Fritz Finance Minister: Uncle Sam no Longer Superman

From Marketwatch.com:

U.S. losing financial superpower status: Steinbrueck

By William L. Watts, MarketWatch
Sept. 25, 2008

LONDON (MarketWatch) — Germany’s finance minister on Thursday laid the blame for the global banking crisis on the Anglo-American free-market model’s quest for ever-higher near-term profits, predicting the United States would soon lose its role as the world’s dominant financial power.

“The U.S. will lose its status as the superpower of the global financial system, not abruptly but it will erode,” Finance Minister Peer Steinbrueck told the lower house of Germany’s parliament in Berlin, according to published reports.

“The global financial system will become more multi-polar.”

Steinbrueck criticized the United States for failing to adequately regulate investment banks and said free-market policies embraced by the United States and Great Britain that emphasized a short-term “insane drive for higher and higher profits” were partly to blame for the crisis.

“Wall Street will never be what it was,” he said.

The finance minister said he would push for a global ban on speculative short selling and would use next month’s meeting of the Group of Seven finance ministers and central bankers in Washington to press for new rules that would prevent banks from fully securitizing loans and selling them to third parties.

Steinbrueck said U.S. authorities were late in undertaking rescue efforts, but said he welcomed the decision to attempt to bail out only organizations whose collapse would threaten the world financial system.

He repeated that he felt there was no need for Germany or Europe to echo the U.S. Treasury’s proposal to spend around $700 billion to buy up toxic assets from distressed banks’ balance sheets, saying the financial crisis is largely an “American problem.”

The minister warned, however, that the fallout from the crisis would make for lower growth in the near future and eventually impact the labor market.

Well. That blast follows the whipping Bush took in New York this week as the U.N. General Assembly convened. Lecturing re terrorism and reassuring re finance, he was greeted with open anger and derision.

(One had thought his people had learned he can’t be allowed to take the world stage.  That ended at the G7 in 2006 (?) when he groped Merkel on the way to the podium.)

It’s breathtaking, to grasp in one thought the extent of the damage Bush-Cheney have wrought. Starting with Enron right out of the gate, then into 9/11, the wars, Katrina, the consistent assault on constitutional protections (again from day one), and now, in the end, this consuming financial disaster.

So what’s happening, man?

Not merely the end of a cycle of American history, but, as wondered aloud again last week, of the American hegemony that has pertained throughout the postwar period (1945)?

I’ve often thought — most of my adult life — that such a come-down would be a good thing.  “The business of America is business!“  has always been vile propaganda.  The fall the German minister foresees  may land us in a better place.

Meanwhile, in any case, the Chinese today launched three men into orbit, hoping for the first time to execute a Space Walk.

Michael Moore film — SLACKER UPRISING — Free Stream

Far as I can tell this was just released yesterday.

A record of his 2004 campaign to depose Bush-Cheney.  Nothing earthshaking but perhaps worth recalling.

Free streaming online at SlackerUprising.Com.

Historic First!
US Army dedicates combat brigade to domestic front / Port-a-Prisons

The Pentagon seems to be preparing for chronic domestic trouble:

“[T]his new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.”

Kinda makes you feel warm all over.

And have you heard about the Port-a-Prisons?

Troublemakers from a NY peace demo may wind up in a Utah meadow.

Senate suffers fools sourly / McPalin suffering /
New York to suffer

The reception for Boom Boom and Hammerin’ Hank before the Senate Banking Committee today went from cool to frosty to hostile.

Chairman Dodd of Connecticutt concluded that the big bailout plan was “not acceptable”, and ranking GOPher Shelby of Alabama told the departing big brains that all options remained on the table.

The markets wandered up and down, ending up down hard — but then some green was generated by a post-bell item about Warren Buffet buying into Goldman Sachs for a nickel.

($5 billion)

I wondered over the weekend if the big bailout was really necessary.  Today in the air was the notion that things have already gone so far wrong, for so long, that Bernanke’s opening demand that something big be done immediately was ill founded, or, at least, absurd.

Personal income in New York City is going to be pressured for years because of this, beginning in the investment banks and their law firms, and spreading through the services that serve them.

Perhaps, however, the city might benefit. Culturally.  Might trend a bit toward sleepy and philosphical. Even, in time, affordable …

But it’s the current homeowners who will pay for that adornment, and today the mayor announced the notion of a 7% property tax hike for January.

???

The only good news is that the crisis seems to be hurting McCain-Palin, as the odor of gross incompetence in high places begins to overwhelm Sarah’s rustic charms.

