The Global Rat Race

[pywong]

See the big picture:



How humanity is trapped as debt slaves.



We are now starting to see how fear and greed of the Financial Class is coming out in the open in the US and how they are now forcing the Ruling Class to bail them out at the expense of the taxpayers.

The Financial Crisis is drawing to an end. A proper resolution is for the banks to go bankrupt and for the US Govt to pick up the pieces by re-capitalising them. But the bankers don't want that because it will mean bankruptcy for many of them. So, they get the US Treasury Secretary, Henry Paulson to come up with a ridiculous bailout plan that will cost the taxpayers at least USD 800 billion for starters. And that is for starters. The final bill will go into trillions because no one really knows how much losses are really involved. So the banks try to unload the financial derivatives onto the US Govt.

This is the bailout plan - Emergency Economic Stabilization - http://www.jsmineset.com/cwsimages/M...enate10108.pdf. Paulson and Bernarke, the US Federal Reserve Chairman, is trying to stampede the Govt into accepting the plan by declaring that the alternative is a financial melt-down. The US Senate has just passed a modified version of it that will cost USD 811 billion. Congress is due to meet and decide whether to pass it or not.

The Germans do not agree with this approach. They prefer to let the banks go bust.
http://www.forexyard.com/reuters/pop...AL-EU-WRAPUP-3

What are the implications for Malaysians?

1. The debt is too big for even the US Govt to sustain. There is no way they can pay. So they have to default or they print money to pay. Whichever way it turns out, the USD will crash by at least 40 to 50%. This is already reflected in the implied price of silver bullion.
2. Bank Negara Malaysia holds at least USD 70 billion of US assets, using the global average holding of USD of 63.3%. We can expect that to drop by half. Effectively, our RM will devalue by 1/3.

What should we do to protect ourselves?
1. If we are salary workers, we are stuck.
2. If we have cash in the bank, it will be wise to get it out fast before the banks crash. If you think that cannot happen, follow this link:
http://www.nytimes.com/2008/10/02/wo...in&oref=slogin
Get your cash out and convert it to gold. It is available from UOB and Maybank.

So, don't be a victim.

[pywong]

This article tries to explain the financial crisis from a political viewpoint.
http://www.stratfor.com/weekly/20080...conomic_crisis

But if we were to look back a few years to Sept 11, 2001, the seeds for today's crisis were already laid. Subsequent to the hijacked planes crashing into the World Trade Centre in New York, the Dept of Homeland Security was set up. Increasingly, power is concentrated in the hands of the Executive in readiness of mass disorder. The bailout plan is an attempt to have even more power being placed in the hands of the President and his cronies. When the masses wake up, there will be riots on the streets. That is when the Dept of Homeland Security will come into their own. Quietly, an army unit has been mobilised to operate in the US itself - to defend the Ruling Class from the Rats.

[pywong]

To browse through 451 pages of the Bailout Document is no fun. Here are some titbits that will help to make it more digestible.

...................

From the Daily Reckoning

The fix is in!

Well...the hacks came through, just like Churchill said they would. At least the hacks in the U.S. Senate. The Senate voted last night to burden the entire nation with Wall Street’s mistakes. Only a handful of Senators dared oppose the measure, among them Bernie Sanders, a socialist from Vermont:

“The masters of the universe, those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse,” Sanders said, and are demanding that the middle class “pick up the pieces that they broke.”

Sanders must be delighted by the collapse of investment banking. But he says the way they’re going about imposing socialism is unfair to the proletariat. Oh well...you just can’t please everyone!

Over in the House, the hacks are taking up the measure today. They’re sure to want a few more lights on this tree – tax breaks for their big contributors, bridges, schools...an increase in Congressional salaries – but with the media looking so closely, they’ll probably go along with the Senate and pass the thing without further reflection. We say ‘further’ in the spirit of mischief. The whole project has been taken up with remarkably little real reflection of any kind. But we’ll come back to this in a minute...for the moment, the sky is falling...and the whole world turns its weary eyes on the U.S. House of Representatives for protection.

For example, a big chunk of blue hit the auto industry yesterday. Sales were down to levels not seen since 1993. Even the fuel-efficient Japanese models weren’t selling in September; sales at Toyota were down 32%. And those nice F-Series trucks – the most popular vehicles made by Ford – fell 42%. We used to own one. A nice dark-green pickup. We drove it to work. We drove it on vacations. It was roomy, comfortable...even fun to drive. It used a lot of fuel, but back in the early ’90s, gasoline was so cheap, we never thought about it.

But that was then...this is now. Back then, Ford and GM were still going concerns. Now they’re going out of business. Ford’s stock has only $4.55 cents left to go...and there will be nothing left. GM has $9.45 between it and zero.

“Pass this legislation,” said a GM official. It’s the only way to break the “psychological cycle” that keeps people from buying cars and trucks, he believes.

So you see, dear reader, we are back to the ’30s...and we have nothing to fear but fear itself. It’s all in our minds! If people weren’t so ‘negative,’ they’d be more positive. And then, they’d start to buy things again and everything would be all right.

It’s all in our imaginations! We don’t really owe too much money. We didn’t really spend too much money. And those nifty CDOs, MBSs, CDSs...Lehman...Bear Stearns...Fannie, Freddie...Northern Rock – they’re all okay after all.

But bits of sky keep coming down.

