A Credit Crisis or a Collapsing Ponzi Scheme? The Two Trillion Dollar Black Hole

[Octafish]

This bailout has me more than steamed.



It looks exactly like what DU predicted, another monumental rip-off of the middle class.

A Credit Crisis or a Collapsing Ponzi Scheme?

The Two Trillion Dollar Black Hole

By PAM MARTENS
CounterPunch
November 13, 2008

Purge your mind for a moment about everything you've heard and read in the last decade about investing on Wall Street and think about the following business model:

You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you "stay invested for the long haul" you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don't have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.

Now consider how Wikipedia describes a Ponzi scheme:

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."

Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).

We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint.

But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place. Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.

CONTINUED...

http://www.counterpunch.org/martens11132008.html

Beware, DUers. What's ahead is the Haiti-ization of the USA where 1-percent of the population owns 99-percent of the wealth.

[leftofthedial]

1. capitalism is a pyramid scheme

but it is legally protected.

it's inevitable end is unfolding before our eyes. We've cheerfully allowed ourselves to be sucked dry. Oh well! Have a nice day! Kick a socialist on your way out the door! B'bye!

[Octafish]

8. Exactly. Here's how it was depicted graphically at the turn of last century...

The hunched-over figure on the bottom, left of center, depicts my station.

[goforit]

16. Love this poster!!! So very true.

[goforit]

15. Prior to REAGAN, Capitalism had constraints. Reagan took those contraints

away under the facade of breaking up MABELL's monopoly with the help of Congress at that time. Meanwhile all the corporations and/or
companies across the US were able to buy each other out the "Big fish eating the little fish" scheme. The ultimate power and greed addiction for
all CEOs and owners like Mr. Icahn. Breaking up Mabell was the great cover for his desire to actually creating monopolies to prosper. Competition
was destroyed and minimized.
Capitalism now had full reigns to run wild and free. Which is now coming to a screeching halt.
Adam Smith, the founder of Capitalism, believed the market would correct itself, yet placing retraints was crucial. Our Gov't did through most
of the twentieth century.
As realized by Marx, Capitalism running wild would perish.
And my friends we're about ready to throw dirt on its coffin.

[Greyhound]

17. Capitalism and the fractional reserve banking system are not the same thing.

Our major problem is that we are held captive by the latter. The former is readily managed.

The FRCBS is the very definition of a Ponzi scheme. It was designed as such in the beginning when the parasites of the day turned this fraud into accepted practice because they were the beneficiaries of it.

[goforit]

18. So true. It is my very own naivete to think these parasites would go to this xtreme

[annabanana]

35. Alan Greenspan's naivete too, apparently..

At least according to him when he spoke to Congress.
It just never occurred to him that people with the untold riches of The United States right in front of them and no one looking over their shoulder might, you know.... help themselves

[leftofthedial]

26. there are two ways for capitalism to work

one is for there to be a virtually inexhaustible supply of some commodity to exploit, for example, slave labor or "free" land to develop or extremely cheap natural resources or the like

the other way is to regulate it until it becomes a-l-m-o-s-t socialism

[fed_up_mother]

23. Don't confuse the unregulated financial markets with capitalism

Regulated capitalism combined with progressive - but not too onerous - taxation - is a good way to balance economic freedom and justice. It also works very well to lift up people out of poverty.

Unfortunately, we have nothing of the sort right now. :(

[leftofthedial]

27. pure capitalism is, by definition, unregulated.

regulation of capitalism works better and better, the closer it gets to becoming socialism

[fed_up_mother]

28. True, but for purposes of this board

Some folks here hate all forms of capitalism.

[Lyric]

45. "Onerous" taxation?

One of America' most prosperous periods was when the wealthiest Americans were taxed at a rate of over 70%. Of course, they all had lots of deductions and loopholes to get out of a big chunk of that tax bill, but they still paid a hefty amount...and prospered ANYWAY, along with the little people at the bottom of the economic ladder who did well right along with them.

