Sunday, September 28, 2008

Barack Obama's Brown Shirts: MO prosecutors

It continues to escape me how anyone can miss the Obama Brown Shirt mentality. If this guy gets elected president, I'm going to tell all my journalism colleagues that they brought it on themselves when they get the same treatment Pensacola News Journal columnist Reginald T. Dogan got when he visited an Obama office and found out that any dissent from the "party line" made him, in his own words, "persona non grata."

And I need to note, the Obama Brown Shirt mentality is color-blind; Mr. Dogan is black.

Read it for yourself in his column entitled, "Obama campaign should not avoid elephant in the room."

Here's part of his column - it gets even better the further you read, so be sure to hyperlink to the entire column linked above:

"I'm persona non grata at the Barack Obama headquarters in Pensacola.

"I ruffled some feathers Monday after I popped in at the campaign office on DeVilliers Street. I was accused of asking "uncomfortable questions" by the campaign's communications director in the district office in Tallahassee.

"I wanted to talk about a Newsweek magazine article that referred to a national poll showing that white Democrats may not be admitting that they won't vote for a black candidate because they fear appearing racist.

"The AP-Yahoo poll suggested that the percentage of voters who may turn away from Obama because of his race easily could be larger than the final difference between the candidates in 2004.

"But before I could ask my first question, an Obama field manager told me I needed approval from the Tallahassee office to talk to anyone. Then, another field manager told me I could talk to volunteers but not paid staff.

"I talked with two volunteers, who seemed eager to answer my questions, before the first field manager called her boss in Tallahassee.

"My interviews were interrupted when the manager handed me a telephone with Kevin Cates, the communications director, on the line telling me that I needed permission from him before talking to staff or volunteers.

"Later, I learned he also called the News Journal with the same message.

"I've got to tell you I find it disconcerting and heavy-handed that a campaign that prides itself on openness, honesty and fair treatment would hamper free speech and open dialogue."

Well, it gets even better. The Obama Brown Shirt mentality now includes signing up prosecutors who support his campaign to make public statements that they will file charges against anyone they consider to be "lying" about Barack.

And what constitutes some of the lies?

Well, saying his tax plan will result in problems for the middle class. Or that his promises about social welfare can't be accomplished. Or anything else these prosecutors consider to be "a lie."

And that could be anything at all.

I used to think of Barack Obama as just a pathological liar who was entirely too shallow to be president.

But now I see that what we are really talking about is the far-left wing of politics imposing their own brand of authoritarian thought policing on the nation. And their ability to sign up county and city prosecutors in MO to actually carry out these prosecutions tells me that Barack Obama is the most serious threat to constitutional rights since - well, since the GOP caved in to the Paulson crisis and took judicial review of the treasury secretary's actions out of the bailout bill hammered out this weekend.

It's true - we really can loose our freedoms. And the juxtaposition of these two events shows it is coming from both the right, and the left, wing of the political spectrum.

OK, here is the story on Barack Obama and the ends his authoritarian Brown Shirts will go to to stop anyone from criticizing "The One."

Last thought: You remember the talk about how there are 18 letters in Obama's full name, which is 3 sixes . . . nah, it couldn't be. That's just crazy religious nut talk . . . right?

Here's the article from WorldNetDaily:

Backlash to Obama officials squelching political speech

Law enforcement threats, intimidation likened to 'police-state tactics,' by Missouri governor

Posted: September 27, 20087:25 pm Eastern
© 2008 WorldNetDaily - Used with permission

Following legal threats by Missouri state law-enforcement officials supporting Barack Obama against presidential campaign ads that appeared to be false or misleading, Gov. Matt Blunt today likened the intimidation to "police state tactics."

"St. Louis County Circuit Attorney Bob McCulloch, St. Louis City Circuit Attorney Jennifer Joyce, Jefferson County Sheriff Glenn Boyer, and Obama and the leader of his Missouri campaign Senator Claire McCaskill have attached the stench of police state tactics to the Obama-Biden campaign," said Blunt in a statement released today. "What Senator Obama and his helpers are doing is scandalous beyond words, the party that claims to be the party of Thomas Jefferson is abusing the justice system and offices of public trust to silence political criticism with threats of prosecution and criminal punishment."

The statement came after the law enforcement officials pledged to form a "truth squad" to halt ads that, among other things, claimed Obama was not a Christian or that he was not planning to cut taxes on Americans other than the wealthy.

"If they're not going to tell the truth, somebody's got to step up and say, 'That's not the truth. This is the truth,'" McCullogh told KMOV-TV in St. Louis.

The effort appeared to be part of a move by the Obama campaign to block advertisements to which it objects. The campaign also sent "threatening" letters to several news agencies in Pennsylvania and Ohio demanding they stop airing ads exposing Obama's gun stance, according to the National Rifle Association.

"This abuse of the law for intimidation insults the most sacred principles and ideals of Jefferson," said Blunt.

"I can think of nothing more offensive to Jefferson's thinking than using the power of the state to deprive Americans of their civil rights. The only conceivable purpose of Messrs. McCulloch, Obama and the others is to frighten people away from expressing themselves, to chill free and open debate, to suppress support and donations to conservative organizations targeted by this anti-civil rights, to strangle criticism of Mr. Obama, to suppress ads about his support of higher taxes, and to choke out criticism on television, radio, the Internet, blogs, e-mail and daily conversation about the election."

Blunt concluded: "Barack Obama needs to grow up. Leftist blogs and others in the press constantly say false things about me and my family. Usually, we ignore false and scurrilous accusations because the purveyors have no credibility. When necessary, we refute them.

Enlisting Missouri law enforcement to intimidate people and kill free debate is reminiscent of the Sedition Acts – not a free society."

The NRA's Political Victory Fund also condemned the effort as censorship.

"Barack Obama and his campaign are terrified of the truth," said Chris W. Cox, chairman of organization.

"Sen. Obama's statements and support for restricting access to firearms, raising taxes on guns and ammunition and voting against the use of firearms for self-defense in the home are a matter of public record. NRA-PVF will make sure that everyone knows of Obama's abysmal record on guns and hunting."

The Obama campaign declined to respond to a WND request for comment.

The NRA said Obama sent "cease and desist letters" to news outlets in the two states, "denouncing the ads and demanding their removal from the airwaves."

"Barack Obama would be the most anti-gun president in our nation's history. That's the truth," said Cox. "NRA-PVF has the facts on our side. No amount of running from or lying about his record and then intimidating news outlets in the hope of deceiving American gun owners and hunters is going to work. Those strong arm tactics may work in Chicago, but not in Pennsylvania and Ohio, and not as long as NRA-PVF has anything to say about it."

The warnings were from Obama lawyer Robert Bauer, who told station managers that in order to stay in the Federal Communication commission's good graces, they should not air the ads.

Josh Marquis, an Oregon prosecutor who serves as a spokesman for the NDAA, said the comments from Missouri don't sound like the McCulloch he knows.

"I'm really surprised. I know Bob," Marquis told WND.

The KMOV report said the Obama campaign asked members of Missouri's law enforcement to target anyone who "lies" or issues misleading television ads. Formation of the Obama "Truth Squad" was the result, the report said.

McCulloch declined to return a call from WND seeking comment.

The KMOV report said the campaign was being conducted by McCulloch and another prosecutor, Jennifer Joyce, along with a number of sheriffs throughout the state.

"They will be reminding voters that Barack Obama is a Christian who wants to cut taxes for anyone who makes less than $250,000 a year. They also say they plan to respond immediately to any ads and statements that violate Missouri's ethics laws," the report said.

"We want to keep this campaign focused on issues," Joyce told the station. "We don't want people to get distracted. Missourians don't want to be distracted by the divisive character attacks."

The campaign was assembled to "set the record straight," they said.

Officials with the Missouri Sheriff's Association declined to talk about any sheriffs who might be involved in the campaign.

At the blog Gateway Pundit, the reaction was immediate.

"St. Louis and Missouri Democrat sheriffs and top prosecutors are planning to go after anyone who makes false statements against Obama during his campaign. This is so one-sided I can't even [begin] to describe how wrong this agenda is," writes blogger Jim Hoft.

Hoft said Joyce and McCulloch "are threatening to bring libel charges against those who speak out falsely against Barack Obama."

Missouri blogger Doctor Bulldog commented: "Don't think they will stop with just the local radio and television stations. Oh, no. We bloggers are NEXT on the chopping block! It doesn't matter if it is the truth. It only matters if Obama deems it a lie (i.e. – something that can cause damage to his bid to be president). Basically, NO ONE is free to criticize Obama here in Missouri!!!"

In the St. Louis Examiner, a commentary said, "Look, politicians are all about lies. It may be annoying (I find it entertaining), but that's for their opponents and good-government groups to counter – not law enforcement. ... Even if the officeholders joining the 'truth squad' are nominally stepping out of their official roles in order to put on their (political) party hats and play politics, it's inappropriate. They wield too much power to use it to wag their fingers at people who say un-nice things about political hopefuls. Prosecutors and sheriffs are, after all, normally thought of as people with the clout to put their targets behind bars."

Marquis told WND politicians keep their right to have a political opinion and express it, but the DA's organization strives hard not to be partisan.

London Telegraph: Default by US government?

