Monday, September 29, 2008

Signs of the Economic Apocalypse, 9-29-08


Gold closed at 887.90 dollars an ounce Friday, up 2.7% from $864.70 for the week. The dollar closed at 0.6845 euros Friday, down 1.0% from 0.6913 at the close of the previous week. That put the euro at 1.4609 dollars compared to 1.4466 the week before. Gold in euros would be 607.78 euros an ounce, up 1.7% from 597.75 at the close of the previous week. Oil closed at 107.26 dollars a barrel Friday, up 2.6% from $104.55 at the end of the week before. Oil in euros would be 73.42 euros a barrel, up 1.6% from 72.27 for the week. The gold/oil ratio closed at 8.28, up 0.1% from 8.27 at the close of the previous week. In U.S. stocks, the Dow closed at 11,140.26 Friday, down 2.2% from 11,388.44 at the close of the previous Friday. The NASDAQ closed at 2,183.34 Friday, down 4.1% from 2,273.90 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.84%, up three basis points from 3.81 at the end of the week before.

Let’s start at the end then go back to the beginning of the past week. The end result, as of Sunday night, the 28th, was a massive, $700 billion bailout agreed-upon by the U.S. Congress and the President.
Lawmakers, White House agree on $700B bailout

Julie Hirschfeld Davis, Associated Press Writer

September 28, 2008, 9:24 pm EDT

WASHINGTON - Congressional leaders and the White House agreed Sunday to a $700 billion rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House for a vote Monday.

The plan, bollixed up for days by election-year politics, would give the administration broad power to use billions upon billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.

President Bush called the vote a difficult one for lawmakers but said he is confident Congress will pass it. "Without this rescue plan, the costs to the American economy could be disastrous," Bush said in a written statement released by the White House. He was to speak publicly about the plan early Monday morning, before U.S. markets open.

Flexing its political muscle, Congress insisted on a stronger hand in controlling the money than the White House had wanted. Lawmakers had to navigate between angry voters with little regard for Wall Street and administration officials who warned that inaction would cause the economy to seize up and spiral into recession.

A deal in hand, Capitol Hill leaders scrambled to sell it to colleagues in both parties and acknowledged they were not certain it would pass. "Now we have to get the votes," said Sen. Harry Reid, D-Nev., the majority leader.

Rep. John A. Boehner, R-Ohio, the House minority leader, said he was urging "every member whose conscience will allow them to support this" to back it, but officials in both parties expected the vote to be a nail-biter.

The final legislation was released Sunday evening, and Republicans and Democrats huddled for hours in private meetings to learn its details and voice their concerns.

Many said they left undecided, and leaders were scrambling to put the most positive face on a deeply unpopular plan.

"This isn't about a bailout of Wall Street, it's a buy-in, so that we can turn our economy around," said House Speaker Nancy Pelosi, D-Calif.

The largest government intervention in financial markets since the Great Depression casts Washington's long shadow over Wall Street. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.

"I don't know of anyone here who wants the center of the economic universe to be Washington," said a top negotiator, Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee. But, he added, "The center of gravity is here temporarily. ... God forbid it's here any longer than it takes to get credit moving again."

The plan would let Congress block half the money and force the president to jump through some hoops before using it all. The government could get at $250 billion immediately, $100 billion more if the president certified it was necessary, and the last $350 billion with a separate certification — and subject to a congressional resolution of disapproval.

Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.

As Bush's team stepped up its efforts to corral reluctant Republicans, the White House released a letter from his budget chief, Jim Nussle, to Boehner saying the measure would cost taxpayers "considerably less" than its eye-popping $700 billion total.

Lawmakers in both parties were poring over the 110-page bill. Democratic leaders have made it clear they will not support the rescue unless a substantial number of Republicans join them.

"It will take two to make this work," said Rep. Rahm Emanuel, D-Ill.
But it was a tough sell for lawmakers in both parties.

Rep. Joe Barton, R-Texas, an opponent, estimated that half of the House's 199 Republicans are "truly undecided."

Lawmakers who struck a post-midnight deal on the plan with Treasury Secretary Henry Paulson predicted final congressional action might not come until Wednesday.

