September 23, 2008 archive

Flying On Hot Air?

Hossein Askari is professor of international business and international affairs at George Washington University.

Noureddine Krichene is an economist at the International Monetary Fund and a former advisor, Islamic Development Bank, Jeddah.  

The view around the world of the banking crisis and Paulson’s bailout proposal appears to be much less as panicky as closer to home, if at all, and more of recognition of the realities of the situation with a general attitude of encircling and isolating a cancer to keep it localized.

Paulson Plan Throws Oil On Fire

Treasury Secretary Henry Paulson
and Federal Reserve Chairman Ben Bernanke

Asia Times

With the creation of the so called Mortgage and Financial Institutions Trust (MFI), the unfolding financial crisis, considered by many to be the worst in over 60 years, has become ever-more dangerous.

While such an institution has not existed in any country, the MFI could prove to be disastrous for US public finance, economic growth, the dollar, relations with major foreign holders of dollars, the global financial system, and could ignite the worst inflation in the economic history of the United States and reverse globalization to levels not seen since the Great Depression.

The initial cost of the MFI, put at US$700 billion, could easily escalate to trillions of dollars. At the same time, the Congressional Budget Office had previously projected a record fiscal deficit of US$500 billion for 2009. The MFI will further blow up the deficit to an unprecedented level, exceeding US$1.4 trillion. US debt, jumping with the takeover of Fannie Mae and Freddie Mac to 86% of GDP, has moved to an unsustainable level.

The financing of previous large fiscal deficits under the George W Bush Administration has already caused external deficits (current account) to widen to 5-7% of GDP, turned national savings negative, sent the dollar plummeting, and ignited rapid inflation, particularly in food, energy, and housing prices. Further financing of extraordinary large fiscal deficits, as required by the MFI, can only disrupt economic stability both in the US and world-wide. It will only further undermine the dollar, exacerbate widening external deficits, soaring energy and food prices, and rising unemployment.

Four at Four

  1. The LA Times reports Financial industry’s campaign donations could help it in bailout.

    Since 2002, the sector has contributed more than $1.1 billion to congressional candidates, with Republicans getting an edge during that period, according to federal lobbying records. The figure does not include millions more donated to the favored charities of prominent politicians and the hundreds of millions spent on lobbying. The sector is among the biggest donors overall; by comparison, another major category, lawyers and lobbyists, gave $646 million during the same period…

    In the 2008 election cycle, the list of the top recipients of donations from the financial services, insurance and real estate sectors (all likely to be affected in varying degrees by the legislation) included the leading presidential candidates….

    “If you trace the movement of Wall Street money through Washington, it pretty well tells the story behind this and any other piece of legislation,” said Lynn Turner, former chief accountant for the Securities and Exchange Commission. “The way Washington works, it is the lobbyists and the executives who hire them that get what they want. And it is the taxpayer who usually ends up getting fleeced.

    The fix is in.

  2. The Washington Post reports Japanese Banks Snap Up Wall Street Holdings.

    Major Japanese banks, fat with cash and nearly free of toxic investments, are spotting opportunity in the global financial mess and snapping up substantial holdings on Wall Street.

    Because many Japanese banks and brokerage houses have vast amounts of cash while U.S. banks are increasingly desperate for it, analysts here say more major purchases are likely in coming days and weeks as the financial crisis churns on…

    “This is a once-in-a-generation opportunity,” Kenichi Watanabe, president and chief executive of Nomura, said in a statement. He added that “our ability to capitalize on this opportunity in spite of such volatile markets reflects our financial strength.”

    Um, I thought Wall Street was having difficulty finding buyers?

Four at Four continues with declining U.S. immigration, Obama backing off campaign promises, and bonus story about ignoring the real crisis.


On Tuesday morning, September 23, 7:30am, at the front of the National Archives Building on Constitution Ave. in Washington, D.C., five military veterans will risk arrest as they climb a 9-foot retaining fence and occupy a 35-foot high ledge to raise a 22×8 foot banner stating, “DEFEND OUR CONSTITUTION.  ARREST BUSH AND CHENEY: WAR CRIMINALS!”  

The Beginning of the End?

It was late in 2008 when the collapse of America began.

The greed of the Ruling Class had been freed and encouraged by one of their own, The Bush. One who had gained power at their behest after years of organized struggle that culminated in all of the conditions that they had needed to abolish the checks and balances that the Lower Classes had imposed on them for over half a century. Under The Bush, the checks and balances that had been put in place after the last instance of their unfettered power and the collapse it had caused had been weakened or abolished to the point where they were easily defeated by the greed and machinations of The Ruling Class.

But this time, the Ruling Class had learned to fight back. Though, it seems, they had never been quite able to learn the inevitable and disastrous consequences of their ravenous greed. They had learned that controlling the media was one key. That spreading their selected narrative would buy them the time they needed in order to solidify their positions. They had also learned how to keep the populace in a never ending state of fear. At one point during this period, all that they had had to do to ratchet up the fear of the populace was to flash a color on a screen, the “Terror Alert Level,” it was called.

