Tuesday, October 21, 2008

Debt Rattle, October 21 2008: Diving For Dear Life

Lewis Wickes Hine Paper Boy 1908
John Howell, Indianapolis newsboy. Makes 75 cents some days. Starts 6 AM, Sundays

Ilargi: Yes, they are back. I’ve seen many voices claiming that the bottom is in sight, that from here on in the crisis can be seen mostly in the rear-view mirror. Libor spreads fall a few basis points and the pundits are ready to announce party times are here again.

There will be a second stimulus package in the US, if only because no new president will tolerate a disaster Christmas shopping season. So the Treasury will borrow more of your money and hand it back to you as a government check. The best part: you will have to pay interest over your own money. But at least you can give your loved ones more mall trinkets.

That is, unless you are one of the tens of thousands set to lose their employment in the next ten weeks. Whether you use your rear-view mirror or you stare it in the face, the pundit party is nowhere to be seen in the job market. And no narrowing Ted spread will get you hired anytime soon.

In fact, the Fed will now furnish capital directly to market funds (and companies), through a process involving two terms we thought we’d never see again. They're going to buy asset-backed commercial paper (ABCP), for which the market died over a year ago, using special investment vehicles (SIVs), a Faustian invention laid to rest even before the paper.

At a cost of $540 billion, you might want to ask a question or two about the quality of the assets, but you won't and can't, because the folks handling your money lock the doors of the backrooms where the deals are made. And where not only none of the toxic toilet paper is exposed, more of it is added every day. And you are buying. The tag team of Fed and Goldman are using your money to purchase power over everything they fancy.

White male baby boomers are driving up US suicide rates. What a surprise. I was thinking early today of this song that Robert Wyatt wrote about the Falklands hysteria in Britain, and which haunts eerily chilling in my head with visions of Christmas 2008:


Is it worth it?
A new winter coat and shoes for the wife
And a bicycle on the boy's birthday
It's just a rumour that was spread around town
By the women and children
Soon we'll be shipbuilding

Well I ask you
The boy said, "Dad they're going to take me to task
But I'll be back by Christmas"
It's just a rumour that was spread around town
Somebody said that someone got filled in
For saying that people get killed
in the result of this shipbuilding

With all the will in the world
Diving for dear life
When we could be diving for pearls

It's just a rumour that was spread around town
A telegram or a picture-postcard
Within weeks they'll be re-opening the shipyard
And notifying the next of kin - once again

It's all we're skilled in
We will be shipbuilding

With all the will in the world
Diving for dear life
When we could be diving for pearls

Here's the original 1982 Shipbuilding video:

And this longer version provides historical perspective:

Bailout Nation: More Government Control of JPMorgan, Citi, Bank of America Coming
Rather than resolving the crisis, the government's plan to inject capital into big banks is "merely the appetizer and soup course" in what will ultimate be a multi-course meal, says Christopher Whalen, managing director at Institutional Risk Analytics.

So what does Whalen see as the main course? Greater government control, if not outright ownership, of the nation's biggest banks, including:
  • Citigroup, which Whalen says is the "riskiest" of the group because of its exposure to consumer loans.
  • Bank of America, which faces more Countrywide-related litigation and keeps more of its loans in house, meaning it has "whole loan" risk.
  • JPMorgan, which is heavily exposed to potential defaults by businesses and is what Whalen calls an "over-the-counter derivatives exchange with a bank attached."

Whalen, lauded for forecasting the banking crisis when most others were sanguine, believes the U.S. banking system is going to face $250 billion to $300 billion in additional loan losses in the coming 6 to 9 months. In anticipation of such heavy losses, banks are now diverting capital into loan loss reserves rather than seeking to make new loans.

So when policymakers and politicians say the taxpayer monies injected into the banks is going to be used to make loans, "they are lying to us," Whalen says, using the kind of candor others are afraid of or can't afford.

Fed to Provide Up to $540 Billion to Aid Money Funds
The Federal Reserve will provide up to $540 billion in loans to help relieve pressure on money- market mutual funds beset by redemptions. "Short-term debt markets have been under considerable strain in recent weeks" as it got tougher for funds to meet withdrawal requests, the Fed said in a statement in Washington. About $500 billion has flowed out of prime money-market funds since August, a Fed official said.

The initiative is the third government effort to aid money- market funds, which in stable times are a key source of financing for banks and companies. The exodus of investors, sparked by losses from the aftermath of the Lehman Brothers Holdings Inc. bankruptcy, contributed to the freezing of credit that threatens to tip the economy into a prolonged recession. "The problem was much worse than we thought," Jim Bianco, president of Chicago-based Bianco Research LLC, said in a Bloomberg Television interview. Policy makers are trying to prevent "Great Depression II" by stemming the financial industry's contraction, he said.

JPMorgan Chase & Co. will run five special units that will buy up to $600 billion of certificates of deposit, bank notes and commercial paper with a remaining maturity of 90 days or less. The Fed will provide up to $540 billion, with the remaining $60 billion coming from commercial paper issued by the five units to the money-market funds selling their assets, central bank officials told reporters on a conference call.

The new program is called the Money Market Investor Funding Facility, and officials said it's intended as a backstop for money-market mutual funds to use as needed to meet redemptions. Today's action shows that two programs set up last month by the Fed and U.S. Treasury to help money-market funds haven't stabilized the industry. A Fed official told reporters today that the funds don't have much of a liquidity buffer remaining.

Last month, the Fed agreed to give emergency loans to banks so they can buy commercial paper from money-market funds. There was $122.8 billion of such loans outstanding as of Oct. 15. The Treasury separately used a $50 billion emergency pool to offer money funds guarantees against losses. "In terms of the redemptions money-market funds are seeing, and hedge funds as well, any of these moves by the Fed are going to help," Mike Holland, chairman and founder of Holland & Co. LLC in New York, said in an interview with Bloomberg Television. He predicted redemptions will ease.

Money-market funds have been hurt by their inability to sell back at par the commercial paper they bought from banks and other issuers, Fed officials said. The new program "should improve the liquidity position of money market investors," the Fed said in its statement. Each of the five special units will buy assets from up to 10 separate bank and financial company issuers. The program may be expanded to include purchases from other money-market investors.

The special-purpose vehicles will finance 10 percent of their purchases by selling asset-backed commercial paper. That paper won't be eligible for the Fed program that extends credit to banks to buy such assets, a central-bank official said. The New York Fed will lend the remaining 90 percent to the facilities on an overnight basis at the discount rate, which stands at 1.75 percent. Each special-purpose vehicle will only purchase debt with the top short-term ratings of A-1, F1 and P-1 given by Standard & Poor's, Fitch Ratings and Moody's Investors Service respectively.

The Fed said the facility will be in place until April 30 unless extended by the Board of Governors. Fed officials said they will announce a start date by the end of the week. In addition to the three programs to aid money funds, the Fed next week will start an unlimited program to purchase commercial paper directly from issuers, after companies had to pay more to borrow or were cut off from that market. Turmoil worsened among money-market funds after the bankruptcy of Lehman Brothers on Sept. 15, and the breakdown of the oldest money-market fund the following day.

The $62.5 billion Reserve Primary Fund announced Sept. 16 that losses on debt issued by Lehman had reduced its net assets to 97 cents a share, making it the first money fund in 14 years to break the buck, the term for falling below the $1 a share that investors pay. Over the next two days, investors pulled $133 billion from U.S. money-market funds, according to IMoneyNet. American banks are set to get help from the government through taxpayer-funded capital injections. Treasury Secretary Henry Paulson plans to buy $250 billion of stakes in financial companies, with half the amount going to nine of the biggest lenders, including JPMorgan and Citigroup Inc.

Ilargi: Robert Reich, former US Labor Secretary, sounds like my echo. Funny.

The Meltdown (Part IV)
The Dow is see-sawing but the reality is that the Bailout of All Bailouts isn't working. Credit markets are largely still frozen. Despite all the money going directly to the big banks, despite all the government guarantees and loans and special tax breaks, despite the shot-gun weddings and bank mergers, despite the willingness of the Treasury and the Fed to do almost whatever the banks have asked, the reality is that credit is not flowing.

It's not flowing to distressed homeowners. It's not flowing to small businesses. It's not flowing to would-be homeowners with good credit ratings. Students are having a harder time borrowing for their tuition. Auto loans are drying up.

Why? Because the underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value.

Many of these fancy instruments became popular over recent years precisely because they circumvented financial regulations, especially rules on banks' capital adequacy. Big banks created all these off-balance-sheet vehicles because they allowed the big banks to carry less capital.

Paulson is recapitalizing the banks -- giving them money directly rather than relying on reverse auctions -- largely because he's come to understand that the banks have taken on so much debt that the reverse auction system he told Congress he would use(designed to place a market value on these fancy-dance instruments) will leave too many banks insolvent.

But pouring money into these banks, expecting they'll turn around and lend to small businesses and Main Streets, is like pouring water into a dry sponge. Nothing will come out of it because Wall Street is so deep in debt that the banks are using the extra money to improve their balance sheets. They're hoarding it because their true balance sheets -- considering the off-balance sheet vehicles they created over the past several years -- are in such rotten shape.

In other words, taxpayers are financing a massive effort to save Wall Street's balance sheets from Wall Street's previous off-balance-sheet excesses. It won't work. It can't work. The entire effort is merely saving the asses of lots of executives and traders who got us into this mess in the first place, and whose asses should not be saved at taxpayer risk and expense.

What to do? Immediately require the Treasury to stop the broad Wall Street recapitalization, and require Wall Street to lend the money directly to Main Street. At the same time, force Wall Street to write down its true balance sheets: Let the executives and traders take the hit. Let their shareholders and even their creditors take the hit for Wall Street's collosal irresponsibility. This is the only true way to restore trust. It's also the only way to save Main Street's small businesses, homeowners, students, and everyone else.

One Day Doesn’t Make a Trend
The banks aren’t lending. And despite what you have heard, they probably won’t start just yet. The stock market may be way up on expectations of a credit thaw on Wall Street — and there has already been a minor one — but don’t hold your breath on Main Street.

The dirty little secret of the government’s $250 billion handout to nine banks to get them lending again is this: So far, they have stuffed it under their mattress like the rest of us. Need a mortgage? An auto loan? If you are a business or consumer, it’s almost as hard to get a loan this week as it was last.

Sure, there are some positive signs that the credit market is opening up a bit: Libor rates, the price at which banks lend to each other, have crept down in recent days, greasing the wheels of capitalism, or at least what’s left of it. Some banks, like JPMorgan Chase and Citigroup, actually made loans to banks in Europe on Friday. These are all important steps on the way to a recovery.

But make no mistake, the banks are doing the opposite of what Henry M. Paulson Jr., the Treasury secretary, sought when he virtually demanded that they accept the taxpayers’ money: They are hoarding it. It’s a bit like the government’s sending out tax rebate checks and the consumers’ not immediately running out and spending them.

“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital,” Mr. Paulson said in a statement Monday. “And we expect them to do so, as increased confidence will lead to increased lending. This increased lending will benefit the U.S. economy and the American people.”

Of course, with a $250 billion injection into America’s biggest banks — not all of which were troubled — Mr. Paulson has a political sales job to do. And no requirements to lend were attached to the money. (Some banks may use the money to buy others.) But Mr. Paulson is making a big assumption about confidence, because until the real economy recovers — which could take more than a year — lending to Main Street is unlikely to return rapidly to normal levels.

“It doesn’t matter how much Hank Paulson gives us,” said an influential senior official at a big bank that received money from the government, “no one is going to lend a nickel until the economy turns.” The official added: “Who are we going to lend money to?” before repeating an old saw about banking: “Only people who don’t need it.”

Indeed, if there’s a reason the stock market went up Monday, it was because Fed chairman Ben Bernanke told Congress he was in favor of a second economic stimulus plan, a tacit acknowledgment that recent efforts to repair the financial system won’t be enough to dig the economy out of its rut. Think about it: troubled companies are still troubled companies. And while banks often stupidly throw money at questionable companies in good times, they shut off the spigot in bad times.

On top of all that, the banks may still be in more trouble than they have disclosed. Indeed, the reason many may be holding onto the government’s cash is because they expect things to get worse not just for the economy, but for themselves.

Roger Bootle and Jonathan Loynes of Capital Economics in London wrote a sobering note on Monday about the cash infusions into European banks that may apply here as well. “We expect rising loan defaults and further asset write-offs over the next couple of years to practically wipe out the governments’ capital injections, leaving banks back at square one,” they said. “Given that banks will need to increase their capital in order to expand their lending book, these measures on their own are unlikely to prevent bank lending from stagnating.”

What else can government do? One of the last arrows in its quiver is the controversial idea of reducing the amount of capital banks must hold. That might make the banks more comfortable to lend, but it would put banks on an even less stable footing, and undermines the overall idea of injecting capital into banks in the first place.

That is not to say that Mr. Paulson’s $250 billion package won’t be helpful to the economy. It is a smart plan to help to encourage bank lending, which may prevent the economy from spiraling downward even more into a prolonged depression. And it should keep some more banks from going bust, which would have only added fuel to what seemed like an out-of-control fire. But it is not a silver bullet.

