Tuesday, September 30, 2008

The battle for America has just begun

Paulson and Bernanke go around crying "Fire! Fire!" and then act surprised as everyone goes rushing for the doors. Wall St. is down. OK. Well maybe it should be down given the inflated assets that have been revealed. How about focusing on the good news. Oil is down.

Of course the great news is that the House rejected the Wall St. Bailout Bill. You know I have a better idea, let China and Japan bailout Wall St. They are sitting on Trillions of dollars of assets. And as a prize, they get to keep their own economies from collapsing. You see as much as Paulson would have us believe that China has the US over the barrel, if the US economy collapses they will be the first to suffer. So it's in China's best interest to prop up the US economy. Unless of course the US taxpayer lets China off the hook by bailing out Wall St., then China is the big winner.

Today, you would expect that the House and Senate would be back at work and voting on a revised bill. Oh but wait, today is the Jewish holiday of Rosh Hashanah. And because there are so many Jewish members of the House and Senate taking the day off, no bills can be brought to a vote. But Wall St. isn't closed. Stock markets around the world aren't closed but, "Congress is taking a two-day break so that its Jewish members can observe Rosh Hashanah, the Jewish New Year." You got that right - not one but two days off!

So Paulson and Bernanke want you to believe that this Stock Market decline on Monday is a signal that the end of the financial world is near if the taxpayers don't bailout Wall St., but Congress is taking 2 days off. Nice.

Well my friends this is not the time for us to take time off. We must continue calling Congress and speaking out against any form of bailout by the US taxpayers. Why should we pay for the sins of Wall St.? Don't let them scare you with their talk about a Great Depression if the bailout is not passed. This is war! And in war you need courage to face the cannons of the enemy. If we all go running and hiding for cover now, they will have won.

Talk to your neighbors and friends at work. Mobilize any organizations you belong to. Take to the streets in protest. Keep calling Congress. The battle for America has just begun.

Monday, September 29, 2008

Wall Street's gigantic Ponzi scheme

I was on Digg watching this video when I had a thought and quickly wrote out the following comment.

My Comment

People around the world invested in the US stock market because there was a fundamental belief that you could trust US companies. In the sense that there are supposed to be accounting rules in place and sufficient transparency that US corporations could not dupe their investors. As opposed to China where the rap was that there was no transparency and therefore you couldn't tell what you were investing in.

Well Wall St. cooked the goose that laid the golden egg by hugely inflating their assets and profits through phony accounting schemes. Now everyone around the world realizes that they were duped by the world's largest ever Ponzi scheme. This bailout will not restore that confidence. In fact it is more of the same.

And why would Congress give more power and money to the Bush Administration who's goal is to create a Unitary Executive? Any "oversight" that may be granted in this bill is just laughable. What is Congress going to do, subpoena administration officials if they don't like what they are doing with the $700 Billion? Secretary Paulson will just claim Executive Privilege and refuse to testify. He's like an annoying relative that only calls when he wants money. At least he was brutally honest about demanding immunity from any Court of Law. But then what would you expect from a Dictatorship?

When will Congress learn that Bush considers himself above the Law? Instead of wasting time on another "emergency" measure they should get to work IMPEACHING BUSH!

Ponzi Scheme

For those that don't know what a Ponzi scheme is and are too lazy to follow the Wiki link, here is a quote from the Wiki page.

A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.

The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. Ponzi's original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté.
So now that you know what a Ponzi scheme is, doesn't this perfectly describe the con game that Wall St. was playing? And now it should be clear that the Paulson Plan is in fact just a scheme to keep the Ponzi scheme going a little longer. But in the end it must collapse because there is little of value underlying this scheme. America needs to rebuild its manufacturing base if it expects to compete in the world.

America's addiction to Debt

As another article I came across on Digg states, "America's No. 1 Export: Debt". It used to be AAA rated debt, but all that could change.
Japan and Germany make cars. Saudi Arabia pumps oil. China supplies the world with socks and toys and flat-screen TVs. What does the United States produce? Lots of stuff, but in recent years this country's No. 1 export--by far--has been debt.

For now, we can still reassure buyers around the world by slapping that GUARANTEED label on our debt. But as financial crisis and economic slowdown cause government debts to burgeon, and as commitments to Social Security and Medicare loom closer as baby boomers retire, that confidence could easily fade.
So Wall St. and the US Treasury have been exporting this giant Ponzi scheme. The next thing you hear will be a "giant sucking sound", and it won't be our jobs going to Mexico as Ross Perot used to warn. No as it turned out our jobs went to China. And the new "giant sucking sound" will be all our US companies being bought up by the same Chinese.

Do you remember the story about how the early settlers bought Manhattan from the Indians for some shiny trinkets? Well we have been in the process of re-selling Manhattan and all of America to China for some shiny trinkets in the form of iPods and big screen TVs.

It's not too late to STOP THE BAILOUT and stop the sellout of America. Keep calling your Congressperson. Yes the House voted against the bailout once, but they must totally reject it or it will be the end of the United States of America as we know it.

Either that or convince your State to secede and become part of Canada. Really. Have you got a better plan?

Sunday, September 28, 2008

Cash for Trash - Summary of videos and news

Rep. Peter DeFazio D-Oregon describing Paulson's "Cash for Trash" proposal.

Jim Rogers: `Welfare for the Rich'

Stephen Colbert: Banking Industry Determined to Strike within US

Richard Shelby: Leading economists say "the Paulson Plan is a bad plan"

The Market Ticker: No Banker Left Behind

Video from Jim Jubak on MSN Money. Well worth watching. Jim discusses the credit rating of the US Government. (Please ignore MSN's commercial.)

Jubak’s Journal: Who’ll bail out the Fed?
Jubak’s Journal: Who’ll bail out the Fed?

Bailout Could Deepen Crisis, CBO Chief Says

During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."

In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.

Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said.
'Un-American' Bailout, Paulson Should Have Quit, Gingrich Says
"You have the former Chairman of Goldman Sachs asking for 700 billion dollars, and in his initial request, asking for it in such an un-American way that I think he should have resigned," said Gingrich. "I think Paulson has terminally misunderstood the nature of the American system. Not just no review, no judicial review, no congressional accountability. Give me 700 billion dollars, 700 BILLION dollars! 'I'll be glad to spend it for you.' That's a centralization of power that is totally un-American."

From Neocons to Neocrooks

I ended my last article, "Bailout will turn China into economic superpower" with the question "Why would our government leaders propose such a treasonous plan?" I now have some answers to that question that I would like to share with you.

As you know if you have been reading my blog Secretary of Treasury Henry "Hank" Paulson is the former CEO of Goldman Sachs (GS). Goldman Sachs has done fabulously well throughout this financial crisis as I have described in my article, "Goldman Sachs: Wall St. Gangstas".

And now both China and GS stand to be the big winners in the financial bailout. Here's what Bloomberg has to say, "Paulson Debt Plan May Benefit Mostly Goldman, Morgan".

Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

"Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.
I have already written about why China and other foreign governments benefit from this bailout, so let me now discuss the connections between Goldman Sachs and China. I will focus on China because in addition to being a huge beneficiary of this bailout, China is an adversary of the US both economically and militarily. While Japan may also benefit from the bailout, Japan is within the US sphere of influence and is not as much of a threat to the US militarily. For instance, the US still has 90 military bases in Japan with about 52,000 US troops.

So let's begin examining the evidence. First up, "Can Hank Paulson Bring China and the U.S. Together?", from Time Magazine, Jan. 18, 2007
At the same time, Beijing views Paulson as a "Friend of China." During his tenure as CEO, Goldman Sachs advised the government on numerous privatizations of state-owned companies. Paulson himself was a key behind-the-scenes force in the controversial—and ultimately unsuccessful—attempt by state-controlled oil producer CNOOC to buy U.S.-based Unocal.

But being Washington's Mr. China is a delicate balancing act for Paulson. Chinese leaders such as Vice Premier Wu expect him to understand where China is coming from—and cut it some slack.
So what about that Unocal take over bid by CNOOC that Paulson was behind. Here's what the Washington Post had to say about this deal in 2005, "China Tells Congress To Back Off Businesses". And remember that Paulson became Treasury Secretary in July 2006.
Four days after the House of Representatives overwhelmingly approved a resolution urging the Bush administration to block the proposed transaction as a threat to national security, China's Foreign Ministry excoriated Congress for injecting politics into what it characterized as a standard business matter.

