Tougher Times Ahead

[Dagabond]

I wouldnt put to much weight in what Bernanke has to say Keal, he and the Fed reserve are one of the perpertraitors behind printing vast amounts of money, bailing out failing companies and plainly been lying through his teeth that things are fine for the last two or three years.

His answer was to print 1.12 Trillion dollars...

Take a look at the case of AIG they've sunk more than $US170 billion ($251billion) into it and all along the CEO's are giving themselves 165 Million dollars in bonuses....one guy who's already left the company got a 4Million dollar bonus....

[hypnodoc]

I hope your right Dags. I expect we will know by June-July. We are in a better position than most countries, but we always were and everythings relative. The bankers own the earth and in the final analysis as long as the creation of money is in the hands of the private bankers, which it is presently, so is our economic fate.

This crisis hasn't had any negative impact my business, and because I sell a lot of product into the US the exchange rate has in fact bolstered things up, but that won't last long because the Chinese have said they are going to stop buying US treasury bonds, and with the money they have been printing they MUST go into a hyerinflationary situation very soon and the bum will fall out of the artificially high US dollar. In the UK things are disasterous and bugger all business's there can pay their bills within 120 days. I think for the average 9 to 5er working man and woman things are going to slide for a while yet.

[hypnodoc]

This below from Adam Weiss Ph.D., a well known and experienced US economist, is part of an address he made to the US press and congress. I in 50 kids in the US now don't have a place to call home. Its a scary reality, and considering Krud was saying less then a month ago we were recession proof, and is now sayin g a recession is inevitable you have to wonder how far down the so called "Lucky Country" still has to slide?

Citigroup has PLUNGED -97% ...

General Electric SANK -79% ...

Fidelity Magellan Fund ... DOWN -49%

I've just returned from Washington, DC, where I held a press conference at the National Press Club and a round-robin series of meetings with members of Congress ... with more to come this week.

Let me first tell you what I told them.

Why Banking Bailouts, Buyouts, and Nationalizations Can Only Prolong America's Second Great Depression And Weaken Any Subsequent Recovery

(Edited Transcript of Press Conference Presentation)

The Fed Chairman, the Treasury Secretary and Congress have now done more to bail out financial institutions and pump up financial markets than any of their counterparts in history.

But it's not nearly enough — and, at the same time, it's already far too much.

Two years ago, when major banks announced multibillion-dollar losses in subprime mortgages, the world's central banks injected unprecedented amounts of cash into the financial markets. But that was not enough. Six months later, when Lehman Brothers and AIG fell, the U.S. Congress rushed to pass the TARP, the greatest bank bailout legislation of all time. But as it turned out, that wasn't sufficient either.

Subsequently, in addition to the original goal of TARP, the U.S. government has loaned, invested, or committed $400 billion to nationalize the world's two largest mortgage companies ... $42 billion for the Big Three auto manufacturers ... $29 billion for Bear Stearns, $185 billion for AIG, and $350 billion for Citigroup ... $300 billion for the Federal Housing Administration Rescue Bill ... $87 billion to pay back JPMorgan Chase for bad Lehman Brothers' trades ... $200 billion in loans to banks under the Federal Reserve's Term Auction Facility (TAF) ... $50 billion to support short-term corporate IOUs held by money market mutual funds ... $500 billion to rescue various credit markets ... $620 billion in currency swaps for industrial nations ... $120 billion in swaps for emerging markets ... trillions to cover the FDIC's new, expanded bank deposit insurance, plus trillions more for other sweeping guarantees. And it STILL wasn't enough.

If it had been enough, the Fed would not have felt compelled this week to announce its plan to buy $300 billion in long-term Treasury bonds, an additional $750 billion in agency mortgage backed securities, plus $100 billion more in Fannie Mae and Freddie Mac paper.

Total tally of government funds committed to date: Closing in on $13 trillion, or $1.15 trillion more than the tally just hours ago, when the body of this white paper was printed. And yet, even that astronomical sum is still not enough!

