Thursday, July 31, 2008

Greenspan Says Housing Prices Not Yet Near Bottom

July 31 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are ``nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

While the odds of a recession are 50-50, achieving stable markets will ``take a while,'' Greenspan said today in a CNBC interview.

The economy grew at a 1.9 percent annualized rate in the second quarter after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. Gross domestic product was revised to show a contraction in the final three months of 2007.

More Americans filed claims for unemployment insurance last week than at any time in more than five years, the Labor Department said. Fed policy makers have cut the benchmark rate to 2 percent from 5.25 percent since September, halting the reductions in June amid rising concern about inflation.

Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, are a ``major accident waiting to happen,'' Greenspan said. ``The solution'' is the ``nationalization'' of the companies, he said.

More…

FANNIE'S AND FREDDIE'S FREE LUNCH

By Joseph Stiglitz
Published: July 24 2008 18:25
Much has been made in recent years of private/public partnerships. The US government is about to embark on another example of such a partnership, in which the private sector takes the profits and the public sector bears the risk. The proposed bail-out of Fannie Mae and Freddie Mac entails the socialisation of risk - with all the long-term adverse implications for moral hazard - from an administration supposedly committed to free-market principles.
Defenders of the bail-out argue that these institutions are too big to be allowed to fail. If that is the case, the government had a responsibility to regulate them so that they would not fail. No insurance company would provide fire insurance without demanding adequate sprinklers; none would leave it to "self-regulation". But that is what we have done with the financial system.
Even if they are too big to fail, they are not too big to be reorganised. In effect, the administration is indeed proposing a form of financial reorganisation, but one that does not meet the basic tenets of what should constitute such a publicly sponsored scheme.
First, it should be fully transparent, with taxpayers knowing the risks they have assumed and how much has been given to the shareholders and bondholders being bailed out.
Second, there should be full accountability. Those who are responsible for the mistakes - management, shareholders and bondholders - should all bear the consequences. Taxpayers should not be asked to pony up a penny while shareholders are being protected.
Finally, taxpayers should be com¬pensated for the risks they face. The greater the risks, the greater the compensation.
All of these principles were violated in the Bear Stearns bail-out. Shareholders walked away with more than $1bn (€635m, £500m), while taxpayers still do not know the size of the risks they bear. From what can be seen, taxpayers are not receiving a cent for all this risk-bearing. Hidden in the Federal Reserve-collateralised loans to ¬JPMorgan that enabled it to take over Bear Stearns were almost surely interest rate and credit options worth billions of dollars. It would have been easy to design a restructuring that was more transparent and protected taxpayers' interests better, giving some compensation for their risk-bearing.
But the proposed bail-out of Fannie Mae and Freddie Mac makes that of Bear Stearns look like a model of good governance. It sets an example for other countries of what not to do. The same administration that failed to regulate, then seemed enthusiastic about the Bear Stearns bail-out, is now asking the American people to write a blank cheque. They say: "Trust us." Yes, we can trust the administration - to give the taxpayers another raw deal.
Something has to be done; on that everyone is agreed. We should begin with the core of the problem, the fact that millions of Americans were made loans beyond their ability to pay. We need to help them stay in their homes, including by converting the home mortgage deduction into a cashable tax credit and creating a homeowners' Chapter 11, an expedited way to restructure their liabilities. This will bring clarity to the capital markets - reducing uncertainty about the size of the hole in Fannie Mae's and Freddie Mac's balance sheets.
The government should set a limit to the size of the bail-out, at the same time making it clear that, while it will not allow Fannie Mae and Freddie Mac to fail, neither will it be extending a blank cheque. There may need to be a drastic reorganisation. There should be a charge for the "credit line" (any private firm would do as much) and, given the risk, it should be at a higher than normal rate.
The private sector knows how to protect its interests; the government should do no less. As long as the credit line is extended, no dividends should be paid. To ensure that the government is not simply bailing out creditors who failed in due diligence, at least, say, 25 per cent of any notes, loans or bonds coming due that are not lent again should be set aside in an escrow account, to be paid only after it is established that taxpayers are not at risk. Any government loans should be cumulative preferred debt: the taxpayers get paid before any other creditors receive a dime. To discourage moral hazard the interest rate should be at a penalty rate and, reflecting the rising risk, increase with the amount borrowed. Finally, the government should participate in the upside potential as well as the downside risk: for instance, by taking shares (which it might later sell) or, as it did in the Chrysler bail-out, warrants.
We should not be worried about shareholders losing their investments. In earlier years, they were amply rewarded. The management remuneration packages that they approved were designed to encourage excessive risk-taking. They got what they asked for. Nor should we be worried about creditors losing their money. Their lack of supervision fuelled the housing bubble and we are now all paying the price. We should worry about whether there is a supply of liquidity to the housing market, so that those who wish to buy a home can get a loan. This proposal provides the necessary liquidity.
A basic law of economics holds that there is no such thing as a free lunch. Those in the financial market have had a sumptuous feast and the administration is now asking the taxpayer to pick up a part of the tab. We should simply say No.
The writer, 2001 recipient of the Nobel Prize for economics, is university professor at Columbia University. He is co-author with Linda Bilmes of The Three Trillion ¬Dollar War: the True Cost of the Iraq Conflict
Copyright The Financial Times Limited 2008

UFOs has told to us by the New York Times

July 29, 2008
Op-Ed Contributor

Unidentified Flying Threats

London

ON the afternoon of Nov. 7, 2006, pilots and airport employees at O’Hare International Airport in Chicago saw a disc-like object hovering over the tarmac for several minutes. Because nothing was tracked on radar, the Federal Aviation Administration did not investigate. Yet radar is not a reliable detector of all aircraft. Stealth planes are designed to be invisible to radar, and many radar systems filter out signals not matching the normal characteristics of aircraft. Did it really make sense to entirely ignore the observations of several witnesses?

A healthy skepticism about extraterrestrial space travelers leads people to disregard U.F.O. sightings without a moment’s thought. But in the United States, this translates into overdependence on radar data and indifference to all kinds of unidentified aircraft — a weakness that could be exploited by terrorists or anyone seeking to engage in espionage against the United States.

The American government has not investigated U.F.O. sightings since 1969, when the Air Force ended Project Blue Book, an effort to scientifically analyze all sightings to see if any posed a threat to national security. Britain and France, in contrast, continue to investigate U.F.O. sightings, because of concerns that some sightings might be attributable to foreign military aircraft breaching their airspace, or to foreign space-based systems of interest to the intelligence community.

