The Weekend Economists, September 26-28, 2008

[Demeter]

It's after 6:30 PM on Friday, so WE are free to come out and play in the rubble of a rumble of a week that will go down in history, and not as a shining example!

I am beginning to think that the only thing sustaining this nation is Social Security, the underground economy, and/or the illegal drug trade. Please, do not tell me which ones you are involved in! I really don't want to know.

So come and study, vent, speculate, gossip, and otherwise bloviate on the US, the state of the national economy, the people and the non-person persons (corporations). Everybody is welcome, the fee is small--an idea, an article, an open mind, a hunger. And remember, Google is your friend!

Click early and often. This thread grows up to 6 AM on Monday (at least theoretically) when Ozy picks up with the Stock Market Watch in LBN again.

Demeter


U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES-----------------------------S&P FUTURES

[Demeter]

1. Useful Video--Economics Lesson (including Krugman)

http://www.youtube.com/watch?v=Wj_JNwNbETA

Gives a good basic description of the mess we are in, and how we got there.

[Demeter]

2. naked capitalism: Europe Opens Ugly

http://www.nakedcapitalism.com/2008/09/europe-opens-ugly.html
Posted: 26 Sep 2008 03:43 AM CDT

Hope you like the smell of napalm in the morning. Otherwise, this will not be your sort of day.

I have to turn in, but the early morning sightings, as expected, are not at all pretty. What is particularly troubling is that central bank interventions may have become unproductive. Banks have quit lending to each other because they know they can go to their friendly monetary authority instead.

We had warned of the difficult of weaning financial firms off of facilities like the Term Auction Facility, but we never envisaged a problem of this scale. This is troublingly like 1930, when money supply in the US fell, turning a recession into a depression. Conventional wisdom has it that the Fed goofed, but in fact, it did what it could.

The central bank increased the monetary base, which was what it controlled, but with banks failing and funds being withdrawn by worried depositors, money supply nevertheless contracted. The fact set is different now, but we may be getting a similar outcome. The open question is whether this hoarding will be reversed to some degree once a bailout or some other form of assistance calms frazzled nerves....

reader Dan points out that financial players have plenty good reason to be spooked. And his reasoning suggests that liquidity measures and rescue packages will have little to no impact:

I understand that the explosion in the OIS spread is a reflection of the fear banks have for each others solvency. And it makes sense that it exploded right after the bankruptcy of LEH--it was not the bankruptcy per se, IMO, but the that $110b of senior LEH debt went from trading .95 to .12 in a matter of days that concentrated the market's attention. If you include the less senior debt that is trading at essentially zero, LEH had $110b hole in its balance sheet. And just days before this, the market was being told and was believing that the $10b disposition of Neuberger was going to solve their funding problems.

Now is there a precedent in this history of bankruptcy--excluding cases of accounting fraud--where bonds collapsed like this once a bankruptcy court opened up the books? I'm thinking the answer is 'no.' Which then makes you re-evaluate the premise that there wasn't fraud at LEH in marking the value of their assets.

Now extrapolate this reasoning across the entire banking system and, voila, you have the seizure of the interbank lending market.

Now this leads me to the question: if the OIS spread represents eminently legitimate fears of inaccurate marks on banks books, how is a commitment from the treasury to buy hundreds of billions of distressed assets from the banks any assurance to a counterparty that that bank will not still become insolvent. Obviously it helps on the margin, but the staggering hole in LEH's balance sheet that was revealed after bankruptcy creates profound fears about the true solvency of C or UBS. Until the market is convinced they are solvent--and TARP does not do this--the OIS spread will remain elevated and lending will remain frozen.

[Demeter]

3. Fed Watch: Regardless of Bailout, US Economy Decelerating

http://economistsview.typepad.com/economistsview/2008/09/fed-watch-regar.html


Regardless of Bailout, US Economy Decelerating, by Tim Duy:

The US economy is limping through the second half of the year as the impact of this summer’s stimulus checks fades. The continued weakness, I suspect, will come as a shock to the public, who have now been essentially promised that their problems will be solved with a bailout package they really don’t understand to begin with for the financial sector they view as arrogant aggregators of wealth. But any bailout will only prevent a financial meltdown that threatens to deepen the credit crunch and worsen the ongoing slowdown, not reverse the current weakness. I doubt, however, the general public sees that distinction. And they are not likely to be convinced; this Administration sacrificed its credibility long ago. Instead, the public will see billions channeled into Wall Street as the unemployment rate climbs. And climb it will.

The flow of data this week, for those paying attention, is decidedly negative in tone. The housing market continues to deteriorate, with a precipitous decline in new home sales reported today. By definition, we must be closer to a bottom on new construction – but, to say the least, that bottom remains elusive. Initial unemployment claims, reached nearly 500,000 last week, although the Department of Labor attributes roughly 50k to the impact of recent hurricanes. Still, initial claims hovering around 450k foreshadows another weak employment report next week. Perhaps the most discouraging report this week was the advance durable goods release, which revealed a 2% decline in new orders for nondefence, nonaircraft capital goods. As Spencer at Angry Bear notes, the report is a negative for third quarter GDP.

In my opinion, the stimulus package revealed the staggering importance of US households on debt supported spending. Cash funneled to households via the mortgage markets fueled the recovery from the 2001 recession, but at the cost of driving housing prices to unsustainable levels. This financing channel broke down when it became evident the household income was fundamentally incapable of supporting the debt loads necessary to sustain elevated housing prices. Credit markets contracted as underwriting conditions returned to traditional standards. I see this as permanent shift to a more sustainable equilibrium; credit needs to be extended on the basis of ability to pay, which ultimately reflects household cash flow (income). Housing prices need to adjust accordingly. Hoping for a rebound in housing prices to reverse current trends is, in my opinion, naïve.

To compensate for reduced access to capital markets, policymakers initiated a fiscal stimulus package to put cash in the hands of households. The debt necessary to support the package was floated onto financial markets and absorbed by foreign central banks. Households traded one debt-financed cash infusion for another. Because, as should have been expected, housing markets did not recover over the summer, the government stimulus provided only temporary relief. Households need a steady source of cash beyond their incomes to support their consumptive proclivities; without some artificial support, consumer spending will contract as a percentage of overall economic activity. I tend to believe this process is inexorable. Economic growth needs to become less dependent on consumer spending to be sustainable in the long run. Policymakers can cushion the blow, but policy should avoid entirely resisting the adjustment.

The fall in housing prices, and outright mortgage defaults, crumbled the base of Wall Street’s financial pyramid. A collapse of that pyramid threatens to spread and deepen the credit contraction beyond that already seen in housing. To be sure, a certain amount of additional contraction is almost certain as financial firms deleverage to more sustainable balance sheets. But this process threatens to turn disorderly quickly, which would generate a more significant credit crunch than is either necessary or desirable. The implications for Main Street are severe. Consequently, some sort of bailout for the financial sector is justified, in my opinion. I think the collapse of credit markets is something to be avoided if possible. I remember emerging Asia. We are not that different.

Congressional leaders were pulling together the final details of a bailout package to stem the bloodletting on Wall Street. The details may have been less than desirable. Indeed, it remains an extremely difficult sell to the public, especially when those who benefit are impolitic enough to suggest the following:

There also is the human cost to the financial floods, the collective psychological breakdown that occurs when Greenwich’s billionaires become mere millionaires.

“It’s the human toll that is frightening,” said State Rep. Livvy Floren, a friend of Mr. Fuld. “Dick Fuld has spent 39 years of his life doing this. It’s more than just money. They’re not going to be in the streets starving….I think the man worked 24/7. His family and Lehman are his life.”

A deeper analysis was offered by local Democrat Ned Lamont, who in one fell swoop compared Greenwich’s money woes to the Japan malaise, Asian tsunami and the New Orleans flood.

“It really is a financial tsunami, and it could go either way,” said the multimillionaire telecommunications mogul who ran for the U.S. Senate in 2006. “It took Japan 20 years to recover from their buying binge. How long does it take us to work through excessive leverage? That could take years not months. This is our Katrina.”

I have yet to meet a soul on the street who accepts that it is necessary to move forward on a fix to the nation’s financial underpinnings. With comments like these, is it any wonder?

Tonight we learned, however, that Republicans sabotaged a pivotal meeting today at the White House; the details are very distressing – see MarketWatch, Paul Krugman and Brad DeLong. The Republicans are playing with fire; the lack of leadership is on this issue is mind numbing. While I disagreed with certain elements of the initial proposal – nonexistent oversight is not a privilege this administration has earned – I believe there is a clear need for a comprehensive solution. And it is naïve to believe that the solution will come without a cost to taxpayers. No bailout is ever a free lunch. It is equally naïve, however, to believe that failure to act will be costless.

My hope is that a bailout is coming. But it will not change the path the economy is already on, it will only prevent activity from shifting to a new, less desirable path. I don’t quite see how the billions of dollars plowed into this program will be funneled to households. I see instead it will only cushion the process of deleveraging, and thus minimize the quantity of resources stripped from the economy. This is important and necessary, but will not provide a miracle cure for the economy’s travails.

Assuming a bailout comes to fruition, my attention will turn to the following:

1. What is the course of monetary policy? Increasingly, expectations are building for additional rate cuts, as much as 50bp as early as Monday. Federal Reserve Chairman Ben Bernanke’s shift to a more dovish tone from Tuesday to Wednesday appears to open the door to additional rate cuts. I think, however, that was not Bernanke’s intention. Instead, he felt it necessary to more forcefully press his case to Congress. That said, economic activity is decelerating, which, combined with the recent credit tightening, would typically prompt a rate cut – if the Fed had not already cut interest rates well ahead of their usual timing. And I suspect that Bernanke & Co. are more disposed to turn their attention to fixing the financial system, seeing that, rather than additional rate cuts, as the key to reinvigorating (or at least stabilizing) economic growth. Overall, I doubt they are interested in an intermeeting cut, and would prefer to wait until the December meeting.

If you are a cynic, however, and you believe there was a quid pro quo between Bernanke and Congressional leaders, then the Fed will cut rates next week. If so, the Fed would be openly abandoning its independence. Maybe it has come to that point. Nothing surprises me anymore when it comes to rate policy.

2. Will Congress step up to support Main Street? After the billions for billionaires bailout, it will be almost impossible to justified not taking further action to support Main Street, especially as labor markets deteriorate. It is not “if,” but “when,” with only the nature and size of stimulus to be decided.

3. How will the bailout and fiscal stimulus be financed? If it is not deficit spending, it will not be stimulative. My preference is for policy to focus on restructuring, not stimulus. Accept that we cannot deficit spend out way to prosperity, and support the bailout and additional stimulus via a tax increase on top income earners, those who have benefited most from Wall Street’s orgy of debt. I recognize, however, that it would be silly of me to actually expect that Americans would stand for self-financing their problems, and instead foreign central banks will be called upon to finance the bailout and future stimulus.

4. What will be the consequences of flooding global financial markets with more US Treasury debt? We will get another lesson in the world’s tolerance for absorbing low-yielding US assets. As long as foreign central banks continue to buy US debt no question asked, the lesson of the Reagan years hold true – deficits don’t matter (unless of course, we set off another burst of global liquidity that fuels commodity prices). If global financiers balk at acquiring the debt, then deficit will matter, and domestic interest rates would rise quickly. Place your bets, but realize that betting against the Bank of China has been a losers bet.

With the bailout package currently in doubt, however, my worry is that credit markets will collapse Friday morning. Under these circumstances, the Fed would likely be forced into cutting interest rates in an intermeeting move. With Congress nipping at their heels over their handling of the crisis to date, and Republicans undermining the bailout package, monetary policymakers may simply be out of other tricks.

:nopity:

[psychmommy]

7. very disconcerting. bail out or no, we're still in trouble.

the 10 year old in me is stuck on the name dick fuld. hahaha. i am so immature.

[Demeter]

18. Trouble?

The business cycle is. To call it trouble is to imply that there is something wrong with it.

The "trouble" with this business cycle is that the Feds and the Treasury and the GOP have done everything in their power to try to control. distort and conceal it, which makes the ebb and flow of business dam up and break forth in tsunamis.

If the PTB had any understanding of business cycles, they would encourage the cycle to move gently, and ensure that people had ways to ride them out: jobs programs, income support, universal single payer health care, and the like.

Our government, however, has been busily chopping the ground out from under the population.
We don't even have planning and resources for the victims of catastrophe: natural disaster, major illness, job safety, and the like.

[Demeter]

4. For Greenwich, ‘This Is Our Katrina’

http://blogs.wsj.com/wealth/2008/09/25/for-greenwich-this-is-our-katrina/


With markets continuing to swoon, the next shoe to drop is likely to be hedge funds. That means tough times for hedge-fund filled Greenwich, Conn. (As Nick Paumgarten wrote in the New Yorker magazine recently, “If New York City is the heart of the marketplace, Greenwich is the liver, where toxins are processed and rich bits collect.”)

Greenwich collected so many rich bits in recent years that its small population of about 60,000 contributed nearly $600 million in state income taxes in 2006. In other words, Greenwich pays 13% of all state income taxes in Connecticut with only 1.8% of the population.

According to an article by Christopher Keating in the Hartford Courant, the town and state are bracing for lower tax revenue. There are no signs yet that Greenwichers are hurting–Saks, Tiffany and Brooks Brothers are still busy and the local Rolls Royce dealers (there are two) say their clientele is largely immune.

Yet local residents like Lehman Brothers’ Dick Fuld–he of the $700 million stock loss–just won’t be writing the big tax checks that they used to. Charities are expecting a lighter haul this year.

There also is the human cost to the financial floods, the collective psychological breakdown that occurs when Greenwich’s billionaires become mere millionaires.

“It’s the human toll that is frightening,” said State Rep. Livvy Floren, a friend of Mr. Fuld. “Dick Fuld has spent 39 years of his life doing this. It’s more than just money. They’re not going to be in the streets starving….I think the man worked 24/7. His family and Lehman are his life.”

A deeper analysis was offered by local Democrat Ned Lamont, who in one fell swoop compared Greenwich’s money woes to the Japan malaise, Asian tsunami and the New Orleans flood.

“It really is a financial tsunami, and it could go either way,” said the multimillionaire telecommunications mogul who ran for the U.S. Senate in 2006. “It took Japan 20 years to recover from their buying binge. How long does it take us to work through excessive leverage? That could take years not months. This is our Katrina.”

I leave it to you, readers. Is this Greenwich’s Katrina? The tsunami of Fairfield County? The Japan of the east coast?


NARCISSISM--THE AMERICAN DISEASE :nopity:

[Demeter]

5. Why The Government Cannot Modify Mortgages If It Purchases $700BN of MBS

http://www.creditslips.org/creditslips/2008/09/why-the-governm.html

posted by Adam Levitin


I've written a short explanation of the why even if the Treasury buys $700BN of MBS it will be unable to modify the underlying mortgages. The explanation, which is more detailed than any of my previous postings on the subject, is available here.

http://www.law.georgetown.edu/faculty/levitin/documents/MBSModificationIssues_000.pdf

At core it is a Trust Indenture Act problem, where the bonds cannot be modified absent a specified majority vote and consent of bondholders whose payment rights are affected. And here is no possibility of doing an exchange offer to get around it; there is simply no mechanism for an MBS trust to do an exchange offer. (For the classic discussion of Trust Indenture problems, see Mark Roe's article, The Voting Prohibition in Bond Workouts.) The solution of Trust Indenture Act problems with corporate bonds is...you guessed it, bankruptcy modification!

[amandabeech]

60. Thank you for the Georgetown article.

It really cleared up a number of questions I had regarding the relationship of the servicer to the investors and the possibility of modifying the mortgage loans.

[Demeter]

64. Glad to Be of Service! Stop in Anytime!

We are all teachers here, trying to keep one chapter ahead of the students.....

[amandabeech]

67. Thank you for the invite. I may take you up on it. n/t

[Waiting For Everyman]

79. We could buy the mortgages, instead of the securities on mortgages

http://pubcit.typepad.com/clpblog/2008/09/another-idea.html

The cost is roughly the same by bailing out Main Street INSTEAD OF Wall Street. It's a much more sound idea.

