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THE GLOBAL FINANCIAL MELTDOWN - Printable Version

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RE: LaRouche - Admin - 02-03-2009

LET THE BANKS FAIL
Source: http://georgewashington2.blogspot.com/2009/02/leading-experts-let-banks-fail.html

The government and Wall Street have endlessly repeated the statement that we have to save the banks, or the whole economy will be destroyed. But leading experts - including the following people - say that letting the banks fail will help the economy recover:

Nobel prize-winning economist Joseph Stiglitz
Leading monetary theorist Anna Schwartz
Highly-regarded PhD economist Michael Hudson
PhD economist Marc Faber
The central banks' central bank, BIS

Many other experts

We cannot even start to recover from the depression we are in unless the free market is allowed to operate. That means that banks that made horrible business decisions have to be allowed to fail, and those that made good decisions allowed to succeed.




RE: LaRouche - Admin - 02-03-2009

WORSE THAN THE GREAT DEPRESSION
Dr. Krassimir Petrov
http://www.globalresearch.ca/index.php?context=va&aid=12121

The mainstream media and Wall Street have reached the consensus that the current credit crisis is the worst since the post-war period. George Soros’ statement that ”the world faces the worst finance crisis since WWII” epitomizes the collective wisdom. The crisis is currently the ultimate scapegoat for all the economic evils that currently plague the global financial system and the global economy – from collapsing stock markets of the world to food shortages in third world counties. We are repeatedly assured that the ultimate fault lies with the Credit Crisis itself; if there were no Credit Crisis, all of these terrible things would never have happened in the economy and the financial markets.

The most extraordinary thing is that the mainstream media has never attempted to compare the current economic environment to the one preceding the Great Depression. In essence, it is assumed outright that the Great Depression can never possibly happen again, ever, thus obviating the need for such a comparison. I actually believe that the macroeconomic fundamentals today are much worse, so that we are in for a protracted period of economic depression – a depression much worse than the Great Depression, a depression that would likely be remembered in history as “The Second Great Depression” or The Greater Depression, as Doug Casey has called it so aptly. Here is why I believe that this is the case.

Duplicating Mistakes from the Great Depression

At its core, the environment of the 1990s, and the response of the Fed to the tech-telecom bust has created an economic environment that has encouraged the repetition of the very same mistakes that led to the Great Depression. Here is a concise summary of widely recognized mistakes of the 1920s, without going into the details, with obvious parallels in the current environment:

Asset Bubbles – first in the stock market during the 1990s, then in real estate during the 2000s, pretty much mirroring the stock and real estate market bubbles of the 1920s.

Securitization – although not in the very “ultra-modernistic” form and shape of the 2000s, with slicing and dicing of pools and tranches of seniority, it was widely recognized in the 1930s that securitization during the 20s drove the domino effect in the U.S. financial system during the Great Depression.

Excessive Leverage – just like in 2008 the topic du jour is “deleveraging”, so the unwinding of leverage during the 1930s was the driver of forced liquidations and financial pain. Of course, it was very clear back then that the root of the problem was not deleveraging per se, but the excessive leverage that took place prior to the deleveraging process. “Investment Pools” were then instrumental in both the securitization and excessive leverage, just like the Hedge Funds of today.

Corrupt Gatekeepers – we know well that the Enrons and Worldcoms were aided and abetted by the accounting firms – those same firms that were supposedly the Gatekeepers of the financial community, yet handsomely profited from the boom while neglecting their watchdog functions. In the current financial crisis, we also know that the rating agencies were also making hay during the boom. Very similar were the issues during the 1920s that led to the establishment of the SEC and other regulatory bodies to replace the malfunctioning “gatekeepers” at the time.

Financial Engineering – we are led to believe that financial engineering is a rather recent phenomenon that flourished during the New Age Finance Era of the last 15 years, yet financial engineering was prevalent in the 1920s with very clear goals: (1) to evade restrictive regulations, (2) to increase leverage, and (3) to remove liabilities from the books, all too familiar to all of us today.

Lagging Regulations – just like the regulatory environment lagged the events of the 1920s and regulations were introduced only after the Great Depression had obliterated the U.S. financial system, so we are yet to see new regulations addressing the causes of the current crisis. Understandably, regulations should have foreseen today’s financial problems and should have been introduced before the crisis.

Market Ideology – back in the 1920s, just like in the last two decades, the market ideology of “laissez faire”, which Soros quite appropriately described as “Market Fundamentalism”, has swept the financial markets. Of course, the free market knows the best, but the reality is that the money market is not really free – when the Fed determines the cost of money (interest rates), and can fix this cost for as long as it wants, then all sorts of financial imbalances can be sustained without the discipline imposed by the market. This can lead to all sorts of problems that we actually have to face today.

Non-Transparency – back in the 1930s, it was widely recognized that businesses and especially financial institutions lacked transparency, which allowed for the accumulation of significant imbalances and abuses. Today, financial markets and institutions have intentionally compromised transparency in a number of ingenious, or better disingenuous, accounting trickeries and financial gimmicks, like off-balance-sheet entities (SIVs), hard-to-understand derivatives, and opaque instruments with mind-boggling complexity. Today CEOs and Chief Risk Officers of major financial institutions cannot figure out their own risk exposures. Originally, lack of transparency was designed to fool the markets; ironically, modern-day financial executives have gotten to the point of fooling themselves.
Worse than the Great Depression

So, why Worse Than The Great Depression? What makes me believe that the current depression will be worse than the Great Depression? I present six of the most important fundamentals that are “baked in the cake” and that suggest of a Greater Depression.

Overvalued Real Estate. The real estate market has been driven by a number of innovations in real estate finance. Overvaluation in real estate implies overvaluation in real estate financial instruments; an implosion of real estate prices implies an implosion in those instruments. It is widely recognized by economists that the Case-Shiller Index is a good proxy for the prices of real estate. A widely-recognized chart from 1890 to 2007 tells the story. The chart makes it crystal clear that the current overvaluation of real estate in real terms grossly exceeds the one during the 1920s. The coming correction in real estate will be protracted and gut-wrenching, with an expected cumulative effect that is much worse than the Great Depression.

Total U.S. Credit. Credit makes leverage: the more credit in the financial system, the more leveraged it is. Today’s total U.S. credit relative to GDP has surpassed significantly the levels preceding the Great Depression. Back then, the total amount of credit in the financial system almost reached an astonishing 250% of GDP. Using the same metric today, the debt level in the U.S. financial system surpassed 350% in 2008, while the level in 1982 was “only” 130%. As Charles Dumas from Lombard Street Research put it quite aptly, "we've had a 30-year leveraging up of America, ending in an unchecked orgy."

The chart below shows a dramatic buildup of debt (leverage) in the 1920s and a deleveraging from 1930 to 1945 (or 1952). Then it shows a consistent buildup of debt afterwards, with a dramatic rise since the 1990s, and surpassing in 2000 the previous peak in 1929. The chart shows the level of 299% at the end of 2005, but the level has already reached 350% by 2008.

Of course, leveraging, as already indicated above, must necessarily be followed by deleveraging.

The best way to think about leverage is to compare it with using drugs, while deleveraging is like detox. The problem is not that the detox is killing the patient who has abused drugs for years; what is really killing the patient is the drug abuse itself. However, one thing is clear – the patient must either go through a painful detox or die; the same applies for the financial system – it must either deleverage or implode.

Explosion of Derivatives. Derivatives have been likened by Warren Buffet to “financial weapons of mass destruction”. The notional amount of total derivatives, as well as “Value at Risk” (VaR), has skyrocketed in recent years with the potential to destabilize the financial system for decades. To put it more allegorically, derivatives hang like a sword of Damocles over the financial system.

A comparison with the 1920s is difficult to make. mostly Derivatives back then were extensively used, although not widely understood. Given that I am not aware of any statistics of derivatives for the period of the 1920s, a meaningful comparison based on hard data is admittedly impossible. Nevertheless, I would venture to make an intelligent guess that the size of modern-day derivatives is hundreds or even thousands of times larger relative to the size of the economy in comparison to the 1920s. Some of the latest reports indicate that the total notional value of derivatives outstanding surpasses one quadrillion dollars. To put this into perspective, this amounts to almost 100 times the GDP of the U.S. economy.

The chart below shows the explosion of derivatives in the U.S. banking system. You can see that in 1991 the notional value of the derivatives was about the size of the U.S. GDP. By 2006 the size has grown to about 10 times the GDP, vastly outgrowing the real economy.

The chart below shows an even more telling picture. It shows world GDP and world’s notional value of derivatives. Again, while there is no direct comparison with the 1920s, it is clear that the overall level of derivatives has skyrocketed during the last two decades and presents risks that were simply not present at the onset of the Great Depression. The unwinding of these derivatives could only be compared with a nuclear explosion in the financial system.

Dow-Gold Ratio. The Dow-Gold ratio represents the most important ratio between the relative prices of financial assets and real assets. The Dow component represents the valuation of financial assets; the gold component – of real assets. When leverage in the financial system increases significantly, so does this ratio. A very high ratio is interpreted as an imbalance between financial and real assets – financial assets are grossly overvalued, while real assets are grossly undervalued. It also implies that a correction eventually will be necessary – either through deflation, which implies deleveraging and a collapsing stock market, or through inflation, which implies stagnant stock market for many years and steadily rising prices of real assets, commodities, and gold, usually associated with stagnant economy and typically resulting in stagflation. The first case—deflation—occurred during the 1930s, while the second case—stagflation—occurred during the 1970s.

The graph below illustrates the above concepts. The very high Dow-Gold Ratio in 1929 was followed by the Great Depression, while the higher level in 1966 was followed by the stagflationary 70s. It is evident from the chart the peak in 2000 surpassed the previous two peaks in 1929 and 1966, so this provides a reasonable expectation that the forthcoming return to “normalcy” will be more painful than the Great Depression, at least in terms of cumulative pain over the next 10-15 years.

Global Bubbles. It is impossible to make direct comparison with the 1920s, but today the global economy is rife with bubbles. Back then in the 1920s, the U.S. had its stock and real estate bubbles, while the European economies were struggling to rebuild from the devastations of WW1 that ended in 1919. I am personally not aware of any other bubbles during this period, although I welcome reader feedback on this topic.

Today the picture is very different. The U.S. economy had a stock market and real estate bubble that has surpassed its own during the 1920s. Colossal US current account deficits have fuelled extraordinary growth in global monetary reserves. As a result, Europe has real estate bubbles across the board, from the U.K. and Ireland, throughout the Mediterranean (Spain, France, Italy and Greece), to the entire Baltic region (Latvia, Lithuania, and Estonia) and the Balkans (Romaina and Bulgaria). Even worse, many Asian countries (China, Korea, etc.) also have their own stock and property bubbles, only with the exception of Japan, which is still in the process of recovering from its own during the 1980s. Thus, during the 1920s only the U.S. suffered from gross financial imbalances, while today the imbalances have engulfed the whole world – both developed and developing. It stands to reason that the unwinding of those global imbalances is likely to be more painful today than it was during the Great Depression due to both size and scope.

Collapsing Bretton Woods II. The global monetary system was on a quasi-gold standard during the 1920s. Back then dollars and pounds were convertible to gold, while all other currencies were convertible to dollars and pounds. An appropriate way to think about it is that of a precursor to the Bretton Woods from 1945-1971. What is important to understand is that while the system was fiat in nature, gold imposed significant limitations to credit expansion and leveraging.

Somewhat similar was the role of Bretton Woods that lasted from 1945 to 1971. The dollar was tied to gold, while all other fiat currencies were tied to the dollar. Just like the interwar period, gold imposed some limitations on credit and financial imbalances.

We now live in what has been termed Bretton Woods II. Essentially, this is a pure fiat dollar standard, where all currencies are convertible to dollars, either at fixed or floating exchange rates, while the dollar itself is convertible to “nothing”. Thus, the dollar has no limitations imposed to it by gold, so without the discipline of gold, the current global monetary system has accumulated significantly more imbalances than ever before in modern capitalism. These imbalances show up in the international monetary system as unsustainable trade deficits (and surpluses), skyrocketing official dollar reserves in some European and many Asian central banks, and the proliferation of Sovereign Wealth Funds; more generally, these imbalances result in a myriad of bubbles, overleveraging, and other maladjustments already discussed above.

Today Bretton Woods II is in the process of disintegration. The world is slowly but steadily losing its confidence in the dollar as the world reserve currency. A flight from the dollar is in progress and the collapse of the global monetary system is imminent. As Bretton Woods II disintegrates and a new system replaces it, the process of readjustment will be necessarily more painful than the respective process during the Great Depression.

A caution on terminology is necessary here. While the literature over the last 10-20 years has widely recognized the term “Bretton Woods II”, in September-October of 2008 the term was widely used by the media to describe a proposed international summit with the goal of reconstructing a new international monetary system designed from scratch, just like “Bretton Woods”. Instantly dubbed by the media “Bretton Woods II”, this term could be potentially very confusing as it could mean very different things to different people. The interested reader should consult Wikipedia’s Bretton Woods II where both meanings are explained in detail.

Conclusion

Since August of 2007 we have witnessed the relentless escalation of the credit crisis: a steady constriction of credit markets, starting with subprime mortgage-backed securities, spreading to commercial paper, then to interbank credit, and then to CDOs, CLOs, jumbo mortgages, home equity lines of credit, LBOs and private equity markets, and then generally to the bond and securities markets.

While the media describes the problem as one of illiquidity and confidence, a more serious analysis indicates that boom-time credit has been employed unproductively and so losses must be incurred. In other words, scarce capital has been misallocated, poorly invested, and effectively wasted. No amount of monetary or fiscal policy can fix the errors of the past, just like no modern treatment can quickly restore to health a drug addict debilitated from a decade-long drug abuse.

Based on indicators like (1) global real estate overvaluation, (2) indebtedness, (3) leverage, (4) outstanding derivatives, (5) global bubbles, and (6) the precariousness of the global monetary system, I would argue that the accumulated imbalances in the current period surpass significantly those preceding the Great Depression. I therefore conclude that the coming U.S. (and possibly) global depression will be of greater magnitude than the Great Depression of the 1930s. It likely suggests that we are entering a historic period that will likely be known as The Greater Depression.

Investor beware! Only gold can protect you from the ravages of another Depression!




RE: LaRouche - Admin - 02-08-2009

ENOUGH BAD BANKS; WE NEED GOOD ONES IN A NEW SYSTEM
John Hoefle
http://www.larouchepub.com/other/2009/3605need_good_banks.html


We have said, repeatedly, that the attempts to bail out the global banking system, including the U.S. banks, are not working, will not work, and can not work. Not only will they not restore the banking system to solvency, but they are actually making the economic crisis worse.

