EU, according to the directives of the Lisbon Treaty; and--according to unconfirmed media
reports--behind the scenes, also debate and agreement on a new strategy paper that would include "preventive conflict avoidance'' around the world, as the five retired chiefs of general staffs envisage.

A look at the map leaves no doubt that NATO membership for Georgia and Ukraine, as an expression of the encirclement strategy against Russia, as well as the missile defense systems in Poland and the Czech Republic, massively violates the security interests of Russia.
Russia has warned in advance of "catastrophic consequences'' from these developments. Eight NATO members states, among them Germany and France, spoke out against the absorption of Georgia and Ukraine. And although Bush knew about the negative views of these eight, during his visit to Kiev two days before the Bucharest Summit, he promised the early absorption of Ukraine into NATO. Chancellor Angela Merkel, who, in the opinion of Spiegel Online has molted into a "crafty player in the NATO area,'' apparently persuaded President Bush to come to a
compromise, so that the two countries would come in "not at this time.'' Ms. Rice made clear what this "compromise'' is worth in a press briefing, where she said that it was only "a question of when, not if'' these two nations would enter NATO.

President Putin clarified the Russian point of view on these matters in an hour-long press conference in Bucharest, where he stressed that the establishment of a powerful military bloc on Russia's borders would be understood as a direct threat to its national security. Declarations that this doesn't represent a threat, would not be sufficient, especially as this has already been heard before every expansion. Putin accused NATO of not
dispelling unclarities about the future role of the alliance, such as the intent of becoming a worldwide player that dominates the territory of its member states.

Despite these clear words, Mrs. Merkel commented that NATO was not aimed against anyone, especially not against Russia.

This brushing aside of the opposition to this policy, and of the policy of constantly raising the pressure, highlights the evil intentions of the strategy behind this policy. Russia and, in another respect, China, will be provoked and put under pressure until they reach the limit of what they can tolerate, and then take pre-calculated reactions--which the Empire faction has already taken into account. U.S. Vice President Cheney publicly formulated the policy years ago, that the U.S. should never allow a nation, or a group of nations, to come close to the
economic and military might of the United States.

Exactly at the point in time when the American financial crisis has escalated into a depression for the real economy, the London Economist, in a 14-page special feature on the future of American foreign policy, describes, on the one side, the decline of the United States, and, on the other side, Russia and, above all, China as the great rivals in the 21st Century. Other reports from different investment houses merely vary in specifying when China, and soon after, India, will have
overtaken the United States, at least in the economic aspect.

The same Economist, on Feb. 3, 2007, had begun a series of articles with the title "Britannia Redux,'' in which they raised the claim that the time when Great Britain was the "sick man of Europe,'' is over, and London, through globalization, is again the rightful headquarters of power. According to this view, the fact that around 80% of all hedge funds have their headquarters in the Cayman Islands, and therefore in the British Commonwealth, definitely played an essential role.

You could add a long list of further details showing that the British empire has decided to come out of this systemic crisis as the dominant factor, and thus to
incorporate both the United States and continental Europe, forced into the EU corset, as vassals of the empire. The strategic partnership among Russia, China, and India is supposed to be destroyed, and each of these nations, after they have been isolated and entangled in territorial conflicts, will be smashed.

- War Scenarios in London's 'Sunday Times' -

If you need still another piece of proof for this analysis, then you can find it in an astounding article in the March 30 London Sunday Times, with the title "Tibet Is One Thing, But India and China Tensions Spell Greater Disaster.'' The author first praises the "genial'' maneuvers of George W. Bush to draw India onto the side of the United States (which, in India, has been seen, just the opposite, as massive pressure and geopolitical manipulation). Then he describes the tensions between China and India over the Indian state of Arunachal
Pradesh, just south of Tibet, where China also has a claim, and over Aksai Chin, a thinly populated region on the high plateau of the Himalayas, northeast of Kashmir, on which India has a claim. But for China, Aksai Chin is very important, because it is building the world's highest highway, which will make travel from Tibet to Xinjiang much faster than would be possible along the northern route. The author is quiet about the fact that it
is precisely these border questions which China and India have consciously laid to rest over recent years.

Now Arunachal Pradesh and Aksai Chin, just like Tibet and Kashmir, are part of those regions over which Great Britain exerted control at the end of its rule over India, precisely in order to have room for ethnic and territorial manipulation. London followed the same policy with the Sykes-Picot Treaty for the partition of Southwest Asia, and the Trianon Treaty for the Balkans, always according to the idea of fomenting hundred-year-old ethnic conflicts for the benefit of the Empire.

The Sunday Times now elaborates a scenario according to which, after the death of the Dalai Lama, who is now 73 years old, there would be differences between the Chinese central government and the Tibetan exiles over who would be the authentic incarnation of the new Dalai Lama. China, according to the Sunday Times, would crack down hard against the insurgents. But--here the writer lets the cat out of the bag--if the Chinese government had been weakened as a result of an economic collapse, and unrest spreads throughout China, then it would be more difficult for them to crack down against the Tibetans. India, in a further development, could then advocate an international troop intervention, either sending in troops itself, or offering exile in Arunachal Pradesh. (In reality, the Indian foreign minister has already warned the Dalai Lama that he can only remain in India as a religious exile, but not as a political leader.)

If China, as a result of the U.S. crisis, falls deeper into crisis, and would react to the greatest unrest since 1989 with a reenforcement of its national control, this would raise tensions with Japan. If the death of the Dalai Lama were to coincide with the death of Kim Jong-il of North Korea, Japan would have added reasons to rearm; under these conditions, tensions would grow among China, Japan, and the U.S., and there could be a military exchange of blows over Taiwan. Then the Sunday Times writes: "The warm glow of the 2008 Beijing Olympics would be remembered only through a thick mog of tension.''

- It's Not Only Theory -

Many aspects of these insane scenarios, in the best tradition of the geopolitics of Karl Haushofer, Lord Milner, and Sir Halford Mackinder, are already operational. The destabilization of China's western province of Xinjiang, by Uighurs trained as terrorists in Pakistan, is in full swing. There is also already unrest in Sichuan province. The plan, which lies behind the whole campaign against China, is no less than breaking away a hostile Muslim state in Xinjiang, creating a Greater Tibet, and reducing China to a relatively small territory.
There are similar scenarios for India, which are aimed at conflicts among Hindus, Sikhs, Muslims, Tamils, and so forth.

When French President Nicolas Sarkozy, during the French-British summit in London at the end of March, invoked not only the Entente Cordiale of the last century, but also the colonialist tradition of the European powers, as an asset for Europe's role in the world today, this was by no means only nostalgia. Behind the British campaign against Zimbabwe's President Robert Mugabe lies no less than the intention to reverse the independence of what used to be called Southern Rhodesia. There is also no doubt that the "former'' colonial powers are savagely determined to break the extensive agreements in Africa by China, and secondarily Russia, to import raw materials and build up infrastructure and industrial capacity in return.

Furthermore, there are ambitious efforts to make British Prime Minister Gordon Brown, under the Queen of
England, into the foreign minister of the Commonwealth, to which 53 nations and 16 so-called "realms'' belong. In addition, Brown and Sarkozy have already proposed Tony Blair as the first president of the European Union, who would then, according to the Lisbon Treaty, be elected for a term of two and a half years. If one then notes the networking of the EU and NATO, which are already undertaking common military missions in the Balkans, on the Lebanese coast, and, in the case of the EU, also in Darfur, what picture then emerges? If it should be
revealed, that the NATO Summit in Bucharest really came together around the strategy paper of the five generals for global preventive strikes and the first use of nuclear weapons, which could not be clearly confirmed at the time of this writing, then the world finds itself on a short track toward World War III.

Whether Mrs. Merkel understands it or not, we are
experiencing right now, a global alignment of an order of battle for a coming world war, in which the British empire, with its vassals, the U.S.A. and continental Europe, with the help of the militarized EU dictatorship and NATO, will be launched against Asia, especially against Russia, China, and India. The fire-writing on the wall could be read in Bucharest.

- The British Motive -

If you are looking to express the reasons for the current monstrous crisis, you would declare that the British empire, the primary author for this climactic world crisis, is acting out of utter desperation and insanity. During the whole period since the successful breakthrough of the Allied forces in 1944 in Normandy, the Anglo-Dutch financial powers, who wear the facade of the British monarchy in a certain way, like a Venetian mask, have had only one burning wish. They saw as their long-term strategic orientation, to root out the post-war
plans of Franklin D. Roosevelt, who died at a most unfortunate time in 1945, and to corrupt the United States from the inside, in order to finally eliminate not only any recollection of the legacy of the American Revoltuion, the American victory over the Confederate puppets of Lord Palmerston, and the brilliant victory of President Roosevelt, but also to end politics in the tradition of the 1648 Peace of Westphalia in the whole world.