Why not? Because of a series of very powerful reasons:

First, most of the money is being poured into a virtually bottomless pit. Even while Uncle Sam spends or lends hundreds of billions, the wealth destruction taking place at the household level in America is occurring in the trillions — $12.9 trillion vaporized in real estate, stocks, and other assets since the onset of the crisis, according to the Fed's latest Flow of Funds.

Second, most of the money from the government is still a promise, and even much of the disbursed funds have yet to reach their destination. Meanwhile, all of the wealth lost has already hit home — literally, in the household.

Third, the government has been, and is, greatly underestimating the magnitude of this debt crisis. Specifically,

• The FDIC's "Problem List" of troubled banks includes only 252 institutions with assets of $159 billion. However, based on our analysis, a total of 1,568 banks and thrifts are at risk of failure with assets of $2.32 trillion due to weak capital, asset quality, earnings, and other factors.

• When Treasury officials first planned to provide TARP funds to Citigroup, they assumed it was among the strong institutions and that the funds would go primarily toward stabilizing the markets or the economy. But even before the check could be cut, they learned that the money would have to be for a very different purpose: an emergency injection of capital to prevent Citigroup's collapse. Based on our analysis, however, Citigroup is not alone. We could witness a similar outcome for JPMorgan Chase and other major banks.

• AIG is big. But it, too, is not alone. Yes, in a February 26 memorandum, AIG made the case that its $2 trillion in credit default swaps (CDS) would have been the big event that could have caused a global collapse. And indeed, its counterparties alone have $36 trillion in assets. But AIG's CDS portfolio is just one of many: Citibank's portfolio has $2.9 trillion, almost a trillion more than AIG's at its peak. JPMorgan Chase has $9.2 trillion, or almost five times more than AIG. And globally, the Bank of International Settlements reports a total of $57.3 trillion in credit default swaps, more than 28 times larger than AIG's CDS portfolio.

Clearly, the money available to the U.S. government is too small for a crisis of these dimensions.

Fourth, but at the same time, the massive sums being committed by the U.S. government are also too much:

• In the U.S. banking industry, shotgun mergers, buyouts, and bailouts are accomplishing little more than shifting their toxic assets like DDT up the food chain.

• And the government's promises to buy up the toxic paper have done little more than encourage banks to hold on, piling up even bigger losses.

• But the money spent or committed by the government so far is also too much for another, relatively less-known reason: Hidden in an obscure corner of the derivatives market is a unique credit default swap that virtually no one is talking about — contracts on the default of United States Treasury bonds. Quietly and without fanfare, a small but growing number of investors are not only thinking the unthinkable, they're actually spending money on it, bidding up the premiums on Treasury bond credit default swaps to 14 times their 2007 level. This is an early warning of the next big shoe to drop in the debt crisis — serious potential damage to the credit, credibility, and borrowing power of the United States Treasury.

This trend packs a powerful message — that there's no free lunch; that it's unreasonable to believe the U.S. government can bail out every failing giant with no consequences; and that, contrary to popular belief, even Uncle Sam must face his day of reckoning with creditors.

We view this as a positive force. We are optimistic that, thanks to the power of investors, creditors, and the people of the United States, we will ultimately guide, nudge, and push ourselves to make prudent and courageous choices:

1. We will back off from the tactical debates about how to bail out institutions or markets, and rethink our overarching goals. Until now, the oft-stated goal has been to prevent a national banking crisis and avoid an economic depression. However, we will soon realize that the true costs of that enterprise — the 13-digit dollar figures and damage to our nation's credit — are far too high.

2. We will replace the irrational, unachievable goal of jury-rigging the economic cycle with the reasoned, achievable goal of rebuilding the economy's foundation in preparation for an eventual recovery.

