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Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.

News Provided by the Free-Market News Network

Wed 10.01.2008

"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel." --Abraham Lincoln, Speech to Illinois legislature, (January 1837)

Senate to vote on rescue plan with added tax cut
Senate to vote on $700 billion financial
rescue plan on Wednesday with added tax cut plan
In a bold bid to revive President Bush's multibillion-dollar financial rescue plan, Senate leaders scheduled a vote for Wednesday night on a version of the bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House. The goal is to net at least 12 more House votes than the rescue proposal received Monday, when lawmakers rocked the political and financial worlds by rejecting it. The gambit is certain to anger some conservative House Democrats, who object to tax cuts that are not offset with spending cuts. But Senate strategists assume it will gain more House votes than it will lose.

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The Rescue Package Will Delay Recovery
In his testimony to the Congress on September 24, Fed Chairman Bernanke urged the legislators to quickly approve the bailout of the financial sector with a package of $700 billion. Bernanke echoed Treasury Secretary Paulson's view that the bailout expense, while hefty, is needed to remove from banks' balance sheets the mortgage-linked assets, which are paralyzing the flow of credit. Most experts came out in strong support for the package. Without the rescue package, many large institutions that are "too big to fail" could go belly up. Many believe that the consequences of all this could be very severe to the real economy. It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.

The (Near) Death of the State
I'm fully aware that Paulson and Bernanke have some nefarious scheme in mind to reverse the thrilling defeat of their criminal bailout package, a package shot down by independent members of Congress on both sides. But reflect for a few minutes on what it means that the House did this. It was a revolutionary act in the best sense of that term.The entire establishment was united in favor of what was surely the most horrible and outrageous bill ever to come before Congress. . . . .Forget back-door socialism: this was right through the front door. The consequences would have been dreadful and very scary. It was to be the first of many bailouts, since of course it cannot and would not work. Bad debts can't be made good by legislation. This means that more money would be necessary, as the middle class was sucked dry by the vampire state for years to come. Deeper and deeper economic depression — a repeat of the '30s — was certain. Best to put a stop to this now.

Senate to Vote Wednesday on Bailout Plan
Senate leaders scheduled a Wednesday vote on a $700 billion financial bailout package after agreeing to add tax breaks and a higher limit for insured bank deposits in a bid to attract enough votes to reverse a shocking defeat in the House and send legislation to President Bush by the end of the week. After a day of behind-the-scenes maneuvering, top lawmakers said the Senate proposal would include a tax package as well as a plan endorsed on Tuesday by both major presidential candidates and the Bush administration to raise government coverage for bank deposits.

Lawmakers scramble to revise bailout bill
Congressional leaders, prodded by
presidential hopefuls, search for new rescue plan
Congressional leaders labored Tuesday to find out how many changes are needed to sell the defeated $700 billion financial system rescue to rank-and-file members. John McCain and Barack Obama offered long-distance encouragement from the campaign trail, announcing separately their backing for a plan that some House Republicans had pushed earlier: raising the federal deposit insurance limit from $100,000 to $250,000. The aim would be to reassure nervous Americans and to shore up the economy. For his part, President Bush sought to avoid being marginalized, making another statement in the White House. "Congress must act," he demanded in front of the cameras. "I recognize this is a difficult vote for members of Congress," he said. "And I understand that. But the reality is we are in an urgent situation and the consequences will grow worse each day if we do not act."

Bailout by Stealth
While the public is distracted by the
"bailout bill" and its rejection, trillions
are pumped in to keep financial balloon inflated
The media is falling all over itself to report on every minutiae of the so-called Wall Street "bailout bill" and its rejection by Congress yesterday (just a few of the thousands of examples can be seen here and here and here and here). And why not? The media's breathless coverage of the bill has produced a furious backlash by the public and hysteria on Wall Street in a self-justifying feedback loop that makes the media attention seem merited. The startling truth which the controlled corporate media is not reporting, however, is that a bailout is actually taking place right now, completely out of the public spotlight. This program has already pumped trillions of dollars into Wall Street (compared to the mere $700 billion proposed in the legislation that the media is focusing on) to help prop up the faltering investment banks and promises to pump in even more, every dime of it to the detriment of the taxpayer though the public will have no stake in its success. Why, then, is this program not being talked about in the media?

Wealthy investors hoard bullion
Investors in gold are demanding "unprecedented" amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich. "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars." The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.

Investors start a fresh gold rush
"Fiat money, in extremis, is accepted by nobody," Alan Greenspan, the former chairman of the US Federal Reserve, told lawmakers in Washington almost a decade ago. "Gold is always accepted," he added. The "in extremis" scenario was for years only a possibility in the mind of die-hard gold bugs, but the financial crisis is leading regular investors - from the ultra-rich to middle-class savers - to believe that the environment in which Mr Greenspan said fiat money would be worthless is now around the corner. The investors' response is a rush into physical gold not seen since the second oil crisis in 1979, bankers say. The shift into gold coins and bars is so extreme that it is causing shortages at refineries and mints around the world.

Gold rush that's all about hard currency
Investors in gold are demanding "unprecedented" amounts of actual bullion bars and coins and moving them into their own vaults as fears about the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unforeseen and driven by the very rich. "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars." The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds. Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street's woes. "It is a flight into gold because it is a physical asset," he said.

Gold slips below $900 as firmer dollar prompts profit-taking
Gold slipped below $US900 an ounce in Europe as a firmer dollar and weakness in other commodities such as oil and industrial metals encouraged profit- taking. Platinum and palladium tumbled as investors worried about the outlook for carmakers who are major consumers of the platinum group metals. "I am surprised gold is not higher," Deutsche Bank trader Michael Blumenroth, said. "But the market is very long since we had the $100 move two weeks ago." "Investors are starting to take their profits in the gold market," he added. "They don't want to leave it in any investment, they just want dollars." The dollar rebounded against the euro and the yen, as investors cut back on risky positions after an emergency plan to rescue the troubled US financial sector was rejected by lawmakers.

Five Reasons Why the $700 Billion Banking Bailout Will Translate into $250 Oil
. . . . As the curtain closed on the third quarter yesterday (Tuesday) - leaving many investors worried that the long-feared "Super Crash" was imminent - crude-oil futures were staring at their first decline in seven quarters and their biggest quarterly decline in 17 years, thanks to worries that a slowing economy would curtail global demand. As of early afternoon yesterday, crude oil for November delivery had dropped $39.36 a barrel - or 28% - during the third quarter to close at $100.64 yesterday afternoon.

Banking’s crisis of confidence deepens
Wall Street rebounded on Tuesday in spite of a worsening crisis of confidence in the global banking system, as leaders of the US Congress moved to try to salvage the Bush administration’s $700bn bail-out plan. A proposal to increase the ceiling for government insurance on bank deposits to $250,000 emerged as the best hope of swaying reluctant Republicans and Democrats who voted against the bill on Monday. The Senate agreed late Tuesday to vote on a revised bail-out measure on Wednesday night. Meanwhile, the Securities and Exchange Commission issued guidance emphasising the flexibility companies have to depart from mark-to-market accounting in situations when markets are illiquid. The SEC move does not suspend mark-to-market rules, but goes some of the way to address criticism of the accounting regime that critics – including many conservative Republicans – say has fuelled a downward spiral in credit markets.

Derivatives market faces biggest test
The $54,000bn credit derivatives 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. Highlighting the opacity of this market, it is still not clear how many contracts have to be settled, and whether payouts on the defaulted contracts, which could reach billions of dollars, are concentrated with any particular institutions. According to dealers, insurance companies and investors such as sovereign wealth funds, which are widely believed to have written large amounts of credit protection through credit default swaps on financial institutions, could have to pay out huge amounts.

The Great Bank Robbery of 2008
The Paulson bailout failed in the House. If it isn't a death blow to the plan, it should be. This is not an economic plan: it is a heist. It will go down as The Great Bank Robbery of 2008. The economics behind it are nonsense. This is a money and power grab, pure and simple. Paulson's proposal — made in broad daylight and on national TV! — is almost naked in its audacity.

