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LET THE SUNSHINE THROUGH: TRANSPARENCY AND ACCOUNTABILITY OF HEDGE FUNDS AND PRIVATE EQUITY

http://www.oneworldtrust.org/documents/A...r_2007.pdf

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FEDERAL RESERVE STARTING HYPERINFLATIONARY BAILOUT OF BRITISH BANKS
http://larouchepub.com/pr/2007/071024fed...brits.html

The U.S. Federal Reserve Board of Governors agreed to extend Federal Reserve contingency lines of credit to two British banks—$10 billion to the Royal Bank of Scotland (RBS), and $20 billion to Barclays, two of Britain's Big 4 banks. The Federal Reserve would open these $30 billion facilities to the two banks, should the banks, in turn, need them to extend credit to their clients "in need of short-term liquidity to finance their holdings of securities and certain other assets," the Federal Reserve said in a letter to the banks.

With respect to the Royal Bank of Scotland, the Fed said that the coverable assets could include "residential and commercial mortgage loans and mortgage-backed securities, asset-backed securities, commercial paper and structured products." At the same time, the Fed lifted the limit on how much credit the RBS and Barclays could extend to their "affiliated broker-dealers," to $10 billion for RBS, and $20 billion for Barclays, matching the size of the contingency lines of credit that the Fed would extend to them. RBS' and Barclays' affiliated broker-dealers would be the vehicles, which would then extend the funds to the two banks' collapsing clients.

Thus, the U.S. Federal Reserve is preparing to extend a hyper-inflationary $30 billion to bail out the British banking system, and the Cayman Island- and London-headquartered hedge funds, which use the British financial system globally as a base of operations from which to destroy the banks of the United States. This would create a Weimar-style hyperinflation; the Fed's behavior approaches criminal.

With the Fed promising to backstop its actions, the Royal Bank of Scotland went into action: It announced Oct. 21, that it was deep in talks to take over the failed Cheyne Finance, a $6-7 billion Structured Investment Vehicle (SIV), which was set up and is controlled by the London-headquartered Cheyne Capital. This SIV was on the verge of a fire-sale of illiquid assets. Deloitte Touche, Cheyne Finance's accounting firm, received an extraordinary ruling by Britain's High Court last week, which allowed Deloitte Touche to declare the Cheyne Finance SIV to be "insolvent." Deloitte Touche, appointed as receiver, is now offering to sell Cheyne Finance to Royal Bank of Scotland.

Simultaneously, Barclays Bank is heavily involved with three deeply troubled SIVs, one of which, Solent, is headquartered in the Cayman Islands.

Thus, the Federal Reserve is openly caught desecrating the purpose of the U.S. banking system; it is creating hyperinflationary funds for multi-billion British speculative instruments which helped trigger the continuing global banking crisis.


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HOW LONG CAN CONGRESS DENY THE DEPRESSION CRASH UNDERWAY?
Paul Gallagher
http://larouchepub.com/other/2007/3443cr...gress.html


Over the two weeks between Treasury Secretary Paulson's strange Oct. 15 announcement about a mysterious "Master Liquidity" scheme to save huge banks from huge losses, and Moody's Investors Service's Oct. 26 move to a massive international downgrade of bonds collateralized by mortgage securities, every economic sign has flashed the raw red of depression collapse underway.

The U.S. dollar, after Paulson's giveaway announcement that the fear of bank collapses is abroad in his high financial circles, rapidly sank by another 5% against the euro (for example) within ten days. The U.S. Treasury's Oct. 16 report of net investments into/out of U.S. securities in August (Treasury International Capital Statistics, or TICS) was a shock that opened a view of the financial crash underway. One Royal Bank of Scotland economist quoted by the Financial Times called the report "A truly stunning TICS number, the likes of which I have never seen." The Treasury reported that there was a huge net outflow of $163 billion from U.S. securities in August, as everything but short-term U.S. T-bills (the flight to safety) was massively dumped. The United States mortgage-based bubble was where the junk, sub-prime, high-interest action was for banks and funds worldwide, blowing that bubble to $20 trillion proportions until it collapsed—and everybody had to dump the toxic crap.

Asian central banks, and other countries holding major dollar reserves, dumped U.S. government securities to the tune of nearly $80 billion in the past six months, according to Treasury reports; only the Bank of England and British investors bought them on a large scale, masking the effect until now. EIR correspondent Mary Burdman reported, "Chinese and Japanese sales of U.S. Treasuries grew in August 'at a pace unprecedented in the last five years, as the U.S. subprime mortgage crisis triggered the biggest sell-off of dollar assets since Russia's 1998 default,' said China Daily. China cut its holdings of U.S. treasuries by 2.2% or $9 billion, to $400 billion, while Japan dumped 4% of its total holdings [or $24 billion], the most since March 2000. Taiwan's ownership of U.S. government bonds fell sharply by 8.9% to $52 billion."

The sales of homes in the United States during the July-September period was revealed, by official reports, to have sunk to the rock-bottom rate of 5.5-5.7 million per year—when 6 million sales a year was typical three decades ago. Median home sale prices—of new homes and resales—were shown by the same reports to have fallen by 8-10% during 2007, a drop unique to the Great Depression, but only just accelerating now. Medium-sized homebuilders like Neumann Homes in Chicago are following mortgage lenders into bankruptcy, and the biggest builders spent the last two weeks reporting multi-hundred million dollar losses. 100,000 construction jobs, net, have disappeared this year. Home ownership has fallen from 69% to 68% of American households over the past year, and is back to the level of 2000.

That two million or more households could lose their homes to foreclosure next year, after 500,000 this year, is agreed by every report of the situation.

No Action on Industrial Collapse
Despite $700 billion in defense spending, orders for durable goods in the U.S. economy have fallen by 6% over the past twelve months, from $223 billion in September 2006 to $211 at latest, including drops in June, August, and September 2007, according to Commerce Department reports. Sales of autos in 2007 are heading for a total below 16 million—back to the level of 1994-5, and a level after which at least one of the big automakers will go into bankruptcy during 2008. Auto plants continue to be closed down, and some 150,000 U.S. manufacturing jobs have been lost in the first three quarters of the year.

In a sad drama enacted throughout the auto shops during September-October, 250,000 unionized auto workers are being forced to accept new contracts under which the average auto industry wage is falling to $15-18/hour, wiping out the largest remaining source of middle-class incomes in the United States. This is a major factor in the explosion of home foreclosures across the Midwest and Mid-Atlantic states.

Banks and other financial corporations have announced, or carried out, about 100,000 layoffs during 2007 as they are hit by mounting losses in the mortgage bubble meltdown. Another 30-40,000 have been laid off by exploding mortgage lending companies, from New Century Financial to Countrywide.

U.S. non-financial corporations, according to Federal Reserve reports, continue to spend more than their total net profits in dividends and similar payouts—in other words, they are not investing.

Just what "economic fundamental" is it, that remains strong?

Has Congress enacted a halt to foreclosures to prevent social chaos and impoverishment? So far, it has refused to do so. Has it lifted a finger to stop three years of collapse of the auto/machine tool sector? It has not. Has it issued credit for investments in economic infrastructure to reverse this collapse? That is "off the table" in Nancy Pelosi's Congress. Would President Bush allow any such investments by Congress? Not if he can stop them by veto, as he has shown with Congress' one attempt, the Water Resources Development Act.

Outrageous and Desperate Fed
At the time of publication of this issue of EIR, the Federal Reserve board will likely be cutting short-term interest rates by another one-half percent, in a worried attempt to keep Countrywide Financial Corp., Citicorp, Merrill Lynch and other banks, mortgage lenders and insurers, and brokerages from failure. The broad U.S. money supply, what was called "M3" until the Fed suppressed reports on it last year, is estimated by private economists to be growing at a nearly 15% annual rate as of October—an absolute flood of Fed money-printing. As the dollar sank after Paulson's Oct. 15 forced blunder, an explosion of hedge fund speculation and hyperinflation hit oil, energy commodities, metals, agricultural commodities. This will accelerate further, at another "emergency" rate cut by the Fed.

Most outrageously, EIR's Richard Freeman found that on Oct. 12 the Fed agreed to extend huge lines of credit to two British banks—$10 billion to the Royal Bank of Scotland (RBS), and $20 billion to Barclays, two of Britain's Big Four banks—to cover their "need of short-term liquidity to finance their holdings of securities and certain other assets," including "residential and commercial mortgage loans and mortgage-backed securities, asset-backed securities, commercial paper and structured products."

These mortgage-backed securities (MBS)—as shown in a sale of them just made by bankrupt American Home Mortgage Holdings—are sellable at best for 80 cents on the dollar, where the underlying mortgages are being paid completely up to date, and for no more than 55-60 cents on the dollar when any of the underlying mortgages are delinquent. Thus the structured investment vehicles (SIVs) that hold them, and the banks that are on the hook for them, want at all costs to avoid their sale, and instead to repurchase them internally,and hold them off their books. For that, they want huge bailouts from the central banks.

In a signal of desperate bailout, the Fed explicitly authorized RBS and Barclays to extend these entire credit lines from the Fed, totalling $30 billion, to their "affiliated broker-dealers," which would then extend the funds to the two banks' collapsing structured investment vehicles (SIVs). RBS did so immediately, with the failed Cheyne Finance, a $6-7 billion SIV of London-headquartered Cheyne (that's pronounced "Cheney") Capital.

Thus the Fed is creating hyperinflationary funds for multi-billion dollar, super-leveraged instruments designed in London for speculation in the $20 trillion U.S. mortgage bubble, registered in offshore British protectorates to avoid taxes and regulation, and now at the center of the global banking crisis.

On Oct. 25, the Bank of England (BoE)'s desperation cash infusions to Northern Rock bank officially reached $40 billion; this big mortgage bank was hit by huge runs by depositors in September and is headed for failure.

