Capitalism's Call to 911

The Capitalist System
Cam It Be Fixed Without Being Diagnosed?
Cam It Be Fixed Without Being Diagnosed?

A Different Look at the Dow

All the headlines will read that the Dow was down 679 points in today's trading. Those headlines will be accurate because tradition (and logic and ease of comparison factors) dictates that one measures the daily change in the Dow (and all other indexes and individual stocks and commodities) by comparing the current day's closing price to the previous day's closing price.

The Dow closed yesterday at 9258; it closed today at 8579; 9258 - 8579= (679).That represents a 7.33% loss for the day.

But the Dow trades from 9:30 AM to 4:00 PM (all times Eastern) everyday, including today. Most professional traders and virtually all financial journalists essentially disregard the numbers generated during the trading day, as mentioned above.

But let's take a peek at the numbers during the day. The pros call that action intra-day trading.

At approximately 9:45 AM, the Dow stood at 9448, the high for the day. From there it went on to close at 8579. That represents a drop of 869 points. Another way of looking at it is that, from its high for the day (9448,) the Dow lost 9.10% of its value.

Using either the traditional yardstick, which showed the Dow down 7.33%, or the non-traditional one that produces an intra-day loss of 9.10%, these are remarkable numbers that are usually associated only with very speculative, individual stocks. Stocks like those are known for their volatility, best defined as the propensity of their price to move often and widely.[Note: The Dow is down 40% from its all-time high.]

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So, what's the point?

The point, I think, is that this behavior in the market(s)--after all the efforts and trillions of public dollars expended by our and other governments--is a strong argument that nobody--nobody!--knows what the problem(s) is and, ipso facto, cannot know what the solution is.

Analogy: Obviously sick patient brought to hospital with multiple symptoms. Situation obviously serious, maybe grave. Diagnoses vary from specialist to specialist, no one diagnosis can be agreed upon.

Hospital reacts by administering huge doses of antibiotics, anti-depressants, muscle relaxants, pain killers, virtually any drug that's in the cabinet; cardiac surgeons perform triple bypass; kidney specialist hooks patient up to dialysis machine and so on. Fortunately, that's not how the medical community would react.

If the proposition that no one has accurately diagnosed the illness is true, this is not the time for more shotgun squandering of monumental sums of public funds on well-intentioned, but thus far ineffective solutions to an inscrutable problem.

Question: Which is worse, (a) no immediate new action by the US Government, (b) immediate new actions along the lines of the old ones, or (c) an attempt at "buying time?" Option (c) would be something like the declaration, in concert with other nations, of a "Bank Holiday," starting tomorrow and running through next Monday, removing the second-to-second pressures on policy-makers associated with gyrating trading markets.

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From: History.com

March 5, 1933
Roosevelt declares bank holiday

When Franklin Roosevelt started his first term in the White House in 1933, he inherited a nation in the depths of the Depression. A record 13 million Americans were unemployed and businesses were drowning in red ink. Perhaps even more pressing was the head-spinning string of bank failures which had triggered a frantic run on the nation's savings vaults. The wave of withdrawals by panic-stricken depositors further dried up banks' already-depleted supply of liquid assets and pushed the nation's banking system to the brink of disaster. On March 5--the day after being sworn into office--Roosevelt stepped into the breach and declared a "bank holiday," which, for four days forced the closure of the nation's banks and halted all financial transactions. The "holiday" not only helped stem the frantic run on banks, but gave Roosevelt time to push the Emergency Banking Act through the legislative chain. Passed by Congress on March 9, the act handed the president a far-reaching grip over bank dealings and "foreign transactions." The legislation also paved the path for solvent banks to resume business as early as March 10. Three short days later nearly

Birth of an American Fuhrer: The Paulson Bailout Act

Absolute Power....

The following is the text of the proposed legislation which I refer to as the Paulson Bailout Act.

I have highlighted some passages.The Act speaks to the powers granted to the Secretary of the Treasury. But it is best understood as granting these powers to the President of the United States, as the Secretary is appointed by and serves at the pleasure of the President.

