Category Archives: Empire

Banking Blow Up: Eurozone Joins the Panic

Posted on by

The financial fireworks continue. Over the weekend, the Europeans found that they weren’t insulated from the crisis at all:

“Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.

Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.

During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.”

More by Ambrose Evans-Pritchard (who seems to be relishing his role as Jeremiah) at the Daily Telegraph.

Comment:

While I agree in general, I think the hysteria is misplaced. Things aren’t good, but we are only making it worse by fanning public hysteria. The essential problem is that banks are fearful of counter-party risk, because the rating agencies weren’t doing their jobs – so much for more regulation). Many of these assets are illiquid because they are marked up too highly. That includes houses. Prices are deflating, but they are still not back at realistic values. Mark them down and you will find buyers in the market. Instead, everyone is trying to keep prices at artificial levels by getting the government to buy them (and here, in the US, we can print money to support any price level). Ergo – confidence grows less and less, as prices and values become even more completely unhinged.

That’s why, this morning, the Dow is down, sinking below 10,000 for the first time in 4 years. I want to say, I told you so, to the entire political, academic, financial, and cultural establishment which has been out in force telling us to sign that bill, or else.

And remember Jim Cramer saying he liked this market just this past June? Well, today Cramer’s telling people who need their money in the next five years to pull it out of the market asap. Almost makes you think we hit a bottom (only half kidding).

Unlike Cramer, Nadeem Walayat, a trader, has been right on the money. We are at 1929, he says, and yet, we’re not – because, today, it’s not a stock market crisis but a banking crisis. Walayat predicts a two-year recession.

Personally, and here, Evans-Pritchard’s use of the phrase shock and awe seems like a bit of a give away, I think there is more to this crisis than meets the eye. Remain skeptical – especially, when anything involves trampling the constitution and creating ever more powerful financial czars….

Just remember – as this piece says – a substantial part of the media shills for Wall Street and the government. They either print outright falsehoods, naively repeat what they are told, or co-opt the arguments of people who are right by appropriating a part of what they say but giving it their own misleading spin.

As for punitive measures for what’s happened, Michael Brush at MSN Money Central has a good piece on how CEO’s made out while their companies were tanking. He doesn’t have much hope that legislation will get the bad guys to cough up their ill-gotten gains but he does have a couple of links for you to get through to the government.

Regulatory overhaul is not the answer (although a few rules do need to be reinstated). Look at what’s happening in Europe? No lack of regulation there. And, the Eurocrats are even turning their backs on a Eurozone rescue modeled after the American.

“I reject a European shield because we as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used,”

says Peer Steinsbruch, Germany’s Minister of Finance…..suddenly, quite the nationalist.

A Day Of Infamy (Update: Bankster Bill – HR 1424- Included)

Posted on by

Congress passed a modified version of the Paulson plan today 263-171. The only thing worth reading in this awful piece of legislation hustled through by an unholy convergence of short-sighted interests was this:

“Paulson last week urged Congress to immediately give him almost unchecked legislative authority to take action. Lawmakers responded by demanding increased oversight, more aid to prevent foreclosures and limits on executive compensation at companies that benefit from the program.”

Here’s H.R. 1424, in which the first part is the Emergency Economic Stabilization Act.

Here’s Dennis Kucinich, a principled man of the left, on exactly how much this bill did for the average American.  

Better Than Bail-Outs

Posted on by

The market needs deflation, as the natural end of excess, says Barry Brownstein. If we try to avert it by intervention, we will end with something much worse – hyperinflation.

“If, on the other hand, the reactionary forces prevail, more money will be thrown after bad; foreigners will withdraw from our capital markets; and eventually, a hyperinflation will begin. In that terrible scenario, it is likely that the United States will split apart; and many cities will descend into anarchy. You can see why I prefer the deflationary depression.”

And the Republican hold-outs in the House came up with a few ideas of their own:

*Suspend capital gains for two years (boosting global competitiveness and upping stock prices)

*Denationalize and privatize Fannie and Freddie
*Waive mark-to-market”

*Strengthen the dollar”

That’s from a post by Deroy Murdock at Human Events.

Comment:

We’ll get one of those – mark-to-market will go. And maybe some tax cuts. But don’t hold your breath for a strong dollar or privatizing F&F. My bet’s on hyperinflation…

Bankster Bail-Out: What Does Paulson Own and When Will He Own Up to It?

Posted on by

The New China Lobby

Financial blogger, Mish Shedlock, points out that Treasury Secretary Paulson’s plan actually extends to foreign investors. Yes, you read that right. Not to foreign banks headquartered in the US, but to foreign investors. Bad debt (sorry, troubled assets) can move from the foreign branch of a bank to its US branch. Bingo – what’s Mandarin for bingo? – you, the American tax-payer, are on the hook.

