Bernanke, Bush Admin. Defend Decision to Rescue Bear Stearns Amid Questions by Lawmakers

 WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke and the Bush administration on Thursday defended the decision to rescue Bear Stearns amid questions by lawmakers about why the government was helping Wall Street investment houses but not people on Main Street.

Bernanke and Treasury Department Undersecretary Robert Steel said that the consequences to the U.S. economy and financial system would have been far more serious had the government allowed the nation’s fifth largest investment house to go bankrupt. “Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain,” Bernanke told the Senate Banking Committee.

The panel conducted a five-hour hearing as lawmakers sought to understand the decisions made during the hectic weekend of March 14-15 after Bear Stearns informed the Fed that it was on the verge of having to file for bankruptcy protection because nervous creditors were demanding to be repaid. The investment house was purchased by JP Morgan Chase & Co. with assistance from the Fed in the form of a loan backed by $30 billion of Bear Stearns assets.

JP Morgan has agreed to absorb the first $1 billion of losses if the value of the assets declines, but taxpayers are at risk for the remaining $29 billion. Bear Stearns, with a stock price around $150 per share a year ago, was sold for $10 a share, becoming the biggest victim of a severe credit crisis that hit financial markets in August. That crisis, which was triggered by a prolonged housing slump and cascading mortgage defaults, has made it harder for consumers and businesses to get loans and helped to push the country to the brink of a recession. Democrats on the Senate Banking Committee questioned why the Fed was willing to put such a large amount of money at risk to protect Wall Street while as many as 3 million homeowners are facing the risk of defaulting on their mortgages with the administration balking at greater efforts to help them.

 “Was this a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?” Senate Banking Committee Chairman Christopher Dodd asked Bernanke and the other witnesses. Bernanke said that government’s effort was not a bailout for Bear Stearns shareholders, who will suffer big losses, but an effort to protect the financial system and ultimately the entire economy, which could have faced severe consequences from a Bear Stearns bankruptcy. “The adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effect on asset values and credit availability,” said Bernanke. On Wednesday, Bernanke had for the first time raised the possibility that the current economic troubles could push the country into a recession.

Steel said that Treasury Secretary Henry Paulson was actively monitoring four days of marathon negotiations that began after Bear Stearns notified the Fed on March 13 that it was one day away from having to file for bankruptcy protection. Steel said the administration supported the Fed’s decisions. Most of the questions on the deal centered on the value of the assets the Fed is now holding as collateral for the loan. Bernanke and Timothy Geithner, president of the Fed’s New York regional bank, said they believed $30 billion was a valid price for those assets and Bernanke said the central bank could end up making money on the deal as the assets are sold along with interest on the loan.

But some lawmakers questioned whether the Fed had done enough to properly value the Bear Stearns assets and wondered whether the entire episode had set a dangerous precedent for future risky behavior by other investment houses. “How big do you have to be to be too big to fail?” asked Sen. Jim Bunning, R-Ky. “Who let our entire financial system become so fragile that one failure jeopardizes the health of the entire system?” Also appearing before the committee were Alan Schwartz, the head of Bear Stearns, and Jamie Dimon, the head of JP Morgan, who described grueling marathon sessions over the weekend as executives searched for the best way out of the crisis.

Schwartz told the panel that Bear Stearns was brought down by “unfounded” market rumors that led to what was essentially a “run on the bank” as Bear Stearns creditors began demanding payment out of fears the company was about to collapse. “Facing the dire choice of bankruptcy or a forced sale under exigent circumstances, we salvaged what we could to avoid wiping out our shareholders, bondholders and 14,000 employees,” Schwartz told the panel. Dimon took issue with reports that the Fed had taken Bear Stearns’ riskiest securities as collateral for the $30 billion loan the central bank made to facilitate the sale, saying that JP Morgan did not “cherry pick” the assets it would keep on its books and that it was critical that the sale be arranged. “A Bear Stearns bankruptcy could well have touched off a chain reaction at other major financial institutions that would have shaken confidence in credit markets that already have been battered,” Dimon told the committee. Sen. Charles Schumer, D-N.Y., said entire episode pointed out the need to overhaul the government’s regulatory system.

On Monday, Treasury Secretary Henry Paulson put forward a plan that would scrap the current system of overlapping agencies for three super regulators, giving the Fed greater powers to monitor the safety of the entire financial system. Dodd said his panel would examine the need for an overhaul of financial regulations but that this exercise, because of its complexity, would have to wait until next year when a new administration is in place. 