Socialist "Bailout" Could Spark Collapse
While many of the talking heads and pundits on TV have been providing calming words of reassurance about proposed federal intervention in the financial system, analyst Peter Schiff of Euro Pacific Capital has been accurately warning for years about a financial meltdown and says that the worst, if Congress eventually passes the "bailout" bill, is yet to come . . . . Many commentators, Schiff said, are telling people that if the bailout doesn't go forward, there will be an economic crisis. However, "if we do it, there will be a bigger crisis," he predicts. . . . ."The politicians want to make believe we can avoid paying the piper if we pass these bailouts," he said. "It's just not true. It's going to collapse the currency. It's going to make a worse economic crisis because the money they’re printing is not going to buy anything."

Wall Street rally hinders attempts to save bailout
A frantic behind-the-scenes effort to cajole, arm-twist and beg enough congressmen to resurrect the White House’s stricken $700 billion financial rescue package consumed Washington yesterday, as an enfeebled President Bush pleaded with Congress to pass the plan after its stunning defeat on Monday. Stepping before the cameras for the second time in 24 hours to implore the House of Representatives to back the Bill — a sign of how his influence has all but vanished in the waning months of his presidency — Mr Bush repeated his warnings that a failure to approve the package would trigger dire economic consequences. . . . Their efforts were not helped by a rally on Wall Street after its record one-day points plunge on Monday, making the calls of urgency seem overwrought to some congressmen.

Lesson From a Crisis: When Trust Vanishes, Worry
In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right. A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again. Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.

The hoi polloi vents its discontent
This week, the American people rebelled against their elite. That is the big political story behind Congress’s surprise rejection on Monday of the financial rescue plan that had been laboriously – but, we were told, victoriously – patched together over the sleepless weekend. No one was thrilled by the final proposal. Wall Street’s action-man financiers would have preferred a sleeker plan that simply gave Hank Paulson a lot of ammunition and trusted him to shoot at the right targets. Academic economists leaned towards solutions that would more directly address the solvency problems in the banking system by taking equity stakes. Ideologues on both the right and left were dismayed by a package that simultaneously increased the power of government and bailed out the financial plutocracy

Main Street prepares to pay for 'greed'
Dale Plumer lets out an incredulous laugh when asked if he supports the US government’s $700bn bail-out of Wall Street. "We're probably like all the other middle-income people," says Mr Plumer, a merchandiser at JBS United, a grain elevator company in Griggsville, a small town in south-western Illinois. "We don’t think we should have to bail them out." His view reflects the mood across much of middle America, where taxpayers are concerned about both the federal government’s massive intervention in the economy and how they will be affected. Like many on Main Street USA, he admits he has a poor grasp of the difficulties faced by the financial sector. "I don’t know what the ramifications are of just letting those companies fail. But it sure seems like somebody was too greedy and let it get the best of them

Congress approval rating just 10% as Bush goes from 'lame to dead duck'
The controversy over the failure of the Bush administration's unpopular financial bail-out is infecting every aspect of government and the presidential election campaign. Eminent reputations lie in ruins; the august institutions of Congress, the treasury, the Federal Reserve tremble; the presidency itself is shaken. In America's year of living dangerously, few will emerge unscathed. The consensus view, if there is one in so divided a nation, is that the US has suffered a calamitous, across-the-board failure of leadership. The bankruptcy is political as well as economic. This conclusion is widely held among both supporters and opponents of the bail-out. "Monday's crash and burn of the Paulson plan on Capitol Hill reveals a Washington elite that has earned every bit of the disdain that Americans have for it. This crowd can't even make sausage," snarled a Wall Street Journal editorial yesterday. Black Monday's shambles marked a "historic abdication".

The $55 trillion question
The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster?
If Hieronymus Bosch were alive today to paint a triptych called "The Garden of Mortgage Delights," we'd recognize most of the characters in the bacchanalia and its hellish aftermath. Looming largest, of course, would be the Luciferian figures of Greed and Excessive Debt. Scurrying throughout would be the Wall Street bankers who turned these burgeoning debts into exotic securities with tangled structures and soporific acronyms - CDO, MBS, ABS - that concealed the dangers within. Needless to say, we'd see the smooth-tongued emissaries of the credit-rating agencies assuring people that assets of lead could indeed be transformed into investments of gold. Finally, somewhere past the feckless Fannie Mae executives and the dozing politicians, one final figure would lurk in the shadows: a hulking and barely recognizable monster known as Credit Default Swaps.

FDIC asks to boost deposit limits
The federal agency that guarantees bank deposits is asking Congress for temporary authority to raise the limit on the amount of money it insures for individual bank accounts. Federal Deposit Insurance Corp. Chairman Sheila Bair put out a statement late Tuesday afternoon asking that Congress allow her agency to increase the $100,000 limit per account that has been in place since 1980. "Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace," Bair said. "To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits."

More bank failures expected (video)
The FDIC has a list of 117 troubled banks, but analysts say the bailout could affect even more.

Wondering which bank is next
Analysts brace for more bank failures after
Wachovia sells out banking assets to Citi; bank
stocks plunge after House rejects bailout bill.
Following Citigroup's takeover of Wachovia, the collapse of Washington Mutual and the House's rejection of the bank bailout bill, Wall Street is wondering who's next. "Clearly we're going to see more bank failures, probably none on the size of whatever we've seen the last couple of days, but we'll see a lot more of them," said Sean Ryan, analyst for Sterne, Agee & Leach. Ryan said regional banks in the Rust Belt of the upper Midwest - with the exception of TCF Financial Corp. (TCB) because of its strong fundamentals - and banks with heavy mortgage-related investments in the hard-hit areas of California and Florida are vulnerable.

Shares of regional banks soar
Shares of regional banks soared Tuesday as investors flooded the market in search of bargains, following one of the biggest selloffs in years the day before. Stocks plummeted Monday after the government's proposed $700 billion financial rescue package failed to win approval in the House of Representatives, heightening concerns on Wall Street about the stability of the financial system. Without a bailout plan in place, questions lingered about how ailing banks are going to handle mounting losses tied to bad mortgage debt. The proposal would have allowed the government to buy bad mortgages and other deficient assets held by troubled financial institutions.

Bush warns on failure to agree bail-out
President George W. Bush warned on Tuesday that damage to the US economy would be “painful and lasting” if Congress did not pass his admininstration’s financial bail-out plan. The president maintained that “much if not all” of the $700bn cost of the plan would be eventually returned to taxplayers. "I realise this is a difficult vote for members of Congress," Mr Bush said at the White House. “But the reality is that we’re in an urgent situation and the consequences will grow worse each day’’ that Congress does not act. His comments follow the worst one-day fall in US stocks since the 1987 crash on Monday, after the House of Representatives shocked investors by voting to reject the plan.

The new bailout pitch: It's NOT a bailout
The Bush administration is searching for a new way to sell its financial rescue plan after acknowledging some blunders and missteps in presenting it the first time around. One big key: Insist it's not a Wall Street "bailout." Now it's not about financial institutions. The focus has switched to everyday Americans. And it's not an expenditure of taxpayer money, it's an "investment." This was clearly evident in Bush's grim warnings on Tuesday of "economic hardship for millions" if the plan can't be revived. He declared, "For the financial security of every American, Congress must act." This emphasis was echoed on the presidential campaign trail. "Let's not call it a bailout. Let's call it a rescue," said Republican John McCain.

Failure to lead fuels Main Street backlash
This week's bail-out debacle was widely criticised on Tuesday as marking a failure of US leadership on a grand scale – one that carried worrying overtones of political dysfunction in past economic crises in Japan and many emerging economies. "The entire superstructure of American political leadership failed. They couldn’t deliver," said Larry Sabato, director of the Center for Politics at the University of Virginia. The House’s rejection of the bail-out on Monday could ultimately be reversed. But it raised parallels with the early 1930s and the early 1980s – when the US was beset by economic crises during the lame-duck presidencies of Herbert Hoover and Jimmy Carter.

'I blame Bush ... all they cared about was the fat cats'
On a clear day you can see the soaring skyline of downtown Manhattan from the Yonkers waterfront. But this city on the banks of the Hudson river feels a world away from the gleaming concrete canyons of Wall Street. It is a gritty town, struggling with the loss of the heavy industry that once saw it thrive, and only slowly witnessing a renovation of its scruffy Main Street. Fancy new restaurants stand amid rows of closed shopfronts and bargain-basement thrift stores. In many ways that mix makes Yonkers a typical American city. But now Yonkers residents are preparing grimly for hard times ahead. The effects of the credit crunch, the failed bail-out plan and the seemingly endless news about collapsing banks, has people on Yonkers' Main Street deeply fearful for the future.