And the bailout also may be concealing another problem: Because the government gave money to both healthy and unhealthy banks, that may make it harder to tell which ones are in more trouble than the others. That’s why banks have been so wary of lending to other banks. Although a key gauge of this psychology, the Libor rate, has improved since governments moved to repair the financial system, some banks are still worried they can’t trust their counterparts to pay the loan back.

Ken Lewis, the chief executive of Bank of America, in an appearance on “60 Minutes” on Sunday night, said in perhaps one of the most revealing comments of the credit crisis that the reason strong banks like his got $25 billion apiece was to help conceal the weakness of those that have fallen into dire straits. “If you have a bank in that group that really, really needed the capital, you don’t want to expose that bank,” Mr. Lewis said.

Still, Mr. Lewis says he’s bullish that things will eventually turn around, though he thinks we won’t see a bottom until at least the first half of next year. And he suggested that banks won’t keep money under the mattress forever. “You can make more money lending,” he said. At least to people who don’t need it.

U.S. Moves Toward Stimulus as Bernanke, Bush Shift
Lawmakers and officials moved toward forging a second fiscal stimulus bill after Federal Reserve Chairman Ben S. Bernanke endorsed the idea and the Bush administration dropped its opposition. Bernanke warned legislators yesterday the credit crunch is "hitting home," with Americans unable to get auto loans and companies denied cash, and recommended measures to help borrowers. White House Press Secretary Dana Perino said President George W. Bush was "open to the idea" of a new stimulus.

Momentum for fresh measures built after an earlier stimulus package failed to prevent a jump in the unemployment rate to a six-year high and the longest slump in retail sales since at least 1992. Bernanke "had to do what he did" in supporting a further federal stimulus measure, said Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. "If he went up there and said, `Well, I'm indifferent to a stimulus package, I'm opposed to it,' he would be sending the wrong signal."

House Budget Committee Chairman John Spratt said a new push would be patterned after earlier proposals made by House Speaker Nancy Pelosi that extend jobless benefits, fund infrastructure projects such as road and bridge construction, and help cash- strapped state and local governments. Bernanke told the Budget Committee yesterday that the danger of a "protracted slowdown" and a "weak" outlook for the U.S. economy into next year convinced him to support a new round of economic stimulus. A similar endorsement by Bernanke earlier this year helped clear the way for a $168 billion measure enacted in February.

"The big development is that Bernanke came and said, in Fed-speak, `You'd be wise to consider this,"' Spratt, a South Carolina Democrat, told reporters after the hearing. "The momentum increased meaningfully because of Bernanke's endorsement." Spratt said the package may have to be structured in a way that increases deficits in the short term to avoid a longer-term economic slump that would have bigger budget effects in the long run.

The Bush administration is "open to the idea" of another economic stimulus package, though approval would depend on details drafted by Congress, Perino said. Proposals "put forward so far" by Democratic leaders in Congress "were elements of a package we did not think would actually stimulate the economy, so we would want to take a look at anything very carefully," Perino said.

Separately, U.S. Treasury Secretary Henry Paulson said yesterday the government has set aside enough money to buy stakes in every financial company that qualifies for the crisis program aimed at halting the credit freeze. The New York Times and Wall Street Journal reported the government may use the aid to foster bank mergers, citing unnamed officials. Barack Obama, the Democratic presidential candidate, last week urged Congress to act "as soon as possible" before the Bush administration leaves office on Jan. 20 to pass a stimulus measure.

If Congress and the president didn't act "it will be one of the first things I do as president of the United States," Obama said in an Oct. 13 speech in Toledo, Ohio. Pelosi yesterday cited Bernanke's testimony to buttress her case for a new package. He "made it clear that a new economic recovery package is critical to boost our weakening economy," Pelosi said in a statement. Ohio Republican Representative John Boehner, the House minority leader, said the Democrats' proposals amounted to "hundreds of billions in new government spending masquerading as `economic stimulus."'

"House Republicans agree with Chairman Bernanke that action to strengthen our economy is needed, and it should come in the form of pro-growth policies that create new jobs, lower energy costs and protect taxpayers," Boehner said. Bernanke told lawmakers they "should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers" saying such measures "might be particularly effective at promoting economic growth and job creation."

In a further break from his message three years ago that he would refrain from making recommendations to Congress on fiscal matters, Bernanke offered to help Congress craft specific tax measures to aid credit. That blurs one distinction he had made from his predecessor, Alan Greenspan, who was widely interpreted in 2001 congressional testimony to have endorsed Bush's proposal to cut taxes by $1.6 trillion over 10 years.

Bernanke told lawmakers in his Senate confirmation hearing in November 2005: "What I would like to do is refrain from making recommendations on specific matters of taxes and spending, or recommendations on specific measures." "Bernanke is so afraid of depression that it trips all other considerations," Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors Inc. in Vineland, New Jersey, who used to work at the Atlanta Fed, said yesterday.

In the hallways outside the Budget Committee hearing room in the Cannon office building, rank-and-file lawmakers split along party lines. Wisconsin Representative Paul Ryan, the top Republican on the panel, said he didn't think Bernanke's endorsement would bolster the Democratic agenda. "Throwing more money out the door may help for a quarter, but it won't help to create jobs," Ryan said. Democrat Lloyd Doggett of Texas called Bernanke "a very reluctant endorser" but said the Fed chairman's comments were "notable" because of the role he's played in managing the government's day-to-day response to the credit crunch.

He said Bernanke's comments, coupled with the election results, may change the outcome for the Democrats' proposal in the Senate, where the proposal has been met with resistance by Republicans who can easily block legislation. Senate Majority Leader Harry Reid, a Nevada Democrat, said Bernanke might make a difference. "I hope his testimony will convince President Bush and congressional Republicans that it is time to stand up for hard- working Americans who continue to struggle throughout the nation, not just bankers on Wall Street," Reid said in a statement.

California Representative Xavier Becerra, a Democrat who also sits on the tax-writing House Ways and Means Committee, said Democrats ought to be willing to negotiate with Republicans who want to include tax-reducing measures. "We have to make room for the discussion," he said. "Everything should be on the table. We won't put the `Mission Accomplished' sign up until everyone is back to work and their 401(k)s are doing well."

U.S. Is Said to Be Urging New Mergers in Banking
In a step that could accelerate a shakeout of the nation’s banks, the Treasury Department hopes to spur a new round of mergers by steering some of the money in its $250 billion rescue package to banks that are willing to buy weaker rivals, according to government officials.

As the Treasury embarks on its unprecedented recapitalization, it is becoming clear that the government wants not only to stabilize the industry, but also to reshape it. Two senior officials said the selection criteria would include banks that need more capital to finance acquisitions. “Treasury doesn’t want to prop up weak banks,” said an official who spoke on condition of anonymity, because of the sensitivity of the matter. “One purpose of this plan is to drive consolidation.”

With bankers traumatized by the credit crisis and the loss of investor confidence, officials said, there are plenty of banks open to selling themselves. The hurdle is a lack of well-capitalized buyers. Stable national players like Bank of America, JPMorgan Chase, and Wells Fargo are already digesting acquisitions. A second group of so-called super-regional banks are well positioned to take over their competitors, officials said, but have been reluctant to undertake or unable to complete deals.

By offering capital at a favorable rate, the government may encourage them to expand. In this category, industry analysts point to regional leaders, like KeyCorp of Cleveland; Fifth Third Bancorp of Cincinnati; BB&T of Winston-Salem, N.C.; and SunTrust Banks of Atlanta. With $125 billion left over after investing in the nine largest banks, the Treasury secretary, Henry M. Paulson Jr., said there was enough capital to invest in every qualified bank.

“We have received indications of interest from a broad group of banks of all sizes,” he said at a news conference. “This program is not being implemented on a first-come, first-served basis.” Mr. Paulson did not address the issue of bank mergers in his remarks, but officials say it has been widely discussed within the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation, which has been burdened in recent months by having to support teetering banks like Wachovia.

Providing capital to help facilitate a merger, officials say, is also a way to track how the capital is used. Some analysts have questioned how much control the government can exert over its investment, when it is injected into banks in return for nonvoting preferred shares. “We think there will be pressure behind the scenes by Treasury to push together companies that should have merged months or years ago,” said Gerard Cassidy, a banking analyst at RBC Capital Markets in Portland, Me. “If you can create stronger companies, that is a positive.”

In selecting banks, Mr. Paulson said the Treasury would also rely on advice from the quartet of regulators who oversee the banking industry: the Fed, the F.D.I.C., the comptroller of the currency and the Office of Thrift Supervision. But Mr. Paulson made clear that the final decision of who gets federal money rests with the Treasury. And he reiterated that the government expected the banks that got money to lend it out rather than hoard it — putting in a special plea for homeowners with troubled mortgages.

“We expect all participating banks to continue to strengthen their efforts to help struggling homeowners,” he said. “Foreclosures not only hurt the families who lose their homes, they hurt neighborhoods, communities and our economy as a whole.” The Treasury’s bank rescue comes amid a rising clamor in Washington that the government should focus on helping mortgage holders directly. But officials say it is unlikely that the Bush administration will present a new plan for homeowners between now and the election.

“There’s no inexpensive, easy way to address the terms of people’s mortgages,” said Robert J. Shapiro, an economic consultant who is chairman of the globalization initiative of NDN, a left-leaning research group in Washington. “I think that’s why they haven’t addressed it.” Most likely, he said, the campaigns of Senator John McCain and Senator Barack Obama will hone their own proposals. Then, if Congress reconvenes after the election in a lame-duck session, the new president-elect will try to push through a bill with new measures.

Under the terms of the $700 billion rescue plan approved by Congress early this month, the Treasury has authority to purchase whole mortgages. Treasury officials also note that Mr. Paulson has pressed banks and loan servicers to show flexibility in modifying loans to avoid foreclosures. Still, Treasury’s recent efforts have been almost wholly focused on stabilizing the banks — first by proposing to buy distressed assets from the banks, and later by injecting capital directly into them. There were some signs in the credit markets Monday that those efforts were paying off.

On Monday, Mr. Paulson described a process for banks to apply for government investments that is little more complicated than the one-page term sheet he handed to the chief executives of the nation’s nine largest banks at a meeting last week at the Treasury Department.

The institutions, he said, must fill out a standardized two-page form and submit it to their primary regulator by Nov. 14. The Treasury will receive the applications, with a recommendation, from the regulator. Once it decides whether to inject capital, it will announce its investment within 48 hours. It will not disclose banks that withdraw or are turned down. The Treasury’s program is open to large and small banks, as well as thrifts. Officials said they had received inquiries from other financial institutions, including insurance companies, but the plan did not provide for them.

Given the potential weakness of insurers, some analysts said the government should consider expanding the eligibility for capital injections. These analysts said $250 billion would not be enough. “They should see themselves as having $700 billion to recapitalize the industry in creative ways,” said Simon Johnson, a former chief economist at the International Monetary Fund.

While the Treasury’s offer of capital is attractive, analysts cautioned that cash alone might not be enough to reshape the industry. Recent deals, they note, have featured distressed banks sold at fire-sale prices. “There are a lot of obstacles to mergers in the banking industry,” Mr. Cassidy of RBC Capital Markets said. “I don’t know how the government could persuade banks to do deals at below book value.”

Sarkozy proposes European sovereign wealth funds
French President Nicolas Sarkozy on Tuesday called on European nations to create sovereign wealth funds as part of a "United European response" to the broadening economic crisis. In a speech to the European Parliament, Sarkozy said member states should use the funds to snap up stakes in cheap domestic industries to ensure "European companies are not bought up by non-European capital while their stock exchange values are low."

Sovereign wealth funds are generally associated with countries buoyed by the proceeds of oil and natural gas sales. Sarkozy argued they may be needed in Europe because the credit crisis has spread to the wider economy, threatening other industries. The French president's speech came the day after six of the country's banks agreed to accept 10.5 billion euros ($14 billion) of funding from the government to help maintain lending to households and small businesses.

The funding is part of a package worth up to 360 billion euros that also includes measures to guarantee inter-bank lending. In his speech Tuesday, Sarkozy also criticized rating agencies for failing to identify the growing problem and downgrading risky assets too late. He noted the big three rating agencies are all based in the U.S. and suggested Europe may need to create its own rating agency as a way to ensure independence.

Sarkozy said the action taken by European and world governments so far has been a case of crisis management and the attention needs to switch to creating "a new global financial system."

IMF Says More Europe Banks 'May Fail' as Recapitalizing Slows
The International Monetary Fund said more European banks may fail as they struggle to raise fresh capital from investors. In its annual review of the European economy published today, the Washington-based lender said financial markets are now "paying increasing attention" to pure leverage rather than accounting for how risky it is. By that measure, Europe's banks score less favorably than those in the U.S., it said.

As sovereign wealth funds and investors show diminished appetite for putting money into banks and volatile markets make it hard to raise capital, Europe's financial institutions will find their ability to raise funds falling and the need for government support growing, the IMF said.

"While recapitalizing initially went well, it is now likely to slow," the Fund said in the report. "Additional banks may fail." European banks have raised $266.7 billion in new capital since the start of 2007 amid losses and writedowns of $228 billion in that time, according to Bloomberg data. Governments are now providing support, with France announcing late yesterday that it will provide BNP Paribas SA, Societe Generale SA and four other French banks with 10.5 billion euros ($14 billion).