And here we have another late news item — that McCain’s campaign manager has been getting a $15,000 monthly stipend from Freddie Mac, and doing nothing in return.  Payments discontinued only this past month.  Guess the bloke’ll resign before the opening bell.

Might the pain of what’s happening be compensated, then, by a spectacular victory for the Donkeys in November?

Not so fast — a trader I know has been worrying since the weekend that a “catalyzing event” may occur in the city before Election Day to get people panicked about National Security again instead.

Oh but that’s so 2004 …

We’ve seen this movie before —
But is it EL CID or 1984?

ED NOTE: See comments below to follow the question of Bin Laden’s existence into May 2011, when the americans announce that bin Laden has been killed. I for one do not yet believe them.

The sudden heat in Pakistan has McCain and Obama stomping and swearing to get Osama next year.

But it seems most likely that Osama died around the time of the Tora Bora bombings in late 2001, when this video was released:

Around the same time, the CIA said it found on a Jalalabad computer another video of Osama.

But the blubbery fellow therein was probably somebody else.

True, this Fatty Osama (left above, right below), as he’s generally called, has appeared twice (if memory serves). He just doesn’t seem to be bin Laden. His nose, to begin.  His jocular manner. His jewelry.  Supposedly he’s writing with the wrong hand …

Moreover, he neither sounds like nor uses language like Osama, who, acccording to arabist Bruce Lawrence, speaks in an elevated, pious and poetic style most distinct. Neither Fatty Osama’s vulgar gloating over the attacks in his first video, nor the voice on recent tapes discussing world affairs like Wolf Blitzer, come close.

Lawrence has published a book of Osama’s messages and is one of Uncle Sam’s experts on his language, diction, and their meanings.  During 2006 he came to think something was fishy.  Then went on radio in 2007 to spread the news:

Lawrence, citing informants in the US intelligence apparatus’s Bin Laden units, told [radio host] Kevin Barrett that everyone knows the tape is fake, adding that the hoax has been kept alive because it is politically useful to those who wish to bolster the official 9/11 conspiracy that 19 hijackers directed by Bin Laden from a cave carried out the attacks.

Here’s another arabist, once employed in the 90s to translate and analyze a real Osama tape. He agrees with Lawrence, and is good to recall that shortly after the attacks in 2001 Osama told a Pakistan paper that he had nothing to do with them.

And here’s an overview of the question, including what purports to be a facsimile of an Egyptian newspaper that on December 26, 2001 reported bin Laden’s death.  The next day what seems like the last genuine video (first photo above) was released.

If indeed he’s long gone, then who’s pulling our leg?

Both sides have reason to keep the hero alive.

If Al Qaeda’s behind the curtain, then …

It’s El Cid.  Charlton Heston, as the legendary spanish hero in the wars with the Moors.

He dies one night, recall, in a besieged fortress, the battle far from won.  So his people prop the corpse on his horse. Tie a cross to his arms and back Jesus style. Then as dawn breaks they open the gates, slap the horse’s ass …

And El Cid rides again.

But if it’s Uncle Sam behind the scam, then  …

It’s Goldstein, from 1984:  the phantom jewish bolshevik terrorist on every telescreen noon and night, whose (non) existence grounds the propaganda of the police state and its perpetual war:

“We are at war with Eurasia and have always been at war with Eurasia.”

But then, a month later:

“We are at war with East Asia and have always been at war with East Asia.”

El Cid.  Goldstein.  But not bin Laden. He probly dead.

So one wishes Obama would stop talking about Osama.

Talk about what is and will be.

David Foster Wallace

I’ve never yet been able to get into DFW, although the problem is general: I’m rarely able to enjoy any American novelist my age or younger.  Perhaps something to do with the fact that I’ve tried to be one myself.

But both he and his recent suicide certainly deserve notice.  The world is poorer that he’s gone.  And I intend to finish something he left behind.

I haven’t seen anything to indicate why he hung himself, aside from family reports of chronic depression.  I recall that when Hunter Thompson checked out, in February 2005, he left behind a note indicating great distress that football season had ended.

Monday: So Far the markets don’t buy the fix. Feds calling it Terrorism.

1. The Murdoch (formerly Dow) 30 are down about 250 at midday, rather quietly.  No raging panic, but also no sign of joy at the outline of the Treasury plan, which the Congress is now heavily editing.

2. Todd Harrison at Minyanville.com says that a “good” Beltway source told them that what looks like a concerted short-selling operation in size out of Dubai and London began on September 11 (ie, eleven days ago).

And that this was a primary reason the feds have banned shorting of some 800 financial stocks (the list has grown since first announced).

The short ban is currently scheduled to end on Oct 2.  But meanwhile other countries worldwide have jumped in, some with market-wide bans (not just financials).