The proposal is designed to end a vicious downward spiral that has battered all levels of the economy. Hundreds of billions of dollars in investments based on mortgages have soured and cramped banks' willingness to lend.

"If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Sen. Judd Gregg, the chief Senate Republican in the talks, told The Associated Press.

Rep. Barney Frank of Massachusetts, the House Financial Services Committee chairman, predicted the measure would pass, though not by a large majority.
"It's not a bill that any one of us would have written. It's a much better bill than we got. It's not as good as it should be," he said.

A breakthrough came Saturday night, with the addition of a requirement sought by centrist Democrats and Republicans to ensure that the government be paid back by companies that got help. The president would have to tell Congress after five years how he planned to recoup the losses.

Another key bargain — this time to draw Republican support — allows, but doesn't require, government to insure some bad home loans rather than buy them. That's designed to limit the amount of federal money used in the rescue.

"This is something that all of us will swallow hard and go forward with," said Republican presidential nominee John McCain.

His Democratic rival Barack Obama sought credit for taxpayer safeguards added to the initial proposal from the Bush administration. Later, at a rally in Detroit, Obama said, "it looks like we will pass that plan very soon."

The rescue would only be open to companies who deny their executives "golden parachutes" and limit their pay packages. Firms that got the most help through the program — $300 million or more — would face steep taxes on any compensation for their top people over $500,000.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in recipients' future profits.

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

But Democrats surrendered other cherished goals: letting judges rewrite bankrupt homeowners' mortgages and steering any profits gained toward an affordable housing fund.

It was Obama who first signaled Democrats were willing to give up some of their favorite proposals. He told reporters Wednesday that the bankruptcy measure was a priority, but that it "probably something that we shouldn't try to do in this piece of legislation."

Frank negotiated much of the compromise in a marathon series of up-and-down meetings and phone calls with Paulson, Dodd, D-Conn., and key Republicans including Gregg and Blunt.

Pelosi shepherded the discussions at key points, and cut a central deal Saturday night — on companies paying back taxpayers for any losses — that gave momentum to the final accord.

An extraordinary week of talks unfolded after Paulson and Ben Bernanke, the Federal Reserve chairman, went to Congress 10 days ago with ominous warnings about a full-blown economic meltdown if lawmakers did not act quickly to infuse huge amounts of government money into a financial sector buckling under the weight of toxic debt.

The negotiations were shaped by the political pressures of an intense campaign season in which voters' economic concerns figure prominently. They brought McCain and Obama to Washington for a White House meeting that yielded more discord and behind-the-scenes theatrics than progress, but increased the pressure on both sides to strike a bargain.

Lawmakers in both parties who are facing re-election are loath to embrace a costly plan proposed by a deeply unpopular president that would benefit perhaps the most publicly detested of all: companies that got rich off bad bets that have caused economic pain for ordinary people.

But many of them say the plan is vital to ensure their constituents don't pay for Wall Street's mistakes, in the form of unaffordable credit and major hits to investments they count on, like their pensions.

So what caused this massive action, one that no one seems comfortable with, to avoid “a full-blown economic meltdown?” What happened on Wednesday that so spooked the stewards of the global economy, that pushed aside as the top story of the day the largest bank failure in U.S. history? According to the following report on NPR, it had to do with the “commercial paper” market. Money almost couldn’t be borrowed for a day by the most creditworthy borrowers:

The Week America's Economy Almost Died

Adam Davidson and Alex Blumberg

All Things Considered, September 26, 2008 · The potential for disaster was horrifying. For people on Wall Street and in the inner circles of government, last Wednesday and Thursday will long be remembered as the time when the American economy survived a brush with death.

The nation's entire financial system slid toward a terrifying abyss, they say — a landscape where no one would lend and no one could borrow, where no one could buy anything and no one could get paid.
As Congress and the Bush administration continue debating a proposed $700 billion bailout of Wall Street, those with intimate knowledge of the crisis say that whatever solution emerges must avert future brushes with very real disaster.

