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Current mood:  angry
Category: News and Politics
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Times, they are a’ changin’ here folks. I’ve studied politics and government for a long time and I think its my civic duty to try and help people to prepare for what may be an unpleasant future. I think that the mainstream media is walking a thin line between alarm and euphemism - but I want to tell those I know and care about to hope for the best but prepare for the worst.
Thanks in many ways to the shortsightedness of Pres. Bush, we’ve got several economic storms on the horizon at once. Given his luck with fighting storms ala Katrina, I encourage people to protect themselves however they see fit and not wait for the govt. to help. This is my quick run down of things as they are at this moment - and then why I think Spitzer had to fall when he did.
A Potential Sea of SubPrime
Banks took advantage of the Fed’s low interest rates in the early days of Bush V.2 to introduce Adjustable Rate Mortgages, (mainly to non-whites) to build up massive amounts of loans and increase their balance sheets. A key factor of ARMs were that people would only be paying the interest down for the first few years and then after the "teaser rate" ended, they’d have to pay down the principal and interest which made their monthly payments much higher. These questionable loans were then bundled into CDOs ("collateralized debt obligations") and then sold to people around the world as a kind of bond (while a "share" of stock is a piece of a company, a "bond" is a piece of debt from a company or government) . So long as people payed their mortgages and housing prices increased, it was like free money for wall street and affordable housing for poor home-owners. With the high yields they provided at the time, few people were protesting and many who should have known better were buying. Many people bought houses just to take advantage of this Now that housing is dropping and people are leaving their homes, the CDOs are becoming worthless. No one yet knows how many CDOs are out there in the portfolios of private investors, banks and governments.... but the lack of communication on this seems telling.
Banks becoming insolvent
The Fed is proving that they will try to do whatever it takes to save the banks. Or try to anyway. Given that we don’t know what portion of their balances are now in CDOs its unclear what will happen from here. Suffice it to say that things are really bad when methods from over 40 years ago have to be dusted off to help try and save banks. While this is clearly "socialism for the rich", who knows if this will be enough - and the one clear consequence is more dollars out there, which will inevitably lead to inflation.
Bernanke Discards Monetary History With Bear Stearns Bailout
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aY2RvFA.yO_Q
Did I mention that many major banks are being sued for taking money owed to local governments in many states around the US?
Financial services firm facing lawsuit
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-23775545.htm
Also, did you know our new Treasury Secretary Hank Paulson sold CDOs to people making a huge profit, while it was betting on them failing at the same time to create huge profits for themselves? Good thing this guy is watching out for all of us now...
"Yesterday’s excesses" now haunting Paulson, who helped create them
http://www.iht.com/articles/2007/11/06/bloomberg/06bxprime-web.php?WT.mc_id=rssbloomberg
Inflation....
OK, you’d think it would be a joke to say that strippers in Chile are enticing US travelers to their strip clubs with "2004 Exchange Rates" because of the strength of the Chilean Peso would be a joke, right?
Pole Dancers in Santiago Lure Clients With 2004 Dollar Rate
http://www.bloomberg.com/apps/news?pid=20601109&sid=aSKU9QT1i3mA&refer=exclusive
Sadly, this is good business sense. With the fed continuing to flood the markets with dollars and the reserves of dollars in foreign govts. losing value everyday, it seems unlikely the drop of the dollar will stop anytime soon.
But don’t freak out everyone - they’ve put the dollar on "intervention watch" - you know, like where they stand over you with a defibrillator as you eat a chili hamburger...
Dollar Puts Morgan, Goldman on ..Intervention Watch’
http://www.bloomberg.com/apps/news?pid=20601100&sid=aSufhjpowj3o&refer=germany
CNN also has a money expert talking about what the govt. and fed is hiding from us...
http://money.cnn.com/video//video/news/2008/02/28/news.hunter.shadowstats.Feb28.cnnmoney
Oh, and George Soros, legendary currency speculator expects the dollar to crash and lose its reserve status.... And Warren Buffet is investing in the Brazillian "Reals" instead of US dollars...
