A Fed Panic and a
Massive Bailout of American Banks paid for by the entire world
New
Posted, Sunday, October 28, 2007, 22:39 pm
My
question relates to the Fed's efforts to limit the crisis that seems to be
unfolding.
This
crisis seems to be far worse than anticipated. I have seen the recent charts of the 2 main credit
insurers - Ambac Financial and
MBIA - and, in simple terms, they are going down vertically. While they may be oversold at the moment,
these 2 companies may represent the canary in the coal mine, in that they could
be the harbingers of doom.
Also,
the ABX indices are doing the same as the credit insurers. Pretty much all
levels, from AAA to BB, are in decline.
As
well, the major US banks are in decline, some more so than others.
They
are reporting losses from re-pricing CDO's that they have had to mark-to-market when they have brought
them back to their balance sheets.
If
one adds in the continuing decline in the property market, it is hard to see
what is keeping the stockmarket from collapsing.
Is
it possible that any further rate cuts by the Fed can keep this whole shambles
from collapsing?
The
first 0.5% rate was welcomed by the market, but I am not sure that any further
rate cuts would reassure investors that all. It is possible that further rate
cuts would be an admission that the situation is dreadful and deteriorating.
If
you could shed any light on the current situation, I would be grateful.
Peter
_____________________
Answer
by R. T.:
You
are right that things will unfold during the next few months, plus the
possibility that Bush will start bombing Iran around his State of the Union
Address, pushing oil prices way up above $100 a barrel.
The
Fed is in a bind, because if it lowers interest rates while other central banks
do not, the dollar will keep plummeting. In which case, long term rates will go
up because the bonds market will expect inflation.
What
keeps the stock market up? I don't know, but I suspect the US Treasury's
special bureau ("Working Group on Financial Markets") and some large
operators buy SP futures contracts during the last half hour of every day.
New
Posted, Monday, October 22, 2007, 22:51 pm
I
just read your article on Global Research. Great stuff!
I
look forward to reading more of your work and analysis in time to come. You
have probably observed what has been going on over here with the FTSE today and
last week.
I
think the current speculative mortgage pyramid that is the basis of the UK
economy and subsequent materialist spending is about to discover its foundation
is pretty shaky indeed. I do wonder what the total effect could be in a country
thats experiencing the effects of climate change at an increasing pace. I pray
we do not get anymore flooding over the winter. The Insurance Industry are
certainly washing their hands of flood risk.
Michael
Nouveau
Affiché, mardi,
le 2 octobre, 2007, 12:38 pm
J'ai
découvert récemment vos récents écrits (à
partir du site globalresearh.com), par la
suite j'ai lu les textes sur votre blogue et certains de vos livres.
Mon
intention est simplement de vous féliciter pour le travail
d'information, d'analyse et de recherche que vous partagez.
Je
suis un simple comptable de 37 ans à son compte ici à
Montréal. Je suis très curieux, je recherche la
vérité sur les sujets et thèmes qui sont selon moi d'une
très grande importance en matière de géopolitique,
d'information et de notre avenir.
J'ai
particulièrement aimé vos derniers articles concernant la panique
de la Fed, la faillite et le totalitarisme des USA, le changement de la
règle du uptick, l'intégration à petit feu du Canada sous
le giron des USA, leur visées sur notre eau et pétrole, notre
vente d'Alcan, etc. Je lis beaucoup de l'internet et de certains médias
d'Europe, vous êtes l'un des plus perspicaces, informés et
crédibles qui traite des vrai enjeux dont nous faisons face.
Je
suis scandalisé de la TOTALE absence d'esprit critique et de couverture
de la part des médias nord américains en ne traitant pas des
vrais sujets et pas avec tous les angles de vue qu'il faudrait y accorder, ce
qui peut impliquer de critiquer certaines versions officielles de nos
gouvernements. Vous êtes le seul à faire ce travail, à mon
avis, alors que votre travail devrait faire la une de tout les médias,
personne n'en parle.
N'étant
pas économiste, je voulais aborder avec vous la question de l'inflation
et vous poser une question. Personnellement, je ne crois pas les taux officiel
de l'inflation ici au Canada comme celui des USA (par exemple, je sais que le
taux de chomage est sous-évalué, car on retranche du
dénominateur certains chômeurs, ceux que ça fais plus d'un
an, etc...)
Es-il
vrai que la formule de calcul de l'inflation fut changée en 1997, et que
si nous utiliserions la précédente formule, on aurait un taux
d'inflation réel de 5 à 7%? Si oui, ceci expliquerait beaucoup de
chose (bulle financière et immobilière) Ceci est majeur de
conséquence, en terme de d'allocation d'actif pour les gens qui ont du
capital afin de protéger son pouvoir d'achat. Je vous laisse ces deux
textes sur le sujet, mais je ne peux attester en rien les informations
citées.
