Tuesday, September 30, 2008

Little known facts about the Great Depression

  • Call money interest rates (the interest rate charged when buying stocks) peak at around 20%. The Dow closes very close to its Sepptember 3rd 1929 high at 380.18.

    -- March 26, 1929 

  • The Federal Reserve bank of the U.S. raises its key interest rate, the discount rate, a full percentage point to 6% from 5% (where it had been since mid 1928).

    -- August 8, 1929 

  • “. . . Traders who would formerly have taken the precaution of reducing their commitments just in case a reaction should set in, now feel confident that they can ride out any storm which may develop. But more particularly, the repeated demonstrations which the market has given of its ability to “come back” with renewed strength after a reaction has engendered a spirit of indifference to all the old time warnings. As to whether this attitude may not sometime itself become a danger signal, Wall Street is not agreed.”

    -- New York Times, September 1, 1929 

  • The actual 1929 high of the Dow Jones average occurs at a level of 381.17.

    -- September 3, 1929 

  • Roger Babson, a popular economic foprcaster of the day, makes a bearish prediction. He won his nickname as "the Prophet of Loss" this day, and unjustly received some of the blame for the crash. The exact phrase he used was "riding to a fall".

    -- September 3, 1929 

  • The Bank of England raises its key interest rate, the discount rate, a full percentage point to 6.5% from 5.5% (where it had been since February 1929).

    -- September 26, 1929 

  • The Federal Reserve bank of the U.S. lowers its key interest rate, the discount rate, a full percentage point to 5% from 6%.

    -- October 1929 

  • Black Thursday, when the Dow fell from 305.85 to a low of 272.32, and closed at 299.47 (note that it had closed on October 10th at 352.86)

    -- October 24, 1929 

  • Brokers Believe Worst Is Over and Recommend Buying of Real Bargains
    Wall Street in looking over the wreckage of the week, has come generally to the opinion that high grade investment issues can be bought now, without fear of a drastic decline. There is some difference of opinion as to whether not the correction must go further, but everyone realizes that the worst is over, and that there are bargains for those who are willing to buy conservatively and live through the immediate irregularity.

    -- New York Herald Tribune, October 27, 1929 

  • Black Tuesday, when the Dow fell from 252.38 to a low of 212.33, and closed at 240.07.

    -- October 29, 1929 

  • The Bank of England lowers its key interest rate, the discount rate, from 6.5% to 6%. It was at 5% by mid December.

    -- October 30, 1929 
  • After 1929

  • "Last Monday, all businessmen were shocked to read in their morning papers that the British pound sterling was no longer based on gold. The Tokyo Stock Exchange had announced that it would not open. Tokyo was followed by Bombay, Calcutta, Johannesburg, London, Berlin, Amsterdam, Copenhagen, Vienna, Oslo, Stockholm, Brussels and Athens. The Paris Bourse opened, but limited all trades to 5% of all holdings and no dealing in foreign exchange. Montreal’s Exchange opened similarly restricted. The New York Stock Exchange remained open, but as in dark November 1929, short selling was forbidden. In the artificial market thus created, stocks gyrated unsteadily, closed higher; bonds closed at lows for the year."

    "So far during the Depression the Stock Exchange has moved against bears by the Questionnaire and the complete ban on shortsales which was imposed for two days when Great Britain suspended gold payments. The Questionnaire was used in the autumn of 1929 to learn the extent and personnel of the ‘bear party.’ President Richard Whitney (of NYSE) later revealed the short interest was at no time large during the days of great breaks. It was used again last May and members who were too aggressive in their tactics received sharp callings down. The Questionnaire in effect last week revealed every bear, whether he was short 10 shares or 10,000 for one hour or one month. It placed the Exchange in a position to act if it wished to, but did not deter ‘gentlemen’s agreement’ to refrain from taking short positions."

    "In few nations nowadays is there a ‘free and open market.’ The Berlin Bourse closed from July 13 to September 3, opened with shortselling banned, then closed again. In Great Britain all trades were put on a cash basis which practically eliminated shortselling as did restrictions imposed on the French and Athenian Bourses. On the Paris Bourse a seller must deposit 40% margin, also 25% on the amount of the stock sold which makes bear activities a rich man’s privilege. One of the most dramatic events of the present crisis occurred in Amsterdam on September 21 when after a terrific slump in prices, all transactions were cancelled, the Exchange closed in status quo. Montreal and Toronto met the British crisis by banning shortsales and establishing ’minimum prices’ for securities, but both last week were open with no restrictions. The Tokyo Exchange has been closing and opening repeatedly during recent weeks. Tokyo stocks broke badly when the shares owned by interests who operate the Exchange collapsed.

    (emphasis ours) 
    -- Time magazine, September 28, 1931 edition 

  • "...Great Britain is a highly populated industrial country, carrying a terrific burden of internal debt, dependent predominantly for existence on foreign trade, enjoying the benefits of being the world's chief banking centre, possessed of a large net income from long-term investments abroad, but heavily indebted (in her role as world's banker) to other centres on short- term account."

    -- Economist, September 26, 1931, p. 548 

  • "The facts must be faced that the disappearance of the pound from the ranks of the world's stable currencies threatens to undermine the exchange stability of nearly every nation on earth; that even though London's prestige as an international centre may gradually recover from the blow which the sterling bill has received, banking liquidity throughout the world has been seriously impaired, much more so in other countries than this; that international trade must be temporarily paralysed so long as the future value of many currencies is open to grave uncertainty; and that, though the memory of the disastrous effects of post-war inflations should be a useful deterrent, there is an obvious risk lest we may have started an international competititon in devaluation of currencies motived [sic] by the hope of stimulating exports and leading to a tragic reversion to the chaotic conditions which existed five or six years ago."

    -- "The End of an Epoch," London Economist, September 26, 1931, p. 547 

  • The suspension also of the gold standard in Great Britain had three important results. Firstly, it gave a further shock to confidence. Secondly, it prevented foreign banks from drawing upon their sterling balances except at a heavy loss, and so drove them back on their dollar balances. Finally, it destroyed all faith in the safety and efficacy of the gold exchange standard, for foreign central banks found that the sterling exchange which they had legitimately held as part of their legal reserve had lost part of its value, thereby undermining their own stability, and inflicting upon them losses in many cases commensurate with their own capital." 

    -- London Economist, "America's Money Problems," October 10, 1931, p. 646 

  • "It was inevitable that the suspension of gold payments in England should have a profound effect upon the position of leading central banks. Some who were engaged in operating the gold exchange standard were in possession of susstantial holdings of sterling as part of their legal reserve against their notes and other sight liabilities while others - such as the Banque de France - held equally large quanities of sterling, even though they were operating on the full gold standard. All these central banks have had to face a 20 per cent. depreciation of their holdings of sterling, which for many of them means a substantial proportion of their legal currency reserves.