Stocks, Bonds and the Economy
So, we’ve been off the gold standard for a long time and our US dollars are a "fiat currency", meaning the value is given by the word and trust of the government. We don’t know how many fiat dollars are out there because they stopped releasing that data back in 2006, but its a fair guess to say there is a lot more today then there was before. Given the opacity of the Bush administration, banks and the Fed, there is a lot of mystery out there as to what is really happening.
Now, the stock market doesn’t run on what things are intrinsically worth, but what their future value is speculated to be.... thus a stock can be worth $50 to buy, but each share is really worth less than $1 in intrinsic value. With all these unknowns floating around, many people are quietly looking for the exits... while expecting a crash in the markets of unprecedented proportions in the near future.
I kid you not folks - I researched several sites and investment companies and many suggest "cash" as the safest investment for the moment. Whenever fear and panic overtake greed and speculation, the tide will turn and things will drop like a lead balloon.
This article is from MSN money - a major investment site (by Microsoft) - and it clearly advocates selling off most all stocks and bonds "while you still can".
Sell stocks while the selling’s good
http://articles.moneycentral.msn.com/Investing/SuperModels/SellStocksWhileTheSellingsGood.aspx
Globalization coming home to roost
Globalization seemed cool to many when it was about cheap stuff made in other countries, but once we realized our white-collar jobs were being replaced as much as the blue-collar ones, it seemed like we had second thoughts. Now that we are realistically in the position of losing the "reserve status" of our currency - meaning, all the foreign banks who kept our dollars for oil sales and investments are getting second thoughts. Some have speculated that if oil could be bought and sold in other currencies (as is slowly becoming the case) the value of the dollar would drop by some 30-40%. At this point, I’m beginning to wonder what we still sell abroad - but whatever they are buying from us, its becoming cheaper and cheaper to anyone outside the US.
Meanwhile, the Chinese government is telling other nations they’ll take dollars and convert them into Yuan - but you better hurry! The longer you wait, the less you’ll get for your rapidly deteriorating dollars!
Foreign investments, hot money come to China
http://www.chinadaily.com.cn/china/2008-03/13/content_6534051.htm
This seems especially funny to me as a student of world politics. I seem to recall the "defeat" of the USSR at the hands of the USA came down to a matter of economics. They simply couldn’t keep building their weapons, infrastructure and welfare programs without the prosperity they hoped for. The end result was a country that became insolvent and bankrupt. After that, we arrogantly went into the USSR and screwed up the place so much with misguided (and greedy) economic policies, there is little doubt they still hold a grudge. With Russia beginning to sell oil in rubles and China advertising their desire to exchange dollars for yuan, could it be that their plan is to bankrupt the USA? Who might have the most to gain if we went into that situation...
Back to raw practicalities - China is undergoing a period of strong inflation at around 9% - if they make most of our stuff we buy here and they are suffering from serious inflation... guess who’ll be getting it next??
China, Fed policies forcing retail prices up
http://www.reuters.com/article/ousiv/idUSN1456756620080314
Recession
Finally, we come to recession. A really cursory understanding of capitalism includes the very simple idea that we seek to profit from our investments. If you put $100 in the bank, you expect it to grow in a year with interest payments. This largely works because of ever expanding markets - markets must expand to gain value. Imagine if the same number of people buy coke each year, the company won’t be increasing their profits in any appreciable way (unless they cut costs elsewhere). This has led to colonialism, "manifest destiny" and much of the past 200 years as capitalists seek to expand markets for rising profits (Europe is only so big, right?). The problem today is, basically everyone from here to Papua New Guinea has coke available and the markets are unable to be saturated further. Where else will money flow to find rising profits and hot markets? I don’t know the answer, but it surely isn’t the USA at this moment.
A Harvard economist says we’re facing a crisis the likes of which we haven’t seen since WWII... Given that WWII was attributed to us getting out of the "Great Depression", this is a very dark statement to make...
