THE FINANCIAL IMPLOSION STILL IMPLODING: FED FLUMOXED, AIG BAILED

September 16th, 2008 - by: danny

Dear Reader, Yes I know: The world won’t end if Media Channel goes down. At the same time, I hope there are enough of you out there who don’t want that to happen. Every day, we bring you updates on Wall Steet’s financial crisis and now we have to to bring you information about ours.

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FED: NO MORE INTEREST RATE CUTS FOR NOW
ANOTHER DAY, ANOTHER BAILOUT; BARCLAYS GOES SHOPPING
REPUGS USE “POLLS” TO TURN JEWS AGAINST OBAMA

The crisis deepens but this time the Federal Reserve Bank is passing on calls to reduce interest rates.The reason: they worry about rising inflation even as inflation is going up at record levels thanks, in part, to their earlier rate cuts. At the same time, they are putting up $85 billion to save the insurance company AIG and taking 80% of the shares supposedly for a resale later on. A liquidating Lehman managed sell one of its units to London’s Barclays Bank which did not want the whole investment company because they consider much of its debt to be “toxic waste.”

(More of us need to talk less about a bailout and more about a JAIL OUT for those responsible.)

The Financial Times reports: “The US Federal Reserve announced that it will lend AIG up to $85bn in emergency funds in return for a government stake of 79.9 per cent and effective control of the company — an extraordinary step meant to stave off a collapse of the giant insurer that plays a crucial role in the global financial system.” …Barclays put up $1.75 billion to pick off one of Lehman’s better performing units at the fire sale.

SALON: IS THERE A LINK BETWEEN AIG AND JOHN MCCAIN

After snubbing Lehman, and initially denying
AIG’s request for help, would the Bush administration
change its mind? There’s a great story that isn’t
getting enough attention — a clear a connect-the-dots
drama that links AIG to the unregulated credit
derivatives market to former Senate Banking Committee
chairman Senator Phil Gramm all the way back to John
McCain, the Republican presidential candidate currently
fulminating all across the land about the recklessness
and impropriety of using taxpayer money to bail out
corporations such as…. AIG.

Here’s how it works. The reason explaining why the
possibility of an AIG bankruptcy is sending shudders of
fear through financial markets is AIG’s role as one of
biggest sellers of credit default protection on the
planet. So called “CDS” (credit default swaps) are a
form of bankruptcy insurance for bond-holders. Worried
that your subprime mortgage-backed CDO might default?
No problem, AIG can help, happy to sell you an
insurance policy protecting you against that default.
For a nice premium, of course.

According to HousingWire, AIG is on the hook for “CDS
protection on $441 billion of fixed-income assets,
including $57.8 billion in subprime-mortgage related
securities.”

SEE: ANDREW LEONARD ON SALON.COM AND NOMI PRINS ON ALTERNET.ORG

The NY Times reports: Rate Steady Rate Steady as It Worries About Growth

Putting concerns about inflation ahead of the financial turmoil, Fed policy makers kept the benchmark lending rate unchanged at 2 percent.

“NO BOTTOM” TO LOSSES

When Dr Nouriel Roubini started predicted a major economic decline, he was scoffed at, called names like Dr. Gloom, and generally ignored. Now, in the aftermath of the continuing blows to the economic order, he is now considered a genius, and is a widely sought after commentator. His most recent prognostication is deep. He says simply:

“There is no bottom to the losses.” Watch”

No bottom!

Here we go again in another panic manic response mode with the Fed expected to do more rate cuts while billions more are “INJECTED” into shoring up those markets and CONfidence.

Ealer he had said there is already a slow motion run on the banks. This is a point Paul Joseph Watson makes:

If mindless celebrity gossip, cooking tips and dating advice, features a top story about how Americans could lose their bank deposits following the collapse of Lehman Brothers. For the Internet giant to prominently report that there is already a “slow motion run on banks” is indeed a landmark event, and precludes even the most ignorant American from claiming they were not forewarned about the unfolding economic catastrophe. –

You know it’s bad when Yahoo.com features a story about fiscal armageddon

You know things are bad when Yahoo.com, the most trafficked website in the world and usually a purveyor of mindless celebrity gossip, cooking tips and dating advice, features a top story about how Americans could lose their bank deposits following the collapse of Lehman Brothers.