All of the hedge fund-designed special investment vehicles supposed to spread the risk of huge losses away from the big banks in a bubble implosion and credit crisis, are now coming back to hit—the banks.

In September, bank analysts estimated publicly that $1.3 trillion in losses had occurred in the August-September crisis. But a very knowledgeable European banker consulted by EIR in late October, estimated that at least $2.4 trillion in unrealized losses—that is, losses unacknowledged, so far, in the collapse of mortgage and mortgage-securities bubbles—remain on and off the books of U.S. and European banks and financial institutions. In the next several months, the banker estimated, those losses will have to be acknowledged and taken. The "super-conduit bailout" Paulson had talked up, of somewhere between $80 billion and $200 billion, might bail out the dead assets of Citicorp alone, the banker said—not the losses of the system.

All of the desperation money-printing of central banks, epitomized in the actions of the Federal Reserve described above, are an attempt to postpone those losses, liquify those dead, illiquid assets—whose only effect is to collapse the dollar, create hyperinflation and financial markets chaos.

Yet the banks could take those losses and survive, under new policies by the most important governments, to create "national firewalls" protecting both essential economic sectors and chartered banks from the unstoppable collapse of the rotten financial and monetary system.

The Merrill Lynch Revelation
The fact that Merrill Lynch's estimate of the mortgage-bubble losses it would have to write off, slid rapidly from $4.5 billion on Oct. 10, to $7.9 billion in its Oct. 24 third-quarter report, exposed the entire banking system, in the United States and Europe, as sitting on the kind of losses indicated to EIR by the European banker. "A couple of weeks ago, we thought the line had been drawn under the losses [of the mortgage bubble collapse]—and it hasn't," said a scared London securities dealer to Reuters on Oct. 25. Some estimates were that Merrill Lynch would soon have to 'fess up to, and write off, $20 billion more, which could easily sink it for good.

Many money-center banks, and nationally chartered banks, have just reported big write-downs, and in some cases large net losses overall, in their third-quarter reports. Bank of America immediately cut 3,000 jobs, and National City Bank in Ohio, the ninth-largest U.S. bank, cut 2,500, in a parade of layoffs of hundreds to thousands of employees.

But, Reuters quoted a Bear Stearns banker, "The Merrill result means all bets are off." The banks have only been showing the tail of the dog of what their real losses are, denying the illiquidity of the assets in all their "special investment vehicles" and so forth, for as long as possible. "We are somewhat nervous" about European announcements about to come, said a bank analyst for Royal Bank of Scotland.

On Oct. 26, Moody's, having just downgraded $33 billion in mortgage-backed securities (MBS) in one fell swoop, downgraded an even bigger mass of collateralized debt obligations (CDOs) tied to $52 billion of downgraded mortgage bonds. The widely watched index of value on these securities dropped to about 82 cents on the dollar. This shock began to collapse the stocks of large insurance companies that insure mortgage securities—most notably Hank Greenberg's AIG Corp., and also MBIA, Ambac Insurance, Radian Group, and other insurance giants—which also insure municipal bonds and mutual funds.

The credit collapse of July-August—after roughly $1.5 trillion in liquidity injections has been thrown at it by the Fed, BoE, and European Central Bank through October—is back on again going into November, and on a bigger scale.

The financial system is collapsing. Congress must act to put a "firewall"—a Homeowner and Bank Protection Act—between the financial collapse, and real households and the real economy. That opens the door to other emergency actions to invest in a new national economic infrastructure, revive the industrial economy. Congressional leaders who are denying this systemic collapse, and basing their response to the foreclosures crisis on that denial, will have to eat their words—and soon.



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SAVE THE AMERICAN REPUBLIC FROM THE BRITISH EMPIRE!
http://larouchepub.com/lar/2007/webcasts...pener.html


Lyndon LaRouche addressed a three-hour international webcast on Oct. 10. His opening remarks were followed by two hours of discussion. Here is an edited transcript. Audio and video archive of the webcast.
Debra Freeman: Good afternoon. My name is Debra Freeman, and on behalf of LaRouche PAC, I'd like to welcome all of you to today's event.

Certainly, Mr. LaRouche's address here in Washington today, could not come at a more opportune moment. Our nation finds itself clearly in the throes of what I think can only be assumed is the final stage of a breakdown crisis that has been a long time in coming. We find ourselves in a situation where virtually no American can escape the immediate effects of this breakdown crisis. Probably the first people being hit are those unfortunate individuals who got sucked into various kinds of exotic mortgages, or subprime mortgages, but clearly that is really just the very, very tip of the iceberg.

It doesn't come as a surprise, certainly, to anyone in this room: Mr. LaRouche has warned about this, and really, with time to spare, proposed an initiative that would establish a firewall that would protect not only the American people, but which would also provide a measure of protection for the chartered state and Federal banks, to ensure not only that people were allowed to remain in their homes, but that at the same time, our banking system continued to function.

Now, some of our friends said, "Well! We agree with keeping homeowners in their homes, but why the heck should we do anything to save the banks? You know, they're the ones that are responsible for this, they made plenty of money. Why is LaRouche concerned about them?" And while the anger might be understandable, I would challenge anybody to try to figure out how to run a nation—in fact, how to run a superpower—without a banking system. It doesn't really function. And I think that Lyn's expertise in this area is really vital.

And while the developments of the last weeks and months have not been surprising to those of us associated with Mr. LaRouche, what has been surprising, and continues to be surprising to me, is the absolute impotence of the response here in Washington, where no longer do you have the excuse that there is not a Democratic majority. There is a Democratic majority; yet, our national leadership stands paralyzed.

Fortunately, what Mr. LaRouche has been able to do, with the help of the LaRouche Youth Movement and others, has been to mobilize city, state, and county leaders—political leaders, civic leaders, labor leaders, etc.—to begin the kind of drive necessary to get action taken here in Washington. As we convene today's meeting, more than 100 political leaders from across the United States, including leaders of some of the largest national constituency organizations, have endorsed Mr. LaRouche's Homeowners and Bank Protection Act. At the same time, that legislation, in memorial form, is being considered in eight state legislatures, which is somewhat unprecedented, when one considers that at this particular time, about 70% of the state legislatures are not even in session. Were they in session, I can guarantee you that the number considering this piece of legislation would be far more.

But the fact of the matter, is that even for this simple action to be taken, what we need is a leadership in Washington, which is prepared to do what it has not been prepared to do up to now: And that is to face the simple reality. And I can think of no individual, who is a better messenger and spokesman for that reality, than my boss. So without any further introduction, ladies and gentlemen, I bring you Lyndon LaRouche.

9/11 Was an Inside Job
Lyndon LaRouche: Thank you. Well, let's start from the top.

In early January of 2001, before the inauguration of George W. Bush as President, I warned that the general nature of the catastrophe would be, that the U.S. economy would be a failure—the policies of Bush would be a total failure: We were headed into a downslide, which in fact has happened, all throughout this period. And the thing we had to fear, from inside the U.S. government, was that someone would set off a form of terrorist incident within the year, which would shock the nation into submission.

In the Summer of that year, 2001, the recession was fully on. The collapse was on; the political systems were shaken by the collapse. And then, on the famous Sept. 11, someone, with cooperation from inside the highest levels of power in the United States, unleashed an incident which is called the 9/11 incident. That job was done with the complicity of the British Empire. It was done with complicity of elements in Saudi Arabia, as all the evidence would plainly tell you. That was a terrorist act, against the United States, done with complicity of people at a very high level inside the United States, with a coverup organized by people inside, a high level inside the United States.

Now, certain facts are not known, and I shall not say what I know now. But I shall say, that I do know, beyond doubt, that 9/11 was an inside job. It was an inside job on behalf of what the Bush-Cheney Administration represents. And since that time, everybody who knows anything about the government, knows about our system, knows that more or less to be true. You see the behavior of members of the Congress and political institutions who are running scared! Because they know that kind of thing is on.

Now what I said in January of 2001, prior to the inauguration of this President, the first time: I said that we had to look at the precedent, under these kinds of economic conditions which I indicated, in which Hermann Göring orchestrated the burning of the Reichstag, for the purpose of making Hitler not merely the Chancellor of Germany, but the dictator. And Hitler remained a dictator from the night after that burning of the Reichstag, until the day he died! Nobody got rid of him. I would say, that what has happened is, with the case of Cheney, in particular—Cheney is the figurehead of this operation, Vice President Cheney, the man everybody's afraid of because of 9/11!—that everyone is running in terror, just as in Germany, they ran in terror from the burning of the Reichstag, and the Germans never got free of that, until the day Hitler was dead.

Now, the operation was run against the United States by whom? It was run against it by the British Empire. They're the ones that ran it. And right now, you see in politics now, the shadow of exactly that kind of problem, because that's what you're looking at when you look at the U.S. Presidential campaign, right now. The Presidential campaign, the political campaign on the Federal level, is a bad joke! Hillary Clinton says a few things which are important. She does not have a clue as to what the problem is. She doesn't have a clue as to what the solution is—but she is the closest to telling the truth, and all the rest of them are far from the truth. Dennis Kucinich says a few things that are true, but he has no grasp of this issue.

I do have a grasp of the issue—and I know more than I'm saying: With complicity of certain people in Saudi Arabia, with the British Empire, which shares power with Saudi Arabia, through the BAE, a job was done on the United States on 9/11. And we've been living under the heat of that, ever since. That I stand by. Other facts will come out at a suitable time.

But the point is, under those conditions—you saw what happened in 2005: At the end of 2004, Kerry failed in nerve, as a Presidential candidate. He could have won, but he lost his nerve. It's something that Kerry tends to do—he's a man of anger, who sometimes, when restraining his anger, imposes a certain kind of impotence on himself, as we saw in his behavior under attack during the period of the Summer Democratic Party convention, when this same thing happened. So, under that condition, we had this monstrous thing face us: the reelection of the present President, with his Vice President as the actual acting President.