Bill v. Barack on Banks $$
Clinton instructs Obama on finance and Phil Gramm.
A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress's 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking. Barack Obama has been selling this line every day. Bill Clinton signed that "deregulation" bill into law, and he knows better. In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton's reply: "No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.

Prudent Bear's David Tice Says Dow Average May Plunge to 5,000
The Dow Jones Industrial Average may plunge another 5,300 points because the economy is slowing, according to David Tice, whose Prudent Bear Fund has advanced 13 percent in 2008 even as the stock market dropped. Tice told Bloomberg Television that the Dow average, which closed at 10,365.45 yesterday, might sink to 5,000 or 6,000. That implies a drop of as much as 52 percent. "We don't believe that the pain is over," said Tice, who oversees $1.08 billion in Dallas. "The market hasn't even fallen that far yet and we're already throwing trillions of dollars at this."

Dow Under 8,400 a Real Possibility
Stock guru Jim Cramer says problems abroad and at home could lead the Dow to a shocking new low, as far down as below Dow 8,400 — if a bailout doesn’t emerge from Congress soon. "There is so much going wrong. The credit markets are vanishing, the earnings are vanishing, and the only hope is a plan that ignites credit markets, forces money off the sidelines and gets this economy and the worldwide economy moving again," Cramer writes on TheStreet.com. A lot of America’s problems can be traced directly to big problems in the markets of its biggest foreign customers, like Brazil, Russia, India, and China, he says.

How bad is our economy?
Robert Kuttner says the failed bailout bill would have
helped the wrong people. J.D. Foster says the U.S. faces
a fiscal crisis far greater than Wall Street's current malaise.
Now that Congress blocked the compromise bailout worked out by House Speaker Nancy Pelosi and Treasury Secretary Henry Paulson, it's time for it to get things right. Taxpayers are right to be outraged over bailing out Wall Street investors, but the right-wing Republican "private market" alternative is a joke. If it takes government insurance and government tax credits to unload bad bonds, what we have is hardly a private market.

As risk grows, resources strained at Fed, FDIC
If the House vote against the $700-billion financial rescue proposal stands, Americans may be in for a test of free-market economics the likes of which the country hasn't seen since the early 1930s. With the Treasury Department hobbled by the rejection of its plan, the Federal Reserve and Federal Deposit Insurance Corp. are the chief government institutions standing between the nation and the brutally Darwinian process that could unfold if the panicky financial markets are left to sort their problems out alone.

Congress decides it is worth risking depression
It is just over three score years and ten since the Great Depression. Judged by its rejection of the plan put forward by Hank Paulson, US Treasury secretary, Congress believes it is time to risk another one. That slump was, arguably, the greatest catastrophe of the 20th century: it was, among other things, responsible for the events that led to the second world war – not least Hitler’s rise. One can only imagine what horrors a depression might bring now? Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com Such forebodings must seem exaggerated. So, I expect, they will be. But that dire outcome is no longer impossible, not because a slump is inevitable, far from it, but because action is needed to prevent one. We are watching the disintegration of the financial system. Finance is the web of intermediation binding economic agents to one another, across both space and time. Without it, no modern economy can survive.

Congress repeats 1930s errors with bailout vote
In the 1930s, the US Congress did more than its fair share in helping to turn a financial crisis into a global depression. Yesterday it looked as though it was auditioning to assume that role again. Back then, Congress’s vote for protectionist legislation, the infamous Smoot-Hawley Tariff Act, which erected trade walls around America, almost brought to a halt the free movement of goods and services vital to the efficient functioning of the global economy. Yesterday, in rejecting a plan to help to rescue the US financial system that had been constructed and reconstructed by the Bush Administration in collaboration with the Democratic and Republican leaderships, the House of Representatives dealt a hammer-blow to an already almost immobilised global financial system.

America must seek aid for a global credit line
The US Congress has refused to pass the $700bn bail-out plan. That may turn out to be appropriate. The question, however, is not whether the matter should be left to the market or whether the government should rescue those who might lose their home to foreclosure. The imperative now is to provide liquidity to the market, particularly to failing financial institutions. From Japan’s experience in the 1990s, it is clear that the US financial crisis is following a familiar pattern. However, US leaders do not seem to know what lessons to draw from history.

There are three principles you need to observe in a financial crisis. First, treat it as a systemic failure and do not act on individual cases. Second, know the sequence of events so that you solve the right problem at the right time. Third, then construct a universal system to avoid problems recurring. The US government is violating each of these principles and mixing up the sequence of events. In doing so, it is aggravating an already bad situation.

Bailout stall threatens to bring down banks throughout the West
European leaders are pleading with America's lawmakers to reach
an agreement on a financial rescue package "for the sake of the world"
after a string of banks on this side of the Atlantic had to be saved.
Financial institutions in Iceland, France, Germany and the Low Countries have become the latest victims of the contagion spreading throughout the global economy. They include Fortis, the Benelux giant which has more assets than the entire Belgian state, and Iceland's third largest bank, Glitnir, with very real fears that other banks will follow if Congress does not reverse its decision to reject a $700 billion bail-out of US banks. Johannes Laitenberger, spokesman for the European Commission, summed up the mood when he said: "The US must take its responsibility in this situation, must show statesmanship for the sake of their own companies and for the sake of the world."

Loose Money And the Roots Of the Crisis $$
No one can believe in the omniscience of central bankers anymore.

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

-- T.S. Eliot"The Hollow Men" (1925)

The world is not ending. Despite the wrenching turmoil in global financial markets and morbid allusions to the death throes of capitalism, it ain't over. Not until people quit believing in themselves, not until people quit believing in a better future. But the whimpering is real, and justified, because it hurts to have your world come crashing down. And global financial markets are definitely crashing, even when the impact is momentarily softened through massive injections of artificial money -- "artificial" because the fiat money does not represent a store of genuine value but rather an airy government claim to future wealth yet to be created.

Triple blow spurs central banks
The world’s central banks scrambled on Tuesday to address three simultaneous crises in money markets that led to violent jumps in interest rates as the financial system remained under severe stress. The unpleasant trio were the enormous uncertainty created by the failure of the US administration’s plan to purchase toxic assets from banks, a severe shortage of US dollars in banks outside the US at the end of the quarter, and the breakdown of trust in money markets that has led to a drought of funds for those banks needing to borrow. The stress was evident in a widening gap between unsecured interest rates for bank borrowing and risk-free borrowing at maturities of three months and above.

Sales Decline at Ford and G.M.
The Ford Motor Company said Wednesday that sales in the United States dropped 34 percent in September, as volatility in the financial markets compounded ongoing misery for the auto industry. But sales were better than expected at General Motors, which reported a 12 percent decline and estimated that its market share rose to the highest level in more than three years. "We are looking at a very fragile economy," Emily Kolinski-Morris, Ford’s chief economist, said on a conference call with analysts and reporters. "I don’t think anyone can say where the bottom might be."

Sallie Mae Credit Swaps Jump to Record Amid Turmoil
The cost to protect against a default by SLM Corp., the biggest U.S. educational lender, reached a record as short-term corporate borrowing rates soared amid the worst financial crisis since the Great Depression. Credit-default swaps on the Reston, Virginia-based company's bonds climbed deeper into distressed levels before recovering somewhat as rates on commercial paper backed by assets such as student loans and credit card debt soared. The company, known as Sallie Mae, makes money by lending at rates that are higher than its borrowing costs.

SEC, FASB Resist Calls to Suspend Fair-Value Rules
The U.S. Securities and Exchange Commission probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for exacerbating the global financial crisis, people familiar with the matter said. The SEC and Financial Accounting Standards Board today issued "clarifications" on how banks should interpret existing rules requiring them to review assets each quarter and report losses if values decline. A moratorium isn't being considered, said the people, who declined to be identified because the plan hasn't been completed.

Embattled Paulson regroups his forces
An embattled Hank Paulson was on Tuesday seeking to regroup his forces and salvage his $700bn economic rescue plan following its defeat in the House of Representatives on Monday. The Treasury secretary believes the House vote was dangerous and potentially puts the stability of the financial system and the economy at risk. But he is being forced to walk a fine line between publicly warning Congress about the risks while not triggering a market panic that could cause a further wave of bank failures.