Yves
New
Posted, Friday,
September 28, 2007, 7:28 am
I
have ordered your book "The New American Empire" from Amazon and
will closely read it.
Meanwhile,
given that we are in the middle of a "crisis" that has many angles, I
would appreciate your specific views on the following:
1)
How much impact on the US dollar do you think that the Fed's intervention(s)
will have during the coming 12 months?
2)
Do you foresee a recession in the US during the next 12 months?
3) How
big is the problem posed by banks having to hold on their
books "important amounts" of asset backed securities that are
now mostly illiquid?
4) Do
you see any potential solutions to this problem? If yes, what are they?
5)
It may very well be that the world has entered a process of resource starving,
in particular energy starving, and that the present financial crisis is only
one side effect. Markets are desperately striving for growth. This
time energy supply and productivity gains may have been insufficient and
the expedient of a "clever gimmick" was used to give the appearance
of sufficient growth throughout the system. It worked for a few years but the
whole scheme has now backfired. Everybody is scrambling to assess the dammage
and find a solution. The financial system has suffered the equivalent of a
heart attack. We may be able to ride through the present crisis but the main
underlying cause, i.e. slow energy starvation, will not have been removed. Do you have any potential solutions to
offer?
Jonatan
_____________________________________
Answer
by R. T. :
1-
The US dollar is about to rebound in a technical correction. For example, the
Canadian dollar has increased 62% percent since 2002. This is a Fibonacci
number. It (Can$) should correct down with the coming US recession, which means
the US dollar may strengthen. Europe should also lower their rates in early
2008 as a response to the observed economic slowdown. While the US dollar is in
a secular downtrend, it may fool everybody in improving in 2008-09, before
resuming its downtrend.
2-
In May, I thought the chances of a 2008 recession were 33%. In August, I
thought it was 50%. Now, because long term rates are on the way up, while the
Fed is pushing short term down, I think a 2008 recession cannot be avoided. In
fact, I expect a mild recession in 2008, and a more severe one at the 10-year
cycle low of 2011. This would be reminiscent of the 1973 and 1981 back-to-back
recessions. I recall that the last 10-year cycle recessions were in 1981, 1991,
and 2001.
3-
The asset backed securities financial crisis will last until next Easter, at
the very least, because the bulk of subprime mortgage and Alt-A loans refinancing is still to come. But the
Bernanke Fed will try to keep as many illiquid banks and funds afloat that it
can. Nevertheless, some big banks will likely fail early in 2008.
4-
Normally, the solution to such a problem is a recession and the failing of
unsolvable units.
5-
I agree with you regarding the coming energy crunch. Globalization is being
dominated by China and India, with their 8-10% rates of growth. Europe and
North America will continue having slow growth with capital flocking to those
countries. We have also entered an era of "wars for resources" which
will be costly and disruptive. The next 25 years will be a mirror image of the
last quarter century, with below average growth, while since 1980 we had above
average growth. We have entered a period of overproduction and of
underconsumption.
For everyone of us, this means conservation of capital and
prudence. Things can muddle through, but they also could get much worse. Nobody
can predict the future, but I think we are at a turning point, with all big
economic cycles pointing downward, i.e. the Kondratieff inflation-deflation 54
year cycle, the 18 year real estate cycle and the 10 year industrial cycle. I
tend to have respect for these big cycles.
New
Posted, Tuesday,
September 25, 2007, 8:46 am
I
have read with great interest your article entitled "A Fed Panic and a
Massive Bailout of American Banks paid for by the Entire World" recently
posted in the "Online Journal".
Your
analysis of the current Fed actions is thorough. As to why did the Fed let
the financial situation deteriorate, I would offer the following additional
reasons:
1)
Regulatory capture: the Fed is not the body that really "calls the
shots", the big US banks who -en passant- own the Federal reserve system
do.
2)
In the specific case of Alan Greenspan, he explicitly said in an interview with
the Financial Times last week (17 September 2007) that raising rates sooner and
faster "would not have been acceptable to the political establishment
given the very low rate of inflation". He added "the presumption that
we were fully independent and have full discretion was false". These are
strong words in the mouth of the ex-Chairman of a body that is widely believed
to be "independent" from political authorities...