[Demeter]

84. But That Would Be Sensible! That would Be Prudent!

We couldn't have that! No Bush Crony would benefit, you see....

[Demeter]

6. Latest Bailout Plan Spin: Its a Money Maker!

http://bigpicture.typepad.com/comments/2008/09/latest-paulson.html


Thursday, September 25, 2008 | 07:18 AM

Most people are unfamiliar with the evolution of financial management over the years. It began as a clubby old boys network, who you knew mattered more than what you knew. It evolved over time. Starting in the late 1970s, retail stock brokerage became a telemarketing sales business. Although that model is clearly changing, there is still trillions of assets under management today that got that way via the cold call.

The cold calling sales approach was developed and refined at Lehman Brothers (perhaps their collapse was Karma). It was encapsulated by a man named Martin D. Shafiroff, who wrote up, refined and perfected various phone techniques. These include the straight line, the first trade, the trust close. All of his various techniques were published in the book "Successful Telephone Selling in the '80s" and subsequent editions ('90s, etc.)


Having worked on the Sell side for the first decade of my Wall Street career, I am intimately familiar with the various pitches the retail world uses to obtain clients and assets. There is not a single retail broker of my acquaintance that does not have Shafiroff's how-to on his bookshelf.

The reason I bring this up today is due to the latest sales pitch from various people, aggressively pushing the bailout plan. The newest spin on the massively expensive plan is "Hey, its a jumbo money maker!"

The spin reminds me of the classic retail stock jockey. The guy has buried his clients in a series of bad trades, bad judgment, poor risk management -- all motivated by his self-interested, commission-generating trades. The only way out of the money losing mess, pitches the broker, is a big, Hail Mary trade.

Sound familiar?

This technique is one of the last ones in the the Shafiroff book. Once an aggressive retail broker is upside down, the plea goes out for raising more money from the mark client. "Believe me, I hate being under water more than you. I pulled in some favors, this is the trade that makes it all back for us and then some. I could even get in trouble telling you this, so don't mention this to your pals. This is the one -- but I need you to send in more capital so we can recoup the prior trades that went bad on us."

I guess Paulson read the book in the early days of his career. That line of bullshit is identical to what the public is now being fed. A series of OpEds in the Washington Post and the Wall Street Journal (and who knows where else) are all pushing the same nonsensical line: The bailout plan is a big money maker:

Andy Kessler in the WSJ:

"My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury...

Now Mr. Paulson is pitching Congress for $700 billion or more to buy distressed loans and CDOs from the rest of Wall Street, injecting needed cash onto balance sheets so that normal loans for economic activity can be restored. The trick is what price he will pay. Better mortgages and CDOs are selling for 70 cents on the dollar. But many are seriously distressed (15-25 cents on the dollar) because they are the last to be paid in foreclosures. These are what Wall Street wants to unload the quickest.

Firms will haggle, but eventually cave -- they need the cash. I am figuring Mr. Paulson could wind up buying more than $2 trillion in notional value loans and home equity and CDOs for his $700 billion."

Bill Gross (who just volunteered to manage the bailout for free) in the Washington Post:

"The extreme measures are extended government guarantees and the formation of an RTC-like holding company housed within the Treasury. Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent. Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that."

Now, I have a few question for Messrs. Kessler & Gross: What does this say about the private sector? Why can't the all of the private equity funds, sovereign wealth funds, and enormous pools of capital do this themselves? There are trillions of dollars sitting around in cash, yet none of it that sees any value here?

I guess that Hank Paulson, George Bush and Ben Bernanke -- all of whom have been been unequivocally, expensively, tyrannically wrong about the entire crisis from the beginning -- are smarter than both the markets, and all of the private equity pools, about this paper?

Does that sound right to you? The guys who missed this from day one -- despite many many admonitions from many people -- only they see the value in this paper, whereas the smart guys who saw the shitstorm coming in advance, and bet against it, don't?

I am in the same camp as Michal Lewis, who writes at Bloomberg "the Treasury plan also creates this wonderful hidden opportunity for Goldman Sachs to make a killing, and thus preserve its bonus pool for a long time to come."

Put me down as sympatico with Anatole Kaletsky, who writes in the London Times:

"Mr Paulson may be a former chairman of Goldman Sachs, but as US Treasury Secretary he does not know what he is doing. His recent blunders, starting with the “rescue” of Fannie Mae, have triggered unintended consequences around the world, resulting in the death-spiral of financial values. But last Friday Mr Paulson outdid even these Rumsfeldian achievements, when he demanded $700 billion from Congress for a “comprehensive and fundamental” solution to the global financial crisis, without apparently having any idea of what he would actually do."

Agreed.

I have a 10 year bet for those folks now pushing the "Trust me, we will make it all back on this one trade" spin. If you who think the Paulson plan is a money maker, a cash winner, and a net after-fees taxpayer surplus creator, put your money where your mouth is. I bet you one million dollars, to the charity of the winner's choice, that the current plan is ginormous money loser.

Any takers?

[antigop]

8. Back In the USSR - Where Amerika Has Always Been (Kleptocratic socialism)

http://action.credomobile.com/sirota/2008/09/back_in_the_ussr_where_amerika.html

A number of commentators and politicians have noted that the proposed financial bailout is, in effect, a socialization of Wall Street. They claim that such socialism is new in the good ol' commie-hatin' U.S. of A. But as my weekly syndicated newspaper column today shows, it's far from new. America has always been the United States' Socialist Republic, or Amerika for short. And the problem we are facing now is not socialism unto itself, but our unique brand of kleptocratic socialism - socialism whose objective is private theft.

Since I worked for Bernie Sanders in the late 1990s, I have been fascinated/disgusted by those right-wing politicians and pundits who at once red bait when anyone proposes, say, an expansion of Medicare, yet who bill themselves as free-market capitalists as they vote for gross defense, oil and drug industry subsidies, and for trade policies which include strict patent/copyright provisions that use government authority to rig the market. They pretend that America isn't Amerika - even though we have long exhibited many socialist tendencies - and Sanders himself took to television this week to point out precisely that hypocrisy

Where we differ with the rest of the world is in our socialism's objective.

In Amerika, we socialize private losses, and privatize public gain. We, for example, are about to socialize $700 billion in Wall Street losses, while continuing to fund the research and development of pharmaceuticals, which we then give away to drug companies so that they can sell the finished products back to Americans at the highest prices in the world. The examples of this dichotomy are endless - and it's clear what has forged it - our campaign finance system. A political system run by monied elites is one that socializes on behalf of those monied elites - and no one else. President Bush could have given a speech a few nights ago and replaced all the language about a financial crisis with language about the health care crisis - and he could have done it years ago. But in our kleptocratic socialism, the only "crises" are those that affect the kleptocrats.
...
The question we face on the cliff of this economic crisis is not whether we're becoming a socialist country or not - Amerika has been a socialist country since back when our government handed over large swaths of the Rocky Mountain west to private railroad interests. The question is what KIND of socialism are we going to be - one that values kleptocrats, or one that values We the People? If you want to demand that question be answered with the latter, then sign Sanders' letter about the bailout here.

You can read Sirota's column here: http://www.heraldnet.com/article/20080926/OPINION04/709269910

[Demeter]

19. Yes!

Given the choice, I'd prefer that we took care of people....

[antigop]

9. SEC dropped the ball on Bear Stearns, audit reveals

http://financialweek.com/apps/pbcs.dll/article?AID=/20080926/REG/809269975/1036

Internal report says regulator made no effort to limit i-bank's exposure to mortgage securities—even though Commission knew the firm was beyond limits

The Securities and Exchange Commission failed to properly oversee Bear Stearns in the months before the Wall Street giant’s collapse last March, disregarding red flags about its leverage, holdings of mortgage-backed securities and risk management, an internal audit found.

The commission, headed by Christopher Cox, also has conducted only superficial reviews of the filing reports of 140 of the 146 brokerages for which it is has been responsible, reports by the SEC’s inspector general said.

The 121-page report on Bear Stearns faulted the SEC’s consolidated supervised entity program, which was responsible for monitoring the four other largest investment banks since 2004. Mr. Cox terminated the program today.

“These reports document the failure of regulators at the Securities and Exchange Commission to either make its oversight program work or seek authority from Congress so that it could work,” said Sen. Charles Grassley, an Iowa Republican who requested the audits.

The reports were most critical of the SEC’s division of trading and markets, which has been headed by Erik Sirri since September 2006. Mr. Sirri reports to Mr. Cox.

[Hugin]

10. K&R

:kick:

[muriel_volestrangler]

11. UK: Mortgage lender Bradford & Bingley nationalisation looks increasingly likely

Bradford & Bingley's future looked increasingly uncertain as the City regulator searched for a white knight for the stricken bank.

But there was a growing view among bankers that B&B will be nationalised and knocked together with Northern Rock.

Sources said the Financial Services Authority had stepped up its search for a large bank which could step buy B&B. Alternatively, it may put pressure on the six high street banks which supported B&B's £400m rights issue in June to form a "lifeboat" to buy it outright.
...
B&B has been downgraded by ratings agencies to one notch above junk. That makes it more difficult to issue preference shares and other instruments, bankers said.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3087787/Bradford-and-Bingley-nationalisation-looks-increasingly-likely.html

Comment this morning: http://news.bbc.co.uk/1/hi/business/7639199.stm

Some background:

The former building society is heavily exposed to the now shrinking UK property market and last year was the UK's 8th largest lender of new mortgages.

Last month, it reported a loss of £27m for the first six months of the year, blaming this on a rise in bad debts and losses on its own investments in dud mortgage-related derivatives.
...
The share price has collapsed from £3.00 a year ago, to 184 pence at the start of May and just 25p last week. 20p by the end of this week - Ed.
...
Back then, in an effort to expand its mortgage business even further, it undertook to buy up to a maximum of £12bn worth of mortgages from the US owned mortgage lender GMAC-RFC.
...
There are now five tranches left, which means that the bank, now loss-making, is currently committed to spending a further £1.75bn to fulfil its side of the bargain.

http://news.bbc.co.uk/1/hi/business/7629107.stm

It seems B&B's main hope is that GMAC-RFC goes bust before B&B can.

[Buttercup McToots]

12. Good Mornin`

:donut:

[Dr.Phool]

13. You want to share that donut? I have coffee.

[Buttercup McToots]

14. Sure Dr. Phool

Help yourself...:)

[Buttercup McToots]

15. This is verry interesting...

Tar Pit Operation at Work
Friday, September 26th, 2008 at 7:38 AM
Teker kirilinca yol gosteren cok olur” “Many will point the right way after the wheel is broken” - Turkish Proverb

The JPM takeout of WAMU is significant and once again illustrates the “Tar Pit Operation”. Here are the details, and indicate (on its face) that no FDIC funds were involved.

1. Carrion is stuck in the Pit.

2. Saber Tooth (Friend of Hankenstein-FOH ) takes the Carrion in a government orchestrated “rescue” or “hand off”. Carrion shareholders and debt holders are completely wiped out. The FDIC gets brownie points for not taking a hit (or a small one), and can then point to the anti moral hazard lesson “to be learned”.

3. The assets and trashed securities of the Carrion are taken for a song.

4. A portion of the low cost basis trashed securities FOH (JPM in this instance) has taken are then marked up and profitably sold to the US Treasury’s deal making Leviathan.

The next step to look for is the Leviathan arrangement with Congress to emerge. They may now need a Black Friday or Monday demonstration to act, but act they will. A few more big banks will likely fail over the weekend providing the political cover. As part of the “compromise” Hankenstein’s Leviathan will come as a tranche deal (say $200 billion at first) whereby Hankenstein initially gets a “trial stash” to work with. Once Hankenstein gets the first tranche he works a smoke and mirrors razzle dazzle whereby fixed “prices” are established.

Since Fannie Mae and Freddie Mac have been seized as well, look for those and failed banks to be the center of the action. Securities Leviathan buys will also be flipped for small profits, and within weeks this will be revealed to the Public as part of a new found transparency propaganda machine. Leviathan will win brownie points for its early “wins” for the Taxpayers.

Unfortunately more “failures” will emerge as the Tar Pit fills up. Hankenstein will ask for and receive more tranches from Congress, and his role as middle man (wholesaler) to facilitate the monster asset handoff to FOHs will accelerate as will the hidden cost to the taxpayer. Hundreds of billions of assets are wholesaled in back door razzle dazzle transactions before January 20, 2009. Then Hank’s Boyz rip up and take the bathroom toilets off the walls, and a steaming sack of turds is left at the front door of the White House as a welcome present to the next President.

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This entry was posted on Friday, September 26th, 2008 at 7:38 AM and filed under Russ's Blog.
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Comments (28) to “Tar Pit Operation at Work”

Benvoliomontague wrote:

So will Wachovia see the other end of this weekend.

It slices, it dices, it even makes julienne fries…

Posted on 26-Sep-08 at 8:35 am | Permalink | Quote

CityPerfMgr wrote:

Russ - I think you’re on the money. One thing that I find interesting is that Hank thought he had this baby sewn up what with the fearmongering and all. But it looks like we’ll have to get some serious blow-back from the market to get the fear of God thing going for the last bit of the Continentals ploy.

Posted on 26-Sep-08 at 8:42 am | Permalink | Quote

Russ Winter wrote:

Some good bullet points on the WAMU scarf.

Posted on 26-Sep-08 at 9:25 am | Permalink | Quote

King Tut II wrote:

1. My bet on Wachovia is that they continue with the good bank/bad bank scenario. The bad bank will of course, be sold to the government. The good bank will be merged with another good bank, making another too big to fail organization. The Feds will give them plenty of time to accomplish this, as the rewards to everyone (except us taxpayers) will be greater. It will also be a guide to future bank bailouts, leaving a healthy private sector, while giving the taxpayers the garbage.

Posted on 26-Sep-08 at 9:41 am | Permalink | Quote

KAM wrote:

I was thinking that since Paulson is part of the government then FOH would probably include some of these folks. That suggests another possible inclusion to the list…FOG!

Posted on 26-Sep-08 at 9:44 am | Permalink | Quote

greg wrote:

good post, russ

Posted on 26-Sep-08 at 9:54 am | Permalink | Quote

The Who wrote:

Whoever will be the next president must block the current administrations plans tooth and nail in order to gain popular support. McCain morphs into Ron Paul and he stands a good chance of winning. We are fed up. Just too many turds already dumped on us and Paulson and his ilk bundling those turds in sacks makes no difference since they are still being unloaded in the living room.

Posted on 26-Sep-08 at 10:03 am | Permalink | Quote

ron wrote:

Happy Friday to all, maybe a bank holiday or even a series of early market closes is coming soon and this time from a Republican Prez!
One thing we have learned during the early stages of the subprime mortgage crisis is that these companies go down fast!! One day they are all powerful the next its on the street. The vultures from Asia and Europe who are picking the bones from the dead banks will find a economy of negative growth and bad debts nothing like what they had been lead to believe.

Posted on 26-Sep-08 at 10:06 am | Permalink | Quote

Benvoliomontague wrote:

7. I think McCain will have trouble fitting that Ron Paul mask on given the Keating Five stuff and general voting history. It could work though if they spin it hard enough (recalling JULS has about a 10 minute memory).

Just read an article in Canada predicting some vultures will come from the North for the blue light special at the tar pit.

Posted on 26-Sep-08 at 10:15 am | Permalink | Quote

Regis wrote:

Some past headlines to reminesce about…

I kept many articles from the last three years. One has to remember all the headlines,

“Bear Stearns Profit rises 81%” (MarketWatch 06/16/2006).

“Blackstone, Appollo Lead Record Payouts to Wall Street” (Bloomberg 07/12/2007) ‘Fees from LBO frims rose 34% from a year earlier….’ ‘Private Equity firms have announced about $670 billion dollars of takeovers since Jan1, more than double the total at this time last year…’

“Goldman Profit Rises to Record on Gains from Trading” (Bloomberg 03/13/2007) ‘Goldman said it remains bullish on fees from takeover advice….’