There are several problems with the bailout process. One is that the global financial system, with its quadrillion dollars-plus derivatives bets and hundreds of trillions of dollars of worthless securities and unpayable debts, is hopelessly insolvent. This is, and has been from the beginning, a full-blown banking crisis; the widely touted "subprime crisis" and "credit crunch" were marketing slogans created for the purpose of hiding the true nature of the problem, and positioning the banks to lobby for a public bailout under the guise of protecting the so-called "little guy."

The more fundamental problem is that it is not the financial system which is killing us, but the collapse of the physical economy, that system of infrastructure and productive activity upon which human life depends. Financial systems come and go, but the pain of their passing is nothing compared to the damage to humanity which results from the collapse of the physical economy.

It is said, over and over as if it were some sort of spiritual mantra, that we must save the banking system to save the economy. That is both true and false at the same time. True, because an economy needs a banking system to serve as an intermediary for the distribution of credit. False, because what the bailouts are attempting to save is not that sort of banking system at all, but a giant speculative casino which should have been shut down long before it blew up. The resources which are being thrown down the bailout rathole would be far better used in rebuilding our physical plant.

The discussions now underway in the political and financial capitals about escalating the bailout schemes through the nationalization of banks, the creation of "bad banks," and government purchases of worthless paper, are proof that the bailouts have failed. What are we left with? Accelerating job losses, deepening government budget deficits at all levels, rising levels of home foreclosures, and corporate and personal bankruptcies. The more we expand the bailout schemes, the more money we suck out of a failing physical economy, and the more it collapses. The bailouts are not only incompetent from an economic standpoint and criminal from a social one, they are also destroying the economic structures upon which our very lives depend.

We have enough bad banks. What we need are some good ones.

Fix the Problem
The global economy is unsustainable in its current state. It requires an immediate boost in economic activity. That means we must launch an immediate program to build infrastructure, both nationally and internationally, from mundane projects, such as building and repairing sewer systems, to great projects such as an intercontinental maglev rail network. It means building state-of-the-art nuclear power plants to generate the electricity we need to power the increased economic activity, new steel plants to produce the steel we need, and a greatly expanded machine-tool sector to build the machines we need to build our new economy.

To accomplish that task requires a functioning credit system. We can not simply close all the insolvent banks, clean them up, and feed them back into a banking system which does not work. We must fix the banking system, itself, first. That means putting not only the banks, but the Federal Reserve System, through bankruptcy. We must put the Federal Reserve down.

The method by which this can be done is based on the approach laid out by Lyndon LaRouche in his Homeowners and Bank Protection Act. We close the banks, put all the speculative crap off to the side, to be dealt with later, and reorganize the banks into regulated, functioning entities. Then we take the Federal Reserve, do the same with it, and reorganize its necessary functions into a new version of Alexander Hamilton's Bank of the United States.

At the same time that we freeze the speculative paper, we declare a moratorium on home foreclosures so that people don't lose their homes while we reorganize the economy. We take steps to make sure that essential services such as health care, education, public safety, and similar activities are maintained—that the electricity stays on, the grocery stores stay stocked, and that people whose pensions were lost in the financial crash are protected. The principle is, do what is necessary to ensure the welfare of the population, while we deal with the mess the financiers have created, and rebuild our economy.

Credit System
The Anglo-Dutch imperial central banking system—the one that has died and whose rotting corpse is stinking up the joint—must be replaced with a global system based upon sovereign national credit. There is a vast difference between an oligarchic central banking system and a sovereign credit system, beginning with intent of the people who create them. The oligarchic system, in which the central banks are supposedly
"independent," is designed to allow the international financiers to control nations. This is what Mayer Amschel Rothschild had in mind when he said he cared not who made a country's laws, as long as he could control its money. The sovereign credit system, in contrast, was designed by Alexander Hamilton to free the nation from such imperial predations.

Under the Hamiltonian American System, as outlined in our Constitution, the Congress authorizes the issuance of credit for specific purposes such as infrastructure projects, and the Treasury handles the distribution of the funds.

The Treasury will do so through a new Bank of the United States, which will act as a intermediary between the Treasury and the private sector, and other governments. The Bank will monetize Federal debt, and pass the government funds into the reorganized private banking system. The banks, in turn, as intermediaries, will distribute the credit to the private sector entities, which had been selected to carry out the projects authorized by Congress.

The Federal government will do what it does best, which is to run large-scale infrastructure projects, while providing credit through the national bank to the private companies who will rebuild our productive base. In this way, the balance between the proper roles of government and the private sector can be maintained, with the government helping create the environment in which the entrepreneurial talents of the private sector can be maximized.

Do It Now
There is no time like the present to implement such a program. The bankers and functionaries of the oligarchic system will howl, and raise the specter of great calamity, but their system is bankrupt, and so are they. Let them scream—they probably need the oxygen anyway.

The Obama Administration has the perfect opportunity to act, to cast out the failed policies of the Bush Administration and its Treasury Secretary, and to correct the damage done by Speaker of the House Nancy Pelosi's supporting the Bush bailout scam. The people are outraged at the bailouts, and will support a return to national sovereignty and productivity—if the President takes the lead in explaining the new policy.

The alternative is to watch the economy continue to collapse, leaving the people at the mercy of forces beyond their control. We cannot allow that to happen, and it need not happen, if our government acts.







The Global Financial Meltdown - Admin - 03-15-2009

HOW THE CURRENT FINANCIAL RESCUE SCHEMES ARE FOLLOWING THE FAILED MODEL OF THE HOOVER ADMINISTRATION

Ismael Hossein-zadeh
http://informationclearinghouse.info/article22079.htm

Faced with the financial meltdown of the Great Depression, the Hoover administration created the Reconstruction Finance Corporation that poured taxpayers’ money into the coffers of the influential Wall Street banks in an effort to save them from bankruptcy. Like today’s Bush/Obama administrations, the Hoover administration used the “too-big-to-fail” scare tactic in order to justify the costly looting of the national treasury. All it did, however, was to simply postpone the day of reckoning: almost all of the banks failed after nearly three years of extremely costly bailouts schemes.

In a similar fashion, when in the mid- to late-1990s major banks in Japan faced huge losses following the bursting of the real estate and loan-pushing bubble in that country, the Japanese government embarked on a costly rescue plan of the troubled banks in the hope of “creating liquidity” and “revitalizing credit markets.” The results of the bailout plan have likewise been disastrous, a disaster that has come to be known as “Japan’s lost decade.”

Despite these painful and costly experiences, the Bush/Obama administrations (along with the U.S. Congress) are following similarly ruinous solutions that are just as doomed to fail. This is not because these administrations’ economic policy makers are unaware of the failed policies of the past. It is rather because they too function under the influence of the same powerful special interests that doomed the bailout policies of the Hoover and Japanese governments: the potent banking interests.

Despite its complexity, the fraudulently obfuscated and evaded solution to the currently crippled financial markets is not due to a lack of expertise or specialized technical know-how, as often claimed by economic policy makers of the Bush/Obama administrations. It is rather due to a shameful lack of political will—the solution is primarily political.

Specifically, it is due to government’s unwillingness to do what needs to be done: to remove the smokescreen that is suffocating the financial markets, open the books of the insolvent mega banks, declare them bankrupt, as they actually are, auction off their assets, and bring them under public ownership—since taxpayers have already paid for their net assets many times over.

To put it even more bluntly, the deepening and protraction of the crisis is largely due to policy makers’ subservience to the interests of Wall Street gamblers—shirking their responsibility to protect people’s interests.

Saying that the solution to the current financial crisis is simpler than it appears is not meant to downplay or make light of the problem. It is, rather, to point out that Wall Street gamblers have made the solution relatively simple by digging their own grave, doomed themselves to bankruptcy, thereby leaving nationalization as the only logical or viable solution.

This is no longer simply a radical, leftist or socialist demand. It is now demanded by many economists and financial experts on purely pragmatic or expediency grounds. For example, Joseph Stiglitz, the 2001 recipient of Nobel Prize in economics and former Chief Economist of the World Bank, points out:

“The fact of the matter is, the banks are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster. Nationalization is the only answer. These banks are effectively bankrupt.”

Likewise, Mike Whitney, a very incisive Wall Street observer, writes:

“Most people who've been following the financial crisis know what needs to be done. It's no secret. The insolvent banks have to be nationalized. They have to be taken over by the FDIC, the shareholders have to be wiped out, bondholders have to take a haircut, management has to be replaced and the bad assets have to be written down. There's no point in throwing public money down a rathole just to keep zombie banks on life support.”

In Europe, which is similarly mired in a huge financial swamp, some policy makers are now openly calling for “Chapter 11” and/or nationalization solution. For example, in an article published in the 12 February 2009 edition of Corriere Della Sera, the Italian Economy Minister Giulio Tremonti calls for a bankruptcy reorganization of the insolvent financial institutions:

"If the crisis is not a liquidity but an insolvency crisis..., the medicine is not merging failed banks with other failed banks, it is not in the switch or swap between private and public debt, it is not in creating artificial, additional private demand. If you are doped, the remedy is not more dope. . . . Saving everything is a divine mission. If one thinks to save everything, through the last resort of governments, through public debts, you end up with saving nothing and at the end, you even lose public budgets.”

As noted earlier, partisans of “bailout-the-banks-at-any-cost” use the “too-big-to-fail” scare tactic in order to justify trillions of giveaway bailout dollars. Disingenuously used for nearly 20 months since the financial bubble exploded in mid 2007, this rationale is now totally discredited, as the fraudulently shifting schemes of rescuing the insolvent banks have proven both ineffectual and dangerously costly—not only in terms of hollowing out our national treasury and condemning us to bankruptcy, but also in terms of further prolonging and deepening of the crisis.

Another bogus rationale for the shifting schemes of the bailout scam, according to its champions, is that “this is an altogether new and very complicated crisis.” Accordingly, they claim that “while we are committed to finding a solution, it will take a long time before we see a market turnaround because it is an unprecedented problem and may, therefore, involve lots of learning by doing”!

It is hard to say which is worse: (1) this is a sincere argument, that is, they are genuinely committed to finding a solution based on national interests but have not yet come up with one; or (2) they are disingenuous, and are deliberately engaged in obfuscating issues and confusing the people in order to protect the interests of Wall Street financial gamblers at the expense of national interests.

If they are right in their claim that they are genuinely committed to finding a solution based on national interests but have not yet found one (after nearly 20 months), then it is safe to say that they are a bunch of incompetent knotheads who are totally ignorant of the theoretical foundations and empirical lessons of bank failures and/or bank nationalizations, and should, therefore, not be at the helm of our economic decision-making apparatus. But if their argument is disingenuous, then they are playing politics with our national interests in order to serve special interests—a case of crime and punishment.

There are good reasons, however, to believe that the confusion and uncertainty that the Bush/Obama team of economic experts has created in the financial markets is largely due to these experts’ misplaced priorities and allegiance, not their “sincere but unsuccessful” efforts. It is a problem of having some huge elephants in our nation’s financial policy-making room. Mike Whitney aptly calls Treasury Secretary Tim Geithner “a Trojan Horse for the banking oligarchs”:

“The banking lobby has already set the agenda. All the hoopla about ‘financial rescue’ is just a smokescreen to hide the fact that the same scofflaws who ripped off investors for zillions of dollars are back for their next big sting; a quick vacuuming of the public till to save themselves from bankruptcy. It's a joke. Obama floated into office on a wave of Wall Street campaign contributions and now it's payback time. Prepare to get fleeced. Geithner is fine-tuning a ‘public-private’ partnership for his buddies so they can keep their fiefdom intact while shifting trillions of dollars of toxic assets onto the people's balance sheet. They've affixed themselves to Treasury like scabs on a leper. Geithner is ‘their guy,’ a Trojan horse for the banking oligarchs. He's already admitted that his main goal is to, ‘keep the banks in private hands.’ That says it all, doesn't it?”

Timothy Geithner, Henry Paulson, Ben Bernanke, Larry Summers, and their cohorts at the helm of the Bush/Obama financial decision making machine are very smart individuals. They are among top Wall Street masterminds. The problem is that, at the core, they are committed, first and foremost, to protecting the interests of Wall Street financial giants. Indeed, it is safe to say that they are disguised lobbyists of those financial firms. No matter how hard they try to camouflage their bailout schemes, or how many different names they use for those schemes, their starting point is always protection of the insolvent banks.

Just note the fact that while they have changed the name of their bailout scam a number of times, the primary objective has not changed. The initial bailout plan, which announced the giving away of $700 billion dollars of taxpayers’ money, was called Troubled Assets Rescue Plan (TARP).

Half way through TARP, that is, when it became clear that Wall Street gamblers were simply grabbing TARP money and hoarding it, Bush’s Treasury Secretary Henry Paulson repackaged the scheme and renamed it as taxpayers’ investment or purchase of “preferred shares of troubled institutions.” In plain language, this simply means paying “cash for trash,” as Michael Hudson, former Wall Street economist and Distinguished Research Professor at University of Missouri (Kansas City), aptly puts it. Furthermore, owning “preferred shares” of a bank means not having a say or an input in the control or management of the bank—that is, ownership without control.

As the American people have gradually become aware of and resistant to these fraudulent rescue plans, the schemers have become more cunning: they have now labeled the latest version of the bailout scam “private-public” investment partnership.

This “private-public” partnership scheme, as formally announced by the new Treasury Secretary Timothy Geithner on 10 February 2009, is designed to accomplish two things: first, to justify the giving away of the remainder of the TARP money; second, to pave the way for additional bailout giveaways—purportedly to the tune of $2.5 trillion.

Formally, the “private” component in this so-called partnership investment means that hedge funds, private equity funds, and investment banks would now join the government in purchasing the toxic assets of the troubled banks. While this is designed to show that “private participation” in the rescue scheme would diminish the need for public money and, accordingly, reduce taxpayers’ burden, in reality, it would not; because the projected private investment is conditioned upon public funding and/or guarantees of that investment. In other words, the so-called private participation in the bailout scam is essentially a roundabout way of public funding of the scam.

To camouflage this pile of dirt, as well as to underhandedly pave the way for asking additional $2.5 trillion of public money for Wall Street’s zombie banks, was bound to make the “private-public” partnership scheme vague and unpersuasive. Not surprisingly, the moment Geithner announced the plan the market stampeded, as investors clearly saw right through the gaping holes of the Machiavellian plan—by the time Geithner was done with his press conference, the Dow Jones stocks fell 382 points.


