WEB OF DEBT BLOG

   

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North Dakota shines like a bright star in the dark night of America’s Great Recession. It stands out for two reasons: First, it led the United States in sustaining a strong economy and high employment through the last four years. Second, it is the only state in the union with a publicly-owned bank. Many believe the Bank of North Dakota played an important role in stabilizing the state’s economy, and they would like to replicate public banks nation-wide. It will be a tough fight, and an important one.

Read the whole article here.

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Michael Moore just came out with
“Michael Moore’s Action Plan: 15 Things Every American Can Do Right Now,” which lists as #4:
“Each of the 50 states must create a state-owned public bank like they have in North Dakota.”
It’s currently on the front page of Reddit (one of the world’s most popular websites).

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The Bank of North Dakota is the only state-owned bank in America—what Republicans might call an idiosyncratic bastion of socialism. It also earned a record profit last year even as its private-sector corollaries lost billions. To be sure, it owes some of its unusual success to North Dakota’s well-insulated economy, which is heavy on agricultural staples and light on housing speculation. But that hasn’t stopped out-of-state politicos from beating a path to chilly Bismarck in search of advice. Could opening state-owned banks across America get us out of the financial crisis? It certainly might help, says Ellen Brown, author of the book, Web of Debt, who writes that the Bank of North Dakota, with its $4 billion under management, has avoided the credit freeze by “creating its own credit, leading the nation in establishing state economic sovereignty.” Mother Jones spoke with the Bank of North Dakota’s president, Eric Hardmeyer.

Read the rest here —  http://tiny.cc/RhE5T

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Paul Mason, “Fannie Mae: The Credit Crunch Meets the F-word,” BBC News, July 12 2008 — 

“The panic on Friday about the two US mortgage giants, Fannie Mae and Freddie Mac, is followed by the collapse of California’s IndyMac, a regional mortgage lender. . . .

“All over the world, slowly but surely, the state is becoming exposed to the debts and liabilities of the finance system. . . . On this basis I will make a prediction. Soon the ideology will move into line with the practice. Soon somebody will argue that a state-backed finance system, with much heavier regulation, is better than the one the world’s leaders have been trying to patch together at the G8 summit. . . .

“Roosevelt and his allies did not start out with a coherent vision of what to do in the face of the crisis. They improvised . . . I am not advocating a return to Rooseveltian state capitalism – but I do think the evolution of FDR’s thought is worth studying. Because what basically happened was that a coalition of interests determined to stop the finance sector from destroying the world economy found a leader prepared to go beyond muddling through and to envision a new kind of market economy where the state’s mission was to defend the little guy against the steamroller of unemployment, hunger and speculation.”

Read more: http://xrl.us/kk2o7

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This question is hotly contested. Traders in commodities futures say futures trading cannot drive up the physical price. It is the physical price that ultimately determines the futures price rather than the reverse. But there seems to be more to it than that. A number of good recent articles suggest that speculation is indeed largely responsible for the massive inflation in food and oil today.  See, e.g. —   

John Mauldin, “Colliding Bubbles, US Unemployment, the Credit Crisis and Oil Price Surge,” June 7, 2008 —

. . . I have been pondering for a few weeks about whether the long-only commodity index funds are really affecting the markets. Basically, these funds have become a huge part of the commodities market. It is clear that enough buying and in size will affect any market, but these funds do not take delivery. They “roll” their exposure as they get close to expiration, so they are not involved in the spot price. In theory, the spot price should be a function of immediate supply and demand.

But, it is not that simple, as Louis Gave reminded me. Looking at recent CFTC data, investors known as “commercials” were long 827 million barrels of oil. In the early part of the decade it was 3-400 million barrels. Commercials are supposed to be those who are hedging their production of oil. But large oil companies rarely hedge, and smaller producers only hedge a portion of their oil (see more below). Has supply increased over 100%? I think not.

Where is the increase in commercial interest coming from? The clear answer is long-only commodity index funds and ETFs. They simply buy baskets of commodities at whatever the price is, speculating on the rise in the price of the overall commodity market. It is a one-way trade . . . .

http://www.marketoracle.co.uk/Article4987.html

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See also —

Sam Pizzigati, “Oil Prices: A Case of Supply, Demand, and Speculation,” June 9, 2008 —

Looking for villains around the gas pump? Try looking behind the hedges to the shadowy investment world where the super-rich make bets with billions — and regular people always lose. . . .

