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World stock markets plunged on Friday amid a massive sell-off of stocks and escalating fears about a global recession.

Japan's benchmark Nikkei 225 index tumbled 881.06 points, or 9.6 per cent, on Friday to 8,276.43, its lowest closing level since May 2003.

Kenji Akasaka, 69, president of a Tokyo printing company, told the Associated Press he had never seen it this bad in the 40 years he has traded stocks.

Akasaka said he invests mainly in blue chips that include Toyota Motor Corp. and Nintendo Co. Both have lost about half their value over the last year.

"I pray before I go to bed that the Dow will recover," Akasaka said. "I get sleepless, thinking about losses."

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Oh, poor Paper Economy Huckster gets saaaaaaaaaaaaad thinking about losses. I bet he was busy conning working people into putting all their savings into the stock market in the bull runs of the 1990s and early 2000s.

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David Wyss, chief economist at Standard & Poor's in New York, said: "Right now the market is just panicked. Nobody wants to take on any risk. Everybody just wants to get their money and put it under the mattress."

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I seem to recall Jim Stanford writing in Paper Boom a very similar version of the snarky comment I will now make:

(fake breathless voice) I thought economists told us markets were rational!

Lehman Brothers CDS Auction

In other words, part of the carcass of Lehman Brothers is being auctioned today.

This guy knows how to get the money out of the bank. Another "clever bank robber" story (he used Craigslist to make sure decoys dressed identical to him were right there at the time of the robbery).

Everybody agrees, if that bank robber is caught, he should go to jail.

A really scary formation on a chart is called the Double Top, kind of like Twin Peaks. There is some psychological explanation, but what it means is there is a sharp drop afterwards.

Although our TSX performs better than the S&P 500, the direction is generally the same in any given period.

If you look at a chart of the S&P 500 for the last 5 years, you will see a strong run up to a double top in July and September of last year at a level of around 1500.

Now we are at S&P 860, meaning that the poor unfortunates who bought in at the top have lost almost half their money.

The lowest level after the Internet Bubble crashed was 800, and I think that if the S&P 500 goes below this critical support line, there is no bottom in sight.

If the market can hold above 800, we are in choppy, volatile, but still trending up over the long long term, and there are probably bargains galore.

If you look at a logarithmic chart of the S&P 500 since 1950, we see a giant double top with the Internet Bubble at its peak as the first peak and the recent peak as the second peak.

Also, keep in mind - if you're young, yes, it's fine to buy stocks now and buy the dip. But if you're old, you're SOL. It it cold comfort to them that the stock market outperforms everything else in the long run, when in the short run fluctuations of that market can screw people.

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Ottawa buying $25-billion in mortgages

Finance Minister Jim Flaherty has announced government measures aimed at stabilizing the country’s troubled lending industry — measures he predicts will prod banks to further lower their lending rates.

Flaherty says the Canada Mortgage and Housing Corp. will take steps to maintain the availability of longer-term credit by purchasing up to $25 billion in insured mortgage pools.

“In the coming weeks we will inject up to $25 billion of new liquidity into the financial system by purchasing high-quality assets from Canadian financial institutions,” Flaherty said.

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Whose mortgages are they buying up? Are they targeting certain people?

Did we not just sell off 4.1 billion in assets?

Thought our banks were the most stable in the world? Certainly does not seem to be that way. Unless of course Harper is using this as a political weapon. Or did the IMF just interfere with our election campaign?

Jesus christ these "fiscal conservatives" have no shame whatsoever but by god if the NDP adds even one dollar they scream and caterwaul like a stuck pig with no sense of decorum whatsoever and the sad thing is a good chunk of the population laps it up because it sounds so macho and headstrong.

Even though just about any married woman has a story to tell about her husband getting them lost 'cuz the idiot wouldn't stop to read a friggin' map.

[ 10 October 2008: Message edited by: DrConway ]

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Originally posted by Uncle John:
[QB]

If the market can hold above 800, we are in choppy, volatile, but still trending up over the long long term, and there are probably bargains galore.

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First we have this item that the Canadian banking system is the soundest in the world.
. We've also seen unusual coverage of the Canadian banking sector elsewhere, for example here from prudent bear..

Many of my friends have said they like to go out drinking heavily after they look at their portfolio statements of late. So breweries and distilleries might be a good bet.

I have also heard that expensive prostitutes are also all the rage in the initial period after a stock market crash.

From Harper's, February, 2008 , here's what happened:

The Next Bubble: Priming the markets for tomorrow’s big crash:
Priming the markets for tomorrow's big crash
By Eric Janszen

A financial bubble. I will use the familiar term “bubble” as a shorthand, but note that it confuses cause with effect. A better, if ungainly, descriptor would be “asset-price hyperinflation”—the huge spike in asset prices that results from a perverse self-reinforcing belief system, a fog that clouds the judgment of all but the most aware participants in the market. Asset hyperinflation starts at a certain stage of market development under just the right conditions. The bubble is the result of that financial madness, seen only when the fog rolls away. is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative swellings.

Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being. Spurred by the actions of the Federal Reserve, financed by exotic credit derivatives and debt securitiztion, an already massive real estate sales-and-marketing program expanded to include the desperate issuance of mortgages to the poor and feckless, compounding their troubles and ours.

That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.

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Such transformations do not take place overnight. After World War I, Wall Street wrote checks to finance new companies that were trying to turn wartime inventions, such as refrigeration and radio, into consumer products. The consumers of the rising middle class were ready to buy but lacked funds, so the banking system accommodated them with new forms of credit, notably the installment plan. Following a brief recession in 1921, federal policy accommodated progress by keeping interest rates below the rate of inflation. Pundits hailed a “new era” of prosperity until Black Tuesday, October 29, 1929.

The crash, the Great Depression, and World War II were a brutal education for government, academia, corporate America, Wall Street, and the press. For the next sixty years, that chastened generation managed to keep the fog of false hopes and bad credit at bay. Economist John Maynard Keynes emerged as the pied piper of a new school of economics that promised continuous economic growth without end. Keynes’s doctrine: When a business cycle peaks and starts its downward slide, one must increase federal spending, cut

taxes, and lower short-term interest rates to increase the money supply and expand credit. The demand stimulated by deficit spending and cheap money will thereby prevent a recession. In 1932 this set of economic gambits was dubbed “reflation.”

The first Keynesian reflation was botched. To be fair, it was perhaps impractical under the gold standard, for by the time the Federal Reserve made its attempt to ameliorate matters, debt was already out of control.22. Historians argue whether the Federal Reserve and Congress did enough soon enough to slow the rate of debt liquidation at the time. Most agree that once the inflation rate turned negative, monetary stimulus via short-term interest-rate management was ineffective, since the Fed could not lower short-term rates below zero percent. The Bank of Japan found itself in a similar predicament sixty years later. Banks failed, credit contracted, and GDP shrank. The economy was running in reverse and refused to respond to Keynesian inducements. In 1933, President Franklin D. Roosevelt called in gold and repriced it, hoping to test Keynes’s theory that monetary inflation stimulates demand. The economy began to expand. But it was World War II that brought real recovery, as a highly effective, demand-generating, deficit-and-debt-financed public-works project for the United States. The war did what a flawed application of Keynes’s theories could not.

A few weeks after D-Day, the allies met at the Mount Washington Hotel in Bretton Woods, New Hampshire, to determine the future of the international monetary system. It wasn’t much of a negotiation. Western economies were in ruins, and the international monetary system had been in disarray since the start of the Great Depression. The United States, now the dominant economic and military power, successfully pushed to peg the currencies of member nations to the dollar and to make dollars redeemable in American gold.

Americans could now spend as wisely or foolishly as our government policy decreed and, regardless of the needs of other nations holding dollars as reserves, print as many dollars as desired. But by the second quarter of 1971, the U.S. balance of merchandise trade had run up a deficit of $3.8 billion (adjusted for inflation)—an admittedly tiny sum compared with the deficit of $204 billion in the second quarter of 2007, but until that time the United States had run only surpluses. Members of the Bretton Woods system, most famously French President General Charles de Gaulle, worried that the United States intended to repay the money borrowed to cover its trade gap with depreciated dollars. Opposed to the exercise of such “exorbitant privilege,” de Gaulle demanded payment in gold. With the balance of payments so greatly out of balance, newly elected President Richard Nixon faced a run on the U.S. gold supply, and his solution was novel: unilaterally end the U.S. legal obligation to redeem dollars with gold; in other words, default.

More than a decade of economic and financial-market chaos followed, as the dollar remained the international currency but traded without an absolute measure of value. Inflation rose not just in the United States but around the world, grinding down the worth of many securities and brokerage firms. The Federal Reserve pushed interest rates into double digits, setting off two global recessions, and new international standards and methods for measuring inflation and floating exchange rates were established to replace the gold standard. After 1975, the United States would never again post an annual merchandise trade surplus. Such high-value, finished-goods-producing industries as steel and automobiles were no longer dominant. The new economy belonged to finance, insurance, and real estate—FIRE.

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FIRE is a credit-financed, asset-price-inflation machine organized around one tenet: that the value of one’s assets, which used to fluctuate in response to the business cycle and the financial markets, now goes in only one direction, up, with no more than occasional short-term reversals. With FIRE leading the way, the United States, free of the international gold standard’s limitations, now had great flexibility to finance its deficits with its own currency. This was “exorbitant privilege” on steroids. Massive external debts built up as trade partners to the United States, especially the oil-producing nations and Japan, balanced their trade surpluses with the purchase of U.S. financial assets.33. The motivation was in part political: the Saudis, Japanese, and Taiwanese hold a great portion of U.S. debt; not coincidentally, these nations receive military protection from the United States. The process of financing our deficit with private and public foreign funds became self-reinforcing, for if any of the largest holders of our debt reduced their holdings, the trade value of the dollar would fall—and with that, the value of their remaining holdings would be decreased. Worse, if not enough U.S. financial assets were purchased, the United States would be less able to finance its imports. It’s the old rule about bank debt, applied to international deficit finance: if you owe the banks $3 billion, the bank owns you. But if you owe the banks $10 trillion, you own the banks.

