A Complete And Systemic Breakdown

Posted: July 16 2008

Second largest bank failure in US history has been duly noted, with a repeat bailout like Bear Stearns, paying down debts still the better plan, PPT supplies another miracle rally for the Dow, but we fear they only delay the inevitable, Fannie and Freddie collateral now Toxic Waste, liquidity drains now wide open, watch for the downward spiral

What you are witnessing is the acceleration of a complete systemic breakdown of the US and world financial systems and economies. It is happening right before your eyes. It is in your face. The Scylla and Charibdis of real estate finance, Fannie Mae and Freddie Mac, which are currently in possession of, or have insured, over 5 trillion dollars worth of mortgages, a good portion of which are nothing but toxic waste, have imploded and will now be nationalized in the most egregious example of moral hazard in the history of the world. As this socialism for the rich transpires, IndyMac Bank has gone up in smoke. This is the second largest bank failure in US history and the largest such failure in over 23 years. Adding insult to injury, 10% to 20% of the FDIC's insurance reserves have just gone up in smoke along with IndyMac just as the hundreds, and what may eventually turn out to be thousands, of bank failures that are anticipated get started in earnest. What does that leave for future failures if only one bank failure wipes out a fifth of the FDIC's reserves? Next up on the chopping block may be Downey, First Federal, Wachovia and Washington Mutual, which are not small fry by any means. Mattresses and freezers may soon be the savings vehicles of choice for those who can't afford a home safety vault as Depression Era mentality becomes the psychology du jour.

If you keep more than $100,000 in any bank account, or if you keep anything of value in a safe deposit box at any type of bank whatsoever, you are simply an idiot. You should use any cash you now have to pay off debt, including credit cards, car loans and mortgages. Then your cash becomes someone else's problem. Trying to keep loans open so you can pay them with inflated dollars doesn't work when your dollars get vaporized by losses suffered by profligate banks or you lose your job due to the implosion of our economy, which, by the way, is a lock. Better to take money earning one or two percent and apply them to debts bearing much higher rates. Keep your emergency cash at home. The excess should be invested in gold and silver of which you take physical possession. Swiss government bonds denominated in Swiss francs are cheap to buy and can cover your larger blocks of cash if you are sufficiently affluent.

We have told you repeatedly that the Illuminists care only about the suppression of precious metals and the viability of the bond market, which is their source of power, and the current proposed bailout of the twin titans of complete and utter financial death and destruction is the penultimate proof of our assertion. These titans of disaster will not be reformed, but instead our government plans to give them equity injections in the form of preferred stock to be "owned" by you the taxpayers through your Treasury Department and/or loans through the Fed's discount window to be supported by US treasuries as collateral. This is supposedly a temporary arrangement of 18 months, but come on, so were the Fed's various facilities for the bailout of the bankster fraudsters, which will be extended indefinitely or at least until the system implodes. The government is not fooling anyone with such foolish drivel and poppycock, as demonstrated by default swaps on US government debt, which more than doubled from 9 to 20 basis points after the announcements by Hanky Panky and Buck-Busting Ben, something which has never happened before in our entire financial history. Yields on treasuries increased even as people were fleeing the stock markets to buy those treasuries, with the Dow tumbling to as low as 10,827.71 on Tuesday before getting yet another miracle rally from the PPT. Normally, flight to treasuries drives yields down, but not this time. Hanky Panky Paulson says these supposedly temporary forms of relief have been set up in advance so he can have a bazooka instead of a squirt gun, thereby giving the market assurance against the collapse of Fannie and Freddie by heading off market panic, but the only bazooka we see is the one being pointed at the US taxpayer who will be taxed and inflated into oblivion as a result. This is nothing less than doomsday for the US middle class, the final rip-off and destruction of both their retirement plans and real estate through hyperinflation, dollar destruction, and the eventual destruction of the real estate markets when the twin titans of financial devastation finally implode and the taxpayers are left holding the bill. If they didn't think they needed this relief in earnest, it would not have been forthcoming! They are only delaying the inevitable.

Who are the winners and the losers in this scenario? It should be pretty clear that Scylla's and Charbdis's stockholders are the losers, and that eventually their stock will be diluted to mere pennies per share by gargantuan government equity injections as losses mount geometrically, basically rendering Fannie and Freddie stock either worthless or nearly so. The big winners are obviously the bondholders of Fannie and Freddie debt, who get a nice bailout like the bondholders of Bear Stearns when they should be taking huge losses for under-pricing what should have been obvious and monumental risk in an organization leveraged at anywhere from 60 to 1 to 200 to 1, which is the type of leverage normally reserved for suicidal madmen and psychopaths. And who are the bondholders? Gee, what a coincidence, as it turns out they are central banks around the world, including those in the US, China and Japan, which each own hundreds of billions in both of the twin titans of financial murder and mayhem. As we said, all the Illuminists care about is the support and viability of the bond markets. The stock markets along with 300 million US citizens can drop off into a bottomless pit and into the fires of hell for all they care.

Aren't you just brimming with excitement at the thought of becoming an unwilling "preferred" shareholder in a toxic waste, real estate Ponzi-scheme leveraged at 200 to 1?! And how will the equity injections be funded for this preferred stock purchase, and where will the collateral for the Fed loans come from? Why, they will come from "brandy new" treasuries created out of thin air by the US Treasury that will then be handed over to the Fed. In the case of the equity injections, these treasuries will be immediately monetized in order to boost Fannie's and Freddie's capital positions, leading to further and immediate aggravation of what is now already hyperinflation and further undermining the dollar. And what will happen to all the treasuries that were created out of nothing to serve as collateral for the Fed's loans to Scylla and Charibdis? These treasuries will be monetized to cover losses as they accrue, losses which will occur rapidly and geometrically as our economy and real estate markets implode. Another possibility is that these treasuries might be exchanged for toxic waste held by the various bankster fraudsters through the Fed's Term Securities Lending Facility for primary dealers and/or its Term Securities Auction Facility for investment banks and brokerage houses. Now wouldn't that be the ultimate in slime-ball financing if the Fed used Fannie's and Freddie's collateral as if these treasuries were part of the Fed's general collateral? Hey Congress, better jump on that one - and we mean pronto!

