More bad news – and how to fix it

     The Financial Times delivers the lowdown on the actual potential magnitude of America’s financial decline, based upon the formerly controversial (now operational)  12 step path to recession and melt down, as forecast in 2006 by Nouriel Roubini of the New York School of Business.
“Recently, Professor Roubini’s scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is “a rising probability of a ‘catastrophic’ financial and economic outcome”**. The characteristics of this scenario are, he argues: “A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe.”
Not sure exactly how this works, but it shows how speculators will take virtually anything and try to convert it into a  quick investment profit.   It is a tendency that has come to haunt us in the subprime world. 
     This PowerPoint link will save you reading whole chapters of “Web of Debt” . . . and give you some much needed laughs.
From Martin D. Weiss, Ph.D., in Money and Markets newsletter —
“The U.S. credit markets, the giant growth engine that powers the American economy, are collapsing … with few credit sectors spared from damage, few investors escaping losses, and little hope of federal action that’s quick or strong enough to make a major difference…….. Without the triple-A rating, their whole reason to exist falls by the wayside: They cannot enhance the credit of bond issuers. They cannot do more business. They may as well close their doors and go home.”
One of the last few officials working hard to get out the truth about budgets and astronomical looming entitlements has walked away from it all.   David M. Walker of the Government Accountability Office  resigned Feb. 15th.    
BERNANKE: “YOU’RE ALL DEAD DUCKS”…     He did not really say that, but Mike Whitney’s characterization of Bernanke’s recent testimony says he might as well have:
“Even veteran Fed-watchers were caught off-guard by Chairman Bernanke’s performance before the Senate Banking Committee on Thursday. Bernanke was expected to make routine comments on the state of the economy but, instead, delivered a 45 minute sermon detailing the afflictions of the foundering financial system. The Senate chamber was stone-silent throughout. The gravity of the situation is finally beginning to sink in.”
 Mike Whitney again,  watching the spin unravel into more of a confessional, as the Treasury Secretary unveils “Project Lifeline”, a  rather thin safety net to buy the foreclosed some time,  and revealingly answers some hard questions from reporters.    For example: 
Reporter: “Sir, is the worst over, yet? Will 2008 have fewer foreclosures?”
Secretary  of the Treasury Paulson:  “In terms of sub-prime and the resets, the worst isn’t over. The worst is just beginning…. There’s close to 2 million adjustable rate mortgages where the rate is going to be reset over the next couple of years.”
Fortunately, there is another alternative.  It’s all in the revised, updated “Web of Debt” — available now!

Northern Rock Nationalized

In England, the government does not bail out bankrupt banks without some quid pro quo; it takes their stock . . .

LONDON – Britain’s treasury chief Alistair Darling said today that struggling bank Northern Rock PLC will be nationalized.

That after the government rejected two takeover bids.

Northern Rock ran into trouble in September because it relied too heavily on short-term money markets instead of deposits for funding.

View from the Titanic — in the news the week of 1-21-08

Chalmers Johnson, “How To Sink America”


Bill Engdahl, “The Financial Tsunami Part III: Greenspan’s Grand Design”


“Housing prices to free fall in 2008”


“A tipping point? ‘Foreclose me … I’ll save money’”


George Soros, “The worst market crisis in 60 years”


Rick Ackerman, “PPT emerges from the shadows”

More banking woes: the lawsuits begin


by Henry J. Gomez and Thomas Ott, January 11, 2008

Mayor Frank Jackson took aim at Wall Street on Thursday with a lawsuit against 21 major investment banks that he said have enabled the subprime lending and foreclosure crisis here.

The one-of-a-kind suit, filed in Cuyahoga County Common Pleas Court, accuses venerable institutions such as Deutsche Bank, Goldman Sachs, Merrill Lynch and Wells Fargo of creating a public nuisance.

Jackson contends the companies irresponsibly bought and sold high-interest home loans. The result: widespread defaults that depleted the city’s tax base and left entire neighborhoods in ruins.