The banking stress is now feeding into the broader economy as companies and consumers find their access to credit shut off, the IMF said. Economies where housing booms occurred, such as Denmark, Ireland, Spain and the U.K., will see the sharpest downturns, it said. "We are facing a major downturn in all countries," Alessandro Leipold, acting director of the IMF's European department, told journalists in Brussels today. "Most economies are going to experience a recession into early 2009, followed by a very gradual recovery."

The Fund repeated its forecast of Oct. 8 that the 15-nation euro area will grow 0.2 percent next year and the continent as a whole will expand 1.4 percent. Emerging markets may expand less next year than the 4.3 percent anticipated, it said. "Activity is expected to stagnate in most advanced economies in the near term," the IMF said. "With adjustment in the financial sector likely to be arduous and protracted, a modest recovery is expected only later in 2009."

As inflation slows, "scope for easing monetary policy has emerged," it said. The central banks of the euro area, the U.K. and Sweden all cut interest rates by a half percentage point on Oct. 8. Emerging markets that have overheated may find it harder to cut rates given wage pressures persist, the IMF said. Governments may also have room to spend more although they should focus on alleviating the financial turmoil and ensure budget deficits remain within limits, it said.

Emerging-market economies are "also feeling the strain" and risks of a "hard landing remain elevated in parts of the region" after a surge in current-account deficits increased reliance on foreign capital, according to the report. Policy makers should use currency reserves and budgets to cushion any slowdown in capital flows, the IMF said.

"They need to draw up contingency plans for hard landings," Leipold said. "Up to a certain point, their resilience was remarkable, but they certainly now are feeling the full blast of the crisis." The Fund said the turmoil should spur coordination between the region's governments. When the crisis passes, governments and central banks may also want to increase regulation to reduce the likelihood of future asset-price gains sparking surging investment, it said.

Circuit City Weighs Broad Cuts
Circuit City Stores Inc. is considering a plan to close at least 150 stores and cut thousands of jobs, as an alternative to filing for bankruptcy-court protection, said people familiar with the company. Earlier this month, the nation's No. 2 electronics retailer by sales hired Skadden, Arps, Slate, Meagher & Flom LLP -- the law firm that oversaw the Chapter 11 reorganization of Kmart -- as its bankruptcy counsel, according to several people familiar with the matter.

Circuit City also retained FTI Consulting Inc. to develop a turnaround plan and investment bank Rothschild Inc. to guide talks with banks and secure emergency financing, these people said. In recent days, the cash-strapped company also has been analyzing how much money it could raise by liquidating hundreds of millions of dollars in inventory. The company's advisers are trying to line up debtor-in-possession financing, which allows a company in bankruptcy proceedings to pay its day-to-day operating expenses. So far, amid tight credit conditions, lenders have shown little interest in providing such financing to Circuit City, which has 714 stores in the U.S. and another 772 stores and outlets in Canada.

Circuit City management, investors and advisers are trying to avoid a bankruptcy filing before the holiday season, people familiar with the matter said, fearing customers might doubt the ability of a retailer involved in bankruptcy proceedings to provide warranties on products like laptop computers and flat-screen TVs. Circuit City spokesman Bill Cimino said the company wouldn't discuss details of its plans. He stressed that many options were under consideration. "The management team, board of directors, and its strategic financial advisers are conducting a comprehensive review of all aspects of our business to determine the best methods of accelerating our turnaround," Mr. Cimino added.

If Circuit City were to file for bankruptcy, it would be the largest retailer to enter bankruptcy protection in several years. The 59-year-old company employs about 45,000 people. Last year, it posted sales of $11.74 billion. One out-of-court solution the company is studying would likely lead to the closing of at least 150 stores and the elimination of thousands of jobs, said people familiar with the company's plans. This would let the retailer liquidate about $350 million in inventory, which it could use to pay off certain real-estate costs, such as leases on abandoned sites.

It would then hope to press existing landlords to renegotiate leases, many of which Circuit City regards as overpriced. Circuit City's investors have homed in on those leases as a threat to the company's health. Many were negotiated when real-estate prices were booming earlier this decade. Roughly 90% of the leases don't expire until 2014 or later, and about 80 are for vacant locations. Circuit City's stock has plummeted since July, when Blockbuster Inc. rescinded an offer to buy the company for at least $6 a share. In 4 p.m. New York Stock Exchange composite trading Friday, Circuit City shares closed at 39 cents, down from a 52-week high of $8.72. It hasn't had a profitable quarter in more than a year.

Circuit City grew into a national powerhouse by acquiring regional stereo and appliance chains over the past half century, but it has been repeatedly outflanked in the past decade by Richfield, Minn.-based Best Buy Co., which became the nation's biggest electronics retailer, with warehouse-sized stores in high-visibility locations and a focus on non-commissioned sales. Circuit City briefly improved its performance earlier this decade, but began to stumble two years ago when it failed to cut flat-screen TV prices fast enough to keep pace with rivals such as Best Buy and Wal-Mart Stores Inc.

Sales have been on a steady slide since, dropping 13% from a year earlier in the latest quarter. Several big retailers have filed for bankruptcy protection this year, with many of them, including Linens 'n Things Inc., Mervyns LLC and Sharper Image Corp., eventually opting to liquidate. Mervyns announced Friday that it was liquidating its remaining 149 locations.

National City Posts Wider Loss, Plans 4,000 Job Cuts
National City Corp., Ohio's largest lender, will cut 4,000 jobs after posting a wider third-quarter loss and setting aside more money to cover unpaid loans. The net loss increased to $729 million, or 85 cents a share, from $19 million, or 3 cents, in the same period a year earlier, the Cleveland-based bank said in a statement today. The net loss after preferred dividends was $5.1 billion, or $5.86 a share. The bank said the job cuts, equal to 14 percent of the staff, will be made over the next three years.

National City lost more than 80 percent of its market value this year on concern it didn't have enough capital to survive the collapse of U.S. mortgage markets. The bank raised $7 billion last April, buying time for Chief Executive Officer Peter Raskind to contain losses from subprime mortgages and loans tied to home equity, construction and cars. The bank "built up the capital and they've already built up the reserves -- they're already one of the highest in the industry," said BMO Capital Markets analyst Lana Chan before results were released. "It's going to be about how aggressive they've been in reducing the problem loans."

Treasury Secretary Henry Paulson has offered to inject $125 billion into regional lenders by purchasing preferred shares, part of a $700 billion financial industry bailout that may also include buying defaulted loans. It's premature to discuss National City's participation in Paulson's plan, spokeswoman Kelly Wagner Amen said before the release, adding that the bank welcomes "any effort to stabilize and add confidence to the markets."

National City fell 14 cents to $2.78 a share in early New York Stock trading today. The bank expects to produce as much as $600 million in cost savings by 2011, including $240 million next year, with charges ranging from $80 million to $100 million. The bank in September hired Jim LeKachman to oversee the disposal of $21 billion in assets marked for liquidation, including subprime loans and other holdings generated by units that National City decided to quit. The company ranked among the top 10 subprime lenders in 2006, according to trade publication Inside Mortgage Finance.

The lender's provision for loan losses rose to $1.18 billion from $368 million. Holding on to bank deposits is another priority, Chan said. IndyMac Bancorp Inc., Washington Mutual Inc., Sovereign Bancorp Inc. and Wachovia Corp. suffered withdrawals as publicity swirled about their declining health. IndyMac's July collapse prompted a "small" amount of withdrawals, Raskind previously said. Deposits are now "stable," he said on today's conference call. "What I've heard locally, and this is just anecdotal, is their customer base is pretty loyal," Chan said.

National City said total average deposits were $98.7 billion for the third quarter, declining less than $1 billion from the previous quarter and up $5.2 billion from the same period a year earlier. The bank said new customers added in the quarter "partially offset declines in deposit balances in excess of FDIC insurance limits." "We did experience a short-term decline in deposits from highly publicized events" in September, National City spokeswoman Kristen Baird Adams said in an e-mailed statement today. "However, losses tended to be concentrated around a relatively small number of larger balance accounts, while our broader base of nearly 4 million retail customers was significantly more stable."

The Federal Deposit Insurance Corp. raised its coverage for accounts to $250,000 from $100,000. That cut National City's uninsured deposits to less than 10 percent from 22 percent, making it less likely worried depositors will flee, Chan said. The bank is well-capitalized, has strong deposit inflows and has a fundamentally different business model than WaMu, Adams said Sept. 26. National City is a "diversified commercial bank" with no option adjustable-rate mortgages, the loan product that helped push WaMu into collapse and forced Wachovia to sell itself to Wells Fargo & Co. earlier this month, she said.

How the Banksters are Making a Killing Off the Bailout
In 1897, when 8-year old Virginia O’Hanlon posed her Santa Claus query to the New York Sun, she received a heart-warming editorial response reassuring her that “He exists as certainly as love and generosity and devotion exist….”

Today, we hand our 8 year olds a $13 trillion national debt while our Congress hands Wall Street banksters the national purse without so much as a hearing to determine the cause of the debt collapse.  Worse still, the money is doled out to the very same individuals who leveraged their institutions to casino status.

Americans are correctly outraged at the spectacle of U.S. crony capitalism crashing stock and bond markets around the globe while simultaneously  watching the poster boys of crony capitalism on Monday, October 13, 2008  march up the granite steps of the United States Treasury building in their Armani shoes and heist a fresh $125 Billion of taxpayer dough in broad daylight. 

The U.S. Treasury Secretary, Henry Paulson’s, $700 billion bailout plan to buy up distressed mortgage assets has spun off its own $250 billion subsidiary plan (skipping that pesky detail called taxation with representation) to inject $125 billion in equity capital into 9 of the biggest commercial and investment banks in the country.  Another $125 billion may possibly go to smaller regional banks and thrifts, assuming they will sign on to the deal.

And what will taxpayers get for their investment in these financial firms whose stock prices are getting hammered as the public recoils in revulsion at what they have done to our financial system?  The taxpayers, who were not invited to send their own legal representative to the negotiating table, will receive a paltry 5% dividend, exactly half of what Warren Buffett received for his recent investment in General Electric, a company that actually makes something real, like jet engines and light bulbs.

Now we learn from the U.S. Treasury web site that it has hired the law firm of Simpson, Thacher & Bartlett to represent our taxpayer interests going forward at a cost to us of $300,000 for six months work. But we’re not allowed to know their hourly wages; that information has been blacked out on the Treasury’s contract.  Curiously, the Treasury has named in its contract the specific lawyers it wants to work for us.  Two of those are Lee A. Meyerson and David Eisenberg. 

Mr. Meyerson has been a central player in facilitating the bank consolidations that have led to the present train wreck, including building JPMorgan Chase from the body parts of Chemical Bank, Chase Manhattan and Bank One. Mr. Eisenberg has played a central role in the proliferation of the credit derivatives blowing up on the books of the Frankenbanks created by Mr. Meyerson.  Here’s what the Simpson, Thacher & Bartlett web site says about its relationships and Mr. Eisenberg’s work:  

“The Firm’s practice benefits from established relationships with all of the major investment banks…Mr. Eisenberg is responsible for creating the asset-backed practice at the firm and has represented clients involved in the structuring of the first asset-backed commercial paper program, the first public offering of credit card-backed securities by a bank and the first offering of asset-backed securities supported by dealer floor plan loans…Mr. Eisenberg represents JPMorgan Chase Bank, as issuer, in its ongoing program of public offerings of its credit card receivables backed notes. In addition Mr. Eisenberg represented JPMorgan Chase Bank in connection with the issuance of notes backed by commercial loans and in connection with its offerings of Leveraged Notes for Credit Exposure, a credit derivative product.  Mr. Eisenberg has also represented underwriters, issuers and sponsors of modeled index catastrophe bonds.  Mr. Eisenberg has represented sellers and buyers of credit protection in connection with synthetic securitizations of consumer loans, commercial loans and high yield bonds.”

This is an unconscionable conflict of interest given that JPMorgan Chase is receiving $25 billion of taxpayer funds under this bailout and that the program is very likely to be buying the very toxic waste for which Mr. Eisenberg wrote legal opinions and assisted in proliferating. What most Americans do not understand, because mainstream media rarely explains it, is the incestuous relationship between the U.S. Treasury and this small band of financial marauders who busted the entire financial system with insane levels of leveraged derivative bets.

The bulk of the $125 billion will be dispersed among Uncle Sam’s own brokers, or in street parlance, Primary Dealers. Primary dealers are those financial firms anointed by the Federal Reserve to participate in the Fed’s open market activities and are required to participate to a significant degree in buying up Treasury securities at every Treasury auction.  In other words, without these firms, the U.S. Government would have no means of financing its own funding needs. 