3.  The damage being done worldwide by allowing Lehman to fold is just starting to be realized. Lots of big customers (hedge funds, LBO funds …) can’t get their money, perhaps for months, and probably with quite a bit of leakage.  See Naked Capitalism.

A ton of gorillas, therefore, are in pain. And have to sell stuff in the markets to raise cash.  Exacerbating the slide.

4.  Oil was screaming — up about $25 and $25% (!!!!) today — the biggest daily jump ever since the contemporary futures contract began selling in 1984.

Or … Strangely, at market close — as the current front contract expired and was replaced (so to speak) by the subsequent — suddenly the price dropped from about $120 to $109.

Thatsa pretty big rollover blip.

Not to worry — post bell the fed futures regulator says it’s going to look into the matter.

Doin’ a great job, Brownie …

Are we, indeed, at war with Pakistan?

We wondered aloud this past Wednesday (echoing Robert Baer) if the US was already at war with Pakistan.

(Monday the Pakis had apparently intercepted two Yank helicopters at the Afghan border and turned them back.

Tuesday the Paki brass told the americans to stop attacking across the border and vowed to repulse.

Wednesday the Yanks — They Who Strike from Afar — sent in a Predator drone which launched missiles that killed five.

Friday Secy of Defense Gates flipped the Pakis the bird, telling them tough noogies and we’ll do as we please.)

Now, Saturday morning, the new Paki president, Asif Ali Zardari (Benazir Bhutto’s somewhat corrupt and hapless widower) in his first speech to parliament, supports the War on Terror but insists that Paki sovereignty and borders must be respected.

And shortly after, during a reception at the presidential palace a few hundred yards away, an immense truck bomb blows up the Islamabad Marriott, home away from home for american diplomats, journalists and other transient elites.  Killing (so far) 55 and wounding hundreds.

Polls show most Pakis loathe the shotgun alliance with the US that reshaped shortly after 9/11. Most hate Bush-Cheney and see them as pawns of the Zionist conspiracy that arranged the current Iraq war.

Musharraf never looked comfortable presiding in that hotseat between his people and the new American cowboys.

And his recent resignation is best seen (I submit) as evidence that the anti-US faction (heavily weighted in the various security forces — the secret police having fairly clearly conspired, indeed, in the 9/11 attacks) is approaching critical mass.

Pakistan, then, may soon erupt — or perhaps today did — in a civil war that seems likely to involve the American forces across the border.

Or … are we already at war with Pakistan?

Zeitgeist – The Movie

Has everyone already seen this?

At attempt to deconstruct powers at war with humanity.

Seems the work of Libertarians (just a guess), with whom I  never quite agree.

Nevertheless worth chewing on.

Smaller bits of the whole are available on YouTube.

Doubts about the Paulson Plan: Price Controls seem a Better Idea

The Treasury proposal to Congress — a slim two and a half pages — was publicized this morning, Saturday after the Week the World Melted.

1. I had thought the resolution trust would be a static deal.

That is: the feds buy the wounded mortgage bonds from the wounded institutions, and then hold them to maturity (or early windup), collecting whatever interest and principal they throw off, and hoping with decent cause that they return more than the current terribly depressed market values (at which they’ll be bought) suggest.

Thus, as with the RTC in the Savings and Loan scandal and with the Chrylser bailout, the feds would wind up with a profit on the deal.

However, the plan is not for a static trust — but rather to create one of the largest bond trading desks on the planet.

Treasury wants unfettered freedom to buy and sell mortgage bonds when and where they see fit, never exceeding $700 billion at a time. While providing only semiannual reports to Congress on the operation.

But bond trading is a tricky business.  Especially during

   times of trouble when interest rates, to begin, are unstable (bond prices in secondary markets being particularly sensitive to interest rate fluctuations).

The obvious reason for active management is the hope that the macro environment will improve so quickly that a hungry market for mortgage bonds again takes shape, before the wounded classes mature, and Treasury can sell them back at a profit and close up shop early.

But one could allow for such one-time dispositions in an otherwise static deal — a far cry from the trading operation Treasury seems to have envisioned.

So where will the feds find the talent to staff this new trading desk?

The old Bear and Lehman traders?

The strangest thing in the short proposal is that Treasury is asking for immunity from all oversight and even judicial reach:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Hard to imagine …

Perhaps we will see these problems addressed early in the week by Congress.

2.  Alan Greenspan, whom many on Wall Street (now) blame for the credit bubble now burst, said today he approves the resolution trust move but not the restriction on short selling of nearly 800 financial stocks.