For the Internet giant to prominently report that there is already a “slow motion run on banks” is indeed a landmark event, and precludes even the most ignorant American from claiming they were not forewarned about the unfolding economic catastrophe.

The article points out that although the Federal Deposit Insurance Corp. guarantees individual accounts up to $100,000, the FDIC fund only has about $50 billion to “insure” about $1 trillion in assets across the nation’s financial institutions.

When Americans realize the fact that banks are “going to run out of money”, the article nonchalantly states, a run on the banks will accelerate.

The warning comes from top economist Nouriel Roubini, of NYU’s Stern School and RGE Monitor, who correctly predicted the severity of the credit crunch. Roubini says there is already a “slow-motion run on retail banks” occurring nationwide.

TAVIS AND MARIA

As it happens, I was watching Maria Bartiromo, the queen of the so called Money Honeys, effortlessly, breathlessly and somewhat brilliantly explain the crisis to Tavis Smiley on PBS last night. In the end she indicted the bankers for greed and on the surface it sounded critical. I thought about it some more and wrote to Tavis who has had me on his program to point out what was missing in what is now the conventional wisdom media narrative. (Even John McCain is saying there was fraud in the market but does not say what should be done!)

It was fun watching Maria B’s rapid fire explanation of the financial crisis last night with its euphoria to greed bubble-bursting narrative.

I hope you don’t leave it there. She’s always good TV and, hence, so overexposed. She’s a pro. She’s attractive, articulate and authoritative,but also SUPERFICIAL and avoids some of the key issues I look at in my book PLUNDER

Here are three key points.

l. She avoided detailing the IMPACT of this crisis not on bankers but ordinary people–massive foreclosures, dropping incomes and a strip mining of almost every black community in America.

2 She avoided the CRIMINAL nature of discriminatory and predatory loans—white collar crimes that the FBI has opened l400 cases on—and how this was done with malace and forethought to enrich some at the expense of many. This was one tactic in the eco war on the middle class and poor that has deepened inequality.

3. She avoided the HISTORY of the firm–and the crisis and the way public policy enabled it.

NYOBSERVER: INSIDE CNBC AS THE CRISIS DRIVES RATINGS

PROGESSIVE REVIEW: BEHIND THE SCENES

We find it interesting that the media is ignoring the fact that the Treasury Secretary controlling the bailout of the American financial interest was formerly the head of one of the major money machines: Goldman Sachs, as was his predecessor, Robert Rubin. In other contexts, this would be considered a major conflict especially since Goldman Sachs has a huge interest in the bailout of Fannie and Freddie and far less interest in the success of Lehman Brothers, which Henry Paulson let fail.

It’s a little like the situation with the sainted Alan Greenspan of whom the French economist Patrick Artus said, “He created four major crises: savings and loans, [Long-Term Capital Management], new-technology shares, and subprime mortgages.” He then was “congratulated for his role as fireman, but he’s the one who started the fire.”

Having covered the Savings & Loan scandal – in which the bailout became the successor scandal – we can assure you that the powers that be have absolutely no interest in finding out how we got into this mess, only in how their friends can survive as well as possible. But as a reminder of how this stuff really works, consider this Wikipedia note on Robert Rubin:

“In 1999, affirming his career-long interest in markets, Mr. Rubin joined Citigroup. Of note, the supermerger between Travelers Group and Citicorp was facilitated by the repeal of the Glass Steagall Act. This legislation was passed under the Clinton administration, days before Rubin’s resignation. Consolidation of investment, commercial banking, and insurance services as practiced by Citigroup under the direction of Rubin, has been implicated in the subprime mortage crisis. Despite criticism for his role in this debacle, Rubin serves as a Director and Chairman of the Executive Committee. . .

