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- The March 29 announcement, that the hedge fund Tiger
Management LLC would close down, conceals a bigger, more significant story.
Chairman Julian Robertson announced that Tiger, the world's second largest
hedge fund, would return what money is left to investors and cease doing
business on March 31.
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- The crisis in Tiger Group funds occurred far earlier
than the March 29 public announcement. Informed market sources say Tiger,
under supervision of the Federal Reserve, sold off assets weeks before
it made the fact public. These sources say that Tiger's asset liquidation
was a significant factor behind the early March severe plunge in the Dow
Jones "Old Economy" stocks as well as "traditional"
stocks in Europe, Japan and other markets. The Federal Reserve's "mysterious"
liquidity expansion during the February-March period, while at the same
time raising interest rates, is probably also connected to the Tiger hedge
fund crisis.
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- The Federal Reserve's policy of concealing the Tiger
crisis from the public, while propping up markets with additional liquidity,
reflects the profound horror at the top of the Wall Street establishment,
that, in the present situation, another LTCM-style hedge fund crisis would
trigger a systemic chain-reaction collapse on world financial markets.
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- What we are seeing here is an obvious attempt by the
Wall Street establishment, especially those backing Al Gore, to hold the
financial system together until after the US elections in November. The
Tiger crisis coincided with the crucial phase of the Presidential election
primaries in the US, including the Feb. 22 Michigan primaries, the March
7 "Super Tuesday" primaries, and the March 11 Michigan caucuses.
Throughout that period, Democratic Presidential candidate Lyndon LaRouche
had conducted a high-profile campaign precisely centered on warning of
an imminent financial crisis eruption!
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- Thus, the attempt to cover up and downplay seismic shocks
on financial markets, such as the Tiger Fund collapse, is the context in
which to situate the unprecedented and brazen steps taken by the US Democratic
Party leadership to silence the voice of LaRouche in the primaries, in
open violation of Federal election laws. The same goes for the Supreme
Court ruling on March 27, in effect tearing up the Voting Rights Act of
1965, by ruling that the Democratic Party is a "private club"
which is free to make any rules it chooses, including refusing party rights
to duly-elected delegates supporting LaRouche.
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- Significantly, once freed from his responsibilities at
Tiger Fund, the bankrupt Robertson made some perceptive observations on
the unsustainability of the present global financial system. In a March
30 letter to his investors explaining why the Tiger Fund was closing, Robertson
said, "The current technology, Internet and telecom craze, fuelled
by the performance desires of investors, money managers and even financial
buyers, is unwittingly creating a Ponzi pyramid destined to collapse."
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- Even US Financial Press Now Admit: These Are
End-Times For The 'Boom'
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- By Marcia Merry Baker www.larouchepub.com 4-5-00
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- Over recent months, {EIR} has periodically printed selections
of media commentary from outside the United States, on the near-collapse
state of the U.S. and other financial bubbles. Observers from Frankfurt,
to London, to Kuala Lumpur, have compared the United States stock market
mania to the 17th-century Tulip Bubble, the 18th-century South Sea Bubble,
and to other historic episodes of insanity. In 1999, Japan's financial
official Eisuke Sakakibara called the U.S. economy, ``bubble.com.''
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- To those familiar with the earlier forewarnings of Lyndon
LaRouche, these recent commentaries are johnny-come-lately. LaRouche pointed
out as of the mid-1990s, that there was a ``Triple Curve Collapse Function''
involved in the interrelated trends of financial and monetary valuations
soaring, while physical economic inputs and outputs plunge. He said that,
barring a policy intervention, the blow-out stage would inevitably be reached.
Here we are.
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- Along with covering the blow-out state of financial markets--especially
the U.S. stock exchanges, foreign observers have been asking of the United
States: ``Have lunatics taken over the asylum?'' This question arises,
because, in contrast to Europe, the talk in the United States--from election
campaigns (apart from LaRouche) to the business pages, has been, until
now, only of unprecedented U.S. ``prosperity'' and ever-rising stock values.
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- Now, there is a change. The Wall Street ``business''
press, if not the major media, is headlining the quaking state of the U.S.
and global financial bubble. Below, we publish a grid of recent U.S. press
items speaking of financial disasters and implications.
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- All the more, the question still remains, ``Have lunatics
taken over?'' What will be the policy response to the blow-out? The gathering
support for the LaRouche Presidential nomination drive, in the continuing
series of state primaries, shows the desire among some Americans to mobilize
for emergency policies that will re-build the economy and provide for people,
instead of provide for speculators and destruction. Motion in the direction
of such a nation-building approach, is indicated by an initiative for a
``New Bretton Woods'' from Italy, now before the European Parliament, which
we print immediately below.
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- In addition, in Asia, there is a renewed drive for a
joint fund in the region, to help serve economic priorities by stabilizing
financial relations. Called ASEAN@pl3 (the ten Association of Southeast
Asian Nations members plus Japan, China, and South Korea), the nations
involved are pursuing a project similar to the proposed Asian Monetary
Fund, of 1998, which was blocked at the time, by Fed-directed U.S. policy.
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- Certified lunatics -
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- For Alan Greenspan, Federal Reserve chairman since 1987,
and honorary chairman of bubble.com, the party is over. Greenspan left
the punch bowl out so long, that the revelers are bathing in it, columnist
John Crudele wrote in the {New York Post} on March 24, calling for Greenspan
to resign. Even less polite remarks are made about Treasury Secretary Lawrence
Summers.