The nightmare scenario rattled Mark Peterson, far from the halls of finance, in Memphis, Tenn. "For those of you who've experienced an earthquake, some say it's a soul-wrenching experience, and it's massively moving everything," Peterson says. "And that's last week. There was a monster unleashed. The commercial paper market, which is the most liquid market, probably in the world, basically froze up."

Peterson is treasurer of Servicemaster, which owns, among other things, a lawn care company, Merry Maids and Terminix, which will get rid of your termites. By "commercial paper," he means a specialized kind of short-term loan. It's one of those obscure financial tools that help make the world go around.

"Let's just say you have Terminix come out and treat your house, you write a check," he explains. "Our billing department marks your account as having been paid. What's our cash position? Do you have money or do you need money? Today, our company, we have money.' "

Peterson's company might or might not have cash money the next night. It's no big deal — maybe it needs to buy a lot of termite poison or upgrade its fleet of termite-fighting vans. All companies move between having cash on hand and not having it every day. Some days they have extra money. Some days they need to borrow.

If you're an ordinary consumer, you might use a credit card to bridge the gap. If you're a gigantic company, you use the commercial paper market, a way of borrowing a lot of money.

What Peterson witnessed that frightened him so badly was the sudden seizure of that market. After the failure of the investment bank Lehman Brothers and the near-collapse of insurer AIG, commercial paper suddenly became very difficult to get. On Sept. 17 and 18, the market came dangerously close to freezing entirely — an event that could have paralyzed the financial system.

All Locked Up

Tom Corona works with Tradition Financial in lower Manhattan in what he describes as a relatively boring business — at least under normal circumstances. He's the guy companies call when they need to borrow short-term money. The numbers involved in his profession are large, but the processes are routine.

"We would say, 'I'm going to give you a million dollars tomorrow, if you give me $999,000 today,' " he says. "It's hundreds of billions of dollars — every day, every single day." Corona is used to moving sums like that for relatively cheap interest rates.

Last week, Corona's business suddenly stopped being so boring. The cost of borrowing money shot up, as nervous lenders pulled back the reins. The river of capital narrowed to a trickle. "Banks were forced to start paying usury rates to get money," he says. "And even when they were paying usury rates, even if they could get money, they could get only $50 [million] or $100 million. In our market, it's nothing. It's so small. These banks normally could raise billions in an eye blink."

This is what happened last week that terrified Treasury Secretary Henry Paulson, Fed Chief Ben Bernanke and President Bush. This was not a bunch of big investment banks getting their comeuppance for making bad loans.

This was the fundamental flow of the American economy breaking down. Money stopped moving. Big, safe, respected companies far away from all the subprime lending problems had trouble getting the short-term loans they needed to pay their bills.

'Breaking The Buck'

"I don't think I've ever been this nervous in my career," says Paul Balika of Daiwa Securities, "because the financial system was so close to locking up. I think we were close to the abyss."

Balika watched the meltdown from what he calls courtside seats — his chair in front of a computer screen filled with numbers. What happened that scared Balika so much was the realization of one of Wall Street's most dreaded hypotheticals: a money market mutual fund "broke the buck."

It sounds obscure, and probably bad, but just what does it mean? In normal times, money market funds have much in common with a savings account. They're ordinary means of saving money for many, many Americans. In ordinary circumstances, people view money market funds as totally safe, nearly free of risk. Investors put $1,000 in and get at least $1,000 out — more with interest. But they never expect to lose money.

If a money market fund loses money, that's called "breaking the buck." It's like a wrinkle in time or a tear in the space-time continuum. It's simply not supposed to happen.

Except that it did, last week. On Monday, the Reserve Fund broke the buck. And people freaked out.

"Breaking the buck is sort of like having a serial killer in a high school — it causes a little bit of panic," Balika says. Frightened investors raced to escape money market mutual funds.

It so happens that the main thing money market mutual funds own is commercial paper, the same financial short-term loans that make ordinary businesses like Peterson's Servicemaster outlet possible.

The run on money market mutual funds is why, no matter how safe and trusted a company was, they couldn't borrow money last Wednesday. The people who usually loaned those companies money — meaning the many ordinary people with money market mutual funds — had hauled too much of their money out of the system.

