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RE: The Global Financial Meltdown - Admin - 04-05-2009


President Obama Must Dump Summers To Save His Presidency
Debra Hanania-Freeman

During an international webcast on March 21, Lyndon LaRouche noted that the real problem in the Obama Administration's economic policy team is not Treasury Secretary Tim Geithner. Instead, LaRouche stressed, the man whose policies pose the gravest danger to both the nation and Barack Obama's Presidency is Larry Summers, the head of the President's National Economic Council. LaRouche called for Summers to be removed from his post.

LaRouche's Saturday warning, that Summers posed a significant threat to the Administration, was borne out very quickly. By Monday, as Geithner unveiled the latest phase of the biggest bailout swindle in history, it was announced that the President's popularity had plummeted from a high of 78%, which he enjoyed in the days following his inauguration, to just under 50%. In fact, during the course of that week alone, the President's approval rating dropped by more than 13%!

As the week progressed, it became increasingly apparent that there was a potentially cataclysmic split inside the Administration. While a hoodwinked President Obama was persuaded by Summers and his backers that the way to solve this worst financial and monetary crisis in modern history was to turn over the keys to the banking system—at taxpayers' expense—to a gang of hedge fund thieves, saner voices echoed the policies outlined by LaRouche. Prominent and accomplished economists, most notably Texas economics professor and noted author James Galbraith (the son of FDR's economic advisor John Kenneth Galbraith) and Nobel Laureate Paul Krugman, insisted that, not only would the latest (and worst) of the bailout schemes fail, but it would make things much worse. They argued instead for the solution employed by FDR; the same solution that Lyndon LaRouche put on the table almost two years ago: to save the U.S. banking system by reorganizing it under bankruptcy protection.

Volcker: Revive Glass-Steagall
Former Federal Reserve Chairman Paul Volcker, who heads the President's Economic Recovery Advisory Board, during a March 27 speech in New York City, was even more emphatic on a point he has addressed before: that the current system absolutely had to be reorganized, and reorganized in a Glass-Steagall framework.[1]

Apparently, Summers, a notorious egomaniacal blowhard, whose inability to work with anyone has cost him more than one job in the past, threw a hissy fit, and told the President that he wasn't going to continue to play in the same sandbox as Volcker. Unfortunately, Obama has been brainwashed into believing that, in order for him to begin to solve the disaster he inherited from the Bush-Cheney Administration, he needs the support of the very Wall Street thieves who are largely responsible for this latest phase of the collapse, and that Larry Summers is critical to winning him that support.

So, on March 25, Office of Management and Budget (OMB) director Peter Orszag announced that President Obama was putting Volcker in charge of a tax-code review aimed at closing loopholes, streamlining the law, and generating revenue. Orszag said the review, given a deadline of Dec. 4, was being ordered to make recommendations on steps to simplify the code, built over the last 96 years, in ways that would reduce tax evasion, and what he called "corporate welfare."

There was no mistaking what had occurred. Just after Volcker had disagreed with Summers over both the timing of regulatory reform, and the core question of the necessity of bringing back Glass-Steagall, which Summers personally worked to wreck in 1999, the former Fed chairman was being sent off to work on taxes for the rest of the year. Obama's personnel choice was not only wrong, but potentially fatal to his Presidency. Despite Volcker's many problems, he is one of the few serious economic thinkers in the U.S., and the only such person inside the Obama Administration, who has the stature to credibly oppose Summers' bullying economic insanity.

In the interest of freeing President Obama from the toxic threat that Summers poses to his Presidency and to the nation, it is time to take a close look at just what Larry Summers represents.

Summers' Perfidy
Long before Summers became Treasury Secretary during the last 18 months of Bill Clinton's second term, he distinguished himself as an ardent opponent of the American system of economics. After studying under Martin Feldstein at Harvard, Summers joined the staff of the Council of Economic Advisors under Ronald Reagan. In that post, he argued successfully for radical cuts in both corporate and capital gains taxes as the best incentive for economic growth. He also insisted that unemployment insurance and welfare payments are among the single greatest contributors to unemployment, and as such, should be scaled back.

In December 1991, when Summers served as chief economist for the World Bank, a memo that bore his signature was leaked to the press. The internal memo, which clearly was not intended for the public, argued that although free trade would not necessarily benefit the environment in developing sector countries, there was clear economic logic in dumping waste there. In an aside to the memo, leaked to the press, Summers cynically suggested that "I think the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to that.... I've always thought that under-populated countries in Africa are also vastly underpolluted."

In 1993, Summers joined the Clinton Administration as Undersecretary for International Affairs. In that post, he promoted genocidal economic shock therapy against the Russians, demanded an expansion of the power of the IMF, and increased deregulation by the Japanese (in 1997); he brags about his role in forcing the Korean government to raise its interest rates and balance its budget in the midst of a horrible economic crisis, a policy sharply criticized at the time by Nobel Laureates Paul Krugman and Joseph Stiglitz.

At the same time, according to a book by Paul Blustein, Summers, along with Paul Wolfowitz, tried to convince the Clinton Administration to effect a regime change in Indonesia.

All of this paled in comparison to the pain and damage inflicted on this nation and its people once he became Treasury Secretary. During the California energy crisis of 2000, Secretary Summers teamed up with Federal Reserve chairman Alan Greenspan and Enron executive Kenneth Lay to work over California Gov. Gray Davis, lecturing him that the cause of the crisis was excessive government regulation. Summers bullied Davis into further deregulating California's utilities and relaxing California's environmental standards in order to "reassure the markets."

However, nothing did more damage to this nation or more to cause this current crisis than the wrecking operation Summers led against any and all forms of financial regulation. As Treasury Secretary, Summers played the decisive role in convincing Congress to do what had been attempted, but failed, more than 12 times in 25 years: repeal the Glass-Steagall Act, which had been enacted in 1933 after the Pecora Commission catalyzed popular support for stronger regulation by hauling bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock market crash.

Immediately after taking over as Treasury Secretary, when the Administration, and especially the President, were distracted by other matters, Summers mounted a relentless lobbying effort to pass the Gramm-Leach-Bliley Act, which repealed key portions of Glass-Steagall, and allowed commercial banks to get into the mortgage-backed securities and collateralized debt obligations game. The measure also created an oversight disaster, with supervision of banking conglomerates now split among a host of different government agencies—agencies that, more often than not, failed to let each other know what they were doing, and what they were uncovering.

Another dirty little secret about Summers' tenure as Treasury Secretary was the role he played in torpedoing any regulation of derivatives trading. Just prior to moving up to the top post at Treasury, Summers became a singular and strong advocate, inside the Clinton Administration, for what was nothing less than a time bomb: Sen. Phil Gramm's (R-Tex.) other measure that let these banking-conglomerates-in-the-making create and trade derivatives without regulation.

Promoting Derivatives
Indeed, during a 1998 Senate hearing, Summers testified against the regulation of the derivatives market on the grounds that we could trust Wall Street! "The parties to these kinds of contracts," he said, "are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies, and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws." He continued to defend over-the-counter derivatives and block all moves to regulate them, up through 2000, calling them "an important component of the American capital markets, and a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today."

It would be hard to make assumptions that turned out to be more wrong. Larry Summers was either the most corrupt and sinister Treasury Secretary in our nation's history, or the most incompetent one. However, his high-level managing position for D.E. Shaw, one of the most secretive of hedge funds, upon leaving office, would tend to argue in favor of the former.

Even more damning, though, was an op-ed by Summers in the Nov. 19, 2005 New York Times. In that piece, written upon the death of radical libertarian economist Milton Friedman, Summers makes the startling revelation that Friedman was "his hero." In the piece, which he entitled "The Great Liberator," Summers argues that "any honest Democrat will admit that we are now all Friedmanites," writing that Friedman not only made enormous contributions to monetary policy, but even greater contributions "in convincing people of the importance of allowing free markets to operate unencumbered."

It is little wonder, then, that an increasing number of economists and Democrats believe that President Obama is, as Rep. Peter DeFazio (D-Ore.) has stated, "ill-advised by Larry Summers." In January 2009, as the Administration tried to pass its stimulus bill, DeFazio, along with economists, including James Galbraith, Paul Krugman, and Joseph Stiglitz, argued that more of the stimulus money should be spent on much-needed infrastructure projects. DeFazio stated that he wasn't surprised that Summers favored more tax cuts instead. "Larry Summers hates infrastructure," he said. "[He] was very much part of creating the problem; now they're going to solve the problem? And they don't like infrastructure. So they want to have a consumer-driven recovery. We need an investment and productivity driven recovery for this country—a long-term recovery. Instead of borrowing from future generations, we should invest in future generations, and Larry is pretty much on record as being anti-infrastructure...."

Yet, it is this man who right now has the ear of a President who campaigned on the need to overhaul and re-regulate the nation's financial and banking system, who wants to pass a sweeping social agenda, who says he wishes to be known as the President who initiated the construction of a continental high-speed, maglev transportation system, and who led the United States out of the greatest economic crisis in its history.

In order to save this nation and his own Presidency, it would do President Obama well to heed LaRouche's "Emergency Address to President Obama and the American People" of March 26.


[1] The Glass-Steagall Act (a.k.a. the Banking Act of 1933) introduced the separation of commercial and investment banking, and founded the Federal Deposit Insurance Corporation (FDIC) for insuring bank deposits. It was repealed in 1999.
John Hoefle

The financial bailout scheme released by Treasury Secretary Tim Geithner this week is an unmitigated disaster, one which will bring down the Obama Administration—if not reversed. It is the financial equivalent of giving more crack to junkies, when what they really need is to be forced to go "cold turkey." The scheme is fundamentally a continuation—and a significant expansion—of the disastrous policies implemented by the Bush Administration and its Goldman Sachs Treasury Secretary Henry Paulson.

"There is no way the President could expect to survive, politically, from this policy, even in the relatively short term," Lyndon LaRouche said of the scheme in a statement released yesterday. "First of all, it is incompetent, it is un-Constitutional, and it will destroy the United States."

We have said it before, and we will say it again: The bailout scheme is the greatest financial swindle in history, a policy which is monstrously corrupt. In the name of saving a bankrupt international financial bubble, it is bankrupting the United States, economically, politically, and morally. This is a crime against humanity, and it must be stopped.

Fraudulent Arguments
The concept of the bailout itself is a fraud, based upon the false premise that the financial system is "fundamentally sound," suffering mainly from a "crisis of confidence," in the wake of the "subprime" debacle. Therefore, what we need to do, the experts insist, is to inject sufficient Federal funds into the markets to keep them functioning until everyone calms down, and everything returns to "normal."

The belief that the system is fundamentally sound and that our prosperity depends upon reviving it, is the heart of the fraud. Over the past four decades, we have seen the physical productivity of our nation destroyed, in favor of the biggest financial bubble of all time. We transformed our nation from one which produced its wealth by building things, into a nation which made its money by financial manipulation. In short, we abandoned the American System in favor of British-style financial parasitism. That British system, is what has failed.

Once you buy into the Big Lie of the bailout, all the rest falls neatly into place. Since we have to save the system, we have to bail out the banks, and if we have to bail out the banks, we will have to pay enormous salaries and bonuses to the bankers and derivatives traders who run the system. God forbid they would leave banking in favor of becoming greeters at Wal-Mart, or take similar lucrative positions!

People who disagree with this scheme are dismissed as "populists" who just don't understand how the system works. As with all the best lies, there is some truth in that argument. Not everyone who opposes the bailout does so for serious principled reasons; some do, and others are just angry that the "fat cats" are getting help, while they are not. But the fact that some people oppose it for less than lofty reasons, doesn't make the bailout any less crooked, and certainly won't make it any more successful.

The point is, we are now spending trillions of dollars to bail out derivatives and related financial bets that should never have been allowed in the first place. We were insane to allow the creation of a financial system based upon derivatives speculation, and we are even more insane to try to bail that system out, now that it has, inevitably, blown up.

Rather than compound our mistakes, we should correct them, by shutting down the derivatives market. Don't bail out derivatives deals—cancel them! Send the derivatives traders, and the executives and regulators who allowed them to operate, packing. We don't need you, we don't want you, and we're damn well not going to subsidize your bonuses.

Cleaning up this mess is a necessity, and we have repeatedly laid out our views on how it should be done. The emergency steps—the passage of the Homeowners and Bank Protection Act, the return to a Constitution-based credit system, and a Four Powers (U.S., Russia, China, India) agreement to reorient the world along those principles—are absolutely necessary, but they alone are not enough. We must also address the corruption within the financial system, and within ourselves, which allowed this tragedy to occur.

The slime mold known as the British Empire, or more properly the Anglo-Dutch Liberal Empire, is the highest level of organized crime on the planet. The philosophy of this slime mold is that man is a beast, and that the oligarchs are the kings of beasts. To them, the world is a jungle, where they are free to kill and eat as they wish. The rest of mankind, in their view, is little more than prey. Thus the empire thinks nothing of stealing the raw materials of impoverished nations, of profiting from trading in slaves and illicit drugs, of treating the world as if it were a giant plantation run for their benefit. Neither does it hesitate to ruthlessly loot nations, when its imperial financial games blow up in its face.

For the empire to demand a bailout, to put us all in servitude as debt-slaves, to bankrupt and destroy the nation, is to be expected. It is, after all, what they do. The real question is: Why do we let them do it? What is wrong with us, as a nation, that we capitulate to such inhuman demands, instead of treating them with the contempt they so richly deserve?

The answer is that we ourselves have been corrupted. Con men say you can't cheat an honest man, and the empire knows that even better. The best marks, the con men know, are greedy people who want something for nothing, whose desire to con someone else makes them vulnerable to being conned themselves.

That is the secret of the derivatives market, where financial obligations are created out of thin air, and whose "values" are based upon the greed and gullibility of the fools who buy them. Take as an example, a mortgage-backed security. Its value, theoretically, is based upon the income streams of the mortgages in the pools upon which the securities are based, but those income streams are already spoken for, as the repayments of the mortgage loans themselves. The mortgage-backed security is really nothing more than a debt issued by a mortgage speculator, the value of which depends upon ever-increasing housing prices. And if the mortgage-backed security is a scam, what about all the other securities piled on top, such as the collateralized debt obligations? The further you get from the original mortgages—which are not without their own financial problems—the deeper you get into pure fantasy.

We, as a nation, shut down the mightiest industrial engine the world had ever seen, one which gave us the highest standard of living in history—and for what? This junk! Now it's blown up, and we're supposed to bail it out so it can blow us up again? That's insane!

Shut It Down
It is this junk, and bets that are even wilder, that the bailout schemes are designed to protect. Their goal is not really to save our banks, but to save the multi-trillion dollars of fictitious values being held by the banks, the insurance companies, the hedge funds, the private equity funds, and others. Our government, which has been captured by the financiers, is spending trillions of dollars and promising trillions upon trillions more, to keep this scam going, while insisting to us that it is for our own good.

Bull! If our government really cared about the people it supposedly serves, it would shut this atrocity down, put the financial system through bankruptcy reorganization, and turn its attention to rebuilding and upgrading the real economy. What we need is honesty, in our government and in ourselves. We need to admit we've been conned, and correct the weaknesses that made us vulnerable. First tell the truth, and then go fix the problem. No more lies, no more scams.


The Global Financial Meltdown - Admin - 04-05-2009


Chris Marsden and Bill Van Auken

The G20 summit concluded Thursday having failed to adopt the principal demands of either the US and Britain, which came to the London gathering advocating coordinated global fiscal stimulus, or a European bloc led by Germany and France, which called for international regulation of major financial institutions.

Instead, the two sides papered over their differences with a nine-page communiqué, much of which consisted of high-flown phrases such as the affirmation that all the assembled heads of state "agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity."

There was also the claim—echoed by virtually all of the media—that the summit had agreed to "an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy."

The Financial Times of London carried one of the few reports that treated this pledge with the skepticism it deserved. "The failure of the G20 summit was too painful for world leaders to contemplate and [British Prime Minister Gordon] Brown ended the meeting with a blizzard of large numbers to disguise the fact that leaders had not agreed to a further additional fiscal stimulus as Mr. Obama and Mr. Brown had wanted."