Would you call that "onerous?" I think it's fair, myself. The top ten percent own 70% of the country's assets and wealth. They should pay at least 70% of their income in taxes, too. God knows our laws benefit THEM a thousand times more than they benefit us.

[cliffordu]

2. RE: 1-percent of the population owns 99-percent of the wealth.

That's fine. They'll be easier to find with the torches an pitchforks......

[Raster]

7. Proud member of the "Torch and Pitchfork" crowd!

[Octafish]

9. Excellent thought. We can only eat them once, so how about putting them to good use?

We can make them work for a living.



A lifetime of toil is easy compared to what they deserve.

[cliffordu]

10. Yep, or put them to work rebuiding the inner cities....with their hands.

[dkofos]

3. That's exactly what it is.

Did you really expect the moran in chief to help the middle class??

[Octafish]

11. No. No surprise: I was on to his gangster ass from Day 1.

As Corporate McPravda has failed in their Constitutional duty, I put down some thoughts on the subject.

Know your BFEE: Goldmine Sacked or The Best Way to Rob a Bank Is to Own One

Know your BFEE: Phil Gramm, the Meyer Lansky of the War Party, Set-Up the Biggest Bank Heist Ever

Feel sorry for my better half. She really wants to go through the roof when I say, "I told you so."

[Joiwind]

4. I was wondering the same thing

Do we have names, addresses, passport numbers, and asset lists?

[Octafish]

12. We may soon. UBS official indicted for helping move Richie Rich's money offshore...

From today's headlines:

Exec with Swiss bank UBS indicted in tax probe

By CURT ANDERSON – 19 hours ago

MIAMI (AP) — A senior executive with Swiss banking giant UBS AG was charged in a federal indictment unsealed Wednesday with conspiring to hide $20 billion in assets from the Internal Revenue Service using secret overseas accounts for thousands of wealthy customers.

Raoul Weil, chief executive officer of a UBS division handling cross-border business and private banking, is charged with one count of conspiring to defraud the U.S. through income tax evasion. But the indictment also says other UBS executives at high levels of the company took part in the conspiracy.

"Every American who pays his or her taxes should be offended that a select few use anonymous offshore accounts to avoid paying their fair share," said U.S. Attorney R. Alexander Acosta of Miami. Weil's lawyer said he is innocent.

The indictment charges that from 2002 and 2007, Weil, as chief of UBS's wealth management business, helped about 20,000 U.S. clients conceal assets in offshore accounts. About 17,000 of the customers hid their identities and their Swiss bank accounts from the IRS and many of them filed false income tax returns.

CONTINUED...

http://ap.google.com/article/ALeqM5gPmpTNXx28wCGlNOPEF_wM0c2DYQD94DKP5G0

The thing is, the gangsters who are doing this to us hold "elected" office.

Bush and his crew are traitors.

[Greyhound]

20. We must not ever forget that the perpetrators are on both sides of the isle.

Everything that might educate the people as to what has happened is "off the table".

The parasite class owns the table.

[AntiFascist]

5. This is what deregulation brought us and trickle-down economics...

at least Americans were smart enough not to elect McCain.

[Octafish]

32. Schumpeter in The Age of Turbulence

Look what the blogger artdiamondblog.com wrought:

Schumpeter in The Age of Turbulence

artdiamondblog.com
February 8, 2008

Alan Greenspan's much-discussed memoir, is full of thoughtful discussions of Schumpeter's central mesage of creative destruction. Here are a few lines from the first of those discussions:

(p. 48) Working with heavy industry gave me a profound appreciation of the central dynamic of capitalism. "Creative destruction" is an idea that was articulated by the Harvard economist Joseph Schumpeter in 1942. LIke many powerful ideas, his is simple: A market economy will incessantly revitalize itself from within by scrapping old and failing businesses and then reallocating resources to newer, more productive ones. I read Schumpeter in my twenties and always thought he was right, and I've watched the process at work through my entire career.