Most of the incidents investigated in Britain have been easily explained as misidentifications of stars and planets, aircraft lights, satellites and meteors, but some cases have raised national security or air safety issues.

On Dec. 26, 1980, for instance, several witnesses at two American Air Force bases in England reported seeing a U.F.O. land. An examination of the site turned up indentations in the ground and a level of radiation in the area that was significantly higher than ordinary. More witnesses at the same base reported the U.F.O. again on subsequent nights. The deputy base commander reported that the aircraft aimed light beams into the most highly sensitive area of the base — a clear security breach.

On March 30 and 31, 1993, there was a wave of U.F.O. sightings over Britain. One witness described a triangular-shaped craft that flew slowly over an air force base before accelerating away to the horizon in an instant, many times faster than a jet. The British military reported, “There would seem to be some evidence on this occasion that an unidentified object (or objects) of unknown origin was operating over the U.K.”

On April 23, 2007, a commercial airline pilot and some of his passengers reported a huge cigar-shaped U.F.O. — the pilot estimated it to be a mile wide — near the Channel Islands. At the time, air traffic controllers reported to the pilot that radar picked up something, but that it was “unknown traffic.”

In addition, there have been several incidents of near misses between U.F.O.s and known aircraft — enough to prompt the Ministry of Defense and the British Civil Aviation Authority to advise pilots, if they encounter anything, “not to maneuver, other than to place the object astern, if possible.”

The United States is no less vulnerable than Britain and France to threats to security and air safety. The United States Air Force or the National Aeronautics and Space Administration should reopen investigations of U.F.O. phenomena. It would not imply that the country has suddenly started believing in little green men. It would simply recognize the possibility that radar alone cannot always tell us what’s out there.

Nick Pope, the author of “Open Skies, Closed Minds,” was in charge of U.F.O. investigations for the British Ministry of Defense from 1991 to 1994.

Greek "Computer" Tracked Ancient Olympics, Other Games


Brian Handwerk
for National Geographic News
July 30, 2008
A Greek machine sometimes called the world's first computer could have helped sports fans track the cyclical schedule of ancient athletic contests—including the Olympic games, new research reports.

The Antikythera mechanism, which dates to around 150 to 100 B.C., is a complex amalgamation of bronze gears, dials, and text inscriptions that was created perhaps a thousand years before the next known device of similar sophistication.

Though many of its functions remain mysterious, previous research found that the device tracked and displayed the date, a 19-year calendar, and the positions of the sun and moon.

The mechanism even predicted eclipses—though with limited accuracy—using an 18-year eclipse cycle, called the Saros cycle, that was known to Babylonian astronomers centuries before the mechanism was built. (Read how the ancient Chinese predicted eclipses.)

Now members of an international collaboration called the Antikythera Mechanism Research Project have used high-resolution 3-D scans to examine "slices" of the mechanism's 82 fragments.

The scans allowed the team to read previously hidden text inscriptions that showed an unexpected feature: a dial for tracking the timing of the Panhellenic games.

"It really stood out as something that is not astronomy," said team member Alexander Jones, a classicist at New York University.

"It has nothing to do with the heavens or the planets. It's a clear sign that this thing wasn't just [for scientific observation], it was to relate human institutions and human time to the heavens."

Let the Games Begin

In 1901 sponge divers recovered a corroded, calcified lump about the size of a laptop computer amid the treasures of a first-century B.C. Roman merchant ship that sunk near the Greek island of Andikíthira.

Although the mechanism's moving parts no longer work, x-ray scans allowed scientists to piece together its layers of gear wheels and read some of the inscriptions around its dials.

The latest scans revealed previously unseen glyphs, including the word "Nemea," which refers to the site of the Nemean games, part of the Panhellenic games.

Further investigation found the place names of the three other great sporting events—Isthmia (Kórinthos, or Corinth), Pythia (Delphi) and Olympia—inscribed around a four-part dial.

The British Museum's Judith Swaddling, author of The Ancient Olympic Games, is unaffiliated with the Antikythera mechanism research group. She called the discovery of the so-called Olympiad dial fascinating.

"The major Greek games were arranged so that there was at least one each year, and there were many minor meets, too," she said.

"Greek life very much revolved around sport—hence scenes from sporting events were depicted on drinking cups and other vessels associated with banqueting and would have been a hot topic of conversation."

The games were also closely linked to Greek mythology, with legends of victorious heroes or kings tied to their foundations.

"The fact that all games were held in honor of a god [such as Zeus for the Olympics] linked sport with religion and further intermeshed them with the other major aspects of Greek life," Swaddling said.

Archimedes Link?

The 3-D x-rays, described this week in the journal Nature, also allowed researchers for the first time to read the names of months inscribed on the device's 19-year calendar, revealing that they have Corinthian origins.

"Every Greek community had its own distinct calendar [and] they had different names for each month," Jones explained.

"Now that we can read the month names, we can say this is a calendar that comes from one of a number of places in the western Greek world, probably the island of Sicily [now part of Italy] or northwest Greece."

Sicily is a particularly intriguing possibility, because it was home to the scientist Archimedes, who is known from Roman records to have invented some lost types of mechanical astronomy devices.

"A book by [Roman philosopher] Cicero describes this thing [Archimedes constructed] and how it showed the movements of the sun and the moon, and how eclipses happened. It sounds a bit like what we've got [with the Antikythera mechanism]," Jones said.

Though Archimedes died a century or so before the mechanism was built, others in Sicily could have made it based on his knowledge and skills, the scientists theorize.

Team member Yanis Bitsakis, of the Center for History and Paleography in Athens, added that he expects to be busy for years to come deciphering still-unread inscriptions.

"We were amazed by this discovery, but we still have a lot of other inscriptions to read," he said. "They are fragmented in a giant jigsaw puzzle of 82 pieces."

The artifact's scrambled nature makes assembling characters into words and then deciphering their larger meaning a tough task.

"It's written in a style like an instruction manual. If you do this, then you'll see that," Bitsakis explained.

"So if we had the complete text, there would be no mystery. But we only have about one-fifth of what was initially there."

Wednesday, July 30, 2008

Let me get this straight....

LET ME GET THIS STRAIGHT.... MERRILL LYNCH sells 30 Billion dollars of CDO's for 22 cents on the dollar. On top of an announcement of another 5 or billion dollars of write downs (losses), on top of over thirty billion dollars of previous write downs. AND THEIR STOCKS GO UP $4 and the Stock Market Rallys !!! AMAZING INDEED.