FDIC to Ask for Authority to Raise Deposit-Insurance Limits
The Federal Deposit Insurance Corp. will ask Congress for permission to increase deposit insurance limits, House Financial Services Committee Chairman Barney Frank said in a memorandum to members of his panel. "Sheila Bair, chairman of the FDIC, notified me that they will be requesting authority to increase deposit insurance limits. We will provide additional details as we have them," Frank said in the memo. The FDIC currently provides $100,000 of insurance for individual bank deposits. The memo didn't specify what new level was being requested by the agency.

Treasuries Plummet on Speculation Rescue Plan Will Be Salvaged
Treasuries fell, paring the biggest monthly gain since January, as speculation lawmakers will salvage financial-rescue legislation eased concern that capital markets will deteriorate further. Traders pushed up yields on two-year notes by the most in more than a week, erasing the bulk of yesterday's 44-basis-point rally, as an advance in stocks damped demand for government debt. A gauge of expectations for Treasury volatility surged to the highest in at least 20 years. Senate leaders vowed to act this week on the $700 billion rescue package, which the House rejected yesterday.

US bail-out: What will happen if the deal is not implemented
For weeks, the powerful politicians and bankers grappling with a global financial crisis have pinned their hopes on a piece of legislation that would authorise the US Treasury to stake up to $700 billion relieving US banks of risky loans that threaten their future and the entire financial system. But the Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets now hangs in the balance, with no guarantee that it will win Congressional approval. So what happens if the biggest bail-out in history is not implemented? The global financial system is based on banks freely and frequently lending each other huge sums of money, money that is then lent on and on again. At the heart of the financial crisis is banks' confidence in the ability of their competitors to pay back money that they borrow. With almost every bank exposed to the risk that people and businesses to whom they have lent money will not pay it back, no one knows which banks are able to stay in business and which will be wiped out by huge losses from bad loans.

Hedge funds face worst year since 1990
Hedge funds on Tuesday closed out one of their worst-ever quarters as US managers braced for an extension of the short-selling clampdown which has robbed them of one of their most popular strategies. The hedge fund business has been left reeling by the combined forces of greater regulation – including the banning of short selling on certain financial stocks by the US Securities and Exchange Commission and other regulators across the world – the threat of investor withdrawals, a flight from risk and a squeeze on leverage.

Why the credit crunch is about more than Wall Street
I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis. No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans. I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business. Here goes. If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch.

And then there were none
What the death of the investment bank means for Wall Street
THE radical overhaul of the City of London in 1986 was dubbed the Big Bang. The brutal reshaping of Wall Street might be better described as the Big Implosion. The “bulge-bracket” brokerage model—the envy of moneymen everywhere before the crunch—has collapsed in on itself. Even more humiliating for the Green Berets of the markets, the new force in finance is the government.

Crude Oil Rises on Signs U.S. Will Revive Bank Bailout Plan
Crude oil rose, rebounding from its biggest drop in seven years, after U.S. lawmakers said they intend to salvage a $700 billion bank-rescue package that may avert an economic slowdown. Oil fell more than $10 yesterday and global stock markets were battered after the House of Representatives failed to pass a rescue bill and European governments bailed out three banks. The U.S. Senate will try to revive the financial package tomorrow. "The market is being totally driven by what is happening in Washington," said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. "What happens to oil prices depends completely on whether the rescue package is approved or not."

What Goes Before a Fall? On Wall Street, Reassurance
"Jim, we have a great future as an independent company,” Robert K. Steel, Wachovia’s chief executive, told James Cramer on CNBC’s “Mad Money." "We’re also focused on very exciting prospects when we get things right going forward. I didn't have time today to talk about the good things going on at Wachovia." That interview wasn’t last month or last year — it took place, amazingly, two weeks ago. Wachovia’s shares closed at $10.71 that day. On Monday, Citigroup bought the company for $1 a share. What was Mr. Steel thinking? Did he think he could "spin" his way to survival?

Bush Approves Loans for Auto Makers $$
President Bush on Tuesday signed into law a low-interest loan package to aid U.S. auto makers, but those struggling companies will still have to wait months to find out how and when they can tap the $25 billion designated to smooth their transition to building more fuel-efficient vehicles. The loan package was approved last year as a way to help auto makers and their suppliers meet fuel-economy standards set by the federal government. But the funding for the package wasn't passed by Congress until this year. One estimate put the total cost to auto makers at $100 billion to meet stricter efficiency standards that require vehicles to reach 35 miles per gallon by 2020.

No one's clean in this mess
Democrats and Republicans must share the blame
for the failure to pass a $700-billion bailout plan.
On Sunday evening, Republican House Minority Leader John A. Boehner explained his considered opinion on the $700-billion Wall Street bailout plan: It's a "crap sandwich," he said, but he was going to eat it. Well, it turned out he couldn't shove it down his colleagues' throats. The bill failed on a bipartisan basis, but it was the Republicans who failed to deliver the votes they promised. Some complained that Democratic Speaker Nancy Pelosi drove some of them to switch their votes with her needlessly partisan floor speech on the subject. Of course Pelosi's needlessly partisan. This is news?

Banks in miser mode send borrowing rates soaring
Bank-to-bank lending rates jump after House
vote against bailout; T-bill demand eases slightly
Bank-to-bank lending rates jumped Tuesday and Treasury bill demand eased only slightly, a day after Congress' rejection of the bank bailout plan cast an even deeper freeze over the barely operational credit markets. After the House's vote against the Bush administration's plan, investors pulled their money out of stocks and commodities Monday, sending the Dow plummeting 778 points and crude down more than $10 a barrel. That money got shoveled into Treasury bills, short-term debt issued by the U.S. government that's considered the safest investment around. On Tuesday, the yield on the 3-month T-bill recovered to 0.90 percent from 0.14 percent late Monday as the Dow Jones industrial average rebounded by more than 260 points in midday trading. The T-bill yield is still very low by historical measures, however -- particularly when compared to lending rates between financial institutions.

Jolted Congress Will Pass Bill, But Confidence Destroyed
The silver lining of yesterday's market collapse: It may have woken Congress up to the severity of the economic crisis. Stocks have jumped on the hope that a slightly modified bailout bill will be passed later this week. Traders are also hoping for an emergency Fed rate cut. At the same time, the credit markets are still extremely tight, which will constrict companies' ability to do business. Our guest, Wall Street Journal Deputy Managing Editor Alan Murray, thinks Congress will eventually pass the bailout bill. He also thinks, however, that the events of the last several days have severely damaged the public's confidence in Washington's ability to deal with this crisis. Given that the crisis is really all about confidence -- banks are so scared they aren't lending to each other -- this could dampen the effect of the bailout when it's finally passed.

Global liquidity crisis runs on unabated
Libor spikes; onus on central bankers as U.S. bailout stalls
Massive liquidity injections haven't freed up crucial money markets, leaving the world's central bankers little choice but to try more radical measures in order to dampen the odds of a wider economic collapse, economists said Tuesday. Overnight borrowing rates and other key short-term interest rates and credit spreads rose sharply a day after the House of Representatives dramatically and unexpectedly rejected a $700 billion U.S. bank-bailout plan, roiling global financial markets and leaving Washington in a state of shock. Commercial banks have grown increasingly reluctant to provide each other with short-term loans, partly out of fear of further bank failures and concerns about the health of their own balance sheets.

France's Sarkozy battles fallout from financial crisis
President Nicolas Sarkozy on Monday battled to contain fallout from the global financial crisis, moving ahead with plans for a world summit and calling a meeting of French banking and insurance chiefs. France will host a meeting of European officials to prepare a summit "in the coming weeks to establish the basis of a new international financial system," said Sarkozy, whose country holds the presidency of the European Union. Officials from Britain, France, Germany and Italy -- the EU members of the G8 -- will meet in Paris in the coming days to lay the groundwork, he said on the sidelines of an EU-India summit in the southern city of Marseille.