The FIRE sector’s power grew unchecked as the old manufacturing economy declined. The root of the 1920s bubble, it was believed, had been the conflicts of interest among banks and securities firms, but in the 1990s, under the leadership of Alan Greenspan at the Federal Reserve, banking and securities markets were deregulated. In 1999, the Glass-Steagall Act of 1933, which regulated banks and markets, was repealed, while a servile federal interest-rate policy helped move things along. As FIRE rose in power, so did a new generation of politicians, bankers, economists, and journalists willing to invent creative justifications for the system, as well as for the projects— ranging from the housing bubble to the Iraq war— that it financed. The high-water mark of such truckling might be the publication of the Cato Institute report “America’s Record Trade Deficit: A Symbol of Strength.” Freedom had become slavery; persistent deficits had become economic power.

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The bubble machine often starts with a new invention or discovery. The Mosaic graphical Web browser, released in 1993, began to transform the Internet into a set of linked pages. Suddenly websites were easy to create and even easier to consume. Industry lobbyists stepped in, pushing for deregulation and special tax incentives. By 1995, the Internet had been thrown open to the profiteers; four years later a sales-tax moratorium was issued, opening the floodgates for e-commerce. Such legislation does not cause a bubble, but no bubble has ever occurred in its absence.

Total market value: NASDAQ. 11% annual growth derived from pre-bubble valuation (peak occurred March 10, 2000, when the NASDAQ traded as high as 5132.52 and closed the day at 5048.62)
I had a front-row seat to the Internet-stock mania of the late 1990s as managing director of Osborn Capital, a “seed stage” venture-capital firm founded by Jeffrey Osborn,44. Venture-capital firms are defined by when, not where, they place their investments; a “seed stage” firm usually puts the first money into very young firms and takes an active role in that investment. Jeffrey Osborn was a senior executive at commercial Internet provider UUNet before and after the legislation passed. Prior to the legislation, bookings were less than $4 million a year; a few years later they were greater than $2 billion. with positions on the boards of more than half a dozen technology companies. I observed otherwise rational men and women fall under the influence of a fast-flowing and, it was widely believed, risk-free flood of money. Logic and historical precedent were pushed aside. I remember a managing partner of one firm telling me with certainty that if the company in which we’d invested failed, at least it had “hard assets,” meaning the notoriously depreciation-prone computer equipment the company had received in exchange for stock. A year after the bubble collapsed, of course, the market was flooded with such hard assets.

Deregulation had built the church, and seed money was needed to grow the flock. The mechanics of financing vary with each bubble, but what matters is that the system be able to support astronomical flows of funds and generate trillions of dollars’ worth of new securities. For the Internet, the seed money came from venture capital. At first, Internet startups were merely one part of a spectrum of enterprise-software and other technology industries into which venture capitalists put their money. Then a few startups like Netscape went public, netting massive returns. Such liquidity events came faster and faster. A loop was formed: profits from IPO investments poured back into new venture funds, then into new start-ups, then back out again as IPOs, with the original investment multiplied many times over, then finally back into new venture-capital funds.

The media stood by cheering, carrying breathless profiles of wunderkinder in their early twenties who had just made their first hundred million dollars; business publications grew thick with advertisements. The media barely questioned the fine points of the new theology. Skeptics were occasionally interviewed by journalists, but in general the public was exposed to constant reiterations of the one true faith. Government stood back—after all, there was little incentive for lawmakers to intervene. Members of Congress, who influence the agencies that oversee market-regulation functions, have never been unfriendly to windfall tax revenues, and the FIRE sector has very deep pockets. According to the donation-tracking website opensecrets.org, FIRE gave $146 million in political donations for the 2008 election cycle alone, and since 1990 more than $1.9 billion—nearly double what lawyers and lobbyists have donated, and more than triple the donations from organized labor.

Part of my job was to watch for the end-time, to maximize gains and guard the firm against sudden losses when the bubble finally popped. In March 2000, the signal arrived. One of our companies was investigating the timing of an IPO; the management team was hoping for April 2000. The representatives of one of the investment banks we talked to gave us a surprisingly specific recommendation that ran counter to advice offered by banks during the IPO-driven cycle of the preceding five years: they warned the company not to go public in April. We took the advice in the context of other indicators as a clear sign of a top, and over the next few months we liquidated stocks in public companies that we held as a result of earlier IPOs. Shortly thereafter, millions of investors with unrealized gains in mutual funds sold stock to raise enough cash to pay taxes on their capital gains. The mass selling set off a panic, and the bubble popped.

In a bubble, fictitious value55. Fictitious value is the delta between historical-trend growth and growth brought on by asset hyperinflation. As an anonymous South Sea Bubble pamphleteer explained: “One added to one, by any rules of vulgar arithmetic, will never make three and a half; consequently, all the fictitious value must be a loss to some persons or other, first or last. The only way to prevent it to oneself must be to sell out betimes, and so let the Devil take the hindmost.” goes away when market participants lose faith in the religion—when their false beliefs are destroyed as quickly as they had been formed. Since the early 1980s, the free-market orthodoxy of the Chicago School has driven policy on the upward slope of an economic boom, but we’re all Keynesians on the way down: rate cuts by the Federal Reserve, tax cuts by Congress, deficit spending, and dollar depreciation are deployed in heroic proportions.

The technology industry represents only a small fraction of the U.S. economy, but the effects of layoffs, cutbacks, and the collapsing stock market rippled through the economy and produced a brief national recession in the early part of 2001, despite a concerted effort by the Federal Reserve and Congress to avoid it. This left in its wake a crucial dilemma: how to counter the loss of that $7 trillion in fictitious value built up during the bubble.

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The Internet boom had been a matter of abstract electrons and monetized eyeballs—castles in the sky translated into rising share prices. The new boom was in McMansions on the ground—wood and nails, granite countertops. The price-inflation process was traditional as well: there was way too much mortgage money chasing not enough housing. At the bubble’s peak, $12 trillion in fictitious value had been created, a sum greater even than the national debt.

Total market value: Real estate. Actual market value from “Federal Reserve Flow of Funds Accounts of the United States.” Historical trend from Robert J. Schiller, Irrational Exuberance.
We certainly should have known better. Historically, the price of American homes has risen at a rate similar to the annual rate of inflation. As the Yale economist Robert Shiller has pointed out, since 1890, discounting the housing boom after World War II, that rate has been about 3.3 percent. Why, then, did housing prices suddenly begin to hyperinflate? Changes in the reserve requirements of U.S. banks, and the creation in 1994 of special “sweep” accounts, which link commercial checking and investment accounts, allowed banks greater liquidity—which meant that they could offer more credit. This was the formative stage of the bubble. Then, from 2001 to 2002, in the wake of the dot-com crash, the Federal Reserve Funds Rate was reduced from 6 percent to 1.24 percent, leading to similar cuts in the London Interbank Offered Rate that banks use to set some adjustable-rate mortgage (ARM) rates. These drastically lowered ARM rates meant that in the United States the monthly cost of a mortgage on a $500,000 home fell to roughly the monthly cost of a mortgage on a $250,000 home purchased two years earlier. Demand skyrocketed, though home builders would need years to gear up their production.

With more credit available than there was housing stock, prices predictably, and rapidly, rose. All that was needed for hypergrowth was a supply of new capital. For the Internet boom this money had been provided by the IPO system and the venture capitalists; for the housing bubble, starting around 2003, it came from securitized debt.

To “securitize” is to make a new security out of a pool of existing bonds, bringing together similar financial instruments, like loans or mortgages, in order to create something more predictable, less risk-laden, than the sum of its parts. Many such “pass-thru” securities, backed by mortgages, were set up to allow banks to serve almost purely as middlemen, so that if a few homeowners defaulted but the rest continued to pay, the bank that sold the security would itself suffer

little—or at least far less than if it held the mortgages directly. In theory, risks that used to concentrate on a bank’s balance sheet had been safely spread far and wide across the financial markets among well-financed and experienced institutional investors.66. As happens with most bubbles, a perfectly good idea is taken to an extreme. In the case of the housing bubble, the new securitized debt product that drove the final stage—which has come to be known as the “subprime meltdown”—was the collateralized debt obligation (CDO). A CDO is a class of instrument called a credit derivative; specifically, a derivative of a pool of asset-backed securities. Parts of pools of asset-backed securities that were, for example, rated at a moderately high risk of default—junk grade, such as BB—were modeled, packaged into CDOs, and rated at lower risk-investment grades, such as AAA. These were used to finance the more creative mortgages—stated-income or “liar loans”—which we now hear are not quite living up to the issuers’ hopes.

The U.S. mortgage crisis has been labeled a “subprime mortgage crisis,” but subprime mortgages were only a sideshow that appeared late, as the housing-bubble credit machine ran out of creditworthy borrowers. The main event was the hyperinflation of home prices. Risks are embedded in price and lurk as defaults. Even after the faith that supported a bubble recedes, false beliefs continue to obscure cause and effect as the crisis unfolds.

Consider the chemical industry of forty years ago, back when such pollutants as PCBs were dumped into the air and water with little or no regulation. For years, the mantra of the industry was “the solution to pollution is dilution.” Mixing toxins with vast quantities of air and water was supposed to neutralize them. Many decades later, with our plagues of hermaphrodite frogs, poisoned ground water, and mysterious cancers, the mistake in that logic is plain. Modern bankers, however, have carried this mistake into the world of finance. As more and more loans with a high risk of default were made from the late 1990s to the summer of 2007, the shared level of credit risk increased throughout the global financial system.

Think of that enormous risk as ecomonic poison. In theory, those risk pollutants have been diluted in the oceanic vastness of the world’s debt markets; thanks to the magic of securitization, they are made nontoxic and so pose no systemic risk. In reality, credit pollutants pose the same kind of threat to our economy as chemical toxins do to our environment. Like their chemical counterparts, they tend to concentrate in the weakest and most vulnerable parts of the financial system, and that’s where the toxic effects show up first: the subprime mortgage market collapse is essentially the Love Canal of our ongoing risk-pollution disaster.

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Read the front page of any business publication today and you can see the mess bubbling up. In the United States, Merrill Lynch took a $7.9 billion hit from its mortgage investments and experienced its first quarterly loss since 2001; Morgan Stanley, Bear Stearns, Citigroup, along with many other U.S. banks, have all suffered major losses. The Royal Bank of

Scotland Group was forced to write down $3 billion on credit-related securities and leveraged loans, and Japan’s Norinchukin Bank suffered $357 million in subprime-related losses in the six months prior to September 2007. Even more of this pollution will become manifest as home prices continue to fall.