For the Anglo-Dutch financial oligarhcy and their accomplices in the American establishment, this means, above all, to expunge the American System of economy, with the help of which the U.S. became the greatest economic power that has ever existed.

Today, this British oligarchical intention has almost been realized. The current world financial system has been destroyed to such a degree, that the collapse of the
global financial system and real economy, which has been escalating since August 2007, finds itself on the edge of a situation which could only be compared to the Dark Age, which was unleashed by the bankruptcy of the Venetian Lombard League.

The greatest fear which the British empire has about its current war plans against Africa and Asia, lies in the
fact that precisely these actions could bring the United States to the point of reviving the policy of FDR, as occurred in 1932-33. Britain's dilemma lies in the fact that the speed, extent, and depth of the current global financial crisis does not permit the powers of the British empire to hesitate. London's impulse, and that of the powers tied to it, is that they have to act now, regardless of the risks. Thus, we find ourselves in a situation where we either defeat the monster now, or the British scenarios, which are already in motion, will drive the whole planet into ruin, and plunge the British empire, along with the rest of the world, into the abyss.

It is high time to put on the agenda, in opposition to this, cooperation among Russia, China, India, and the United States, in the tradition of Franklin D. Roosevelt, the New Deal, and a New Bretton Woods.

Admin

FINANCIAL CRISES: LESSONS FROM HISTORY
Steve Schifferes


The current market jitters are centred on disturbances in the world's credit markets. Worries about the viability of sub-prime mortgage lending have spread around the financial system, and the central banks have been forced to pump in billions of dollars to oil the wheels of lending.

But what happened in previous financial crises, and what are the lessons for today?

There have been a growing number of financial crises in the world, according to the International Monetary Fund (IMF).

Among the key lessons of previous major financial crises are:

Globalisation has increased the frequency and spread of financial crises, but not necessarily their severity

Early intervention by central banks is more effective in limiting their spread than later moves

It is difficult to tell at the time whether a financial crisis will have broader economic consequences

Regulators often cannot keep up with the pace of financial innovation that may trigger a crisis.

THE DOT.COM CRASH, 2000
During the late 1990s, stock markets became beguiled by the rise of internet companies such as Amazon and AOL, which seemed to be ushering in a new era for the economy.


When AOL's Steve Case took over Time Warner, the dot.com boom peaked

Their shares soared when they listed on the Nasdaq stock market, despite that fact that few of the firms actually made a profit.

The boom peaked when internet service provider AOL bought traditional media company Time Warner for nearly $200bn in January 2000.

But in March 2000, the bubble burst, and the technology-weighted Nasdaq index fell by 78% by October 2002.

The crash had wider repercussions, with business investment falling and the US economy slowing in the following year, a process exacerbated by the 9/11 attacks, which led to the temporary closure of the financial markets.

But the Federal Reserve, the US central bank, cut interest rates throughout 2001, gradually lowering rates from 6.25% to 1% to stimulate economic growth.


LONG-TERM CAPITAL MANAGEMENT, 1998
The collapse of hedge fund Long-Term Capital Market (LTCM) occurred during the final stage of the world financial crisis that began in Asia in 1997 and spread to Russia and Brazil in 1998.

LTCM was a hedge fund set up by Nobel Prize winners Myron Scholes and Robert Merton to trade bonds. The professors believed that in the long run, the interest rates on different government bonds would converge, and the hedge fund traded on the small differences in the rates.


John Meriwether, a Wall Street trader, headed LTCM
But when Russia defaulted on its government bonds in August 1998, investors fled from other government paper to the safe haven of US Treasury bonds, and interest rate differences between bonds increased sharply.

LTCM, which had borrowed a lot of money from other companies, stood to lose billions of dollars - and in order to liquidate its positions it would have to sell Treasury bonds, plunging the US credit markets into turmoil and forcing up interest rates.

So the Fed decided that a rescue was needed. It called together the leading US banks, many of whom had invested in LTCM, and persuaded them to put in $3.65bn to save the firm from imminent collapse.

The Fed itself made an emergency rate cut in October 1998 and markets soon returned to stability. LTCM itself was liquidated in 2000.


THE CRASH OF 1987
US stock markets suffered their largest peacetime one-day fall yet on 19 October 1987, when the Dow Jones Industrial Average index of shares in leading US companies dropped 22% and European and Japanese markets followed suit.


Program trading on the New York stock market worsened the crisis
The losses were triggered by the widespread belief that insider trading and company takeovers on borrowed money were dominating the markets, while the US economy was entering into an economic slowdown.

There were also worries about the value of the US dollar, which had been declining on international markets.

These fears grew when Germany raised a key interest rate, boosting the value of its currency.

Newly-introduced computerised trading systems exacerbated the stock market declines, as sell orders were executed automatically.

Concerns that major banks might go bust led the Fed and other major central banks to lower interest rates sharply.

"Circuit-breakers" were also introduced to limit program trading and allow the authorities to suspend all trades for short periods.

The crash seemed to have little direct economic effect and stock markets soon recovered. But the lower interest rates, especially in the UK, may have contributed to the housing market bubble of 1988-89 and to the pressures on the pound sterling which led to the devaluation of 1992.

The crash also showed that global stock markets were now closely linked, and changes in economic policy in one country could affect markets around the world. Laws on insider trading were also tightened up in the US and UK.


US SAVINGS AND LOAN SCANDAL, 1985
US Savings and Loans institutions were local banks which made home loans and took deposits from retail investors, similar to building societies in the UK.

Under financial deregulation in the 1980s, they were allowed to engage in more complex, and often unwise, financial transactions, competing with the big commercial banks.

By 1985, many of these institutions were all but bankrupt, and a run began on S&L institutions in Ohio and Maryland.

The US government insured many of the individual deposits in the S&Ls, and therefore had a big financial liability when they collapsed.

It set up the Resolution Trust Company to take over and sell any S&L assets that it could, including repossessed homes, taking over the bankrupt institutions.

The cost of the bail-out eventually totalled about $150bn.

However, the crisis probably strengthened the bigger banks by weeding out their weaker rivals, and laid the groundwork for the wave of mergers and consolidations in the retail banking sector in the 1990s.


THE CRASH OF 1929
The Wall Street crash of 1929, "Black Thursday," was an event that sent the US and indeed the global economy into a tailspin, contributing to the Great Depression of the 1930s.


Franklin Roosevelt became US President after the crash
After a huge speculative rise in the late 1920s, based partly on the rise of new industries such as radio broadcasting and carmaking, shares fell by 13% on Thursday, 24 October.

Despite efforts by the stock market authorities to stabilise the market, stocks fell by another 11% the following Tuesday, 29 October.

By the time the market had reached bottom in 1932, 90% had been wiped off the value of shares. It took 25 years before the Dow Jones industrial average recovered to its 1929 level.

The effect on the real economy was severe, as widespread share ownership meant that the losses were felt by many middle-class consumers.

They cut their purchases of big consumer goods such as cars and homes, while businesses postponed investment and closed factories.

By 1932, the US economy had declined by half, and one-third of the workforce was unemployed.

The whole US financial system also went into meltdown, with a shutdown of the entire banking system in March 1933 by the time the new President, Franklin Roosevelt took office and launched the New Deal.

Many economists on both left and right have criticised the response of the authorities as inadequate.

The US central bank actually raised interest rates to protect the value of the dollar and preserve the gold standard, while the US government raised tariffs and ran a budget surplus.

New Deal measures alleviated some of the worst problems of the Depression, but the US economy did not fully recover until World War II, when massive military spending eliminated unemployment and boosted growth.

The New Deal also introduced extensive regulation of financial markets and the banking system through the creation of the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC), and the separation of commercial and retail banking through the Glass-Steagall Act.


OVEREND & GURNEY, 1866; BARINGS, 1890
The failure of a key London bank in 1866 led to a key change in the role of central banks in managing financial crises.


The Bank of England was at the centre of the world financial system

Overend and Gurney was a discount bank which provided money for commercial and retail banks in London, the world's financial centre. When it declared bankruptcy in May 1866, many smaller banks were unable to get funds and went under, even though they were otherwise solvent.

As a result, reformers like Walter Bagehot advocated a new role for the Bank of England as the "lender of last resort" to provide liquidity (cash) to the financial system during crises, in order to prevent a failure of one bank spilling over and affect all the others ("systemic failure").

The new doctrine was implemented in the Barings Crisis in 1890, when losses by a leading UK bank, Barings, made on its investments in Argentina, were covered by the Bank of England to prevent a systemic collapse of UK banking.