A default by the US government is no longer unthinkable

So, here we are – the start of a new world order. After the tumultuous events of the last fortnight, the global economic landscape will never look the same again.

By Liam Halligan
Copyright 2008 The London Telgraph - Used with permission

Power has tangibly shifted – away from the United States and the Western world generally, and towards the fast-growing giants of the East. That’s been happening for some years now.

But September 2008 marks the moment when the scale of our excesses, the extent of our debts and the moral bankruptcy of our financial regulatory system finally began to be truly exposed.

I say began to be exposed. Back in March, Standard and Poor’s, the US ratings agency, estimated some $285bn (£156bn) of mortgage-backed securities would eventually be written-off by the global banking sector. On Friday, almost unnoticed amid the panic, that forecast was upped to $378bn.

In reality, total credit losses will be much higher — at least $750bn in my view. But the extent of the 33 per cent one-off increase in S&P’s estimate speaks volumes. It reflects just how little anyone truly knows about either the ultimate size of the sub-prime losses or who ultimately holds the related securities. But with one in ten US mortgages now “delinquent” or “in foreclosure”, and house prices still falling, such “toxic waste” is burning holes in balance sheets wherever it sits. That’s why this crisis is far from over.

It’s difficult to overstate the enormity of what happened last week.

By any standard, the collapse of Lehman Brothers was a dramatic — and alarming event. One of the biggest names on Wall Street, the 158-year old bank was consumed by the scale of its losses and crippled by executive feuds. Deemed by the US Federal Reserve to be “sufficiently unconnected” to the rest of the global financial system, Lehman was allowed to fold.

In contrast, American International Group, the world’s largest insurer, was judged “too interconnected” to collapse. So the Fed effectively “nationalised” AIG – the biggest rescue of a private firm in human history.

And it’s only a few weeks, of course, since the even more expensive bail-out of quasi-government lenders Fannie Mae and Freddie Mac – which, between them, account for a mind-boggling $5,300bn of mortgages, around half of America’s home loans.

On top of all that, US Treasury Secretary Hank Paulson sent an $800bn financial rescue plan to Congress. He wants to create a second “Resolution Trust Corporation” – or government-owned asset management company – to take on illiquid mortgage-related debts. The original RTC was established to rescue the US Savings and Loans Associations that went bust in the 1980s.

And by the way, the Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can’t access America’s frozen credit markets – a move co-ordinated with central banks in Japan, the Eurozone, Switzerland, Canada and here in the UK.

The combination of these measures – each of them of enormous significance in its own right – sent stock markets shooting-up on Friday. America’s S&P 500 rose 4.03 per cent and London’s FTSE 100 soared 8.84 per cent, its largest one-day rise ever.

But, despite the end-of-week euphoria and trader-talk that “the only way is up”, despite America’s undoubted resolve and Paulson’s determination to do “whatever it takes”, the situation remains very fragile.

Nothing better reflects the amount of fear among banks in America – banks everywhere – than the sky-high rates they’re continuing to charge when lending to each other. Ordinarily, inter-bank (or Libor) interest rates are only slightly above base rates.

But with so much uncertainty remaining about the scale and occurrence of “sub-prime” – and with desperate bank executives still so reluctant to “fess-up” their losses – the US Libor rate on money to be paid back in three months is now a staggering 1.5 per cent above base. In recent weeks, Libor rates have shot up in other countries too.

Paulson’s latest liquidity injection has lowered over-night Libor rates for now. But, despite the torrent of cash the US has directed at the credit markets, longer-term inter-bank rates have stayed stubbornly high, and some have gone up further. In other words, even the banks themselves don’t think the rescue plan will work. Expect more – and bigger – liquidity operations in weeks to come.

The trouble is, though, as the bill for these bail-outs keeps rising, so does the possibility that the political consensus will crack and there’ll be an almighty, and debilitating, dust-up. Paulson’s RTC plan, in theory, could restore confidence. By taking sub-prime loans off banks’ books, it could de-ice the inter-bank market, restoring credit lines to households and firms and preventing the “credit crunch” from shifting wholesale, in that fabled phrase, “from Wall Street to Main Street”.

But, in the run-up to the US election in November, Democrats in Congress – and even some Republicans – may decide they’re simply not having it. How much more can the US taxpayer take? It sounds insane, but the liabilities being taken on by the Fed and the US Treasury are now so enormous that the government itself could default. No?

Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.

That possibility is still deemed to be quite low. But the ultimate financial question – until recently, unthinkable – is now being asked. Yes siree, the mighty US government could default.

That’s how much the world has changed.

Daily Telegraph: $700-billion won't detox banking

US Economy: Even Hank Paulson's bail-out plan cannot detox global banking

Can the rescue package really halt our slide into a new Depression, asks Ambrose Evans-Pritchard.

By Ambrose Evans-Pritchard
Last Updated: 3:30AM BST 27 Sep 2008
Copyright 2008 The London Telegraph - Used with permission

Even if Congress backs the Paulson bail-out, the $700 billion blast cannot save the US, Britain or the world from the deepest economic slump since the Thirties. If Congress balks, God help us.

The credit system is suffering a heart attack. Inter-bank lending is paralysed. Funds are accepting zero interest on US Treasury notes for the first time since Pearl Harbour, because no bank account is safe.

Wherever you look – dollar, euro, sterling Libor (the rate at which banks lend to each other), or spreads on credit derivatives – the stress has reached breaking point. If borrowers cannot roll over the three-month loans that are the lifeblood of business, they will default en masse.

“Money markets are imploding. If no action is taken very soon, there is a significant risk that the global economy will collapse,” says BNP Paribas. Almost every trader says much the same thing. So does US treasury secretary Hank Paulson, who as Toby Harnden reports, literally dropped on bended knee to beg help from Democrats on Capitol Hill.

Republican refuseniks – defying their president – have a grim responsibility if they now tip America over the edge, setting off the “adverse feedback loop” that so terrifies the US Federal Reserve. Like players in a Greek tragedy, they seem determined to repeat the “liquidation” policy that led to the Great Depression – and to Democrat ascendancy for years.

Lehman Brothers’ collapse showed the chain of inter-connections that can cause mayhem across a clutch of different markets. That was just one bank – albeit with $630 billion or so in liabilities.
Credit is the lubricant of a modern economy. A seizure now would probably lead to the bankruptcy of General Motors and Ford in short order, but it would not stop with the US car industry. Waves of job losses would set off a self-feeding spiral. Yet more people would default on their mortgages (and car loans), driving house prices down even further. That, in turn, would threaten the solvency of the best banks. That is the way to Armaggedon.

As Mr Paulson says, US taxpayers are on the hook whether they like it or not. A $700 billion fund to soak up toxic debt and stabilise the credit market is the cheapest way out. It is certainly cheaper than Depression.

Hopes that the world can cruise happily on as the US buckles have been dashed by the violent downturn across Europe and Asia over the summer. The Baltic Dry Index measuring freight rates for ships has plummeted by two thirds since May. Japan’s economy is already contracting. China’s may be close behind: a third of all textile factories in Guangdong have closed this year. House prices are tumbling in Shenzen, Beijing, Shanghai.

Albert Edwards, global strategist at Société Général, says Asia built its boom on shipping goods to the US: “The emerging market boom is going to collapse and this will shake investors to the core. The great unwinding has only just begun.”

In Europe, an arc of states from Scandinavia down through the core of the euro zone is already sliding into recession. German GDP shrank by 0.5 per cent in the second quarter. Its manufacturing orders have fallen for eight months in a row, for the first time since records began. Spain is at the onset of a calamitous bust after a property bubble that surpassed even the excesses in America.

This is debt deflation – partly imported from America, partly home-grown. It is global. There is nowhere to hide. Even oil-rich Norway took emergency action this week to shore up its banks.

How will it all end? Europe assumed – wrongly – in the early Thirties that it could withstand the Atlantic gales after the collapse of the Bank of the United States in December 1930. However, Austria’s Credit-Anstalt failed in the early summer of 1931, setting off contagion across the central European banking system.

In the end, it was America that muddled through. The US produced Roosevelt: Europe lost half its democracies. We now live in more benign times, but unlike America, it is far from clear whether the eurozone has the machinery to rescue its economy in a fast-moving crisis. EU rules prohibit big fiscal bail-outs. There is no EU treasury to take charge.

America’s serial bail-outs – nearing $1.6 trillion, or 12 per cent of GDP – are playing havoc with the US budget. The deficit is above 6.7 per cent, near a 60-year peak. But claims that the US is going bust are frivolous. The US Treasury is not taking on permanent debt: it is behaving like a giant wealth fund, hoovering up mortgage securities selling far below their real value for reasons of panic. Famed investor Warren Buffett expects it to make “a considerable amount of money”.

The system will recover, but it may take a slow purge for a decade or more to rid us of the debt toxins. There will be no quick rebound this time.

US attorneys taking "pre-emptive strike" to court

Do you remember reading about an alleged conspiracy to kill soldiers at Ft. Dix in New Jersey?

It's been under the radar for quite some time, but the case is important because it shows that the US government is redefining conspiracy prosecutions into a form of "pre-emptive strike" model.

A quick quote out from the story tells why it is important:

"The case will be watched closely because it represents a type of pre-emptive prosecution that has grown more common in U.S. terrorism cases since the Sept. 11, 2001 attacks — which troubles some experts.

