UPDATE ALARM–Thursday 1 PM—FROM JUAN COLE’S BLOG RE: CAMPAIGN FOR WAR WITH IRAN…( I know Rubin—he is very credible)

Barnett Rubin (Afghan expert, foreign policy analyst) relays a message from a well-connected friend in Washington on the Cheney Administration’s plans to roll out a military confrontation with Iran in September. He writes at the Global Affairs blog:

” My friend had spoken to someone in one of the leading neo-conservative institutions. He summarized what he was told this way:

They [the source’s institution] have “instructions” (yes, that was the word used) from the Office of the Vice-President to roll out a campaign for war with Iran in the week after Labor Day; it will be coordinated with the American Enterprise Institute, the Wall Street Journal, the Weekly Standard, Commentary, Fox, and the usual suspects. It will be heavy sustained assault on the airwaves, designed to knock public sentiment into a position from which a war can be maintained. Evidently they don’t think they’ll ever get majority support for this–they want something like 35-40 percent support, which in their book is “plenty.”

Of course I cannot verify this report. But besides all the other pieces of information about this circulating, I heard last week from a former U.S. government contractor. According to this friend, someone in the Department of Defense called, asking for cost estimates for a model for reconstruction in Asia. The former contractor finally concluded that the model was intended for Iran.”

YOUR FBEEEYE AT WORK

BRACE FOR THE RECESSION
REMEMBERING KATRINA AND ITS VICTIMS
HAPPY LABOR DAY

These are what are called slow news days because so many reporters are on vacation. It looks like the Medhi army in Iraq has been put on vacation too. Katy Couric is heading to Baghdad in the footsteps of Angelina Jolie who has left and I am sneaking away to another B—The Berkshires–for a few days.

In Pakistan a deal has been made that will allow Benazir Bhutto, the deposed Prime Minister to return. This may stabilize things there.

The NY Times reports: Under the deal, Gen. Pervez Musharraf would serve again as president and former Prime Minister Benazir Bhutto would return to contest elections

ISLAMABAD, Pakistan (AP) - Pakistani leader Pervez Musharraf and former political rival Benazir Bhutto have reached agreement regarding Musharraf’s military role, a key step toward a power-sharing agreement, a senior official said Wednesday.

“Both sides have agreed on the issue of uniform,'’ Railways Minister Sheikh Rashid Ahmed, a close Musharraf ally, told reporters. Bhutto was quoted in a British newspaper making a similar comment, though neither she nor Ahmed elaborated.

Envoys for the U.S.-allied military president and former Prime Minister Bhutto, who is planning a return from exile abroad, are trying to work out a pact that would help Musharraf secure another five-year presidential term.

CHINA AND MATTEL TOYS

The Chinese media is reporting that the recent toy scandal was hardly all the fault of manufacturing in China. Government offcials say they investigated and will assume responsibilty for only 15% of the problems. They claim that the technical designs done by Mattel were largely at fault. (Thanks to CL for this item.)

BANKERS OVERSEAS PISSED AT US MARKETS

Meanwhile, the financial crisis continues to smoulder with international bankers seething at US banking practices that have caused them to suffer losses. They bought debt packages that were supposedly highly rated. And then lost fortunes. There’s a threat to get out of the American market all together unless new international rules are applied.

ECONOMY ON THE SKIDS; TIDAL WAVE PREDICTED

Ml-implode reports the total of mortgage lending companies that have now imploded is 142. The Robbo Reports interviews the website’s wekll informed editor Aaron Krowne:

I honestly don’t know how many at-risk outfits are left….dozens, perhaps. We’re trying to gather together ALIVE and stable lenders for our industry readers to bring their business to. But as far as continued fallout,

I’m more worried about banks at this point. Banks are between 50 and 60% exposed to real estate by their net assets. Banks have held up thus far because they have much deeper pockets than the non-bank lending specialists, though a few have taken sizeable write-downs on mortgage portfolios. But it is well known the write-downs have been largely put off by delaying the mark-to-market process; even the bulk of the ratings downgrades have still not happened, so the real balance sheet hit is yet to come. And banks will see their real estate holdings of all sorts deflate in value. Those that weren’t sufficiently diversified or aren’t considered “important” enough for a bail-out could see failure. After an interlude since the last recession, we’ve already had a few small credit union and bank failures. I expect this to turn into a tidal wave, short of a massive intervention by the government (i.e. a blanket bailout which the public will shoulder-this would not be a “good” thing).

Why did the market drop yesterday?

Eric Janszen of the authoritative itulip.com site offers this explanation

The business press this morning attributed the 280 point DOW rout yesterday afternoon to investors’ worries that the ongoing credit crunch and declining housing market may damage the so-called real economy. But the timing says the drop was a reaction to the release of the Fed’s meeting minutes.

The minutes of the early August 2007 closed-door meeting of the Federal Open Market Committee were released late in the afternoon. The markets plunged shortly thereafter. The Fed’s stated hope for a “return to more normal market conditions” without intervention is not what investors wanted to hear. They were hoping to read the words of a Fed expressing worries that justified the move to cut the discount rate and pour tens of billions into the banking system ten days later. The minutes imply that the Fed was surprised.

The heart if not the soul of the Fed’s role in the system is as the all-knowing Wizard of Oz. How can the Wizard be surprised and still be the Wizard? Is the Fed really on top of this?

Investment News reports:

Edward Cahill, formerly Barclays Capital’s head of European collateralized debt obligations, has gone missing, published reports said.

Mr. Cahill resigned from his post last Thursday InvestmentNews, Aug. 24 and has not been seen by families or friends since, according to the Daily Mail.
His disappearance, following the collapse of the CDOs, recalled trader Nick Leeson, who fled Britain’s Barings Bank after losing 830 million pounds ($1.67 billion) of the firm’s money, The Sun reported.

This seems to be an improvement on the old days when bankers leapt from windows as their portfolios crashed.

OBAMA: FINE UNSCRUPULOUS LENDERS
http://www.ft.com/cms/s/0/dee95f76-55d3-11dc-b971-0000779fd2ac.html

RECESSION ON THE WAY?

Acamar reports:

The whole reason for this massive surge of fear was that the huge amount of liquidity provided by global central banks in the last few years stoked investor greed. Greed and fear are the primary drivers of financial markets. We are now moving into an environment where the lesson of how quickly things can turn nasty has been witnessed….

The US is headed for a recession. Given how overextended it is fiscally, this recession may turn out to be much worse than a typical business cycle recession lasting 12-18 months.

The Fed cannot reverse the impact that this will have done to consumer confidence. The impact of tighter lending standards and the continued deterioration of the US housing market will take the US economy into a recession.

Via CarolynBaker.org

BREAKING: ASIAN MARKETS TUMBLE AFTER WALL ST. PLUNGE

3 REASONS WHY THIS CREDIT BUBBLE IS WORSE THAN 1929

EXCELLENT INTERVIEW WITH DR. MICHAEL HUDSON: “THE PLOT TO SHIFT TAXES OFF WEALTH ONTO WAGE EARNERS” AND

“FROM COLD WAR TO CLASS WAR”

http://www.kpfa.org/archives/index.php?arch=21767

SUBPRIME INFLICTS NEW DAMAGE AS BANKS SEEK CASH

If they can’t get cash from the Fed, and if they can’t get it from the government, guess who’s cash they’re going to use????????? Can you say “run on the banks”?