“He sparked controversy in 2001 when he contacted an acquaintance at the Treasury Department and asked if the department could convince bond-rating agencies not to downgrade the corporate debt of Enron, a debtor of Citigroup. Rubin wanted Enron creditors to lend money to the troubled company for a restructuring of its debt; a collapse of the energy giant might have serious consequences for financial markets and energy distribution. The Treasury official refused. A subsequent congressional staff investigation cleared Rubin of any wrongdoing, but he was still harshly criticized by political opponents.

Mother Jones The natural result of the federal government response that emerged over the weekend around the Lehman Brothers catastrophe is to place the venerable Federal Deposit Insurance Corporation, the government institution that insures the bank deposits of hundreds of millions of Americans, in grave jeopardy. While Treasury secretary Henry Paulson and others talk about not sinking taxpayers’ funds into saving Lehman, the real, unstated policy is just the opposite.

It is going to work like this: As it did with Merrill Lynch, the government’s approach to the crisis will force commercial banks to swallow troubled Wall Street investment companies, flooding the commercial banks with the lousy junk bonds and faulty mortgages that the investment companies own, and that started this mess to begin with. More and more commercial banks will find themselves on the edge, and they will turn to the FDIC. But the FDIC can’t possibly shoulder the growing burden. At that point, Congress will have to step in and shore up the FDIC. The deal doubtless will include some version of the S&L bailout, with the creation of a Resolution Trust Company type institution into which the banks can dump the sub-prime mortgages, junk bonds, and the like.

In other words, the public will end up paying for Wall Street’s financial binge. And the leaders of the financial community who got us into this expensive mess? They’ll get the traditional golden parachutes and lavish pension arrangements–huge payoffs for screwing the public.

CAN WALL ST BE REFORMED?

So far ther has been little discussion of what has to be done to reform Wall Street as suggested here by Dean Baker:

“With the demise of Fannie Mae, Freddie Mac, IndyMac, Bear Stearns and now Lehman Brothers, we’ve been treated to the failure of more major financial firms than during any year since the Great Depression. The sight of rich bankers getting the boot might be lots of fun if it were just a spectator sport. Unfortunately, we are in the game with these clowns.”

Meawnhile in the financial trenches, more is shaking and breaking”

Money market rates doubled overnight, forcing interventions by central banks overseas. and the Fed joined suit this morning. From Bloomberg:

The Federal Reserve added $50 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos.

The rate for overnight loans between banks had opened at 3.75 percent, above the Federal Reserve’s targetrate, as American International Group Inc.’s credit rating cut increased banks’ reluctance to lend. The rate dropped to the central bank’s target of 2 percent after the cash injection.

The Fed added $70 billion in reserves to the banking system yesterday, the most since the September 2001 terrorist attacks, to bring borrowing costs down after the bankruptcy of Leman Brothers Holdings Inc. triggered a hoarding of cash. Funds opened at 3.5 percent yesterday.

“From a pure reserve perspective, the desk might not need to arrange any repos at all today,” Wrightson ICAP analysts wrote in a note. “From a dealer-funding perspective, another round of large morning repos may have a calming effect.”

Goldman Profit Falls 70%

No surprise that brokerage firm results are deteriorating, and at least Goldman is still profitable and idd a tad better than anticipated….although I haven’t dug into the numbers to see how solid those profits are. But bad numbers from Goldman would not have gone over at all well this week.

From the Wall Street Journal:

Goldman Sachs Group Inc. posted a 70% drop in fiscal third-quarter net income on declining client activity and asset valuations as return on equity fell….

The slightly better-than-expected results on the earnings front — though far worse from the second quarter — serve as a small relief for shareholders who had been looking to the quarterly results from Goldman Sachs, one of the only two remaining big investment banks, for clues as to how bad things have gotten amid the crisis on Wall Street.