Copper has collapsed. So has shipping. Both are telling us that they world’s economy is slowing down. Housing prices are falling faster. Job cuts are accelerating. Local governments are getting hit by lower revenues – they’re having to cut back. Households are cutting back too. Wal-Mart says it’s cutting prices for Christmas toys. Newspapers and magazines are cutting pages.

The sky is falling and anyone with any sense is running for cover...and protecting their portfolio at the same time. The meltdown is far from over, but you can still turn some nice profits...you just need to know where to look. Find all the resources your need to thrive in our Strategic Financial Library .

That leaves the politicians and the bureaucrats – right out in the open.

According to the theory – and here we flatter it, for there is no theory ...just wishful thinking – the feds are keeping their heads while everyone else is panicking. The Wall Street boys now say prices for their assets “make no sense.” They say Mr. Market has lost his nerve. That is how stalwart government employees are now supposed to be able to buy up Wall Street products at such large discounts they’re almost sure to make a profit.

It’s the fatal conceit...explained Friedrich Hayek in the ’30s...that somehow public employees are immune to the blandishments of power, money and the madness of crowds...that they alone are above it all, like a politician who is too rich to steal and too dumb to lie, or like a bureaucrat who can’t be bought, because he is priceless, and can’t be outwitted, because he is witless.

It ain’t necessarily so. (More below...)

But that is the way it goes. Humanity makes progress in science and technology. In politics, love and banking it merely rehearses the same dramas, tragedies and farces – over and over, forever and ever, amen.

*** Addison and Short Fuse report that today is the day they will be sending a copy of companion book to I.O.U.S.A. to every member of Congress. Many of our dear readers wrote in with...well, not necessarily words of encouragement. Turns out most think that the members of Congress (with a few notable exceptions – see today’s guest essay) don’t read anything at all. And to further prove that point, we got this note from Dan Denning, from the helm of the DR Australia:

“I’m sure you’ve all had a chance to go through the bill the Senate passed last night 74-25. You can find it here .

“Of course, a spending Bill cannot originate in the Senate because as we know, Article 1, Section Seven of that useless piece of paper (the Constitution) says: ‘All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.’

“So the Senate lobotomized a Bill already passed by the House, which included, among other ridiculous spending provisions, Section 503 (EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN.)

“According to Bloomberg : ‘Senators attached a provision repealing a 39-cent excise tax on wooden arrows designed for children to an historic $700 billion bank rescue that is likely to pass tonight. The provision, originally proposed by Oregon senators Ron Wyden and Gordon Smith, will save manufacturers such as Rose City Archery in Myrtle Point, Oregon, about $200,000 a year.’

“Funny.

“But...there are some other portions of the Bill that look surprisingly bold, perhaps even illegal. I wonder.

“First, the totally legal but absurd increase in the statutory limit on the public debt, from Section 122: Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting ‘$11,315,000,000,000’.

“Seriously.

“Thank god for statutory law. If you don’t like it, you can just change it.

“Other sections you might want to have a gander at include section 115, detailing the Secretary’s ‘Graduated Authority to Purchase.’ Passage of the bill gives him $250b to play with. Then, if the President requests it and Congress approves, he can request as much as $350b. After that, it’s $700bn, again subject to a request by the President and approval by the Congress.

“Please note, however, that $700bn is not the ceiling on the Plan. The language says $700bn is the most the President and the Secretary can request...at any one time.

“So this is bailout by installments. But $700bn is not the end. It is just the beginning, provided Congress signs off.

“And the rest of the section makes it hard for them to not sign off by severely limiting debate on the requests submitted by the President. You don’t often see Congress agree on rules for floor behaviour in the House and the Senate in a Bill. The rules committee does that in the House and the Senate sort of makes it up as it goes along.

“But this bill specifies the entire process by which a request from the President (Bush or Obama) MUST be handled by the House and the Senate. No motions to reconsider. No debate.

“And Congress is even trying to cut out judicial review. That’s in Section 119.

“It starts out promisingly enough by saying that ‘Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code, including chapter 7 of title 5, United States Code, that such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.of discretion, or not in accordance with law.’

“But what is law anyway?

“Either way, Congress is severely limiting the circumstances under which the Treasury can be challenged. Is that legal? Just asking...not that it matters anymore.”

*** American Empire – so long, we hardly knew you. But good riddance! We liked the old Republic much better.

Yes, our French editor told us yesterday that she is re-releasing our instant classic – Empire of Debt .

“You were right on target with that one,” said she.

Yesterday’s BBC report told us that the United States was losing its place in the world:

“The financial crisis is likely to diminish the status of the United States as the world’s only superpower.

“On the practical level, the US is already stretched militarily, in Afghanistan and Iraq, and is now stretched financially. On the philosophical level, it will be harder for it to argue in favour of its free market ideas, if its own markets have collapsed.

“The political philosopher John Gray, who recently retired as a professor at the London School of Economics, wrote in the London paper The Observer : ‘Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably.

“‘The era of American global leadership, reaching back to the Second World War, is over... The American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated.’

“In a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed.

“How symbolic that Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees.”

Of course, not everyone agrees. The BBC reporter put the question to former UN ambassador John Bolton....

He replied: “If Professor Gray believes this, can he assure us that he is selling his US assets short? If so, where is he placing his money instead? And if he has no US assets, why should we be paying any attention to him?”