"We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries," the Foreign Ministry said in a written statement.

If completed, CNOOC's purchase -- its bid is for $18.5 billion -- would be the largest foreign takeover ever made by a Chinese firm.

"We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the Communist Chinese," said Rep. William J. Jefferson, a Louisiana Democrat.
So after the $700 Billion bailout will Congress still be able to stand up to Chinese companies and keep them from buying out key US companies? I don't think so. The Washington Post article continues.
But whatever comes of the Unocal battle, tensions over Chinese investment are probably only beginning. Just as a rising Japan in the 1980s snapped up high-profile assets in the United States and provoked widespread American unease, China's expanding horizons are having a similar effect.

Moreover, key differences between Japan of that era and current-day China could make this go-round more combustible: Japan was a U.S. military ally and part of the same ideological bloc, whereas China is viewed by many in Washington as an adversary.

But the simplest reason for tension may be the amount of cash at China's disposal: As investment pours in and China's central bank buys dollars to maintain the value of its currency, the country has amassed $650 billion in foreign exchange reserves. China has plowed much of that money into U.S. Treasury bonds.
That article was written back in 2005. Today, 3 years later, China has about $1.8 trillion in foreign exchange reserves according to this article from the Globe and Mail, "The tables have turned on Wall Street as China takes the lead".
As far as we know, U.S. President George W. Bush didn't exactly ask China for help when he discussed the Wall Street crisis with Chinese President Hu Jintao on the telephone Monday. Mr. Bush is a proud man and the United States a proud country, still certain of its position at the centre of the economic and financial universe.

But the shift in power from West to East must have been palpable all the same. Wall Street, the citadel of Western capitalism, is in its worst crisis in decades. The American economy, once the powerhouse of the world, is on the brink of recession. China, meanwhile, continues to grow at a pace of more than 10 per cent a year, with most experts predicting only a modest slowdown as a result of the troubles in the United States.

The biggest bank in the world, based on its market capitalization as of Sept. 15, was Chinese: Industrial & Commercial Bank of China. In fact, three of the top 10 banks by that measure are Chinese (while four are American).

China, meanwhile, sits Buddha-like atop $1.8-trillion in foreign exchange reserves. Its debt and deficit are negligible by American standards.

The United States needs China, economically and financially, as never before. For some time now, China has helped prop up the U.S. economy by plowing the earnings from its soaring exports into U.S. government securities such as Treasury bonds. That has effectively financed the growing U.S. government debt, at the same time keeping U.S. interest rates relatively low and (until recently) the dollar relatively high. That, in turn, has allowed U.S. consumers to snap up Chinese-made consumer goods for cheap, buoying the American standard of living.

The Wall Street crisis means that Washington relies even more on Chinese wealth. Just three years ago, American legislators felt confident enough to spike the purchase of Unocal Corp., a leading U.S. oil producer, by China National Offshore Oil Corp. It was a snub to Beijing from a United States that felt uneasy about seeing its corporate assets snapped up by a foreign power.

Today, slices of Wall Street corporate giants are being shopped around to Chinese investors like so many used cars. China Investment Corp., Beijing's $200-billion sovereign wealth fund, is being courted to increase its 9.9 per cent stake in Morgan Stanley, for example. Suddenly, Chinese money doesn't look so bad.

It is not just the U.S. financial system that has been weakened by the past week's crisis. It is the whole brand of U.S.-style capitalism. Henry Paulson, the U.S. Treasury Secretary, has been fond of delivering lectures to Beijing on everything from how they value their currency to how they run their banking system. Just imagine him trying to do that now.
Henry Paulson is in fact taking orders from China now. But he and Goldman Sachs stand to benefit because they have been building a relationship with China for years. Just take a look at this article from Fortune Magazine in May 2006, "Wall Street's war for China".
On a Friday in March, executives from some of the world's most powerful investment banks gathered at the Beijing headquarters of the Industrial & Commercial Bank of China to compete in one of the richest beauty contests of all time.

One after another, teams from each firm were led to a chilly tenth-floor conference room where they were given 60 minutes to describe their plan for selling the state-owned bank's shares to foreign investors. Contestants battled in pinstripes, not swimwear, and sought to dazzle with the brilliance of their PowerPoints more than their smiles.

But in this master-of-the-universe pageant the prize was well worth turning on the charm. Victors would claim the right to lead ICBC in a $12 billion public offering this fall, the world's largest in seven years. The mandate would mean hundreds of millions of dollars in advisory fees, millions more in follow-on business, and the chance to forge a long-term partnership with China's largest bank--not to mention fat bonus checks at year-end.

Goldman Sachs (Research) was the hands-down favorite. Its executives had courted ICBC for years. On his many trips to China, CEO Hank Paulson had called regularly on chairman Jiang Jianqing. Jiang's daughter had worked as a summer intern at Goldman in New York City. Earlier this year Paulson had underscored the firm's commitment by pledging to buy a 7% stake in the bank for $2.6 billion.

Goldman, which got a foothold in China in the early 1990s, is the only foreign securities firm with a trading platform on the mainland. But securing it has required some clever footwork. As a show of good faith to China's regulators, Goldman agreed to pay $68 million to bail out clients of Hainan Securities, a scandal-plagued brokerage it had no connection to that collapsed in 2001. Next it advanced Fang and five co-investors $100 million to launch Gaohua Securities, a new brokerage.

The final step was the creation of Goldman Sachs Gaohua, a joint venture in which Gaohua holds 67% and Goldman owns 33%, the maximum allowed. Goldman won't discuss the terms of its loan to the Fang group, other than to say it gives Fang, who serves as chairman of both Gaohua and the joint venture, ample incentive to remain a part of the Goldman team. The aim of all this was to create a legal framework granting Goldman effective control over a mainland investment bank, even if, on paper, it's owned by someone else.
I think you get the idea. Paulson as CEO of Goldman Sachs did everything he could to acquire a strong position in China - even bailing out some criminals to the tune of $68 million. Sounds like a bribe to me. Goldman Sachs is in an excellent position to benefit from this bailout. And of course the ones who are being taken to the cleaners are the American People. But Godfather Paulson and his fellow Gangstas at GS will profit enormously.

So why is Paulson trying to push this treasonous bailout on the American People? Isn't it obvious? Greed and Power. Greed is not Good for America! Paulson is the biggest traitor since Benedict Arnold. Who are the terrorists? It's the Neocons and the Neocrooks that have sold out America and destroyed the country we love.

Saturday, September 27, 2008

Bailout will turn China into economic superpower

Flashback March 1987 - "I'll Take Manhattan -- and Waikiki"

Exxon, ABC and Tiffany have more in common than famous names and slick midtown-Manhattan addresses. All have Japanese landlords. Within the past six months, investors from Japan have bought the headquarters buildings of the three firms. In a new twist on the protectionist slogan "Buy American," Japanese firms are literally buying America, or at least choice pieces of it, from New York City high-rises to beachfront hotels in Hawaii. Eager as customers at a close-out sale, these investors from the Far East snapped up as much as $6 billion worth of U.S. real estate last year, more than four times the 1985 level, and they have only begun to shop.

Economic forces on both sides of the Pacific have helped set off this international game of Monopoly. For one thing, Japan's incredible export machine has created a huge pool of excess capital. Japan's trade surplus with the U.S. in 1986 alone was $58.6 billion, and exchange-rate changes over the past two years have sharply boosted Japanese purchasing power in the U.S. The dollar has depreciated in value against the Japanese currency by some 40%, from 260 yen in February 1985 to 153 yen last week. That makes even Manhattan prices seem reasonable. Example: a building that cost $100 million, or 26 billion yen, two years ago would now set back the buyer a relatively paltry 15 billion yen.
Then came the stock market crash of 1987 in October and the real estate crash. And just like that the Japanese caught the American contagion. Do you remember the scene in Back to the Future II where Marty Mcfly is fired by his Japanese boss. Back then it seemed like the Japanese would take over the world financially, but it never happened because they got stuck with bad investments.

Now it's China's turn and the Chinese are not willing to repeat Japan's mistakes of 20 years ago. They want guarantees that they will not be the ones to suffer from the current financial disaster and they feel they have enough power to dictate the terms.