    "This situation has already had several far-reaching results. Many countries have summarily abandoned the gold exchange standard as a snare and a delusion, and their central banks have begun hurriedly to convert their devisen into gold. The general tendency has been to leave their sterling holdings intact, but to exchange their dollar balances and bills for gold; and this is a major cause of the recent efflux of gold from the United States. Again, commercial banks have not been immune from the consequences of the crisis, and have had to meet the suspicion and distrust of their customers. fostered by very numerous (if not individually very important) bank failures all over the world. They have had to face the immobilisation under the 'standstill' agreement of such part of their assets as they had ventured in Germany and central Europe; they have suffered, in common with the central banks, a 20 per cent. depreciation of their sterling holdings; and, last but not least, they have had to deal with the widespread dislocation to trade caused by the depreciation of sterling, which is the currency of world commerce. Thus commercial banks have, on the one hand, witnessed an outflow of notes into the hands of distrustful customers, and, on the other hand, they have had to mobilize their available assets, both at home and abroad, in preparation for further demands for currency." 

    -- "The Gold Rush," Economist, October 24, 1931, p. 746 

  • "...in the United States, the position of the banks, though partly concealed from the public eye, may be in fact the weakest element in the whole situation. It is obvious that the present trend of events cannot go much further without something breaking. If nothing is done, it will be amongst the world's banks that the really critical breakages will occur."

    "The Consequences to the Banks of the Collapse of Money Values", Lord Maynard Keynes, (Aug. 1931) in Essays in Persuasion, p. 177 

  • "...the competitive disadvantage will be concentrated on those few countries which remain on the gold standard. On these will fall the curse of Midas. As a result of their unwillingness to exchange their exports except for gold their export trade will dry up and disappear until they no longer have either a favourable trade balance or foreign deposits to repatriate. This means in the main France and the United States. Their loss of export trade will be an inevitable, a predictable, outcome of their own action. [...] For the appreciation of French and American money in terms of the money of other countries makes it impossible for French and American exporters to sell their goods. [...] They have willed the destruction of their own export industries, and only they can take the steps necessary to restore them. The appreciation of their currencies must also gravely embarrass their banking systems. 

    -- "The End of the Gold Standard", Lord Maynard Keynes, (Sept. 27, 1931) in Essays in Perusasion, pp. 292-293 

  • Countries leaving the Gold Standard, April 1929 - April 1933




    MAY - PERU


    -- William Adams Brown, Jr., The International Gold Standard Reinterpreted, 1914-1934 (New York: National Bureau of Economic Research, 1940) 

  • "The real crux of the Reserve system's position is that, while the ratio of the gold cover to its notes need be only 40 per cent., the remaining 60 per cent. of the notes must be covered either by gold or by eligible paper, and this last excludes Government securities bought in the open market, and in practice consists of rediscounted Treasury bills and also of acceptances and other credit instruments based upon trade. Now the depressed state of trade has reduced the Reserve Banks' holdings of assets of this last kind and has forced then en defaut de mieux to add enormously to their holdings of Government securities. The actual figure for the last-named was $728 millions last August, against only $150 million two years before, while during the same period 'eligible paper' had fallen from $1.141 to $316 millions. Add to this the actual and potential increase in the note circulation, and it is clear that this is the major factor in any calculation of the minimum gold requirements of the United States." 

    -- Economist, October 10, 1931, p. 647 

  • "In 1928, there had been 491 US bank failures. In 1929, the figure had risen to 642. By 1930, as the collapse of the domestic real estate bubble began to take its toll, bank failures had risen to 1,345. In the wake of the British default, American "bank runs and failures increased spectacularly: 522 commercial banks with $471 million in deposits suspended during October 1931; 1,860 institutions with deposits of $1.45 billion closed between August 1931 and January 1, 1932. At the same time, holdings by the 19,000 banks still open dropped appreciably through hoarding and deterioration of their securities."

    -- Susan Estabrook Kennedy, The Banking Crisis of 1933 (Lexington, Kentucky: University Press of Kentucky, 1973) 

  • "People will endeavor to forecast the future and to make agreements according to their prophecy. Speculation of this kind by competent men is the self-adjustment of society to the probable...This court has upheld sales of stock for future delivery."

    -- Justice Oliver Wendell Holmes, in a U.S. Supreme Court decision from 1905 

  • "It was now evident why the European crisis had been so long delayed. They had kited bills to A in order to pay B and their internal deficits. I don’t know that I have ever received a worse shock. The haunting prospect of wholesale bank failures and the necessity of saying not a word to the American people as to the cause and the danger, lest I precipitate runs on our banks, left me little sleep. The situation was no longer one of helping foreign countries to the indirect benefit of everybody. It was now a question of saving ourselves." 

    -- Memoirs of Herbert Hoover, U.S. President 1928-1932, about the 1931 world financial crisis

  • "There have been in some localities foolish alarms over the stability of our credit structure and considerable withdrawals of currency. In consequence, bankers in many other parts of the country in fear of such unreasoning demands of depositors have deemed it necessary to place their assets in such liquid form as to enable them to meet drains and runs. To do this they sell securities and restrict credit. The sale of securities demoralizes their price and jeopardizes other banks. The restriction on credit has grown greatly in the past few weeks. There are a multitude of complaints that farmers cannot secure loans for their livestock feeding or to carry their commodities until the markets improve. There are a multitude of complaints of business men that they cannot secure the usual credit to carry their operations on a normal basis and must discharge labor. There are complaints of manufacturers who use agricultural and other raw materials that they cannot secure credits beyond day to day needs with which to to lay in their customary seasonal supplies. The effect of this is to thrust back on the back of the farmer the load of carrying the nation's stocks. The whole cumulative effect is today to decrease prices of commodities and securities and to spread the relations of the debtor and the creditor." 

    -- Memoirs of Herbert Hoover, October 5, 1931 , pg. 87 

  • ""Hoover again rose to the occasion, trying to arrive at some solution. Lending more money would not solve the problem. The vast, intricate entanglement of the foreign debt situation was a time bomb waiting to explode at any moment. Hoover’s proposal was to call a complete "standstill" among all banks everywhere, preventing anyone from calling upon German or Central European short-term obligations.

    France still pressured for a $500 million loan to Germany. Hoover refused to go along with it. Mellon warned Hoover that if the U.S. did not go along with the plan the French intended to place all the blame on the United States, and he warned that he was playing into the hands of the French. Mellon strongly urged Hoover to accept the French proposal. Hoover lost his patience, as he put it, and informed Mellon that his "standstill" plan was being released to the press at that very moment. When the news came out, the London Conference was forced to accept Hoover’s proposal because the truth was at last coming out.

    A group of New York bankers complained to the White House and warned that they would not comply with the standstill. They demanded that Hoover loan money to Germany so it could pay its debts which the bankers held. As Hoover wrote: "My nerves were perhaps overstrained when I replied that, if they (bankers) did not accept within twenty-four hours (his standstill proposal), I would expose their banking conduct to the American people." Needless to say, the bankers realized Hoover’s determination and his opinion that the taxpayer should not pay for the banker’s problems, which had been created by their eager solicitation of private citizens for foreign securities, and the bankers reluctantly backed off. Indeed, the actions of the banks and the Federal Reserve had bordered on the verge of treason as they acted as willing participants in what proved to be a game of musical chairs with the unsound foreign governmental debt instruments.

    -- 1931, "The Greatest Bull Market In History", Martin Armstrong 

  • "A company named Ultramares Corp. of London had lent Fred Stern & Co., Inc. of New York a fairly sizable amount of money based upon an independent audit prepared by the firm of Touche, Niven & Co. Fred Stern & Co. went into bankruptcy soon after the loan. Ultramares brought a suit against Touche charging negligence in preparing the audit. The first round produced a verdict that Touche was liable for an employee’s negligence. But later a Court of Appeals in Manhattan overturned the lower court’s decision. The court ruled that a financial statement which specifically figures as "true" would be guilty of negligence. But since the statement had concluded "in our opinion" no testament was intended. Hence accountants were relieved and adopted the phrases "we believe" and "in our opinion."