The financial gurus, explain this by telling us that the rally was because it looks like the market "found bottom" and the CDO finally found a value.

THIS IS TOTAL INSANITY !!

THE SYSTEM IS RIGGED FOR INVESTMENT BANKS. Unlike the rest of us slobs who struggle and sacrifice to participate in this SO-CALLED FREE MARKET.

They say 90% of small businesses fail within the first two years etc.etc.
There is no safety net for small business, the so-called BACKBONE of the US economy. If I as business man, announce massive losses and sell my assets for pennies on the dollar. WHO THE F"CK is going to give me more money.. Friends?? Family? Will a bank give a failed businessman with bad credit a second chance?

BUT INVESTMENT BANKS CANT LOOSE BECAUSE THE MONEY SPIGOT IS ALWAYS OPEN TO THEM. Talk about moral hazzard!!!! This is what Bear Stearns was all about. These creeps cannot lose.

Real "capitalism" does not exist in America. If it did, Merrill Lynch and Bear Stearns would be long gone.

It is a rigged corrupt system of exploitation, where wealthy losses are subsidized by the taxpayers, and profits are protected from taxes. Publicize the losses, privatize the profits.

Investors flocked back to Merril Lynch like PIGS AT THE TROUGH, because they know that the Federal Reserve keeps printing and the treasury keeps throwing taxpayer money at these THIEVES.

IT MUST COME DOWN.. ALL OF IT. and it would not take a revolution at all. Just stick to FREE MARKET PRINCIPALS, like that POMPOUS THEIVING HYPOCRIT CLOWN Larry Kudlow keeps preaching. Get rid of the derivatives, options loopholes and privledges and let these creeps fend for themselves in the real world.

THE AMERICAN SYSTEM OF DEBT AND CASINO CAPITALISTM NEEDS TO COLLAPSE IN ON ITSELF. ITS DEADLY WAR MACHINE THAT USURPS SO MUCH RESOURCES, FORCING OTHER COUNTRIES TO SPEND TO KEEP UP, ALSO NEEDS TO COLLAPSE. THEY REST OF THE WORLD NOW HAS THE POWER TO HELP IT ALONG. IT LOOKS LIKE THEY MAY BE DOING THIS.

SOME DAY WE CAN SEE A WORLD WHERE A PERSON GETS PAID FAIRLY FOR WHAT THEY PRODUCE, TANGIBLE USABLE EDIBLE PRODUCTS.

German politician warns against "new Cold War" against China

BERLIN, April 16 (Xinhua) -- A German politician has accused Western countries of waging a "new Cold War" against China while a prominent China expert in Germany also deplored the West's demonization of the country.

"Every generation seems to need its own war before it is capable and wise enough to draw lessons from that, be it the hot war or the cold war," said Antje Vollmer, a former vice president of the German parliament, in an article published in the German daily Sueddeutsche Zeitung on Tuesday.

"It took barely 10 years after the end of the last Cold War before a new hot war was declared: the war on terror," she said.

"Can the war on terror be won with weapons?" Vollmer asked. Heranswer was "No".

"At a time when we are already in an ideological confrontation with the Islamic and Arab countries, at a time when we have maneuvered ourselves into a sort of diplomatic confrontation with Russia, now again a general system confrontation with China? Every fifth person in the world is Chinese. Obviously the West has too much self confidence," said Vollmer.

"But whether this great common denominator has even the most minimal chance to reach its goal, this must be seriously doubted," she said.

Meanwhile, Thomas Heberer, a leading China expert in Germany, accused the West of "demonizing" China in his article published Wednesday in the German daily Die Tageszeitung.

"After the idealization of the 1990s, we are now at a stage of demonization," Heberer said.

"This is partly due to the rise of China and the associated false fears that China could become an economic and political threat to the West," he explained.

"What is especially fatal is that the huge successes and changes in the course of China's reform policy since the late 1970s are now forgotten," Heberer added.

He also pointed out that the real causes and background of the Tibet issue are not understood by the West.

"No country in the world has ever recognized the independence of Tibet or declared that Tibet is an 'occupied country.' For all countries in the world, Tibet is Chinese territory," he said.

For Heberer, recent Western news reports about Tibet "resembles a kind of hysteria."

"In the eyes of Europe and North America, Tibet has long been something very special and mystical. Tibet is considered an exotic entity, which is idealized. A book published a few years ago described this phenomenon as the so-called 'myth of Tibet'," said Heberer.

"It should also be recalled that Tibet before 1950 was by no means a harmonious, democratic society, but a highly hierarchical and organized class society with a hereditary aristocratic class at the top and a large number of poor or landless small farmers," he added.

In view of the current situation, Heberer called on Western countries to continue "constructive dialogue" with China.

"Whoever believes that massive protests and pressure can bring some changes to China, just misjudges the real situation," Heberer said. "China never yields to external pressure in matters of national unity and political stability. Moreover, Chinese people at home and abroad also unanimously stand behind the political leadership of China."

He also expressed his opposition to boycotting the Beijing Olympics.

"We should be clear that the most pressing world problems can only be solved with China, not against China," Heberer said.





BBC: America's house price time bomb

By Michael Robinson
BBC World Service

With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is authorising new legislation to pave the way for massive new government intervention designed to slow the slide.

For sale sign on a bank owned house
Banks in the US could end up owning ever more houses

The intervention would come as a little known quirk of US law threatens to drive down house prices even faster.

Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.

In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank.

By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less.

So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase.

"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."

Take the hit

Karen Trainer
Is the bank going to pay for my retirement because I was a good girl and paid my mortgage
Karen Trainer

As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded.

Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment.

Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon.

"Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it."

Over to the bank

In California and much of the rest of America, there is a powerful incentive for homeowners such as Ms Trainer to walk away from their mortgage obligations.

Susan Wachter
The dangers are extraordinary
Professor Susan Wachter, Wharton School of Business

Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes.

Consequently, by walking away from her apartment, Ms Trainer has also walked away from the loss on her property.

Her bank gets stuck with that.

Unthinkable option

Traditionally in America there is a social stigma attached to those who default on their debts, which should be a deterrent to walking away from your home.

President George W Bush
The housing market has become a headache for President Bush

But according to Susan Wachter, professor of real estate and finance at Wharton School of Business, in the depth of this crisis the social attitudes to such actions are changing.

"This is the kind of conversation that's going on at cocktail parties, at swimming pools," Professor Wachter says. "And suddenly this option which was truly unthinkable in the past becomes thinkable."