The Founders would shit in their pants if they ever saw something like this. It is nothing less than handing dictatorial, new powers to the Executive Branch without regard to the "checks and balances" written into the Constitution.

If this has already been published here, sorry for the duplication.

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LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as __________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.

(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

The Postmodern Great Depression, Act II

Russia, two days ago, closed their stock market in the face of a two-day decline of of approximately 27%. That market has not yet re-opened for trading.

What can be expected next in the United States?

Today's trading on the New York Stock Exchange saw the Dow Jones Index lose 450 points.

Shares of the venerable and sole-surviving independent investment banks, Morgan Stanley and Goldman Sachs fell as much as 44%(!!!) and 27%, respectively. Morgan is doomed for sure, Goldman, most likely too.

As the logo's in the post below this one indicate, these two firms have plenty of company.

Does the USG dare halt trading? Do they dare call a "bank holiday," as was done during the other Great Depression in the 1930s? Will such actions only exacerbate the problems?

As of now, there has been no indication of a 1930s-style run on the banks taking place. The public, either because of ignorance or blind faith, has yet to line up at their local bank branch and demand their money. Right now, the first priority of the USG is to prevent such a scenario from developing.

One can surmise that the USG in concert with the Federal reserve System has realized that they cannot be the "lender of last resort" to EVERYONE.

The question now is: Who shall be allowed to fail and how can the consequences of these failures be mitigated, if at all?

The Impossible as Reality

The Garbage Disposal?

Can they digest Countrywide and Merrill Lynch?

If not, who's gonna pay for BOA's insatiable appetite?

King Henry (Paulson) To The Rescue With "Other People's Money"

Just being announced (unofficially)is another taxpayer bailout: This time giant insurance company AIG.

The report in the NYTimes says the Treasury Department is going to lend AIG--a private company with private investor ownership--$85 billion of taxpayer funds. AIG, in turn, will pledge all of its assets as collateral for this loan. Shareholders will see some dilution, but will not be wiped out.

Once again, this is Government-by-Fiat. All done behind closed doors by men "obligato" to the very industries that created this fiasco. Apparently, Henry Paulson, current SecTreasury and ex-CEO Goldman Sachs, is endowed with powers that allow him to supersede Congress when it comes to allocating taxpayer money.

Yes, it's an emergency; yes, it's a crisis. But do we want to abdicate any semblance of democracy and permit one or two men to distribute public funds as they--and only they!--see fit?

How much money is being made by hedge funds that bought AIG securities betting that Goldman Sachs' King Henry would, once again, come to the rescue with boat-loads of "other people's money?"

And who are the "other people?" They are us!

Modern Capitalism Implodes & Nobody Knows Nothing

The one apparent fact that is emerging from the Crisis-in-Capitalism now being played out on Wall Street is: Nobody knows nothing.

No one knows the true causes of this calamity and no one knows of any systemic approach to stem the tide of the collapse of the modern financial system.

Right now, and since at least March of this year, we are witnessing the Treasury Secretary and the Fed Chairman playing the roles of Battalion Chiefs as they scurry from one bushfire to the next, dousing them with untold 100's of billions of taxpayer funds, most of which wind up in the pockets of bond holders like the Bank of China, hedge funds who bet the USG would bailout Fannie and Freddie and who therefore accumulated large holdings of the depressed debt securities of those "private sector" firms.

Nobody knows nothing.

When bewilderment reigns, it's generally a good idea to say and, especially, to do as little as is practicably possible. It's not the time to run-off at the mouth; it's not the time to assume nearly $5 trillion of private mortgage debt, as has already been done---with absolutely zero public discussion.

Obama's support should be done in the spirit of "National Unity" in a time of crisis. He should emphasize "crisis." He should emphasize Hoover-Bush-McCain. He should tie his (tepid) support to his sense of patriotism, not enthusiasm. He should make it explicitly clear that he is putting partisan politics on the shelf regarding this matter; but he should implicitly exploit the partisan advantages that this scenario gives the Democrats.