Their narrative had been crafted over generations, their narrative was that one group of people were somehow better than ‘average folk,’ more serious, more important, more qualified, tougher….more like a father figure, more like the patriarchal god that they insisted had to be worshiped. And certainly better than their opposition, who they had managed to paint as weak and, ironically, as an elite who thought that THEY were better than the populace. They had managed to weave and sell a narrative that said that even when it had been they, that they had been the ones who had destroyed everything that the lower classes had built: An economy based on production of goods, a military designed to protect, not attack, a culture that had been slowly moving toward equality and acceptance of all of societies ‘outsiders,’ etc….that only they could put things right. The things that they had caused to go wrong.

Mea Culpa: The Fed May In Fact be in a Financial Mess

In a comment last week, I said,

Treasury Securities are the only assets that can …

… be held be the people that issue the actual fiat money. So, while the US dollar could lose standing abroad and with it would go the top ranking of US Treasuries overseas, it is institutionally entrenched as the AAA ranked US dollar denominated financial asset.

And while the gist of the argument is sound … Treasury Securities are the last financial asset standing if you need financial assets denominated in US dollars, and that is intimately tied up with the way that the Fed works …

… the statement itself is deeply flawed.

In ordinary times, it would be a footnote. The Fed can also hold as assets loan contracts with commercial banks, and other such loan contracts as the legislature may from time to time permit.

Well, how did they keep the current crisis from blowing up? After all, it was late last year that the housing market bubble burst … how did they string it out until September of this year?

How they strung it out was by lending to get financial institutions out of their short term liquidity bind. And as institutions ran out of Treasury Security and “high quality” mortgages to borrow against, the Fed relaxed its standards to allow borrowing against lower quality assets.

Except, the way that the Fed does short term loans with a financial asset as collateral is the same way that the private finance sector does … it enters into a contract to “buy” the financial asset at a set price, and the borrower agrees to “buy it back” at the end of the loan period for a set price. The up-front purchase price is the loan amount, and the difference between the two prices is the interest payment for the loan.

Now, if you are make a temporary bridging loan to a business backed by collateral, and you have to loan more than the collateral is really worth, that ought to raise a red flag that the business is in something more than a liquidity squeeze.

As explained by an anonymous banker friend of Jerome a Paris, that is the current crisis and the current proposal by the Bush administration, in a nutshell.

“Now that we’ve determined just what you are . . .

. . . all we’re doing now is negotiating the price.”

It’s a punchline to an old joke.

And Democrats, as thereisnospoon so ably points out in his diary, are in real danger of becoming the same.

What We’re Up Against

Cross-posted from Daily Kos

One of my co-workers was very happy Bear Stearns got bailed out.  She is nearing retirement and cares ferociously about her pension.  She is not a wingnut nor a Republican.  She will care more about what happens to her pension than whether or not a bill gives the Secretary of the Treasury power to rival that of Louie the XVI, or whichever Louie had a whole lot of power (I’m a blogger, damn it, not a French historian!).

Me?  Well I’m a blogger, as referenced above, and a member of the Democratic base.  My passion for the issues I care about is as strong as my co-worker’s passion for her hard earned pension.  I’m not going to judge her badly, we just feel passionately about different things.

By using Hank Paulson and his crew’s “plan” (and I use the term ironically) as the starting point for any fix of our economy, the Democratic base has, once again, lost.  Period.  See, I’m used to that, it ain’t the first time.

We Aren’t THAT Stupid. We’re in Shock.

Crossposted from WWL to Docudharma, Booman, OWL, Station Charon and Never In Our Names.



A foray into when the UNHOLY TRINITY comes back to bite the most indoctrinated, shocked nation in which it has ever been unleashed right in the ass.

As I often am wont to do, I went back to source material when troubled by this * new economic crisis. (* Which of course is neither new, nor could not have easily been predicted by previous models)

I am re-reading “The Shock Doctrine”. I loathe bogging down into economics, but her work is accessible. Normally understanding economics is about as easy for me as swallowing a VW and passing it sorted into its component parts in bags.

Bill Maher had Naomi Klein on this week past. We catch him on the Sunday Morning rerun * religiously. (* She says with full intended irony, being of the same mind that religious people are idiots for the most part)

“They moved the disaster from Wall Street to Main Street…”

I’d almost change my orientation to do this woman she gets it so very well.

“This is socialism for the Rich”

No Shit.

Andrew Sullivan I wanted to bitch-slap. He said exactly what I predicted the neo-cons would say: “Its the poor peoples faults for taking on loans…”

Not the cunning bastards who tricked us into taking loans they swore wouldn’t bubble from 8% to 18%, as they now have. Not the speculators driving up prices on oil. Its the STUPID poor people.