“Housing Market will stay strong: Fed’s Poole” (Marketwatch 03/08/2006). A qoute from Mr. Poole…. “Indeed, given that bubbles always burst - if there’s no burst, there was no bubble - clear advance evidence of a bubble can never exist,” Pool said. “If the evidence was clear, then everyone would know about the bubble and forthcoming burst, but then the buying that created the bubble would never exist in the first place,” Pool said. But Pooles dismissed fears of a nationwide housing bubble…” U.S. House Prices “Are not particularly unreasonable…”

“Ex-Pfizer CEO to leave $180 million richer” (MSNBC.com 12/21/2006)

“Pfizer to slash 10% of workforce” (Marketwatch 01/22/2007)

“Derivative Trades Soar to Record $681 Trillion in Third Quarter” (Bloomberg 12/10/2007)

Need I say more?

Posted on 26-Sep-08 at 11:03 am | Permalink | Quote

Anonymous wrote:

russ what about the key and ncc pfrd stocks are you buying more

Posted on 26-Sep-08 at 11:27 am | Permalink | Quote

Obfuscation wrote:

I think JPM just got the deal of the century

Posted on 26-Sep-08 at 11:33 am | Permalink | Quote

The Who wrote:

From Prior Comment

I think JPM just got the deal of the century

I’d like to see a run of former Wamu depositors continue seamlessly over at JPM just to put the fear of GOD! in these turd slingers.

Posted on 26-Sep-08 at 11:47 am | Permalink | Quote

Russ Winter wrote:

#11

Wrong board for that question. Details on those have been posted at Actionables, including today.

Posted on 26-Sep-08 at 11:54 am | Permalink | Quote

Obfuscation wrote:

Russ, can you ask Lee to put links to ACTIONABLES on the main WallStreetExaminer page? I don’t want to miss any of your posts, and sometimes I forget to check. (Also, nonsubscribers would be reminded of what they’re missing.)

Posted on 26-Sep-08 at 12:11 pm | Permalink | Quote

Darth Toll wrote:

Russ, I read that article and I don’t get it. The gist of the article seems to be that JPM is getting a great deal and there doesn’t appear to be any downside, apart from the equity and bond investors getting the shaft. If this business was such a good one, why didn’t Wamu just continue on as before? Why did they need a bailout to begin with? How were the pigmen able to engineer a panic on a supposedly sound bank? Who’s really holding the bag here?

I just can’t believe there is no downside apart from the shareholders who were holding a $2 stock anyway. Once I understand this deal and who the bagholders are, I may be able to better understand your general tar pit theory.

Posted on 26-Sep-08 at 1:28 pm | Permalink | Quote

King Tut II wrote:

Downey goes down next? Per several articles.

Posted on 26-Sep-08 at 2:55 pm | Permalink | Quote

Darth Toll wrote:

17: probably Wachovia no?

Posted on 26-Sep-08 at 3:03 pm | Permalink | Quote

King Tut II wrote:

Wachovia gets to live to try out good bank/bad bank split

Posted on 26-Sep-08 at 3:23 pm | Permalink | Quote

King Tut II wrote:

Does anyone know if anything is out on the Lehman counterparty derivatives mess? It seems to be forgotten so far. In bankruptcy, their contracts as a counterparty are probably invalid.

Posted on 26-Sep-08 at 3:39 pm | Permalink | Quote

Arizzzona wrote:

Shortly before the “700 billion” I began to wonder if the end game is to bankrupt the US government. (Because the pattern was begining point in that direction.)

Or simply to weaken it to the degree where it would be subject to economic blackmail. e.g., ‘Particpate in the new economic order or…’) Something about all of this feels like a script.

And of course the $700 billion initial estimate may grow to a much higher figure. Next spring should be interesting.

Posted on 26-Sep-08 at 4:37 pm | Permalink | Quote

Aaron krowne wrote:

#16:

Russ isn’t saying WaMu was a “sound bank” — just that JPM is getting a steal in a rigged transaction.

Most of these institutions are bust because the liabilities significantly extend past the assets. If you can strip the liabilities and get just the assets, there’s always a good deal to be had!

Posted on 26-Sep-08 at 5:02 pm | Permalink | Quote

Darth Toll wrote:

#22 ROFL! Yeah, everybody just wants to buy the assets and leave the liabilities. Good work if you can get it.

There always has to be a bagholder though and I was just wondering if Russ was saying that wiping out the equity/bondholders was enough of a haircut or if there would be other counterparty casualties. When he says stuff like “Hank’s Boyz rip up and take the bathroom toilets off the walls, and a steaming sack of turds is left at the front door of the White House” I get the feeling there is much more here than just a simple equity/bondholder wipeout.

Posted on 26-Sep-08 at 5:23 pm | Permalink | Quote

Bond investor wrote:

In the webcast/conference call Thur night, JPM said it is taking a $30.871 BILLION writedown on the bank assets it’s acquiring. Assumptions are for Calif home prices to fall -44% peak to trough, so fairly bearish.

But since they’re paying so little for the assets, they claim it will be accretive in the first quarter after closing.

I think this confirms Russ’ Tar Pit theory and answers Darth Toll’s question.

http://investor.shareholder.com/jpmorganchase/presentations.cfm

Posted on 26-Sep-08 at 6:20 pm | Permalink | Quote

ComWiz wrote:

CityPerfMgr! Please come back to tickerforum. We miss you!

Posted on 26-Sep-08 at 8:29 pm | Permalink | Quote

Glen wrote:

British prime minister Gordon Brown arrived in Washington to hand in a bill of up to $95 billion to rescue faltering British banks to be included in the American bail-out plan.

…get your bailout tickets while their hot!

Posted on 26-Sep-08 at 9:43 pm | Permalink | Quote

eah wrote:

#7

McCain morphs into Ron Paul and he stands a good chance of winning.

McCain is still a US Senator and he could almost guarantee his election by suspending his campaign to filibuster the bailout. His money raising problems could be alleviated too. But he’s too dumb to see that, and despite all the crap he puts out about being a ‘maverick’ and an agent for change in Washington he’s also too much in-line with the establishment.

Not that long ago Bush was saying he’d not sign a housing bill that ‘rewarded speculators’. Now he’s out front shilling for this huge amorphous bailout/taxpayer ream job. Just a reminder that they’re all scum.

Posted on 27-Sep-08 at 1:45 am | Permalink | Quote

Joshin wrote:

McCain is still a US Senator and he could almost guarantee his election by suspending his campaign to filibuster the bailout. His money raising problems could be alleviated too.

Only problem is McCain would probably be found with a dead girl in his bed the morning after he voiced his opposition to the bailout plan.

Posted on 27-Sep-08 at 5:51 am | Permalink | Quote

[Buttercup McToots]

16. Back Story....Comments?

http://wallstreetexaminer.com/blogs/winter/?p=1918

Massive Bailout? Hardly, a Massive Tar Pit Instead
Saturday, September 20th, 2008 at 11:17 AM
Naturally I need to weigh on what is being called the biggest “bailout in history”. I do not believe that is what is going down at all. Instead the US Government is facilitating the greatest asset grab of securities since Alexander Hamilton’s agents and cronies picked off the Continentals from the Rubes back in 1790. Hamilton’s associates (friends of Hamilton) did not pay anything close to par either, instead these Continentals went for enormous discounts. And Paulson’s new Leviathan hedge fund (the US Treasury) will end up paying deeply distressed prices as well. Therefore it is most important to follow the real bouncing ball on this, and not be fooled. This post is going to be my primary framework over the next several months, so any discussion with me or use of my ideas is meaningless unless you are aware of my thinking.


Tucked away in the hyperbole of this story is the following key element. These are competitive capitulations, and will hardly result in higher security prices, at least not yet. Initially they will simply reinforce low prices. Because these are government transactions there will be higher public transparency to them for all to see, and I doubt if the early response will be necessarily bullish either, but just more conformation as to how much fictitious capital has already evaporated. The use of the word “request” is poor confusing writing style, as I think the operative word is “offer”.

The Treasury would hold several rounds of buying, first purchasing securities from the banks that request the lowest prices, in order to limit the cost to taxpayers. The plan could be broadened to include securities based on other kinds of loans, such as student loans and commercial real estate.

Instead it suggests that the first rounds of Government bids will be mostly stinky or low ball bids. I am convinced this will be done in tandem with a series of bank closures and seizures accompanied by fresh rounds of panic and crisis. This will have the effect of forcing liquidations into the Tar Pit where the stinky bid awaits. Here are the bullet points of how this plays out.

-The friends of Hank (FOH) have already been hard at work picking up the modern day Continentals right and left, and this will continue, but there has to be a mechanism to force the sale, otherwise the carrion hold out. If I had to hazard a guess, securities that might be worth 60-70 of par at the end of the day are being scarfed at 20-40. When these are marked up later, you are left with well capitalized financial institutions, even new ones. As for the losers, well they deserved it anyway will be the refrain. It will not even matter what is fair either. If you want to know who the winners are from all this, FOH is it, and who they are really should be included as the basis of any investment decision.

-Also keep in mind that this process will go on in the productive or non-financial side of the US economy too, and that might be the safer option to play. The elimination of shorting on financials may have the “unintended consequence” (?) of pushing the Berserkers and other short selling criminal rackets into looking for non-financial squeeze targets instead.

-A list of carrion has been drawn up. There is also another list of FOH (visualize Saber-toothed Tigers). A very high percentage of FOH will be the new foreign masters and their front men, who will need to redeploy Dollars into distressed US assets. I have read people making remarks such as, “where does this money come from?”, to which I say, “are you serious? Take a look at Treasury prices, the last great Bubble. That is your answer. Treasuries will sold and utilized to buy these distressed, bargain US assets. Creditor status gets converted into equity status as part of a large scale defacto foreclosure and wealth transfer. And to ensure that Treasury yields don’t back up too much, the Fed is there to do occasional monetizations. Just how much is an open question, but if this operation goes as quickly as I think (the last four months of the Bush administration) it might not be that much.

The operational concept, repeated for clarity.



-The operational plan therefore is to work closely with the FOH on the Tar Pit scarfs, and also pressure and push the carrion off the cliff into the Tar Pit. What you have to remember about this, is that when a carrion go to the Pit, that institution absorbs (officially takes the loss) on a portion of the fictitious capital (FC) that had been on the books. FC goes to money heaven, is wiped out or cleaned (nao existe).

-Questions have been raised about all the derivative exposure out there. This was covered superbly in our last podcast starting at 12:30 by “Trader Joe” (you can hear the lead in to this starting at 6:30 of the free preview portion of the cast). Derivatives (mostly fictitious anyway just like the AAA ratings were) will be subject to novation, effectively renegotiated or even eliminated. Therefore billions in derivatives will go to money heaven also, and of course that will push more uninsured financial institutions into the Tar Pit. This will be conducted at run rate that can be effectively devoured by FOH, with Leviathan controlling the bleed rate.

-The Government already has Paulsenstein usury creditor loan hooks into a number of these carrion. These institutions may just as well have gone to see Vito and Guito’s “pawn shop” to cover their gambling debts. This is not a bailout at all, this is THE Tar Pit. Indeed, Leviathan (Hank’s hedge fund) already controls a couple king mastodons out right such as Fannie and Freddie. AIG is the prime example right now of another. AIG has given up control, and is about to be liquidated quickly in a “national emergency”. Of course this will be allowed to pass because no one wants to see a situation where Aunt Millie’s annuity or insurance policy has little backing.

-Finally for this operation to have legs the monster Leviathan hedge fund has to show positive returns for taxpayers. So the the initial results will imply favorable outcomes. The MSM media well suddenly herald how Leviathan got a big loan paid back with a nice return. Watch for this to happen within weeks, and then the Tar Pit machine can really get turned loose.

[DemReadingDU]

63. Friends of Hank (FOH)

The FOH are going to be taking all of our tax money, our country will be broke.

[Buttercup McToots]

17. Russia is watching with glee...

(Some rough language...)

http://www.exile.ru/blog/detail.php?BLOG_ID=17818

"Shock Therapy" Hits America Where It Hurts

Viktor Ivanov

VLAD'S DAILY GLOAT
SPECIAL LATE "HAPPY" EDITION!

What a day great, fun today! This will make you laugh (unless you are American): last year, Bear Stearns, one of the pillars of the mighty American investment banking system, was named to Fortune magazine's list of America's "Most Admired" securities company. It won this distinction three years in a row, 2005-2007. We can really trust the American free media to tell us the truth, and we can be sure that Bear Stearns did not bribe Fortune for that ranking. How strange then that today, Bear Stearns is "Most Fucked" securities firm in the entire world. And most corrupt too, along with the corrupt American Central Bank.

But first I must explain why this blog is late, why I didn't blog today's "Collapsing American Economy Show" before I left the office earlier: 1). it was too much fun watching the panic develop, so I only wrote half of this blog at the office before stopping because 2). at office we had a birthday party, drinking some champagne with our colleagues. My colleagues are laughing and drinking and toasting the America's funny collapse even now while I finish this blog, they are waiting for me at a bar just in my neighborhood. In fact they told me to leave the bar and come home to write this and post it finally. The whole bar was in a merry mood and cheering. Before I left I said, "Dear Russian Citizens, the American banking system is collapsing! The empire is finished,! These American pederasts will not be fucking with our Russia for a long while!" Someone ordered B-52 cocktails for all the bar, and we drank them in celebration of our comrades who shot down many American B52s in Russian victory in Vietnam, it was really a funny time.


SWEET MEMORIES ABOUT TO BE RELIVED AGAIN

So back to the news today, it is obvious even to the typical American's retarded little mind what the message is: you are fucked, my friends! But since your media is so bad, I will quote you from the English newspaper The Telegraph to tell the bitter truth of American collapse:

You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whol seemed so close to the precipice.
<...>"We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week.

"Never before have banks seen such destruction of their balance sheets in such a short time. Moreover, there are signs that the problems are spreading. The risk premiums on commercial property, consumer credit and corporate loans have risen sharply," he said.

Debt levels have been much higher than in the Roaring Twenties; the new-fangled tools of structured credit are more opaque: the $415 trillion nexus of derivative contracts is untested. Nobody knows for sure if the counter-parties are able to deliver on vast IOUs, or whether the construct is built on sand.

What keeps Federal Reserve officials turning at night is fear that the "financial accelerator" will now set off a vicious downward spiral. There is a risk of "very adverse economic outcomes," said Fed vice-chair Don Kohn.

Albert Edwards, global strategist at Societe Generale, said the toppling banks are merely a symptom of a deeper rot. "The banks are not the problem. Nor even the grotesquely leveraged funds. The problem is that an economic bubble financed by ridiculously loose monetary policy is unravelling," he said.

Losers, you're so fucked you do not even know what is coming! You think it's bad now, just because Bear Stearns has a cactus branch in your assholes? Ha! It's only a small taste, my friends. Get ready to sell your old clothes and trinkets outside of bus stations like our babushkas used to in the 1990s, because you are fucked now in a way you simply cannot imagine, you are fucked just like you fucked Russia 10 years ago!

Everything about Bear Stearns collapse and bailout is a deja vu of collapse of Yeltsin-era banking system. Back then in the 1990s, American advisers created Russia's "market" system, and that ended in a total economic collapse in August of 1998. What is happening today in America is just a repeat. For example, the development this week of the Bear Stearns collapse reminds me so much of the same way Russian banks collapsed under American guidance in the 1990s. In Russia under Yeltsin, when a bank was close to collapse they always assured the public that everything was fine and they blamed "rumors" for causing problems; this week, the CEO of Bear Stearns and all the American journalists on Bear Stearns payroll blamed "rumors" and "irrational psychology" for causing a run on Bear Stearns' money during the week. The purpose of these lies is that it allows the insiders to cash out their money while the rest of the trusting American fools keep their money in, only to lose it later. Then after the insiders cash out, comes the supposed "panic" and "sudden" collapse, best to take place on a Friday of course. The "sudden collapse" and "panic" gives cover for the next even bigger transaction: the connected Bear Stearns banker calls the Central Bank Chief Bernanke, just as Khodorkovsky would call Dubinin or whoever was Central Bank chief then, and naturally Bernanke gives to Bear Stearns as many billions as the CEO asks for, and everyone thinks it's okay because the billions were necessary in this atmosphere of alleged "sudden panic," as if Bear Stearns and Bernanke had not been speaking to each other like phone sex addicts every day 24/7 the entire week. Reports Bloomberg:

The Fed is taking on the credit risk from collateral supplied by Bear Stearns, which approached the central bank for emergency funds, Fed staff officials said today.
The Fed, under Chairman Ben S. Bernanke, voted unanimously to lend the funds through JPMorgan because it would be operationally simpler than a direct loan to Bear Stearns, the staff said on condition of anonymity. The regulator invoked a little-used law that allows it to make loans to corporations and private partnerships, which required a Board vote, according to the staffers.