So, I intervened—a carry-over from what I had done in assisting the Democratic Presidential campaign—to mobilize the United States, the Democratic Party and others, for the defense of Social Security. This occurred in November of that year, late November, and was fully in play in January. The Democratic Party responded to what I set into motion, and organized to defend the Social Security system, against the plans of the Bush-Cheney Administration. That program succeeded, during the course of 2005.

The 'Revolution in Military Affairs'
However, approximately April-May of that same year, we had a well-known fascist, a Democratic Party fascist, from Middlebury College, Felix Rohatyn, who is a partner with George Shultz in what is called the "Revolution in Military Affairs." The Revolution in Military Affairs is what you're looking at when you think about Blackwater, and the Blackwater scandal in the papers right now. The policy has been, and this was the policy of Cheney when he was Secretary of Defense, was to eliminate the regular military forces of the United States, except for the Air Force, which had a special function, and perhaps some Naval forces, but to eliminate the regular military forces of the United States, in order to implement what was called "the Revolution in Military Affairs."

This is a policy which has been around for a long time. Under Hitler, it was called the SS policy: Get rid of the regular military forces and bring in the SS. The International Waffen SS has never come fully into operation—that was a matter of timing—but the intention remained there. So, we had the intention to establish, in the post-war period, actually from about the time that President Roosevelt died—an intention to change the course of military affairs and to set up a kind of Caesarian world dictatorship, an Anglo-American world dictatorship, with special military capabilities, in which private armies, or privatized armies, would be used to police the world. We had this, for example, in the Pinochet regime in South America, in Chile, the terror in South America in the 1970s—the same kind of thing, the same operation: Revolution in Military Affairs.

Now, this has been the special project of George Shultz, who is the official author of the Bush-Cheney Administration, and who was behind Felix Rohatyn in this Revolution in Military Affairs.

So, we had a second program that year, in 2005, which was to defend the automobile industry, preventing it from going into the dissolution it's undergone since then, now, by saying, "Let's take the automobile industry, which is overbloated by the way it was mismanaged, and let's take valuable sections of the automobile industry, which are a machine-tool capability with an attached labor force; and use this capability as a government takeover of this capability, to deal with things like fixing up power stations, fixing up rail systems, fixing up water management systems and so forth." Which would have been actually a Roosevelt-style recovery program, which means going to public infrastructure first! And by employing forces which exist for public infrastructure, you create a market which builds up your private sector, which is what in a sense we did with Harry Hopkins under Franklin Roosevelt. That kind of method would have worked.

However: In comes Felix Rohatyn, with Shultz behind him, and these monkeys say, "No, no, no!" So, what happened is that the Democratic Party, while they picked up and defended the Social Security system, did not defend the rights of the American citizens, because we had to defend the automobile industry, not necessarily to produce automobiles, but as an industrial capability, to keep the capability of running an economy here. When the decision was made by February of 2006, to let the automobile industry go down the chute—and that was the decision that was made: It was made at the highest levels of the Democratic Party and the Republican Party: "Let the auto industry and what that represented go down the chute." And they did. And we have since gone down the chute.

The last shards of the automobile industry, of the American-owned, American-run automobile industry, are being destroyed. Throughout this nation, there's desperation. The state of Michigan is a no-man's land. The state of Ohio is virtually a no-man's land. Throughout the United States, there is desolation, because of these policies.

And the war continues! And the intention to extend the war into Iran and beyond continues. And the same thing behind their 9/11—Cheney, the friends of Cheney in London, in the BAE, and the Saudi accomplices in the BAE—the same crowd that gave you 9/11, are behind it all. And many people in the United States know that, many people in high places. But they're afraid to say so. I'm saying so. A lot of us have been talking about this in private, at a high level: I'm saying so, now.

If you don't give up the blackmail, the fear of 9/11, the fear that something terrible will happen to us if we displease Cheney, and Cheney's backers in London; if we don't give that up, we don't have a nation.

The Political Parties Are a Joke
We're now at a point, in terms of the economy, where the U.S. dollar is collapsing. The collapse is worse than it appears to be, because in these cases they fake assets, as you see massive faking of assets, like the Northern Rock in England; Goldman Sucks, or Goldman Sachs, or whatever you want to call it, is doing these kinds of things. This is fake. There is no recovery! There is no growth! It's fakery! Entirely fakery. And people wish to believe.

Then you have a situation, like the recent developments in the Democratic Party. Forget the Republican candidates, they're all a joke; they're not serious. And they don't intend to be serious. It's a joke.

But look at the Democratic Party side, it's a real joke: Do you realize that the entire Congress has the level of popularity today, that Dick Cheney has? The leadership of the Democratic Party is held in the highest contempt, by the Democratic voters of the United States! And this despair, this lack of a sense of leadership at the top of the Democratic Party, is one of the problems, which aggravates our problems. Hillary Clinton has expressed some being upset about that. She doesn't understand what the answer is, what the solution is; she has no program that fits reality. None of the candidates has a program that fits reality—they're not about to. And the leaders of the Democratic Party, for example, Harry Reid in the Senate, and Nancy Pelosi in the House, will not allow the Democratic members to do anything worthwhile doing.

Take, for example, at the beginning of the nomination campaign for the 2000 election: Before the Iowa caucuses, I published a summary of my estimate of the various Democratic contenders, leading Democratic contenders for the nomination. And in that, I made a special note of the fact, I said: Many people think that Howard Dean is a contender. And I said, he is not a contender. He's going to blow his stack, and that is going to take him out of the race—it did! He remains "Howard Scream" to the present day. That's all he's good for!

He was a key part in wrecking the Democratic campaign in 2006, a key part of it. He was the one who had moved the money around to prevent a serious campaign being done from the Democratic Party on behalf of the candidates, and he spent the money in his own, little special projects! So the Democratic Party had no money to run its campaigns, as it should have had, to launch from the top its campaigns for the year 2006, and you saw the result. Howard Scream: They made him the head of the Democratic National Committee! Howard Scream! And he has certain qualities worse than just his bad temper. There was a cartoon series that used to appear in the newspapers back during the 1930s, called "The Terrible-Tempered Mr. Bang," and I think that was Howard Scream, or Howard Scream's grandfather, or something like that. But that's our situation.

Now, where are we?

Right now, we're on the short end of the end of civilization as we've known it: this present world monetary-financial system is hopelessly bankrupt; it's at its terminal end.

Now for reasons I shall explain to you now, here, you can never precisely predict a date on which something is going to happen, in economic processes: Because, economic processes are a reflection of voluntary powers of persons and institutions. And so, they don't operate on the basis of a Cartesian projectile system, where you launch a bullet, or launch a cannon ball, and it goes out at a certain speed and comes to an inevitable end at a predictable point. In real life, in real economies, economic systems don't function with that kind of predictability. Economic processes are not statistical in nature, they are actually dynamic, in the same sense as the term dynamis was used by the ancient Greeks, the Pythagoreans, in defining scientific method, and the way that modern scientific method which is based on Leibniz's definition of dynamics, operates. We operate in a universe which has laws. These laws include laws which are discovered by mankind and used by mankind, and become an integral part of the way society works.

In this process, there's free will operating. There are choices. Free will is operating at all levels, on an individual level, in powerful institutions, and so forth. But the rules which society has adopted, rules which function like universal physical principles, these rules remain—at least temporarily until they're superseded—they represent the thing that controls what is going to happen in society. Within this set of rules, individuals have choices, they can make decisions. Institutions have choices, they can make decisions. You can shift the way the consequences unfold. You can change the timing of events, by human will. But you can not change the characteristic direction, which the rules of the system have built into it.

So, now we have reached a point, where we are, at this point, in terms of dynamics, in terms of the system, this world monetary-financial system is finished. It's as good as dead, right now—or as worse than dead, right now. There is no possibility, that, of its own volition, it will rebound. There is no possibility that it can have a remarkably extended life. Though you can have an extended life, under a dictatorship. But as the kind of political systems we have now, it can not continue. You can have an exception to that—dictatorship, extended wars, other things that will delay the point of decision, or resolution. But this system is finished. There's nothing you can do within the terms of this system, to prevent it from collapsing. Somebody can alter the date on which the collapse officially occurs. But the inevitability of the collapse is built into the system, and it's on the short term.

But you can change the system.

We Are a Unique Form of Government
Now, the United States has had quite a bit of experience with systems. The system which the United States represents was new in its time. We were a unique republic. Nothing like it actually existed in Europe. It did not exist in the 18th Century, it did not exist in the 19th Century, and did not really exist in the 20th Century. We are a unique form of government.

The European systems, and systems of the world in general, are oligarchical systems: That is, you have an upper ruling class, or influential class, which dominates society, typified by parliamentary systems. A parliamentary system is a system of tyranny. You have a parliament, elected officials, who presumably make certain decisions. But the minute they try to make a decision that offends the leading powers, the parliament goes into a crisis, and you have a new parliamentary government, the end of the threat. That's the way it works.

Our Constitutional system, inherently, is superior to any other system on this planet, when we use it, when our Constitution is followed. Because, our Constitution is based on certain principles which flow implicitly, from the intention of the Preamble of the Federal Constitution. And also, that our system of government, constitutionally, is not a monetary system—it's a credit system.

Read the Constitution! How is money created, under law, under our Constitution? A bill is presented in the House of Representatives. That bill authorizes the Department of Treasury, and therefore, the President, to utter credit of the United States, in the form of currency or some other form of credit—public credit. This credit is then released, and applied, according to law, at the discretion of government. This credit forms the basis for our currency, the utterance of our currency; it forms the basis for public credit, such as investments in public infrastructure: building a railway system, building power systems, dams, and so forth; funding certain kinds, or launching certain kinds of private projects, as well as for warfare. Public credit is our system. We regulate our currency, as we did best under Franklin Roosevelt, to have a fixed-exchange-rate system, among nations. That works the best.