Secret negotiations by the Bank and London financiers led to the creation of an £18m rescue fund in November 1890, before the extent of Barings' losses became publicly known.

The bankers also organised a committee to renegotiate the outstanding debts owed by Argentina, but a banking crisis engulfed the country and foreign lending to Argentina dried up for a decade.


FORECLOSURE WAVE SWEEPS AMERICA
http://news.bbc.co.uk/2/hi/business/7070935.stm


Thousands of abandoned houses in Cleveland have been vandalized
A wave of foreclosures and evictions is about to sweep the United States in the wake of the sub-prime mortgage lending crisis.
This could destabilise the US housing market and may also lead to further turmoil in financial institutions, who collectively own $1 trillion (£480.6bn) worth of sub-prime debt.

Cleveland, Ohio, is an industrial city on the banks of Lake Erie in the US "rust belt".

It is the sub-prime capital of the United States. One in ten homes in the city is now vacant, and whole neighbourhoods have been blighted by foreclosed, vandalized and boarded-up homes.

Families all over the country continue to lose homes in record numbers, stripping families of their wealth and destroying entire neighbourhoods

Michael J Calhoun
Center for Responsible Lending


Many of these homes are now owned by the banks and investment pools owning the mortgages, and the company making the most foreclosures in Cleveland is Deutsche Bank Trust, which acts on behalf of such investment pools.

Cleveland is facing a rising crime wave, and the cost of demolishing the vacant houses alone will cost the city $100m of its tax base.

According to Jim Rokakis, the County Treasurer for Cleveland's Cuyahoga County, "Wall Street strategies that made the cycle of no-money-down, no-questions-asked lending possible have sucked the life out of my city".



THE SUB-PRIME CRISIS IN CLEVELAND
Sub-prime lending Black areas
Foreclosures (repossessions) Deutsche Bank properties

Sub-prime crisis growing

Sub-prime lending is spreading across the United States, especially in the booming housing markets of Southern California, Florida, Washington, DC, and New York City.


One in five US mortgages now falls in this category. As the credit crunch continues to bite "families all over the country continue to lose homes in record numbers, stripping families of their wealth and destroying entire neighbourhoods," says Michael Calhoun of the Center for Responsible Lending, which tracks these issues.


Sub-prime mortgages carry a much higher risk of default by the borrower than other kinds of mortgage lending.

That is because most of them are "balloon" mortgages (technically known as hybrid-adjustable rate mortgages, or ARMs), which offer the borrower a fixed-rate loan for two or three years, and then switch to a much higher adjustable rate after that.

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Many of them are set to switch in the next two years, leaving borrowers unable to afford the higher payments.

There have already been 1.7 million foreclosure proceedings in the US in the first eight months of 2007, and up to 2 million families are expected to lose their homes over the next two years, according to estimates by the US Congress's Joint Economic Committee.

Crisis origins

But why have so many people in the US taken out sub-prime mortgages?




The sub-prime lending market started as a way of lending to people with poor credit history - as long as they had collateral like a house that could be used to guarantee the loan.

It was particularly prevalent in inner-city areas, especially among black and Hispanic borrowers.

Many of these mortgages were sold by unscrupulous and little regulated mortgage brokers, who received handsome commissions for selling expensive and unsuitable products.

Some customers were not told that their interest rates would go up sharply after two years; others were promised they could refinance their home before higher rates took effect.

Others found that when they had difficulties paying, huge unexplained fees were added to their bills, putting them further in debt.

Marion's story

One person hard hit is Marion Gardner, who lives in one of the worst affected sub-prime lending areas of Cleveland, known as Slavic Village.


Marion has spent 30 years raising a family in her home

A single parent, she had worked hard to buy a house where she could raise her two children and escape from the misery of the inner-city housing projects.

Two years ago Marion fell ill, and found she could not manage the stairs in her house.

She decided to refinance her home, using some of the money to buy an apartment where she could more easily manage.

She gave her old house to her two sons, expecting they would contribute to paying for the property she had struggled so hard to obtain. But the sons fell behind in their payments.

Marion went to her lender - Countrywide, the biggest sub-prime lender in the US - and offered to pay off all the arrears.

She said they accepted her offer, and began sending them $1,000 every month, using up her retirement savings.

But after six months she discovered that instead of clearing her arrears, her home was going to be foreclosed by Countrywide.

She still visits the house every day, trying to protect if from drug dealers and burglars, and leaves her dog in the backyard.

But she can see all along her street dozens of foreclosed properties that have been vandalised, boarded up, or gutted.

Now she has learned that a date has been set for the sheriff to come and evict her.

Deceptive practices?


Mark Seifert, the director of the East Side Organising Project (ESOP) in Cleveland, which has played a leading role in helping people affected by the sub-prime crisis, says Marion's story is typical.


SUB-PRIME CRISIS SERIES

Special reports on why bad US home loans are affecting us all
Friday: US housing crash
Monday: Financial meltdown


Viewers hit by sub-prime crisis speak out
Have Your Say: What should we do about the crisis?


He says lenders engaged in deceptive practices and clients found it difficult to get any information at all when they got into arrears.

Mr Seifert says that ESOP - using protest tactics - has managed to get a few mortgage companies to sign a deal agreeing a uniform set of criteria to decide whether someone's mortgage qualifies for renegotiation rather than foreclosure.

But he says they have been unable to reach such an agreement with Countrywide, the nation's largest sub-prime lender - although its boss has promised to meet them.

Spreading to the suburbs

The crisis has spread beyond the inner city to the suburbs of Cleveland.


Last month over 200 people turned up at a church meeting to seek ESOP's help in avoiding foreclosure.



Worried homeowners meet to "Save the American Dream"

Some, such as Ron Todd, who lives in a suburb just south of the city, are in danger of losing their home after being made redundant by Northwest Airlines, a big local employer.

Others are worried that their neighbourhoods - and the property values of their own houses - will be ruined by the foreclosures all around them.

According to Claudia Coulton, co-director of the Centre for Urban Poverty at Case Western Reserve University in Cleveland, over 10,000 families - one in eight of all owner occupiers in Cleveland - will face eviction this year - and the number is expected to rise.

She says the crisis is threatening to "overwhelm the government agencies and community organisations that address the problem".

Nationwide problem
Cleveland's situation is not unique.

All around the country, aid agencies report a "tidal wave" of foreclosure cases, says Sarah Gerecke, director of New York City's Neighborhood Housing Services.

PREDATORY LENDING PRACTICES
Ninja Loans: no income, no job, no assets
2/28: Mortgages that change from a fixed to a much higher adjustable rate after first two years
Prepayment penalties: High fees for trying to change terms of mortgage

She now employs six people full-time to provide mortgage debt counselling, up from one just two years ago, and could use another 12.

Her concern is that many recently regenerated neighbourhoods in New York will soon be blighted by crisis again.

Some people argue that the sub-prime lending crisis has been caused by irresponsible borrowers who lied about their income to cash in on the housing boom. Ms Gerecke disagrees. She says few of her clients would knowingly put their home at risk.

Many sub-prime borrowers report that mortgage brokers misrepresented the kind of mortgage they were being offered, their annual income, and even the value of their home.

Working together?

President George W Bush's administration wants to solve the foreclosure crisis by getting lenders and borrowers to renegotiate the terms of loans.
There is a natural level of foreclosures that goes on in an economy in good times and bad... it's part of the nature of how our economy works

Robert Steel
US Treasury Under Secretary for Domestic Finance

It is pledging more money for advice services, and has been urging key lenders to take a more sympathetic approach.

Robert Steel, the US Treasury Under Secretary for Domestic Finance, told the BBC that the government's role was "to ensure that lenders and servicers are being flexible with regard to working with borrowers".

He added that no policy could eliminate foreclosures altogether because there was "a natural level of foreclosures that goes on in an economy in good times and bad... it's part of the nature of how our economy works."

But according to Mark Zandi, chief economist for Moody's, only 1% of sub-prime mortgages have been renegotiated rather than foreclosed so far.

Ms Gerecke says a piecemeal approach involving millions of individual renegotiations will not work. Each case takes hours of negotiations, and the mortgage companies' loan loss departments are overwhelmed by the crisis.

A way out?

The only way out, says Ms Gerecke, would be national loan terms agreed for the whole industry.

One such plan has been proposed by Sheila Bair, head of the Federal Deposit Insurance Corporation (FDIC), one of the key banking regulators.

She told the BBC that sub-prime interest rates should not be reset if the borrower has kept up all payments and is not in arrears.

But such a deal is proving extremely difficult to reach, given that thousands of investors around the world own a share of these sub-prime mortgages.

Meanwhile Marion still sits in her Cleveland home every day, trying to stop it being vandalised even though she knows it is merely a matter of time before she will be evicted.