Yes, you read that correctly. In the exact replay of Yeltsin-oligarchs' strategy to steal and steal, the Central Bank bailout money is not directly from the government to Bear Stearns, because that makes it harder to steal those billions. Instead, it is funneled through another well-connected bank, J.P. Morgan, so that those corrupt bankers can also take a nice cut in the deal ("otkat" it's called). Essentially the "bailout" is a massive bribe from corrupt Bush to corrupt J.P. Morgan, and in return JP Morgan will buy the ruins of Bear Stearns with the government money (minus what they steal). Meanwhile plenty of billions make sure that major Bear Stearns principles all cash out well.


Here comes the funny part. How does "free speech" America hide this outright corruption and thieving from the population? Let a Russian explain to your naive innocent little American eyes: stop all this bullshit about "transparency" because it is no longer convenient:

The senior staffers declined to describe how large the loan to Bear Stearns was, and declined to say whether a private- sector bailout was attempted before the Fed extended credit through JPMorgan.

NO ONE KNOWS HOW MANY BILLIONS THE U.S. GOVERNMENT JUST GAVE TO BEAR STEARNS, AND HOW MANY MORE BILLIONS WILL FOLLOW. The ghost of Yeltsin lives in the Federal Reserve! We don't know anything, and we didn't know it was even legal, because American government and banks exploited "obscure never used" laws to justify outright corruption and fraud, according to Wall Street Journal:

The arrangement employs a little-used Depression-era provision of the Federal Reserve Act.

It is sad to see Americans imitating the very worst Russians 10 years late, what incredible fucking losers you are! And meanwhile the American masses have no fucking idea, free press or no free press, they just stand around like retarded jackasses with a sign on their backs that reads "ASS-FUCK ME", because they trust their leaders. Americans don't know anything about Iraq anymore except that they're winning, they don't know hundreds of billions being stolen in front of their fat stupid faces, they don't know anything except where to find a bargain on hamburger buns. I almost cannot blame Bush and the bankers for stealing from American fools, it's just too easy! Let the bloodthirsty corrupt elite steal from the bloodthirsty retarded masses, it will hasten the final collapse of this cruel and shameful empire called "America."

Meanwhile, U.S. dollar is now for the first time in history worth less than a Swiss Franc, while the dollar fell to new lows against Euro, Yen, Ruble. The New York stock market fell another 200 points, another $195 billion of American wealth disappeared, more billions are going into the Iraq Surge, and housing prices continue to collapse:

The median price in a six-county area of Southern California fell to $408,000 -- the lowest level since October 2004, when it was $402,500.

All that just in a day! Thank you God, thank you!

No, Americans have no fucking idea what is happening to them.

[Joe Chi Minh]

40. Wow! An absolute must read. Never mind the insults.

[muriel_volestrangler]

51. Some irony: that was written in March; by June 'The Exile'had been shut down by Russia

The Fall of the Exile

And had to restart - http://exiledonline.com/ - which appears to be registered in Portugal (Madeira)

http://exiledonline.com/banned-in-russia/

Looks like the Russian model isn't quite perfect yet.

[Dr.Phool]

20. Subject: What Bailout? Invest in M&As

nvestment tips for 2008

For all of you with any money left, be aware of the next expected mergers so that you can get in on the ground floor and make some BIG bucks.

Watch for these consolidations in 2008:

1.) Hale Business Systems, Mary Kay Cosmetics, Fuller Brush, and W. R. Grace Co. Will merge and become: Hale, Mary, Fuller, Grace.

2.) PolygramRecords, Warner Bros., and ZestaCrackers join forces and become:
Poly, Warner Cracker.

3.) 3M will merge with Goodyear and become:
MMMGood.

4. ZippoManufacturing, AudiMotors, Dofasco, and Dakota Mining will merge and be come:
ZipAudiDoDa.
5. FedEx is expected to join its competitor, UPS, and become:
FedUP.

6. Fairchild Electronics and Honeywell Computers will become:
Fairwell Honeychild.

7. Grey Poupon and Docker Pants are expected to become: PouponPants.
8. Knotts Berry Farm and the National Organization of Women will become:
Knott NOW!

And finally....

9. Victoria 's Secret and Smith & Wesson will merge under the new name:
TittyTittyBangBang

[Demeter]

25. Cute!

You know, I wouldn't be at all surprised if these bastards didn't take that $700 billion and start doing just that---Mergers and Acquisitions: the greatest way to burn through money and people and trash the nation so that the whole ends up being much less than the sum of its parts pre-merger.

[antigop]

21. Krugman: Tricky bailout politics

http://krugman.blogs.nytimes.com/
Entire blog entry:

Nouriel Roubini has a characteristically scathing takedown of the Paulson plan, and here’s the thing: language aside, his economic analysis is similar to mine. The fundamental problem in the financial system is too little capital; bizarrely, the Treasury chose not to address that problem directly, by (say) purchasing preferred shares in financial institutions. Instead, the plan is premised on the belief that toxic mortgage-related waste is underpriced, and that the Treasury can recapitalize banks on the cheap by fixing the markets’ error.

The Dodd-Frank changes make the plan less awful, mainly by creating an equity stake. Essentially, this makes it possible for the plan to do the right thing through the back door: use toxic-waste purchases to acquire equity, and hence inject capital after all. Also, the oversight means that Treasury can be prevented from making the plan a pure gift to financial evildoers. But it’s still not a good plan.

On the other hand, there’s no prospect of enacting an actually good plan any time soon. Bush is still sitting in the White House; and anyway, selling voters on large-scale stock purchases would be tough, especially given the cynical attacks sure to come from the right. And the financial crisis is all too real.

So is it better to have no plan than a deeply flawed plan? If it was the original Paulson plan, no plan is better. Dodd-Frank-Paulson may just cross the line — let’s see what details we have if and when agreement is reached.

If the plan looks not-awful enough, I’ll be pro. But I won’t be cheering — I’ll be holding my nose.

Roubini's takedown here: http://www.rgemonitor.com/roubini-monitor/253762/rge_conference_call_on_the_economic_and_financial_outlookand_why_the_treasury_tarp_bailout_is_flawed

[antigop]

22. "If the plan looks not-awful enough, I'll be pro."

Swell...settling for plan that's "not-awful enough".

[Robbien]

23. Lehman Unit Shrank $400 Billion Before Bankruptcy

Lehman Brothers Holdings Inc.'s brokerage unit lost more than $400 billion in assets in the months before its parent filed for bankruptcy protection, according to the trustee overseeing customer accounts.

Lehman's holding company filed for bankruptcy Sept. 15 claiming $639 billion in assets, using four-month-old data. The wholly owned brokerage unit shrank to less than $100 billion in assets from $500 billion ``a few months ago,'' according to a Sept. 19 court statement by James Giddens, the trustee overseeing the settling of Lehman brokerage customer accounts by the Securities Investor Protection Corp.

The loss in value was caused by ``changes in the market,'' according to Giddens, a partner at law firm Hughes Hubbard & Reed, who spoke at a bankruptcy court hearing in Manhattan. The runoff may indicate Lehman's customers, including many hedge funds, canceled and closed out trades as they began to doubt the firm's ability to navigate the credit crunch, bankruptcy analysts and lawyers said.

``There was the proverbial run on the bank'' at Lehman, said Martin Bienenstock of the law firm Dewey & LeBoeuf, who is advising clients including Walt Disney Co. on recovering their money from Lehman. There was a similar capital flight from Bear Stearns earlier this year, he said.

Most of Lehman's pre-bankruptcy assets were securities, according to its balance sheets. Lehman said on Sept. 10 that the consolidated gross assets of the firm stood at $600 billion and net assets at $311 billion. The difference between net and gross is the so-called matched book, which is overnight lending or securities pledged for overnight borrowing.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a6eigPY5XGJ8&refer=home

Wasn't there an article yesterday about hedges withdrawing their money from JPMorgan? Also, aren't these assets leveraged by Lehman (minimum 30 times the amount) so that their withdrawal leaves Lehman with a huge leveraging problem?

[DemReadingDU]

24. Game Theory: Playing Craps with Your Life

9/26/08 From Arthur Silber's blog, http://powerofnarrative.blogspot.com/

Last evening, I came across yet another way in which the ruling class, or certain key elements in the ruling class, achieve their ends. I read the following quite by accident, just following one link to another, to another, and so on. I haven't seen this idea highlighted anywhere, and no one of any prominence has discussed it at all to my knowledge.

The following excerpts are from a short Bloomberg article. The key is in the last two paragraphs,

Advocates for a rescue plan this week point to a seizing up of credit markets, reflected in elevated inter-bank lending rates, as reason for action. Some economists are unconvinced.

"I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,'' said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.

lots more...
http://powerofnarrative.blogspot.com/2008/09/game-theory-playing-craps-with-your.html

[Dr.Phool]

26. Good catch.

And I've got to agree with a lot of it.

I was going to post an article by Nader here from The Nation web-site. Ralph might be right a lot of the time, but he's forever ruined his reputation.

[Demeter]

27. Crosspost to 10 Ways to Bail Out Wall St and Main St Without Soaking US in Debt

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x387807

Good article, if you haven't already seen it.

[Demeter]

28. Hedge funds move $100bn into safe havens

http://www.ft.com/cms/s/0/bb6ff882-8a68-11dd-a76a-0000779fd18c.html

By Anuj Gangahar in New York


Hedge funds charging hefty fees for sophisticated trading strategies aimed at outperforming the wider market have collectively parked $100bn in simple money market funds typically used by investors seeking safe rather than spectacular returns.

Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds, normally seen as some of the safest places to invest cash. However, last week those money funds became embroiled in the wider financial crisis to the point that the US Treasury was forced to offer a blanket guarantee on them as part of its attempts to prevent the spillover of the financial crisis into the $3,400bn sector.

The extreme measures taken by the Treasury followed mounting fears that retail investors in the sector could be starting to panic and might withdraw funds on a large scale.

But some analysts say the extent of hedge fund investment in money market funds shows how scarce attractive investment opportunities and safe havens have become.

Pauline Modieski, president of Horizon Cash Management, a specialist cash manager, said: “In many cases there is effectively no daily transparency in money market funds. Surely investors as sophisticated as hedge funds should be asking if their cash is in a separately managed account or, as seems to be the case with these large allocations to money markets, a comingled account where the hedge fund has little or no control or knowledge of the underlying holdings on the money fund.”

In what analysts expect to be the first in a wave of potential lawsuits against money funds, Third Avenue Institutional International Value Fund, a fund of Third Avenue Management, a New York hedge fund, has filed a class action against The Reserve Management Company of New York.

The Reserve, meanwhile, last Friday filed with the Securities and Exchange Commission to suspend all of its redemptions and postpone the distribution date of payments for a period longer than seven days.

US mutual fund managers are also holding near to record levels of cash. The average actively managed stock fund has 5.4 per cent of its portfolio in cash, according to Morningstar. That is marginally below the record of 5.5 per cent at the end of 2007.

Additional reporting by Deborah Brewster in New York

[Demeter]

29. Daimler set to sell Chrysler stake to Cerberus

http://www.ft.com/cms/s/0/3e8e9686-8a6b-11dd-a76a-0000779fd18c.html

By Daniel Schäfer and John Reed



Daimler is preparing to sell its remaining minority stake in ailing US carmaker Chrysler to private equity group Cerberus, in a move that would mark the final act of a 10-year-long combination.

The German premium car group on Wednesday confirmed it was in talks with Cerberus, which bought the majority of Chrysler more than a year ago, about a sale of Daimler’s 19.9 per cent stake in the US company. Daimler declined to comment on further details and did not give any explanation about the reasons for a possible sale. Cerberus said it approached Daimler about a deal, but said any sale would not affect co-operation between Chrysler and the German group.

The news of the talks came as a surprise as Daimler had hinted it would hold on to the Chrysler stake.

Explaining the decision to keep a stake in the company when Daimler sold it in May 2007 Dieter Zetsche, chief executive, said: “We basically have all the upside benefits without any risks.”

At the time, however, bankers said that Daimler’s continued presence in Chrysler – and the technological and other synergies it entailed – was essential to close the $7.4bn deal at a face-saving price.

Since the sale, Chrysler’s fortunes – along with those of General Motors and Ford Motors – have taken a sharp turn for the worse with a collapse in US car sales and consumers’ shift away from the minivans and trucks that dominate its product portfolio. Chrysler’s sales were down by more than a third year-on-year in August.

Chrysler has cut thousands of jobs and closed plants to match its shrinking market. Daimler took charges of €187m ($274m) on its earnings in the first half related to restructuring at Chrysler, and another €168m related to reduced residual values of Chrysler vehicles.

The Chrysler stake has been viewed as a drag on Daimler’s share price, which has fallen considerably in recent months, sparking rumours about a possible hostile takeover of the company. Analysts also said a sale could be good news for Chrysler as management could now run the company without having to secure the approval of its minority shareholders in Stuttgart.

“This gives Cerberus more flexibility with respect to how they want to run Chrysler going forward,” said Michael Robinet, vice-president for global vehicle forecasts with CSM Worldwide in Detroit. Daimler will still retain some interests in Chrysler after a sale as both are still co-operating in some areas. Also, Daimler granted Chrysler a €1.5bn credit after the sale to Cerberus.


SO LONG CHRYSLER. IT WAS NICE WHILE IT LASTED.

[Demeter]

30. Nomura rescues Lehman’s European unit (after buying Asian piece)

http://www.ft.com/cms/s/0/795de6ba-8974-11dd-8371-0000779fd18c.html


By Lina Saigol in London

Published: September 23 2008 15:09 | Last updated: September 23 2008 18:59

Nomura on Tuesday rescued another 2,500 Lehman employees after the Japanese bank reached an agreement to acquire the US bank’s equities and investment banking business in Europe and the Middle East for an undisclosed sum.

The Tokyo-based bank said it expected to retain a “significant proportion” of Lehman’s 2,500 employees, although some would inevitably leave. Nomura is not buying any trading assets or liabilities from Lehman. Sadeq Sayeed, senior adviser to Nomura’s board in Japan, said the bank had reached agreements with the top people in the each business line. “Slavery was abolished a long time ago. We cannot control people in any other way apart from creating an environment which is conducive to them,” he said.

The news comes just one day after Nomura paid $225m to clinch Lehman’s entire Asian franchise, including Japan and Australia, beating interest from other parties including Barclays. The US bank has about 3,000 staff in Asia, half of which are located in Nomura’s heartland of Tokyo.

For Nomura, the acquisition of Lehman’s European business will give it the scale needed to compete with its larger, international rivals with the aim of increasing its overseas revenues from 20 per cent to more than 30 per cent of its overall revenues by 2011.

“This transaction will enable Nomura to punch its weight in the international market,” Mr Sayeed said.

Lehman ranks ninth in the league tables for European M&A so far this year, according to Dealogic, the financial data provider. The bank worked on 41 deals with a total value of $124bn, giving it a 9.7 per cent share of the European market.

Bain Capital and Hellman & Friedman, the US private equity groups, have teamed up to bid for the rump of Lehman’s investment management arm, which includes the Neuberger Berman asset management business, and its $35bn private equity business. Barclays last week agreed to acquire the private investment management arm of the business, leaving assets estimated to be worth less than Lehman’s earlier $5bn asking price.

The asset management businesses are not part of the bank’s bankruptcy, but Lehman has put them up for sale and needs buyers in the next few days or risks losing clients and valued employees. Senior executives at the private equity arm are also considering a management buy-out of their division in case its planned sale falls through.