I wouldn’t do him if he was the last diseased prick on Earth and I drank a gallon of Spanish Fly in a post-battery Earth and both my hands were cut off.

I digress. Lets get back to the Real Trinity.

Wanna fear a Godhead? Fear this one.

Open Thread


It’s a Mad, Mad, Mad, Mad Thread.  

Obama demands deep cutbacks to pay for Wall Street bailout

Original article, by Bill Van Auken, via World Socialist Web Site:

As the Bush administration and Congress continued negotiations Monday on a trillion-dollar bailout package for Wall Street, Democratic presidential candidate Senator Barack Obama delivered a speech in Green Bay, Wisconsin in which he promised to carry out sweeping cuts in government spending and impose strict fiscal discipline on the US government.

Docudharma Times Tuesday September 23

How Does One Know The Press Is Doing Its Job?

When A “Certain Campaign” Is Accusing The Press Of

Being In The Tank.

Tuesday’s Headlines:

Data Show Big Dip in Migration To the U.S.

Hospital in Turkey under investigation as 13 babies die

Poisoned pen pals: Clash of the literary Titans

Pakistan blames US raids for hotel bombing

Japan’s ruling party hopes Aso will restore its reputation

Sahara tourists are held captive after being seized by ‘band of gangsters’

Mbeki’s resignation a ‘big loss’ for Africa

Iraqi insurgents forced underground

In Egypt, sexual harassment grows

McCain Loses His Head

By George F. Will

Tuesday, September 23, 2008; Page A21

“The queen had only one way of settling all difficulties, great or small. ‘Off with his head!’ she said without even looking around.”

— “Alice’s Adventures in Wonderland”

Under the pressure of the financial crisis, one presidential candidate is behaving like a flustered rookie playing in a league too high. It is not Barack Obama.

Channeling his inner Queen of Hearts, John McCain furiously, and apparently without even looking around at facts, said Chris Cox, chairman of the Securities and Exchange Commission, should be decapitated. This childish reflex provoked the Wall Street Journal to editorialize that “McCain untethered” — disconnected from knowledge and principle — had made a “false and deeply unfair” attack on Cox that was “unpresidential” and demonstrated that McCain “doesn’t understand what’s happening on Wall Street any better than Barack Obama does.”

Bailout Plan Talks Advance in Congress  


Published: September 22, 2008  

WASHINGTON – The Bush administration and Congressional leaders moved closer to agreement on a historic $700 billion bailout for financial firms on Monday, including tight oversight of the program and new efforts to help homeowners at risk of foreclosure.

But lawmakers in both parties voiced anger over the steep cost and even skepticism about the plan’s chances of success.

As heated debate began on Capitol Hill, Congress and the administration remained at odds over the demands of some lawmakers, including limits on the pay of top executives whose firms seek help, and new authority to allow bankruptcy judges to reduce mortgage payments for borrowers facing foreclosure.

Head of watchdog resigns as number of babies in hospital from tainted milk rises to 13,000

· Over 40,000 treated in melamine scandal

· Countries across Asia ban or recall imported goods

Tania Branigan, China correspondent

The Guardian,

Tuesday September 23 2008

Almost 13,000 Chinese babies are in hospital after consuming tainted baby milk, and a further 40,000-plus have been treated, in a scandal which yesterday led to the resignation of the head of the country’s quality watchdog, according to state media.

The scandal, which began when dozens of babies suffered kidney stones and even kidney failure after drinking a popular brand that contained the chemical melamine, has since spread to more than 20 companies and affected products including fresh milk, yoghurt and ice-cream.

Countries across Asia are checking imported dairy products from China. Brunei, Singapore, Malaysia and Hong Kong have already banned or recalled a variety of milk products. Taiwan banned all mainland dairy products on Sunday.



Financial industry’s campaign donations could help it in bailout

Firms have given lavishly to both parties in Congress. That could help them get the language they want in the bill – as well as block provisions such as homeowner assistance.

 By Tom Hamburger and William Heisel, Los Angeles Times Staff Writers

September 23, 2008  

WASHINGTON — Members of Congress were pressed hard Monday by financial industry lobbyists and consumer advocates alike seeking favorable language in the massive bailout bill expected to come for a vote this week.

Through conference calls, e-mail and personal emissaries, lenders and other business groups sought to block language that would allow struggling homeowners to have mortgage debt forgiven in bankruptcy cases.

On the other side, labor unions and advocacy groups for low-income people said the bankruptcy provision and other measures to help homeowners were needed to prevent the rescue package from being simply a bailout for Wall Street banks that made bad investment bets.

Muse in the Morning

Photo Sharing and Video Hosting at Photobucket
Muse in the Morning

A Transition through Poetry XIV

Art Link


Unfinished Woman

Some assembly required.

Includes non-factory installed equipment.

Read instructions completely before beginning.

Mistakes are not correctable.

Insert tab A into slot B.

Batteries are not included.

–Robyn Elaine Serven

–June, 1993

Load more