The End of Free Market Capitalism

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Paulson says U.S. taxpayers at risk in bailout plan
Sun Sep 21, 2008 10:35am EDT

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson acknowledged on Sunday an emergency rescue plan aimed at stabilizing a financial system in freefall will cost taxpayers money, but argued that costs will not be as high the $700 billion limit of the package.








http://www.jsmineset.com/ARhome.asp?VAf ... _ARID=6693





http://www.jsmineset.com/ARhome.asp?VAf ... _ARID=6284

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By Liz Capo McCormick

June 9 (Bloomberg) -- Trading in derivatives, led by short- term interest-rate futures, climbed 30 percent to a record $692 trillion in the first quarter, signaling a possible easing of tensions in the money markets, the Bank for International Settlements said.

The value of short-term interest-rate futures traded on exchanges rose to $548 trillion during the three months ended March 31, a gain of 32 percent over the same period last year, the Basel, Switzerland-based BIS said today. The contracts are designed to speculate on, or hedge against, moves in borrowing rates. The figures are based on the notional amounts underlying the agreements.

The increased trading ``suggests that liquidity conditions in the term money markets might have recovered to some extent after the stressful 2007 year-end,'' analysts Naohiko Baba, Patrick McGuire and Goetz von Peter wrote in the BIS's quarterly review.

The gains were concentrated in derivatives denominated in U.S. dollars and euros, which had undergone a ``significant retreat'' in the prior quarter, they wrote. Banks were still pressed for cash, according to another part of the report.

A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events or the price of underlying assets such as debt, equities and commodities. Derivatives include futures, which are agreements to buy or sell assets at a set date and price, and options, which are the right but not the obligation to do so.

Eurodollar Deposits

Turnover in futures and options on three-month Eurodollar deposit rates ``picked up sharply'' in the period, extending a rise from the previous quarter, said the BIS, a global organization formed in 1930 that monitors financial markets and serves as a bank for central banks.

Eurodollar futures are priced at expiration to the three- month London interbank offered rate, or Libor, for U.S. dollars. Turnover in futures and options on the federal-funds rate fell in the quarter.

The increase in exchange-traded derivative trading in the first quarter erased a 21 percent slide in the previous period, the biggest drop in at least 14 years. Trading had declined as banks hesitated to lend to each other amid mounting losses on securities linked to U.S. subprime mortgages.

Even as conditions in the money market improved in the first quarter, early signs in the current quarter show that banks were still pressed for cash, BIS analysts Ingo Fender and Peter Hordahl wrote in a separate section of the report.

`Extreme Stress'

``Interbank money markets continued to show clear signs of extreme stress from March to May,'' they wrote. ``Spreads between Libor rates and corresponding overnight indexed swap (OIS) rates, due to counterparty credit risk as well as liquidity concerns, were generally at least as high at the end of May as three months earlier.''

This appears to imply there were expectations that interbank strains ``were likely to remain severe well into the future,'' Fender and Hordahl wrote.

The difference, or spread, between the three-month dollar London interbank offered rate and the overnight index swap rate, known as Libor-OIS, is 67 basis points today. The spread was 73 basis points on March 31 and peaked last year at 106 basis points in December. The spread averaged 11 basis points for the 10 years prior to August, when the global credit crunch began.

Dollar Swaps

Overnight indexed swaps are over-the-counter traded derivatives in which one party agrees to pay a fixed rate in exchange for the average of a floating central-bank rate over the life of the swap. For U.S. dollar swaps, the floating rate is the daily effective federal funds rate.

Trading in stock index futures and options fell 2.7 percent to $73 trillion in the fourth quarter, compared with $75 trillion in the prior quarter, according to BIS analysts Baba, McGuire and von Peter. Trading rose 22 percent versus the same period a year earlier. The Standard & Poor's 500 index declined 9.9 percent in the three months to March 31. The Dow Jones Stoxx 600 Index in Europe dropped 16 percent during the same period.

Foreign exchange futures and options volumes advanced in the first quarter, led by trading in the euro, yen and Swiss franc derivatives, the BIS said. These increases offset retreats in currencies that included the Canadian dollar and the U.K. pound.

Trading in currency futures and options rose to $6.7 trillion, a jump of 11.7 percent from fourth-quarter 2007 and a gain of 32 percent from the same period last year, the BIS said.

Currency Volatility

Volatility implied by options among the seven most-traded currencies increased 25 percent in the first quarter, matching the rise in the previous quarter, a JPMorgan Chase & Co. index shows.

Global trading in commodity derivatives grew by 52 percent to 489 million contracts in the first quarter from the year-ago period. The BIS said notional figures weren't available. Agricultural and energy products led the climb, it said. Commodity trading data is not included in the BIS's aggregate derivative figures.