    -- 1931, from "The Greatest Bull Market In History", Martin Armstrong 

  • "The British... are suffering deeply from the shocks of the financial collapse on the Continent. Their abandonment of the gold standard & of payment of their external obligations has struck a blow at the foundations of the world economy. The procession of nations which followed Britain off the gold standard has left the US & France as the only major countries still holding to it without modification. The instability of currencies, the now almost world-wide restrictions on currency exchange, the rationing of imports to protect these currencies & the default of bad debts, have cut ever deeper into world trade." 

    -- Oct 6, 1931 - President Hoover in meeting at the White House with 32 members of Congress from both parties (link

  • The market would have fallen much further during the summer of 1933 if it were not for new rules that the government imposed upon the various exchanges. Time magazine reported on the 7th of August:

    "Banned from the pit forever were all dealings in indemnities (options on grain futures contracts generally regarded as pure gambling)." The markets were also "forbidden" to trade below the July low. Time magazine reported upon the effects of this measure on the 14th of August:

    "The great exchanges of the U.S. last week lacked natural stimulants. On the Chicago Board of Trade the energy building grains, limited not only to 4 cent and 3 cent daily fluctuations, but also forbidden (by a rule good until August 15) to fall below their July 31 closing levels, floundered ineffectually...

    From similar listlessness, begotten partly by regulation, Manhattan’s Stock Exchange was saved by the outside stimulants. Following pricking of the speculative bubble three weeks ago, the Senate’s busy Prosecutor Ferdinand Pecora called on Exchange President Whitney, told him speculation must be curbed. Last week the Exchange announced two new rules: 1) brokers must report weekly to the Exchange all that they know of the operations of pools and syndicates; 2) traders with debit balances of over $5,000 must maintain margins equal to 30% of the debit balance; those with debit balances less than $5,000 must maintain a margin equal to 50% of the debit balance. Calculated the ordinary way, the proportion of a trader’s equity to the total value of the stocks in his account, the margins now required to 23% and 33%. Example: if a man buys $1,500 worth of stock and gives his broker $500, he is said to have put up a 33% margin. However, his debit balance is $1.000, of which $500 is 50% adequate margin under the new Exchange rules."

    The market interest declined considerably. Faced with limits, increased margins, but worst of all investigation if you happened to make money on the short side, the only safe way to play the markets was from the long side.

    The Administration therefore intervened or simply forbid the market to trade below the July low. It was as simple as that. How could they do such a thing? Well as impossible or as outrageous as it might sound, that is what happened. Nonetheless, they did it and the market churned back and forth. The traders themselves withdrew from the market and liquidity shrunk. The rule was rescinded on August 15 but other measures were taken to support prices.

    -- 1933, from "The Greatest Bull Market In History", Martin Armstrong 


    "Three weeks ago Chicago’s Board of Trade instigated by Washington, set a temporary level below which grain future prices would not be allowed to sink. Last week that artificial floor was removed. Prices which had been bobbing along on the rule like balloons wit hout lift ing power promptly dropped the maximum amounts permitted in one day’s trading. Great was the hullabaloo.

    "Representative Jones of Texas and Senator Smith of South Carolina promptly swung inflationist thunderbolts about their head again. Letters and telegrams poured into Washington demanding that the Government re-peg prices.

    "No such action was taken. Next morning the grain pits reopened and prices promptly dropped and bounced. They mounted rapidly and closed with substantial gains for the day. Thereafter they swung up and down, but neither sudden disaster nor abrupt boom followed.

    "Contributory cause that certainly helped to steady the market was that, as the peg was removed, Secretary Wallace began to talk of the subsidizing of export of 50,000,000 bushels of wheat from the Pacific-Northwest, and of raising the wheat processing tax to pay for the subsidy. The Secretary of Agriculture has power to fix processing taxes at an amount equal to the difference between current prices and the average price 188 cents) for 1909-1914. The present tax of 30 cents a bushel represented that difference on June 15. For several weeks wheat prices have been about 88 cents but the tax continues. But the processing tax can be increased only if wheat prices fall below the June 15 level.

    "The threat of subsidized exports may have been partly intended to support the market. It served also as a club over the conference of wheat producing nations which met again this week in London to try to agree on crop restriction. What one nation calls ‘subsidizing exports’ other nations call ‘dumping.’ He proposed, however, to dump wheat in the Orient thereby cutting into the exports of Canada and Australia to those markets.

    "Not according to the Golden Rule was Secretary Wallace’s dumping threat for the U.S. Not only has a law against foreigners dumping in the U.S., but even when the Secretary made his announcement the Treasury Department was considering forbidding imports of steel from Germany, tennis shoes, electric light bulbs and calcium carbide from Japan, stearic acid and thumb tacks from Holland, rock salt from Canada, woven wire fencing, sulphide paper and binder twine from England, all on the grounds of dumping." 

    -- Time magazine, August 28, 1933 edition 

  • "Because the world is round, what is right side up in the U.S. is upside down to China. Because of the geography of economics, gold miners like Chinese, are upside down compared to other men. Most businessmen worry about what price they will get for their product, but in normal times gold miners never worry, since an ounce of gold is (normally) the ‘makings’ of $20.67, the price they can get for their output never varies a penny. If other prices go up, other men are apt to profit, but for the gold miner that means only higher costs (no bigger income) and consequently smaller profits.

    "Last March when Franklin Roosevelt ruled that money was not gold, he broke the old equation; $20.67 would no longer buy an ounce of gold. He cheapened the dollar to make prices go up to let businessmen profit. But he did not break the equation so far as gold miners were concerned. He would not let them sell their gold to anyone except the U.S. Government and the Government would pay only $20.67. Gold miners were out of luck - their costs mounted but the price of their product remained the same."

    -- Time magazine, September 11, 1933 edition 

    This situation had become intolerable and grossly unfair to the gold mines. The costs were rising rapidly. The mere cost of living had jumped 9% since March of 1933. Therefore, Roosevelt decided to allow the gold mines to deliver their product to the Federal Reserve and the Fed would sell gold to foreign buyers at the world price. This tended to export inflation to other nations, such as France, that had remained on the gold standard. At the same time, this meant that gold was a commodity in that respect and the proceeds were then credited to the trade balance. The annual U.S. production was about 2.5 million ounces so this would add approximately $75 million to this economic statistic which previously had not been included.

    However, along with that decision came a harsh rule as well. It had been estimated that $500 million in gold coin had not been returned to the government as the edict had demanded back in May. The Attorney General was then armed with another new law. Roosevelt could not declare it to be illegal outright to own gold since that would have been a flagrant violation of the Constitution.

    So he took another approach which the courts ruled permissible. It was thereby ordered that all U.S. citizens file a report to declare how much gold they held. Failure to file the report carried a $10,000 fine or ten years in jail. So technically it was not illegal to hoard the gold, it was just illegal not to tell the Government that you were holding it. This was merely one example of the sumptuary laws which were being implemented through the clever tactics of switching a few words here and there to circumvent the true liberties which had been originally granted by the Constitution.