We are unique, in that sense. Every part of Europe, for example, is still—well, forget Eastern Europe, forget Russia for the moment—but every part of Central and Western Europe is actually an oligarchical system, in which there is a higher power than government. That higher power is central banking. Central banking is private central banking. And private credit, in the form of a monetary system, controls the governments.

We're living in, essentially, a British Empire: That is, the world is run by a money system, called a "free-market system." Or the equivalent. The money system is controlled by banks and similar financial institutions. Governments, under free trade, are not supposed to interfere with the functioning of that system. You're under a dictatorship of international finance. The only alternative to this, which is what is hated by the oligarchs, is Franklin Roosevelt's system: Franklin Roosevelt instituted a revival of the American System, based on public credit, rather than monetary power, arbitrary monetary power.

Now, the present system—to make as short of this as possible in terms of this aspect of the presentation—the present system, as long as we try to operate according to the rules of an international monetary system, the United States is now hopelessly doomed. And Howard Scream can scream all he wants—it's still doomed. He would just make it worse. There is no hope for the continued survival of the United States, under the present monetary system.

However, under our Constitution, with a President, and with the backing of a Congress which supports him in this, the United States can turn on a dime: Precisely such is the key to my proposed legislation, which is now before the Congress. That is: You can not reform this system. You can not improve it, it can not work, there's no way of escaping catastrophe globally, under this system—none!

What you can do, you can do under our Constitution: The Federal government can act, to create a firewall, in which we protect—for example—mortgages, and banks, that is, legitimate banks, chartered banks. We move to protect them, absolutely, under the same thing as a bankruptcy procedure. In other words, you're putting the system into bankruptcy, under the authority of the Federal government. That means that no household will have an eviction. We'll sort it out later. No bank will be shut down; no regular bank, no chartered bank, will be shut down—they're protected, under bankruptcy protection.

We now proceed to decide what is going to be paid in the future. We're not going to pay gambling debts. And most of this monetary effluent, that you're seeing floating out there, is gambling debts, what is called "monetary assets." All of it is speculation, speculation, speculation, speculation—gambling debts. We don't pay gambling debts. "What about my bank, my debt? I got this note, I got this note, who's going to pay my note?" "We're not paying your note, buddy. It's a gambling debt. Can't collect—it's an IOU, not worth anything." As George Bush said—wrongly—about Social Security claims. That's not an IOU, that's an obligation of the Federal government. That's not an IOU. Gambling debts are IOUs, Goldman Sachs is a bunch of IOUs, and I don't think they're going to pay them, either.

So, the point is, what you can do under the authority of government, you can create a new system. In our case, in our republic, the system you would create, would be a return to the principles of the Constitution, as typified, for example, by the precedent of what Franklin Roosevelt did, with Harry Hopkins and others, to save the United States from the worst Depression we'd had up to that time, that is, in the 20th Century. We do the same thing again.

A Firewall of Law
So what is required here, leadership, means very simply, things that the average guy out there can understand. The average person on the state level, the state legislatures and similar institutions, are sane. The people in the Congress are insane from the top down. That doesn't mean they're all insane, it means they're intimidated by Harry Reid, they're intimidated by Pelosi, and so forth and so on. Therefore, they will sabotage anything, which is not pleasing to the bankers, to the financiers. And that is to the international financiers, in the City of London.

The center of the world economy today, is the City of London. It's not the British monarchy, as such. The British monarchy is an institution of the system, but the British monarchy is not the controller of the system. The controller of the system is a Venetian-style system of private financier interests, sort of like a slime mold, which assembles and asserts its collective power, and uses the instruments of government, under its compulsion, to cause societies to submit to its will. That's an empire. That was the empire, the medieval empire, of the Crusaders and the Venetians, the usurers. That's been the British Empire since February of 1763, when we broke from the British on that issue.

All we have to do, is reestablish the principle of sovereign government: That sovereign government is the highest authority on this planet, and especially in our own country. We say, we put the system into bankruptcy reorganization. Our objective is to make sure that we can keep the economy, society going, without missing a step. No one is evicted from their homes. No bank, which is a chartered bank, is closed down. We take other measures of a similar nature, to ensure that what we're doing today that is good, will continue! And we will build on that to introduce new things, which will get us back on the road to expansion.

And the first thing we'll have to do, once I get this bill through the Congress, the next thing, is go back to do what we should have done, in 2005 and 2006: Take the capacity represented by the automobile industry of the United States—that is, U.S. corporations—take that capacity, which represents primarily a machine-tool capacity, in locations which still exist (the plant may be closed down, but the location exists; the people still live there, or most of them do). It has a machine-tool capability. It has also an associated labor force which worked with the automobile industry, and similar industries, to engage in the production to realize the fruits of what the machine-tool sector does in terms of rebuilding.

We can use the remains of the machine-tool sector associated with the auto industry, by getting it back into functioning under government financing. We can use that to start a recovery program. We start it in the public sector. We build nuclear power plants, rapidly, many of them. We rebuild our water systems, rapidly. We create a national rail system, immediately, rapidly.

We use these kinds of projects, which are government-related projects, we use these to stimulate employment and production in the private sector of industry, in agriculture and industry. The same way! The same way as the Homeowners and Bank Protection Act, the same method: We create a firewall of law, a firewall of Constitutional law, which protects what is essential for the functioning of the nation and the security of its people, to separate what we do day by day, which is protected from claims of another nature. Those claims of another nature can stand outside the offices and wait their turn to be considered: We are going to protect the people and nation of the United States. We're going to encourage other nations to join us in doing the same thing.

We're going to shut down British Empire! Which, as I described it, is the source of 9/11: We'll shut it down.

We Can Break the Power of the British Empire
We'll bring together a cooperation among nations. Take the case of Israel. The thing is a little more complicated than it might seem on the surface. But, any sane Israeli, and there are some there, wants peace. They realize that Israel has no future in a continuation of the present system. Every sane Israeli knows that there must be a permanent peace between Palestinians and Jews. It must be established. The President of Israel at present, has said so. Well, I know him quite well, and I believe him. And these have been ideas he's had for a long time. He is, for me, and for many Palestinians, an acceptable partner for discussion of this question. And the idea of having a two-state solution for the Middle East, Palestinians and Israelis, each with its capital in Jerusalem—so you have in Jerusalem two capitals, one the Palestinian state, one the Israeli state.

You do this, first of all, by going to Syria, which is ready to make a peace agreement with Israel. Everything is done that needs to be done, to discuss. You can go in there and you can make the agreement. You can't dictate it, but you can make the agreement—it'll work. If you're determined to make it work, it'll work. And that closes the last insecure border for Israel.

That means then, that you proceed with what? Well, with nuclear power! What's the big problem in that area? Water! There's not enough water; how can you get water? With nuclear power! Nuclear desalination.

So, now you can transform an area which is destitute because of the water crisis and related things, and if you have peace among these people, as parties to the peace, and base the peace on commitment to this project, you can stabilize that region! If people of good will are there.

The problem is, the Israelis did this operation against Syria, and therefore, they're not too enthusiastic about going ahead right now, and making the negotiation. Though Peres has indicated he's committed to doing it, and everything he's said so far, indicates that's true.

So, what we have before us is the prospect, if we can get this thing in view, we can proceed quickly, throughout the world, to work through part of the world, we can begin to put things into place, to rebuild the world as President Roosevelt had intended, had he not died. The intention, coming out of the war, the idea of the creation of the United Nations, the idea of the elimination of colonialism, systematically and immediately—these kinds of things were the intention of Roosevelt. The Truman Administration turned it around, and went with the British.

But today, the same kind of thinking applies: If we decide that we're going to defend the U.S. economy, in particular, against what is now an immediate and virtually inevitable collapse, disintegration of our economy, of our republic—if we decide to do that, and use the methods I indicated, that can change the world. It will break the power of the British Empire: the empire which gave us 9/11.



Admin

WHAT MUST BE UNDERSTOOD
Lyndon H. LaRouche, Jr.
http://www.larouchepub.com/lar/2007/3443...stand.html


From the beginning of the systematic European colonization of North America, during the early Seventeenth Century, the patriotic currents which generated U.S. independence organized what became, in the course of time, the leading national intelligence organization of the U.S.A.; such was the Society of the Cincinnati, as a private organization. That tradition, however wounded and seemingly frail, persists, still, inside the U.S.A. today.

There are comparable experiences in other nations. Contrary to some widespread doctrines, the successful making of history is not limited to the conduct of presently adopted official policies; the future of any nation depends upon the creation and adoption of fundamental scientific and other necessarily revolutionary discoveries, on which the continued vitality of any culture depends. The case of the Society of the Cincinnati is, like the tradition of the rigorous Classical composition of J.S. Bach through Beethoven and Schubert, among the best illustrations of that point. Those abroad who have not yet understood this fact about the foundations and development of the U.S.A. could not comprehend the nature of the existential challenge which confronts global civilization at this moment.

The role of such private associations, whether formally constituted, or informally organized in some efficient way, has been made indispensable by the fact that even notable Presidents or Vice-Presidents of the U.S.A. have been traitors in fact, such as the British Foreign Office's agent Aaron Burr, or Presidents Andrew Jackson, Martin van Buren, Polk, Buchanan, Theodore Roosevelt, and Woodrow Wilson, or wretched agents of foreign-directed factions, such as President Richard Nixon. Circles of men and women of suitable skills and well-crafted conscience devote themselves privately to nourishing the intention of our republic.