Trading in derivatives not listed on exchanges increased during the second half of 2007, led by growth in the credit segment ``due possibly to heightened demand for hedging credit exposure,'' the BIS said.

The notional value of all outstanding over-the-counter derivatives rose 15 percent in the second half to $596 trillion, following a 24 percent gain in the first half of the year, the BIS said.

The gross market value of credit default swaps, which measures the cost of replacing all existing contracts, almost tripled to $2 trillion in the second half of 2007, compared with a rise of 53 percent in the first half, the BIS said.

Credit-default swaps, which make up the majority of credit derivatives, are financial instruments investors use to speculate on the ability of companies to repay debt or hedge against the risk they won't.

To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
Last Updated: June 9, 2008 10:59 EDT

http://www.bloomberg.com/apps/news?pid= ... refer=bond

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by Martin Weiss, PhD



New data and analysis demonstrate that the proposal before Congress for a $700
billion financial industry bailout is too little, too late to end the massive U.S. debt
crisis; and, at the same time, too much, too soon for the U.S. Government bond
market where most of the funds would have to be raised.


1. Disregard data based on the list of troubled banks maintained by the Federal
Deposit Insurance Corporation (FDIC). The FDIC’s list currently has 117
institutions with $78 billion in assets. However, based on a broader analysis of
recent FDIC call report data, we find that institutions at risk of failure include
1,479 FDIC member banks and 158 thrifts with total assets of $3.2 trillion, or
41 times the assets of banks on the FDIC’s list.

2. Think twice before providing a broad bailout for U.S. debts given the wide
diversity of mortgage holders and the great magnitude of the total debts
outstanding in the United States. Just-released Federal Reserve Flow of Funds
data show that, beyond mortgages, there are another $20.4 trillion in private sector
consumer and corporate debts, plus $2.7 trillion in municipal securities
outstanding.

3. Recognize that, among banks and thrifts with $5 billion or more in assets, there
are 61 banks and 25 thrifts that are heavily exposed to nonperforming
mortgages.

4. Get a better handle on the enormous build-up of derivatives held by U.S.
commercial banks.

5. Base any legislation on (a) realistic estimates of the loan amounts already
delinquent or in default, and (b) reasonable forecasts of how many more are
likely to go bad in a continuing recession.

6. Recognize the inadequacies in already-established safety nets, such as the
FDIC for bank depositors, Securities Investor Protection Corporation (SIPC)
for brokerage customers, and state guarantee associations for insurance
policyholders.

There should be no illusion that the $700 billion estimate proposed by the
Administration will be enough to end the debt crisis. It could very well be just a
drop in the bucket.


The Office of Management and Budget (OMB) projects the 2009 federal deficit
will rise to $482 billion. But adding the cost of announced and proposed bailouts,
now approximately $1 trillion, it is undeniable that the federal deficit could double
or triple in a short period of time, driving interest rates sharply higher and
aggravating the very debt crisis that the bailout plan seeks to alleviate.



1. Congress should limit and reduce the funds allocated to any bailout as much as
possible, focusing primarily on our recommendation #4 below.

2. If Congress is determined to provide substantial sums to a new government
agency to buy up bad private-sector debts, we recommend that the new agency pay
strictly fair market value for those debts, including a substantial discount that
reflects their poor liquidity.

3. Congress should clearly disclose to the public that there are significant risks in
the financial system that the government is not able to address.

4. Rather than protecting imprudent institutions and speculators, Congress should
protect prudent individuals and savers by strengthening existing safety nets,
including the FDIC for bank deposits, SIPC for brokerage accounts and state
guarantee associations that cover insurance policies.


Regardless of what Congress decides, savers and investors should continue to
invest and save prudently, seeking the safest havens for their money, such as
banks with a financial strength rating of B+ or better, U.S. Treasury bills, and
money market funds that invest almost exclusively in short-term U.S. Treasury
securities or equivalent.

http://www.moneyandmarkets.com/files/do ... -Paper.pdf

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Underlying this political pressure is a sense that the financial class, people who run global financial institutions, have failed to behave responsibly and effectively, and have therefore lost their legitimacy. The expectation, reasonable or not, is that the political system will now supplant these managers and impose at least a temporary solution. The finance ministers therefore have a political mandate, almost global in scope, to act decisively. The question is what they will do?

That question then divides further into two parts. The first is whether they will try to craft a single, global, integrated solution. The second is the degree to which they will take control of the financial system — and inter-financial institution lending in particular. (A primary reason for the credit crunch is that banks are currently afraid to lend — even to each other.) Thus far, attempts at solutions on the whole have been national rather than international. In addition, they have been built around incentivizing certain action and increasing the available money in the system.

So far, this hasn’t worked.