"'Lately, the government has been instructing its informants and taking a more active approach in planning and participation' of illegal acts, said Henry Klingeman, a former federal prosecutor who was the defense lawyer in another New Jersey terrorism case three years ago."

Read it for yourself; the trial opens Monday, Sept. 29, 2008.



Trial to examine alleged plot to kill soldiers

By Geoff Mulvihill
Posted : Sunday Sep 28, 2008 9:50:41 EDT
Copyright 2008 Army Times - Used with permission

CAMDEN, N.J. — The arrests seemed like a startling wakeup call to America: Federal authorities said a group of would-be terrorists were foiled in a plot to sneak onto a New Jersey military base and kill soldiers.

The federal government argues that the May 2007 arrests of Serdar Tatar, Mohamad Ibrahim Shnewer and the brothers Dritan, Eljvir and Shain Duka saved innocent lives. Defense lawyers contend there was no plot and that the government paid an informant to get them to discuss one.

The trial, which opens with jury selection Monday, isn’t a whodunit. The key question will center on whether the men would have done it.

The case will be watched closely because it represents a type of pre-emptive prosecution that has grown more common in U.S. terrorism cases since the Sept. 11, 2001 attacks — which troubles some experts.

“Lately, the government has been instructing its informants and taking a more active approach in planning and participation” of illegal acts, said Henry Klingeman, a former federal prosecutor who was the defense lawyer in another New Jersey terrorism case three years ago.

The trial will test the government’s strategy in terrorism prosecutions, said Robert Chesney, a Wake Forest University law professor who studies domestic terrorism law.

Unlike many terrorism cases, the Fort Dix case doesn’t involve the transfer of money to people who intended to do harm — it’s about people accused of planning to take lives themselves. “It’s a very important case,” Chesney said.

The five suspects in the alleged Fort Dix plot all face charges of attempted murder and conspiracy to murder uniformed military personnel; four of them are also charged with weapons offenses. All have been in federal custody since they were arrested and face life in prison if they’re convicted.

It could take three weeks or more just to seat a jury of 12 from the 1,500 citizens who have been called. Testimony could last for months.

The government’s investigation into the alleged plot began with a tip from Brian Morgenstern, a clerk at a Circuit City electronics store in Mount Laurel.

He called police in January 2006 after he was troubled by a video that customers asked him to convert to a DVD. Authorities say the home-shot footage featured men at a firing range shouting “Allah Akbar,” Arabic for “God is Great.”

The government then paid Mahmoud Omar, an Egyptian national on probation in a bank fraud case, to infiltrate the group.

The 39-year-old Omar recorded hundreds of hours of conversations with the younger men, all foreign-born Muslims in their 20s who had lived for several years in the southern New Jersey suburbs of Philadelphia.

The government alleges the plotters were homegrown — a cab driver, three roofing workers and a convenience store clerk who had applied for jobs as a police officer — and that they did not have any connections to outside terror groups. But prosecutors say they were influenced by other terrorist acts, cheering and laughing at gruesome propaganda videos that show Americans being killed.

Federal prosecutors plan to try to show that Dritan Duka tried to buy an AK-47 in Camden as early as 2005, and that Shnewer suggested other targets, including the White House, FBI and CIA headquarters, the U.S. Capitol and Philadelphia International Airport.

They also will allege that Tatar helped plan the attack using a map of Fort Dix he took from his father’s pizza shop, which is just outside the New Jersey Army installation used mostly to train reservists for duty in Afghanistan and Iraq.

Prosecutors also will try to establish that the men took two trips to Pennsylvania’s Pocono Mountains for training missions that included shooting at firing ranges with automatic weapons.
Agron Abdullahu, a supermarket baker who was on the trips, pleaded guilty last year to providing weapons to some of the others, who are illegal immigrants. Abdullahu, who is now serving a 20-month prison sentence, is not expected to testify at the trial. He has denied any knowledge of a plot.

Prosecutors will also likely detail how Omar brokered a deal for the men to buy (from federal agents) a small arsenal of three AK-47s, two M-16s and four handguns.
Defense lawyers have portrayed Omar as the mastermind of any plot that existed and show that most of their clients were oblivious to any plan.

Michael Riley, who is representing Shain Duka, said the defense will probably play more, and longer, snippets of recorded conversations than prosecutors will. The defense will try to show that while their clients may have liked to shoot guns and held anti-American views, they were not moving ahead with a plan to kill.

“Our guys are saying, ‘What are you talking about?”’ when an attack is mentioned, Riley said.
In one taped conversation, Shnewer makes it seem like Omar is the leader of the group: “I am at your services as you have more experience than me in military bases and in life,” he tells Omar, according to a court filing.

Shnewer’s lawyer, Rocco Cipparone, has said he will consider using an entrapment defense, trying to persuade jurors that if there was a plot, his client was led into it by Omar.
Legal experts say the government has expanded the use of conspiracy laws in terrorism cases since the Sept. 11 terrorist attacks.

John Parry, a law professor at Oregon’s Lewis and Clark University, said the government sometimes charges people with being in a conspiracy to carry out terrorism even if they did not take steps to carry it out.

“I’m skeptical, personally, that we’re in such a serious emergency that we should be pushing the envelope of conspiracy laws,” Parry said.

The government’s ramped up emphasis on terrorism — often using conspiracy laws — has led to convictions in a handful of alleged plots that were never carried out — but some suspects have also been cleared in similar cases.

At a speech to judges in Pennsylvania in June, Attorney General Michael Mukasey acknowledged that bringing charges in plots that have not been executed may make it harder to get a conviction.

But he said it’s the right thing to do.

“I would rather explain to the American people why we acted when we did, — even if it is at a very early stage — than try to explain why we failed to act when we could have,” Mukasey said.

Daily Telegraph: Cold-blooded story of WH summit

Ready to read the most cold-blooded rendition of what went on at the White House this past weekend when Pres. Bush held his "summit" to send the Paulson plan to Congress, and loot the US Treasury for about $1-trillion - the real cost of the bailout?

To grasp how much money that represents, the entire M1 money supply - that is, US dollars in circulation everywhere in the world; every cash drawer, every wallet, every penny jar of change - every single penny of US dollars - is about $1-trillion. So what we are talking about here is somehow manufacturing double the number of dollars that exist everywhere on Earth.

And we are talking about manufacturing them - literally - overnight.

How reliable is this number to do the job? Read this quote, and then decide if you should laugh - or cry:

"They had good reason for skepticism. On Tuesday, a Treasury Department press spokeswoman admitted the $700 billion figure was not based on any particular data point, adding with astonishing candor: 'We just wanted to choose a really large number.'"

OK folks, this is the type of planning going into this crisis from the people who got us into this crisis. Why do I not feel reassured knowing they are in charge?

And frankly, where in the world is my congressman, Jeff Miller? Have you heard from yours either?

Well, read it for yourself in this unedited article. Once again, the London Telegraph does the job; it's a "take no prisoners" fact-telling story that will put the quality of what you've read in the US news to shame.

This is must-reading for anyone who wants to be on the inside of this crisis. But keep the Valium handy when you do.



US economy in crisis: How did it come to this?

America’s effort to see off a new depression unravelled last week. Washington correspondent Tim Shipman watched the bail-out talks descend into gridlock .

Unattributed to any one staffer

London Telegraph

Last Updated: 9:48PM BST 27 Sep 2008

When the two men who want to run the world’s most powerful nation took to the stage for the first presidential debate on Friday night, more than 60 million Americans tuned in. But not everyone in Washington was watching Barack Obama and John McCain.

In the White House, the men who currently hold the reins of power in America were on the phone to Capitol Hill, where grey-faced congressional aides were holding late-night meetings trying to thrash out the deal they hope can prevent meltdown in the world economy.

Asked whether he would be watching the debate, in which Mr Bush’s name was used as an insult, or the deadlocked negotiations, in which his standing is little better, one White House official said: “A bit of both – but I’d rather not watch either.”

It was a week that began with a financial crisis, perhaps the gravest in eight decades, and ended with a political crisis over the already infamous bail-out plan to invest $700 billion of public cash buying up the bad debts of failing banks.

Into this maelstrom stepped a president with little economic literacy and still less authority; a presidential candidate whose political judgment seemed as constant as the fluctuating stock market; and, at the heart of it all, a treasury secretary who ended the week literally on his knees, begging for deliverance from the vicissitudes of Washington politics.

At issue was nothing less than the fate of the world economy, the future of free market capitalism and the credibility of the most powerful nation on earth – perhaps even its status as lone global superpower.

This time last week, treasury secretary Henry “Hank” Paulson, a former chief executive of Goldman Sachs, was pretty pleased with himself. His plan, all three pages of it, had been welcomed across the political spectrum.

Roy Smith, a former colleague of Mr Paulson at Goldman Sachs and Professor of Finance and International Business at New York University, told The Sunday Telegraph: “He clearly emerged as the central leader in the administration. Normally, treasury secretaries don’t get that sort of latitude. He’s the principal government decision-maker on economic policy. Period.”

But Mr Paulson’s world quickly fell apart when the American public and Republican congressmen showed themselves unwilling to take dictation from a former Wall Street plutocrat.
Calls and emails to congressional offices on Monday and Tuesday ran 200-to-one against the plan. Polls showed that six out of ten voters could not understand why taxpayers should pay to save reckless Wall Street firms.