Kapital Kollapse

Alan Greenspan calls the current financial crises a "once in a century" event.

Lehman Brothers, a 158-year-old Wall Street investment bank that cannot be sold without the USG supplying the money, will declare bankruptcy tonight (Sunday.) And, by the way, the Lehman CEO was paid a $22 million performance bonus in March 2008, just as Bear Stearns was being bailed out with US taxpayer funds.

To avert another collapse, Bank of America is about to announce that it will buy Merrill Lynch, presumably without USG-supplied funds.

This transpires with narry a peek from either of the presidential candidates, with zero public input, with no Congressional hearings---nothing except the ex-CEO of Goldman Sachs (Treasury Sec. Paulson) and my namesake at the Fed allocating $100's of Billions of public funds to private pockets.

Fannie & Freddie & Socialism for Bond Holders

CEO: Fannie/Freddie Bailout Makes America 'More Communist than China'
Rogers Holdings chief tells CNBC Europe U.S. brand of socialism is meant only for the rich.

By Jeff Poor
Business & Media Institute
9/8/2008 5:24:06 PM



Has America created its own variety of communism with the U.S. Treasury Department’s bailout of two beleaguered government-sponsored enterprises (GSEs), Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE)? According to Rogers Holding CEO Jim Rogers, the answer is yes.



“America is more communist than China is right now,” Rogers told CNBC Europe’s “Squawk Box Europe” September 8. “You can at least have a free market in housing and a lot of other things in China. And you can see that this is welfare for the rich. This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters."



Rogers, known for launching the Quantum Fund with left-wing heavyweight George Soros, said the bailout was not benefiting homeowners or helping average citizens improve their standing for a home mortgage.



“It’s not bailing out the homeowners who are in trouble, by the way,” Rogers said. “It’s not bailing out people who want a mortgage – it’s just bailing out financial institutions. This is not my idea of the way things are supposed to be, but if that’s what America wants, you know, it can elect people who are going to do it. I think it’s a mistake.”



The Rogers Holdings CEO had little confidence that Democratic presidential nominee Sen. Barack Obama, Ill., or Republican vice-presidential nominee, Alaska Gov. Sarah Palin, would be able to do anything to steer Fannie or Freddie on a more stable path.



“This is a big huge mess and neither one of them has a clue as to what to do next year,” Rogers said. “Bank stocks around the world are going through the roof, that’s because they’ve all been bailed out. You don’t see the homeowners in Kansas going through the roof because they’re not being bailed out.”



Rogers had previously called for Fannie and Freddie to be allowed to go bankrupt. “They should not be bailed out,” he told “Worldwide Exchange” July 15. “This is outrageous. Who are these people who are taking our money and doing this and ruining America?”



“Let the patient go bankrupt,” he said. “We have courts in America; they will be reorganized.”



Fannie Mae and Freddie Mac were “wove a mantle of invincibility” through lobbying according to a September 8 Wall Street Journal “Deal Journal” blog post. According to the Journal’s Heidi N. Moore, the mortgage giants had $170 million in lobbying bills in the past decade and spent $3.5 million on lobbying just in this year’s first quarter, spreading their largesse among 42 outside lobbying firms.



Earlier on September 8, CNBC “Mad Money” host Jim Cramer called the bailout “a homerun plan” on MSNBC’s “Morning Joe.”

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I essentially agree with the thrust of the article: This bailout using taxpayer funds does not directly benefit the average taxpayer. The vast amount of the benefits accrue to the holders of Fannie Mae and Freddie Mac bonds, who are garnering a windfall profit from this action.

Bush Socializes the Mortgage Industry...Oh, the Freakin' Irony

The federal government--translation: you and me--steps into the breach and seizes the private mortgage corporations Fannie Mae and Freddie Mac from the precipice of bankruptcy. Cost to taxpayers? Unknown and unknowable.

Thus the Republican Bush-McCain team adds to its legacy the single largest government encroachment into the Private Sector since the Great Depression years of the 1930s. It's done as stealthily as something of this magnitude can be done, beginning on Friday evening, all over by Sunday.