Still, many worries remain as Goldman’s latest numbers show even a firm that in the past was seen as golden is being badly hurt by deteriorating market conditions. Shares of Goldman fell 7.3% to $125.75 in recent premarket trading.

Bloomberg’s story covered similar ground but with a downbeat title:on the news summary page: “Goldman Profit Slumps 70%, Biggest Drop Since Company Went Public in 1999.”

Inflation Slows; Overall CPI Drops in August

Notice how the articles focuses on CPI, which is the more favorable measure, rather than core CPI, which was highlighted when prices were rising at worrying rates and provided the less troubling picture.

From the Wall Street Journal:

U.S. consumer prices fell last month for the first time in nearly two years reflecting a rapid drop in oil prices as well as lower prices for automobiles and housing, which slid for the first time in over five years.

The figures, which included a tame rise in core prices excluding food and energy, should make it easier for Federal Reserve officials to address severe strains in financial markets by cutting interest rates if needed without having to worry about an inflationary outbreak.

Officials meet Tuesday and many economists think with annual inflation rates still quite elevated, officials will stand pat and wait for more information on the economy and markets, although a rate reduction is a possibility.

The consumer price index fell 0.1% in August, the Labor Department said Tuesday, reversing a fraction of the previous month’s 0.8% rise. Excluding food and energy, the CPI advanced 0.2%. The figures were in line with Wall Street forecasts, according to a Dow Jones Newswires survey….

Consumer prices rose 5.4% on a year-over-year basis, down slightly from a 17-year high of 5.6% in July. The core CPI grew a more modest 2.5% compared to August 2007, though that’s still well above the Fed’s long-term goal of 1.5% to 2%. Over the past three months, core inflation rose at a 3.4% annual rate. (Naked Capitalism)

Mike Stathis: Bank of America, Merrill Bailout Disguised as Buyout?

It appears as if we are witnessing government bailouts using taxpayer money that are being deceitfully disguised as buyouts. Not just with the Merrill buyout but also this newly established $70 billion emergency bank fund, set aside to help out banks with future problems. Where do you think this money is coming from?

IS THE US WAGING WAR IN PAKISTAN?

From TomDispatch today, a timely post on a widening war from Pakistan expert Tariq Ali: “The American War Moves to Pakistan, Bush’s War Widens Dangerously”

Note for Websites: Please note that a two-part video in which Tariq Ali discusses the U.S. Pakistani relationship and Obama’s plans for Afghanistan and Pakistan is available with this post. The embed codes are at the end of this piece.

Just as his new book on the tangled U.S.-Pakistani relationship, The Duel: Pakistan on the Flight Path of American Power, is being published, well-known Pakistan expert Tariq Ali suggests that the Bush administration’s decision to widen its Afghan War into Pakistan — striking repeatedly in the Pakistani “badlands” on the Afghan border — is a perilous undertaking for both countries. “Its effects on Pakistan,” the sixth most populous country on the planet and the only nuclear-armed Islamic state, he writes, “could be catastrophic, creating a severe crisis within the army and in the country at large. The overwhelming majority of Pakistanis are opposed to the U.S. presence in the region, viewing it as the most serious threat to peace.” Why, then, is the Bush administration taking such a step? Why is it willing to destabilize Pakistan’s new government and its military?

In today’s TomDispatch post, Ali analyzes the situation powerfully, offering his own answers to these questions. This is an important piece about the American war in Afghanistan that began in 2001 and, instead of ending in victory, only expands and devolves. Alli concludes: “Perhaps the attacks [on Pakistan] will cease on November 4th. Perhaps pigs (with or without lipstick) will fly. What is really required in the region is an American/NATO exit strategy from Afghanistan, which should entail a regional solution involving Pakistan, Iran, India, and Russia. These four states could guarantee a national government and massive social reconstruction in that country. No matter what, NATO and the Americans have failed abysmally.”

VIDEO PART ONE

HERE IS PART TWO OF THIS VIDEO

MEDIA

How the Republicans consistently manipulate the mass media, which has become predictable to the point where proactive planning to manufacture incidents is now possible.