. . . “To me, this is no different than organized crime or drugs,” Jackson said in an interview with Plain Dealer reporters and editors.

“It has the same effect as drug activity in neighborhoods. It’s a form of organized crime that happens to be legal in many respects.”

. . . Cleveland is the second major U.S. city this week to sue over the ills of subprime loans.

On Tuesday, Baltimore sued Wells Fargo, alleging the bank intentionally sold high-interest mortgages more to blacks than to whites – a violation of federal law.

The Baltimore and Cleveland efforts are believed to be the first attempts by large cities to recover losses blamed on the foreclosure epidemic, which has particularly plagued Ohio. . . .

More evidence that the banking system is on the verge of collapse

Subprime is just the tip of the iceberg.  The banks are concealing bad loans Enron style . . .


Up to $6.5 trillion in mortgage-backed securities debt may be in jeopardy. Subprime borrowers may have an escape hatch — no paperwork providing standing to sue!

A federal judge in Ohio has ruled that a Deutsche Bank trust failed to show standing to foreclose on 14 mortgages held as mortgage-backed securities, since it hadn’t produced original assignments from the mortgagors.  The problem is, original assignments may not actually exist.  Signed hard copies are required to foreclose, and the original signed mortgages have been left in a file somewhere, while the mortgages have been slice and diced and rehypothecated until no single investor or pool can prove ownership.  If the mortgage-backed securities holders don’t hold enforceable mortgage notes, who does?  Arguably nobody!  Think of the fallout if ALL these defaulted subprime mortgages can’t be foreclosed on.  Outstanding securitized mortgage debt now comes to $6.5 trillion.  Once borrowers catch on, they may not bother to pay their mortgages even if they can; there’s no one with standing to foreclose!

Gretchen Morgenson, “Foreclosures Hit a Snag for Lenders,” New York Times, November 15, 2007

U.S. banking system headed for bankruptcy?

The SIV superfund bailout resembles the accounting fraud in Enron, and it’s liable to end just as badly for the banks . . . .  

 Jim Willie, “Deadly Dollar Confluence,” 11-8-07

“The banking distress is nowhere near ended, steadily denied as almost fixed, yet every passing week it seems yet another new remedy bailout rescue package feature . . . . The recent Structured Investment Vehicle (SIV) superfund testifies to the breadth of rescues. This one smells to high heaven as an illicit balance sheet redemption, at inflated unrealistic prices to boot, for the specific benefit of connected insider Wall Street firms. The Citigroup, Merrill Lynch, and Morgan Stanley forced admission of losses is not a mere accounting issue, without cash being involved. They are gigantic investment losses that the cute SIV device could not avoid in hitting the balance sheets. All eyes have turned to balance sheet accounting gimmicks, otherwise called fraud. The truth might be that losses are twice what are admitted, maybe worse. . . . The total will inexorably march to $2 trillion, and that figure might be conservative. Do not expect foreigners to pick up that tab. It will be financed by the US$ printing press, weighing down the US Dollar.”

See also Charles Hughes Smith, “Empire of Debt I: The Great Unraveling Begins,” November 5, 2007 —

The Fed bails out SIVs with conjured money

Excellent article explaining the SIV crisis:

“SIV-Positive,” by Eric J. Fry, October 26, 2007 

Fry writes:

Since almost all the investors who comprise the free market refuse to purchase ABCP [asset-backed commercial paper], the Federal Reserve has stepped into the breach. . . .

Could the Fed conjure up $1 trillion worth of AB financing between now and President’s Day, 2008? Maybe, but probably not without also conjuring up a dollar crisis, or a bond market crisis…or both at once. The only viable path toward recovery and normalcy requires a legitimate mark-to-market. But marking MBS and CDOs to real-world prices might clip tens of billions of dollars from bank balance sheets…and might kick a few dozen millionaire-bankers to the curb.

Unfortunately, because the millionaire-bankers still control the flow of information – and still hold meetings with the Treasury Secretary to concoct shell games – the “fantasy pricing” regime remains in effect.

Why not gold?