Worrying development

Ms Trainer says she feels no moral obligation to go on paying a loan on a property that is going to go on losing her money. She says her friends support her decision.

Kevin Morgan
It's a business decision for their family that the smartest thing they can do is walk away from their home
Kevin Morgan, estate agent

"I think people are taking a more cold-hearted look at it," she says.

"Is the bank going to pay for my retirement because I was a good girl and paid my mortgage, even though legally I didn't have to?"

Professor Wachter believes that, to date, most people have had their homes repossessed because they could not manage the repayments.

The trend of people now positively choosing to walk away because it makes financial sense to do so is a worrying new development.

"The dangers are extraordinary," Professor Wachter says.

"If all that is needed is that the house value is less than the mortgage value, there is a large number of homeowners in the United States who are in that situation".

No renegotiation

In the city of Stockton - the foreclosure, or repossession, capital of the US for 2007 - estate agent Kevin Morgan sells repossessed houses on behalf of the banks that now own them.

Nouriel Roubini
This is becoming a tsunami of voluntary defaults
Professor Nouriel Roubini, New York University

According to him, walking away has become commonplace.

"I would say it's probably 70% of the volume of our foreclosures right now," he says.

"It's a business decision for their family that the smartest thing they can do is walk away from their home."

As a sign of the changing times, some 60% of borrowers do not even bother to contact their banks to attempt a renegotiation of their loan, Mr Moran explains.

"They stop paying and they stop talking," he says. "They just plain walk away."

Total disaster

It is impossible to know for sure how many of the people who are now walking away from their homes could have gone on paying their mortgages.

But Professor Nouriel Roubini of New York University, one of the first economists to warn of the dangers of the American house price boom, believes the number of people positively choosing to walk away is growing rapidly.

"This is becoming a tsunami of voluntary defaults," Professor Roubini says.

"The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion.

"You could have most of the US banking system wiped out, so this is a total disaster."

Which is why it is not just US policymakers who are hoping America's new, multi-billion dollar initiative to stabilise the housing market will succeed in its aims and thus make walking away less attractive.

Because if it fails, the economic fallout could be felt far beyond America's shores.

Michael Robinson's two-part series "The Trouble with Money" is broadcast on 30 July and 6 August on BBC World Service. You can hear the programmes online by going to:

Apocalypse Down-under: Aussie bank's write-offs signal doom for Wall Street

By Mike Whitney

30/07/08 "ICH" --- - Monday's trading on the New York Stock Exchange (NYSE) was a real humdinger. It started off with the White House announcing that this year's fiscal deficit would soar to a new record of nearly $500 billion. That was followed by news of rising oil prices, weak quarterly earnings and a slowdown in consumer spending. Plunk, plunk, plunk; one domino after another. By mid-morning the markets were in full retreat. That's when investment giant Merrill Lynch announced that it would notch a $4.6 billion second-quarter loss and write-downs of $9.4 billion on collateralized debt obligations (CDOs) and other mortgage-related assets. That's when the dookie really hit the fan. Stocks quickly went verticle and the rout was on. By the closing bell the Dow was down 240 points. Traders staggered from floor of the exchange slumped-over and bedraggled looking like they just got a missive from the draft board. The optimism is being wrung from the markets faster than the credit at an over-levered hedge fund. Every day brings another dismal surprise.

And, yet, on Tuesday, the market staged a valiant comeback surging 260 points in a matter of hours. It was enough to give the fund managers a bit of a lift and hope that things are finally turning around. But the market's woes are far from over. They're deeply-rooted and spreading like Kudzu throughout the system. The International Monetary Fund summed it up in warning they issued earlier in the week:

"Global financial markets are 'fragile' and indicators of systemic risk remain 'elevated'...Credit quality 'across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.' Bank balance sheets are under 'renewed stress' and the decline in bank share prices has made it more difficult to raise new capital. (There is an) 'increased likelihood of a negative interaction between banking system adjustment and the real economy.' (Financial Times)

The IMF also stuck by its earlier prediction that total losses to financial institutions from the credit crisis would reach $1 trillion ($945 billion) a sum that will have devastating consequences for industry, consumers and the global economy. Tuesday's festivities on Wall Street are likely to be short-lived. It's just a one-day lull in the storm.

Over at Nouriel Roubini's blog, Dr. Doom made this observation about the Merrill Lynch's troubles:

"Merrill Lynch's decision to 'sell' a good chunk of its remaining CDOs at 22 cents to the dollar has been widely praised as the firm finally recognizing the full extent of its losses on these toxic instruments. This batch of $30.6 billion of CDOs was already marked down to $11.1 billion. Now with the 'sale' of it to Lone Star at a price of 6.7 billion Merrill Lynch is taking another $4.4 billion write-down and 'selling' it at 22% of the original face value. But is this a market-based 'sale'? No way, calling this transaction a 'sale' is a joke." (Nouriel Roubini's Global EconoMonitor)

This isn't a "sale"; it's more like abandoning a sinking ship. The investment chieftains are getting scorched by their downgraded assets and have started dumping them at any cost. There's no market for mortgage-backed anything now, and there won't be until housing finds a bottom. By time that happens, most of the CEOs and CFOs in the mega-brokerage houses will be squatting on streetcorners on the lower East Side with tin-cup in hand. It's that bad.


The Merrill Lynch deal illustrates just how crazy things have gotten. Merrill said it "will provide financing to the purchaser for approximately 75% of the purchase price." Whoa. In other words, the banks are so anxious to off-load their junk-paper, they're almost paying people to take it off their hands. Now that's desperation! No wonder the market is snorkeling its way to the bottom of the fishbowl. The problems haunting the financial markets have cross-pollinated with the real economy and are spreading misery everywhere. Unemployment is rising, growth is slowing, inflation is up, the dollar is down. We've heard it many times before, but it's still jarring to see General Motors stock fall below Bed & Bath, or Starbucks shut down 600 stores, or million dollar McMansions sell for $425,000, or millions of middle-class families join the food stamp rolls. That's tragic no matter how you slice it.

Now that the working stiff is maxed out on his mortgage, worried about losing his job, and trying to keep food on the table; the least congress can do is scatter the oil speculators; right?

Wrong. On Monday, the Financial Times reported that: "A US Senate proposal designed to curb speculation and increase transparency in the energy markets was blocked by Republican legislators on Friday. The move frustrates Democratic efforts to show the party is taking action on record petrol prices. The Stop Excessive Speculation Act, sponsored by Harry Reid, the Senate majority leader, fell 10 votes short of clearing a procedural hurdle."