A government “of the people, by the people, for the people” would start from the goal of finding a solution to the financial crisis that is based on national interests, and then would look at the implications of such a solution for the insolvent banks. Instead, the Bush/Obama administrations start from the objective of saving the insolvent banks, and then look for a “solution” that would accommodate this objective!

When asked why he was selecting an economic team of neoliberal economists who played critical roles in bringing about the current financial meltdown, President Obama gave a most bogus, obfuscating and, uncharacteristically stupid, reason: “I have to choose from the pool of experts who know how financial markets work.”

Yes, Mr. President, they certainly know how Wall Street financial giants work. The problem is that they are disguised lobbyists of those financial giants.

There is strong evidence that not only does President Obama’s team of economic advisors owe their professional advancement to the Wall Street cartel of financial firms, but also the President himself is greatly indebted to the cartel for its behind-the-scene promotion of his presidential candidacy, and for their generous contributions to his campaign. Contrary to Barack Obama’s claim that his campaign was not funded by Washington lobbyists, Evidence shows that the campaign “received over $10 million in contributions from Wall Street, the largest contributors by far.”

According to Pam Martin, a Wall Street veteran of 21 years and now an investigative reporter, the top seven donors to Obama’s campaign were Wall Street financial giants. These seven (in order of money given) were:

“Goldman Sachs, UBS AG, Lehman Brothers, JP Morgan Chase, Citigroup, Morgan Stanley and Credit Suisse. There is also a large hedge fund, Citadel Investment Group, which is a major source of fee income to Wall Street. There are five large corporate law firms that are also registered lobbyists; and one is a corporate law firm that is no longer a registered lobbyist but does legal work for Wall Street. The cumula­tive total of these 14 contributors through February 1, 2008, was $2,872,128, and we're still in the primary season.”

Political and/or policy implications for the American people are clear: Wake up before it is too late.

If this sounds conceited or condescending, I apologize. I have no doubts that the people will eventually wake up to the tremors of this brutal economic crisis—as many who have lost their jobs and their homes already have. The important thing, however, is to wake up now; to wake up before it is too late—before the rapidly gaping cracks in our economy turn it into a sinking Titanic.

It is time to wake up now before Wall Street Financial Giants and their government—yes, it is primarily their government—destroy our economy and bankrupt our nation in their reckless commitment to rescue financial zombie firms at any price.

There is, however, no reasonable price that can rescue the insolvent Wall Street gamblers; they have simply accumulated too much bad debt to be bailed out. The only price seems to be the further hollowing out of our treasury, the mortgaging of our (and our children’s) future, the worsening and prolonging of the crisis and, ultimately, the complete breakdown of our economy—and very likely of the entire world.

So, once again, it is time to rise up before it is too late; to rise up and demand (not beg or appeal to politicians, which has been proven to be futile) people’s rightful ownership of the insolvent banks, as we have already paid for their net assets many times over.

It is equally important to demand nationalization of the Federal Reserve Bank (just as central banks are publicly-owned in most countries of the world). There is absolutely no reason for a private entity (called the Federal Reserve Bank) to be in charge of the indisputably most important national economic decision-making: creation, control and management of the nation’s money. It is utterly preposterous for the government to have granted a private bank the right to print our money, and then borrow it back from the bank at interest! (Interest payment on national debt is the third largest item, after military spending and Social Security outlays, in the Federal budget.)

Once the all-important task of money creation is brought under public control, and the insolvent Wall Street zombie banks are nationalized, the government can then use the publicly-owned banks and issue loans at reasonable rates, thereby unfreezing credit markets and rekindling investment and economic activity.


Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism, teaches economics at Drake University, Des Moines, Iowa.




Global Financial Meltdown - Admin - 03-15-2009

THE ECONOMIC OUTLOOK : 2012 AND BEYOND

Dr. Abbas Bakhtiar
http://informationclearinghouse.info/article22076.htm

The worst is not; So long as we can say, "This is the worst."  William Shakespeare

It is said that today is pregnant with tomorrow. What and how we have done things in the past has shaped out today and what and how we do things today determine the shape of our future. To see into the future of our economies, with some small degree of certainty, we have to pay attention to what is happening around us and what we do.

But to get an idea of how the future will be, one has to have a real picture of the present. This is important since a false picture will present us with false alternatives, on which we act  which in turn will result in unexpected outcomes (i.e., future that we are not prepared for).

It is not always easy to see through all the false pictures and data that we are constantly presented with. For example, in Norway on February 18th, the real-estate association came out with the statement that the housing crisis was almost over and the bottom was reached. This was plastered all over the place. Next day on February 19 th, the Norwegian Centre for Statistics came out with its own forecast; stating that house prices will continue to fall for the next year and that situation will deteriorate further.

It was clear to some of us that the real-estate association was putting out false information to drum-up business for its members. But if banks, industrialists, and even politicians also send out false and misleading information, then the average person will make decisions that may be contrary to his or her best interests.

Most of us do not have the time, energy, or even the necessary knowledge to gather and sift through large amount of data. We rely on news media, and the experts to make most of our decisions. Until last year, very few people were talking about the tremendous crisis that was well under way; even though as early as 2006, there were clear signs that the economy was under tremendous pressure.

In this article I will try to provide you with a picture of the present situation and then try to extrapolate based on the current policies adopted by various governments, what the near future will look like.

The current economic situation  

Let me tell you in no uncertain terms that we are facing a synchronised global economic depression and I am not the only one that is saying this. In early February, the International Monetary Fund’s chief Dominique Strauss-Kahn said the world's advanced economies -- the U.S., Western Europe and Japan -- are "already in depression”. Gordon Brown, the UK’s Prime Minister also used the word "depression" to describe the global economy, although his aides quickly said it was a slip of the tongue.

The politicians and others of course avoid using the term “depression” for fear of creating a panic; instead they use terms such as “severe recession” or “one of the most serious financial crises since the great depression”, etc. But they all are saying the same thing, we are in a depression and all the available data support this. An important fact to remember is that this depression is synchronised and this synchronicity has been made possible by the globalization and accompanying deregulation; the very things that were making workers poorer and the rich, richer.

Now the chickens have come home to roost. All economies are now suffering. Such promising economies as Iceland’s saw its GDP shrink by 10%, while the success show case of Europe, Ireland, had its GDP shrink by 6%. Germany, the euro zone’s biggest economy shrank by 2.1% in the three months to December, seconded by Italy, which suffered a 1.8% drop in GDP. The French economy also contracted by 1.2% while IMF put Spain on its vulnerable list. UK ‘s GDP has also suffered and is forecasted to contract by 3.5% in 2009.

The misery list includes most of the Eastern European countries as well with some such as Ukraine set to experience severe contraction. According to IMF Ukraine’s GDP will shrink by 8 to 10% in 2009.  The Russian economic growth is also set to fall. According to the Russian Deputy Economic Development Minister Andrei Klepach the forecast for the Russian economy has worsened to a 2.2-percent contraction in GDP.  

Japan’s economy, the second largest in the world, contracted by 12.7 per cent on a seasonally adjusted annualised basis in the fourth quarter and is set to contract by. According to the Taiwanese government, Taiwan’s GDP will shrink by 3% in 2009.  Another big economy in Asia is Korea. According to S&P sovereign ratings, Asia's fourth-largest economy will contract by about 3.5 percent this year.  All other South East Asian economies are reporting severe slow down or outright contraction except China.

According to National Bureau of Statistics of China, by comparing the fourth quarter 2007 to that of the fourth quarter 2008, China had achieved a 6.8 percent growth in 2008. However, many believe that this figure is misleading and that the Chinese are hiding the extent of the economic contraction of its economy. They point out that energy consumption in China has substantially been reduced. This could not have happened without a marked slowing down of the economy.

According to the article published in The Epoch Times (17 Feb 09) “Economists at the Standard Chartered Bank estimate China’s growth rate to be around 1 percent.  Morgan Stanley analysts estimate it to be at 1.5 percent. This is much lower than the CCP reported 15 percent for the first quarter of 2007. According to economists at Merrill Lynch, the sequential growth rate of fourth quarter of 2008 was zero percent.”

Middle Eastern countries have also been severely affected by the financial crisis. The revenue from their major source of income, oil, has fallen at an incredible rate. Oil prices that were around 120 to 140 dollars last year have come down to around 30 to 40 dollars this year. Every country has slashed its expenditure with the accompanying slowing growth. For example recently UAE was forced to halt construction projects worth $582 billion or fully 45% of all projects. A recent report in New York Times (11th Feb. 09) paints a grim picture of the situation in Dubai. The report states that ” with Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills)”. Iranians, Saudis, Iraqis, Kuwaitis and others have also been forced to slow down or freeze many projects. One must not forget that many of these countries’ petro-dollars are re-circulated back into the US and European economies. Those funds are drying-up fast.

Turkey sitting between the Europe and Middle East is also suffering. Turkey has the largest GDP in the Islamic world. Turkey's GDP was 750 billion in 2008, the GDP of Saudi Arabia was 600 billion dollar for the same period. A once dynamic economy is now negotiating with IMF for help.  

Having surveyed most of the economic landscape of Europe and Asia, we can now look at the world largest economy, the US. The US economy is in a terrible shape, with all sectors going through severe depression. Housing market has completely collapsed. The auto industry is going bankrupt. The banking sector is alive only by the grace of the government handouts. The entertainment industry (TV and film industry excluded) is facing severe problems and unemployment is increasing rapidly. The Federal Reserves’ forecast for 2009 shows a contraction of 0.5 to 1.3 percent of the GDP with official unemployment rising to 8.5 or 8.8 percent. Here one should note that this official unemployment rate does not present a true picture, since all those who give-up registering with the unemployment office or are barely working (part-time workers, etc) are not counted as unemployed.

The missing engine of growth

Before we look at the future development we have to remember that there are four factors that power an economy: consumers, investors, government, and a favourable trade balance. Some economies such as China rely on favourable trade balance and Foreign Direct Investment (FDI) for their growth. For example according to the Chinese Ministry of Commerce, from 1990 to 2007, China received $748.4 billion in FDI. At the same time, since its economic liberalization, China has recorded consistent trade surpluses with the world.  For example China has registered trade surpluses of $102 billion for 2005, $177.47 billion for 2006, $262.2 billion for 2007, and $295.47 billion for 2008.  China currently has accumulated nearly two trillion dollars in foreign exchange reserves.

In contrast to the China, the United States has relied on consumers and the government for its growth. According to Peter G. Gosselin citing Roach of Morgan Stanley Asia, U.S. consumers constitute only about 4.5% of the global population, yet they bought more than $10 trillion worth of goods and services last year. In contrast the Chinese and Indian consumers combined which account for 40% of the global population bought only $3 trillion worth. He goes on to point out that according to government statistics, from 2001 to 2007, U.S. consumer spending shot up from a little over 73% of the economy to nearly 77%.

If we just look at the differences in consumption levels between US and China-India, we’ll see that these countries are not in a position or have the financial resources to pick-up the slack left by the US consumers. Anyway, China’s growth is based on its exports and the FDI and not its consumers. When the international market shrinks, the Chinese will see (as they do now) a sharp drop in their actual growth. If they try hard they may be able to keep their people’s standard of living at its current level (highly unlikely); but they will be unable to increase consumption. Anyway, according to the Bloomberg (19 January 09), the Chinese unemployment rate has jumped to its 30 year high and will most likely increase further.

How about Japan? Japan also started its economic miracle by export-led growth. Japan saved hard, and worked hard to become one of the largest economies in the world. However, the bursting of the housing bubble of 1990-91 started a deflationary period that Japan never really recovered from.

If we look at the Consumer Price Indexes (CPI) for Japan, the U.S., and the Euro Area from 1999 to 2006, with 1999 being the base (100), we’ll see that by 2006, the CPI index for US was 122.8, 118.5 for EU and 97.7 for Japan. This shows that until 2006 Japan was still in the grip of deflation.

Add to this the recent financial crisis and you’ll see that Japan is once again entering another deflationary period. In deflationary periods, consumers spend less and try to save more. The fear of losing one’s job, the psychology of ever decreasing prices, and general feeling of doom act against free spending by the consumers. One should also understand that  Japanese consumers are reluctant to spend like their American counterparts. According to the available figures (2005), the Japanese consumption was only 55% of the GDP. Compare this to the American consumption of 77%. So the Japanese consumers cannot help either.

What about the EU? Euro zone consumers have a slightly better consumption rate than the Japanese. The consumption rate for Euro zone (2005) was 57% of the GDP. In addition the Euro zone is facing severe financial problems with many countries such as Spain, Ireland, Italy and others facing mounting debt and shrinking export market. Consumers already hit by the housing crisis, financial crisis and now the imminent unemployment crisis cannot be expected to start spending wildly.  

So who is going to take the position left vacant by the US and act as the world’s economic locomotive and pull the world out of the depression? The answer is no-one and everyone. US is clearly not able to do that much. As a matter of fact the US consumers have to get used to lower spending levels for at least a decade, if not for good.

According to Howard Davidowitz, chairman of Davidowitz & Associates, as quoted by Aaron Task in Yahoo Finance, American's standard of living is undergoing a "permanent change" - and not for the better as a result of:

•             An $8 trillion negative wealth effect from declining home values.

•             A $10 trillion negative wealth effect from weakened capital markets.

•             A $14 trillion consumer debt load amid "exploding unemployment", leading to "exploding bankruptcies."

"The average American used to be able to borrow to buy a home, send their kids to a good school [and] buy a car," Davidowitz says. "A lot of that is gone.

The diminishing wealth

Last year when the depth of financial crisis became apparent the US Feds started to aggressively cut interest rates, in the hope of reducing the severity of the crisis. Other countries specially the Europeans soon followed the Americans in cutting their interest rates. As the crisis spread to Asia and the Middle East, they also began to cut their interest rates. But soon it became apparent that this crisis was not like any they had seen since the great depression and simply cutting interest rates was not going to solve the problem.

To start with the housing market had collapsed completely leaving many banks holding worthless pieces of paper.  In addition, these papers were (partly) insured by many insurance and financial institutions that weren’t banks, but because of financial deregulations, had acted as banks. They were also hit by the bad mortgage problems. In short, all the financial institutions, banks, insurance companies and others were suddenly in trouble.

This hit the stock markets, with the shares of these institutions taking a nose dive. These institutions are extremely important for the economy. They provide the logistics for financial transactions. Any problem here affects all parts of the economy. So it was not a surprise to see that all normal financial transactions suddenly came to a halt, hitting other sectors of the economy. Share prices of all the affected sectors began to go down and with it the fortune of the share holders. To see the extent of the damage done one just has to look at how much various stock markets have fallen.