Harvard’s Feldstein Says U.S. Economy in a Recession (Update2)
http://www.bloomberg.com/apps/news?pid=20601068&sid=ag0t9NpkLkz0&refer=economy
Credit Crisis
As banks strain under their myriad problems, they are constrained by debt and lack of freed up funds. Despite the fact the Fed lowers the interest rate banks get, they are not lowering the rate to borrowers - they are RAISING it. This shows even more weakness in the banks - and this is the opposite of what the US government needs to stimulate growth. Current mortgage rates give banks nearly twice the profit they had this time last year when issuing mortgages. They say the added profit is necessary due to added risks...
Fed Efforts Foiled By Banks as Mortgage Rates Rise
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHEwKH3Z9XxY&refer=home
Meanwhile income in the USD has largely stagnated in the past 10 years, while inflation has increased at a much swifter pace. This has been making Americans feel intense pressure as the financial walls begin to cave in, and there is little shelter apart from credit cards... The ballooning of the balances of credit cards further adds to the instability of banks and their desire to cut off credit from borrowers.
In the UK, one company (bought by Citi) has decided to stop allowing any more borrowing and is insisting everyone payback whatever they owe now...
No sunny side for Egg customers
http://news.bbc.co.uk/2/hi/business/7266578.stm
This will almost inevitably result in social turmoil as people unaccustomed to being extremely poor are quickly losing options while leaning closer to desperation and perhaps homelessness. I’m afraid riots like this, will become more common.
Hundreds seeking housing money overwhelm Boca Authority
http://www.palmbeachpost.com/localnews/content/south/epaper/2008/03/12/0312vouchers.html
And then there was Spitzer...
So, we are in an extremely tangled web of high economic danger brought about by short-term greed on a titanic scale. Why doesn’t the media tell us about this and why doesn’t anyone break this down in simple language for all of us to understand? Even more so, why don’t we have a clear picture of who is to blame for all of this?
In everything I have looked at to create this article, it seemed like only one standing governmental official had the balls and the authority to actually do something about the crisis and name names.
Ex-NY Gov. Eliot Spitzer
And now, when needed most, he’s become a media pariah.
Now, we all know he was into high priced hookers, but isn’t it odd no one talks about his history anymore? You know, his reputation for attacking Wall street, banks, gun manufacturers and polluters for screwing over the little people? The Wall Street Journal talked about him as the "most hated man on Wall Street" because of his arrogant manner of going after CEOs and sending wrong-doers to jail - its no exaggeration to say the man had a legion of enemies in corporate America.
Maybe I’m just paranoid, but doesn’t it seem funny in the age of wire-tapping by Bush that they could zero in on his conversations so easily?
What really strikes me, is that the Feds closed the case on Spitzer on Feb 12, two days before an article he penned was published (see below). In it, he spoke extremely aggressively about the state of the economy being a product of GW Bush and his administration. Could it be that they coordinated their attack on him in such a way to stop their major detractor to be out of the picture before the real malfeasance could take effect? I wonder how much the banks stand to gain if no one else will take such a strong role in policing wall street... Already they’ve loaned 200 billion to banks this week - I wonder if it would even have cost 1/100th of that to set up an operation to take Spitzer out if they knew he was prone to "moral indiscretion".
I am genuinely scared for the the future of the USA at this point - and especially so as the pliant media refuses to give us a straight story - has our only consistent defender been vanquished? Will anyone else stand up to them now? Where’s John Edwards? Is there anyone out there willing to fight the banks, wall street and the Bush admin. without something to hide? At the very least, Spitzer will be seen as an example of what may happen to anyone else who would criticize Bush & co. so brazenly -
I high encourage everyone to read Eliot Spitzer’s op-ed column below, I think it gives crucial insight into the root of the economic problems - and the date is just too close to the wire-tapping to be a pure coincidence to me... Might they have wanted to listen in on him to see what else he might be wanting to discuss and divulge besides prostitutes? (below his own words is a fantastic column by Greg Palast on this as well)
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By New York Governor Eliot Spitzer
The Washington Post
Feb. 14, 2008
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York’s, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers. [emphasis added]
The writer is governor of New York.
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And then there is Greg Palast’s insightful view:
Eliot’s Mess
http://www.gregpalast.com/elliot-spitzer-gets-nailed/
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