Herewith, we give a short list of people who had no U.S. assets, but whom readers might want to listen to: Jesus Christ, Adam Smith, Emmanuel Kant, Marcus Aurelius, William Shakespeare, etc., etc... As to the question of what one should do with his money after selling the U.S. short, Mr. Bolton, similarly mistakes patriotism for thought. It’s a big world. And there are a lot of places you might want to put your money, where it is beyond the reach of U.S. asset prices – including the most obvious one, gold.

Until tomorrow,

Bill Bonner
The Daily Reckoning

[pywong]

At least one member of the U.S. House of Representatives is keeping his wits about him, our old friend Ron Paul. Read on...

THE AUSTRIAN SCHOOL AND THE MELTDOWN
by Dr. Ron Paul

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

[On September 25] the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over – not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects – the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

[pywong]

Those who are interested to read how this thread was developed over the past 6 months can read here:

http://www.usj.com.my/bulletin/uploa...ad.php?t=22392

To have an understanding of the Rat Race, read here:
The Rat Race Part I: http://www.usj.com.my/bulletin/uploa...ad.php?t=22431

The Rat Race Part II - The System: http://www.usj.com.my/bulletin/uploa...ad.php?t=22444

The Rat Race Part IIIA - How The System Works: http://www.usj.com.my/bulletin/upload/showthread.php?t=22474

The Rat Race Part IIIB - The Circle: http://www.usj.com.my/bulletin/uploa...ad.php?t=22580

The Rat Race Part IV - The Pyramid: http://www.usj.com.my/bulletin/uploa...ad.php?t=22660

The Rat Race Part V Ch 1 & 2 - The Malaysian Rat Race: http://www.usj.com.my/bulletin/upload/showthread.php?t=22866

The Rat Race Part V – Ch. 3: A Rat’s Look At Malayan History: http://www.usj.com.my/bulletin/uploa...ad.php?t=23079

Once we have got the website running properly, the Rat Race series will be organised under one central section for ease of reference. After which, we will present

Part V - Ch 4: How UMNO Did It, and

Part VI - How To Get Out Of The Rat Race

[pywong]

A real-life example of the Conspiracy as seen through the Fannie Mae and Freddie Mac saga:

.........

Freddie and Fannie Become Penny Stocks
An Analysis by Catherine Austin Fitts

Originally published in our Blog in seven parts

Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died
- Leonard Cohen

Part I

Overwhelming American communities with mortgage, auto and credit card debt as we shift manufacturing and research capacity, jobs and approximately $10 trillion of capital offshore-much of it by illegal means-has been the US economic strategy since 1996.

This was a strategy that depended on massive government spending and market intervention. It was intentionally designed to leave us where we are now. There clearly is a plan. I am not privy too it. However, what is happening is not an accident. The people who run the world are plenty smart. Originating a great deal more debt than anyone could carry, let alone pay back always ends in failure and bankruptcy of someone or something. So Fannie and Freddie's failure or nationalization was always in the cards - it was a matter of when.

If your goal is total centralized control, this is a great way to achieve it. Between Freddie, Fannie, Ginnie Mae, FHA, VA and the Federal Home Loan Bank Board, the federal government no longer regulates or provides credit to the residential mortgage market - it is the market.

Combined with the digitization of the mortgage credit scoring, origination and servicing process, the implications for privacy and personal freedom are simply stupefying. And the best part is that this can be described as the government "helping."

I have described the fundamental US strategy on numerous occasions over the years. It was my misfortune to try to propose an alternative strategy. When that made me a target of a legal and economic "hit," I attempted to warn people of the dangers. Those who heeded those warnings avoided direct harm from the burst in the housing bubble, including the drop in Freddie and Fannie shares to penny stocks. While living with the horror and grief of realizing that most would not heed those warnings, I concluded that we were experiencing a financial coup d'etat.

Here is a sample of pieces that I have written which describe the intentional lack of sustainability in the US mortgage market and economy: The Story of Edgewood Technology Services (Oct 1999)

* The Hamilton Litigation (Dec 1999)
* The Myth of the Rule of Law (Nov 2001)
* Personal Experience with FHA-HUD (June 2003)
* America's Black Budget and Manipulation of Mortgage and Financial Markets (May 2004)
* Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits (April 2006)
* The Housing and Economic Recovery Act of 2008 (Aug 200
* The Stanley Sporkin Hotseat
* The Missing Money (2000)

Here are two pieces that also describe my personal process:

* Where is the Collateral? (Oct 2003)
* So, Where is the Collateral (July 2004)

I describe the history of governmental mortgage fraud in Part I of Solari Audio Seminar Navigate the Housing Bubble. If you are interested in the deeper story, I recommend this one.

Part II

[fanmaefrontsign] Who were the lobbyists on Fannie Mae and Freddie Mac's payroll? Who were the politicians who enjoyed their financial support? Here is where you can learn more:

Freddie's and Fannie's Favors By Matthew Lewis - The Center for Public Integrity (15 Jul 200

Powerful Voices on Hill Are Abruptly Muffled By Jessica Holzer & Damian Paletta - Wall Street Journal (10 Sep 200

Fannie Mae - OpenSecrets.org

Freddie Mac - OpenSecrets.org

The bailout will have a significant impact on the law firms that have business relationships with Freddie and Fannie.