Treasury, therefore, has an obvious conflict of interest in keeping these firms alive, even when they are the walking dead. Here’s how much of the $125 Billion the Fed’s Primary Dealers will collect: Citigroup, $25 Billion; JPMorgan Chase & Co., $25 Billion; Bank of America and its soon to be acquired brokerage, Merrill Lynch, $25 Billion; Goldman Sachs, $10 Billion; Morgan Stanley, $10 Billion.  In other words, of the first $125 billion outlay from the emergency bailout fund, 76% is going to shore up Uncle Sam’s brokers and $300,000 is going to retain one of Wall Street’s favorite law firms.

In 1988 there were 46 primary dealers.  That number had shrunk to 30 by 1999.  In June 2008 there were 20, in no small part as a result of the mergers facilitated by Simpson, Thacher & Bartlett.   In rapid succession since July, three more have disappeared from bad bets: Countrywide Securities (shotgun marriage with Bank of America); Lehman Brothers, bankrupt; Bear, Stearns (shotgun marriage with J.P. Morgan Securities). That currently leaves 17 and that number will drop to 16 when Merrill Lynch is folded into Bank of America. (The rest of the 16 primary dealers that are not getting part of the $125 billion are foreign banks.)

In addition to the repeal of the depression era, investor protection legislation known as the Glass Steagall Act, the removal of credit default swaps from regulation by the Commodity Futures Modernization Act of 2000, various U.S. Supreme Court decisions upholding Wall Street’s ability to run its own private justice system shrouded in darkness, there was one more key regulatory change that greased the tracks of this train wreck. On January 22, 1992 the Federal Reserve announced that its New York region would “discontinue the ‘dealer surveillance’ now exercised over Primary Dealers through the monitoring of specific Federal Reserve standards and through regular on-site inspection visits by Federal Reserve dealer surveillance staff.”

In other words, as bank consolidation left the country with fewer and fewer Primary Dealers and more and more “too big to fail candidates,” instead of beefing up surveillance, the Federal Reserve amazingly dropped inspections. Who was at the helm of the Federal Reserve when this nutty decision was made: the same man who lobbied for the repeal of the Glass Steagall Act that ushered in the merger of depositor banks with casino investment banks and brokerages; the same man who lobbied for the passage of the Commodity Futures Modernization Act of 2000 to allow for unregulated derivatives markets.

The man, of course, is Alan Greenspan who served a breathtaking 19 years as Chairman of the Federal Reserve.  That, by the way, is the approximate number I would assign to how many years it will take to repair the collapse of confidence engendered by his crony wealth transfer system created under the guise of free market capitalism.

3 Agencies Vie for Oversight of Swaps Market
The government is moving forward with its first significant effort to bring oversight to a vast, unregulated corner of Wall Street that has severely exacerbated the financial crisis. But a turf war is brewing among three leading federal agencies that have contrasting visions for how the $55 trillion market for speculative financial instruments known as credit-default swaps should be regulated.

While the credit crisis has upended global financial markets and given a lift to advocates of heightened regulation, it has not resolved traditional disputes in Washington over how deeply the government should be involved in free markets. Some regulators say the market can operate largely on its own but simply needs more transparency. Others say that the credit crisis has exposed wide gaps in oversight that require a much more direct role by the government.

The battle has mobilized the financial industry and lawmakers who are holding a hearing today on market regulation. Some industry players are lobbying sympathetic members of Congress for light oversight. Powerful financial firms, eyeing new fees, are campaigning to play a major role in running the market for swaps, which originated as a form of insurance against bond defaults but grew into a wildly popular vehicle for speculation.

Last month, insurance giant American International Group nearly collapsed partly because it had issued $440 billion in swaps to traders around the world and was not going to be able to cover many of the promises it had made to cover defaults on debt. Government officials realized that swaps could pose a threat to the global financial system. AIG was kept alive by a $85 billion loan from the Federal Reserve, which grew a few weeks later to about $123 billion, the Fed's largest bailout ever for a single firm.

"If there's a sense that another AIG could happen and a whole swath of financial institutions could be jeopardized, then the efforts to restore confidence are really undermined," said Henry Hu, a law professor at the University of Texas. "Without that confidence, there's no free flow of credit, and without the free flow of credit, there's a risk to the real economy."

Regulators have much at stake as well. The focus in Washington on swaps presents an opportunity for the Securities and Exchange Commission to restore its reputation as an active supervisor of the markets after being criticized as lax during the early stages of the financial crisis, analysts said. The agency is considering regulating swaps with some of the same scrutiny it does for stocks and bonds.

That could put it at odds with the Commodity Futures Trading Commission, which could inherit some oversight responsibilities under one industry proposal for establishing a new means of settling swap contracts. The commission's acting chairman told lawmakers at a hearing last week that current law exempts swaps from regulation and that "wholesale regulatory reform will require careful consideration."

Meanwhile, the Federal Reserve Bank of New York is proceeding with its own plans to set up a private-sector process under its jurisdiction for settling swap contracts. The goal is to bring some transparency and stability to the market. The fate of the credit-default swap market will largely rest on how Congress defines these contracts in law. The credit crisis has revealed how risky these swaps are without government oversight, said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, which is holding a hearing on financial regulation today.

"I understand why my Republican colleagues do not want to examine our failure to regulate credit default swaps [and other derivatives] and the other fruits of their deregulatory push," Frank said in a recent statement. "The results of that effort are now in -- a crisis that is sweeping the global economy and threatening tens of millions of working families." Originally, swaps acted like insurance policies for bond investors in case a company collapsed and could not pay back buyers of its bonds. To protect themselves against such defaults, bond investors could agree to pay a periodic fee to have another party cover the losses.

Unlike stocks and bonds, credit-default swaps fell outside the government's purview largely because they are private contracts. A law backed by leading Republicans and passed by Congress in 2000 specifically exempted swaps from oversight by the SEC and CFTC, which oversees commodity trading. Since then, big hedge funds and other traders discovered that swaps could be traded and used to speculate on how close a company was to collapse. The market mushroomed. Its total value outgrew that of all publicly traded stocks combined. The swaps market began to affect the financial system in once unimagined ways.

The SEC grew concerned that traders were using swaps to manipulate stock prices. In recent weeks, dramatic surges in swap contract prices to protect against a default by Morgan Stanley and other banks helped drive down their stocks. Industry officials, however, warned of the dangers of over-regulation and said swaps were not to blame for the crisis.

"I think the clear effect is if further regulatory burdens are put on these instruments, people would look to trade them elsewhere around the world," said Robert Pickel, chief executive of the International Swaps and Derivatives Association. He said lawmakers were blaming swaps for the financial crisis just because they're complex. "But when you probe and further understand what's going on in the markets, especially in regard to imprudent lending, you'll see that those dots cannot be connected," he said.

Lawmakers are divided on what should be done. Some want traders to meet strict capital requirements, referring to how much money an investor can borrow to buy a swaps contract. Others want to put all derivatives -- even those invented in the future -- under the oversight of the SEC, which could force traders to disclose detailed information to regulators on their activities. Still others are opposed to any additional regulation at all.

In a hearing last week, Sen. Michael D. Crapo (R-Idaho), who sits on the Senate Agriculture Committee, said that it was important to make "sure that we allow capital to move freely and efficiently in a market system," but also that the government must protect against "inappropriate manipulation of markets." The House and Senate agriculture committees have oversight of the CTFC because of its history regulating farming commodities. There is also disagreement over who should be in charge. Members of the House Agriculture Committee said they would like the CFTC to watch the market.

But Sen. Maria Cantwell (D-Wash.) said the CFTC is too close to private industry players. The CFTC "is just looking over the cliff that the American economy is falling into and saying: 'Let's just have self-policing.' It's absurd," she said, adding that she would prefer the SEC to have the job. "We are in this mess because the oversight agencies didn't do this job." Meanwhile, the New York Fed has been meeting with private companies to set up a private clearinghouse for swap trades that could be in operation by the end of the year.

The clearinghouse, for a fee, would act as an intermediary that would guarantee transactions between swaps traders. In order to make those guarantees, the clearinghouse would require traders to maintain a sufficient amount of capital in their accounts. That would make it difficult to trade swaps without having the resources to cover a contract should a default happen. One of the firms working closely with the New York Fed is the IntercontinentalExchange, or ICE, which plans to set up a clearinghouse in New York under the Fed's authority. ICE was established by some of the country's biggest banks, including Goldman Sachs and Morgan Stanley.

Another firm, CME Group, is vying to set up a clearinghouse, which would be part of the operation the company now runs for trading commodities with CFTC oversight. The Fed could back one or both of the plans, according to industry and government officials familiar with them. If, instead, the SEC were granted new powers by Congress to oversee swaps, the agency could set up several exchanges, similar to the way stocks are traded on the New York Stock Exchange and Nasdaq.

"I do think the SEC needs to work vigorously to work to reclaim some of its lost ground. Moving forward on credit derivatives and credit-default swaps is a legitimate area for them to start rattling their sabers a little bit," said James D. Cox, a law professor at Duke University.

Millions of Homeowners Are in Desperation Mode -
Help Them, or This Crisis Gets a Lot Worse

Now that the government has "saved" Wall Street -- at least for the moment -- hasn't the time finally come to save Main Street too? The Treasury Department just pumped $125 billion into the country's largest financial institutions, and it promises to use another $125 billion -- more, if necessary -- to recapitalize regional and community banks. They are vital steps. This week, at long last, the credit markets thawed, at least a little, and the global recapitalization of the banking system is the reason.

But the job isn't done yet. The government now needs to tackle what R. Glenn Hubbard, the former chairman of the Council of Economic Advisers under President Bush, calls "the elephant in the room": the continuing decline of housing prices. That decline means more and more homeowners are saddled with "impaired mortgages" (to use the current lingo), meaning their homes are worth less than what they owe on them. They didn't necessarily do anything wrong; they just bought a house near the peak of an unsustainable bubble. Now they have little economic incentive to keep making mortgage payments.

Of course, millions of additional homeowners did make a big mistake: they took advantage of "liar loans" and other too-good-to-be-true deals to buy homes they couldn't afford. Many are still in those homes, hanging on for dear life. Many others have already faced foreclosure proceedings.

I've seen estimates suggesting as many as one out of every six homeowners has a troubled mortgage. This is an enormous social problem. It is also a continuing economic problem. In the year since the crisis began, the world's financial institutions have written down around $500 billion worth of mortgage-backed securities. Unless something is done to stem the rapid decline of housing values, these institutions are likely to write down an additional $1 trillion to $1.5 trillion. In other words, we ain't seen nothin' yet.

And please don't raise the specter of moral hazard, the notion that people who did dumb things need to take their lumps so they won't do it again. First of all, you would have to be an absolute idiot to repeat the folly of the housing bubble, even if you don't lose your house in the crisis. I contend that this financial crisis is going to cause an entire generation to become debt-averse, as our parents were after the Depression.

Second, there is the question of justice. For Wall Street, which made plenty of its own dumb mistakes, moral hazard went out the window the minute the government realized what a catastrophic error it made when it allowed Lehman Brothers to go bankrupt. The government is not going to let another big institution fail. Why should homeowners have to pay more for their sins than Wall Street is paying for its sins? As anger across the country rises, this is becoming a political issue as well.

Yes, there were lots of Americans who were not greedy or foolish during the housing bubble, and many resent the idea that their neighbors might get a bailout they don't deserve. They need to get over themselves. If housing prices keep falling, many millions of additional homeowners will find themselves, through no fault of their own, with underwater mortgages. Besides, foreclosures damage property values for everyone, not just those losing their homes.

Finally, and perhaps most important, the housing bubble and its aftermath form the core problem from which all other problems flow. If the government doesn't do anything about it, the economy will remain in chaos. Banks will still be afraid to write mortgages because they won't trust the value of the collateral. Giant financial institutions will continue to post multibillion-dollar write-downs. And homeowners will continue to face the stark reality that their primary asset is in jeopardy.

And yet, so far the government's response to this part of the crisis -- the part that most directly affects voters, for crying out loud -- has been anemic. The Hope for Homeowners program, signed into law in July, is both too complicated and too narrow. The new $700 billion bailout bill contains some toothless pleas to help homeowners. Efforts to jawbone the mortgage industry have largely failed.

Just a few days ago, the chairman of the Federal Deposit Insurance Commission, Sheila Bair, publicly broke with her counterparts at the Treasury and the Federal Reserve and criticized the Bush administration for not doing enough for homeowners. "We're attacking it at the institution level as opposed to the borrower level, and it's the borrowers defaulting," she told The Wall Street Journal. "That is what's causing the distress at the institution level. So why not tackle the borrower problem?"

Why not, indeed. It turns out there are plenty of plans out there to do just that. But not one has broken through to gain wide backing. For instance, both presidential candidates have homeowner assistance plans, but they are poorly conceived and would cost the government billions of additional dollars. Mr. Hubbard, now the dean of the Columbia Business School, and a Columbia colleague, Chris Mayer, say they believe the answer lies in having "the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25 percent (matching the lowest mortgage rate in the last 30 years), and place those mortgages with Fannie Mae and Freddie Mac," as they wrote recently.

A Yale economist named John D. Geanakoplos suggests a new system to "modify mortgage loans to keep homeowners in their homes," as he put it in a recent paper. He also says the government should give financial incentives to renters to buy homes -- and thus create a floor for housing prices. Both of these ideas are far better than the proposals of the two candidates.