You can get an idea for the confidence that the Chinese are feeling from this article, "Chinese regulator calls US lending 'ridiculous' ". The comments from Liu Mingkang, China's top bank regulator, go as far as ridiculing his US counterparts.
"When U.S. regulators were reducing the down payment to zero, or they created so-called 'reverse mortgages,' we thought that was ridiculous," Liu said at the World Economic Forum in this eastern Chinese city. He said debt in the United States and elsewhere rose to "dangerous and indefensible" levels.

Liu's comments were unusually pointed criticism of U.S. financial regulation for a Chinese official.

As China made changes, Liu said, "a lot of the time, we learned that what we had learned from our teacher the day before was wrong."

Liu compared Washington's proposed $700 billion plan to revive credit markets to fast food and said the world needed to look at longer-term solutions.

"Fast food is convenient. This $700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn't agree with your stomach. You should think about Chinese slow cooking and slow food," he said, prompting laughter from his audience.
The article goes on to suggest that changes are forthcoming. Jiang Jianqing, the chairman of China's 2nd largest bank was a bit more restrained in his comments. But China's goal remains clear - to break the financial hegemony of the United States and to become the dominant player on the world economic stage.
The crisis is likely to increase the influence of China and other emerging economies in the world financial system, though Wall Street will retain its leading role, said Chinese and foreign businesspeople at the conference, the Chinese leg of the forum based in Davos, Switzerland.

"I believe this kind of regional financial strength will play a bigger and more important role," said Jiang Jianqing, chairman of state-owned Industrial & Commercial Bank of China Ltd., the world's biggest commercial lender by market capitalization.

"Right now the market is very unitary," with U.S. bonds dominating global holdings, Jiang said. "This kind of a unitary, over-centralized market is something we need to change." Still, he said, Wall Street's "dominance will continue."
And finally in this same article we get the European response which is to defend the current system, but to acquiesce that barriers that had previously prevented non-Western governments from investing heavily in Western countries would be forced to come down.
The European Union trade commissioner, Peter Mandelson, defended the global capital markets structure, warning that drastic change might hurt prosperity.

"The capital market system, fundamentally, is not flawed," Mandelson said. "We are not looking for some alternative, and I hope that people in the emerging markets, in China for example, are not looking for an alternative to properly functioning capital markets."

The crisis is likely to reduce resistance in the West to investments by government funds as companies urgently seek capital, said Thomas Enders, CEO of the European aircraft producer Airbus Industrie.

"I would dare to predict that, yes, one of the big changes we will see is greater acceptance of sovereign wealth funds," Enders said.
Which brings us to the topic of Sovereign Wealth Funds. These funds exist in countries with trade surpluses. Mostly oil rich Arab countries and China. As they have accumulated dollars, they have built up these funds and used them to make investments abroad. Naturally there are concerns about foreign countries buying up US assets.

But the biggest concern is the financing of the US Debt. Currently the total debt stands somewhere around $9.7 Trillion. Of that approximately $1.1 Trillion is held by the Central Banks of Japan and China. Japan holds about $600 billion or 22.7% and China holds about $500 billion or 19.3%.

And now China is threatening a panic sale of large amounts of US Treasuries in this article, "Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu Says".
Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.

"We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. "If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

An agreement is needed so that no nation rushes to sell, "causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion.
The connection between China's threats and Paulson's $700 Billion bailout is made explicit in this same article.
U.S. Treasury Secretary Henry Paulson is urging Congress to pass a $700 billion plan to remove devalued assets from the banking system. Federal Reserve Chairman Ben S. Bernanke said Sept. 24 that the U.S. is facing "grave threats'' to its financial stability.

China's huge holdings of U.S. debt means it must bear a large proportion of the "burden of sorting things out'' in the U.S., Yu said. China is not in a hurry to dump its U.S. holdings and communication between the two nations every "couple of days'' is keeping Chinese leaders informed and helping to avoid a potential panic, he added.

"China is very worried about the safety of its assets,'' he said. ``If you want China to keep calm, you must ensure China that its assets are safe.''
If this sounds like blackmail to you then you won't be surprised that it comes with a set of demands that goes beyond the economic bailout being imposed on the US taxpayer. Again from the same article.
Yu said China is helping the U.S. "in a very big way'' and added that it should get something in return. The U.S. should avoid labeling it an unfair trader and a currency manipulator and not politicize other issues, he said.

"It is not fair that we are doing this in good faith and are prepared to bear serious consequences and you are still labeling China this and that, accusing China of this and that,'' he said. "China knows what to do. We don't need your intervention.''
Could one of the "other issues" that China is referring to be Taiwan? If you know anything about China, then the answer is obviously yes.

So what comes next? As I described in my previous post, the Chinese will swoop in to buy US assets once the toxic assets have been handed over to the taxpayer. Remember, they don't want to repeat the experience of the Japanese in the 1980's.

And to make the Chinese yuan go even farther in buying distressed US assets China is planning to finally follow a bit of US advice. It will let the yuan float and appreciate in value. This is something it has been reluctant to do because it would cause the price of their exports to rise, but the policy is about to change according to the final segment of this same article.
"Our export-growth strategy has run its natural course,'' he said. "We should change course.''

China should stop intervening in the foreign currency markets and thus allow rapid appreciation of the yuan, he said. While this would cause pain for exporters, China could ease the transition by using its strong fiscal position to aid those who lose their jobs.
So my question is why should the US fall into this trap when the outcome is so obvious? Right now China and Japan and others are stuck with bad US Treasuries. If we do nothing then they are obliged to prop up the US dollar in order to protect their investments. But by buying up the toxic assets on the market we release foreign investors from this bad debt and place all of the burden on the US taxpayer. Why would our government leaders propose such a treasonous plan?

I have only one response - NO BAILOUT!

No matter how many provisions are added to the bailout to make it seem more tolerable, any purchase of bad debt by the US government must be rejected. The survival of our Democracy depends on it.

The companies that followed deceptive business practices must be allowed to fail without intervention. Let them go bankrupt and let the bankruptcy courts sell off the assets. Let the investors take the loss, whether they are foreign or domestic. And by all means prosecute those business leaders that deceived their investors and jail all those who are found guilty.

Friday, September 26, 2008

Bailout will be followed by Sellout

The Paulson bailout is part of a plan to sellout Wall St. to foreign investors. These investors are demanding that the toxic assets first be removed from the books before they rush in to buy up American financial companies at bargain basement prices.

This is the real purpose behind the $700 Billion plan. It is being forced on us by Chinese and other foreign investors. This is a stealth IMF style austerity plan. Paulson is trying to make it look like the US is doing this voluntarily, but actually the terms are being dictated by foreign governments.

So where am I getting these crazy ideas from, or am I just spouting garbage? Well take a look at these quotes buried in the financial news.

Excerpts from "Qatar fund spurned Wall Street" in Gulf Times on September 26, 2008.

A leading executive of Qatar’s sovereign wealth fund has disclosed it had spurned the chance to help re-capitalise troubled Wall Street banks, in remarks that offered a rare insight into its investment strategy, according to the Financial Times of London. Kenneth Shen, head of strategic and private equity at the Qatar Investment Authority, said on Wednesday that the QIA had got “an early look” at potential investments in the US banks but declined the offers. He told a Hong Kong conference: “From where we stood it was too early (to invest) from a timing perspective. It was clear to us that we were coming down the curve.”

They suggested the QIA was likely to become more active in the US market when the US government’s bailout of Wall Street is completed. Both Morgan Stanley and Goldman Sachs are believed to have been looking for Gulf capital and to have talked to the QIA. The authority, however, has been very cautious, waiting for more clarity on the terms of the US government bail out.

Excerpts from "Rich with Cash but Short of Talent, Chinese Bankers Eying Wall Street" in China Stakes on September 25, 2008.

Wall Street is undergoing a reshuffling, and assets are on the table for financial firms of other counties to pick up. Japan-based Mitsubishi UFJ and Nomura Securities have already made moves. Will cash-laden Chinese financial institutions follow them in?

Perhaps not, at least for the moment. At present, most Chinese analysts say it is “still too early” to acquire Wall Street assets with the whole US financial system still a-roil and the Treasury and the Fed also having difficulties getting Congress to approve a $700 billion bailout plan.