You must not allow these reprobates and sociopaths to steer our country in this direction. Fannie and Freddie, like the Wall Street bankster fraudsters, must be allowed to fail, and their various shareholders and bondholders must suffer the consequences. Otherwise, we have only been pretending to have markets that are run on capitalist principles. What Paulson and Bernanke are proposing is the next step toward an evil, corporatist, fascist system of government which consists primarily of governmental partnerships with elitist transnational conglomerates where moral hazard is the market mantra, a system which would have made Hitler and Mussolini green with envy. The Illuminati want to consolidate their power by bailing those they want to survive, and by allowing those they want to destroy to fail. The failures which they allow to happen will be absorbed by surviving elitist companies, consolidating their power into fewer and fewer entities for easier and tighter control over resources and production. The Illuminati also want a far greater grant and centralization of regulatory power in the Fed, or in any successor organization, which they might create if they decide to kill off the Fed with all the toxic waste from Fannie, Freddie and the Wall Street fraudsters. Any such replacement organization will be a super entity that makes the Fed look like a paragon of virtue, and the excuse given for its creation will be a cessation to all the corruption, turmoil and abuse of which the owners of the Fed, or of the new super entity, have themselves been the main cause. This is the Hegelian Dialectic on steroids. Create the problem and suggest the solution. And if the solution suggested is not desired by the people, stuff it down their throats anyway but whatever cunning and deceit is necessary in true Machiavellian fashion.
Everyone should listen to Jimmy Roger’s latest lambasting of the US government and the Fed regarding the Fannie-Freddie bailout and the bank failures. He is the only source of truth in the fane-stream media. He is like a breath of fresh air in an arena full of nothing but hot air, and we commend him for boldly speaking the truth. How much longer he will be allowed to make such television commentaries is hard to say, but the longer the better.

Well, all this excitement has sent gold and silver to much higher levels as we predicted, and now the cartel is back to their old tricks as they clutch their chests and reach for their nitroglycerine pills. Up go gold and silver as the dollar crashes, and just like clockwork, the yen goes ballistic and oil nosedives. The liquidity drains are now wide open as the yen has been strengthened since early last Friday by 3 yen per dollar and by 3.5 yen per euro. Protective derivatives such as stock index puts, yen calls and oil shorts that we have recommended are now doing their stuff again to keep the specs from having to liquidate their metals to meet margin calls on carry trade positions. Oil has been blasted big time as the Illuminist banks have been forced to give up some of their speculative gains to hit precious metals, which is JOB ONE at the Fed and for the cartel. It would be interesting to see whether any of these banks acquired a greater short position in oil just before the takedown. Monday's sell-off is now giving the dollar some support as is cheaper oil, and the markets are rallying on Tuesday due to the two big drops in oil prices over the past two days as well as huge boosts from the PPT and "massaged" balance sheets that were better than expected for Wells Fargo. This won't last, and the dollar is headed for 67-68 after breaking 72 over the past two days. Support at 72 cannot go on in the face of 1.8% monthly PPI (21.6% annualized), 1.1% CPI (13.2% annualized), nationalizations of Fannie and Freddie and bank failures such as IndyMac, which is just the beginning. Get ready for some more wild action as the undisputed King of Currencies reigns supreme while economies implode around the world and threats of war and conflict continue to abound.

All world stock markets are now in Bear Market Territory. The FTSE 100 finally caved in, and now all major stock exchanges are off by more than 20% from their highs. This is just the beginning of woes. Like the dollar, stocks worldwide will continue their downward spirals, abbreviated by bear rallies that will be little more than dead cat bounces.

http://theinternationalforecaster.com/International_Forecaster_Weekly/A_Complete_And_Systemic_Breakdown

Financial Collapse Edges Closer

By Martin Hutchinson

16/07/08 "Asia Times" -- -- The financial crisis in the United States and worldwide entered a new phase this week, as Fannie Mae and Freddie Mac, the two huge US home-loan institutions, began what appears to be a "death spiral" similar to that which claimed Bear Stearns four months ago. Fannie and Freddie are unique institutions and will almost certainly be bailed out by the long-suffering taxpayer. However, for the first time, the specter has been raised of a general financial meltdown, such as the US managed to avoid in 1933 but Sweden succumbed to in 1991.

Sweden's financial meltdown of 1991 involved the government guaranteeing the obligations of the entire Swedish banking system, and recapitalizing the major banks, with the sole major exception of Svenska Handelsbanken. The total cost of the rescue to Swedish taxpayers was around US$10 billion, equivalent to about $1 trillion in the context of today's US economy. The causes of the crisis would be familiar to most Americans today: misuse of off-balance sheet securitization vehicles to invest excessively in real estate and mortgage lending.
It is thus not impossible for the entire US banking system to implode. It didn't happen in 1933 (though about a quarter of US banks failed) because US banks in the 1920s had been relatively conservative in their lending, with many banks requiring a 50% down payment for home mortgage loans, for example. Stock margin lending got way out of control in 1928-29, but relatively few banks were involved significantly in that.

The main problem in 1932-33 was quite simply liquidity; the Fed failed to supply adequate reserves to the banking system, so crises of confidence in individual banks led to panic withdrawals of deposits that caused the banks themselves to fail.

This time around, the problem is the opposite. Whereas the Fed had been appropriately cautious in the late 1920s, so only in the area of stock margin lending did the banking system get out of control, this time around the Fed has been hopelessly profligate in monetary creation for over a decade. The initial result of this profligacy, the tech bubble of 1999-2000, caused only modest problems in the banking system through telecom losses. The more recent profligacy and the housing bubble it caused have had much more serious consequences, mirroring those in Sweden leading up to 1991. The additional loosening since September has distorted the financial system further, producing a commodity price bubble that itself seems likely to have substantial further adverse consequences.

Fannie and Freddie are probably toast, and about time too. Federal Reserve Board chairman Ben Bernanke's statement on Friday that the two companies can discount paper with the Fed may prolong the inevitable, but also increases its likely huge cost to taxpayers.

There can be no economic justification for the government guaranteeing the great majority of the nation's home mortgages, and the spurious "government-sponsored enterprise" structure of Fannie and Freddie merely hid the likely consequences of their default. Their senior employees have been paid as if they were counterparts of Wall Street high-flyers for performing a function that was economically entirely unnecessary, and they have survived for more than 50 years simply through their ability to offer lucrative consulting contracts to ex-congressmen and other politically well-connected people.