But recently a proposal came across my desk that I believe is so smart, and so sensible, that I hope our nation's policy makers will give it a serious look. It comes from Daniel Alpert, a founding partner of Westwood Capital, a small investment bank. I have quoted Mr. Alpert frequently in recent columns, because he has been both thoughtful and prescient on the subject of the financial crisis.

Here's his idea: Pass a law that encourages homeowners with impaired mortgages to forfeit the deed to their lenders but allows them to stay in the homes for five years, paying prevailing market rent. Under the law Mr. Alpert envisions, the lender would be forced to accept the deed, and the rent. After five years, the homeowner-turned-renter would have the right to buy the home back, at fair market value, from the lender.

There are so many things I like about this idea that I hardly know where to begin. Let's start with the fact that it doesn't require a large infusion of taxpayers' money. Indeed, it doesn't require any government money at all. It also doesn't let either homeowners or lenders off the hook, as many other plans would. The homeowner loses the deed to his home, which will be painful. The lending institution, in accepting prevailing market rent, will get maybe 60 or 70 percent of what it would have gotten from a healthy mortgage-payer. (Rents are considerably lower than mortgage payments right now.) That will be painful too. Moral hazard will not be an issue.

As Mr. Alpert told me the other day, his proposal "admits the truth: the homeowner doesn't have equity, and the lender has taken a loss. They should exchange interest, but not in a way that throws the homeowner out in the street." Which is the other key part of his plan. It has the best chance of preventing, as he puts it, "the massive disruption of the economy and the social dislocation" that will come from large numbers of foreclosures. And it is the continuing foreclosures that are likely to cause housing prices to fall so hard that they will drop below the real value of the shelter.

That, of course, is exactly what happened during the bubble, albeit in reverse -- prices wildly overshot the true value of the home -- and it has to be prevented on the way down. Otherwise we face further economic calamity. Why did Mr. Alpert choose five years? Two reasons. First, he feels confident that housing prices will have stabilized by then. "We continue to have a growing population," he said. "And there is zero chance there will be a material increase in housing stock over the next five years that will exceed demand. Those two factors alone will cause housing to stabilize."

Second, he says five years will give the renters enough time to get their financial affairs in order -- to pay down their various debts and save enough to make the 10 percent down payment an F.H.A. loan requires. (Many of the homeowners affected by this plan would be eligible for F.H.A. loans, Mr. Alpert believes.) If they don't have enough for a down payment, they would have to leave, of course, but it would be far less disruptive to the economy than it would be right now, in the middle of the crisis.

Does the plan have stumbling blocks? Sure it does. One obvious one is that ideologues will view its being mandatory as an improper "taking" of homeowners' property rights and a violation of the mortgage contract. But, as Mr. Alpert puts it, "the homes involved are economically without value to the existing homeowners." He adds, "What the plan buys is time to heal for both sides in a fairly equitable and controlled manner."

Mr. Alpert calls his plan "The Freedom Recovery Plan." On my blog (www.nytimes.com/executivesuite), I have linked to Mr. Alpert's detailed description of how it would work, which runs eight pages. I have also posted a series of short "comments" that he sent me recently, which outline the severity of the problem. I encourage you to read both documents, and weigh in on the plan's merits. That goes for you, too, government policy makers. I acknowledge that this may not be the perfect solution. It may have some fatal flaw that neither Mr. Alpert nor I can see. But if you don't like this idea, it is incumbent upon you to come up with something better.
Actually, it's long overdue.

Government of Thieves
Just as the Bush regime’s wars have been used to pour billions of dollars into the pockets of its military-security donor base, the Paulson bailout looks like a Bush regime scheme to incur $700 billion in new public debt in order to transfer the money into the coffers of its financial donor base.

The US taxpayers will be left with the interest payments in perpetuity (or inflation if the Fed monetizes the debt), and the number of Wall Street billionaires will grow. As for the US and European governments’ purchases of bank shares, that is just a cover for funneling public money into private hands. The explanations that have been given for the crisis and its bailout are opaque. The US Treasury estimates that as few as 7% of the mortgages are bad. Why then do the US, UK, Germany, and France need to pour more than $2.1 trillion of public money into private financial institutions?

If, as the government tells us, the crisis stems from subprime mortgage defaults reducing the interest payments to the holders of mortgage backed securities, thus driving down their values and threatening the solvency of the institutions that hold them, why isn’t the bailout money used to address the problem at its source? If the bailout money was used to refinance troubled mortgages and to pay off foreclosed mortgages, the mortgage backed securities would be made whole, and it would be unnecessary to pour huge sums of public money into banks.

Instead, the bailout money is being used to inject capital into financial institutions and to purchase from them troubled financial instruments. It is a strange solution that does not address the problem. As the US economy sinks deeper into recession, the mortgage defaults will rise. Thus, the problem will intensify, necessitating the purchase of yet more troubled instruments. If credit card debt has also been securitized and sold as investments, as the economy worsens defaults on credit card debt will be a replay of the mortgage defaults. How much debt can the Treasury bail out before its own credit rating sinks?

The contribution of credit default swaps to the financial crisis has not been made clear. These swaps are bets that a designated financial instrument will fail. In exchange for “premium” payments, the seller of a swap protects the buyer of the swap from default by, for example, a company’s bond that the swap buyer might not even own. If these swaps are also securitized and sold as investments, more nebulous assets appear on balance sheets.

Normally, if you and I make a bet, and I welsh on the bet, it doesn’t threaten your solvency. If we place bets with a bookie and the odds go against the bookie, the bookie will fail, as apparently happened to AIG, necessitating an $85 billion bailout of the insurance company, and to Bear Stearns resulting in the demise of the investment bank.

Credit default swaps are a form of unregulated insurance. One danger of the swaps is that they allow speculators to purchase protection against a company defaulting on its bonds, without the speculators having to own the company’s bonds. Speculators can then short the company’s stock, driving down its price and raising questions about the viability of the company’s bonds. This raises the value of the speculators’ swaps which can be sold to holders of the company’s bonds. By ruining a company’s prospects, the speculators make money.

Another danger is that swaps encourage investors to purchase riskier, higher-yielding instruments in the belief that the instruments are insured, but the sellers of swaps have not reserved against them. Double-counting of assets is also possible if a bank purchases a company’s bonds, for example, then purchases credit default swaps on the bonds, and lists both as assets on its balance sheet.

The $85 billion Treasury bailout of AIG is small compared to the $700 billion for the banks, and the emphasis has been on banks, not insurance companies. According to news reports, the sums associated with credit default swaps are far larger than the subprime mortgage derivatives. Have the swaps yet to become major players in the crisis?

The behavior of the stock market does not necessarily tell us anything about the bailout. The financial crisis disrupted lending and thus comprised a threat to non-financial firms. This threat would reflect in the stock market. However, the stock market is also predicting a recession and declining earnings. Thus, people sell stocks hoping to get out before share prices adjust to the new lower earnings.

The bailout package is a result of panic and threats, not of analysis and understanding. Neither Congress nor the public knows the full story. If the problem is the mortgages, why does the bailout leave the mortgages unaddressed and focus instead on pouring vast amount of public money into private financial institutions? The purpose of regulation is to restrain greed and to prevent leveraged speculation from threatening the wider society. Congress needs to restore financial regulation, not reward those who caused the crisis.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration.

Worries grow as GM-Chrysler talks gain momentum
In the doomsday scenario raising anxiety around the Motor City, General Motors Corp. makes a deal for Chrysler LLC, keeps Jeep and the minivans, and vaporizes the rest of the company. Tens of thousands of Chrysler's 66,409 employees lose their jobs as cash-desperate GM swiftly cuts redundant operations and sheds unprofitable models. Factories and dealerships are closed, and the lights go out at Chrysler's gleaming corporate headquarters campus in the northern suburb of Auburn Hills.

It's not something Andre Thibodeaux wants to think about. The general manager of Lelli's, an upscale steakhouse and Italian restaurant near Chrysler's 15-story tower, gets about half his lunch business from the automaker and related businesses. The eatery, with roots in downtown Detroit and family owned for three generations, already has lost business as Chrysler and parts suppliers have downsized and people eat out less due to economic worries. The loss of Chrysler's corporate headquarters is almost unthinkable.

"I can't imagine moving the building or changing or selling or anything like that," said Thibodeaux. "Auburn Hills in general is built all around that building." Although it may be unimaginable, industry analysts say GM would have no choice but to slash costs if it acquires struggling Chrysler from its current owner, New York private equity firm Cerberus Capital Management LP. Both sides have been talking for months, but the pace recently has increased.

Cerberus wants out of the auto business, and as the credit markets have dried up, GM, worried about running too low on cash before the U.S. auto market rebounds, wants Chrysler's currency stockpile. A person familiar with the negotiations said Friday that the talks have advanced to the point where top executives of both companies have looked at a deal and asked for refinements. The person spoke on condition of anonymity because the talks are secret.

In August, Chrysler said it had accumulated $11.7 billion in cash and marketable securities as of June 30. That figure remains around $11 billion, the person said, despite Chrysler's U.S. sales being down 25 percent through September, the largest decline of any major automaker. Detroit-based GM is burning up more than $1 billion per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year. GM's sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes.

Chrysler's money pile would help solve GM's cash problem if credit remains unavailable. Both automakers have had to deny bankruptcy rumors in recent weeks, saying people who won't buy cars from a company that looks like it could go out of business. According to the person familiar with the negotiations, the deal being discussed thus far calls for Cerberus to hand over Chrysler in exchange for GM's 49 percent stake in GMAC Financial Services. GM sold a 51 percent stake in its finance arm to Cerberus in 2006.

Cerberus also would get an equity stake in GM, hoping to get a good return should GM recover when U.S. auto sales bounce back from a serious slump. Other automakers, including the allied companies of Renault SA and Nissan Motor Co., also are in discussions about Chrysler, the person said. Simultaneously, Cerberus, which bought 80.1 percent of Chrysler from Daimler AG in a $7.4 billion deal last year, is negotiating to acquire Daimler's 19.9 percent stake.

GM and Cerberus are still a long way from a deal, according to the person, and GM's board reportedly is cool to the idea. All that GM, Chrysler and Cerberus have said about the negotiations is that automakers meet all the time. Chrysler Chief Executive Bob Nardelli said Thursday the auto sales drop has created an environment that favors consolidation. It's the uncertainty of consolidation that worries many in Michigan, which has lost more than 400,000 jobs since 2000. Its unemployment rate in September was 8.7 percent, the highest in the nation, as GM, Chrysler and Ford Motor Co. continued to make cuts.

"Mergers usually represent job loss," Gov. Jennifer Granholm said Friday on the Public Broadcasting Service's Nightly Business Report. "We are fearful that a merger would mean more job loss, and that is the last thing we need." Among the fearful are Chrysler workers and its roughly 3,600 dealers, who already are under pressure from the company to merge with other dealers and scale back their ranks. "If you end up going from the Detroit Three to the Detroit Two, you don't need as many dealers representing those nameplates," said Dale Early, owner of a Chrysler-Jeep dealer in the Houston suburb of Kingwood, Texas. "With the market the way it is today, you don't necessarily have a need for three major manufacturers," he said.

The upside of an acquisition, industry analysts say, is that it would almost certainly shrink the U.S. auto industry to where it needs to be so the survivors can thrive. Many analysts are predicting that the U.S. auto market will shrink to sales of about 13 million vehicles this year. That's a drop of about 3 million from 2007, and the decline is more than Toyota Motor Corp.'s U.S. sales last year. GM would almost immediately make cuts to eliminate duplication, save costs and hoard cash, and that means something like the doomsday scenario would occur, said Jeremy Anwyl, CEO of the Edmunds.com automotive Web site.

"At the end of the day you're looking at two companies having a much-reduced market share than the two independent companies," he said. "The only way to make that work is some sort of scenario where there's massive shutdowns and job losses." But GM may see value in and keep other parts of Chrysler, which has several of the industry's most productive parts plants. While the deal would likely cost jobs, David Cole, chairman of the Center for Automotive Research in Ann Arbor, said local economies and labor would still be better off than if one of the automakers were to fail.

"This would be good for the state because whatever happens in combining is going to be a lot less severe than an outright disaster," he said. Chrysler veterans, though, have seen the movie before with the 1998 takeover by Daimler and the subsequent sale to Cerberus. "A lot of the things that would come out of something like this, we've already had the anxiety related to it," Early said. "At some point I guess you refuse to feel like the sky is falling because you've already been through some of the dark days already."

The Rising Body Count on Main Street
On October 4, 2008, in the Porter Ranch section of Los Angeles, Karthik Rajaram, beset by financial troubles, shot his wife, mother-in-law, and three sons before turning the gun on himself. In one of his two suicide notes, Rajaram wrote that he was "broke," having incurred massive financial losses in the economic meltdown. "I understand he was unemployed, his dealings in the stock market had taken a disastrous turn for the worse," said Los Angeles Deputy Police Chief Michel R. Moore.

The fallout from the current subprime mortgage debacle and the economic one that followed has thrown lives into turmoil across the country. In recent days, the Associated Press, ABC News, and others have begun to address the burgeoning body count, especially suicides attributed to the financial crisis. (Note that, months ago, Barbara Ehrenreich raised the issue in the Nation.)