They had good reason for scepticism. On Tuesday, a Treasury Department press spokeswoman admitted the $700 billion figure was not based on any particular data point, adding with astonishing candour: “We just wanted to choose a really large number.”

Mr Paulson, unused to the ways of Washington, had failed to explain that his plan was necessary to prevent a credit freeze which would stall the flow of money through the arteries of the world economy, with consequences similar to those of stopping the flow of blood around the human body.

Prof Smith said: “They lost control of the media description of it. That magnified misunderstandings which have been fodder for a political system of demagoguery and posturing.”

He said Mr Paulson has had to undergo a lot of on-the-job learning: “He’s also had to learn that, in the political context in Washington, CEOs are often emasculated quite quickly.”

It was not just the public that did not understand the rescue plan, nor why it was necessary. When Mr Paulson met with congressmen and senators on Tuesday and Wednesday, he found that many lawmakers were similarly clueless.

An aide to a senior Democratic senator said: “It might as well be in Arapahoe for most of them. Paulson had to spell it out like he was talking to a bunch of first-graders.”

In these impromptu lessons, Mr Paulson found Left-wingers scandalised by help for rapacious capitalists sitting side-by-side with Right-wingers who saw in his plan a socialist scheme to tamper with their precious markets.

In closed-door meetings with senior Democrats, Mr Paulson accepted compromises (limits on executive pay at the banks needing help, and more support for struggling mortgage holders) that allowed the House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to line up their troops in support of the plan. The White House soon won over Senate Republicans, too. But when the 199 House Republicans gathered, just four raised their hands to back Paulson’s proposals.

And more was needed to sell the deal to the nation. Step forward George Bush, whose political capital has long been deep in the red. His televised address on Wednesday night laid out a vision of plummeting house prices and pension funds. “Our entire economy is in danger,” he said.

Steve Clemons, a senior fellow at the New America Foundation think tank, accused Mr Bush of pushing the “fear” button: “He said the clock was ticking. This seems like a bad episode of 24.”

In the panelled splendour of the Capital Grille, a favoured haunt of the political smart set, a former White House speechwriter reflected the view that the presidents doom-mongering could actually make things worse: “If we didn’t need a bail-out before that, we do now.”

But in private talks on Capitol Hill, the Bush administration was pushing an even bleaker picture. A Republican familiar with the warnings issued by the Treasury Department away from the cameras, said the New York stock market should brace for a collapse of up to a third of its value if the deal failed to materialise. “The economy is dropping into the john,” he said. “We could see falls of 3,000 or 4,000 points on the Dow in just a couple of days.

“What’s being put around behind the scenes is that we’re looking at Thirties stuff. We’re looking at catastrophe; huge, amazing catastrophe. It’s one of those things that no one can quite grasp or understand. Everybody is extraordinarily scared.”

This harum-scarum offensive seemed to bear fruit and the tentative basis of a deal was hammered out by Thursday lunchtime. But by then, John McCain had made another of the political gambles for which he is becoming known. The Republican presidential candidate, whose unsure performance on the economy (declaring the fundamentals sound just as the stock market plunged, opposing the bail-out of insurance giant AIG the day before supporting it) had seen his poll numbers decline, declared that he was suspending his campaign to return to Washington and help finalise the deal. From a man known as Senator Hothead for his profanity-laced negotiating style, this was like a bull announcing to the inhabitants of the china shop his intention to do a little browsing.

Mr McCain succeeded in persuading Mr Bush to invite the principal players, and his Democratic rival, Barack Obama, to a Thursday-afternoon summit in the White House. His move also emboldened the House Republicans.

What happened next will go down as the biggest White House drama since The West Wing left our screens two years ago. President Bush lost control as tempers flared in the cabinet room. John Boehner, the Republican House minority leader, torpedoed the Paulson plan, offering up an alternative proposal that would force banks to buy insurance for their failing securities instead of giving them public money.

Mr Paulson explained that the idea was unworkable and declared: “We can’t start over.” But the rebels were not done. Republican Senator Richard Selby then produced a five-page list of 192 economists and business school professors who oppose the plan. That was a red rag to Mr Bush, who snapped back: “I don’t care what somebody on some college campus says,” saying he would trust Mr Paulson instead.

The President then summarised the dangers of inaction to the world economy in characteristically blunt terms: “If money isn’t loosened, this sucker could go down.”

With the deal on life-support, Mr Paulson then chased after furious Democrats, dropping to his knees, only half-jokingly, to beg Nancy Pelosi not to blow up the legislation. Through it all, Mr McCain, who knew Mr Boehner’s plans in advance, far from helping to engineer a compromise, sat mute.

Moderate Republicans were furious at Boehner’s band of brothers. Jim Nuzzo, a White House staffer under the first President Bush, branded the House Republicans “immature brats who have put ideology before country”.

“We’re at a point in our nation’s history when they need to grow up. If McCain can’t get the House Republican leadership to give him 100 votes to do something that the President wants, the treasury secretary wants, the Fed chairman wants, then he doesn’t have a set of nuts that’s worth a damn.”

If he can deliver them over the next 24 hours, it may yet boost Mr McCain’s credibility. Those 100 votes are critical political cover for the Democrats who fear they might lose 20 to 30 congressional seats in November if they alone pushed through an unpopular bill.

The Democratic Senate aide, steeped in seven years of military metaphors from the war on terror, said: “We were prepared to strap on the suicide bomb vests and pull the pins together. But we’re not committing suicide if the Republicans won’t do the same. It’s mutually assured destruction, or nothing.”

In the long run, the true significance of the opposition of the House Republicans may not be the narrow politicking but their stance on the broader historic issue of whether America, a country built on capitalism, will have to accept more government intervention in the market.

The Republican strategist Alex Castellanos, most recently an adviser to Mitt Romney, warned that this would mean accepting aggressively socialistic measures that would leave conservatives unable to explain why the same paternal state we called upon to rescue Wall Street can’t bend down a little lower to provide government-paid health care, energy subsidies and every imaginable social service.

Senior Democratic congressman Barney Frank admitted that things are changing. “This is a very serious policy step that the American government is taking. It’s a fundamental shift in the relationship between the public sector and the private sector.”

The week-long quest for a deal deemed vital and urgent left many cursing Washington’s collective failure of leadership. It was not just smug Europeans, like the German finance minister Peer Steinbrück, who saw last week as the moment America compromised its status as an economic superpower.

Pat Buchanan, the former Republican presidential candidate, claimed that the crash of 2008 will usher in a more sober and much diminished America, branding the credit crisis “a Katrina-like failure of government, of our political class, and of democracy itself. The party’s over. What we are witnessing today is how empires end.”

The days of gridlock raise questions about whether the prize that Mr Obama and Mr McCain are fighting over will be worth the candle come January. In the debate, both candidates acknowledged that the financial belt-tightening will force them to modify their economic plans.

Tom Daschle, a likely chief of staff in an Obama White House, predicted the next president would have, at best, a 50-50 chance of winning a second term because of the looming economic downturn.

The rows on Capitol Hill exposed a continuing cultural divide between New York capitalists and Washington bureaucrats. Slate magazine’s Timothy Noah pointed out that the expansion of government after the Great Depression meant that Washington became Wall Street’s principal rival when it came to running the world. Which wielded more power: the financial markets or the government? If last week is anything to go by, neither of them looks capable of running a corner shop, let alone a world.

As the Senate aide put it after China used a week of American political and economic decline to demonstrate its emergence as a rival power: “They’ve just put men in space. We can’t get 400 congressmen to agree that preventing another depression is a good idea.”

Copyright 2008 the London Telegraph - Used with permission.


Daily Telegraph: Financial crisis engulfs banking

As I mentioned earlier, right now the first-tier US news organizations are too often politically tainted by their spin on the presidential election for me to post them as objective sources of information. Therefore, I am turning to the British press, in particular the London Telegraph, for coverage.

Of course, if a US source can report on this crisis without spinning it for their favorite presidential candidate, I'll post it. But at this point, all readers are warned up-front that the quality of information - and its slant - for first-tier US information organizations is all to be taken with a large helping of salt.

The following article will provide more a historic summation of events, because of the pace at which the financial crisis story is moving. Read it to provide yourself with an understanding of the environment surrounding whatever comes out of Washington Sunday and thereafter this coming week.



Deepening financial crisis engulfs the banking industry

As Washington Mutual became America’s biggest bank failure and politicians argue over the terms of a $700bn rescue plan, a solution to the global credit crisis looked more remote than ever.

By Louise Armitstead
Last Updated: 10:23PM BST 27 Sep 2008

It has already become an iconic moment. On Thursday, Henry 'Hank’ Paulson, the US Treasury Secretary and a man with a personal fortune estimated at $700m (£380m), bent down on one knee before the most powerful woman in Congress, Nancy Pelosi, and begged her to save his plan to rescue Wall Street.

It didn’t work. Ten days after America announced a $700bn bailout for its stricken banks, weary financiers on both sides of the Atlantic went home for the weekend convinced their futures were in the hands of a group of American politicians whose priority was an election in a month, not the markets on Monday.

President Bush repeatedly pleaded with Congress to back the deal. “This sucker could go down,” Bush told them, apparently referring to the teetering US economy.