The action is justified as necessary to halt and prevent the continued unraveling of the financial-housing-mortgage-banking system; that is, the 20% of that system that has not already unraveled.

Who benefits? Holders of Fannie and Freddie debt securities, primarily. The Bank of China, for example, holds $360 billion of those puppies, which have been steadily declining in relative terms, to US Treasury debt securities.

As Capitalism Stumbles Economically, It Furthers Its Grip on the Election Process

I have written before on the subject of Capitalism currently undergoing its first major "face-lift" since the Great Depression of the 1930s. If that subject interests you, feel feel to browse through my blog archives.

Capitalism--although the ideologues who defend it despite its obvious short-comings like to call it "Market" economies--is the economic system under which the United States operates.

Representative Democracy is the political system of the country.

Having observed rather closely this season's presidential contest, primary and general, I cannot help reach the conclusion that, just like the economy, the political system as outlined by the Founders of the Nation is beginning to give off that stench associated with antiquated ideas, designed in much simpler, much less ramified times.

The political election system, designed in the 18th Century by brilliant men who managed simultaneously to be both gloriously idealistic and ruthlessly pragmatic, is groaning and squeaking under the relentless, hegemonic stress applied to EVERYTHING by the capitalist business model as the ideal vehicle for achieving goals. The goals (the Content)are nearly irrelevant; it's the Form of achieving those goals that has attained primacy.

Thus we have Britney and Paris and Moses; we have the eerie truth that "staying on message" is vastly more important than the "message" itself. That people, like Clinton's Mark Penn, are considered geniuses by uttering remarks like, "small is the new big." Short, seemingly pithy, but actually vacuous, non-language has usurped the space that not long ago--maybe a couple of decades--was occupied by serious discussions between candidates on serious issues, discussions that forced the voting public to take a breath and think.

Perhaps back then the politicians were as contemptuous of the average Joe and Jane as they are now, and were only doing a better job of concealing it. But at least their words, their public discourse, indicated that they were addressing sentient beings. No more.

The contempt the overt mockery of the process, especially on the Republican side, but also exemplified by the Clinton Democratic primary campaign, is no longer kept in the closet or behind closed doors. The snide cynicism required of the advertising guy proves just as effective in electing a president as it does in selling Bud Lite. It's efficacious, damn it...and how does one argue with that brutal, unalterable fact?

The answer is one can't. If not playing by the rules that produce victories in the System means candidate A is almost surely going to lose, what is s/he to do? Commit suicide with honor?

Just as deregulating the oil futures trading market in 2006 transformed what was up until then a market almost exclusively inhabited by people actually in the oil business making rational decisions based on sound economic theory combined with real-world knowledge that produced the much needed price stability in perhaps the most economically important commodity in the world into a pit of wild, manipulative speculation, populated by individuals whose only connection to the oil business came when they visited the Exxon station once a week, akin to the stock market, resulting in the price of oil gyrating madly and having no grounding whatsoever to the fundamentals of the oil business; this fiasco can be corrected legislatively.

The transformation of the electoral process into a game dominated not by citizens devoting, on a part-time or seasonal basis, some of their time and skills to the activity to a system that has been "professionalized" and dominated by what are essentially advertising people [pollsters, strategists, whatever names they dream up to describe themselves are advertising people, nothing more, nothing less], with politicians as their specialized clientele is not something this writer thinks the Founders did or could have envisioned.

Solution? None.

This is not commodity trading we're talking about; this is Free Speech, political Free Speech. Though it's tempting as hell, legislating away Free (political) Speech is anathema to me. And without legislation the dynamic of the professionalization of the electoral process will continue, perhaps at some point eliminating the need for the candidate completely: the pollster will be not merely the pollster, s/he will be the Candidate as well.

What Would The Great Depression of the 1930s Look Like in Our Modern Economy?

It's been quite a week for Capitalism.

On Friday, federal regulators seized the assets of Indybanc, making it the second largest bank failure in American history. On Monday morning depositors were reported lining up at Indymac branches in California at 4:30 AM in an effort to get their deposits out.