Suicide is, however, just one type of extreme act for which the financial meltdown has seemingly been the catalyst. Since the beginning of the year, stories of resistance to eviction, armed self-defense, canicide, arson, self-inflicted injury, murder, as well as suicide, especially in response to the foreclosure crisis, have bubbled up into the local news, although most reports have gone unnoticed nationally -- as has any pattern to these events.

While it's impossible to know what factors, including deeply personal ones, contribute to such extreme acts, violent or otherwise, many do seem undeniably linked to the present crisis. This is hardly surprising. Rates of stress, depression, and suicide invariably climb in times of economic turmoil. As Kathleen Hall, founder and CEO of the Stress Institute in Atlanta, told USA Today's Stephanie Armour earlier this year, "Suicides are very much tied to the economy."

With predictions of a long and deep recession now commonplace, it's not too soon to begin looking for these patterns among the human tragedies already sprouting amid the financial ruins. Troubling trends are to be expected in the years ahead, especially as hundreds of thousands of veterans of the Iraq and Afghan Wars, their families often already under enormous stress, are coming home to scenarios of joblessness and, in some cases, homelessness. Consider this, then, an attempt to look for early anecdotal signs of the fallout from hard times, the results, in this case, of a review of local press reports from across the nation, some tiny but potentially indicative of larger American tragedies, and all suggesting a pattern that is likely to grow more pronounced.

In February, when a sheriff's deputy went to serve an eviction notice on a home owner in Greeley, Colorado, he found the man had slashed his wrists and was lying in a pool of blood. Rushed to a nearby hospital, the man survived, while the Sheriff's office tried to downplay economic reasons for the incident, saying, according to the Denver Post, that "it wasn't linking the suicide attempt to the eviction because the man had known for a week that he was to be kicked out."

In March, Ocala, Florida resident Roland Gore killed his dog and his wife, set fire to his home which was in foreclosure, and then killed himself. In April, Robert McGuinness, a 24-year-old process server, arrived at the Marion County, Florida doorstep of Frank W. Conrad. According to an article in the local Star Banner, the 82-year-old Conrad was reportedly "cordial" at first. When McGuinness produced the foreclosure notice, however, Conrad got angry and left the room. He returned with a .38 caliber pistol and announced, "You have two seconds to get off my property or you will go to the hospital." Marion County sheriff's deputies later arrested Conrad.

On June 3rd, agents of the Federal Emergency Management Agency (FEMA) set out to inform New Orleans resident Eric Minshew that he would be evicted from his "Katrina" trailer. After Minshew threatened them, the FEMA employees called the police. When they arrived, Minshew allegedly threatened them as well and "locked himself in his partially-gutted home, adjacent to his trailer." A SWAT team was called in and tear-gassed the man. Interviewed by the Times-Picayune, local resident Tiffany Flores said, "Some SWAT members told my husband they had never seen anyone withstand that much tear gas."

The standoff went on for hours before "an assault team of tactical officers" invaded the home. Though Minshew opened fire, they eventually cornered him on the upper floor. When -- they claimed -- he refused to drop his weapon, they gunned him down. That same day, in Multnomah County, Oregon, sheriff's deputies served an eviction notice on a desperate tenant. According to Deputy Travis Gullberg, the Multnomah County Sheriff's Public Information Officer, the evictee promptly pulled a gun from his pocket and pointed it at his head before being disarmed by the deputies.

Recently, according to the Los Angeles Times, Rich Paul, a vice president at ValueOptions Inc., which handles mental health referrals, said that over the last year stress-related calls arising from foreclosures or financial hardship had gone up 200% in California. Similarly, Dr. Mason Turner, chief of psychiatry at Kaiser Permanente's San Francisco Medical Center, reported "a fourfold increase in psychiatric admissions at his hospital during August, with roughly 60% of patients saying financial stress contributed to their problems."

Of course, many victims of the linked economic crises never receive treatment. In July, Sacramento County Sheriff's Deputy Mark Habecker told the Sacramento Bee that twice this year "homeowners about to be evicted have committed suicide as he approached to do a lockout." In another case, he said, "a fellow Sacramento deputy found a note in the home that told him where to find the foreclosed homeowner's body." The Bee reported that such cases "received no publicity when they happened," which raises the question of just how many similar suicides have gone unreported nationwide.

In July, when police delivered an eviction notice at the Middleburg, Florida home of George and Bonnie Mangum, the couple barricaded themselves inside. Eventually, George Mangum was talked into surrendering and was arrested. "He did the only thing he knew to do, protect his family, all he did was sit on the other side of the door and say I have a gun, I have a gun and that's why he's going to jail because he threatened the police," said Bonnie. The couple's daughter Robin added, "This is my home, this is all our home and I don't think it's right. My dad was a Green Beret, he's sick, how are you going to kick him out?"

Pinellas Park, Florida resident Dallas Dwayne Carter was a 44-year-old disabled, single dad who lost his job, fell into debt, and was faced with eviction. "He always talked about needing help -- financially and help with the kids," neighbor Kevin Luster told the St. Petersburg Times. On July 19th, Carter apparently called the police to say he was armed and disturbed. When they arrived, Carter fired his pistol and rifle inside the apartment, before emerging and pointing his weapons at the officers on the scene. Police say they ordered him to drop them. When he didn't, they killed him in a 10-round fusillade.

On July 23d, about 90 minutes before her foreclosed Taunton, Massachusetts home was scheduled to be sold at auction, Carlene Balderrama faxed a letter to her mortgage company, letting them know that "by the time they foreclosed on the house today she'd be dead." She continued, "I hope you're more compassionate with my husband and son than you were with me." After that, she took a high-powered rifle and, according to the Boston Globe, shot herself. In an interview with the Associated Press, Balderrama's husband John said, "I had no clue." His wife handled the finances and had been intercepting letters from the mortgage company for months. "She put in her suicide note that it got overwhelming for her," he said. In the letter, she wrote, "take the [life] insurance money and pay for the house."

The day after Balderrama took her life, 50 miles away in Worcester, Massachusetts, a 64-year-old man, who had already been evicted, barricaded himself inside his former home. Police were called to the scene to find him reportedly prepared to ignite four propane tanks. "His intention was to burn the house down with him in it," Sgt. Christopher J. George told the Telegram & Gazette. With the man becoming "even more despondent" as "a moving van arrived on the street," police stormed the house to find him "holding a foot-long knife to his own chest" as a piece of paper burned near the propane. The man was disarmed and the fire extinguished.

That very same day, in Visalia, California, a Tulare County sheriff's deputy tried to serve an eviction notice to Melvin Nicks, 50. Nicks responded by stabbing the deputy with a knife and barricading himself in the house for several hours. He later surrendered.

Bay City, Michigan residents David and Sharron Hetzel, both 56, "lost their home to foreclosure and filed for bankruptcy protection. But they did not follow through with the Chapter 13 proceedings." On August 1st, say police reports, David Hetzel mailed a letter of apology to his family members. Later that night, according to the local police, he attacked his sleeping wife, striking her in the head with a golf club and repeatedly stabbing her with a kitchen knife. After that, he began setting fires throughout the house before crawling into bed beside his wife and killing himself with "a single, fatal wound to his torso."

On August 12th, sheriff's deputies arrived at the Saddlebrook, New Jersey home of 88-year-old Beatrice Brennan, another victim of the mortgage crisis, who had refinanced her home and fallen behind on payments. Refusing to stand idly by while his mother was put out on the street, her 60-year-old son John pulled a .22 caliber handgun on the lawmen. That sent the movers, waiting for a court-imposed 10 a.m. deadline, scurrying for their van. Brennan was able to delay the eviction briefly before a SWAT team arrested him and his mother lost her home. "I'm heartbroken over this," Vincent Carabello, a longtime neighbor, told the local paper, the Record. "How could this happen?"

Roseville, Minnesota resident Sylvia Sieferman was under a great deal of stress and beset by financial difficulties. She worried about how she would care for her two 11-year-old daughters. On August 21st, according to police reports, Sieferman "repeatedly stabbed the girls and herself." "She reached her limit," her friend Carrie Micko told the Star Tribune. "She couldn't cope anymore… she felt that her daughters were suffering because she was failing to provide for them." As Micko further explained, "After a series of financial mishaps, she just couldn't see her way through. She was under extreme financial, emotional and spiritual distress and didn't want to fail them."

The Boston Globe reported that, on September 5th, "[f]our protesters trying to prevent the eviction of a Roxbury woman from her home were arrested… after they chained themselves to the steps of her back porch." As 40 protesters chanted in the street, officials from Bank of America ordered Paula Taylor out of her house. "This is our eighth blockade and the first time there have been arrests," said Soledad Lawrence, an organizer with City Life, a non-profit organization seeking to halt the large numbers of foreclosures and evictions in Boston neighborhoods. "They can be more aggressive and we'll be more aggressive," she added.

On September 25th, as politicians in Washington tried to hash out a massive bailout package for financial institutions, six Boston police officers confronted about 40 City Life activists in front of the home of Ana Esquivel, a public school employee, and her husband Raul, a construction worker, both in their fifties. The Globe reported that four protesters were arrested as police shoved their way through in order to allow a locksmith into the house to bar the Esquivels from their home. "We've been destroyed by the bank," Ana Esquivel said, sobbing. "The bank is too big for us." While the Esquivel blockade failed, Steven Meacham, a City Life organizer, told a Globe reporter that "the protests have helped to stop about nine evictions. In the successful blockades, the homeowners were given additional time by their mortgage holders to negotiate alternatives to foreclosure."

Two days earlier, Los Angeles County sheriff's deputies came to the Monrovia home of 53-year-old Joanne Carter and her 67-year-old husband John to serve an eviction notice. Joanne Carter refused to accept it. According to "Monrovia spokesman" Dick Singer, as reported in the Pasadena Star-News, she "told deputies she had guns in the house and showed them a shotgun." The next day, Monrovia police officers showed up at the home after being informed that the woman "may have made threats to a workers compensation agency." Police Lieutenant Michael Lee said that Carter told them if they "tried to come in, she would defend her house at any means necessary." She and her husband then reportedly barricaded themselves inside, after which a shotgun was fired. Police from other local departments were called in. Following an hours-long standoff, the Carters surrendered and were arrested.

That same day, in northern California, Cliff Kendall, Petaluma's chief building official, shot himself with a rifle. A week earlier, Kendall had learned that he was being laid off. "He was afraid we'd lose our home, and we probably will because I can't afford to keep it," his wife Patricia, who is on disability with a back injury, told the Press Democrat. "He was extremely upset about it and hurt."

On October 3rd, the day before Karthik Rajaram's mass murder/suicide in Los Angeles, 90-year-old Addie Polk was driven to extremes by the financial crisis. With sheriff's deputies at the door, Polk evidently took the only measure she felt was left to her to avoid eviction from her foreclosed home. She tried to kill herself. Her neighbor Robert Dillon, hearing loud noises from her home, used a ladder to enter the second floor window. He found Polk lying on her bed. "Then she kind of moved toward me a little and I saw that blood, and I said, 'Oh, no. Miss Polk musta done shot herself.'" While she was in the hospital recovering from two self-inflicted gunshot wounds, Fannie Mae spokesman Brian Faith announced the mortgage association had decided to forgive her outstanding debt and give her the house "outright."

On October 6th, in Sevier County, Tennessee, sheriff's deputies, with police in tow, arrived to evict Jimmy and Pamela Ross from their home. They heard a shot and entered the home to find 57-year-old Pamela dead of a self-inflicted gunshot wound to the chest. Neighbor Ruth Blakey told WVLT-TV, "I know she really hated to leave that house. She did not want to leave that house."

Wanda Dunn told neighbors she would rather die than leave her home. On October 13th, the day she was to be evicted, the 53-year-old Pasadena, California native apparently set fire to the home "where her family had lived for generations" before shooting herself in the head. "We knew it was going to happen," neighbor Steve Brooks told the Los Angeles Times. "It was nobody's fault; it was everybody's fault."

In September, readers at Slate's "Explainer" column asked the following question: If the financial crisis was so dire, "how come we aren't hearing about executives jumping out of windows?" Writer Nina Shen Rastogi dutifully answered: "Because the current situation hasn't had nearly as devastating an effect on people's personal finances. The Great Crash of 1929 -- and, to a lesser extent, the crash of 1987 -- did lead some people to commit suicide. But in nearly all of those cases, the deceased had suffered a major loss when the market collapsed. Now, due in large part to those earlier experiences, investors tend to keep their portfolios far more diversified, so as to avoid having their entire fortunes wiped out when stocks take a downturn."

Perhaps this is true. So far, at least, Wall Street's suicides seem to have been outsourced to places that its executives have probably never heard of. There, on the proverbial main streets of America, the Street's financial meltdown is beginning to be measured not only in dollars and cents, but in blood. Right now, there are no real counts of the many extreme acts born of the financial crisis, but assuredly other murders, suicides, self-inflicted injuries, acts of arson and of armed self-defense have simply gone unnoticed outside of economically hard-hit neighborhoods in cities and small towns across America. With no end in sight for either the foreclosures or the economic turmoil, Americans may have to brace themselves for many more casualties on the home front. Unless extreme economic steps, like mortgage- and debt-forgiveness, are implemented, the number of extreme acts and the ultimate body count may be far more extreme than anyone yet wants to contemplate.