The reference to Greenspan's book is:

Greenspan, Alan. The Age of Turbulence: Adventures in a New World Economic Flexibility. New York: Penguin Press, 2007.

SOURCE:

http://www.artdiamondblog.com/archives/creative_destruction/

Don't know anything about the blogger's politics, but I do know I agree wholeheartedly with yours, AntiFascist!

[AntiFascist]

34. Wow, so Greenspan was a creative destructionist...

no better way to "reallocate resources" than destroy the economy to the point where massive bailouts are provided to the ultra-wealth class.

Thanks for the link Octafish, your threads are always a wealth of information.

[NorCalDem]

6. OF COURSE it was a Ponzi scheme...

anyone that didn't realize this, or doesn't realize it now in light of what's going on, has their head buried in the sand...

And congress can't wait to funnel more of our money into it, Obama included. I don't think our leaders understand what's going on because I think too many years in Washington makes one immune to common sense. They just can't fathom that Wall Street would rip us off, because in their minds Wall Street is looking out for it's investors whereas reality paints an entirely different story...

[Octafish]

40. Pope Leo XIII got it right!

Institutionalized Corruption.

Pope Leo XIII got it right!

By Rev. Richard Benson, C.M.
The-Tidings.com
Published: Friday, November 14, 2008

EXCERPT...

At the end of the 19th century, conditions were not entirely different from today's. The Industrial Revolution was well underway and liberal capitalism was reigning almost unchecked in the U.S. and Western Europe. Catholic leaders of the time were beginning to be concerned about the harsh plight of industrial workers (lack of benefits for health and retirement, wages that could not reasonably support individuals, let alone families, child labor). In the U.S. the majority of bishops supported the Knights of Labor, the burgeoning union comprised of many Catholics.

At the end of the 19th century, Communism was not much more than an idea struggling for political purchase. The Russian revolution was still almost three decades away. Rerum Novarum, the first in a 100-year body of Church social documents, was primarily concerned with the excesses of burgeoning laissez faire (free markets unchecked by any government regulation) capitalism. The teachings of Leo XIII are worth remembering today:

---The encyclical makes it clear that the Church rejects a central thesis of the "capitalist theory of realism" that labor is merely a commodity to be bought and sold at market prices determined by the law of supply and demand rather than the human needs of workers (Rerum Novarum, n. 16-17, 33-34).

---Catholics must have a "social conscience." In other words, one of the central tenets of economic life must be a concern for the "common good."

Leo XIII challenged two prominent principles of capitalism:

---The assumption that the "laws" of economics should be treated as though they were laws of nature: "…there underlies a dictate of natural justice more imperious and ancient than any bargain between employer and employee, namely, that wages ought not to be insufficient to supply a frugal and well-behaved wage earner" (RN, n. 34).

---The sacrosanctity of the wage contract: " through necessity or fear of a worse evil" the worker accepts a wage less than that required for frugal living, then "he/she is made the victim of force and injustice" (RN, n. 34).

Basically, Pope Leo XIII makes it clear that human labor cannot be treated simply as a commodity, because to do so is a denial of human dignity and a reduction of a worker to the status of a thing.

Centesimus Annus: The duty of government

From this first of its social encyclicals, the Church has gone on to make it clear that reasonable regulation by government of economic policies is a part of just government. Pope John Paul II takes up this theme in Centesimus Annus (1991), the most contemporary of the social encyclicals.

He warns that good government must guard between the two extremes of either a "welfare state" which disregards the principle of subsidiarity, creates unneeded bureaucracy and deprives people of responsibility, and laissez faire capitalism, where profit tramples persons:

"The State has a duty to sustain business activities by creating conditions which well ensure job opportunities, by stimulating those activities where they are lacking or by supporting them in moments of crisis. The State has the further right to intervene when particular monopolies create delays or obstacles to development. In addition to the tasks of harmonizing and guiding development, in exceptional circumstances the State can also exercise a substitute function.