Right now, the public knows intuitively that a key factor which got us into trouble was too much debt. Yet the solution being offered is to encourage banks to lend more and people to borrow more.

Economists almost universally agree that one of the grave weaknesses of our economy is the lack of savings needed for healthy capital formation, investment in better technology, infrastructure, and education. Yet the solution being offered is to spend more and, by extension, to save less.

These disconnects will not persist. Policymakers will soon realize they have to change course.

3. When we change our goals, it naturally follows that we will also change our priorities — from the battles we can't win to the war we can't afford to lose. Right now, for example, despite obviously choppy seas, the prevailing theory seems to be that "the ship is unsinkable" or that "the government can keep it afloat no matter how bad the storm may be."

With that theory, they might ask: "Why have lifeboats for every passenger? Why do much more for hospitals which are laying off ER staff, for countless charities that are going broke, or for the one in fifty American children who are now homeless? Why prepare for the financial Katrinas that could strike nearly every city?" The correct answer will be: Because we have no other choice; because that's a war we can and will win. It will not be very expensive. We have the infrastructure. And we'll have plenty of volunteers.

4. Right now, our long-term strategies and short-term tactics are in conflict. We try to squelch each crisis and kick it down the road. Then, we do it again with each new crisis. Meanwhile, fiscal reforms are talked up in debates, but pushed out in time. Regulatory changes are mapped out in detail, but undermined in practice. Soon, however, with more reasonable, achievable goals, theory and practice will fall into synch.

5. Instead of trying to plug our fingers in the dike, we're going to guide and manage the natural flow of a deflation cycle to reap its silver-lining benefits — a reduction in burdensome debts, a stronger dollar, a lower cost of living, a healthier work ethic, a better ability to compete globally.

6. We're going to buffer the population from the most harmful social side-effects of a worst-case scenario. Then, we're going to step up, bite the bullet, pay the penalty for our past mistakes, and make hard sacrifices today that build a firm foundation for an eventual economic recovery. We will not demand instant gratification. We will sacrifice our lifestyle today to assume responsibility for our future and the future of our children.

7. We will cease the doubletalk and return to some basic axioms, namely that:

• The price is the price. Once it is established that our overarching goal is to manage — not block — natural economic cycles, it will naturally follow that regulators can guide, rather than hinder, a market-driven cleansing of bad debts. The market price will not frighten us. We can use it more universally to value assets.

• A loss is a loss. Whether an institution holds an asset or sells an asset, whether it decides to sell now or sell later, if the asset is worth less than what it was purchased for, it's a loss.

• Capital is capital. It is not goodwill or other intangible assets that are unlikely to ever be sold. It is not tax advantages that may never be reaped.

• A failure is a failure. If market prices mean that institutions have big losses, and if the big losses mean that capital is gone, then the institution has failed.

8. We will pro-actively shut down the weakest institutions no matter how large they may be; provide opportunities for borderline institutions to rehabilitate themselves under a slim diet of low-risk lending; and give the surviving, well-capitalized institutions better opportunities to gain market share.

Kansas City Federal Reserve President Thomas Hoenig recommends that "public authorities would be directed to declare any financial institution insolvent whenever its capital level falls too low to supports its ongoing operations and the claims against it, or whenever the market loses confidence in the firm and refuses to provide funding and capital. This directive should be clearly stated and consistently adhered to for all financial institutions that are part of the intermediation process or payments system." We agree.

9. We will build confidence in the banks, but in a very different way. Right now, banking authorities are their own worst enemy. They paint the entire banking industry with a single broad brush — "safe." But when consumers see big banks on the brink of bankruptcy, their response is to paint the entire industry with another broad brush — "unsafe." To prevent that outcome, we will challenge the authorities to release their confidential "CAMELS ratings" on each bank in the country. And we will ask them to reverse the expansion of FDIC coverage limits, restoring the $100,000 cap for individuals and businesses.