Finanskris, kreditkris, dollarraset, olja, oljekrig, oilwars, USA, FED, nyliberalism, Liberalism, liberal, Dick Erixon, Johan Norberg, skojare, nyliberal, neoliberal, skojare, liberaler, kollapsen av nyliberalismen, militär keynesianism, Bush, Clinton, McCain, Förenta Staterna, George W Bush, liberal kris, den osynliga handen, institutionalismen , nykeynesianism; internationell ekonomi, ekonomiskt läge, globalisering, internationella förhållande, amerikansk ekonomi, bankväsendet, finansmarknad, avreglering, pension, globala rånet, nyliberal skojeriet; financial crisis, the end of the dollar, dollar collapse, colapso del dolar, EEUU, neoliberales, ladrones, la mano invisible, imperio del dolar, the american crisis, la crisis americana, the termino del neoliberalismo, invisble hand, osynliga handen, hustlers, el termino de los rateros neoliberales, mercado financiero, prestamos, vivienda, obligationes, bonds, ränta, interest, intereses, the empire.

Volcker said 2005: U.S. Economic Crisis Imminent but…

 

The “experts” did say anything then…and now the FED is doing the wrong thing again…NewsMax.com Wires
 From Friday, June 10, 2005

 Former Fed Chairman Paul Volcker said he doesn’t see how the U.S. can keep borrowing and consuming while letting foreign countries do all the producing. It’s a recipe for American economic disaster.On Thursday the Wall Street Journal reported bluntly that “Mr. Volcker thinks a crisis is likely.” Volcker believes that investor confidence could fade “at some point,” he said, with “damaging volatility in both exchange markets and interest rates.”    He believes a serious economic crisis is likely unavoidable as the U.S. economy is struggling with what Volcker sees as a hopelessly unsustainable relationship with the rest of the world. “If I were a biologist I’d call this a perfect example of symbiosis,” Volcker said during a February speech at Stanford University. “Contented American consumers matched against delighted foreign producers. Happy borrowers matched against willing lenders. The difficulty is, the seemingly comfortable pattern can’t go on indefinitely.”  Experts seem to agree that the current situation can’t last. But will there be a smooth and manageable rebalancing of the global economy – created by a slow drop in the dollar combined with a spike in foreign demand – or will the U.S. currency suddenly collapse, with skyrocketing interest rates that lead us into a global recession?  Volcker believes a crisis is unavoidable, and he claims that investors will lose their confidence “at some point,” creating serious dilemma for “both exchange markets and interest rates.” 

As the United States faces the threats of a potential housing bubble, a massive trade deficit and the lowest level of American savings in history, the jury is out on the Federal Reserve’s actions over the past five years. The Wall Street Journal reports that while the Fed acknowledges that its response to the 2000 Dot-Com crisis is partly to blame for current economic conditions, it claims it had no other viable course of action.  The Fed slashed interest rates, and Congress provided extreme tax cuts giving American households unprecedented buying power. While the government’s response did help the U.S. economy grow, it also created immense debt. To alleviate this problem, at some point, U.S. consumers will have to curb spending and concentrate on saving – plus the economy will be forced to forego foreign investment.  Experts agree that the reaction to the economic problems after 9/11 took the country into uncharted territory.

While many say the Fed’s rate cuts and President Bush’s tax initiatives were the right answer for recovery, no one can be sure.  “We have done what no other economy has done before, faced with an asset bubble,” says Lawrence Lindsey, a one-time Fed governor and Bush adviser. “This is the first time in history the textbook economic policy … was used, and worked. The problem is, once you finish that chapter of the economic texts, you turn the page and the page is blank – because no one has gone through the process before.”  Some economists warn that the Fed has simply replaced the Dot-Com bubble with a housing bubble that is ready to burst, draining consumer spending, driving foreign investors away from U.S. markets and nurturing numerous other conditions that could lead to a serious recession. Says Volcker: “I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. “At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade.

Then some event, or combination of events, could come along to disturb markets …”  By contrast, Volcker’s successor is perhaps a bit less circumspect. He said, “The number of forecasts of crises … is far in excess of the number of crises that actually occur. There is something equivalent to an invisible hand which continuously is readdressing market imbalances to reach equilibrium.”  Volcker, however, doesn’t have as much faith in market forces, which oddly enough brings him to the conclusion that Greenspan and the Fed are doing the right thing by raising interest rates to hold down inflation. The former Fed chairman thinks we need to make sure foreign investors hold their confidence in the U.S. because they’re the ones doing all the investing. They need to know “those trillions of dollars they are piling up are going to be protected against inflation.” 