"I am just really working for the banks now, protecting their property from damage," she says.

Admin

THE BLACK DEATH OF FINANCIAL COLLAPSE
James Cumes
http://www.informationclearinghouse.info...e19718.htm


The financial and economic crisis now upon us is by far the most menacing of the past century - even more so than the Great Depression of the 1930s. It is not just a "subprime" crisis; it is systemic - affecting the entire financial system. It is also global, affecting various countries in various ways but affecting them all. In achieving a certain "globalization", we have been uniquely successful in globalizing collapse, chaos and misery. It is a globalization which, in our short-sighted negligence, we never envisaged.

In this crisis, even a country such as Australia is no more than a subordinate, neo-colonial, financial and economic dependency. In essence, we have reverted to what we were before and during the Great Depression of the 1930s, when Whitehall, Westminster and

the Bank of England played the tune to which we jigged. Then, from 1945 to 1969, for the first time, we played our own tune of full employment and stable economic growth. Wild radicals such as minister Eddie Ward in the governments of John Curtin (1941-45) and Ben Chifley (1945-49) warned us to be wary of Wall Street.

The cynics might now say that Eddie, who died in 1963, was right. After 1969, we forgot his warning. Indeed, the Americans themselves forgot to guard against the chicaneries of Wall Street, where eternal vigilance should always be the watchword. They forgot what the mania of Wall Street can do to the reality of Main Street; and we shared their amnesia.

From 1969 and especially from 1971, when the United States cut the dollar link with gold, Australia surrendered any worthwhile independence in its economic and financial thinking. We swallowed American financial and economic formulae, whether we were academics or policymakers, industrial entrepreneurs, banks or providers of "financial services."

We did not entirely switch off tunes played by Britain, the more so as its prime minister Margaret Thatcher formed her slapstick band with US president Ronald Reagan to drum up support for "free" markets, "free" trade, privatization, globalization and the free flow of almost everything, including speculative capital in unqualified pursuit of private profit. Corporation and consumer greed marched in step towards global disaster.

Rational economics based on real investment, productivity and production died in favor of speculative and often Ponzi pretensions. The cowboy junk-bond merchants of the 1980s metamorphosed into respectable, mostly young and usually idolized financial wizards who "perfected" sophisticated, highly complex credit devices. From the 1990s, these highly leveraged instruments took the form of derivatives, private-equity, hedge-fund and mortgage securities, abbreviated to CDOs, SIVs and the rest.
Allied with "free" markets, deregulation and the uninhibited flow of all kinds of finance, those financial devices destroyed industries and the jobs that go with them. With casual indifference, they also destroyed the self-reliant working and middle classes until then typical of robust free-enterprise economies.

Theirs was not Joseph Schumpeter's "creative destruction" but wholesale destruction of their own economies and, eventually, their own financial "system". They destroyed personal savings and created massive indebtedness. They undermined the power and security of the United States itself as they "outsourced" real economic strength and stability to countries especially in Asia.

The Asian Tigers, China and others grew into "powerhouses" whose creation, historically, would otherwise have taken them generations. Our eminently creditable aim of peaceful change through development of developing economies was distorted, largely through negligent inadvertence, into financial, economic and social self-destruction. Looming global collapse, with political and strategic uncertainties, are our inevitable legacy.

Consumerism rages, industry gutted
The speculative, Ponzi mania spread especially to Anglo-Saxon countries and to other developed countries in lesser degree. Australia took to "free" markets, "free" trade, free-floating currencies, deregulation, privatization, globalization, derivatives, hedge funds, private equity, wildcat mortgages and leverage-without-limit as a duck to water. Consumerism raged. Industry was gutted. Debts ballooned. The value of the currency fell at home and abroad. Despite low-cost imports, inflation flourished. In 2008, the Australian dollar can perhaps buy as much in real terms as five or 10 cents did in 1969.

A situation in which real public and private investment was replaced by "ownership investment", massive leverage and speculative finance, in which consumption grew and debts spread, could not persist, except so long as ever more money flooded in to support the insupportable. Once the flood slowed or stopped, a Ponzi-type collapse was inevitable.

But few saw it that way. Warren Buffet belatedly called derivatives weapons of mass destruction; but most saw the financial devices as belonging to a "new era". They represented a "new paradigm". Far from being a threat to stable growth in a stable financial system, they "spread risk" and made everyone more secure and of course more wealthy.

The wealth effect was a particular feature of the residential mortgage business. Funds were available from many new banking and non-banking sources, including hedge funds and private equity, as well as pension and mutual funds; and sources that, in their magnitudes, were new, such as the carry trade. Funds marketed wholesale and retail mortgages. Liability could be shifted even or especially for debt in the deepest sense sub-prime. Mortgages also enabled homeowners to expand consumption through mortgage-equity withdrawals (MEW).

In a real sense, MEWs were symptomatic of multitudes of individuals - and, in effect, whole societies - high-living it off their capital. That enabled a process of growth that was both irresistible and inherently unsustainable.

However, the Ponzi scheme to shame all others may yet be waiting to deliver its coup de grace. One commentator has drawn attention to "the bad news [which] is the US$500 trillion derivatives market". He says that "This is an area that the general public does not even know exists. Few professionals understand this market. There is no regulation as government just let it go ... and go it did. You must expect a 5% default problem. That is a $25 trillion number ... It can create insolvent institutions all over the world ... It is the making of the first global depression. The world is not ready."

Unprepared for depression
Australia is not ready either. Prime Minister Kevin Rudd told us late in March that Australia's economic prospects remain "sound, strong and good". The Reserve Bank of Australia shares that view. Eerily, they echo US President Herbert Hoover in 1929 immediately before the stock market crash of that year.

Australia's situation contains some positive features. High commodity prices, it can be argued, are likely to persist, even though volatile, at least in the short term. A member of Iceland's central bank board recently said that "fears of a meltdown in my sub-arctic homeland are vastly overblown. True, the current account deficit was 16% of GDP last year, but that's an improvement from more than 25% in 2006. And while net private-sector debt is about 120% of GDP, there is virtually no public debt in Iceland. This is largely the result of unparalleled political stability and continuity."

Australia's situation may not be as dire as Iceland's; or indeed as dire as that of the United States or New Zealand; but all three of us have some negatives like those of Iceland.

Like all booms of such size and speculative character, the Australian housing boom must soon demand payment of its account. From their peak, prices could fall 30% to 50%. Industry researcher BIS Shrapnel does not agree; but we must expect that our housing boom, even more robust than the American, will collapse along the same general lines as the bust occurring right now in the United States.

The high "unaffordability" of housing for the average home-seeker, as distinct from speculator, suggests that the bust will be savage. The real-estate, building and associated industries will suffer severely, with massive job losses. Simultaneously, profitable investment opportunities elsewhere may have vanished with the widespread collapse of the "financial services industry".

How likely is such a collapse? So far, although some non-banking financial institutions have gone to the wall, the four major banks have seemed largely immune. "The take-up of the Australian economy is still good," Rudd said last week in New York. Australia had "limited exposure" to the subprime mortgage woes that erupted in the United States last year, he said. "We have excellent balance sheets in terms of our principal corporates and the banks themselves ... The default rate in Australia is minuscule by Organization for Economic Cooperation and Development standards."

We don't know how far banks and other potentially exposed institutions have concealed their liabilities and to what extent and how soon they will be forced to reveal whatever bad news there is. Within this broad question, we also do not know how far they are exposed to losses from the massive and still largely mysterious menace of derivatives.

In some measure, Australia's major banks have certainly been involved in the wide range of structured securities - CDOs, SIVs, and the rest. A report on April 4, 2008, that local councils in New South Wales have lost US$200 million and perhaps up to $400 million on investments in CDOs is a worrying sign that other and even bigger losses may yet be revealed in a variety of institutions, including banks. It seems scarcely credible that an economy which, for so many years, has absorbed so much of American theory and practice - so much of the American financial character - can be wholly immune from the penalties inflicted on its American model.

The subprime crisis first hit the United States after a housing about-turn that began as far back as 2005 or 2006. An unequivocal downturn in housing in Australia has yet to check in; but non-bank lenders are already withdrawing from the market. Wholesale mortgage lenders are closing shop, perhaps as a prelude to a sharp housing decline.

The carry trade which has presumably provided funds for mortgages and other financial services in Australia has been volatile for some time. If it unwinds completely, that could not only intensify mortgage problems but also impact on Australia's external balances.

Our deficits have so far tended to persist at a less healthy level than the commodity boom might have encouraged us to hope. Our aggregate private overseas debt is said to amount to the order of half a trillion dollars. Against that background, the current depreciation of the United States dollar might foreshadow what awaits our own currency.