I’ve received many comments on returning to gold as the national medium of exchange.  Here’s my short answer on why I think it’s an insufficient solution:

A dollar lent at 10 percent interest compounded annually becomes 10 dollars in under 25 years.  That means that if the money supply were 100 percent gold, and if bankers lent out 10 percent of it at 10 percent interest compounded annually, in 25 years the bankers would own all the gold.  To avoid that, either the money supply has to be expandable — which means allowing fiat money — or the taking of interest has to be outlawed, as it was in the Middle Ages.

The banking shell game: “spreading risk” turns to contagion

Here is an excellent article explaining how the derivatives scheme, which “spread the risk” in a way that was supposed to protect investors, has actually spread credit risk like a contagion, infecting everything it touches. 

“Financial Shell Games” by Satyajit Das, New Delhi, September 16, 2007

Smoke and mirrors: concealing economic collapse with the shock of war?

“Soup Kitchen USA” by Mike Whitney, September 11, 2007 

“It’s all smoke and mirrors. The financial system has decoupled from the productive elements of the economy and is now beginning to show disturbing signs of instability. That’s why the big blow-off in the bond market. The halcyon days of supplying our armies, funding our markets and building our subprime ‘ownership society’ empire on the backs of foreign creditors is over. The stock market is headed for the landfill and housing is leading the way. Economic fundamentals can only be ignored for so long . . . .”

At the end of this article,Whitney discusses one from the UK Telegraph (9-9-07) titled “Banks Face 10-day Debt Time Bomb”:

To which one blogger ominously observes:
In the article above, it notes that
UK banks are in serious trouble of having to cough up a boatload of cash between 9/11 and 9/19. 9/14 lies smack in the middle of this. Could another false flag attack be used as some type of distraction? Most of the SEC evidence against World Com, Enron and others was lost in the WTC complex on 9/11/01. Is there a target in America that will serve the same purpose this time around? It seems the global financial system is in the process of imploding. We need to quickly identify how an attack might thwart it, or maybe make it look like it was the attack rather than bad monetary and fiscal policy that caused the economy to tank world wide. Would this just be an attack, an ‘accident’ or the sum of all fears – an errant nuke detonation used to justify a limited and orchestrated nuclear exchange between West and East? If the global monetary system is about to result in open worldwide revolution, and you were responsible, wouldn’t you try to make it look like something else was the cause? (and take out a few of the ‘masses’ in the process?) Remember, most military action in any nation is the direct result of flawed domestic policy or weak leaders, most notably relating to the economy. Now imagine that on a world wide scale.

See also “The Shock Doctrine,” a must-see film by Alfonso Cuarón and Naomi Klein, demonstrating how “free market” economists pioneered the concept of “shock” to push through whatever draconion economic policies they desired on unsuspecting populations recovering from major disasters:

Meltdown: stock market in free fall


This time it IS different.

In past financial bailouts, the destruction was limited to one or two institutions. A group was put together in the private sector, or the central bank stepped in, and the troubled entity was bailed out.

When the Federal Reserve, the European Central Bank, and Bank of Japan moved last week to bail out the entire financial industry worldwide, they offered, as the Financial Times pointed out today, the equivalent of a credit card with no credit limit and subsidized rates 1 or 2 percent below what would have been the free-market rate had they not stepped in.

What’s more, it was done on a global basis to the tune of hundreds of billions in “liquidity.”

Thus the central banks have set a dangerous precedent . . . .

Iran wants yen, not dollars

Iran Wants Yen from Japan not the U.S. $ for Oil  

At the heart of the global monetary system lies the use of the U.S.$ as the currency used to pay for the globe’s oil. Any change in that role has a disproportionate impact on the importance of the $ as well as its value relative to the globe’s other currencies. . . . So when we heard that Iran asked the Japanese refiners to switch to the Yen to pay for all crude oil purchases, after Iran’s central bank said it is reducing its holdings of the U.S.$, we realized that this is an undermining blow to the $ and will also contribute to the current fall of the $ in exchange rate values, despite any short-term rally. . . .