 Finanskris, kreditkris, dollarraset, olja, oljekrig, oilwars, USA, FED, nyliberalism, Liberalism, liberal, Dick Erixon, Johan Norberg, skojare, nyliberal, neoliberal, skojare, liberaler, kollapsen av nyliberalismen, militär keynesianism, Bush, Clinton, McCain, Förenta Staterna, George W Bush, liberal kris, den osynliga handen, institutionalismen , nykeynesianism; internationell ekonomi, ekonomiskt läge, globalisering, internationella förhållande, amerikansk ekonomi, bankväsendet, finansmarknad, avreglering, pension, globala rånet, nyliberal skojeriet; financial crisis, the end of the dollar, dollar collapse, colapso del dolar, EEUU, neoliberales, ladrones, la mano invisible, imperio del dolar, the american crisis, la crisis americana, the termino del neoliberalismo, invisble hand, osynliga handen, hustlers, el termino de los rateros neoliberales, mercado financiero, prestamos, vivienda, obligationes, bonds, ränta, interest, intereses, the empire.

Rate Cuts May Not Be Enough

 With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly. “As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase.

He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies.  Fed officials have said that, at times like these, the prudent course is to at least evaluate all sorts of ideas, many of which may be rejected.

Since 1932, the Fed has had the authority to lend, against collateral, to individuals, partnerships or corporations other than banks in “unusual and exigent circumstances,” subject to the vote of five members of the Board of Governors. (The board has seven seats, but two are currently vacant.) This power has never been used. But, Mr. Feroli noted, that Congress in 1966 gave the Fed temporary authority, made permanent in 1979, to purchase obligations of government-sponsored enterprises, such as Fannie Mae and Freddie Mac. So far, the Fed hasn’t purchased GSE obligations except in its short-term repurchase operations.

When the federal budget was in surplus, the Fed considered outright purchases of GSE obligations, but judged against such a move as it would reinforce the perception of an implicit government guarantee.  Last week, the Fed said it would lend banks $100 billion this week in 28-day loans through its new Term Auction Facility, at which banks can post a wide variety of collateral, including mortgages, corporate loans and other items, which have become harder to sell in the open market. And it said it would make money-market loans of as much as $100 billion to its network of 20 bond dealers for 28 days, double the usual maximum term, and structure them to encourage dealers to submit mortgage-backed securities guaranteed by Fannie and Freddie Mac. Sen. Christopher Dodd (D., Conn.), chairman of the Senate Banking Committee, has suggested creating a new government corporation that could buy mortgage-backed securities.

But direct Fed purchases may be more practical and address current problems “head on and immediately,” David Ader, U.S. government bond strategist at RBS Greenwich Capital, said in a note to clients. “Plans like Dodd’s or ideas like an explicit guaranty for the agencies are far more political and will take a while to work out.” “If there is a message in the madness, it’s this: the market is looking elsewhere for a ’solution’ to the broad mess that started in housing and will presumably end with housing (albeit with some big victims along the way). Meaning someone or something will have to buy mortgage-backed securities as a starter, to restore liquidity and confidence,” he said. “We emphasize that this is what the market is saying, not that it will happen or won’t.”  The Fed’s target for the federal funds rate already down to 3% despite rising inflation.

The yield on two-year Treasury notes is a low 1.4%. And yield on five-year Treasury’s inflation-protected securities is negative, which means that investors accept a return lower than the eventual rate of inflation. All this suggests the Fed already has its foot heavily on the monetary gas pedal. “The Fed has few traditional tools to use and, in the case of an interim ease or 75 basis point [three-quarter percentage point] cut later this month, it had better use them sparingly,” Mr. Ader said. -David Wessel CommentsReport offensive comments to blogsadmin@wsj.comI like that…”monetary gas peddle”. It could be pre -conceived as the “Out of Control Accelerator”… of the pending Deflationary Depression!

The OZComment by “Wake up America… Wake the Hell Up!” – March 10, 2008 at 6:51 pm The faster the Fed squanders its already depelted stock of dry powder, the more defenseless the American consumer (2/3 of the economy) becomes against inflation.Comment by LVH – March 10, 2008 at 7:08 pm Time to get rid of the Federal Reserve and Central Bankers…they created this problem and allowing them the ability to “buy” MBS (which should be eliminated-the old days where the local bank owned the mortgage worked just fine) by essentially printing money is a good reason to stop the insanity. Bolseivek bankers need to be stopped immediately. This is a bad idea and will further stroke inflation and economic ruin.Comment by Fred Heyak – March 10, 2008 at 7:18 pm Banks: Sliding Toward Insolvency?————————————–more at http://money-sage.com————————————– 