This chain of events is part of what convinced Paulson and Bernanke that the situation had gone too far. If the panic had continued for more than a day, they reasoned, the wider economy would start to shut down.

"What would happen is nobody would be able to borrow money," says Balika. "And how does capitalism work if you can't borrow money? You're back to bartering, pretty much. The extension of capital almost came to a halt — just ended, period."

They key word there is almost. Those short-term credit markets froze for around 12 hours. Then they thawed a bit. If they ever stayed stuck for days, or weeks, well, Bernanke said, the consequences would be worse than the Great Depression.

Other economists, respected ones, argue that's not true. They say people with money will always start lending it, when the price is right. Eventually, the dissenters say, the problem would work itself out.

Right now, how quickly that would happen, if it happened at all, is the $700 billion question.

What the $700 billion bailout plan intends to do is to have the U.S. government buy, if necessary, that much worth of shaky debt securities that no one wants now. They may not actually be as worthless as people fear, but the problem with the type of securitization that was done is that it is very hard to tell what they are really worth. Then, by taking these off the balance sheets of financial institutions, these institutions can then start lending again. The hope then is that the government doesn’t actually end up losing money on the deals. Certainly the plan that was announced on the 28th is much better than the three-pager announced by Treasury Secretary Paulson on the 21st. That one gave all power and discretion to the Treasury Secretary with no oversight.

But is the plan of September 28 the only way out? Of course not! There are always other options, and the ones not seriously considered can indicate limitations in outlook. For example, some have pointed to a “Swedish solution.” Right there, with the adjective “Swedish,” right-thinking Americans will recoil and think: “socialism, taxes: bad!” But consider this:
Stopping a Financial Crisis, the Swedish Way

Carter Dougherty

September 23, 2008

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.

The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.
“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”

By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.

The politics of Sweden’s crisis management were similarly tough-minded, though much quieter.

Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.

“The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”

The difference between the Swedish plan and the Paulson plan is that in Sweden the government obtained ownership of the financial institutions in exchange for the bailout, in Paulson’s plan the government gets ownership of the debt securities no one wants to buy.

In any case, the amount of debt taken on by an already almost bankrupt U.S. government is mind-boggling. Here is Gregg Easterbrook with a recap of all the bailouts of 2008:
Here is the borrowing that's happened in 2008 alone, with precious little public debate:

• $29 billion to bail out Bear Stearns.

• $40 billion in the first mortgage-holder bailout.

• $80 billion for an additional year of Iraq war operations. (Another $150-$200 billion in war costs such as future veterans' disability benefits were incurred but not funded.)

• Up to $85 billion to bail out AIG.

• $153 billion to households for "economic stimulus."

• $200 billion, and possibly more, to bail out Fannie and Freddie.

• $290 billion in farm subsidies, despite agricultural prices and grains profits being at record highs.

• $700 billion general bailout of securities backed by bad debt. (The International Monetary Fund estimates this figure will rise to at least $1 trillion.)

That comes to $1.6 trillion, explaining the debt-ceiling rise, and does not include roughly $300 billion in essentially interest-free cash issued to banks by the Federal Reserve on an emergency basis, which may or may not be repaid, but which in any case make all existing money somewhat less valuable. Why is the debt aspect of the splurge barely being remarked on by the mainstream media and by politicians? Why are the young not furious? And about that $700 billion about to the shoveled to the Wall Street elite -- in 2007, George W. Bush vetoed an increase of $7 billion per year in health care spending for the poor, saying the country couldn't afford it.

Fans of Austrian economics will say that this is inflationary. And it could be. Except that the money is being created to replace the money that has disappeared as the bubble pops. The hard part is figuring out the exact amount of new money to pump in to match what has been lost. The larger the bubble, the more likely that when the target is missed you will get either catastrophic deflation or catastrophic inflation.

What has been surreal during recent weeks for those who have seen this coming for years, is that, after years of telling us that the economy is the healthiest thing in history, now we are being told to freak out in panicked fear. Why now? As Stef Zucconi puts it:

It would be fair to say that the debt-laden masses are now been given official establishment permission, nay, encouragement to crap themselves royally.