I don’t get that. The ban seems advisable to allow the weak institutions that remain to find partners or other solutions in an atmosphere less than panicked and piratical.  Why go to the trouble of the reso trust if, by the time it’s on its feet trading, the remaining wounded birds have been reduced by the shorts to dust?

As stands, during the ten days of protection it seems, to begin, that Morgan Stanley will merge with a big deposit bank.

And rumors were floating late in the week that Goldman Sachs may take itself private again.

Washington Mutual, which stepped onto the auction block early this week but drew no bidders, will now probably be bought by a big bank — which will then siphon off the most toxic stuff into Treasury’s resolution trust.

And Citibank — the biggest bad apple left now that AIG has been dealt with — will probably issue new common stock under cover of the short-selling ban.

One hopes all these moves will be set or done before the ban lifts on October 2, and that the feds will refuse pleas to extend it.

Option market-makers, however, should immediately be exempted from the short-selling ban — a necessary move if one wants the option markets to function, which, for some issues Friday, they barely did.

Option market-makers have to short common stock to remain market-neutral when they sell puts or buy calls on that stock to the public.  Otherwise they’d be gambling (like the public).

E.g., the October 70 calls on State Street Bank (STT) were largely static Friday (the first day under the short-selling ban), because they were burdened with a humongous spread: bidding $1 to $2 to buy, while offering from $3 to $4 to sell.  The market maker — unable to short the common stock — didn’t feel safe to come any closer.

But if the exception for market makers appears, one would expect that $2 spread (between bid and ask) to shrink to a dime or so.

3.   I wonder if the prohibition on shorting financials (with execption for market makers) and a stronger program to insure the money market funds might not have been enough.

That is, I confess to doubts about the very need and wisdom of the big reso trust, which introduces several large iniquities and a huge public burden.

It’s hard to think (but some do) the crisis was staged, or opportunistically nurtured and now provoked, in order for a cabal of globalizing financiers to consolidate control over Washington and american society.

But, clearly, the funnelling of the mortgage and insurance businesses into a deeply indebted Beltway already beholden to creditors are steps down that road.

And with the collapse of the five Wall Street brokers — all have been subsumed into the central banking system — all are now members or minions of the Fed — the country’s independent finance arm has atrophied to the vanishing point.  The Money Trust” has gobbled up Wall Street.

Thus centralized control — over mortgages, insurance and high finance — is certainly a result, and has been consolidated even further in the hands of the anonymous international owners of the Fed.
And this would seem to support the globalizers behind, e.g., the North American Union movement.  Their notion of replacing the Dollar with a new pan-North American currency (the Amero) may suddenly seem palatable if indeed the endgame of what’s now in motion is hyperinflation and gross devaluation of the dollar.

Then again, both the Chrysler and S&L bailouts facilities proved curative, turned a profit and were shut down with no appreciable gains for the tyrants.

(Then again, there’s a book pending by trader-pundit Barry Ritholtz that argues precisely the opposite — that the ideology engendered by those successes has covertly poisoned the political culture and left us vulnerable …)

4.  Perhaps then, just to be on the safe side …

If one deems a big solution necessary, might not the bold (ideologically) stroke of Price Controls be best — which (unlike the current proposal) would require neither fed money nor the creation of a huge risky bond trading operation.

(I’ve been saying this repeatedly since last August.  Over and over for chrissakes.  Just would not shut up. The few people who hear smile or laugh or just pat me on the shoulder like I’m the village idiot.  Who knows …)

The wounded mortgage bonds would remain on the books of the wounded institutions — transparently marked within Treasury-specified ranges — ranges based on three- or six-month trailing performance (i.e, how much interest are the bonds actually paying and how much principal are they actually losing?), adjusted across time — disregarding entirely the wildly depressed (non) market values that have pertained since last July.

To do this, Treasury or a minion would have to:

– thoroughly analyze the universe of mortgage bonds under US regulation.  Stratify them into segments by underlying asset (prime, midprime, subprime mortgages), rating at issue, perhaps vintage and geographical location, perhaps other considerations, and then

– track actual performance of these segments and issue the controlled prices.

Lots of work.  But under the current plan the same kind of work will be needed to make the huge bond trading operation viable.

I imagine the specified price ranges would be a small improvement over current (non) market values, well below face value.

And if a bank wants to sell rather than hold, it sells at a price in the specified range.

The benefits are:

– No Treasury investment.  Just a lot of spreadsheeting and hand’s-on regulation.

– The bank balance sheets will become transparent (re mortgage bonds) and more stable, and get a quick lift as the writedowns of the past year are written up a bit.  And thenceforth the playing field (re mortgage bonds) will be perfectly level.