Regrettably, this appears increasingly to be the case for more than a handful of banks. We doubt that the central bank will permit a major commercial bank to fail, in view of the widening panic in the credit markets and a developing panic within the banking system itself. A major bank failure, against this backdrop, would only intensify the panic within the banking system, increasing the risk of a catastrophic, systemic collapse. For this reason, we believe that the FED will opt for the course of DE FACTO BAILOUT.What this would amount to is illustrated, we think, by the the saga of Northern Rock. This lender, the third largest mortgage lender in Britain, was one of the first major institutions to be hit full force by the bear market in mortgage-backed securities. As fear mounted in consequence of the increasingly ominous and increasingly clear deterioration in the financial position of the bank, a depositor panic began.

The Bank of England placed the bank on life support, providing vast sums so that it would not collapse and generate a general depositor panic.Several days ago the British government nationalized the bank. From all we can discern from news accounts, the bank may have a total worth of a billion pounds or so. The Bank of England loaned Northern Rock something approaching 60 BILLION POUNDS. This sum thus constitutes a total loss for British taxpayers. The central bank preserved the fictional solvency of Northern Rock for as long as possible, we would suppose. The DE FACTO BAILOUT avoided a panic, but the cost was steep. We presuppose that the forthcoming (or, already underway?) bailout of the major banks by the FED will cost a MULTIPLE of this sum.There is, however, a limit to how far the public, the politicians, and the Treasury market will allow the FED to go, we think. Thus, many, many small and mid-size banks may fail, while the supersized colossi who bear great responsibility for the ramifying financial debacle and the likely forthcoming economic tsunami will escape getting their just desserts. Of course, this is hardly a cause for surprise. The principle that the big fish create the order was clearly enunciated in the Peace of Augsburg: “cuius regio, eius religio.” (1555). When the order they create collapses, it is the small fry who pay the price.Comment by Moneysage – March 10, 2008 at 7:36 pm Good post David. Personally I’m a bit unsettled at what’s happened to date.

Paulson denies public money will be used, yet it is and the printing presses continue to flow? The dollar simply can’t take much more of this and although Bush denies in or near a recession; it was only a week ago he learned of the constant rise in fuel prices, and what a tragedy what was!! You think someone would have told him. The fed has few tools left at this juncture in this game of madness and ill fated creativity is all that’s left. I hope Bernake and the boys will become more focused in the coming days and offer some real solutions for the economy at large and not be bunch of market whores! A few of these banks need to fall in order to create further confidence in this market.

Comment by ugot2bkidding – March 10, 2008 at 7:58 pm clearly this has the markings of japan in the 1990s all over again — sure we may be addressing things faster, but we are propping things up nonetheless. why not let some things fail? wont anyone ever learn?Comment by redsoxagain – March 10, 2008 at 8:21 pm Have there been any margin calls on Fannie Mae or Freddie Mac? Who do they borrow from? Do they post collateral? Are Freddie Mac and Fannie Mae even subject to margin calls? Isn’t the real issue with these entities the regulatory capital they are required to have on hand? Does the market set this or the regulator? Inquiring readers want to know.Comment by John Reilly – March 10, 2008 at 8:23 pm It started again ethier get in or in the near term loose without! Go… Gold, mark these words well! April Del. +4.7 in the last hour some one some where knows something that we lack or doubt!The OZ   

Tags to the article:Finanskris, kreditkris, dollarraset, olja, oljekrig, oilwars, USA, FED, nyliberalism, nyliberal, neoliberal, skojare, liberaler, kollapsen av nyliberalismen, militär keynesianism, Bush, Clinton, McCain, Förenta Staterna, George W Bush, liberal kris, den osynliga handen, institutionalismen , nykeynesianism; internationell ekonomi, ekonomiskt läge, globalisering, internationella förhållande, amerikansk ekonomi, bankväsendet, finansmarknad, avreglering, pension, globala rånet, nyliberal skojeriet; financial crisis, the end of the dollar, dollar collapse, colapso del dolar, EEUU, neoliberales, ladrones, la mano invisible, imperio del dolar, the american crisis, la crisis americana, the termino del neoliberalismo, invisble hand, osynliga handen, hustlers, el termino de los rateros neoliberales, mercado financiero, prestamos, vivienda, obligationes, bonds, ränta, interest, intereses,  

The history of the dollar empire and its end

 America has postponed the day of reckoning since the dollar crisis of the early 1970s when the soaring cost of killing Vietnamese in order to “save them,” along with other expenses of empire, became too high. The tab only rose when the US matched this imperial project with efforts to buy off its own poor through social spending designed to quell the democractic surge and rising expectations that followed World War II. The world balked at America’s spending and central banks began cashing in dollars for the promised gold the American currency was backed by. So the US ditched the dollar-gold standard in exchange for a purely fiat paper dollar standard.The US managed a fantastic wealth transfer from the rest of the world to itself with this ploy. America barely managed to escape the run on its dollars, and the upsurge of democracy at home and abroad in the 1970s. But, the empire did strike back.  