The situation inside the U.S.A. on that account is far worse than during the immediate two decades following the death of President Franklin Roosevelt, especially since the replacement of well-informed patriots of my own generation by a presently dominant generation born between 1945 and 1958; as the government of Russia's President Putin's search for cooperation with the U.S.A. illustrates the point, the dying out of the generation of relevant patriots from among the veterans of the 1939-1945 war has left the U.S.A. with governing strata which are far more poorly equipped, culturally and intellectually, to cope with the most crucial challenges of our planet now, than the relevant veterans of the last great war.

Nonetheless, despite those relevant difficulties of diplomacy now, the only hope of avoiding an early and disastrous outcome of the presently onrushing, global economic breakdown-crisis, is the kind of informed cooperation between Russia and the U.S.A. which could come, from the U.S. side, only from the deep forces of a tradition traced back to the Society of the Cincinnati. Russia and the U.S.A. could not decide the outcome of the present global crisis; but, without their appropriate cooperation, no solution for the world at large exists. The Bering Strait transport tunnel-project is an excellent illustration of the practical point.

I think it most useful, at this time, to share some relevant thoughts with sensitive citizens of our prospective partner, Russia. Into what kind of cooperation shall we engage, in cooperation with relevant other nations, to rescue a menaced world from its present deadly mess?

For an example of this, consider the following features of the present world crisis-situation.


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The best pedagogical precedent for what is happening to the world-wide economy right now, is what happened to Weimar Germany within the hyper-inflationary breakdown-crisis of 1923. The Anglo-Dutch Liberal allies which had prepared and created the great war of 1914-1917, had imposed what became a monetary hyperinflation upon the Reichsmark of post-war Weimar Germany. That inflation put the productive potential of Germany fully at the disposal of the Anglo-Dutch Liberals who had orchestrated the two, general, geopolitical wars of 1895-1945. Through the takeover of Germany's financial system through the 1931 founding of the Basel, Switzerland Bank for International Settlements (BIS), the Anglo-Dutch Liberal backers of Adolf Hitler's rise to dictatorship would have permanently crushed continental Eurasia, but from the unforeseen rise of Franklin Delano Roosevelt to occupy the U.S. Presidency.

The situation in the world today, represents a resumption of the essential features of the same Anglo-Dutch Liberal imperialist ("neomalthusian," "geopolitical") policy. From the very instant President Franklin Roosevelt died, the accommodation of President Harry S Truman to the anti-Franklin Roosevelt policies of Winston Churchill et al., was the intention to orchestrate the functional equivalent of "geopolitical World War III" again, as today.

The present world monetary-financial crisis, is not a U.S. dollar-crisis; it is a breakdown-crisis of the world's present monetary-financial system, a breakdown comparable in essentials to the 1923 collapse of the Weimar Reichsmark, but on a world scale. This present crisis was actually triggered by a recent, lunatic series of actions (concerning both China's currency and Taiwan) conducted against China (despite my repeated warnings to the Senators). That provocation against China was crucial in prompting a very significant July dumping of the U.S. dollar by China and Japan; however, if it had not happened that way, the situation was already rotten-ripe for another event with similar consequences. The world monetary-financial system is, presently, hopelessly doomed. There will never be a recovery—under the present world monetary system—from the on-rolling global financial-breakdown-crisis.

Only the launching of a new world monetary-credit system could halt the breakdown-crisis, and permit the development of a new monetary-credit system which could halt the presently mounting global panic.

Therefore, the crucial point to be made here, is that unless the U.S.A. overturns its present policies, the world-wide monetary-financial collapse entering its concluding phase now, will tend to create a hopeless situation for humanity, globally, for generations still to come. Without the activation of patriotic forces within the U.S.A., to take joint remedial action with some other leading powers of the world, there is no reasonable hope for humanity, globally, for generations still to come.

Thus, for Russia, as for other nations, the crucial question is, what forces within the U.S.A. are likely to attempt to change current U.S. policy-trends into a sane direction, away from the trends of, most emphatically, the recently nearly seven years? The memory of the Society of the Cincinnati comes, thus, to the fore.

That memory is also prompted by the tremendous collapse of the credibility of the U.S. Congress under Democratic leaders Senator Harry Reid and Representative Nancy Pelosi over the interval since the November 2006 mid-term election. (The credibility of Republicans, with the Bush-Cheney albatross hanging around their necks, is even worse.) The popularity of the Congress with the citizenry has dropped from a more or less clear popular majority then, to about 10.7% calculated presently. The onrushing mass-foreclosure of mortgages of the citizenry and menacing collapse of leading banks, creates fears of who might be hanging from the 2007 Christmas tree, if there actually were a Christmas tree available. The situation through western and central Europe is actually no better, either politically, or economically.

The world situation today, is, therefore, either a hopelessly disgusting situation, or, speaking literally, a revolting one. The issue is: what sort of a revolt against the present state of gross misleadership were possible?

The first step which must be taken very quickly, is the adoption of the draft legislation freezing all foreclosures on housing and protecting all Federal and state chartered banking institutions for their socially essential normal functioning within the relevant community. Only a socially dangerous incompetent in our government would object to that emergency legislation.

However, such measures are no more than absolutely indispensable stop-gaps—to stop the bleeding, so to speak. The objective is to prepare the way for:

The launching of a general economic-recovery program, based largely on Federal constitutional credit used to launch essential building of basic economic infrastructure;
The use of such infrastructure programs as creating the markets for the recovery of the private sector.
Those recovery measures must be matched with a return to a global, fixed-exchange-rate, protectionist model of monetary system. Without that, there would never be an economic recovery for generations to come.

To establish such a global system, quickly enough to be effective, and in a coordinated way, U.S. partnership in this project with major nations such as Russia, China, and India, is indispensable. Four major nations can provide the pivot around which to bring the world's smaller nations into a new, equitable, fixed-exchange-rate system. Without such action, there is presently no hope for humanity at large from generations yet to come.

Thus, in New York, Lady Macbeth steps to the front of the stage, crying "Out, damned spot!" and then throws Mrs. Lynne Cheney into the pit, to the accompanying cheers of a vast, and vastly grateful audience!



Admin

THE LESSONS OF 1923
Helga Zepp-LaRouche
http://larouchepub.com/hzl/2007/3444lessons_1923.html

Most retirees, Hartz IV[1] recipients, and other low-income families have known it for a long time: For them, the inflation rate is much higher than the official rate of a little over 2%. So these population groups, which constitute nearly two thirds of the total population in Germany—56.6% of households, or about 46 million people—make at most 150 euros per month more than the fixed costs of living; they seldom buy products that have become cheaper, and figure into the average inflation rate, such as computers, cell phones, or trips abroad. Most of their income goes for products that have become much more expensive.

With slight adjustments, the recently announced figures from the Statistical Office in France (INSEE) apply to Germany as well: In September, the price of grains exploded by 20.5%; the price of soft wheat doubled within a year, and rose in September alone by 23.2%. Soy, which among other things is used for animal fodder, rose by 24.7%; beef by 12%; poultry by 14%; fruit by 23.7%; and milk products are expected to rise by about 20%. In addition, the prices of gasoline, heating oil, and natural gas have risen by 13-16%, and a 10% price rise for electricity in January has already been announced. If we include the price increases for raw materials and crude oil—which is now over $90 per barrel—for industrial production, and which eventually affects consumer prices, then it becomes clear that we are already in the middle of a hyperinflationary trend.

Financial insiders estimate that in the last three months alone, as a result of the "reverse leverage" caused by the collapse of the U.S. mortgage market (losses with borrowed money), there was some $2.4 trillion in losses of unsellable financial securities. The investment banks are having the greatest difficulty in admitting their losses; the third largest U.S. bank, Merrill Lynch, has only hesitantly admitted to preliminary losses of $8 billion, while Citigroup, through the creation of the MLEC "Superfund" (Master Liquidity Enhancement Conduit), is trying to shift the damage to credulous and greedy investors. Instead of admitting the collapse of the policy of "creative financial instruments" à la Alan Greenspan, and shutting down the hedge funds, venture capital companies, special purpose enterprises, etc., the central banks—including the Federal Reserve—are trying to hide their losses by massive injections of liquidity. This hyperinflationary operation is enhanced by speculation on the food-commodity exchanges, such as the Chicago Board of Trade. Even more devastating is what the Italian pasta producer Guido Barilla called "the insane decision" of President George W. Bush, to replace 20% of gasoline consumption with biofuels, over the next ten years. This policy, according to Barilla, has led to a chain reaction of price explosions hitting all agricultural commodiites.

The fact is, that this inflationary tendency has clear parallels in the hyperinflationary policy of the Reichsbank in 1923, and no one should forget the statement of Federal Reserve chief "Helicopter Ben" Bernanke, that the central bankers, if necessary, would throw money out of helicopters over the cities, in case of a threat to the world financial system. And what everyone in Germany knows, at least from the stories told by their grandparents and parents about the 1923 hyperinflation that devoured the savings of most of the population, is that that's what is being experienced today by a considerable portion of the population, for whom price rises in basic commodities are pulling the rug out from under their feet.

In view of all this, and the fact that in Germany one out of every six children is poor, and even at the age of eight can see no future for himself, how irresponsible are the leading politicians who defend the current system of globalization! When Finance Minister Steinbrück continually defends the role of the hedge funds, as he did again recently at a meeting of the Hans Böckler Foundation, then this underscores how far he has abandoned social democratic principles, his oath of office, and the Basic Law.

The political establishment, which has apparently become much too accustomed to the priviliges of this system, is out of touch with the reality faced by the majority of the population. That such professional blindness has a social price, is nowhere more clear than in the case of the American Congress, where the Democratic Party in November 2006 won a resounding victory in both Houses, and had a popular approval rate of around 70%; yet in less than a year, it has completely lost that, and its approval now is under 11%.

The fundamental problem with politicians like Mr. Steinbrück is that he belongs to a generation that has neither the knowledge nor the memory of how any system could exist, other than that of the free market economy linked to globalization. According to the motto, "It cannot be, what must not be," they think this system cannot collapse. And they refuse to comprehend that globalization is not only destroying what were once called the developing countries, but is also plunging most of our own people into poverty.

Nothing in the world will save the hopelessly indebted world financial system. But it would still be possible to defend the real economy, and, through multilateral cooperation among nations in the tradition of Franklin Roosevelt and his New Deal, to bring about a new economic miracle. But this requires a radical change in economic and financial policy, a return to fixed exchange rates, an affirmation of scientific and technological progress, according to the principles of physical economy—that is, saying "yes" to the Transrapid maglev train and the inherently safe modular high-temperature gas-cooled reactor—and an absolute commitment to the Common Good.

The BüSo is at present the only party that stands for such a change.

Admin

A FINANCIAL SYSTEM UNDER SIEGE
Professor Rodrigue Tremblay
http://globalresearch.ca/index.php?context=va&aid=7333

"If these items [promised benefits in Social Security, Medicare, Veterans Administration and other entitlement programs] are factored in, the total [debt] burden in present value dollars is estimated to be about $53 trillion. Stated differently, the estimated current total burden for every American is nearly $175,000; and every day that burden becomes larger."

David Walker, comptroller general of the United States

"The economic forces driving the global saving-investment balance have been unfolding over the course of the past decade, so the steepness of the recent decline in long-term dollar yields and the associated distant forward rates suggests that something more may have been at work."

Alan Greenspan, former Fed Chairman, July 20, 2005

“The subprime black hole is appearing deeper, darker and scarier than they [the banks] thought. They’ve worked through ... about 40 percent of the backlog of the leveraged loan side, and there’s definitely some signs of thaw there.”

Tony James, president and CEO of Blackstone Group LP

The global dollar-based financial system is in crisis and is threatening the prosperity and stability of many economies. Financial excesses of all kinds have undermined its legitimacy and its efficiency. The U.S. dollar is losing its preeminence as the main international reserve currency while many banks are caught in the turmoil of the subprime credit crisis.

The overall background is the unprecedented real estate bubble that took place worldwide, from 1995 to 2005. In the United States, for example, owner-occupied home prices increased annually by an average of about 9 percent. The market value of the stock of owner-occupied homes in the U.S. rose from slightly less than $8 trillion in 1995 to slightly more than $18 trillion in 2005. It has been contracting ever since, confirming the working of the 18-year Kuznets realestate cycle, which has gone from the top of 1987 to the 2005 top.


What makes this period especially dangerous is the fact that the average 54-year long inflation-disinflation-deflation Kondratieff cycle is also at play, having begun in 1949 after prices were unfrozen. World inflation then rose for twenty years, until 1980, which was followed by a period of disinflation under the Volcker Fed. The entry of China into the World Trade Organization (WTO) on December 11, 2001, with its abundant labor and low wages, unleashed strong deflationary forces worldwide. This in turn led to lower inflation expectations paving the way for the Greenspan Fed to keep interest rates abnormally low.


Persistent low interest rates and low inflation expectations led to a binge in borrowing and to a vast increase in market valuation, not only in real estate but also in stocks and bonds. Banks and other mortgage lending institutions took advantage of the opportunity to introduce some financial innovations in order to finance the exploding mortgage market. These innovations resulted in the severing of the traditional direct link between borrower and lender and the reduction in the lending risk normally associated with mortgage loans.

Thus, with the connivance of the rating agencies and of the Federal Reserve System, large banks invented new financial products under various names such as "Collateralized Bond Obligations" (CBOs), "Collateralized Debt Obligations" (CDOs), also called "Structured Investment Vehicles" (SIVs), which had the characteristics of unfunded short term commercial paper. In the residential mortgage market, for example, mortgage brokers and retail lenders would sell their mortgage loans to banks, which in turn would package them together and slice them into different classes of mortgage-backed securities (RMBS), carrying different levels of risk and return, before selling them to investors.


Indeed, these new financial instruments were the end result of a process of "asset securitization" and were slices of bundles of loans, not only of mortgage loans but also of credit cards debts, car loans, student loans and other receivables. Each slice carried a different risk load and a different yield. With the blessing of rating agencies, banks went even one step further, and they began pooling the more risky financial slices into more risky bundles and divided them again to be sold to investors in search of high yields.


By selling these new debt instruments to investors in search of high yields and higher yields, including hedged funds and pension funds, banks were doubly rewarded. First, they collected handsome managing fees for their efforts. But second, and more importantly, they unloaded the risk of lending to the unsuspected buyer of such securities, because in case of default on the original loans, the banks would be scot-free. They had already been paid and had been released from the risk of default and foreclosure on the original loans.


The banks' residual role was to collect and distribute interest, as long as borrowers made their interest payments. But if payments stopped, the capital losses incurred because of the decline in the value of unperforming loans would instead be carried by the investors in CBOs and CDOs. The banks themselves would suffer no losses and would be free to use their capital bases to engage in additional profitable lending. In fact, the end of the line investors became the real mortgage lenders (without reaping all the rewards of such risky loans) and the banks could reuse their capital to pyramid upward their loan operations. These were the best of times for banks and they gorged themselves without restraint. Some of them paid their employees tens of billions of dollars in year-end bonuses.

Indeed, and it is here that the Fed and other regulatory agencies failed, first line mortgage lenders became more and more aggressive in their lending, with the full knowledge that they could profitably unload the risk downstream. This explains the expansion of the "subprime" mortgage market where borrowing was done with no down payment, no interest payments for a while and no questions asked as to the income and creditworthiness of the borrower. These were not normal lending practices. Such Ponzi schemes could not last forever. And when housing prices started to decline, foreclosures also increased, thus shaking the new financial house of cards to its foundations. Banks became the reluctant owners of some of the foreclosed properties at very discounted values.


Why then are so many banks in financial difficulties, if the lending risk was transferred to unsuspecting investors? Essentially, because when the housing boom burst, the banks' inventory of unsold "asset-backed securities" was unusually high. When the piper stopped playing and investors stopped buying the newly created risky investments, their value plummeted overnight and banks were left with huge losses still not fully reflected in their financial balance sheets. Indeed, banks that did not unload their stocks of packaged mortgages were forced to accept ownership of foreclose properties at very discounted values. With little or no collateral behind the loans, bad-debt losses became unavoidable.

Since noboby knows for sure the value of something which is not traded, it will take months before banks come to terms with the total losses they have suffered in their stocks of unsold pre-packaged "asset-based securities". It is more than a normal "liquidity crisis" or "credit crunch" (which results when banks borrow short term and invest in illiquid long term assets); it is more like a "solvency crisis" if the banks' capital base is overtaken by the disclosure of huge financial losses incurred when the banks are forced to sell mortgaged assets in a depressed real estate market.

This is this financial and banking mess which is unfolding under our very eyes and which is threatening the American and international financial system. There are four classes of losers. First, the homebuyers who bought properties at inflated prices with little or no down payment and who now face foreclosure. Second, the investors who bought illiquid mortgage-backed commercial paper and who stand to lose part or all of their investments. Third, the holders of bank stocks who profited when the system worked smoothly but who now face declining stock values. And, finally, anybody who stands to fall victim, directly or indirectly, to the coming economic slowdown.

Admin

SUB-PRIME LOSSES COULD REACH $500 BILLION WORLDWIDE
http://larouchepub.com/pr/2007/071112sub...osses.html

A new report out today from Deutsche Bank, says that bank losses from the continuing collapse of the subprime mortgage securities could eventually reach $300 billion to $400 billion worldwide. Wall Street alone will be forced to write down as much as $130 billion, with the rest of the losses coming from smaller banks and investors in mortgage-related securities. Already last month, Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley each announced write-downs in the ten's of billions of dollars, led by Citigroup with writedowns of more than $40 billion. Report author John Mayo expects total writedowns at HSBC, UBS AG, Royal Bank of Scotland Group Plc and Barclays Plc to be "ballpark $5 billion or so" each. This could cause major problems for banks—HSBC, for example, has $45 billion mortgage services business, and only $2.1 billion in loss provisions. Mayo apparently makes no estimate of what Deutsche Bank's own losses might be.

According to the report, subprime borrowers are likely to eventulaly default on 30 percent to 40 percent of all outstanding debt. For a $1.2 trillion subprime mortgage market, that figure could easily approach $500 billion. This year alone, having already announced losses totalling over $40 billion, banks and brokers may have to write off an additional $25 billion, for a total of between $60 and $70 billion. These figures could well be much larger, since, as Mayo admits, he was going by "seat-of-the-pants" calculations, based on published figures, which in many cases have proven to be—shall we say—"conservative."

In addition, loss rates on about $200 billion of securities based on derivatives linked to subprime debt will run to as high as 80%, according to the DB report, which would amount to $160 billion. Coverage by Bloomberg news notes that a Lehman Brothers report from last week found that Commercial banks, government- chartered firms Fannie Mae and Freddie Mac, and mortgage and bond insurers will be the most affected by mortgage losses. "We're not out of the woods yet," one fund manager told Bloomberg. "There are more losses to be taken and there's more negative news to come."

One should note that these bonds were all rated "AAA" investment quality, just six months ago.


Admin

“MARKET FUNDAMENTALISM” AND THE TYRANNY OF MONEY
Recommendations for Reform of the US Monetary System

Richard C. Cook
http://globalresearch.ca/index.php?context=va&aid=7427

We hold these truths to be self-evident, that all men are created equal,
that they are endowed by their Creator with certain unalienable rights,
that among these are life, liberty and the pursuit of happiness.