The metaphor is not lost on those touched by debt pollution. In December 2007, Chip Mason of Legg Mason, one of the world’s largest money managers, said that the U.S. Treasury should put $20 billion into a “structured investment vehicles superfund” to boost investor confidence.

As more and more risk pollution rises to the surface, credit will continue to contract, and the FIRE economy—which depends on the free flow of credit—will experience its first near-death experience since the sector rose to power in the early 1980s. Because all asset hyperinflations revert to the mean, we can expect housing prices to decline roughly 38 percent from their peak as they return to something closer to the historical rate of monetary inflation. If the rate of decline stabilizes at between 6 and 7 percent each year, the correction has about six years to go before things stabilize, leaving the FIRE economy in need of $12 trillion. Where will that money be found?

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Bubbles are to the industries that host them what clear-cutting is to forest management. After several years of recession, the affected industry will eventually grow back, but slowly—the NASDAQ, for example, at 5,048 in March 2000, had recovered only half of its peak value going into 2007. When those trillions of dollars first die and go to money heaven, the whole economy grieves.

The housing bubble has left us in dire shape, worse than after the technology-stock bubble, when the Federal Reserve Funds Rate was 6 percent, the dollar was at a multi-decade peak, the federal government was running a surplus, and tax rates were relatively high, making reflation—interest-rate cuts, dollar depreciation, increased government spending, and tax cuts—relatively painless. Now the Funds Rate is only 4.5 percent, the dollar is at multi-decade lows, the federal budget is in deficit, and tax cuts are still in effect. The chronic trade deficit, the sudden depreciation of our currency, and the lack of foreign buyers willing to purchase its debt will require the United States government to print new money simply to fund its own operations and pay its 22 million employees.

Our economy is in serious trouble. Both the production-consumption sector and the FIRE sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.

We have learned that the industry in any given bubble must support hundreds or thousands of separate firms financed by not billions but trillions of dollars in new securities that Wall Street will create and sell. Like housing in the late 1990s, this sector of the economy must already be formed and growing even as the previous bubble deflates. For those investing in that sector, legislation guaranteeing favorable tax treatment, along with other protections and advantages for investors, should already be in place or under review. Finally, the industry must be popular, its name on the lips of government policymakers and journalists. It should be familiar to those who watch television news or read newspapers.

There are a number of plausible candidates for the next bubble, but only a few meet all the criteria. Health care must expand to meet the needs of the aging baby boomers, but there is as yet no enabling government legislation to make way for a health-care bubble; the same holds true of the pharmaceutical industry, which could hyperinflate only if the Food and Drug Administration was gutted of its power. A second technology boom—under the rubric “Web 2.0”—is based on improvements to existing technology rather than any new discovery. The capital-intensive biotechnology industry will not inflate, as it requires too much specialized intelligence.

There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded. Wired magazine, returning to its roots in boosterism, put ethanol on the cover of its October 2007 issue, advising its readers to forget oil; NBC had a “Green Week” in November 2007, with themed shows beating away at an ecological message and Al Gore making a guest appearance on the sitcom 30 Rock. Improbably, Gore threatens to become the poster boy for the new new new economy: he has joined the legendary venture-capital firm Kleiner Perkins Caufield & Byers, which assisted at the births of Amazon.com and Google, to oversee the “climate change solutions group,” thus providing a massive dose of Nobel Prize–winning credibility that will be most useful when its first alternative-energy investments are taken public before a credulous mob. Other ventures—Lazard Capital Markets, Generation Investment Management, Nth Power, EnerTech Capital, and Battery Ventures—are funding an array of startups working on improvements to solar cells, to biofuels production, to batteries, to “energy management” software, and so on.

Total market value: Alternative energy and infrastructure. Estimated fictitious value of next bubble compared with previous bubbles
The candidates for the 2008 presidential election, notably Obama, Clinton, Romney, and McCain, now invoke “energy security” in their stump speeches and on their websites. Previously, “energy independence” was more common, and perhaps this change in terminology is a hint that a portion of the Homeland Security budget will be allocated for alternative energy, a potential boon for startups and for FIRE.

More valuable than campaign rhetoric, however, is legislation. The Energy Policy Act of 2005, a massive bill known to morning commuters for extending daylight savings time, contained provisions guaranteeing loans for alternative-energy businesses, including nuclear-power technology. The bill authorizes $200 million annually for clean-coal initiatives, repeals the current 160-acre cap on coal leases, offers subsidies for wind energy and other alternative-energy producers, and promises $50 million annually, over the life of the bill, for a biomass grant program.

Loan guarantees for “innovative technologies” such as advanced nuclear-reactor designs are also at hand; a kindler, gentler nuclear industry appears to be imminent. The Price-Anderson Nuclear Industries Indemnity Act has been extended through 2025; the secretary of energy was ordered to implement the 2001 nuclear power “roadmap,” and $1.25 billion was set aside by the Department of Energy to develop a nuclear reactor that will generate both electricity and hydrogen. The future of transportation may be neither solar- nor ethanol-powered but instead rely on numerous small nuclear power plants generating electricity and, for local transportation, hydrogen. At the state and local levels, related bills have been passed or are under consideration.

Supporting this alternative-energy bubble will be a boom in infrastructure—transportation and communications systems, water, and power. In its 2005 report card, the American Society of Civil Engineers called for $1.6 trillion to be spent over five years to bring the United States back up to code, giving America a grade of “D.” Decades of neglect have put us trillions of dollars away from an “A.” After last August’s bridge collapse in Minnesota, it took only a week for libertarian Robert Poole, director of transportation studies for the Reason Foundation, to renew the call for “highway public-private partnerships funded by tolls,” and for Hillary Clinton to put forth a multibillion-dollar “Rebuild America” plan.

Of course, alternative energy and the improvement of our infrastructure are both necessary for our national well-being; and therein lies the danger: hyperinflations, in the long run, are always destructive. Since the 1970s, U.S. dependence on foreign energy supplies has become a major economic and security liability, and our superannuated roadways are the nation’s circulatory system. Without the efficient transit of gasoline-powered trucks laden with goods across our highways there would be no Wal-Mart, no other big-box stores, no morning FedEx deliveries. Without “energy security” and repairs to our “crumbling infrastructure,” our very competitiveness is at stake. Luckily, Al Gore will be making principled venture capital investments on our behalf.

The next bubble must be large enough to recover the losses from the housing bubble collapse. How bad will it be? Some rough calculations77. To create these valuations, I first examined the necessary market capitalization of existing companies; then, using the technology and housing bubbles as precedents, I estimated the number of companies needed to support the bubble. The model assumes the existence of nascent credit products that will eventually be deployed to fund the hyperinflation. While the range of error in this prediction is obviously huge, the antecedents—and more important, the necessity—for the bubble remain.: the gross market value of all enterprises needed to develop hydroelectric power, geothermal energy, nuclear energy, wind farms, solar power, and hydrogen-powered fuel-cell technology—and the infrastructure to support it—is somewhere between $2 trillion and $4 trillion; assuming the bubble can get started, the hyperinflated fictitious value could add another $12 trillion. In a hyperinflation, infrastructure upgrades will accelerate, with plenty of opportunity for big government contractors fleeing the declining market in Iraq. Thus, we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver “energy security.” When the bubble finally bursts, we will be left to mop up after yet another devastated industry. FIRE, meanwhile, will already be engineering its next opportunity. Given the current state of our economy, the only thing worse than a new bubble would be its absence.

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Last week, the Register investigations team broke the story of how executives from AIG, the insurance giant, lived the high life immediately after their company was bailed out by the federal government. The group of executives and invited guests ran up a nearly half million dollar tab at the St. Regis Monarch Beach. I'm one of the few Register reporters who has stayed at the St. Regis, back in 2001. I've returned several times to the bar and restaurants, most recently this summer. The story below is originally from a piece comparing the three luxury resorts on the Orange County coast: the St. Regis, Ritz-Carlton Laguna Niguel and the Montage Resort. Here's my updated take on AIG's hideaway. For example, the hotel restaurant no longer serves the how-rich-can-you-be Lobster Pot Pie. The AIG folks would have loved that.

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[ 10 October 2008: Message edited by: M. Spector ]

quote:

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Millions of people are being encouraged to take too much risk with their pensions, the government-funded Pensions Advisory Service has warned.

It said workers who pay into pension schemes which invest heavily in shares may not be aware of the risks.

But the National Association of Pension Funds says such schemes based on share prices do not have to be risky.

The warning comes in a week that has seen world stock markets tumble amid rising fears of a global recession.

---

And why are these pension funds being used at all? Because CEOs found they could get a huge pot of money by not having defined benefit plans.

And because they could con their workers by whispering sweet nothings about how 'trust us, the paper economy will do all the heavy lifting for you, just keep pouring your money into the fund and never fear'.

And oh, but CEOs would never ever strip pension funds for their own 'defined benefit' either, ever. Abnormal assures us that because this is illegal it wouild NEVER HAPPEN, EVER.

quote:

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Money expert Suze Orman is here to explain what's really going on -- and how you can protect yourself.

"We have built an entire economy on lies and deceit," she says. "It's like building a home or an entire building on a sinkhole. You have a foundation, supposedly. But a little crack, if something goes wrong -- a little earthquake, a tremor -- and it starts to open, everything starts to fall down and ... that is exactly what has happened in the United States of America."

Suze says the current financial downturn started all the way at the top of banks, mortgage companies and brokerage firms.

"There was greed at the top -- serious greed," Suze says. "When you have stocks, you have individual companies that want to make money. And [CEOs] want to make more money because the more money they make, the more their compensation is, the more their stock price goes up."

These companies made money by selling investments like mortgages to people who couldn't afford them, Suze says.

"Have you all ever wondered, 'Why does Suze Orman say people first, then money, then things?'" she says. "It means if we cared about people more than we cared about money, we would not be having what happened today, because the people who run the corporations, if they had cared about all of you, they wouldn't have created loans that you couldn't afford."

---

http://www.cnn.com/2008/LIVING/wayoflife/10/01/o.recession.proof.family/index.html

[ 11 October 2008: Message edited by: Doug ]

quote:

---

Originally posted by Doug:
"We have built an entire economy on lies and deceit," she says. "It's like building a home or an entire building on a sinkhole. You have a foundation, supposedly. But a little crack, if something goes wrong -- a little earthquake, a tremor -- and it starts to open, everything starts to fall down and ... that is exactly what has happened in the United States of America."

---

Anti-democratic nature of US capitalism is being exposed
By
Noam Chomsky

THE SIMULTANEOUS unfolding of the US presidential campaign and unraveling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.

Passion about the campaign may not be universally shared but almost everybody can feel the anxiety from the foreclosure of a million homes, and concerns about jobs, savings and healthcare at risk.

The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf.

The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.

These steps predictably increased the frequency and depth of severe reversals, which now threaten to bring about the worst crisis since the Great Depression.

Also predictably, the narrow sectors that reaped enormous profits from liberalisation are calling for massive state intervention to rescue collapsing financial institutions.

Such interventionism is a regular feature of state capitalism, though the scale today is unusual. (...)

This article appeared first in The Irish Times.

[ 11 October 2008: Message edited by: martin dufresne ]

quote:

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The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf.

The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.

---

Freeing the markets from regualtions, eh, the very thing Harper has been and is planning on doing here.

And why is this bailout not deemed just as totalitarian, as it is the same damn thing Bush first proposed?

[ 11 October 2008: Message edited by: remind ]

quote:

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Originally posted by Doug:
Not criminal, just highly profitable.

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quote:

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Originally posted by M. Spector:
You don't think it's criminal to make a career out of suckering people into giving their money to the rich on the basis of lies and deceit?

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quote:

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Originally posted by Doug:

Immoral and reprehensible - but there is no law against it.

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True enough. For centuries, money chased power. And today it's the exact opposite.

They hang the man and flog the woman,
Who steals the goose from off the common,
Yet let the greater villain loose,
That steals the common from the goose.
— Seventeenth-century English protest rhyme

US CRISIS: 26 BIG NAMES IN FINANCE UNDER INVESTIGATION BY FBI

[ 12 October 2008: Message edited by: Fidel ]

quote:

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Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they ``rewrite the rules of international finance.''

``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global.''

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quote:

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Italian Prime Minister Silvio Berlusconi reversed his comments that leaders are discussing closing the world's financial markets while they ``rewrite the rules of international finance.''

``I heard it on the radio,'' Berlusconi said about an hour after his initial comments his spokesman confirmed. ``The hypothesis wasn't put forward by any leader, including myself.''

An hour earlier, during a press conference in Naples following a Cabinet meeting, Berlusconi said, ``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed.''

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Part 1 - 9:05 minutes

Part 2 - 8:50 minutes

Part 3 - 10:51 minutes

William Engdahl said: "in every major US financial panic since at least the Panic of 1835, the titans of Wall Street—most especially until 1929, the House of JP Morgan—have deliberately triggered bank panics behind the scenes in order to consolidate their grip on US banking. The private banks used the panics to control Washington policy including the exact definition of the private ownership of the new Federal Reserve in 1913, and to consolidate their control over industry such as US Steel, Caterpillar, Westinghouse and the like. They are, in short, old hands at such financial warfare to increase their power.[/quote]

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No matter who wins the presidency a month from now, the shift into a new cycle of American and world politics will have begun. The Democrats are likely to increase their majorities in the House and Senate. A huge amount of populist anger is brewing as the Wall Street meltdown spreads to Main Street. Already there is a growing consensus on the need to re-regulate many parts of the economy.

Globally the United States will not enjoy the hegemonic position it has occupied until now, something underscored by Russia's Aug. 7 invasion of Georgia. America's ability to shape the global economy through trade pacts and the IMF and World Bank will be diminished, as will our financial resources. And in many parts of the world, American ideas, advice and even aid will be less welcome than they are now.

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quote:

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Originally posted by Doug:
Oops...history goes on after all!

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quote:

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Democracy was tarnished even earlier. Once Saddam was proved not to have WMD, the Bush administration sought to justify the Iraq War by linking it to a broader "freedom agenda"; suddenly the promotion of democracy was a chief weapon in the war against terrorism. To many people around the world, America's rhetoric about democracy sounds a lot like an excuse for furthering U.S. hegemony

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Perhaps the most striking fact revealed by the global financial crash -- or rather, by the reaction to it -- is the staggering, astonishing, gargantuan amount of money that the governments of the world have at their command.

In just a matter of days, we have seen literally trillions of dollars offered to the financial services sector by national treasuries and central banks across the globe. Britain alone has put $1 trillion at the disposal of the bankers, traders, lenders and speculators; and this has been surpassed by the total package of public money that Washington is shoveling into the financial furnaces of Wall Street and the banks. These radical efforts are being replicated on a slightly smaller scale in France, Germany, Italy, Russia and many other countries....

Year after year, the ordinary citizens were told by their governments: we have no money to spend on your needs, on your communities, on your infrastructure, on your health, on your children, on your environment, on your quality of life. We can't do those kinds of things any more....

But now, as the emptiness and falsity of the Chicago cargo cult stands nakedly revealed, even to some of its most faithful and fanatical adherents, we can see that this 30-year mantra by our governments has been a deliberate and outright lie. The money was there -- billions and billions and billions of dollars of it, trillions of dollars of it. We can see it before our very eyes today -- being whisked away from our public treasuries and showered upon the banks and the brokerages.

Let's say it again: The money was there all along.

Money to build and generously equip thousands and thousands of new schools, with well-paid, exquisitely trained teachers, small teacher-pupil ratios, a full range of enriching and inspiring programs.

Money to revitalize the nation's crumbling inner cities, making them safe and vibrant places for businesses and families and communities to grow.

Money to provide decent, affordable and accessible health care to every citizen, to provide dignity and comfort to the elderly, and protection and humane treatment for the mentally ill.

Money to provide affordable higher education to everyone who wanted it and could qualify for it. Money to help establish and sustain local businesses and family farms, centered in and on the local community, driven by the needs and knowledge of the people in the area, and not by the dictates of distant corporations.

Money to strengthen crumbling infrastructure, to repair bridges, shore up levies, maintain roads and electric grids and sewage systems.

Money for affordable, workable public transport systems, for the pursuit of alternative sources of energy, for sustainable, sensible development, for environmental restoration.

Money to support free inquiry in science, technology, health and other areas -- research unfettered from the war machine and the drive for corporate profit, and instead devoted to the betterment of human life.

Money to support culture, learning, continuing education, libraries, theater, music and the endless manifestations of the human quest to gain more meaning, more understanding, more enlightenment, a deeper, spiritually richer life....

So remember well the lessons of this new October crash: The money to make a better life, to serve the common good, has always been there. But it has been kept from you by deceit, by dogma, by greed, and by the ambition of those who have sold their souls, and betrayed their brothers and sisters, their fellow human creatures, for the sake of privilege and power.

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``The future of the free-market movement and limited- government cause is in jeopardy,'' said Pat Toomey, president of the Club for Growth, a Washington-based group that pushes for lower taxes and less government....``A new era of democratic socialism has begun in the U.S.,'' said Rabushka, now a senior fellow at the Hoover Institution in Stanford, California. ``

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This is nothing. Well, nothing by comparison to what's coming. The financial crisis for which we must now pay so heavily prefigures the real collapse, when humanity bumps against its ecological limits.

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year as a result of deforestation alone. The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing fresh water - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it's the first response to every impending dislocation.

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quote:

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Originally posted by DrConway:
Jesus christ these "fiscal conservatives" have no shame whatsoever but by god if the NDP adds even one dollar they scream and caterwaul

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[ 17 October 2008: Message edited by: Catchfire ]

quote:

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Robert Reich: The "living beyond our means" argument, with its thinly-veiled suggestion of moral terpitude, is technically correct. Over the last 15 years, average household debt has soared to record levels, and the typical American family has taken on more of debt than it can safely manage. That became crystal clear when the housing bubble burst and home prices fell, eliminating easy home equity loans and refinancings.

But this story leaves out one very important fact: Since the year 2000, median family income, adjusted for inflation, has been dropping. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.

I mean, it's not as if the typical family suddenly went on a spending binge ­-- buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.

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Very good points all of them.

It is grossly unacceptable that right-wing economists and their political brothers should dare to claim that it is a person's own fault for providing basic necessities to his or her family as well as his or herself and in doing so needing to borrow money because his or her corporate bosses aren't paying enough, since the CEO wants to snort cocaine up his nose, have his fancy 50-foot corporate yacht and a luxury airplane.

And sure as shit, the usual self-righteous bullcrap comes pouring out in the comments:

quote:

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Nobody has the right to a cell phone, cable, eating out, or vacations

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If this guy had his way we'd all be living right back in caves, grunting at each other and enjoying very little of life. FDR had it absolutely right when he said no political conservative has come up with a new idea in thousands of years.

quote:

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Originally posted by guy cybershy:
Listen to Michael Hudson, one of the few honest economists. He was one of Dennis Kucinich's advisors.

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Feds dropping interest rates(free money to banks) to make money with loans. Ordinary indebted Americans won't see lower rates on cc's or lines of credit nor debt relief

Many U.S. banks have negative equity(owe more than they're worth)

Deliberate theft. Other countries banks and leaders are disgusted with Wall Street and U.S. plutocracy.

U.S. trade and defenSe deficits were financed by capital inflows(other countries' savings and petrodollars) since? 1970's? International inflows to the U.S. are now drying up

G7 meeting in NY failed to happen when U.S. officials demanded foreign governments bail out U.S. and EU banks similarly

Poisonous IMF has one client country left, Turkey

World Bank's anti-labour, pro-Washington consensus countries' economies are in shambles

No need for Lehmans to have gone bankrupt. With ENRON-style accounting, Lehmans CEO told Asian bidders that they should pay what Lehmans used to be worth not its true book value.

It's official now. The USSA is a kleptocracy

There's something happening here
What it is ain't exactly clear
There's a man with a gun over there
Telling me I got to beware

Good show and worth a listen.

[ 17 October 2008: Message edited by: Fidel ]

quote:

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David Eisenberg is a Partner in the Firm's Corporate Department where he concentrates on banking and corporate law and asset-backed securities transactions. Mr. Eisenberg is responsible for creating the asset-backed practice at the firm and has represented clients involved in the structuring of the first asset-backed commercial paper program, the first public offering of credit card-backed securities by a bank and the first offering of asset-backed securities supported by dealer floor plan loans. Mr. Eisenberg has also represented clients involved in international asset-backed and future flow transactions involving issuers located in Japan, Korea, Mexico, Brazil, Italy and Turkey. Mr. Eisenberg represents JPMorgan Chase Bank, as issuer, in its ongoing program of public offerings of its credit card receivables backed notes. In addition Mr. Eisenberg represented JPMorgan Chase Bank in connection with the issuance of notes backed by commercial loans and in connection with its offerings of Leveraged Notes for Credit Exposure, a credit derivative product. Mr. Eisenberg has also represented underwriters, issuers and sponsors of modeled index catastrophe bonds. Mr. Eisenberg has represented sellers and buyers of credit protection in connection with synthetic securitizations of consumers loans, commercial loans and high yield bonds. Additionally, Mr. Eisenberg has represented The Blackstone Group in connection with its first sponsored CLO transaction and DreamWorks in connection with a structured non-recourse financing of an existing and future portfolio of films and related assets.

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quote:

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This is an unconscionable conflict of interest given that JPMorgan Chase is receiving $25 billion of taxpayer funds under this bailout and that the program is very likely to be buying the very toxic waste for which Mr. Eisenberg wrote legal opinions and assisted in proliferating.

What most Americans do not understand, because mainstream media rarely explains it, is the incestuous relationship between the U.S. Treasury and this small band of financial marauders who busted the entire financial system with insane levels of leveraged derivative bets.

The bulk of the $125 billion will be dispersed among Uncle Sam’s own brokers, or in street parlance, Primary Dealers. Primary dealers are those financial firms anointed by the Federal Reserve to participate in the Fed’s open market activities and are required to participate to a significant degree in buying up Treasury securities at every Treasury auction. In other words, without these firms, the U.S. Government would have no means of financing its own funding needs.

Treasury, therefore, has an obvious conflict of interest in keeping these firms alive, even when they are the walking dead. Here’s how much of the $125 Billion the Fed’s Primary Dealers will collect: Citigroup, $25 Billion; JPMorgan Chase & Co., $25 Billion; Bank of America and its soon to be acquired brokerage, Merrill Lynch, $25 Billion; Goldman Sachs, $10 Billion; Morgan Stanley, $10 Billion. In other words, of the first $125 billion outlay from the emergency bailout fund, 76% is going to shore up Uncle Sam’s brokers and $300,000 is going to retain one of Wall Street’s favorite law firms. - Source

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Mr. Paulson’s bailout speech on Monday, October 13 poses some fundamental economic questions: What is the impact on the economy at large of this autumn’s unprecedented creation and giveaway of financial wealth to the wealthiest layer of the population? How long can the Treasury’s bailout of Wall Street (but not the rest of the economy!) sustain a debt overhead that is growing exponentially? Is there any limit to the amount of U.S. Treasury debt that the government can create and turn over to its major political campaign contributors? And is it too much to say that we are seeing the end of economic democracy and the emergence of a financial oligarchy – a self-serving class whose actions threaten to polarize society and, in the process, stifle economic growth and lead to the very bankruptcy that the bailout was supposed to prevent?

Everything that I have read in economic history leads me to believe that we are entering a nightmare transition era.

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Rich people anywhere and everywhere don't mind pillaging government resources for their own benefit, and all to the better if they can co-opt ostensibly left-wing and populist segments of the governmental sector into doing their dirty work for them.

quote:

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Originally posted by DrConway:
The Roman Empire partly collapsed due to the unwillingness of wealthy landowners to pay their taxes

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Yes, Doc. I also read this before about Rome, as well as the end of Khan rule in China. Elitist Mongols eventually thought they were above paying taxes. A peasant revolt, Mandarins I think, chased them out of China

I'm no economist or financial genie, but Hudson mentions debt deflation. I've read somewhere before in the late 80's or 90's that capitalists decided that there was too little money in pouring concrete for new factories, or very much investment in productive labour part of the economy. Profit margins for capitalists began falling below 15 and 12 percent for the first time in the late 70s-80s during times of oil price shocks, stagflation, and when the U.S. government began printing money to fund war in Vietnam. I remember you mentioning that to SG many months ago. So presto! - financial capitalism "the great casino economy" exploded after 1986-7 or so.

Hudson talks about crisis level debt deflation occurring several times throughout history dating back to at least Rome, a time when reformists, led by the Gracchi brothers 133 B.C., attempted to have debt relief legislated for an increasingly impoverished debtor class. Hudson says it was a creditor oligarchy which had them murdered. It appears that there are no Gracchi brothers fighting for indebted Americans today.

[ 18 October 2008: Message edited by: Fidel ]

quote:

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The new kid at the Treasury hasn't quite learned you really can't
talk in public about what you are really up to at Treasury. New
Interim Assitant Secretary of the Office of Stability, Neel Kashkari,
has been caught on tape providing the true details of what Treasury
is up to. This will get him muzzled pretty fast, but it provides us
the opportunity to see the scheming going on at Treasury.

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Ooops

[ 18 October 2008: Message edited by: Frustrated Mess ]

quote:

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Originally posted by Tommy_Paine:
I think everyone knows this is a huge scam, but no one is doing anything about it.

It's just wierd how this works.

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Best summary I've hear today.

Eliot Spitzer did make a move, as NY governor, to investigate the SEC & related institutions.

quote:

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Barroso said: “We need a new global financial order,” but “we cannot continue along the same lines because the same problems will trigger the same disaster.”

The European Commission president said “hedge funds and tax havens cannot continue to operate as they had been in the past; financial institutions cannot continue without supervisory control.”

Sarkozy said the present setup was no longer acceptable. “This is no longer possible … This sort of capitalism is a betrayal of the sort of capitalism we believe in,” he said.

Faced with the financial crisis that threatens the repeat of the Great Depression of the 1930s, the world’s leading capitalist countries have closed ranks to try to avert the collapse of their system.

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A radically different political realignment will begin to take shape in the world in the wake of the crisis. On the one hand, the capitalists will intensify their greed and violence in order to salvage their failed system.

On the other hand, tens and hundreds of millions of people will be compelled to struggle in ways they never imagined to defend their jobs, homes, health care and education, communities and the environment. They will resist the national and racial oppression that will deepen with the crisis.

Their practical experience in these struggles will have profound effects on social and political consciousness, laying the basis for challenges to the entire profit system — responsible not only for the present economic crisis but for endemic imperialist war, economic catastrophe and ecological suicide.

Although the future course of the financial collapse and its fallout cannot be predicted, it can be said with certainty that new conditions are being created to struggle for the only solution available to humanity — socialism.

There are positive, living examples today of countries that have successfully raised the banner of revolt against imperialist domination and charted a course toward societies founded on principles of social justice. There will be no foreclosures or starving pensioners in Cuba. The government of that country represents the interests of working people. Its socialized, planned economy is organized to meet human needs, not profits. These were the key elements that enabled Cuba to survive a virtual economic collapse brought on by the sudden rupture of trading ties with the Soviet Union in the 1990's.

Working people in Venezuela and Bolivia have also established governments that prioritize the needs of ordinary people over those of the wealthy bankers and industrialists. They are inspiring others in Latin America to follow suit.

Imperialism has been weakened by its financial catastrophe. This creates new opportunities and responsibilities for socialists and the broader labour movement in Canada and around the world. We must join in the growing struggles of working people, and in the process show that there is an alternative to the chaos and anarchy of capitalism.

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The fact that we are confronted with the worst financial and economic crisis in the advanced capitalist world since the 1930s is an empirical fact that no informed individual at this point doubts. The failure to predict in the era of monopoly-finance capital and financialization has to do with a number of factors, including the psychology of all speculative booms throughout the history of the system. As Marx observed in Capital, "Business is always thoroughly sound, and the campaign in full swing, until the sudden intervention of the collapse" (Capital, vol. 3, chapter 30).

With respect to economic theory, one can point to the deficiencies of orthodox or neoclassical capitalist economics, which has no way of understanding these things within its fundamental model. Basically, it assumes a kind of non-relation between what it calls the "real economy" and the money or financial economy. The belief is that what goes on in the realm of credit/finance is meant to service the real economy, providing it with needed financing (and financial services generally). But beyond that what happens in this realm (the amassing of money claims to wealth) has no actual connection to the underlying economy, and operates by its own principles. Nor, for that matter, do orthodox economists normally deal with the real economy in any meaningful historical sense. The fact that finance was lifting the whole economy was of course known at some level, but the underlying stagnation tendencies in the latter, apparent since the 1970s, were conveniently ignored as long as profits kept on going up. Part of the problem is that mainstream economics has long left behind its relatively rational stage (abandoning even Keynes) and adopted a whole series of inane doctrines such as monetarism, supply-side economics, rational expectations theory, new classical economics, etc. When this crisis hit, the dominant perspective of central bankers in the United States, led by Federal Reserve Board Chairman Ben Bernanke (an academic economist who had specialized in monetarist interpretations of the Great Depression), was that it was simply a problem of liquidity and that you could drop money from helicopters, if need be (a notion of Milton Friedman's, promoted by Bernanke, earning the latter the nickname "Helicopter Ben").

Needless to say, the sheer stupidity exhibited by a theory premised on assuming equilibrium within the context of an irrational system of competitive, unregulated, and indeed institutionalized greed is at all times hard to fathom. Neoclassical economics has long ceased (at least in its theoretical assumptions) to be political economy, and its practitioners have therefore long dispatched any notion of class, power, etc. from their analysis, replacing these with largely meaningless abstractions. Indeed, this is so much the case that in business circles neoclassical economics is often viewed as useless in any real-world terms, including the making of money. Nor do they grasp dialectical connections, having adopted timeless mechanical models. In contrast, the weaknesses of orthodox economics in all of these respects represent the strengths of Marxian political economy.

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[ 20 October 2008: Message edited by: Fidel ]

quote:

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Originally posted by M. Spector:
You have obviously never read Lenin.

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quote:

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Originally posted by DrConway:

It has been conclusively proven that the Gulag did not start with Stalin.

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quote:

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Originally posted by Cueball:
Lenin? May? Dion... its all the same, only Jack knows the way.

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Originally posted by DrConway:

It has been conclusively proven that the Gulag did not start with Stalin.

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While I think there is an important sentiment here, actually the "Chief Administration of Corrective Labor Camps and Colonies" (reduced in Russian to the Acronym GULAG, and later turned into a pure noun) was not founded until 1929, well after Lenin was dead. I also think that the foundation of GULAG marks an important distinction between the Leninist period and the Stalanist period, in that Soviet use of the state prison system changed from being a means to an end, into being an end in itself.

Prior to the establishment of GULAG Soviet repression of disidents and non-conformist largely served a direct political end, while GULAG actually changed the prison system into an important economic engine of the state. And end in itself, which needed fresh prisoners to work on mega-projects and developing the Siberian wilderness. People began to be arrested, not just for real or perceived insubordination but even on the basis of quotas that were used to fill the labour demands of what became an essential economic tool of the state.

The foundation of GULAG was the begining of the period of real unlicensed, inefficient, and often entirely gratuitous mass repression, as a system for employing cheap forced labour to industrialize the Soviet economy, while at the same time instilling mass fear in the entire population. No one knew if they might be arrested, and on what pretext.

Your point seems to be that Lenin also used the organs of the state to stamp out dissent. And I agree also that much of this was ujust. But the Gulag system was definitely an rethinking and expansion of the whole system of political repression enacted by the Cheka (NKVD) and the state prosecutors office, and the prison system itself that happened under Stalin's watch.

But I agree definitely the insitutional foundation, and the ideological justification used to enact these policies existed prior to Stalin, even the practice of using prisoners as labour, but given the times forced prison labour was not unusual and persists in most countries today, in some form or another. But GULAG was differnt than that.

Sorry to be a pedant.

[ 20 October 2008: Message edited by: Cueball ]

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Wracked by political instability and hard hit by the global economic crisis, Pakistan is teetering on the brink of default. The country’s foreign reserves have dwindled to around $4.5 billion, equivalent to about six weeks of imports, foreign investors have fled the country in droves and the rupee has fallen sharply. The international credit rating agency, Standard & Poor’s, has downgraded Pakistan to a position superior only to the Seychelles, which has already defaulted. . .

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The Law of the Jungle:

Trade, within a society and among countries, is the exchange of goods and
services produced by human beings. The owners of the means of production
appropriate the profits. As a class, they are the leaders of the capitalist
state and they boast of fostering development and social well-being through
the market. This they worship as an infallible God.

In every country there is competition between the strongest and the weakest;
those with more physical energy, those who are better fed, those who learned
how to read and write, those who attended school, those who have more
accumulated experience, more social relations and more resources, and those
in society who do not have these advantages.

Among countries: those with a better climate and more arable land, more
water and more natural resources in the area where they are located, when
there are no more territories to conquer; those that master technology, have
greater development and handle unlimited media resources, and those that, in
contrast, do not enjoy any of these prerogatives. These are the sometimes
enormous differences between countries described as rich or poor.

It is the law of the jungle.

---

Maybe the rich are the problem?

quote:

---

For decades, conservatives have disparaged the notion of "spreading the wealth," relegating such economic populism to the margins of public debate. The vast pools of wealth at the top have been off-limits as a political issue – in the United States and Canada.

snip

In his classic The Great Crash 1929, the late economist John Kenneth Galbraith put "the bad distribution of income" – the top 5 per cent of the population received one-third of all income – at the top of his list of key factors causing the disaster.

snip

Since the 1980s, there's been a similar income shift away from wages toward profits. Livingston argues that, with consumer demand suppressed, George W. Bush's massive tax cuts for the rich "produced a new tidal wave of surplus capital with no place to go except real estate," fuelling the housing bubble.

snip

Progressives have long argued for higher taxes on the wealthy – on grounds of fairness. But now, as the financial meltdown threatens to destroy the real economy, fairness may be secondary. Taxing the rich may boil down to a question of economic survival.

---

[ 21 October 2008: Message edited by: RevolutionPlease ]

quote:

---

Originally posted by DrConway:
Because you were trying to make excuses for Lenin...

---

When I said you have obviously never read Lenin, I was "making excuses" for Lenin?

I was making a remark about the foolishness of your statement that said Lenin was "wholly impervious to rational discussion of alternatives to his way of doing things". Anybody who says that obviously hasn't got a fucking clue about Lenin or his political writings.

I perceive the world-wide credit disintegration that has occurred recently to be quite serious. The stock market is just the public face of it, the one you hear about every day.

Other details, like containers (from container ships) not being processed at ports like Long Beach, because the shipping company is not willing to accept the Letter of Credit that is Traditional/ Standard Operating Procedure ... incidents like this are being reported. That plus "Starbuck's invasion robberies" (the Starbuck's in downtown Berkeley got robbed, customers & the store, in the last 6 months).

(not the best example, because it's Starpuke's. But how would you feel if it happened at a Blenz ? a bunch of yuppies getting robbed at a cafe in Berkeley ? that's serious - even if it is a Starpuke's !)

Anyway, getting back to the friend that wanted me to contact our congressperson to advocate against the bail-out, my perception at the time is that the bail-out was necessary.

Since then I have had more time to think about it, and to better understand credit derivatives, which the "credit crisis" is inextricably inter-twined with.

There are 3 primary categories of credit derivatives -
* mortgage backed securities
* credit default insurance & credit default swaps
* "other"

As far as how large the derivatives industry is, I see 2 ranges of numbers. $45-$62 trillion in some articles, $400+ trillion in others. I am unable to reach the authors who use the bigger numbers.

Normally we would call this the "financial services industry", however because of the size & the dubiousness of the "service", I call it the "credit derivatives industry".

So I heard about the bail-out, and watched a bank I had been with since 1975 (WaMu bought Great Western & Home Savings, I opened an account with Great Western in September 1975) go bankrupt, one week after I closed one significant account I had there.

The US government is not just bailing out the commercial banks.

They are bailing out about half of the credit derivatives industry !

AIG was & I guess is an industry "leader" in credit default insurance. (In normal insurance, the insurer has to have reserves. With credit default insurance, it's un-regulated.)

AIG is getting bailed out.

The other sector of credit derivatives - mortgage-backed securities - is also getting bailed out, in the sense that the instruments held by commercial banks are being taken on by the government. Toxic mortgage backed securities held by hedge funds are not being bailed out by the government, that I know of.

The better I understand what is going on, the more shocking it appears. Truly, socialism for the Rich. $70 billion of the $700 billion is going to year 2008 salaries & bonus' for finance industry employees.

My version of the $700 billion bail-out - 1) Investigate the hedge funds and seize the assets of everyone that was involved in fraud. Which will be all of them. Mostly in the US, but also London and a few other financial centers.

2) The top 30 of the highest paid hedge fund managers had an average salary of $500 million in 2007. That gives an indication of where to start when it's time to seize assets related to finance industry fraud.

3) Establish a "executive poverty" program where executive pay is limited to $250K. If they want to go on strike, let them.

4) Attach these kinds of provisions to a bill before bailing out the banks.

As it turns out, the investment banks are trying to get in on the action. Morgan Stanley has applied to become a bank, which will allow it to dump valueless Mortgage Backed Securities onto the US government.

Can you imagine how far $70 billion would go in terms of helping poor & working class people ? Can you remember how many times the politicians who represent these rich thugs have warned us about the dangers of socialism - for the poor ?

One of the best articles I've seen about the situation is at Alternet

super Long URL

quote:

---

Taking advantage of the opportunity of so many people from movements gathering in Beijing during the Asia-Europe People’s Forum, the Transnational Institute and Focus on the Global South convened informal nightly meetings between 13 and 15 October 2008. We took stock of the meaning of the unfolding global economic crisis and the opportunity it presents for us to put into the public domain some of the inspiring and feasible alternatives many of us have been working on for decades. This statement represents the collective outcome of our Beijing nights.

We, the initial signatories, mean this to be a contribution towards efforts to formulate proposals around which our movements can organise as the basis for a radically different kind of political and economic order. Please sign on to this statement by adding your name in the comments section.

---

quote:

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We have been told every day by the media that we should put our faith in the market and that elected governments are the problem and not the answer and, for that reason, should not interfere.

These ideas began to emerge in the political mainstream when Margaret Thatcher came to power and in 1994 "new" Labour adopted them as the basis of its own approach which explains why she once described "new" Labour as her "greatest achievement".

Trade union rights are now more restricted than they were in 1906, wages have been held down and people have been advised to borrow and spend as an alternative - which explains why the stock market has fallen and locked more and more people into debt, which is a subtle form of slavery itself.

---

quote:

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Surely you have heard by now of the imminent socialist takeover of America, and if you find the prospect unlikely, ask yourself: How many socialists do you know who lost millions in the recent stock market crashes? Just as I thought—none—and that's not only because you don't know any socialists. The truth is that we, the Socialist International Conspiracy, not only saw this coming, we are the ones who made it happen.

---

And the comment from the article fidel linked to really fits into this comment of Barbara's

quote:

---

Trade union rights are now more restricted than they were in 1906, wages have been held down and people have been advised to borrow and spend as an alternative - which explains why the stock market has fallen and locked more and more people into debt, which is a subtle form of slavery itself.

---

statement of

quote:

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We had thought that the nationalization of the banks would bring capitalism to its knees, but instead, the capitalists were craftily using it to privatize the government.

---

They are not writing off individual's debt's as they are financial institution debts, and why not?

I would suggest that it is not a subtle form of slavery they are going for, but an actual one. Perhaps on a global scale.

quote:

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The main operating assumption of the neoliberal era is now everywhere in question. Proponents of markets have been arguing for nearly 30 years that the reason people reject the price mechanism as the best — indeed the only way — to allocate resources is because they did not understand properly how competitive market pricing actually work. Market critics were assumed to reject economic reality, while embracing delusions about democratic planning and public spending.

With chaos and panic pervading financial markets, and yesterdays heros such as central bank heads Allan Greenspan and David Dodge now struggling to keep their names from being associated with the scandals of collapsing securities markets, blocked credit mechanisms and economic distress, one thing should be clear: markets fail.

Critics of the markets are magic thesis got it right. The economic reference points for today are the works of economists Karl Polyani, John Maynard Keynes, Michael Kalecki, Joan Robinson or Hyman Minsky, along with Canadians Kari Levitt, Mel Watkins, Mario Seccareccia and Gilles Dostaler. The work of economists associated with corporate subsidized American and Canadian think tanks, inspired by Von Hayek and Friedman, notably, the American Enterprise and Fraser Institutes, was fatally flawed.

Microeconomics (the study of how prices are set in individual markets) was assumed by market proponents to be the foundation on which macroeconomics (the study of how national income is created) was based. For instance, unemployment occurred because individuals chose leisure ahead of work.

Following this assumption the great depression could be attributed to a sudden, worldwide, outbreak of laziness, as MIT economist Franco Modigliano famously retorted to Friedman. As the economy recedes, the Keynesian analysis of a failure of market demand to generate growing incomes, and employment is being hastily re-discovered, as governments rush to stimulate national economies though deficit spending.

---

One can only begin to hope that those expenditures may begin to be turned to ploughshare manufacturing. Perhaps along the lines of another Tennessee Valley Authority.

The comments were almost as entertaining and revealing as the column itself. This one, for instance:

quote:

---

Nicely done. Maybe you can explain to me now in the midst of this banking meltdown that no one brings up the ancient history of the S&L crisis?

Ever since Bushy entered the presidential campaign 8 years ago, I've wondered how he managed to get the media and even his mother to never ever ever mention his brother Neil's name. And they NEVER mention the Savings and Loan Scandal of 1988 nor Neil's sweet Silverado Savings and Neil's several breaches of feduciary duty and conflicts of interest.

And except for the one mention of an extravagant AIG trip, I haven't seen any more reportage on the use of the funds taxpayers paid to bail out CEOs and save their Country Club memberships. But, maybe I'm not looking in the right places...

---

On the other hand it is really quite sad that the ole school could insight ignorance and fear in a democracy by playing on what people do not understand.

This goes back to the days of Communism and the word association toward "socialism" and the feeling of "dominance over" held in European perspective under that rule. So they play on it. This is really quite revealing of that "ole school of thought." They played on the freedom, and the redistribution of wealth as a platform.

quote:

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According to Treasury Secretary Henry Paulson, the chief proponent of the big bank bailout, flooding the banks with taxpayers’ money was supposed to get them to start lending freely again. And that, in turn, was supposed to stabilize the markets and prevent the downturn from being worse than it otherwise would be.

It was not entirely clear from the start exactly how Mr. Paulson would ensure that things would go that way. Indeed, earlier this month, shortly after the bailout was enacted, The Times’s Mark Landler reported that Treasury officials also wanted to steer the bailout billions to banks that would use the money to buy up other banks.

Now, lo and behold, with $250 billion in bailout funds committed to dozens of large and regional banks, it turns out that many of the recipients of this investment from taxpayers are not all that interested in making loans. And it appears that Mr. Paulson is not so bothered by their reluctance. - part of Editorial in today's NYT

---

quote:

---

An analysis prepared by the Union, which was attached to the letter, uses traditional Wall Street valuation techniques to demonstrate that the Treasury's investment in Goldman and the other firms was worth approximately half of the price paid and that the other half was a gift to the firms' shareholders. The analysis was done by comparing Treasury's investment to one made just twenty days earlier by Warren Buffett.

---

quote:

---

Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses - despite asking the U.S. government for an emergency bail-out.

The struggling Wall Street bank has set aside £7billion for salaries and 2008 year-end bonuses, it emerged yesterday.

Each of the firm's 443 partners is on course to pocket an average Christmas bonus of more than £3million.

The size of the pay pool comfortably dwarfs the £6.1billion lifeline which the U.S. government is throwing to Goldman as part of its £430billion bail-out.

---

>by Lyndon H. LaRouche, Jr.

quote:

---

First of all, as I have already emphasized this, contrary to Lenin and relevant others, "imperialism" was not "a stage of capitalism." Imperialism as known to Europe, is older than Babylon. "Finance capitalism" as the German Social-Democracy and Lenin named it, is much older than that which the followers of Marx called "capitalism" or "socialism." It is also older than the brutish ruining of the bow-tenure plots of once-proud Sumer by the introduction of the same "loan shark" methods which had been used against Sumer's farmers. Again and again, ancient, medieval, and modern civilizations have been ruined by the same practice of usury, as used again and again, to induce the civilizations of Southwest Asia to destroy themselves as if by their own hands, as has been done, since the death of Franklin Roosevelt, by globally extended Anglo-Dutch Liberalism, most notably since the break-up of the already looted Bretton Woods System, in 1971-72.

The combination of the 1971-72 break-up of the Bretton Woods system, as followed quickly, in 1973, by the predatory Anglo-Dutch-Saudi conspiracy which created the reign of the Anglo-Dutch petroleum "spot market" over the world's finance, destroyed the U.S.A.'s control over its own dollar, and degraded the world monetary-financial dollar to a mere toy in the hands of the British empire. The influence of what had been once called British imperialism, as opposed to the true nation-state, has been a continuously leading phenomenon in globally extended European history from that time, to the present day.[15] As Rosa Luxemburg had explained, and Herbert Feis later, imperialism, is, today, as then, simply a 1970s rebirth of the Anglo-Dutch Liberal tyranny of a global financial system based, as both Rosa Luxemburg and Herbert Feis had shown, on a revived Anglo-Dutch Liberal system of international, essentially usurious loans.

---

Evil neo Malthusian, Anglo-Dutch Liberals and their thousand year-old post-Venetian financial system of usury railroading us into a new Dark Age!! Marx a "British asset"? Man he uses some words.

[ 31 October 2008: Message edited by: Fidel ]

by Anne Pettifor

quote:

---

To restore stability to the global financial system (and therefore to trade and the ecosystem) we need a "great transformation" to reverse the most pernicious elements of the failed "globalisation" experiment. Three pillars are vital to any new international architecture. They are:

• The taming of financial markets – through the re-introduction of capital controls; restraints in the growth of credit; and the establishment of a Keynesian international clearing agency;

• "Upsizing" the state – empowering governments to respond to democratic mandates by wresting power over decision-making from unaccountable financial markets, and restoring policy autonomy to elected governments;

• "Downsizing" the single global market – by introducing an international trading system based on the concept of "appropriate scale".

Since Nixon unilaterally dismantled Bretton Woods in 1971 and defaulted on the US government's commitment to meet its obligations in gold; and since the introduction of legislation to liberalise credit creation, financial markets have been liberated from social, political, and environmental constraints. As a result the world was turned upside down. The finance sector no longer acted as servant to the economy, but instead became its master. The tail wagged the dog. . .

A system of "appropriate scale" takes into account the environmental costs of trade. Free trade was given a free ride by the global environment. That is no longer sustainable. Governments must be free to pursue the trade policies most appropriate to their climate, economy, and stage of development. . .

"Such a great transformation is vital if we are to end the dictatorship of haute finance and once more protect the interests of society as a whole, and the ecosystem."

---

Good article, and I'd bet Duncan Cameron would agree.

[ 31 October 2008: Message edited by: Fidel ]

quote:

---

Hedge funds make £18bn loss on VW

Hedge funds have lost £18bn in two days of trading in Volkswagen (VW) shares that briefly saw the carmaker become the world's most valuable company.

VW shares rose 348% over Monday and Tuesday after it emerged that only about 5% of its shares were available.

...
The panic buying was caused by traders who had short-sold VW shares desperately trying to buy them back so they could close their positions.

Before Porsche's announcement, many traders had been betting on VW's shares falling.

They had borrowed VW shares and sold them in the market, planning to buy them back when the shares had fallen, return them to the lender and pocket the difference.

But what actually happened was that the shares rose as a result of Porsche's effective takeover and the traders found themselves forced to buy the shares at any price.

...
Bigger than Exxon
VW's shares peaked on Tuesday at 1,005 euros, valuing the company at 296bn euros ($370bn; £237bn), which is well over the $343bn value of Exxon Mobil - previously the world's most valuable company.
....
As an indication of how extreme the market valuation is, last year Exxon made profits of $41bn on sales of $390bn while Volkswagen managed profits of about $8bn on sales of $136bn.

---

quote:

---

By purchasing stakes in these institutions, Treasury is sending a signal to the market that they are a safe bet. Why safe? Because the government won't be able to afford to let them fail. If these companies get themselves into trouble, investors can assume that the government will keep finding more cash, since allowing them to go down would mean losing its initial equity investments (just look at AIG). That tethering of the public interest to private companies is the real purpose of the bailout plan: Treasury Secretary Henry Paulson is handing all the companies that are admitted to the program--a number potentially in the thousands--an implicit Treasury Department guarantee. To skittish investors looking for safe places to park their money, these equity deals will be even more comforting than a Triple-A rating from Moody's.

Insurance like that is priceless. But for the banks, the best part is that the government is paying them--in some cases billions of dollars--to accept its seal of approval. For taxpayers, on the other hand, this entire plan is extremely risky, and may well cost significantly more than Paulson's original idea of buying up $700 billion in toxic debts. Now taxpayers aren't just on the hook for the debts but, arguably, for the fate of every corporation that sells them equity.

---

quote:

---

For those who missed it, I recommend Edward Stourton's BBC interview with Eric Hobsbawm, the doyen of Marxist history.

"This is the dramatic equivalent of the collapse of the Soviet Union: we now know that an era has ended," said Mr Hobsbawm, still lucid at 91.

"It is certainly greatest crisis of capitalism since the 1930s. As Marx and Schumpeter foresaw, globalization not only destroys heritage, but is incredibly unstable. It operates through a series of crises.

"There'll be a much greater role for the state, one way or another. We've already got the state as lender of last resort, we might well return to idea of the state as employer of last resort, which is what it was under FDR. It'll be something which orients, and even directs the private economy," he said.

---

quote:

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BERLIN (Reuters) - Two decades after the Berlin Wall fell, communism's founding father Karl Marx is back in vogue in eastern Germany -- thanks to the global financial crisis.

His 1867 critical analysis of capitalism, "Das Kapital," has risen from the publishing graveyard to become an improbable best-seller for academic publisher Karl-Dietz-Verlag. . .

A recent survey found 52 percent of eastern Germans believe the free market economy is "unsuitable" and 43 percent said they wanted socialism rather than capitalism, findings confirmed in interviews with dozens of ordinary easterners. . .

The opposition Left party, which traces its roots to Erich Honecker's SED party, has capitalized on the frustration and become the east's most popular party with support of 30 percent.

---

Chavez warns he will nationalise banks if problems arise

[ 05 November 2008: Message edited by: Fidel ]

quote:

---

The present financial crisis is more fundamental and more sweeping than the 1929 crash and depression. It is the end of an era. The end of the so-called American Century. The demise of the world financial system which American capitalism set up at the famous Bretton Woods conference in 1944 following WWII. And there is no agreement on what will or can replace it.

For some 50 years now the American working class, or the media's preferred euphemism, the American middle class, has been the target of an intense class war in which real wages and income have been relentless reduced. This has been a one-sided class war with little effective resistance, especially from a hopelessly bureaucratized and conservatized trade union movement, which, in addition, has slavishly tied itself to one of the principle instruments of this class war, the Democratic political party. Everyone recognizes some of the more obvious results of this one-sided class war. An ever increasing concentration of wealth into the hands of a thin layer at the top -- CEO salaries that have gone from 40 times that of the average employee to 300 times.

But there is an obvious contradiction here. Economists calculate that approximately 80 percent of the economy is driven by consumer spending. If real wages have been falling over the last 50 years, how has the economy, at least until recently, continued to expand and profits continue to grow? This was accomplished by a number of strategies designed to offset the effect of falling real wages on consumer spending.

The first of these was the simple expedient of drastically increasing the total number of hours worked. Overtime was increased, leisure time was decreased. The single wage earner family was largely eliminated. No longer did one partner work while the other, usually the female, took on the demanding job of running the home and caring for the children. The "Leave It To Beaver" family of the 1950's disappeared from American society.

When this proved insufficient, family members were forced into a second and even a third part time job. Grandpa and grandma were moved into the basement apartment, and shuffled off to Walmart earning extra bucks as greeters to supplement their Social Security check….

The next move was a massive expansion of consumer debt. The credit card industry was born. It was not so long ago that credit cards were mostly limited to business executives who did a lot of traveling. New federal legislation was put in place ending the ability of individual states to regulate credit cards and eliminating all usury laws which capped the maximum interest that could be charged. The nation was flooded with credit cards carrying 20 percent plus interest rates, a return previously only available to Mafia loan operations. The average American family now holds seven of these cards. The banks issuing these cards made record profits and consumer debt soared to record levels. But it did mask the effects of falling real wages and produced a significant if temporary boost in consumer spending.

Paralleling the encouragement of ever more consumer debt was an even more risky policy, the massive and continuous expansion of government debt. We will address this crucial question in greater detail shortly but for now we can note that these record deficit budgets of necessity fueled inflationary pressures. One way these inflationary pressures expressed themselves was an artificial rise in the dollar value of houses -- the so-called housing boom. For most middle class/working class families, their home, if they own one, is by far their biggest financial asset. As credit cards maxed out and the size of consumer credit card debt became unsupportable, another particularly dangerous financial gimmick was floated. Consumers were encouraged, and driven by necessity, to take cash equity out of their inflated house value. Second mortgages, third mortgages, home equity loans, became the final desperate hope for keeping their heads above water -- for meeting expenses and paying down credit card debt that was killing them with 20% plus interest rates. New home buyers were lured into predatory sub-prime and adjustable rate mortgages with the assurance that housing prices would continue to raise indefinitely, allowing them to refinance and even cash out increased equity in the foreseeable future. And again it propped up consumer spending.

The banks made big bucks out of the credit card ploy but it was peanuts in comparison to what they were able to accomplish with the new mortgage schemes…. When the housing bubble burst, it triggered not just a crisis in the mortgage market but the collapse of a financial house of cards that had been building for decades.

Even more significantly, it exposed fatal flaws in the entire world financial system which had been in place for seventy years, ever since the famous Bretton Woods conference of 1944. When the United States organized the Bretton Woods conference, the US was the largest creditor nation in the world; for all intents and purposes it was the only creditor nation in the world. Today it is the largest debtor nation in the world.

For decades the United States has run ever larger deficit budgets fueling an ever larger national debt….

The United States was able to pursue such a policy over an extended period of many decades because of the unique, privileged position of the dollar in the world economic system….

Prior to WWII, international trade and the settlement of international trade balances were accomplished primarily through the shifting of gold accounts. But by the end of WWII the United States ended up with all the gold, or most of it. A new basis for organizing international trade had to be found and found quickly. At the 1944 Bretton Woods conference it was agreed that the dollar would replace gold in its international trade function. That the dollar would be accepted as good as gold. That the dollar would become the reserve currency for the entire capitalist world. This is how the U.S. dollar acquired its unique, privileged position. Or to use a term union members can appreciate it, acquired "super seniority". This arrangement made certain sense for the world capitalist economy, but only so long as the U.S. economy remained a strong, dominant, expanding economy with a strong financial balance sheet.

What do the continuous deficit budgets and the exploding federal government debt mean? It means this debt has to be funded; the government has to borrow money. It does this by selling U.S. treasury bonds which are government I.O.U.s. Today most of these U.S. treasuries are sold in the international market and held by such countries as Japan, the Middle East oil nations and especially China.

The United States has become utterly dependent on continued international purchases of these treasuries and the regular roll-over of those already held.…

As the crisis unfolded, and the government bailout and infusion of funds began to take place, Treasury Secretary Paulson suddenly and out-of-the-blue made a truly astounding demand that Congress immediately authorize 700 billion dollars to be dispensed by him, as he saw fit, with no congressional or judicial oversight.

Despite some claims to the contrary, he essentially got everything he demanded. What provoked such a move? David Rothkopf, an apparently well connected scholar at the Carnegie Endowment for International Peace, lets the cat out of the bag in a major article entitled 9/11 Was Big. This is Bigger. In the October 12 Washington Post he writes; "Reports from within the Treasury suggested that the U.S. government intervened in the financial sector, at least in part, in response to Chinese threats to reconsider their policy of buying U.S. debts unless Washington moved to stabilize the markets."

This signals the end for the U.S. dollar's status as world reserve currency -- the end of "super seniority" for the dollar. And national leaders throughout the world know it. They are demanding a new worldwide economic conference to deal with the crisis….

It's all well and good to demand a new Bretton Woods but it ignores the fact that the utterly unique historical conditions allowing for the successful Bretton Woods conference of 1944 no longer exist nor are they reproducible. There was little in the way of negotiations between equals or even serious two way discussion at the 1944 Bretton Woods conference. A completely dominant and victorious U.S. capitalism dictated, and the rest of the capitalist world acceded. The usual laws of capitalist international competition were uniquely and temporarily in suspension.

That is certainly not the case in the world today. The European nations calling for a world conference can't even come up with a cooperative, coordinated response to the crisis among themselves….

"This is unprecedented, " said Simon Tilford, chief economist for the Center for European Reform. "It has exposed the limits of European integration and coordination when presented with a crisis of this magnitude."

It's not unprecedented. It is merely confirmation of the basic law of capitalist competition, between firms and between capitalist nation states. In times of acute crisis, the law's application becomes particularly brutal, it becomes: "Every man for himself and the devil take the hindmost."

What does this all mean for the American middleclass/ working class? The enormous costs of the Wall Street and banking sector bailouts are unprecedented, with much more to come, including corporate bailouts.

Someone will have to pay, and without the aid of a dollar with "super seniority". How the pace of events plays out is hard to predict but we will certainly see a dramatic intensification of class warfare against the American middleclass/ working class. But it can no longer be a one-sided class war; they will have to resist; they will have no choice. They will not be able to just bare their breasts and accept the incoming rounds.

They are not in an advantageous position to fight this war. The trade union movement will be of little help as it is presently constituted, and it will take time and a tough fight to change it. Unlike most of the major industrial nations America, has no socialist or labor party which in the heat of battle could be transformed into a fighting political instrument. Such a party would have to be built from scratch and in the face of deep existing illusions about the progressive nature of the Democratic Party. But the American capitalist elite are not in good shape either. The crisis has shaken them; there is a growing sense of panic and demoralization.

No one looks forward to this war. But the war will come. For everyone "The Jig is Up."

---

[ 08 November 2008: Message edited by: M. Spector ]

[ 08 November 2008: Message edited by: 500_Apples ]

quote:

---

Originally posted by 500_Apples:
The writer says this crash will be more sweeping than the 1929 crash because this represents the end for American capitalism. Why would that be more significant than the end of British capitalism?

---

quote:

---

Originally posted by M. Spector:
You say "end for" American capitalism versus "end of" British capitalism. The difference is important. Henderson says it's the end of the dominance of American capitalism over the world financial system which it gained by virtue of Bretton Woods. It's not the end of American capitalism or British capitalism.

---

I think you missed my point.

Britain stopped being dominant and a key event of that was 1929.

America will soon no longer be dominant and a key event of that will be this financial crisis.

quote:

---

Originally posted by 500_Apples:
The writer says this crash will be more sweeping than the 1929 crash because this represents the end for American capitalism. Why would that be more significant than the end of British capitalism?

[ 08 November 2008: Message edited by: 500_Apples ]

---

Britain, the previous bankrupted vicious empire, never really abided by free markets or practiced free trade either.

[ 08 November 2008: Message edited by: Fidel ]

But a good line in it ran thus (paraphrased): "We will return to a more regulated form of capitalism that stood America well, as in the 1950s."

Things like this just might be the entering wedge for Democrats to steal the Repubs' thunder and turn their "family values" rhetoric into an advantage by pointing out that it was precisely the economic structure of the 1950s that allowed the "Daddy as head of house" family of the 1950s to come into being.

quote:

---

Originally posted by 500_Apples:
Britain stopped being dominant and a key event of that was 1929.

America will soon no longer be dominant and a key event of that will be this financial crisis.

Why would the latter evolution be more significant than the first one?

---

Henderson is writing from the perspective of an American who sees the end of the world financial system that was set up in 1944 and with it the end of American dominance of that system, and a period of intensified class warfare in the USA as a result.