The US jujitsued the crisis to its advantage by using a combination of experimentation, opportunism and planning. Rather than being sunk by high oil prices in the 1970s, the US Treasury Department turned this challenge to its advantage. It had no choice. By cutting a deal with the Saudis for weapons and secure investments for their oil wealth, the Saudis gave America amonopoly: the paper dollar was elevated to the world’s currency of choice. This was not the market at work, but realpolitik statecraft to ensure dollar dominance, even though it would no longer be backed by gold.  The nations of the world would have to pay dollars for Saudi oil and have to pay the US real goods for these paper dollars. The Saudis, in turn, and then other oil producers, would put their oil wealth in US banks and T-bills.

The US further benefited by lending out this money to other nations and reaped huge interest payments ever since from the world’s poor countries. Since the 1970s the US has merely prints dollars and T-bills and gets oil, minerals, manufactured goods, etc., in return. The only problem with this virtuous circle of paper for real goods is that at some point the rest of the world might refuse to play along and the dollar could collapse.  We are seeing the early signs of just that. The euro was designed to cut in on America’s action, and Europe’s gamble appears to be working. Indeed, one of Saddam Hussein’s cardinal sins was pricing oil in euros instead of dollars, for which if other oil producers followed suit would have been a major blow to the US. More menacingly, on Monday, Malaysian Prime Minister Mahathir Mohamad declared that in principle oil should be priced in euros. Iran too has made such noises in the past, but has cooled this rhetoric in light of recent US moves in Iraq and saber rattling directed at North Korea and Syria. Moreover, the Chinese, and other nations, are now hedging their bets by holding more of their currency reserves in euros, and not just dollars.

That fiat money has to be paid for in real goods, and the less dollars nations held, the smaller the subsidy the US gets. Rather than Weberian work ethics and other simple nostrums and bromides used to explain the “success” of the American economy in the 1990s–and even still today among a few Strangelovian types who declare the same even after the huge equity market losses of the new millennium–the dollar-standard racket allows the US to float a half-trillion dollar a year trade deficit with other countries, which the rest of the world pays for! Figure something like a global subsidy of 4k per year to every American. But of course, in this welfare scheme the goods are not distributed equally.

The rich take the lion’s share, while the rest can content themselves with inexpensive electronic toys and cheap consumer goodies that the global economy delivers to Americans as a substitute for quality health-care, education, or decent housing.There is a major restructuring ahead on the horizon. Indeed, it is already visible. So far the US has covered its prolifigate spending, in part, through the interest payments it extracts from the rest of the world, even though many poor nations have now already paid in interest many times the original amount of the principle on their loans. The Japanese pay for some of it by saving money and having it then invested in US T-bills. The Europeans, especially the Germans, who have also kept the US afloat by buying its government bonds, pay for another portion. And then the Chinese also help fill the gap by holding massive dollar reserves. Yet, all these states have their own problems and might need the resources they currently use to prop up the US economy and to pay for its massive deficit spending. If this happens America’s own leaders might administer conditionality, austerity, and the countless poisons dispensed to the rest of the world the past thirty years–largely with disastrous results–to the US with renewed vigor.

 To be sure, you can count on court intellectuals and pundits to tell us its all for the best and blame the victims for any ills that befall them. The elite brain trust at the US Treasury, and among the country clubs populated by American manufactures, have warned since the 1970s that American workers needed to get used to a lower living standards. Of course, this same public has also had to get used to the top 1% of the population ascending to heights of wealth and excess not scene since the Gilded Age and the 1920s. As usual, there would be increased socialism for the elite and capitalism for the rest. Under this program the numbers of hours average Americans work has dramatically risen–surpassing even the Japanese.

They made most Americans work harder and longer for less pay and benefits, and eliminated job security for good measure. Yet, up to now, Americans have only been gently going down hill in their decline. With a deflationary spiral and the collapse of the dollar standard, they will fall off a cliff as the global subsidy to the US is withdrawn if global investors lose confidence in the dollar. The one out for the US might be to continue threatening Japan, Germany, and the Saudis with destruction of their US assets if they withdraw T-bill investments, or if the euro is advanced too far as an alternative currency to the US. Yet, if global investors and central bank managers panic or if their own internal economic crises require them to pull out of US investments, Americans are in deep trouble. This would be disastrous not only for Americans, of whom you can be sure capital would export as much of this crisis as possible onto the backs of average people in the US, but also for the rest of the world.