"The Pontifical Council for Justice and Peace teaches that, 'The fundamental task of the State in economic matters is that of determining an appropriate juridical framework for regulating economic affairs. It is necessary for the market and the State to act in concert, one with the other and to compliment each other mutually. In fact the free market can have a beneficial influence on the general public only when the State is organized in such a manner that it defines and gives direction to economic development and making direct interventions when the market is not able to obtain the desired efficiency…'" (Compendium of The Social Doctrine of the Church, n. 352).

CONTINUED...

http://www.the-tidings.com/2008/111408/benson.htm

What Santayana said about remembering history applies to our Government and Media.
We, then, must remember if we are to avoid the pitfalls of believing that people who are accruing great wealth are good, just because they have great wealth.
Same holds for power.
What's sad is how the human brain can get hard-wired with bad information.

Thank you for knowing what's what, Bush in Berkeley.
Do you think We the People still have got a shot?

[formercia]

13. It's more like 600 Trillion worth of hole.

They know that the hole can never be filled. It's a matter of how much they can run off with before the music stops and there aren't any chairs left.

All we need is train loads of loot heading for Switzerland and Lichtenstein to make the deja-vu complete.

[Octafish]

41. Phil Gramm, the Meyer Lansky of the War Party, cleared the way to Switzerland.

Know your BFEE: Phil Gramm, the Meyer Lansky of the War Party, Set-Up the Biggest Bank Heist Ever.

What these traitors have left We the People holding is worse than an empty bag.

As you noted, my Friend: The bag is filled with IOUs.

[Greyhound]

14. A few quotes om this from people that knew...

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. - Henry Ford

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson - 1802 in a letter to then Secretary of the Treasury, Albert Gallatin

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. ... corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
Abraham Lincoln - Nov. 21, 1864, letter to Col. William F. Elkins

"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen." - Samuel Adams, speech at the Philadelphia State House, August 1, 1776

"They have sold their heritage of freedom for the illusion of a living. They have yielded their democracy." - FDR Acceptance speech, Democratic National Convention June 27 1936

Let me issue and control a nation’s money and I care not who writes the laws. - Mayer Amschel Bauer Rothschild

WAKE UP AMERICA!

[BelgianMadCow]

24. excellent addition to a great thread

bookmarked for that alone

[Greyhound]

29. Thank you. I find it infuriating that we have been warned too many times to count

since before we were a nation of exactly this and yet we remain willfully blind and deaf.
:kick:

[Octafish]

43. Joseph Stiglitz has a better Bailout Plan

Excellent quotations, greyhound1966. They contain the reason for memory: Wisdom.

Regarding what's ahead for We the People:

Here's a Better Bailout Plan

By Joseph Stiglitz, TheNation.com
Posted on October 1, 2008, Printed on October 1, 2008

The champagne bottle corks were popping as Treasury Secretary Henry Paulson announced his trillion-dollar bailout for the banks, buying up their toxic mortgages. To a skeptic, Paulson's proposal looks like another of those shell games that Wall Street has honed to a fine art. Wall Street has always made money by slicing, dicing and recombining risk. This "cure" is another one of these rearrangements: somehow, by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar.

There is, however, an alternative explanation for Wall Street's celebration: the banks realized that they were about to get a free ride at taxpayers' expense. No private firm was willing to buy these toxic mortgages at what the seller thought was a reasonable price; they finally had found a sucker who would take them off their hands -- called the American taxpayer.

SNIP...