Although these steps may hurt individual banks in the short run, it will not harm banks in the long run. Quite the contrary, when consumers can discriminate rationally between safe and unsafe institutions, and when they have a motive to shift their funds freely to stronger hands, they will strengthen the nation's banking system.

I am making these recommendations because I am optimistic we can get through this crisis. Our social and physical infrastructure, our knowledge base, our democratic form of government are strong enough to do so. As a nation, we've been through worse before, and we survived then. With all our wealth and knowledge, we can certainly do it again today.

But my optimism comes with no guarantees. Ultimately, we're going to have to make a choice: The right choice is to make shared sacrifices, let deflation do its work, and start regenerating the economic forces that have made the United States such a great country. The wrong choice is to take the easy way out, try to save most big corporations, print money without bounds, debase our dollar, and ultimately allow inflation to destroy our society.

Edited 24/03/09 06:29 AM by hypnodoc

[Dagabond]

Total of 3 machines running...2 will run out of work tonight....

[ronburgundy]

I think it will be interesting to see what this means for Regulation, going forward.

If you know anything about Sarbanes Oxley, you'll know it was brought in to help avoid crashes like Enron and WorldCom, and that companies in the US are as a result subject to massive scrutiny and regulation.

And yet... here we are...

Will they realise that all the regulation in the world won't do squat, or will they simply try to impose further?

[Maximus]

Well all the contractors here at work are getting a 10% PAY CUT.

Staff guys are safe for now.

Sure beats being 1 of the 60-70 people they let go last month.

10% is nothing compared to looking for a new job.

[hypnodoc]

Its never bad until it effects you personally. Even Krud is now making "It may be worse then we thought" statements as he tries to be a G20 hero, after telling us in Nov that we are basically fireproof, common sense says if its a global economy, its a global issue and no country will escape no matter how big a lies the pollies try to sell us. Me thinks its gonna get a lot worse before it gets better, its getting closer and closer to the multi multi multi multi multi trillion dollar derivitives bubble bursting, that will be an event and a half. The US$12.8 trillion the US govt have thrown at the problem is like putting a band aid on a gushing artery. It will be an interesting year

[6speedXR8]

Hey Doc,

You are right on the button, the world economy will get worse before it gets better and some of us will be affected more than others!

But I believe that you still can't stop living, and times like these will bring out the best and worst in people, so keep smiling guys and a positive attitude will always ease the pain. Mal

[hypnodoc]

Spot on Mal, its just time to be sensible. But it would be pretty hard if you have just lost your job and are a bit over committed and have 3 or 4 mouths to feed.

Below are some more facts and good reasons why it not going to get better any time soon, from US economist Paul Weiss Ph.D, if they let him lecture the US senate he must have some common sense, or at least an idea of whats really going on.

Can we just drop the pretense and start calling the bank bailout what it is: Financial terrorism.

Terrorism can be defined as achieving one's aims through fear. And it sure seems to me that bankers and their friends in government are extorting money from the taxpayers (you and me) with a threatening "or else" that goes something like this: "Give us the money or the entire financial system will implode."

And as we fork over the extortion money, these corporate gangsters put us on the hook for trillions of dollars MORE.

For example, AIG posted the largest quarterly loss in American corporate history — $61.7 billion — for the final three months of last year. That means the company lost more than $27 million every hour. That's $465,000 a minute, or $7,750 a second.

As a result of its losses, AIG has been awarded hundreds of billions of taxpayer dollars. Otherwise, we're told, the company's collapse could devastate the economy.

And that's just ONE of the companies robbing you of your hard-earned money under the pretext of "fixing" the problem.

In fact, one of the ways we know this is financial terrorism is that the steps being taken to "fix" the problem aren't fixing a single thing.

Glass-Steagall was passed after the Great Depression, the last time outrageous financial chicanery brought our country to its knees economically. This law placed a barrier between everyday banking, such as lending and deposit-taking, and riskier areas, such as derivatives trading.