Chavez Says U.S. Slump Hits Like `Hundred Hurricanes'
Venezuelan President Hugo Chavez said the turmoil in U.S. financial markets will stunt growth in Latin America and may send oil down to as low as $80 a barrel. "This is a hurricane, or more than one hurricane, it's a hundred hurricanes," Chavez told reporters after arriving in Manaus, Brazil for a meeting with Brazilian President Luiz Inacio Lula da Silva. "I'm in the group that believes this will be worse than the 1929 crash. No country can say it won't be affected." Oil prices should stabilize between $80 and $95 a barrel, Chavez said, adding the credit crisis in the U.S. will likely make it more difficult to obtain financing in Latin America.

TRAINING A SOCIALIST ARMY OF WORLD SERVERS
Obama: “I will ask for your service and your active citizenship when I am president of the United States ... this will be a central cause of my presidency."
Obama: "People of all ages, stations, and skills will be asked to serve.... I will set a goal for all American middle and high school students to perform 50 hours of service a year, and for all college students to perform 100 hours of service a year...."
Saul Alinsky (Obama's Marxist mentor): "The disruption of the present organization is the first step toward community organization.... All change means disorganization of the old and organization of the new."

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Tues 09.30.2008

U.S. Heading for Deeper Economic Slump, With or Without Bailout
The U.S. may face its longest recession in a quarter century no matter what action Congress takes on Treasury Secretary Henry Paulson's $700 billion plan to rescue the battered banking industry. Economists including Joseph Lavorgna of Deutsche Bank Securities and David Greenlaw of Morgan Stanley said it now appears the economy shrank in the third quarter as credit- crimped consumers cut spending for the first time since 1991. A further contraction is likely in the next two quarters, some economists predicted, which would make the recession the longest since 1981-82. "This has been a body blow to consumer and business confidence," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. "The next six months are going to be very difficult."

How did your congressman vote?
House Roll Call - The 228-205 roll call Monday of the vote by which the House rejected a $700 billion emergency bailout for the nation's financial system.

Today's radio show will stream live through KXXT 1010 talk radio in Phoenix via their streaming link.

Capitol Hill Switchboard TOLL FREE:
1-877 851-6437
1-800 828-0498
1-800 614-2803
1-866 340-9281
1-866 338-1015
1-866 826-0044

Main number: 202 225 -3121 - ask for your elected officials in D.C.
Our elected Senators and Representatives supposedly work for us, the taxpayers!
Tell them what YOU think about the bailout proposal on the table.

Ron Paul Votes NO BAILOUT (Speech on the House Floor on 9-29-08)

Why the bailout bombed
Republicans might blame Pelosi's rhetoric, but the message that mattered was the one that came from voters back home.
Barely containing his temper, Virginia's Eric Cantor, deputy whip for the House Republicans, stepped to the microphone this afternoon to blame the bailout defeat on House Speaker Nancy Pelosi's "failure to listen" and her charged partisan rhetoric in condemning President George Bush's "budgetary recklessness" and "anything-goes mentality." If only it were that simple. If only the failure of the White House to muster enough votes from its own party to avert what it calls looming financial disaster could be blamed on a few ill-chosen words uttered on the House floor by San Francisco's hyper-partisan speaker. In fact, Monday's surprise defeat of the $700 billion rescue package - meant to blunt a burgeoning financial crisis - can be traced to a failure on the part of the president and his treasury secretary, Henry Paulson, to fully appreciate the ferocity of the popular revolt they touched off nine days ago.

Central banks pump in $620bn as shares plummet
Central banks around the world unveiled a plan to pump massive amounts of cash into the global banking system in a concerted effort to boost market confidence and inject liquidity into the global markets. The move followed a fall in the Dow Jones of nearly 300 points in morning trade to 10,869 as the market took fright at several bank nationalisations in Europe and the US despite the approval of the "son of Tarp" - the Troubled Asset Relief Programme - bailout. The FTSE 100 index of leading shares was down almost 5 per cent, taking it to a new low for the year and below the psychologically significant threshold of 5,000. As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half.

The US and global financial crisis is becoming much
more severe in spite of the Treasury rescue plan.
The risk of a total systemic meltdown is now as high as ever
Nouriel Roubini | Sep 29, 2008
It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening). Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…

U.S. House rejects plan for bailout
Defying President George W. Bush and the leaders of both parties, rank-and-file lawmakers in the House on Monday rejected a $700 billion economic rescue plan in a revolt that rocked the Capitol, sent markets The stunning defeat of the proposal on a 228-205 vote after marathon talks by senior congressional and Bush administration officials lowered a fog of uncertainty over economies around the globe. Its authors had described the measure as essential to preventing widespread economic calamity. The markets began to plummet even before the 15-minute voting period expired on the House floor. For 25 minutes, uncertainty gripped the nation as television showed party leaders trying, and failing, to muster more support. Finally, Representative Ellen Tauscher, Democrat of California, pounded the gavel and it was done.

US banking bailout in chaos after shock House of Representatives vote
The financial system lurched closer to a catastrophic breakdown last night after the US Congress dramatically rejected a bailout plan designed to restore confidence to paralysed banks. Wall Street suffered one of its worst days in history. In 24 hours five banks across the West, including Britain’s Bradford & Bingley, had to be rescued to avoid insolvency. With plans for the biggest rescue of Wall Street since the Great Depression in tatters, the Dow Jones industrial average of shares dived almost 800 points, losing 7 per cent of its value. It was the worst one-day points fall and the worst percentage fall since Black Monday in 1987. The surprise rejection of the bailout triggered fears of a new wave of banking collapses. Other economies had looked to America to lead the way out of the crisis.

The Depression of 2008? Don't Count on It $$
Wall Street is dead. Whether it was murder or suicide is beside the point: Wall Street as it has operated for the past 75 years has been obliterated in a matter of weeks. And witnessing this violent death in broad daylight has traumatized investors everywhere. The Wall Street domino has toppled just about everything in sight: U.S. stocks large and small, within the financial industry and outside of it; foreign stocks; oil and other commodities; real-estate investment trusts; formerly booming emerging markets like India and China. Even gold, although it has inched up lately, has lost 10% from its highs earlier this year. Not even cash seems entirely safe, as money-market funds barely averted a "run on the bank." Of all the dominos that have tipped over, the most psychologically damaging collapse was the last: the very notion of diversification itself.

Paulson Plan Is Still a Pig, Even With Lipstick
If Treasury Secretary Hank Paulson thought he could cram a $700 billion plan to buy financial institutions' toxic mortgage-backed waste through Congress with no questions asked, he got a rude awakening last week. Paulson and Federal Reserve Chairman Ben Bernanke were grilled by Senate and House committees on the plan. Those same lawmakers were inundated with calls and e-mails from constituents expressing outrage at what they saw as a bailout of Wall Street for a problem of Wall Street's own making. It took them all weekend to hammer out something they could sign off on. Why was it so hard for Paulson to close the deal after laying the blame at Congress' feet should a failure to act result in a collapse of the financial system? Maybe his report card holds the key. Communication Skills: C-

U.S. bailout rejection spurs flight to safety
Recession fears mounted and investors raced for safe havens after U.S. lawmakers unexpectedly rejected a $700 billion (388 billion pound) bailout plan for the financial industry, but Asian stocks trimmed deep early losses after Wall Street's biggest fall since the crash of 1987. A week that started badly with the rescue of three banks in Europe and the distressed sale of big U.S. lender Wachovia to Citigroup grew worse after the U.S. Congress was unable to agree on a rescue package. "It's hard to imagine what's going to happen. It's kind of scary," said Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo. "In particular, European banks were putting up a front that nothing was wrong, but now they're falling one after another."
Shares in Asia recovered from early lows but were still down about 3 percent.

U.S. Lawmakers Spurn Pleas From Leadership in Rejecting Bailout
Lawmakers from Texas, Arizona, and California helped defeat a $700 billion credit-market rescue in the U.S. House, voting more in line with their followers, or constituents, than their leaders. The bill was a priority for President George W. Bush, yet 15 of 19 Republicans from his home state, Texas, voted against it. Republican presidential candidate John McCain left the campaign trail to help the measure, which didn't get a single vote from his state of Arizona. Almost half the usually loyal California Democratic delegation rebuffed House Speaker Nancy Pelosi. For too many lawmakers, five weeks before Election Day, the threat of market calamity and arm-twisting from party leaders couldn't overcome impassioned opposition back home, where the rescue plan is drawing fire as a bailout for rich Wall Street bankers.