The newspaper also noted, "Much of the $1,100 billion pledged to help the world recover from recession represented existing commitments or pledges of future funds that had not been pinned down."

The communiqué claimed that the assembled governments would boost the International Monetary Fund's existing resources by $500 billion to aid so-called "emerging market" countries. According to initial reports, where this money is to come from is by no means clear.

Japan has reportedly pledged $100 billion; the European Union $100 billion and China about $40 billion. In his post-summit press conference, US President Barack Obama gave no indication that Washington is planning to come up with a similar amount of money, mentioning instead that he planned to ask Congress to approve a paltry $448 million to aid "vulnerable populations—from Africa to Latin America."

From bitter experience, the oppressed countries know that such pledges often fail to materialize. The chairman of the Commission of the African Union, Jean Ping, told the BBC as the summit was in progress that he would be making the case for a sell-off of the IMF's gold reserves to provide money for Africa. "We are not asking countries to put their hands in their pockets and give us money because they've promised, promised, promised and done nothing," he said.

In one of the few substantive points in the agreement, the G20 decided to allow the IMF to create $250 billion in Special Drawing Rights, its own synthetic currency based on the dollar, the euro, the yen and the British pound sterling. The aim is to boost countries' foreign reserves, with the lion's share going to the wealthiest nations.

In summing up the agreement, British Prime Minister Brown said that the governments agreed on the IMF spending another $250 billion over two years in an effort to counter the collapse in global trade. As the Financial Times noted, "up-front contributions from G20 countries were only $3bn to $4bn, an annex to the communiqué said."

Even if the much-touted $1.1 trillion package were genuine—which it is not—it would be the equivalent of putting a Band-Aid on a gaping chest wound. Over the past year, the meltdown of international stock markets, the fall in commodity prices and the collapse in real estate values have wiped out an estimated $50 trillion in wealth. Moreover, the US government and the Federal Reserve alone have spent, lent or committed $12.8 trillion to bail out the US banks, with no discernable effect in terms of stemming the rising tide of job losses.

Brown highlighted other points in the G20 agreement which, again, were more appearance than substance.

One measure, which only underscored the failure of the French and German governments to achieve their goal of international regulation of financial institutions, consisted of turning the existing Financial Security Forum into the Financial Stability Board. The main change, outside of the name alteration, would be the addition of members of the G20 not currently represented, including China, India and Brazil. However, it remains a toothless watchdog, with no power to impose sanctions on private banks and finance houses whose practices are deemed to be endangering the world economy.

French President Nicolas Sarkozy praised Obama and Brown at the conclusion of the summit, while claiming authorship of what he proclaimed the greatest financial reform since Bretton Woods. "Of course, there are tensions, wrestling matches and vested interests, but even our Anglo-Saxon friends are convinced we need reasonable rules," he said.

In reality, the US rejected any international regulation of its banking system. The G20 leaders' statement instead declared, "We each agree to ensure our domestic regulatory systems are strong."

Another question, the disposal of toxic assets that have paralyzed the financial system, was raised in the communiqué only from the standpoint of a vague pledge that the individual G20 states would each, separately, "take all necessary action to restore the flow of credit."

The G20 leaders also renewed a solemn pledge not to engage in protectionism. According to the World Bank, since they last took this oath in November, 17 out of the 20 countries have adopted new protectionist measures.

It was widely reported that the assembled heads of state had agreed to a resolute "crackdown" on the obscene levels of pay and bonuses for bankers. The British Daily Telegraph reported Thursday that an agreement had been reached to "ensure compensation structures are consistent with firms' long-term goals and prudent risk-taking."

In a press conference after the summit, US President Obama made it clear that there is no intention to actually enforce international standards limiting the hundreds of millions of dollars earned by Wall Street executives. "It doesn't mean the state micromanaging," he said. "It doesn't mean that we want the state dictating salaries; we don't. We—I strongly believe in a free-market system, and as I—as I think people understand in America, at least, people don't resent the rich; they want to be rich. And that's good."

It was Obama and Brown who made the most grandiose claims for the London summit. Obama called it "a turning point in our pursuit of global economic recovery." For his part, Brown claimed that the G20 meeting signified that "a new world order is emerging with the foundation of a new progressive era of international cooperation."

This is all nonsense. Even as the summit took place, the reality of spiraling levels of unemployment made itself felt. In the US, it was reported that another 742,000 jobs were wiped out last month. In Spain, the Labor Ministry announced that the unemployment rate had hit 15.5 percent, the worst in Europe, with 3.6 million Spanish workers jobless. In Britain itself, the site of the summit, new rounds of mass layoffs were announced, with two companies, insurance giant Norwich Union and aircraft manufacturer Bombardier, slashing 2,500 more jobs.

This global destruction of jobs will continue and intensify, threatening hundreds of millions of people with poverty and hunger. The World Bank has issued a new forecast predicting a global economic contraction of 1.7 percent. World Bank President Robert Zoellick told the BBC, "We haven't seen numbers like that since World War II—that really means the Great Depression."

He warned, "We believe that the lower growth will lead to some 200,000 to 400,000 babies dying this year. So the overall effects are dramatic."

United Nations Secretary General Ban Ki-moon was more explicit still in detailing the extent of the present crisis and its implications. He told the Guardian, "We have seen the frightening velocity of change. What began as a financial crisis has become a global economic crisis. I fear worse to come: a full-blown political crisis defined by growing social unrest, weakened governments and angry publics who have lost all faith in their leaders and their own future."

He continued, "In good times, economic and social development comes slowly. In bad times, things fall apart alarmingly fast. It is a short step from hunger to starvation, from disease to death, from peace and stability to conflict and wars that spill across borders and affect us all, near and far. Unless we can build a worldwide recovery we face a looming catastrophe in human development."

As for the claim that the summit signaled the emergence of a "new world order" based on international cooperation, the reality is that the summit only confirmed the collapse of the old world order, established in the aftermath of World War II and based on the unchallenged economic and financial supremacy of the US capitalism and a dollar-based world monetary system.

The US, once the engine of world growth, is now the world's leading debtor nation, and its financial crisis, the product of decades of deterioration of its productive forces and the turn towards ever more parasitical and criminal forms of speculation, has become the engine of a deepening worldwide depression.

Obama would have suffered greater humiliation still had it not been for China. But this dependency on Beijing only highlights the extraordinary economic and political decline of US imperialism.

Commenting in the Financial Times on the pre-summit meeting between Obama and President Hu Jintao, where China agreed to provide funds for the IMF, Geoff Dyer wrote that talk of an emerging G2 "does reflect the reality that on a growing range of international issues, little can happen without agreement between the US and China."

He noted that China has also launched a series of initiatives "which demonstrates a desire to move centre-stage," including the demand last week by the Chinese central bank president, Zhou Xiaochuan, "for the eventual replacement of the US dollar as the global reserve currency." China has mooted that the replacement for the dollar should be the IMF's Special Drawing Rights.

Such an open challenge to the global supremacy of the dollar and its role as the reserve currency threatens the economic viability of the US, which is entirely dependent on other nations purchasing dollars to service its debts. But China's demand has also been taken up by Russia, with Prime Minister Vladimir Putin and President Dmitry Medvedev urging the ruble's adoption as a regional reserve currency and the creation of a new global reserve currency to be issued by international institutions.

Obama said of the summit that those who identified the major disagreements and conflicts between the various partners had "confused open and honest debate with irreconcilable differences."

In reality, inter-imperialist antagonisms were manifest throughout the summit and will inevitably sharpen as the economic crisis worsens. Far from having laid down a globally coordinated program to rescue world capitalism, the London summit has only demonstrated the irreconcilable contradiction between the globally integrated economy and the capitalist nation state system, and the impossibility of the rival national states adopting a genuinely international approach to the crisis. In the end, the London summit and its various palliatives will come to be seen in much the same light as the London summit of 1933, another milestone in the worldwide breakdown of capitalism.


Danny Schechter

The eyes of the world have been on the Economic Summit in London but the ideas of the world were mostly conspicuous by their absence. Here we have a global crisis. The house is on fire. Unemployment is climbing. The real estate contagion is now claiming condos and even shopping malls. It’s bad and by most accounts, getting worse. And, all the “leaders” of the world can do is devote ONE DAY to a forum that must have cost millions to stage.

Our media and politicians love spectacles and political celebrities. The spin was on what Michelle was wearing, not on what Barack was thinking when he was so unwilling to agree to an international regime of regulation which is so clearly needed in a globalized world economy.

The New York Times was properly critical of the Summit for falling “short,” mostly focusing on the failure to commit to a larger stimulus package—what the US wanted but didn’t get.  They went lightly on their criticisms on the regulatory issue.The group also agreed to crack down on tax havens and, on a country-by-country basis, impose stricter financial regulations on hedge funds and rating agencies — necessary though insufficient steps to avoid a repeat of the current disaster.” They never asked nor did they fully report on why Obama is “fiercely resistant to the idea of a global regulator.”

(Bob Jackson of Arizona offered one plausible explanation: “‘The one smart thing the President did in London was to establish that the U.S. would not be regulated by global politicians. Our own politicians are corrupt and imcompetent enough, without overt collusion of the politicians from the rest of the world.”)

Fortunately, other Times Readers were ahead of the paper and the politicians in comments that could have been but weren’t probed in most media outlets.

Jacob Olsson writes: “The lack of deep understanding of economics on the part of American journalists seems to be one explanation for the cheerleading of fiscal stimulus. It is the only solution that has been offfered to them by people they trust. The reason this solution has been offered is that it is the only one that is seen to be able to preserve the financial oligarchy, which both Republicans and Democrats hold so dear.”

Dwight writes from Brazil: “The US and UK could likely have gotten more concessions on stimulus if they'd admitted that the epi-center of this man-made quake was New York and London, and that thus the US and UK would assume a disproportionate share of the burden.

The Times editorial is full of continued American hubris. Vaguely euro-bashing. No assumption of America's leadership in creating a disaster.”

Patrice Ayme writes from Switzerland: “The fundamental cause of the crisis is that the financial sector sucked up all the available world financial credit, and more. Then it lost it all in a fury of ill considered entanglements.

The way out is to outlaw it all retroactively (bankruptcy judges do this all the time at their own scale, so there is no constitution problem to do this, whatever Mr. Summers grumbles about "abrogation".”

Kevin writes from Georgia:

“The Europeans were not going to agree to larger stimulus packages for one very good reason. They do not need to have very large stimulus packages. Most G20 European countries have robust safety nets that already take care of their citizens when the economy falters. They also do not have the crumbling infrastructure that America has with regards to transportation, especially mass transit and technological infrastructure.”

Butler Crittendon adds from San Francisco: “You seem in denial about America's role in creating the financial disaster we now face. Sure, other global capitalists participated, but in general it was a failure of neoliberal economic policies, spearheaded by U.S. and British bankers. You mention hedge funds, etc., but the only reason we had these monsters was because we permitted it. The exact details of the causes of the crisis are still unknown -- and probably unknowable after so many rats hid their money in secret foreign accounts and had in place a $1000 Trillion of derivatives, CDOs, and the alphabet soup of concocted poisonous 'instruments.'”

These are all important issues but most were buried in the fine print when covered at all. Of course, as is so often the case, high flying rhetoric—and Gordon Brown threw out that old canard about a “new world order”—will not be remembered. What countries do, or fail to do will.

As former CBS correspondent Tom Fenton wrote from London, “The agreements reached at the summit depend on the willingness of individual countries to carry them out. There will be a follow-up summit this fall to check on progress. President Obama said it will take a year or two to tell whether the summit has been successful in lifting the world out of recession. He was right to be cautious.”

He was also right to recognize that he didn’t accomplish his goal, as veteran British journalist Andrew Neil wrote on the Daily Beast: “For a start, the President did not get what, for him, was the original purpose of this G20 summit: a coordinated global fiscal stimulus. The British media may still fawn before the Obamas the way the US media used to, the First Lady can even touch the Queen in Buck House without being sent to the Tower of London; but the Obama charisma and character could not get an extra cent out of the world community.”

So we are back to square one. The markets rose the day after the Summit not because of what was said there but because interest rates were cut in Europe and China released a positive report.

Many politicians have been complicit in the policies that led to the crisis. A banker who was there.Stephen Roach, chairman of Morgan Stanley Asia, said he was worried that “many of the world leaders had gotten into something that was over their heads.” Probably true.

What was accomplished? Some windows were broken . A demonstrator died, The police, as usual, overreacted. The media has moved on.

In all, not too encouraging.

News Dissector Danny Schechter blogs for He is making a film based on his new book PLUNDER: Investigating Our Economic Calamity (Cosimo Books at Comments to

RE: The Global Financial Meltdown - Admin - 04-06-2009

Chris Hedges

America is devolving into a third-world nation. And if we do not immediately halt our elite's rapacious looting of the public treasury we will be left with trillions in debts, which can never be repaid, and widespread human misery which we will be helpless to ameliorate. Our anemic democracy will be replaced with a robust national police state. The elite will withdraw into heavily guarded gated communities where they will have access to security, goods and services that cannot be afforded by the rest of us. Tens of millions of people, brutally controlled, will live in perpetual poverty. This is the inevitable result of unchecked corporate capitalism. The stimulus and bailout plans are not about saving us. They are about saving them. We can resist, which means street protests, disruptions of the system and demonstrations, or become serfs.  

We have been in a steady economic decline for decades. The Canadian political philosopher John Ralston Saul detailed this decline in his 1992 book "Voltaire's Bastards: The Dictatorship of Reason in the West." David Cay Johnston exposed the mirage and rot of American capitalism in "Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill)," and David C. Korten, in "When Corporations Rule the World" and "Agenda for a New Economy," laid out corporate malfeasance and abuse. But our universities and mass media, entranced by power and naively believing that global capitalism was an unstoppable force of nature, rarely asked the right questions or gave a prominent voice to those who did. Our elites hid their incompetence and loss of control behind an arrogant facade of specialized jargon and obscure economic theories.

The lies employed to camouflage the economic decline are legion. President Ronald Reagan included 1.5 million U.S. Army, Navy, Air Force and Marine service personnel with the civilian work force to magically reduce the nation's unemployment rate by 2 percent. President Bill Clinton decided that those who had given up looking for work, or those who wanted full-time jobs but could only find part-time employment, were no longer to be counted as unemployed. This trick disappeared some 5 million unemployed from the official unemployment rolls. If you work more than 21 hours a week-most low-wage workers at places like Wal-Mart average 28 hours a week-you are counted as employed, although your real wages put you below the poverty line. Our actual unemployment rate, when you include those who have stopped looking for work and those who can only find part-time jobs, is not 8.5 percent but 15 percent. A sixth of the country is now effectively unemployed. And we are shedding jobs at a faster rate than in the months after the 1929 crash.

The consumer price index, used by the government to measure inflation, is meaningless. To keep the official inflation figures low the government has been substituting basic products it once measured to check for inflation with ones that do not rise very much in price. This sleight of hand has kept the cost-of-living increases tied to the CPI artificially low. The New York Times' consumer reporter, W.P. Dunleavy, wrote that her groceries now cost $587 a month, up from $400 a year earlier. This is a 40 percent increase. California economist John Williams, who runs an organization called Shadow Statistics, contends that if Washington still used the CPI measurements applied back in the 1970s, inflation would be 10 percent.

The corporate state, and the political and intellectual class that served the corporate state, constructed a financial and political system based on illusions. Corporations engaged in pyramid lending that created fictitious assets. These fictitious assets became collateral for more bank lending. The elite skimmed off hundreds of millions in bonuses, commissions and salaries from this fictitious wealth. Politicians, who dutifully served corporate interests rather than those of citizens, were showered with campaign contributions and given lucrative jobs when they left office. Universities, knowing it was not good business to challenge corporatism, muted any voices of conscience while they went begging for corporate donations and grants. Deceptive loans and credit card debt fueled the binges of a consumer society and hid falling wages and the loss of manufacturing jobs.