    Although the free press in many cases was hard at work trying to protect the rights of the nation, it was a losing battle. Reprinted here is an advertisement which the New York Herald Tribune took out in the Wall Street Journal. This was one of eight advertisements in which the Tribune took upon itself to stand up and fight back. The headline "Time To Fight" was well taken. 

    The biggest crime perpetrated upon the nation was that the people voted for a man who had not revealed his true intentions of how his "New Deal" was going to achieve its goals.

    -- 1933, from "The Greatest Bull Market In History", Martin Armstrong 


    "Dollars sank last week to the lowest level since the U.S. quit the gold standard, 63 cents. Because President Roosevelt had not yet seen fit to devalue the dollar, the price is determined by supply and demand in international exchange. And because the U.S. has a favorable trade balance, demand is normally greater than supply.

    Whence the dollar flood has eaten away 35 cents of every 100 cents in each U.S. dollar since last April. Continental money-changers, canniest of whom are reputed to be ‘the Greeks,’ delight in selling dollars short, but bankers know that accounted for only a fraction of the drop. Last week from the British Commonwealth Relations Conference in Toronto came confirmation of what Wall Street has long suspected; that U.S. citizens have exported their dollars by the hundreds of millions.

    "‘One of our problems,’ droned Viscount Cecil of Chelwood, chairman of Britain’s delegation, ‘is the flood of unwanted money that is pouring into our banks. These funds, deposited in the main by U.S. investors, are subject to withdrawal at 24- hour notice and are of little or no value, though it has not yet been discovered how to get rid of them.’

    "Standard Statistics Co., Inc., world’s largest figure factory, estimated that $1,000,000,000 had flown the Atlantic, the bulk of it to London. France, whose tie to gold is none too secure, has received little, but Holland and Switzerland have been drowned in dollars. Unlike exports of gold which is strictly banned (for private citizens) the flight from the dollar has been quietly encouraged by Washington; it pushed down the price without requiring devaluation by Presidential decree." 

    -- Time magazine, September 25, 1933 edition 


    "For the past two weeks there have been growing indications that the federal government is tightening its grip on the foreign exchange control or official intervention such as is practiced by the British Exchange Equalization Fund but the market is convinced, nevertheless, that hitherto uncontrolled fluctuations in dollars exchange.

    "Thus far it has taken the form of a tightening of the control with regard to ‘swaps’ in the futures market. This is a blow aimed directly at the foreign speculator who has been maintaining an open short account in dollars in the belief that the American unit is headed for still lower levels in the world’s markets.

    "Up until present, the foreign speculator, operating abroad has maintained his short position by ‘swapping’ contracts which are falling due for other contracts, say 90 days away. For example, if dollars had been sold for October 15 delivery, at the approach of that date October 15 would be bought and January 15 dollars sold against them. This produces a temporary demand for spot dollar exchange but the continued pressure on the forward market is depressing influences on the rate. The ‘swap’ really amounts to borrowing of dollars for speculative purposes.

    "Permission is being granted to execute ‘swaps’ when it is shown that they are based on legitimate commercial needs. For example, if a shipment of goods has been delayed in delivery, it may be necessary to extend the exchange position until the goods are delivered and the exchange contract settled. No difficulty is experienced in obtaining permission for this type of transaction.

    "The Continental exchange speculator, however, has no such basis for his transactions, which are financial rather than commercial, and permission for financial swaps is being refused. The effect of this procedure, it is believed in the foreign exchange market, will be to produce a growing outright demand for dollars as the short contracts mature, and which will not be offset by sales of futures. Commercial supply of dollar exchange is said to be very small." 

    -- Wall Street Journal, October 11, 1933 

    Here we find another example of what would today be unthinkable. The foreign exchange futures which are being referred to here are cash forwards. If you sell a January position you could find yourself with no means to legally buy back your position. So strange as it might sound, they drove speculators out of the short positions. Government just didn’t want any short bets against them in any market. They sought to have their cake along with a full belly and free rent all at the same time. If it couldn’t be achieved by a free market system, then they would make up their own rules and limit the freedoms of the market to their liking.

    The last four months of 1933 were marked by numerous shocking issues. Many of the steps taken to force the markets to yield to the will of government are steps which will one day soon be reimplemented. Today we are all aware of the G-5 group of central banks and the political consensus around the world that promotes the manipulation of foreign exchange to achieve economic stability. The methods of the present are no different from those attempted by the central banks first in 1925, again in 1927 and finally by Roosevelt in 1933. In the September 25, 1933 edition of Time magazine, we find an interesting comment as to how the stock market was viewed to be a hedge against the currency inflation policies of Roosevelt. This is very important because I seriously doubt that anyone would view the stock market today as a hedge against inflation. Nevertheless, this issue was the primary factor which led the stock market into its rally which eventually peaked during 1937. Time magazine reported upon this aspect as follows:

    "Methods of hedging against inflation within U.S. frontiers have become a favorite coffee-&-cognac topic. Purchase of industrial stocks is, of course, the most popular hedge, but commodities and land have been creeping up fast since the NRA threatened profits with higher labor costs. Some shrewd businessmen with little capital at stake argue that the best thing is to go as deep into debt as the banks (or friends) will allow; eventually they will pay off with cheaper dollars. Carl Snyder, economist for the Federal Reserve Board, was asked lately by a wealthy friend how he could hedge against all possible contingencies including deflation or stabilization so that he would die as rich as he was at that moment. ‘One way,’ snapped Economist Snyder, ‘is to shoot yourself.’"

    The comment of economist Snyder in a very realistic sense was quite true. The only guarantee that one would die with essentially his current assets in this situation was to commit suicide for you never know what tomorrow would bring.

    There is no doubt that during the year 1933, the stock market gained significantly on the prohibition issue which anticipated that the country would turn "wet" as of January 1, 1934. But the ent ire issue of Roosevelt’s currency inflation had a large impact upon the performance of the market as well.

    The market began to rally finally from the summer of 1933 lows on the perception of a hedge against inflation. After a rally into January 1934, the market fell back and consolidated into a July low during 1934 once again. From there, commodity prices began to rally after the convertibility of gold for U.S. citizens had been officially abandoned in January 1934 and the effects of inflation began to spread throughout the world. Eventually, the inflation scenario continued to drive the markets higher into 1937.

    From March 1933 into 1937, stocks rose largely upon the belief that inflation would raise the price levels of commodities and therefore earnings would rise as well. Stocks were also viewed as a hedge against inflation as we read in the September 25, 1933 edition of Time magazine. Therefore, we find some continuity in the analysis which took the position that stocks would rise in the shadow of commodities. This was largely created by the fact that much of the economy was heavily commodity oriented.

    High techs were not exactly the rage of the times. Keep in mind that the automobile was viewed to be a large consumer of commodities. So we do find that there is some logic to the commodity relationship prior to World War II. But as the economy developed over the next several decades, the U.S. industrials and service oriented business sectors began to play a much more dominant role in the GNP of the United States. Thus, the concept of commodity relationships with the stock market has been divided and almost forgotten for the broad market as a whole.

    After inflation spending continued yet commodities and stocks declined from the 1937 high, that scenario of currency inflation disappeared and Roosevelt’s theories appeared to be a total failure. 

