- Open market intervention by the fed and other central
banks exceeded US$400 billion since August 8. The European Central Bank
alone has pumped in more than $200B so this is not just a US problem. The
economy, riddled with debt, wants desperately to collapse, but the Fed
is trying to make sure that doesn't happen. Each new business day the interveners
pump money into various markets to produce buy signals, while skittish
investors take advantage of the brief up-tick in prices to dump stocks
and get their money out. So, the see-saw continues. How long can the Fed
keep priming the pump? And who gets the money first? Even if the Fed succeeds
in calming the markets this time around, the threat of collapse will always
be high in the future. Re-inflating a bubble only postpones the inevitable.
Whether the Fed succeeds or fails, the result is going to be inflationary,
even in a recession--what is called "Stagflation."
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- The money already spent on this huge bundle of bad debt
is gone and isn't coming back. The Fed is merely filling up market voids
with new money to keep the speculative balloon from totally deflating.
I think the long term goal is to stave off collapse until it can happened
"naturally" and catastrophically under the cover of a future
World War, engineered by the globalists. Blame will then be placed upon
the new "aggressors," Russia and China.
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- The Scotsman's Bill Jamieson commented, "Estimates
of losses on poor quality lending (sub-prime loans) now stand, on Bernanke's
own reckoning, at $100bn. Other estimates range up to $300bn. [Either figure
has already been eclipsed by the billions in "liquidity" injected
into the world economy.] And the shock waves have extended to giant Wall
Street investment firms such as Goldman Sachs [very connected to government],
which announced last week that it was pumping $2bn into one of its struggling
hedge funds."
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- "The worry is that it appears to let the wild hedge
funds and leveraged private equity promoters off the hook while keeping
the screws on US households and consumer lending and spending [good description
of what is happening]. Also, the problems in the banking system are complex,
ranging from lack of transparency in risk assets to assessing the quality
of huge lines of asset backed commercial paper (ABP)."
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- Saving the Few: Whenever Wall Street attaches the moniker
of "Too Big to Fail" or "Too Important to Fail" to
a company, it's a signal that another bailout is in the offing. This week's
recipient was Countrywide Financial, the nation's largest mortgage lender,
which ran out of cash this week. The NY Post ran an article praising the
government's intervention: "Plunge Protectors on the job," it
began. Even Fortune got in the act describing Wall Street as "Bailout
City." But Business week asked the really cogent question: "Did
Countrywide get a hand from the Fed?" You bet it did.
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- Bank of America was the sugar daddy who bailed out Countrywide,
pumping $2B into the near-moribund company, and Business Week is asking,
in essence, if BOA is fronting for the Powers That Be (PTB)? I believe
it is. This bailout was not done on the basis of sound economics.
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- The AP quoted Countrywide's Mafia-looking CEO R. Mozilo
as saying, "Bank of America's investment in Countrywide represents
a vote of confidence and strengthens our balance sheet, enabling us to
position Countrywide for future growth and success." Indeed it does.
"Countrywide shares jumped more than 20 percent to $26.25 in after-hours
trading [Who do you think gets permission to trade "after-hours?"
It's not you and me! ]. A week ago Countrywide was priced at $15. That
surge in stock price was a direct result of this bailout, and represents
one of the many intervention tools insiders can use to profit even as they
save one another from default.
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- Kenneth D. Lewis, Bank of America's chairman and CEO,
tried to justify this bailout by saying that "the turmoil in the stock
market has led some to underestimate the value in Countrywide's operations
and assets." Really? In truth, Countrywide's assets were grossly overvalued,
just like all the other mortgage lenders who created the subprime categories
and marketed them to the world. BoA's bailout was on top of $11.5B that
Countrywide had already borrowed from several dozen banks so it could keep
making home loans, and pay salaries to its thousands of employees. But
the increasingly high interest rates it had to pay for those emergency
loans quickly made any further borrowing untenable. That's why BoA invested
in the company rather than grant another loan.