But the law was repealed in 1999, thanks to lobbying by the very companies we're bailing out now. And the effort was midwifed by Phil Gramm, a laissez-faire-lovin' Republican senator from Texas who co-authored the Gramm-Leach-Bliley Act that repealed many key provisions of Glass-Steagall.

Gramm quit the Senate to go work for UBS AG, one of the beneficiaries of the repeal. I believe that kind of thing — passing a law to help a future employer — should be illegal. We can only be thankful that Gramm didn't go on to higher office — he was an advisor to McCain's Presidential campaign and probably would have ended up as Treasury Secretary had McCain won.

But this isn't just a Republican problem. Oh, if it were only that simple. You see, there were shady characters on both sides of the political aisle in this terrorism caper.

Instead of Gramm, we got Tim Geithner as Treasury Secretary. He's a protégé of Robert Rubin, former co-CEO of Goldman Sachs and one-time Treasury secretary in the Clinton administration, who went on to work for Citigroup after whole-heartedly supporting the Glass-Steagall repeal. Due to the current financial crisis, Citigroup lost $27.7 billion last year and has needed $45 billion in government funds to stay afloat.

But Wait, It Gets Better!

Clinton had more than one Treasury Secretary. And the last one was Lawrence Summers. At the time Glass-Steagall was repealed, Summers said:

"Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy.''

Good thing Summers isn't around anymore, eh? After making such a colossal mistake, he wouldn't dare to show his face. Oh wait — would you believe he is now the Director of the White House's National Economic Council?

In other words, one of the persons who got us into this mess is now in charge of fixing it! Isn't that like hiring an arsonist to put out your house fire?

And people wonder why I'm pessimistic.

You may have heard Washington officials say on TV: "No one could have foreseen what would happen."

Except that someone did foresee EXACTLY what was going to happen. When Glass-Steagall was up for discussion, Senator Byron Dorgan (D-North Dakota) made an impassioned speech on the floor of the Senate, asking his colleagues NOT to repeal the regulation. He said:

"I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that which is true in the 1930's is true in 2010. I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

Only eight senators opposed the Gramm-Leach-Bliley repeal of Glass-Steagall:

• Richard Shelby (R-AL)

• Barbara Boxer (D-CA)

• Richard Bryan (D-NV)

• Byron Dorgan (D-ND)

• Russell Feingold (D-WI)

• Tom Harkin (D-IA)

• Barbara Mikulski (D-MD)

• Paul Wellstone (D-MN)

If your senator was around in 1999, and he or she isn't on that list, you can be fairly certain that your senator does the bidding of the Wall Street banksters, not you.

While Wellstone is dead, I find it interesting that none of these other, prescient senators have been tapped by President Obama to fix the crisis. Instead, all roads to high-level White House financial appointments seem to lead through Goldman Sachs.

The original plan to bail out AIG was dreamed up last fall at a meeting run by then-Treasury Secretary Hank Paulson. Paulson had been CEO of Goldman Sachs before becoming Treasury Secretary. Also attending the meeting was Lloyd Blankenfein, the current CEO of Goldman Sachs and Tim Geithner, then head of the New York Fed.

AIG was not allowed to fail — remember Geithner has taken both bankruptcy and nationalization off the table. So AIG's trading counterparties are being paid 100 cents on the dollar.

Much of the $170 billion bailout AIG has received has gone to pay off obligations to Wall Street banks, such as Goldman Sachs. Goldman has maintained that it got no bailout money from the Treasury, apart from the $25 billion it was "forced" to take. But in fact, it received at least $13 billion through AIG!

It's almost as if Goldman knew that the money would be coming.

Along with Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank and Barclays are all recipients of AIG's payments to its former trading partners.

Former New York Attorney General Elliot Spitzer — who knows a thing about financial shenanigans — recently wrote:

"The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation."

So here's where an administration's spokesperson says on TV: "Well, it's a mess, but we're doing our best to fix it."