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- In recent years, especially since the September 1998
Long Term Capital Management hedge fund crisis, a blatant hyperinflationary
policy of money expansion was pursued by the Fed and Treasury Department,
to keep speculative bubbles of all kinds afloat--from stock markets and
real estate, to exotic derivatives and other fancy futures bets. Greenspan
may have wagged his tongue against stock market ``exuberance,'' and may
have raised interest rates five times since June 1999, but since 1987,
when he first came into the chairmanship, he has pursued ``free market''
speculation. In mid-March, the U.S. money supply (M3) was expanding at
the rate of over $31 billion per week.
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- In the euro zone, money supply growth in the month of
February accelerated to 6.2% (annualized), up from 5.2% in January, already
well above the European Central Bank's target rate of 4.5% per annum.
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- In Japan, the Nikkei stock index climbed above 20,000
in the last week in March (just before March 31, the end of Japan's fiscal
year), for the first time in five years, and was projected to pass 21,000
by May. The Bank of Japan continues to print money at literally a 0% interest
rate, thus contributing on a global scale to hyperinflation, almost on
a par with the Federal Reserve. Banks, hedge funds, brokerages, and financial
institutions around the world continue to line up in Tokyo for dirt-cheap
central bank credit, which they then shove into the bubble.
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- An additional factor this spring, is the looting of Japanese
private savings from the government Postal Savings Fund, about to commence
as waves of ``Big Bang'' financial deregulation measures take effect on
March 31. On April|1 will come the first maturities, since Big Bang began
three years ago, of certain large-volume long- and medium-term postal savings
deposits. For the first time, many of the consumers involved will be encouraged
to put their money into the stock market--even into foreign stock markets--rather
than roll it over to the government postal account. This could turn out
to be a multibillion-dollar goose-up for the Nikkei--a very short-term
one, following which, millions of citizens could suddenly lose their savings,
creating social chaos in Japan.
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- From Tiger to wuss -
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- Anyone think this is a workable policy? Perhaps some
Wall Street backers of Al Gore might, who want the crash to wait until
after the November elections. Then there are the Wall Street backers of
George W. Bush, who might like a ``nice little crash'' before the elections,
to knock out Gore. They're in for a nasty surprise.
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- Already, there is bubble trouble, whatever manipulations
may be tried to stall or hasten the crash. Most conspicuous is the ``dot.com''
bubble popping, both in the United States and Europe. Mid-March saw big-name,
big-size losses and swings posted on the Nasdaq, on the German Nemax (the
``New Market'' Nasdaq equivalent), and elsewhere in Europe.
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- Then, from the rumblings heard earlier this winter of
huge, but unnamed entities in trouble, we now get details. The announcement
was expected March 31, that the Tiger Fund, until recently the second largest
hedge fund in the world, will shut down. From a high point of $22 billion
in assets as of August 1998, the Tiger Fund went down to $6 billion or
lower this year.
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- Apart from famous-name corporate and individual losses
and troubles, whole sectors of speculation are on the edge. Take the U.S.
real estate market, both residential and commercial. There are questions
about what the Fed may be trying to cover over in the way of trouble at
Fannie Mae (FNMA), the largest lender for home mortgages. The debt issued
by Fannie Mae constitutes about one-third of total bank capital in the
U.S. The question arises, is there a pattern of so much lending, that debts
can't be paid?
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- On the commercial real estate side, the commercial mortgage-backed
securities (CMBS) market is having real problems. These CMBS instruments
are generated as follows: a real estate financier, such as Warburg Dillon
Read or Goldman Sachs, makes several real estate loans, and then repackages
these loans into a bond, which is called a commercial mortgage-backed security.
Various firms then buy these CMBS bonds.
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- But sales of commercial real estate are falling. The
March 29 {Wall Street Journal} reports, ``declining demand for loans by
property owners has sent the business into a slump, raising the specter
of an industry-wide shake-out. With the volume of loans and underwritings
down sharply, firms that flocked to the business when times were good have
been reduced to fighting over a shrinking pie.''
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- In 1998, the volume of CMBS bonds was at a peak, reaching
nearly $80 billion. Last year, it was down to $67.3 billion, and it has
fallen lower this year. The firms that buy CMBS bonds from the dealer companies
are having rough times. Criimi Mae Inc., the largest such buyer, sought
bankruptcy protection in 1998. Amid a shake-out, the number of buyers has
shrunk, and they are demanding 30% rates of return before they will buy
a CMBS bond. The large originators of CMBS bonds, such as Warburg, Goldman
Sachs and J.P. Morgan are having to warehouse and keep for themselves billions
of dollars of the riskiest commercial real estate loans which they can't
resell. Watch out for the real estate bubble.
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- As these vignettes imply, the chain-reaction effects
of what's happening in all these sectors--from real estate to Internet
dot.coms, to hedge fund speculation and multi-trillions of derivatives
gambling, adds up to epic crash potential. Some 48% of all U.S. households
are involved in the stock market bubble, as is a rising percent in Europe
and elsewhere. The effects of the liquidity pumping itself has created
the preconditions for Weimar Germany-style hyperinflation of commodity
prices and basic consumer goods--fuel, food, lumber, minerals, etc. The
global inflationary take-off is evident in many of these goods. But already
in the here-and-now, national economic functioning is undermined.
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- This point is underscored in the import dependence of
U.S. consumption levels on foreign production. The U.S. trade deficit on
goods and services was $28 billion for January 2000, the first time the
deficit on goods and services ever exceeded $26 billion in a single month.
For the year 1999, the trade deficit in goods and services reached $267.6
billion. Were the rate of January to continue, the U.S. trade deficit in
goods and services for the year 2000 would hit $336 billion. Even worse,
were the January surplus of $6.73 billion surplus on services put aside,
then during January 2000, {the U.S. trade deficit on physical goods alone
was $34.74 billion}. Oil imports are a factor, but only a small part.
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