    -- 1933, from "The Greatest Bull Market In History", Martin Armstrong 

  • "In 1920 and 1921 the foreign governments and business were slow to realize that our era of taxpayers’ largess was over; but by 1922 they came to understand it, and the whole problem took another complexion. A boom began in foreign loans with the offer by foreign countries of extravagant interest to private lenders, from 5 to 8 per cent per annum.

    "These loans soon began to raise disturbing questions as to their security, their reproductive character, and the methods of promotion. To serve any good purpose, such loans had to be adequately secured and should increase the productivity of the country of their destination. Out of such increases alone could they be repaid. Loans used for military purposes, for balancing budgets, and for nonproductive purposes generally would be disastrous." 

    -- Memoirs of Herbert Hoover, U.S. President 1928-1932 

  • The Great Depression was not invented by the stock market. It was created by the forces of unsound international finance and sumptuary laws imposed upon the subjects of various nations both in the United States and in Europe. There is no doubt that the fate of the stock market in the future will be largely dictated by the swings in confidence within the international monetary system. ... 

    In conclusion, the fundamental explanations of the ups and downs of the stock market and the world economy cannot be simply drawn between an inference with interest rate actions or with corporate earnings. The impact of public confidence is by far the most profound influence in both the investment world as well as the world economy. Capital flowing back and forth between nations affords the closest relationship with the movement within the stock market and this perhaps can be most readily seen through the movement of foreign exchange markets as well. The issues are never purely domestic. No matter what market one may look at in whatever nation you may reside, the international influences will always be a subtle guiding force behind the more illuminated domestic issues of the day. 

    -- from "The Greatest Bull Market In History", Martin Armstrong 

"The Greatest Bull Market In History"

PBS - The Great Crash of 1929.

  • "A common feature of all these earlier troubles [panics such as 1907 and 1914] was that having happened they were over. The worst was reasonably recognizable as such.

    The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning.

    Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost.

    The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recorded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruinous fall.

    Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months.

    The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable."
    -- From The Great Crash of 1929 by John Kenneth Galbraith


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Will Wall Street's Meltdown Turn America Into a Police State?

By Scott Thill

"Raw capitalism is dead." -- Henry Paulson, U.S. Treasury secretary

"Can't we just all go out and say things are OK?" -- President Bush, to congressional leaders during bailout negotiations

30/09/08 "AlterNet" - -- I'm not much of an Army Times reader, but after reading that a brigade was shipping from Iraq in October to serve as "an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks" in the homeland right before the election, my antennae perked up. Same as they did when I read that an electoral college doomsday scenario exists in which Dick Cheney casts the deciding vote that gives McCain-Palin the White House.

That is, if Cheney and Bush don't take it for themselves. That may sound like fantasy, but don't kill the messenger. They are all strands of the Gordian knot the Bush administration has tied around the neck of the American people for the last two presidential terms, best represented today by the failed bailout of banks, brokers and other complicit parties that have since jacked the American people out of trillions. And while the Army Times revelation or election doomsday may turn out to be paranoia rather than prescience, the evidence just isn't there.

Like I said: antennae.

They've come in handy as bullshit detectors since Bush stole the election from a flat-footed Al Gore and set about engineering the greatest transfer of public wealth into private hands in American history. If you factor in Monday's failed takeover, as well as the $5 trillion the American people now owe thanks to the "bailout" of Fannie Mae and Freddie Mac, not to mention the continuing hyper-expensive occupation of Iraq and so on, our citizenry is now so far in the hole that it's pointless griping about numbers. If you want one, use the figure put forth by Dennis Kucinich: half a quadrillion dollars. We have evolved past the point of economic or geopolitical reality and entered a phase of pure concept.

And all vectors of that phase point toward the conclusion that the proverbial shit has totally hit the fan -- head on, and all over again.

Meet the New Rome, Same as the Old Rome

"Franklin Roosevelt had to save capitalism from itself," Los Angeles Times business editor Tom Petruno told me as Washington Mutual and Wachovia became the latest banking dominoes to fall. "Is history repeating?"

Indeed, it is, as one could tell from the repetitive usage of loaded terms and phrases like "Great Depression," "meltdown," "apocalypse," "Armageddon" and more to describe the just-on-time cratering of the American economy. After the strange bedfellows in both parties torpedoed Bush, Bernanke and Paulson's so-called bailout, more than $1 trillion of market value in American equities disappeared in a single day. The Dow Jones average set a record for quickest suicide dive in a single day. Other indexes sunk to multiyear lows, wiping out years of value, and stocks across the board went negative like Ann Coulter. In fact, the only major stock that actually advanced on Monday was Campbell Soup.

Can there be a more fitting metaphor for the American economy stuck beneath the Bush administration's thumb?

But the reruns, and their loaded terminology, are merging: Bush himself is just another iteration of the infamous "New World Order" instituted by his father while trying to, what else, convince the American public that it needed to go to war against Saddam Hussein. The revisionism is transparent, befitting a government that cares nothing of what its people actually think. Jon Stewart of "The Daily Show" recently juxtaposed Bush's address on the financial cataclysm with his pre-invasion speech in 2003 and found -- surprise! -- they were exactly the same.

This is a long way of saying that this particularly frightening crux of historical geopolitics, fascism and environmental calamity has been a long time coming. Failing banks? Deregulation. Endless war? Homeland security. Total information awareness? Transparent government. Bankrupt economy? The fundamentals are strong.

"Here's my question," Petruno adds. "If this is remembered as Black September, will that end up being too gentle a reference to what actually happened to the American financial system this month? It is beyond comprehension for people who have been on Wall Street their entire lives. I can only imagine how absolutely stunned the American public must be. Stunned, and very afraid."

It should be. From a military brigade armed for action in the homeland in blatant transgression of Posse Comitatus to what ex-hedge funder and financial personality Jim Cramer recently called "financial terrorism," the United States is pushing forward back.

To start with, the bailout was obvious theft, but our situation is more precarious than you think. The hyperreal credit default swap market, which few understand although it is estimated to involve tens if not hundreds of global trillions, is faltering under the weight of its own Ponzi origins. The scenario significantly worsens once you factor in the given that countries like China and others who have denominated their loans in dollars are shouldering our exploding debt, along with oil-soaked sovereign wealth funds from nations whose civil liberties records suck ass. As I wrote last year on this clusterfuck, if the Chinese call in our debts and oil-producing countries decide to peg their petrodollars to the euro, you can more or less kiss the dollar goodbye. Which means the last thing you'll need to worry about is your stocks, retirement or credit cards. You will instead worry whether or not the cash you have on hand will be worth anything at all. That is the loaded gun that bankers, brokers and the White House is holding to the public's head, as I write. That trillion erased on Monday, as well as the trillions that have been lost and will be lost in the coming months, was nothing more than a hostage situation engineered by the Bush administration, the Federal Reserve and their partners in crime in finance, insurance and real estate business.

They don't call that sector FIRE for nothing. Fire destroys everything and leaves little in its catastrophic wake. Which raises the question: What's left to burn?