Lagging impact
Economic and financial change in the United States tends to have a lagging impact on Australia. An acute awareness of the severity of our crisis may consequently not emerge before the second half of 2008.

When it does, what will the Rudd government do? Currently, it seems as unaware of the magnitude of the challenge it faces as the James Scullin government was in 1929. So the present government might become just as bewildered as Scullin and stagger just as blindly and ineffectually when they are called on to act. In the 1930s, we listened to the likes of Otto Niemeyer of the British Treasury who was also a director of the Bank of England. Will the Rudd government this time listen to the Americans and the likes of US Federal Reserve chairman Ben Bernanke? If they do, catastrophic outcomes might not be in short supply.

Our only real hope lies in clear, independent thinking by those not too steeped in the flawed policies responsible for our current crisis. We must see clearly that fundamental, comprehensive financial and economic reform is imperative. We must adapt that fundamental reform to our own needs, as the John Curtin and Ben Chifley governments did between 1941 and 1949. As we did then, we must simultaneously try to guide the international community out of the calamitous course that has evolved since 1969, and return it to the goal of stable, peaceful, global change which, as a primary objective, we pursued between 1945 and 1969.

While we embark on this journey, a high level of political volatility in Canberra is inevitable. Rudd might succeed; but the Labor Party and government might split two or three ways as they did between 1929 and 1932. Another Joe Lyons, prime minister from 1932 to 1939, might emerge. Whoever he might be, the odds are that he will be even less likely to find quick or easy solutions than Lyons was during the long and bitter years of depression. Those years ended only in the even deeper tragedy of world war.


KUNSTLER: "THE REMORSELESS ALGEBRA OF A DEFLATIONARY DEATH SPIRAL"        
Mike Whitney
http://www.informationclearinghouse.info...e20027.htm

Look around. The evidence of a withering economy is everywhere. In "good times" consumers shun the canned meat aisle altogether, but no more. Today, Spam sales are soaring; grocery stores can't keep it on the shelves. Everyone is looking for cheaper ways to feed their families. The Labor Dept. assures us that core-inflation is only 4 per cent, but everybody knows it's load of malarkey. Food prices are going through the roof. White bread is up 13 percent, bacon is up 7 percent and peanut butter is up 9 percent. Inflation is rampant and there's no end in sight. The dollar is closing in on the peso and working people are struggling just to get by. The bottom line is that more and more people in "the richest country on earth" are now surviving on processed pig-meat. That says it all.

  In Santa Barbara parking lots are being converted into hostels so that families that lost their homes in the subprime fiasco can sleep in their cars and not be hassled by the cops. The same is true in LA where tent cities have sprung up around the railroad yards to accommodate the growing number of people who've lost their jobs or can't afford to rent a room on service-industry wages. It's tragic. Everywhere people are feeling the pinch; that's why 9 out of 10 Americans now believe the country is now headed in the wrong direction and that's why consumer confidence is at its lowest ebb since the Great Depression. This is the great triumph of Reagan's free trade "trickle down" Voodoo economics; whole families living out of their cars waiting for the pawn shop to open.

The economy is on life-support. The rest of the world would be doing us all a favor if they decided to chuck the dollar and boycott US financial products altogether. That would put an end to Wall Street's chicanery once and for all. Foreign investors should be demanding restitution and impounding American assets to compensate for the trillions of dollars they lost in the subprime/securitization swindle. Litigate, litigate, litigate; that's the only way to make the guilty parties pay for their crimes. Either that or set up a gallows on Wall Street and get down to business.

The pundits on the business channel are telling us that the "worst is over"; that the Force 5 hurricane in the financial markets has weakened to a squall. Don't believe it. The corporate bond market is still frozen, housing is in free fall, and the banking system is buckling from the overload of bad investments. The FDIC is even trying to lure former employees out of retirement to deal with the tsunami of bank failures set to touch down later in 2008. Corporate defaults are on the rise and and commercial real estate is crashing.

"Commercial property prices in the US in February saw their sharpest decline since records began nearly 15 years ago as sources of finance for deals has dried up, according to data from Standard & Poor’s out yesterday. Sales of commercial properties were down 71 per cent in the first quarter compared with a year earlier." (Financial Times) Commercial real estate is following the same downward trajectory as residential housing. They're both headed for the bottom of the fish-tank. Any slump in CRE will send unemployment skyrocketing while adding to the solvency problems facing the banks.

We're not out of the woods by a long shot, and won't be for years to come. According to Bloomberg News, soaring raw material costs have caused a sharp rise in costs to producers that they won't be able to pass on to cash-strapped consumers. That means that corporate profits will fall and stock values will plunge.

Last week, Oppenheimer analyst Meredith Whitney announced that:

"The real harrowing days of the credit crisis are still ahead of us and will prove more widespread in effect than anything yet seen. Just as strained liquidity pushed so many small and mid-sized specialty finance companies to the brink, we believe it will do the same to the US consumer. We believe losses will only accelerate further and far worse than the most draconian estimates."

Whitney has been one of the few consistently accurate analysts of the current market meltdown.

The fate of the larger investment banks is just as uncertain as the smaller "depository" banks. Carlyle Group Chairman David Rubenstein summed it up like this last week, "US and European banks and financial institutions have enormous losses from from bad loans they haven't yet recognized and may have a harder time wooing sovereign fund rescuers. Based on information I see, it will take at least a year before all losses are realized, and some financial institutions may fail. Many financial institutions aren't going to be able to survive as independent institutions."

That means there will be greater consolidation and more formidable banking monopolies, all of which is bad for the consumer.

The banks and financial institutions have never been in worse shape. They've already written down $344 billion since the credit crisis began last August and they'll write down another $200 billion next year. By the time the crisis is over, they will have racked up an estimated $1 trillion in losses. That represents a $3 trillion contraction in loans to consumers and businesses. Also, these estimates don't take into account the losses of revenue from the slowdown in consumer spending, shrinking GDP, and massive business failures; all of which will wreak further havoc on the financial sector.

The amount of stress on the banking system is unprecedented. The Fed is loaning out money hand-over-fist just to keep the scaffolding in place. Take a look at what is going on at the Fed's so-called "auction facilities" where the Fed is providing loans and US Treasuries for "unsellable" mortgage-backed junk and other toxic bonds. The numbers are staggering.

According to the Seattle Times:

"The Federal Reserve's emergency loans to banks climbed to the highest level on record even as Wall Street investment companies scaled back their borrowing....Banks stepped up their borrowing, according to the Fed report. They averaged $15.95 billion in daily borrowing for the week ending May 28, compared with $13.5 billion for the previous week, and the total was a record. The previous high of $14.4 billion came in the week ending May 14...In the broadest use of the central bank's lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans....The Fed also announced Thursday it will make a fresh batch of short-term cash loans available to banks as part of an effort to ease stressed credit markets...The Fed said it will conduct three auctions in June; each will offer $75 billion in short-term cash loans. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers." ("Banks step up Fed loans, investment firms scale back", Seattle Times)

Another $225 billion?!?

The Fed is trashing its balance sheet--to the tune of $225 billion--when the money could be used to provide free college tuition and universal health care. What a waste. Instead, the money is being used to throw a lifeline to dodgy speculators would were trying to snooker foreign investors with garbage securities. At the same time, the Fed's emergency facilities have done nothing to restore trust between the individual banks who are more reluctant to lend to each other than ever. The ongoing scandal surrounding Libor (the interest rate that banks charge each other and which determines the rates on $3 trillion of financial products including mortgages) strongly suggests that the banks are lying about the true rate they are paying so the public doesn't find out how battered they really are.

Bloomberg News: "Banks routinely misstated borrowing costs to the British Bankers' Association to avoid the perception they faced difficulty raising funds as credit markets seized up."

Consumer spending is sluggish too, since lending standards have tightened and home equity continues to vanish. Subprime problems have migrated from Wall Street to Main Street as credit trends appear to be getting worse. Consumers are maxed-out on their credit cards, student loans, mortgages and car loans. The lack of personal savings is not the result of a profligate lifestyle (as the right wing media likes to opine) but 30 years of stagnant wages and class warfare waged via big business and the federal tax code. None of the baby boomers are counting on Social Security to pay the bills when they retire but, still, that doesn't justify the money being ripped-off from their paychecks every week and slipped into the general fund where it is used to pave roads and purchase cluster-bombs. Social security is nothing but a flat tax for paupers. (The rich get a free-ride after the first $87,000 income) These are some of the factors that are bearing down on an American economy like a Daisy Cutter. 2009 is looking is looking more and more like a chapter out of Revelation.