PALIN DOMINATING

Democratic presidential candidate Barack Obama generated more exposure last week, but Republican VP hopeful Sarah Palin drove the media’s election narrative the week of Sept. 8-14, according to a new report from the Pew Research Center’s Project for Excellence in Journalism.

Obama was a significant or dominant factor in 61% of campaign stories last week. Palin was a significant or dominant factor in 53%, edging out her running mate, John McCain (49%). Obama’s VP candidate, Joe Biden, registered only at 5%.

Although Palin trailed Obama in the amount of coverage, she was clearly the focus of the campaign narrative last week. Storylines involving Palin accounted for 50% of the newshole, and she was a major factor in the top four media election narratives of the week. Scrutiny of Palin’s public record (14% of the newshole) topped the press agenda. Her ABC interview with Charlie Gibson followed (10%). The “lipstick on a pig” comment (10%) and reaction to Palin’s nomination (9%) rounded out the biggest storylines for Sept. 8-14.

POLITICS

Jewish voters complain of anti-Obama poll

Jewish voters are complaining of a poll that, after confirming their religion, asks a series of questions that appear aimed at alarming Jewish voters, including linking Barack Obama to Palestinian terrorist groups.

Debbie Minden of Pittsburgh described receiving the call from “Research Strategies” late yesterday afternoon. And a Key West woman, Joelna Marcus, reportedly received a similar-sounding call from the same group, according reports from the Obama-backing organization JewsVote.org and from a liberal blog.

Minden, a psychologist who lives in the Jewish neighborhood of Squirrel Hill, said the poll — which came from an identified number — began with relatively inocuous questions about what organizations she belongs to, whether she prefers CNN or Fox News, and how Obama and McCain compare on a range of issues, from national security to hte economy to education.

The caller also asked whether she was Jewish.

“It sounded like a real poll,” Minden, 56, asaid.

Then the caller asked, as she recalled: “Would it change your mind about Obama if you knew that his church was anti-Israel? Would it change you rmind if you knew that the leaders Hamas had endorsed Obama? Would it change your mind if you knew he had met with the leaders of Hamas?”

YOU LAUGH TO KEEP FROM CRYING. PART, COUNTLESS TIMES

Andy Borowitz comments on the Mcain version of the old Pogo comic: “we have met the enemy and they are us.”

McCain Attacks Washington, Republicans, Old White Men with White Hair
Most Ironic Speech to Date, Experts Say

In what some political observers are calling his most ironic speech of the 2008 campaign, GOP presidential nominee John McCain today lashed out at Washington, the Republican Party and a group of insiders he called “old white men with white hair.”

“It’s time to take our country back,” Sen. McCain told his audience in Dayton, Ohio. “It’s time to send a message to those in power – those Republicans in Washington, those old white men with their combed-over white hair.”

Sen. McCain went on to attack the power elite on Wall Street, calling them “wealthy plutocrats with private jets and too many houses to keep track of.”

“The time has come to say enough is enough to those rich old white men,” he said. “And the same goes to their zombie-like trophy wives who plaster their makeup on like trollops.”

Responding to the nation’s economic turmoil, Sen. McCain said that as President he would create millions of jobs “by putting Americans to work making negative ads.”

“We no longer lead the world in manufacturing cars, steel, or computers,” Sen. McCain said. “But our negative ad industry is second to none.”

In other economic news, President Bush announced another massive bailout today, saying that he had completed a deal for China to buy the United States in its entirety.

“This was a difficult deal to pull off,” Mr. Bush acknowledged. “The hard part was identifying the parts of the U.S. that China didn’t already own.”

Thanks for tuning in and hopefully responding to our appeal. I have been busy doing media appearance on the arguments in my book PLUNDER about the crisis. I was on AlJazeera English last night and on the Joey Reynolds Show in the late late hours.

Journalists, interviewers bookers. get in touch. We need some other perspectives on the air about this crisis.

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