"I think our economic situation can get much worse," argues Danny Schechter, the veteran producer and author whose 2006 indie documentary "In Debt We Trust" covered this volatile territory long before CNN would. "Jobless claims are already at a seven-year high, but the government is worried about the reaction from Asia. We are living on other countries' money, and when that spigot gets cut off, we will be in deeper doo-doo. Part of the reason for the scale of the bailout is to show Asia and sovereign wealth funds that we will protect their interests."

But for how long? The Bush administration and Congress' disdain for the American people has been painfully obvious, so it's hard to believe they will call from sky-high Dubai to see how we are doing after making off with almost all of our money.

"It's a high-stakes gamble, which is why Paulson tried to do it quickly in a climate of shock and crisis," Shechter says. "He knew that the longer it takes, the more opposition it will attract. This plan, if eventually passed, will pre-empt the next president from doing anything about it, because there will be no money. They are wrecking the government by wrecking the economy first."

That shock doctrine, as Naomi Klein explained in her brilliant book of the same name, has foisted this same kind of disaster capitalism on country after country over the last century. Klein's book is littered with democracies that slept their way through coups and takeovers, entranced by one simulation or another. The United States was plugged into a matrix that onetime White House press secretary Ari Fleischer described as "an American way of life," adding without deceit that "it should be the goal of policy makers to protect the American way of life."

By destroying it? Mission accomplished.

"This is the September of surprise," Schechter concluded, "not a war on Iran but on America."

Civil War, the Rerun?

So, what's the next step for the shoe yet to drop? Perhaps the Army Times has the clues:


(The brigade) may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack. ... The 1st BCT's soldiers also will learn how to use "the first ever nonlethal package that the Army has fielded," 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.


Like every move the Bush administration has ever made, from the Patriot Act to the occupation of Iraq and down to bankrupting the American economy, this maneuver is a solution in search of a problem that it seems destined to create. Look around you. Housing is over. Stocks are nosediving. The banks are gone. War is ceaseless. Civil liberties are disappearing. Nerds at the Federal Reserve and the Treasury are taking hostages. It is madness.

And mad people have a tendency to infect everyone around them. The difference is that when you go mad ... well, that's the question mark: What will happen?

Ask the late Iman Morales, who went crazy in Brooklyn on a ledge 10 feet above ground and was illegally tasered by New York police officers, eventually falling to his death, immobilized. A perfect metaphor for our economy, sure, but it's also the type of literal shock we might be awaiting, as the November election creeps nearer and shit begins to hit the fan with ferocity. Many of us so-called alternative journos are not conspiracy nuts, but realists. We look at galvanizing leaders like Barack Obama, America's next president, and compare his impact to that of Lincoln, Kennedy or King -- without forgetting that all three were eventually assassinated. We are the type of realists who live through two Bush presidents, both of whom configured a New World Order, with and without the approval of the American people and the world at large. The type of realists that notice that after 9/11, we couldn't fly to Vegas, but Osama bin Laden's family was flown out of the country on government charter.

And here is what we see today: Crowds protesting in the streets, the people's money wiped out thanks to the Bush administration's latest economic shock and awe. An army brigade matter-of-factly betraying Posse Comitatus for the purpose of crowd control. The public trust and wealth almost robbed cleanly with congressional approval.

In other words, we see another unfolding coup, which is to say, a rerun. And there is no telling what the future may hold, or whether or not we are connecting vectors that should remain solitary. But our math has worked just fine in the past -- better than Ben Bernanke and Henry Paulson's math, that's for sure.

And we'd love to be wrong about what's coming. But unfortunately that isn't up to us, and it never has been: It's up to the Bush administration. And it has never failed to let us down.

Scott Thill runs the online mag Morphizm.com. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.

An Emergency Bailout Plan That Americans Will Love

By Jonathan Tasini

30/09/08 "
Working Life" -- There is a great economic emergency looming in our country. But, it seems to me that we—or at least our elected leaders—have only looked at one side of the crisis, that of the housing bubble-inspired financial credit crunch. By doing so, we’ve missed the bigger picture and the solutions needed. So, here is one person’s take on the Emergency Economic Bailout package that will heal the economy.
As quick background, let’s consider this:

24.5 percent of all Americans earn poverty wages ($9.60 or less)

10 percent of all Americans—15 million Americans—earn $6.79 or less

33.3 percent of African American works and 39.3 of Hispanic workers earn poverty wages.

The share of our entire national income hoarded by the top one percent is, as of 2005, 21.8 percent. The last time it was that high was in 1928 (23.9)—just as the Great Depression was about to hit with its full fury.

We accept poverty as a fact of life in this country—partly because workers have not gotten the fair share of their hard work over the past three decades (in Republican and Democratic Administrations). If productivity and wages had kept their historic link (meaning, as workers were more productive, that translated into higher paychecks), the MINIMUM WAGE in the country would be $19.12. Yes, $19.12.

At the recent new minimum wage of $6.55 an hour, if you worked every single day, 40 hours a week, with no vacations, no holidays, no health care and no pension, you would earn the grand sum of $13.624. The POVERTY LEVEL for a family of three is $17,600.

47 million Americans have no health care and tens of millions more have inadequate or costly health care that can bankrupt them.

Since 1978, the number of defined-benefit plans—that means, pensions that give retirees a promised monthly amount—plummeted from 128,041 plans covering some 41 percent of private-sector workers to only 26,000 today. It’s a Dog Food Retirement future for millions of people.

All those numbers above do relate to the more narrow crisis in a very specific way: without being able to rely on their paychecks to survive, a lot of people got sucked into the housing bubble mania as an economic coping mechanism. Home equity credit lines substituted for decent pay, retirement and affordable, quality health care. And we know the rest.

So, here is what I think is a more comprehensive economic rescue plan, all of which should be attached to any new "bailout" proposal:

1. Immediately raise the minimum wage to $10 an hour, with additional increases over the fives years following raising the minimum wage to $20, which will begin to return some justice and return to workers’ sweat of the brow.

2. Pass HR676, Medicare for All legislation to  (Rep. John Conyers is the main sponsor of the bill). Aside from the moral issue of covering every single American and making health care a right not a privilege, it would save the economy hundreds of billions of dollars and immediately make American-based companies competitive around the world with companies operating from countries with national health care.

3. Create a national guaranteed universal pension plan, backed by the government, so people can be sure that their retirement years will not be threatened by the wild swings of Wall Street.

4. Repeal the Bush tax cuts now and raise the top two income tax rates to 40% and 45%, add a new 50% income tax bracket for those with taxable income over $1 million, and tax investment income as ordinary income. Frankly, that is pretty modest and should only be the first step in rediscovering a progressive taxation system—but it will still raise several hundred billion dollars this year to finance a variety of public investments. The very people who have enriched themselves in the deregulation orgy of the past couple of decades should pay to repair the country.

5. A couple of years ago, when I was involved in a little political race of my own, I latched on to this idea: a tiny transactions tax on stock sales. It would be so miniscule that the small investors would never feel it, say, 0.25 percent of the sale. It would raise about $150 billion. Wall Street benefits from government protections, not the least of which is a regulatory system (oh, there I go using that "regulation" word, which now seems to be back in vogue) that prevents, in theory, fraud and crazy speculation (ok, so that doesn’t always work out well). Plus, such a tax might also exercise some restraint, perhaps modest, on the wild and crazy big trades made on rumors and the thirst for a quick buck. But, the main point is shared responsibility. You live in this society and, so, you make a contribution. And that contribution is relatively modest and relatively painless.