The Obama administration, rather than chart a new course, is intent on re-inflating the bubble. The trillions of dollars of government funds being spent to sustain these corrupt corporations could have renovated our economy. We could have saved tens of millions of Americans from poverty. The government could have, as consumer activist Ralph Nader has pointed out, started 10 new banks with $35 billion each and a 10-to-1 leverage to open credit markets. Vast, unimaginable sums are being placed into these dirty corporate hands without oversight. And they will use this money as they always have-to enrich themselves at our expense.

"You are going to see the biggest waste, fraud and abuse in American history," Nader warned when I asked about the bailouts. "Not only is it wrongly directed, not only does it deal with the perpetrators instead of the people who were victimized, but they don't have a delivery system of any honesty and efficiency. The Justice Department is overwhelmed. It doesn't have a tenth of the prosecutors, the investigators, the auditors, the attorneys needed to deal with the previous corporate crime wave before the bailout started last September. It is especially unable to deal with the rapacious ravaging of this new money by these corporate recipients. You can see it already. The corporations haven't lent it. They have used some of it for acquisitions or to preserve their bonuses or their dividends. As long as they know they are not going to jail, and they don't see many newspaper reports about their colleagues going to jail, they don't care. It is total impunity. If they quit, they quit with a golden parachute. Even [General Motors CEO Rick] Wagoner is taking away $21 million."

There are a handful of former executives who have conceded that the bailouts are a waste. American International Group Inc.‘s (AIG) former chairman, Maurice R. Greenberg, told the House Oversight and Government Reform Committee on Thursday that the effort to prop up the firm with $170 billion has "failed." He said the company should be restructured. AIG, he said, would have been better off filing for Chapter 11 bankruptcy protection instead of seeking government help.  

"These are signs of hyper decay," Nader said from his office in Washington. "You spend this kind of money and do not know if it will work."

"Bankrupt corporate capitalism is on its way to bankrupting the socialism that is trying to save it," Nader added. "That is the end stage. If they no longer have socialism to save them then we are into feudalism. We are into private police, gated communities and serfs with a 21st century nomenclature."

We will not be able to raise another 3 or 4 trillion dollars, especially with our commitments now totaling some $12 trillion, to fix the mess. It was only a couple of months ago that our expenditures totaled $9 trillion. And it was not long ago that such profligate government spending was unthinkable. There was an $800 billion limit placed on the Federal Reserve a year ago. The economic stimulus and the bailouts will not bring back our casino capitalism. And as the meltdown shows no signs of abating, and the bailouts show no sign of working, the recklessness and desperation of our capitalist overlords have increased. The cost, to the working and middle class, is becoming unsustainable. The Fed reported in March that households lost $5.1 trillion, or 9 percent, of their wealth in the last three months of 2008, the most ever in a single quarter in the 57-year history of record keeping by the central bank. For the full year, household wealth dropped $11.1 trillion, or about 18 percent. These figures did not record the decline of investments in the stock market, which has probably erased trillions more in the country's collective net worth.

The bullet to our head, inevitable if we do not radically alter course, will be sudden. We have been borrowing at the rate of more than $2 billion a day over the last 10 years, and at some point it has to stop. The moment China, the oil-rich states and other international investors stop buying treasury bonds the dollar will become junk. Inflation will rocket upward. We will become Weimar Germany. A furious and sustained backlash by a betrayed and angry populace, one unprepared intellectually and psychologically for collapse, will sweep aside the Democrats and most of the Republicans. A cabal of proto-fascist misfits, from Christian demagogues to simpletons like Sarah Palin to loudmouth talk show hosts, who we naively dismiss as buffoons, will find a following with promises of revenge and moral renewal. The elites, the ones with their Harvard Business School degrees and expensive vocabularies, will retreat into their sheltered enclaves of privilege and comfort. We will be left bereft and abandoned outside the gates.

Chris Hedges writes a regular column for Hedges graduated from Harvard Divinity School and was for nearly two decades a foreign correspondent for The New York Times. He is the author of "American Fascists: The Christian Right and the War on America."

RE: The Global Financial Meltdown - Admin - 04-11-2009

Michael T. Klare

The global economic meltdown has already caused bank failures, bankruptcies, plant closings, and foreclosures and will, in the coming year, leave many tens of millions unemployed across the planet. But another perilous consequence of the crash of 2008 has only recently made its appearance: increased civil unrest and ethnic strife. Someday, perhaps, war may follow.

As people lose confidence in the ability of markets and governments to solve the global crisis, they are likely to erupt into violent protests or to assault others they deem responsible for their plight, including government officials, plant managers, landlords, immigrants, and ethnic minorities. (The list could, in the future, prove long and unnerving.) If the present economic disaster turns into what President Obama has referred to as a "lost decade," the result could be a global landscape filled with economically-fueled upheavals.

Indeed, if you want to be grimly impressed, hang a world map on your wall and start inserting red pins where violent episodes have already occurred. Athens (Greece), Longnan (China), Port-au-Prince (Haiti), Riga (Latvia), Santa Cruz (Bolivia), Sofia (Bulgaria), Vilnius (Lithuania), and Vladivostok (Russia) would be a start. Many other cities from Reykjavik, Paris, Rome, and Zaragoza to Moscow and Dublin have witnessed huge protests over rising unemployment and falling wages that remained orderly thanks in part to the presence of vast numbers of riot police. If you inserted orange pins at these locations -- none as yet in the United States -- your map would already look aflame with activity. And if you're a gambling man or woman, it's a safe bet that this map will soon be far better populated with red and orange pins.

For the most part, such upheavals, even when violent, are likely to remain localized in nature, and disorganized enough that government forces will be able to bring them under control within days or weeks, even if -- as with Athens for six days last December -- urban paralysis sets in due to rioting, tear gas, and police cordons. That, at least, has been the case so far. It is entirely possible, however, that, as the economic crisis worsens, some of these incidents will metastasize into far more intense and long-lasting events: armed rebellions, military takeovers, civil conflicts, even economically fueled wars between states.

Every outbreak of violence has its own distinctive origins and characteristics. All, however, are driven by a similar combination of anxiety about the future and lack of confidence in the ability of established institutions to deal with the problems at hand. And just as the economic crisis has proven global in ways not seen before, so local incidents -- especially given the almost instantaneous nature of modern communications -- have a potential to spark others in far-off places, linked only in a virtual sense.

A Global Pandemic of Economically Driven Violence

The riots that erupted in the spring of 2008 in response to rising food prices suggested the speed with which economically-related violence can spread. It is unlikely that Western news sources captured all such incidents, but among those recorded in the New York Times and the Wall Street Journal were riots in Cameroon, Egypt, Ethiopia, Haiti, India, Indonesia, Ivory Coast, and Senegal.

In Haiti, for example, thousands of protesters stormed the presidential palace in Port-au-Prince and demanded food handouts, only to be repelled by government troops and UN peacekeepers. Other countries, including Pakistan and Thailand, quickly sought to deter such assaults by deploying troops at farms and warehouses throughout the country.

The riots only abated at summer's end when falling energy costs brought food prices crashing down as well. (The cost of food is now closely tied to the price of oil and natural gas because petrochemicals are so widely and heavily used in the cultivation of grains.) Ominously, however, this is sure to prove but a temporary respite, given the epic droughts now gripping breadbasket regions of the United States, Argentina, Australia, China, the Middle East, and Africa. Look for the prices of wheat, soybeans, and possibly rice to rise in the coming months -- just when billions of people in the developing world are sure to see their already marginal incomes plunging due to the global economic collapse.

Food riots were but one form of economic violence that made its bloody appearance in 2008. As economic conditions worsened, protests against rising unemployment, government ineptitude, and the unaddressed needs of the poor erupted as well. In India, for example, violent protests threatened stability in many key areas. Although usually described as ethnic, religious, or caste disputes, these outbursts were typically driven by economic anxiety and a pervasive feeling that someone else's group was faring better than yours -- and at your expense.

In April, for example, six days of intense rioting in Indian-controlled Kashmir were largely blamed on religious animosity between the majority Muslim population and the Hindu-dominated Indian government; equally important, however, was a deep resentment over what many Kashmiri Muslims experienced as discrimination in jobs, housing, and land use. Then, in May, thousands of nomadic shepherds known as Gujjars shut down roads and trains leading to the city of Agra, home of the Taj Mahal, in a drive to be awarded special economic rights; more than 30 people were killed when the police fired into crowds. In October, economically-related violence erupted in Assam in the country's far northeast, where impoverished locals are resisting an influx of even poorer, mostly illegal immigrants from nearby Bangladesh.

Economically-driven clashes also erupted across much of eastern China in 2008. Such events, labeled "mass incidents" by Chinese authorities, usually involve protests by workers over sudden plant shutdowns, lost pay, or illegal land seizures. More often than not, protestors demanded compensation from company managers or government authorities, only to be greeted by club-wielding police.

Needless to say, the leaders of China's Communist Party have been reluctant to acknowledge such incidents. This January, however, the magazine Liaowang (Outlook Weekly) reported that layoffs and wage disputes had triggered a sharp increase in such "mass incidents," particularly along the country's eastern seaboard, where much of its manufacturing capacity is located.

By December, the epicenter of such sporadic incidents of violence had moved from the developing world to Western Europe and the former Soviet Union. Here, the protests have largely been driven by fears of prolonged unemployment, disgust at government malfeasance and ineptitude, and a sense that "the system," however defined, is incapable of satisfying the future aspirations of large groups of citizens.

One of the earliest of this new wave of upheavals occurred in Athens, Greece, on December 6, 2008, after police shot and killed a 15-year-old schoolboy during an altercation in a crowded downtown neighborhood. As news of the killing spread throughout the city, hundreds of students and young people surged into the city center and engaged in pitched battles with riot police, throwing stones and firebombs. Although government officials later apologized for the killing and charged the police officer involved with manslaughter, riots broke out repeatedly in the following days in Athens and other Greek cities. Angry youths attacked the police -- widely viewed as agents of the establishment -- as well as luxury shops and hotels, some of which were set on fire. By one estimate, the six days of riots caused $1.3 billion in damage to businesses at the height of the Christmas shopping season.

Russia also experienced a spate of violent protests in December, triggered by the imposition of high tariffs on imported automobiles. Instituted by Prime Minister Vladimir Putin to protect an endangered domestic auto industry (whose sales were expected to shrink by up to 50% in 2009), the tariffs were a blow to merchants in the Far Eastern port of Vladivostok who benefited from a nationwide commerce in used Japanese vehicles. When local police refused to crack down on anti-tariff protests, the authorities were evidently worried enough to fly in units of special forces from Moscow, 3,700 miles away.

In January, incidents of this sort seemed to be spreading through Eastern Europe. Between January 13th and 16th, anti-government protests involving violent clashes with the police erupted in the Latvian capital of Riga, the Bulgarian capital of Sofia, and the Lithuanian capital of Vilnius. It is already essentially impossible to keep track of all such episodes, suggesting that we are on the verge of a global pandemic of economically driven violence.

A Perfect Recipe for Instability

While most such incidents are triggered by an immediate event -- a tariff, the closure of local factory, the announcement of government austerity measures -- there are systemic factors at work as well. While economists now agree that we are in the midst of a recession deeper than any since the Great Depression of the 1930s, they generally assume that this downturn -- like all others since World War II -- will be followed in a year, or two, or three, by the beginning of a typical recovery.

There are good reasons to suspect that this might not be the case -- that poorer countries (along with many people in the richer countries) will have to wait far longer for such a recovery, or may see none at all. Even in the United States, 54% of Americans now believe that "the worst" is "yet to come" and only 7% that the economy has "turned the corner," according to a recent Ipsos/McClatchy poll; fully a quarter think the crisis will last more than four years. Whether in the U.S., Russia, China, or Bangladesh, it is this underlying anxiety -- this suspicion that things are far worse than just about anyone is saying -- which is helping to fuel the global epidemic of violence.

The World Bank's most recent status report, Global Economic Prospects 2009, fulfills those anxieties in two ways. It refuses to state the worst, even while managing to hint, in terms too clear to be ignored, at the prospect of a long-term, or even permanent, decline in economic conditions for many in the world. Nominally upbeat -- as are so many media pundits -- regarding the likelihood of an economic recovery in the not-too-distant future, the report remains full of warnings about the potential for lasting damage in the developing world if things don't go exactly right.

Two worries, in particular, dominate Global Economic Prospects 2009: that banks and corporations in the wealthier countries will cease making investments in the developing world, choking off whatever growth possibilities remain; and that food costs will rise uncomfortably, while the use of farmlands for increased biofuels production will result in diminished food availability to hundreds of millions.

Despite its Pollyanna-ish passages on an economic rebound, the report does not mince words when discussing what the almost certain coming decline in First World investment in Third World countries would mean:

"Should credit markets fail to respond to the robust policy interventions taken so far, the consequences for developing countries could be very serious. Such a scenario would be characterized by... substantial disruption and turmoil, including bank failures and currency crises, in a wide range of developing countries. Sharply negative growth in a number of developing countries and all of the attendant repercussions, including increased poverty and unemployment, would be inevitable."

In the fall of 2008, when the report was written, this was considered a "worst-case scenario." Since then, the situation has obviously worsened radically, with financial analysts reporting a virtual freeze in worldwide investment. Equally troubling, newly industrialized countries that rely on exporting manufactured goods to richer countries for much of their national income have reported stomach-wrenching plunges in sales, producing massive plant closings and layoffs.

The World Bank's 2008 survey also contains troubling data about the future availability of food. Although insisting that the planet is capable of producing enough foodstuffs to meet the needs of a growing world population, its analysts were far less confident that sufficient food would be available at prices people could afford, especially once hydrocarbon prices begin to rise again. With ever more farmland being set aside for biofuels production and efforts to increase crop yields through the use of "miracle seeds" losing steam, the Bank's analysts balanced their generally hopeful outlook with a caveat: "If biofuels-related demand for crops is much stronger or productivity performance disappoints, future food supplies may be much more expensive than in the past."

Combine these two World Bank findings -- zero economic growth in the developing world and rising food prices -- and you have a perfect recipe for unrelenting civil unrest and violence. The eruptions seen in 2008 and early 2009 will then be mere harbingers of a grim future in which, in a given week, any number of cities reel from riots and civil disturbances which could spread like multiple brushfires in a drought.

Mapping a World at the Brink

Survey the present world, and it's all too easy to spot a plethora of potential sites for such multiple eruptions -- or far worse. Take China. So far, the authorities have managed to control individual "mass incidents," preventing them from coalescing into something larger. But in a country with a more than two-thousand-year history of vast millenarian uprisings, the risk of such escalation has to be on the minds of every Chinese leader.

On February 2nd, a top Chinese Party official, Chen Xiwen, announced that, in the last few months of 2008 alone, a staggering 20 million migrant workers, who left rural areas for the country's booming cities in recent years, had lost their jobs. Worse yet, they had little prospect of regaining them in 2009. If many of these workers return to the countryside, they may find nothing there either, not even land to work.

Under such circumstances, and with further millions likely to be shut out of coastal factories in the coming year, the prospect of mass unrest is high. No wonder the government announced a $585 billion stimulus plan aimed at generating rural employment and, at the same time, called on security forces to exercise discipline and restraint when dealing with protesters. Many analysts now believe that, as exports continue to dry up, rising unemployment could lead to nationwide strikes and protests that might overwhelm ordinary police capabilities and require full-scale intervention by the military (as occurred in Beijing during the Tiananmen Square demonstrations of 1989).

Or take many of the Third World petro-states that experienced heady boosts in income when oil prices were high, allowing governments to buy off dissident groups or finance powerful internal security forces. With oil prices plunging from $147 per barrel of crude oil to less than $40 dollars, such countries, from Angola to shaky Iraq, now face severe instability.