The Golden Rule when consuming all mass media coverage of economics is, of course, to remember that it is always wrong; either factually or in its timing, or both.

Which means, given the universally bleak tone of last night's Crunchy TV, that either:

a) the economy is about to boom

b) the situation is even worse than portrayed and we're facing The Apocalypse

Or, those calling the shots want the economy to crash now. Since all the assets were propped up by optimism, basically, making everyone severely pessimistic will ensure a crash. And, as the blogger, Badtux points out, deflation is to be feared more than inflation by average people. The rich, however, are hurt more by inflation. After a deflationary crash, those with cash can buy up all the assets for pennies on the dollar.
Sayin' it again...

Tuesday, September 23, 2008

Regarding the bailouts, sooner or later, the bad paper has to be replaced with good paper (Treasuries). Otherwise they'll continue to poison the entire financial system. Unfortunately due to the realities of fractional reserve banking we can't just evaporate 3 trillion dollars of assets out of the economy without setting up a deflationary spiral similar to 1930-1932. So there will have to be a bail-out. The problem is that the Busheviks just don't seem able to do anything without adding some way to loot the Treasury for the benefit of their cronies, and sent out a poison bill to Congress that basically says, "give us $700B and we'll throw it around anyway we feel like." No Congressional review, no review in the courts, just a blank check to the Bush Administration to just give the dough out any way they please. Even when risking a second Great Depression they can't get rid of that same old crony capitalism instinct to steer money to their cronies.

If you are wondering, I believe the AIG bailout is a very good model for how it has to go down. These institutions get the money -- but the government gets ownership of them and can throw out the bad managers and reform their practices so they don't do this stupid evil s**t again, and then sell off the workable assets and fold the part that's not workable. Any bailout that's going to work long-term is going to have to work like that, else this nonsense is just going to happen again. You can't just throw money at these institutions. You have to take them over and reform them.

Now, a short aside about deflationary spirals and the 1930-1932 scenario. Here's what happens. A bank collapses. Now, let's say that this bank had $200B in assets (it's a regional bank, not one of the biggest ones). This removes $2 TRILLION dollars from the economy if those assets are marked down to $0, because of the marvels of fractional reserve banking (check out the Wikipedia article for that and note that the current Federal Reserve reserve requirement is 10%, which means that $1 in deposits generates $10 in currency in the economy).

Okay, so you have less money in the economy, but the same amount of "stuff". So prices AND wages go down. No big deal, you're making less money but things are cheaper. *BUT* your *debts* have not gone down. You can no longer afford to pay your credit card bills. You default on them, along with 100 million *other* Americans. This causes the collapse of yet *MORE* banks. Which in turn collapses the currency even further so prices and wages go down *again*. Which in turn means that yet *more* debts are unpayable. Wash, repeat, rinse, until all assets in the economy are concentrated in the hands of the 5% of the population that had cash in the bank at the start of this cycle, and the remainder of the population, the percentage that owed money (which is virtually all of us), is utterly destitute.

Now, at that point economic activity has *also* fallen, since economic activity needs cash to lubricate it and a lot of cash has been diverted towards futile attempts to pay unpayable debts rather than buying stuff. Figure that the economy is moving 10% of the goods and services that it formerly moved. Furthermore, food was planted and picked at the older, cheaper value of the food. So the stores are full of food, but nobody can afford to buy it because an orange that costs $1 is now only worth 1c but the store can't sell it to you for 1c and make money because they paid the farmer 50c for it at the beginning of the year (thanks to the futures market). The end result is food riots, crops rotting in the fields, and the real threat of a fascist takeover of the country. Look up Father Coughlan and get back to us -- it was only barely that FDR kept Father Coughlan's cronies from taking over (see: Business Plot) and sending us down the same path that Germany and Italy went down. And that was before twenty-five years of rote recitation of "government is the problem, not the solution" discredited FDR's brand of liberalism in the minds of most Americans -- today, a FDR would not be allowed to be elected (I don't consider Obama to be an FDR, looking at his policy proposals on his web site they appear to be fairly moderate free-enterprise-oriented proposals, not something shockingly socialist like the CCC program that built much of the infrastructure in Death Valley).

In other words, I don't expect the U.S. to go down the path of FDR if we have another Great Depression. I expect a Mussolini, probably some general taking charge to "restore confidence and pride in our government", and the usual stuff that happens when you have a Mussolini in charge. Bad things. Really bad things. You know the drill.

Now, here's the good news. Bernanke over at the Federal Reserve? He is the world's leading expert on the Great Depression and steps that the Federal Reserve could have done to prevent the deflationary spiral that crashed the dollar and crashed the economy. He has been writing papers on this stuff since he was a 22 year old grad student, and has written some of the classics on the subject, such as his 1983 paper "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression". He knows his s**t. Paulson over at Treasury? He's no Bernanke, but he's no idiot either. He is a pretty good economist in his own right, he is smart enough to both listen to and understand what Bernanke is telling him, and if the politicians in Congress take out the license to loot that his cronies wrote into the proposed bill and instead assigns ownership of the institutions that get the money to a new "Resolution Trust Corporation" to be completely cleaned out and re-formed as honest financial institutions without the crooks who issued the bad paper to begin with, his proposal actually will work -- it'll re-capitalize the banking system, it'll get all that poison paper out of the system, and things will start working right again. So we have good people in charge, and they know what they're doing, and what they're doing will work once the looting provisions are taken out of the proposal. I'm guardedly optimistic, and if you know me, I'm not much of an optimist.

Yes, it's discouraging that to make all this work we have to replace the bad paper with Treasuries or else we deflate the currency, crash all the banks, and end up with a new Great Depression. So it goes. See my signature. The American public thought we could get something for nothing, and voted in politicians who told us we were right. Now we get it, good and hard.

-- Badtux the Monetary Penguin

So the stage is now set for a fascist, Mussolini-style takeover of the U.S. Take a look at the following list of laws passed since 9/11, courtesy of George Ure:
1. USA Patriot Act - A 342 page document presented to Congress one day before voting on it that allows the government access to your bank and email accounts, as well as your medical and phone records with no court order. They can also search your home anytime without a warrant.

2. USA Patriot Act II - This one allows secret government arrests, the legal authority to seize your American citizenship, and the extraction of your DNA if you are deemed a potential terrorist.

3. Military Commissions Act of 2006 - Ends habeas corpus, the right to an attorney, and the right to court review of one's detention and arrest. Without this most basic right, all other rights are gone too since anyone can be detained indefinitely. Now anyone may be arrested and incarcerated and nobody would know.

4. NSPD 51 - A directive signed by George W. Bush on May 9, 2007, that allows the President to declare martial law, effectively transforming the U.S. into a dictatorship with no checks and balances from the Legislative or Judicial Branches. Parts of this directive are considered classified and members of Congress have been denied the right to review it.

5. Protect America Act of 2007 - Allows unprecedented domestic wiretapping and surveillance activities with a reduction in FISA court oversight. Probable cause is not needed.

6. John Warner Defense Authorization Act - Signed by George W. Bush on October 17, 2007, this act allows the President to declare a public emergency and station troops anywhere in America without the consent of the governor or local authorities to "suppress public disorder."

7. Homegrown Terrorism and Radicalization Act - Passed overwhelmingly by Congress on October 23, 2007, is now awaiting a Senate vote. This act will beget a new crackdown on dissent and the Constitutional rights of American citizens. The definitions of "terrorism" and "extremism" are so vague that they could be used to generalize against any group that is working against the policies of the Administration. In this bill, "violent radicalization" criminalizes thought and ideology while "homegrown terrorism" is defined as "the planed use of force to coerce the government." The term, "force" could encompass political activities such as protests, marches, or any other form of non-violent resistance.

So when you add in:

· Halliburton Confirms Camps Constructed
· Halliburton's Immigrant Detention Centers
· Homeland Security Contracts for Vast New Detention Camps
· Halliburton Confirms Concentration Camps Already Constructed
· KBR awarded Homeland Security contract worth up to $385M
· From Halliburton's own website

It starts to get a little scary.

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