IF I WERE A SUSPICIOUS CONSPIRACY THEORIST, I'D SAY HANK PAULSON GAVE NOMURA-SAN A NICE LITTLE XMAS PRESENT...AND WHO GIVES A CARE ABOUT THE TOXIC SLUDGE IN THE US PIECE OF LEHMAN'S ACTION? IS NOMURA A "FRIEND OF HANK"?

[Demeter]

31. Hedge funds in fight to recover assets

http://www.ft.com/cms/s/0/110dfa5c-89a9-11dd-8371-0000779fd18c.html

By Jennifer Hughes, James Mackintosh and Megan Murphy in London

Published: September 23 2008 23:30 | Last updated: September 23 2008 23:30

Hedge funds have started the first of what is expected to be a series of legal actions against administrators of the main European arm of Lehman Brothers in an effort to recover $40bn of assets frozen when the business collapsed last week.

RAB Capital sued in the UK High Court this week demanding the return of $50m held by the failed bank on behalf of one of its smaller funds. RAB failed to accelerate the hearing of the case, which is being followed by other funds owed money by Lehman, but was continuing with the action.

However, some hedge funds may find they become general creditors of Lehman as PwC, the administrators, disclosed that they believed the bank’s prime brokerage had used about $22bn of the collateral held in trades for its own cash-raising operations in a practice known as rehypothecation. This allows the prime broker to re-lend client securities held as collateral.

PwC staff are still calculating the bank’s exact positions and holdings. “The exercise we’re undertaking in going through the books is going to be exceptionally detailed,” Steven Pearson, joint lead administrator, told the Financial Times.

RAB, which used Lehman as prime broker for its market cycles fund, a development fund that ran about $50m of the company’s $4.7bn of assets under management, had put in place legal agreements with the bank preventing rehypothecation.

Other hedge funds in a similar position – such as Amber Capital, a $3.2bn New York fund – are furious that the administrator has not yet returned money held in segregated client accounts.

Lehman’s collapse has forced the suspension of several hedge funds caught with no access to assets. Others are considering whether to limit withdrawals.

RAB is being advised by Simmons & Simmons. It has made no decision on whether to appeal its failed attempt to speed up the hearing.

GLG Partners, one of London’s biggest funds, said on Tuesday it “cannot predict” when its outstanding trades with Lehman would settle. It said last week it had moved the “majority” of its assets out of Lehman before the bank failed and expected the rest to settle shortly.


TSK, TSK, TSK....NO HONOR BETWEEN THIEVES....

[Demeter]

33. Lehman bondholders could lose $110bn

http://www.ft.com/cms/s/0/d9d096c4-88ce-11dd-a179-0000779fd18c.html


By Nicole Bullock, Aline van Duyn, Greg Farrell and Henny Sender in New York

Published: September 22 2008 19:19 | Last updated: September 22 2008 19:19

Investors owning Lehman Brothers bonds face potential losses of nearly $110bn, reflecting the sharp reductions in the value of assets that are likely to be left to be paid out to creditors.

In the week since Lehman Brothers, the fourth-largest investment bank in the US, filed for bankruptcy, the value of its bonds has plummeted. Further losses on its derivatives positions, which are still being unwound, could leave even less on the table for bond investors, according to traders. “I don’t know how this will play out for bondholders, but I doubt if it’s going to be good,” said Dan Fuss, vice-chairman of Loomis Sayles, which has a small holding of Lehman bonds.

“That’s what the market tells you and it tells you that so strongly.”

Meanwhile those who sold protection against a default or Lehman bankruptcy will likely recover 18 cents on the dollar when the contracts settle in a complicated auction October 10.

Lehman bonds were widely held by investors such as pension funds and mutual funds. This means the losses will have a far-reaching effect on ordinary investors.

The Federal Agricultural Mortgage Corp, or Farmer Mac, a federally chartered entity that expands financing for US farmers, ranchers and rural homeowners, said it would have losses on its holdings of $60m of Lehman senior debt, which raised questions as to whether it could meet its capital requirements.

Just one week before Lehman filed for bankruptcy, its $110bn of senior bonds were quoted at close to 95 cents on the dollar.

Bond prices then plunged to 35 cents a week ago. They are now trading at about 18 cents to the dollar.

Subordinated debt, which is lower down the pecking order of claims to be paid to creditors and of which Lehman holds $17bn, was on Monday quoted at one cent on the dollar.

“Lehman bonds are trading in the high teens, which reflects the bankruptcy filing, in which a large number of creditors are competing for a shrinking pool of assets of uncertain value,” said Kathleen Shanley of Gimme Credit, a credit research firm.

Last week, Lehman inked a deal to sell its prize asset, the North American investment banking business, to Barclays. That $1.75bn acquisition was completed on Monday, with Barclays immediately offering positions to 10,000 Lehman employees.

A spokesman said that by the end of business Monday, more than 8,000 Lehman people had signed on, including Bart McDade, who was president and chief operating officer of Lehman.

Even though approval of the deal was rushed through court, lawyers for Lehman Brothers said asset values then dropped to $47.4bn from about $70bn.

Creditors hope that Lehman can be involved in the government’s plan to set up a $700bn fund to buy distressed mortgage assets.

So far, there had been no formal discussions among the creditors about this, said a person involved in the bankruptcy case. That facility could boost recoveries for various creditors.

In its bankruptcy filing, Lehman listed total debts of $613bn, making it the largest ever US bankruptcy – with $128bn in debt securities, including $110.69bn unsecured debt, $17.6bn in unsecured, subordinated obligations. In bankruptcy proceedings last week, questions were raised as to why regulators and the government didn’t prevent a Lehman bankruptcy as they have for other troubled financial companies.

“Bear Stearn’s creditors made out very well, since JPMorgan acquired the company,” said Ms Shanley.

“In July, JPMorgan guaranteed Bear Stearns’ debt, which is the best case outcome for the company’s bondholders.”


AND THIS WAS THE SACRIFICIAL LAMB THAT WAS SUPPOSED TO KEEP THE PLAGUE FROM MANIFESTING ON THE OTHER FIRMS' DOORSTEPS? GOOD MOVE, PAULSON. HOPE THEY HANG YOU HIGH.

[amandabeech]

78. To the extent that Farmer Mac is involved in agricultural loans;

i.e., the type that farmers take out in the spring to buy seed, fertilizer and diesel, the demise of Farmer Mac could be deadly.

At any rate, in the event that this bailout plan does not free the credit markets before planting season, we could see lower agricultural production and another waive of farm failures. That would mean higher food prices and a larger trade imbalance from lower agricultural exports.

This bailout just better *&^%%$$% work!

[Demeter]

32. Plea to extend shorting ban

http://www.ft.com/cms/s/0/5b25e72e-88cf-11dd-a179-0000779fd18c.html


By Daniel Thomas and James Mackintosh in London



More companies in the UK and the US have been appealing to regulators for protection from short selling after the practice was banned or restricted for banks and other financial stocks in many countries last week.

The Securities and Exchange Commission on Monday gave exchanges control of the list of US stocks protected from short sellers, which was extended to an extra 96 companies. New restricted stocks include carmaker General Motors, industrial group General Electric and GLG Partners, the hedge fund. Calls for protection have come particularly from property groups, where trade bodies fear their shares could come under assault from short sellers. Short sellers aim to profit from falling prices by borrowing shares and selling them in the hope of buying them back for less.

General Electric said it had requested that the SEC should place it on the list, while GM said it had not asked to be included. Under the new SEC rules, companies can opt out of the list, although the New York Stock Exchange said that none had so far.

The US National Association of Real Estate Investment Trusts is talking to the SEC about getting its members on the protected list, following a similar request from Reita, the UK real estate investment trust body. F&C Asset Management, a UK fund manager, has asked the Financial Services Authority if it can be included.

Property analysts worry that hedge funds seeking an alternative to shorting banks could move on to the heavily indebted real estate sector.

Real estate companies are sometimes linked to financial stocks, partly because the sector is dependent on bank finance and is affected by similar issues such as interest rate movements.

The sector has also been a target for hedge funds as the price of physical property has crashed, although investor sentiment would suggest there is worse to come.

In the UK, the stocks are already trading at an average discount of about 25 per cent to net asset value.

Paris-listed Orco is trying to take matters into its own hands and is asking investors to stop lending its stock to short sellers. Orco blamed the disconnection between its share price and “corporate value” on shorting.

A spokesman for Nareit said real estate stocks should be regarded as part of the financial sector. “We had a conversation with the SEC on Friday to see if real estate stocks could be included. The decision is still to be determined, but discussions are ongoing.”



THE BAN ON SHORT-SELLING HAS SHUT DOWN HALF OF THE STOCK MARKET, AND IT (ALONG WITH THE SUBSTITUTION OF KRAFT CHEESE FOR AIG INSURANCE) ACCOUNTS FOR BOTH THE SUSTAINED HIGH LEVELS OF THE DOW AND THE LOW VOLATILITY. THE HALF OF THE STOCK MARKET THAT'S BEEN SHUT DOWN IS THE HALF THAT CORRECTS FOR INFLATED VALUES--IE: THE SHORT-SELLING.

THERE WAS A NOTICE YESTERDAY THAT CVS WAS PUT ON THE NO-SHORT-SELLING LIST. A PHARMACY? GO FIGURE.

[Demeter]

34. Fed moves to protect Goldman and Morgan Stanley

http://www.ft.com/cms/s/0/97a410b6-884a-11dd-b114-0000779fd18c.html


By Krishna Guha in Washington



The US Federal Reserve is attempting to shepherd Goldman Sachs and Morgan Stanley – the last two members of the dying breed of large US investment banks – to safety.

It is throwing its arms around the two companies both as a supportive regulator and as a provider of liquidity on exceedingly flexible terms. Bankers say the Fed has also been making calls to banks telling them not to take advantage of the precarious position of Goldman and Morgan Stanley to poach business, and sharing its concerns with foreign central banks.

Sunday night’s announcement that the Fed had approved their application to become bank holding companies and ensure they had full access to emergency loans during the transformation process was rushed out in time for the start of trading in Asia on Monday.

Officials feared Goldman and Morgan Stanley would come under renewed attack in the markets this week if there was no news on a way forward for the investment banks.

The Fed is trying to help to shield them from the sudden collapse of their funding model – using short-term collateralised loans in the repo market – and help them to make the transition to another business structure.

The US central bank has taken aggressive steps in recent days to backstop the repo market, which was traditionally funded in large part by money market mutual funds, which are now retreating to safe assets. Goldman and Morgan were probably the biggest single beneficiaries of these moves, including the easing of collateral rules on lending. But the Fed wanted to ensure they had a credible new funding model – which will now include much greater use of deposits.

Once the transformation is well underway the two entities will be on their own. But the Fed’s actions suggest it wants the transition to be as smooth as possible.

The Fed’s actions are likely to elicit criticism from some on Wall Street who contrast the efforts to help Goldman and Morgan evolve into more robust businesses with what they see as a tougher approach to Lehman Brothers and Merrill Lynch

Analysts said the Fed moved to approve Goldman’s and Morgan’s application to become bank holding companies in record time.

The US central bank – which will now be their chief regulator – has said it will allow them to phase in newly applicable regulations including those covering capital requirements rather than have to rush to comply with them immediately.

By taking Goldman and Morgan into its embrace, the Fed appears to be making clear to the market that the two companies will be within the central bank’s safety net on a permanent basis and will have access for the foreseeable future to emergency liquidity.

By contrast, the Fed’s liquidity facilities for investment banks exist only on a temporary basis. This led investors to question what would happen to Goldman and Morgan once these facilities expired. In return, the Fed will expand its supervisory presence within the two financial institutions.

[Demeter]

35. Paulson's Folly / Robert Kuttner

http://www.prospect.org/cs/articles?article=paulsons_folly


The current Wall Street rescue plan has some serious failings. Will congressional Democrats (and Republicans) stand up to the treasury secretary?... the stage is set for an epic game of chicken, against a very tight deadline. Will the Democrats insist on some serious help for Main Street and constraints on Wall Street as the price of a deal? Nothing would better highlight the differences between the two parties, or better strengthen Obama's hand. Or will Paulson reject anything other than his own approach -- possibly leaving both candidates to vote against the deal?
....
The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisers to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration's suspension of normal constitutional safeguards in its conduct of foreign policy and national security.

Though the administration's line is that these securities are not trading because of a crisis of confidence, so many are ultimately backed by loans that will not be paid back that they will eventually be sold for a fraction of their face value. Firms that have marked these securities down or have otherwise gotten them off their books have valued them at around 30 cents on the dollar or less. If Paulson had proposed such a deal in his old job as CEO of Goldman Sachs -- putting $700 billion of the firm's capital at risk in exchange for junk bonds of unknown value -- he would have been fired in short order. But this is merely taxpayer money.

The differences between this proposed bailout and the three closest historical equivalents are immense. When the Reconstruction Finance Corporation of the 1930s pumped a total of $35 billion into U.S. corporations and financial institutions, there was close government supervision and quid pro quos at every step of the way. Much of the time, the RFC became a preferred shareholder and often appointed board members. The Home Owners Loan Corporation, which eventually refinanced one in five mortgage loans, did not operate to bail out banks but to save homeowners. And the Resolution Trust Corporation of the 1980s, created to mop up the damage of the first speculative mortgage meltdown, the savings and loan collapse, did not pump in money to rescue bad investments; it sorted out good assets from bad after the fact, and made sure to purge bad executives as well as bad loans. And all three of these historic cases of public recapitalization were done without suspending judicial review.

What should Congress demand in return for this deal?

Government equity in firms receiving assistance, in rough proportion to the amount of aid extended.
Limits on executive compensation paid by any firm receiving the public aid.
A recapture of the cost to the government, to be extracted from the firm's future profits.
A six-month sunset provision, so that the treasury secretary's bailout authority would expire by next April 1. Any extension would be conditional on across-the-board re-regulation of financial institutions of all types.
Creation of a small independent board, which must review and approve Paulson's proposed deals.
A narrower treatment of court challenges to Paulson's actions.
A parallel program to refinance sub-prime mortgage loans and to provide funding to municipalities and community-based nonprofits to acquire, restore, and repopulate foreclosed properties.
At least $200 billion of new economic stimulus, in the form of aid to states, cities, and towns, for infrastructure rebuilding, more generous unemployment compensation and retraining benefits.
For nearly three decades, conservative Republicans have insisted that the cupboard is bare when it comes to needed social outlay. Conservative Democrats have been hesitant to spend more than token amounts because of concern for the deficit. Now suddenly, spending that will increase the deficit by $700 billion is greased to slide through Congress in less than a week but only because the money is for Wall Street.

Paulson said Sunday that the two cases are not comparable. "This is different than spending money you know you're never going to get back," he told CBS' Bob Schieffer. "This is buying assets, holding assets, and then selling assets." But that is just nonsense. Investing public funds in college education, the health of children, public infrastructure, research and development, or energy independence is money that is far more likely to produce a good return than public investments in the toxic junk of Wall Street. If the economic emergency requires deficit spending, the benefits should be spread. No self-respecting legislator should vote for this lopsided plan in its present form, and a bracing debate should shed light on what the two parties really stand for.

When you think about it, Hank Paulson is about the last person in America who should be entrusted with this emergency infusion of public capital -- because his perspective is entirely that of the bankers who created the mess in the first place. Paulson is treating the U.S. Treasury as a branch office of Wall Street....







Robert Kuttner is co-founder and co-editor of The American Prospect magazine, as well as a Distinguished Senior Fellow of the think tank Demos. He was a longtime columnist for Business Week, and continues to write columns in the Boston Globe. He is the author of Obama's Challenge and other books. For more read our "about the editors" page.

[Demeter]

36. Meet the Next Treasury Secretary / Robert Kuttner

http://www.prospect.org/cs/articles?article=meet_the_next_treasury_secretary




The most difficult economic challenge of the next administration will be to overhaul America's collapsing financial system. Who will lead that effort?