It is thus necessary that any "rescue" for Fannie and Freddie be a euthanasia not a lifeline. They have extracted their rents from the market for too long and have encouraged the growth of a securitized mortgage market that has proved entirely unsound because of its perverse incentives. Simply providing them with $100 billion or so of extra capital at taxpayer expense, probably structured as some economically unjustified form of subordinated debt so that the shareholders are left undiluted and allowing them to continue operating, doesn't solve the problem; it exacerbates it.
The simplest from of euthanasia for Fannie and Freddie would be a takeover by the Office of Federal Housing Oversight (OFHEO), their regulator, on the grounds that they were no longer able to operate independently. In Freddie's case that could be carried out at any time, since the company has failed to follow through on a promise to OFHEO to raise $5.5 billion in new capital - which at Thursday's closing share price would dilute existing shareholders by 55%. In any case, further declines in their share prices and withdrawal of funding by the bond markets are likely to cause a sufficient crisis in the next few weeks to make such a takeover inevitable if a rescue is not organized (which it shouldn't be.)

Following a takeover, Fannie and Freddie would need to continue performing their current functions of guaranteeing home mortgages, as without such guarantees home mortgages are currently impossible to obtain. However, changes must be made to recognize the revised nature of the business.

Since the new guarantees would be direct government obligations (OFHEO being an arm of the government) rather than simply implied obligations, the fees for obtaining them should be jerked sharply upwards, perhaps to 1.5% per annum on the outstanding amount of the mortgage. That would allow mortgage finance to remain available at a cost that is still reasonable in current markets (Fannie Mae paper already pays a 0.75% premium over the government for its borrowings), but as markets recovered it would make Fannie/Freddie guaranteed mortgages highly uncompetitive against direct home loans, by far the healthiest way for housing to be financed.

Together with the salary reductions outlined below, it would also begin to reimburse the unfortunate taxpayer for the gigantic costs of this non-rescue operation.

Treasury Secretary Hank Paulson has called for "covered bonds" similar to the German pfandbriefe to be used to finance housing. Since pfandbriefe, bonds issued by German banks to finance housing, remain on German bank balance sheets and retain the bank guarantee, allowing the banks only to escape the funding risk of lending for 30 years at a fixed rate, they avoid the moral hazards of the securitization markets, and are thus an attractive alternative.

To encourage their use, and to reduce the capital cost to banks of holding mortgages on balance sheet, the Basel 1 bank regulations, currently being phased out, should be retained; they allowed mortgages to carry only a 4% capital charge as against 8% for regular loans. By this and other means, the private banking sector would be encouraged to make sound home loans directly, without the unnecessary Fannie/Freddie guarantees.

The objective would be over a five-10 year period for Fannie and Freddie to become insignificant participants in the mortgage market, after which they could be closed altogether. Meanwhile, costs in Fannie and Freddie could be cut drastically, particularly on the staffing side.

Since Fannie and Freddie staff would now be government employees, they should be paid on the GS (government) payscale, with the chief executive, as a GS-15, receiving appropriate remuneration between $115,317 and $149,000, according to his years of service. Even if the chief executive officer was able to argue himself onto the SES (senior executive service) pay scale - after all, he has excellent congressional contacts - he would be limited to about $205,000 in the Washington area.

Naturally, many Fannie/Freddie employees would be outraged at this cut in their living standards and would attempt to find alternative better-paid employment; I venture to suggest that few would succeed in doing so. That way, redundancy payments would be avoided while salary costs were slashed.

There would be a devastating effect on the Northern Virginia housing market, where many senior Fannie/Freddie employees have overextended themselves with giant home mortgages for vulgar McMansions, but that problem too is probably survivable. More important, the now-disgruntled employees would perform their job poorly, making applying for a Fannie/Freddie guarantee a bureaucratic and uncertain process, similar to negotiating with the Inland Revenue Service. That too should hasten the disappearance of the firms from the housing market.

Fannie and Freddie do not represent the entire US finance sector, far from it. Nevertheless their insolvency would further erode confidence in the rest of the sector, very likely leading to a cascade of death spirals among other institutions. After all, the best-run large non-global US bank, Wachovia, has itself got in trouble by its insanely foolish acquisition of the California mortgage lender Golden West Financial at the peak of the market in 2006, while Bank of America, the largest retail-oriented US bank, voluntarily took on more of the mess by its purchase of the diseased and probably criminal Countrywide Financial as recently as last January.

Citigroup is in deep trouble in a number of areas, particularly relating to its over-enthusiasm for the discredited technique of securitization, while JP Morgan Chase chief executive Jamie Dimon wrecked his credibility in May by announcing that the financial crisis was "mostly over" - presumably wishful thinking in the light of his huge holdings of dodgy Bear Stearns paper.

Only Goldman Sachs appears serenely above the fray, but don't forget that at May this year its "Level 3" assets were $78 billion, more than twice its capital. Level 3 assets, you may remember, are those for which there is no market, so can be valued only by the internal mathematical models of the institution concerned. Since this arcane highly illiquid paper is the most likely to suffer catastrophic erosion of "value" in a downturn, Goldman Sachs, like Jamie Dimon, must be keeping fingers crossed that somehow this nightmare must end soon.

It mustn't; from past experience of such follies it probably has at least another year to go. Thus a total collapse of the US financial system, while not inevitable, is a contingency which should now be planned for.

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found at www.greatconservatives.com .

In a capitalist economy, losers are expected to take losses and winners to gain. Private enterprise is best able to allocate capital efficiently and, where it fails to do so, markets make adjustments and capital is reallocated to efficient users. This basic tenet supports good and productive assets moving from the hands of weak players to stronger. Where this is not possible, the US system gives the government a hand in fostering that move through an efficient process called bankruptcy or reorganisation. This rule of markets and of law has always been the basis of our national supremacy in innovation and the reason ours was the world’s clear choice of a reserve currency. That was the world we lived in previously.

Our elected officials have repeatedly demonstrated that even equity holders, who are supposed to have the most subordinated claims on assets, cannot be allowed to take losses and instead believe we should all communally share in losses that result from poor allocation and risk management decisions. We have nationalised the losses from Bear Stearns through a transfer of risk on to the federal government’s balance sheet and have now nationalised the losses generated by Fannie’s and Freddie’s poor management and functionally taken $5,000bn in obligations on to the government’s balance sheet. This has been done even though every equity or debt offering of Fannie and Freddie explicitly states that these “are not guaranteed by the US and do not constitute an obligation of the US or any agency or instrumentality thereof other than” of Fannie or Freddie.

By the time we are finished with this tragic period in US economic history, the government is likely to have to choose whether to do the same for at least one more large bank, investment bank, bond insurer, mortgage insurer, multiple large regional bank, airline or car manufacturer. Given the choices we have seen from officials, who obviously have little faith in the ability of capital markets or our system of law, we will see the continued nationalisation of bad assets, placing the burden on the shoulders of the already overburdened American taxpayer.