Nigeria is a typical case in point: When oil prices were high, the central government in Abuja raked in billions every year, enough to enrich elites in key parts of the country and subsidize a large military establishment; now that prices are low, the government will have a hard time satisfying all these previously well-fed competing obligations, which means the risk of internal disequilibrium will escalate. An insurgency in the oil-producing Niger Delta region, fueled by popular discontent with the failure of oil wealth to trickle down from the capital, is already gaining momentum and is likely to grow stronger as government revenues shrivel; other regions, equally disadvantaged by national revenue-sharing policies, will be open to disruptions of all sorts, including heightened levels of internecine warfare.

Bolivia is another energy producer that seems poised at the brink of an escalation in economic violence. One of the poorest countries in the Western Hemisphere, it harbors substantial oil and natural gas reserves in its eastern, lowland regions. A majority of the population -- many of Indian descent -- supports President Evo Morales, who seeks to exercise strong state control over the reserves and use the proceeds to uplift the nation's poor. But a majority of those in the eastern part of the country, largely controlled by a European-descended elite, resent central government interference and seek to control the reserves themselves. Their efforts to achieve greater autonomy have led to repeated clashes with government troops and, in deteriorating times, could set the stage for a full-scale civil war.

Given a global situation in which one startling, often unexpected development follows another, prediction is perilous. At a popular level, however, the basic picture is clear enough: continued economic decline combined with a pervasive sense that existing systems and institutions are incapable of setting things right is already producing a potentially lethal brew of anxiety, fear, and rage. Popular explosions of one sort or another are inevitable.

Some sense of this new reality appears to have percolated up to the highest reaches of the U.S. intelligence community. In testimony before the Senate Select Committee on Intelligence on February 12th, Admiral Dennis C. Blair, the new Director of National Intelligence, declared, "The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications... Statistical modeling shows that economic crises increase the risk of regime-threatening instability if they persist over a one to two year period" -- certain to be the case in the present situation.

Blair did not specify which countries he had in mind when he spoke of "regime-threatening instability" -- a new term in the American intelligence lexicon, at least when associated with economic crises -- but it is clear from his testimony that U.S. officials are closely watching dozens of shaky nations in Africa, the Middle East, Latin America, and Central Asia.

Now go back to that map on your wall with all those red and orange pins in it and proceed to color in appropriate countries in various shades of red and orange to indicate recent striking declines in gross national product and rises in unemployment rates. Without 16 intelligence agencies under you, you'll still have a pretty good idea of the places that Blair and his associates are eyeing in terms of instability as the future darkens on a planet at the brink.

Michael T. Klare is a professor of peace and world security studies at Hampshire College and the author, most recently, of Rising Powers, Shrinking Planet: The New Geopolitics of Energy

The Global Financial Meltdown - Admin - 04-11-2009


Ellen Brown

Dear President Obama:

The world was transfixed on that remarkable day in January when, to poetry, song, and dance, you gazed upon Abraham Lincoln's likeness at the Lincoln Memorial and searched for wisdom to navigate these difficult times. Indeed, you have so many things in common with that venerable President that one might imagine you were his reincarnation in different dress. You are both thin and wiry, brilliant speakers, appearing on the national stage at pivotal times. Fertile imaginations could envision you coming back triumphantly as one of those slaves you freed, to prove once and for all the proposition that all men are created equal and can achieve great things if given a fighting chance. But as Wordsworth said, our birth is but a sleep and a forgetting; and if that is true, you may have forgotten a more subtle form of slavery from which Lincoln freed his countrymen, even if you were there at the time. You may have forgotten it because it has been omitted from the history books, leaving Americans ill-equipped to interpret the lessons of our own past. This letter is therefore meant to remind you.

We are now met on another battlefield of that same economic war that visited Lincoln and the Founding Fathers before him. President Obama, the fate of our economy and the nation itself may depend on how well you understand Lincoln's monetary breakthrough, the most far-reaching "economic stimulus plan" ever implemented by a U.S. President. You can solve our economic crisis quickly and permanently, by implementing the same economic solution that allowed Lincoln to win the Civil War and thus save the Union from foreign economic masters.

Lincoln's Monetary Breakthrough
The bankers had Lincoln's government over a barrel, just as Wall Street has Congress in its vice-like grip today. The North needed money to fund a war, and the bankers were willing to lend it only under circumstances that amounted to extortion, involving staggering interest rates of 24 to 36 percent. Lincoln saw that this would bankrupt the North and asked a trusted colleague to research the matter and find a solution. In what may be the best piece of advice ever given to a sitting President, Colonel Dick Taylor of Illinois reported back that the Union had the power under the Constitution to solve its financing problem by printing its money as a sovereign government. Taylor said:

"Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes ... and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender ... they will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution."

The Greenbacks actually were just as good as the bankers' banknotes. Both were created on a printing press, but the banknotes had the veneer of legitimacy because they were "backed" by gold. The catch was that this backing was based on "fractional reserves," meaning the bankers held only a small fraction of the gold necessary to support all the loans represented by their banknotes. The "fractional reserve" ruse is still used today to create the impression that bankers are lending something other than mere debt created with accounting entries on their books. 1

Lincoln took Col. Taylor's advice and funded the war by printing paper notes backed by the credit of the government. These legal-tender U.S. Notes or "Greenbacks" represented receipts for labor and goods delivered to the United States. They were paid to soldiers and suppliers and were tradeable for goods and services of a value equivalent to their service to the community. The Greenbacks aided the Union not only in winning the war but in funding a period of unprecedented economic expansion. Lincoln's government created the greatest industrial giant the world had yet seen. The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent. The Greenback was not the only currency used to fund these achievements; but they could not have been accomplished without it, and they could not have been accomplished on money borrowed at the usurious rates the bankers were attempting to extort from the North.

Lincoln succeeded in restoring the government's power to issue the national currency, but his revolutionary monetary policy was opposed by powerful forces. The threat to established interests was captured in an editorial of unknown authorship, said to have been published in The London Times in 1865:

"If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."

In 1865, Lincoln was assassinated. According to historian W. Cleon Skousen:

"Right after the Civil War there was considerable talk about reviving Lincoln's brief experiment with the Constitutional monetary system. Had not the European money-trust intervened, it would have no doubt become an established institution."

The institution that became established instead was the Federal Reserve, a privately-owned central bank given the power in 1913 to print Federal Reserve Notes (or dollar bills) and lend them to the government. The government was submerged in a debt that has grown exponentially since, until it is now an unrepayable $11 trillion. For nearly a century, Lincoln's statue at the Lincoln Memorial has gazed out pensively across the reflecting pool at the Federal Reserve building, as if pondering what the bankers had wrought since his death and how to remedy it.

Building on a Successful Tradition

Lincoln did not invent government-issued paper money. Rather, he restored a brilliant innovation of the American colonists. According to Benjamin Franklin, it was the colonists' home-grown paper "scrip" that was responsible for the remarkable abundance in the colonies at a time when England was suffering from the ravages of the Industrial Revolution. Like with Lincoln's Greenbacks, this prosperity posed a threat to the control of the British Crown and the emerging network of private British banks, prompting the King to ban the colonists' paper money and require the payment of taxes in gold. According to Franklin and several other historians of the period, it was these onerous demands by the Crown, and the corresponding collapse of the colonists' paper money supply, that actually sparked the Revolutionary War. 2
The colonists won the war but ultimately lost the money power to a private banking cartel, one that issued another form of paper money called "banknotes." Today the bankers' debt-based money has come to dominate most of the economies of the world; but there are a number of historical examples of the successful funding of economic development in other countries simply with government-issued credit. In Australia and New Zealand in the 1930s, the Depression conditions suffered elsewhere were avoided by drawing on a national credit card issued by publicly-owned central banks. The governments of the island states of Guernsey and Jersey created thriving economies that carried no federal debt, just by issuing their own debt-free public currencies. China has also funded impressive internal development through a system of state-owned banks.

Here in the United States, the state of North Dakota has a wholly state-owned bank that creates credit on its books just as private banks do. This credit is used to serve the needs of the community, and the interest on loans is returned to the government. Not coincidentally, North Dakota has a $1.2 billion budget surplus at a time when 46 of 50 states are insolvent, an impressive achievement for a state of isolated farmers battling challenging weather. 3 The North Dakota prototype could be copied not only in every U.S. state but at the federal level.

The Perennial Inflation Question

The objection invariably raised to government-issued currency or credit is that it would create dangerous hyperinflation. However, in none of these models has that proven to be true. Price inflation results either when the supply of money goes up but the supply of goods doesn't, or when speculators devalue currencies by massive short selling, as in those cases of Latin American hyperinflation when printing-press money was used to pay off foreign debt. When new money is used to produce new goods and services, price inflation does not result because supply and demand rise together. Prices did increase during the American Civil War, but this was attributed to the scarcity of goods common in wartime rather than to the Greenback itself. War produces weapons rather than consumer goods.

Today, with trillions of dollars being committed for bailouts and stimulus plans, another objection to Lincoln's solution is likely to be, "The U.S. government is already printing its own money - and lots of it." This, however, is a misconception. What the government prints are bonds - its I.O.U.s or debt. If the government did print dollars, instead of borrowing them from a privately-owned central bank that prints them, Uncle Sam would not have an eleven trillion dollar millstone hanging around his neck. As Thomas Edison astutely observed:

"If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is that the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people."

A Wake-up Call

Henry Ford observed at about the same time:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Today we the people are starting to understand our banking and monetary system, and we are shocked, dismayed, and furious at what we are discovering. The wizard behind the curtain turns out to be a small group of men pulling levers and dials, creating an illusory money scheme that, behind all the talk and bravado, is mere smoke and mirrors. These levers are controlled by a privately-owned, unaccountable central bank called the Federal Reserve, which has recently dispensed billions if not trillions in funds to its banker cronies, without revealing where these monies are going even under Congressional inquiry or in response to Freedom of Information Act (FOIA) requests. As Chris Powell pointed out recently in conjunction with an FOIA request brought by Bloomberg News, which the Fed declined to comply with:

"Any government that can disburse $2 trillion secretly, without any accountability, is not a democratic government. It is government of, by, and, for the bankers." 4

There was a time when private central bankers were the heavyweights in control, able to run their ultra-secret agenda with impunity; but that era is coming to an end. The bankers are scrambling, trying to patch up their crumbling creations with schemes, bailouts and sleight of hand. That effort, however, must ultimately prove futile. As investment adviser Rolfe Winkler said in a recent article:

"The great Ponzi scheme that is the Western World's economy has grown so big there's simply no ‘fixing' it. Flushing more debt through the system would be like giving Madoff a few billion to tide him over. Or like adding another floor to the Tower of Babel. To what end? The collapse is already here. The question is: How much do we want it to hurt? Using the public's purse to finance ‘confidence' in a system that is already kaput may delay the Day of Reckoning, sure, but at the cost of multiplying our losses. Perhaps fantastically." 5

The bankers are on the run, feverishly trying to use the collapse of the current system to steer us toward an "Amero"-style North American currency, or a one-world private banking system and privately-issued global currency that they and only they control. We the people will not accept those solutions, however, no matter how bad things get. We demand real solutions that empower us, not enslave us.

Abraham Lincoln had such a solution. President Obama, you can finally bring his monetary solution to fruition. Manifest the vision of Lincoln, Jefferson, Madison and Franklin, and we the people will make sure you are placed in the pantheon of our greatest leaders and are revered for all time. America's greatest days can still be ahead of us; but for this to happen, we need to expose and root out the deceptive banking scheme that would enslave us to a future of debt and increasing homelessness in this great country our forefathers founded. The time has come for democracy to rise superior to a private banking cartel and take back the power to create money once again. Such a transformation would represent the most epochal and empowering shift that humanity has ever seen. As you recently said:

"This country has never responded to a crisis by sitting on the sidelines and hoping for the best. Throughout our history we have met every great challenge with bold action and big ideas."

Your words are a timely reminder of our long legacy of action and bold solutions in the face of adversity. Can we do this? Yes we can.

Ellen Brown, J.D., wrote this article in April, 2009, for Path to a New Economy, a collection of online articles for YES! Magazine, on economic and financial solutions. Ellen developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are and  

Sarah van Gelder

President Obama's massive giveaway to Wall Street threatens to bankrupt the federal government and undermine the agenda that got him elected. Here are some first steps needed to change course.

Dear President Obama,

I'm getting a sinking feeling. Watching your appointees' latest bank bailout makes me wonder if all your administration's good work on health care, education, and jobs will be swept away by the extraordinary giveaway of trillions in taxpayer money to a group of powerful Wall Street operatives, who appear willing to bankrupt our country to continue building their wealth and power.

Could this be happening on the watch of someone who, like yourself, came to Washington with the promise of personal integrity and a concern for the common good?

From outside the Beltway it looks pretty clear: Your financial team's identification with Wall Street corporations is compromising their ability to advise you on what can save our country. Please listen to some of today's most astute independent analysts:

Jeffrey Sachs, Columbia University economist:

"Two weeks ago, I posted an article showing how the Geithner-Summers banking plan could potentially and unnecessarily transfer hundreds of billions of dollars of wealth from taxpayers to banks. ... In fact, the situation is even potentially more disastrous than we wrote. Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers."

Robert Reich, former Labor Secretary:

"So you and I and other taxpayers have kept these hedge-fund honchos flush enough to be able to reap the bonanza that Geithner now wants to bestow on them for cleaning up the mess they and others on Wall Street made -- a bonanza to be financed by you and me and other taxpayers, who are taking on all the risk."
David Korten, author of Agenda for a New Economy, and board chair of YES! magazine:

"Wall Street will continue to play out its extortion racket so long as the public is willing to put up with the bailout-first, reform-later capitulation of the Federal Reserve and the FDIC. There must be a strong and immediate public demand to restructure first."
William Greider, writer for The Nation, formerly with The Washington Post, and author of some of today's best books on the economy:

"If Wall Street gets its way, the 'reforms' may further consolidate power and ratify a corporate state--a grotesque hybrid that combines the worst aspects of socialism and capitalism. The reform ideas announced by Geithner would plant the seeds by creating a 'systemic risk' regulator, presumably the Federal Reserve, to oversee the largest, most politically adept banks and financial firms that qualify as 'too big to fail.' Capitalism, with its inherent tendency toward monopoly, would have the means to monopolize democracy."

Chris Hedges, a Pulitzer prize-winning reporter:

"If we do not immediately halt our elite's rapacious looting of the public treasury we will be left with trillions in debts, which can never be repaid, and widespread human misery which we will be helpless to ameliorate. ... The stimulus and bailout plans are not about saving us. They are about saving them. We can resist, which means street protests, disruptions of the system and demonstrations, or become serfs."

And here's William Black, a regulator who takes bank regulation seriously, in an interview with Bill Moyers:

"We're hiding the losses, instead of trying to find out the real losses. ...Follow what works instead of what's failed. Start appointing people who have records of success, instead of records of failure. ... There are lots of things we can do. Even today, as late as it is. Even though they've had a terrible start to the administration. They could change, and they could change within weeks."

It's not too late, Mr. President. We can still keep these corrupt financial institutions from bankrupting America. We need you to stand up to the Wall Street insiders in your own administration who might understand what boosts the profits of banks, but not what helps our economy. Please replace them with independent advisors, who haven't spent their careers working for investment banks, hedge funds, and the Federal Reserve.

We don't need to re-inflate the disastrous bubble casino and we don't need to pump more taxpayer dollars into the too-big-to-fail institutions that have caused this mess. Instead, it's time to take a long, cold look at these banks, which George Soros says are now "basically insolvent."

Nationalize them. Reorganize them. And decentralize them -- make sure none are too big to bring down our economy. And make sure we never again find ourselves in the bizarre circumstance of having the biggest failures -- the ones whose actions threaten to destroy the economy -- calling the shots in Washington. Instead, reorganize these banks so that all of them are linked into the real economies they should be serving, not undermining -- the locally rooted enterprises that provide the sustainable livelihoods we need.

Yes, we can! Mr President. And for the sake of our country, we must.