This moderated approach (compared to the Tsy cash bailout) that emphasizes transparency should alleviate much of the pressure on the wounded banks, and make it harder for shorts to carry out rumor campaigns, giving the banks room to breath and the wounded bonds time to live out their miserable lives.

– Across time the actual losses taken by the banks, when the bonds wind up, will likely be less than the current extreme (non) market-value markdowns.

And if they’re not — if the initially written-up prices, as they adjust to short-term trailing performance, get written back down across a year or two to current levels — then that may nevertheless be the least perilous path from where we are today.

Price controls were in the toolbox throughout the postwar era.  President Kennedy used them with steel.  President Nixon used them with wages and across-the-board prices.  It was only when Laissez Faire as religion came back during the Reagan years — as the owner-operators of US, Inc. realized globalization was the ticket — that price controls were deemed devilish and cast out.

I’m not suggesting they are good general policy — only that in crises, when the market is broken, they may be necessary.  Laissez Faire has nothing to work on when there is no functioning market, and we’ve waited long enough for this one to rebound.  Keynesianism itself (as Keynes saw it) was merely a tactic.  A tool in the box.

So that’s it. No more phantom market values. An end to the protracted pretense of “price discovery” that across 14 months has dragged the global system to its knees.   The market is broken.  Humpty Dumpty.  Everybody out of the pool.

5.  No one should think the latest bold moves mean the stock markets have surely bottomed.

Indeed, if they begin to slip this week, despite the bold moves, a genuine shrieking crash seems in the cards. For the feds have now gone All In.   Henceforth the cards speak.

Green cars

People in California are already driving hydrogen-fueled cars made by Honda.

People in France are saying they will have cars running on compressed air on the road by 2010.

People in Detroit are still trying to keep their heads above water, still crazy after all these years.

John Le Carre

John Le Carre’s novels about the infighting and turncoating within MI6 (the British secret service) during the early cold war years feature the antagonist Bill Hayden, based on life’s Kim Philby, the most spectacular of Russia’s moles within.

Le Carre was himself an agent of MI6, until Philby outted him to the Reds.  He then turned to writing.

In the novels, George Smiley of MI6 (based perhaps on Peter Wright, author of the spectacular memoir Spycatcher) manages to nab Hayden in the end, and then subjects him to genteel debriefings as to how and why.

One can read Philby’s own account of his motives in his memoir, My Secret War.

But, more briefly in Le Carre, Hayden explains to Smiley why he decided to support Moscow:

“Do you know what’s killing western democracy, George?  Greed. And constipation. Moral. Political.  I hate America very deeply.  The economic repression of the masses, institutionalized. Even Lenin couldn’t foresee the extent of that.

“Britain? Oh dear. No viability whatsoever in world affairs.  Until the mid 50s I still had hopes. Lingering loyalty to what we represented.  Self delusion, of course. We were already America’s streetwalkers.”

In life Philby avoided arrest and lived out his golden years in Moscow, loyal to the end.

2.   I see that le Carre published an opinion in 2003 about the American invasion of Iraq.

Friday: The New Dawn

Well, the Murdoch (formerly Dow) Industrials are up about 320 points in pre-market action.

The overnight news proved accurate; the feds are indeed:

– banning short selling of 769 financial stocks until October 2 at least

– setting up a facility to take the wounded s-f bonds off the books of the banks, etc

And even more — they’re setting up a facility to guarantee money market funds.

It’s not possible to exaggerate the changes that have occurred in the past two weeks, since the shocking takeover of Fannie and Freddie weekend before last.

It’s as if the many turns and tries of the New Deal, strung out across the early 30s, were compacted into a month.

Asian markets are up 8 to 10% (also jamming on the rather incredible set of fixes that the Chinese have instituted in the past two days to help their own markets). Europe’s markets are up about 8%.

Thus, that cosmic scream you hear are shorts being flayed and roasted in public squares worldwide.  Reminiscent somehow of the global festivities when the century turned.

The Free Marketeers of investment punditry this morning are of course aghast, particularly at the prohibition on short selling, portending with furrowed brows that Unintended Consequences shall surely loom and eventually break upon us.  Something like that is true, but … One can’t let the city be burnt to the ground in name of ideology.  If one wants to make an omellette …

And the threat of a complete ban on shorting is somehow in the air (perhaps a news agency reported something like this over night), making it hard for anyone to hold a short position across the weekend.

Thus, it seems the highly gapped up opening may hold, even elevate thru the day.  As options expire. We shall see.

If someone were able to make money burning down buildings in the street, would we let them, in the name of free enterprise?