What We Must Do Today
“Life, liberty, and the pursuit of happiness” are, or should be, the fruits of democracy. But the political democracy defined by the Declaration of Independence and the Constitution has not been achieved because economic democracy has not been achieved. The attainment of real economic democracy is the next task for the American people.


In the midst of the most productive economy in history, the U.S. and much of the world today are in crisis, with stagnant or falling incomes, rising prices, and skyrocketing debt. Many experts are predicting an economic collapse, and people with money are scrambling for safe places to protect it. No one in an official capacity has provided a convincing explanation; few have even tried.

We are taught that economics is a “science” and that it operates under unchangeable laws that are understandable only to specialists. People speak with reverence of “market forces” as existing beyond the reach of human intelligence and will.

None of this is true. There is no such thing as “laws” in economics.

Of course there are plenty of habits and conventions, myths and prejudices. But the “laws” are the ones created by governments, usually under the control of powerful people who work the levers of power to acquire greater wealth through legislative favor. These laws are man-made. In some cases the laws may provide benefits to those who work for a living, but in many cases not. What we forget is that any of these laws can be changed and that many of them should be changed.


Besides, haven’t we learned by now that what has aptly been called “market fundamentalism” is really shorthand for the tyranny of money? It is a fact that control of economic life, at least in most of the Western nations, has been turned over to the monetary elite who control the world’s industry and resources through the private issuance of credit that originates from the privilege of fractional reserve banking.

This vestige of the financial systems of the Middle Ages allows the banks to produce credit “out of thin air” and lend it at a profit. They lend to consumers, businesses, investors, speculators (such as hedge funds), and to federal, state, and local governments. Under the banking laws, they generate this credit against a small “reserve base” consisting of customer deposits, government debt, overnight deposits from corporations and government agencies, and even—as has been well-documented—by laundering the proceeds of drug dealing and other types of crime.

The dependence of economic life on debt has assured that there has been a steady flow of wealth from the producing economy of goods and services into the financial web which surrounds it. Debt from lending at interest grows at an exponential rate.

Further, every period of economic growth in the last generation has been largely a bank-created bubble. Each time a bubble bursts, the financiers gain more wealth by buying assets at bankruptcy prices. The latest is the housing bubble.

Now we are about to see the bursting of an even larger bubble consisting of stocks and other business assets. In fact, the financiers are now positioning themselves to take advantage of a broad economic collapse.

Control of wealth by high finance is the main reason the bounty of science and technology has not assured a better life to the majority of the people of the world.

Politicians stand by and do nothing. In fact their campaigns are financed by the monetary elite. Should any of them mention economic themes that are even remotely “populist,” they are immediately denounced by the financier-controlled press.

Despite the power of industrial processes which have the capability of providing a decent living to everyone in the world—contrary to the myth of global overpopulation—the world still lives under an illusion of scarcity. This tends to justify the senseless struggle for wealth and control of resources. But it’s one of the most glaring examples of the condition of mass hypnotism that has weighed humanity down throughout the ages.


Ethically, the illusion of scarcity leads to the law of the jungle, survival of the fittest, the fight for dominance and supremacy. “Economic man” still lives at the animal level. The higher laws of human ethics, including the injunction to “love our neighbors as ourselves,” have been ignored. But they need not be ignored if we wake up to the fact that we have it in our power to live in a much different and better world.

The present situation is just as harmful to the wealthy who hold their fellow human beings in bondage as it is to the debtors they oppress, for the rich as well are deprived of the benefits of living in a world where human beings are free, happy, generous, and productive.

One answer to the problem is monetary reform, combined with the realization that science and technology have removed the need for everyone to work all the time just to survive. We have earned the “leisure” and “peace” dividends that are often mentioned but have yet to be realized.

For the last eight months I have been publishing essays on these themes on Global Research and other internet sites. I was inspired to write and publish these essays after I retired from the U.S. Treasury Department following thirty-two years of working for the federal government.

My research showed that the U.S. actually had a reasonable approach to monetary matters for much of our history. The thirteen American colonies built a dynamic economy without the presence of a single bank. Throughout the nineteenth century, we developed the most powerful economy on earth without a large national debt.

Then Congress gave away its constitutional authority over money through the Federal Reserve Act of 1913. The Sixteenth Amendment to the Constitution which was enacted the same year, created an income tax to pay the interest on the national debt. Throughout history, government debt and excessive military spending have gone hand-in-hand. Not accidentally, the Federal Reserve Act marked the beginning of the century of world war that still afflicts us.

We now need to reclaim our monetary system before our government makes the fatal error of engaging in more useless foreign wars, besides the travesty in Iraq, because they continue to think that the way to solve our internal monetary problems is taking other people’s land and resources. This is another effect of the illusion of scarcity.

A lifetime of involvement in public finance with the federal government has led me to call for one basic reform.

We should abolish the privately-controlled Federal Reserve as a bank of issue and re-establish constitutional control of credit as a public utility. Public creation of credit would be reflected in two basic policies: 1) direct issuance of credit to citizens through a basic income guarantee, a periodic National Dividend, and low-interest bank lending; and 2) direct spending by government for essential services—i.e., restoring the Greenback—combined with public low-interest financing of infrastructure investment. Taking these steps would also allow us to reduce much of the onerous burden of taxation at the federal, state, and municipal levels.

Also, people who advocate a gold standard are often confused about the definition of “fiat money,” which they deride. There are actually different types of “fiat money.” The debt-based credit created by the Federal Reserve, often called “fiat money,” is not money at all. It is simply temporary credit with a lien against it for repayment with interest. But real “fiat money,” like the Civil War Greenbacks or the American colonial paper currency, was true democratic money that was spent into circulation by government and was never inflationary. Rather it allowed commerce to expand and people to prosper. This type of fiat money is actually the key to economic democracy.

II. Monetary Reform Recommendations

The articles compiled in the essays referenced above contain numerous recommendations for actions that would restore the issuance and management of credit as a public utility under the Commonwealth of American citizens as established by the U.S. Constitution. Following is a comprehensive list of reforms.

The immediate purpose of this program would be to correct the conditions that have brought us to the brink of economic catastrophe due to the cession of control over credit by Congress to the private financier elite through the Federal Reserve Act of 1913.

The unconstitutional abdication of monetary responsibility by Congress has contributed directly to a century of world war, the near-destruction of the U.S. as a constitutional republic, and the transfer of much of the nation’s wealth into the hands of the monetary controllers who have acquired it through inflating and deflating financial bubbles, by mis-using their fractional reserve banking privileges.

The recommendations which follow would be a start in bringing about change. A few of them have been suggested by some of the 2008 presidential candidates, though none of the candidates from either party has presented anything close to a program this comprehensive. The recommendations are divided into immediate, near-term, and long-term actions. Note that monetary reform will make possible a large number of additional economic and political changes, including a transformation of the military posture of the U.S., since we no longer will have to fight the rest of the world to compensate for our monetary weaknesses.

Immediate

Abolish the Federal Reserve as a bank of issue and reconstitute it as a financial processing bureau servicing the public and private financial sectors under the authority of the U.S. Treasury Department.
Place all U.S. monetary operations under a Monetary Control Board that shall operate as a federal regulatory agency under the administrative supervision of the U.S. Treasury Department.
Abolish Federal Reserve open market operations by authorizing credit directly issued by the U.S. Treasury as collateral for all U.S. bank lending.
Restore private banking operations in the U.S. to the “real bills” doctrine and abolish all lending for financial asset and securities speculation.
Outlaw hedge funds.
Replace all Federal Reserve notes by U.S. Treasury certificates.
Place the entire U.S. national debt under bankruptcy reorganization.
Authorize the executive branch to begin direct Greenback-type funding of selected operational programs.
Establish a self-collateralized Federal Infrastructure Bank to lend to state and local governments for long-term projects at zero percent interest.
Restore the pre-2005 federal personal bankruptcy law.
Utilize an off-budget national credit account to issue an annual guaranteed basic income to all legal U.S. residents in the amount of $10,000 per adult and $5,000 per dependent child.
Establish a National Price Commission to work toward a system-wide fair pricing policy for the U.S.
Freeze budgets and hiring for all federal government agencies, including the military and all contractors.
Near-Term