Source: Goodbye Capitalism

Goldman Sachs (GS) has kept its hands clean the credit crisis, but now the firm may have to wallow in the mud with the rest of its peers. The Wall Street Journal reports that some pointed questions are being asked of Goldman chief executive Lloyd Blankfien by none other than Alan Schwartz, who was at the helm of Bear Stearns when it died in March. Schwartz would like to know whether there is any truth to talk that in the days preceding Bear's fall, Goldman traders in London were manipulating the struggling firm's stock.

If this story sounds familiar, it's probably because this isn't the first time that Goldman employees have been accused of making money on a dying company. Back in 1998, the firm's traders were accused of hammering positions taken by hedge fund Long Term Capital Management as it went belly up. According to the Journal, Blankfein was shocked by the inquiry from Schwartz, and that he told the former Bear Stearns chief that he would crack down on any Goldman traders who engaged in manipulative activity. A Goldman spokesman told the paper that Blankfein does not recall this conversation with Schwartz and strongly denies wrongdoing.

Lehman Bros. (LEH) CEO Dick Fuld piled on too. "You're not going to like this conversation," Fuld told Blankfein, according to the Journal. Fuld was reportedly hearing "a lot of noise" about Goldman traders allegedly spreading negative rumors about Lehman, whose stock has been dropping like a stone. Fuld has reportedly spent the last few months contacting traders he thinks may have been bad-mouthing Lehman.

According to trading documents reviewed by the Journal, in the weeks before March 16, when Bear Stearns reached its initial agreement to sell itself to JPMorgan Chase (JPM), Goldman Sachs was one of the most active parties in trading securities known as credit default swaps that it had bought from or sold to Bear Stearns -- more than most other Bear trading partners. A Goldman spokesman told the newspaper that it would be unwise "to make assumptions about this information without understanding the underlying transactions."

The Securities and Exchange Commission is looking into whether brokers and hedge funds have deliberately spread rumors to manipulate markets -- particularly during Bear Stearns' fall -- and vows to take action to limit short-selling in certain stocks, including Fannie Mae (FNM) and Freddie Mac (FRE).

George "Will helped Ronald Reagan prepare for his 1980 debate against Jimmy Carter, breaking with the journalistic tradition of neutrality."

"Carter stated that before the 1980 debate, Will gave the Reagan campaign a top-secret briefing book stolen from Carter's office (Fresh Air, October 21, 2004)."

"Fairness and Accuracy in Reporting criticized Will in connection with the 1996 election, for "commenting on the presidential race while his second wife, Mari Maseng Will, was a senior staffer for the Dole presidential campaign," including commenting on a Dole speech without disclosing that his wife had helped write it."

"In a Washington Post column on June 5th 2008, Will stated that "Drilling is underway 60 miles (97 km) off Florida. The drilling is being done by China, in cooperation with Cuba, which is drilling closer to South Florida than U.S. companies are." This statement is false."

The last thing the corporatist shills want is people, average people, thinking about the collapsing economy right before the election. The "haves" want everyone to stay too busy working rather than worrying about their vanishing standard of living. But that fact remains that we have lost over 300k jobs in this country since Jan. alone and just today they announced the dollar dropped to the Euro again, setting a record, at a 1 to 1.61 rate.

"It was a stupid comment. But people aught to move on."

Because, quite frankly, they just don't give a fuck about you. They just don't. None of them do. they don't give a fuck if the repo man is in the driveway hooking up your SUV they convinced you to buy last year and the bank is foreclosing tomorrow on your American Dream; just so long as their RATINGS stay good. They don't GIVE A FUCK. And that is a fact.

Yes, Phil let the cat out of the bag, they can all laugh about it tonight at the club, but the average American just needs to "move on" and forget all about it. right?

"Are there ANY differences between the economic policies of the Bush administration and those of John McCain?"

"Oh... yeah... uh.... well.... uh... take uh, mmm...mmm... of uh... (tap tap tap (men's room flashback perhaps?)... drawing a blank and I hate it when I do that on TV... uh... take, for instance...uh..."

Fuel prices remain the highest in history and the promise of an Iran conflict will take those even higher than before. This is "disaster capitalism" folks. They created a disaster in the housing market, so what happens? The Fed moves in to gobble up Fannie and Freddie. All the MSM sources tell you is the "government" will be taking over the loan business (almost all of it) but what they don't tell you is the "Fed" has a Board of Governors appointed by the President, but for the most part, the Federal Reserve Bank is an international conglomeration of PRIVATE banks. That's right. the "Fed" turned a blind eye while this disaster was unfolding and now the "Fed" gets to mop up the profits, just like they did with Bear Stearns.

Years ago they revised the bankruptcy laws with just this day in mind, people. They plan these things WAY in advance. This is the enemy. These are the "terrorists" and this is the coup d'etat that Gore Vidal and Naomi Klien were talking about.

This comes, of course after the Bear Stearns collapse and the tumble Lehman, Fannie Mae, and Freddie Mac took last week.

US regulators from the Finra and NYSE are also tracking down traders who may have sought to profit from the credit crisis by stoking rumor mills.

The problem, as Macro Man points out, is that this will likly be a one-way street with suggestions for example that "PIMCO and SAC have pulled Lehman's (LEH) line fac[ing] reprisals, but anyone suggesting that Warren Buffett is going to buy Lehman for $100 per share will remain unscathed. [...] If you use inappropriate language about a bank, they'll do you. If you sell the wrong bank short, they'll do you. If you wonder aloud on possible forthcoming bad news about a bank, they'll do you. Perhaps sellside analysts should just cut to the chase and rate every financial out there with a "Doubleplusgood" rating. Who knew that MiFID stood for the "Ministry of Financial Information Dissemination"?"

The net result? There are a number of banks reporting in the next week but reports may be filtered through Finra and NYSE in the name of financial stability. I guess this is a compromise but can anyone come up with better metrics for rumor mongering?

Source

In neither speech was there even a hint that the government has any responsibility to protect home owners, or that the people responsible for the “lax credit and underwriting standards” that led to the current crisis might be called to account by regulators, Congress, or the courts.

On Friday Oil hit record of $147.27, Gold $969, Euro $1.5972 against the greenback, Today July 14, 2008 11:31 AM EDT Crude price sinks to $145, Gold $969, Euro 1.5859.