Terrorism, did you say? That’s right. During the past two days the notion has been circulatiing in the biz media that the short attacks on Lehman, then Goldman and Morgan Stanley might have been bona fide terrorism.  Presumably out of the mideast or islamic asia.  Designed to reduce Wall Street to ashes in spirit as the Twin Towers were reduced in body (not that I believe the official story about what happened on 9/11).

This Terrorism notion may have something to do with — or at least with justifying — the shocking actions the feds are now taking.

What a devilish turn for the shorts!

  Hammerin’ Hank Paulson and Boom Boom Bernanke roasting Hedgies on spits with fey gleams in their eyes.   Lady Traders leading trains of Regulatory Apes …

Bush tours disaster area

Dubya at his finest.

Holy Cow! Feds pulling out all stops

1.  Late Thursday evening we have reports:

-– from the Wall St Journal no less, that the SEC may follow the Brit lead and temporarily ban short selling! !?!?!?!?!?

–- and, indeed, that Treasury, the Fed and Congressional leaders have agreed to a solution for getting the illiquid s-f bonds off the books of the institutions and expect to have something by Monday.

From Marketwatch.com:

WASHINGTON (MarketWatch) — Top U.S. financial officials emerged from a briefing with congressional leaders Thursday night with an agreement to work quickly toward a broad-ranging fix for the crisis roiling U.S. and world financial markets.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke briefed House and Senate leaders to hash out a solution to the massive downturn in global markets and the failure of several financial firms.

Treasury spokeswoman Brookly McLaughlin said in a prepared statement that Paulson, Bernanke and congressional leaders  “began a discussion … on a comprehensive approach to address the illiquid assets on bank balance sheets that are … the underlying source of the current stresses in our financial institutions and financial markets.”

END QUOTE

I don’t expect Price Controls, of course. But a massive RTC type solution should address the problem — albeit by transferring the liabilities to a gov’tal entity, rather than (under price controls) merely ignoring them.

That is: Price controls would say, Okay, Citibank, you keep those $50 billion in illiquid mortgage bonds on your books, and you can mark them at (say) 70 cents on the dollar until they mature, and collect whatever interest they throw off and principal they throw back, and probably do okay, probably get your 70 cents worth. That’s it. And if you want to sell them to somebody, you sell them at 70 cents. That’s it.

And the same treatment thru out the universe regulated by the US gov’t. Level playing field. No transfer of the risk to a gov’t entity. Simply the bold declaration that the market for these bonds is broken and can’t be fixed.  Okay, everybody! — Out of the pool!

The dropped-jaw howling of the (mostly) Age-of-Reagan jocks who inhabit the investment world is music to my ears.  No short selling!?!?!

   They can’t fucking believe it.

(Nor, for that matter, can I, quite.  Perhaps the Journal got the story wrong.)

My god, what is going to happen tomorrow morning?  The Dow up 500 at the open?  What then?

It’s quite true that if the ban on shorting is general, the markets won’t do much.  Pro traders will be largely unemployed, twiddling fingers.  But I guess that’s the idea, for a while.  Something like a Bank Holiday (lovely phrase).

2.   But leaving all that aside.  Bush-Cheney have set the world on fire, in so many ways, and, however fairly, the world is holding them accountable for this mess.

When the American poltical system failed in 2004 to depose Bush-Cheney, the civilized world was left with little choice.

Something big is indeed ending.

Perhaps it’s the American hegemony that followed the world wars, or, merely, the Neoliberalism of the 80s, with its Free Market hogwash dusted off from the closet as the owner-operators of the US realized globalization was the ticket and (thus) the American working class was no longer necessary …

The parallels to 1932 …  All the more remarkable.

Is the US at war with Pakistan?

Yesterday Robert Baer, former CIA agent whose memoir See No Evil inspired the film Syriana, posted a piece at Time mag pointing out that, what with the world reeling from the weekend’s Lehman-AIG-Merrill Lynch triple whammy:

“almost no one noticed that we’re on the brink of war with Pakistan. And, unfortunately, that’s not too much of an exaggeration. On Tuesday, Pakistan’s military ordered its forces along the Afghan border to repulse all future American military incursions into Pakistan.” 

The roots of Uncle Sam’s advance into Pakistan seem to reach back to January, when Cheney was pounding the table — but in a half-empty War Room.  (Secretary of Defense Gates had a prior engagement.)

Yesterday evening — a day after the warning — drone missiles killed five more people in Pakistan, and the government angrily accused the Americans of firing them.

That same afternoon a piece of Pentagon brass in Islamabad had been crassly covering ass for prior infractions …

… while Secretary of Defense Robert Gates was apologizing in Afghanistan for accidentally killing 90 civilians with missiles there in August:

“I think the key for us is, on those rare occasions when we do make a mistake … is to apologise quickly, to compensate the victims quickly and then carry out the investigation.”