Most Chinese banks think conservatively, believing it will only be safe to enter Wall Street on condition of the US government’s approval of its $700 billion bailout plan and clear solutions to the problems of the big financial firms. They see no advantages now on Wall Street except for low prices and a whole market that is weak and lacking powerful support.

Holding percentages for Chinese banks in acquiring stakes in overseas financial firms, and whether they can gain the right to control and manage them, is still a problem. Jiang Jianqing emphasized ICBC is looking to be a strategic investor, and not merely a financial investor, in its overseas investment.
So you see Paulson is just setting the stage for the huge sellout of American assets that is coming next. Of course his friends back at Goldman Sachs will benefit enormously from these transactions. While the American taxpayer will be left holding the bag.

Tuesday, September 23, 2008

America the Financial Junkie

Excerpts from STATEMENT OF SENATOR RICHARD C. SHELBY Ranking Member (R-AL) at Senate Banking Committee Hearings on September 23, 2008.

"As early as July of 2003, I asked Chairman Greenspan whether he was concerned about the growing number of loans to borrowers with weak credit histories and the number of homeowners who spent more than fifty percent of their income on housing. I also asked if he was concerned whether an economic down turn could lead to increasing delinquencies and foreclosures. He assured us that increasing home prices provided an equity cushion for mortgagors and that lending to such borrowers would pose a ‘rather small’ risk to the mortgage market and the economy as a whole. As recently as March of this year, Vice Chairman Kohn assured us that the banking system was in ‘sound overall condition’ and that losses ‘should not threaten their viability.’ We now know that was not the case.”

“Of the five investment banks regulated at the beginning of the year by the SEC under its Consolidated Supervised Entities Program, two have failed, one was forced to merge with a bank, and the remaining two have now left the program to become bank holding companies. The recent demise of our investment banks lies in stark contrast to the vote of confidence we received from Chairman Cox in February of this year when he assured us that the CSE program was up to the task, and I quote: ‘The purpose of the CSE program is to monitor for, and act quickly in response to, financial or operational weakness in a CSE holding company . . . that might place regulated entities, or the broader financial system, at risk.’ ‘The Commission seeks to . . . ensure that the holding company has sufficient stand-alone liquidity and financial resources to meet its expected cash outflows in a stressed liquidity environment for a period of at least one year.’ "

“Unfortunately, the Treasury Department’s latest proposal continues its ad hoc approach, but on a much grander scale. The plan contemplates the purchase of up to $700 billion in troubled mortgage-related assets from financial institutions. Treasury expects, but is not required, to purchase most assets through a type of reverse auction process. There are very few details in this legislation. In fact, Treasury officials admit that they will have to figure out the mechanics as they go along. Rather than establishing a comprehensive workable plan for resolving this crisis, I believe this legislation merely codifies Treasury’s ad hoc approach.”

“My record is very clear on taxpayer funded bailouts. I have long opposed government bailouts for individuals and corporate America alike. As a Congressman, I voted against the loan guarantees for Chrysler in 1979. However, if the government is going to get into the bailout business, shouldn’t we also be focusing our resources on average Americans, rather than sophisticated and well-compensated bankers? The Treasury’s plan has little for those outside of the financial industry. It is aimed at rescuing the same financial institutions that created this crisis with their sloppy underwriting and reckless disregard for the risks they were creating, taking, or passing on to others. Wall Street bet that the government would rescue them if they got into trouble. It appears that bet may be the one that pays off.”
Excerpt from statement by U.S. Senator Jim Bunning regarding the Treasury Department’s bailout of Wall Street. September 19, 2008
"The American taxpayer has been mislead throughout this economic crisis. The government on all fronts has failed the American people miserably."

"My great grandchildren will be saddled with the estimated $1 trillion debt left in the wake of this proposal. We have gotten to this point because nobody has been minding the store. Both Secretary Paulson and Chairman Bernanke should be held accountable for their inaction – and now because of that inaction – the American taxpayer is left with the bill."
Excerpts from testimony by Secretary Henry M. Paulson, Jr. before the Senate Banking Committee, September 23, 2008
The market turmoil we are experiencing today poses great risk to US taxpayers. When the financial system doesn't work as it should, Americans' personal savings, and the ability of consumers and businesses to finance spending, investment and job creation are threatened.

The ultimate taxpayer protection will be the market stability provided as we remove the troubled assets from our financial system. I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund everyday needs and economic expansion.

Over these past days, it has become clear that there is bipartisan consensus for an urgent legislative solution. We need to build upon this spirit to enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don't have broad support. This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people and stimulate our economy.
My comments, September 24, 2008
So Secretary Paulson would like us to believe that this incredibly massive bailout is being done to save the American People. Really? Since when do the Elite represented by Paulson give a rat's ass about the welfare of the American People? They just need us to be sufficiently healthy so they can continue to feed off of our labor, like some giant Vampire Bat sucking off of the blood of its victim.

These are the same Elite that ruthlessly plunder weaker corporations and then "downsize" them, sending thousands scurrying off to the unemployment line. They don't care that they are affecting real people's lives. That a Father or a Mother has to struggle to provide the basics like food and housing for their children. They don't care about the stresses this puts on a Family and the resulting divorces or the decline in performance in school by a worried child.

So don't tell me now that this bailout is being done for the benefit of the American People. This bailout is being done to Save the Billionaires. Now that it is their families that are being affected, Paulson wants the American People to step in and save their way of life.

Not only should we not bail out the Elite that are responsible for creating this economic disaster, we should be arresting them and bringing them to trial. They must be held accountable for their crimes. Stealing is a crime whether committed by a common thief or a Wall St. firm.

The assets of failed companies should be sold off by the bankruptcy courts. Let those financial institutions that did not engage in these nefarious practices reap the benefit. Let the chips fall where they may. If it comes down to a collapse of the financial system, then it is time to put into place a new financial system.

If Americans must feel the pain, then let us feel it now instead of handing it off to our grandchildren. Perhaps that pain will awaken the dormant Revolutionary Spirit of the American People. The current proposal is like a shot of Heroin for the addict. Has America been reduced to a junkie looking for its next economic fix?

Give me $700 Billion or I'll Shoot the Economy

Congress has been handed a ransom note from the Wall St. Bankers that have kidnapped the economy. "Hurricane Hank" Paulson has revealed his true identity as the Godfather of the Gang and has presented the Economic Terrorist's demands on National TV. He is demanding that $700 Billion be handed over immediately, and also immunity from prosecution for his fellow Criminal Conspirators. If his demands are not met, he is threatening a Global Economic Disaster. He claims that a Terrorist Cell has planted a Dirty Bomb in Wall St that is capable of contaminating the Whole Planet.

The American People, in disarray, are scrambling to come up with the Cash to appease the Criminal Conspiracy. Many are in shock because after handing over the Constitution to the same Terrorists just 7 years ago, they had been promised the end of the Blackmail. The Terrorists had promised them Security in exchange for their Rights, but now comes this new threat to their Economic Security.

Congress, sadly, has long ago sold out to these Economic Terrorists and has quickly capitulated to all their demands. In order not to reveal their Complicity in the Crimes, they put on a show of struggling against the Terrorists. But the True Patriots have seen through their masks long ago. As they struggle to put "lipstick on a pig", they risk being exposed to the American People as the true villains that they are.

The Main Stream Media in their designated roles of cheerleaders for the Criminal Conspiracy try to convince the American People through their Propaganda that this is in their best interest. They try to calm the Angry Mob gathering with pitchforks and torches. Cries of "tar and feather" and worse emerge from the Angry Crowd.

Meanwhile the Cabal plans its next move in the Coup D'état. The first stage was the Stealing of the Elections in 2000. The next stage was the False Flag attack on the Twin Towers. This was followed by the Burning of the Constitution through the Patriot Act. This enabled the construction of a Police State to insure that any protests during the current stage of the Coup could be quickly and brutally dealt with.

Will the elections in November be suspended? Will Bush declare Emergency Powers and appoint himself Dictator? Will the American People rise up and take matters into their own hands? Wake Up and watch the next episode of "It's Your Life" to find out.


Please sign this online petition.
"VoteNoBailout.org REFUSE to be mugged by Wall Street crooks"

Monday, September 22, 2008

Latest news on Bush's Financial 9/11

"Big Financiers Start Lobbying for Wider Aid"
Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.