An article is this week's The Economist summarizes the malaise in housing in particularly apocalyptic terms:

"America's house prices are falling even faster than during the Great Depression. As house prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year." ("The Economist")

The country is undergoing a collapsing real estate market that surpasses the Great Depression and former Fed-chief Alan Greenspan's book is still on the New York Times Best Seller list. How's that for irony?

Regrettably, there's no sign of a bottom yet in housing. Some markets have already dropped by 30% costing the states (like California and Florida) billions in tax revenue and triggering a steep increase in foreclosures. In California, sales are not only down by roughly 50 per cent, but 40 per cent of new sales are sales of foreclosed homes. The pool of potential buyers has dried up. Now the vultures are circling and picking up homes for $.50 on the dollar. The losses are enormous. If the downward trend continues, (as many now expect) and housing prices drop 30 per cent nationwide; the market will shed $6.5 trillion in aggregate value and lower household spending by $300 billion. That means GDP will shrink at least another full percentage point.

The crisis in the financial markets won't be resolved until housing prices stabilize, that's why the Fed and Congress are scrambling to put together a plan (Hope Now) that will slow the rate of foreclosures. Trillions of dollars in complex bonds and mortgage-backed securities will continue to be downgraded until investors see that it is safe to "dip their toes in the water" again and reinvest in a (currently) moribund market. So far, Congress has made little headway in keeping homeowners from defaulting on their mortgages. Credit Suisse predicts that foreclosures will be somewhere north of 6.5 million homeowners over the next few years. It is the equivalent of Hurricane Katrina sweeping from one side of the country to the other.

The next administration---whether it's McCain or Obama---will be forced to restore the Resolution Trust Corp., which was created in 1989 to dispose of assets of insolvent savings and loan banks. The RTC would create a government-owned management company that would buy distressed MBS from banks and liquidate them via auction. The state would pay less than full-value for the bonds (The Fed currently pays 85 per cent face-value on MBS) and then take a loss on their liquidation. "According to Joseph Stiglitz in his book, Towards a New Paradigm in Monetary Economics, the real reason behind the need of this company was to allow the US government to subsidize the banking sector in a way that wasn't very transparent and therefore avoid the possible resistance."

There it is; a taxpayer-funded bailout of Biblical proportions looming on the horizon, possibly as soon as 2009. Ultimately, it is the only sure-fire way to stabilize the crumbling banking system and put a floor under housing prices. The effects on the dollar, however, will be catastrophic. Don't expect the greenback to survive as the world's "reserve currency". Those days are about over.

The troubles in the financial markets will be with us for some time. The massive expansion of credit has created numerous equity bubbles that are unwinding at an unpredictable pace. Author James Howard Kunstler calls the present process "the remorseless algebra of a deflationary death spiral". That's about as close to a perfect description as imaginable.  There's bound to be considerable disagreement about the origins of the bubble and who is to blame. Was it the Fed's "low interest " policy following the dot.com bust in 2000, or the lack of government regulation in the securitzation process, or was it just the natural corollary of a political system which invariably bows and scrapes to Wall Street?

The real origin of the problem is ideological. It's rooted in the prevailing "trickle down" orthodoxy which opposes any increases in wages or benefits for working people. Henry Ford realized what today's captains of industry and finance refuse to accept; that if workers aren't adequately paid for their labor---and wages do not keep pace with production---then the economy cannot grow because consumers do not have the money to buy the things they make. It's just that simple. Greenspan and his ilk believed that they could prosecute the class war and make up the difference by relaxing lending standards, changing bankruptcy laws, and by creating a nearly endless array of exotic financial products that expanded credit. But shifting wealth from one class to another has its costs. By crushing the worker the Friedmanites have killed the golden goose. The world's most prosperous consumer society is in terminal distress and no amount of "free market" gibberish will keep it from crashing.

Admin

"'WE'RE IN THE GREATEST CRISIS IN MODERN HISTORY"
http://larouchepub.com/pr_lar/2008/lar_p...omats.html


As most of you know aspects, at least, of the problem the world faces today, we're presently in the greatest crisis in modern history, globally. Some governments, of course, are more aware of aspects of this crisis than others, because they're involved in the wrong end of the stick, in some of these problems.

But there are two general characteristics of the situation. First of all, the entire world financial monetary system is in a hyperinflationary crisis, on a global scale, which is comparable in its dynamics, to what happened to Weimar Germany in 1923. There is no minor financial crisis in the United States. What there is, is a global crisis.

Now, to understand this more adequately, I'll make a few remarks which are longer than usual, but they're necessary in order to put this in focus, because this is an unusual situation. I think there is no comparison with what I've said before, with what I see here in the world today.

What you're dealing with generally, is a crisis which started, essentially, in 1890, when Kaiser Wilhelm II fired Bismarck. Now the significance of that was twofold. First of all, the victory of the United States over the British in the U.S. Civil War, had produced in Europe a recognition of the significance of the United States for the world system. The most significant thing which frightened the British, which threatened them the most, was the development of a continental railway system inside the United States, which was considered a geopolitical threat by the British Empire. Because, up until that time, in modern history and ancient history, the great power had lain not so much in land power, but in maritime power. And the British Empire, which was actually started as an empire, as a private company in 1763—February, with the Peace of Paris—was dominating the world through a financial empire, with military features added. It's essentially a diplomatic empire.

So, when the United States developed a continental unity around a victory over the British in the U.S. Civil War, and on the unity of the United States through the development of a trans-national railway system, which integrated the territory of the United States, this evoked —especially after 1876—invitations and imitations of the same type in Europe.

For example, in Russia, the famous development of the trans-Siberian railroad, and the whole development of Russia under the great leaders of that time was a reflection of that. The development of railways, the reforms of the German system under Bismarck in 1877 to 1880—these were all reflections of the impact of the success of the United States in defeating the British, in the British orchestration of the Civil War in the United States.

So, what prevented the war from starting earlier, was Bismarck. Bismarck, as the leader of Germany, had frustrated the British, who had control over much of the German government, by negotiating simultaneously with Nicolas II of Russia, and with his own government, to prevent Russia and Germany from coming to loggerheads because of the Balkan crisis. So that the moment that Bismarck was ousted, by the orders of Crown Prince of Britain, Prince of Wales, then the lid was off, and you had a whole series of events, including the assassination of the President of France, the Dreyfus case, the opening of the first British war against China, which was launched through Japan as an ally of Britain in 1895, and so forth. So, the entire period, from 1890 through 1945, was essentially a period of strategic conflict over so-called geopolitical issues.

Today, we have a similar kind of situation, which can be understood only by looking back to that period, because what we're seeing, as we saw with the Cold War, so-called, was a continuation of this process of geopolitical conflict, being managed by the British, and as the influence of Franklin Roosevelt declined in the United States under Truman and later on, especially after the assassination of Kennedy, then the whole world was going again, toward a new crisis. Now, since the crash of the U.S. dollar, but especially since the events of the so-called oil price crisis of the 1970s, at that point, first of all, in 1971, the U.S. dollar system was destroyed, destroyed under Nixon, by shutting down the Bretton Woods system. And that destroyed the U.S. dollar.

In the same period, the British organized the famous oil hoax, of the early 1970s, and out of this, the Amsterdam, the Anglo-Dutch liberal banking institutions, set up what was called the petrodollar, and the U.S. dollar was no longer the stable currency of the world, but rather since the oil price crisis, rather the control of the price of oil, and the control of the value of the U.S. dollar, lay in the hands of those who control the Amsterdam market.

So, since that time, the United States has been systematically destroyed, self-destroyed, destroyed by the policies of the Nixon administration, in terms of foreign policy and economy, and destroyed internally, physically, under the Carter Administration, by the Trilateral Commission crowd. And we're been going down all the way through.

Then you had a period, beginning 1989, with the breakdown of the Polish crisis, and then the later breakup of the Soviet Union, which led into another period of great looting, and shift in character of politics worldwide. We've now come to the point where the great inflationary process, which is a hyperinflationary process, is blowing out. Nothing will save the present world financial monetary system. Nothing can save it. It's doomed — it's gone. Only the creation of a new system represents a remedy.

Also, we've had a new development, which is called the Lisbon Treaty organization, and the Lisbon Treaty organization now threatens the greatest threat of warfare since, probably greater than that of the 1930s, but the greatest certainly since the last century. In which, a breakdown of the world monetary and financial system, and the creation around the Lisbon Treaty organization of Europe up to the borders of Belarus and Russia, being under the control of a new dictatorship, if it goes through, called the Lisbon Treaty organization, under which no government of Europe, from the Atlantic to the borders of Belarus and Russia, will actually be a government. They will all be puppets of the British Empire, under this new arrangement, the new European treaty organization. If this is not stopped.