Awfully white.

But to the Pakis across the border Gates flipped the bird, telling them tough noogies and we’ll do as we please. To protect ourselves.

Are we at war with Pakistan?

Governments arise to slay dragons!!

Yesterday, with the Dow down 800 points in three days and credit markets worldwide again frozen, people were worrying that the world was falling apart.

(War on the horizon as the only “cure.”  Perhaps the whole thing was being staged by the same people who staged the war in Iraq, for roughly the same reasons …)

Then this morning, the major central banks coordinated a $360 billion liquidity “injection.”

Cheese und crackers!

People didn’t know whether to laugh or cry. Even the big brains at Time.

But the Dow wound up over 400 on the day after rather earthshaking news that came in the afternoon:

1.   Great Britain’s securities regulator has simply banned all short-selling of financial stocks until January 16.  !!!!!!

Rocking the USA with its Reagan-bred minds.

2.   Senator Chuck Schumer and other congressional types finally spoke of constituting a gov’tal corporation — like the Resolution Trust Corp that cleaned up the S&L mess in the 80s — to buy the wounded mortgage bonds that have been dragging banks, etc down and to their deaths since last July.

(The bonds would live out their lives within that shelter, with no one caring what the phantom “market price” might be, and perhaps return profit to the corp, as the RTC did. )

!?!?!?!

These two mighty blows to the Neoliberal (Reaganite-Thatcherite) hogwash we’ve been fed since the 80s may indeed mark the bottom, assuming there’s follow thru on the RTC notion.

Spicing the late-day festivities were remarks by McCain re Christopher Cox, the SEC chairman who in the name of Free Markets allowed the short-selling rules to expire a while back:

“The primary regulator of Wall Street, the Securities and Exchange Commission kept in place trading rules that let speculators and hedge funds turn our markets into a casino. They allowed naked short selling — which simply means that you can sell stock without ever owning it. They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground.

The Chairman of the SEC serves at the appointment of the President and has betrayed the public’s trust. If I were President today, I would fire him.

Price controls, revisited

A year ago I was advocating Price Controls on the wounded classes of structured finance bonds (mostly mortgage bonds, back then).

The market for the bonds was so tight and fearful as to be a useless pricing mechanism — and accounting regulations requiring banks, etc to writedown their holdings in accordance with this (non)market — to “mark to market” — would thus just lead to a downward spiral nobody could stop.

Better then to swallow one’s pride and jejune Laissez Faire dogma, and simply institute controls.  For six months. Or a year.  And let the wounded assets live out their lives, returning, little doubt, much more than the wounded marks implied.

The few people knowledgable who heard this idea laughed.  Price controls?  The notion blew their Reagan-bred minds.

Today Vince Farrell, a longtime presence on Wall Street and CNBC, as a guest pundit, has this to say today re one of the basic problems:

Accounting rule FAS 157 implemented just last year requires assets like the collateralized debt things to be marked to market. The issue in a horrible time like this is that there is no market, or no rational market anyway.

The banks and insurance companies that own these things are being forced to mark them down. But they believe them to be worth far more than the markdowns. AIG in an August filing disclosed it had written down some of its subprime-related securities by 60% to 80%, and some of its prime mortgage related issues by 60%. The company thought the economic loss would be $10 billion of the $25 billion they had taken as a markdown for this category. But the market for these things was at lower, distressed levels, and they ran out of capital to support the marks.

If RTC II entered the market with a bid for these securities, the free fall in price might be halted. There have been almost $500 billion in writedowns/markdowns taken by financial institutions. Against this, about $400 billion in new capital has been raised. (I’m wrong on the exact numbers but directionally right.) The government would need to fund RTC II with $500 billion, I’m guessing, to stand as buyer of the marked-down paper. With a bid in the market, the price would stabilize and the holders might not need or want to sell.

I’m philosophically opposed to government intervention in the markets. Proposing a $500 billion fund sounds weird. But look at what the government has pledged in reaction to the market. It’s time to act, not react. Pragmatism trumps all, and if the RTC II did buy these assets, I think it would wind up making a lot of money for the taxpayer! The values being forced on our financial institutions are hysterically low. We are destroying viable companies for the sake of an accounting convention that was not handed down to mankind from the mountain. Either change or suspend FAS 157 or set up RTC II.

The third alternative is to institute price controls.

The Morning After

No exaggeration to say that in the past two weeks the US financial system has been radically redesigned.

– Organs of the federal government are now controlling the mortgage business (thru Freddie and Fannie) and the largest US insurance company (AIG).