Local Businesses Assess Fannie Mae, Freddie Mac Fallout By Bryant Ruiz Switzky - Baltimore Business Journal (9 Sep 200

[fredmacfrontsign] Legal Times and the Wall Street Journal Law Blog report there were plenty of law firms in on the bailout:

Fannie/Freddie Bailout Pulled in Dozens of Lawyers The BLT: The Blog of LegalTimes (8 Sep 200

Fannie & Freddie: The Legal Edition By Dan Slater - Wall Street Journal (8 Sep 200

They include:

* Cleary Gottlieb Steen & Hamilton represented Morgan Stanley, which advised the Treasury Department on the bailout.
* Wachtell, Lipton, Rosen & Katz advised the Treasury Department.
* Covington & Burling and Davis Polk were outside counsel for Freddie Mac, report the BLT and the Wall Street Journal Law Blog.
* Cravath, Swaine & Moore and Sullivan & Cromwell were outside counsel to Fannie Mae and its board, the BLT and Law Blog report.

Advising Freddie’s independent directors were Cahill Gordon’s Bart Friedman, Jonathan Mark, David Kelley and Charles Gilman. For more on Bart Friedman, who in the past represented Dillon Read, Hamilton Securities Group and Cornell Corrections, see Dillon Read & the Aristocracy of Stock Profits.

Advising the Federal Housing Finance Agency were Arnold & Porter’s A. Patrick Doyle, Richard Alexander, Michael Mierzewski, Brian McCormally and John Hawke.

For more on John Hawke, see Dillon Read & the Aristocracy of Stock Profits and Mortgage Bubble Names and Faces.

Also see:

* Fannie Mae, Freddie Mac Takeover Costs Congressmen Who Were Invested By Lindsay Renick Mayer - OpenSecrets.org (10 Sep 200
* Update: Fannie Mae and Freddie Mac Invest in Lawmakers By Lindsay Renick Mayer - OpenSecrets.org (11 Sep 200

Part III

On July 23, when I and my Community Business segment were spiked from KPFA radio, Fannie Mae stock was trading at $15 and Freddie Mac stock was trading at $10.80, having both dropped from highs in the $60's earlier this year. Fannie and Freddie at the time were both government sponsored enterprises.

In the segment that was scheduled on July 23, KPFA was going to use my new audio seminar, Positioning Your Assets for Growth in Uncertain Times for its fundraising. In our preparation, Dennis Bernstein had specifically asked me to address what was happening with Fannie Mae and Freddie Mac and the Congressional debate on the Housing and Economic Recovery Act of 2008.

The Positioning Your Assets audio seminar has a sample before and after portfolio. In the "before" portfolio, I show a portfolio that is invested in the "bubble economy" with significant investments in mortgage government sponsored enterprises. The "after" portfolio has no investments in mortgage government sponsored enterprises and represents an effort to shift out of unsustainable enterprises into investments in the "real economy" that are not dependent on federal government support.

When I was finally allowed back on KPFA radio on September 8th, Fannie Mae stock was trading at $0.73 and Freddie Mac was trading at $0.88.

Hence, from July 23 to September 8th, Fannie Mae and Freddie Mac common stock shareholders lost $15.3 billion and $6.4 billion, respectively. This includes CalPers, the largest California pension fund which held 4.2 million shares of of Fannie Mae and 3.9 million shares of Freddie Mac, losing approximately $100 million during this period. The California Teachers Retirement System does not publish their holdings. However, their losses on Fannie Mae and Freddie Mac's failure were also likely to be significant.

During this period, Fannie Mae and Freddie Mac were far from the only "bubble" economy or "real economy" investments to fall in value. Indeed, we are in a deflationary credit crunch, with many assets and investments falling in value. However, very few fell more than 90% in that six + week period—just the ones that I was being asked to talk about.

In the last 12 months, common stockholders have lost $100+ billion on Fannie Mae and Freddie Mac stock. Regional and small banks have also lost additional amounts on Fannie Mae and Freddie Mac preferred stock. It does make you wonder what smart money got out of these stocks while the uninformed money stayed invested.

If you think a free press is expensive to fund and maintain, count up the costs to you, your assets and your retirement savings of trying to live without one.

Part IV

Whether you want to attribute the Federal Reserve and US Treasury's success to the deflationary effects of globalization and new technology or the miracles of advanced weaponry, you must admit it is pretty amazing. The worse we behave, the lower our cost of capital.

[30yrt]

This situation presents extraordinary governance and management challenges. As supply and demand stop serving as a healthy feedback mechanism to encourage people and enterprises to behave in productive ways, entire industries and communities embrace politics and bad behavior.

I experienced this problem in a small way when I served as Assistant Secretary of Housing—FHA Commissioner. At the time, the Federal Housing Administration (FHA) was originating $5—10 billion a year of multifamily mortgage insurance offered at insurance premiums that were well below market. Consequently, FHA had $25 billion of demand for the multifamily mortgage insurance product. How to allocate $5 billion?

One method would have been to create clear criteria and allocate the mortgage insurance on an open, competitive basis. That, of course, was not politically feasible in America.

The solution was gridlock. Let $25 billion of applications pile into various processes that take foreover and mysteriously go in circles. Terrorize the bureaucrats so they do not dare process anything. Then send in the right lawyers and other fixers to engineer the applications through that are politically desirable.

This is a type of productivity challenge that has continually plagued centralized systems throughout history.

It is, however, the basis of rich fees for Washington law firms and lobbyists.

Part V

[dmudd] The financial press this morning reports that Daniel Mudd, the retiring CEO of Fannie Mae, is leaving with a severance package of approximately $9.2 million. Richard Syron, the retiring CEO of Freddie Mac, is leaving with a severance package of approximately $14.9 million.