Sincerely, Sarah van Gelder YES! Magazine

RE: The Global Financial Meltdown - Admin - 04-11-2009

Mike Whitney

On Tuesday, a congressional panel headed by ex-Harvard law professor Elizabeth Warren released a report on Treasury Secretary Timothy Geithner's handling of the Troubled Assets Relief Program (TARP). Warren was appointed to lead the five-member Congressional Oversight Panel (COP) in November by Senate majority leader Harry Reid. From the opening paragraph on, the Warren report makes clear that Congress is frustrated with Geithner's so-called "Financial Rescue Plan" and doesn't have the foggiest idea of what he is trying to do. Here are the first few lines of "Assessing Treasury's Strategy: Six Months of TARP":

"With this report, the Congressional Oversight Panel examines Treasury’s current strategy and evaluates the progress it has achieved thus far. This report returns the Panel’s inquiry to a central question raised in its first report: What is Treasury’s strategy?"

Six months and $1 trillion later, and Congress still cannot figure out what Geithner is up to. It's a wonder the Treasury Secretary hasn't been fired already.  

From the report:

"In addition to drawing on the $700 billion allocated to Treasury under the Emergency Economic Stabilization Act (EESA), economic stabilization efforts have depended heavily on the use of the Federal Reserve Board’s balance sheet. This approach has permitted Treasury to leverage TARP funds well beyond the funds appropriated by Congress. Thus, while Treasury has spent or committed $590.4 billion of TARP funds, according to Panel estimates, the Federal Reserve Board has expanded its balance sheet by more than $1.5 trillion in loans and purchases of government-sponsored enterprise (GSE) securities. The total value of all direct spending, loans and guarantees provided to date in conjunction with the federal government’s financial stability efforts (including those of the Federal Deposit Insurance Corporation (FDIC) as well as Treasury and the Federal Reserve Board) now exceeds $4 trillion."

So, while Congress approved a mere $700 billion in emergency funding for the TARP, Geithner and Bernanke deftly sidestepped the public opposition to more bailouts and shoveled another $3.3 trillion through the back door via loans and leverage for crappy mortgage paper that will never regain its value. Additionally, the Fed has made a deal with Treasury that when the financial crisis finally subsides, Treasury will assume the Fed's obligations vis a vis the "lending facilities", which means the taxpayer will then be responsible for unknown trillions in withering investments.

From the report:

"To deal with a troubled financial system, three fundamentally different policy alternatives are possible: liquidation, receivership, or subsidization. To place these alternatives in context, the report evaluates historical and contemporary efforts to confront financial crises and their relative success. The Panel focused on six historical experiences: (1) the U.S. Depression of the 1930s; (2) the bank run on and subsequent government seizure of Continental Illinois in 1984; (3) the savings and loan crisis of the late 1980s and establishment of the Resolution Trust Corporation; (4) the recapitalization of the FDIC bank insurance fund in 1991; (5) Sweden’s financial crisis of the early 1990s; and (6) what has become known as Japan’s “Lost Decade” of the 1990s. The report also surveys the approaches currently employed by Iceland, Ireland, the United Kingdom, and other European countries."

This statement shows that the congressional committee understands that Geithner's lunatic plan has no historic precedent and no prospect of succeeding. Geithner's circuitous Public-Private Investment Program (PPIP)--which is designed to remove toxic assets from bank balance sheets--is an end-run around "tried-and-true" methods for fixing the banking system.  In the most restrained and diplomatic language, Warren is telling Geithner that she knows that he's up to no good.

From the report:

"Liquidation avoids the uncertainty and open-ended commitment that accompany subsidization. It can restore market confidence in the surviving banks, and it can potentially accelerate recovery by offering decisive and clear statements about the government’s evaluation of financial conditions and institutions."

The committee agrees with the vast majority of reputable economists who think the banks should be taken over (liquidated) and the bad assets put up for auction. This is the committee's number one recommendation.  

The committee also explores the pros and cons of conservatorship (which entails a reorganization in which bad assets are removed, failed managers are replaced, and parts of the business are spun off) and government subsidization, which involves capital infusions or the purchasing of troubled assets. Subsidization, however, carries the risk of distorting the market (by keeping assets artificially high) and creating a constant drain on government resources. Subsidization tends to create hobbled banks that continue to languish as wards of the state.

Liquidation, conservatorship and government subsidization; these are the three ways to fix the banking system. There is no fourth way. Geithner's plan is not a plan at all; it's mumbo-jumbo dignified with an acronym; PPIP. The Treasury Secretary is being as opaque as possible to stall for time while he diverts trillions in public revenue to his scamster friends at the big banks through capital injections and nutty-sounding money laundering programs like the PPIP.

From the report:

"Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability."

This is a crucial point; the toxic assets are not going to regain their value because their current market price--30 cents on the dollar for AAA mortgage-backed securities--accurately reflects the amount of risk they bear. The market is right and Geithner is wrong; it's that simple. Many of these securities are comprised of loans that were issued to people without sufficient income to make the payments. These "liar's loans" were bundled together with good loans into mortgage-backed securities. No one can say with any certainty what they are really worth. Naturally, there is a premium for uncertainty, which is why the assets are fetching a mere 30 cents on the dollar.  This won't change no matter how much Geithner tries to prop up the market. The well has been already poisoned.

Also, according to this month’s Case-Schiller report, housing prices are falling at the fastest pace since their peak in 2006. That means that the market for mortgage-backed securities (MBS) will continue to plunge and the losses at the banks will continue to grow. The IMF recently increased its estimate of how much toxic mortgage-backed papaer the banks are holding to $4 trillion.

The banking system is underwater and needs to be resolved quickly before another Lehman-type crisis arises sending the economy into a protracted Depression. Geithner is clearly the wrong man for the job. His PPIP is nothing more than a stealth ripoff of public funds which uses confusing rules and guidelines to conceal the true objective, which is to shift toxic garbage onto the public's balance sheet while recapitalizing bankrupt financial institutions.  

So, why is Geithner being kept on at Treasury when his plan has already been thoroughly discredited and his only goal is to bailout the banks through underhanded means?  

That question was best answered by the former chief economist of the IMF, Simon Johnson, in an article which appeared in The Atlantic Monthly:

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming... is that the finance industry has effectively captured our government - a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation; recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression we're running out of time."  (The Atlantic Monthly, May 2009, by Simon Johnson)

The banks have a stranglehold on the political process. Many of their foot soldiers now occupy the highest offices in government. It's up to people like Elizabeth Warren to draw attention to the silent coup that has taken place and do whatever needs to be done to purge the moneylenders from the seat of power and restore representative government. It's a tall order and time is running out.

Barry Grey

The New York Times on Thursday published a front-page article that provides further insight into the economic and class interests that are being served by the Obama administration’s economic “recovery” policies.

Headlined “Small Investors May Be Enlisted in Bank Bailout,” the article outlines discussions between the administration and Wall Street investment firms on structuring the so-called “Public-Private Investment Program” announced last month in a manner that will allow people of modest means to invest in the scheme, whose purpose is to enable the banks to offload their toxic assets at public expense.

When the plan was announced March 23 by Treasury Secretary Timothy Geithner, it sparked a wild rally on the stock market. The Dow Jones Industrial Average rose 497 points when it became clear that the government was offering to provide up to 95 percent of the capital, insure almost all potential losses and virtually guarantee large profits for hedge funds and other financial firms that agree to purchase the bad debts of the banks at inflated prices, with the taxpayers underwriting the windfall for Wall Street and assuming virtually all of the risk.

Thursday’s Times article indicates that opening the scheme up to small investors is seen as a way of providing a “democratic” gloss to what is, in reality, a brazen plan to plunder the public treasury for the benefit of the very bankers and speculators who are responsible for the financial crash. Evidently not seeing a contradiction, the article also makes clear that the bailout measures are being drawn up in the closest consultation with the Wall Street insiders who stand to profit from them.

“Some of the biggest investment managers in the United States,” the Times notes, “including BlackRock and PIMCO, have been consulting with the government on ways to rebuild the country’s broken financial markets.”

The article quotes Steven A. Baffico, an executive at BlackRock, as saying, “It’s giving the guy on Main Street an equal seat at the table next to the big guys.” This is true only in the sense that “Main Street” will be given the opportunity to absorb the bulk of any losses while the “big guys” cream off the best assets and pocket the profits.

There are political concerns behind this effort to create the appearance of offering the general public a cut in the winnings. Hedge fund managers are wary that when, as they anticipate, their partnership with the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) pays off with double-digit profits there will be a public outcry, similar to that which erupted over the AIG executive bonuses. This, they fear, might lead to limits on their compensation, higher taxes on their fortunes or similar intolerable infringements.

More important are definite commercial calculations. By opening up the scheme to the broad public, the private firms chosen by the Treasury to operate the plan stand to increase greatly their take from investor fees. As the Times puts it, “For the investment managers, the benefits are potentially large. These big firms can charge healthy fees to investors for taking part.”

There is one particularly remarkable passage in the Times account. “But the comparison one industry official uses to illustrate the mistake that America must avoid,” the newspaper writes, “is the large-scale privatization in Russia in the 1990s, which involved a transfer of entire industries to a few, well-connected oligarchs. That experience tarnished the idea of free-market capitalism in Russia and undermined its program to move toward a market economy.”

The many differences in political and historical circumstances aside, there is a very real parallel between the plundering of Soviet society by the former Stalinist bureaucrats and their domestic gangster and foreign imperialist allies and the current manner in which the economic crisis in the US is being seized upon by Wall Street and its political instrument, the Obama administration, to further enrich the American financial aristocracy. Indeed, the perpetrators are themselves quite conscious that they are engaged in a similar—although much bigger—looting operation.

The scale and character of the operation are further indicated by another New York Times article published this week. This one, authored by Times financial writer Andrew Ross Sorkin and published on Tuesday, concerns the role of the FDIC in the new bailout scheme.

The article begins by noting that the FDIC was established 76 years ago, in the depths of the Great Depression, to provide a government guarantee, initially up to $5,000 and now up to $250,000, on the bank deposits of small savers. It describes the transformation of the FDIC, under the toxic asset disposal plan of the Obama administration, as follows:

“It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisition of toxic assets.”

In other words, the function of the FDIC is being transformed from guaranteeing the bank deposits of small savers to guaranteeing the investments of multimillionaire investment fund managers. And, as the article notes, this is occurring without a vote by Congress.

The FDIC will be insuring more than $1 trillion in new obligations incurred as the government covers the bad debts of the banks. However, the FDIC’s charter limits the obligations it can take on to $30 billion. The Times article quotes one “prominent securities lawyers” as saying, “They may not be breaking the letter of the law, but they’re sure disregarding its spirit.”

How does the government justify this breach? By calculating the obligations which the FDIC is assuming not at their monetary value, but at their value as “contingent liabilities.” That is, according to how much the FDIC expects to lose from its vast extension of credit to Wall Street firms (in the form of nonrecourse loans, i.e., loans in which the firms put up no collateral of their own, but only the supposed value of the toxic assets they are purchasing).

And what is the sum total of these “contingent liabilities”? Sorkin writes: “’We project no losses,’ Sheila Bair, the chairwoman, told me in an interview. Zero? Really? ‘Our accountants have signed off on no net losses,’ she said. (Well, that’s one way to stay under the borrowing cap).”

What is the significance of this astonishing reasoning? Simply this: The Obama administration, in order to protect the wealth and power of the financial elite, is facilitating and directly perpetrating on a colossal scale the same type of accounting fraud and reckless leveraging that led to the economic catastrophe in the first place.

Who is to pay the price for this looting operation? The answer can be seen in the Obama Auto Task Force’s demands for the liquidation of much of the US auto industry and the brutal downsizing of what remains, combined with the imposition of poverty-level wages on those workers who remain in the surviving plants and the gutting of the pensions and health benefits of retirees. It can be further seen in the administration’s pledge to slash social programs, including Medicare, Medicaid and Social Security.

The administration’s “recovery” plan is a barely disguised scheme to preserve the fortunes of the financial aristocracy, whose interests it represents, by imposing poverty and social misery on the working class.


Humayun Gauhar

Many American analysts are saying that America's real economic collapse could come by the end of this year. "It will come to be known as 'The Crash of 09', they say. Others, especially a Russian political analyst, are predicting its physical collapse too. There's no doubt that the country is up the dirtiest of imaginable creeks without a paddle. But what's amazing is that America remains mired in stunning denial, continuing to make bad situations worse with useless bailout plans and messing around with the world instead of facing up to the reality that its time as a hyper-power is up, that's its economic system has failed and that its only recourse is to end its adversarial doctrine and get out of its lost wars as painlessly and honourably as possible. There's no point in going on flogging dead horses. The only sensible thing that survival demands is to craft a new moral economic and financial system and a moral foreign policy.

The deep recession verging on depression that we have seen so far was caused by the crash in the US housing market. Since other developed industrialised nations, especially of Europe, were aping the shenanigans of unchecked and poorly regulated American bankers and financiers, the collapse of their markets, banks and economies followed like dominoes. Iceland was the first to officially declare bankruptcy. Its GDP is only about $6.5 billion but its banks had lent something like $65 billion while its regulators were asleep on the wheel. Britain has not declared bankruptcy officially but we all know that it is bankrupt for all intents and purposes and none of its banks and financial institutions has any legs left.

However, this is only the aperitif. Wait for the crash of US commercial real estate, which analysts think will happen by autumn this year. Shops are closing down and there's no one to rent them. Companies are retrenching and freeing up a lot of office space or closing down entirely and vacating even more precious office space with no one to rent it again. Huge skyscrapers are becoming ghost-scrapers. All this expensive commercial real estate is mortgaged to the hilt. With no rental income coming in, the loans against them will become difficult to service and there will be fearsome default. There's insurance and re-insurance here also and the amounts involved are mind-boggling. No bailout plan would come even close to coping. When the commercial real estate collapse comes, all hell will break loose. And if multinationals like General Motors and Ford call it a day, it won't just be thousands upon thousands of people unemployed (though its heartless to use the word 'just' here). Two entire towns will be become ghost towns. That's terrible. If you count the number of people - wives, children and parents - who are dependent on those incomes, it becomes worse than terrible. It becomes absolutely and totally unconscionable, while corrupt and greedy bankers and the likes of Bernie Madoff have made off with billions - perhaps trillions - of dollars and are still doing so because "our contracts say so."

Then there is Professor Igor Nikolavich Panarin whom I came across in a December 2008 article by Andrew Osborne of the Wall Street Journal no less, not some fly-by-night rag. If he has got it right, next year will come to be known as 'The Collapse of 2010' for that is when the USA will disintegrate into six separate entities. Those six entities, says Prof Panarin, are The California Republic, The Central North American Republic, Atlantic America, The Texas Republic, Hawaii and Alaska going back to Russia.

With millions of Chinese living on America's eastern seaboard (The People's Daily's circulation there alone is over five million) The California Republic, Prof Panarin thinks, will either be part of China or come under Chinese influence. The Central North American Republic will be part of Canada or under Canadian influence, Atlantic America may join the European Union, The Texas Republic will be part of Mexico or under Mexican influence and Hawaii will go either to Japan or China.

Prof Panarin is a former KGB analyst and a Russian professor of political science, Dean of the Ministry of the Foreign Affairs Diplomatic Academy in Moscow and author of several books on geopolitics. Thus one can hardly call him a fruitcake. Actually, he first made this prediction not after the economic meltdown that started last year but in Linz, Austria, in September 1998 in front of 400 delegates at a conference devoted to information warfare and the use of data to get an edge over a rival. Of course it was received with consternation. "When I pushed the button on my computer and the map of the United States disintegrated, hundreds of people cried out in surprise," he says. Later, many delegates asked him to sign copies of the map. Its like when the French political scientist Emmanuel Todd made his famous forecast in 1976 about the collapse of the Soviet Union 15 years before it actually did and many people laughed. But Todd had the last laugh.