The following stock markets data was published by The Economist (21 Feb. 2009) which shows the extent of the fall since Dec 31st 2007:

US  (NAScomp)  - 44.7%, US (DJIA) -43%, US (S&P 500), Japan (Nikkei 225) -41.3%, China (SSEA) -55.1%, Hong Kong (Hang Seng) -52.9%, Canada (S&P TSX) -53%, Australia (All Ord.) -61%,  Britain (FTSE 100) -55.8%, Euro area (FTSE 100) – 59.5%, Euro area (DJ STQxx 50) – 58.7%, France (CAC 40) -56.1%, Germany (DAX) -55.3%, Greece (Athex comp) -73.7%, Italy (S&P/MIB) -63.1%, Netherlands (AEX) -60.4%, Norway (OSEAX) -64%, Denmark (OMXCB) -55.2%, Sweden (Aff.Gen) -57.7%, Russia (RTS, $ terms) -77.1%, Turkey (ISE) -70.3%,  India (BSE) -64.9%,  South Korea (KOSPI) -62.6%,  Taiwan (TWI) -50.5%, Brazil (BVSP) -53%, Argentina (MERV) -56%, Mexico (IPC) -52.9%, Venezuela (IBC) – 55.6%, Saudi Arabia (Tadawul) -56.8%, South Africa (JSE AS) – 54.1%.... WORLD  all (MSCI) -51.2%.

For people in general, shares act both as saving and investment. The average person buys share in hope of getting better return than the banks. It is also easy to get in and out of the market. The advancements in information and communication technologies, the costs of buying and selling have fallen steadily in the last decade. So now anyone with a computer can buy and sell shares. This ease of entry enticed an ever increasing number of ordinary people to enter the stock markets.

Now the people have been hit by three disasters. First they lost a lot of money in the housing market. This was both real and illusory. First they were hit with the housing crisis. Many have lost their homes or have seen the value of their homes depreciate heavily. Then they were hit with the collapse of the stock markets. Trillions of Dollars, Yens, Euros and Yuans have been wiped-out in a relatively a short time. Then many have lost their jobs and many are uncertain about the future job security. All these have had a tremendous impact on the consumers, forcing many to heavily reduce their consumption, which in turn have begun to affect businesses which in-turn are shedding workers to compensate for the loss of sales and revenues. This is a classical deflationary circle that feed on itself.

The governments’ response to this threat has been to stimulate the economy by pumping large sums of money into the economy. A decade ago, a hundred billion dollar was an astronomical sum. Today we don’t even bother to look at it twice. Today we talk of Trillions. A few hundred billions here and a few hundred billions there soon add up to a few nice trillions; especially the trillions that we don’t have.  

Now we face a classical problem: the increasing budget deficits. Exactly when the economy is contracting and tax receipts are falling, the government expenditure is rising rapidly. In addition, the governments are buying bad debts (US, UK, etc) and trying to spend more on whatever they can in order to arrest the increasing unemployment and stimulate the economy. These large sums have to come from somewhere. They can be borrowed or money can simply be printed. The problem is that some governments are opting for both.

The most important economy is of course the US economy. The US government under Bush spent close to one trillion dollars, and now the Obama administration is promising to spend trillions in the years to come to stimulate the economy. With official US debt now close to 11 trillion dollars and climbing fast, the situation is becoming untenable. According to treasurydirect.gov, last year (2008) US government paid $451 billion dollars interest on its debt. Add to this the Medicare and social security obligations and suddenly things look a lot worse than they appear.

So how can the US continue its deficit spending? By issuing treasury bonds and other security certificates of course. Both public and foreign governments buy these securities which are guaranteed by the US government. According to Reuters (February 18th 2009), foreign central banks alone held $1.76 trillion dollars in US treasuries. According to the same report “The combined holdings of Treasuries and agency securities by foreign central banks at the Fed totalled $2.573 trillion, up $11.223 billion”.

The coming inflation

So far the foreign governments and businesses have been willing to buy US debt, but with the current economic downturn things are beginning to change. According to New York Times, in the last 5 years China has spent as much as one-seventh of its entire economic output buying mostly American debt. However, with the sharp slowdown in its economy, China is finding it difficult to keep buying. China has also come-up with its own $600 billion stimulus plan. This along with the falling trade surplus and the falling tax receipt will make it exceedingly unlikely that China can keep financing part of the US government’s deficit spending. The same applies to other countries as well.  

So as the economic downturn continues we can see two things: the interest on US treasuries increase substantially to make it attractive and or printing money. Printing money is not so farfetched as many would like to believe. Already countries that cannot find willing lenders are resorting to this. A good example of this is UK. With the current plans to nationalise a few more banks (Lloyds and Royal Bank of Scotland), the UK national debt is set to surpass the £2.2 trillion pound mark. This is 150% of UK’s GDP.  It is not then surprising to see that the Bank of England voted unanimously earlier this month to seek consent from the government to start the process of quantitative easing by buying gilts and other securities. Quantitative easing means printing money. With interest rates at 1%, printing money is likely to increase inflation.

Already many governments find it difficult to cover their deficits. It is only a matter of time before they also begin to print money. It is especially appealing for the US government to do this since inflation means a real value reduction in debts. With mounting trade and budget deficit and decreasing tax receipts and the shrinking of the number of willing lenders, US government may not have any choice but to print money.

So far, all governments are reducing their interest rates to historic lows and at the same time spending a lot of money that they don’t have. It will take at least two more years for the economy to stabilise. Here we should note that by stabilise I mean an arrest in decline rather than outright growth. Once that point is reached we will begin to see the effects of the loose monetary policy: a tremendous rise in inflation which can be accompanied by low economic growth or in other words stagflation.

The fear of stagflation arises from the fact that from all indication, growth will not strengthen anytime soon. It is quite clear now that the US and to a large extent the European consumers have been hit hard by the current crisis. There is also the possibility that another banking crisis may still ensue such as the commercial real-estate mortgage defaults and above all the repetition of currency crisis (1997 Asian Financial Crisis). Already we see that China Japan, Korea and others are setting-up $120 billion currency defence fund to protect Asian currencies against speculative attacks.

The current economic crises have left many countries’ local banks with foreign currency loans that they find difficult to repay in that currency. This and the possibility of defaults have made these countries a good target for speculators. If such an attack starts, many countries will automatically have to devalue their currencies (even more than they already have) or try to defend their currencies. In either case this may trigger yet another crisis that may actually destroy a good portion of many economies around the world.

Even if we assume that no more nasty surprises will appear in the next two years and the economies stabilise, we are left with the reduced levels of consumption around the world, especially in major economies. As I have mentioned above, it is very clear that at least in US, the consumers are not going to recover anytime soon. I have also shown that the Chinese and Indian consumers cannot replace the US and European consumers. So there will be a dearth of market for the goods and services produced by others. In absence of US, the question will be: which country or countries are able to increase demand to such a degree as to trigger a recovery; a recovery that most likely will be accompanied with high inflation.

In 2006 in the article “the coming financial crisis”, I stated the following:

“At the end of the WWII, 45 nations gathered at a United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, to address the problems of reconstruction, monetary stability and exchange rates.

The delegates agreed to establish an international monetary system of convertible currencies, fixed exchange rates and free trade. To facilitate these objectives the delegates agreed to create two international institutes: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (the World Bank). An initial loan of $250 million to France in 1947 was the World Bank’s first act.

Since then there has already been considerable criticism of the roles of IMF and the World Bank. The above mentioned problems and the ongoing trade imbalance in the world have to be addressed by a similar gathering. Sooner or later, both the United States and the rest of the world have to address the existing problems. These problems are not the United States' alone. We cannot ignore the largest economy on earth. It is said that if United States sneezes, the world catches cold. We have to either make sure that the United States doesn’t catch cold or vaccinate ourselves against it.”

Once again I restate my earlier arguments: we need a new “Bretten Woods” agreement where we can address the existing problems and restructure the world’s economic system. If we don’t do this, and soon, we will face protectionism, low economic growth, and even trade wars. We have ignored this problem for a long time and are now paying the price. What would the price be if we continue to ignore the existing systemic problems?

Dr. Abbas Bakhtiar lives in Norway. He is a management consultant and a contributing writer for many online journals. He's a former associate professor of Nordland University, Norway. He can be contacted at : Bakhtiarspace-articles@yahoo.no
  
ECONOMIC FREEFALL: A BLESSING IN DISGUISE

http://informationclearinghouse.info/article22075.htm

Jon Ronnquist

One thing we should not overlook when taking in the impact of the current economic situation is that it is both inevitable and invaluable in equal measure. That there was no escaping the consequences we are now facing has been a well known fact among those in the know for many years. If anything, it is amazing that we have staved it off for so long. For this we have the hard working men and women of the real world to thank, who toiled on in the name of pride, dignity and responsibility until the burden of debt simply became to great to bear. A cursory understanding of the “pre-collapse” financial system and the inescapable debt trap it lays in the path of the majority who seek to survive within it, points clearly to the end we have now met. And while it is indeed tragic on an individual level, for the world at large this may well be a blessing of unprecedented proportions.  

As economies stagnate and the production level of superfluous commodities shrinks, so too does the havoc that this reeks on the environment through unsustainable consumption of natural resources and heavy pollution. Whether we like to admit it to ourselves or not, prior to this forced deceleration there was no real hope of any timely or significant solution to the problem. Nothing short of a decrease in demand was going to interfere with the reckless consumer frenzy and the deadly impact it was having on the planet we call home. We were borrowing the earth into oblivion and neither conscience nor understanding looked likely to force an end to it. To say that a million unemployed Chinese is a tragedy when their entire activity consisted of flooding the world with cheap useless toys, is exactly the kind of short sighted and blinkered view that got us into this mess in the first place.  

I suppose we could have waited for the oil to run out, and judging by the way we were prepared for the money to run out, it really would have been a case of oil one day and none the next. Luckily money, unlike oil, is relatively easy to replace or replenish. A savvy economist, of which there are sadly still none at the reigns, could reconstruct the monetary system in such a way as to make it more useful and user friendly than that which we are burdened with today.  

The real tragedies which loom on the horizon are the artificial cost this economic situation will have on the lives of real people and the dangerous possibility that we will not take advantage of this opportunity to restructure not only the monetary system, but the entire economy, its infrastructure, energy needs and sustainability.  

The plague has effectively run its course, run out of steam if you like. What we are faced with now is a genuine opportunity for convalescence. Even in this age of extensive corruption of government, this chance is surely not entirely lost. We can clearly see the old school fighting to hold on despite the impotency of their efforts to borrow the economy out of debt. This idea is so fundamentally flawed that it is hard to see how the effected populations stand by and watch as the new US administration sells their children and grandchildren to the Federal Reserve.  

The idea of printing more money has merits if done prudently and for the right reasons, but printing it as debt will of course only exacerbate the already hopeless situation. The fact that such a small percentage of the vast sums of money being printed into the US economy are pledged to creation and improvement of infrastructure is worrying.  

Taking the US as the example, the following course of action would seem prudent:

Pass legislation to safeguard all home owners against foreclosure and eviction on the grounds that human rights take precedence over all other concerns.

Introduce a “new” US dollar as a strictly national currency, not tied to any exchange rate mechanism other than to the “old” US dollar, with limitations.

Issue it from the Treasury, ignoring the Fed and existing banks, which can fend for themselves with the currency they have rendered worthless. Issue the new currency through state and local banks all under the direction of the US Treasury in the form of long-term interest free loans.

Issue loans to individuals and institutions producing essential goods and services (food, medicine, energy, etc) as a priority to stave of any humanitarian crisis. Where needed allow repayment in the forms of goods and services under federal and state programs for food, energy and medical aid.

Extend loans to individuals and institutions investing in green technology and to existing enterprises which are seeking to modernize and shift to the production of essential commodities.
Use the currency to invest directly into large scale infrastructure projects across the country on a scale sufficient to begin job creation on a level that will visibly turn around and then increase employment figures.

Make the new currency legal tender for the payment of debts and mortgages held in old currency at an exchange rate that realistically reflects fair value. This will force a transition and shift in property value without creating negative equity. Say for arguments sake one new to ten old. Private banks will clamour for new currency as it is the only one worth anything.

Legislate to ensure private banks in possession of new currency are barred from lending it under a fractional reserve system and cap interest rates on it’s lending to the public.

In proportion to an increase in domestic production, allow foreign holders of old dollar reserves to exchange them for new at the fixed rates of exchange and in limited quantities to guard against a resurrection of the US dollar becoming an instrument of international finance. Limit the amount of currency allowed to exist outside the US, ensuring the national economy can match the value existing with production capacity.
It may sound over simplistic and overoptimistic, but the basic idea is sound and I don’t see any other way of turning this crisis into a golden opportunity. There will be poverty and on a huge scale. That cannot now be avoided. But the question we must consider is whether or not we will allow that poverty to become a permanent fixture or a temporary inconvenience.
  




The Global Financial Meltdown - Admin - 03-24-2009

FINANCE CRISIS 'COULD LEAD TO WAR', IMF WARNS

Kirsty Walker
http://www.dailymail.co.uk/news/worldnews/article-1164273/Finance-crisis-lead-war-IMF-warns.html

Dire warning: Dominique Strauss-Kahn says the global economic crisis could push millions into poverty.

The global financial crisis could lead to social unrest and even war, the head of the International Monetary Fund warned yesterday.

Dominique Strauss-Kahn said that the billions already pumped into the world economy risked disappearing into thin air unless there is massive reform of the financial sector.

And he dealt a severe blow to Gordon Brown's plans for another debt-funded Budget giveaway by warning that the money might melt 'like snow in the sun'.

At a meeting of the International Labour Organisation, Mr Strauss-Kahn warned that the global economic crisis is 'dire' with the threat of millions being pushed into poverty.

The managing director of the global financial watchdog went on to warn governments against ploughing yet more fiscal stimulus into their ailing economies. He said: 'You can put in as much stimulus as you want.

'It will just melt in the sun as snow if at the same time you are not able to have a generally smaller financial sector than before but a healthy financial sector at work.'

The IMF has called on countries to pump 2 per cent of their gross domestic product into their economies in an attempt to reverse the global downturn.

Of the international situation, Mr Strauss-Kahn added: 'Bluntly the situation is dire. All this will affect dramatically unemployment and beyond unemployment for many countries it will be at the roots of social unrest, some threat to democracy, and maybe for some cases it can also end in war.'