(This morning the head of fed housing is saying the agency, now burdened with F&F, is facing a “funding crunch.”)

–  Three of the Big Five investment banks that defined Wall Street in the postwar era — Bear Stearns, Lehman Brothers and Merril Lynch — are now toast.

(And the survivors are getting pounded — Morgan Stanley down another 35% today and Goldman Sachs down 25%, breaking below $100 for the first time since 2005. Talk that their “business model is broken” is everywhere.  And indeed, Morgan Stanley this morning speculated in public that it would need to merge with a large deposit bank to find ground (while Goldman said it saw no such need).

– The Fed’s loan programs, which were always there but have expanded qualitatively and quantatively since the crisis sprung last summer, have brought it to the point where — as announced this morning — the Treasury will (try to) sell a new series of bonds to refund the Fed.

Ie — as occurred in 1932, and as worried about here two months ago — the Fed is running out of assets to prop up distressed financial institutions.

Who will buy the new Treasury bonds?  Institutions in Asia and the mideast for the most part.

–  Note somewhat tangentially that the Russian stock market closed early again today, two days now, due to double-digit losses.  Strange at first glance. The cause not clear. Simply in reaction to the US market chaos?

– A Chinese national paper this morning published a story calling for a new “currency order” and specifically complaining about the overnight risk of holding dollars in the new world.

If US treasury bonds begin to tank under all this pressure — the bailouts, the Fed refunding, the bloated current account, the promised tax cuts, and reduced appetite from the Asian investors who’ve been funding the Bush-Cheney show — it may really signal the end of the postwar economic order, which the US (the only healthy victor of world war two) structured and dominated.

Let’s see, what else is in the news …

People trying to blow up the US embassy in Yemen.

There is no measure of the disgust and hatred Bush-Cheney have engendered with their acts and words.  The story in the Chinese paper, and the bomb in Yemen, seem of a piece.   The American hegemony may indeed be ending.

!?! Fed Reserve Bank taking 80% of AIG for $85 billion

1. The Fed has nothing to do with regulating insurance companies.  Let alone controlling and operating them.

Problem is, AIG, the third largest insurer in the world, bears as much resemblance to a godzilla hedge fund.  Yesterday the Times published a piece explaining the problem.  Without action the bankruptcy might have come tomorrow.

(Technically, acc to the NY Times, the Fed’s getting warrants that give 80% control, in exchange for a two-year $85 billion loan secured by all of AIG’s assets.)

No one in the so-called private sector could be found, nor among the world’s other central banks, willing to take on the trembling giant’s risk.

So it’s Boom Boom Bernanke to the rescue.

It’s a Mad, Mad, Mad, Mad World.

2.  Then again, a commonly discussed fix (once all this dust has settled) for what ails the global finance markets is to consolidate the myriad of gov’t bodies that currently regulate the American scene, with the Federal Reserve one of the top dogs.  Perhaps even king.

Seems the Fed, in effect, has begun to put this idea into practice.  Began by bailing out Bear Stearns (outside it’s technical bailiwick).  Now a huge insurance company.

Wall St Journal notes:

The AIG bailout caps a tumultuous 10 days that have remade the American financial system. In that time, the government has engineered rescues that insert it deep into the housing and insurance industries, while Wall Street has watched two of its last four big independent brokerage firms exit the scene.

The U.S. on Sept. 6 took over mortgage-lending giants Fannie Mae and Freddie Mac as they teetered near collapse. This Sunday, the U.S. refused to bail out Wall Street pillar Lehman Brothers, which filed for bankruptcy and is now being sold off in pieces. That same day, another struggling Wall Street titan, Merrill Lynch & Co., sold itself to Bank of America Corp..  END QUOTE

3.  Also today: a money market fund “broke the buck” — dropping to 97 cents per share.  Almost never happens.  This one was caused by the Lehman bankrupcty (the MM fund held a lot of Lehman debt).

But the world is full of MM funds that hold AIG debt and/or are insured or otherwise “enhanced” by AIG contracts.

Thus, an angle on why the Fed has made this move on AIG.  Imagine the universe of MM funds dropping to 90 cents, 85 cents …

4. Here is a take on how and why AIG and Lehman were driven these past weeks into the dust by short sellers — newly empowered by the recent repeal of two short-selling rules by Bush’s laissez faire SEC.

This is really quite a story.  Another abysmal Bush appointee, SEC chairman Christopher Cox, the culprit.

Something rotten in Denmark?
Was the repeal of the short selling rules  merely ill advised?
Or, a case of midnight ideological warfare (i.e. git’er done before the Liberals take the White House)?

Or frank corruption?

Or …