Prof Panarin doesn't say that America's collapse is a forgone conclusion. "There's a 55-45 percent chance right now that disintegration will occur," he says. But if it comes it will be driven by three factors - "mass immigration, economic decline and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the US will break into six pieces...He predicts that economic, financial and demographic trends will provoke a political and social crisis in the US. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the Union. Social unrest up to and including a civil war will follow. The US will then split along ethnic lines, and foreign powers will move in." All we Pakistanis thus have to do is hang in there and soon America will not be meddling in our affairs any more, what to talk of General Patraeus's adviser David Kilcullen saying that Pakistan could fall apart in five or six months.

It's not easy to comprehend the collapse of an empire or a superpower. When termites are eating away at their vitals for years one cannot see it. People are too much in thrall of their power, wealth and panoply. Thus when the collapse comes it seems sudden, and takes people by surprise. "I went to sleep last night and when I woke up next morning the Soviet Union was gone." The most powerful war machine ever built couldn't save it. Remember the British Empire on which "the sun would never set"? It set so firmly that only six decades later Britain is not only bankrupt, it has become America's appendage, a third rate power and could itself disintegrate soon with Scotland seceding. The history of the world is replete with the demise of civilisations, empires and superpowers. The graveyards of nations are full of their bones.

That there may be something to what Prof Panarin says is borne out by the fact that the late Bush Administration made contingency plans to impose martial law in case of economic collapse or massive and violent social unrest with blood on the streets. His predictions seem plausible, even probable, if all the dire scenarios come right, as they have thus far. According to Rand Clifford the US has already made plans to "round up insurgent US citizens" and detain them in what are called "Rex 84" camps. Plus they have made "safe facilities" for members of Congress and their families. A report by the Phoenix Business Journal says: "A new report by the US Army and War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks." The Journal's story quote from the War College report: "Widespread civil violence inside the United States would force the defence establishment to reorient priorities in extremist to defend basic domestic order and human security." It needs saying that the military regularly makes plans for the most dire of situations, however seemingly unlikely.

Let Zbigniew Brzezinski, former National Security Advisor to President Jimmy Carter and an early supporter of Barack Obama have the last word. The US is "going to have millions and millions of unemployed people really facing dire straits. And we're going to be having that for some period of time before things hopefully improve. And at the same time there's public awareness of this extraordinary wealth that was transferred to a few individuals at levels without historical precedent in America...hell there could even be riots."

RE: The Global Financial Meltdown - Admin - 05-17-2009


The next stage of the crisis will result from a Chinese dream. Indeed, what on earth can China be dreaming of, caught – if we listen to Washington – in the “dollar trap” of its 1,400-billion worth of USD-denominated debt (1)? If we believe US leaders and their scores of media experts, China is only dreaming of remaining a prisoner, and even of intensifying the severity of its prison conditions by buying always more US T-Bonds and Dollars (2).

In fact, everyone knows what prisoners dream of? They dream of escaping of course, of getting out of prison. LEAP/E2020 has therefore no doubt that Beijing is now (3) constantly striving to find the means of disposing of, as early as possible, the mountain of « toxic » assets which US Treasuries and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens (4) prisoner. In this issue of the GEAB (N°34), our team describes the “tunnels and galleries” Beijing has secretively begun to dig in the global financial and economic system in order to escape the « dollar trap » by the end of summer 2009. Once the US has defaulted on its debt, it will be time for the « everyman for himself » rule to prevail in the international system, in line with the final statement of the London G20 Summit which reads as a « chronicle of a geopolitical dislocation », as explained by LEAP/E2020 in this issue of the Global Europe Anticipation Bulletin.

Quarterly Chinese foreign exchange reserves growth - Source: People’s Bank of China / New York Times, 04/2009

Behind London’s « fools’ game », where everyone pretended to believe that an event of « historical » international co-operation (5) took place, the G20 summit in fact revealed major divisions. The Americans and British (followed by a compliant Japan) desperately tried to preserve their capacity to maintain control over the global financial system, freezing or diluting any significant reform granting more power to the other players, but in fact no longer powerful enough to enforce their aims. The Chinese, Russians, Indians, Brazilians,… strove to change the balance of the international monetary and financial system in their favour, but were unable (or maybe, deep down, unwilling (6)) to impose their reforms. The Europeans (the EU without the United Kingdom) proved incapable of making up their minds between the only two options available: duplicating US and UK policies and sinking along with them, or questioning the very roots of the current monetary and financial system in partnership with the Chinese, the Russians, the Indians and the Brazilians. Today the Europeans have avoided following Washington and London in their endless reproduction of failed past policies (7), but they do not yet dare to prepare for the future.

The ongoing collapse of world trade growth cannot be explained by past relationships – Quarterly growth rates annualized - Source: OECD, March 2009

The Europeans can be held accountable if, in the remaining small window of opportunity (less than 6 months now), they fail to undertake the necessary steps to avoid a 10 year-long tragic crisis (8). Indeed they have the technical know-how that can help to create an international currency based on a basket of the world’s most important currencies, and they know which political approach is required to best combine the various strategic interests of a group of countries whose currencies would comprise the new international reserve currency. Unfortunately, EU leaders (namely Eurozone ones) clearly seem unable to face their responsibilities today, as if they preferred to let the Western system break down (though claiming the contrary) rather than fight to turn it into a bridge leading to a new global system. It may be a choice (LEAP/E2020 does not believe so); it may also be the result of the pusillanimity of EU leaders selected on the basis of their docility (vis-à-vis Washington and major European financial and economic players). In any event, this neutrality is dangerous for the world because it prevents the launch of an effective process to avoid a decade-long tragic crisis to unwind (9).

In this issue of the GEAB, our researchers anticipate the different forms a US default will take at the end of summer 2009, a US default which can no longer be concealed concealable from this April (most taxes are collected in April in the US) onward (10). The perspective of a US default this summer is becoming clearer as public debt is now completely out of control with skyrocketing expenses (+41%) and collapsing tax revenues (-28%), as LEAP/E2020 anticipated more than a year ago. In March 2009 alone, the federal deficit has nearly reached USD 200-billion (way above the most pessimistic forecasts), i.e. a little less than half of the deficit recorded for the entire year 2008 (a record high year) (11). The same trend can be observed at every level of the country’s public organisation: federal state, federated states (12), counties, towns (13), everywhere tax revenues are vanishing, suffocating the whole country with spiraling debts that no one can control anymore (not even Washington).

US tax receipts on corporate income (1930 – 2009) - Sources: US Department of Commerce / Saint Louis Federal Reserve (Q2-Q3 2009 projection by EconomicEdge)

In this issue of the GEAB (N°34), our researchers focus on how to explain the « mystery of gold price ». Indeed, our seekers (of information, not gold) identified a number of interesting leads to understand why (14) the price of gold has been fluctuating around the same level for months when the number of gold buyers is constantly increasing and demand for coins and bars far exceeds available supply in many countries.

Finally, our team gives recommendations on how to prepare for the crisis in the coming months, with particular regard to savings and life-insurance.


(1) Total Chinese foreign exchange reserves amount to USD 2,000-billion, of which USD-denominated assets are 70 percent maximum, equal to USD 1,400 billion. The remaining 30 percent mainly consists of EUR-denominated assets.

(2) Most of the time, the same « experts » predicted that global economy would benefit from banking deregulation, that the Internet economy was opening up an era of endless growth, that US deficits were a sign of strength, that US house prices would always go up, and that taking on debt was the modern way to get rich.

(3) The message on the necessity to switch international reserve currency, sent out by Beijing to the world – to US authorities in particular –, on the eve of London’s G20 Summit, was not intended to merely test the waters nor was it some vague attempt with no hope of success. The Chinese leaders had no illusion on the chances for this topic to be actually addressed in the G20 Summit, but they wanted it to be discussed in the backrooms, because they wanted to send an unofficial signal to all the players of the international monetary system: in Beijing’s mind, the Dollar system is over! If no one wishes to prepare for a common alternative system, the alternative system will be built some other way, knowing that the actions the Chinese are currently taking corroborate this intention. For instance, precisely these days (random political schedule is rare in Beijing) a book is being published, entitled « Unhappy China », arguing that Chinese leaders should stand up and impose their choices on the international arena. Source: ChinaDailyBBS, 03/27/2009

(4) This link gives the figures to the last cent: ChineInformation.

(5) Angela Merkel was closest to the truth about the G20 summit when she called it « an almost historical event ». The word “almost” is emblematic of what happened in London: the G20 leaders “almost” created a framework for a joint action programme, they “almost” launched new stimulus plans and new international financial rules, they “almost” banned tax-havens, and they “almost” convinced everyone that it would happen. “Almost” but not “really”, will make a big difference for the next stages of the crisis.

(6) In the previous issue of the GEAB (N°33), our team explained this dilemma for the “international system” today. At some point, it is in the interests of new players to simply wait for the current system to break down in order to build a new one, rather than strive to reform it, and suffer a long period of uncertainty.

(7) In particular, outrageous government borrowing - also called « economic stimulus » in Washington and London.

(8) The decisions taken at London’s G20 summit directly contribute to the long-term crisis scenario.

(9) As regards the EU, LEAP/E2020 emphasizes the inanity of all those economic and political « analyses », produced by leading economists and experts close to the American Democrats, and circulated by all the largest international mainstream media, blaming the Europeans for not following in Washington’s footsteps. Taking their lead from people like Paul Krugman for instance, these « very good friends » of Europe, who like it so much that they think they know better than Europe what is best for it (and what it should become, as indeed the same experts usually advocate its extension to Turkey, see Israel and Central Asia), whereas they would be best giving some quality advice to their own party and their new President to prevent their own country from collapsing, as this is what is really at stake today. It is beyond belief that a panel of experts, who, in all these years, sang the praises of a system which is today collapsing under everyone’s nose, still dares give lessons to the rest of the world. Basis decency suggests only one course of conduct worldwide: silence. In Europe, this position, despite the fact that it still enjoys its usual academic and media support, is too outdated to be accepted. LEAP/E2020 believes it is necessary and legitimate to cast a critical eye on the EU, its leaders and its policies; but doing so on the sole criteria of its conformity or otherwise with Washington’s (or London’s) stance is no longer acceptable. In the same way as financiers and business leaders obviously failed to understand that times had changed regarding their stock-options and “golden parachutes”, a number of intellectuals and politicians have not yet fully understood that their points of reference, values and theories now belong to the past. They should think of the elites of the Soviet bloc and they would understand how and how fast a thought system can become obsolete.

(10) Besides collapsing tax revenues, a protest movement has started in the US against using taxes to save Wall Street and against further deficits, blaming the country’s entire leading class. Sources: USAToday, 04/13/2009; MarketWatch, 04/16/2009

(11) Sources: USAToday, 04/11/2009; MarketWatch, 04/10/2009

(12) In California for instance, the first days of April suggested revenues far lesser than the worse forecasts, likely to result in multiplying two-fold California’s debt anticipated a few months ago. A similar trend is under way at the federal level, making it possible to imagine that the annual federal deficit reaches above USD 3,500 billion, i.e. 20 percent of US GDP. Source : CaliforniaCapitol, 04/08/2009

(13) Some towns, like Auburn near Seattle for instance, are compelled to ban trucks from their major freight routes by lack of maintenance financial means. Source: SeattleBusinessJournal, 04/10/2009

(14)Thus enabling to anticipate upcoming trends.

Each month, the GlobalEurope Anticipation Bulletin brings you its unique analyses on the upcoming stages of the collapse of the world order created after 1945, as well as numerous strategic recommendations for your decisions in the political, economic and financial fields. The GlobalEurope Anticipation Bulletin is the confidential letter of think-tank LEAP/Europe 2020, published in partnership with the Dutch foundation GEFIRA. As such, our aim is to provide our readers with state-of-the-art analyses of geo-political anticipation centered around the study and follow-up of the global systemic..  

RE: The Global Financial Meltdown - Admin - 05-17-2009

Stephen Lendman

So writes Philip Augar in an April 13 Financial Times (FT) op-ed. He's a former UK investment banker/broker and author of The Death of Gentlemanly Capitalism, The Greed Merchants, and most recently Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City's Golden Decade. More on his newest book below.

He quotes Nicolas Sarkozy, a questionable choice, at the G20 summit saying "The all-powerful market that is always right is finished," then on departure adding "a page has been turned." For Augar, that depends on whether a "free-market" successor is constructed, something
"entrenched interests in America and Britain would be well-advised to encourage if they wish to remain centre stage."

Things unraveled after Bretton Woods collapsed - the post-war monetary system of convertible currencies, fixed exchange rates, free trade, the dollar as the world's reserve currency linked to gold, and those of other nations fixed to the dollar. Absent that, Chicago School economists "persuade(d) the Reagan and Thatcher administrations to adopt laissez faire policies and deregulation." We then printed money freely, spent and lived beyond our means, and created an illusion of prosperity and wealth that led to the current crisis.

Earlier, academics and consultants embraced "free markets" and built a "coherent" business strategy on them. Regulation-freed investment bankers sold "the whole package" to CEOs. Once "derivatives theory (and securitization took hold, they) opened the door to share options and performance-based compensation (followed by) three decades in which tooth-and-claw capitalism ruled supreme." In other words, anything goes, checks and balances are out the window, let buyers beware, but look what it brought us.

"Conditions are now right for another radical rethink. The old model is busted. The big beasts of free-market economics, Britain and America, are more wounded" than most - among developed nations, that is.

So far, "governments, central banks and regulators (the few of the latter still around) are groping unconvincingly for solutions." It's high time for new ideas. Clearly the current ones don't work and must be replaced by something else. But to happen, Washington must take the lead followed by "a more effective and creative" academic response than we've seen up to now.

It "requires finance to be put back in its box." Knock it off its "commanding heights" under (Goldman Sachs) bankers like Robert Rubin, Jon Corzine and Hank Paulson, who "upheld the American tradition of Wall Street titans taking public office" and engineering disaster while there. The same thing happened in Britain with former investment bankers in high Treasury posts giving advice beneficial to themselves and companies.

In both countries, money bought influence, the way it always works. The more spent, the more other voices got crowded out, again the usual result.

Former government and Wall Street insider turned activist, Catherine Austin Fitts, recalls an Indonesian cab driver asking her: "Why do you let Goldman Sachs run your government?" Until recently, it's hard imagining that comment in America.

Surely not from mainstream academia. Instead of stimulating debate, the majority go along and are well paid for it. The few dissenters are "dismissed by economic liberals as living in the past or told that the new financial system had 'transformed risk' and raised global living standards" - despite clear proof otherwise. Markets were having a party, and nothing would was allowed to interrupt.

Finance capitalism took over at most business schools, training a young cadre of adherents. Wall Street, High Street, and hedge funds recruited academics with quantitative skills with offers of "life-changing sums in consultancy (and compensation) fees." Little wonder then that finance capitalism drew such interest and that "so much academic output" supported it.

Change is now vital lest other nations displace America and Britain with alternative models. In addition, "academics need to recapture their heritage," their integrity, their "independent thinking, and throw off the (pernicious) influence of finance." Short of that, today's financial titans may discover soon enough that "the page has indeed been turned and they are no longer on it."

Augar's new book, Chasing Alpha, attracted considerable UK attention but not in America. A financial definition calls alpha a "coefficient which measures risk-adjusted performance (of a) specific (investment to) the overall market." The higher it is, the lower the risk, the idea being to find the holy grail of high, sustained returns.

London did it for 10 years, but it's now chastened by a dark era replacing its "golden" one. How spectacular it was while it lasted, and the same is true for America and elsewhere.

The Sunday Times' David Smith expects many books on the global crisis, but Augar's "distinguishes itself by tracking the rise of the City's various components," including its prestigious High Street addresses favored by the financial community.

When Labour took office in 1997, London was booming, and it looked like the good times would last forever - buoyed by a strong pound, a supportive media, and the City's new hero class, its bankers. Real estate took off. Asset prices rose, and deregulation was the order of the day. Forgotten was the early 1990s "trials" when the insurance market was in trouble. So was Barings from the Nick Leeson scandal, and "Morgan Grenfell, one of the City's oldest and proudest names, (was) mired in a messy legal dispute."