RE: The Global Financial Meltdown - Admin - 03-27-2009

WAS THE BAILOUT ITSELF A SCAM?


Paul Craig Roberts
http://informationclearinghouse.info/article22248.htm

Professor Michael Hudson (CounterPunch, March 18) is correct that the orchestrated outrage over the $165 million AIG bonuses is a diversion from the thousand times greater theft from taxpayers of the approximately $200 billion “bailout” of AIG. Nevertheless, it is a diversion that serves an important purpose. It has taught an inattentive American public that the elites run the government in their own private interests.

Americans are angry that AIG executives are paying themselves millions of dollars in bonuses after having cost the taxpayers an exorbitant sum. Senator Charles Grassley put a proper face on the anger when he suggested that the AIG executives “follow the Japanese example and resign or go commit suicide.”

Yet, Obama’s White House economist, Larry Summers, on whose watch as Treasury Secretary in the Clinton administration financial deregulation got out of control, invoked the “sanctity of contracts” in defense of the AIG bonuses.

But the Obama administration does not regard other contracts as sacred. Specifically: labor unions had to agree to give-backs in order for the auto companies to obtain federal help; CNN reports that “Veterans Affairs Secretary Eric Shinseki confirmed Tuesday [March 10] that the Obama administration is considering a controversial plan to make veterans pay for treatment of service-related injuries with private insurance” [ http://www.cnn.com/2009/POLITICS/03/10/veterans.health.insurance/index.html ]; the Washington Post reports that the Obama team has set its sights on downsizing Social Security and Medicare.

According to the Post, Obama said that “it is impossible to separate the country’s financial ills from the long-term need to rein in health-care costs, stabilize Social Security and prevent the Medicare program from bankrupting the government.” [ http://www.washingtonpost.com/wp-dyn/content/article/2009/01/15/AR2009011504114.html ]

After Washington’s trillion dollar bank bailouts and trillion dollar gratuitous wars for the sake of the military industry’s profits and Israeli territorial expansion, there is no money for Social Security and Medicare.

The US government breaks its contracts with US citizens on a daily basis, but AIG’s bonus contracts are sacrosanct. The Social Security contract was broken when the government decided to tax 85% of the benefits. It was broken again when the Clinton administration rigged the inflation measure in order to beat retirees out of their cost-of-living adjustments. To have any real Medicare coverage, a person has to give up part of his Social Security check to pay Medicare Part B premium and then take out a private supplemental policy. The true cost of Medicare to beneficiaries is about $6,000 annually in premiums, plus deductibles and the Medicare tax if the person is still earning.

Treasury Secretary Geithner, the fox in charge of the hen house, has resolved the problem for us. He is going to withhold $165 million (the amount of the AIG bonuses) from the next taxpayer payment to AIG of $30,000 million. If someone handed you $30,000 dollars, would you mind if they held back $165?

PR flaks have rechristened the bonus payments “retention payments” necessary if AIG is to retain crucial employees. This lie was shot down by New York Attorney General Andrew Cuomo, who informed the House Committee on Financial Services that the payments went to members of AIG’s Financial Products subsidiary, “the unit of AIG that was principally responsible for the firm’s meltdown.” As for retention, Cuomo pointed out that ”numerous individuals who received large ‘retention’ bonuses are no longer at the firm” [ http://www.huffingtonpost.com/2009/03/17/cuomo-reveals-details-of_n_175865.html ].

Eliot Spitzer, the former New York Governor who was set-up in a sex scandal to prevent him investigating Wall Street’s financial gangsterism, pointed out on March 17 that the real scandal is the billions of taxpayer dollars paid to the counter-parties of AIG’s financial deals. These payments, Spitzer writes, [ http://www.slate.com/id/2213942/ ] are “a way to hide an enormous second round of cash to the same group that had received TARP money already.”

Goldman Sachs, for example, had already received a taxpayer cash infusion of $25 billion and was sitting on more than $100 billion in cash when the Wall Street firm received another $13 billion via the AIG bailout.

Moreover, in my opinion, most of the billions of dollars in AIG counter-party payments were unnecessary. They represent gravy paid to firms that had made risk-free bets, the non-payment of which constituted no threat to financial solvency.

Spitzer identifies a conflict of interest that could possibly be criminal self-dealing. According to reports, the AIG bailout decision involved Bush Treasury Secretary Henry Paulson, formerly of Goldman Sachs, Goldman Sachs CEO Lloyd Blankfein, Fed Chairman Ben Bernanke, and Timothy Geithner, former New York Federal Reserve president and currently Secretary of the Treasury. No doubt the incestuous relationships are the reason the original bailout deal had no oversight or transparency.

The Bush/Obama bailouts require serious investigation. Were these bailouts necessary, or were they a scam, like “weapons of mass destruction,” used to advance a private agenda behind a wall of fear? Recently I heard Harvard Law professor Elizabeth Warren, a member of a congressional bailout oversight panel, say on NPR that the US has far too many banks. Out of the financial crisis, she said, should come consolidation with the financial sector consisting of a few mega-banks. Was the whole point of the bailout to supply taxpayer money for a program of financial concentration?

JUDGEMENT DAY FOR GEITHNER

Mike Whitney

Whether he deserves it or not, Timothy Geithner has become the poster boy for everything that's wrong with the government's scatterbrain financial rescue plan. Geithner was in the wheelhouse at the New York Fed when Bear Stearns and Lehman Bros defaulted, and he played a central role in the $165 million AIG bonus scandal which ignited a populist firestorm across the country. Now everything even remotely connected to the bank bailout has become a source of fist-clinching rage. The mood of the country has darkened from the steady downpour of bad economic news, the sharp decline in housing prices and the steep rise in unemployment. People are angry at the government, the banks and Wall Street. Their nerves are frayed and their patience is stretched to the limit.

It is in this atmosphere of simmering public fury that Geithner will announce the details of his long-awaited plan for removing up to $1 trillion of toxic assets from the balance sheets of some of the country's biggest banks. Information about Geithner's "Public-Private Partnership" and the so called Term Asset-Backed Securities Loan Facility (TALF) has been spotty so far, but enough is known about the plan to predict that it will likely be the noose into which Geithner thrusts his scrawny neck bringing his dismal career at Treasury to a end. The country will not endure another pretentious-sounding banker-friendly flim flam, which is precisely what Geithner has in mind.

According to the Associated Press:

"Officials said Geithner’s plan will have three major parts. One part will be an effort Geithner spoke about last month - the creation of a public-private partnership to back purchases of bad assets by private investors... Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up with government funds.

A second part of the plan will expand a recently launched program being run by the Federal Reserve called the Term Asset-Backed Securities Loan Facility, or TALF.

That program is providing loans for investors to buy assets backed by consumer debt in an effort to make it easier for consumers to get auto, student and credit card loans. Under Geithner’s proposal, this program would be expanded to support investors’ purchases of banks’ toxic assets.

The third part of the Geithner plan would utilize the resources of the FDIC, the agency that guarantees bank deposits, to purchase toxic assets. Officials said that the FDIC will create special purpose investment partnerships and then lend those partnerships money so that they can buy up troubled assets." (AP)

Why in heaven's name would Shiela Bair attach her good name to Treasury's latest bunko-scam? As Bair undoubtedly knows, the main objective of the Public-Private Partnership and TALF is to provide inflated prices for garbage assets that investors refuse to buy. It's just a way of transferring losses from the banks to the taxpayer by using a middleman who looks like a partner but only has a 5 percent stake in the game. This is "tax cheat" Timmy's circuitous way of socking it to the public one more time. Here's how Yves Smith at Naked Capitalism explains it:

"First, the banks, as in normal auctions, will presumably set a reserve price equal to the value of the assets on their books. If the price does not meet the reserve (and the level of the reserve is not disclosed to the bidders), there is no sale; in this case, the bank would keep the toxic instruments.

Having the banks realize a price at least equal to the value they hold it at on their books is a boundary condition. If the banks sell the assets as a lower level, it will result in a loss, which is a direct hit to equity. The whole point of this exercise is to get rid of the bad paper without further impairing the banks."

Okay, so the auctions are rigged and the banks get overpaid for toxic waste. Surprised? Geithner's task from Day 1 has been to keep the money flowing from the vault at Treasury to the big banks. This is just more of the same. The TALF and the PPP are just clever acronyms meaning "corporate welfare" which is ladled out to bank tycoons who have their agents working the levers from the inside. The public, of course, takes it in the shorts once again.


Yves Smith puts it like this:

"Dear God, the Administration really thinks the public is full of idiots. But there are so many components to the program, and a lot of moving parts in each, they no doubt expect everyone's eyes to glaze over." (Public Private partnership emerging, Yves Smith, Naked Capitalism)


Geithner has been trying for weeks to lure hedge funds and private equity firms into participating in his program offering up to 95 percent leverage for the purchase of the banks bad assets. By providing loan guarantees rather than capital, Geithner can (in the words of the Wall Street Journal's David Wessel) "rely on the Federal Reserve's amazing ability to come up with unlimited sums without congressional consent." This means that Geithner has moved on to Plan B which makes good use of Bernanke's deep pockets and well-oiled printing press.

Geithner's strategy is nothing more than a trillion dollar stealth bailout of the country's biggest banks. The funding from the TALF and PPP are just the first part of a one-two knockout punch. Treasury will try to show that it paid less for the assets than their current book-value (which, of course, is grossly inflated) and then follow up with generous capital injections from the TARP program to make up the difference. That way, the banks will be "made whole" again while the public gets the double whammy. Geithner is hoping that the public relations hype surrounding the program will allow him to carry out his strategy before anyone figures out what's really going on. Fortunately, the blogosphere is following every little detail, which means that the plan will be picked apart just minutes after it is released. If the punditocracy gives it the "thumbs down", there's a good chance that Geithner will have to pack it in and resign. His credibility was wobbly to begin with. A failure here would surely be the last straw. Senator Richard Shelby, voiced the concerns of many elected representatives when he said on FOX News Sunday, that Geithner was on "shaky ground" and that "If he keeps going down this road, he won’t last long.” By late Monday, we should know whether Geithner will continue to serve at Treasury or hobble back to his dingy rookery at Kissinger and Associates.


According to the New York Times:

"The Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.

... Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent."


The idea that 97 percent "low interest" funding constitutes a "partnership", boggles the mind. Where can a businessman or a homeowner get gravy a deal like that? The Treasury is providing a subsidy to Wall Street crooksters to manage taxpayer money so they can fatten their own bottom line. It's that simple. Geithner's not only willing to empty the public purse for his buddies but, also, write another trillion dollar check on an account that is already overdrawn by $11 trillion. This is one gigantic looting operation concocted by bank lobbyists masquerading as public officials.


The whole purpose of the Geithner shakedown is to mislead the public. Why should the perilously underfunded FDIC provide a non-recourse loans to hedge fund sharpies and PE scalawags when its primary responsibility is to protect bank depositors? And why are they setting up more of the same Enron-type "off-balance sheets" special purpose vehicles which blew up the financial markets to begin with? This has disaster written all over it. The non recourse loans create a "no lose" situation for investors who can dump any type of crappy mortgage-backed sludge into the program and not worry about any legal backlash. Here's how Paul Krugman sums it up on Saturday's blog:

"The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding....

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work." (Paul Krugman's blog)

Geithner's plan is a catastrophe. It's just a sloppy remake of Paulson's failed Super SIV that was supposed to save Citi from massive losses but closed without a single sale. Not one investor stepped forward to buy assets even though Paulson slapped the Treasury's seal of approval on entire operation. It was a complete bust. Now Geithner is following in the ex-Treasury Secretary's footsteps.

The banks are not going to fix themselves. Only government can do that, which means that someone will have to fill the leadership void and do the heavy lifting. But time is running out and the problems are getting worse. Public support is on the wane. Obama should take advantage of what little confidence in the system is left and take radical corrective action. Insolvent financial institutions have to be taken into receivership and liquidated. Shareholders and bondholders will have to take a haircut. And Geithner, Summers and the rest of the White House banking fraternity will have to resign or be fired. Obama should mull over Albert Einstein's sage advice when he said, "The problems we face today cannot be solved by the minds that created them."



BEND OVER AND SAY, "UNCLE SAM"

Mike Whitney

Timothy Geithner refuses to take underwater banks into receivership and resolve them, but has no problem transforming the FDIC into a hedge fund. Go figure? Here's what everyone needs to know: The US government (you) will provide up to 94 percent of the financing (low interest, of course) for dodgy mortgage-backed assets that no one in their right mind would ever buy so that wealthy and politically-connected banksters can scrub up to $1 trillion of red ink from their balance sheets. Ugh!

The so-called "private partners" in this confidence scam, will get non recourse loans, which means that if the plan backfires and they lose their skimpy 6 percent investment they can call it quits and leave the taxpayer holding the bag. ($1 trillion in potential losses!) Here's how Paul Krugman sums it up:

"The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. This isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets."

"Markets"? Who said anything about markets? This is corporate welfare, pure and simple.

Also, the partnerships will be conducted through off-balance sheets operations, (Enron-type structured investment vehicles or SIVs), so the parent company (our new business partners) can avoid liability when they dump all types of ineligible, unmarketable, toxic garbage into the program, which they will since the average banker has moral scruples of Hannibal Lector.

The opportunities for fraud in Geithner's "public-private" Banker's Bonanza are truly breathtaking. All the bank has to do is shovel its mountainous pile of B-grade dog-dung into its newly-minted SIV and then hide behind its government-issue "no risk" loan and claim ignorance when the FDIC tries to get its money back.

"I'm so sorry. How did that 2006 vintage subprime CDO made up of liar's loans from unemployed Pizza Hut workers get mixed up in there? My bad."


In Geithner's defense, we should point out the challenges he's facing. It's not easy pulling the wool over people's eyes, especially when they've been repeatedly fleeced. The Treasury Secretary's main job is "to keep the big banks in private hands" and to remove over a trillion dollars of toxic mortgage-backed assets that are worth only a fraction of their original value. According to economist Dean Baker, these junk assets are worth roughly 30 cents on the dollar, although the banks have them listed on their books at 60 cents on the dollar. If the banks are unable get full price, then many of them will be forced into bankruptcy. Geithner's job is to make sure that doesn't happen, which is why he has created the "partnership" smokescreen to conceal the fact that the government is intentionally overpaying for significantly-downgraded sludge. Here's how economist James Galbraith puts it:

"The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer."