The Dow Jones Industrial Average fell as low as 7,882.51 and rose as high as 8,901.28 before closing down 1.5 per cent at 8,451.19. For the week, its 18.2 per cent fall was the worst ever.

Policymakers from the Group of Seven nations said they would take “urgent and exceptional action” to stem the financial crisis, though stopped short of adopting a specific and uniform set of policies that would individually bind all its member countries.

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by Larry Levin

The GDP report was horrible - Yeeeeeee Haw, was the response on Wall Street. Although it was very bad, it could have been worse, they said.

The GDP report showed a -.3% decline in economic activity from last quarter's fictitious 2.8% reading. The massive reversal, however, was read as good news because some economists had predicted a -.5% reading. Asked about the 4th-quarter, economists believe GDP will contract at a -2.8% rate. Therefore, if it comes in at say, -2.5%, we should expect a nice rally. (Sarcasm)

Here are some specifics of the report:

1) Final sales to domestic purchasers fell 1.8%, the largest decline in 17 years.

2) Consumer spending dropped 3.1%, the first decline in 17 years and the biggest drop in 28 years.

3) Business investment fell 1%.

4) Investments in homes fell for the 11th straight quarter.

5) Spending on nondurable goods fell 6.4%, the largest decline in 58 years. Non-durables? Yikes, that's some real retrenchment in spending.

6) Inflation-adjusted after-tax incomes fell 8.7%, the largest quarterly decline since the record-keeping began in 1947! However, incomes fell more during the Great Depression, so we got that goin' for us.

7) Government spending increased 5.8%, adding 1.2% points to growth. Of course, this was done with borrowed money.

8) Federal spending jumped 13.8%, including an 18.1% rise in defense spending, the biggest growth in five years. Of course, this was done with borrowed money.

9) Spending by state and local governments rose 1.4%. Of course, this was done with borrowed money.

As you can plainly see, this data is horrifyingly bad. There is no way a sane person can read this and come to the conclusion that it's not so bad. Unfortunately, it has only just begun; it will get worse from here.

As I have been saying for some time now, the government's money pumping will do nothing and this is proof positive. Much like the old saying - You can lead a horse to water but you can't make him drink - you can give money to a bank but you can't force it to lend. Moreover, you cannot force a consumer to borrow money.




But it doesn't stop there either. The Fed is lending more money out to more foreign governments; Brazil , Singapore , South Korea , and Mexico . Each will receive $30-billion. Ain't that nice?

The list of participants dependent on the Fed increases every day - literally. The Fed is not the lender of last resort in the USA , but is now the lender of only resort to Brazil , Mexico , South Korea , and Singapore - perhaps the world. When those loans are used up, what's next? More loans? Bigger loans? When will it end?


http://avidtrader.blogspot.com/2008/10/gdp.html

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http://www.guardian.co.uk/commentisfree ... my-banking

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By Mark Pittman

Nov. 7 (Bloomberg) -- Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.

The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages.


Fed's Position

Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply.

according to Alison Thro, the Fed's FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said today before the filing of the suit. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn't subject to the freedom of information law.

``This type of information is considered highly sensitive, and it would remain so for some time in the future,'' Thro said.

The Fed didn't give Bloomberg a formal response because ``it got caught in the vortex of the things going on here,'' said Michael O'Rourke, another member of the Fed's FOIA staff.

Thro declined to comment on the lawsuit.

The case is Bloomberg LP v. Federal Reserve, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net.
Last Updated: November 7, 2008 12:39 EST

http://www.bloomberg.com/apps/news?pid= ... r.oY2YKc2g








http://www.bloomberg.com/apps/news?pid= ... =worldwide

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http://mises.org/media.aspx?action=category&ID=113

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JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo and More Than 1,800 Other Institutions Believed to Be at Risk of Failure Based on Fourth Quarter 2008 Data

Several of the nation`s largest banks, including JPMorgan Chase, Goldman Sachs,
Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, plus more than 1,800
regional and smaller institutions are at risk of failure despite government
bailouts, according to Martin D. Weiss, Ph.D., president of Weiss Research,
Inc., an independent research firm.

The analysis is based on Fourth Quarter 2008 data from TheStreet.Com and the
Comptroller of the Currency (OCC). Several large institutions received
significant ratings downgrades from the prior quarter, including Citibank,
downgraded from C- to D; Wells Fargo, downgraded from C- to D+; and SunTrust
Bank, downgraded from C- to D+.

The debt crisis is much greater than the government has reported, according to
the white paper. The FDIC`s "Problem List" of troubled banks includes 252
institutions with assets of $159 billion. The updated review by Weiss Research,
however, shows that 1,816 banks and thrifts are at risk of failure, with total
assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in
total assets in prior quarter.

Five large U.S. banks have credit exposure related to their derivatives trading
that exceeds their capital, with four in particular - JPMorgan Chase, Goldman
Sachs, HSBC Bank America and Citibank - taking especially large risks.