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- Bank of America (BoA) is not the only insider bank in
the US, of course. All the big international banks have insider dealings
with the Fed and the Plunge Protection Team (a little known coterie of
select Wall Street brokerage houses and Treasury officials meet in a "working
group" that intervenes directly in the futures markets using Fed money
and credit).
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- The UK Independent described these how the major banks
play along with their portion of the new liquidity: "Citigroup said
it was 'pleased to inject liquidity into the financial system during times
of market stress.' [no one is "pleased" to throw away billions
unless it is created out of nothing on their behalf] And in a joint statement,
JP Morgan Chase, Bank of America and Wachovia said they believed 'it is
important at this time to take a leadership role in demonstrating the potential
value of the Fed's primary credit facility and to encourage its use by
other financial institutions' [Again, easy to do using someone's else's
money]. Deutsche Bank is also believed to have tapped into the Fed [to
bail out key customers]."
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- The UK Independent reports that "Yesterday, thousands
more job cuts were announced across the troubled sector. HSBC said it will
cut 600 jobs at its US sub-prime lending division, and Lehman Brothers
said it will close its equivalent division entirely, with the loss of 1,200
jobs."
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- But, other non-insider companies did not share in the
bailout. As the AP ruefully noted, "Accredited Home Lenders Holding
Co. plans to shut down most of its business to survive the troubles in
the home lending industry, the company said Wednesday. Accredited Home
Lenders said it will cut its work force to 1,000 people -- from 2,600 at
the end of June -- and close 65 branches. In like manner, "Capital
One, best known as a credit card issuer, said it will cut 1,900 jobs and
take $860 million of charges as its GreenPoint Mortgage unit. [source:
Reuters]"
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- Thus, we are in the midst of a massive flood of credit
creation that the Fed is unleashing in order to keep our already debt-ridden
economy from imploding. But it's only the big boys that will get the bailouts.
The middle and little sized companies will have to "take their medicine"
for jumping on the debt bandwagon the Fed created.
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- The credit crunch has made normal bankers skittish about
loans, even to regular customers. But for the largest international corporations,
the loan window is still wide open. The huge British mining concern "Rio
Tinto raised $40bn to fund its acquisition of the aluminum giant Alcan,
getting 20 banks to underwrite a debt that would later be sold into the
financial markets. The process was 30 per cent over-subscribed," according
to the Independent.
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- Bernanke: A "profile in calm?"
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- Neil Erwin of the Washington Post wrote a pandering piece
on the virtues of Ben Bernanke's "cautious, cerebral and disciplined"
approach to the recent mortgage and debt market crisis. "In his view,
if he had done more to address the concerns of Wall Street sooner, it would
have had the effect of bailing out people who made bad bets and could have
worsened the crisis." Are we to presume by this that what Bernanke
is doing now is NOT a bailout of people who made bad bets? Erwin's worst
and most egregious comment was in his sub-headline: "Bernanke acts
quietly to carefully guard the economy." Hogwash! How can the Greenspan/Bernanke
combo be the "guardians" of the economy when it's the Fed's money
and credit policies which cause market imbalances in the first place? They
are really only guardians of corporate-government collusion for power and
gain.
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- The realization that the debt markets are lacking in
substantive backing is causing many less sophisticated traders to panic,
sell, and seek for a safe haven. But the sticky question is where to put
the money if you can get it out in time? There is an increasing realization
that inflation will eat you alive if you just stick your money in the bank
or in T-bills. Real inflation is now in double digits (about 10-12%). People
will, for the foreseeable future, be caught between these two grinding
forces: market instability and high inflation, forcing us to choose between
higher returns at significant risks, or guaranteed losses to inflation
by staying within the temporary safety of government insured accounts.
Right now, more are choosing safety than high returns.
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- World Affairs Brief, August 24, 2007
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- Commentary and Insights on a Troubled World
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- Copyright Joel Skousen. All Rights Reserved
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- Partial quotations with attribution permitted.
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- Cite source as Joel Skousen's World Affairs Brief
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- http://www.worldaffairsbrief.com
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