[rsyron2] It would appear that the federal government intends to honor these contracts.

In these situations, observing when the federal government honors its contracts and when it does not often provides a clue to the deeper story.

For example, my company, Hamilton Securities Group, had a contract that the federal government canceled for convenience in 1997. At that time, the federal government owed us $2.1 million. Rather than honor their debts, they claimed the common law right to assert an "offset."

The offset that they claimed was a theoretical opportunity cost. We might have made another $3 million in profits on two auctions that made several hundred millions in profit in a series of mortgage auctions that made $2.2 billion for the Federal Housing Administration. The auction recovery performances were significantly higher than what they achieved before they hired us and what they got after they fired us and canceled the auctions.

Sure enough, we were right that the government had to honor its contract. But it took seven years for a judge in the U.S. Court of Claims to remind the government that was so, and nine years to get paid. At that point, all the monies went to the lawyers and administrative costs of proving the point.

The Department of Justice was perfectly happy to argue their rights to assert common law right of offsets to abrogate government contractual obligations in court, year in and year out. They spent a great deal of time and money doing so -- all about an issue for which the government's own expert says there was no money lost.

This was not my first experience with the federal government abrogating contracts. Indeed, I had named my company after Alexander Hamilton, the first Secretary of the Treasury, known for his successful efforts to ensure that the federal government kept its word on financial matters. When I was Assistant Secretary in the first Bush Administration, my staff often referred to him as I spent day in, day out, doing everything I could to stop senior political officials from abrogating contracts because it with get us a great headline as being tough on financial fraud. We had programs marked by fraud that also involved honest companies and legitimate transactions. It was politically expedient to cancel things across the board, rather than take responsibility and clean up the real fraud.

I remember sitting in a meeting at HUD when the coinsurance program was being canceled. One senior official expressed concern when the general counsel suggested that we abrogate our contracts to companies that were performing well. His point was that the agency had legally valid and binding contracts with these companies. The general counsel said something like, "F*ck 'em. Let 'em sue us. By the time they win in court, we will be gone."

So if Mudd and Syron are being allowed to keep their severance packages while thousands, if not millions, of Americans are losing their jobs and their homes, there is a reason. Given that Fannie Mae and Freddie Mac have now cost shareholders $100 billion, bankrupted households and communities through the country, terrorized investors globally and stuck the U.S. government with responsibility for $5.4 trillion in debt, you would think there would be a basis for a few offsets against severance agreement payouts.

Or...perhaps Mudd and Syron are being paid for a job well done, which would include remaining silent about what exactly that job really was.

Part VI

Oh, boy. The Solari network does it again.

It turns out that David Hisey, the Chief Financial Officer of Fannie Mae appointed on August 27, 2008 after the government takeover, once worked at KPMG. And who were they? They were the auditors for HUD and FHA under Andrew Cuomo when the housing bubble got going and $59 billion plus went missing from the agency. (See our Missing Money page for more.)

So here is the latest tidbit in from a network member. Hisey was an audit partner and worked on the HUD/FHA audit account at KPMG during all the shenanigans. Remember, just because Fannie Mae is in conservatorship does not mean that more assets can not disappear.

Thanks, Solari network member. Good catch!

Part VII

Dodge & Cox is one of the most respected mutual funds managers in the country.

As of March 31, 2008, Dodge & Cox’s filings with the U.S. Securities & Exchange Commission indicate that their combined funds held 12,058,212 shares of Fannie Mae. On that day, Fannie Mae’s stock closed at $26.32, for a total position value of $317.4MM. By August 8th, Dodge & Cox held 119,814,881 shares of Fannie Mae, or 12.2% of the outstanding shares. Closing that day at $9.05 a share, their total position was valued at $1.1BB.

Dodge & Cox Discloses 12.2% Stake in Fannie Mae (FNM)

Today, Fannie Mae’s stock closed at $0.43. Assuming Dodge & Cox has not disposed of the shares, they have lost over $1BB investing in Fannie Mae, most of it on shares purchased in the last six months. After Fannie Mae was moved into government conservatorship, Dodge and Cox issued the following statement:

Dodge & Cox: Commentary Regarding U.S. Government Takeover of Fannie Mae

Here is my interpretation of what happened.

Fannie Mae and Freddie Mac essentially had a monopoly position in securitizing mortgages originated in the U.S. In addition, they had special benefits by reason of their position as government sponsored enterprises. Finally, they had a line of credit at the US Treasury and implied access (now realized) to the U.S. credit, assuring broad, low cost access to capital globally.

Given those facts, it was reasonable for Dodge & Cox to assume that buying into Fannie Mae after it had dropped more than 50% from its year high of $68.60 was a good bet. The business model was one that would appear to be as good as the U.S. Treasury. The company had the market share, the product pricing power and the access to capital to manage its way through a serious housing recession, even depression.

Unless, however, deep within its portfolio and the mortgage system there was significant criminal fraud – mortgages issued fraudulently, collateral fraud resulting in non-existent or double counted mortgages, and complex derivatives piled on top of that fraud, meaning even more fraud.

Now if you and I were to stop for a cup of coffee at any truck stop in America and for some reason the truckers felt like speaking openly, they would know how bad the fraud was. They would not know the details - they would know the gist of it. As would people close to the situation in communities throughout the country.