None of this should really be surprising. During his time at Goldman Sachs, Paulson made millions of dollars for his firm in China, with commensurate rewards for himself.

In 2006, Goldman Sachs bought into China’s largest bank, the Industrial and Commercial Bank of China, for $2.58, one of a number of such deals cut with Chinese state entities, as neoconservative hawks were quick to note. According to knowledgeable people, its profit of $3.9 billion was the biggest ever for the firm since its founding in 1869.

Goldman also bought a stake in Tokyo’s Sumitomo Mitsui Financial Group, the third largest financial group in Japan in 2003 ($1.26 billion), in return for which Sumitomo Mitsui loaned billions to Goldman Sachs for its investment-grade clients. Both that and the ICBC deal were financed with Goldman’s own money and with investments by its partners, institutions and wealthy clients.

What’s more, Goldman earned more fees than any other of its global competitors in China, being the only foreign securities firm allowed to both trade stocks for brokerage clients and arrange share sales for companies.

[Wonder why Paulson acts so high-handedly? Goldman is notorious for such conflicts].

Knowing that Goldman is the source of a bunch of the credit default swaps now clogging up global finances, we can safely surmise that its Asian clients are now suffering the same toxic shock afflicting its American and European clients. Some European banks just got a wake-up call this week how bad their own situation was, according to the Daily Telegraph.

A Wall Street legend for paranoia and secrecy, “The Firm” didn’t let on for a while how badly it too had been hit. That front fell apart this fall when its stock price swooned, along with those of other financial firms. Recently, the New York Times reported exactly how much Goldman stood to lose from contracts with insurance giant, AIG. If AIG had gone under, Goldman would have lost $20 billion.

The Times also reported, apparently as revelation, that Lloyd Blankfein, current CEO of Goldman, attended weekend meetings with AIG, Paulson, and others, before the AIG rescue was put through.


[Amazing. Powerful corrupt financiers cut backroom deals with each other and twist arms in powerful corrupt DC. Who would have thought? Of course, in the alternative press we were aware of Goldman’s less than Boy Scout past much before the Times lost its innocence, but better late than never….]

Now we can guess why it was necessary to convert Goldman so quickly into a commercial bank. With access to customer deposits, the bank would be able to replenish its capital in short order.

Does Paulson profit personally? Reportedly, he sold his own shares in Goldman before being sworn in as Treasury Secretary in June 2006. Still, the meetings between Blankfein, AIG, Treasury, and the Federal Reserve sound like the worst kind of cronyism, given AIG’s subsequent rescue.

And they’re not the only problem.

1) The amendment of reserve requirements (in Section 128, in both the original and amended versions of the Paulson plan) is another: “Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 USC 461 note) is amended by striking ‘October 1, 2011’ and inserting ‘October 1, 2008.'”

As Pam Martens points out, this amendment would allow banks to hold zero reserves for transactions, a very enticing prospect for an investment bank in such dire need of capital it had to reinvent itself as a deposit-taking retail bank. And this would go through before the election, before the political scene was altered drastically.

2) The bailout of the financial sector, especially Goldman Sachs, is now a matter of keen interest to a large number of wealthy and influential foreigners – both individuals and private and state-run banks. Paulson’s long-standing ties with these foreign entities, as well as with leading financial entities all over the world, in and of itself constitutes a powerful conflict-of-interest and opens up the question of foreign influence on one of the most powerful offices in our government.

[For instance, since June 2006, more than 100 ICBC executives have attended courses at Goldman’s New York training center, where tutors include Gerald Corrigan, former president of the Federal Reserve Bank of New York, who teaches a course on risk management (of all things). ICBC’s board includes Christopher Cole, Goldman’s chairman of investment banking. One of its directors is former Goldman President John Thornton].

When the American state has interests it declares at odds with those of the Chinese state in a number of areas, for example in Africa (where Goldman has a 20% stake in Africa’s largest bank, Standard Bank); when servicemen and women are fighting and dying, ostensibly to protect those interests; when we are threatening other countries with bombing in defense of those interests; shouldn’t the appearance of foreign entities influencing the Treasury Secretary and Federal Reserve policy be treated seriously and transparently?

3) If Goldman went down, ICBC would be severely hit. And so would ICBC’s clients and other investors in ICBC. But it looks like Mr. Paulson would take a big loss too. According to press reports, Mr. Paulson netted a stake reported to be $25 million in the ICBC deal, a stake he and Goldman, as well as investors in Goldman’s private equity funds, are prohibited from selling for three years. A hit to Goldman would hit ICBC (and who knows what else). And a hit to ICBC would hit Paulson’s pocket.