Senate May Try to Revive Bank-Rescue Bill as Early as Tomorrow
The U.S. Senate will try to salvage a $700 billion financial-rescue package after the measure was defeated in the House of Representatives. The lawmakers won't have a lot of room to negotiate. While they need to tweak the legislation enough to win over reluctant Republicans, they'll risk losing votes from Democrats if they veer too far from the delicate compromise that congressional leaders hammered out with the U.S. Treasury. "They're not going to totally revamp the bill," said Pete Davis, president of Davis Capital Investment Ideas in Washington, who spoke to House and Senate leaders yesterday. "They'll make some minor changes and pass it. This is all about political cover."

Bailout vote stuns Washington, markets
Dow suffers record loss;
world stocks plunge; Bush, House to try again
World financial markets reeled as stunned lawmakers groped for their next move Monday after House Republicans abandoned President Bush in droves to help kill his $700 billion proposal to rescue the financial services industry. Even before the vote was announced, stocks began tanking on Wall Street. The Dow Jones Industrial Average nose-dived by more than 777 points, its worst fall ever, in a sell-off that swept markets around the globe. As fears rose that the credit crisis was spreading, Asian and European markets closed sharply down, and governments in at least eight European countries took steps to begin rescuing large banking institutions.

Fed takes fresh steps to battle credit crisis
Action intended to ‘expand significantly’ the availability of cash
The Federal Reserve and foreign central banks moved Monday to pump billions of dollars to cash-strapped banks at home and abroad in a dramatic bid to break through a credit clog and spur lending. The Fed said the action is intended to “expand significantly” the cash available to financial institutions, its latest effort to relieve the worst credit crisis since the Great Depression. The goal is to boost the amount of quick cash available to banks and other financial institutions so that they’ll feel more confident and inclined to lend not only to each other but also to people and businesses.

Money market freeze stirs rate cut speculation
Central banks and regulators scrambled on Tuesday to relieve the strain on financial markets frazzled by another hefty blow to confidence, this time from the rejection by U.S. lawmakers of a $700 billion (388 billion pound) rescue plan. Global central banks more than doubled the amount of dollar funding to $620 billion, but the move showed no signs on Tuesday of thawing the freeze in money markets where banks are hoarding cash and bracing for more trouble ahead in the deepening year-long credit crisis. Analysts said central banks may now be forced to cut interest rates in a coordinated move because their massive fund injections have done little to ease strains that are threatening to become a bigger systemic breakdown that could endanger the global economy.

Even Hank Paulson's bail-out plan cannot detox global banking
Can the rescue package really halt our slide
into a new Depression, asks Ambrose Evans-Pritchard.
Even if Congress backs the Paulson bail-out, the $700 billion blast cannot save the US, Britain or the world from the deepest economic slump since the Thirties. If Congress balks, God help us. The credit system is suffering a heart attack. Inter-bank lending is paralysed. Funds are accepting zero interest on US Treasury notes for the first time since Pearl Harbour, because no bank account is safe. Wherever you look – dollar, euro, sterling Libor (the rate at which banks lend to each other), or spreads on credit derivatives – the stress has reached breaking point. If borrowers cannot roll over the three-month loans that are the lifeblood of business, they will default en masse. "Money markets are imploding. If no action is taken very soon, there is a significant risk that the global economy will collapse," says BNP Paribas. Almost every trader says much the same thing. So does US treasury secretary Hank Paulson, who as Toby Harnden reports, literally dropped on bended knee to beg help from Democrats on Capitol Hill.

Panic grips world's markets
Shock as American rescue plan
rejected on a day of nationalisations and bail-outs
The US government's $700bn bail-out of the banking industry collapsed yesterday as Congress defied the White House by voting down the plan, sending Wall Street stocks plummeting and spreading shockwaves through the global economy. In a snub to George Bush's authority, Republicans in the House of Representatives led a rebellion which defeated the rescue by 228 votes to 205. As alarm mounted on Wall Street about the stability of the financial system, the Dow Jones Industrial Average plunged by 777 points to 10,365 - its biggest percentage fall for seven years and its worst drop ever in terms of points. The package was intended to allow the government to buy toxic mortgage-related liabilities from banks, after warning that without action banks would curtail home loans, car loans and student loans, as well as credit to keep small firms trading.

Is Purchasing $700 billion of Toxic Assets the
Best Way to Recapitalize the Financial System?
No! It is Rather a Disgrace and Rip-Off Benefitting
only the Shareholders and Unsecured Creditors of Banks
Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.

'They're throwing billions around but things seem to be getting worse'
World central banks desperately tried to stave off collapse of the global banking system yesterday with large cash injections into money markets buckling amid news of another rash of bank failures. The pound also suffered its biggest one-day fall since mid-1993 against the dollar as dealers focused on the fact that the US government looked as if it was going to approve its $700bn (£389bn) bail-out for US banks while the UK banking system suddenly seemed shakier than before. Sterling fell 2.3% to below $1.80 at one point. The dollar fell in late trading after the US House of Representatives voted against the bail-out plan. Mark Deans, dealing manager at Moneycorp, said: "Confidence in UK banking has fallen to a new low with the nationalisation of Bradford & Bingley. This has prompted a major sterling sell-off and, coupled with growing confidence that the US government's Wall Street bail-out may be agreed, it has resulted in the pound's heavy fall against the dollar."

Wall Street's slow demise
With breathtaking speed, the world of large Wall Street investment banks has vanished. Fabled firms, some more than a century old, have been merged out of existence (Bear Stearns, Merrill Lynch), gone bankrupt (Lehman Brothers), or sought asylum as commercial bank holding companies (Goldman Sachs, Morgan Stanley). Why on earth did this happen? The death of Wall Street has been a long-running, slow-motion crisis, barely discernible to participants who had still booked huge profits in recent years. Beneath the razzle-dazzle of trading desks and the wizardry of esoteric finance lay the inescapable fact that these firms had shed their original reason for being: providing capital to U.S. business.

Anger as House rejects rescue plan
Anger and confusion overwhelmed the House of Representatives on Monday as Republican legislators ripped into a $700bn financial rescue package backed by almost the entire US political establishment. Congressional leaders scrambled for an alternative course of action once it was voted down. Powerful last-minute pleas by John Boehner, the House minority leader, and Nancy Pelosi, speaker of the House, were unable to prevent the defeat of the bill by 228 votes to 205, with Republicans voting by two to one against and divided Democrats unable to make up the difference. “Nobody wants to vote for this; nobody wants to be anywhere around it,” Mr Boehner said at the end of a debate in which critics assailed the proposal and supporters provided only half-hearted backing.

Adrift and afraid in uncharted territory
It was a bad plan - but it was a plan. The refusal of Congress to back Hank Paulson's bail-out takes us into new territory. George Bush told Americans to expect "a serious financial crisis" and "a long and painful recession" if the legislation was blocked. Paulson went down on his knees to beg for support. But opposition from ordinary Americans killed the bill. It was a historic day: even the decimal point on the Dow Jones average made it memorable. The final reading was: down 777.7 points. Some horsetrading in Washington may yet produce a revised deal that would be acceptable to the politicians, but the banks know there will be no easy handouts: Main Street, for better or worse, wants to see Wall Street suffer. In an election year, voters get what they want.

Many Lenders Lower Credit-Card Limits $$
It's not just your portfolio that may be shrinking lately. The spending limit on your credit card may be heading south as well. Credit-card issuers have been decreasing credit limits. "Most banks are cutting their credit limits," says Carol Kaplan, spokeswoman for the American Bankers Association. "They're doing it to everyone." Smaller credit lines spell trouble for consumers on several fronts. Lower credit limits shrink consumers' ability to spend. And should an emergency arise, consumers will have less credit to cover those costs. Consumers also could trigger penalties for going over a newly lower limit.

US wealth in shrink mode
The US Congress went into labor this weekend, and gave birth to a gnat. With some cosmetic adjustments, Treasury Secretary Henry Paulson's US$700 billion bank bailout plan will be adopted this week. Markets barely budged on the news, which was punctuated by government bailouts of two giant banks - America's Washington Mutual and Belgium's giant Fortis group. A third rescue, of Britain's Bradford and Bingley, sees it taken over by the government. Paulson's plan likely will provide temporary relief to the stockholders of some American banks, whose balance sheets do not look all that different from Washington Mutual's. But this has nothing to do with the larger problem, namely the de-leveraging of the American household. Leverage is the secret of American wealth.