Anonymous said...

Ilargi? Stoneleigh? ANYBODY??? Comments?

"...Jane Baird has the latest on what Alea calls "the non-event of the year": the Lehman Brothers CDS settlement on Tuesday. The upshot is that there's very little to worry about: The worst-case scenario is limited to the failure of a small hedge fund or two, and even that seems improbable..."

perry said...


What source are folks using to track the real world prices for gold and silver physical metals? i.e. If the price for 'metals' differs from the price for 'paper' (gold), then where are we to find and track those prices in real time?



Anonymous said...


Dan W.
raison d'etre (I'm sure I just massacred the spelling there)

No, no. The only thing missing is the accent on the first "e" of être and I can imagine it is not easy to find on an English keyboard.
è = Alt +0232
é = Alt +0233
ê = Alt +0234

By the way, did you ever know a Wendy Blaufuss, a goofy gal who was a vet in Delaware?

Stoneleigh, when you speak of visiting energy installations in Europe, would there be any connection with Jérôme?

I know it wasn't empty- but guns against arrows is a foregone conclusion.

I read somewhere that had the South used bows and arrows, it would have won the U.S. Civil War. Apparently, rifles often blew up and were very inaccurate, to say nothing of being difficult to come by.

Peter and Snuffy
Another interesting author on the human race as "infantile" is William Auld, a Scottish writer who wrote "La infana raso" (in Esperanto) and was for several years a contender for the Nobel literature prize (notably for his extensive poetry in Esperanto).


Anonymous said...

dan w , I've no idea on Lehmans, and while I would like to know more about that, I would know, as well, how far they can shovel this stuff into the future - you know the sins of the father unto the 7th generation, steel collar and chain linked?

Anonymous said...

Here in Kanukastan (Canada - the land of weapons of mass construction) things are changing. At the esteemed University of Waterloo they just announced a 6 month hiring freeze. Wahooo. I wonder what they're retirement funds are invested in? Boy oh boy that can cut fast; what with having to send out monthly cheques to retirees but having your investment value fall thru the floor and have returns drop to nil. With finances tightly constrained the only way forward is ???
Well, for now it looks like a deep breath and a pause.

I wonder how soon till someone starts rewriting the rules about how much gets paid out to retirees? Just what were the promises and how good are they? My understanding is that the money could, but does not often, go to into an insurance to pay an annuity. It's yet another case of the assumption of a population pyramid with constant growth with more and more young workers coming in from below.

Anonymous said...

@ fb

No to Wendy. Thanks for keying tip.

@ Crystalradio

I am becoming increasing curious about this as well. Here's my point:

The $62 trillion credit derivatives (CDS) market faces its biggest test in October as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. Amount and concentration of protection payments is still unknown. (from RGE Monitor)

I disagree. This is flawed logic. The flaw has nothing to do with the multi-trillion dollar CDS debacle. That much is true. The faulty logic stems from the assumption that accurate, honest settlement processes are going to proceed this month. And frankly, I must admit to being a little pissed off at some of the folks with whom I AGREE economically, but not politically. Here's my point:

Hasn't it become crystal clear that Spanky Paulson and his band off merry scumbags will not stop at ANYTHING in order to obfuscate, dissemble, and outright lie to the American people vis-a-vis the current economic crisis? I mean, do any us really believe that Paulson or Bernanke or Bush or Fuld or any of these up-and-comers in the new Amerikan Fascist movement are at all interested in telling the truth???

So, if it is safe to assume that the Paulson plan includes maintenance of "public opinion" to make sure that he and his cohorts can escape Washington before the conflagration begins---than isn't it also safe to assume that Paulson and his Goering-esque henchmen will do ANYTHING in their power to make sure that there are no more Lehman-like s**t storms during the waning days of the Bush Empire? And if this is true, then won't these criminals make sure that the Derivative Swap cluster f**k that MUST at some point rear it's perverted head in the global marketplace---won't they make sure that this catastrophe doesn't become public knowledge until AFTER the McCain swearing in...or later...or EVER???? How long can the secret be kept?

This from the AP: "...While commercial paper is still generally a safe investment, its risks were highlighted last month as a large money-market fund called the Reserve Primary Fund "broke the buck" — meaning the value of its underlying assets fell below $1 for each investor dollar put in. Investors were exposed to losses after the fund conceded that $785 million it had invested in debt of Lehman Brothers became worthless after the investment bank's bankruptcy. That instance, and the broad turmoil in markets, have made investors wary of even the smallest risk that a borrower may default..."

Spanky Paulson and his cohort of scumdwellers are evil. They know that another "Lehman moment" is bad for them, and they will not let it happen under their watch. No matter what. No matter what they have to do.

I think we underestimate the depths to which our current political establishment will sink in order to protect their collective asses. God help us all.

(Side Bar: I give Barack Obaman 0% of winning the Presidency because I think the fix is already in. I hope I'm just another silly Conspiracy Theorist with an ideological axe to grind...we'll see.)

Stoneleigh said...


Stoneleigh, when you speak of visiting energy installations in Europe, would there be any connection with Jérôme?

No, much as I would like to meet him after working with him at TOD for a while, there's no connection. Germany seems to be the centre of the universe for the technology I'm going to be working on, but I'm not sure whether European visits will be within the budget. If they are at any point, I'll let you know.

bluebird said...

10/21/08 The Argentine government is expected to announce plans to nationalise the country's 10 private pension funds.
The move will put the government in control of almost $30bn (£18bn) of investments, and is aimed at protecting them from the global market turmoil.
Critics accuse the government of simply wishing to get its hands on the funds.


Anonymous Reader

Don said...

Love your blog. Thanks for going to all that effort!

Just to nit pick a little, Shipbuilding was written by Clive Langer and Elvis Costello although it was first recorded by Robert Wyatt.



Thanks again!


Anonymous said...

I find this a choice bit, in reading:

"Oil and gassector fell 2.8 percent as oil slipped to under $71 a barrel, pressured by expectations that a global recession will cut demand for oil, which could limit the impact of any supply cuts by OPEC"

I think Milo Minderbinder was here.


dan w

I am not competent to speak with anything like authority, but I guess I can have an opinion and that is that, for Paulson and crew to go forward, means pushing a mountain of debt to a generation past the one that right now is up to their eyeballs in debt, student and otherwise. Maybe that's the reason for their support for the moral majority, they want the next bubble to be another baby boom, call it the big weight generation.

You say:

Hasn't it become crystal clear that Spanky Paulson and his band off merry scumbags will not stop at ANYTHING in order to obfuscate, dissemble, and outright lie to the American people vis-a-vis the current economic crisis?

But gee dint yer see Spanky P go all teary eyed and say, "golly I am a bad bad bald guy and I'm ever so sorry for all the past mistakes I made".

I always thought America was the land of forgiveness, of course he hasn't gone into rehab yet has he? Maybe that will be the next ploy?

Ilargi said...

Thanks, Don

I sit corrected

I have always love that song

And the idea that young people will be shipped off to war to die for the glory of the land that has just been taken away from them, it could be the theme song for 2009.

Ilargi said...

I posted two video versions of the song up on top.

Anonymous said...

Has anyone here considered what would be required to initiate the North American Union, with that new proposed currency, the Amero?

The USD, Canadian Dollar and Mexican Peso would be remade into a single currency, that was the plan...NAFTA is built into that framework.

The three presidents signed the law to make it so in 2005, but no media exposure at all, so its really supposed to be super-secret, the law would go into effect in 2011.

The US citizens would not give up their dollar so easily, when I heard of this NAU and the Amero,
I imagined some grand dislocation would be very convenient for this purpose, to facilitate the economic transitions required to persuade the people of its benefits.

you know, the proposed fusion of the US, Canada and Mexico could probably not have happened the way things were, as the average american dislikes supra-nationalism, so...

step 01: the US will default on its debt somewhere in 2009.

step 02: ???

step 03: Profit!
oh, yes, such fabulous profit...

any insights?

Unknown said...

Mann in "1491" said that the Jamestown colonist's rifles were useless against bow and arrows. But I'll take a 19th century firearm any time.

perry said...

Can Fed interest rates go below zero percent?

10 October, 2008
by Perry Arnett

During the run up to Y2k [~1995-2000), lots of questions were asked on the email boards about how things would shake out economically if the Y2K event was 'anomalous'. One key question revolved around what might happen "if consumers got frightened and stopped spending". That is, if they just decided to hoard their cash and ride things out until the dust settled.

The subject got around to 'if the Fed started lowering interest rates, that would make money "easy", and the faster folks would borrow and spend'. But others then asked "how low can rates go" if need be? That topic progressed to "how LOW can the Fed actually lower interest rates?"

The answer usually given was "interest rates cannot go any lower than zero percent". [wrong!]

At that point, prior to Y2k, one of the Texas Fed governors gave an address before [what I recall being the Texas Federal Reserve Bank Board], and his remarks were published, supposedly in order to quell distrust, and to set the record straight - or maybe as a threat.

During his address he took questions, and one of them had to do with the same issue: "how low can the Fed actually lower interest rates"?

He prefaced his remarks by saying very explicitly, that in the kind of world economy in which we live, we all have a "patriotic duty" to spend, to keep the economic system alive and working, if that is what is ordered by the President.(!) And that 'hoarding' [saving] was "unpatriotic", and that if the Fed saw that the economy was anywhere NEAR to tipping into a Deflation or a Depression because of a LACK of spending, they would begin to take action to avert that.

One of those actions that the Fed could take would be to "lower interest rates", thus making money easier to get, and 'cheaper', for those who wanted or needed it, thus providing a "stimulus" to the economy.

But then he was asked "what if lowering rates to ZERO are not enough to cause consumers to consume? What if they just continued to NOT spend?"

He then answered that if consumers did not spend enough to keep the financial system running at the pace or the rate that the US Government thinks it should run, thereby causing a Deflation and Depression, then one of the tools that the government could use to stimulate the economy would be to print a different currency, one that could be easily distinguished from the current [old] currency, and that some ratio-of-value from the old currency to the new currency would be established - i.e. 100:1 or thereabouts. The word "Redbacks" was used for contrast to 'Greenbacks'.

He then said that it would be an easy matter for Congress to pass a law REQUIRING citizens to use new "Redbacks" currencies [which they implied had already been printed] for legal commerce, thus effectively driving out the use of existing "Greenbacks" currencies.

But he was then asked, "how will THAT make people spend? How can you MAKE people spend who do not want to?" To which he responded: "the government would allow one to continue to use Greenbacks for commerce, but the Fed would impose a "negative spending tax" [essentially a negative interest rate] on the use of the old, former, Greenbacks, so that it would "behoove" one to spend them, rather than to save them.

As for the mechanics of the proposal, he further explained that for example, if one were to buy some food, and the cash register price was $10, if one paid that bill with the new Redbacks, one would pay just $10, Redbacks having "full value" in the 'new' economy.

But if one tried to pay with old Greenbacks (which one could do), then the clerk would be required by law, to add-on, say, a 5% tax on the purchase. That is, it would cost the consumers MORE to buy the same goods with old Greenbacks, than it would to buy with new Redbacks.

And if this "minus 5% tax" did not bring out all the Greenbacks from hiding fast enough, (i.e. if consumer spending did not keep the economy running as fast as the government thinks it should run at the "negative 5% interest rate"), then they would INCREASE the tax to minus 10%, minus 20%, minus 50%, or "whatever it took", to CAUSE folks to bring their old Greenbacks out of hiding, and to SPEND those Greenbacks even FASTER, as their value declined in purchasing power, thus supposedly, helping to stimulate the economy and keep it running.

He said that this was all "possible, doable, in process, in the works, and would probably be implemented at some time in the near future" - if the economy ever got near to tanking.

The salient points being here that:

1) the current government policy is that the consumer drives the economy

2) when the consumer starts to save "too much", or does not "spend enough", the economy dies

3) to forestall the economy dying, governments will do whatever they can to keep the economy alive

4) one of those tools is to mess with the value-of-money through manipulating interest rates

5) one way to keep the consumers spending and borrowing is to lower interest rates

6) if lowering interest rates to zero does NOT do the job, they will lower interest rates to BELOW ZERO, or to "negative values"

[the bankers want all of our money and they will do anything to get it!]

(or words to that effect, reading between the lines)

This speech was published nearly ten years ago. I had this speech stored on one of my computers but I don't know which, nor do I recall the title or web address, and I may have given that computer away long ago.

GEAB2008 is suggesting that the US government will 'default' on its debt obligations, and that a 'new money' will result; and that this may happen in 2009.

I'm not surprised - since what we are witnessing right now is a freeze up of the economy as few are spending!

So, is this next? and if so when?


Gina said...

I & S,

I've been reading for a few months and this is my first comment. Thank you so much for all of your hard work.

This one really hit home for me today. In reading the article referencing the sad case of Wanda Dunn committing suicide when faced with eviction I realized that her home is the very home that I have walked by this past week where I noticed there had been a fire. You see, her neighborhood is my neighborhood. I don't read the local papers and I had no idea of the details behind the story. I knew in the abstract that there is nowhere safe from this crisis, now I have a very visible reminder just up the street from my house.