AP
July 12, 2008

Gold prices rose Friday, making their largest advance since first hitting $1,000 earlier this year, after another record crude rally and a tumbling stock market led jittery investors to the safety of hard assets.

Other commodities traded mostly higher, with corn, soybeans, wheat and other agriculture futures rising.

Gold’s rally suggests investors are increasingly concerned about rising inflation as Americans struggle with $4 gasoline and the U.S. dollar continues to lose ground against its main rivals.

After a week of volatile trading in the commodities complex, a myriad of dour economic developments pushed gold prices skyward: Oil soared above $147 for the first time, stocks dove on concerns that mortgage companies Freddie Mac and Fannie Mae might collapse and the dollar tumbled further against the euro.

"All of these things are a pretty good recipe for safe-haven buying into bullion," said James Steel, analyst with HSBC in New York. "You’re really spoiled for choice on a day like this."

Gold for August delivery added $18.60 to settle at $960.60 an ounce on the New York Mercantile Exchange, after earlier rising as high as $969.10. That was gold’s highest trading level since first cracking the $1,000 threshold on March 13 after the collapse of Bear Stearns & Co.

Nervousness about the U.S. economy, record energy prices and the falling dollar have helped propel gold 34 percent higher in the past year, but it’s not clear if the current climate is gloomy enough to push gold back into record territory.

"The $1,000 mark accompanied a bank failure the last time so it’s questionable whether the situation now is as severe, but that doesn’t mean it won’t go back to that level," Steel said.

Other precious metals also traded higher. September silver prices added 50 cents to settle at $18.82 an ounce on the Nymex, while September copper gained 2.15 cents to settle at $3.74 a pound.

Read Full Article Here

Euro falls one cent vs dollar from day’s highs

Reuters
July 14, 2008

The euro fell over one cent from the day’s highs against the dollar on Monday, after the U.S. Treasury and Federal Reserve launched emergency steps to restore investor confidence in U.S. mortgage lenders Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac.

The euro fell to as low as $1.5866 on trading platform EBS, down from an intraday high of $1.5972.

Jim Rogers: Dollar Doomed, Fed Will Fail

Recent News:

Most recent TV appearance:

Fox Business News with Peter Schiff - America's Nightly Scoreboard - 7/11/08

Oh hey, how are your shares of Bear Stearns performing these days? You do own shares of Bear Stearns, don't you? I only ask because, well, doesn't everyone? You and I each paid for them with our tax money. So where are our shares?

Well, even if you somehow didn't get the shares of Bear Stearns you paid for, surely you'll have some Fannie Mae shares in your portfolio in the near future, right? Surely our portfolios won't be forgotten in this next round of bail outs!

I'd better never hear the word "free market" in this country again. The Fed just won't let the market do its job. Again and again the government intervenes in the market to rescue an entity that, as shown by its behaviors and outcomes, deserves to fail. Often enough, the entity fails anyway and you and I are left holding the tab.

United Airlines is a good example of this. After September 11, the Bush administration spent $15 billion in an airline bail out (that's $15 billion for multiple airlines, not just United; I believe each airline received approximately $900 million). United filed for Chapter 11 anyway. U.S. Airways filed for bankruptcy the year before United did.

The government bail out after September 11 did not change what was going to happen; it only delayed the inevitable. United workers still lost their jobs (some before and during the bail out, some later). The bail out did not prevent bankruptcy and thus ensure that pensions would be paid. The bail out did not in any way improve airline service, which is worse now than it has been in my adult lifetime. We should not bail out corporations. Corporations need to be allowed to fail if they deserve to fail.

Do you honestly think we won't have airplanes or airlines if some of them fail? No. We will still have airplanes to fly in, I promise. But you and I shouldn't pay for a penny more than our tickets.

Why does the Fed seem to think shareholders, lenders, and creditors can't, or shouldn't, ever lose money? Losing money is a risk that shareholders, lenders, and creditors take every single time they invest, and they need to be allowed to lose money sometimes. When you own shares there is no guarantee that those shares will do well. I know that. I invest in stocks that I hope do well, knowing full well they might not. No one ever bails me out from the consequences of acceptable risk.

Let's take Bear Stearns, because it's a recent example in which we, the citizens and taxpayers that pay for our government's very existence, were told that Bear Stearns had to be saved lest worse calamities befall us. I heard, like you, that there were supposedly terrible consequences to not bailing out Bear Stearns. The same is now being said of Fannie Mae and Freddie Mac.

For some reason, though, I'm having a really hard time finding well founded, factual documentation of those supposedly terrible consequences. For a Ph.D. student who spends a lot of time doing research it's a new and interesting problem to have.

Let's start with the media. "Bear Stearns shareholders were nearly wiped out," said the LA Times. So what? That's the risk investors take. You win some, you lose some. So one of the always possible consequences of being a shareholder almost... happened. Uh, OK. Still not feeling the shock and awe here. Next "reason" please!

But then, this is the media. We didn't expect much from them anyway.

Let's forget the media altogether and look at the transcript of Fed Chairman Ben Bernanke's Senate testimony. Surely this will contain some good, solid, well established reasons for the Bear Stearns bail out. I mean, he IS talking to the Senate and he IS the guy who ultimately made this decision.

The first few paragraphs describe existing problems in the economy not related or specific to Bear Stearns. Bernanke mentions that sales of homes are down and mortgages are harder to come by. Again, this was all underway prior to anything happening to Bear Stearns. OK, it's context setting if nothing else. Moving right along...

Bernanke goes on to talk about the Fed's role in market interference, or, um "improving" the market. He says, "Well-functioning financial markets are essential for the efficacy of monetary policy and, indeed, for economic growth and stability. Consistent with its role as the nation's central bank, the Federal Reserve has taken a number of steps in recent weeks to improve market liquidity and market functioning."

Well, at least he acknowledges the Fed's interference in the "free" market but all with the best intentions of fixing things. He lists what steps the Fed has taken and, in a few cases, explains why a particular step was taken (but certainly not at any detail that's satisfying to me).

Bernanke gets to the Bear Stearns decision here: "To prevent a disorderly failure of Bear Stearns and the unpredictable but likely severe consequences for market functioning and the broader economy, the Federal Reserve, in close consultation with the Treasury Department, agreed to provide funding to Bear Stearns through JPMorgan Chase."

This is worth spending some neurons on.