For seven years, I as the former Assistant Secretary of Housing and former lead financial advisor to the Federal Housing Administration had spoken and appeared on the radio in the San Francisco Bay area where Dodge & Cox is based, describing systemic criminal fraud in the U.S. mortgage system. My website and writings, supported by extensive documentation, have been widely published and disseminated throughout the Internet.

Yes, somehow, what is obvious to anyone who drives around communities and can add up the numbers on the ground could not be heard or computed by Dodge & Cox. In theory, it is possible that someone put a gun to their head and they bought the shares because they had no choice. However, it is more likely that they simply could not fathom that the corruption and the criminality in the US mortgage system is as deep and serious as it is. Even if they were aware of what I was saying and writing, they could not fathom that what I was saying was true. How could it have gotten that bad without their knowing? If it were that bad, why were more people not saying something? If it were true, the criminality was deeply institutionalized. It was widespread and went to the very top.

When Fannie Mae was taken over by the U.S. government, Dodge & Cox was given a deeply shocking message. There was indeed a deeper rot in the system. Given Fannie Mae’s size and role, what is true for Fannie Mae is true for the whole financial system. Systemic criminality at Fannie Mae can only exist with the complicity of the U.S. Treasury, the Federal Reserve banks and the leading law firms, banks and investment banks.

This realization is the crack in the dam. It begins the shift of a paradigm. Suddenly those responsible for managing trillions of dollars in an economy propped up by a matrix of lies are faced with the urgency of managing a significant shift.

Assets are shifting out of activities which drain real wealth, such as complex financial assets, like derivatives layered on top of fraudulent mortgage pools dependent on mortgage payments from people with falling incomes. They are shifting into basic goods and services that create real wealth, like high speed railroads and solar panels that help lower expenses and make us more efficient, and promises to pay by organizations that have a history of honest collateral arrangements, sound fundamental economics and keeping their promises, or, alas, a powerful military.

Whatever the specifics of this week's stock market meltdown, it is important to understand that it is just the beginning.

[pywong]

Catharine Austin Fitt's personal experience with the Conspiracy as told in her book:

Dillon Read & Co, Ltd and The Aristocracy of Stock Profits

http://www.dunwalke.com/

What it means simply is that if you are an investor in the US stock market, it is as easy as shooting fish in a barrel. Except that you are the fish.

[pywong]

Under the Paulson Bailout Scheme, it looks like the US Govt has to pay interest to the banks to bail out the banks.

..................

BAILOUT BEDLAM: ROBBING THE TAXPAYERS TO SAVE THE BANKS

Ellen Hodgson Brown, J.D. October 2, 2008

“Doesn’t this seem like lunacy to you? The consequences of it are unbelievably bad in terms of public intrusion into the private sector. Is anybody thinking there? It’s too late, it’s not going to make any difference, and it’s aggravating as hell when there’s a better idea and you can't even get it in play.”

– Former Treasury Secretary John O’Neill in an October 1 interview with Bloomberg on the bank bailout plan

The bank bailout bill that just passed the Senate and is being deliberated in the House would turn the banks’ worst assets into good U.S. dollars. How many dollars? The figure was $700 billion a few days ago and has already climbed to $800 billion after the pork was added in. That’s nearly the cost of two Iraq wars, but it still won’t be enough, because the covered instruments eligible for conversion include the black hole of derivatives. Derivatives held by U.S. banks are now estimated at $180 trillion. How will the Treasury acquire the dollars to buy all these disastrously bad bank assets? The taxpayers are all taxed up and don’t have $800 billion to spare. The money will no doubt come from an issue of U.S. securities, or debt; but who will lend to a nation that already has the highest federal debt in the world, one that is growing exponentially? The likely answer is the Federal Reserve, the bankers’ bank that acts as “lender of last resort” when there are no other takers. The Federal Reserve is a private banking corporation owned by its member banks. The Fed returns the interest on the bonds it “monetizes” to the government, but only after deducting its operating costs and a 6% guaranteed return for each of its many bank shareholders.1 The upshot is that we the people will be paying interest to the banks to bail out the banks from their own follies!

Why the Rush?

There must be a better way to unfreeze the credit system; but as former Treasury Secretary O’Neill observes, no other alternatives are on the table. Treasury Secretary Hank Paulson’s plan has been rushed through in a matter of days. Why the rush to push through a plan that could bankrupt the nation, without formal deliberations on the alternatives? Treasury Secretary Hank Paulson wanted a deal by last weekend. It didn’t happen, but the pressure has been on ever since.

Evidently the date the banks were trying to beat was Tuesday, September 30, the reporting day when they were required to reveal their “Tier 1” capital adequacy. To be adequately capitalized under federal bank regulations, a bank must have Tier 1 capital equal to at least 4% of its “risk-weighted assets.” “Assets” are things that produce cash flow, including loans and derivatives that actually represent liabilities of the bank – money the bank would have to come up with if the borrower did not pay, or the derivative bet were lost, or the other party to the derivative bet did not pay. Capital requirements vary depending on the “risk” of these assets. Tier 1 or “core” capital consists of shareholders’ equity (the amount originally paid to purchase the bank’s stock), plus retained profits, less accumulated losses. Since losses to the banks of late have been substantial, many banks could have trouble meeting the Tier 1 capital adequacy requirement. That means they would not be able to make new loans, which explains all the talk of a “credit freeze.” Indeed, on September 30, available credit was reduced to a trickle, with the London Interbank Offered Rate or LIBOR (the interest rate banks charge to lend to each other) rising sharply.