Congressional staff worked until 2am on Saturday morning and resumed again at 7am in an attempt to reach an agreement on the bailout – which could be the most extensive peacetime state intervention in the financial system since the Great Depression – by the time the markets open in Asia tomorrow.

However, Congressmen were under intense pressure to reject the bailout, which would allow the US government to buy toxic housing-related investments from banks.

A source close to the meetings said: “American Congressmen are being lobbied by voters at a scale of nearly 100 to 1 to vote against this bailout. It could be politically lethal to be seen as the ones taking the side of Wall Street against the people.”

Not, screamed Wall Street, as dangerous as the impact on financial markets if it were not granted. Last week Warren Buffett, America’s richest man and most famous investor with a huge retail following, tried to impress the importance: “This is sort of an economic Pearl Harbor we’re going through. I’m sure we didn’t want to go to war in 1941. There are times when events force a timetable on you and force action. If they think about it for three weeks, it will be very different and more difficult.”

Bob Diamond, boss of Barclays Capital and new owner of Lehman Brothers in America, told The Sunday Telegraph: “The reality is that the world needs a functioning financial system and it’s up to everyone involved to make sure this happens.”

Another senior banker said: “I don’t think people realise how serious this is. We are facing a full-scale meltdown of the financial system and liquidity is drying up. Imagine not being able to withdraw cash from the banks to buy food. This, in financial terms, is what’s happening. There is no way this bailout can’t happen. It’s about confidence and the blow would be huge.”

Bankers pointed to the events of last week as proof. While the markets had soared last Friday on news of the bailout, within days the uncertainty surrounding it had again unleashed fresh fear into the markets.

Overnight last Sunday, Morgan Stanley and Goldman Sachs were converted from independent to ordinary regulated banks, adding shocking emphasis to the depth of the crisis: Wall Street as it had long been known ceased to exist.

Then as politicians wrangled, the interbank lending market froze.

On Thursday, regulators seized control of Washington Mutual, making it the biggest banking failure in US history. Then shares in Wachovia, the fourth largest bank in the US, fell 27 per cent on Friday. In the panic, fresh doubts were poured on the future of Morgan Stanley as its credit default swap rate widened dramatically, a sign of extreme distress.

By now all eyes were fixed on the bailout as the market’s only hope.

Yet this weekend, City pessimists argued that Paulson’s plan might not work, even if it does get through Congress. They said confidence in the banks was shattered beyond repair when Paulson let Lehman Brothers fail and that no amount of US taxpayer money set aside to buy toxic assets from banks will get banks to start lending to one another again. Neither will it get investors to start buying bank shares again.

Instead, they argued, investors and banks themselves will keep scouting for – and steering clear of – institutions perceived to be the weakest links in the financial system. This self-fulfilling process could well lead to a 1930s-style domino effect of failing banks.

“I think Paulson has gone for the wrong model,” a senior London banker said on Friday. “The model he chose was the one used to bail out bankrupt US building societies in the 1980s. The model he should have chosen was used to inject government funds directly into banks in the 1930s.”

Others argued, the panic was being overblown by self-important bankers who ought to take responsibility for their own mistakes during what Gordon Brown has condemned as the “age of irresponsibility”. They pointed to the fact that plenty of banks have managed the downturn perfectly well and are now in a position of strength.

Barclays, which made write-downs early in the crisis, has bought Lehman Brothers’ US operations from administration in a move that propelled the British bank up the table of global powerhouses.

This weekend, Diamond said: “All banks have assets they’d prefer not to have on their balance sheets. If you’d asked me a month ago if we were going to buy an investment bank, the answer would be very, very unlikely. This unique opportunity came very quickly. Opportunities only come along in crises.”

Similarly, Deutsche Bank has quietly made four acquisitions over the summer.

But even the strong banks recognised the importance of the US bailout to the wider economy.
Michael Cohrs, head of global banking at Deutsche Bank said: “Our losses, while modest are not acceptable. But we continuing to work hard to ensure we are in the best shape to cope with this crisis. Ensuring stability in the US markets is important for us all. The bailout will not solve the problems but if doesn’t happen it will be yet another negative. There’s a psychology to a crisis and more bad news compounds the problems.”

Last week was meant to be a fresh start. After the collapse of Lehman, the fire sale of Merrill Lynch and HBOS and the nationalisation of AIG, news of the Fed’s planned bailout announced on Thursday was supposed to be the bottom line. On Friday soaring markets reflected a new optimism in the financial system .

Instead, on Monday morning, the two last remaining investment banks, Morgan Stanley and Goldman Sachs, admitted they had been forced to seek humbling rescue measures too.
The most prestigious titans of finance had relinquished their independent status and became standard, regulated banks. Wall Street as it has long been known ceased to exist.

Morgan Stanley then rapidly announced talks to sell a stake to Mitsubishi UFJ Financial while it emerged that Warren Buffett had bought a stake in Goldman on very favourable terms.
One rival said: “The real shock was Goldman. If Goldman were in trouble, we all were.”

It was a reality Goldman’s chief executive Lloyd Blankfein had been fighting for nearly two weeks.

On Friday, September 12 Blankfein joined 30 other bosses for a crisis meeting called by the Fed in New York. They had been told that Lehman was in big trouble and would probably collapse if a buyer could not be found .

Blankfein was considered a leader of the pack, not just because he was the boss of Wall Street’s smartest bank, but he was old chums with the chairmen of the meeting, Paulson, from the US Treasurer’s Goldman days.

He was also on the 'strong side’ of the room – among those considered to have best withstood the financial maelstrom of the past year .

While Bear Stearns went bust and others haemorrhaged unprecedented losses, Goldman adopted the lofty role of adviser and stabiliser.

Yet it was in this meeting that a new reality was realised. The dire problems of Lehman, AIG and Merrill made it clear that this was no longer about weak or strong institutions but about a huge crisis of confidence from which none of them were safe.

One Goldman insider said: “In days after that meeting the atmosphere in the bank changed very quickly from the normal bravado to horror. The worst part was when our share price hit 80p. It was truly frightening.”

More threatening for the bank’s senior management was the distinct possibility that credit rating agencies would downgrade Goldman. The move would mean the cost of borrowing money would soar, putting severe pressure on the lifeblood of the bank.

Arch-rival Morgan Stanley was similarly panicked and abandoned all pretence, loudly searching for a buyer or an investor.

In the middle of the mayhem, Blankfein turned to Buffett, the one man in America who commanded both capital and, more importantly, confidence.

Initially, Buffett said he wasn’t interested. For six months he had rejected similar pleas for help from a raft of other embattled financial institutions, starting with Bear Stearns in March. But on Tuesday last week, his position changed. Just before lunch, Buffett said he was sitting with his feet on his desk in Omaha sipping a Cherry Coke and nibbling at some mixed nuts when he received a desperate call from Byron Trott, head of Goldman in Chicago and charged by Blankfein to secure a deal.

Blankfein knew Buffett – sources say the pair had been introduced by Paulson. But Buffett was close to Trott, whom he had once described in an investment letter as a “rare investment banker who puts himself in his client’s shoes .  . . I trust him completely”.

In this phone call Trott simply asked Buffett to name the terms under which he would invest in Goldman and the bank would try to hammer out a deal. Hours later, Buffett’s Berkshire Hathaway had pledged to invest $5bn in Goldman. He also received the right to buy $5bn worth of Goldman shares at $115 per share.

Later Buffett said: “The price was right, the people were right, the terms were right and I decided to write a cheque.” He joked he had lots of cash which had to be spent. “Otherwise, it’s a bit like saving up sex for your old age – at some point you’ve got to use it.”

Within hours, the 'Buffett effect’ had sent Goldman shares soaring and netted him millions of dollars in paper profit.

But it was clear that Buffett recognised the situation was bigger than a single deal or a single bank. The next day he went on CNBC, the American cable channel, to stress the importance of the proposed bailout, and said the financial system was in grave danger and could take “years and years to repair”.

Although America listened to its most admired investor, he still failed to satisfy their increasingly angry question: why?

The financial system was structured after the 1929 Wall Street Crash and in the light of the Great Depression that followed.

Beforehand the banks had been run as an old boys’ club: when problems arose, the weakest institutions were helped along by the strongest, mostly to save their collective good names.
As the Great Depression set in, greedy bankers were blamed for taking too much risk and jeopardising the world economy.

Even so it was accepted that investment banking played a crucial role in the economy .

Peter Hahn of CASS business school said: “Investment banks were, as they are now, crucial for facilitating business and disseminating wealth. As security traders they allow company owners to sell part of their shares, freeing up money to spend and invest while allowing other to share in the growth of their company. To this day, countries with no securities system often have a big concentration of wealth in a few families – in the Middle East, for instance.”

Even so the US government decided the system needed to be properly controlled .

The Securities Act of 1933 brought standardisation to the securities industry, in particular disclosure to the equity and bonds markets, while the SEC was created as the watchdog. In addition, the Glass-Steagall Act divided firms into commercial banks, who took deposits and offered loans to companies, and securities firms that traded on the markets and kept their risks entirely separate from retail savers.

As such, firms such as Goldman Sachs were not really banks but securities dealers.