Grand concentrations of private wealth, history tells us, have a nasty little habit of nurturing wasteful and witless speculation. Wasteful and witless speculation, news reports last week revealed, just happens to be the economic joker in the deck that’s turbocharging our current surge in crude oil prices.

The speculation now doing so much damage at America’s gas pumps comes mostly out of hedge funds, those shadowy mutual funds on steroids open only to the deepest of deep-pocket investors. This special status largely frees hedge funds from any federal financial oversight and regulation.

Hedge funds can essentially do whatever they choose. They typically make their money playing games with money. In the oil market, for instance, they have no interest in ever using the oil they sign “futures” contracts to buy. Instead, they buy and sell the futures contracts — with borrowed money. . . .

 http://www.alternet.org/workplace/87474/

Philip Davis, “Commodities Prices: Speculation Exposed,” seekingalpha.com, May 21, 2008

“ICE, ICE, Baby”, Star-Telegram, May 19, 2008

Mario Osava, “Agriculture: What Is Really Causing ‘Agflation’? Ipsnews.net, May 4, 2008.

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Federal Reserve Bailout of Megabank Raises Serious Questions About Motive

By Dr. Mark W. Hendrickson, AmericanFreePress.Net, May 26, 2008

The Federal Reserve crossed a Rubicon of sorts, lending tens of billions of dollars, not to a commercial bank, as has been its historical practice, but for the first time to an investment bank.

Commercial banks pay the Federal Deposit Insurance Corporation (FDIC) for deposit insurance, whereas investment banks do not, and yet the Fed suddenly made liquidity available to the latter. Commercial banks are legally allowed to use leverage to a maximum ratio of $13 of debt to every dollar of equity, whereas investment banks—ironically subject to less regulatory oversight than commercial banks—can leverage their equity by a factor of 34.

Invoking an obscure, never-before-used legislative provision, the Fed made billions of dollars available to JPMorgan Chase to acquire another investment bank, the essentially insolvent Bear Stearns.

The Fed-engineered JPMorgan takeover of Bear raises startling questions: What is the degree of cooperation between the Fed and JPMorgan? Was this an impromptu alliance, or had it been plotted in advance? Was JPMorgan drafted against its will to absorb Bear Stearns, or did the central bank give JPMorgan a plum that it already coveted? More importantly for the country, what will be the relationship of JPMorgan and the Fed going forward?

Clearly, if Bear was “too big to fail,” then undoubtedly the much larger JPMorgan is too big to fail. JPMorgan was already a key dealer of U.S. government debt before absorbing Bear, and now it has Bear’s erstwhile share of that operation, too. Of even greater significance, even before the takeover, JPMorgan already had multiples of the kind of illiquid financial derivatives that did in Bear Stearns—in fact, more derivatives than any other company in the world—and now it owns Bear’s junk, too. This implies that the Fed will have to make good on those derivatives—even if it eventually means giving JPMorgan real money for worthless “assets”—if that’s what it takes to keep JPMorgan alive. . . .

Continued here: http://www.americanfreepress.net/html/federal_reserve_bailout_raises.html

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Credit Crunch Fallout: Germans Fear Meltdown of Financial System

Germany and other industrialized nations are desperately trying to brace themselves against the threat of a collapse of the global financial system. The crisis has now taken its toll on the German economy, where the weak dollar is putting jobs in jeopardy and the credit crunch is paralyzing many businesses.

http://www.spiegel.de/international/business/0,1518,543588,00.html

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Predatory Lenders’ Partner in Crime (by then N.Y. Governor Eliot Spitzer) February 13, 2008, Washington PostSeveral years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive “teaser” rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets. Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers . . . .

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

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Is an International Financial Conspiracy Driving World Events?   Richard Cook, March 27, 2008

Was Alan Greenspan really as dumb as he looks in creating the late housing bubble that threatens to bring the entire Western debt-based economy crashing down?

Was something as easy to foresee as this really the trigger for a meltdown that could destroy the world’s financial system? Or was it done, perhaps, “accidentally on purpose”?

And if so, why? . . .

http://www.globalresearch.ca/index.php?context=va&aid=8450

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Argentina, Brazil to Drop U.S. Dollar in Bilateral Transactions

http://news.xinhuanet.com/english/2008-03/16/content_7800121.htm

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The author quotes Jefferson on the threat posed by a private banking system to our national liberties, then notes that many if not most foreclosures may be illegal because the securitized trusts pursuing them don’t have recorded evidence that they own the loans. Yet most foreclosures go through by default because the homeowners don’t contest them. Raising this simple defense could be done without an expensive attorney, and it could allow homeowners to stay in their homes much longer or to settle on better terms. Moe asks what would happen if a massive wave of homeowners started fighting back and making banks prove they have the right to foreclose . . .