Iran Asks Japan to Pay Yen for Oil (7-13-07)

“Iran isn’t alone in wanting to drop the dollar for pricing oil. Russia has been examining plans to price the Urals oil export blend in rubles to curb currency risks . . . .”

Tax challenge

IRS Loses Challenge to Prove Tax Liability 

 by Bob Unruh, World Net Daily (July 26, 2007)

The IRS has lost a lawyer’s challenge in front of a jury to prove a constitutional foundation for the nation’s income tax, and the victorious attorney now is setting his sights higher. “I think now people are beginning to realize that this has got to be the largest fraud, backed up by intimidation and extortion and by the sheer force of taking peoples property and hard-earned money without any lawful authorization whatsoever,” lawyer Tom Cryer told WND just days after a jury in Louisiana acquitted him of two criminal tax counts . . . .

Bill Bonner, “Fed Speak for Dummies” (7-19-07)

“Money that is created ‘out of thin air’ – courtesy of central banks and financial firms – tends to go back from whence it came. For every genesis of wealth creation…there is an exodus of wealth destruction. Watch out for it…”

Exposing the bugs beneath the rocks . . .

“Credit crunch will ‘shred investment portfolios to ribbons'” by Ambrose Evans-Pritchard, Telegraph U.K., July 2, 2007           

“The near collapse of two Bear Stearns hedge funds has lifted the rock on our 21st century mutant capitalism, exposing the bugs beneath to a rare shock of naked light. . . . If you think we are too clever now to let a full-blown slump occur, read the BIS report.   “Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and south-east Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived,” it said.. . . So the oldest and most venerable global watchdog is worried enough to evoke the dangers of depression. It will not happen. Fed chief Ben Bernanke . . . will slash rates to zero if necessary, and then – in his own words – drop cash from helicopters. But his solution is somebody else’s dollar crisis. . . . Perhaps governments should simply stop trying to rig the price of money in the first place.”

Signs of collapse: in the news April & May ’07

Mike Whitney, “Housing Bubble Meltdown: Is It Too Late to Get Out?”,  April 28, 2007 

“The details of the meltdown are being downplayed in the media to prevent panic-selling among the public. But the Fed knows what’s going on. . . .

“Kenneth Heebner, manager of CGM Realty Fund (Capital Growth Management), provided a realistic forecast of what we can expect in the near future as defaults increase. . . . “I would expect that housing prices in 2007 will decline 20% in a lot of markets. What you are going to see is the greatest price decline in housing since the Great Depression . . . .

“Nearly 70% of subprimes have been securitized [sold as securities to hedge funds and institutional investors]. . . . In Henry C K Liu’s “Why the Subprime Bust will Spread” (Asia Times) the author states that the bursting housing bubble will trigger a major pension crisis. After all, who are the “institutional investors? They are mostly pension funds that manage the money the US working public depends on for retirement. . . .” (Liu)

“. . . Since nearly 50% of “securitized” mortgage debt is owned by foreign investors, the subprime meltdown is bound send tremors through the entire global financial system.”

“The Housing Mess” by Terry Savage, The 5-13-07

Predicts a drop in home prices of 30 to 50 percent.  Other sources warn that a drop in home prices of 40 percent would collapse the economy of the United States.  (See Web of Debt, chapter  31.)  Collapsed mortgages and foreclosures shrink the supply of money-built-on-debt, shrinking the economy, in the sort of syndrome experienced in the Great Depression.


“Venezuela Exits IMF and World Bank,”, May 1, 2007.

Details how Venezuela and other countries are distancing themselves from international lenders.

Related article: “Chavez Threatens to Nationalize Banks, Steel Producer,” Associated Press (May 3, 2007)


“Asia Will Start Its Own Currency Pool So It Can Dump IMF,” drawing on Bloomberg News Service article dated May 3, 2007.


Emily Thornton, “Roads to Riches – Why investors are clamoring to take over America’s highways, bridges, and airports – and why the public should be nervous,” Business Week, May 7, 2007.