One weekend last March, Timothy F. Geithner, president of the Federal Reserve Bank of New York, fielded a panicked phone call from Bear Stearns CEO Alan Schwartz. Bear was nearly out of cash, owing some $80 billion, mostly in short-term loans, to 5,000 firms across Wall Street. Geithner, joined by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, had less than 24 hours, before markets opened on the next Monday, to decide whether to advance Bear a $29 billion credit line until a buyout could be arranged--or play roulette with the entire financial system. Geithner ended up taking heat for some details of the rescue, but nearly all observers now conclude that it had to be done.

Four months later, on July 11, Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC), acted to close and seize IndyMac, a $32 billion, federally insured mortgage lender that was as much as $8 billion underwater. In taking over IndyMac, Bair used the opportunity to design and test a strategy that she has long urged on the mortgage industry: refinance sub-prime loans at affordable rates, rather than foreclose on the borrower. The model plan, announced Aug. 20, will allow up to 60,000 homeowners to keep their houses and could serve as a template for the broader reform that Bair has championed since the sub-prime crisis began.

Their experiences in the financial crisis have led Geithner and Bair, both non-radical officials with impeccable establishment credentials, to embrace increasingly far-reaching remedies. Both top any list of potential appointees for the next secretary of the treasury--the official who will be responsible for the most drastic financial restructuring since the Great Depression. The treasury secretary is the government's senior economic official--charged with raising revenues, managing the government's finances, overseeing the banking system, and interacting with the Federal Reserve. In calm times, it can be a quiet job. In an economic crisis, treasury secretary becomes a key power position. The list of plausible candidates is short, for the number of people who fully grasp the dimensions of the current crisis, have the competence to deal with it, and enjoy the confidence of both Wall Street and its critics could fit in a phone booth.


* * *

A phone booth is not a bad metaphor for Geithner, whose phone rings whenever a big financial firm like Bear Stearns is about to go bust. As president of the most important of the regional Fed banks since November 2003, Geithner has not only had a front-row seat at the most serious financial collapse since the 1930s, he is the key public official who has prevented it from becoming another Great Depression.

The New York Fed has long played a special role at the intersection of government and private finance. Ever since the Federal Reserve System was created by Congress in 1913, the New York Fed has been first among equals. Geithner's predecessor, Bill McDonough, orchestrated the emergency 1998 restructuring of Long Term Capital Management, the hedge fund whose spectacular collapse threatened to take down its leading creditor banks; it was McDonough who made a secret trip to Riyadh in 1990 to arrange for Sheikh Alwaleed bin Talal to bail out a nearly insolvent Citibank. And it is Geithner's staff--not Fed Chairman Ben Bernanke's--that probes the books of the biggest banks. When the Fed decides to intervene in money markets, the New York Fed carries out the policy by buying or selling bonds. And it was Benjamin Strong, president of the New York Fed in the 1920s, who aggressively maintained price levels by buying and selling securities. Had Strong not died in 1928, many scholars think the 1929 stock market crash might not have turned into the Great Depression.

Unlike many senior Treasury and Fed officials, Geithner is not a high roller from a big bank or investment house but a public-minded civil servant. He has neither a doctorate in economics nor an M.B.A. After receiving a master's degree in international economics from Johns Hopkins University, he worked as a research assistant to Henry Kissinger and then joined the Treasury, where he was posted as an assistant attaché in Japan. He came to the attention of both Larry Summers and Robert Rubin and quickly moved up the ladder. He was a key player in the containment of the Asian financial crisis of 1997-1998 and later went to the International Monetary Fund as a top official. Despite being a Democrat, he was named president of the New York Fed after two stronger and more conservative candidates withdrew.

Geithner's admirers span the spectrum from Republican financial mogul Pete Peterson to liberal Democrat Barney Frank. One can infer from his broad fan base three possible conclusions: Wall Street is so clubby and politically powerful that permissible policy differences just aren't that great; or maybe Geithner is all things to all people; or perhaps, in a deep crisis, truly talented and effective people can earn broad respect.


* * *

Like Geithner, Bair has mainstream credentials. A Republican Bush appointee to the FDIC, she nonetheless has emerged as the toughest of the several banking regulators in the current financial crisis. She leaned hard on Bush to sign the recent mortgage-refinancing bill and supported an even tougher version. She has been a strong ally of Democrats Barney Frank and Chris Dodd as they push for better banking regulation. Her passion has been promoting the idea that refinancing is preferable to foreclosure. And the IndyMac seizure gave her the chance to field-test this systematic approach.

Her pro-regulation stance is partly institutional. The FDIC is typically among the tougher regulators--because its own insurance funds are at risk when an insured bank plays cute. But Bair also has an interesting personal history. She was a banker from small-town Kansas before becoming a senior staffer to former Sen. Bob Dole. Many small-town bankers display a populist aversion to Wall Street, which often takes advantage of Main Street. Roosevelt's Fed chairman, Marriner Eccles, the only populist ever to head the central bank, was a small-town banker. Rep. Henry Steagall of Alabama, the House sponsor of the landmark Glass-Steagall Act of 1933, championed local banks against the titans of Wall Street.

Bair is in this tradition. If anything, she would likely be an even tougher regulator than Geithner. Like him, she knows Wall Street but is not of it, having served as assistant secretary of the treasury for financial institutions early in the Bush administration, and as acting head of the Commodity Futures Trading Corporation under Bill Clinton. She also did a stint at the New York Stock Exchange.

When a Democratic president takes office, the tradition is to reassure Wall Street by appointing as treasury secretary either a Republican or a Wall Street Democrat. Clinton initially named Lloyd Bentsen, then the financially conservative chair of the Senate Finance Committee. Bentsen was succeeded by Robert Rubin, co-chair of Goldman Sachs--perhaps the ultimate Wall Street Democrat. John F. Kennedy went for the full monty; his treasury secretary was a leading Wall Street Republican, Douglas Dillon of the financial house Dillon Read.

With Bair, Barack Obama would get a fully credentialed and expert Republican--but one who is more progressive on financial regulatory issues than most Democrats. That might appeal nicely to Obama's wish to be simultaneously bipartisan and progressive.


* * *

No matter who is appointed, the critical issue going forward is whether the next administration will just keep lurching from bailout to bailout--or whether they will get serious about a New Deal-scale overhaul of the financial system and its standards so that the cycle of speculative bubble and government bailout ceases.

Speaking to the Economic Club of New York last June, Geithner called for a far-tougher regulatory policy to alter "the level and concentration of risk-taking across the financial system." He got quite specific, saying regulators "need to make it much more difficult for institutions with little capital and little supervision to underwrite mortgages." The speech is a blueprint for fundamental overhaul. He has delivered the same message in congressional testimony.

This is also Bair's view. Unlike the New York Fed's ad-hoc rescues, the FDIC operates under a detailed framework when it supervises, examines, and sometimes takes over insured banks when they fail. Like Geithner, Bair has urged an extension of this brand of regulatory authority to financial institutions outside the current structure.

By contrast, Paulson, the current treasury secretary, has called for broad general oversight by the Federal Reserve, with ad-hoc interventions as necessary. According to an official who has been privy to these debates, "Paulson's approach is a joke. The Fed has now extended the safety net to investment banks, private equity firms, and hedge funds. The real question is what kind of detailed public supervision will there be in exchange for these public benefits."

In the crisis management over the past year, Geithner has worked closely with Paulson. And Bair has emerged as a formidable player in the policy discussions of Paulson's senior working group. But their contrasting views of the system's architecture going forward define the axis of the core policy debate that the next administration must resolve.

The views of Geithner and Bair have increasingly converged with those of the key Democratic banking legislators. As Rep. Frank told me, "Supervision of commercial banks today is pretty good. The problem is that other players like investment banks, hedge funds, and private equity companies do many of the same things banks do and can put the whole system at risk. So they need the same degree of regulation. And examiners need both access to their books, and the ability both to ask further questions and to say, Stop."

That would be a revolutionary shift in the way government regulates investment bankers, private equity firms, and hedge funds, none of which have been subject to scrutiny of their books or their capital positions (except after the fact in cases of fraud or crisis). But Barack Obama has said much the same thing. "We need to regulate institutions for what they do, not what they are," he said in a radically reformist speech last March in New York.

* * *

When Franklin Roosevelt had to rebuild a ravaged financial system in 1933, he could draw from hundreds of knowledgeable veterans of the Progressive Era. Roosevelt's adviser and later Supreme Court Justice Felix Frankfurter could reach into his Harvard Law School network and send Roosevelt legions of "Frankfurter's Happy Hot Dogs," the young prodigies who designed the modern system of financial regulation. Ever since the crash of 1929, serious people had been intensely debating details of just how to tame the monster of speculative finance, and they had concrete ideas.

Today, however, the likes of Geithner and Bair are few. The legacy of 30 years of deregulation has done damage not just to the markets but to the ranks of financial experts who embrace regulation. In 2009 we will need landmark reform legislation on the scale of the great Roosevelt-era laws that redefined the structure of the banking system and established ground rules for commercial and investment banks, securities brokers, and stock exchanges. The challenges are both philosophical--what should be regulated and why--and institutional--which agencies of government should be charged with what responsibilities. Because the pervasive ideology of deregulation has lately been disgraced by events, it is only now that these questions are being asked seriously.

As Geithner, Bair, and Obama have each suggested, all financial institutions with the potential to infect the system and trigger government bailouts need far more extensive supervision and examination, as well as capital, leverage, and liquidity requirements. This would be a first for investment banks, hedge funds, and private equity firms. But these enterprises now engage in the same business activities as regulated banks, and they all infect each other. Last year, according to Frank, 60 percent of all credit in the United States was created by financial institutions other than banks, many of them almost entirely unregulated and unexamined. If an institution quacks like a bank, incurs risk like a bank, and gets bailed out like a bank, then it needs to be regulated like a bank.

In addition, some practices are so dangerous to the system that they need to be prohibited outright. These include the conflicts of interest between stock brokers and their customers, the flagrant hazards built into the bond-rating system, as well as abuses of short-selling. The landmark legislation will also need to fix the current patchwork of overlapping and underperforming government agencies.

If John McCain is elected, he might turn to a far more reckless financial type than Tim Geithner or Sheila Bair. Some have touted former Sen. Phil Gramm as a McCain treasury secretary. Gramm, more than any other senator, was responsible for the regulatory dismantling. Appointing Gramm would almost guarantee another Great Depression.

Even if Obama is elected, there will be immense political pressures not to appoint tough regulators or enact tough regulation, and we could end up with a weaker leader than Geithner or Bair. Whether hawk, pussycat, or fox in the chicken coop, the next treasury secretary will only be as effective as the next president allows.


* * *

Other plausible contenders for the job

Jon Corzine, governor of New Jersey. Corzine is by far the most progressive of the Goldman Sachs senior alums who have colonized Washington, who include Rubin, Paulson, and former Bush top economic adviser Steve Friedman. Goldman is the rare firm that has not suffered from the financial collapse, but most of its graduates have concluded that the remedy is smarter people just like themselves, not better rules. By contrast, Corzine believes in tougher regulation.
Liability: A free spirit; a bit hard to imagine him as an Obama team player.

Daniel Tarullo, Obama's top adviser on financial issues. After Obama's remarkably detailed and assertive Cooper Union speech, people wondered where it came from. The candidate evidently spoke to a range of people that included former Fed chairman Paul Volcker and super-investor Warren Buffett. But my reporting points to Tarullo as a key influence. A law professor at Georgetown and former senior Clinton official on international economic policy, Tarullo is probably the most progressive senior economic adviser to Obama.
Liability: Perhaps not quite enough Wall Street experience to be secretary, but could be the key sub-Cabinet or White House player in the reform design.

Roger Altman, deputy secretary of the treasury in the first Clinton administration. In normal times, Altman would be a front-runner. In addition to two sub-Cabinet posts at the Treasury, he's worked at Lehman Brothers, the Blackstone Group, and is now chairman of his own private-equity boutique. The quintessential Wall Street Democrat, Altman was a big Hillary Clinton backer.
Liability: A major supporter of the deregulation that got Wall Street into this mess.

***
Epilogue: Since this article went to press, Geithner, Bair, Paulson and Bernanke found themselves at the center of an even deeper financial crisis, triggered by another large failure--the collapse of the venerable firm Lehman Brothers. In that failed rescue effort, it was Geithner once again who was on the front lines. Working over the weekend of September 13, Geithner called together the heads of Wall Street’s biggest firms as he had done in the JP Morgan Chase - Bear Stearns deal that was guaranteed by the government. But this time he and made it clear that any salvage of Lehman would have to be done by the private sector. There would be no government bailout or guarantee.

By Monday, Lehman went down. The decision to let Lehman go was made jointly by the Federal Reserve and the Treasury Department, as Paulson tried to draw a line in the sand against further government-underwritten rescues. But the sands shifted when the collapse of Lehman sent tremors first through the world’s largest insurance company A.I.G, and then through iconic Merrill Lynch. The administration and the Fed ended up promoting a fire sale of Merrill to Bank of America—and buying most of A.I.G. for $85 billion of taxpayer money.

At that point, panicky markets began seizing up; the Fed’s own funds were more than two-thirds tied up in ad hoc rescues; and Democrats began calling for a more systematic approach. Paulson hurriedly drew up plans to ask Congress for $700 billion to buy up toxic assets that were now threatening to take down the entire system. The Dow, which had lost more than a thousand points, rallied on the news. Had Lehman hung in for another week, the government might have relieved the firm of a lot of its bad investments in the context of a general rescue, and Lehman would have survived. So it goes.

Bair, meanwhile, was operating Indy Mac, the failed bank seized by the FDIC, in a manner opposite from that of the Paulson plan. Instead of buying bad paper from the bank and letting incumbent management, she seized the bank, tossed out the culprits, and ran the institution in the public interest, offering refinancing to tens of thousands of holders of extortionate mortgages.

At this writing, Congress seems very likely to enact some version of the Paulson plan. But it remains to be seen what conditions Democrats will attach. Paulson is adamantly opposed to any form of re-regulation until the immediate crisis is stabilized, and it is not possible to write comprehensive regulatory legislation in a few days. The next design for regulating the financial system will fall to the new administration—to be led by Geithner, Bair, or someone of like mind.

The best thing the new president could do would be to appoint a task force of experts committed to re-regulation of finance. When Henry Paulson took office in 2006, he worked closely with an industry-sponsored task force that was making the case for deeper deregulation. Here is a proposed task force of senior, credible financial experts of the opposite persuasion. The order is alphabetical:

A Task Force on Rebuilding a Secure Financial System
Rawi Abdelal, Harvard Business School, author, Capital Rules
Phil Angelides, former California state treasurer
Sheila Bair, chair, FDIC
Richard Blumenthal, attorney general of Connecticut
Jack Bogle, founder of Vanguard Mutual funds
Richard Bookstaber, former risk manager, author of A Demon of Our Own Design
Warren Buffett, super-investor
Jon Corzine, governor of New Jersey, former CEO of Goldman Sachs
James D Cox, Duke University law professor, expert on securities regulation
Eric Dinallo, New York State Insurance commissioner
William Donaldson, former chair, SEC
Barney Frank, chair, House Banking Committee
Timothy Geithner, president, Federal Reserve Bank of New York
Harvey Goldschmid, Columbia Law School, former commissioner, SEC
Bill Gross, chief executive of PIMCO
Martin Gruenberg, vice-chair, FDIC, former chief of staff, Senate Banking Committee
Robert Johnson, investment banker, former staff, Senate Banking Committee
Lance Lindblom, president, Nathan Cummings Foundation, former financial executive
David Moss, Harvard Business School, author, When All Else Fails, and convenor of the Tobin Project on Regulation
Nouriel Roubini, professor, NYU Stern Business School
Paul Sarbanes, former chair, Senate Banking Committee
Joel Seligman, president, University of Rochester, securities law scholar and historian, author, The Transformation of Wall Street
David Smith, chief economist, House Financial Services Committee
Jim Stone, former chair, Commodity Futures Trading Commission
Daniel Tarullo, Obama senior adviser on financial markets

[DemReadingDU]

37. Debt Rattle: Borrowing money and time

'Debt Rattle' or 'Death Rattle'
http://en.wikipedia.org/wiki/Death_rattle


Ilargi and Stoneleigh write at http://theautomaticearth.blogspot.com/

9/27/08
Ilargi: Longtime Santa look-alike peak oil writer Professor Ken Deffeyes said when he perceived the peak moment had arrived, as he had predicted, that he had changed from a forecaster into a historian.