Bernanke tells us, first, that one reason to bail out Bear Stearns is "To prevent a disorderly failure of Bear Stearns." Why is a "disorderly failure" particularly, as opposed to any other flavor of failure, bad? Why is "disorderly failure" in and of itself be a bad thing for anyone besides Bear Stearns shareholders (and, obviously, Bear Stearns employees who might lose their jobs)? The vast majority of U.S. citizens are neither shareholders nor employees of Bear Stearns, so I fail to see, at this point in Bernanke's testimony, why the Fed and Treasury Department should consider saving them for this reason.

But let's look at the second half of that statement, "the unpredictable but likely severe consequences for market functioning and the broader economy." After reading this, I'm not confident that Chairman Bernanke knows the true consequences of not bailing out Bear Stearns. He doesn't know what the consequences are because they are "unpredictable," but somehow he can say with certainty that the unpredictable consequences will be "severe." Magical. We don't know what the consequences are, just how strong they will be. Got it. It's also telling that "market functioning" precedes "broader economy" in sentence order. We know what is literally of first concern here.

This might sound naive, but you know what? I don't believe you, Bernanke. I truly do not believe that anything bad would happen to me or the "broader economy" if you had allowed Bear Stearns to fail. I cannot believe that anyone would suffer besides the shareholders (who should always know they might lose money), Bear Stearns employees, and the people involved in markets somehow who are rich people, not the vast majority of American citizens. Most of us Americans pretty much just keep going on day to day, for the most part, and things don't change all that much with market activity. How much does my daily life change with Dow activity? Not at all, frankly. If Bear Stearns fell over in the forest and I didn't have to walk past news stands or forgot to turn on NPR, I would never know. I'm not buying it, Bernanke.

Apologies for the digression. Back to our man at Senate, Ben Bernanke: "Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, the issues raised here extended well beyond the fate of one company." All right, that stands to reason. If your company issued loans to Bear Stearns, for example, and they failed and couldn't pay their loans, your company might be in trouble. Your company never should have put itself in a position in which one failure could take the mother ship out, though. Your bank deserves to fail too.

Then there's more detail on this:
"Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets. The sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company's failure could also have cast doubt on the financial positions of some of Bear Stearns' thousands of counterparties and perhaps of companies with similar businesses. Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain. Moreover, the adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability."

The first few sentences, if you read them carefully, still don't tell us very much. What are these "critical markets" in which "Bear Stearns participated extensively" exactly, and further, why are they critical and to whom are they critical? Why, exactly, is a "chaotic unwinding of positions in those markets" a bad thing? Isn't that precisely what happens in markets? Things change rapidly, "chaotically" sometimes even, and some people lose money and some people make money when "positions shift," do they not?

As for "could have severely shaken confidence," again I ask so what? I assume Bernanke means investor and/or consumer confidence and again I ask, so what? Consumer confidence was down before and after Bear Stearns, so it would be difficult to identify Bear Stearns as the CAUSE of falling consumer confidence. As for investor confidence, so what? If investors aren't confident they don't invest. I mean this seriously: If any of you can explain, concretely, why I should care about "shaken confidence" in Bear Stearns, please tell me. I am so eager to know.

Finally, Bernanke again borders on something that might interest most of us: "Moreover, the adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability."

There's that "broad" term again without anything to back it up.

As for the rest, the "asset values and credit availability," those were already going downhill before anything happened to Bear Stearns. As Bernanke himself notes earlier in his testimony (see the third paragraph), "Notably, in the housing market, sales of both new and existing homes have generally continued weak, partly as a result of the reduced availability of mortgage credit, and home prices have continued to fall." Bernanke himself notes all of these things as already having happened.

From that statement I can only conclude that the non-investor focused reason to bail out Bear Stearns comes down to "less of more of the same." That's worth $29 billion? Really? To not fix things that had already happened and would continue to happen (though perhaps at a slightly different pace) regardless of what happened to Bear Stearns?

Since no one, including Bernanke himself in his own (or his trusty speech writer's) words can tell me what the specific negative consequences of not bailing out Bear Stearns would be, beyond those NOT specific to Bear Stearns itself, I can only turn to the specific consequences to you and I.

You and I are worse off for bailing out Bear Stearns than for not. "Home prices have continued to fall," as Bernanke said. There is still "reduced availability of mortgage credit." "Asset values" are low and "credit availability" is tight and has not improved since the bail out, but has gotten worse. Anything that might make our lives better (i.e., the ability for you and I to obtain a line of credit to start a small business, perhaps) has not improved in any measurable way as a result of the $29 billion we handed over to Bear Stearns.

If nothing else, you and I paid taxes to already wealthy people instead of veterans or college students, or anyone or anything you care more about than Bear Stearns shareholders. For me it's non-loan college scholarships, investments in rail transportation, and stopping global warming. You probably have your own list, which can include a gamma ray shield for all I care, but I bet you cared not a whit more for Bear Stearns than you do for gamma rays or Amtrak.

It's cold comfort to remember that the the bail out to Bear Stearns is just a loan. Surely we've all learned by now that loans are not necessarily repaid. The Fed has essentially insured troubled securities. If those securities STILL end up completely worthless (and they absolutely can, there is no stopping that) then the Fed, and you and I, would be out the whole $29 billion. Under the terms of the deal the Fed made with JPMorgan, JPMorgan is only on the hook for the first $1 billion in losses. But who knows how much the losses might be? We, the citizens, will foot the bill for the rest while the corporation, JPMorgan, cruises happily along.

The bail out has only taken shareholder risk and moved it over the government, which we pay for.

And here we are again, today, with news of Fannie Mae and Freddie Mac. Obviously the Bear Sterans bail out did nothing to prevent those problems (remember how Bernanke thought the bail out of could help prevent problems with similar businesses?). How many more bail outs will we give before we're convinced they're not working?

What do we have right now? Unemployment - was happening, still is. Inflation due to interest rate decisions - was happening, still is. Similar companies struggling and the Fed thinking of helping? Was happening, still is, you bet. So tell me again why we bothered?

We are lucky. But for so many others they aren't.  We have quite a few friends and neighbors who have investments in income property and they are going down.  They are not alone either. Over 3 million Americans are facing the foreclosure crisis.  Why is it that the Federal Reserve Board can bail out Bear Stearns, one of the crisis culprits with $30 billion of public money, lend another $400 billion at major cut rates to other Wall Street firms, and yet when homeowners need an extra grand or two, the Fed and the Bushmin decide to go and play golf? 