Treasury opens money market guarantee program
The U.S. Treasury Department said on Monday its temporary guarantee program for up to $3.4 trillion in money market mutual fund assets held as of Sept. 19 was now in effect for a three-month period. The Treasury said each fund regulated by the U.S. Securities and Exchange Commission that maintains a stable stock price of $1 can now decide whether to pay a fee to participate in the program. Money market mutual fund shares acquired after Sept. 19, when the Treasury announced the plan, will not be guaranteed under the program. To receive the government guarantee, participating money market mutual funds that had a net asset value of at least $0.9975 per share on Sept. 19 must pay a fee of 1 basis point per share to the Treasury. Those with a net asset value below $0.995 on Sept. 19 are not eligible for the program, and those between $0.995 and $0.9975 on that date must pay a 1.5 basis-point fee. The Treasury created the program to try to stem a massive run on about $3.4 trillion in money market mutual fund assets after the Reserve Primary Fund -- one of the oldest U.S. money market funds -- fell below $1 per share -- a phenomenon known as "breaking the buck."

Big banks, bumbling idiots
The really chilling news is that investment banks are being changed into commercial banks, which gives them the right to create - out of thin air, and then loan - money using fractional-reserve banking! Yikes! They are now banks! These greedy, thieving, lying, staggeringly stupid weenies who are at the epicenter of the biggest financial catastrophe in American history are now being given the right to increase the money supply at their whim to satisfy the willingness of customers, and themselves, to borrow the money! Astounding!

House rejects $700B bailout in stunning defeat
House rejects $700B bailout in stunning defeat,
driving stocks down; Treasury vows more work
In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day. "We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version. Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.

The Bailout Plan's Modifications Spell Disaster For The U.S. Economy
In looking at the statement from House Speaker Pelosi which outlines the bailout plan as it will be passed, the first impression of it is that the politicians have eviscerated the Treasury's original proposal to the point which makes the plan destined to fail. Failure of the plan to work means that the U.S. will enter a much deeper and longer lasting recession than it otherwise would have.

Who Really Benefits from the Bailout -- Wall Street or Main Street?
According to some legislators and President Bush, the $700 billion bailout package headed for a House vote this afternoon is less a life raft for Wall Street than a means of keeping Main Street afloat. It's a nice sentiment, but as Henry and I discuss in the accompanying video, good intentions don't always translate into workable plans. It's a given that Wall Street and Main Street are inextricably linked, and that plenty of consumers binged on debt right alongside the banks currently on tap for a federal handout. But if helping homeowners and other stressed consumers in order to bolster the economy is the ultimate goal, Henry argues, why not bail them out directly and let the bad banks fail? Either way, one effect may be that Americans rededicate themselves to saving rather than spending beyond their means.

Fed makes billions available to battle crisis
Fed makes billions available to battle credit crisis; pledges to act as needed
The Federal Reserve and foreign central banks agreed to pump billions of dollars into the global financial system Monday to unlock tight lending that threatens to unhinge the U.S. economy. The Fed said the action is intended to "expand significantly" the cash available to financial institutions in an effort to relieve to the worst credit crisis since the Great Depression. In taking the action, the Fed cited "continued strains" in the demand for short-term funding. Central banks will continue to work closely and are prepared to take "appropriate steps as needed" to ease the crisis and get banks lending again, the Fed said. Under one new step, the Fed will boost the amount of 84-day cash loans available to U.S. banks. The Fed is increasing the amount to $75 billion, up from the current $25 billion starting on Oct. 6. Banks bid on a slice of the loans at an auction.

After Bailout, Economy Will Still Be Lousy
Prepare to be disappointed: The Bailout of the Century will probably do little to make life better anytime soon for the taxpayers footing The Emergency Economic Stabilization Act of 2008 may help avert the unspecified economic disaster that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke keep hinting at. But for most of us, it's hard to fathom this freakish financial monster lurking in the darkness, unseen by anybody except Paulson and Bernanke. Instead, we cling to quaint notions, like the idea that for $700 billion in taxpayer commitments, we ought to get something tangible in return. That's false optimism. The legislation establishes new government procedures to "protect home values, college funds, retirement accounts, and life savings." Good priorities. But that word "protect" doesn't mean you'll end up better off. No checks are going to arrive in your mailbox. Your retirement portfolio won't suddenly rebound. You won't get an iPod as thanks for your contribution to the Bailout Olympics. You'll simply be spared some sort of wipeout.

Deaf frogs and the Pied Piper
A truly horrible joke from the days when vivisection was still permitted has it that a scientist took to the lab a trained frog that could jump whenever it heard the command "jump". In that respect, the amphibian was quite similar to communist party members around the world, but anyway let's carry on with the story.
In the lab, the scientist placed the frog on a table and swiftly sundered one limb. He then said "jump" and the frog complied with some difficulty. He then proceeded to do the same to the limb on the opposite side and said the same thing - and the frog miraculously managed to jump again. Then the third limb and the frog defied all odds by still jumping with just one limb. Finally, the last limb was split and of course this time the frog could not jump. The scientist wrote his conclusion in the journal, "When it lost all four limbs, the frog became DEAF."
With all apologies to animal lovers, the story resonated with me last week not so much because I happened to pass a French restaurant or two, but rather the triumphant signaling of the end of market capitalism that is being heralded by leftist newspapers and other media outlets globally. Across Asia, the decline of American banks and government-sponsored intervention in financial markets is being seen as the reason for everyone to return to Japanese-style interventionist policies.

Your scorecard for understanding mortgage scandal
Find out who's who in the 'Rogues Gallery' of economic crisis
As Congress works on a $700 billion bailout plan for the U.S. financial system, the FBI has extended fraud investigations to 26 companies involved in mortgage lending. Authorities are attempting to determine whether any of the firms have participated in accounting fraud, insider trading or inflating values of mortgage-related assets. The FBI has not disclosed a list of companies under investigation, but the following are just a few firms in distress and executives under scrutiny.

Broad Authority, Lots of Money And Uncertainty
Congress is on the verge of granting Treasury Secretary Henry M. Paulson Jr. sweeping powers to stabilize the nation's financial system. He would stand largely unfettered by traditional rules, largely unrestricted in his ability to spend $700 billion of federal money. The Treasury Department would decide what kind of assets to buy, and which financial firms could sell them. It would decide how much to pay. And it would hire firms to manage its acquisitions, without having to obey the normal rules for hiring contractors. These decisions would take several weeks, Paulson said. The results will determine whether $700 billion is enough to end the financial crisis. "This is really an unusual situation, a highly unusual situation. And we need flexibility, we need a variety of tools, we need to figure out how to get out there in weeks," Paulson said in an interview last night.

Paulson to get the power he wants
AFTER a week of political brinksmanship and 100 pages of concessions to political reality, US Treasury Secretary Henry Paulson seems to have finally won the power and money he asked for to mount an unprecedented rescue of the financial system. If approved by a reluctant Congress and signed into law by the President, the Economic Stabilisation Act of 2008 will authorise Paulson to continue in a bigger and systematic way what the Treasury and Federal Reserve have been doing since March when they committed $US29 billion to facilitate the sale of Bear Stearns to its stronger rival, JPMorgan Chase. And although the initial focus will be on home mortgages and mortgage-backed securities, there remains enough flexibility in the legislation for Paulson to tackle similar problems with car loans, credit card debt and loans for commercial real estate.

Americans get the wool pulled over their eyes
The money men have been well prepared for the crisis sweeping the world. IN THE mid-1980s, at the height of the savings and loan scandal - a smaller crisis than what is now gripping the US, but almost an identical harbinger of promises to come - the popular Phil Donahue TV show devoted a program to the situation. An angry man from the audience demanded to know: "Why can't the government pay for these debts instead of the people?" Now we see the financial titans demanding: "Why can't the public pay for these debts instead of us?" Or even more grandly: "Why can't foreign taxpayers do so?" Back in the 1980s, the audience at Donahue's show erupted in applause at the suggestion the government, not the taxpayer, foot the bill. I expect millions of American's in their lounge rooms roundly agreed. Americans had forgotten they were the government. Years of populist politics of blaming Washington, or "big government", for their woes - the Reagan revolution - had convinced Americans their government was some sort of occupying entity determined to fleece them. So the bail-out, or bail-up, of the 1980s passed partly because Americans were sufficiently ignorant to believe that they, the people, were not their own government.