An America in economic crisis would place the world in even greater danger of American military adventures by a government seeking both diversions from its domestic ills while it also sought means to shore up its empire.  

Tags to the article:Finanskris, kreditkris, dollarraset, olja, oljekrig, oilwars, USA, FED, nyliberalism, nyliberal, neoliberal, skojare, liberaler, kollapsen av nyliberalismen, militär keynesianism, Bush, Clinton, McCain, Förenta Staterna, George W Bush, liberal kris, den osynliga handen, institutionalismen , nykeynesianism; internationell ekonomi, ekonomiskt läge, globalisering, internationella förhållande, amerikansk ekonomi, bankväsendet, finansmarknad, avreglering, pension, globala rånet, nyliberal skojeriet; financial crisis, the end of the dollar, dollar collapse, colapso del dolar, EEUU, neoliberales, ladrones, la mano invisible, imperio del dolar, the american crisis, la crisis americana, the termino del neoliberalismo, invisble hand, osynliga handen, hustlers, el termino de los rateros neoliberales, mercado financiero, prestamos, vivienda, obligationes, bonds, ränta, interest, intereses,  

The Job Depression in the USA

  Is it true or false that our economy in the last 5 years created only 1 million net new jobs, when our population grew far more than that? Immigration alone accounted for 8 million new people. Some economists look at the numbers released from the Bureau of Labor Statistics, and come to different conclusions than the Bush Administation, and even conclude we are in a Job Depression. Read the excerpts and the articles linked below, for a different take on things.

The media elite are consumed with petty political battles, “The War on Christmas”, etc, while terrible things may be going on economically that truly undermine the internal security of our economy.These alternative viewpoints are scary to the layperson like myself. They remind me that it’s been over two decades since I first became aware of the steady drumbeat of “End is Near” economic horror stories, raising warnings about our huge deficits and unemployment. The warnings died down a bit in the late nineties.I hope the gloom and doom-sayers are no more accurate than those who, for the last 25 years, have been predicting the Second Coming as being any day now.

Paul Craig Roberts: Nuking the Economy If you are worried about terrorists, you don’t know what worry is.Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. That’s one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration. Economists who look beyond political press releases estimate the US unemployment rate to be between 7% and 8.5%. There are now hundreds of thousands of Americans who will never recover their investment in their university education.Unless the BLS is falsifying the data or businesses are reporting the opposite of the facts, the US is experiencing a job depression. Most economists refuse to acknowledge the facts, because they endorsed globalization. It was a win-win situation, they said. No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy.

The total number of private sector jobs created over the five year period is 500,000 jobs less than one year’s legal and illegal immigration! (In a December 2005 Center for Immigration Studies report based on the Census Bureau’s March 2005 Current Population Survey, Steven Camarota writes that there were [7.9 Million] new immigrants between January 2000 and March 2005.) On February 10 the Commerce Department released a record US trade deficit in goods and services for 2005–$726 billion. The US deficit in Advanced Technology Products reached a new high. Offshore production for home markets and jobs outsourcing has made the US highly dependent on foreign provided goods and services, while simultaneously reducing the export capability of the US economy. It is possible that there might be no exchange rate at which the US can balance its trade.By Paul Craig Roberts. Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.] 

SEE ALSO More Bad News on the Jobs Front, by Paul Craig Roberts

What is the Davos Group, AKA “The Party of Davos”?The Party of Davos by Jeff FauxThe world’s movers and shakers are convening once again in January at the annual World Economic Forum in Davos, the posh ski resort nestled in the Swiss Alps. Attendance is invitation-only, enforced by police barricades, razor wire and the latest high-tech military hardware to guard against terrorists, protesters and curious local citizens. Some 2,000 people will show up to discuss the world’s problems as defined by those who own and manage the great global concentrations of wealth (Microsoft, Citigroup, Siemens, Nestlé, Nomura Holdings, Saudi Basic Industries, etc.). Their guests include prominent political leaders, international bureaucrats, academics, consultants and media pundits–with a few NGO and labor union officials sprinkled along the edges to demonstrate diversity.Davos is not the place for secret conspiracies.