Did Mr. Paulson sell this ICBC stake before he took office or didn’t he? It would be in the national interest to require him to make a public disclosure before this bill is passed.

And then he should resign.

Three- Card Capitalists – The Financial Disappearing Act of 2008

Posted on by

Read my latest piece at Lew Rockwell.com.

Update:

This piece, at first linked on several sites, has suffered censorship, both in the search engines and on reddit (see this link:

http://www.reddit.com/r/politics/comments/74pgc/threecard_capitalists_the_financial_disappearing/?sort=old)

If you think it’s information worth spreading, please take the time and link and post widely, making sure nothing is altered. People need to know what is happening.

“Treasury Secretary Paulson’s Financial Disappearing Act of 2008 is a charade. Lawmakers who dug in and blocked this act of economic treason deserve applause.

The Orwellian name of the legislation itself should have frozen every American citizen in his tracks.
The economy is not about to implode and if it were, it’s doubtful if government would do it anything but harm.

The financial markets are in a crisis of confidence because the US government is debasing its currency and stiffing its creditors. Uncle Sam is a deadbeat and the world knows it. The world is worrying what to do about the useless paper it’s holding. That’s what the panic is about.

It’s a strange day when Barry Goldwater and the Chinese Communists are in agreement ….

And they are both right….”

Trying to get this out before the vote tonight, I missed spotting this  juicy bit: The Hankster was going to use tax money to bail out foreign investors, as well. No, you heard that right. Not banks HQ’d in the US. But foreign investors who can move their assets from the foreign branch to the US branch. Read more at Mish Shedlock.

Off-the Record: Treasury Caught In Private Conference Call with Analysts…

Posted on by

Here’s something to boggle the mind – Treasury giving financial analysts a private preview of the Paulson deal before the rest of us rubes. What did they do, give them a sell recommendation on the US? That’s what’s wrong in these circles. Everything is done off the record or off-book. Re off-book, check out this post on how Lehman stashed its bad assets off-book in entities it spun off, so they could look good for analysts….

Conference Call (Sept. 28) :

8:54: Okay, someone please please dial in because the hold music sounds so damn familiar but I can’t figure out what it is and it is killing me.

9:00: I’m still on hold

9:02: Yes, Stairway to Heaven! And still holding

9:04 Michael Peace (?) takes the mic “this is very positive…we’ve worked hard with congress…it’ll be good…Neil from the treasury will go over how the warrants works and exec comp”

9:05 Broad discretion for the treasury

9:06 Neil takes the mic
You might’ve heard the headline number: seeking 700 bn. for residential and commercial assets. (yes, we’re aware). “we sought broad authority and flexibility”

– They might use the authority for “other instruments”

– Let us be clear: “targeted at financial system NOT failing institutions, though there are some institutions in that system that are, you know, failing.”
9:08: Any institution that has a “meaningful presence in the US” should be allowed to participate. Congress said they wanted: oversight, tax payer protection. OUR highest priority: “making sure it works”…it needs to attract companies to participate…warrants, exec comp were highly negotiated…we think we have enough flexibility to have a system that works.

Read the rest (and weep) at Naked Capitalism.

House Defeats Bail-Out Bill (updated Sept.30)

Posted on by

“WASHINGTON – The House on Monday defeated a $700 billion emergency rescue for the nation’s financial system, ignoring urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive into recession without it.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.”

More on this at MSN.

And here’s what happened in the stock market – biggest one day drop in the Dow since 9/11

With the prospect of more to come.

 

NOW HANK PAULSON SHOULD STEP DOWN

Comment:

Comment: (Sept. 30)

Regulation to ban short-selling or to expand home ownership have high moral reasons attached to them. But invariably, when you dig under the rhetoric, you find the economic or political self-interest pushing it: financial sectors want special protection from market forces….or banks want to sell mortgage loans.

It’s a conundrum called “Baptists and Bootleggers.”
Baptist preachers want liquor banned for moral reasons, but a ban only pushes liquor underground. Bootleggers begin to operate. The bootleggers are only too happy to support the preachers….. for altogether selfish, commercial reasons – the wider a ban on selling liquor, the less competition for them. Eventually, you end up with a monopoly. That’s why in the corporate-state we have more and more consolidation in every area – media conglomerates, publishing giants, giant agribusinesses – that have driven smaller operators out of the field. The big players are inevitably the supporters of “more regulation” and “more government” – because they know they can strengthen their hold on the marketplace even more. Confused voters blame big business (correctly) and politicians (correctly), identify the problem as the free market (wrongly), and demand more regulation (wrongly –  actually, let me modify that. I am all for anti-trust and strong criminal prosecutions of financial crimes; but that’s to keep the ground-rules fair. Regulation to achieve substantive ends I think is generally counterproductive or causes unintended harm that usually outweighs the intended good).