3)
From a more geopolitical perspective:
the Bush administration had an election to win in 2004, it furthermore
had a war on two fronts to fight and it wanted to ensure that it could
financed. A recession therefore
had to be avoided at all costs. A clever way to ensure economic expansion
therefore had to be devised. The Fed lowering interest rates and keeping them low
for a longer than expected period is one part of the strategy that was used.
Another part of the strategy was to find a way to dope the US housing sector
and use the related "wealth effect" to sustain consumer spending.
This was done in part by finding a deviously clever way of disintermediating
subprime mortgages thereby allowing,directly or indirectly, banks to sell the
related high risks to off-balance sheet "conduits" who then started
selling their asset backed short-term securities -rated AAA by complacent
rating agencies- to investors (mostly institutional) around the world who
gullibly loaded-up their portfolios.
The
Great Mandrake's hypnotic smokescreen worked for more than five years on our
monetary market "hot shots". It worked until somebody (probably after
an electroshock) asked a simple question in seeing the rapidly rising default
rate on US sub-prime mortgages: who is going to pay? You know the rest of the
story and have offered in your article a very realistic assessment as to who is
going to ultimately pay and how.
One
last issue. The implication of Alan Greenspan in Gulf War II. You imply that it
is because he is Jewish that he was in favour of a regime change in Irak.
Although I do not want to minimize the role of the Jewish lobby in Washington
D.C. it would be very presumtuous to believe that the tail of the Empire can
control its head. I would therefore urge you to consider the following
alternative reasons to justify this regime change:
1)
Saddam Hussein had started to ask to be paid in Euros for Irak's oil. That was
a very bad example to give to the other oil exporting countries. If that
example had been followed, it would have put tremendous pressure on the
value of the US dollar, which is widely used for oil purchases internationally,
and would have endangered its status as the world primary reserve currency. As
an experienced economist, you know that the US derives from this a considerable
amount of strategic advantages.
2)
Saddam Hussein had sold oil exploration rights to a number of oil companies
from France, Russia and China. As part of the "deal" these
countries, all members of the UN Security Council, had agreed to lobby for a
lift of the economic sanctions imposed on Irak. These countries expected to be
able to secure for their use Irak's considerable untapped oil reserves once the
sanctions had been lifted. US oil companies had of course been excluded
from the deal. They decided that they did not want to be "fucked"
that way. They therefore simply convinced the US government to use its military
machine to effect a regime change in Irak.
One
of the first decisions taken by the new Irak regime was to sell its oil for US
dollars and to forget about the oil concessions granted by Saddam Hussein. A
new oil legislation is currently being considered by the Irak parliament.
Meanwhile nobody, except the US, really knows how much oil is being
produced from Iraki oil wells and where it goes... One thing is however
certain, with the number of US ships currently in the area, no country will be
getting any Middle-East oil shipments if the US does not want it. Not
surprisingly, Monsieur Sarkozy is much more supportive of American foreign
policy than his predecessor...
3)
Finally, there is the very important issue of Peak Oil. Dick Cheney chaired a
very important US energy task force during the first months of the George W.
Bush administration in early 2001. The detailed conclusions of this task force
have been classifed as a state secret... However, rumors have it that a
thorough analysis of the US energy supply issue was made including the key
strategic topics of global Peak Oil, Peak Gas, Peak Coal and Peak Uranium. The
ready availability of these sources of energy, within a certain price range, is
critical to sustain world economic growth and in particular the US economy.
Irak oil was apparently deemed to be essential to the long-term national
interest of the US and of the occidental world in general...
I
would encourage you to study the economic impact of the coming production peaks
of oil, gas, coal and uranium. You will then understand why somebody like Alan
Greenspan had no hesitation to "actively lobby" Dick Cheney to secure
Irak's oil reserves and to effect a regime change in that country.
Jonatan
__________________________
Answer
by R. T. :
I
have to agree with all of your reasons, except for one, because I raised the
same issues in my book "The New American Empire". You can read
reviews of the book at:
I
agree that large geopolitical considerations were at the bottom of the
motivations to send American soldiers to Iraq and build "enduring military
bases" there. Deputy Defense Secretary Paul Wolfowitz said it himself clearly
in a Vanity Fair article that I quote in my book.
However,
the American oil industry itself was not in favor of invading Iraq, for various
global geopolitical and economic reasons, such as raising hell in the Muslim
world where oil companies must operate. But Bush and Cheney were sold on the
idea, not mainly by Greenspan, even though his "control of the Straight of
Hormuz" is ludicrous, but by the same cabal of insiders who wrote in 1996
that it was an important Israeli strategic objective to remove Saddam Hussein
from power in Iraq.