Galbraith (indirectly) explains why Geithner has avoided "price discovery" at all cost. Think about it for a minute: We are now 19 months into the biggest economic catastrophe since the Great Depression and STILL the public has no fixed idea of what these rotten assets are really worth. Why? The business media, the government and big finance have engineered the biggest cover up in memory in order to protect the interests of privately-owned financial institutions. Is that how a free market is supposed to work?

The question that should be on everyone's mind is this: Why would Geithner create a program that rewards bankers and hedge funds at the expense of the public? Or to be more specific: What manner of man would conjure up a transaction where taxpayers put up 94 percent of the investment but only stand to get 50 percent of the profits?

Who is Geithner working for anyway?

There's no way around the fact that Geithner is a financial industry representative planted in the White House to do Wall Street's bidding. Institutional bias precludes him from doing his job and operating in the public interest. Thus, the first step in any financial rescue plan must be to remove Geithner, Summers and all the other parasitic Rubin-clones that have infected the present administration and bring in a whole new team. That will prepare the ground for nationalizing the banks and providing debt-relief to the people who need it most, the victims of Wall Street's Ponzi-credit bubble.





RE: The Global Financial Meltdown - Admin - 03-29-2009

BAILOUT PLAN AS JUST ONE MORE KEYNESIAN FASCIST SWINDLE THAT COULD BRING DOWN OBAMA's PRESIDENCY
http://www.larouchepub.com/pr_lar/2009/lar_pac/090323lar_hits_bailout.html


Lyndon LaRouche today forcefully denounced the latest bailout swindle, announced this morning by Treasury Secretary Tim Geithner, as nothing more than a "continuation of the original bailout scheme put forward by then-Treasury Secretary Henry Paulson in November 2008." LaRouche warned that, if this so-called Public Private Partnership Investment Program (PPPIP) scheme is allowed to go forward, it will not only trigger Weimar-scale hyperinflation. "It could, ultimately, bring down the Obama Presidency."

LaRouche elaborated.

This is the same kind of Keynesian—i.e. fascist—swindle that was put in place just hours after the death of President Franklin Roosevelt, by his replacement, Harry Truman. Truman's instant abandonment of FDR's Bretton Woods system, a credit system of fixed-exchange rates, which was adamantly opposed by Lord Keynes, the British delegation and their Wall Street accomplices, was tantamount to treason by Truman. It was a betrayal of everything that FDR stood for, beginning with Roosevelt's committment to the elimination of the British Empire at the close of the war. Truman's betrayal was a form of warfare against the United States. True, there were no guns pointed at American soldiers, but it was as much an act of treason as any act of military aggression during the war.

Under the proposed Geithner PPPIP, announced today, private sector investors, led by hedge funds, would set the price of the toxic assets to be removed from the books of the banks—at vastly inflated prices. The hedge funds and other so-called private investors, themselves, would put up only a tiny fraction of the capital. The vast majority would come from taxpayers' money, pumped through the Treasury Department and the Federal Reserve. "This is no different than the already discredited scheme of Paulson and Geithner from last Autumn," LaRouche explained. "It is just a continuation of the TARP swindle, but with the hedge funds now brought in on the action—all at taxpayers' expense."

LaRouche further noted that, to the extent that any private funds are channeled into this black hole, it further dries up private funds for productive investment. "What this means," LaRouche concluded, "is that the government is driven to come up with one Keynesian program after another—and that spells massive hyperinflation. That is why I warn President Obama, that if he goes along with this latest version of the same swindle that goes back to Harry Truman and his abandonment of FDR in favor of that self-professed Fascist, Lord Keynes, his Presidency is in jeopardy."


OBAMA HELD HOSTAGE BY PPPIP
http://therealnews.com/t/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=3495&updaterx=2009-03-28+20%3A30%3A04

Pepe Escobar: If Geithner's plan does not work, the President sinks

President Obama's destiny - more than his foreign policy decisions - will be sealed by how he deals with the US financial crisis, argues Pepe Escobar. The verdict of top economists on Treasury Secretary Tim Geithner's new PPPIP has not been auspicious. Some speak of taxpayer rip-off while Nobel Prize winner Paul Krugman foresees a "lost decade of zombie banks". The President has been trying to appease Wall Street while at the same time appeasing America's anger directed at anything bank bailout-related. On a global level the Chinese have made it known their patience with America's addiction to debt has limits. The upcoming G-20 meeting in London is bound to discuss more radical steps, while back in the US some already dream of a new saviour, post-Geithner.

Bio
Pepe Escobar, born in Brazil is the roving correspondent for Asia Times and an analyst for The Real News Network. He's been a foreign correspondent since 1985, based in London, Milan, Los Angeles, Paris, Singapore, and Bangkok. Since the late 1990s, he has specialized in covering the arc from the Middle East to Central Asia, including the wars in Afghanistan and Iraq. He has made frequent visits to Iran and is the author of Globalistan and also Red Zone Blues: A Snapshot of Baghdad During the Surge both published by Nimble Books in 2007.


TRANSCRIPT

Obama held hostage by PPPIP

PEPE ESCOBAR, THE REAL NEWS ANALYST: Forget for a moment Iran, Afghanistan, Pakistan, Russia, or China. President Obama's destiny is likely to be decided by the financial crisis. And it all depends on this man with, finally, a plan: the Public-Private Partnership Investment Program (PPPIP) outlined in this white paper. The masters of the universe, they love it. Anybody would love it. Can you imagine if Treasury Secretary Tim Geithner offered you up to a trillion dollars? If PPPIP sinks, Obama sinks. It's as simple as that. So would it work? That depends on a lot of variables, says the website Credit Writedowns. And that includes, and I quote, Obama using his inner Bill Clinton to demonstrate to millions of Americans he can feel your pain. The economic chattering classes are saying that PPPIP does not get to the heart of the matter, which is leverage, debt, and too much credit. The former US business editor of The Financial Times, now with the Guardian in London, he shows that the Brits tried more or less the same thing and failed. He says, and I quote, "Both the US and the UK plans underestimate the scale of the crisis." David Goldman, formerly from Bank of America, he says that nationalization—that's what a lot of economists would prefer, in fact—that would be, he says, I quote, "unnecessary, apocalyptic, and politically undesirable." But this is his money quote: the Geithner plan was all about "suppressing the perception that banks were about to fail and that the financial system was about to break down." President Obama knows that perception is reality, especially in the US. In his press conference—in which, by the way, nobody asked him about bank bailouts—he confidently projected the impression that after this crisis everything will be back to the old golden kingdom of financial capital, which has not abdicated from any of its political and economic privileges.

Courtesy: MSNBC

PRES. BARACK OBAMA: We believe that if you take the steps that we've already taken with respect to housing, with respect to small businesses, if you look at what we're doing in terms of increasing liquidity in the financial system, that the steps that we're taking can actually stabilize the economy and get it moving again.

ESCOBAR: Nobel Prize winner Paul Krugman is not convinced. Krugman says that Geithner is recycling Bush treasury secretary Henry Paulson's cash-for-trash plan. You remember this one. So the new scheme also will not work. The US is heading to, I quote, a "Japanese-style lost decade of 'zombie banks.'" James Galbraith, he also nails it—very politely. He says Geithner "... views the crisis the same way Wall Street does—as a temporary liquidity problem—and his plans to fix it are designed with the best interests of Wall Street in mind." Remember, Geithner was in control of the New York Fed when Bear Stearns and Lehman Brothers defaulted. And yet another Nobel Prize winner, he could not be more explicit. All this while the US remains pitchfork-mad with anything smelling bank bailout or bonuses.

Courtesy: Comedy Central
STEPHEN COLBERT: Let's go get AIG! Woo! [thrusting a pitchfork]


ESCOBAR: So take PPPIP as a welfare state for billionaires. Or this one is very, very popular: hedge fund socialism. PPPIP, we're relying on Federal Reserve printing a lot of taxpayer money to subsidize Wall Street. Geithner and Fed chairman Ben Bernanke, they are all in this together. And even their suits match.
In the end, the suits on Wall Street—shall we call them friends of Geithner, maybe?—they dictated their terms to Obama. It's all here in this striking Wall Street Journal piece that—very few people read it, actually. This was the bank's message, and I quote: "If you want our help to get credit flowing again to consumers and businesses, stop the rush to penalize our bonuses." With US taxpayers putting up 94 percent of the investment but only getting 50 percent of the profits, here's the verdict of Dutch maverick Willem Buiter of the London School of Economics. This thing is bad, he says, but it could be worse. To do it right, Buiter says, Geithner will have to come up with more than $1 trillion. He's just spending a mere $100 billion. So he's leveraging the US taxpayer ten-to-one. So this is essentially another trillion-dollar cheque. The account happens to be already overdrawn by $11 trillion. Yes, the US heroin or opium—after all, let's talk about Afghanistan—is debt. Total debt is already $57 trillion. In the last six months alone, debt in the US has increased by $4 trillion. Soon it may be bye-bye dollar hegemony. China is freaking out about financed US debt. China's central bank chief, he wants a new world currency. That would be the IMF's special drawing rights, the SDRs. Essentially this is a basket of currencies. Would it happen? Well, it's possible. The Eurozone is neutral, but the word in Brussels is that they would love this. The BRIC countries—Brazil, Russia, India, and China—plus South Africa, plus South Korea, plus a UN commission of experts, they all want it. And, in fact, they will demand a proposal to be studied at the G20 meeting on April 2 in London.


Courtesy: guardian.co.uk

OBAMA: The goal at the G20 summit, I think, is to do a couple of things. Number one, say to all countries, let's do what's necessary in order to create jobs and to get the economy moving again. Let's avoid steps that could result in protectionism that would further contract global trade. Let's focus on how are we going to move our regulatory process forward so that we do not see the kinds of systemic breakdowns that we've already seen.


ESCOBAR: Well, systemically, countries would rather see that the US cannot borrow dollars and pay back—well, maybe pay back much later in devalued dollars. So they want a new world order, and, you betcha, it is coming. It's just around the corner, maybe. So while the bells toll for the global disaster, America is already thinking post-Geithner. Will there be a savior? You betcha, oh, yes. There he is, the resurrected steamroller himself, former New York governor Eliot Spitzer. America may in the end forgive and forget his taste for young, expensive hookers. After all, one thing he does know is how to nail mature, expensive masters of the universe.

NOAM CHOMSKY ON THE ECONOMY AND DEMOCRACY
http://therealnews.com/t/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=3484    


Chomsky: Plan is recycled Bush/Paulson. We need nationalization and steps towards democratization

Noam Chomsky speaks to Paul Jay on the Obama - Geithner plan. Chomsky says that "they're simply recycling, the Bush-Paulson measures and changing them a little, but essentially the same idea: keep the institutional structure the same, try to kind of pass things up, bribe the banks and investors to help out, but avoid the measures that might get to the heart of the problem."

Bio
Noam Chomsky has written and lectured widely on linguistics, philosophy, intellectual history, contemporary issues, international affairs and U.S. foreign policy. His works include: Aspects of the Theory of Syntax; Cartesian Linguistics; Sound Pattern of English (with Morris Halle); Language and Mind; American Power and the New Mandarins; At War with Asia; For Reasons of State; Peace in the Middle East?; Reflections on Language; The Political Economy of Human Rights, Vol. I and II (with E.S. Herman); Rules and Representations; Lectures on Government and Binding; Towards a New Cold War; Radical Priorities; Fateful Triangle; Knowledge of Language; Turning the Tide; Pirates and Emperors; On Power and Ideology; Language and Problems of Knowledge; The Culture of Terrorism; Manufacturing Consent (with E.S. Herman); Necessary Illusions; Deterring Democracy; Year 501; Rethinking Camelot: JFK, the Vietnam War and US Political Culture; Letters from Lexington; World Orders, Old and New; The Minimalist Program; Powers and Prospects; The Common Good; Profit Over People; The New Military Humanism; New Horizons in the Study of Language and Mind; Rogue States; A New Generation Draws the Line; 9-11; and Understanding Power.

Transcript

PAUL JAY: Welcome to The Real News Network. We're in Cambridge at MIT with Professor Noam Chomsky, who I think needs no introduction. Thanks for joining us.

CHOMSKY: Glad to be with you.

JAY: So a few days ago, the Obama administration and Geithner, they announced their plan for the banks. What do you make of it?

CHOMSKY: Well, there are several plans, actually. One is capitalization. The other, the more recent one, is picking up the toxic assets with a private-public coalition. And that sent the stock market zooming right away. And you can see why: it's extremely good for bankers and investors. It means that an investor can, if they want, purchase these valueless assets. And if they happen to go up, well, it makes money; if they go down, the government insures it. So there might be a slight loss, but there could be a big gain. And that's—one financial manager put it in The Financial Times this morning, "It's a win-win situation."

JAY: A win-win situation if you're the investor.

CHOMSKY: If you're the investor, yeah.

JAY: If you're the investor.

CHOMSKY: For the public it's a lose-lose situation. But they're simply recycling, pretty much, the Bush-Paulson measures and changing them a little, but essentially the same idea: keep the institutional structure the same, try to kind of pass things up, bribe the banks and investors to help out, but avoid the measures that might get to the heart of the problem—however, at the cost, if you consider it a cost, of changing the institutional structure.

JAY: What's the plan you would support?

CHOMSKY: Well, I mean, say, for example, take the bonuses, the AIG bonuses that are, you know, causing such anger, rightfully. Dean Baker pointed out that there's an easy way to deal with it. Since the government pretty much owns AIG anyway (it just doesn't use its power to make decisions), split off the section of AIG—the financial investment section—that caused all the problems, split it off, and let it go bankrupt. And then the executives can seek to get their bonuses from a bankrupt firm if they like. So that would pretty much take care of the bankruptcy problem, and the government would still maintain its large-scale effective control, if it wants to exert it, of what's viable in AIG. And with the banks, the big banks, like Bank of America, one of the big problems is nobody knows what's going on inside. You know, there are very opaque devices and manipulations which technically the government—. They're not going to tell you themselves. You know, why should they? It's not their business. In fact, when Associated Press sent journalists to interview bank managers and investment-firm managers and ask them what they've done with the TARP [Troubled Assets Relief Program] money, they just laughed. They said, "It's none of your business. We're private enterprises. Your task, the public, is to fund us, but not to know what we're doing." But the government could find out—namely, essentially, take over the banks.

JAY: Is all of this sort of machinations of policy because they want to avoid nationalization?

CHOMSKY: You don't have to use the word "nationalization" if it bothers people, but some form of, you know, receivership which would at least allow independent investigators, government investigators, to get into the books, find out what they're doing, who owes what to whom, which is the basis for any form of modification. I mean, it could go on to something much beyond, but it's not contemplated. It's not a law of nature that corporations have to be dedicated solely to profit for their shareholders. It's not even legislation. It's mostly court decisions and management rules and so on. And it's perfectly conceivable for corporations, if they exist, to be responsible to stakeholders, to the community, to the workforce.

JAY: Well, especially when it's all public money at this point that's running the system.

CHOMSKY: Look, fact of the matter is it's almost always public money. So take, say, the richest man in the world, Bill Gates. How did he become the richest man in the world? Well, a lot of it was public money. In fact, places like where we're sitting right now,—

JAY: MIT.

CHOMSKY: —that's where computers were developed, the Internet was developed, fancy software was developed, either here or in similar places, and almost entirely on public funding. And then, of course, I mean, the way the system works, fundamentally—it's kind of an overstatement, but fundamentally, is that the public pays the costs and takes the risks, and the profit is privatized.

JAY: Which is what we're seeing now with the whole [inaudible] bailout.

CHOMSKY: Well, there's a lot of talk about it now because it's the financial institutions and it's very visible, but this happens all the time. I mean, as I say, computers and the Internet, the basis for the IT revolution in the late '90s.

JAY: So when you say "challenging the institutional structure," what would you like to see happen?

CHOMSKY: For a start, corporations, banks, and so on should be, I think, responsible to stakeholders. That's not a huge change. In fact, it's even been brought to the courts. It was an important case, highly relevant now. About 30 years ago, when the major steel companies wanted to destroy the Youngstown steel plants—major part of the steel industry, you know, the core of the community had been built up around it, and so on—and they wanted to move it or get rid of it. And the workers and the community wanted to keep it and felt they could run it privately. And in fact they brought a case up through the courts, arguing that the management rules ought to be changed so that stakeholders, rather than just shareholders, would have control over the corporation. Well, it lost in the courts, naturally, but it's a perfectly feasible idea. It could be a way to keep communities alive and the industry here.

JAY: So if you're looking at the financial system now and you take this principle, the representing the interests of all stakeholders, not just shareholders, what would that look like in terms of policy?

CHOMSKY: First of all, to begin with, it would mean that the government would not just bail out the banks, pour capital into them, but would exercise control. And control begins with inspection. So we find out what they're doing. And then you keep the viable parts. And if they're viable, they might just vote it into public control. I mean, the government could probably have, you know, bought AIG or Citigroup for far less than what they're paying them now. I mean, in a democratic society, the government would meet the public, and then there should be direct public engagement in what these institutions ought to do and how they ought to distribute their money, what the terms ought to be, and so on. I mean, they could be democratically run by the workforce, by the community.

JAY: But doesn't it—whether you use the word or not, requires a kind of nationalization. I mean, does the bank then become a publicly owned institution?

CHOMSKY: They become publicly owned institutions which serve the public and where decisions are made by the public. That's a long way off. You have to approach that in steps. When you think of nationalization, you know, the doctrinal system, with historical reasons, associates nationalization with, you know, some Big Brother taking it over, and the public follows orders. But that's not necessarily the way it's done. There are many nationalized institutions that are run quite efficiently. In fact, take, say, Chile, which is supposed to be the poster child for, you know, Thatcherite/Reaganite free-market economics. A large part of the economy's based on a nationalized, very efficient copper producer, Codelco, which was nationalized by Allende, but was so effective that during the Pinochet years it was never dismantled. Actually, it's being sort of chipped away at now, but it still provides the—I think it's still the biggest copper producer in the world, provides most of the government income. And elsewhere too there are highly successful nationalized firms. But nationalization is only one step towards democratization. The question is who manages them, who makes the decisions, who controls them. Now, in the case of nationalized institutions, it's still top-down, but it doesn't have to be. I mean, again, it's not a law of nature that institutions can't be democratically run.

JAY: What would it look like?

CHOMSKY: What would they look like?

JAY: Mm.

CHOMSKY: The participation by workers councils, by community organizations at meetings, discussions in which policies are made—that's how democracy's supposed to work. I mean, we're very far from that, I mean, even in the political system. Just take, say, primaries. Okay, the way our system works, candidates running for office, his campaign managers go to some town in New Hampshire and they set up a meeting, and the candidate comes in and says, "Here's what a nice guy I am. Vote for me." You know. And people either believe him or not and go home. Suppose we had a democratic system that worked the other way around. The people in the town of New Hampshire would get together at conferences, meetings, public organizations, and so on, and they would work out the policies that they would like to see. And then, if somebody's running for office, he can come; if they want, they could invite him, and he would listen to them. They would say, look, here's the policies we want you to implement; if you can do this, we'll allow you to represent us, but we'll recall you if you're not doing it.

JAY: Well, as you say, this is far off in terms of today's politics.

CHOMSKY: It's not that far off. It happens.

JAY: But at the national level, it's—.

CHOMSKY: At the national level it's far off. But let's take what's probably the most democratic country in the Western Hemisphere, although people don't like to think of it that way, Bolivia. It's the poorest country in the hemisphere. It's the poorest in South America. It's had elections in the last couple of years in which the large majority of the population, who happen to be the most repressed people in the hemisphere, the indigenous population, have for the first time in 500 years entered the political arena, determined the policies they want, and elected a leader from their own ranks, a poor peasant. And the issues are very serious—their control over resources, economic justice, cultural rights, the complexities of a very diverse multi-ethnic society. The policies are pretty much coming out of the public themselves, and the president is supposed to implement them. Now, you know, nothing works that perfectly, all sorts of problems, but that's kind of the basic theme. Okay. That's functioning democracy. It's almost the opposite of the way our system works.


http://therealnews.com/t/index.php?
option=com_content&task=view&id=31&Itemid=74&jumival=3498

Noam Chomsky on the economy and democracy Pt2
Noam Chomsky: The best way to move forward is support unionization

President Obama wanted to show his solidarity with working people, so he went to Illinois and talked at an industrial plant. The choice was striking: he chose Caterpillar. Now, he had to do that over the objections of church and human rights groups because of the devastating effect that Caterpillar machines are having in the Israeli-occupied territories, where they're wiping out agricultural land and destroying all of the roads and villages and so on. But nobody, as far as I can see, noticed something even more dramatic. I mean, Caterpillar has a role in US labor history. Caterpillar was the first plant in generations to bring in scabs to destroy a strike.

Transcript

PAUL JAY: Welcome back to The Real News Network. We're at Cambridge at MIT with Professor Noam Chomsky. Thanks for joining us again. So, in the first segment of our interview, we talked about what a Chomsky-supported economic plan might look like, which has to do with considering the public stakeholders, I guess, and not just consumers, and what that might mean in terms of banking and democracy. And as we get into the issue of democracy, what do you think in fact is going to happen here? By that I mean the current plans for the financial sector, the auto sector, the general stimulus plan. One, do you think they're going to work? And if they're not going to work, what are we heading into in terms of the intensity of the crisis? And what does that mean in terms of American democracy?

NOAM CHOMSKY: I don't think anybody knows whether they're going to work. It's kind of shots in the dark. The general—and I don't have any particular insight—my guess is that it's not going to be the Great Depression, but that there may be some difficult years ahead and a lot of patchwork if the current policies are pursued. Now, the crucial core of current policies is keep the institutional structure stable: same structure to authority; domination, decision-making from the top. You know, public has a role. You know, it can be consumers. You can rent yourself to it—it's called getting a job.

JAY: And putting up the money to bail out.

CHOMSKY: And you can put up the money to bail it out, but you're not part of the decision-making apparatus. There's almost certainly—in fact, it's certain there will be some form of regulation. I mean, the deregulation mania of the past 30 years, based on really fundamentalist religious concepts about efficient markets, I mean, that's pretty much gone, and that went very fast. So take, say, Lawrence Summers, who's now the chief—practically the chief economic advisor, has got to rebuild the regulation system of the kind he destroyed a few years ago. He was in the lead in blocking Congress from regulating derivatives and other exotic instruments, under the influence of these pretty much smashed ideas about efficient markets and rational choice and so on. Alright, that much is really shattered, and there will be a reconstruction of some regulatory apparatus. But the history of this is pretty clear and understandable: regulatory systems tend to be taken over by the industries that they're regulating. That's the way it worked with the railroads and so on. And it's natural. You know, they have power, concentrated power, concentrated capital, enormous political influence—they pretty much run the government. So it ends up with them taking over control of the regulatory apparatus in their own interest. And it may work. You know. So, for example, during [what] many economists call the golden age of modern state capitalism, roughly 1950 to the mid-'70s, you know, there were no huge crises. There was a regulatory system, there was regulation of capital flows, exchange rates, and so on, and it led to the greatest peacetime growth in history. It changed in the mid-'70s when the economy moved towards deregulation and financialization, huge-amount increase in flows of speculative financial capital, mythologies about efficient markets. And there was growth, of course, but it was highly concentrated in a few pockets, and we've been through 30 years of relative stagnation in real wages for the majority of the population.

JAY: And how does any of that change? The stimulus [inaudible] stimulus plan [inaudible]

CHOMSKY: No. In fact, it's not—well, you know, it's interesting. There's a slight redistributive aspect in tax policy, very slight. I mean, it's called, you know, socialism, communism, and so on, but it barely gets back to where it was a few years ago. On the other hand, the best way to lead to a more egalitarian system would be, simply, permit unionization. Unions traditionally have not only improved the lives and benefits and, you know, working conditions and wages of workers, but they have also helped democratize society. They are one of the few means in which, you know, ordinary people can get together and make plans and influence public choices and so on. Now, that's not being pursued. In fact, it's kind of interesting: it's almost been driven out of our minds. There was a dramatic example of that a couple of weeks ago. President Obama wanted to show his solidarity with working people, so he went to Illinois and talked at an industrial plant. The choice was striking: he chose Caterpillar. Now, he had to do that over the objections of church and human rights groups because of the devastating effect that Caterpillar machines are having in the Israeli-occupied territories, where they're wiping out agricultural land and destroying all of the roads and villages and so on. But nobody, as far as I can see, noticed something even more dramatic. I mean, Caterpillar has a role in US labor history. Caterpillar was the first plant in generations to bring in scabs to destroy a strike. Now, that was, I think, 1988, sort of part of the Reagan attack on labor, but this was the first industrial installation to do it. Now, that's a huge, important fact. At that point, the United States was alone, along with South Africa, in permitting anything like this. And that essentially destroys the right of association for working people.

JAY: The Employee Free Choice Act, which is supposed to be something that's going to facilitate unionization, we haven't heard much about it since the election.

JAY: Didn't hear much about it. We didn't hear anything when Obama went to the plant, which is the symbol of destruction of labor by unfair practices, because this has been driven out of people's minds. The Employee Free Choice Act is always misrepresented. It's described as an effort to avoid secret elections. It's not that. It's an effort to allow workers to decide whether there should be secret elections, instead of leaving decisions entirely in the hands of employers, who can use card check if they want [inaudible] they can choose, you know, a secret election, but workers can too. That's what the act would now—. On the campaign trail, Obama talked about it, but it steadily receded into the background. And a much bigger step towards, you know, overcoming the radical redistribution to the top that took place in the last 30 years would simply be to ease the efforts at unionization. Now, you know, every recent president since Reagan has attacked this. I mean, Reagan straight out told employers, "We're not going to apply the law." So firing of workers—legal firing—for organizing I think tripled, according to Business Week, during the Reagan years. When Clinton came along it was basically a different device—it's called NAFTA. NAFTA provided employers with a wonderful means to prevent organizing: just put up a big sign saying "Mexico transfer operation." It's illegal, but if the government's an outlaw government, you can get away with it. And the Bush years we don't have to talk about. But you could reverse this, and that would be a significant step towards not only slightly reversing the enormous redistribution of income to the top, but also democratizing the society by providing mechanisms by which people can act politically in their own interest. But, you know, that's so far at the margins it's barely being discussed. And things like, say, stakeholder control of institutions, workers in the community, it's not much below the surface in people's minds. It is being pushed aside. Now, if you look back to the 1930s, when maybe the closest—it's not the same, but rather similar issues were arising, what really struck fear into the hearts of the business world were the sit-down strikes. That's when business started talking about the hazard facing industrialists and the rising political power of the masses and so on. Now, what's so threatening about a sit-down strike? Well, you know, a sit-down strike is just five seconds before the idea emerges, "Why should we sit here? Why not run the factory? We can do it, arguably better than the managers can, 'cause we know how it works." Now, that's frightening. And it's beginning to happen. Just a month ago there was a sit-down strike in a Chicago plant, Republic Windows and Floors, I think it was called. You know, the multinational that owned it wanted to close it down or move it somewhere or something. And the workers, they demonstrated it and protested, you know, and so on, but finally there was a sit-down strike. Well, they sort of half-won; they didn't completely win. A lot of them kept their jobs. A different company bought it. But it didn't move on to the next step. The next step is, "Well, why shouldn't we run the plant, along with the community, which cares about it, and maybe a broader community, which also cares, in the general public?" Well, you know, those are issues that really ought to be discussed.

JAY: In the next segment of our interview, let's take this conversation of what American democracy might look like in the next few years, especially if this economic crisis continues to unravel. Please join us for the next segment of our interview with Noam Chomsky.

              


  




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

WHO IS PULLING GEITHNER’s STRINGS?

Cliff Kincaid
http://informationclearinghouse.info/article21984.htm

Appearing behind a podium that proclaimed, “Financial Stability and Recovery,” Treasury Secretary Timothy Geithner on Tuesday carefully read from a teleprompter and provided what his flack said was a “comprehensive” plan. It was not comprehensive in any way. It seemed so amateurish and shallow that the market dropped and commentators and senators were almost incredulous at the lack of detail.

But what were they expecting? Geithner doesn’t know the details because he hasn’t been given them yet. Those who expected the details of the plan were operating under the false assumption that the Treasury Secretary―and by extension, the U.S. Government―is in practical control and charge of the U.S. economy.

Geithner’s performance followed President Obama having advertised Geithner’s appearance in advance by saying, “He’s going to be terrific. I’m going to make sure that Tim gets his moment in the sun.” The sun? One analyst said Geithner looked like a deer caught in the headlights.

It turns out the speech, which did mention the spending of trillions of dollars, was delivered in the Treasury Department’s “Cash Room.” No kidding.

Senator Orrin Hatch had voted to confirm Geithner, saying that he “is not merely acceptable for the job―he is highly qualified.” That was largely because of his role as President of the New York Federal Reserve Bank in previous financial bailouts that have yet to succeed. Hatch understood this, but said that Geithner’s recognition that mistakes had occurred “makes him more valuable, in my view, in the continuing effort to right our economic ship.”