As a result of the formation of this development, combined with the beginning of the hyperinflationary blowout, which started at the end of July of this past year, we're now in a situation, the greatest threat of wars and similar crises globally in modern history. Certainly in all of modern history. We have a state of virtual warfare being organized by the British government against China. We have an instability in Pakistan, which is being advantaged. We have the tendency of China, India, and Russia, and other countries, to join together to find some form of resistance, cooperation and resistance, against the British effort.

You have an American presidency which is a puppet... The U.S. Congress is useless at this point, especially since the last election, Congressional election. A fascist group like Felix Rohatyn, George Soros, control the Democratic Party, financially. Control the Speaker of the House. The U.S. Congress is impotent, both the Senate and the House of Representatiave. Things happen which you would think would be impossible, up to two years ago.

We're now in a point of conflict, typified by what the British did, using their own Nazi asset, the Dalai Lama, who used to be an asset of the Nazi party, this Dalai Lama, and who remained a part of the Nazi organization even past that time. And what the British had created, with the development of the British Empire, in creating an area of conflict and management between India and China, through the Tibetan operation and the Uighur operation, is now fully on.

What is happening in Africa, where genocide —the attack on Zimbabwe is simply a part of a process of genocide, which is aimed also at South Africa, as well as other parts of the world.

We're in the worst crisis of humanity, in all modern history, now. And it's a crisis which is going toward the edge of war. And because of the conditions of warfare in modern terms today, you're talking about doomsday warfare, not orderly warfare. What we have going on in Southwest Asia, is simply typical of the whole process. The cockpit of war, organized by the Tony Blair government in Iraq, is now being used as a cockpit of war for the whole region.

So, we're in the worst crisis in history.

In my view, there are remedies. There are solutions. But you won't find much of anything presently in the U.S. government, to deal with this.

The U.S. election campaign is a crucial part of this. Probably the two focal points of the whole process are the U.S. presidential election campaign, this year, and what is happening in terms of the Lisbon Treaty organization process. If the Lisbon Treaty organization is adopted, Europe, from the Atlantic to the borders of Belarus, will no longer be civilized. It will be simply a fascist regime, resembling in its organization, very much the Mussolini organization in Italy. That's the status and what we have.

There are forces in Europe which are resisting this. There are popular forces who are resisting it; they are significant. So far, they have not been successful. But if this treaty organization is adopted, there will not be a sovereign government between the Atlantic and Belarus, in all of Europe. None. Because there will be no parliament that has any power, no president that has any power. NATO will be integrated with this organization, and it will be a war organization, prepared to go to full-scale war, by bluff and by the kind of bluff that leads to war.

So we face today, the greatest crisis in all history of what's called modern civilization. A crisis which is comparable, in terms of its economic effects, to what happened to Europe in the middle of the Fourteenth Century, the so-called New Dark Age. And only by alertness, and by not being fooled into looking at particular issues, as if these were the problems, but seeing the issue as a whole, the global issue, only from that standpoint, can you formulate policies, and can nations group together, around policies of common interest to resist the great threat which is coming out of London, and out of those interests today.


BRITISH DESTABILIZE AFRICA: FOOD RIOTS SPREAD AS HUNGER DEEPENS

The energetic British attempts to create chaos and famine in Kenya and Zimbabwe in Africa, take place against a background of worldwide hyperinflationary food price increases and sudden food shortages, which are threatening both to kill large numbers of people, and to bring down governments in the Third World. The developing potential food crisis and famine arise from decades of British and Brussels attacks on national food self-sufficiency, and outright food scarcity policies masked as "agricultural free trade."

Josette Sheeran, director of the United Nations World Food Program, warned that "a perfect storm" is threatening millions as food prices soar and as the need for aid grows rapidly, during a visit to East Africa, reported The East African. "We are seeing a new face of hunger," she declared at a UN conference in Ethiopia on April 1. "We are seeing more urban hunger than ever before. Often, we are seeing food on the shelves but people being unable to afford it."

Worsening economic pressures related to the cost of food have resulted in civil disturbances in five African countries in just the past three months — Burkina Faso, Cameroon, Mauritania, Mozambique, and Senegal. In Kenya, the "political" violence has led to increased hunger among the displaced, and in Tanzania, 38% of children under the age of five are stunted in height due to chronic malnourishment.

Another UN official warned in Dubai that rising food prices will set off worldwide unrest and threaten political stability. Sir John Holmes, the UN's emergency relief coordinator, told the Dubai International Humanitarian Aid & Development (DIHAD) Conference that "The security implications should also not be underestimated as food riots are already being reported across the globe. Current food price trends are likely to increase sharply both the incidence and depth of food insecurity."

Holmes estimated that food prices had shot up 40% (!) on average worldwide since the summer of 2007. Soaring fuel prices will also contribute to the unrest, he said, including the direct contributions to food price hikes made by increases in diesel prices, fossil fuel-based fertilizer prices, etc.

The London Guardian newspaper listed the worst food unrest, most recently, as threatening the stability of Egypt, Haiti, and Ivory Coast, but also the riots in Cameroon in February; in Mauritania, Mozambique, and Senegal; and protests in Uzbekistan, Yemen, Bolivia, and Indonesia. UN staff in Jordan also went on strike for a day this week to demand a pay raise in the face of a 50% hike in food prices.

BREAD RIOT DEATHS IN EGYPT AND YEMEN

As the financial madness continues and the hyperinflationary policy of the FED and the ECB keep pouring gasoline on the fire, and the Congress keeps blocking LaRouche's HBPA, people in many parts of the world are dropping dead as a result. In Egypt and Yemen, as was the case in Jordan two weeks ago, people, pressed by the internationally rising basic foodstuff prices, are going to the streets by the tens of thousands. In the textile industry city Al-Mahalla in Egypt, police shot two demonstrators, and wounded dozens. Protesting workers were demanding higher wages, since their current wages are not matching the prices of mere bread and butter. The textile industry in Egypt has been ruined since the government started a massive privatization process in the 1990s going along with the "globalization" process. Speculators like George Soros became owners of these once thriving state-owned industries, pushing down wages to lower and lower levels to match cheap-labor wages in Asia.

The ever-present British element made things worse in Egypt, as the Muslim Brotherhood started riding on the demonstrators' backs for political gain. The Muslim Brotherhood, who are in the middle of an election contest with the government, are intending to destabilize the government of Hosni Mubarak, which itself is in a "succession process," as young Jamal Mubarak is being prepared to succeed his father as the leader of the ruling party and the nation. Mubarak is being pressed between the Scylla of the British Muslim Brotherhood destabilization, and the Charybdis of Cheney's demands made on Egypt to join the operation to split southwest Asia into Sunni and Shi'a fighting states, in preparation for a war against Iran.

Egypt has been a hostage to its food supply, coming mainly from the U.S. Under Kissinger's NSSM 200 policies Egypt was targetted and its policies for food self-sufficiency were stopped. Instead, Egypt was offered food aid by the U.S., turning it into a hostage. Effort and direct discussions by Lyndon LaRouche with Egyptian officials in the early 1980s for massive nuclear power and water/agriculture projects for Egypt were sabotaged by British agents in the United States.

In Yemen there are demonstrations in all of the southern cities of the country which were under a separate communist government until the reunification of south and north Yemen in 1989. The demonstrators demand to split the country again as "solution" for the problems the population is facing now, leading to confrontations between the police the demonstrators. Although there are no exact numbers of the casualties available, the scarce information coming out of the country indicates that the number of killed is between 50 and 70 so far. The government has deployed tanks around some cities there and the situation could be exploded any moment.

Governments in Southwest Asia are helpless since they have no short-term plans or means for dealing with the situation which is part of a larger global crisis.



WORLD GRAIN MARKETS ARE NOW NON-FUNCTIONING ; GRAIN FOR TRADE IS DISAPPEARING

Despite the fact that you may still hear daily hyper-prices quoted for agro-futures on the commodity exchanges, the reality is that the world grain markets are dysfunctional. Prices have "gone vertical"; and you may not obtain product at any price. With absolute tonnages of rice and wheat so scarce, "normally" exporting nations have put a hold on allowing food to leave their countries, in order to protect domestic consumption. No international mobilization yet exists for emergency increases in production, and making best use of the existing scarce supplies. Though speculators are still swarming on the Chicago Board of Trade and other exchanges, users of the actual hard commodity—nations, farmers, bakers and others—are madly scrambling to line up private pledges for grain. The following figures give a snapshot view for rice and wheat, as of the March issue of the monthly World Agricultural Supply and Demand Estimates by the USDA.