Establish policies to maintain a stable dollar with minimal inflation allowances.
Adopt as a primary monetary goal the backing of our currency with domestic production within the physical economy rather than the “print, loan, charge, and spend” policy of bank-centered monetarism.
Extend the authority of the Securities and Exchange Commission to investigate and eliminate predatory financial practices within U.S. capital markets that are destructive to U.S. industry, infrastructure, and labor.
Use the findings of the National Price Commission to establish an annual National Dividend that provides citizens with their rightful benefits accruing from the appreciation of national productive capacity through the application of science and technology to productive processes. The National Dividend shall utilize the amount of the guaranteed basic income as a floor in calculating benefits and shall consist in both direct payments to citizens and pricing subsidies for products sold in U.S. markets.
Establish a new federal agency to oversee and regulate mortgage funding, assure low-interest lending for housing, and protect the housing markets from predatory financial practices, including the inflation and deflation of housing bubbles.
Assure funding and legislative support to implement energy-conservation actions such as those contained in the 2005 report of the Rocky Mountain Institute entitled, “Winning the Oil End-Game: Innovation for Profits, Jobs, and Security.”
Provide increased federal R&D funding for hydrogen technologies and for technologies that replace the internal combustion engine.
Provide funding for free college-level education for all U.S. citizens.
Reverse privatization of public utilities and re-regulate on a fair-price basis.
Protect and extend union collective bargaining rights.
Restore public service requirements for media broadcasting.
Establish public funding for all U.S. elections along with mandatory free air time for political candidates.
Depoliticize all agencies of the executive branch from undue corporate influence in decision-making and establish new and meaningful programs of public access and participation.
Establish federal support mechanisms allowing community banks to provide low-interest loans at one percent interest to small businesses and consumers.
Utilize a federal-state partnership to establish a series of ten regional mega-universities within the United States to serve both U.S. and international student audiences.
Reconstitute the federal budget by eliminating programs supplanted by the guaranteed basic income, utilization of direct Greenback-type funding where appropriate, and selective users’ fees.
Eliminate collateralization of private sector banking with federal debt securities. Emergency borrowing by the federal government will take place only through direct sale of Treasury bonds.
Eliminate all federal, state, and municipal income taxes and replace with a national sales tax.
Establish a mandatory annual income ceiling for individuals and corporations.
Establish a mandatory national building and zoning code that provides for affordable housing, use of renewable energy resources, and expanded mass transit.
Recreate and revitalize the nation’s railroads.
Establish a system of universal health care that draws heavily on concepts of lifestyle and prevention.
Establish meaningful programs of center city renewal to transform “death zones” into vibrant centers of urban culture.
Abolish the International Monetary Fund, the World Bank, the World Trade Organization, and the North American Free Trade Association and replace them with an international monetary authority under the U.N. whose function is to regulate international currency exchange to the mutual benefit of all parties.
Place all outstanding loans by the IMF under bankruptcy reorganization.
Support models of sustainable economic development among developing countries.
Begin the withdrawal of U.S. military forces from overseas bases.
Outlaw all covert warfare carried out by U.S. government agencies.
Eliminate all military programs of domestic surveillance and all overseas surveillance, detention, and torture contrary to established international law.
Reduce U.S. arms sales abroad to essential defense requirements.
Eliminate all U.S. funding of mercenary or contractor military forces.
Reconstitute the CIA and NSA as supporters of a defensive military posture and depoliticize their operations in order to assure accurate professional data-gathering and analysis.
Reconstitute the State Department as an agency to support the democratic aspirations of the people of the world.
Long-Term

Eliminate the entire U.S. national debt.
Carry out a general demilitarization of American culture.
Reduce the military budget by elimination of wars of “choice,” abandonment of “full spectrum dominance,” and restoration of a military devoted to multilateralist defense of the U.S.
Work with the nations of the world on establishing democratic economic systems based on the utilization of credit as a public utility in accordance with U.S. constitutional traditions.
Undertake reclamation and desalination programs to bring water supplies to drought-stricken areas.
Accomplish a permanent long-term conversion to renewable energy sources, including water-fueled hydrogen cells suitable to provide all power needs for homes and businesses.
Refocus the U.S. space program on activities that support space science and the economic development of space resources.
III. Conclusion

One final recommendation could be made, which would be to restore to our citizens the money they have been forced to borrow during their lifetimes rather than enjoy the benefit of a National Dividend which could have been implemented decades ago. At a current estimated value of over $12,000 per year, the lifetime amount would average around $500,000 per adult. This figure represents the amount of debt we have had to incur, not including interest, due to a financial system that benefits the monetary controllers, not the people of the nation.

As monetary reformers of the past have affirmed, a program like this represents a spiritual vision. It cannot be achieved by moving pieces around on an economic or political chessboard. It requires a new way of looking at humanity—as individuals, who, like oneself or one’s family or one’s nation or those of one’s religion, also have a right to a life of abundance and security on the planet earth.

This abundance and security are both available, not by accumulating money, power, or influence, but by looking to the spirit within and allowing the splendor of that vision to manifest in the outer world. This vision was reflected in ideals of our republic expressed in the Declaration of Independence and the Constitution, and is now reflected in the program of reform described by monetary reformers both past and present.

Of course no one can say how much more time must pass before such a program can be implemented. The illusion of scarcity has society in a stranglehold. Will it take a nuclear war to get us to wake up? A worldwide revolution? Catastrophes from pollution or global warming?

For now, enlightened individuals must do the best they can to acquire and maintain a spiritual perspective and be prepared for the time when conditions ripen. Measures such as getting out of debt, creating local currency/barter systems, forming conscious communities, and acquiring manual skills are some of the economic actions people can take to protect themselves.

Also, people can take action through their state and local governments. Before the Civil War we had state-owned banks. During the Depression, cities experimented with their own currencies. The states could even initiate a constitutional convention to amend the Constitution to restore citizens’ monetary control.

Finally, don’t feel badly about being in debt and wanting to get out. Almost everyone is in debt to some extent, millions of people are over their heads in debt, and the situation is going to get worse.

But remember that before long, monetary reform based on public control and issuance of credit will be recognized as the most fundamental requirement of economic democracy and will be implemented. It’s been said that the tyranny of money “is the last tyranny.” Eventually the time may come when we will be more developed spiritually and perhaps won’t even need money anymore.

Then people will be able to walk into any store and take what they need, free for the asking. We’ll do what work is required just for the enjoyment and adventure of it. No one will desire what another has because we finally will have understood that the bounty of God’s universe is infinite. That will be the ultimate monetary reform.


Admin

GLOBAL BANKERS SEEK TO RAID TAXPAYERS OVER SUBPRIME FIASCO
http://www.augustreview.com/news_comment...007113081/


Things got complicated when bankers got greedy, figuring the could make a whole lot more than just simple interest. The scheme is called securitization, as depicted by the following flow-chart.


In its simplest terms, securitization is a process whereby illiquid financial instruments (e.g., mortgages) are purchased and combined into pools. The pool is then structured where shares can be sold to 3rd party investors like banks, pension funds and even governments. Any type of asset can be securitized as long as it has a steady flow of cash associated with it. The cash flow is the incentive for purchasers to make their investment.

There are many fees that are paid along the road to successful securitization. The original borrower pays "points" to the initial broker and/or banker. The pool operator receives the rights to income at a discounted price. The investment banker who syndicates the sale charges hefty fees plus commissions paid to the selling broker/dealer or investment representative.


The investment bankers are the primary enablers and drivers of the securitization process. Right behind them is the Federal Reserve, who is supposed to be a watchdog on shaky banking practices.

Investment bankers have many tricks that help to make securitized investments more attractive. Appraisers are employed to give favorable valuations (and often greatly inflated) to the underlying properties. Credit agencies are employed to give favorable ratings (again, often greatly over-rated) to the investments, thus promoting confidence. The credit risk is often mitigated by adding insurance policies, different classes of investors, hedging against failure by purchasing or selling derivatives. It gets more complicated than we want to discuss here.

Currently, Attorneys General in New York, Ohio, and Colorado are investigating illegal appraiser activity with respect to banks and other lenders pressuring appraisers to fudge their appraisals. The Securities and Exchange Commission is currently investigating illegal activity at credit rating companies who might have been pressured into issuing artificially high credit ratings.

For the investment bankers, most of their profit is taken out of the "enhancement" value at the expense of the underlying investment that is being purchased by unsuspecting investors. In other words, the ultimate investor is getting  hosed from the start but the house of cards doesn't fall until the cash flow starts to dry up -- as in, John Doe can't make his house payment and goes into default on his mortgage.

Securitizations made against the subprime lending markets were simply the weakest links in the financial chain.

This is exactly where greed starts to really show up: when bankers decided to relax borrowing standards, they began to allow loans that never, ever should have been made. In other words, borrowers had deficient or delinquent credit histories, little documentation on income and over-appraised properties. Adjustable rate mortgages (ARM's) were tailored to fit the income of the borrower, which was already too small for a normal loan. Thus, when the ARM adjusted upward, up went the payment amount and the borrower finds himself delinquent and facing bankruptcy.

Those holding the securitized investments all of a sudden receive less income and are forced to "revalue" their investment down to the reality of income actually received plus the prospect of additional declines in income in the future. Remember that these assets were over-inflated in the first place, so investors are forced into taking huge hits on their balance sheets.

Since securitized assets are quite illiquid, it is very hard to find another buyer. If you are lucky enough to find one, the buyer will be interested in offering you a "pennies-on-the-dollar" type of price.

It is insufficient to blame the credit collapse on the subprime market. Because it was the weakest element of an overall flawed investment market, It was simply the first segment to blow up. The rest the market (non-subprime) is following right behind it.


Now that people are looking for someone to blame for this debacle, the banking community, including even the Federal Reserve, is shifting the blame to the consumer for having made poor borrowing decisions in the first place. After all, nobody forced them to submit an application for a loan that they couldn't afford. They should have known better.

Yet, it was the banking community that structured the loan offers that lured unsuspecting borrowers into their lair. For years, TV ads for mortgages and credit cards dominated the airwaves. Many consumers received dozens of credit card offers by mail each week. Is it right for the bankers to say that they were merely responding to market conditions, to give the foolish consumers what they demanded? In fact, the average person looks to his banker as an "expert adviser", expecting knowledgeable answers that will be in the borrowers best interest.


I think not. Their markets were artificially created by the very advertising they flooded us with. Advertising creates expectations that can only be filled by purchasing the advertiser's products.

According to a recent statement by Treasury Secretary Henry Paulson, former chairman and CEO of Goldman, Sachs, the Treasury will now step in with a plan that "helps investors and lenders avoid unnecessary and costly foreclosures that are not in their interest." He has also talked of a rate freeze on Adjustable Rate Mortgages that are soon to reset to a higher interest rate.

You can imagine how the owners of securitized investments feel about that. Having been guaranteed a certain rate of interest, they will meet any government intervention or price-fixing with a flood of lawsuits.  

Of course, a tsunami of lawsuits, mortgage foreclosures and bankruptcies would be fatal to at least a few U.S. banks. Yet apparently, to assume responsibility for their own mistakes (or even criminal actions) is too much to ask of them.

If the banking crowd succeeds in taking another full drink from the public treasury, it will cost the American taxpayers billions in the end.

Meanwhile, don't expect that  the banking crisis is limited to just the subprime lending market: It's merely the tip of the iceberg!

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