Hahn said: “In return for the privilege of being able to raise deposits from the public, the banks were heavily regulated and as such grew with a reputation of prudence, safety, watched by the strongest government institutions. The securities banks with their higher risks were kept away from savings.”

But in the following decades and with the onset of globalisation, the burgeoning financial system began to outgrow this structure.

The UK, for instance, had developed in a broadly two-tier sense. The merchant banks, such as Barings, Schroders, Hambros, were small but offered everything from deposits to securities trading to the rich while the clearing banks developed for mass savings.

American securities banks were quick to see the advantage of the more integrated and efficient rules in London.

Hahn said after Big Bang, the integrated system in London allowed for far greater competition and securities trading was “far more efficient and cheaper than New York”.

In 1990 the Rule 144A was passed to introduce competition into securities market and started the erosion of the Glass-Steagall Act by allowing institutional trading of unlisted and unregistered securities. The next big landmark was 1998 – Travellers Group bought Citicorp to add to Salomon Brothers creating an integrated bank which swept away the separation.
By now American regulators were more interested in formulating international banking rules being drawn up in Basel.

But when these rules were introduced, they were aimed at retail banks leaving the burgeoning investment banks to grow relatively unchecked. One expert said: “The only real monitors were credit rating agencies, dominated by Moody’s and Standard & Poor. These were ill-equipped to understand the radically changing products.”

Another oversight was the US insurance market where there has never been a national regulator only state ones.

One insurance expert said: “Essentially insurance went unchecked by professionals. It all worked fine for small players. But huge firms like AIG were becoming international. How was the New York State insurance guy supposed to understand a credit default instrument sold in London?”

Last week experts said that, in hindsight, the lax rules allowed the financial system to completely reinvent itself given a strong enough catalyst. This came in the form of the telecoms and media boom at the turn of the millennium.

A senior London banker said: “During the tech bubble the value of securities was rising so fast that it no longer became good enough for investment banks to just trade on behalf of clients, they wanted to own the securities too. Margins were particularly small in the debt markets – you could do a £10bn eurobond trade for BT and take away a tiny margin. Banks bought debt but also started creating more complicated financial instruments and derivatives that became part of financing. Hybrid capital was born and the 'off-balance sheet vehicles’ were designed to hold the risk.”

The risk systems at the credit rating agencies were not sophisticated enough to keep up and, despite their complexity, many were given AAA ratings. As well as the bank, insurance companies, which were searching for yield enhancing products to match their increasingly liabilities due in part to the ageing population, started lapping them up.

Experts argue that it was at this time that renumeration policies also started encouraging huge risk appetites at the banks.

Peter Hahn : “Bank bosses have been incentivised like tech bosses. If you’re a shareholder in Intel, you want the management to pull all the stops into developing the next chip because if they don’t and Samsung produces a better chip which captures the market, Intel could be bust. If it does go bust, it doesn’t effect anyone else.

“The difference with a bank is a boss can say: 'you want me to make more profits? No problem, I can just go out and buy more risk and deal with the problems later’.” One top UK investor agrees: “At RBS, Fred Goodwin was paid a bonus for doing the ABN deal. Actually, the board should have said, by doing the deal you have radically increased the risk profile of the bank, you’ll get the bonus when the acquisition has proved itself. The pay structure has rewarded risk taking rather than solid, tangible success.”

The hubris reached its zenith with the development of sub-prime mortgages in the US. The ease of originating loans was matched by a hunger to take them on and package them within the banks. Cheap credit flooded the markets and was eagerly taken up by the soaring ambitions of corporates, private equity firms and hedge funds.

One banker said: “The cycle was bound to turn eventually but since it did last summer, it’s the structural problems that have proved to be the real danger.”

Every day for the past two weeks, bosses at the investment banks in London and New York have been meeting to discuss the future of their businesses.

One said: “Large parts of the system are simply gone. Today the wholesale funding market is broken. Securitisation is shut, the bond markets are difficult and costly and other creditors are unreliable.”

Without the funding, the independent investment banks who relied on it must find another source. It is expected that Goldman and Morgan Stanley will buy big retail banks in the US to secure a deposit base.

A far higher level of regulation also seems likely, both from central banks and legislators.
One banker said: “We must accept large-scale intervention. The ban on short-selling is just an example. Perfectly ordinary practices will be banned or regulated into expediency until the system is back to health. This will hit banks, hedge funds, private equity firms and then have a knock-on effect on accountants and lawyers.

“We’re entering a whole new world. The question is, when it is safe to start building it?”

Who said what about the financial meltdown

US Treasury Secretary Hank Paulson on why the $700bn bailout package must be passed: “We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial wellbeing, the viability of businesses both small and large, and the very health of our economy.”

Federal Reserve chairman Ben Bernanke: “Action by Congress is urgently required to stabilise the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy.”

George W Bush: “Our entire economy is in danger.”

Democratic Congressman Mike McNulty on the rush to approve the bailout fund: “We have been told repeatedly by this administration that the economy is fundamentally sound and then, all of a sudden, they say the economy is going to collapse. That is unacceptable.”

Warren Buffett, after investment in Goldman Sachs: “You can’t keep money around for ever. It’s like saving sex for your old age.”

Dominique Strauss-Kahn, head of the IMF: “The consequences for some financial institutions are still in front of us.”

Copyright 2008 the London Telegraph - Used with permission.

Saturday, September 27, 2008

Daily Telegraph: The Trillion Dollar Dictatorship

Forget $700-billion as the price tag for the bailout; as this article from the London Telegraph shows, the US is up for a $1-trillion bailout. But what's another 45% uptick from what the politicians want us to believe?

This entire farce shows how totally incompetent the US Congress, the administration, and all the regulatory agencies are in doing their oversight responsibilities. The bottom line they are selling us is, "Even through we are responsible for getting the world into this mess, and even though we are failures at every attempt prior to this one to solve it, this time we have the answer and everything will work out right.

"Trust us. Let us do this with a specific provision to eliminate court review of our actions (the most important unreported aspect of the bailout legislation - did you know it will be beyond the reach of any judicial review? How do you feel about dictatorship? That's what it will be as currently written.)"

Well, this is a fast moving story, and I'll do my best to get with it. For regulars looking for new content, I apologize for not posting the past 3 days. I'm back, picking the best unedited articles I can find for your intellectual stimulation.



It’s not just Wall Street with its back to the wall

I’m in shock. Can this crisis get any worse? My instinct is it can. My deep concern is it will.

By Liam Halligan
Last Updated: 8:25PM BST 27 Sep 2008

This time last week, the world was breathing a sigh of relief. The “bailout” had just been announced – and share prices shot up in celebration.

Financial markets were jubilant US Treasury Secretary Hank Paulson was coming to the rescue.

Even inter-bank rates – what banks charge to lend to each other – were falling. So last weekend, as Paulson purred, we all saw a light at the end of the tunnel.

Yet, as we now know, that light was an oncoming train. Last weekend I warned, despite the euphoria, the bailout could cause an “almighty, debilitating political dust-up”. Unfortunately, that’s what happened.

Having spent the last few days in the US, I can vouch voters are very, very angry about feather-bedding a bunch of overpaid bankers. Even in New York, a city that lives and breaths high finance, the tabloids screamed “Fraud Street” – aimed directly at the Wall Street crowd.

Just six weeks before the most hotly contested Presidential contest in decades, it’s not surprising the politicians have waded in. In Congress, many Democrats, and even Republicans, have refused to approve the bailout.

Some want extra home-owner protection. Others say that would spook the banks even more. Almost everyone wants limits on bankers’ salaries. And there is sense, too, that huge government bailouts are “socialist” and “un-American”.

All week, the financial markets have gyrated – mostly downward – as the bailout has flirted with extinction. On Monday, as money sought a safe haven, oil spiked 16 per cent, another one-day record, to $120 a barrel.

Huge developments have come and gone – with almost no reflection or comment. Goldman Sachs and Morgan Stanley surrendered their investment bank status. Washington Mutual failed – the biggest bank collapse in US history.

The Bank of England stepped up, pumping £40bn into our credit-starved money markets. And now, Bradford and Bingley could be the next “Northern Rock”. These massive events have just happened. Yet all eyes remain on Congress. Will the bail-out be agreed? What happens if it isn’t?
The sums involved are simply unprecedented. Rather than $700bn, the US government won’t get away with spending less than $1,000bn – a trillion dollars.

The reality of “pork-barrel” politics is that many in Congress won’t vote to bail out Wall Street unless they get money for their vested interests too. In recent days, the ailing US auto industry has moved into poll position – and looks set for $30bn. Michigan and Ohio – the big car-making states – could swing the US election. Neither party will stand in their way.

At a trillion dollars, then, the money at stake isn’t far short of what economists call US M1 – total cash in circulation in the world’s biggest economy. That’s almost 7 per cent of America’s entire GDP.

With Wall Street warning of an almighty crash on Monday unless a bailout is agreed, a deal of sorts will emerge this weekend – if only something preliminary. But I’m not sure it will work.

The idea is that Paulson’s Troubled Asset Relief Programme (TARP) will buy toxic mortgage-backed securities from banks – so de-icing the inter-bank markets. But at what price?

Something between “hold to maturity” and “fire-sale”, says the Federal Reserve – leaving huge scope for uncertainty. But TARP will only inspire confidence if the market feels the total sum pledged will mop up the sub-prime mess. And that can’t be judged if a deal is announced but the price regime isn’t clear.