6. The Employee Free Choice Act. There is no better middle-class jobs program than unionization. Period.

  The point of these suggestions is not just moral but common, economic sense. The way to avoid, to some extent, speculation and crazy amounts of debt is to take away the victims that are preyed on by banks, unscrupulous investors and free-market pirates. If a person has a decent income, real health care, a secure retirement and a government that can invest in the country, he or she is less likely to feel the need to latch on to risky investments and get-rich-quick schemes (also known as day-trading).

My guess is the American people would feel pretty good about a deal that included the above. To those, I’d add two specific pieces about the current mess:

First, any investment of money in banks is done on a debt-for-equity swap. No bailouts. As Nouriel Roubini and my friend Dean Baker have both pointed out, there is no justification or economic logic to bailout banks as a solution to the crisis we find ourselves in. Roubini writes, in arguing that the buying up bad assets is the exception, not the rule, and:

So this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the financial firms (not just banks but also other non bank financial institutions); with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.

Second, as I’ve argued, we should own Freddie Mac and Fannie Mae. We need those two huge institutions to be boring and predictable, not participating in crazy leveraging and speculation. The only we guarantee that is by installing publicly accountable board members who will run the companies for the benefit of homeowners, not profiteers.

Monday, September 29, 2008

Who is Henry Paulson?

By Tom Eley

23 September 2008

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The plan to rescue the US financial industry arrogates virtually unlimited money and power over the financial affairs of the state to the office of Treasury Secretary Henry Paulson. Paulson is a figure with a long history of intimate connections to the political and financial elite.

In 1970, fresh from the Masters program of the Harvard Business School, Paulson entered the Nixon administration, working first as staff assistant to the assistant secretary of defense. In 1972-73, Paulson worked as office assistant to John Erlichman, assistant to the president for domestic affairs. Erlichman was one of the key figures involved in organizing President Richard Nixon’s notorious “plumbers” unit that carried out illegal covert operations against the president’s political opponents, including espionage, blackmail, and revenge. Ehlichman resigned in 1973, and in 1975 he was convicted of obstruction of justice, perjury, and conspiracy, and was imprisoned for 18 months.

Utilizing his connections, Paulson went to work for Goldman Sachs in 1974. In a 2007 feature, the British newspaper the Guardian wrote, “Not only was he well connected enough to get the job [in the Nixon White House], but well connected enough to resign in the thick of the Watergate scandal without ever getting caught up in the fallout. He went straight to Goldman back home in Illinois.”

Paulson rose through the ranks of Goldman Sachs, becoming a partner in 1982, co-head of investment banking in 1990, chief operating officer in 1994. In 1998 he forced out his co-chairman Jon Corzine “in what amounted to a coup,” according to New York Times economics correspondent Floyd Norris, and took over the post of CEO.

Goldman Sachs is perhaps the single best-connected Wall Street firm. Its executives routinely go in and out of top government posts. Corzine went on to become US senator from New Jersey and is now the state’s governor. Corzine’s predecessor, Stephen Friedman, served in the Bush administration as assistant to the president for economic policy and as chairman of the National Economic Council (NEC). Friedman’s predecessor as Goldman Sachs CEO, Robert Rubin, served as chairman of the NEC and later treasury secretary under Bill Clinton.

Agence France Press, in a 2006 article on Paulson’s appointment, “Has Goldman Sachs Taken Over the Bush Administration?” noted that, in addition to Paulson, “[t]he president’s chief of staff, Josh Bolten, and the chairman of the Commodity Futures Trading Commission, Jeffery Reuben, are Goldman alumni.”

“But the flow goes both ways,” the article continued, “Goldman recently hired Robert Zoellick, who stepped down as the US deputy secretary of state, and Faryar Shirzad, who worked as one of Bush’s national security advisors.”

Prior to being selected as treasury secretary, Paulson was a major individual campaign contributor to Republican candidates, giving over $336,000 of his own money between 1998 and 2006.

Since taking office, Paulson has overseen the destruction of three of Goldman Sachs’ rivals. In March, Paulson helped arrange the fire sale of Bear Stearns to JPMorgan Chase. Then, a little more than a week ago, he allowed Lehman Brothers to collapse, while simultaneously organizing the absorption of Merrill Lynch by Bank of America. This left only Goldman Sachs and Morgan Stanley as major investment banks, both of which were converted on Sunday into bank holding companies, a move that effectively ended the existence of the investment bank as a distinct economic form.

In the months leading up to his proposed $700 billion bailout of the financial industry, Paulson had already used his office to dole out hundreds of billions of dollars. After his July 2008 proposal for $70 billion to resolve the insolvency of Fannie Mae and Freddie Mac failed, Paulson organized the government takeover of the two mortgage-lending giants for an immediate $200 billion price tag, while making the government potentially liable for hundreds of billions more in bad debt. He then organized a federal purchase of an 80 percent stake in the giant insurer American International Group (AIG) at a cost of $85 billion.

These bailouts have been designed to prevent a chain reaction collapse of the world economy, but more importantly they aimed to insulate and even reward the wealthy shareholders, like Paulson, primarily responsible for the financial collapse.

Paulson bears a considerable amount of personal responsibility for the crisis.

Paulson, according to a celebratory 2006 BusinessWeek article entitled “Mr. Risk Goes to Washington,” was “one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits.” Under Paulson’s watch, that meant “taking on more debt: $100 billion in long-term debt in 2005, compared with about $20 billion in 1999. It means placing big bets on all sorts of exotic derivatives and other securities.”

According to the International Herald Tribune, Paulson “was one of the first Wall Street leaders to recognize how drastically investment banks could enhance their profitability by betting with their own capital instead of acting as mere intermediaries.” Paulson “stubbornly assert[ed] Goldman’s right to invest in, advise on and finance deals, regardless of potential conflicts.”

Paulson then handsomely benefited from the speculative boom. This wealth was based on financial manipulation and did nothing to create real value in the economy. On the contrary, the extraordinary enrichment of individuals like Paulson was the corollary to the dismantling of the real economy, the bankrupting of the government, and the impoverishment of masses the world over.

Paulson was compensated to the tune of $30 million in 2004 and took home $37 million in 2005. In his career at Goldman Sachs he built up a personal net worth of over $700 million, according to estimates.

After Paulson’s ascension to the treasury, his colleagues at Goldman Sachs carried on the bonanza. At the end of 2006, Paulson’s successor Lloyd Blankfein was handed over a $53.4 million year-end bonus, while 11 other Goldman Sachs executives raked in $150 million in year-end bonuses combined. That year, the top investment firms Goldman Sacks, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns handed out $36 billion in bonuses. At the end of 2007, the executives of the same firms, excepting Merrill, were handed another $30 billion.

See Also:
Paulson warns: No limits on CEO pay
[23 September 2008]
No to Wall Street bailout! The socialist answer to the financial crisis 
[22 September 2008]
US government to bail out Wall Street
[20 September 2008]
Obama’s response to financial meltdown: Deception and subservience to Wall Street
[19 September 2008]

Chinese banker predicts weakened US dollar in long term

2008-09-28 17:55:31
Special Report: Summer Davos

TIANJIN, Sept. 28 (Xinhua) -- The U.S. dollar would face short-term fluctuations and weaken in the long run, a leading Chinese banker predicted here on Sunday.