At year end 2008, Bank of America`s total credit exposure to derivatives was 179
percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s,
382 percent; and HSBC America`s, 550 percent, according to the Comptroller of
the Currency (OCC). In addition, in the fourth quarter, Goldman Sachs began
reporting as a commercial bank, revealing an alarming total credit exposure of
1,056 percent, or more than ten times its capital. Although the banking
authorities have not defined how much exposure is considered excessive, Weiss
believes that, as a rule, bank exposure to any single risk category should be
limited to 25 percent of capital. Goldman Sachs has exceeded that limit by a
factor of 42 to 1.

"Equally alarming," writes Dr. Weiss, "is the fourth quarter OCC data
demonstrating that record bank losses are spreading to interest-rate
derivatives. Until now, bank derivatives losses have been limited almost
exclusively to credit defaults swaps (CDS), which represent only 7.8 percent of
the notional value U.S. derivatives held by all U.S. banks. In the fourth
quarter, although the CDS losses continued at a near-record pace, we also
witnessed record losses in the interest-rate sector, which represents 82 percent
of the derivatives market: The nation`s banks lost $3.4 billion in interest-rate
derivatives, or more than seven times their worst previous quarterly loss in
this category."

Dr. Weiss continues, "In the face of such enormous risks and losses it`s
entirely unreasonable to expect the U.S. Government to offset them without
unacceptable damage to its own credit, credibility and borrowing power."

Dr. Weiss points to early signs that the credit of the U.S. Treasury may already
be suffering some damage in the wake of government bailout programs such as the
$700 billion Troubled Asset Relief Program (TARP), the Federal Reserve`s recent
$1.15 trillion commitment to purchase bonds, and the $1 trillion Private-Public
Investment Program (PPIP). For example, the cost of credit default swaps traded
by international investors to insure against a future default by the U.S.
Treasury recently surged to 14 times its 2007 level; while, more recently, the
price of the 30-year Treasury bonds has fallen by 24 points.

"The `too-big-to-fail` doctrine has failed," concludes Weiss. In its place, he
recommends the following steps to build a firmer foundation for a future
recovery:

* Abandon the unrealistic goal of saving all failing financial institutions,
focusing instead on the goal of rebuilding the economy`s foundation in
preparation for an eventual recovery.
* Pro-actively downsize or shut down the weakest institutions no matter how
large they may be; provide opportunities for borderline institutions to
rehabilitate themselves under a strict regulatory regime; and give
well-capitalized, liquid and prudently-managed institutions better opportunities
to gain market share.
* Seriously consider breaking up the weak megabanks, following the model of the
Ma Bell breakup in 1984.
* Build confidence in the banking system with better disclosure and
transparency, including the public release of the confidential official ratings
on all banks called CAMELS (Capital adequacy, Asset quality, Management,
Earnings, Liquidity and Sensitivity to market risk).
* Switch priorities from the battles we can`t win to the war we can`t afford to
lose, such as emergency assistance for the millions most severely victimized by
a depression.

Due to the nation`s solid infrastructure and knowledge base, Weiss is optimistic
the U.S. can survive a broader banking crisis and even a second great
depression, with good prospects for an eventual recovery, provided we make the
right choices. Toward that goal, immediately following the audio press briefing
tomorrow, Dr. Weiss will launch a national grassroots campaign with an online
video webinar for over 50,000 investors that have registered for the event. The
webinar takes place at 12 noon Eastern Time and the press is also invited to
attend by registering at http://images.moneyandmarkets.com/DSG-MED/.


http://www.reuters.com/article/pressRel ... BW20090406

More by Martin Weiss

http://www.marketoracle.co.uk/Article10139.html

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http://www.ft.com/cms/s/0/184cc130-39d6 ... abdc0.html






http://www.ft.com/cms/s/0/7a857f50-419b ... abdc0.html

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Dill Weed
on May 28, 2009
at 06:02 PM


My fellow Americans,

It is WORSE than you think.

Take a heart pill and watch these videos in the order below. SOMETHING WICKED THIS WAY COMES.

Money As Debt
http://video.google.com/videoplay?docid ... 3790090544

The Money Masters: How International Bankers Gained Control of America

http://video.google.com/videoplay?docid ... 0256183936

1932, A True History of the United States

http://www.youtube.com/watch?v=RgcdRCWE ... re=channel

Zeitgeist II Central Banking Exposed

http://www.youtube.com/watch?v=1gKX9TWR ... re=related

The Gig Is Up- Money, the Federal Reserve and You.flv

http://video.google.com/videoplay?docid ... 3428&hl=en

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http://fofoa.blogspot.com/2009/07/open-forum.html

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Dollar Bubble

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