The collapse of the financial system has been blamed on the subprime crisis, but mortgage defaults are just the domino that triggered the fall. The real problem is the “d” word – something you don’t hear much mention of in the major media, the derivative Ponzi scheme. Derivatives got a bad name with the Long Term Capital Management fiasco. Derivatives are basically just bets, which vacuum up value without producing anything. The imploding derivatives bubble is a giant black hole that could suck all the productive assets of the nation into banking coffers.

Borrowing from the Banks to Bail Out the Banks?

Paulson’s solution is to fill the derivative black hole with federal money; but as just noted, the funds aren’t likely to come from taxes or from loans from foreign central banks. The likely source is the Federal Reserve; and normally, the Fed gets its money just by printing it (or by creating it with accounting entries). In this case, however, something else may be in the works. The Fed’s new “Term Securities Lending Facility” (TSLF) does not involve the usual “open market operations”, in which the Fed prints green pieces of paper called Federal Reserve notes and swaps them for pink pieces of paper called bonds (government I.O.U.s). Rather, the TSLF works like this: the Treasury prints bonds and delivers them to the Federal Reserve, which then trades them with distressed banks for their unmarketable derivative paper. According to Wikipedia, which translates Fedspeak into somewhat clearer terms than the Fed’s own website:

“The Term Securities Lending Facility is a 28-day facility that will offer Treasury general collateral to the Federal Reserve Bank of New York’s primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable.”

To “switch debt that is less liquid for U.S. government securities that are easily tradable” means that the government gets the banks’ toxic derivative debt, and the banks get the government’s triple-A securities. This improves the banks’ capital position because U.S. securities are considered “risk-free” for purposes of calculating the banks’ “risk-weighted assets.” Risk-laden derivatives are traded for risk-free U.S. securities, reducing the capital the banks must have in reserve in order to make new loans.2

The beauty of this scheme is that no lender has to be found to underwrite the newly-issued U.S. securities. Federal I.O.U.s are just issued by the Treasury and traded with the banks for their unmarketable derivative debt. The “lenders” holding the government’s I.O.U.s are the distressed banks themselves! But the taxpayers have to pay interest on these securities. The taxpayers are in the anomalous position of paying interest to the banks for the privilege of providing the funds to bail out the banks.

Here are some more references throwing light on what is going on. On September 18, the Associated Press reported:

“The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs. Treasury officials said the action did not mean that the Fed was running short of cash, but simply was a way for the government to better manage its financing needs.”3

For the first time in history, instead of the government borrowing from the Fed, the Fed is borrowing from the government! Yahoo Finance reported on September 17:

“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”

Treasury bills are the I.O.U.s of the federal government, and they obviously add to the federal debt. The federal debt hasn’t been paid off since the days of Andrew Jackson, but the interest is always paid; and today the interest comes to nearly half a trillion dollars annually. The taxpayers are now on the hook for the Fed’s “enhanced liquidity facilities” as well, meaning the billions in loans that the Fed has been and will be making to an unprecedented range of financial institutions, exercising obscure provisions in the Federal Reserve Act. We the taxpayers are paying interest to the Fed so that the Fed can use taxpayer money to bail out its banking cronies from their gambling ventures. At the very least, doesn’t it seem that the Fed and the banks should be paying interest to us for the privilege of drawing on the national credit card?

A Better Way

Not only does Paulson’s bailout plan reward the guilty at the expense of the taxpayers, but it is not an efficient way to recapitalize the banking system. As William Engdahl observes in a September 30 article, citing economist Nouriel Roubini for authority:

“[I]n almost every case of recent banking crises in which emergency action was needed to save the financial system, the most economical (to taxpayers) method was to have the Government, as in Sweden or Finland in the early 1990’s, nationalize the troubled banks, take over their management and assets, and inject public capital to recapitalize the banks to allow them to continue doing business, lending to normal clients. In the Swedish case, the Government held the assets, mostly real estate, for several years until the economy again improved at which point they could sell them onto the market and the banks could gradually buy the state ownership shares back into private hands. In the Swedish case the end cost to taxpayers was estimated to have been almost nil. The state never did as Paulson proposed, to buy the toxic waste of the banks, leaving them to get off free from their follies of securitization and speculation abuses.”

To “inject public capital” means to issue the currency and credit of the nation itself. A sovereign government does not need to borrow from private banks that create the money as it is lent (the “fractional reserve” lending scheme prevalent today). Bankrupt banks can and should be left to those same free market forces they have been so eager to defend until now. Let them go bankrupt, impose a receiver and nationalize them. If a series of banks was to be nationalized, these truly “national” banks could issue the “full faith and credit of the United States” directly, without having to borrow the money first. That idea is not new. It was the solution extolled by Benjamin Franklin, advocated by Thomas Jefferson, and implemented by Abraham Lincoln. Jefferson wrote in an 1802 letter:

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are www.webofdebt.com and www.ellenbrown.com.

1 “Frequently Asked Questions: Federal Reserve System,” FederalReserve.gov.

2 William Hummel, “Bank Capital Requirements,” http://wfhummel.cnchost.com/capitalrequirements.html (December 11, 2002).

3 Ellen Simon, “Fed, Central Banks Move to Boost Global Confidence,” Associated Press (September 18, 200.

[pywong]

We have an historic opportunity to observe how the Rat Race can unwind. In the US, power lies with the people and Congress.