John M. said...

Hi, Anyone?

A friend just suggested I check in here; said that she had garnered a lot of valuable insights.

I'm 54, single, about broke, working as a geospatial consultant and have about 6 months worth of work.

Have been pretty oblivious about the current crash(es) and have been plumbing options for "worst case" scenarios.

One question: I do have a few thousand dollars in a 403b from a few years at a University in TIAA-CREF) and was wondering if folks had thoughts about either cashing in a 403b (and taking the early withdrawal hit) or TIAA-CREF in particular.?


Anonymous said...

The red-currency/green-currency scenario seems wildly improbable just based on the fact that if both currencies are in circulation the deprecated green currency will be instantly shunned and rejected by everyone on the selling end of a transaction. No one will want to be caught holding them.

Unknown said...

Roto, from what I understand, this is more or less what Russia did after the post-Soviet crash, in part because Russians traditionally kept huge amounts of cash savings outside the banking system (under the mattress, if you will). Yes, no one would (or could!) accept the greenbacks after the govt's made the change... except banks. This forced citizens to bring their money back into the banking system.

Now this is not the kind of situation that faces the US, but my point is, issuing a new kind of currency in order to force out the old kind can work.

el gallinazo said...


Currently paper currency represents well under 5% of the total fiat money/credit supply. By the time color coding paper currency red and green (for Christmas?) in your scenario would make a big difference, the economy would be down the hopper, flushed, and well on its way to the septic tank.

el gallinazo said...

dan w

My crappy ISP broadband is running at dial-up speed. I'll check out your music if it ever returns to broadband.

Anonymous said...

Thank you, Francois, for the recommendation. Followed the Baha'i Faith for several years, and was exposed to Esperanto through it, but had forgotten that it still has a presence in the world. From the Wiki description, looks like Auld's poem is worth finding a translation of it. This also reminds me that when I was a young Baha'i (30 years ago) I saw the exhortation that there must be a spiritual solution of the world's economic problems, and I wondered, what on earth could that mean? Now I know.....

Anonymous said...

Ilargi, loved the song choice-do you remember the Brit anarchist band Easterhouse? Their brilliant song "Waiting for the Redbird" might have a place in this blog (metaphorically, I hope).

Anonymous said...

Nouriel Roubini says the risk of a financial disaster (which he defines as an L-shaped 10-year recession like Japan experienced) has been averted. That's quite optimistic compared to the tone of this site. Any comments?

EBrown said...

Euro down and Yen up again.
Can anyone say "carry trade"?

Anonymous said...


In quantity, about 20 oz min, 1 oz coins 99 over spot, Kilo bars aprox 30/oz over spot.

For small quantity look at what they go for on E Bay, very high.

Coins are in short supply. Plenty of Kilo bars.

Anonymous said...

On the subject of new currency, I'd recommend reading Richard Douthwaite's book The Ecology of Money.

In the section Currency as a form of tax he mentions mediaeval Bracteates which were issued with a limited time span in order to increase the seigniorage (i.e the benefits of producing the money and spending it first)

"Bracteates were thin silver-alloy coins issued between the 12th and 15th centuries by the rulers of the small autonomous states in the Holy Roman Empire. Initially the coins which could be broken into four to make change were valid only for a year and had to be replaced before holders could use them at the big autumn markets in most towns. Moreover, as with the other low value coins issued at the time whenever a ruler who issued a batch of bracteates died, all the coins bearing his head became invalid and had to be exchanged (at a 20-25% discount) for new ones bearing his successor's features. For obvious reasons, it wasn't long before rulers began to recall bracteates more frequently, sometimes as often as three times a year. In the 14th century Johann II of Saxony changed his currency no less than 86 times in 36 years

Since bracteates could lose up to a quarter of their value overnight people spent them as soon as they could. Once their day-to-day purchases had been made, they used the remainder on improving their houses and property. Even relatively ordinary people were able to afford fine houses during this period, and the tradesmen's guilds were prosperous enough to to make gifts of towers, windows and complete chapels to the Church. The construction work meant that there was a high demand for labour, and wages were consequently good: and ordinary day-labourer could expect to earn six or eight groats a week, enough to buy four pairs of shoes or two sheep. Working hours were short, and there were at least ninety religious holidays a year. It was a time of great prosperity, and with (in the words of the German commentator Fritz Schwartz, form whom much of this material is taken), "no difference between the farmhouse and castle". Farmers wore coats with golden buttons and had silver buckles on their shoes."

A form of money to promote spending and stop hoarding. Sounds like what the system needs. Is there a modern 'Treasury debt' equivalent here somewhere?


Anonymous said...

Elvis Costello also has a lyric about
"Swindlers who act like kings
And brokers who break everything"...

Dr Devlin

Anonymous said...

Can ANYONE comment on this? I feel like this is a key issue to both understandinf current evets and looking into the future with some degree of clarity:

NEW YORK, Tuesday, October 21, 2008 – Robert Pickel, Chief Executive Officer of the International Swaps and Derivatives Association, Inc. (ISDA) today commented on the cash settlement of CDS trades on Lehman Brothers and on certain misperceptions in relation to the CDS industry.

The cash settlement deadline for Lehman is today, October 21. Based on industry estimates, a total of $6bn to $8bn is expected to have changed hands by close of business. This is approximately 1% to 2% of the $400 billion in CDS trades referencing Lehman and does not account for the effects of collateral, which will further reduce the payment amounts.

“Today’s settlement demonstrates that the industry infrastructure for CDS clearly works,” said Mr. Pickel. "ISDA and its members have developed a robust legal and operational framework that governs and guides industry participants through defaults and credit events, and that includes well-established procedures for evaluating, netting and settling outstanding trades. Recent developments in the financial markets underscore the value of the industry’s collective efforts."

Anonymous said...

Hi dan w,

Well I guess if a Mr Mr. Pickel says CDS trades aren't in a pickle, how can anyone disagree ... and I guess anyone don't.

Sort of hoped ilargi might ease your mind on this matter directly but I see the question you pose must be of little consequence, in the greater scheme of things and maybe we should all be doing early Bob Dylan imitations instead.

Yes the robbery having been done the get away is now in progress. All I can suggest is keep the head low, and head for an alley way.

You know, dan w, I've been waiting for the machine to start cracking up since the early 80's. All one had to do then to get a vision was get a bottle of 'things go better' sit on a curb and watch the traffic flow. We run on energy and complexity and even then one could easily see the limits to both. Watching economic patteerns and all are good for protecting the wallet but one will need more than a wallet in future . They will need ducks, and I have five so far:)

Anonymous said...

@ CrystalRadio

Thanks...I guess...for that rather cryptic and not-altogether-helpful response. :)

This is a question for which I have yet to find the/an answer. I do not fully understand how the CDS issue, as stated here:

"...Based on industry estimates, a total of $6bn to $8bn is expected to have changed hands by close of business. This is approximately 1% to 2% of the $400 billion in CDS trades referencing Lehman and does not account for the effects of collateral, which will further reduce the payment amounts..."

resolves itself? My growing belief is that the "swap" clusterphuque is being well-hidden, in a number of ingenius and duplicitous ways---and that EVENTUALLY the CDS poop will hit the fan. It has to, right? The laws of nature and physics demand it. Matter that is created (in this case 50+ Trillion dollars in "assets") cannot simply be destroyed.

DJ said...


I love Robert Wyatt's music. It was nice to see his work up here. Karl Denninger wrote what I see as his best ticker of the year so far: http://market-ticker.denninger.net/archives/622-Fiscal-Cat-5-Hurricane-Warning.html. It seems that he's gone from giving Hank and Ben the benefit of the doubt to seriously questioning their motives.


Ilargi said...

Dan, CR

I've left the CDS settlements on Lehman aside for now, because I see very different views, some of which are clearly PR, because the real story will be known probably today and speculating seems to have little value, and because I have little doubt that there is ample room for manipulation.


Yes, I noticed Karl's coming around to my views on this matter as well. And quite strongly, too.

Anonymous said...

Thanks ilargi, - 'time will tell' is a good enough answer for me:)

Unknown said...

Thanks from me, too, Ilargi. I have been anxious to see the results of the Lehman CDS shakeout, but I suppose we will have to wait - maybe a long time - to really see the truth.

el gallinazo said...

If Stoneleigh has some free time :-) could she explain what Karl Denniger is writing about in his cat 5 warning? Nobody can explain this stuff so that a Neanderthal could understand it like Stoneleigh. Since I have most of my marbles now in 13 week treasuries, it makes me nervous. Do you still see a suckers rally in Nov & Dec?

The Lizard said...

DanW: "The laws of nature and physics demand it. Matter that is created (in this case 50+ Trillion dollars in "assets") cannot simply be destroyed."

If only it were physics.

But these rules can be changed at will.

Anonymous said...

"Those in the media who are chuckling at the folks stockpiling beans and rice will be begging for some of that stash if our government doesn't cut this crap out - and soon." Denninger

He also dissed Roubini today, lotsa fun in the half I could understand:)

Anonymous said...

el pollo,

I know from expletive but I look at the Canadian dollar being low and the Yankee high and then I look at our Canadian treasuries giving .8% I think and yours giving what .5 I think?

Stoneleigh says it is better to have your loot in the country you live in, but as you plan to take to the wing at some point would there not be some advantage while our dollar is low to go to it?

Anonymous said...

I've finally had a chance to review "History's Hidden Engine." Socionomics is very interesting and certainly when you look back in history the two closely parallel each other. Bob Dylan's lyrics were coming back to me while I watched the video.

The tragic human suffering Ilargi has posted is going to get worse - much worse. I used to work in California and still keep in touch with former colleagues who talk of all the issues Ilargi has discussed. I am also seeing these stresses impact people here in Canada - severe depressions, MIs, family violence - all attributable to what is going on in the economy today. It is not easy to see people experience severe emotional pain that ultimately compromises their physical health.

As far as the financial system, I still struggle to understand the intricacies of it all. But it is the same as reckless driving - it will crash with devastating consequences.

Anonymous said...

@ thehangedman

YES, I dig...the "rules" can be changed...but not NATURAL LAW. Bear with me for one sec. here:

Life & Liberty are described as NATURAL RIGHTS...they don't derive from anyone or anything...they exist in nature.

Now of course a despot can take away my liberty and rob me of my life...but that does not change the immutable fact that I STILL possess these natural, existential rights. The despot has taken away my freedom, not my right TO freedom.

OK, back to the 50 Trillion $$$ in non-existent "assets". The government can take away the "record" of these "assets", they can take away the actual paper upon which these bets were written...but they cannot take away the 50 Trillion dollars in liability and potential debt service itself. It exists, even if all traces of it have been destroyed. EVENTUALLY, its existence must be accounted for...

The Lizard said...

danw: "Life & Liberty are described as NATURAL RIGHTS...they don't derive from anyone or anything...they exist in nature."

I think we're coming from different dimensions on this, as for me "rights" are a fiction.
"Natural" to me means f=ma and all its progeny. "Human Rights" is just human agreements and laws, subject to world-view and subject to change - often radical change.

Greenpa said...

I'm trying to figure out why this is getting so little press: Mass Layoffs highest since 9/11

"NEW YORK (CNNMoney.com) -- The number of layoff announcements involving at least 50 workers rose in September to the highest level since the Sept. 11 terrorist attacks seven years ago, the government said Wednesday.

There were 2,269 mass layoff actions, up 497 from August, according to statistics released by the Labor Department. "

At the moment, only CNN is mentioning this. That's a heap of people getting fired- and up 22% in one month?

Anonymous said...

@ thehangedman

NO...I DON'T think we're far off from each other at all!!! :)

I agree with you that "rights" per se ARE a fictional...created by men as a way to trick people into THINKING they have them but, in fact, used as a way to further control them.

HOWEVER, I also believe that there are things---things such as 'rights'---that exist beyond the scope of man's ability to capture and pervert.

Remember in the Shawshank Redemption, when Andy ends up in Solitary for a month because he plays the Opera music over the prison's PA? when he gets out of solitary and rejoins the prison population he has the beatific, christ-like grin on his face. He explains to his friends that NO ONE can take the music away from him, as it exist in his heart and brain and soul.

This is what I'm talking about. And I think that those brainwaves, those electrical impulses, HAVE MASS!! They cannot be destroyed!!

I also believe that the truth ALWAYS comesout 'in the end', because the truth "exists" as mass exists---it has weight, it is tangible and palpable---the electrons and quarks of TRUTH exist, and cannot be destroyed.

Anonymous said...

By The Way...

Denninger's tone makes Roubini look like Jerry Garcia in an Opium Den.

Anonymous said...

Thanks for the Denninger link, CrystalRadio.

"We may be literally days away from a second, far more serious credit and equity market dislocation, this time originating outside the United States."

Wonder where. I was thinking, possibly, the flight of western capital from Russian equities could trigger a large run on the banks in Russia, which would then spread contagion westward through depleted Eastern European markets and into Western Europe. Or is the really dry tinder elsewhere?

-Reluctant Poseidon Hamster