I was thinking about Deffeyes because I think something similar is happening with me and Stoneleigh. Only, amid the similarities, there is a different twist as well, and I’m not so sure I’m comfortable with it. You see, the energy ploy is one that unfolds relatively slowly, and Deffeyes has it easy. The credit and finance one is definitely not.

For me, that means I’m starting to feel like a two-bit beat reporter sent out to do a play-by-play in the most godawful traffic accident the world has ever seen. And as the vehicles and dead and dying bodies are piling up, and the desperate cries for help fill the air along with the stench, the smoke and the fires, I don’t have enough eyes to follow all that goes on, and I’m losing my voice trying to describe it, and think I had perhaps better get out of the way, to take care of myself and those closest to me.

The US may reach an accord on a plan to pour what will eventually be trillions of dollars into its economy. I think all involved in the talks understand that they need to come up with something by Sunday night. I do not think, however, that it will do anything but buy more than a few more days or weeks of borrowed time, and I mean that literally. If time is money, than borrowed money, in the end, can buy you nothing but borrowed time.

The credit markets are dead and gone. The plan being negotiated in Washington is aimed at reviving them. But it will do nothing to solve the problems that have started, indeed caused, the demise of credit. In order to accomplish that, it would have to force all funny casino paper, all securities and derivatives, to be put on the table in broad daylight, valued at current market prices, and sold at those prices. If a buyer could be found at all.

The reason they are so reluctant to do that is that it would be the end-all for most banks, pension- and money market funds etc. Not a pretty sight, for sure. It would, for one thing, wipe out most of those who are around those tables today. So they’re looking for an alternative. The problem with that is that there is, as far as I can see, no alternative. All there is is lipstick.

The credit market, in the last few days, has gotten much worse and was rushed into the emergency room, as evidenced by the violent surges in Libor and TED spreads, both of which mainly signal banks’ fear to lend to each other.

An adapted Paulson plan will try to address that issue by buying up frozen assets, and the idea is that that will make banks whole again, and take away the fear. But that can’t be done with $700 billion, it can’t even by done with $7 trillion. There is far too much of that funny frozen paper in the world, it’s more like $700 trillion, and it is indeed all over the world, which compounds the problem, for all intents and purpose, to infinity and beyond.

The plan inevitably will give a species of dictatorship the power to choose who shall live and who must die in the US banking community. And it will do so at a more than enormous cost to US citizens, who are already in dire financial straits. The people around the Wasington tables are first of all afraid for their own positions, but there are now a few who realize the gravity of the situation, and whose conscience tells them it would not be appropriate to use what little money their constituents have left, on a gamble that has virtually no chance of succeeding.

Republicans want "protection" of troubled homeowners in the plan, but by now it has gotten through to them that such protection is useless if real estate values go down another 20%; there’s a limit beyond which no help does actually help. They also know that the probability of such an additional price drop is very high. Make that inevitable.

There are two kinds of people in those talks: the ones that are all set and ready to make a killing off the disaster, and the ones who only just now are starting to realize how bad that disaster is. And they will end up deciding to take that gamble with your money, because they see no other way out.

But the derivatives monster is about to be let loose on the planet, gaining strength with every single bank failure, like a virus feeding off weakened hosts. The UK government is about to nationalize another Northern Rock, in Bradford and Bingley, Belgian giant Fortis Bank is on life-support (its liabilities are three times the GDP of Belgium), and in the US Wachovia may have been sold as we speak.

We haven’t even started. And when the monster is done, we will have very few banks, if any at all, left. Not a lot of jobs either, for that matter. Retirement funds? You go to be kidding. By Christmas, you'll be lucky if you recognize the town you live in.

click to read related articles
http://theautomaticearth.blogspot.com/2008/09/debt-rattle-september-27-2008-borrowing.html

[fedsron2us]

38. Mortgage bank Bradford & Bingley nationalised in UK.

http://news.bbc.co.uk/1/hi/world/7640143.stm

[fedsron2us]

39. Talks on future of Fortis to run into Sunday

http://uk.reuters.com/article/businessNews/idUKTRE48Q21620080927

Wheels starting to come off the financial system in Europe.

[Demeter]

41. I Know That People Are Having A Hard Time Imagining The Future Without Wall Street

But quite frankly, it's time to start planning for it.

The first step must be to see that everybody eats, has a safe warm place to sleep, and gets health care. Not only does this prevent civil ugliness, it also prevents public health problems and mental health problems.

The second step must be to secure useful work for each able person. Not only does work need to be done, but people need something to do that engages their minds and bodies and makes both feel better.

The third step must be education. Americans have been eating the seed corn for a couple of generations, and when the Boomers retire, the knowledge gap will be insurmountable if action doesn't begin immediately. Education involves everything from reform of all media from propaganda machines to information disseminators, restoring entertainment to a level above 12-year-old boy toilet humor, car crashes, and gratuitous violence, and making textbooks that are reality based and not "massaged" to be touchy-feely, non-judgmental pap. Becoming educated MEANS making judgments based on factual data, and not on some bizarre belief system.

And the fourth step must be to either completely wall off bizarre belief systems or eradicate them. It's gone way beyond freedom of religion and the wall between Church and State. If your belief system cannot tolerate the existence of the United States as outlined in the Constitution and Declaration, then you will have to find another country. A religion that seeks to overthrow the government cannot be tolerated.


These 4 steps will keep the nation alive, heal the economy and rebuild industry. Note that nowhere in there is any mention made of Wall Steet, or banks, or advertising. A complete reform of the banking system into a transparent and well-regulated machine that facilitates the exchange of labor and goods and the direction of capital flows is urgently needed. Nothing we have (with the possible exception of small credit unions) looks or acts remotely like this.

It's back to basics, but not the way the Fundies think.

[AnneD]

56. Unfortunantly.....

there are numerous examples in history in which societies were re-fashioned in the image of the fundies, not the enlightened. This is how power is maintained. Some value power more than anything. Power is everything to paraphrase Apollo 13. With it you can control media, money, religion, government, even thought itself.

By keeping folks so concerned with the very issues of day to day survival (safe, warm, healthy), they have little concern for the 'abstract thoughts' such as civil rights they just lost. Think it's hard to do? Just think Katrina and NOLA. The city's disaster was made worse by those in power who used the military to in essence keep aid workers out and victims in-thus completing what Katrina started. And how has it been rebuilt? Large areas will never be rebuilt because generations of poor peoples accumulated wealth was washed away and they cannot afford to rebuild. They are keeping body and soul together in Houston-how can they rebuild.

Don't think it will happen again-a permanent National Guard unit is being permanently being assigned state side and given 'special training' in handling the unruly and rioters. I don't need a pencil or a :tinfoilhat: to connect those dots.

Wish I could find out who pissed in my coffee this morning, or maybe it's the bail out that has me in a foul mood. Sorry to be a Debbie Downer.

[antigop]

42. Paulson's past raises questions about current proposal

Gee, ya think?

http://financialweek.com/apps/pbcs.dll/article?AID=/20080927/REG/809279993/1036

Henry Paulson spent his life amassing a fortune on Wall Street. Now, as Treasury secretary, he is demanding unprecedented authority—and $700 billion in cash—to bail out the teetering U.S. banking sector.

That some sort of action is needed to rescue the financial system from itself is hardly a point of contention. But Mr. Paulson’s blueprint has drawn widespread criticism, in part because his close relationship with the industry is perceived as clouding his perspective.

In legal terms, Mr. Paulson’s actions are perfectly acceptable. He is simply acting as the Treasury secretary in setting policies that will apply to the financial sector as a whole. Indeed, he divested himself of Goldman Sachs shares reportedly worth $485 million when he took office, to comply with government ethics rules.

Still, experts say that because of his background as a banker, Mr. Paulson may be prone to overstating the importance of Wall Street to the health of the overall economy.

“His mind-set is one that has been molded by a Wall Street-centric view,” said Anthony Sabino, professor of law and business at St. John’s University. “What I find as a shortcoming is that he’s refusing to acknowledge that Wall Street has to pay for its mistakes.”

[antigop]

43. SEC end voluntary oversight plans for Wall Street banks

http://money.cnn.com/2008/09/27/news/economy/SEC_oversight.ap/index.htm?postversion=2008092712

The Securities and Exchange Commission said Friday it was ending a program of voluntary oversight for Wall Street investment banks that its chairman said clearly has not worked.

It was the latest shift in the regulatory landscape stemming from the financial crisis that has gripped the markets and thrown Washington into fevered negotiations over a $700 billion bailout plan.

SEC Chairman Christopher Cox announced the agency's decision to end the program under which SEC examiners inspected the five biggest Wall Street banks: Goldman Sachs (GS, Fortune 500), Lehman Brothers (LEH, Fortune 500), Merrill Lynch, Morgan Stanley (MS, Fortune 500) and Bear Stearns Cos.

The financial upheaval of the last six months has "made it absolutely clear that voluntary regulation does not work" for the bank supervision program, Cox said in a statement. The program "was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily," he said.


So-- VOLUNTARY REGULATION does not work. No shit.

Can you believe this?

[dweller]

44. i can't rec, so therefore i

:kick:

dp

[Karenina]

45. A "DEAL" has been struck!!! WOO-HOO!!!

:puke:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3515631

[Demeter]

46. And I Hope Everybody Double-Crosses It

Nancy Pelosi is some piece of work. She's going to need prosecution, too.

[Hugin]

47. After a long night of DUing. I've learned a couple of things...

The Corporatist Democratic Wing of the Democratic Party is determined to play into this Hoax.

The Bailout Hoax was designed to bring the Paul Breakaway Libertarians back into the McCain Camp. (I had to
come to this conclusion myself, because nobody here was able to explain it's true function to me.)

I should change my registration to Independent if I want to influence Washington.

Along with millions of other Americans, I have nothing in common with any of those elected to Office to
represent me. So, it's all taxation without representation.

Well, I've done all I care to do on this matter and I'm off to stir up a heaping bowl of Bitter Soup
to serve to the rest of the Rubes when it's time for the chorus of "I Told You So!".

[Dr.Phool]

53. I resigned from my DEC when they voted to continue war funding.

I switched to "No Party Affiliation" when they voted for FISA.

You're doing a heck of a job, Harry and Nancy.

[antigop]

48. Krugman: The Good, The Bad, and the Ugly

http://krugman.blogs.nytimes.com/
Entire blog entry:

Brad DeLong says that Swedish-style temporary nationalization is the right answer to a financial crisis; he’s right. I haven’t been clear enough about this, it seems, but it’s where my basic diagnosis leads: the problem is insufficient capital, you want to inject capital, but you don’t want it to be a windfall to existing stockholders — hence, take over and recapitalize the failing firms. By the way, that’s what we did with AIG 10 years days ago.

So that’s the good solution. The Paulson plan, which is some combination of sheer giveaway and mystic faith that a slap in the market’s face will make everything OK, is a bad solution (and probably no solution at all.)

But nationalization doesn’t seem like a politically realistic answer now. This leaves the rough question of whether to hold out for a good solution, which won’t be possible until Jan. 21st, or accept the ugly compromise that the WH and the Congressional Dems, once again, say they’ve reached. It’s a tough call, but as I’ve written, I’ll probably hold my nose and say OK — as long as it has broad Republican support.

If not, go back to the good plan.

[Hugin]

49. "as long as it has broad Republican support"

It won't.

This bailout is not intended to save the Markets. It's a litmus test vote to show the Libertarians who to vote
for in November at best and at worst the very definition of "Authoritarianism".

Edit to add: The so-called Republican Strategists often work in 'negatives'. I think it's a mind set or code...
Act like you support something with a wink-and-nod indicating you really feel the opposite. The foot soldiers
will follow the lead.

[Dr.Phool]

58. As I've been telling Democrats in the Senate and House the last few days.

Burning up e-mails, faxes, and phone lines.

If this thing passes, you're going to own it in November, and the repukes are going to beat you to death with it until then.

They have a good handle on who has a safe seat in Congress. And Senators who aren't up for re-election. Those are the repukes who'll vote for this thing. The ones in close races will vote against it. Republican challengers will use it to distance themselves from Bush, and bash Dem incumbents.

Where do I donate to Cindy Sheehan?

[That Guy 888]

50. crosspost - Bailout Too Little Too Late to End Debt Crisis; Too Much, Too Soon for Bond Market

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x387908

It should have been posted here, I guess. My sister received the full 23 page white paper from her employer, and it is also being sent to Congress, the Senate Banking Committee, and the House Financial Services Committee.

[muriel_volestrangler]

52. Reports say Fortis may sell, regulators on alert

AMSTERDAM/BRUSSELS (Reuters) - Troubled Belgian-Dutch financial group Fortis may sell itself or the ABN AMRO Dutch banking business it acquired last year, Dutch and Belgian media reported on Sunday.

Financial authorities in Belgium and the Netherlands were preparing to provide reassurances on the integrity of the Benelux financial system later on Sunday, after holding intense discussions late into Saturday evening, a source familiar with the situation said.
...
BNP Paribas is a potentially interested buyer for all of Fortis or just ABN, while Dutch rivals ING or Rabobank may be eyeing Fortis's private banking business, the Dutch newspaper added, citing to unnamed sources.
...
The stakes are high in Belgium, where Fortis is the biggest private sector employer and where over 1.5 million households, roughly half the country, bank with the group. For what's at stake for Belgium, see.

http://www.reuters.com/article/newsOne/idUSTRE48Q2X320080928?sp=true

[fedsron2us]

71. Fortis seen bound for nationalisation as BNP exits

Sources close to the talks said the Belgian government appeared to have chosen a state buyout after investor confidence collapsed in the first spread of U.S.-style financial contagion to the euro zone, and talks with private bidders failed.

Fortis' size, with 85,000 staff worldwide, and its cross-border structure made it too big to be allowed to fail. Its nationalisation would dwarf Britain's state takeover of fallen mortgage lender Northern Rock last year.

http://uk.reuters.com/article/hotStocksNews/idUKLS25119320080928

This is quite a big story which is being lost amongst the frenzy surrounding negotiations about a bail out in Washington. For a country as small as Belgium nationalising a financial institution as big as Fortis is a huge step.

To complicate matters some of Fortis assets relate to its joint buyout of ABN AMRO with the UKs RBS. At the moment these are still in a holding company owned by RBS so selling them back to the Dutch Bank ING as has been mooted may not be simple.

Fortis is by no means the most leveraged of the European banks. Deutsche, UBS and Barclays have very high ratios

http://www.economist.com/finance/displaystory.cfm?story_id=12294760
http://www.resourceinvestor.com/pebble.asp?relid=46367

In fact the European banking system is quite capable of taking down the world economy on its own regardless of what happens to Paulson's bail out proposals.

[muriel_volestrangler]

72. There she goes! Fortis Receives EU11.2 Billion Rescue From Benelux Governments

Belgium, The Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis, Belgium's biggest financial-services firm, partially nationalizing the bank in a move to restore investor confidence.

Brussels and Amsterdam-based Fortis will also sell its stake in ABN Amro Holding NV's banking unit, Belgium's Prime Minister Yves Leterme said a press conference today.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHLJkQ0tCDEM&refer=home

[fedsron2us]

73. Just cross posted the very same news on your B&B thread in LBN

[Demeter]

54. Their Party Crashed. Ours May Too. By Robert S. McElvaine

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/26/AR2008092602836.html?sub=AR


We've been hearing a lot of comparisons to the Great Depression lately, because today's crisis rhymes with that one to an extraordinary degree. At the most basic level, the cause of the current crisis is simple: Economists, business leaders and policymakers have all been ignoring the lessons learned from that early 20th-century calamity....

Today isn't an exact replay of the 1920s, but it's a pretty good rhyme. Over the last three decades, top-end tax rates have been slashed; unions' power has become diluted; top corporate pay has skyrocketed; the minimum wage has been allowed to fall in real terms and the average wage has flatlined. And the credit bubble on which the economy has been riding in recent years is vastly larger than the one in which Americans danced the Charleston and drank bathtub gin 80 years ago.