Rice The tonnage of rice available for importing this year is falling drastically. The USDA estimated in March that rice for export was trending downward from the level of 30.85 mmt traded in 2006/7, down to perhaps 29.39 mmt to be traded this year. But this fantasy does not reflect the recent announcements by major rice exporting countries that are now limiting or banning exports. Of the 29 million metric tons of rice for trade or aid, only seven nations account for 27 mmt, and four of them have restricted exports, possibly adding up to a "loss to the markets" of 11.2 mmt. They are (their "normal" annual export tonnage is noted): Vietnam (5 mmt); India (3.5 mmt); China (1.3 mmt); Egypt (1.3 mmt). Additionally, Pakistan, which exported some 3 mmt in recent years, has none for export, and is beset by grain going to Afghanistan. Thailand, the world's leading grain exporter, is also restricting exports. Thus, 24.2 mmt, or over three-quarters of all the rice traded on the world markets, may not be there in coming months. (mgm)

Wheat The tonnage of wheat traded each year is likewise falling. In 2005/2006, it was at the level of 116 million metric tons; then down to 111 mmt last year. This year, the USDA puts it at 105 mmt, but that is not accounting for the withholding that may occur. The top 8 wheat exporting nations would account for 96 mmt of wheat traded this year, but so far 21 mmt of that amount, from Russia and Kazakhstan, may not all go on the market at all.



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SOROS SOUNDS THE ALARM AGAIN ON WORLD ECONOMY

Louise Story
International Herald Tribune
Friday, April 11, 2008
http://www.prisonplanet.com/articles/apr..._soros.htm

George Soros will not go quietly.

At the age of 77, Soros, one the world's most successful investors and richest men, leapt out of retirement last summer to safeguard his fortune and legacy. Alarmed by the unfolding crisis in the financial markets, he once again began trading for his giant hedge fund — and won big while so many others lost.

Soros has always been a controversial figure. But he is becoming more so with a new, dire forecast for the world economy. Last week he rushed out a book, his 10th, warning that the financial pain has only just begun.

"I consider this the biggest financial crisis of my lifetime," Soros said during an interview Monday in his office overlooking Central Park. A "superbubble" that has been swelling for a quarter of a century is finally bursting, he said.

(Article continues below)


Soros, whose daring, controversial trades came to symbolize global capitalism in the 1990s, is now busy promoting his book, "The New Paradigm for Financial Markets," which goes on sale next month.

And yet this is not the first time that Soros has prophesied doom. In 1998, he published a book predicting a global economic collapse that never came.

Soros thinks that this time he is right. Now in his eighth decade, he yearns to be remembered not only as a great trader but also as a great thinker. The market theory he has promoted for two decades and espoused most of his life — something he calls "reflexivity" — is still dismissed by many economists. The idea is that people's biases and actions can affect the direction of the underlying economy, undermining the conventional theory that markets tend toward some sort of equilibrium.

Soros said all aspects of his life — finance, philanthropy, even politics — are driven by reflexivity, which has to do with the feedback loop between people's understanding of reality and their own actions. Society as a whole could learn from his theory, he said. "To make a contribution to our understanding of reality would be my greatest accomplishment," he said.

Soros has been worrying about the fragile state of the markets for years. But last summer, at a luncheon at his home in Southampton with 20 prominent financiers, he struck an unusually bearish note.

"The mood of the group was generally gloomy, but George said we were going into a serious recession," said Byron Wien, the chief investment strategist of Pequot Capital, a hedge fund.

Soros was one of only two people there who predicted the American economy was headed for a recession, he said.

Shortly after that luncheon Soros began meeting with hedge fund managers like John Paulson, who was early to predict a crisis in the housing market. He interrogated his portfolio managers and external hedge funds that manage his fund's money, and he took on new positions to hedge where they might have gone wrong. His last-minute strategies contributed to a 32 percent return — or roughly $4 billion for the year.

The more Soros learned about the crisis, the more certain he became that he should rebroadcast his theories. In the book, Soros, a fierce critic of the Bush administration, faults regulators for allowing the buildup of the housing and mortgage bubbles. He envisions a time, not so distant, when the dollar is no longer the world's main currency and people will have a harder time borrowing money.

Soros hopes his theories will finally win the respect he craves. But, ever the trader, he hedges his bets. "I may well be proven wrong," he said. "I would say that I'm the boy who cried wolf three times."

Many of the people Soros wants to influence may view him with skepticism, in part because of how he made his fortune. In 1992, his fund famously bet against the British pound and helped force the British government to devalue the currency. Five years later, he bet — correctly — that Thailand would be forced to devalue its currency, the baht. The resulting bitterness toward him among Thais was such that Soros canceled a trip to the country in 2001, fearing for his safety.

Asked if it bothers him that people accuse him of causing economic pain, his blue eyes dart around the room. "Yes, it does, actually yes," he said.

Asked if those people are right to blame him, he says, "Well no, not entirely."

No single investor can move a currency, he said. "Markets move currencies, so what happened with the British pound would have happened whether I was born or not, so therefore I take no responsibility."

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BEYOND THE NEW DEAL

Howard Zinn
http://www.informationclearinghouse.info...e19699.htm

We might wonder why no Democratic Party contender for the presidency has invoked the memory of the New Deal and its unprecedented series of laws aimed at helping people in need. The New Deal was tentative, cautious, bold enough to shake the pillars of the system but not to replace them. It created many jobs but left 9 million unemployed. It built public housing but not nearly enough. It helped large commercial farmers but not tenant farmers. Excluded from its programs were the poorest of the poor, especially blacks. As farm laborers, migrants or domestic workers, they didn't qualify for unemployment insurance, a minimum wage, Social Security or farm subsidies.

Still, in today's climate of endless war and uncontrolled greed, drawing upon the heritage of the 1930s would be a huge step forward. Perhaps the momentum of such a project could carry the nation past the limits of FDR's reforms, especially if there were a popular upsurge that demanded it. A candidate who points to the New Deal as a model for innovative legislation would be drawing on the huge reputation Franklin Roosevelt and his policies enjoy in this country, an admiration matched by no President since Lincoln. Imagine the response a Democratic candidate would get from the electorate if he or she spoke as follows:

"Our nation is in crisis, just as it was when Roosevelt took office. At that time, people desperately needed help, they needed jobs, decent housing, protection in old age. They needed to know that the government was for them and not just for the wealthy classes. This is what the American people need today.

"I will do what the New Deal did, to make up for the failure of the market system. It put millions of people to work through the Works Progress Administration, at all kinds of jobs, from building schools, hospitals, playgrounds, to repairing streets and bridges, to writing symphonies and painting murals and putting on plays. We can do that today for workers displaced by closed factories, for professionals downsized by a failed economy, for families needing two or three incomes to survive, for writers and musicians and other artists who struggle for security.

"The New Deal's Civilian Conservation Corps at its peak employed 500,000 young people. They lived in camps, planted millions of trees, reclaimed millions of acres of land, built 97,000 miles of fire roads, protected natural habitats, restocked fish and gave emergency help to people threatened by floods.

"We can do that today, by bringing our soldiers home from war and from the military bases we have in 130 countries. We will recruit young people not to fight but to clean up our lakes and rivers, build homes for people in need, make our cities beautiful, be ready to help with disasters like Katrina. The military is having a hard time recruiting young men and women for war, and with good reason. We will have no such problem enlisting the young to build rather than destroy.

"We can learn from the Social Security program and the GI Bill of Rights, which were efficient government programs, doing for older people and for veterans what private enterprise could not do. We can go beyond the New Deal, extending the principle of social security to health security with a totally free government-run health system. We can extend the GI Bill of Rights to a Civilian Bill of Rights, offering free higher education for all.

"We will have trillions of dollars to pay for these programs if we do two things: if we concentrate our taxes on the richest 1 percent of the population, not only their incomes but their accumulated wealth, and if we downsize our gigantic military machine, declaring ourselves a peaceful nation.

"We will not pay attention to those who complain that this is 'big government.' We have seen big government used for war and to give benefits to the wealthy. We will use big government for the people."

How refreshing it would be if a presidential candidate reminded us of the experience of the New Deal and defied the corporate elite as Roosevelt did, on the eve of his 1936 re-election. Referring to the determination of the wealthy classes to defeat him, he told a huge crowd at Madison Square Garden: "They are unanimous in their hatred for me--and I welcome their hatred." I believe that a candidate who showed such boldness would win a smashing victory at the polls.

The innovations of the New Deal were fueled by the militant demands for change that swept the country as FDR began his presidency: the tenants' groups; the Unemployed Councils; the millions on strike on the West Coast, in the Midwest and the South; the disruptive actions of desperate people seeking food, housing, jobs--the turmoil threatening the foundations of American capitalism. We will need a similar mobilization of citizens today, to unmoor from corporate control whoever becomes President. To match the New Deal, to go beyond it, is an idea whose time has come.
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