“Moe’s Views and Theories on the Mortgage and Banking Crisis” (March 25, 2008)

http://www.loansafe.org/forum/moes-views-theories-mortgage-housing-crisis/521-i-believe-banking-institutions-more-dangerous-our-liberties-than-standing-armies.html

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Tent cities have sprung up outside Los Angeles as people lose their homes in the mortgage crisis.  See this short BBC Production.  http://www.youtube.com/watch?v=CnnOOo6tRs8

Richard Cook, “Whose Money Is It?”  (March 23, 2008)  http://www.globalresearch.ca/index.php?context=va&aid=8424

Gretchen Morgensen, “Federal Reserve ‘rescues’ Sink Speculators”   http://www.iht.com/articles/2008/03/23/business/morg.php

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At a 1968 meeting of the secretive globalist group known as the Bilderbergers, a U.S. official named George Ball spoke of creating a “world company.” Ball was U.S. Undersecretary of State for Economic Affairs and a managing director of banking giants Lehman Brothers and Kuhn Loeb. The “world company” was to be a new form of colonialism, in which global assets would be acquired by economic rather than military coercion. The “company” would extend across national boundaries, aggressively engaging in mergers and acquisitions until the assets of the world were subsumed under one privately-owned corporation, with nation-states subservient to a private international central banking system.  This weekend, banking giant JP Morgan added to its share of the world company when it bought Bear Stearns at $2 per share, a 98% discount, aided by backup funding from the Federal Reserve.  Who bore the loss?  Teachers and other public employees.  See —        

Catherine Austin Fitts, “Morgan Bags the Bear” (March 16, 2008), www.solari.com/blog/ 

She writes:

Well, Eliot Spitzer’s resignation was just in time. Can you imagine what he would have said about this?  As of December 31, 2007, the New York State Teacher’s Retirement System owned 493,007 shares of Bear Stearns stock at a cost basis of $24,736,363.42 or $50.1745 per share. The year end value was $43,507,867.75 or $88.25 per share.  As of March 31 2007, the New York State and Local Retirement System owned 453,385 shares of Bear Stearns stock at a cost of $34,443,043 or $75.97 and a valuation at that date of $68,850,650 or $145.24 per share.  JP Morgan has just announced that they are going to buy Bear Stearns at $2 per share. Bear Stearns stock closed at $30 per share on Friday and at $57 per share on Thursday. Which means JP Morgan is not paying a premium to market. Rather, they are paying a 93% discount to market.  This means that the New York teachers and public employees invested $59 million in Bear Stearns and their investment is now worth $1.9MM, a loss of $57 million. If you look at their opportunity cost, the New York pension plans could have sold in June 2007 before reality hit mortgage market valuations at $151 per share. From that point of view, they have lost $149 per share, or $141 million.

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Paul Krugman in the New York Times:

I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.

Paul Krugman “Betting the Bank”(March 14, 2008)

http://www.nytimes.com/2008/03/14/opinion/14krugman.html?_r=1&oref=slogin

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From the Independent UK:

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed’s emergency funding procedure was first used in the Depression and has rarely been used since. A Goldman Sachs trader in New York said: “Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we’re just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow.”

Margaret Pagano, “Wall Street fears for next Great Depression” (March 16, 2008)

Independent.co.uk

http://www.independent.co.uk/news/business/news/wall-street-fears-for-next-great-depression-796428.html

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In other news:

Greg Palast links exposé of Governor Eliot Spitzer to his exposé of the banks –

Greg Palast, “Eliot’s Mess” (March 14, 2008)

http://www.gregpalast.com/elliot-spitzer-gets-nailed/#more-1979

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Pennsylvania Student Loans Halted on Auction Failures 

By Adam L. Cataldo

Feb. 27 (Bloomberg) — The Pennsylvania Higher Education Assistance Agency, the second-largest seller of auction-rate debt for the past seven years, will stop making student loans next month after paying $24 million in extra interest.

The agency services and buys existing obligations and makes about $500 million in new loans annually, chief financial officer Tim Guenther said. Officials, who made 140,000 student loans in the 12 months through June 30, said they will halt making new ones on March 7.

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