What’s more, many banks – in an act of on-going self-delusion – have “priced” their sub-prime securities at only a slight discount to face-value.

But when TARP steps in, and establishes genuine prices, many banks will be forced to make even more writedowns. So far, around $510m of sub-prime losses have been “fessed-up”. Ironically, Paulson’s bailout could see that escalate two- or even three-fold – so sparking a new wave of panic.

Consider, also, that the situation will remain very fragile until US house prices stop falling. The more prices drop, the more sub-prime loans will default, causing banks to incur more losses. But as new data showed last week, America’s housing market may yet have further to fall.
US house prices are already down 17 per cent from their 2006 peak. The problem is the huge overhang of unsold homes – which remains at almost 11 months’ supply, worse even that during the recession of the early 1990s.

But my biggest problem isn’t that the Paulson plan is too vague (inevitable, given the political stakes) or that US house prices will keep falling (a fact of life). My problem is that this bail-out is utterly misconceived.

The idea of buy bank’s illiquid assets sounds good in theory. But it won’t solve the main issue – namely, the banks have very little capital to lend anyway, even if their sub-prime losses disappear.

Congress should be approving a direct recapitalisation of US banks – as the Swedish government was forced to back in the mid-1990s – rather than messing about with TARP. I fear that’s eventually what will happen. So this bailout is only round one.

Liam Halligan is chief economist at Prosperity Capital Management

Copyright 2008 London Telegraph - Used with Permission

Wednesday, September 24, 2008

Lunatic Fringe: PETA wants human breast milk

This is truly an insane group; PETA wrote the founders of Ben and Jerry's ice cream asking they substitute human breast milk for cow's milk.

OK, PETA, tell us how are you going to:

1) Screen the breast milk for disease and impurities?
2) Maintain its sanitation to the factory?
3) Allocate lot numbers to track end-user problems?
4) Build up a cadre of equally insane women to deny milk to their baby in exchange for using it for ice cream?

That's the best I can do to treat this idea with any semblance of respect. PETA is totally insane; that just takes it to a more obvious visibility.

Here's the story:

PETA Urges Ben & Jerry's To Use Human Milk

POSTED: 2:21 pm EDT September 23, 2008
UPDATED: 10:28 pm EDT September 23, 2008

VERMONT -- People for the Ethical Treatment of Animals sent a letter to Ben Cohen and Jerry Greenfield, cofounders of Ben & Jerry's Homemade Inc., urging them to replace cow's milk they use in their ice cream products with human breast milk, according to a statement recently released by a PETA spokeswoman.

"PETA's request comes in the wake of news reports that a Swiss restaurant owner will begin purchasing breast milk from nursing mothers and substituting breast milk for 75 percent of the cow's milk in the food he serves," the statement says.

PETA officials say a move to human breast milk would lessen the suffering of dairy cows and their babies on factory farms and benefit human health.

"The fact that human adults consume huge quantities of dairy products made from milk that was meant for a baby cow just doesn't make sense," says PETA Executive Vice President Tracy Reiman. "Everyone knows that 'the breast is best,' so Ben & Jerry's could do consumers and cows a big favor by making the switch to breast milk."

In a statement Ben and Jerry's said, "We applaud PETA's novel approach to bringing attention to an issue, but we believe a mother's milk is best used for her child."

Read PETA's letter to Ben Cohen and Jerry Greenfield

September 23, 2008

Ben Cohen and Jerry Greenfield, Cofounders
Ben & Jerry's Homemade Inc.

Dear Mr. Cohen and Mr. Greenfield,

On behalf of PETA and our more than 2 million members and supporters, I'd like to bring your attention to an innovative new idea from Switzerland that would bring a unique twist to Ben and Jerry's.

Storchen restaurant is set to unveil a menu that includes soups, stews, and sauces made with at least 75 percent breast milk procured from human donors who are paid in exchange for their milk. If Ben and Jerry's replaced the cow's milk in its ice cream with breast milk, your customers - and cows - would reap the benefits.

Using cow's milk for your ice cream is a hazard to your customer's health.

Dairy products have been linked to juvenile diabetes, allergies, constipation, obesity, and prostate and ovarian cancer. The late Dr. Benjamin Spock, America's leading authority on child care, spoke out against feeding cow's milk to children, saying it may play a role in anemia, allergies, and juvenile diabetes and in the long term, will set kids up for obesity and heart disease-America's number one cause of death.

Animals will also benefit from the switch to breast milk. Like all mammals, cows only produce milk during and after pregnancy, so to be able to constantly milk them, cows are forcefully impregnated every nine months. After several years of living in filthy conditions and being forced to produce 10 times more milk than they would naturally, their exhausted bodies are turned into hamburgers or ground up for soup.

And of course, the veal industry could not survive without the dairy industry. Because male calves can't produce milk, dairy farmers take them from their mothers immediately after birth and sell them to veal farms, where they endure 14 to 17 weeks of torment chained inside a crate so small that they can't even turn around.

The breast is best! Won't you give cows and their babies a break and our health a boost by switching from cow's milk to breast milk in Ben and Jerry's ice cream? Thank you for your consideration.


Tracy Reiman
Executive Vice President

Copyright 2008 WNBC - Used with permission

Tuesday, September 23, 2008

New York Times: Bailout Needs Punitive Action

OK, when the NY Times starts to sound like a conservative financial advocate, you know things on Wall Street are truly a mess.

This quote from the article tells the story in a heartbeat:

“This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything,” said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington.

“It’s almost amazing they can do this with a straight face. There is clearly skepticism and anger at the idea that we’d give this money to these guys, no questions asked.”

This article tells a story I've long told my radio program listeners: The people at the top of the US government's financial agencies were clueless about the coming crash, and everything they've done up to now is a failure.

Now they want you to cough up another $700-billion. Sure.

Let's see, Lehman Bros. pulled $8-billion out of Europe the week before filing for bankruptcy. Why? So they could fund a $2.5-billion bonus fund for top management.

A bonus for taking a company into bankruptcy? What's wrong with this picture?

Barclay's, which bought Lehman, had to borrow $100-million to make its European payroll.

Here is the article for your edification:

Experts See a Need for Punitive Action in Bailout

September 23, 2008

As economists puzzle over the proposed details of what may be the biggest financial bailout in American history, the initial skepticism that greeted its unveiling has only deepened.

Some are horrified at the prospect of putting $700 billion in public money on the line.

Others are outraged that Wall Street, home of the eight-figure salary, may get rescued from the consequences of its real estate bender, even as working families give up their houses to foreclosure.

Most economists accept that the nation’s financial crisis — the worst since the Great Depression — has reached such perilous proportions that an expensive intervention is required. But considerable disagreement centers on how to go about it.

The Treasury’s proposal for a bailout, now being negotiated with Congress, is being challenged as fundamentally deficient.

“At first it was, ‘thank goodness the cavalry is coming,’ but what exactly is the cavalry going to do?” asked Douglas W. Elmendorf, a former Treasury and Federal Reserve Board economist, and now a fellow at the Brookings Institution in Washington. “What I worry about is that the Treasury has acted very quickly, without having the time to solicit enough opinions.”

The common denominator to many reactions is a visceral discomfort with giving Treasury Secretary Henry Paulson Jr. — himself a product of Wall Street — carte blanche to relieve major financial institutions of bad loans choking their balance sheets, all on the taxpayer’s bill.

There are substantive reasons for this discomfort, not least concerns that Mr. Paulson will pay too much, thus subsidizing giant financial institutions.

Many economists argue that taxpayers ought to get more than avoidance of the apocalypse for their dollars: they ought to get an ownership stake in the companies on the receiving end.

But an underlying source of doubt about the bailout stems from who is asking for it.

The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress.

“This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything,” said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington.

“It’s almost amazing they can do this with a straight face. There is clearly skepticism and anger at the idea that we’d give this money to these guys, no questions asked.”

Mr. Paulson has argued that the powers he seeks are necessary to chase away the wolf howling at the door: a potentially swift shredding of the American financial system.

That would be catastrophic for everyone, he argues, not only banks, but also ordinary Americans who depend on their finances to buy homes and cars, and to pay for college.

Some are suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq.

Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep.

“This is scare tactics to try to do something that’s in the private but not the public interest,” said Allan Meltzer, a former economic adviser to President Reagan, and an expert on monetary policy at the Carnegie Mellon Tepper School of Business. “It’s terrible.”

In part, Mr. Paulson’s credibility has been dented by his pronouncements in previous weeks that the crisis was already contained.

Some suggest this was a well-intentioned effort to stem panic. But the aftermath complicates his quest for the bailout.

“If you view your public statements as an instrument of policy, people don’t believe you anymore,” said Vincent R. Reinhart, a former Federal Reserve economist and now a scholar at the conservative American Enterprise Institute.

The biggest point of contention is over whether and how taxpayers would benefit if the bailout succeeded in righting the financial system, sending banking stocks upward.

In Mr. Paulson’s plan, the Treasury would have the right to buy as much as $700 billion worth of troubled investments, with the taxpayer recouping the proceeds when those investments were sold over coming years.