Unbelievable. $4.00 gasoline and millions of consumers that are flat-broke and congress still refuses lend a hand? What a scrubby band of sandbaggers.

The scariest news of the week comes from down-under, where the National Australia Bank (NAB) announced it would "slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless....The decision by National Australia Bank to make drastic provisions on its US mortgage debt could have ramifications in the US itself. It opted for a 100pc write-off on a clutch of "senior strips" of collateralized debt obligations (CDO) worth £450m - even though they were all rated AAA. (Ambrose Evans Pritchard, "Australia faces worse crisis than America", UK Telegraph)

This is a huge story with grave implications for America's struggling banking system. No wonder the establishment media is avoiding it like the plague. If AAA rated CDOs are worthless, then some of the biggest financial institutions in the country will be packed off to the boneyard feet-first.


The original article appeared in the Business Spectator and was titled "NAB will shock Wall Street", by Robert Gottliebsen. "Shock" is an understatement. This is more like a meat cleaver crashing down on a butcher block. Schwook! This is a must-read for anyone who is following the meltdown in the financial markets. Here is an extended excerpt from Gottliebsen's article:

"The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.

We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable." ( The Business Spectator,"NAB will shock Wall Street")

The conduits are off-balance sheets operations run by the banks which contain hundreds of billions of dollars of bonds which are now essentially worthless. So far, many of the banks have not accurately reported the losses from these operations hoping that the housing market will stabilize and the value of the bonds will rebound. The action taken by the National Australia Bank is a "game-changer"; it's like the Grim Reaper swooping down on Wall Street and lopping-off the top of every big investment bank in downtown Manhattan.

Gottliebsen again:

"The global banks have been marking to market the assets they held on their balance sheet, but the vast amounts held in so called 'conduit trust accounts' have not been written down because they were not marketable. NAB wrote them down when they saw the bad mortgages....US banks have written down $450 billion in bad housing loans. The revelation from NAB means that they will now certainly need to take provisions to $1,000 billion. But write-downs of $1,300 billion and perhaps even more are on the cards."

(Business Spectator, http://www.businessspectator.com.au/bs.nsf/Article/NAB-will-shock-Wall-Street-GV4M7?OpenDocument&src=sph )

Tuesday's "sucker rally" in the stock market was just the convulsive writhing of a dying bull. It won't last. Once the bad news sinks in; investors will pull up stakes, equities will fall, and banks will crumble. The big-hand just inched a little closer to midnight.

The crap is hitting the fan fast and quietly

Jim,

I just received a phone call from a buddy of mine who drives a 2007 Z06 Corvette. I drive a 2007 Z51 Corvette and the difference is simply that I own mine, having paid cash. He paid around $75K for his with a current $55K outstanding loan on it which is costing him $1100 per month as he claims. He wants out now since business is slowing at his landscaping company and he feels that trading it towards a new pickup truck/plow truck will at least allow the debt to be reduced by the work from the truck (assuming he has any customers who are able to pay for his services down the road).

He told me that the dealer which we both go to, which is a fairly new dealer within the past 6 years with a very nice showroom and state of the art service center cannot do any deals with him at this point. The dealer is being taken over by GM along with 150 other regional dealers, three of which are the only other Chevy dealers in this area. This is very quiet but he knows the owner who spilled the beans to him. He was told that if we want any warrantee work done, get it done within a few weeks or there may not be a dealer in the area who can handle any future warrantee issues! In fact several other Ford dealers, VW dealers and Mitsubishi dealers are also going out. This dealer of ours owns a Mitsubishi dealership too and he said that Mitsubishi is falling apart at the seams. He also advised my buddy to sell his Z06 Vette for whatever he can get for it and NOW; the prices of Vettes are dropping by $2-3K per month on trade in value. He said to take what he can to pay off his loan and just eat it since he feels that the car might be worth $15 to $20K less in a few months!

Is this the depressed ranting of a man losing all, or is this reality? If it is reality, then today's massive stock market jump on the Merrill/oil news is just lunacy. The crap is hitting the fan fast and quietly.

CIGA Bruce

Tuesday, July 29, 2008

IMF predicts no end in sight to credit crisis

[This is the print version of story http://www.abc.net.au/ra/programguide/stories/200807/s2317403.htm]


The International Monetary Fund says there's no end in sight to the credit crisis gripping world financial markets.

As Australia's NAB and ANZ have already discovered, the IMF believes banks are in for more pain as mortgage defaults soar and economies slow. The IMF has a particularly gloomy assessment of the US economy, and it came on the same day as the Bush administration revealed America's budget deficit will climb to a record high of more than half-a-TRILLION dollars.

Speaker: Michael Rowland
Speakers: Jaime Caruana, head of the IMF's capital markets division; Doug Peta, a market strategist with J and W Seligman; Jim Nussle, White House budget director

Apollo astronaut Edgar Mitchell's claims of UFO contact

In the wake of last week's mega-(hyped)-story about Apollo astronaut Edgar Mitchell's claims of UFO contact, it was obvious the blogosphere would be on fire with this one. Here's some of the reactions and opinions: It was only a matter of time before the Bad Astronomer, Phil Plait, gave his opinion - quite fair and restrained from Mr BA, I was expecting worse considering his pretty poor generalisations about the UFO phenomenon in the past. Alan Boyle also gave a good run-down of the story at Cosmic Log. Roswell researcher Kevin Randle gave an insider's opinion on Mitchell's claims about Roswell, while Forgetomori posted an entry titled "Ed Mitchell and the Roswell Red Herring ". Also worth noting is that Discovery Space posted a follow-up interview with Dr Mitchell regarding his claims, and ABC News asks the question: Does space travel affect astronauts' minds? All in all though, has the UFO controversy moved forward at all since that time?