Speaking at the Summer Davos forum in this north China port city, Bank of China Vice President Zhu Min said he believed it would be less likely for the United States to sell more treasury bonds to other countries to obtain the funds needed to bail out the turmoil-beleagued financial market, which would only accelerate inflation in other countries.

Instead, the U.S. could only issue other bonds to finance the rescue plan, which Zhu said would definitely cause the dollar depreciation in the long term. The bailout fund will have topped one trillion U.S. dollars if the U.S. Congress passes the Fed's 700 billion dollar financial rescue plan.

Zhu said market confidence could not be recovered simply with the help of the 700 billion dollars, citing the U.S. dollar is a currency with turbulent fluctuations.

"It takes a long time to solve the current liquidity strains and investment crisis," Zhu said.


Barclays Capital sees gold heading to new highs

BarCap sees "perfect storm" for fresh gold spike
Mon Sep 29, 2008 11:04am IST

KYOTO, Japan, Sept 29 (Reuters) - A near "perfect storm" has reformed in the gold market that should drive bullion to new record highs within the next six months, fuelled by a mix of anxious uncertainty and a weaker dollar outlook, a Barclays Capital official said on Monday.

While gold prices may weaken briefly if other markets rally in relief once U.S. legislators gave the greenlight to a $700 billion bailout of the financial system, a reconsideration of gold's merits should propel it beyond the March record of $1,030.80 an ounce, says Jonathan Spall, a director in BarCap's commodities division.

"I think we should make new highs .. .within the next six months, I would've thought," he told journalists at the London Bullion Market Association's annual conference in Kyoto. "We should be in a perfect storm for gold."

The U.S. and European governments have stepped in this month to bail out major banks and financial institutions whose near collapse under the weight of toxic debt triggered the worst crisis in decades and threatened to wreck the world economy. "I was always very sceptical of the argument of gold as a safe haven, but that has changed dramatically for me and for others -- now it's financial institutions themselves that are under threat," he said.


Private banks rethinking gold, seen next big buyers

Mon Sep 29, 2008 12:56pm IST
By Jonathan Leff

KYOTO (Reuters) - Private banks could be the next big buyers in the global gold market, helping drive prices higher as they consider restocking bullion bars that were sold off in calmer times, the top HSBC gold trader said on Monday.

Jeremy Charles, chairman of the London Bullion Market Association and global head of precious metals trade at HSBC Bank, also said he expected central banks around the world to put the brakes on their plans to sell down gold reserves as they see other assets deteriorate, lending further support to prices.

"I think the institutional investors and private banks in particular will all be reconsidering their strategy. My belief is they are likely to want to own some gold again,"he told Reuters on the sidelines of the LBMA's annual conference. The current generation of private bankers destocked their gold holdings in the 1980s and 1990s to pursue higher-return investments in recent years, but are now seeing the wisdom of the previous generation's gold holdings, he said.

The deepening world financial crisis as the burden of toxic housing debt pushed U.S. and European banks to the brink of collapse has roiled investors globally, causing many to rethink their approaches and potentially putting a new shine on gold.

Charles also said he saw only 10 percent downside potential from the current gold price of around $875 an ounce, with far greater potential on the upside. He declined to give a price forecast.


Dr. Ron Paul schools the rest of the House on the Bailout bill

Friday, September 26, 2008

B-52s to leave for Guam deployment

MINOT AIR FORCE BASE About 300 airmen from Minot Air Force Base and several B-52s will begin leaving next week for a five-month deployment to Andersen Air Force Base in Guam.

This deployment is in addition to about 300 airmen from the 5th Bomb Wing and about 60 airmen, including one civilian from the 91st Missile Wing at the base currently deployed to Iraq, Afghanistan, Kuwait and Kyrgyzstan, said Maj. Elizabeth Ortiz, chief of Public Affairs at Minot AFB.

The deployment to Guam will provide U.S. Pacific Command with a continuous bomber presence in the Asia-Pacific area, Ortiz said. She said the deployment to Guam is a regular deployment for the Minot AFB airmen.

"This is an opportunity for us to get out and stretch our muscles, exercising the other half of the mission we have: deterrence from a bomber perspective," said Col. Joel Westa, commander of the 5th Bomb Wing at Minot AFB. "We are going to do some great things out there.

Westa will visit the deployed airmen in December in Guam and plans to help serve them a holiday meal. He was stationed at Andersen AFB as the vice commander of the 36th Wing before coming to Minot AFB to become commander of the 5th Bomb Wing.

The last time the 5th Bomb Wing deployed to Guam was in August 2006, Ortiz said. She said the wing accomplished all of its missions and helped launch 201 perfect sorties during that five-month deployment.

The Minot AFB airmen leaving for Guam will continue into the first of October.

Although many people from the base will be deployed over the next months, Ortiz said the dedication of the many airmen who are at the base will continue the mission here.

The bomb wing members are scheduled to return from Guam in mid-February 2009, Ortiz said.

Google's Vision for a Wireless World

In a recently published patent, Google (GOOG) describes a vision for an open wireless world, one in which mobile devices (and smartphones in particular) are no longer married to particular cellular service providers.

When you buy a phone in the United States today, you typical have to sign a contract that prevents you from using that phone with more than one provider for a predetermined amount of time. You’ll encounter no such requirement when purchasing a laptop, which can be used to connect to the internet through any service provider at any time.

The Google patent for “Flexible Communication Systems and Methods” contends that cellphone users should also have the freedom to connect through various networks and methods, and that the communication service they choose at any particular time and location should be determined by competitive market forces.

The idea is that you could, for example, make phone calls and browse the internet on your smartphone via WiFi when at home, Verizon (VZ) when downtown, and perhaps AT&T (T) when out in the countryside. You’d base your decision on both pricing and quality of service, with the quality of coverage in your current location playing a major role.

In a way, the iPhone has already given us a taste of what this would be like. When near a WiFi hotspot, you can decide on the fly whether to surf the internet using 3G/EDGE or WiFi. Most people choose WiFi because it’s faster (and probably free, unless you’re at an airport or cafe). But you may go with 3G/EDGE instead because it’s more secure (no worrying about the traffic sniffing that occurs on open WiFi networks). With VoIP applications now available for the iPhone, you can make this decision for your phone calls as well.

Now imagine that this choice was available when on-the-go, and that you had five service providers to choose from instead of just two. It’s not hard to imagine that the competition would lead to lower costs and better service. Not to mention, you wouldn’t get stuck with a crummy carrier after moving or traveling to a place that has poor coverage.

As Unwired View emphasizes, and the patent outlines explicitly, such a system would require “a transparent auction marketplace with wireless providers bidding in real time to provide the communication services to users.” Google may be well-suited to establish such a marketplace because of its experience with AdWords and AdSense. The carriers themselves would resist such a scenario with tooth and nail because they’d become dumb pipe providers that couldn’t lock users into contracts any longer.

The patent is part of Google’s broader agenda to get as many people online as possible with as many devices as possible. Hence the gPhone, its pressure on the FCC, and Larry Page’s bristling in support of open white spaces. The opening of white spaces in particular could lead to more connection points for mobile devices, ones that form an attractive alternative to those provided by wireless carriers. And Android-powered phones could be among the first to take advantage of a flexible connections system.