More than 200 hovering journalists will dispatch to the world’s citizens breathless accounts of the chatter and charm of the masters of the economic universe. The crisis on the military side involves blowback from the overreach in Iraq. Bush, Cheney and Rumsfeld–despite their thick transnational corporate connections–have created a disaster for Davos. The war has unleashed an army of enemies of Western modernization that is making global corporations nervous. Two years ago the wiser heads at Davos were appalled at Cheney’s delusional report on the Bush Administration’s progress in turning the Middle East into a shopping mall–however much they might have sympathized with the objective. Today the mess in Iraq has revealed to Davos both the incompetence of the American governing class and the unwillingness of the American electorate to make the sacrifices necessary to act as security police for the world’s rich and powerful. The looming economic crisis comes from the unsustainable US external debt.

For more than a quarter-century, we Americans have been buying more from the rest of the world than we have been selling it, and borrowing from abroad to make up the difference. The resulting trade deficit has been a major engine of global growth under Davos’s management. But common sense and simple arithmetic tell us that even the United States cannot go on much longer spending more than it is earning. When the day of reckoning comes, high interest rates and a falling dollar will force us Americans to rebalance our trade by cutting the price of what we sell and raising the price of what we buy, lowering real incomes. The crisis in the nation’s trade sector will be transmitted to the rest of the economy, made vulnerable by overindebted consumers, overleveraged pension funds and overpriced houses.

Thanks to George W. Bush’s reckless fiscal deficits, the government will have less ability to overcome an economic crisis through borrow-and-spend, as it did in the last economic downturn. With the appetite for America’s IOUs diminishing, US politicians will have their hands full dealing with rising energy costs and the tottering finances of healthcare, education and pensions. Jeff Faux was the founder of and is now distinguished fellow at the Economic Policy Institute [a pro-labor group – RM]. His latest book, The Global Class War (Wiley), was published in January.   

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Paulson’s Fixit Plan for Wall Street

By MIKE WHITNEY 

It is being billed as a “massive shakeup of US financial market regulation”, but don’t be deceived. Treasury Secretary Henry Paulson’s proposals for broad market reform are neither “timely” nor “thoughtful” (Reuters) In fact, its all just more of the same free market “we can police ourselves” mumbo jumbo that got us into this mess in the first place. The real objective of Paulson’s so called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. Same wine, different bottle. Paulson’s motive is to preempt any regulatory sledgehammer that might descend on the entire financial industry following the 2008 election. There’s growing fear that an incoming Democrat may tote a firehose down to Wall Street. If Paulson’s plan is approved in its present form, Congress will have even less control over the financial system than it does now and the same group of self-serving banking mandarins who created the biggest equity bubble in history will be able to administer the markets however they choose without the inconvenience of government supervision. That’s exactly what Wall Street, the Treasury Secretary and the folk at the Fed want; unlimited power with no accountability. Paulson is expected to lay out guidelines and principles that are intended to help regulators supervise the financial markets.

According to AFP:“The President’s Working Group on Financial Markets said the current regulatory structure is working well despite calls by some US lawmakers.” In other words, the failing banking system, the housing meltdown, and the frozen corporate bond market are all signs of a robust financial system? This may be the most ludicrous statement since “Mission accomplished”. The system is imploding and people are being hurt by the fallout. Thirty years of industry-led lobbying has dismantled the (admittedly frail ad porous) regulatory regime which made US financial markets the envy of the world. Whatever credibility and transparency once existed were washed out in the Clinton era, as with Glass-Steagall and government oversight of the explosive growth of over-the counter derivatives instruments. Now the system is prey to all types of dodgy debt instruments, suspicious “dark pool” trading and off-balance sheets operations which further reinforce the belief that cautious investment is no better than casino gambling. 