After a long period of less income inequality from the 1940s through the 1970s, inequality began to increase again in the 1980s and has continued to rise almost continually ever since. By 2005, income concentration slightly exceeded the levels of just before the Great Depression: The richest 1 percent of Americans were receiving nearly 22 percent of the nation's income, and the top 10 percent took in more than 48 percent.

Yet there are some significant differences between the 1920s and today. Some make our current situation more dangerous. These include today's huge federal budget deficits (compared with the more or less balanced budgets of the late 1920s) and the war in Iraq, which has undermined confidence in the administration and, along with other policies and the flood of federal red ink, makes a stimulus through a massive deficit difficult, if not impossible. There's also the trade imbalance: In the 15 years preceding the 1929 collapse, U.S. exports exceeded imports by $25 billion. Now the trade imbalance is decidedly in the other direction.

On the other hand, we learned a good deal from what happened in the Great Depression, so the consequences of a major collapse may be less severe. We came to understand that we live in an economy far removed from a state of nature and that the market can't be allowed to rule over us without any restraints. And although they've been weakened in recent years, we have in place many regulations and countercyclical programs from the New Deal, including unemployment insurance and Social Security.

Here's the main lesson the Great Depression taught us: Capitalism is the best economic system just as democracy is the best political system, but both contain inherent dangers that require checks and balances to ensure that they work properly. One of the most prominent dangers of capitalism is that income will become too concentrated at the top, undermining the functioning of a consumer-based economy. The fruits of this lesson were put into effect during the New Deal through higher taxes on the rich, support for unions to help working people get a larger share of the national income, social programs to aid the poor, and such regulatory agencies as the Securities and Exchange Commission. A system of regulated capitalism was in place and worked very well from World War II to 1980.

Then economic fundamentalism staged a revival -- and once again got us into a mess. The only thing that can begin to get us out of it is replacing it with the sort of reasonable, balanced policies that produced a long period of widespread prosperity through the middle of the 20th century.

Bottom line: The fundamentalists of the economy are wrong.


[e-mail]


Robert S. McElvaine, a professor of history at Millsaps College, is the author of "The Great Depression" and, most recently, "Grand Theft Jesus: The Highjacking of Religion in America."

[antigop]

55. Photos from Wall Street bailout protest

http://www.alternet.org/blogs/peek/100370/breaking:_photos_from_the_wall_street_bail_out_protest/

[antigop]

57. Sen. Bernie Sanders' Wall Street bailout floor statement

Bernie reads letters he has received...
http://www.sanders.senate.gov/news/record.cfm?id=303785

[Hugin]

61. Very good.

I haven't seen anyone else sharing their letters in an open forum.

[antigop]

59. Check out this Paulson quote in Time Magazine

http://www.time.com/time/magazine/article/0,9171,1844554,00.html

And so Paulson and Bernanke asked for the world--and warned lawmakers they had only a few days to deliver it. Treasury needed $700 billion to buy up Wall Street's toxic mortgage-backed assets, which the government would eventually repackage and sell when the real estate market recovers, and a crisis might be averted. The proposal was simple, only three pages long. "Ben, Tim and I had talked for months about how there might be a need to do something like this, discussed the various plans," Paulson told TIME on Sept. 24. "The one thing we knew was that we couldn't or shouldn't go to Congress until we absolutely needed to, because the worst thing would be to go to Congress, ask for it and not get it."

[Demeter]

65. Humbug! Paulson Went to Congress When Congress Wanted to Go Home and Campaign

and Paulson screamed "Wolf! Wolf!" and Nancy set the table to sell us all into slavery before recess.

[antigop]

66. Isn't that really what he was saying?

"until we absolutely needed to..." meaning, wait until the last minute and shove it down our throats??

It also means they were thinking about this for some time, right?

[DemReadingDU]

62. Martin Weiss: Last Chance for the Truth

9/28/08 Last Chance for the Truth

Unfortunately, that has not been what they usually do. Most have been lying to you — deliberately and consistently.

Time after time, they swore on a stack of bibles that the out-of-control speculation was "under control," that the sinking housing market was "unsinkable," that the uncontainable debt crisis was "contained."

When everything began to fall apart, they tried to persuade you it was "nothing to worry about."

When something began to give you nightmares, they tried to dissuade you from taking "hasty action."

But most of the time, they were aware of the dangers. They knew your future was in grave jeopardy. They saw it in their own government data and talked about it behind closed doors. They even made not-so-secret preparations for this day.

They didn't suddenly discover these threats yesterday.

Now, finally, they're saying something akin to what we've been saying all along. In a sudden gusher of frankness,

* Fed Chairman Bernanke warns of the "grave threat" posed by deteriorating lending conditions;

* Treasury Secretary Paulson tells Congressional leaders we're "only days away from a Wall Street meltdown"; and

* In a major address to the nation, the President warns about major financial institutions teetering "on the edge of collapse" ... and about the cascade of wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses.

Sound familiar? If you've been with me for a while, it should.
.
.
I don't presume to know more than they do or have all the answers they don't have. But here's where they and I fundamentally disagree:

They are the paramount pessimists, with little or no faith in our country's ability to survive a financial crisis.

I am a profound optimist, with every bit of confidence in our ingenuity and resources to tackle the crisis without federal bailouts, clean up the bad debts on our own, and ultimately, recover with a cleaner slate.

The financial meltdown will be traumatic. It will turn many people's lives upside down. It will hurt and hurt bad. But as I wrote to Bernanke, Pelosi and Paulson in January:

"No matter how dire the situation may be, it's not the end of the world. We've survived worse, and we're still here. We'll survive this crisis as well."

The irony of this saga, however, is the one final truth that Washington and Wall Street have yet to face:

The financial crisis will continue and will deepen one way or the other. At this late date, there's nothing they can do to prevent it.

Whether Congress succeeds in passing legislation this weekend or not ... whether the package is strong or weak ... whether Monday's market brings euphoria or panic ...

more...
http://www.moneyandmarkets.com/issues.aspx?Last-Chance-for-the-Truth-2343

[Pale Blue Dot]

68. HERE'S THE BILL.

I hope that everybody can take a look.

http://money.cnn.com/2008/09/28/news/pdf/index.htm

[Pale Blue Dot]

70. I'm already deeply concerned about this passage:

(e) PREVENTING UNJUST ENRICHMENT.—In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the resale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset. This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code.
SEC. 102. INSURANCE OF TROUBLED ASSETS

This passage says that the Fed can't purchase the assets at a price MORE than what the institutions paid for them. This makes sense - of course the financial institutions shouldn't profit from the sale of these assets. The problem in that these assets are currently worth SIGNIFICANTLY less than the financial institutions paid for them. The bill makes it legal for the Fed to buy the assets AT THE PRICE THE INSTITUTIONS PAID FOR THEM. That would be a terrible deal for the American people.

I haven't read the whole bill yet, so it's not out of the question that this is addressed later in it.

[Mojorabbit]

83. I can't understand legalize

to save my life. I wish they had a version in lay people speak.

[Demeter]

85. "All Your Monies Are Ours"

Does that help?

[Mojorabbit]

87. LOL nt

[Hugin]

82. Once again... If it's such a great thing. Why are they cracking heads to sell it over in GD?

Things that are good sell themselves.

[Demeter]

86. What Is GD Prag?

[Hugin]

90. General Discussion

forum.

[antigop]

92. Very telling, Prag, very telling. n/t

[antigop]

69. Goldman targets failed banks' deposits

http://financialweek.com/apps/pbcs.dll/article?AID=/20080928/REG/809269967

After morphing last week from Wall Street’s biggest investment firm into Main Street’s fourth-largest bank holding company, Goldman Sachs is prowling for deposits. But don’t expect it to send an army of investment bankers out in search of a deal just yet. Instead, it says it may buy the assets of a bank gone bust.

“We plan to build our banking business organically and by buying retail deposits and bank assets in the wholesale market, not through opening branches,” a Goldman Sachs spokesman told FinancialWeek.com last week. “For example, the FDIC is selling IndyMac assets, and those might be the sort of thing we’d be interested in looking at.”

Before last week, 15 banks with total deposits of roughly $30 billion had failed since the beginning of 2007, according to data from the Federal Deposit Insurance Corp. IndyMac was the largest of that group, with more than $19 billion in deposits. The FDIC took control of the thrift after regulators shut it down in July.

With 117 more banks holding $78 billion in assets on the FDIC’s list of “problem institutions,” according to its second-quarter report on the health of the banking industry, Goldman could have plenty of additional opportunities to snap up deposits in the months ahead—just as J.P. Morgan Chase did last week when it snagged $188 billion in deposits, along with other assets, when Washington Mutual became the largest failure in U.S. banking history.

[Demeter]

74. Huge European bank fails

http://money.cnn.com/2008/09/28/news/international/fortis_nationalized.ap/?postversion=2008092818

European financial giant Fortis partially nationalized. Three governments to pour 11.2 billion euro ($16.4 billion) into the bank. Three European governments stepped in to rescue Dutch-Belgian bank Fortis with an injection of $16.4 billion. The crisis felt around the world


BRUSSELS, Belgium (AP) -- Dutch-Belgian bank and insurance giant Fortis NV was given a 11.2 billion euro ($16.4 billion) lifeline to avert insolvency as part of a wider bailout plan agreed to by Belgium, the Netherlands and Luxembourg, officials said Sunday.

Belgium's Prime Minister Yves Leterme said the bailout shows account holders and investors that Fortis will not be allowed to fall victim to the global credit crisis.

Leterme announced the deal after weekend talks between the three countries, European Union and national banking officials.

The deal will force the bank -- which has headquarters in both Brussels and the Dutch city of Utrecht -- to sell its stake in Dutch bank ABN Amro, which it partially took over last year. Fortis paid 24 billion euros for its share of ABN.

Fortis Chairman Maurice Lippens will be forced to resign and will be replaced by a candidate from outside the company, Leterme said.

"We have taken up our responsibility, we did not abandon" account holders, Leterme told reporters.

Under the bailout, Belgium will invest 4.7 billion euros ($6.88 billion) and the Netherlands 4 billion euros ($5.86 billion) in Fortis' banking operations in the two countries. In return, they each receive 49 percent ownership in those national arms of the bank.

Luxembourg will invest 2.7 billion euros ($3.95 billion) in the bank's Luxembourg operations, also for a 49 percent stake.

The deal, orchestrated by the three neighboring countries and EU Central Bank chief Jean-Claude Trichet, is meant to restore confidence in the bank before the reopening of markets on Monday after a tumultuous week in which Fortis' shares imploded.

Belgian officials also announced Sunday that they planned to offer better guarantees for all retail deposits at Fortis, the country's largest bank and largest private employer.

Fortis named its third chief executive officer in as many months Friday after insolvency fears caused the company's shares to tumble to 5.18 euros ($7.56), their lowest level in more than a decade. The shares have lost more than three-fourths of their value in the past year.

Fortis denies any imminent solvency problems, but it has been in trouble since it took part in a three-bank consortium last year that acquired ABN Amro in a 70 billion euros ($102.5 billion) deal that was the largest takeover in the history of the banking industry.

[Demeter]

75. The Monster That Ate Wall Street

How 'credit default swaps'—an insurance against bad loans—turned from a smart bet into a killer.


They're called "Off-Site Weekends"—rituals of the high-finance world in which teams of bankers gather someplace sunny to blow off steam and celebrate their successes as Masters of the Universe. Think yacht parties, bikini models, $1,000 bottles of Cristal. One 1994 trip by a group of JPMorgan bankers to the tony Boca Raton Resort & Club in Florida has become the stuff of Wall Street legend—though not for the raucous partying (although there was plenty of that, too). Holed up for most of the weekend in a conference room at the pink, Spanish-style resort, the JPMorgan bankers were trying to get their heads around a question as old as banking itself: how do you mitigate your risk when you loan money to someone? By the mid-'90s, JPMorgan's books were loaded with tens of billions of dollars in loans to corporations and foreign governments, and by federal law it had to keep huge amounts of capital in reserve in case any of them went bad. But what if JPMorgan could create a device that would protect it if those loans defaulted, and free up that capital?

What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a "credit default swap," and it was a twist on something bankers had been doing for a while to hedge against fluctuations in interest rates and commodity prices. While the concept had been floating around the markets for a couple of years, JPMorgan was the first bank to make a big bet on credit default swaps. It built up a "swaps" desk in the mid-'90s and hired young math and science grads from schools like MIT and Cambridge to create a market for the complex instruments. Within a few years, the credit default swap (CDS) became the hot financial instrument, the safest way to parse out risk while maintaining a steady return. "I've known people who worked on the Manhattan Project," says Mark Brickell, who at the time was a 40-year-old managing director at JPMorgan. "And for those of us on that trip, there was the same kind of feeling of being present at the creation of something incredibly important."

Like Robert Oppenheimer and his team of nuclear physicists in the 1940s, Brickell and his JPMorgan colleagues didn't realize they were creating a monster. Today, the economy is teetering and Wall Street is in ruins, thanks in no small part to the beast they unleashed 14 years ago. The country's biggest insurance company, AIG, had to be bailed out by American taxpayers after it defaulted on $14 billion worth of credit default swaps it had made to investment banks, insurance companies and scores of other entities. So much of what's gone wrong with the financial system in the past year can be traced back to credit default swaps, which ballooned into a $62 trillion market before ratcheting down to $55 trillion last week—nearly four times the value of all stocks traded on the New York Stock Exchange. There's a reason Warren Buffett called these instruments "financial weapons of mass destruction." Since credit default swaps are privately negotiated contracts between two parties and aren't regulated by the government, there's no central reporting mechanism to determine their value. That has clouded up the markets with billions of dollars' worth of opaque "dark matter," as some economists like to say. Like rogue nukes, they've proliferated around the world and now lie hiding, waiting to blow up the balance sheets of countless other financial institutions.

More: http://www.newsweek.com/id/161199/page/1

THANKS OHIO CHICK WHO FOUND IT FIRST

[antigop]

76. Kucinich says bailout doesn't have the votes

http://rawstory.com/news/2008/Kucinich_says_bailout_doesnt_have_votes_0928.html

As the Wall Street bailout talks continue, a critical Congressman Dennis Kucinich (D-OH) is not confident that House will pass the legislation, as he told The Hill. "If the votes were there, this would be on the floor," he said. "The votes aren't there."

"Is this the United States Congress or the board of directors of Goldman Sachs?" Kucinich asked today. "Why aren't we helping homeowners directly with their debt burden? Why aren't we helping American families faced with bankruptcy. Why aren't we reducing debt for Main Street instead of Wall Street? Isn't it time for fundamental change in our debt-based monetary system, so we can free ourselves from the manipulation of the Federal Reserve and the banks?"

[Dr.Phool]

77. Damn right! And Dennis just earned another contribution from me.

I know him, and when he speaks, I usually listen. He's always been one of us.

[DemReadingDU]

80. Yeh, Dennis!

No way, Kucinich would ever sign this bailout bill. But there seems to be some arm-twisting going on for some others.

[Hugin]

81. ...

:)

[Mojorabbit]

88. Asian Stocks Fall as Credit Crisis Deepens

Asian Stocks Fall as Credit Crisis Deepens; Westpac Declines

By Patrick Rial and Ian C. Sayson
Enlarge Image/Details

Sept. 29 (Bloomberg) -- Asian stocks fell for a fifth day after Fortis received a $16 billion bailout and concern grew that a U.S. rescue plan will fail to prevent more bank collapses. U.S. index futures declined.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQvB3l3keRlg&refer=home

[Mojorabbit]

89. German Stocks Slump

German Stocks Slump; Hypo Real Estate, Commerzbank Lead Decline

By Aaron Kirchfeld

Sept. 29 (Bloomberg) -- German stocks sank the most in six months after Hypo Real Estate Holding AG received emergency funding to shield itself from turmoil on financial markets.
http://www.bloomberg.com/apps/news?pid=20601100&sid=aRzdnCMXyuGA&refer=germany

[Demeter]

91. We Now Return You to Your Regularly Scheduled Stock Market Watch!

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3517275

Remember, it's only money....