You
can read their report at:
http://www.israeleconomy.org/strat1.htm
Since many members of this group (Wolfowitz, Feith,
Libby, Perle, Wurmser, Abrams, Podhoretz, etc.) occupied very high positions in
Cheney's office, at the Pentagon and at the State Department, and also in GWB's
office, they were in a good position to merge Israel's strategic goals with
USA's goals in the Middle East. Tom Friedman from the New York Times has said,
and facts agree with him, that without this coterie of about two dozens
Neocons, there would not have been an Iraq War. I quoted him in one of my
articles. (See: http://www.TheNewAmericanEmpire.com/tremblay=1024)
Outside of the administration, AIPAC lobbied
Congress, as it is now lobbying Congress for Bush to bomb Iran, and partisan
media like Fox News spread the propaganda to pave the way for the war.
Historians will have to go through that maze to
find the truth. But, I think my assessment is pretty much close to the mark.
Finally, as to the possibility that "the tail
of the Empire can control its head", you could be surprised how easy it is
to control a head of government with money and influence, when the head is
weak.
New
Posted, Monday,
September 24, 2007, 8:45 am
Allow
me to say the following :
It
looks evident that the US is using its military power to keep the US dollar as
the key currency for world transactions. The coming war against Iran could push
up the dollar to the desired level to keep the hegemony. This situation is in
the process of changing in a different direction, where the Euro will be more
dominant.
My
point is since the US does not need to work hard to get those US dollars for
the purpose of importing goods, those $ already being supplied freely to the US
by China, Japan, Oil M.E countries and South Asian countries (under the guise
of T bonds ...Tbills), one might say that the "Dollar Hegemony"' scam
is the biggest scam in history. It
started with Kissinger doing business with Saudia Arabia.
I
wish you would write an article on '"The Biggest Scam" in world
history: the Dollar hegemony or how to get foreign goods for free.
Chris
New
Posted, Sunday,
September 23, 2007, 08:57 am
I
entirely agree with your article and I thank you for putting your words out
there. Being an English teacher here in Berkeley, California, I'd like to point
out
two
minor things to you, with all due respect.
I
think that, unfortunately, many judge our writing by grammar, syntax and
spelling rather than for its content, so, for future reference, "slight of hand" is really
spelled "sleight of hand" ("sleight" defined as
"deceit" and "slight" as "minor") and
"losing" is a different word from "loosing."
I
would ordinarily not make a point of quibbling over points of grammar and
spelling, but I think your article is so very important, and what you have to
offer is so significant, that I'd like to see it appear in its brightest
light...
I
look forward to picking up a copy of your book and getting to know your work in
greater depth
Clif
New
Posted, Sunday,
September 23, 2007, 09:23 am
You
wrote ''For example, if the annual rate of depreciation of the dollar is five
percent and the short-term rate of return on U.S. T-bills is four percent,
central banks are loosing annually some $22.5 billion on a yearly basis''
How
did you arrive at this figure of $22.5 billion?
I
am positive you are right, how do I explain to others, who do not know that
money is created out of NOTHING as an interest bearing DEBT.
david
_______________________
Answer
by R. T.:
I
took a very conservative figure. It is possible that the differential dollar
depreciation minus short term rate of return will be much higher than 1
percent. That may be why many central banks, especially in the Gulf area, are
selling their dollars for euros or for gold.
There
are about 5 trillion US dollars held short term by central banks, private
banks, companies and individuals around the world. A one percent differential
means an estimated $50 billion loss in purchasing power if they continue
holding US dollars.
New
Posted, Sunday, Sunday
23, 2007, 09:23 am
Just
found your blog and I agree with you verbatim. I also think dear old Alan
should be investigated, and there are 19 years worth of sworn congressional
testimony on the record which he has blithely disavowed in his new book, upon
which he can be charged for if nothing else perjury. Was he lying then,
or is he lying now? Even if he can worm his way out of most of the
discrepancies there have to be at least a few provable lies in congressional
appearances that can send him to Leavenworth. A boy can dream anyway!
I
will bookmark your blog and look for future installments in the writing of the
history of the next Great Depression.
Mark
New
Posted, Sunday, September
23, 2007, 01:57 am
Are
you sure about "accepting mortgage-backed securities as collateral for
huge more or less longer term loans to American banks and brokers, at reduced
interest rates"?
I
ask because I recently read elsewhere that that specifically that is not true,
the Govt isn't accepting mortgage-backed securities as collateral.
Nice
article!
__________________________
Answer by R. T.:
The government is not. The Fed is.
The Fed usually lends against T-Bills or short term commercial
paper, and only for a day or two.