Monday, July 28, 2008

Five reasons Cuil won't kill Google...yet

Commentary: Search challenger faces huge odds

By MarketWatch
Last update: 10:12 a.m. EDT July 28, 2008
LONDON (MarketWatch) -- Privacy advocates and proponents of greater competition will be relieved to know a rival to Google's search engine has finally appeared.
Cuil, pronounced "cool," debuted Monday, promoting itself as offering searches of three times as many web pages as Google and 10 times as many as Microsoft.
The company says "With Cuil, your search history is always private." It argues that it will analyze the web, rather than the people searching it. Ouch! Take that, you Google people!
The Cuil search paradigms were developed by a husband and wife team: Tom Costello and Anna Patterson, former search architect at Google , along with a slew of additional former Google employees.
The site certainly proved popular in the early going, offering periodic error messages, but also quick results when it did work.
But in spite of an apparently ravenous demand for alternatives to Google, any challenger faces daunting obstacles that include the following:
  1. Google got there first, and is friendly enough to consumers to keep them coming back with free email, free photo sharing, free web applications and so forth.
  2. First impressions matter a lot and while Cuil's search results may be better, more complete, or even more aesthetically pleasing, the fact that the site is stumbling in its first day out will leave a lot of potential users unimpressed.
  3. Analyzing searchers may not be popular with the public, but it's insanely popular with advertisers who, after all, are search engines' real customers.
  4. It's unlikely that making search results better, even a lot better, will be enough by itself to capture the attention of users. The Google toolbar is already well established on tens of millions of search browsers.
  5. However dubious Google's privacy protections may be, it has yet to prove evil enough to topple Microsoft in the annals of technological villainy.
Still, if anything will act to curb or break the Google dominance on the web, it will better, faster, cheaper technology. Cuil's got the breeding, but whether it has the strength to go the distance remains to be seen.

1. A new search engine from Ex-Googlers challenges Google

A new search engine with the name Cuil.com launched yesterday. Cuil is an old Irish word for knowledge and it is pronounced "cool". Could Cuil be the new Google killer that so many companies tried to build?

What's special about Cuil?

During the past few years, many search engines have tried to be the next Google. None of them has succeeded. The difference between these companies and Cuil is the team that stand behind the project:

  • Anna Patterson: worked on Google's search index
  • Russell Power: worked on Google's search index
  • Louis Monier: founder of the AltaVista search engine
  • Tom Costello: worked on IBM's WebFountain project.

The team behind Cuil knows search very well and they have worked behind the scenes at Google and other major search providers.

Why does Cuil think that it's better than Google?

Cuil has four major claims with which it wants to distinguish itself from Google:

1. Cuil claims to have the biggest index

Cuil claims that its index is bigger than Google's and that this is necessary if you want to return relevant results for topics that aren't very popular.

2. Cuil thinks that popularity is not as important as Google says

If Cuil's concept of indexing succeeds, PageRank and linking might be a thing of the past. Cuil thinks that popularity is useful but not for very complex searches.

According to their website, Cuil tries to analyze the content of web pages and to put it into a greater context.

3. Cuil uses a new results page format

CuilInstead of a long list, Cuil returns the results in three columns and it adds images to the search results when possible.

Cuil also offers roll-over definitions and offers ideas to refine your search.

4. Cuil does not collect user data

In contrast to other search engines, Cuil does not log any personally identifiable information. IP addresses, names or cookies are not stored.

That means that user data cannot be turned over to others. AOL published private user information in August 2006 and Google currently has to turn over massive amounts of user data to Viacom.

Are the results really better than Google's?

In our test searches, Cuil returned quite good results. Whether they are better or worse than Google's results probably depends on the query and the needs of the searcher.

Cuil seems to understand the different meaning of words. For example, if you search for "tiger" then Cuil will return results for the animation, the operating system with that name, the golf player and companies with that word in the name on the first result page.

It's hard to tell whether Cuil will be a Google killer or not. There's more to it than simply having a large index and good search results. If that was enough, Yahoo would have a much bigger market share.

Google already did a blog post in reaction to Cuil so the new search engine seems to be something that Google gives a lot of attention.

Cuil is already supported by IBP's Top 10 Optimizer. If you want to want to get a deeper insight on how Cuil ranks web pages, just analyze your website with IBP's Top 10 Optimizer. Of course, IBP's Top 10 Optimizer also works with Google and it will tell you what you have to do to optimize your pages for Google's ranking algorithm.


IMF Says U.S. Housing Slump End `Not Visible,' Credit to Worsen

By Christopher Swann

July 28 (Bloomberg) -- The International Monetary Fund said there's no end in sight to the U.S. housing recession and warned that deteriorating credit conditions for consumers and banks may prolong a period of slow economic growth.

``At the moment, a bottom for the housing market is not visible,'' the IMF said in its Global Financial Stability Report, released today in Washington. ``Stemming the decline in the U.S. housing market is necessary for market stabilization as this would help both households and financial institutions to recover.''

The IMF, which a year ago failed to foresee the depth of the subprime mortgage collapse, stood by its April forecast for about $1 trillion in losses stemming from the U.S. mortgage crisis. While U.S. policy makers have helped contain the financial losses, ``credit risks remain elevated'' and banks need to raise more capital.

Worldwide asset writedowns and losses have totaled $469 billion in the past year and $345 billion has been raised.

The Washington-based lender in the report said the Federal Reserve's decisions to expand lending to Wall Street firms ``have succeeded in containing systemic risks.'' Still, weakness in housing threatens to extend the slump.

More…

The Last Hurrah for the Banking System

Thar She Blows

By Mike Whitney

28/07/08 "
ICH" --- The Bush administration will be mailing out another batch of "stimulus" checks in the very near future. There's no way around it. The Fed is in a pickle and can't lower interest rates for fear that food and energy prices will shoot to stratosphere. At the same time, the economy is shrinking faster than anyone thought possible with no sign of a rebound. That leaves stimulus checks as the only way to "prime the pump" and keep consumer spending chugging along. Otherwise business activity will slow to a crawl and the economy will tank. There's no other choice.
The daily barrage of bad news is really starting to get on people's nerves. Most of the TV chatterboxes have already cut-out the cheery stock market predictions and no one is praising the "impressive powers of the free market" anymore. They know things are bad, real bad. A pervasive sense of gloom has crept into the television studios just like it has into the stock exchanges and the luxury penthouses on Manhattan's West End. That same sense of foreboding is creeping like a noxious cloud to every town and city across the country. Everyone is cutting back on non-essentials and trimming the fat from the family budget. The days of extravagant impulse-spending at the mall are over. So are the "big ticket" purchases and the "go-for-broke" trips to Europe. Consumer confidence is at historic lows, disposal income is a thing of the past, and all the credit cards are at their limit. The country is drowning in red ink.