Paulson and others in Wall Street are claiming that the bailout is necessary and that we are in deep trouble. Not long ago, they were telling us that we had turned a corner. The administration even turned down an effective stimulus package last February -- one that would have included increased unemployment benefits and aid to states and localities -- and they still say we don't need another stimulus. To be frank, the administration has a credibility and trust gap as big as that of Wall Street. If the crisis was as severe as they claim, why didn't they propose a more credible plan? With lack of oversight and transparency the cause of the current problem, how could they make a proposal so short in both? If a quick consensus is required, why not include provisions to stop the source of bleeding, to aid the millions of Americans that are losing their homes? Why not spend as much on them as on Wall Street? Do they still believe in trickle-down economics, when for the past eight years money has been trickling up to the wizards of Wall Street? Why not enact bankruptcy reform, to help Americans write down the value of the mortgage on their overvalued home? No one benefits from these costly foreclosures.

The administration is once again holding a gun at our head, saying, "My way or the highway." We have been bamboozled before by this tactic. We should not let it happen to us again. There are alternatives. Warren Buffet showed the way, in providing equity to Goldman Sachs. The Scandinavian countries showed the way, almost two decades ago. By issuing preferred shares with warrants (options), one reduces the public's downside risk and insures that they participate in some of the upside potential. This approach is not only proven, it provides both incentives and wherewithal to resume lending. It furthermore avoids the hopeless task of trying to value millions of complex mortgages and even more complex products in which they are embedded, and it deals with the "lemons" problem -- the government getting stuck with the worst or most overpriced assets.

Finally, we need to impose a special financial sector tax to pay for the bailouts conducted so far. We also need to create a reserve fund so that poor taxpayers won't have to be called upon again to finance Wall Street's foolishness.

If we design the right bailout, it won't lead to an increase in our long-term debt -- we might even make a profit. But if we implement the wrong strategy, there is a serious risk that our national debt -- already overburdened from a failed war and eight years of fiscal profligacy -- will soar, and future living standards will be compromised. The president seemed to think that his new shell game will arrest the decline in house prices, and we won't be faced holding a lot of bad mortgages. I hope he's right, but I wouldn't count on it: it's not what most housing experts say. The president's economic credentials are hardly stellar. Our national debt has already climbed from $5.7 trillion to over $9 trillion in eight years, and the deficits for 2008 and 2009 -- not including the bailouts -- are expected to reach new heights. There is no such thing as a free war -- and no such thing as a free bailout. The bill will be paid, in one way or another.

CONTINUED...

http://www.alternet.org/workplace/101034/here%27s_a_better_bailout_plan/

What an outstanding suggestion: Give We the People some help. The general citizenry seem to be a whole lot more conscientious, let alone generous, with their spending than the upper crust.

Thank you for giving a damn, my Friend. Thanks also for helping spread understanding -- exactly what we need to move forward.

[Greyhound]

47. It drives me crazy that these plans are getting no press at all. Even here on the site

for news addicts, we barely get a mention and the posts quickly drop out of sight in favor of the distraction Du Jour.

The transaction tax, that almost every other market already imposes, would be an excellent first step even if we are going to keep the same defective, broken model.

Ah well, we do what we can.
:kick:

[BlueEyedSon]

19. More like a Martingale Wagering System

[Octafish]

44. Wall Street and Washington’s wrecking crew aim to get the most expensive free lunch in US history.

Fascinating analogy, BlueEyedSon:

http://www.ace-ten.com/strategy/intermediate/effective.html

The thing is that they're not just doubling bets on our behalf, they are lying to We the People in order to steal the money.

The $700 Billion Questions

Using the shock doctrine, Wall Street and Washington’s wrecking crew aim to get the most expensive free lunch in American history

By David Sirota
In These Times
September 22, 2008

If a museum in the next superpower nation ever commemorates the decline of the last great superpower, it will make the two-and-a-half page bill introduced this week the center of the display.