Why is he so valuable? It’s not because he learns from his mistakes. As we have argued in previous columns, Geithner is valuable because he is a major player in the global financial community, a prominent figure in the “Group of Thirty” organization of central bankers and the Council on Foreign Relations. He is a former employee of Kissinger Associates and lived in China and speaks Chinese. His father, Peter Geithner, is a former top official of the Ford Foundation who knew Obama’s mother when she was working on “microfinance” in Indonesia.

It would be a serious mistake to say that Geithner is incompetent. He knows exactly what he’s doing. Essentially, his programmed performance was designed to send the message to the American people and the Congress that we can’t be trusted with the details, even when they are available. It was pathetic to watch our elected senators at a subsequent hearing pleading for details. But it was also a “teaching moment.” This is out of our hands. This is the “New World Order” and we had better get used to it.

The media couldn’t help but notice that Geithner’s performance fell flat. The Washington Post reported that “…the lack of detail in his plan dismayed lawmakers and investors, triggering a steep sell-off on Wall Street.” The New York Times said, “Initial reviews for the man and his plan were not good…” and that “withering punditry on the business-news cable channels” made Geithner look even worse.

You didn’t have to be a pundit to be aghast at Geithner’s performance.

But wait a minute. Wasn’t this the guy who was so smart that his tax cheating had to be overlooked in order to be confirmed?

What is going on here? Is Geithner’s “plan,” such as it is, designed to fail? Or does he not know what he’s doing? Or could there be another explanation?

Geithner may not have all the answers because he has not gotten his marching orders. Those orders come from China, the global elite and the international bankers. After giving non-answers to Congress, Geithner is preparing to take off for a G-7 Meeting of Finance Ministers and Central Bank Governors in Rome, Italy. These foreign finance officials may determine the nature and fate of Geithner’s “stability and recovery” plan.

These top finance officials include central bank governors, who play a role in what press reports described as “economic coordination among the top industrialized nations.”

One key global player is China. “Geithner spoke late on Sunday evening with Chinese Vice Premier Wang Qishan,” Reuters reported. Hence, Geithner was talking to a Chinese official even before he outlined his “plan” to the American people and the Senate. This was the second such conversation in a week.

In a statement, the Treasury Department said that Wang and Geithner “agreed that strong cooperation on macroeconomic financial and regulatory matters was an essential part of the U.S. relationship with China and that it was important to sustain close dialogue, particularly at this time of global financial turmoil.”

Wang Qishan was honored last year at a dinner sponsored by the United States Committee on United States-China Relations, on whose board Kissinger and Peter Geithner serve. Another speaker at the dinner was Bush Treasury Secretary Henry Paulson, Geithner’s predecessor.

Meanwhile, in her first trip abroad since taking office, Secretary of State Hillary Rodham Clinton will be traveling to Asia, including in China from February 20-22. The State Department explained that she will be discussing “common approaches to the challenges facing the international community,” including “the financial markets turmoil.”

So both Geithner and Clinton will be attempting to persuade the Chinese to sign on. In this “New World Order,” China is in the driver’s seat.

The conclusion has to be that Geithner doesn’t know how his “stability” plan will work out in practice because he’s not yet sure what China and other global players are going to do. Our fate lies in their hands, signaling desperate times for our nation.

Obama speaks of a possible catastrophe but he isn’t telling the American people the brutal truth at his carefully orchestrated town hall meetings. His prescription is more debt and spending―the same policies that brought us to this precipice. He can only succeed, at least in the sense of getting foreign credit to pay for this spending spree, if the Communist Chinese and the rich Arabs agree.

For the most part, the media won’t tell the truth, either. They’re too busy clamoring for front row seats at presidential press conferences.

Cliff Kincaid is the Editor of the AIM Report. - Cliff can be reached at cliff.kincaid@aim.orgcliff.kincaid@aim.org


GEITHNER's DEBUT: "NOT READY FOR PRIME TIME"

Mike Whitney
http://informationclearinghouse.info/article21978.htm

Tuesday was Treasury Secretary Timothy Geithner's coming out party. He was supposed to outline Obama's Financial Stability Plan to the Senate Banking Committee. Wall Street was looking for clarity, but it didn't get it. Instead, they got 25 minutes of political posturing and blather. The markets went into freefall. By the end of the day, the Dow was down 382 points. It was a complete fiasco.

Geithner is a smart man. He knows what Wall Street wants. They want a plan and they want the details. They don't want more gibberish. He knew that he'd get hammered if he didn't produce a workable scheme for fixing the banks, but he went ahead anyway figuring he could dazzle his audience with his brilliance. It didn't work. The markets plummeted and the pundits wrote him off as "not ready for prime time". Now his credibility is shattered just three weeks into the new administration. Why did he do it?

Most people who've been following the financial crisis know what needs to be done. It's no secret. The insolvent banks have to be nationalized. They have to be taken over by the FDIC, the shareholders have to be wiped out, bondholders have to take a haircut, management has to be replaced and the bad assets have to be written down. There's no point in throwing public money down a rathole just to keep zombie banks on life support.

Nobel prize winning economist Joseph Stiglitz sums it up like this:

"The fact of the matter is, the banks are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster. Nationalization is the only answer. These banks are effectively bankrupt." ( Deutsche Welle)

Economist James Galbraith says the same thing in an interview on Democracy Now with Amy Goodman:

"I think it’s fair to conclude that the large banks, which the Treasury is trying very hard to protect, cannot in fact be protected, that they are in fact insolvent, and that the proper approach for dealing with them is for the Federal Deposit Insurance Corporation to move in and take the steps that the FDIC normally takes when dealing with insolvent banks.

And the sooner that you get to that and the sooner that you take these steps, which every administration, including the Bush administration, actually took in certain cases—replacing the management, making the risk capital take the first loss, reorganizing the institution, guaranteeing the deposits so that there isn’t a run, reopening the bank under new management so that it can begin to function again as it should have all along as a normal bank—the sooner you get to that, the more quickly you’ll work through the crisis.

The more you delay and the more you try to essentially prop up an institution whose books have already been poisoned, in effect, by this—the practices of the past few years, the longer it will take before the credit markets begin to function again. And as I said before, the functioning of the credit markets is absolutely essential to the success of the larger package, of the stimulus package and everything else, in beginning to revive the economy."

Most of the economists say one thing while the bankers say the exact opposite. It's no surprise; they want to save their own skin. But bailing out the banks again is not in the public interest.

Most of the bad paper and non-performing loans appear to be concentrated in the very largest banks. By some estimates Citigroup, Bank of America, JP Morgan-Chase and Wells Fargo are holding two-thirds of all the toxic mortgage-backed paper. Therein lies the problem. These banking Goliaths have powerful constituencies and substantial political power. Keep in mind, the Obama campaign received over $10 million in contributions from Wall Street, the largest contributors by far. This suggests that Timothy Geithner is point-man for the banksters and his job is to fend off nationalization. Geithner admitted as much on Tuesday in an interview with Brian Williams when he said that he intended to "keep the system in private hands". If that's the case, then the taxpayer better get ready for a real shellacking, because it will take many trillions to keep these dinosaurs from extinction.

An interview in International Risk Analysis with Josh Rosner of Graham Fisher & Co sheds a little light on the backroom goings on during this charade:

Rosner: "I am hearing very clearly from within the regulatory community that it is their primary concern that whatever they are planning is predicated on the notion that we must keep the large banks alive. But if we start off with saving the big banks as the point of departure, then there is no way we can marry that to an efficient or effective proposal. Lets define the solution based first on what is workable not by tying a hand behind our back with preconceptions."

Rosner explains the political dynamic which is driving the decision making:

Rosner: "I think this argument has less to with Lehman and more to do with the fact that the Fed of New York and the Board (of Governors) have always benefited from the failure of small institutions and the absorption of those assets by the big banks. There is no way that they can stomach seeing their regulatory power dissipated by those institutions now being broken up and sold. Perhaps we have to go back to the question of whether it makes sense for the Fed to be a regulator as well as a central bank."

The IRA (Institutional Risk Analysis): "Especially to investors outside of the New York district and even outside the Fed's immediate jurisdiction, to foreign investors. But whether anyone at the Fed or Treasury likes it or not, we are talking about the absorption by the US Treasury of at least half a trillion in losses for the top three banks in the next 12-18 months if an FDIC resolution is to be avoided.....This issue of resolving the larger banks has been a political issue going back to Paul Volcker's day. Democracy is inefficient." (The Big Banks vs. America: A Roundtable with David Kotok and Josh Rosner http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=337

The problem goes well beyond the failed banks. The issue can't be resolved because important clients of the banking lobby have a stranglehold on the Dept of Treasury and are sabotaging the rescue operation. In fact, it's looking more and more like Obama's election was part of a quid pro quo to ensure that Geithner, Summers and the other "big bank" loyalists would continue to control the levers of political power during the stormy years ahead, otherwise they would do what is necessary and and shut them down now.

GEITHNER"S SPEECH

Geithner knew exactly what he had to say on Tuesday, but hemmed and hawed and avoided the central issues like the plague. He provided no new details on how the government planned to remove the illiquid assets that are fouling the banks' balance sheets nor did he explain how he would determine the value of these assets. It is shocking to realize that the financial crisis started 19 months ago (when two Bear Stearns hedge funds defaulted) and still, no one has any idea of what these assets are really worth. Price discovery is basic to any functioning market but, in this case, fear has carried the day. Everyone involved is terrified that trillions of dollars of assets will turn out to be worthless.


Geithner employed the same obfuscating techniques as Alan Greenspan. He tried to affect the look of a man who was deeply concerned while rattling off well-rehearsed statements that revealed absolutely nothing about his real intentions.

“I completely understand the desire for details and commitments," Geithner opined with heartfelt sincerity, "but we’re going to do this carefully so we don’t put ourselves in the position again....This is the beginning of the process of consultation." The there was this gem worthy of Maestro himself, "We are exploring a range of different structures" to deal with precisely that issue.

Right.

Most of the critics believe that Geithner is in over his head, but that's probably not the case. More likely, he has a plan but wants to keep the public in the dark. After all, there's no graceful way to tell people that they are about to get shafted for another $2 trillion to keep the larder on Wall Street full of Dom Perignon and chocolate truffles.

One thing Geithner will insist on is that the Treasury and the Fed remain the final arbiters of "who is solvent and who is not" as regards the big banks. That should be Sheila Bair's job. As the head of the FDIC, Bair is the regulator who should be in charge of checking capital reserves and closing underwater banks. But, apparently, Bair has been crowded out for political reasons. Geithner and his insider friends are calling the shots.

Geithner announced that Treasury would be putting together a new "public-private investment fund" to try to attract private capital to assist the government in purchasing some of the higher-rated assets the banks are trying to unload. The details are still sketchy, but it sounds a lot like Henry Paulson's Super SIV (structured investment vehicle) which provided a spot for the banks to dump their off-balance sheets garbage in one "government approved" SIV. Of course, the idea failed because, by then, investors were already skittish about buying complex, structured investments. Even so, Paulson's credibility took a real beating. He was seen as using his office to peddle dodgy bonds for his friends. Geithner won't make the same mistake. He'll take the high-road and entice the banks and hedge funds into buying the distressed MBS by providing government guarantees and subsidies similar to the perks in the Merrill Lynch-Lone Star transaction. In that deal, Merrill offloaded $31 billion in toxic CDOs for $.22 on the dollar and provided 75 percent of the financing. It was a sweetheart deal from the get-go and Geithner will undoubtedly duplicate it to get rid of the junk at no risk to the buyer. That will help fatten the bottom line of the teetering banking fraternity.

Geithner's financial rescue plan includes $500 billion to $1 trillion for the Fed's Term Asset-Backed Securities Loan Facility (TALF). This will provide additional funds for institutions that finance pools of car loans, student loans, credit card debt etc. The securitization of consumer debt, which broke down 19 months ago when the crisis began, has resulted in an unprecedented slump that's put the world economy in a tailspin. Securitization has been Wall Street's golden goose. It's a reliable way to maximize leverage on smaller and smaller slices of capital. As borrowing increases, asset prices rise, making the system more and more unstable. When the bubble finally bursts; the tremors ripple through the real economy sending asset values crashing, equities markets plunging, and unemployment skyrocketing.

In his speech Geithner admitted that, "In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses -- large and small.”

40 percent! Think about that. Nearly half the credit pumped into the economy comes from securitization.

In other words, the banks ARE lending; it's just that Wall Street's credit-generating mechanism is kaput. That's why the fall-off in auto sales, consumer spending and foreign trade has been so dramatic, unlike anything anyone has ever seen before. Wall Street's credit model is broken. Shouldn't there at least be public hearings before Geithner and Bernanke put Humpty together again and we resume the same tragic boom and bust cycle? There has to be another way.

Credit production should never be in the hands of speculators. It's too dangerous. That's why the banks need to be strictly regulated, because the power to create credit is "more dangerous than standing armies".

According to the UK Telegraph:

"The past five quarters have seen 40pc of the world's wealth destroyed and business leaders expect the global economic crisis can only get worse."

Once again; 40 percent. The global economy is contracting to accommodate the new reality of less debt-fueled expansion. Wall Street (understandably) is looking for its next bubble, just like Geithner. But deflation follows its own inescapable logic, too. The excess leverage and unsustainable credit that was produced via complex debt instruments, derivatives contracts, and structured investments is being purged from the system causing a generalized shrinking throughout the economy. There's no need for an oversized financial system; business activity is slowing, investment and trade are dwindling, and consumers are hunkering down.

Even in the best of times it would be difficult for Geithner and Co to achieve their goal of saving the big banks. But given the state of the economy--the wobbly dollar, falling tax revenues, the enormous deficits, rising unemployment, the erosion of household balance sheets and the massive system-wide contraction--a multi trillion dollar bailout that leaves the banks in private hands is just not realistic. Geithner will not succeed. Every attempt to save the banks will be met with greater and greater public resistance and rage. The banks that are underwater need to be put out of their misery and nationalized.




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

THE ENEMY WITHIN

President Obama Must Dump Summers To Save His Presidency
Debra Hanania-Freeman
http://www.larouchepub.com/other/2009/3613must_dump_summers.html

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.


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[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.
  
  
WANT TO DESTROY THE U.S.A.?  THEN LET THE BAILOUTS CONTINUE
John Hoefle
http://www.larouchepub.com/other/2009/3613bailouts_destroy_usa.html


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.

Corruption
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.