The federal government insures deposits up to $100,000; beyond that, there is no formal federal insurance. There are people whose deposits at Indybanc exceed $100,000. It's too early to know what will become of their money.

On Sunday, at 6 PM, the Treasury Dept. announces a plan to "bailout" the troubled mortgage institutions, Fannie Mae and Freddie Mac. Part of the plan includes the federal government buying stock in these private companies as well as the Federal Reserve System (Fed) making loans available to them at the same rates that member banks pay for this privilege. The Treasury explained that a collapse of Fannie Mae and/or Freddie Mac would be intolerable for the world financial system.

The USGovt and the Fed have been engaged in a series of putting out brush-fires regarding the world financial system since at least March 2008, when they put together a bailout of the Wall Street investment bank Bear Stearns. That bailout set precedents, as does the current bailout of the two mortgage giants.

The precedents being set all have at there core the intervention of the federal government into sectors that had previously been considered, at least de facto, realms of the private sector.

This dynamic is reminiscent to this writer of the revamping of Capitalism that took place during the period of the Great Depression and WW II during the mid-20th Century. Only this time the folks in charge are trying to conduct a revamp/rescue in the stealth mode, careful not to say things that might worsen the situation, but also offering very little in the way of explaining what is going on and why the System has reached this stage of disrepair.

There are legitimate concerns about fueling bank-runs by uttering the wrong words; for example, Wall St. has been cautioned by the SEC to avoid rumour-mongering, whispers between traders that today could bring down a firm. But is complete silence from the president on these matters the only alternative? Up until today, it has been Treasury Secretary Paulson who has been the lone voice of the administration and certainly the Treasury Dept. sits at the nexus of the private and public financial system. But the time for the president to address this critical situation has arrived.

The heavy lifting in this current re-capitalizing of Capitalism is going to be left to the next president, probably Obama. And, ideology aside, it appears that an expansion of the role of the federal government in our Capitalistic economy is inevitable; in fact, it has already started with the actions taken thus-far by the laissez faire Bush Administration. Only they don't bother to state that fact for public consumption.

Capitalism Gets Its Biggest Overhaul Since The Great Depression, And Republicans Are Going To Do It

An article in the (London) Telegraph by its financial editor indicated that the Bush Administration, led by Treasury Secretary Paulson, and the Federal Reserve Bank, led by Chairman Bernanke may soon propose the nationalization of the United States banking system.

Huh? Yep, those free market in the pinstripe suits and power ties are certainly thinking the unthinkable, and very well may act on their thoughts.

THAT'S HOW SERIOUS THE CURRENT FINANCIAL CRISIS IS!

Talk is that the model being considered for emulation is Norway's, when that and other Scandinavian countries found themselves in a financial quagmire produced by private enterprise in the early 1990's. Reportedly, the actions then taken proved efficacious, in contrast to the drip-by-drip approach taken by the Japanese in the 1990's when their economy imploded. That approach still has not brought Japan back to where it was economically before the implosion.

Already here in the US, the Fed has opened its borrowing window to Wall St. "Investment Banking" firms for the first time since the Great Depression, at least; and, perhaps, for the first time ever. The Wall St. firms have not hesitated to that counter and borrow.

The Administration has released initial drafts of new regulatory powers that they propose the Federal Reserve System be given regarding Wall St. This would have been unimaginable even 3 months ago.

In short, while the mass media covers every detail of Hillary's ensemble of the day and Barack's reason for leaving "Barry" in the dust and McCain's confusion regarding four-letter words beginning with an "I" and others starting with the letter "S," the entire centerpiece of our capitalist economic system is about to undergo its most significant--and traumatic--overhaul in 80 years, all with less media coverage than Britney gets if she puts on or takes off a pair of dirty panties.

Finally, the Norway model mentioned earlier ensured that shareholders of the nationalized organizations came away with nothing, zilch, zero, unlike the Bear Stearns bailout,where those responsible still walked off with their pockets bulging, thought the bulge was much smaller than they expected.