Just as they do today at the National Archives’ Declaration of Independence exhibit, tourists in the future—perhaps in Beijing, perhaps somewhere else—will line up to see a framed draft of this week’s White House legislation demanding Congress surrender its power of the purse, and give an unelected appointee—in this case, Treasury Secretary Henry Paulson—the power to hand over $700 billion of taxpayer money to “any financial institution,” “without limitation…on such terms and conditions as determined by .” In a nation priding itself on separating powers between the branches of government, the bill explicitly states that decisions by Paulson may not even “be reviewed by any court of law or any administrative agency.”

Whether the bill passes or not, the drafting of it—even the mere thinking of it—is the single most clear sign that all of the major tenets of American democracy are on the auction block these days: from constitutional checks and balances, to legislative and judicial oversight to electoral accountability itself.

In the immediate aftermath of what could be the starting gun of a second Great Depression, the public this week will face a wave of propaganda from Washington. Using the same playbook that succeeded in passing the Patriot Act and the Iraq War authorization with almost no questions, politicians will inevitably invoke love of country, fear, loathing and red-alert emergency—all designed to ram this bill into law as fast as possible, with as little scrutiny as possible. Put in book terms, we will see Thomas Frank’s wrecking crew using Naomi Klein’s shock doctrine to justify a bigger free lunch than David Cay Johnston ever imagined.

SNIP...

Obama, meanwhile, has long relied on Gramm’s boss, UBS chairman Robert Wolf, as one of his top economic advisers and fundraisers. Worse, during his emergency meeting to discuss the crisis last week, five of the nine people he said would be directing his response have played a role in the crisis they claim expertise in fixing. They are:

** Former Clinton Treasury Secretaries Robert Rubin (now an executive at Citigroup, which is embroiled in the meltdown) and Lawrence Summers, who the Politico notes both “supported and helped negotiate the bill .”

** William Daley, the Clinton administration architect of corporate-friendly trade pacts like NAFTA and now a top official at J.P. Morgan Chase.

** Gene Sperling, the top economic adviser in the Clinton White House that deregulated Wall Street.

** Paul O’Neill, the former Bush Treasury Secretary, who despite occasionally criticizing the White House, is a lockstep conservative on economics.

Other than Joseph Stiglitz, Obama included not a single progressive, nor even one of the many visionaries like economist Dean Baker, who has for years been predicting exactly this kind of meltdown. Indeed, the one major labor-affiliated economist officially affiliated with his campaign, Jared Bernstein, “was not part of the crisis meeting,” according to the Washington Post.


4) When did a crisis suddenly mean that giving away taxpayer cash to campaign donors is laudably apolitical, but spending taxpayer money on taxpayers is inappropriately “political?”

During initial meetings with Congress about the bailout, Treasury Secretary Henry Paulson rejected “calls to include tighter regulations, corporate reforms or limits on executive compensation as part of the measure,” according to the Associated Press. He also stated his opposition to using a fraction of the money to help homeowners struggling with their bills, shore up the social safety net, or stimulate job growth through public infrastructure spending.

Almost universally, his position was praised by lawmakers and reporters as a judicious and apolitical one worthy of bipartisan praise. At the same time, demands to make sure taxpayers get something for their money were labeled unacceptably “political,” divisive and extraneous.

“What you heard last evening is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly,” Banking Committee Chairman Chris Dodd gushed to the New York Times after meeting with Paulson.

Fox News Sunday anchor Chris Wallace praised the White House proposal as “clean” and berated those who he said were trying to “Christmas tree” the bill with relief for homeowners, prompting Sen. John Kyl (R-Ariz.) to enthusiastically agree.

“There is a crisis in our country,” Kyl said. “We’ve got to come together as House and Senate, Democrat and Republican, and deal with this crisis as Americans, for the American people, and not try to bring on all of our political agendas.”

Senate Minority Leader Mitch McConnell (R-Ky.) echoed the sentiment, telling Politico.com that he does not want the bailout to become a vehicle for other “partisan plans and pet projects.”

SNIP...

