Infinite Unknown

By PAUL CRAIG ROBERTS

Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.

Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.

Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.

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Tags: Alan Greenspan, bailout, Credit Crisis, credit crunch, debt, Economy, Fed, Federal Reserve, financial crisis, Foreclosures, Government, Henry Paulson, Military, mortgage crisis, Mortgages, Paul Craig Roberts, Politics, Recession, Stock Market, Treasury, U.S., Unemployment, Wall Street

Related: Zeitgeist, The Movie, Final Edition

Added: Oct 3, 2008

Source: Google Video

Tags: bankruptcy, Banks, Barack Obama, Church, CIA, Congress, corporations, crime, debt, Documentary, Dollar, Economy, election, Fascism, Fed, Federal Reserve, Government, Iraq, Jiddu Krishnamurti, John McCain, John Perkins, Military, New World Order, Nuclear weapons, Oil, Politics, Religion, Ron Paul, Saddam Hussein, Society, U.S., War

When the precious metals were smashed out of nowhere and the dollar started climbing this summer I became very worried. I didn’t question my conviction that commodities are in a bull market, or that precious metals in particular are undervalued. I felt something sinister was at work. Neither move was justified on a fundamental level. I assumed that something very bad was about to happen and the metals needed to be brought lower in advance of the bad news.

Now we have a glimpse at the ugly consequences foreseen by the Treasury Department and the Federal Reserve. In early September, Fannie Mae and Freddie Mac were nationalized with a financial commitment of USD$200 billion from the taxpayers. Incredibly, the loan limits at the former GSEs were raised from $417,000 to $729,750 in March when it was more than obvious these institutions needed to be reined in. Like most bailouts and bank failures, this one was announced on a weekend to limit the impact on the stock markets.

As I mentioned in last month’s issue, Treasury Secretary Paulson was under severe pressure to act, as the Chinese started selling Fannie and Freddie bonds while threatening further retribution. Common shareholders were left with nothing, while bondholders like Pimco and Asian central banks benefited. The small investor was stung again, as taxpayer dollars were used to bail out foreigners and wealthy Americans in a policy that Jim Rogers terms “socialism for the rich.”

Unfortunately, $200 billion is just the tip of the iceberg. As the government has assumed responsibility for Fannie and Freddie’s $5.4 trillion in liabilities, the Congressional Budget Office correctly states that these institutions “should be directly incorporated into the federal budget.” The Bush Administration has strongly opposed this move. Continue reading »

Tags: AIG, bailout, bank failure, Bank of America, bankruptcy, Banks, Bear Stearns, Ben Bernanke, Bush administration, Congress, Credit Crisis, credit crunch, debt, Dollar, Economy, Fannie Mae, FDIC, Fed, Federal Reserve, Freddie Mac, George Bush, Gold, Goldman Sachs, Government, Henry Paulson, hyperinflation, Inflation, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, mortgage crisis, Mortgages, Politics, Recession, Silver, Treasury, Wachovia

Added: Oct. 5, 2008

Source: YouTube

Tags: bailout, Credit Crisis, credit crunch, debt, Economy, Government, mortgage crisis, Mortgages, Politics, Ron Paul, U.S.

Sept. 29 (Bloomberg) — The rally in U.S. Treasuries may be running out of steam after yields fell to the lowest since Franklin D. Roosevelt was president.

Renewed concern about the stability of the banking system sparked a run on Treasuries that drove bill rates down to 0.02 percent. Concern is so widespread that investors are buying 30- year bonds even though their yields are the furthest below inflation since at least 1980.

“It’s like the Mark Twain quote, `I am more concerned with the return of my money than the return on my money,”’ said James Evans, a senior vice president at New York-based Brown Brothers Harriman & Co. who helps oversee $15 billion in fixed- income assets.

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Tags: debt, Economy, Government, Henry Paulson, Inflation, Treasury, U.S.

Hey it’s taxpayers money, so the higher the price the better.
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Ben S. Bernanke, chairman of the U.S. Federal Reserve, testifies before the Senate Banking Committee in Washington, Sept. 23, 2008. Photographer: Joshua Roberts/Bloomberg News

Sept. 23 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis.

“Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,” Bernanke said in testimony to the Senate Banking Committee today. “If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.”

Bernanke’s remarks, an unusual departure from his prepared testimony, come as lawmakers and the Bush administration negotiate a rescue plan aimed at easing the worst financial crisis since the Great Depression. The Fed chief said paying prices higher than the bad assets would fetch in the open market would help “unfreeze” credit markets and aid the economy.

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Tags: Ben Bernanke, Credit Crisis, credit crunch, debt, Economy, Fed, Federal Reserve, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Recession, taxpayers, Treasury, U.S., Wall Street

Federal Reserve chairman Ben Bernanke folds his hands while testifying with US Treasury secretary Henry Paulson before the Senate banking committee on Tuesday. Photograph: Charles Dharapak/AP

The proposed $700bn bailout of US financial markets faced harsh criticism in Congress today, with liberals and conservatives both sceptical that granting the Bush administration power to buy up risky mortgages would avert further economic crisis.

Yet despite the wariness from the Senate banking committee, where Henry Paulson and Ben Bernanke appeared today, the financial rescue seems poised to win approval by next week at the latest.

“This is not something I wanted to ask for,” the US treasury secretary said, assuring senators that “I feel your frustrations” and “I’m angry” at the prospect of Wall Street firms getting saved by the government.

But Paulson and Bernanke did ask for broad latitude to decide which toxic assets would win a purchase by the government. Senators of both parties did not attempt to hide their anger at the request, citing the Bush administration’s previous assurances of market stability.

“We have been given no credible assurances that this plan will work,” Richard Shelby, the senior Republican on the banking panel, said. “Congress does not have time to determine if there are better alternatives.”

The committee’s Democratic chairman, Chris Dodd, questioned Paulson’s request for immunity from any legal or government review of his actions during the bailout process.

“After reading this proposal, I can only conclude that it is not just our economy that is at risk,” Dodd told the treasury secretary, “but our constitution as well.”

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Tags: Ben Bernanke, Bush administration, Congress, Constitution, Credit Crisis, credit crunch, debt, Economy, Foreclosures, GDP, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Treasury, U.S., Unemployment, Wall Street

Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress. It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses–many hundreds of billions, maybe much more. What’s not to like if you are a financial titan threatened with extinction?

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Tags: bailout, Ben Bernanke, Congress, Credit Crisis, credit crunch, debt, Economy, Fed, Federal Reserve, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Stock Market, taxpayers, U.S., Wall Street

Source: YouTube

Tags: AIG, Ben Bernanke, Congress, Credit Crisis, credit crunch, debt, Economy, Fannie Mae, Fed, Federal Reserve, Foreclosures, Freddie Mac, Government, Henry Paulson, mortgage crisis, Mortgages, Politics, Stock Market, taxpayers, U.S., Wall Street

In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed. President George W. Bush’s administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free- market capitalism.

Heavy costs will be inflicted on the American taxpayer, who is now subsidising Wall Street - and indeed financial institutions around the world - in a bail-out of unprecedented size.

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Tags: Bank of America, Bear Stearns, Ben Bernanke, central bank, Credit Crisis, credit crunch, debt, Economy, Fannie Mae, Fed, Federal Reserve, Freddie Mac, Goldman Sachs, Government, HBoS, Henry Paulson, JPMorgan, Lehman Brothers, Morgan Stanley, mortgage crisis, Mortgages, Politics, Stock Market, taxpayers, Treasury, U.S., Wall Street