But many economists — Mr. Elmendorf among them — argue that taxpayers should get more out of the deal, securing stock in the banks that make use of the bailout. The government could then sell off that stock at a profit when conditions improve.

A similar approach was used successfully in Sweden in the early 1990s when its financial system melted down.

Others argue that any bailout must pinch the people who have run the companies now needing rescue, along with their shareholders, addressing the unseemly reality that executives have amassed beach houses and fat bank accounts while taxpayers are now stuck with the bill for their reckless ways.

“It absolutely has to be punitive,” Mr. Baker said. “If they sell us the junk, then we own the company. This isn’t a way to make these companies and their executives rich. This should be about keeping them in business so the financial system doesn’t collapse.”

Other questions center on how to value what the Treasury aims to purchase — an issue that goes to the heart of the crisis itself.

The financial system got to its dangerous perch by betting extravagantly on real estate. When housing prices began plummeting and borrowers stopped making payments, financial institutions found themselves with huge inventories of bad loans.

Not simple loans, but complex investments created by pooling millions of mortgages together and then slicing them into pieces. These were the investments that Wall Street bought, sold and borrowed against in cooking up the money it poured into housing.

The trouble is that these investments are so intertwined and complex that no one seems able to figure out what they are worth. So no one has been willing to buy them.

This is why banks have been in lockdown mode: with mystery enshrouding both the value of their assets and their future losses, banks have held tight to their remaining dollars, depriving the economy of capital.

Now, the Treasury aims to clear the fog by buying up these investments. But their value is as mysterious as ever.

“There’s a tendency for people to think these are stocks and bonds and you know what the price is,” said Bruce Bartlett, a former White House economist under President Reagan. “The problem is people are operating in a world in which nobody knows what the hell is going on. There’s some naïve assumptions about how this would function.”

If Mr. Paulson pays the market rate — whatever that is — that presumably would not be enough to persuade banks to sell. Otherwise, they would have sold already.

For the plan to work, Treasury has to pay a premium.

“It’s a straight subsidy to financial institutions,” said Martin Baily, a former chairman of the Council of Economic Advisers in the Clinton administration, and now a senior fellow at the Brookings Institution. “You’re essentially giving them money.”

Mr. Baily favors the basics of the Paulson plan, albeit with some mechanism that would give the government a slice of any resulting profits.

And yet he remains troubled by the dearth of information combined with the abundance of zeroes in the bailout request.

“I’d like a clearer statement of what we were afraid was going to happen that requires $700 billion,” Mr. Baily said. “Maybe they don’t want to talk about it because it would scare everybody, but it’s a bit much to ask.”

New York Times: Minimizing Your Own Risks

Minimizing Your Own Exposure to Risks

September 20, 2008
Copyright 2008 The New York Times Co. - Used with permission

Every piece of your financial life involves at least a bit of risk. What made this week extraordinarily rare, and so terribly frightening, was that all of the threats were on display at once.

Sure, investing for retirement involves some ups and downs. But this week, the stock market took the biggest one-day fall in seven years (though it bounced right back as the week ended), and money market funds, long considered rock solid, needed a rescue package.

And yes, plenty of people worry about job security from time to time. But with thousands of financial services jobs gone or in jeopardy and the economy threatening to slow further, you had to wonder whether your job might be next.

Then there was insurance. Maybe once a decade, a big insurance company is on the brink.

This week, the global giant American International Group had a near-bankruptcy experience, leading scores of people to worry themselves sick over their annuities and life insurance policies from that company and others.

And as Treasury Secretary Henry M. Paulson Jr. reminded everyone in his remarks on Friday morning, all of these developments have the mortgage mess at their root, leaving anyone who owns a house (or wants to) wondering whether real estate prices will ever find a bottom.

The stunning confluence of these events was bad enough. But the fact that the federal government may be on the hook for untold billions of dollars just made the pain worse.

I don’t know how or where this will end, and neither do any of the experts.
It’s a humbling time for everyone, and it makes it extremely hard to assess all of these personal risks and come up with a decisive plan of action.

The temptation is to either make drastic changes in your financial life or do nothing and hope that the impact is not too severe.

So here’s another idea, a middle path of sorts. Consider a few modest but concrete things you can do that could reduce your exposure to four of the big areas of risk — investments, job security, your mortgage and insurance — that have been front and center this week.

Some of these suggestions may have more impact for you than others, but they all can help you feel as if you’ve taken back some measure of control.


Before you do anything with your portfolio, ask yourself this: Do you still believe in capitalism?

Several financial planners I spoke with felt the need to stop and reaffirm the fact that companies will still need to raise money from investors — any quasi-Socialist, short-term federal government intervention aside.

Andrew Orr, a financial planner in Orlando, Fla., says clients with money in index funds are investing in 17,000 companies that seek to generate earnings and pay dividends.

That, he says, is a sustained bet on capitalism itself. “Capitalism is not always pretty. But it’s evolved and gotten better, and there are clearly going to be more protections to come.”

If you’re under 50 or so, you can start by protecting yourself against the biggest investment risk of all, outliving your savings.

Thomas Fisher, a financial planner in Cambridge, Mass., said that this risk was one that people generally underestimate. “Our parents haven’t usually run out of money,” he said. “There has been a whole generation of people with pensions.”

Those days are gone, though. And as he took calls this week from clients considering bailing out of the stock market, he said he realized how few people actually understood the big picture.

The most acute long-term risk is, in fact, too little risk. Unless you’re saving a huge chunk of your income in cash, you’ll need consistent exposure to more risky investments like stocks to produce a suitable retirement balance.

Keep your stock allocation lower if you must for a few months to sleep at night, but don’t get rid of it altogether.

Most people get back into stocks once you explain this. A bigger challenge now is the one facing those who are in or close to retirement and whose portfolios have declined in the last year.

Rebecca Rolfes, a 59-year-old marketing executive in Chicago, has ridden out down markets before, but now her time horizon is shrinking at the same time as her assets. “I keep going on my mutual fund sites but not actually doing anything,” she said.

Even if you can’t bring yourself to make big changes to your portfolio, spending just a bit less money in retirement may make a huge difference.

“Small changes in retirees’ burn rate will affect them far greater than what the market will do today,” said Bill Schultheis, of Sagemark Wealth Management in Kirkland, Wash., and the author of “The Coffeehouse Investor.”

That’s because overspending is a risk you can actually control, even if you can’t predict how the markets perform. “I’ve found that many clients really like that, because they like to be in charge.”

He noted that spending on grandchildren was often a huge item for retirees.

If you can’t bring yourself to cut back there, consider the cost of eating out. He says he is often surprised by the amount people spend on that.
Job Security

Aside from the job losses at financial services companies in the news, there was also concern the economy could slow significantly and ultimately affect employment levels everywhere.

This week, people who work for themselves seemed to feel better about their prospects than those who work for large companies. “It feels safer than having a job with a single employer,” said Mike Sanislo, who helps companies with new product development through his firm High Energy Consulting in Woodbury, Minn.

He says he expects to lose clients every so often, but his business doesn’t fall apart when one goes away.

Though you may not be ready to chuck it all and hang out a shingle, it’s worth considering the approach that Kathy Santos has taken.

Ms. Santos, a webmaster in Pepperell, Mass., has a job by day at the environmental nonprofit group Earthwatch Institute, but is developing a Web design and photography business on the side, Rhino Hill Studios, to spread out her income risk. She also picks up a bit of extra money as an emergency medical technician for the town.


All the problems that funny mortgages have caused have hopefully taught important lessons about interest rate risk. This is something you can control.

If you’re applying for a new mortgage, a fixed-rate mortgage means no risk that the rate will rise. If you have an adjustable-rate mortgage and have enough equity in your house to refinance, get a fixed-rate loan.

Here’s another certainty for those skittish about investing: If you put extra money beyond the minimum toward the monthly payment on a 6 percent mortgage, you’re effectively earning 6 percent by ridding yourself of that extra debt (though the number may be a bit less if you’re taking advantage of the mortgage interest tax deduction).

That’s what Nell Eakle of Sterling, Ill., has been doing, even though she had to ratchet down the overpayment because of a bout with breast cancer.

“We just want to be a little bit ahead,” she said.

An added bonus is that the extra payments mean the mortgage will hit zero about two years ahead of schedule.

A few caveats here. Given the tightened policies among home equity loan providers, you may not be able to easily get this money back out of your house anytime soon.

Also, it makes more sense to first pay down 18 percent credit card debt, or max out any 401(k) match that your employer provides, even if you’re parking the money in cash.


A.I.G.’s crisis suggests one simple tactic to reduce your exposure to troubled institutions: Split your life insurance policies and annuities among more than one provider.

Meanwhile, many of the things that insurance protects against are precisely the sorts of risks over which people have the most control.

In uncertain times, there’s some small comfort in taking measures to avoid having to use the insurance at all.

“Stay in during the first snowfall,” said Kevin Albaugh, an engineering consultant in Williamsville, N.Y. “That will shake out all of the people who don’t know how to drive on it. That’s usually when you see a bunch of S.U.V.’s off the side of the road.”

Michael Fripp of Carrollton, Tex., says the only risk he can control is the health risks from the stress.

“The financial risks are beyond my control (and a little beyond my understanding),” he wrote in an e-mail message this week. “I am bicycling to work, walking with the kids and ignoring the 401(k) balance.”