“The definition of Financial Institution should be as broad as possible,” the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday.

The group said a wide variety of institutions as varied as mortgage lenders and insurance companies should be able to take advantage of the bailout, and that these companies should be able to sell off any investments linked to mortgages.
"Ben Bernanke's Blog"
Next to the huge economic crisis, the most unfortunate thing about the past two weeks has been having to spend so much time with Treasury Secretary Henry Paulson. I never could stand investment bankers. They're always trying to sell you something. Since the people are calling for more transparency in our decision making, here's a transcript of our conference call:

Hank Paulson: Ben, this free market shit isn't working for us anymore. The bankers aren't making any money and are being held accountable for their losses.

Me: That's how free markets work. Remember when Lloyd [Blankfein, CEO of Goldman Sacks] got that bonus check of almost $70 million just last year? Should he take the losses too?

Hank: Lloyd, that little shit. Good thing I had to sell my $500 million of Goldman stock before I took office. Betty [that's Hank's secretary, she just won Secretary of the Month], get Lloyd on the phone.

Lloyd: Hey Hank. Oh, Ben's on too? Hi Ben. I got a little worried when you let Lehman go bankrupt, but they could barely pretty up a PowerPoint anyhow. So I guess if you'll bail AIG we have nothing to worry about. Imagine how the world would feel if they heard Goldman was out of business.

Hank: Lloyd, if I have to bail Goldman out, my former fucking company, I will look like an asshole in front of the whole country.

Me: Don't you already?

Hank: Shut up Ben. We're trying to do a deal here.

Lloyd: So you won't bail us out?

Hank: Of course I will, but I'll have to bail out the whole fucking system with you so it looks good. But I'm not doing this for nothing. In the time of this conference call, I just wrote a three page piece of legislation on my BlackBerry. I'm going to buy all your assets that are worth 50% of what you paid for them for 80% of what you paid for them.

Me: I thought you had an iPhone.

Lloyd: Thank you!

Hank: No so fast. Before I buy your shit assets, you're going to become a bank holding company. Why? That will let me regulate your ass. Lloyd, you and the rest of Wall Street is working for me again.
" 'Hurricane' Paulson blows away 500 years of jurisprudence for bankers' club"
The US Treasury's monetary revolution takes it well beyond the rule of law; it's a financial coup d'etat.

BEFORE we even think about the inevitable passing of a banking licence to Goldman Sachs and Morgan Stanley - previously they held only gaming licences - let us learn by rote the following: "Decisions by the Secretary (Henry Paulson) pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

If the actions of our rulers are beyond the rule of law then those who usurp that rule are presumably above it. To paraphrase the English playwright Oliver Goldsmith, Herr Comrade Paulson has not just offended the law but done something far more terrible - he hath put the law out of office.
"The $700 Billion Bailout: One More Weapon of Mass Deception"
Not since the Bush administration's lies about Iraq's "weapons of mass destruction" have the American people been so despicably misled.

The Bush administration's proposal to buy, with taxpayers' money, $700 billion of toxic liabilities from the corporate financial titans of Wall Street is a fraud. It is by no means necessary, as Treasury Secretary Henry Paulson claims in the agency's Fact Sheet, "to promote market stability, and help protect American families and the U.S. economy."

It is necessary only to assure the financial survival of Wall Street banks and brokerages, the administration's most loyal supporters and its greatest political contributors -- and in large measure the cause of the financial meltdown the country is facing.
"Wall Street's 9/11 in 2008"
Yesterday's news that Goldman Sachs and Morgan Stanley will become "holding companies" is simply a finesse intended to disguise the fact that all five Wall Street firms are now gone and deserve to disappear. Of course the victims are the taxpayers who, Treasury Secretary Hank Paulson informed yesterday, will be on the hook for $700 billion. Make that $1 trillion or $2 trillion actually if the contagion keeps spreading despite increasing amounts of backstopping.

Frankly, lawsuits and handcuffs and RICO prosecutions are in order, but let's see if this terrorist attack results in mass arrests, full body searches, shipments to Gitmo or pinstriped stints in the slammer. I think RICO's a fine idea and taxpayers should be able to seize all the assets of all the managers, directors and executives who oversaw this conspiracy of recklessness for years. The money shot for me would be front-page photographs of government-induced foreclosures in Palm Beach and Palm Springs of Wall Streeters' mansions, stock portfolios, Porches and private jets.

Sunday, September 21, 2008

Goldman Sachs: Wall St. Gangstas

In a scene reminiscent of the St. Valentine's Day Massacre, Goldman Sachs has emerged victorious in the recent Wall St. Gang Wars. Like all good Organized Criminals, the GS gang has high-level officials on their payroll that assist them in getting away with their nefarious deals. In this case look no further than Secretary of Treasury, Henry Paulson, the former Chairman and CEO of Goldman Sachs.

While other Wall St. firms were coming to a bloody end, the GS gang was prospering.

Excerpts from "How Goldman Sachs defies gravity" - September 20, 2007, Fortune Magazine.
As the credit markets fell apart over the summer, causing the prices of hundreds of billions of dollars of mortgage-backed bonds to plunge, Goldman Sachs had already positioned itself so that it would profit massively from a decline in those securities. Thursday, Goldman reported earnings for its fiscal third quarter that were far above expectations.

Amassing a large bearish position in mortgages would have required planning and direction from a senior level. On the conference call, Viniar said the bet was executed across the whole mortgage business, implying that it wasn't the work of one swashbuckling trader or trading desk. Of course, the prescience of the short sale would seem to confirm the view that Goldman is the nimblest, and perhaps smartest, brokerage on Wall Street.
Was this really because the GS gang was the "smartest" in 2007, or did it have insider information from the Treasury Dept. and the Federal Reserve that allowed it to time the market? Clearly the "prescience of the short sale" was a result of cheating the system. Would the GS gang place such a large "bet" without some assurances. To do otherwise would be reckless gambling. What if they lost this huge "bet"? What would have been the cost to the gang? Shouldn't Congress and the SEC be investigating this type of suspicious activity?

So the GS gang made billions on short selling in the Summer of 2007. But when the GS gang was under attack by short sellers in the past week, their man Paulson bailed them out.

Excerpt from "Details of a Rescue Plan Are Unclear, but Some Already Benefit"  from the NY Times, September 19, 2008.
Even more disheartened on Friday were officials at Lehman Brothers, who saw their stock virtually wiped out after the firm filed for bankruptcy protection last Sunday. Had the government moved sooner, executives said, Lehman would not be selling itself in pieces to Barclays and private equity firms.

“We don’t understand it, and we are angry,” one senior executive said Friday. “We were essentially pushed into bankruptcy and now they tighten the short-selling rules? Now they start buying mortgage assets? People here feel lousy.”

Goldman Sachs will be able to sell some troubled assets. That fact reignited discussion about the many administration officials who are Goldman alumni. Along with the Treasury secretary, who created the plan, another former executive of the firm is Joshua Bolten, the White House chief of staff. The plans lifted Goldman’s shares 20 percent on Friday, to $129.80. Mr. Paulson, once Goldman’s biggest individual shareholder, had to sell his stake when he moved to the Treasury Department.
So are we supposed to believe that Paulson isn't benefiting directly from this? Does the NY Times think we're that stupid? At least Newsweek has the guts to point out the obvious calling Paulson "King Henry". King Rat might be more appropriate.

It's time to recognize who the biggest criminals are. It's not the "narco-trafficers" or the "islamo-terrorists". The biggest Organized Criminals are on Wall St. And the biggest and most powerful of the Wall St. Gangs is Goldman Sachs.

Has the US become a 3rd World Country?

Has the US become a Third World Country? The IMF thinks so. If not then why is the IMF demanding that the US undergo a financial audit? Why indeed. And if this startling fact is true, then why haven't you heard about it? Shouldn't this be big news? It certainly should and it most certainly will. That's why I call my blog Future News Today (FNT).