Something has gone terribly wrong with the economy, but no one knows what it is? In the last three months bank credit has shrunk faster than any time since 1948. The banks aren't lending and people aren't borrowing; that's a lethal combo. When credit-creation slows, the economy falters, unemployment rises and the misery index soars. That's why Bush will have to mail out more stimulus checks whether he wants to or not; his back is against the wall. He'll try to make it look like the economy is still breathing on its own and just needs a spell on the respirator before resuming its normal activities. But Bush is wrong; we've reached Peak credit and the blood-transfusions won't work anymore. The vital signs have shut down and rigamortis is already setting in. Our goose is cooked.

MORE BANK RUNS

On Friday, after the market had closed, the FDIC shut down two more banks, First Heritage Bank and First National Bank. Two weeks earlier, regulators seized Indymac Bancorp following a run by depositors. The FDIC now operates like a stealth paramilitary unit, deploying its shock troops on the weekends to do their dirty work out of the public eye and at times when it will least effect the stock market. The reasons for this are obvious; there's only one thing the government hates more than seeing flag-draped coffins on the evening news, and that's seeing long lines of frantic soccer moms and blue-collar working guys waiting impatiently to get what's left of their savings out of their now-deceased bank. After all, flag-draped coffins merely indicate that we're losing a war, but lines at the bank prove that the system is broken. And the system is broken, that's why people are depressed and confidence is waning.

Banks-runs are a shock to the collective psyche; they demonstrate that the stewards of the system are imcompetent and have made a mess of things. When depositors see a bank run they realize that their hard-earned money is not safe. That's why they get edgy and cut back on their spending. When their confidence wanes, it extends to the whole system. Suddenly they start questioning everything they once took for granted. They become skeptical of the institutions which, just days earlier, seemed rock-solid. That's why bankers surround themselves with marble columns, vaulted ceilings and lofty-sounding titles; to maintain the illusion of security while masking the truth, that fractional banking is the biggest scam in history. It relies on the "greater fools" theory which assumes that bankers can be trusted to only create credit when it is backed by sufficient capital. But it is not true. The banks have put us all at risk.

Bank runs are a direct hit on the foundation of the free market system. Unchecked, the tremors can ripple through the entire society and trigger violent political upheaval, even revolution. The public may not grasp their significance, but everyone in Washington is paying attention. They take it seriously, very seriously. It is a sign that the system is disintegrating and it may be irreversible.

SABER-RATTLING AT THE FDIC

An article in the San Francisco Business Times said that the FDIC is worried about the reporting on Internet blogs. They'd rather keep banking system's troubles out of the news. The publicity just further undermines the publics confidence and spreads fear. Sheila Bair, chairman of the Federal Deposit Insurance Corp., summed it up like this after the run on Indymac:

"The blogs were a bit out of control. We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it. The misinformation that came out over the weekend fed a lot of depositors' fears."

Is that a threat? The cure for a failed banking system is adequate capital and prudent oversight not threats to critics of the system. That's balderdash. Commissar Blair apparently believes that bloggers should be treated the same way as journalists in Iraq, who, if they veer ever so slightly from the Pentagon's "the surge is a great triumph" script, find themselves on the smoky end of an M-16 at some unmarked checkpoint outside Baquba.

If Blair wants people to take her seriously, she should stop the paramilitary-type mothballing operations to shut down banks and tell the American people the truth about what is going on. The banking system is busted; Blair knows that as well as anyone. Now its time for someone to accept the mantle of leadership, step up to the microphone and tell the public what they really need to know:

"My fellow citizens, we are embroiled in the greatest financial crisis our nation has ever faced and we will have to take emergency action to keep the entire system from melting down."

How hard is that? But it won't happen, because everyone in the administration has an aversion to telling the truth; it's like the Devil and Holy Water. Besides, its easier to blame the bloggers, that harmless subspecies that spend long hours pecking away at their keyboards in their windowless 5' by 7' hovels.

Bloggers aren't the problem; the problem is a system that's collapsing from decades of abusive credit expansion creation and insufficient capital. Now everyone is going to pay for the excesses of the few.

As the bank-runs increase, the FDIC will be forced to admit the truth, that they don't have the resources to deal with a problem this big. Currently, the FDIC has only $53 billion in reserves to guarantee $4 trillion in total bank deposits. The entire system has a mere $267 billion cash in the vaults. What a shabby way to run a banking system. Where's the money going to come from when depositors start withdrawing their savings? How will the FDIC deal with the ongoing deleveraging in the market which is forcing more and more investors move into cash?

No one knows. All we get is more prevaricating; more smoke and mirrors, Bush assures us that "Our capital markets are functioning efficiently and effectively." Nonsense. The markets are cratering and the banks are toast. A blind man can see it. The FDIC is listing and Blair knows it. Bush needs to cut the gibberish and tell the American people the truth so they can prepare for the hard times ahead.

P.T. PAULSON: "The the banking system is sound... This is a very manageable situation."

Last Sunday, sought Treasury Secretary Henry Paulson tried to reassure the public that the banking system is sound, while bracing people for more trouble ahead:

"I think it's going to be months that we're working our way through this period — clearly months. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

Paulson is like a broken record. Everything is always hunky-dory. He is the consummate Wall Street investment sharpie; a bright guy who could charm a hungry dog off a meat-wagon. But when it comes to telling the truth; forget about it. You'd be better off listening to Bush, which isn't saying much. The banking system is not sound nor is it well capitalized. It is a corpse that's been propped up in the office hallway next to the water-cooler so that everyone who passes bye gets a stifling whiff of the decaying flesh. Still, the charade goes on. Still the lies persist.

If the rate of bank closures continues at the present pace, by the middle of 2009 their will be restrictions on withdrawals. Even now, if you go to your bank and try to withdraw $9,000 or $10,000, it sends waves of panic through the entire building like a 5-alarm fire that quickly engulfs the main exits. It's crazy. Tellers go scampering around helter-skelter, and bank managers suddenly appear at the window grimacing in pain and wringing the sweat from their brows.

"Did you say $10,000, sir?" which is usually followed by low moaning sounds and heavy wheezing.

Journalist Bill Sardi summed it up nicely in an article last week on lewrockwell.com titled "Could Your Bail Fail?":

"The banking industry is walking on pins and needles, hoping the bad news doesn’t become a self-fulfilling prophecy that drives bank depositors to demand withdrawal of funds en masse........ There is a high likelihood the American banking system will fail, and you will likely be the last to know. The more panicked you get, and withdraw funds, the worse the implosion. In an effort to avert runs on the banks, will the news media delay informing the public of the current dire situation, which appears to be an inevitable system-wide banking collapse?

What to do?