New Labour at first was feared, yet inaugurated what Augar called "the most prosperous period in (London's) history....The (City's) hedge fund business came out of nowhere; between 2003 and 2006, more than 200 new firms and more than 600 new funds were established." Finance capitalism was on a roll with domestic and foreign-owned banks enjoying unprecedented prosperity until mid-2007 when it hit a wall. The scheme for sustainable growth couldn't last. Some officials noticed but not all.

In June 2007, new prime minister Gordon Brown congratulated London on its "global preeminence and saw it continuing thanks to 'light-touch regulation, a competitive tax environment, and flexibility." As finance minister in 2004, he told an audience of bankers: "What you have achieved for the financial services sector, we as a country now aspire to achieve for the whole of the British economy." He'll be living down that comment forever.

In contrast, Bank of England Governor Mervyn King was circumspect. He cautioned about risky financial instruments and the rise of leveraged debt. "Excessive leverage is the common theme of many (past) financial crises," he said. Are we so much cleverer than the financiers of the past?" Indeed not, and perhaps King knew something ordinary investors didn't, but wasn't letting on at the time.

Soon enough he had to as the global crisis emerged. Northern Rock was early victim enough for Britain to have its first bank run in 150 years. Others followed, big names, forcing Labour to take controlling stakes in much of Britain's banking sector. "The game was up, certainly for investment banks and many hedge funds (and unknown then) for most banks" needing government prop them up - in Britain, America, across Europe, and elsewhere.

It was big enough for Augar to produce "a useful contribution....about the biggest financial crisis for decades," a story of greed, excess, and fraud by an insider willing to take the gloss off a "busted model" and suggest something more workable in its place.

Given today's crisis, The UK Guardian's Larry Elliot headlined his April 4 commentary "We're doomed: he told us so," referring to Vince Cable's new book, The Storm: The World Crisis & What It Means. He cites finance minister Gordon Brown (in November 2003) praising Britain for avoiding the worst of the debacle, claiming finance capitalism "abolished boom and bust," and took aim at nay-sayers for their skepticism.

Cable is a British MP, the former Liberal Democrats leader, and, as a former Shell Oil Company chief economist, its main financial spokesman since 2003. In Parliament, he suggested that Britain's prosperity was illusory based on consumer borrow and spend binging, like in America. He spotted trouble early on and used his public stage to expose it.

His book isn't an "I told you so" exercise, but is full of scathing comments like:

"Without diminishing in any way the global origins and nature of the crisis, it is also necessary to debunk the self-serving myth that Britain has, in Gordon Brown's words, created an economic environment of 'no more boom and bust,' and that the country is uniquely well placed to ride out the global storm."

On the contrary, it's reeling under it and in grave trouble, the result of the same excesses as America's and larger-scale than for other developed countries. Being over-dependent on banking and financial services exposed Britain to the "full force of the gale that is blowing through international finance markets."

Both Conservatives and Labour embraced the notion that High Street was the future and manufacturing the past, the same sin America committed, and both are  paying the price. According to Cable, a "brutal reappraisal" is now underway.

High Street wizards have been defrocked. These "brilliant financial innovators have been recognised as greedy or reckless or incompetent, or all three. Self-proclained, buccaneering entrepreneurs in the banking industry have been reduced to rattling a begging bowl and (now depend on) government (to bail) them out."

Looking ahead, Cable says reformists are in three camps:

-- "New Interventionists" citing Washington Consensus neoliberalism, deregulation, and privatization as the villain and wanting to replace it with a 1950s - 1960s mixed economy;

-- "Old Liberals" who want regulatory reform, but, on balance, "good markets" outweigh "bad" ones; and

-- Cable's view that markets repeatedly produce bubbles, panics, and crashes, but produce benefits as well; in other words, "don't throw the baby out with the bathwater," but what else would a former corporate official and politician say.

Nonetheless, Cable wants real reform, such as:

-- banks required to hold more reserves in good times to limit excess and reckless lending;

-- the Bank of England "leaning against the wind" on interest rates; former Fed chairman William McChesney Martin's notion of "taking away the punch bowl" when the party got going; in other words, raise interest rates when it's unpopular but prudent; and

-- splitting Britain's banking sector into highly regulated High Street banks on the one hand and riskier investment ones, hedge funds, and shadow banks on the other with no state guarantees as backup; in other words, no bailouts if they get in trouble, a very sensible idea indeed.

Cable is unforgiving of "wheelerdealers" like Northern Rock's Adam Applegarth and Royal Bank of Scotland's Fred Goodwin and asks why were "these pillars of respectability" allowed to let their banks become "debt factories" placing their shareholders and the nation at risk. As a result, he wants banks to become "safe but boring," the equivalent of highly regulated utilities, their traditional role in the first place and not the casinos they've become.

On one other point he's hard line. After 16 years of prosperity, Britain is now in decline. "We placed out trust in housing equity (now evaporating), lavish public services (now unaffordable), an independent central bank (now discredited), a debt economy (now demanding repayment), and financial services (now bust)."

The good years were for naught. We're back to square one, says Cable, and have to rebuild from the wreckage. Income redistribution should be a component to help the needy and reduce wealth extremes. He also finds it ironic that New Labour ministers "who once read Trotsky" let finance capitalism run wild. All of Britain is now paying the price.

In his April 14 Financial Times column, Martin Wolf asked if America is the new Russia given the strength of its "financial oligarchy." He cites the sector's "massive rise," as reflected by its percent of US corporate profits in a deregulatory environment that sustained it while it lasted. Decisive "restructuring is (now) necessary" for two purposes:

-- to make financial institutions "credibly solvent;" and

-- assure that "no profit-making private institution (is) too big to fail....bankruptcy must be a part of any durable solution;" short of that, "the resolution of this crisis can only be the harbinger of the next."

On April 16, even the Wall Street Journal stepped out of character in publishing "Reverend Billy's Bailout - One Street Preacher Makes the Case for Propping Up Community Banks."

"Would Jesus take a bailout," asked Billy? Reformers have a "once-in-a-century choice," to either prop up financial supermarkets or "lift up community banks and street-level economies."

Reverend Billy Talen leads the Church of Stop Shopping and says "government has a moral obligation to support communities (over) big banks." They're so broken that even Journal writer David Weidner says "Billy may be on to something....It's hard to argue against the system he envisions....neighborhood banks (lending) to local businesses (so) profits could stay in the community..The most basic and sound form of risk management" is knowing your customers and living near them.

Billy is no longer a fringe figure. A Wall Street feature story shows he's mainstream enough to run for New York City mayor on the Green Party ticket, campaigning on a community-first platform - support them over a bubble and bust economy. It's gaining resonance but way short of enough to depose Wall Street dominance.

That and a lot more is needed, including exposing financial fraud, huge cash rewards in spite of it, and deceptive quarterly sales and profits reports to present an illusion they're working.

Case in point is Goldman Sach's April 13 Q 1 profits - according to Bloomberg $1.81 billion "as a surge in trading revenue outweighed asset write-downs, beating" consensus forecasts by a wide margin. Unreported was how they did it - by changing their reporting periods to a calendar year beginning in the current period.

FY 2008 ended in November making December an "orphan month" so results reflected a January - March quarter. At the same time, Goldman took a large year end $1.3 billion write-off handled legally in a separate filing, but the business media headlined the good news, not the bad - conveniently at the same time a new stock offering was announced to enhance its attractiveness to the public.

The New York Times Floyd Norris cited Goldman's report in his April 14 blog. Titled "Case of the Missing Month," he asked: "Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?" Clearly Goldman acted in its own self-interest and presented a deceptive picture of its health.

So did Wells Fargo (WFC) in its latest announcement - that it expects to earn a record $3 billion in Q 1 2009, putting a brave face on a troubled bank according to analyst Dave Krantzler in an article headlined: "Wells Fargo revisited - A Case of Unmistaken Fraud." He cites deteriorating assets and states:

WFC will be forced to incur at least $283 billion in future asset write-downs and will thus require at least that much in capital to service the corresponding liabilities....(its) CEO fraudulently conveyed the financial position of the bank he runs," and Street analysts let him get away with it.

It's these type shenanigans that get Augar and others to call "the old model busted" and needing reform. Better yet, scrap it for a radical new one. Make no mistake. "Tooth-and-claw" capitalism is pernicious and toxic. End it or it'll destroy us. What better proof than the current crisis heading America for neo-feudal bondage unless a mass-awakening comes soon enough to stop it.

RE: The Global Financial Meltdown - Admin - 05-17-2009


Dr. Jack Rasmus

Calls for nationalizing the banking industry have been bubbling since at least last September 2008, when the current Banking Panic began in the wake of the Lehman Brothers bank collapse, the initial AIG bailout, and the quick absorption of Merrill Lynch-Wachovia-Washington Mutual banks by their larger competitors, Bank of America, Wells Fargo, and JP Morgan Chase.  

One of the first to raise the idea of the possible need for bank nationalization last fall were the editorialists from the Wall St. Journal, as well as ex-Federal Reserve chairman, Alan Greenspan. Of course, what the Journal’s editorialists and Greenspan meant by their idea of nationalization was the government should assume responsibility for cleaning up a bank’s bad assets at taxpayer expense, followed by the government quickly selling off the best of the bank’s remaining assets at firesale prices to new investors. The ‘nationalized’ bank would subsequently and promptly reopen for business in short order once again as a completely private institution, its ‘bills’ (bad assets) having been paid for by the taxpayer in the interim.

Nationalization is thus merely a kind of ad hoc bankruptcy proceeding declared and set in motion by the US government. The banks would not be ‘taken over’ in anything but a legal, formal sense.  A quick transfer of bad assets follows, after which the institution is ‘spun off’ again and sold to private investors.  Nationalization in this sense functions merely a tactical move for removing bad assets and resurrecting a zombie bank from the dead.  

Something quite similar to this was in fact what occurred with the failure of the mid-sized regional bank, IndyMac, in late summer 2008.  It was taken over by the U.S. government agency, the Federal Deposit Insurance Corporation, or FDIC.  Today IndyMac has reopened expunged of its bad debts, which are now debts of the government and taxpayer.  In fact, the same group of investors who once owned IndyMac have rebought it once again, at firesale prices, from the FDIC. They are the owners once again. The investors were ‘rescued’. Nationalization is thus a form of ‘investor rescue’, a kind of ‘temporary trusteeship’ in a formal, legal sense pending reprivatization.

What the Journal and Greenspan meant by bank nationalization is simply let’s ‘do and IndyMac’ for other, even bigger banks. There’s no idea implied that a bank might be more permanently taken over and operated on a day to day basis, not for the interests of private investors but for the broader public interest of the nation and all its inhabitants.

Since last fall 2008, when the bankers essentially went on strike in terms of refusing to lend to businesses and consumers except at all but the most usurous rates, debate has raged in ruling class circles as to what to do with the trillions of ‘bad assets’ on banks’ balance sheets. These ‘bad assets’ in the form of both ‘bad loans’ and ‘bad securities’ now amount to somewhere between $4 and $6 trillion, according to various sources such as Fortune Magazine, the Journal, reputable independent sources, such as NY University Professor, Nouriel Roubini, and even Treasury Secretary Geithner prior to his appointment in that official role.   The central argument is that until the ‘bad assets’ are somehow relieved from the banks’ balance sheets, banks will continue to refuse to lend and the accelerating current decline in the real economy in the U.S. will continue to worsen.

The Journal-Greenspan notion of bank nationalization must be viewed as part of that ongoing capitalist class debate. Nationalization is merely a tactic for addressing bad asset removal and subsequent quick reprivatization, nothing more.

Other tactical proposals have contended since last fall with the idea of bank nationalization as ‘temporary trusteeship’ and means to remove bad assets. They include proposals such as creating an ‘Aggregator Bad Bank’, into which the government would deposit the banks’ bad assets’ after somehow purchasing them.  But ‘purchasing’ has proved difficult since banks have actually refused to sell the bad assets. Banks have been ‘on strike’ since last fall, in other words, not only in terms of ‘refusing to lend’ but in terms of ‘refusing to sell’ bad assets as well.  

Bad assets on banks’ books take two forms. One is ‘bad loans’ assets. Another is ‘bad securitized’ assets. According to legal accounting rules, banks can hold ‘bad loans’ on their books at their initial purchased values. Hence, they have little incentive to sell them at lower values and have to write-down the loss. But who wants to buy the loans at top dollar when it is clear they are worth far less than the banks are willing to sell them?  Thus, no other investors have wanted to purchase the bad loans way above their market value since last September. And should the government do so it would mean a clear subsidization of the banks at taxpayer expense. So the ‘bad loans’ have not moved off the banks’ books.  Something similar has been the case with the ‘bad securitized’ assets since last fall. These are the subprime mortgages, auto loans, credit cards, student loans and various other asset backed securities that have been
‘securitized’, or bundled, into new financial instruments for sale since 2002. Unlike ‘bad loans’, securitized bad assets must be  valued at their true, virtually worthless, prices today. That means close to zero. While banks would like to sell these assets (to investors or government), they want to sell them only above their true ‘mark to market’ values. Investors, in turn, want only to buy them at their true, virtually worthless price—if at all. Some are considered so worthless, no one has stepped up to buy them. So, once again, the ‘bad assets’ in this form are not sold and remain ‘toxic’ on banks’ balance sheets, worsening with the passage of each day.

What is described in the preceding paragraph is the ‘grand dilemma’ faced by the financial system today.  The US government, Treasury and Federal Reserve, have been trying various ways to expunge and rid the banks of the bad assets, without success to date. The banks in the meantime remain on strike and refuse to lend (or to sell the assets).

The aforementioned ‘Aggregator Bank’ is one idea for trying to rid the banks of their bad assets.  Something like it was tried in Sweden in the early 1990s with success. However, that was one small country. The problem is many times more immense in the US (and globally) today.  The Swedish government could successfully ‘buy up’ the bad assets and place them in the ‘Aggregator’ bank. The amounts to be ‘bought up’ today, however, are likely greater than any one government can finance, including the U.S. It has sometimes been said that the Swedish government ‘nationalized’ its banks in the process of setting up its ‘Bad Bank Aggregator’.  But, once again, that idea of nationalization is simply a variation on the theme proposed by the Wall St. Journal and Greenspan.

Other variations on the theme that have also been confused with ‘nationalization’ have been efforts by the US Treasury and Federal Reserve to buy stock in the failing banks—whether in the form of preferred stock purchases, common stock, or some convertible arrangements combining both common and preferred. Instead of buying up the balance of the bad assets altogether (e.g. Aggregator bank), the idea here is to offset the bad assets on the banks’ books with the hope that, once the assets are neutralized, the banks will begin to lend again. Stock ownership, partial or even majority, is thus also identified with the idea of nationalization.

Thus last fall the Fed and Treasury bought 80% of the stock of AIG and therefore somehow effectively ‘nationalized’ it.  But formal stock ownership is in no way equivalent to nationalization. To recall, AIG simply went on to act as it always had, throwing billion dollar parties for its managers and doling out huge sums of TARP money in bonuses. If there is any example of the limits of legal ownership definitions of nationalization, one need look no further than the experience of AIG.

The TARP program introduced last October was an attempt to generalize the AIG action. But at $700 billion it was soon apparent TARP was a drop in the bucket needed the $4-$6 trillion hole in bank balance sheets. Amazingly, what the TARP experiment shows is that the US government had no idea of the magnitude of the banks’ losses and how effectively the banks had hid that magnitude from the public and government itself.  The TARP program quickly ran into the aforementioned problem of banks’ refusing to sell at anything but inflated, above-market prices for their bad assets. Then Secretary of Treasury Paulson panicked Congress and the public to give him the $700 billion, only to find it was a grossly insufficient amount and that, in any event, the banks refused to sell their bad assets unless massively subsidized by the government to do so.