No bailout for bankruptcy
Lending lobby thwarts homeowner relief plan
As congressional negotiators labored over the $700 billion financial bailout plan last week, business leaders saw little to applaud in more than a few of the ideas under discussion, including demands for limits on executive compensation. But one proposal aroused particular ire: changing the nation's bankruptcy laws to make it easier for homeowners to downsize troubled home mortgages. And on Sunday, when the head-banging ended and the dust cleared, a coalition of banking and mortgage industry lobbyists had reason to celebrate: The final bill included no changes in federal bankruptcy laws. The business lobbyists' victory infuriated such pillars of the Democratic establishment as major labor unions and consumer groups. Behind the scenes, however, proponents of the change proved no match for a coalition that included the American Bankers Association, the Mortgage Bankers Association and the home builders lobby. Starting with a core of Republicans who adamantly opposed any such change, the coalition persuaded key Democratic leaders in Congress that pushing the idea could doom the rescue effort and endanger the whole economy.

Banks warned on hiding credit exposure
The prudential regulator has warned the big banks to scrutinise their overall loan exposure to financial companies and their satellite funds as turmoil continues on global markets. The Australian Prudential Regulation Authority (APRA) is concerned the banks may be treating loans to companies such as Macquarie Group, Babcock & Brown and Challenger Financial and their listed funds as separate exposures, as this could allow the banks to avoid reporting them to the regulator, The Australian Financial Review reports. Prudential standards dictate that lenders must advise APRA of exposures that exceed 10 per cent of their lending books. Similarly, banks are not allowed to lend more than 25 per cent of their loan book to a single entity without APRA's permission.

A changed financial landscape
For our country's sake, I hope our Washington politicians worked out a mindful financial sector bailout package over the weekend. Not that I am pro-bailout or for government intervention. It's just that our financial system is teetering at the precipice. The federal takeover and "sale" of Washington Mutual, our nation's largest bank failure to date, was yet another major body blow. Confidence has now been shaken so brutally that our policymakers can do little to repair the damage. Yet at this point, stop-gap measures to restrain collapse seem more appealing to me than no measures at all. The financial structure that fueled myriad credit bubbles, asset bubbles, economic bubbles and overliquefied the entire world is today no longer viable. Wall Street finance is at this point an unmitigated bust, with a few of the "holdout" sectors (ie the credit default market and the hedge fund community) now succumbing. The great financial alchemy of transforming endless risky loans into perceived safe and liquid "money"-like instruments has run its historic course.

RBA pumps billions into the market
THE Reserve Bank is pumping money into financial markets at a record rate while nervous investors seek confirmation of the US Government's plan to rid banks of troublesome assets. The RBA yesterday accepted Authorised Deposit Taking Institution (ADI) securities worth $2.7 billion, on top of a surplus system cash position of $424 million. And the liquidity injection of more than $3.1 billion means the central bank has a record $10.7 billion out in the financial markets. Even so, long-term debt markets are still frozen, and Elstree Investment Management director Campbell Dawson said it was too early to tell whether the US Government's $US700 billion ($A840 billion) bail-out would loosen things up. "The only way you can get money is basically through banks," he said, explaining that some of the bigger requests for funds were allegedly being refused. The US House of Representatives and the Senate are scheduled to vote on the Troubled Assets Relief Program (TARP) legislation early this week but it is not clear that it has enough votes to pass the lower house. The TARP would accept responsibility for the so-called "toxic" assets held by many US financial institutions, disposing of them over several years.

US Congress's Rescue Plan Could Pose Pain For Weakest Banks
A nearly final version of the federal government's rescue plan for the U.S. financial system presents some tough choices for the nations' weakest firms. The House of Representatives is likely to vote on the $700 billion measure on Monday, with the Senate moving after the House. A nearly final working draft includes provisions that will make public the prices at which the U.S. Treasury buys troubled mortgage assets from financial institutions, and will also allow Congress to recoup from participating firms any losses suffered by taxpayers after a period of five years. House Speaker Nancy Pelosi, D-Calif., on Sunday evening said that the provision giving taxpayers the right to recoup all losses from participating institutions "a major, major change" over the bill' previous format. She said the provision met "much resistance" from the administration, but is nonetheless likely to be included in the bill's final version. "In any case where there is a shortfall," for taxpayers after five years, the draft says, "the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall" so that any enduring cost to taxpayers "does not add to the deficit or national debt."

Plan B for Bailout Looks to New Deal For Inspiration
What if it doesn’t work? Contrary to popular belief, House Financial Services Chairman Barney Frank , D-Mass., and Treasury Secretary Henry M. Paulson have a Plan B for the massive financial bailout bill, Frank said Sunday night. Should the bill (HR 3997) fail, Frank said, congressional leaders and the administration would look back to President Franklin D. Roosevelt’s New Deal for answers. But that would mean greater government intervention, not less, he warned. “Should we decide that to get us out of this hole there needs to be what was referred to under the New Deal as the Homeowners Loan Corporation . . . it may have to be a more substantial participation by the federal government,” Frank said. At the core of the current financial crisis are mortgage foreclosures - a number that reached more than 272,000 in July. Frank said the backup plan would directly address that issue. It would be based on the Home Owners’ Loan Corporation (HOLC), an agency established by Roosevelt in 1933 in the depths of the Great Depression.

It’s not just Wall Street with its back to the wall
I’m in shock. Can this crisis get any worse?
My instinct is it can. My deep concern is it will.
This time last week, the world was breathing a sigh of relief. The “bailout” had just been announced - and share prices shot up in celebration. Financial markets were jubilant US Treasury Secretary Hank Paulson was coming to the rescue. Even inter-bank rates – what banks charge to lend to each other - were falling. So last weekend, as Paulson purred, we all saw a light at the end of the tunnel. Yet, as we now know, that light was an oncoming train. Last weekend I warned, despite the euphoria, the bailout could cause an “almighty, debilitating political dust-up”. Unfortunately, that’s what happened. Having spent the last few days in the US, I can vouch voters are very, very angry about feather-bedding a bunch of overpaid bankers. Even in New York, a city that lives and breaths high finance, the tabloids screamed “Fraud Street” - aimed directly at the Wall Street crowd.

Bailout's Bottom Line: It's a Confidence Game
For all the economic debate and political wrangling, the $700 bailout package comes down to one word: Confidence. "This is about market confidence and the tools to do the job," Treasury Secretary Hank Paulson said last week during Congressional hearings on the $700 bailout plan, which is set for a House vote this afternoon. Paulson's point is financial institutions have lost confidence in each other -- credit spreads show banks are refusing to lend to each other, much less consumers or business - and only massive government intervention can restore it. The acute nature of the market was on stark display Monday as financial institutions across the globe faced disaster:

Sarkozy calls for global crisis summit
Europe’s leading policymakers will convene in Paris next week to prepare the ground for a possible global summit on the financial crisis, Nicolas Sarkozy, France’s president, said on Monday. He said the Paris talks would bring together officials from France, Germany, Italy and the UK – the four European Union powers represented in the G8 group of industrialised nations – as well as Jean-Claude Trichet, the European Central Bank president, José Manuel Barroso, the European Commission president, and Jean-Claude Juncker, head of the eurozone’s finance ministers’ group. "We must not give in to the forces of destabilisation. We must support the banks. But there are structural problems. I confirm my call for a summit in coming weeks to establish the basis for a new international financial system," Mr Sarkozy said. Speaking after a summit of EU and Indian leaders in the French city of Marseille, he added: "Europe has to develop a financial and economic determination as big as the crisis that we face."

Hugo Chavez wants Venezuela to have nuclear programme
Venezuelan President Hugo Chavez has announced he wants the country to develop a nuclear programme with the help of Russia. He insists, as do the Iranians, that it would be for purely peaceful purposes. "We certainly are interested in developing nuclear energy, for peaceful ends of course, for medical purpo

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