  “The regulatory line of sight today is by the counterparties,” the official said, adding that the guidelines should be “beneficial to industry.” (AFP) How is that different than saying, “Caveat emptor”? That’s not a motto that inspires confidence. Many people still naively believe that planning their retirement should not have to be a Darwinian tussle with a crafty junk-bond salesman. Under Paulson’s plan, the Federal Reserve will be granted new regulatory powers, but whatever for? The Fed doesn’t use the powers it has now. No one stopped the Fed from intervening in the mortgage lending fiasco, or the ratings agency abuses or the off-balance sheets shenanigans. They had the authority and they should have used it. The folks at the Fed knew everything that was going on—including the mushrooming sales of derivatives contracts which soared from under $1 trillion in 2000 to over $500 trillion in 2006—but they decided to cheerlead from the sidelines rather than do their jobs. The fact is, they were worried that if they got involved they might upset the gravy-train of profits that was enriching their bankster friends. Former Fed chief Greenspan used to croon like a smitten teenager every time he was asked about subprime loans or adjustable rate mortgages. And, as New York Times columnist Floyd Norris points out, (Greenspan) “praised the growth in the derivatives market as a boon for market stability, and resisted calls to use the Fed’s power to increase regulation.” Of course, he did. It was all part of Maestro’s “New Economy”; trickle-down Elysium, where the endless flow of low interest credit merged with financial innovation to create a Reaganesque El Dorado. There are no regulations in this version of Eden, not even “Don’t bite the apple”. Anything goes and to heck with the public, they can fend for themselves. Now its Paulson’s job to keep the neoliberal flame lit long enough to make sure that government busybodies and bureaucratic do-goodies don’t upset the cart. That means concocting a wacky public relations campaign to convince the public that Wall Street is not just a pirate’s cove of land-sharks and bunko artists, but a trusted ally in maintaining a strong economy through vital and efficient markets.The Times’ Norris summed up Paulson’s sham reforms like this:“The plan has its genesis in a yearlong effort to limiting Washington’s role in the market. And that DNA is unmistakably evident in the fine print. Although the proposal would impose the first regulation of hedge funds and private equity funds, that oversight would have a light touch, enabling the government to do little beyond collecting information – except in times of crisis. The regulatory umbrella created in the 1930s would grow wider, with power concentrated in fewer agencies. But that authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis. (“In Treasury Plan, a Reluctant Eye over Wall Street”, Floyd Norris, New York Times) What nonsense. The house is on fire and hyperventilating Hank is still wasting our time with this rubbish. The real problem is that Paulson and his buddies at the Federal Reserve think of the financial system as their personal fiefdom so they refuse to loosen their \ grip even though the economy is listing starboard and the water is flooding into the lower decks.Once again, the New York Times:“All the checks and balances in the plan reflect the mindset of its architect, Treasury Secretary Henry Paulson, who came to Washington after a long career on Wall Street. He has worried that any effort to substantially tighten regulation could hamper the ability of American markets to compete with foreign rivals.” No one elected Paulson to do anything. He has no mandate. He is an industry rep. who has worked exclusively for a small group of wealthy investors who have put the entire country at risk with their toxic mortgage-backed bonds, their reckless Ponzi-type speculation, and their off-book chicanery. Paulson should be removed immediately and returned to his wolf’s lair at G-Sax. If Bush is serious about straightening out Wall Street, then bring in Eliot Spitzer. He’s probably available, at least in daytime hours. And he’ll do what it takes to clean house, that is, put a truncheon-wielding robo-cop in every trading-pit at the NYSE, and dispatch government accountants to every office of every CFO making sure they have a Big Red Pen in one hand and a taser in the other. That’s the only way to get the attention of the bandit-class.  “I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil,” says Paulson.  Paulson is wrong. The current turmoil is all about the lack of regulation and he’d better prepare himself for some big changes. The pendulum is already in motion and tighter regulations will soon follow.

There needs to be an accounting process for all transactions and capital requirements for every financial institution that creates credit. No exceptions. All of these businesses pose a real danger to the overall system and, therefore, must conform to clearly articulated and strictly enforced rules; no off-balance sheets operations, no dark pool trading, no unregulated derivatives contracts, no level 3 assets, no “mark to model” garbage bonds where CFOs unilaterally decide what they are worth by picking a number out of a hat. Its time to restore order to the markets so retirees and working class families can feel safe investing in their futures. They are the ones who are most hurt by Wall Street’s endless trickery. Paulson’s plan is a non starter. The era of sandbagging, supply-side banditry is over. Good riddance.  

Mike Whitney lives in Washington state

Tags to the article:Finanskris, kreditkris, dollarraset, olja, oljekrig, oilwars, USA, FED, nyliberalism, nyliberal, neoliberal, skojare, liberaler, kollapsen av nyliberalismen, militär keynesianism, Bush, Clinton, McCain, Förenta Staterna, George W Bush, liberal kris, den osynliga handen, institutionalismen , nykeynesianism; internationell ekonomi, ekonomiskt läge, globalisering, internationella förhållande, amerikansk ekonomi, bankväsendet, finansmarknad, avreglering, pension, globala rånet, nyliberal skojeriet; financial crisis, the end of the dollar, dollar collapse, colapso del dolar, EEUU, neoliberales, ladrones, la mano invisible, imperio del dolar, the american crisis, la crisis americana, the termino del neoliberalismo, invisble hand, osynliga handen, hustlers, el termino de los rateros neoliberales, mercado financiero, prestamos, vivienda, obligationes, bonds, ränta, interest, intereses,