To date, Sen. Bernie Sanders (I-Vt.) is the only lawmaker who has laid out a specific plan to both re-regulate the financial markets and responsibly finance a bailout. He proposes to impose a 10 percent surtax on those making over $500,000 a year, raising roughly $300 billion. “The people who can best afford to pay and the people who have benefited most from Bush’s economic policies are the people who should provide the funds for the bailout,” he said.

CONTINUED...

http://www.inthesetimes.com/article/3932/the_700_billion_questions/

[judasdisney]

21. Baloney. $1.14 QUADRILLION, not $2 Trillion

http://jutiagroup.com/2008/07/24/global-derivatives-market-now-valued-at-114-quadrillion/

http://baltimorechronicle.com/2008/101308Floyd.shtml

http://en.wikipedia.org/wiki/Derivative_(finance)

http://news.bbc.co.uk/1/hi/business/2817995.stm

[Octafish]

46. The Four Scenarios - Debt Deflation, Hyperinflation, Quadrillion Play and Muddle Through

Heh. Yeah. My way of looking at it is that We the People have been left holding something worse than an empty bag -- We now own the responsibility for a bag filled with IOUs.

The Four Scenarios:
Debt Deflation, Hyperinflation, Quadrillion Play and Muddle Through

London, UK - 15th November 2008, 07:50 GMT

Dear ATCA Open & Philanthropia Friends

(Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.}

SNIP...

Whilst the fear is that we may be heading for Scenario 1 and the way to avoid it is via a benign form of Scenario 2 coupled with Scenario 4, it may be important to ask, what if, Scenario 2 has already happened and the Weimar Republic's printing of money is manifest in this broadband internet and high performance computing age, via the complex securities and instruments that private financial institutions created and sold between 1995 and 2007. This has been manifest via the invisible Quadrillion dollar derivatives equation and the associated hundred trillion dollar plus debt securitisation pyramid. Banks and brokers were, in effect, printing their own proprietary issues of "money" via complex securities and as a result their supply of money grew to exceed by at least one order of magnitude the money printed by central banks. Central banks failed to recognise this phenomenon and continued to focus on monetary growth and money velocity utilising old metrics rather than acknowledging the wider spectrum of public (central bank / government) and private money taken together. How could the central banks possibly fail to recognise this new phenomenon while securitisation and derivatives, the tools of liquidity creation, were a central obsession of the financial industry? In fact, the central banks played along, humming the mantras of privatisation and deregulation.

These quadrillion dollar worth private currencies -- paper assets -- have fuelled the globalisation process, massive and unprecedented world GDP growth, mergers and acquisitions, and large scale industrial / infrastructure projects, until natural boundary conditions kicked in, ie, the earth ran out of raw materials and natural resources in sufficient quantities. Scenario 1 started as commodity prices -- food, fuel and raw materials -- went into hyper drive to trigger the catastrophic demand collapse we are now witnessing. Now what we may be heading towards is in fact Scenarios 3 or 4, which are post the Weimar Republic's hyperinflation manifest in most assets' pricing and Scenario 1, which is yet to play its full course. In a nutshell, "1923" already happened up until "2007", "1929" happened in 2008, and the 1930s equivalent is now unfolding. Given that the Great Unwind is happening near the speed of light because of the internet, mobile and satellite communications, as well as high performance computing, it is possible to move to Scenarios 3 or 4 and out of Scenario 1, much faster than was practicable before World War II.