The Fed, Bear, and JPMorgan – Maiden Lane LLC

Posted on by

From the FDIC website here’s Federal Reserve Statistical Release H 4.1 that includes information on Maiden Lane LLC, the holding company that was the conduit for the acquisition of Bear Stearns by JP Morgan and for the management of its assets.

For Release at
4:30 P.M. Eastern time
July 3, 2008

The Board’s H.4.1 statistical release, “Factors Affecting Reserve Balances
of Depository Institutions and Condition Statement of Federal Reserve Banks,”
has been modified to include information related to Maiden Lane LLC, a
limited liability company formed to facilitate the arrangements associated
with JPMorgan Chase Co.’s acquisition of Bear Stearns Companies, Inc.

On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit
to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve
Act. This limited liability company was formed to acquire certain assets of
Bear Stearns and to manage those assets through time to maximize repayment of
the credit extended and to minimize disruption to financial markets. Payments
by Maiden Lane LLC from the proceeds of the net portfolio holdings will be
made in the following order: operating expenses of the LLC, principal due to
the FRBNY, interest due to the FRBNY, principal due to JPMorgan Chase Co.,
and interest due to JPMorgan Chase Co. Any remaining funds will be paid to
the FRBNY….”

More here.

JPMorgan Chase Gives Lehman Mouth-to-Mouth

Posted on by

This could be kosher but a correspondent who sent this to me suggests otherwise:

JPMorgan Gave Lehman $138 Billion After Bankruptcy (Update3)
By Tiffany Kary and Chris Scinta

Sept. 16 (Bloomberg) — JPMorgan Chase & Co. gave $138 billion this week in Federal Reserve-backed advances to the broker dealer unit of Lehman Brothers Holdings Inc. to settle Lehman trades and keep financial markets stable amid the biggest bankruptcy in history, according to a court filing.

One advance of $87 billion was made on Sept. 15 after the pre-dawn bankruptcy filing, and another of $51 billion was made today, Lehman said in court documents. Both advances were made to settle securities transactions with customers of Lehman and its clearance parties, according to the filing.

The advances were necessary “to avoid a disruption of the financial markets,” Lehman said in the filing.

The first advance was repaid by the Federal Reserve Bank of New York on the night of Sept. 15, Lehman said. JPMorgan said in a statement that the $51 billion advance was also repaid and the process will zero out the advances at the end of each day.

U.S. Bankruptcy Judge James Peck in Manhattan approved an order confirming that advances JPMorgan is providing are covered by existing collateral agreements with Lehman and its affiliates. JPMorgan holds about $17 billion in collateral to secure the money it advances to clear the trades, Lehman attorney Richard Krasnow said.

`Comfort Order’

“I believe the comfort order for the benefit of JPMorgan Chase under these clearance agreements, while unusual in my experience, is entirely appropriate,” Peck said. There were no objections to the request.”

More here. 

The Paulson Put(sch): Questions for Hank Paulson

Posted on by

The Paulson Put(sch)

Questions for the new CEO of US Government Inc.

[Last Wednesday, Hank Paulson was installed as CEO of US Government Incorporated, replacing the now defunct United States of America].

Charles Krauthammer wrapped up an astounding week in American history with a hosanna to Ben Bernanke and Hank Paulson. The best possible team to have on your side in a financial crisis bigger than any since the 1930s, says he. Bernanke, because he is an economic historian specializing in the Great Depression. And Paulson because he knows everyone in the banking industry and is the perfect person for arm-twisting and deal-making. Financiers aren’t all bad, sniffs Krauthammer. There were all those greedy realtors and home-owners too.

Yes, Charles, we do see that greed is a many-splendored thing, visiting the poor and rich alike. But on a mundane level, the yearning of the cleaning lady who gets herself in over her head with a home loan she can’t pay is not the same sort of public hazard as the cosmic larceny of financiers who’ve skipped out with hundreds of millions from companies they’ve skinned like pole cats…

Read the rest of my latest piece on Paulson’s power grab at Lew Rockwell. You can find other articles of mine on the old archive of Dissident Voice. I will (eventually) get my pieces onto this site in a more approachable way, but being bloggitudinally challenged, that may take a while.