Will they be stampeded into passing the Emergency Economic Stabilization Act better known as the Paulson Bailout, costing USD 811 billion for starters?

To recap:

Two weeks ago, Ben Bernanke and Hank Paulson appeared before Congress and warned that if Congress didn’t put up $700 billion of taxpayers’ money pronto, the whole world economy could meltdown. Ben Bernanke, former head of the economics department at Princeton, and now head of the world’s biggest banking cartel – the Fed – told the politicians:

“If we don’t do this, we may not have an economy on Monday.”

Of course, this alarm turned out to be as silly as his previous assurances. Monday came. The economy still functioned. And Congress got to work – Christmas treeing the bailout bill.

This is a handy inventory of a few of the gaudy balls so far, (as they appear in the actual bill):

Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal
credits.
Sec. 102. Extension of increased alternative minimum tax exemption amount.
Sec. 201. Deduction for State and local sales taxes.
Sec. 202. Deduction of qualified tuition and related expenses.
Sec. 203. Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204. Additional standard deduction for real property taxes for nonitemizers.
Sec. 205. Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 304. Extension of look-thru rule for related controlled foreign corporations.
Sec. 305. Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 307. Basis adjustment to stock of S corporations making charitable contributions of property.
Sec.

Bernanke and company didn’t want to wait for the lighting ceremony and the back patting. Nowhere in the U.S. Constitution does it give the Fed the power to put each and every taxpayer on the line for about $2,000. But who cares about that? The Fed, on its own initiative, began passing out the cash. $49 billion on last Wednesday alone went to the banks. That same day, the Fed lent $146 billion to investment firms. By the time people went home for the weekend, $410 billion had passed from the Fed to private firms. The money was lent, says the Bloomberg report, at about 2.25% interest. By our calculation, that’s about half the rate of inflation...and precisely 1.4% less than the government’s cost of money, based on 10-year T-note yields.

Two weeks ago, Bernanke was asked by Barney Frank how much money he had available for this kind of rescue operation. He said he had $800 billion. Last week, he was lending it out at an average daily rate of $44 billion. Let’s see, at that rate, the Fed is probably about 5 days from going broke itself.

This should be interesting...when the Fed needs a bailout!

*** The stock market crashed a record-setting 777 points on Monday – and global markets took a tough tumble as well. But where does this leave the precious metals? Bryon King explains:

“Yes, the prices of gold and silver rose on Monday. But gold mining shares declined along with all the other stocks. What was that all about? In my view, it was panic selling. In the wake of the failed bailout story out of Washington, D.C., big shareholders dumped everything over the side. Even the good stuff went into Davy Jones’s locker.

“Also, Monday was Sept. 29, the next-to-last day of the third quarter. So some last-minute actors were cleaning house. Better late than never? They sold anything that could show a profit (or get rid of a loss).

If Congress holds firm and side with the people, the banks will crash and a new financial architecture can be restructured to free the American people from the Rat Race - at least the old version of it. Hopefully, a new and fairer version will come about.

In Malaysia, we are also at the tail-end of the UMNO-designed Rat Race. Will people-power be enough to help Pakatan Rakyat make the final push to dislodge the last hold out in UMNO and the corridors of power? If so, the real work will start to undo the damage of 50 years of misrule and we can start to unroot the bobby traps left behind by the British, especially the divide-and-rule strategies and the Special Branch.

Meanwhile, stand back and watch the fun.

[pywong]

Too late. The Bill is passed.

The U.S. House of Representatives voted Friday to approve a revised $700 billion bailout plan for the financial markets, just four days after rejecting the original version. The historic package gives the Treasury secretary extraordinary power to buy bad assets from financial companies, boosts federal bank insurance and requires the government to modify some mortgages. It also contains a host of con .


The Treasure Secretary can spend up to USD 700 billion each time, no. of times unlimited and he cannot be sued in a court of law.

He was the guy who got the US into the current mess and he is now given immense powers, hoping that he can get the US out of trouble. It's like asking a failure to conduct a course on how to succeed. It is obvious that his priority is to save the banks, not the US nor the economy.

We can expect one or more of the following events:

1. The collapse of the US Federal Reserve
2. US sovereign default
3. Hyperinflation as the US prints money to try and get out of the mess
4. Deflation as the housing prices continue to fall, commercial property follow suit and banks still fail despite the bailout
5. Nationalisation of private assets by the US Govt. As in 1933, holding of gold by US citizens may be banned and they are forced to hand over their gold to the Govt for toilet paper (USD). If that happens, the people will rise up in revolt. Then the Dept of Homeland Security and the unit of arm forces serving locally will come in useful to keep the rabble under control.
6. JP Morgan and Citibank to collapse under the weight of their financial derivatives in credit default swaps and interest rate swaps. These are related to their role in helping the Fed to control the US market and the price of gold and silver. By the way, it is useful to be aware that the US Fed is a private entity with 56% combined shareholding by JP Morgan and Citibank. That is why those two banks are never far away whenever the US Govt pushes some financial institutions into bankruptcy. They stand ready to gobble up the pieces. It is very convenient to have access to the US Central Bank which can readily tap into the US Treasury for money. But even that won't save them. Their exposure to the financial derivatives is as much as USD 200 trillion. That is 14 times larger than the US GDP!

Ask yourself: What is your exposure if the US Govt collapses?