Meanwhile, homeowners who got in with little or no money down, hoodwinked into taking sub-prime mortgages, are now facing bankruptcy because they not only can't afford the rate jumps, but their property is not even worth what they bought it for, compounded by the fact that investment owners aren't getting the rental rates that they expected - too many vacancies. People are desperate to short sell and many are just walking away. Believe me I have a conversation at least once a week on this subject with friends and acquaintances who are going through this and are having a tough time coping. It is sad the state this country is in and not much is being done to help.

Bear Stearns, a big wig company dishing out these shady deals, got rescued big time when they were floundering. What about all of the homeowners? They have been loosing their homes at an escalating rate over the past two years but when Bear Stearns, needed a helping hand, the Fed reached out, while Washington sits around and does nothing for the homeowners. What is wrong with is picture?

Ah..How about a little help here. Why are the banks not budging? How about reassessing the borrowers ability to repay the loan, and lowering high rates? Banks, as far as I know are not in the business of owning property, yet they don't seem to be doing much to help the homeowners. Back in the Thirties, people came together in defiance of the authorities, and helped the families organize and put their belongings of the evicted families back into their homes.  Will people reach out this time or will we stay complacent on this issue?  

What are Obama and McCain offering in response? Although Obama hasn't expressed a moratorium on foreclosures or a freeze on rates to my knowledge, he did say that he would offer $10 billion to states and local governments to fight foreclosures, and $10 billion to consumers to help them renegotiate their loans. 

McCain? McCain is McLame, (God I wish I came up with that but I didn't). To my knowledge he wants more of the McSame same.....he's barking 'Less regulation.' Ah...is that the same as him spouting 'Less Government?' No shit. 

It has been reported that Jesse Jackson has spent more time on this subject  than any one other national person.  His mantra: "Renegotiation and restructuring  of loans, not repossession of homes.' Now that's saying something.  And speaking of saying something...did ya hear the latest? Totally off subject but what the hell. Jackson got busted last night when he criticized Obama while on an unknown hot microphone:  "I wanna cut his nuts off." "He's talking down to black people."  This is not the first time this has ever happened to a public figure- do ya think people will ever learn to just shut the hell up when they're about to go on camera? Ahh..the truth comes out in so many wonderful ways.  Speaking of... 

~-~-~-~-~-~-~

Hi Anonz:  I just can't seem to figure you out totally. On the one hand, you are obviously very intelligent, and truthful, you humbly speak from the heart, you risk your life for OTW's. Lately you've been laying it all out for everyone...basically you have been playing the roll of whistle blower, and that part concerns me...your safety I mean...What are your white male repugnican contemporaries  thinking? I think you are smart by not confessing that you believe in aliens.  If I were you I wouldn't admit it even if you do 'believe'. But, when you've been given a second chance at life maybe you don't give a hoot....maybe you feel you are living on borrowed time?  

And then on the other hand,  I realize that you are or have been a major part of the equation, and my mouth drops open aghast. Some of the bigoted things that you have written, that you have confessed that have come out of your mouth are just disturbing to me. I appreciate your honesty; it is very revealing. But, the fact that you call OTW's, 'Those fucking wanna be monkeys.'....and that is when you want to be 'polite', just stuns me.  I can't imagine what all of you said when you weren't 'polite'. 

I can't help but be appalled, and it leaves me a bit baffled. I don't mean to offend you by feeling this way, but if you're going to be that open about yourself, I feel that I should be truthful too.  Although I can't imagine that you would not expect people to be taken aback by what you have confessed.  

I know you feel you are going through quite the metamorphosis. But do people really change that much in life?  Where do you stand now? I like you. Hell, I said I'd vote for you. I still feel that way - it is my preference to focus on the good in people. However, I feel as if you are two people struggling for position, and my mouth drops open equally as I read your commentary from each.  I just wonder which one will win out: The sensitive hero that risks his life for OTW's,  or a man in 'need of the seed'? I am not denying you are both. For some reason it is just not totally clear to me which one is in the leading role. Hell...maybe you don't know either.  Or maybe I just don't know you well enough. But all I know is I am routing for the hero.  :)

Hi ZL:  Mischa is an endearing name that my father has called me since I was a young girl. He still does and I adore it. What does that word mean to you 'cause I really have had no one else bring that up to me before. Is it some Italian thing? Enlighten me! I am curious now.

So..the interview went well...are you thinking of taking the job? Or holding our for 'Etcetera' to make a better offer? If you had so much fun before, maybe you ought to consider. I felt your excitement as I read what you wrote.

Hey did C tell you I called yesterday? I thought I would be able to call you back but I had to catch up from being out all day yesterday. I'll try to email you today after class or even better, maybe we can talk. 

Hi Mary: Great that you were able to blog again - sorry that your mom still couldn't get in :( But please thank her for me in person for her kind offer. (Thanks Gloria!) If I am ever in need...

But I must say Wow! What a story about your family...and your mother having you at age 55 - astounding! But even more amazing is her abduction story. I can not wait to hear what TAO has to say about this one. Thank you for opening up and sharing her story.  How did you feel when your mother first told you this? I would love to hear your thoughts too. Gloria: Do you remember nothing more than what Mary has written? I wonder what was going on for the two years that you were gone. I am assuming that you have not had any contact since? So many questions come to my mind...

Oh Tal: I almost forgot...I don't think I thanked you properly for making that phone call possible last week.  Thank you.

Okay readers, have a good one.  This blog just keeps getting more and more interesting - all thanks to you, the readers! 

Gratefully your blog host,

michelle  ♥

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Bryan Burrough, the co-author of Barbarians at the Gate, wrote about the rumor bringing down Bear Stearns in Vanity Fair (August 2008)

On Monday, March 10, the rumor started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from ravaging Wall Street. With the blow-by-blow from insiders, Bryan Burrough follows the players—Bear’s stunned executives, trigger-happy reporters at CNBC, a nervous Fed, a shadowy group of short-sellers—in what some believe was the greatest financial scandal in history.

I'd have to agree.

With over $5 TRILLION in assets and liabilities [yes, as in an amount equivalent, roughly, to half the US national debt – how does that happen, again?], why is it, again, that this financial golem is allowed to exist? And where do these ill-advised bailouts end? [I thought Bear-Stearns was going to be the only one]

"These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all the mistakes they've made," Rogers said. "What's going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What's going to happen three years from now when the situation's much, much, much worse?"

[…]

Former St. Louis Federal Reserve President William Poole last week said in an interview that Freddie Mac is technically insolvent under fair value accounting, which measure [sic] a company's net worth if it had to liquidate all its assets to repay liabilities. Poole said Fannie Mae may also become insolvent this quarter.