When Citigroup and Bank of America collapsed in November 2008 the Treasury and Fed threw much of what remained of TARP funds at them (and more for AIG as well), and came up with hundreds of billions more in guarantees against their losses ($300 billion alone for Citigroup) from the Fed as stopgap measures. But Citigroup and Bank of America fell still further into a hole in January-February 2009, requiring still more bailout.  By February it was becoming increasingly clear that that cumulative balance sheet hole in the big 19 banks continued to grow daily.  At $4 to $6 trillion it was becoming increasingly unlikely even the US government could afford to buy all the bad assets on banks’ balance sheets on its own.

This re-ignited once again the discussion and debate on bank nationalization this past February.  If the US government itself can’t afford to buy all the bad assets, why throw any taxpayer money at all down ‘the black hole’ some began to argue?  Perhaps the banks were not ‘too big to fail’. Perhaps they should be allowed to go under.  Or …perhaps the government should nationalize them.  But if nationalization defined as bad asset clean up was not possible, what would nationalization now mean?

By early February the call for some kind of nationalization began to emerge from various directions. The AFL-CIO raised it, but provided no definition of what it should mean. Noted economists like nobel laureate, Joseph Stiglitz, called for it, as it NYU professor, Nouriel Roubini, whose predictions of the evolution of the crisis had proved correct for the past two years.  James Baker, the main policymaker during the Reagan administration, came out for it. Greenspan reiterated that nationalization was necessary for an ‘orderly restructuring’ of the system. Key figures in the Republican party, such as Lindsey Graham, declared on public tv “if nationalization is what works, then we should do it”, as did Banking Committee chair in the Senate, Democrat Chris Dodd.

But immediately the Obama administration’s big guns responded, discouraging the idea and very talk of nationalization. Geithner, White House economic advisor, Larry Summers, and Fed chairman, Ben Bernanke, all quickly debunked the idea, as did House Banking Committee chairman, Barney Frank. Dodd in the Senate backtracked and joined the denial. They sounded off in unison with big bank CEOs, Ken Lewis of Bank of America, and Jaime Dimond of JP Morgan Chase, and Citigroup’s Vikram Pandit who declared it ‘would be a step backwards’.

The resistance to the very concept itself flowed from yet another scheme in the works by which to have the government and taxpayer subsidize the banks and investors to depart with the ‘bad assets’ on bank balance sheets.  That latest scheme was revealed in early March with details later on what was called the ‘Private-Public Investment Program’, or PPIP, released by Geithner on March 23.  But like TARP before it, PPIP was essentially still a ‘bad asset’ buy out idea. This time with the twist that somehow those speculator-investors, who created the financial crisis by issuing trillions in ‘securitized assets’ that went bust, would now come to the rescue of the system and buy up the bad assets—providing, of course, the government generously subsidized the process.  That subsidization would be financed, this time with a twist, not only by the Treasury providing funds but by having the Federal Reserve print money to the tune of $ trillions
of dollars more.  The government commitment to the banks thus overnight escalated from merely $3-$4 trillion to date to more than double that amount.

But should the newest bailout of banks fail, as it will, the question on the agenda once again is to proceed to some form of nationalization.  The debate on nationalization is thus bound to reappear aggressively once more as it becomes clear the Geithner plan is failing.

But when the debate re-emerges anew, it can no longer be limited to its past definitions. Nationalization as mere stock ownership—indeed any kind of formal ownership—has already been attempted and failed. AIG alone is testimony to that fact. Nationalization as temporary trusteeship is clearly insufficient. It doesn’t address what’s to be done with the bad assets in the trillions that are taken under ‘trusteeship’. Nationalization as an Aggregator Bank raises the problem of how to capitalize an entire banking structure that is largely insolvent, which would cost several trillions of dollars to start.  FDIC-IndyMac type takeovers raises similar problems.  The FDIC cost of the IndyMac takeover was less than $10 billion. Bailing out Citigroup common stockholders alone will cost more than $1 trillion.

At the other end of the political spectrum, from the idea of nationalization as ‘bad asset’ purchase, is the idea of nationalization undertaken not in the interests of investors but of the nation itself. Who benefits in any nationalization arrangement is what is key.  Is it the ‘nation at large’ or is it private individuals?  It is called ‘NATIONalization’, for that reason. To call it nationalization, while in the service of individual investors, is to appropriate and distort the true meaning of the original term.  

Who then is ‘the Nation’ that is supposed to benefit?  There are 114 million households in the U.S.  91 million are households where wage and salary earners each earn $80K a year or less.  The wealthiest 5% households, or roughly 5 million or so, earn the vast majority of their income from capital sources (capital gains, dividends, interest, rents, business incomes). The wealthiest 1% earn virtually all income from capital sources. The 91 million—i.e. the working and most of the middle class—are the overwhelming bulk of the nation. But they do not in any credible way benefit from ‘nationalization as investor bailouts’.  Any true program of nationalization would thus have to show how the 91 million would in fact benefit.  And if it can’t be shown they benefit, then the program, whatever its structure, simply can’t be called nationalization in any sense of the term.

Nor can true nationalization be limited simply to a legal arrangement, however much or what kind of stock (preferred, common, convertible) may or may not be purchased.  Mere legal ownership is not nationalization. Nationalization implies control and control directly on behalf of the public interest, not private interests. But ‘control’ over what and in what form, is the next reasonable question?

There are all kinds and degrees of control. Formal stock ownership arrangements to date have required at most only occasional reporting by the bank in question. Reports and information is not per se control.  Nor is vetoeing management decisions represent effective control. AIG and other banks that have taken $hundreds of billions of taxpayer money to date attest to the limits of reports of decisions made by managers representing private investors. Control must also mean more than the government simply ‘vetoing’ bank management decisions after the fact. Control must mean decision making itself.

But what kind of decisions? Certainly strategic decisions of the banks. And likely an important range of operational decisions as well. But for that, the government must fire all of a nationalized bank’s board of directors and appoint new directors, hopefully with labor, community, and other public representation. CEOs and senior management teams must be totally replaced. Second tier, operational decision making must be daily reviewed by the new senior management team. Key divisional and mid-level current managers may be left in place, providing their performance is closely reviewed on a periodic basis. All this is a minimum decision-making structure that accompanies true nationalization.

Opponents of this view of nationalization will argue that it will result, if implemented for one bank, in the collapse of stock prices for remaining banks as other banks shareholders realize their institution may be next in line and dump their stock.  But that not need be the case necessarily.  In taking over one bank, the government could announce it would guarantee stock prices of other, still private banks at their current levels at minimum. That would set a floor on stock price collapse and stabilize their stock prices.

Another argument of opponents of true nationalization is that the banks are fundamentally sound, only in need of liquidity. While that argument might have fooled people in 2008, it is now abundantly clear to all that the ‘big 19’ banks as a group are insolvent and not illiquid. ‘Too big to fail’ is clearly now ‘too big to bail’. The nation cannot afford these kind of institutions any longer. They are literally sucking the economic lifeblood from the country.

Still another opponent argument is to point to AIG and Fannie Mae/Freddie Mac and their continued loss of assets. Opponents then use those institutions as examples of the ultimate failure of nationalizations.  But AIG and Fannie/Freddie are not examples of nationalization; they are examples of  ‘failed investorization’ and of bungled bailouts.

Another common complaint levied against nationalization is that taking over a bank is too complex. The government does not have the personnel and doesn’t know how to run a bank efficiently.  In answer to this, one need only argue how could government possibly do any worse than the so-called ‘private experts’ now running the banks and who have clearly run them into the ground. Today’s so-called bank experts have lost more than $5 trillion to date. Who could possibly do worse? By any private capitalist company’s standards, these experts should have all been fired long ago and the companies they’ve destroyed put into chapter 11 reorganization at minimum.

An entirely new banking structure is needed in America. Such a structure is quite possible, moreover. I have described some elements of such a structure in other recent publications. For a start, it could begin with a full nationalization of the residential mortgage markets and small business property markets. A new agency, the Home and Small Business Loan Corporation (HSBLC), based on experiences in the 1930s with the then Home Owners Loan Corporation and the Reconstruction Finance Corp., could not only clean up the current mess but could continue as the primary financial source for lending for all residential mortgages for consumers earning less than $200,000 per year and companies with 50 or less employees.  As a second development, the Federal Reserve itself could be fully nationalization, removing it from its current status as partly private bank owned and financed and partly government. A fully nationalized Federal Reserve could then serve as a ‘lender of primary resort’ to all consumer loan markets—auto, student, and other consumer loans. Its local structure might include local credit unions and HUD offices to interface with the consumer. It is possible to expand on these ideas similarly for other credit markets.  In short, there is another structure for banking that is imaginable.  

Yes, every economy needs a credit system. The U.S. just doesn’t necessarily need the one it now has, which is destroying the real economy and millions of jobs by the month. Another is possible.

It is time therefore to prepare to shift the inevitable debate on bank nationalization that will soon emerge once again to consider other possible structures and arrangements—structures that exist for the purpose of serving the ‘NATION’ itself and not private investor interests. Structures in which decisions are not made by the private interests in their behalf but by representatives of the public interest on behalf of the public’s interest.

RE: The Global Financial Meltdown - Admin - 05-25-2009

When the world steps out of a 60 year old referential framework

The financial surrealism which has been at the heart of stock market trends, financial indicators and political commentaries in the past two months, is in fact the swan song of the referential framework within which the world has lived since 1945.

Just as in January 2007, the 11th edition of the GEAB described that the turn of the year 2006/07 was wrapped in a « statistical fog » typical of an entry into recession and designed to raise doubts among passengers that the Titanic was really sinking (1), our team today believes that the end of Spring 2009is characterized by the world’s final stepping out of the referential framework used for sixty years by global economic, financial and political players in making their decisions, in particular of its “simplified” version massively used since the fall of the communist bloc in 1989 (when the referential framework became exclusively US-centric). In practical terms, this means that the indicators that everyone is accustomed to use for investment decisions, profitability, location, partnership, etc ... have become obsolete and that it is now necessary to find new relevant indicators to avoid making disastrous decisions.

This process of obsolescence has increased dramatically over the past few months under pressure from two trends:

. first, the desperate attempts to rescue the global financial system, particularly the American and British systems, have de facto "broken navigational instruments" as a result of all the manipulation exerted by financial institutions themselves and by concerned governments and central banks. Among those panic-stricken and panic-striking indicators, stock markets are a perfect case as we shall see in further detail in this issue of the GEAB. Meanwhile, the two charts below brilliantly illustrate how these desperate efforts failed to prevent the world’s bank ranking from experiencing a major seism (it is mostly in 2007 that the end of the American-British domination in this ranking was triggered).

. secondly, astronomical amounts of liquidity injected in one year into the global financial system, particularly in the U.S. financial system, led all financial and political players to a total loss of touch with reality. Indeed, at this stage, they all seem to suffer from a syndrome of diver’s nitrogen narcosis – impairing those affected and leading them to dive deeper instead of surfacing. Financial nitrogen narcosis has the same effects than its aquatic counterpart.

Destroyed or perverted sensors, loss of orientation among political and financial leaders, these are the two key factors that accelerate the international system’s stepping out of the referential framework of the past few decades.

Top 20 financial institutions by market capitalization in 1999 (USD billions) - Source: Financial Times, 05/2009

Top 20 financial institutions by market capitalization in 2009 (USD billions) - Source: Financial Times, 05/2009
Of course, it is a feature of any systemic crisis and easy to establish that, in the international system we are used to, a growing number of events or trends have started popping out of this century-old framework, demonstrating how this crisis is of a kind unique in modern history. The only way to measure the magnitude of the changes under way is to step back several centuries. Examining statistical data gathered over the last few decades only enables one to see the details of this global systemic crisis; not the overall view.

Here are three examples showing that we live in a time of change that occurs only once every two or three centuries:

1. In 2009, the Bank of England official interest rate has reached its lowest level (0.5 percent) since the creation of this venerable institution, i.e. since 1694 (in 315 years).

Bank of England official interest rate since its creation in 1694 - Source: Bank of England, 05/2009
2. In 2008, the Caisse des Dépôts et Consignations, the French government’s financial arm since 1816 under all France’s successive regimes (kingdom, empire, republic…), experienced its first yearly loss ever (in 193 years) (2).

3. In April 2009, China became Brazil’s leading trade partner, an event which has always announced major changes in global leadership. This is only the second time that this has happened since the UK put an end to three centuries of Portuguese hegemony two hundred years ago. The US then supplanted UK as Brazil’s leading trade partner at the beginning of the 1930s (3).

It is not worth reviewing the many specifically US trends popping out of the national referential framework compared to the past century (there is no relevant referential framework older than that in the US): loss in value of the Dollar, public deficits, cumulated public debt, cumulated trade deficits, real estate market collapse, losses of financial institutions… (4)

But of course, in the country at the heart of the global systemic crisis, examples of this kind are numerous and they have already been widely discussed in the various issues of the GEAB since 2006. In fact, it is the number of countries and areas concerned, which is symptomatic of the world’s stepping out of the current referential framework. If there was only one country or one sector affected, it would simply indicate that this country/sector is going through an unusual time; but today, many countries, at the heart of the international system, and a multitude of economic and financial sectors are being simultaneously affected by this move away from a “century-old road”.

Stock market trends – adjusted for inflation – during the last four major economic crises (grey: 1929, red: 1973, green: 2000, and blue: current crisis) - Source: Dshort/Commerzbank, 17/04/2009
Thus, to conclude this historical perspective, we want to emphasize that the stepping out of the century-old reference system is graphically visible in the form of a curve simply popping out of the frame which allowed ongoing trends and values to be represented for centuries. This popping out of traditional referential frameworks is speeding up, affecting increasing numbers of sectors and countries, enhancing the loss of meaning of indicators used daily or monthly by stock markets, governments, or official sources of statistics, and accelerating the widespread awareness that "the usual indicators" can no longer give any insight, or even represent the current world developments. The world will thus reach summer 2009 without any reliable references available.

Of course, everyone is free to think that a few points’ monthly variation of a particular economic or financial indicator, itself largely affected by the multiple interventions of public authorities and banks, carries much more value on the evolution of the current crisis than those stepping out of century-old referential frameworks. Everyone is also free to believe that those who anticipated neither the crisis nor its intensity are now in a position to know the precise date when it will end.

Our team advises them to go see (or see again) the movie Matrix (5) and to think about the consequences of manipulating the sensors and indicators of one’s perception of given environment. Indeed, as we will examine in detail in our special summer 2009 GEAB (N°36), the coming months could be entitled « Crisis Reloaded » (6).

In this 35th issue of the GEAB, we also express our advice on which indicators, in this period of transition between two referential frameworks, are able to provide dependable information on the evolution of the crisis and the economic and financial environment.

The two other major themes addressed in this May 2009 issue of the GEAB are, first, the programmed failure of the two major economic stimulus plans: namely the Chinese and American plans, and, secondly, the United Kingdom’s appeal to the IMF for financial assistance by the end of summer 2009.

In terms of recommendations, in this issue, our team anticipates the evolution of the worlds’ largest real estate and treasuries markets.


(1) At that time, our team added «Just like always when change occurs, the passage by zero is characterized by a «fog of statistics» where indicators point in opposite directions and measurements provide contradictory results, with margins of error sometimes wider than the measurement itself. Regarding our planet in 2007, the on-going wreck is that of the US, that LEAP/E2020 has decided to call the « Very Great Depression », firstly because the « Great Depression » already refers to the 1929 crisis and the years after; and secondly because, according to our researchers, the nature and scope of the upcoming events are very different ». Source: GEAB N°11, 01/15/2007

(2) Source: France24, 04/16/2009

(3) Source: TheLatinAmericanist, 05/06/2009

(4) Political leaders and experts insist on comparing the current crisis to the 1929 crisis, as if the latter were a binding reference. However, in the US in particular, current trends in many fields have moved beyond the events which characterized the « Great Depression ». LEAP/E2020 already reminded in GEAB N°31 that relevant references were to be found in the 1873-1896 global crisis, i.e. more than a century back.

(5) In the Matrix series of movies, reality perceived by humans is created by computers. They think they live a comfortable life when in fact they live in squalor, but all their senses (sight, hearing, taste, touch, smell) are manipulated.

(6)The title of the second in this series of movies: « Matrix reloaded ».