You are probably wondering how I came across this information. It all started with an exchange of comments regarding an article that was posted on Digg. The article was titled "Fed Now Asking For $40 Billion From The U.S. Treasury". In the comments I began by questioning the confidence in the World Markets in the almighty Dollar. Here's my comment.
The article says that the interest rate on Treasuries has fallen to 0.23% and says this is due to demand. Could it actually be that this is because the markets are beginning to realize that the US Dollar is not a solid investment anymore?
After being challenged on this statement, I reformulated my comment as follows.
What would happen if the US Treasury were to fail? I guess that is the question I was trying to ask. Treasuries are just loans issued by the US government. How much money can the Federal Government borrow before it is no longer able to pay it back? This is not just a theoretical question. In the past 3rd world countries have been through this. But it has never happened to the US before. Would China then be able to dictate terms on the US the way we currently dictate terms to 3rd world countries? Is the US becoming a 3rd world country?
I became interested in this topic and began Googling. Could it be that somehow China could dictate the kind of terms on the US that the US has dictated on so many Third World Countries in the past? Could we end up with an Austerity Plan imposed by the IMF? But we control the IMF, so that's ludicrous isn't it? Finally I came across an article that mentioned something called an IMF FSAP. 
In response to these ongoing crises, the International Monetary Fund is undertaking an audit of the U.S. Financial System. The IMF’s Board of Directors has ruled that a Financial Sector Assessment Program (FSAP) is to be carried out in the USA.
Wow! Here was what I had been looking for, but I needed more detail. I continued Googling. I thought something like this would be fairly big news and that it would show up in Google news, but I was having a hard time corroborating this statement. And I couldn't accept a statement like this based on one source alone. I needed an article from a MSM source to confirm this information. Finally I found 2 articles that provided some additional information. Interestingly, neither was from the US MSM. One was from Spiegel, a major German publication, and the other from Economic Times of India. And here are some quotes from those articles.

Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.
For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush's last year in office, but it may not be completed until he has left the White House. This is bad news for the Fed chairman.

When the final report on the risks of the US financial system is released in 2010 -- and it is likely to cause a stir internationally -- only one of the people in positions of responsiblity today will still be in office: Ben Bernanke.
The G24 countries, who account for majority of the IMF's membership but have only a small voice in its operations, said that since the crisis has its roots in the developed countries, the IMF should take them to task.

"Ministers stressed that the IMF needs to urgently improve its surveillance of advanced economies," the G24, which includes powerhouses Brazil, China and India, said in a statement.

"The IMF also needs to extend its vulnerability exercise to advanced economies in order to provide early warning signals of emerging risks."

IMF oversight and rescue programs for developing countries in trouble, as during the the 1998 Asian financial crisis, have sometimes been resented as obtrusive and humiliating, observers said.

"What is interesting is that until a few weeks ago the United States did refuse to have the FSAP in their country," he [The IMF Director] said.
Here's my summary as I expressed it in a comment on Digg recently.
The IMF is getting ready to audit the US at the insistence of China, India and Brazil. Bush agreed only if the report would not be issued until he was out of office. The report will be issued in 2010. Asian countries are pissed that when they had a similar crisis recently, the IMF insisted that they let the bad businesses fail before providing credit. The US is going to get the 3rd world treatment from the IMF.

Saturday, September 20, 2008

Sell High - NOW!

Everybody is celebrating the recovery of Wall Street. This celebration will be short lived. My experience has shown that governments can prop up financial markets for only short periods of time. If you don't believe me, listen to what Jim Rogers had to say on March 12, 2008 about the financial crisis. He was warning back then that Bernanke was "throwing gasoline onto a raging fire".

Jim Rogers says: "Abolish the Fed!"

Here's another Jim Rogers interview. This one is from July 21, 2008 just after the bailout of Fannie Mae and Freddie Mac. 

Jim Rogers says: "Last weekend alone we doubled the debt - 5 trillion more!"

Save the Billionaires

This is not so much a blog entry as just a public dumping of some private notes that I accumulated during the Bear Stearns debacle. With the latest debacle at AIG, I went back and reviewed my notes. I'm sure there is a good blog article in there, but personally I find looking at my raw notes quite revealing. I realize the links aren't properly linked and its impossible to tell what parts are original and what parts are quoted from articles.

So without further ado and without apology I present...

Save the Billionaires

No disaster is too great to be an opportunity to help out some of Bush's Billionaire friends.

Forget saving the whales, let's save the billionaires. According to Bear Stearns CEO Alan Schwartz, “we here are a collective victim of violence”. And you thought the baby seals had it tough.

Bear was a Wall Street institution that had it easy for a long time. It made big profits from trading mortgages and serving hedge funds in the housing and credit securities boom. For years, the Fed gave by keeping interest rates low and fuelling markets with cheap money.

Joe Lewis, the British billionaire who has lost almost $1 billion (£505 million) on his investment in Bear Stearns, is confident that he will be able to block the takeover of the stricken investment bank by JPMorgan Chase before the deal is completed in three months.

The purchases began on July 20 — around the time that Bear Stearns disclosed that two of its hedge funds had imploded, leaving investors in those funds with nearly nothing — and continued through last Friday. The average purchase price was about $106 per share, but Mr. Lewis paid as much as $150 per Bear Stearns share in July.

In the past decade, as global financial markets have boomed, hedge funds and private equity firms have proliferated and investment bankers’ traditional half-share of all the money their banks earn has produced annual bonuses reaching into the tens of millions, the rest of the world has looked on with envy and not a little financial resentment.

The taxpayer has had to stand behind institutions that acted as gigantic slot machines for those who worked there. Rightly, people outside the gilded class do not think this is fair.



A new deal could raise even more questions about the Fed’s involvement in the negotiations. As part of the original deal, the Fed guaranteed to take on $30 billion of Bear’s most toxic assets. The central bank also directed JPMorgan to pay no more than $2 a share for Bear to assure that it would not appear that the Bear shareholders were being rescued, according to people involved in the negotiations.

JPMorgan Chase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations.

Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share

If the price is increased, however, some critics could have more ammunition to complain that taxpayers are helping to bail out a Wall Street firm that should be responsible for its own risky behavior. That is one reason the Fed was hesitant on Sunday night to approve the transaction at $10 a share, people briefed on the talks said.

A spokesman for the Federal Reserve would not comment on the central bank’s involvement in the negotiations and denied that it had directed the original sale price.

Even after JPMorgan announced that it would acquire Bear for $2 a share, investors bid up the stock to close at $5.96 on Friday in anticipation that a better deal would be reached.

On September 10, 2007, he was in the news for paying $860.4 million in an all-cash purchase of a 7 percent stake in Bear Stearns. By December of 2007 Lewis had raised his stake at the brokerage firm to 9.4%, a total of 11 million shares, for which he paid an average price of $107 apiece



British Billionaire Takes Bear Stearns Stake
September 10, 2007

The purchases began on July 20 — around the time that Bear Stearns disclosed that two of its hedge funds had imploded, leaving investors in those funds with nearly nothing — and continued through last Friday. The average purchase price was about $106 per share, but Mr. Lewis paid as much as $150 per Bear Stearns share in July.

Bear Stearns’s stock fell sharply over the summer as the rapid downturn in the subprime mortgage market forced two of its hedge funds to seek bankruptcy protection. The stock decline ignited speculation that the firm could become a takeover target, although some suggested that a sale of a minority stake was more likely..



Joe Lewis, the British billionaire who has lost almost $1 billion (£505 million) on his investment in Bear Stearns, is confident that he will be able to block the takeover of the stricken investment bank by JPMorgan Chase before the deal is completed in three months.



When the US Federal Reserve, the nation’s central bank, engineered the takeover of Bear Stearns by JPMorgan Chase, it endorsed the virtual wiping out of Bear’s shares, a third of which are held by Bear’s 14,000 employees. Jamie Dimon, JPMorgan’s chief executive, offered $2 a share, or about $237m, for a bank that was worth $20bn at its peak and $9.5bn only three weeks ago.

In the past decade, as global financial markets have boomed, hedge funds and private equity firms have proliferated and investment bankers’ traditional half-share of all the money their banks earn has produced annual bonuses reaching into the tens of millions, the rest of the world has looked on with envy and not a little financial resentment.

The taxpayer has had to stand behind institutions that acted as gigantic slot machines for those who worked there. Rightly, people outside the gilded class do not think this is fair.

Like other investment banks, Bear paid most of its employees’ annual bonuses in deferred stock. A trader might get a $1m bonus but a lot of that was paid in shares that only vested after three years.