Are they? Let's look at the track record (in both the Bush and Obama administrations) ...

* No serious attempt at re-regulation. You'd think the first order of business would be to reinstate Glass-Steagall. The Obama Administration hasn't done that. In fact, while Secretary Geithner recently proposed "sweeping" changes to Federal regulation of the financial system, Glass-Steagall wasn't part of the package.

* Goldman Sachs' unprecedented access to the corridors of power in D.C. continues. Another former Goldman Sachs employee, Gary Gensler, has been nominated to head the Commodity Futures Trading Commission.

* Not even a token attempt at justice. Where are the indictments? Why aren't we seeing Wall Street executives frog-marched to the paddy wagons? And don't tell me about Bernie Madoff — he was a rogue operator who turned himself in, not the head of one of the major Wall Street banks that have ripped us off through systematic pillaging. Indeed, everything I see tells me that our government is a willing co-conspirator with the robber barons.

* The looting continues. In just one example, Citibank and Bank of America are now using the TARP funds they received not to extend more loans as they were supposed to, but to buy up more of the toxic debt they're supposed to be getting rid of! Why? Because they know that, under Geithner's plan, they will be able to sell the toxic debt at a substantial profit as the government props up the market for those troubled assets. These banksters are speculating with the same taxpayer money that was supposed to pull them back from the abyss.

* The threats continue. In the Bush administration, Treasury Secretary Paulson was able to get his original bailout package passed by Congress in a very simple manner. According to Representative Paul Kanjorski, the Capital Markets Subcommittee Chair, Paulson told them, with a great sense of urgency, that there was an electronic run on the banks. And if Congress didn't go along with Paulson's rescue plan, Kanjorski recalled being told, "It would have been the end of our economic system and our political system as we know it."

Well, it's déjà vu all over again. Geithner recently told the House Committee on Financial Services: "The U.S. Government does not have the legal means today to manage the orderly restructuring of a large, complex, non-bank financial institution that poses a threat to the stability of our financial system."

Geithner could be sincere, in which case, we are in a very dire situation indeed. I'm just not sure he's the right man to reform the system, because I can't tell whose side he's on.

After all, last week, the Obama administration urged the U.S. Supreme Court to stop New York and other states from enforcing their fair-lending and other consumer-protection laws against federally chartered banks, including JPMorgan Chase and Wells Fargo & Co. This is the same position that the Bush administration had and a slap in the face for consumer and civil-rights groups.

Our government is going to have to choose whose side it is on. It's a choice that — if not correct — could bring this country to the brink of anarchy.

Could We Go the Way of Argentina?

Desmond Lachman — former chief strategist for emerging markets at Salomon Smith Barney and a long-time official with the IMF — recently wrote in The Washington Post that comparing the economic crisis in the U.S. to Japan's "lost decade" was wrong. Instead, he said a better comparison is to Argentina, Russia, Thailand, and other countries that collapsed both economically and politically, weighed down by their own corruption.

He wrote:

"Watching Goldman Sachs's seeming lock on high-level U.S. Treasury jobs as well as the way that Republicans and Democrats alike tiptoed around reforming Freddie Mac and Fannie Mae — among the largest campaign contributors to Congress — made me wonder if the differences between the United States and the Asian economies were only a matter of degree."

From what we've seen so far, the only response to the catastrophic collapse of major American financial institutions is to try and reinflate the balloon with our tax dollars. There is no serious attempt at reform. And without that, there can be no real recovery. And Lachman's words could come back to haunt us.

Edited 01/04/09 02:06 PM by hypnodoc

[ronburgundy]

First 3 cars that came up on a Random search on CarSales today...

1. 1991 Diablo ($205k)

2. VL Brock HDT Director ($130k)

3. 1957 Bel Air ($55k - one of my all time faves actually!)

Oh and there was also an FG XR8 demo with 5 kays on it for $39k driveaway