Presently, the Bernanke Fed has announced that it will lend
against subprime loans commercial paper (CDOs) and for months on. This is a big
shift from traditional discount lending in the past.
New
Posted, Saturday,
September 22, 2007, 18:13 pm
I
read a part of your blog and...... Well, OK,
it was from June 4, 2007, the one about the "12 main
reasons/failures of the Bush/Cheney regime". I happened upon it
and found that I like your site.
I
couldn't agree more!
As
an American that has to deal with a spineless, useless, and essentially corrupt
media here and you as (at this present time a lucky person) that doesn't live
here in the US, where, outside of Greg Palast and your blog would be other
good places/books to hear/see the truth?
Also
to learn more about the damage being done to all of us under the pathetic
excuses for leaders in DC?
I
have read many books (and would appreciate your personal list) to try my best
to keeping up with all that happens but lets face it, my relying on the US
media to tell the whole truth is like trusting a scorpion to not sting you
after it tells you it won't sting you!
David
New
Posted, Saturday,
September 22, 2007, 16:46 pm
Excellent synopsis of the economic
meltdown confronting the world, largely a consequence of US economic policy
over the last decade.
FYI- Alan Greenspan was
also a devout follower of Ayn Rand. If I am not mistaken, they were friends.
Paul
New
Posted, Saturday, September 22, 2007, 08:13 am
Bonjour mon ami,
L’ homme Quebecois est magnifique.
This is best synopsis of the critical money
interest manipulation and the manipulators. If every citizen knew what your
words clearly communicate, it could be a different world - a better world.
Your last two paragraphs are as powerful an
indictment of the murderous machinations of the Israel Lobby as I have ever
read....
Remembering and paraphrasing Joe Hill on his way to
the gallows in Utah for labor organizing ; “Don’t spend any
valuable energy even adding to Tremblay, let’s spread the very words you
read here.”
Merci, merci, merci bien.
Gerald
New
Posted, Saturday, September
22, 2007, 17:32 pm
I just read your article printed Sept. 21 on the Global Research
web site and found it very interesting and absolutely correct. In my
opinion, Capitalism has 3 distinct
defects.
1) We think that idle money must grow as if it has a life of
itsown.
2) Interest paid is always greater than interest received. 3) We
spend our future income to have an artificially higher standard of living
today.
I kept an article from the Globe and Mail from 1996, that
discussed what would have happened to a penny invested at 6% interest during
the time of Augustus Ceasar. The author estimated that it would now be worth
about 1.5 trillion, trillion, trillion, trillion dollars. More than all the
money in the world. The point was that the paying of interest must be
interupted, and this is usually caused by war.
As a convert to Islam, I am amazed at how people react when I
explain to them that Islam forbids the charging of interest. Your
articles, and those of Richard
Cooke, tend to support the Islamic economic system as found in the Holy
Quran...
Thanks foryour efforts in trying to bring about some sanity to
this economic madness we find ourselves trapped in. Any advice on how to ride
out the upcoming depression?
ATAUL
New
Posted, Saturday,
September 22, 2007, 22:08 pm
Let me greet you for your analysis of the Fed cut move and its
likely consequences !
Here in Europe, everything is under control, and of course, our
bankers are far more cautious than in the US. Everything is under control and
nobody is threatened by the US financial crisis.
However, it seems to me a bit strange when I read that the Bank of
England chairman is calling to return to "Good old days banking", and
just does the opposite, probably under political pressure. It seems than a bank
run was a forgotten sight in Europe for many decades, and of course Northern
Rock is an exception, a mere
"irrational" move from greedy savers.
It seems also that the model based banking is under pressure
because most "dynamic" model based portfolios have been severly hurt
in Europe, especially in France, with BNP unable to value its assets plumbed
with subprimes.
It seems also that most subprimes and other junk assets are still
in the wild, a bad prospect at best mostly for households, but maybe not also
for the banks, because, all this shall someday explode.
Franck
New
Posted, Saturday,
September 22, 2007, 07:12 am
Good article - albeit chilling.
Sam
Posted, Friday, September
21, 2007, 09:15 am
Nice work on the bank bailout piece. As a CPA in Michigan, I am
greatly troubled by these economic times.
Your words of truth are being heard, if only by a faint, few
elect.
New
Posted, Friday,
September 21, 2007, 11:58 am
Why
do you nor any other media report on the true cause of this crisis: The
criminal refusal to initiate the Wanta Settlement.
The entire story can be found at www.worldreports.org by Christopher
Story. Media exposure could turn this crisis completely around. Mr. Story has
extensively documented the rampant criminality behind this crisis.
Tony
(Home:
TheNewAmericanEmpire.com)