After the Fed rescued Bear to head off a firesale of mortgage securities, it encouraged JPMorgan to make such a low bid that almost all deferred compensation was wiped out.

In the space of three weeks, the stake owned by Jimmy Cayne, Bear’s wayward chairman and former chief executive, went from being worth $500m to $12m (at the peak, he was a billionaire). A swathe of employees lost millions and about half are likely to lose their jobs once JPMorgan swallows up their bank and its building on Madison Avenue.

The prevailing mood at Bear is a mix of despair and anger. Mr Dimon walked over to Bear on Wednesday to address 400 shattered Bear executives. Alongside him was Alan Schwartz, Bear’s chief executive, who was quoted in The New York Times telling the group that “we here are a collective victim of violence”.

Mr Schwartz’s beef seems to be that Bear collapsed because hedge funds and other banks withdrew their business and credit lines last week, making it insolvent. Joe Lewis, the British-born financier who holds an 8 per cent stake, is so disgusted that he has publicly rejected JPMorgan’s offer and Bear’s shares rose well above the JPMorgan offer price this week on hopes of a higher bid.

The JPMorgan deal went through because the Fed agreed to fund $30bn of Bear’s balance sheet and the central bank would probably block any alternative that gave the shareholders more by withdrawing its support and pushing Bear into insolvency.

Bear was a Wall Street institution that had it easy for a long time. It made big profits from trading mortgages and serving hedge funds in the housing and credit securities boom. For years, the Fed gave by keeping interest rates low and fuelling markets with cheap money.



The most dramatic action, however, came last weekend as the Federal Reserve orchestrated a bailout of Bear Stearns, one of the main financial firms responsible for causing this subprime mortgage mess in the first place.

Bear Stearns has been one of the most aggressive funders and servicers of the abusive, unfair subprime mortgages that are now pushing the country to the brink of recession.


In the latest groundbreaking move from the central bank, the New York Federal Reserve Bank will manage and dispose of the high-risk securities that helped push Bear Stearns Cos. (BSC:11.25, +5.29, +88.8%) over the brink and into
the arms of J.P. Morgan (JPM:46.55, +0.58, +1.3%) .

If the securities, valued at $30 billion on March 14, sell for more than $30 billion, the Fed will take the profit. If they sell for less, J.P. Morgan will assume the first $1 billion in losses, with the Fed on the hook for the remaining $29 billion.

The details announced Monday are slightly more favorable to the Fed than the arrangement announced a week earlier, but, for many critics, the changes don't amount to much more than putting lipstick on a pig.

The changes to the Fed's role were announced shortly after J.P. Morgan raised its buyout offer for Bear to $10 a share from the previously announced $2 in an effort to appease irate shareholders and head off lawsuits. See full story.
"This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning," the New York Fed said in a statement.

J.P. Morgan will finance $1 billion on the debts. Financing on the other $29 billion will be extended by the Fed to J.P. Morgan at the discount rate, which is currently 2.5%.

Repayment of the Fed's loan should begin in two years, the Fed said.

For many analysts, the fundamentals of the transaction remain unchanged: gains on Wall Street are privatized while losses are socialized.

"In other words, would J.P. Morgan be willing to make the deal without the guarantee?" he asked.

The Bush administration has been downplaying its role in the bailout by stressing that the funds come from the Fed. But Ely said there is no functional difference: It is being made on behalf of the U.S. government. "Whether it is the Fed or the Treasury, it is the right hand or the left hand," Ely said.

Treasury may be constrained by statute from making the loan, Ely said, but there are also political advantages because President Bush has pledged that there will be no government bailouts in the financial and housing market turmoil.

 But members of Congress see right through this façade, Ely said. "They will be all over this thing. There are lots of grandstanding opportunities."

"In keeping Bear Stearns solvent, the Federal Reserve acted to avert a domino effect it feared could spark a wider financial market meltdown. But if a firm that's partially to blame for this crisis warrants help, then surely so do millions of ordinary families who are struggling to keep their homes," said the Center for Responsible Lending, in a statement on its website.

The Fed is traditionally been wary of getting into the middle of political battles for fear of losing its political independence, but extraordinary times forced the bank to act, analysts said.


Wikipedia - Bear Stearns

During the week of July 16, 2007, Bear Stearns disclosed that the two subprime hedge funds had lost nearly all of their value amid a rapid decline in the market for subprime mortgages.

On August 1, 2007, investors in the two funds took action against Bear Stearns and its top management. The law firms of Jake Zamansky & Associates and Rich & Intelisano both filed arbitration claims with the National Association of Securities Dealers alleging that Bear Stearns misled investors about its exposure to the funds. This was the first legal action made against Bear Stearns, though there have been several others since then.[7] Co-President Warren Spector was forced to resign on August 5, 2007, as a result of errant trades that led to the collapse of two hedge funds backed primarily by subprime loans. A September 20 report in the New York Times noted that Bear Stearns posted a 61 percent drop in net profits due to their hedge fund losses.[citation needed] With Samuel Molinaro's November 15 revelation that Bear Stearns were writing down a further $1.2 billion in mortgage-related securities and would face their first loss in 83 years, Standard & Poor's downgraded their credit rating from AA to A.[8]

On March 16, 2008, the company signed a merger agreement with JP Morgan Chase for $2 per share of its own stock.

The merger agreement, which refers to JPMorgan as "Parent," contained certain clauses designed to lock the agreement in, preventing any decision by the shareholders to the contrary. Notably, clause 6.10 provides that if the shareholders of Bear Stearns ("Company") vote against this two-dollar deal, "each of the parties shall in good faith use its reasonable best efforts to negotiate a restructuring of the transaction provided for herein ... and to resubmit the transaction to Company's shareholders for approval, with the timing of such resubmission to be determined at the reasonable request of Parent."



Bear Stearns had total positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in "notional" terms. The contracts were described as "swaps", "swaptions", "caps", "collars" and "floors". This heady edifice of new-fangled instruments was built on an asset base of $80bn at best.

But JP Morgan is already up to its neck in this soup, with $77 trillion of contracts. It will now have $90 trillion on its books, a sixth of the global market.



Again and again we hear the pleading cries from the shills of Wall Street, “but if the Fed does not intervene, the implications for the US financial system are too awful to contemplate”. How many times in the past have we heard the EXACT SAME line coming from Wall Street after they have enriched themselves with commissions pedaling their poison to the rest of the world and then having the audacity to shroud their narcissistic pleas for bailouts under the guise of the common good? That is the very reason that we experience this same destructive practice among Wall Street banks time and time again. They know full well that they will be rescued over and over again. I do not know which is more depressing, the fact that this sort of thing repeats with increasingly regularity among the big banks or that the investing community stands there as the chief cheer-leader urging the central planners to get involved.


Including the planned share issue by Bear Stearns, most analysts estimated that the new offer valued Bear at about $2.1 billion. The original offer valued Bear at about $236 million.

"Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out," Bove wrote.

Keefe, Bruyette and Woods said it expected the deal to go through at the revised terms. Some investors, however, appeared to be expecting a higher offer as Bear shares surged 76 percent to close Monday at $11.25.



Slightly more than a week ago, we were told that the entire financial market was about to implode because Bear Stearns (NYSE: BSC) was unable to meet a margin call. As a result of that so-called crisis, The Federal Reserve arranged and agreed to subsidize a bailout of Bear Stearns by JPMorgan Chase (NYSE JPM). If that weren't bad enough, as part of the crisis response, the Fed also voted itself special emergency powers to lend directly to certain securities dealers as well as banks.

If there's really five times as much value in Bear Stearns than we were led to believe just a week ago, then why:
Is the Fed still guaranteeing $29 billion of the $30 billion it kicked in to seal the deal?
Hasn't the Fed closed the new window that lets it lend to securities brokers?

It would seem that either the Fed panicked again and doesn't want to admit its newest misstep, or that it's more interested in providing welfare payments to billionaires than doing its real job. Either way, as things stand now, you and I are subsidizing the risks that JPMorgan and Bear Stearns are taking, and their shareholders and managers are receiving the rewards.

Here's how ugly this raw deal looks. The special window the Fed has opened lets prime brokers borrow at 25 basis points above the current Federal Funds rate. Since the Federal Funds rate is now at 2.25%, they're able to borrow money at 2.5%. In this market, it doesn't take a genius to see how they can essentially print money with loans that cheap. They simply need to borrow at 2.5% and buy stocks with higher yields. Those with politically privileged access to federal cash can clean up on a fairly generous yield spread, even with well-known firms such as these:

In other words, just like with JPMorgan and Bear Stearns, you'll pay the bill if their plans fail, but they'll reap the rewards if they succeed.

Enough is enough. Either drop the subsidy to scuttle the deal, or close the emergency window, or both. But for heaven's sake, stop destroying the entire financial system just to help a few billionaires get richer at taxpayer expense.



And no, Bear Stearns' prior shareholders weren't the victims of this theft. Their stakes were well on the way to becoming worthless, thanks to Bear Stearns' overleveraged positions. They should be writing Bernanke personal thank-you letters and pledging their undying loyalty to him for handing them a little something along the way. I'm talking about Bear Stearns' bondholders. The people who should most immediately feel victimized by this theft are the ones who held the $65.7 billion in long-term debt that Bear Stearns had borrowed.

When a company fails to meet its debt obligations, it goes bankrupt. Its bondholders get first dibs on the assets -- not some bank that has a powerful politician in its pocket. For those of us watching this particular horror unfold on the sidelines, that may seem like an academic distinction. But it matters. A lot.

First, there's the minor matter that Bernanke's actions severely perverted the market's natural checks and balances by socializing risk and privatizing profit. If ever there was a signal to other large banks and investment houses to take unwarranted and unwise risks in the future, this would be it.

Why should they and their shareholders be punished for behaving prudently? And yes, they're suffering from Bernanke's bailouts, just like the rest of us. Keeping the more poorly managed banks from failing makes it much tougher for the companies that should survive to take market share. That directly rewards failure, punishes success, and damages the market's ability to cleanse itself through such bankruptcies.

Third and finally, lost amidst all of Bernanke's heavy-handed government intervention is the fact that, if left alone, the markets still work. If there's still some semblance of real value in a failing institution, someone will step in and buy it, without sticking taxpayers with the risk. Just look at Bank of America (NYSE: BAC) and its proposed buyout of Countrywide (NYSE: CFC). The last time I checked, that offer was made without the Federal Reserve kicking in $30 billion in guarantees.

Whether he wants to admit it or not, Bernanke's actions are:
- crowding out private money, thus exacerbating the lending crisis;
- rewarding failure, thus assuring more and bigger shenanigans later; and
- signaling that there are no (immediate) consequences to making bad financial decision

If the Federal Reserve keeps bailing out failures, the only limit to the size of the risks will be based on the willingness of people around the world to accept the dollar as currency.

Or in other words, if you think things are bad now, you ain't seen nothing yet.



Walter Bagehot, the patron saint of central bankers, suggestedthe following basic principles for central banks to help the banks under their supervision to avoid liquidity runs.
A. Only lend against good collateral to avoid losses for taxpayers at a later date.
B. Lend at extremely high interest rates to avoid the facility being used willy-nilly by greedy bankers.
C. Make public the availability of such facilities, so as to prevent doubts and suspicions in the minds of depositors and other creditors.

This week's announcement by the Fed violates EVERY one of those principles. Firstly, the collateral being accepted by the Fed is tainted as the market’s complete lack of appetite (at any price) for the securities shows. By providing the ability to liquefy these securities, the Fed has effectively signaled that it would accept just about any junk.

Secondly, the cost of borrowing is not punitive; indeed it is agreeably low for anyone who cares to fill out a couple of forms. Thirdly, this facility was not used previously; therefore the market has been in some doubt about really how useful it could be.

In essence, this is a US$200 billion facility that is being misapplied to rescue a specific part of the financial system at a preferential rate, and without any disclosure required on usage. Given all this, it is impossible for anyone to expect that the ultimate cost of this facility will not be borne by US taxpayers.


Jim Rogers: 'Abolish the Fed'

"Listen, investment banks have been going bankrupt since the beginning of time. If people make mistakes -- if you bail out every investment bank that gets in trouble, that's not capitalism, that's socialism for the rich," he said.

The weakest financial institution is Fannie Mae, in Rogers' opinion, "but all of them have problems."

"Buy agriculture. Agriculture is one of the few places where you're going to make a fortune in the next years," Rogers said.


Bush's Financial Katrina


What's the equivalent of the broken levees this time around? "[S]ome economists and lawmakers said that the administration had too strongly resisted efforts to regulate either the mortgage industry or Wall Street's new mortgage-backed securities out of a misplaced faith in free markets," Reynolds and Hook write.

"Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said he had been trying to get the administration to tighten the rules for mortgage lenders for more than a year -- to little avail.

"'They could have done a lot of things over the last year, in my view, to make a difference and refused to do so,' Dodd said. 'They are lagging in terms of their response to all of this. Had steps been taken over the last year, we could have avoided a lot of this.'"

Matt Spetalnick writes for Reuters: "Not since Hurricane Katrina devastated New Orleans and other parts of the U.S. Gulf Coast in 2005 has Bush faced so much criticism of a too-little, too-late government response in a national time of need."

Spetalnick writes that Bush's "penchant for understatement in the face of what some on Wall Street see as the worst threat to the world financial system since the Great Depression has again underscored questions about his ability to lead through a major crisis.

"Much of what we are watching feels like an emerging-market meltdown to top international financiers: runaway debt, a declining currency, imploding markets, failing political leadership and the urgent need for outside intervention to provide emergency stability. . . .

"International financiers . . . fault George W. Bush for having failed to realize that he has another Katrina on his hands, this time of a financial nature, for which private-sector solutions are useful but not sufficient to keep the levees in place. They believe he has to deploy greater government means to send a message to the financial world that he is drawing a line in the sand. . .

"'Now that the president has shown his willingness to bail out Wall Street at taxpayer expense, I hope he will drop his opposition to proposals designed to help ordinary homeowners,' Senator Harry Reid, Democrat of Nevada and the majority leader, said in a statement."

"'The administration seems to have no stomach for taking action,' Brusca told ABC News. 'This is a president that had no trouble intervening in Iraq, but does not want to intervene in the housing mess. It's as though we should worship the private sector even though it is what got us into this mess.'"

E. J. Dionne Jr. writes in his Washington Post opinion column: "The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. . . .

"It's just fine to make it harder for the average Joe to file for bankruptcy, as did that wretched bankruptcy bill passed by Congress in 2005 at the request of the credit card industry. But the big guys are 'too big to fail,' because they could bring us all down with them.

"'The United States is on top of the situation,' he declared Monday.

"It all has some people shaking their heads. Is there a disconnect here? Does the president get how this might feel to the little guy? Is there a different standard for the big financial community and the strapped homeowner facing foreclosure?"

"Hoover's reputation was built in part on remarks viewed as too rosy. 'The problem is not at all insurmountable in the long run,' he said on Oct. 6, 1930, as unemployment, poverty and desperation climbed."



International financiers lack the confidence in Fed Chairman Ben Bernanke that they had in Alan Greenspan -- though they add that Greenspan helped fuel the subprime crisis by not raising interest rates when he should have.

``The current financial crisis in the U.S. is likely to be judged in retrospect as the most wrenching since the end of the Second World War,'' Greenspan wrote in Monday's Financial Times.

Some global financiers go further. They wonder whether Bear Stearns's implosion, the collapse late last week of a $22 billion Carlyle Group investment fund, and the fall of everything from the Dow Jones Industrial Average to the dollar signal a broader U.S. decline. A loss of influence was happening anyway as other powers rose. Bush's mistakes have accelerated the process.



Drawing a sharp distinction with the Democratic presidential candidates, Senator John McCain warned Tuesday against hasty government action to solve the mortgage crisis, saying “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

“Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy,” Mr. McCain said, speaking before a business group in Santa Ana, Calif.

“Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates,” he said.

My comment to above - it's called making an investment. This is exactly what Bear Stearns did. Most people didn't have a choice because they couldn't afford the price of homes.

“Capital markets work best when there is both accountability and transparency,” he said. “In the case of our current crisis, both were lacking.”

My comment - how about enforcing existing regulations.

“Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes,” he said.

My comment - I totally agree with that. What about uber-speculators like Bear Stearns.