In parallel, the central bankers would like us to believe that they have been and are still in charge because they can print fiat currency at will and set monetary policy at near zero rates if they like. This is governance by magic. What if they can no longer exercise sufficient control and have become co-dependent on the parallel printers of money -- manifest as paper assets -- which happen to be the private financial institutions? What if the central bankers and regulatory authorities are encumbered by what the private financial institutions have done during 1995 and 2007, during which time the policing of the global financial system was inadequate and cross-border arbitrage opportunities exploded? This may mean that we are still living within a myth that central bankers can resolve the mess in the real economy and actually they can't because the paper fuelling the real economy was not issued by them and large quantities of it resides off-balance sheet in a non-transparent way. Yet, the central banks have to mop up the ongoing toxic liabilities and black holes, which may or may not be possible ad infinitum given the unprecedented scale of this challenge. The quantum of asset price deflation underway post the collapse of the Weimar Republic type Quadrillion dollar paper asset bubble is so large that all the kings horses and all the kings men may not be able to put Humpty Dumpty together again. The power of central bankers may have been permanently eroded given that the centre of gravity has now shifted. It lies with the financial markets and their participators who transact the deflating quadrillion dollar plus paper asset equation of which fiat currency is a much smaller quantum.

CONTINUED...

http://www.mi2g.com/cgi/mi2g/frameset.php?pageid=http%3A//www.mi2g.com/cgi/mi2g/press/151108.php

These evil turds are smart. Good thing for us, the majority of We the People are Good.

Thank you for the excellent links, judasdisney. Perhaps our economy will be, eh, transformed into something of real value -- what makes life better for ALL Americans, not just those with the means to hire a CPA and tax attorney or buy a Congress and White House.

[leftchick]

22. Man! Are we SCREWED or what???

great article though it puts me into a deeper depression. :(

<snip>

“The government documents that Bloomberg seeks are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression. The effect of that crisis on the American public has been and will continue to be devastating. Hundreds of corporations are announcing layoffs in response to the crisis, and the economy was the top issue for many Americans in the recent elections. In response to the crisis, the Fed has vastly expanded its lending programs to private financial institutions. To obtain access to this public money and to safeguard the taxpayers’ interests, borrowers are required to post collateral. Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed’s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom.”


<snip>


What all of the companies in this article have in common is that they were writing secret contracts called Credit Default Swaps (CDS) on each other and/or between each other. These are not the credit default swaps recently disclosed by the Depository Trust and Clearing Corporation (DTCC). These are the contracts that still live in darkness and are at the root of why the Wall Street banks won’t lend to each other and why their share prices are melting faster than a snow cone in July.

A Credit Default Swap can be used by a bank to hedge against default on loans it has made by buying a type of insurance from another party. The buyer pays a premium upfront and annually and the seller pays the face amount of the insurance in the event of default. In the last few years, however, the contracts have been increasingly used to speculate on defaults when the buyer of the CDS has no exposure to the firm or underlying debt instruments. The CDS contracts outstanding now total somewhere between $34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness. It is also quite likely that none of the firms that agreed to pay the hundreds of billions in insurance, such as AIG, have the money to do so. It is also quite likely that were these hedges shown to be uncollectible hedges, massive amounts of new capital would be needed by the big Wall Street firms and some would be deemed insolvent.

Until Congress holds serious investigations and hearings, the U.S. taxpayer may be funding little more than Ponzi schemes while companies that provide real products and services, legitimate jobs and contributions to the economy are left to fail.




Who here thinks congress will "Do the right thing"??? :cry:


thanks Octafish.



:argh:

[H2O Man]

25. Nominated.

It is part of an on-going process that began in 1980.

Thank you.

[DemReadingDU]

30. Thanks, good article

k&r

[Joe Chi Minh]

31. I was reminded of the clandestine part of the bail-out by this opening

paragraph in an Onion piece:

"The bail-out reminds me of this opening paragraph of the recent Onion piece:

"WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

'What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution.'

It's reassuring to know some people are staying positive, isn't it?"

[DU GrovelBot]

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[FreeStateDemocrat]

36. So far.

[Norrin Radd]

37. kr

[tomp]

38. saying this is what du predicted is a bit much.

there were quite an argument about it as i recall. i remember being lambasted as anti-democratic for not going along with it.

[lonestarnot]

39. arrrrrrg! 1-percent of the population owns 99-percent of the wealth

I see it in my crystal ball. :grr:

[Karenina]

42. bttt!

:kick: