Tuesday, December 30, 2008

The Economic Noose Tightens

By Simon Davies and Donald Hunt


It is hard to focus on the economies of the world when Palestinians are being blown to pieces by US supplied warplanes and smart bombs delivered by Zionism, one of the central evils on this planet. It is hard to focus when reading the inhumanity that spews forth from the mouths of the world's leaders in abject supplication to Zionism and the supporting voices of the ignorant and empathyless in the world's media.

But focus we must, for economics is the 'non-violent' means by which those same forces we see at work in Palestine exert their tentacles of control across this once beautiful and bounteous planet. While F16s and GBU-39s deliver death and suffering instantly, economics and more particularly the control of economies and money deliver their payload of death and suffering with a long slow interminable inevitability; an inevitability that has become a permanent feature for most people on earth and one that is fast approaching the doorsteps of the US and Europe.

It is no coincidence that Israel's latest war crimes come during the financial crisis; for empathy and the desire to defend the helpless victims of naked aggression are quick to evaporate when people are fearful for their own safety and security.

In an admission of the 'business as usual' approach of those who run the world, speaking ahead of the World Economic Forum meeting in Davos at the end of January, Professor Klaus Schwab, Founder of the World Economic Forum has given his views on how the Forum's Annual Meeting should respond to the global economic crisis, saying in an interview that "the first task is to help to manage the crisis and the second is to shape the post-crisis world because only if we look at longer term perspectives can we recreate trust, in the economic system and the future." Professor Schwab stressed the importance of a big turnout of officials from Barack Obama's new administration.

As if further evidence were needed of the exceptionally high level of "cooperation" between the world's central banks the People's Bank of China dropped its benchmark interest rates with the market fully expecting further cuts in every major economy. This is the sort of "expectation" that is driven by a deep understanding of how the central banks will be acting, not mere speculation.

In a hint of events to unfold in the first quarter of 2009 the Bank of Japan, which has been leading the action for rate dropping and fiscal intervention announced that it is may consider "extraordinary steps" to counter financial-market turmoil and a deepening recession.

Seeking Alpha makes the commendable point that all this new capital being pumped into banks is not real. "After all, it's easy to recognize that it's not real capital, it was just printed up in the basement of the Fed. What is the dilutive affect of all this brand-new faux capital? As I have asked elsewhere many times, how long until a currency crisis is initiated? The central bankers, in my opinion, hope to mask this capital dilution and stave off a currency crisis by debasing all currencies cooperatively and equally; you can see this cooperation now in rate cuts and stimulus packages around the globe."

Ambrose-Evans Pritchard, writing in the UK Daily Telegraph, has an uncanny ability to write ahead of events so it was interesting to see that he raised the spectre of protectionism, the nemesis of free market capitalist globalisation. The villains of his piece being Russia, India, Vietnam and Indonesia. He also rolls out the time worn but apparently still workable (ie. his readers will still fall for it) Cold War rhetoric of the Chinese police state and Stalin's Enemies of the People law. He fails to mention the very real suffering of ordinary people in these countries nor the overt police state in the US and his own country the UK. We should expect more of this propaganda as those in the Circles of Power seek competitive advantage over each other.

One wonders how much of this rhetoric is actually directed at the fifteen countries of the Gas Exporting Countries Forum who announced the formalization of their organization into a sort of "Gas OPEC" headquartered in Qatar, to "coordinate forecasts, investments and relations with consumers to defend their market interests amid volatile energy prices."

Meanwhile, oil fell another 12% last week. Oil is now lower than it has been in the four years this column has been written. In July 2008 it reached $145. That is a stunning collapse in the price of the "strategic commodity." Gold, on the other hand rose.

The Markets

The markets this week
Previous week's close This week's close Change% change
Gold (USD) 838.60869.6031.003.70%
Gold (EUR)602.88619.9917.122.84%
Oil (USD) 42.9437.705.2412.20%
Oil (EUR)30.8726.883.9912.93%
USD / EUR0.7189 / 1.39100.7129 / 1.4026 0.006 / 0.01160.83% / 0.83%
USD / GBP0.6706 / 1.49120.6857 / 1.4584 0.0151 / 0.0328 2.25% / 2.20%
USD / JPY89.310 / 0.0112 90.810 / 0.0110 1.500 / 0.00021.68% / 1.79%
HANG SENG 15,12814,1849436.24%
US Fed Funds 0.06%0.05%0.0116.67%
$ 3month -0.01%-0.01%0.000.00%
$ 10 year 2.12%2.13%0.010.47%

The gold/oil ratio soared 18% to 23. Gold has been trending higher recently, but the Israeli attack on Gaza certainly contributed to last week's rise. Some suspect some insider trading on the part of those who had some advance knowledge of the attack:

Israel Attacks Gaza, Hundreds Dead: Who Made a Killing?

What did the Benazir Bhutto assassination and the latest Israeli attacks in Gaza have in common?

There was a strong move higher on gold immediately preceding both incidents, which were spaced one year apart, to the day.

Remember how gold moved before Bhutto was killed?

Check out this Bloomberg piece from yesterday (a day before the Israeli attack):

Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven.

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week.

"The only possible explanation for gold's gains are the geopolitical tension in Gaza and in India and Pakistan," said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery climbed $23.20, or 2.7 percent, to $871.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Dec. 17. The metal is up 6.4 percent this month.
Yes, this is a coincidence, but you might want to see, They Made a Killing: The Use of Knowledge of Covert Operations in the Stock Market, anyway, to see how this has worked in the past. Obviously, the Gaza attack isn't a covert operation, but the point is the same.
More evidence, if we needed it, of the sinister nexus of the economic and "foreign policy" worlds.

Surveying economic news across the world, we can see that economies are contracting at record rates. We can also see the beginnings of popular unrest in Greece and Iceland, which will likely intensify in 2009. As George Ure wrote, if you don't have a conscience, this would be a good time to invest in the crowd control weapons industry. No doubt there will be plenty queuing to make just those investments.

Normal people may be beginning to wake up to the nature of their enemy, the psychopaths, humans without conscience, and their instrument, corporations which by nature act like psychopaths. Even if the leaders of corporations have consciences, they are bound by precedent, self preservation and often law not to act that way. In Wisconsin, for example, hatred is growing towards the head of Cerberus Capital Management, the owner of Chrysler:

Feinberg Despised in Wisconsin Where Cerberus Lives Up to Name

Just about everyone in Kimberly, Wisconsin, hates billionaire Stephen Feinberg.

"This is a greedy, extremely greedy guy who doesn't care about other human beings," said Jeffery Wyngard, a third- generation Kimberly mill worker with 30 years on the job.

"Feinberg has no morals," said paper mill workers union local president Andy Nirschl.

"There won't be a lot of Stephen Feinberg Little League fields," said Bob Brukardt, who also worked at the mill for 30 years. "He sold his soul to the devil."

Feinberg inspires this reaction in Kimberly because Cerberus Capital Management LLC, the company he founded in 1992, owns NewPage Corp., which closed the town's 119-year-old paper mill that Local 2-9 of the United Steelworkers says was profitable when NewPage bought it nine months ago. Six hundred people are out of work in the town of 6,200 at the same time Cerberus's money-losing Chrysler LLC automotive unit was seeking a taxpayer loan.

The Kimberly workers are searching for new jobs as the U.S. unemployment rate reached a 15-year high last month. The government has pledged more than $8 trillion to rescue cash- strapped financial companies, plus $4 billion for Chrysler.

'Pent-Up Anger'

"There's a pent-up anger wherever I travel," said Leo Gerard, president of the Pittsburgh-based United Steelworkers, which represents 1.2 million members, including the Kimberly mill workers. "People feel very much like they're being screwed. I really think you'll see tens of thousands of people if not hundreds of thousands taking to the streets and protesting across the country."

During the Great Depression of the 1930s, Kimberly paper mill bosses spread the work around so every family in the Wisconsin town could put food on the table, said Mark Van Stappen, whose grandfather started at the mill in 1892.

Cerberus's investors include pension funds, endowments and family savings, and the company has a fiduciary responsibility to protect those investments, Tim Price, a Cerberus managing director, said in a phone interview.

"NewPage has about 8,000 employees whose livelihoods would be in jeopardy if the company hadn't closed the Kimberly plant, Price said. NewPage's management runs the day-to-day operations of the company, while Cerberus functions as an investor,"

Three-Headed Dog

Still, the workers blame Cerberus, named after the three- headed dog from Greek and Roman mythology who guards the gates of hell, and Feinberg, its 48-year-old founder.

Feinberg "is partly responsible for my little girl not being able to sleep at night, the 9-year-old girl who worries about her father losing his job," Brukardt said. "That's why he hides under his rock. Because in his heart he knows he isn't right."

As CEO of a $26 billion company, Feinberg has a net worth of about $1 billion, according to Forbes Magazine's 2008 list. Brukardt made $24 an hour, or about $80,000 last year including overtime. Brukardt said he owes $160,000 on the mortgage for his five-bedroom duplex on College Avenue in Appleton, Wisconsin, and he doesn't know how long he can keep making payments.

Caring Person

Price said Feinberg was a responsible person who agreed to give up Cerberus's stake in Chrysler if the automaker takes any taxpayer money.

Cerberus acquired 80 percent of Chrysler, the third-largest U.S. carmaker, in 2007 from Daimler AG for $7.4 billion. Because it is privately owned, Chrysler does not report its financial results.

Feinberg "is a good guy and a caring person," said Price. "Steve is the kind of guy who's shy about publicity. He doesn't feel he's worthy of it and he's embarrassed by it. He has very high integrity and I think in every case he tries to do the right thing."

As unemployment grows, displaced workers are starting to protest. In Chicago, employees of Republic Windows & Doors occupied a factory earlier this month after Bank of America Corp. of Charlotte, North Carolina, forced the company out of business by cutting its credit line. Bank of America and New York-based JPMorgan Chase & Co., a part-owner of Republic Windows, agreed Dec. 10 to a $1.75 million loan to cover the severance pay of 240 employees.


"With nothing left to lose, militancy gave them their one hope," said Harley Shaikin, a labor relations professor at the University of California, Berkeley. "We'll see more rather than less of this..."
Which would show the events of the last few years in the US as being in preparation for just this eventuality. All those freedoms which American's were so willing to give away for false security are just the freedoms that they will wish they still had when they want to take their disgust onto the streets and into the factories and offices. They will be faced down by the immense paramilitary brutality of the police armed, as they are with guns of all shapes and sizes, tazers and a "crown control weapons" of extraordinary power.

United States

In the United States, house prices fell at Great Depression rates and new unemployment claims hit a 26-year high. California is expected to have a budget deficit of $42 billion by mid 2010 and looks to be sliding towards bankruptcy; a fine example of the inevitable result of a state or nation having to borrow to fund itself rather than creating money to fund itself as we discussed in some detail a few weeks back.

California is not the only state or municipality to be under sever financial stress. A respected accountant (yes, there are some) is predicting ten or more municipal bankruptcies in 2009 of which he expects four to be in California. We are inclined towards a rather more pessimistic outlook. We see numerous states and municipalities being driven to economically restrictive measures in order to try to balance their budgets ahead of filing for Chapter 9 bankruptcy protection during the first half of 2009 at the same time as Obama's new economics team will be trying to fight the economic firestorm left behind by Paulson, Bernanke and Bush, while also needing to deliver on whatever dodgy election promises were made. Obama will be caught in a classic Catch 22, he won't want to see Democrat run states such as California collapse nor will he want to be profligate with the already teetering finances of the Treasury, he will naturally be led by the bankers to what will be presented as a compromise involving the Fed. Exactly what form this compromise will take we do not know but we are fairly sure it will involve the Fed in such a way as to lock the Fed into state and municipal financing in a clear breach of the independence of the states under the Constitution.

In another audacious piece of maneuvering General Motors Acceptances Corporation (GMAC) after years of acting as an unregulated in-house bank for General Motors miraculously became a bank holding company. The cynical and suspicious would suggest that this was to enable GMAC to use the TARP funding and other bailout packages set up for banks and sure enough just such an announcement was made this morning. GMAC is to receive $6 billion of bank bailout money.

If the situation wasn't so dreadfully serious you'd be driven to shrieks of hysterical laughter at the sheer audacity of the ruling elites in the US. There is nothing they will not do to weave their way to having ordinary citizens bail them out. The thing that turns laughter to tears is that there isn't a revolution taking place as a result, in fact there are millions of Americans who still support the system and buy into the drivel that passes for news, comment and opinion in the mainstream media.

Last week we commented on the literally unbelievable story that is the Madoff Affair including deeply disturbing details as to the apparent lack of regulatory oversight. It came as no surprise then that this week it was revealed that the Office of Thrift Supervision allowed blatantly false accounting and illegal misrepresentation by IndyMac Bank.

In further Madoff news, Thierry Magon de La Villehuchet, 65, co-founder of Access International Advisors, was found dead in his Madison Avenue office on December 23rd. Police said he probably killed himself. It seems that Thierry Magon de La Villehuchet managed some funds for Lillian Bettencourt, heiress to the L'Oreal billions. It was interesting to note the comment of a New York lawyer, Ron Geffner of Sadis Goldberg LLP, "More high-profile names who have been victimized by Madoff will start to become known now." The 'victims' of Madoff had fortunes beyond the dreams of 99.99% of the people of this planet it is a shame that lawyers such as Mr Geffner and investors such as his clients did not spend more time on addressing the very real victimhood of that 99.99%.


East Asian export-based economies are feeling the effects of the global collapse in demand. Japan's exports suffered the sharpest fall on record in November (compared to November 2007). Taiwan's exports fell by a record 28.5%. Thai exports fell the most in 17 years.

Plunge in Exports Reverberates Across Asia

Japan reported yesterday that its exports plunged a record 27 percent in November, signaling a dramatic deterioration in the world's second-largest economy and the collapse of the export-led boom that had lifted many Asian nations.

Indeed, even mighty Toyota said yesterday that it would post its first operating loss in seven decades, providing a vivid example of how some of the world's most profitable companies have been quickly humbled by the global recession.

Japan's stunning decline in exports is being echoed across Asia, where country after country is reporting data that have exceeded even the grimmest forecasts. Thailand said yesterday that its exports in November fell by nearly 19 percent, the most in 17 years. Similarly, Taiwan's exports fell 23 percent in November, and a government report on future export orders set to be released today is expected to show another steep drop.

"Everyone is tanking together. A fall of 27 percent is really striking and portends substantially greater weakness," said Easwar Presad, a senior professor of trade policy at Cornell University. "The bottom line is that many of these countries that relied on export-led growth will have to rely on domestic demand to get out of this thing."

China had reported that its November exports took their biggest dive in seven years - a drop that has reverberated across Asia because China has become the largest export market for many of its neighbors. Japanese shipments to China fell 25 percent, the steepest decline in 13 years, the Japanese Finance Ministry said.

As much as 50 percent of China's trade is related to processing -- buying semiconductors and other parts from Japan, South Korea and other neighbors and then assembling them at low cost into finished products for companies such as Sony, Panasonic and Samsung. China, in effect, is the final assembly station for vast global production networks, which are now sputtering to a halt.

Japan has already officially entered a recession, propelled by its close ties to the U.S. economy, and the government has cut interest rates and boosted domestic spending in an effort to mitigate the recession's impact. But Toyota's woes are the latest sign of what the World Bank predicts will be the first decline in global trade since 1982...
New Zealand's recession deepened as its economy shrank by 0.4% in the third quarter.

Western Europe

The United Kingdom announced that its economy shrank 0.6% in the third quarter, the most since 1990.

Riots continued last week in Greece and popular unrest continues in Iceland
Iceland 'Like Chernobyl' as Meltdown Shows Anger Can Boil Over

It was the week before Christmas in Reykjavik, and all through the town Eva Hauksdottir led a band of 60 whistle-blowing, pan-banging, shouting demonstrators.

"Pay your own debts," they yelled as they visited one bank office after another in Iceland's capital. "Don't make the children pay."

When she isn't leading one of the almost daily acts of protest in this land devastated by the global financial meltdown, Hauksdottir sells good luck charms made from the claws of ptarmigans, a local bird, and voodoo dolls in the form of bankers. She says she expects to lose her home, worth less than when she bought it two years ago, after the amount she owes jumped more than 20 percent.

Unrest following the end of a five-year economic boom is overshadowing the holidays in a country of 320,000 near the Arctic Circle, where the folklore is filled with magic, trolls and elves. Expansion ended with the collapse of the U.S. subprime mortgage market. The fallout in Iceland may presage civil disruptions elsewhere, as job losses multiply and credit bills come due. Few nations can count themselves safe, says Ian Bremmer, president of the New York-based Eurasia Group, which analyzes political risk for businesses.

"As people have their expectations changed radically, you can have protests come out of nowhere," even in developed countries, Bremmer said.

'Maybe Axes'

Riots in Greece this month, sparked by the police shooting of a teenager, became tinged with economic dissension. A group of Kuwaiti equity traders marched on the emir's office in October to demand the closing of the stock exchange to stem losses. Even in U.S. cities, civil disorder is "conceivable" if unemployment rises above 10 percent from November's 6.7 percent, Bremmer says.

Hauksdottir, the owner of a Reykjavik witchcraft shop, says over a cup of thyme and juniper tea that only civil disobedience can force banks to stop collecting debts that people can't pay.

"We'll use our voices, and then if we have to we'll use our hands, and maybe axes," Hauksdottir says.

At Reykjavik's half-built concert hall, a symbol of the good times that juts from the harbor toward the North Pole, the visitor center is closed to visitors. The principal owner, Landsbanki Islands hf, failed in October. Marketing director Thorhallur Vilhjalmsson says he's making ends meet on severance pay.

"Iceland right now is like Chernobyl after the blast," Vilhjalmsson says. "It looks normal, but there's radiation."

Kicking Down Doors

The protests may escalate as bills come due and severance pay runs out for those who lost jobs at the three biggest lenders, including Landsbanki, the second-largest, says Stefan Palsson, a historian. He once led the Campaign Against Militarism, opposing NATO bases in the 1960s.

He said he's surprised ordinary people are backing activists once considered "hooligans." There was public outrage three years ago when environmentalists poured yogurt over aluminum representatives to protest a new plant.

"Now you have protesters kicking down doors at police stations, and respectable elderly people saying 'Well, they're young and full of enthusiasm, and anyway, they're right!'" he said.

Inflation rose to 18.1 percent this month, and the International Monetary Fund predicts that Iceland's economy will shrink 9.6 percent next year...

Germany continued to resist pressure to join the rest of the world in massive government spending to counter the credit crisis. The Finance Minister, Peer Steinbrueck, argued that factors unique to Germany, including a social safety net and high savings rates make large bailouts and spending programs unnecessary.
General Tax Cuts Don't Help in a Recession, Steinbrueck Says

Large-scale debt-financed spending or tax-cutting programs aren't the best way for Germany to counter the decline in global economic growth, said Peer Steinbrueck, Germany's finance minister.

Responding to criticisms that the German government isn't doing enough to mitigate the severity of the recession, Steinbrueck wrote in the Wall Street Journal that the middle class, after a couple of years at most, would have to pay the price for such measures in the form of higher taxes.

The history of the savings rate in Germany indicates that general tax cuts don't significantly boost consumption during a recession, when many people are worried about losing their jobs, he said.

To cushion the recession's impact on jobs and growth, Germany is, notwithstanding claims to the contrary, pursuing a countercyclical policy, relying in part on "automatic stabilizers," such as unemployment benefits that rise, and taxes that fall, as the economy contracts, Steinbrueck said.

In addition, as early as October, Germany introduced a 14 billion-euro ($19.5 billion) package of targeted measures to stabilize social insurance contributions, lower unemployment insurance contributions, raise child benefits, bring forward housing allowances and provide relieve in 2010 for health-insurance expenses; that was followed in November by a somewhat larger package to save jobs, he said.

Governments can limit significant declines in economic activity and reduce the likelihood of financial crises by improved regulation, "no more, no less," Steinbrueck said.

The crisis has made clear that a new balance between financial markets and government is needed, and that the laissez-faire capitalism of the Chicago school of economics is unsuitable as a model for financial-market supervision, he said.

The sharp drop in oil prices in the second half of 2008 is causing economic distress in Russia. Russia devalued the Ruble three times last week.

Russian oligarchs are lining up for $78 billion of Kremlin loans to survive the credit squeeze as about $110 billion of foreign loans fall due in 2009. It is anticipated that Prime Minister Vladimir Putin will use the opportunity to claw back some element of government ownership and control of the nation's biggest companies.

Latin America

In some bad news for the U.S. Empire and the globalists, Ecuadorean president Correa announced plans to limit imports and to continue the process of renegotiating government bonds.

Ecuador's Correa Wants Debt Restructuring to Proceed in January

Ecuadorean President Rafael Correa wants debt negotiations triggered by the South American country's second bond default in a decade to proceed in January.

In his regular Saturday radio-and-television broadcast, he repeated his call for bondholders to accept a "substantial" discount without offering specifics on the $3.9 billion owed. He will submit an offer to holders early next month, he said today.

"We will make a proposal to rebuy these bonds, many of which have already given great yields to these speculators," Correa said. "It's likely that those who hold the bonds now didn't buy them at 100 -- rather at 20, 30, or 40 -- so it's not like these people are being hurt."

Correa, a 45-year-old economist, on Dec. 12 refused to give the order to release a $30.6 million interest payment due Dec. 15, when a month long grace period expired. He has alleged much of the debt is "illegal." The $510 million bonds due in 2012 plunged to 23 cents on the dollar from 31 the previous session and 97.5 cents three months ago.

By defaulting, Correa, a close ally of Venezuelan President Hugo Chavez, fulfilled a threat he made during his 2006 presidential campaign. His decision comes as a deepening global economic slump throttles demand for oil, the country's biggest export. Ecuador, which also defaulted in 1999, owes about $10 billion to bondholders, multilateral lenders and other countries.

A debt commission Correa formed last year said in a 172-page report in November that the global bonds due in 2012 and 2030 "show serious signs of illegality," including issuance without proper government authorization.

Correa also said he would restrict some imports to reduce the withdrawal of dollars from the local economy.

"We import sweets and chewing gum for more than $60 million a year and perfume for more than $100 million a year," he said. "That situation can't continue."

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Monday, December 22, 2008

The Slow Slide Continues and the Strange Affair of Bernie Madoff

By Simon Davies and Donald Hunt

The markets last week saw alarming signs of global deflation. Oil prices continued their fall, closing the week down 7% in dollars and 11% in euros. The three-month U.S. Treasury bill closed the week with a negative yield (-0.01%). The gold/oil ratio closed at a startling 19.53, significant because it reflects gold's role as money gaining ground on its role as a commodity. For a while, gold and oil moved in tandem, but not recently.

We are told the reason oil is dropping so sharply is plummeting world demand. World demand is plummeting because the bottom is falling out of the world economy, which until recently was propped up by massive amounts of unsustainable debt.

The Madoff affair seems to us just too scripted and convenient to be true which leads us to speculate as to what is really going on.

United States

California housing prices dropped 38% in November compared to a year ago. That translates to a drop in the median price from $414,000 to $258,000.

The U.S. retail sales this holiday season, already weak, has been dealt a further blow by severe winter storms over the past week and a half.

A U.S. auto industry bailout plan was agreed upon last week as General Motors and Chrysler will get $13.4 billion of emergency government loans in exchange for "substantially restructuring their business". The plan stinks, one aspect being linked to the banking rescue plan know as TARP although the connection can only be political, while Bush focused much of the blame on the workers who as a result are expected to suffer severe pay and benefit cuts. Workers will also see their retirement fund being funded 50% by their employer's shares; a structure that has proved disastrous for millions of workers across the US.

It emerged in Canada that employees of General Motors and Chrylser are expected to face a cut in their hourly wages of between C$15 and C$25.

In an example of just how much deflection is going on in the US media, one commentator was moved to see the political battle over the bailout as being a North vs South struggle, claiming that southern politicians are keen to see the US firms collapse so as to advantage the Japanese, Korean and German owned factories in the south.

It seems to us that the target in the struggle over whether and how to rescue or restructure the US auto-industry are the workers, their retirement and health benefits and the unions that represent them. Most American's do not understand that employment terms in the US are among the worst in the developed world, many being so egregious as to be illegal in the European Union. That the long term aim is to remove even the limited rights and benefits that US workers have is quite possible. This is "badtux" on the topic:-
So what's the endgame?

That's a question asked below. What's the endgame of the current plan of our most evil oligarchs to turn America into Mexico North, with a small handful of filthy rich people (them) and the rest of Americans being impoverished peasants in the mud? And why don't our oligarchs realize that they'll be poorer if they impoverish the rest of America?

Well, my answer there is threefold: a) Some oligarchs don't care, because impoverished peasants will give them a servant class to relieve them of the burdens of child care, dressing themselves, cooking for themselves, etc. and the fact that they'll have only 1/10th the money after the Mexico North plan succeeds... well. They already have 100 times the money that they really need to live a good life, so why should they care? b) Some oligarchs (the majority) are simply stupid. They got their money the old fashioned way -- they inherited it. Paris Hilton is the smart one there, she at least figured out a way to make a few bucks of her own by being famous for being famous, but most of her compatriots haven't a clue. And c) Some oligarchs simply enjoy cruelty and feeling superior to other people, and don't care whether they're poorer under the Mexico North plan than they currently are.

The problem with Mexico North is that it's not a stable situation. People do not willingly starve to death. And with most arable farmland controlled by megacorporations today, it's impossible to send them off to be subsistence farmers. If you look at the real Mexico, you will see the instability. The only reason Mexico has not completely collapsed is that so many Mexicans fled to the U.S. and sent remittances home to keep their relatives from starving to death. But now that the U.S. economy is slowing, Mexico is disintegrating - the drug gangs are taking over and executing judges and police officers and buying army brigades and threatening school children and even kidnapping kidnapping experts. And if you think Americans are too fat and lazy and complacent... well. When they're starving on the streets and desperate for their families' survival, when they have nothing to lose, they'll do the same things. And like the Roman aristocracy once the supply of grain to feed the masses of Rome was cut off, the aristocrats will be the ones who end up hanging from the neck amongst the ruins of American civilization.

So anyhow, that is why the goal of economic policy has to be close-to-full employment. Idle hands are the devil's workshop. And that's why the U.S. must have a thriving middle class rather than the Mexico North situation of a few super-rich and tons of impoverished people -- as I've pointed out previously, that's the only way to get sufficient consumption to keep everybody employed. Mexico North simply does not work if your goal is to create a stable wealth-creating society. You can prop it up with petrodollars for a while, as Saddam did, as Mexico did for many years, but the U.S. doesn't have petrodollars anymore... meaning that the Mexico North plan is not only bad for the majority of Americans. It's bad for the people who are trying to put into place. But will they see that? Probably not. They've never had to work for a living, they've never been hungry a day in their lives, they simply have no clue. So it goes...

In a classic reflection of the narrowness of perspective developed through years of education and work within the existing system, a French economist said, "You need some big symbolic measure to break the circle of pessimism among manufacturers and households." There is no mention of reality, of how to help people survive, of changing the system, no, what is needed is a "big symbolic measure", damn these people are heartless and stupid!

France will officially be in recession in 2009; French car-makers are already cutting jobs and idling plants even after receiving €779 million of government loans to their financing units and €220 million in sale incentives on new cars from the government; the government itself is already discussing expanding the €26 billion "stimulus package" even as it is set to borrow a record €145 billion in 2009 with a projected budget deficit of €79 billion.

In its continued expansion in global nuclear power France's EDF, having paid ₤12.5 billion for British nuclear power producer British Energy Group plc, looks set to buy half the nuclear power business of Constellation Energy Group Inc of the US. It is ironic to note that Nicloas Sarkozy has established a fund to protect French companies from predations similar to those being practiced by EDF. EDF itself needs no such protection being 85% stated owned already.

In unrelated but interesting news Britain sold the remaining one third it owned in its own atomic weapons manufacturing and maintenance facility Atomic Weapons Establishment (AWE). AWE is now owned 1/3rd by Lockheed Martin, 1/3rd by Serco plc and 1/3rd by Jacobs Engineering. The British government now has no ownership interest in the production and maintenance of its own nuclear weapons. The technology used by AWE is primarily from the US, most notably the Trident missile system. It remains highly questionable whether such arrangements are legal or in fact demonstrable and flagrant breaches of the Nuclear Non-Proliferation Treaty obligations of the US and UK.

The UK Post Office is to be part privatised, through a sale of a 1/3rd stake to Dutch group TNT, as part of new EU rules opening local postal delivery to competition; yet another public service being sliced and diced for the benefit of large corporations.

In one of the more spectacular pieces of political theatre the leader of the Conservative party in the UK, David Cameron, has called for bankers to be held responsible for their part in the financial crisis. He does not of course mean the bankers that run the UK and pay for him and his cronies, he means a few of the smaller fry, the "bad apples" that those in power find so expendable at times like these. No doubt there are those in the UK who remain so inured in the myths of party politics and class divides that they will be satiated with the blood of a few city bankers while the real criminals will remain in firm control of the country and David Cameron.

Angela Merkel is starting to look like she will toe the line and buy into the EU bailout package but clearly not enough as a new opinion poll showed her "popularity slumped last week amid criticism that the leader of Europe's biggest economy is doing too little to stem the country's slide into recession."

Further east, the Czechs seem to be a sensible bunch as their enthusiasm to join the Eurozone is waning; Belarus may devalue its currency as it seeks a $2 billion IMF "rescue package"; Latvia is said to have reached 'broad agreement' with the IMF on "an international aid package"; and Russia is reporting a cash shortage such that wage arrears doubled in November.


With the oil price looking more reasonable for those that use it but not so rosy for the profits of the corporations that control it nor the revenues of the countries that own it, OPEC restated its commitment to record cuts in production with the intent of pushing prices higher.

Just how far oil producers wish to push the price has not been stated but Brasil's Energy Minister believes "Oil prices must rebound to about $75 a barrel to maintain the investments in petroleum production needed to provide adequate supply to world markets." How this fits with a research paper that says spare production capacity will more than double through to 2012 remains to be seen.

It seems China is applying advanced capitalist dogma with it's announcement of an eight fold increase in fuel-oil consumption tax "to conserve energy use."

Banks and Banking

According to Bloomberg financial firms worldwide are seeking to raise a staggering $900 billion. In this context the $700 billion allocated to the US banking sector and the $2 trillion in other 'aid' should raise some eyebrows at the very least.

The Bank of Japan has been busy trying to keep the Japanese economy functioning amid a shortage of cash in the economy and an ever strengthening currency. It reduced its benchmark interest rate to 0.1% and expanded the ways it is using to pump cash into the financial system including lending directly to large companies, what it called an "exceptional step taken by a central bank". It also plans to buy up to ¥20 trillion ($223 billion) of shares held by banks so as to increase bank capital and support the stock market. Amidst all this propping up of the "free market" it was also announced that the Japanese government is expected to borrow $1.27 trillion in 2009.

Similarly, the Fed is using its balance sheet as a monetary policy tool buying all manner of bank assets including $200 billion of consumer and small business loans and $600 billion of Mortgage Backed Securities. The details of these asset purchases remain shrouded in secrecy as the Fed is refusing, despite its legal obligations, to divulge the details. It should be causing a global uprising that central banks across the planet are using the same methodology yet claiming to be independent; it is blindingly obvious that they are acting in concert and to a plan that they are not divulging.

The news for the big banks was not good this week. In a long overdue move, Standard & Poor's rating agency cut the ratings of many leading banks citing expectations that banks face more uncertainty in funding markets and a higher level of stress than in a "typical business-cycle trough.", rating agency speak for "the financial crisis still has a long way to go". Among them Goldman Sachs whose rating was dropped two levels and remains on "negative outlook". Goldman Sachs also reported losses of over $2 billion in the last three months and fired ten percent of its staff last month.

HSBC had its rating maintained but placed on "negative outlook"; perhaps one of the motivations behind news that the bank may seek to raise $14 billion, most likely through the issue of shares, to strengthen its balance sheet. Other unhappy news for HSBC is that it may lose $1 billion in the Madoff affair while Christen Schnor, it's head of insurance for Europe and the Middle East was found hanged in the closet of a five star hotel in west London a short distance from his apartment.

In Japan, Daiwa Securities plans to raise as much as ¥100 billion ($1.1 billion) in fresh capital, Nomura is seeking ¥410 billion and the banking sector is set to raise nearly $40 billion in total.

In further surprise news, reflective of just how tight the market for bank capital is at present, Deutsche Bank failed to exercise its right to "Call" or early redeem €1 billion of its Capital Bonds. It is expected that banks will exercise these "Call" rights so Deutsche's action has rattled the markets being described as, ".. a setback for the stabilization of banking markets and is likely to increase funding costs for banks generally". One of the world's biggest investors saying that it won't buy any new bonds Deutsche issues in the future.

By now it is obvious that corruption is the rife throughout the financial system so it should come as no surprise to us when yet another banker has to resign having been caught up to no good. So it was that Sean Fitzpatrick, chairman of Anglo Irish, an Irish mortgage lender he built from a tiny lending operation to a very substantial bank in the course of 25 years, resigned having been caught hiding loans from the bank to himself totaling €87 million. He took the CEO down with him too as the trick they used, while technically not a breach of the law, was a flagrant violation of its principles.

In an example of the interconnectedness of people within the various Circles of Power, Fitzpatrick has also resigned from his non-executive roles in Smurfit Kappa Group Plc, Greencore Group Plc, Aer Lingus Group Plc, Experian Plc and Gartmore Irish Growth Fund Plc.

In October Irish billionaire Sean Quinn, whose family bought a 15 percent in the Anglo Irish in July, stepped down as chairman of Quinn Insurance Ltd. after the regulator fined the company for making a 288 million-euro loan to a related company without disclosing it.

The Markets

The markets this week
Previous week's close This week's close Change% change
Gold (USD) 820.50838.6018.102.21%
Gold (EUR)613.60602.8810.721.75%
Oil (USD) 46.2842.943.347.22%
Oil (EUR)34.6130.873.7410.81%
USD / EUR0.7478 / 1.33720.7189 / 1.3910 0.0289 / 0.05383.86% / 4.02%
USD / GBP0.6693 / 1.49410.6706 / 1.4912 0.0013 / 0.0029 0.19% / 0.19%
USD / JPY91.125 / 0.0110 89.310 / 0.0112 1.815 / 0.00021.99% / 1.82%
HANG SENG 14,75815,1283692.50%
US Fed Funds 0.12%0.06%0.0650%
$ 3month 0.01%-0.01%0.02200%
$ 10 year 2.58%2.12%0.4617.83%

The Madoff Affair

The Madoff Affair developed some interesting features this week. Jerry Reisman, a prominent New York lawyer, described Madoff as, "utterly charming. He was a master at meeting people and creating this aura. People looked at him as a superhero."

"People didn't want to know what he was doing. If it's too good to be true, it isn't true. But people didn't care. They were greedy."

The extent of this greed is all too apparent as leading European and Japanese banks seem to have not bothered with the normal "know your client" requirements (these are the myriad questions and checks that we all have to submit ourself to when doing business with a bank) instead preferring to lend to funds that "fed into" the Madoff money machine. They didn't even check who his auditors were; so desperate were they to get a slice of the action, for themselves and their clients, that was Bernie Madoff. It is notable that at this stage there is not one single US bank on the list of losers.

"Feeder Funds" are typically created to circumvent rules or to allow for far greater returns for investors. They are essentially a means for smaller investors to invest where they otherwise wouldn't be allowed and for all investors to achieve higher returns as the funds borrow as well as take the investor's money so that the size of the bets taken by the investor are effectively multiplied. The idea works well in a market where the fund manager makes money but are disastrous when they lose money.

Needless to say there are conflicting reports all of which add to the surreal nature of the entire episode. There is obviously a lot of paperwork, or lack of it, to go through, one report suggesting it would be six months before any solid details were known. They say a week is a long time in politics but a day is a long time in finance so the prospect of a six month hiatus will certainly have made for some nervous investors and lenders. Now we are told that Bernie himself will be providing US regulators with "a verified written accounting" of his firm's records by New Year's Eve.

Stephen Harbeck, president of SIPC, said Mr Madoff had left behind a trail of "falsified" and "unreliable" records, and it could take at least six months to "get a handle" on the situation, while the entire liquidation process - including collection of any remaining assets - could take "several years".

Mr Madoff kept "several sets" of books and false documents and provided false information involving his advisory activities, according to Christopher Cox, SEC chairman, who this week admitted the regulator had not responded to "credible and specific allegations" of alleged wrongdoing dating back to 1999.
Harbeck is also quoted:-

"We do not seem to be dealing with a traditional Ponzi scheme alone,"

"The length of time we are dealing with - which by Madoff's own admission is at least a decade but probably more like two - is just incredible. A Ponzi scheme might usually last a year or so, but it is usually impossible to keep it going for long periods of time."
The story of the regulators keeps morphing. Last weekend it was being claimed that the SEC hadn't "dropped the ball" while this weekend we are told that "investigators have been on Bernard Madoff's case for nearly a decade".

Regulators have already found "evidence of misconduct stretching back to the 1970s". As reported in the UK's Daily Telegraph:-

As long ago as 1999, an independent investigator, Harry Markopolos, concluded that Madoff's success could not be legitimate. In 1995, he sent the US Securities and Exchange Commission (SEC), the financial watchdog, a 17-page statement: "The World's Largest Hedge Fund Is a Fraud".

Two years later, the commission found no evidence of fraud after an investigation that seems to have involved little more than asking Madoff whether he was a crook, and accepting his answers.
This investigation is 2005 occurred while Eric Swanson was a senior compliance official at the Securities and Exchange Commission. Swanson later married Madoff's niece who was a compliance officer at Madoff Investments. The SEC naturally denies any connection.

It seem that even Bernie's bail conditions have been morphing also. The original bail bond was $10 million which was to have four bond signatories and be secured against Madoff's Manhattan apartment, valued at $7 million. By mid-week it was reported that Madoff had been unable to meet these conditions and was therefore under house arrest. The court subsequently accepted new bail provisions with just two bond signatories, Madoff's sons it seems being unwilling to co-sign the bail bond.

Technically, US law requires investors who have made money from fraudulent schemes to repay their gains to compensate the victims so it is going to be a long and fascinating battle to see how this aspect of the Madoff affair plays out.

Side benefits

As we have stressed in the past, the New Economic World Order is seeking new powers for the multilateral agencies, in particular the IMF and World Bank. Under the umbrella of developing a new economic model, at the peak of which will be the IMF as titular head, we are to be inundated with new regulation. This new regulation, as always, will be justified as the righting of a wrong or the prevention of crime but will actually be aimed at ever greater control of ordinary people. It should not surprise us then that we read in Bloomberg:-

Madoff's case will be at the center of planned congressional hearings on reforming the SEC, a senior Senate official said this week, declining to be identified. Obama said yesterday the scandal "has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets."
The SEC is obviously destined for an early grave as it is also the chosen whiping post for those outraged at its apparent failure to regulate Wall Street bonuses. The reality is that the SEC was deliberately and systematically emasculated to ensure that it could not regulate.

We should also acknowledge that there were and there remain numerous 'names' on Wall Street that any SEC investigator knows are to be left alone for to seriously investigate such people would be career limiting at best and quite possibly terminal at worst. With two decades of seeming invincibility and untouchability behind him, Bernard Madoff might well be one of those 'names'.

Tying up the loose ends?

The Madoff scandal is a true life crime of immense proportions. Like all crimes there is a need for a detective, so let us play that part for a while, let us, in the fine traditions of Agatha Christie, Sherlock Holmes and Columbo, speculate a little. Here are the facts so far:-
- Bernard Madoff, long time fraudster, woke up on Thursday 11th December, met his sons at his Manhattan apartment and decided to confess to them that his world renown investment business is "a lie", a giant Ponzi scheme. His son's, being good citizens, then called the New York Police and had their father arrested.

- Madoff confessed to the police that he had defrauded investors of $50 billion. He will no doubt have been read his "rights" so this confession is admissible in court. This was immediately reported to the regulators and the international media where, naturally, a storm broke over such an immense fraud. This is truly bizarre; think about it, think about how the US legal system works and ask yourself if a man in Madoff's position, a man who must be facing the rest of his life in prison, is going to confess!

- The necessary court hearings took place at which bail was set with conditions.

- Investigators moved into Madoff's offices where they found that the financial records are in disarray and that there are multiple sets of books. So far no comment has been made as to whether one or any of these books show the operation of a Ponzi scheme.

- Within a few days Madoff couldn't meet his bail conditions so these were adjusted and he was placed under house arrest.

- By Friday 18th December the total of all parties claiming to have been defrauded by Madoff, or as part of the interconnected web of loses, reached $28.1 billion, $21.9 billion short of Madoff's total of $50 billion.

- Some of the biggest names in European and Japanese banking find themselves exposed via their lending to funds that invested with Madoff directly or via other funds that invested in Madoff. Amazingly there is not one US bank in the list.

- Have you noticed how few photos there are of Bernard Madoff? This is a man who headed one of the most successful investment businesses in the world, was treasurer of a Jewish university in New York, gave to numerous charities, and head the Nasdaq exchange yet do a google search and you find just 7 photos of the guy.
This is all just too convenient. Madoff is a very prominent New York Zionist who, as we speculated last week, is highly likely to have a relationship, and probably a close one at that, with the foreign policy wing of the Israeli government, Mossad. He works with his brother and his two sons who it seems are the most senior people in his companies.

Madoff managed to run a multi-decade fraud of considerable complexity covering numerous investor accounts with billions of dollars successfully accounted for, albeit entirely falsely yet has no apparent accomplices.

Madoff could easily have jumped a plane to Israel where he would have been afforded a high level of protection. Yet he confesses to his sons who don't flinch for an instant, immediately calling the police. This just doesn't compute so it must be that Madoff meant to stay in the US and meant to confess and that everything we are seeing was planned.

The overall structure of how so many banks and funds were lured into the Madoff trap, the exclusivity, and particularly the fact that few investors were allowed to invest directly with Madoff but via "funds of funds" so missing out essential due diligence, smacks of true charlatanism and the actions of a man who knew exactly what he was doing. The lack of US banking names in the list of 'victims' suggests that many others also knew what he was doing.

The question that come to mind is this - is it possible that Bernard Madoff's entire operation, from the outset with his $5,000 seed money, was closely linked to some other party or parties with whom he worked or to whom he answered? As a vast but highly secretive money churning operation, with numerous client and trading accounts Madoff Investments would have made the perfect money laundering operation. It is also a near perfect means to facilitate wholesale theft; money that was stolen years ago by all manner of people operating the funds that made investments through or with Madoff is now conveniently accounted for, "oops, sorry we lost your money, Madoff you know", case closed.

The next strange thing is the timing. Madoff just popped up and confessed smack bang in between the presidential election and the swearing in of a new US President. There is some very obvious tidying up and tying up of loose ends by the Bush administration at present. Notably, the extremely convenient plane crash that killed Michael Connell who was about to make a full public disclosure relating to the vote rigging in the 2000 and 2004 US elections. We are also seeing the last desperate grasping of banking and corporate America for taxpayer dollars as the sun sets on the Bush Reich. Where does Bernard Madoff sit within all this? Experience tells us that we can be sure he is connected and most likely a big piece of the puzzle. But which piece?

The last eight years have demonstrated to all but the most deluded that US foreign policy and much of the domestic agenda is controlled by and for the benefit of the state of Israel. This has in fact been the case since Woodrow Wilson but these last eight years have made a mockery of every illusion that it is otherwise.

Madoff is a committed Zionist and can therefore be safely assumed, given his wealth and influence, to be part of the inner circle of American Zionists that call the shots in New York and Washington. He is therefore not a man working alone; his business was made on electronic trading and advanced computerization, an area where Israel is a world leader; his business is a perfect money laundry, a service that Mossad has great demand for, as do the Bush family and their criminal associates as a result of their narcotics income; he seems to have spirited away a vast sum of money that must have gone somewhere and could have been used to pay for all manner of nefarious activities including whole mercenary armies and weapons systems, not to mention the funding of innumerable politicians; and last but certainly not least he made no attempt to run but confessed just six weeks before the new President takes office. The idea that this is another loose end being tidied up and tied off before the new administration takes office, an administration that will be just as infiltrated as the last but from different sources and by different agents, certainly seems to fit the facts as we see them today.

That many of Madoff's fellow Jews seem to have been victims of his scam does not mitigate against our speculations, for Zionism and its practitioners have been the real enemy of the Jews for a very long time indeed. That Zionists have made victims of Jews in order to profit both directly and indirectly is well established in history although much of that history is of course "off limits".

We should also be very wary of falling for the whole "Ponzi Scheme" explanation given by Madoff as part of his confession to his son's and police. It is highly probable that this is deliberate misdirection and misinformation. The mainstream media have of course picked up the Ponzi scheme theme and are running with it as hard as they can, with pretty diagrams and all. There will no doubt be books found in Madoff's offices that support the Ponzi scheme thesis and his explanation to be provided to police by year end will match perfectly with those books. We would not be at all surprised to hear, after a suitable investigative period, that it was indeed a Ponzi scheme but that it is impossible to trace the funds etc and all is effectively lost. This is just too convenient, too smooth and just too much of a set up to be ignored. It will be ignored of course as that it the deliberate intent of the minds behind the Madoff affair.

If Bernard Madoff disappears before standing trial or at anytime before serving a serious amount of time in prison, particularly if it is through ill health or even death, we should all smell the obvious rat. He will have served his purpose or purposes, being spirited away to live out the rest of his days in anonymity.

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Monday, December 15, 2008

One giant Ponzi scheme and the Obama Illusion

By Donald Hunt and Simon Davies, SOTT.net

The big news this week was the sudden exposure of a massive $50 billion Ponzi Scheme run it seems singlehandedly by Bernard Madoff a prominent New York Zionist, financier and philanthropist. The exposure is somewhat surreal while the resulting financial waves seem likely to hit, so we are told, many of the leading names in banking together with many of the most wealthy individuals in the US. There is certainly ample reason to believe that there is much more to the story than meets the eye.

In the same week the surreal dominated the news with US Treasuries briefly touching negative interest rates, the US automaker bailout descending into political farce, Marc Dreier the highly successful New York lawyer is caught trying to con hedge funds out of $380 million and Obama's team talk of which nations the US will leave to collapse in 2009. Of course silence echoes through the corridors of power in relation to the Israeli perpetrated holocaust in Palestine.

Gold and oil rebounded last week from the previous week's lows. The dollar fell last week as the reality of the U.S. budgetary situation sinks in. Most world stock indexes rebounded as well, except the Dow which was virtually unchanged. That in itself seems miraculous given some of the news coming out of the United States last week.

East Asia

China and Japan's economies are sinking fast. No surprise there, as they have been excessively dependent on demand from the United States.

In Japan, confidence among manufacturers dropped more than it has in 34 years.

In China, officials admitted plunging demand has created overcapacity, meaning unemployment is rising. Exports fell last month while domestic retail sales grew at the slowest pace for nine months. Similarly, Chinese energy consumption per unit of GDP fell by 3.46% in the first quarter 2008.

China central bank governor, Zhou Xiaochuan said companies and consumers should be encouraged to upgrade technology to boost domestic demand. He also added that financial institutions should provide sufficient funding. Interestingly this has echoes of the work of Herman Daly who said that developed economies should focus their efforts on technical progress rather than economic growth in order to create a steady state economy.

With a refreshing breath of fresh air and candour, the Chinese banking regulator cautioned Chinese banks against foreign acquisitions as "more losses at financial companies around the world remain to be exposed".


French business confidence, like that in Japan, fell to a 21-year low in November.

Ambrose Evans-Pritchard at the UK Daily Telegraph said that Switzerland may have to print money to stave off deflation as it dropped interest rates to nearly zero. The headline was eye catching but the reality is much less dramatic; although printing money and spending it might be a good idea to create genuine economic activity, the Swiss option is to engage in quantitative easing meaning that it will ensure a sufficient supply of money is available to counteract deflationary pressures. This is essentially the policy being pursued by the US, UK and the Eurozone in their bids to "ensure sufficient liquidity".

The woes of the British Pound continued as it dropped to an all time low against the Euro, with bureaux de change in London paying less than parity for sterling cash in Euros, prompting many to wonder if there is a plan afoot to have the UK enter the Eurozone. Continuing differences of opinion between Britain and Germany as to the appropriate structure and targeting of an economic stimulus package became more public this week. British Prime Minister Gordon Brown seeming to become ever more overbearing towards Angela Merkel and the German finance team. We wonder why Brown is so keen to push this agenda in such brazen style. One can only speculate if it is connected to his announcement that he is working on the Second Stage of the UK bank bailout - forgive us Mr Brown but how do you know there will need to be a Second Stage?

In a statement of unrivaled cynicism UK credit card companies were reported to have bowed to pressure from the Prime Minister when they agreed to limit interest rate increases to twice a year. It is that sort of cynicism that exemplifies the attitude of capitalism to its victims. Credit card interest rates are undoubtedly usurious and would have been treated as criminal not so very long ago yet now the companies are considered to be reasonable when they limit increases in their usury.

In one of those ironic pieces of news, the European Engineering company Siemens agreed to pay $800 million to settle U.S. charges that it violated anti-corruption laws by funding $1.36 billion in bribes to government officials worldwide. The irony of course being that the US is waging wars and running the world's biggest weapons dealing operation, torturing and imprisoning thousands, and protecting the genocidal maniacs in Jerusalem and Tel Aviv with impunity yet their economic hegemony remains unchallenged. The Siemens money will no doubt vanish into government coffers never to be seen again.

South America

Interesting news out of Ecuador, where with plunging oil prices cutting into government revenue, President Rafael Correa announced the intention to default on government bonds, fulfilling a promise to spend money on the poor rather than paying interest to global investors. A decade or two ago, this would have brought in the "jackals" so it will be interesting to see if he can get away with it during the present crisis.

United States

New unemployment claims hit a 26-year high last week in the United States as companies laid more than fifty thousand people off in one week. In a reflection of how Goldman Sachs see the economy in the first quarter of 2009, they predicted that oil prices would fall to $30 a barrel as the global recession bites even harder. Also perhaps predictive of future events, Goldman is advising lenders to 11 US states to purchase credit insurance against those states defaulting on their debt.

Hedge Fund woes continued to mount as Citadel halted investor redemption from its two biggest funds and the Bernard Madoff Ponzi Scheme was exposed causing panic as the extent of potential losses to hedge fund and other investors became apparent.

The US Congress rejected proposals to provide bailout funding to the US auto industry causing the dollar to fall to a thirteen year low against the Yen and oil to drop. Bush immediately countered with a proposal to use funds allocated by Congress for bank bailouts for the car-makers.

An unsettling milestone was reached early last week in the United States, with the news Tuesday that the yield on three-month U. S. Treasury bills briefly dipped below zero. That's right, people were willing to pay the Treasury to keep their money, a frightening sign of deflation. In other words, cash, stocks, commodities, nothing, was seen to be worth holding. If people are willing to get negative interest from lending money, they must be expecting the money to be worth more in the future. Another way of putting it is that they think everything will be worth less in the future. Since the time frame for this debt is three months, one wonders what's in store later this winter.

As the New York Times put it,
In these times, it seems, the abnormal has now become acceptable. As America's debt and deficit spiral from a parade of billion dollar bailouts and stimulus packages, fund managers, foreign governments and big retail investors reckon they will get more peace of mind by stashing their cash, rather than putting it toward any of the higher-yielding risk that is entailed in stocks, corporate bonds and consumer debt.

The rapid decline in Treasury yields - which since summer have headed toward lows not seen since the end of the World War II - also renders the Federal Reserve less effective, as investors and banks stuff the money that the central bank is pumping into the financial system into Treasuries, rather than fanning it out across the broader economy.

"The last time this happened was the Great Depression, when people are willing to accept no return on their money, or possibly even a negative return," said Edward Yardeni, an independent analyst. "If people are so busy during the day just protecting the cash they have, it's not a good sign."
That is one sign that people in the know think things are a lot worse then they are letting on. Another may be the blatant and clumsier than usual political and financial corruption in the United States. While political graft and financial con games have always gone on, Trey Ellis sees the haste and lack of subtlety as a sign that those in power know that time is short, and that if they want to make the cut in the coming crisis, they had better get all the wealth they can right now:

It seemed like a funny joke back when folks were saying that in the movies the only time America elects a black president is either pre-apocalyptic (Morgan Freeman in Deep Impact) or post-apocalyptic (Terry Alan Crews in Idiocracy). It's maybe not so funny anymore.

Wherever you look, people whom you'd hope would have some inside knowledge of the American near future, seem to be losing their minds.

Sure, Governor Blago might have always been a hoodlum numbskull but how else to explain super lawyer Marc Dreier suddenly gambling an insanely lucrative legitimate career to try to con hedge funds out of as much as $380 million? And just yesterday seventy-year-old Wall Street legend Bernard L. Madoff stands accused of one of the most egregious white collar crimes in history -- bilking his investors of as much as $50 billion.

Do they know something we don't know? It's as if the risk of getting caught was outweighed by their panicked desire to get as much as they could before it's all gone.

It's as if the architect of the Titanic, minutes after they brushed the iceberg, said, "Don't mind me, I'm just going out for a smoke," when really, knowing what he knew about the ship's chances, stole into a lifeboat and set off alone into the dark cold waters.
What do the Blagojevich scandal and the Madoff scandal have in common? For one thing, both took common practices too far. For that reason, they will both be convenient scapegoats. The U.S. political system has basically legalized bribery; to be indicted for it is therefore something of an accomplishment. Madoff, the former chairman of the NASDAQ exchange, ran a classic Ponzi Scheme which collapsed, as such schemes inevitably will. Yet the global financial system is a glorified Ponzi scheme which is in the process of inevitable collapse. It is still surprising how many top-level banks around the world, including BNP Paribas and HSBC, gave Madoff their money. That alone tells us that they are all running Ponzi schemes. How different are many hedge funds? There is also the smell of psychopathy about their brazenness and stupid lack of caution. But pure psychopathic behavior differs little from standard practice at the apex of the world financial and political pyramids.

To Trey Ellis's point that those at the top seem to know that time is short and fear getting left behind, Marc Ambinder sees economic fear in the pit of the stomach in Obama's team as well:

It's quite unsettling to talk to members of Barack Obama's transition teams these days, especially those who are helping with the economics portfolio. Without going into details, the sense I get from them is that they are very worried that the economy will get a lot worse before it gets better. Not just worse... a lot worse. As in -- double digit unemployment without the wiggle factors. Huge declines in aggregate demand. Significant, persistent deficits. That's one reason why the Obama administration seems to be open to listening to every economist with an idea and is stocking the staff with the leading lights of the field. In one sense, the general level of concern among Obama advisers and transition staffers is reassuring; they get the magnitude of the problems, and they're not going to assume that, just because the bottom has never dropped out before -- certainly not in the lifetimes of most people doing policy these days, the bottom will never drop out.

Where the discussion isn't going, at least in public, (or the PR level), is the possibility that the first foreign policy crisis the administration will face will be the complete economic collapse of a large, unstable nation.
Like maybe the United States?
To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already). The U.S. won't have the resources to, say, engineer the rescue of the peso again, or intervene in Asia as in 1997.
This is an interesting point when one considers that the Asian economies under the aegis of APEC recently established a $80 billion fund to be available to protect their currencies should the need arise. It would seem the Asia central bankers are aware of situation and have made contingencies.

The public rhetoric from Team Obama seems to treat history as having ended in early October, which is understandable; the priority right now is on the liquidity crisis, the structure of government and the peopling of the administration and the domestic economy. Most of the administration's major policy voices don't have the luxury of time to game out scenarios. Now -- it can fairly be said that Treasury nominee Tim Geithner, himself an assistant secretary for international economic affairs during the Clinton administration, is aware of the precarious state demand in certain critical countries, as is Larry Summers. The question: what's the administration's policy in this area? Which countries can we afford to let fail? Which unstable states would concern us the most? Is there something the U.S. can do, in advance, should do, in advance, to forestall the collapse of other economies?
How nice that they are deciding what countries "we" can "allow to fail." Or that the United States can prevent any other country from economic collapse when it can't prevent its own collapse. The level of hubris is almost beyond comprehension.

Because things are so precarious, those in charge don't want us to know the full extent of the problem, but are having a hard time concealing their fear. Last week, for example, the U.S. Federal Reserve Board continued to refuse to reveal who they lent $2 trillion to or what they got as collateral. Mark Oitmas at Bloomberg:-
The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.

"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.

Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.

'Been Bamboozled'

Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had "been bamboozled."

Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects..."

'Dangerous Step'

"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," she wrote.

New York-based Citigroup Inc., which is shrinking its global workforce of 35,200 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn't seek money damages.

'Right to Know'

"There has to be something they can tell the public because we have a right to know what they are doing," said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.

"It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed," she said.

The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.

Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets...

'Complete Truth'

"Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now..."


The markets this week
Previous week's close This week's close Change% change
Gold ($) 757.10820.5063.408.37%
Gold (€)594.64613.6018.953.19%
Oil ($) 41.7646.284.5210.82%
Oil (€)32.8034.611.815.52%
$ / €0.7855 / 1.27320.7478 / 1.3372 0.0377 / 0.06404.80% / 5.03%
$ / ₤0.6779 / 1.47510.6693 / 1.4941 0.0086 / 0.0190 1.27% / 1.28%
$ / ¥92.870 / 0.0108 91.125 / 0.0110 1.745 / 0.00021.88% / 1.85%
HANG SENG 13,84614,7589126.59%
US Fed Funds 0.06%0.12%0.06100%
$ 3month 0.01%0.01%0.000.00%
$ 10 year 2.71%2.58%0.134.80%

Bernard Madoff and his Ponzi Scheme

The story of the week, and no doubt for months to come, is the exposure of Bernard Lawrence Madoff and his $50 billion 'Ponzi' scheme. Just how one goes about losing $50 billion is intriguing, we've been looking for ways to make that sort of money for a long time, it looks as if Bernie Madoff had found the answer - get people to give it to you then "lose" it.

The scheme was incredibly simple; Madoff owned and ran a legitimate New York securities brokerage, he made a name for himself pioneering electronic trading and became a pillar of the financial community, he was a political donor, advisor to the Securities and Exchange Commission and noted philanthropist. This gave him his front from which he established and ran what amounted to an unincorporated hedge fund. He attracted investors because he presented an aura of success, of wealth, of confidence and of being an insider; all the classic attributes that draw people like moths to a flame.

These are in fact that same attributes that make the entire investment market work. In admitting that his investment advisory business was a Ponzi Scheme Bernie Madoff was at least more honest that anybody else on Wall Street today. The entire market is a Ponzi Scheme.

Bernie Madoff founded Bernard L. Madoff Investment Securities LLC in 1960. He pioneered electronic trading growing his firm to be one of the principle developers of the NASDAQ (National Association of Securities Dealers Automated Quotations) exchange where he served as chairman of the Board of Directors and on its Board of Governors

Bernard L. Madoff Investment Securities LLC website presents the company as "a leading international market maker" with an "uninterrupted record of growth" and capital of $700 million ranking it in the" top 1% of US Securities firms". The key is said to be the firm's "sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry" enabling deal execution in seconds at fine pricing. The firms big selling point is its "highly automated clearing and settlement systems" which interface with all the major custodian, clearing and settlement systems. The firm stresses that, "Madoff Securities' computerized transaction processing means that the firm can customize client reports and deliver them electronically in whatever format best meets the needs of clients."

This is where things get interesting as all these computational resources seem to have been dedicated solely to the brokerage and remained entirely separate from the investment advisory operation. The investment advisory operation was essentially a hedge fund but reporst vary as to whether there were in fact properly constituted hedge funds or a series of individual client accounts purportedly inside Bernard L. Madoff Investment Securities LLC. However, while on adjacent floors, the offices of the brokerage and the offices of investment advisory were not physically connected. The impression given in news reports is that investment advisory had a very small staff which did not know or mix with the brokerage staff.

Madoff was clearly a very shrewd operator. He generated consistent returns of around 12 percent per annum, highly attractive but not so crazy as to attract attention, and he had a reputation for paying out whenever investors sought to redeem. It is reported that a number of major investors as well as regulators audited his firm and found nothing amiss. In a classic move of the con-man, Madoff was notoriously hard to see in recent years, only accepting business via other funds with a close existing relationship. He is also reputed to have turned many people down who wished to invest through him. These are all techniques of charlatans since time immemorial.

There were warnings for those with eyes to see. Despite being a pioneer of electronic trading, Madoff refused to provide clients online access to their accounts.

"This was extremely secretive, even for the non-transparent world of hedge funds," said Jake Walthour Jr., head of advisory services for Aksia, a New York consulting firm that advised clients not to invest in Madoff's funds. "It was all done almost in fortress fashion to prevent anyone from knowing what was going on."

The Bramdean hedge fund of Nicola Horlick, the UK 'superwoman' financier whose reputed lack of charm but shrewd money sense is often commented upon, invested through a third party fund having never even met Madoff.

Much of the talk in New York focuses on the losses of numerous Jewish charities. What is not yet clear is whether these charities actually invested with Madoff or whether the investments were in fact donations from Madoff to the charities concerned. The latter seems to be the case; this would have enabled Madoff to seem like a generous benefactor when in reality he was donating non-existent securities, the only requirement being that he have enough cash to pay out the annual income attributed to the imaginary securities, thereby maintaining the illusion.

A substantial list of investors who are said to have "lost everything" is available. This seems remarkable because the nature of these investments and the client lists of managers like Bernie Madoff are extremely confidential. The presence of so many wealthy and particularly Jewish names makes us highly suspicious for it ties in just too conveniently with the Obama phenomena.

In his seminal work on psychopaths and the pathology that they create in political systems, Political Ponerology, Andrew Lobazewski explains a stage in the pathology of the psychopathic nation state, which the US most certainly is, the "dissimulative phase".

Anyone studying this phenomenon... is reminded rather of the dissimulative state of phase of a patient attempting to play the role of a normal person, hiding the pathological reality although he continues to be sick or abnormal. Let us therefore use the term "the dissimulative phase of pathocracy" for the state of affairs wherein a pathocratic system ever more skillfully plays the role of a normal sociopolitical system. In this state, people become resistant and adapt themselves to the situation within a country affected by this phenomenon; outside, however, this phase is marked by outstanding ponerogenic activity.

Meanwhile, in the pathocratic country, the active structure of government rests in the hands of psychopathic individuals, and essential psychopathy plays a starring role. Especially during the dissimulative phase. "
The US would certainly seem to fit the bill. After a period of demonstrably psychopathic behaviour during the Bush presidency we are being treated to the illusion that everything has returned to normal with the election of Obama. It seems that the sudden exposure of Bernard Madoff's Ponzi scheme is part of this illusion; a strategic ploy seeking to convince us that many of the obvious beneficiaries of the insanity of the last 30 years of capitalism are also victims of the financial crisis.

Bernard Madoff is supposed to have pulled off years of financial fraud almost singlehandedly when in reality it would have taken a substantial staff. In the absence of finding his support staff there will be ample reason for speculation as to just who Bernie Madoff worked for and where the money went. Already it is being suggested that he was a Mossad front and that the Obama team are taking real action against the Israel lobby.

We are inclined to speculate slightly differently. It is quite possible and indeed likely that as a wealthy and influential New York Zionist Bernard Madoff has connections with Mossad. It follows that Mossad may have benefited from his Ponzi scheme and may even have provided the resources for him to carry it out for so long. If these speculations are in fact correct then the exposure of Bernard Madoff is part of the same operation; it is, in intelligence parlance, a "limited hang out", designed to deceive.

Such a scenario fits with the "dissimulative phase" of a pathocratic country. There is little doubt that the team Obama is surrounding himself with is as psychopathic as the Bush team and has the same domestic and global agenda. They are seeking to present a normal face to the people of the US while the evidence that they are continuing with the same foreign policy is overwhelming. If Obama and his team had one single ounce of "change" about them, Israel would find itself isolated and pilloried for the holocaust it is perpetrating in Gaza. That it is not points towards the Madoff affair as being far more than it seems and that Israel remains firmly in control in the US.

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