So, while your bank still has money and can process your checks, it may be time to pay down debts, pay quarterly taxes and mortgage payments in advance, and think of having money outside of banks (gold, foreign currencies), etc., before your money is inaccessible or even evaporates! Don’t think all your investments outside of banks are immune from all this turmoil. For example, money market mutual funds, where Americans have invested $3 trillion, are not covered by FDIC insurance (however, money market accounts offered by banks are covered). Recent losses in some of these money market mutual funds have caused some companies to rush to plug the losses. For example, Legg Mason Inc. and SunTrust Banks Inc., recently pumped $1.4 billion each into its money market funds. Bank of America Corp. has injected $600 million.

As for your checking and savings accounts, recognize you may have five different accounts in the same bank, but the FDIC only insures individuals, not each account, up to $100,000. Putting your money in different accounts in the same bank does not necessarily provide better insurance for your deposits. (Bill Sardi, "Could Your Bail Fail?", lewrockwell.com)

Good advice, but if the whole system blows; we're all in trouble. It's probably wise to have a back-up plan; like plenty of ammo and a couple hundred pounds of seed potatoes. It could get hairy.

FANNIE BAILOUT: "If they dumped these securities on the market today, their value would go straight to 0."

Most people are unaware of the fact that the new Fannie Mae and Freddie Mac bailout package that was passed into law on Saturday, provides Paulson with $300 billion of taxpayer dollars to shore up the faltering mortgage behemoths. In order to accomplish this, the congress increased the national debt by a whopping $800 billion sending it over the $10 trillion mark for the first time in history. Naturally the congress buried this little tidbit of information deep in the 600 pages of legislation. It's clear that the administration is lying about Fannie and Freddie. They'll need much more than the $25 billion infusion that Paulson is predicting. That's why the national debt is ballooning. This is the biggest boondoggle of all time and it's spearheaded by the "dueling windbags", Chris Dodd and Barney Frank; both Democrats. Dodd's lengthly oratory on the floor of the House on Friday nearly earned him a citation from the EPA for releasing massive levels of toxic gas into the jet-stream and accelerating the rate of global warming.

So it's not just the Fed and the Treasury that are ruining the system; the politicos are busy bankrupting the country, too. In fact, the Fannie bailout could quite possibly be the last straw.

It now looks like Obama has been anointed by Wall Street (who are his biggest contributors) to revive the Resolution Trust Corporation (RTC)--a morgue for dead banks---so that the investment giants can off-load hundreds of billions in bad paper in one fell swoop and purge the system. That will be the big "post election" surprise; another bone for investment giants.

The path ahead has never looked so uncertain. Still, niether Paulson nor Bernanke seem at all upset by the riskiness of their strategy or by the fact that the nation's economic future has been reduced to a crap-shoot. The Fed has already spent more than $300 billion to prop up the teetering banking system in the last year alone, plus another $29 (that was never approved by congress) to buy the toxic bonds from Bear Stearns in the JP Morgan acquisition. Now, the Treasury has been authorized by congress to buy an "unlimited amount" of Fannie and Freddie shares at their own discretion. They are presently exchanging Fannie and Freddie securities for US Treasurys, which means that the dollar is now backed by dodgy mortgage-backed sludge for which there is no market. According to Rep Ron Paul, "This is the asset (MBS) which now backs up our currency. An asset that no one else wants. If they were to dump these securities on the market today, the value of these stocks would go straight to 0. But that is literally the asset that is behind our currency. It is a very serious situation."

None of congress's back-room maneuvering has anything to do with "providing a lifeline for the struggling homeowner", as Senator Dodd claims. That's all bunkum. The homeowner won't get a lick of help from this bill. Its just another handout for the brokerage fraternity. The country is putting its AAA credit rating on the line for same clatter of carpetbaggers who created the mammoth equity bubble in the first place. Now they are being rewarded for their criminal conduct. Also, Bloomberg News notes that, "Sensible people are starting to question whether the U.S. can hang on to its AAA credit rating. The prospect of an extra $5 trillion or thereabouts leaking onto the U.S. government's tab from Fannie Mae and Freddie Mac has spooked investors."

America's AAA rating will vanish in a year. It should be zero anyway. No one really believes the US will repay its debts. The US bond market is just a glitzy imitation of casino roulette only the odds are considerably worse.

Our political leaders have engineered this whole farce and are now speeding up the process by savaging the dollar. How long before foreign creditors see through this ruse and dump their dollar-backed assets on the open market? The hoax can't go on forever.

Of course, some market analysts think the banking system will make it through this rough patch, even though it is likely to take a real pasting. Economics guru, Gary North, for example, expects a slightly different outcome which he details in his latest article on Lew Rockwell's web site "Ben Bernanke's Hush Money":

"There is an enormous difference – a literally life-and-death difference – between individual bank failures and a systemic banking failure. I do NOT believe we are facing a systemic banking failure. But we are facing more individual bank failures...

Beginning in December 2007, the Federal Reserve System has sold Treasury debt whenever it has increased its purchase of questionable assets that it has bought from banks and large financial institutions. It has unloaded about 40% of its holdings of liquid Treasury debt. This has kept it from inflating the money supply at a dramatic rate. At some point, it will run out of Treasury debt to sell to the general public in order to offset the increase of its purchase of questionable assets held by the financial system. At that point, the great inflation will begin. This could be a year away. This could be a month away. All we know is this: when the Federal Reserve system runs out of Treasury debt to sell, its purchase of all assets will be inflationary. The banking system as a whole is protected. What is not protected is the purchasing power of the dollar." ("Ben Bernanke's Hush Money", Gary North, lewrockwell.com)

North makes a good point; when the Fed runs out of US Treasuries, they'll have to rev-up the printing presses and monetize the debt. That'll be doomsday for the dollar. When foreign central banks see the greenbacks a-gushing like the blood from a harpooned whale; they'll have to sell off their dollar stockpiles and take the loss. That will trigger a period of hyper-inflation in the US. Everyone will pay for the excesses of the few.

The whole system has been rejiggered to serve the needs of a few greedy bankers on top of the food chain. They could care less whether the whole country blows up or not as long as they get their slice of the pie. That's all that matters. Congress is just as bad. They abdicated their most important responsibility by giving Paulson the authority to take whatever money he needs to do whatever he wants. If that's their attitude, then what do we need congress for? Let's just board up the House of Representatives and send them all home. It would be a lot cheaper.

The truth is, the big money guys have taken a wrecking-ball to the financial system and have now moved on to the real economy. By the time their done, we'll all be picking through the wreckage just to feed our families.