[…]

The US economy is in a recession, possibly the worst since World War II, Rogers said.

"They're ruining what has been one of the greatest economies in the world," Rogers said. [FED Chairman Ben] Bernanke and [Treasury Secretary Henry] are bailing out their friends on Wall Street but there are 300 million more Americans that are going to have to pay for this."

Adding insult to injury is the bank run in southern California, courtesy the concerned customers of the newest member of the federal government, IndyMac Bancorp Inc., now IndyMac Federal Bank, operated by the FDIC. The one intelligent thing coming from this travesty is this quote:

The FDIC did not ask Michael Perry, who had been IndyMac's chief executive, to have a role in operations following the takeover, [FDIC official John] Bovenzi added. [Really?]

[…]

Bovenzi said he expects more banks to fail in the current credit downturn. "I don't expect there will be large bank failures," he said. "There will be small bank failures."

No, he's right. Large banks will continue to be bailed out by the feds. Small banks will be seized and sold at fire sale prices to large banks, or just allowed to twist in the wind. Large banks will be deemed "too big," "too important," or "too well-connected" to fail. Just ask this guy:

Gerard Cassidy, an analyst at RBC Capital Markets, on Sunday said 300 U.S. banks might fail over the next three years because of credit losses and tight capital markets.

Regulators expect the IndyMac takeover to cost the FDIC $4 billion to $8 billion. The agency's insurance fund has about $52.8 billion.

So here’s my thinking:

If Fannie-Freddie holds nearly half the paper in the US mortgage market, and IndyMac puts them over the 50-yard line, what’s the divider between too big to fail and ripe for nationalizing? [Because, face it, that’s what happened in Pasadena last week] I mean, a $5 trillion failure requires heavy subsidizing, and a $1 trillion failure spurs the FDIC to take it over, what happens with the banks holding “only” $500 billion? $100 billion? That's chump change, in comparison.  And if the FDIC takeover of IndyMac will cost “the government” $4 to 8 billion [double or triple that, and you may get close to the actual costs, if history is any judge] what happens with the banks that are holding less than 10-digit balance sheets — if 300 US banks crash and burn, or are propped up on federal life-support, even at a cost of ¼ cent on the dollar, we’re talking billions and billions in bailout and takeover money.

The total mortgage market is supposed to be worth around $12 trillion, in the US.  If that evaporates, what does that — equivalent to around 80% of our GDP — amount of obliterated capital and other holdings bode for the rest of the financial markets?  Can we lose a national asset equivalent to the lion's share of our annual national productivity and survive as a nation? [Answer: only with rampant governmental intervention and probably hyperinflation.  Short answer:  no.]

A very wise man once said that

[a] democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.

Any who don’t believe the truth of those words, just think about the many, many forms of welfare [not just the kind of which you’re thinking: also tax breaks, subsidies, regulations, and no-bid contracts] that we have come to expect in this country, and the overwhelming amount of taxes we all pay. Then consider the awesome amount of power we’ve vested in the Presidency in just the last several years. Now, then, how old are we, as a nation?

Ask yourself this, the next time you hear about the government doing X to help out the economy, or clean up the environment, or help a devastated area, or what have you: cui bono?

Who benefits?

Veteran London Times journalist William Rees-Mogg predicts that the collapse of U.S. mortgage giants Fannie Mae and Freddie Mac could herald a downturn into a 1930’s style depression that threatens to sweep away democratic governments.

Rees-Mogg served as editor of The Times, Britain’s oldest surviving newspaper, from 1967 to 1981, and currently sits in the House of Lords.

In his column today, Rees-Mogg states that the world economy is not just entering an economic recession, but a depression comparable with the great crash of 1929 and its 10-year aftermath.

Tracing the origins of the crisis back to the dot-com bust at the end of the 1990’s, Rees-Mogg writes that stock markets are so ravaged that they will not recover to their 2007 levels until at least 2032.

“This recession has produced a succession of nasty surprises. Things are always proving to be worse than anyone had expected. Last week the crisis spread to the American mortgage giants Fannie Mae and Freddie Mac, created by President Roosevelt in 1938,” writes Rees-Mogg.

“These are far bigger than the investment bank Bear Stearns and Northern Rock put together. They have brought the crisis from the level of billions of dollars, to the level of trillions. No doubt they will be saved because the US would be bust if they went down. But you cannot save six- trillion-dollar institutions without suffering on a large scale.”

Ominously, Rees-Mogg foresees “A momentum of negative events sweeping away financial flood defences; in the 1930s that force overturned democratic governments as easily as it overturned banks.

The veteran journalist is referring to the 1930’s hyper-inflation crisis in Germany, which led to the destruction of the Weimar Republic and the rise of Adolf Hitler.

“Before we get back to balance, we may see dramatic changes in politics, as well as in business and finance,” Rees-Mogg concludes.

The veteran journalist’s warning comes on the back of news that “U.S. regulators are bracing for dozens of American banks to fail over the next year.”

According to an International Herald Tribune report, “Troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months.”

Original Article

More:
• Analysts say more U.S. banks will fail
• Dollar up as U.S. reassures on big mortgage lenders

He pledged to balance the budget by the end of his first term, which is inconsistent with the lavish tax cuts he also promises. He offered the same Social Security prescriptions that President George W. Bush failed to sell, insisting that somehow a more Democratic Congress would be receptive.

Contradictions, detours and flip-flops abound. On Bloomberg Television last spring, the Arizona Republican said there had been "great progress" economically under the Bush administration; the next day, he said Americans were "hurting badly" and weren't better off than they were eight years ago.

McCain likes to joke about his rebellious youth, noting that he graduated fifth from the bottom of his 1958 U.S. Naval Academy class. The valedictorian of that class was Ronald Reagan's onetime national security adviser, John Poindexter, who barely avoided jail. This reinforces the novelist Walker Percy's admonition not to get all A's and still flunk life.

McCain gets an D in life and in most subjects. but an F in economics.

If he wants a quick tutorial, there are two useful books: "Unequal Democracy: The Political Economy of the New Gilded Age" by Larry Bartels and "High Wire: The Precarious Financial Lives of American Families" by Peter Gosselin. They dismantle many of the policies he's espousing.

These aren't ideological diatribes. Bartels, a Princeton University political scientist, says he hasn't voted in a presidential election since 1984, when he supported Reagan. Gosselin is a well-regarded national economics correspondent for The Los Angeles Times.

The Gosselin book focuses on the pre