What GOP Leaders deem wasteful in Senate stimulus bill

What GOP Leaders deem wasteful in Senate stimulus bill - CNN.com: "(CNN) -- On Monday, House Republican leaders put out a list of what they call wasteful provisions in the Senate version of the nearly $900 billion stimulus bill that is being debated:

• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Department of Energy defunded last year because it said the project was inefficient.

• A $246 million tax break for Hollywood movie producers to buy motion picture film.

• $650 million for the digital television converter box coupon program.

• $88 million for the Coast Guard to design a new polar icebreaker (arctic ship).

• $448 million for constructing the Department of Homeland Security headquarters.

• $248 million for furniture at the new Homeland Security headquarters.

• $600 million to buy hybrid vehicles for federal employees.

• $400 million for the Centers for Disease Control to screen and prevent STD's.

• $1.4 billion for rural waste disposal programs.

• $125 million for the Washington sewer system.

• $150 million for Smithsonian museum facilities.

• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion.

• $75 million for "smoking cessation activities."

• $200 million for public computer centers at community colleges.

• $75 million for salaries of employees at the FBI.

• $25 million for tribal alcohol and substance abuse reduction.

• $500 million for flood reduction projects on the Mississippi River.

• $10 million to inspect canals in urban areas.

• $6 billion to turn federal buildings into "green" buildings.

• $500 million for state and local fire stations.

• $650 million for wildland fire management on forest service lands.

• $1.2 billion for "youth activities," including youth summer job programs.

• $88 million for renovating the headquarters of the Public Health Service.

• $412 million for CDC buildings and property.

• $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland.

• $160 million for "paid volunteers" at the Corporation for National and Community Service.

• $5.5 million for "energy efficiency initiatives" at the Department of Veterans Affairs National Cemetery Administration.

• $850 million for Amtrak.

• $100 million for reducing the hazard of lead-based paint.

• $75 million to construct a "security training" facility for State Department Security officers when they can be trained at existing facilities of other agencies.

• $110 million to the Farm Service Agency to upgrade computer systems.

• $200 million in funding for the lease of alternative energy vehicles for use on military installations.

Looks like a big list of waste, right? Add it all up though, and they're talking about a little more than $19 billion, or roughly 2% of the total size of the stimulus package. Put another way, the total "waste" amounts to $62 dollars of the $2,962 that the stimulus package is expected to cost every man, woman, and child in the United States. Of course, that amount doesn't include the roughly $8 trillion spent so far on bailouts and guarantees. If you want to break that down, we're looking at $26,330 for each and every person in the US. Congratulations, if you're single, you're soon to be $30,000 deeper in debt than you thought you were!

More news on the dollar

After yesterday's brief discussion on the future of the dollar, there are three major articles today on the subject.

First, the Wall Street Journal takes issue with the presumptive replacement for Tim Geithner at the New York Fed- a Mr. William Dudley.

One of the Fed's most important tasks in coming months will be deciding when to remove the oceans of liquidity that it has been pushing into the economy to fight off a deeper recession. Remove it too late once the recovery begins, and the Fed will risk creating new asset bubbles or a run on the dollar. Yet as chief economist for many years at Goldman Sachs, Mr. Dudley consistently supported a weak dollar in the name of reducing the U.S. trade deficit.

This is a dangerous message to send at any time, but in particular as the new Administration embarks on an epic spending spree that will require from $2 trillion to $3 trillion in new U.S. borrowing over the next two years. The world's creditors aren't likely to lend as much, or as cheaply, if they think their dollar assets will be debased as a matter of U.S. policy.

Reuter's provides a contrasting view- that Geithner and Obama face a daunting, but vital, task of persuading the world that they intend to maintain a strong-dollar policy.

"This time around the administration probably means it when it says it backs a strong dollar. They have to be dead serious about it," said Samarjit Shankar, a director for global strategy at the Bank of New York Mellon, in Boston.

"Trillions worth of U.S. debt is coming soon to the markets. Which foreign central bank or institution will buy this debt if they are not fully convinced the dollar will remain strong?" he added.

The challenge for Obama's team, analysts said, will be to support the dollar's value without direct manipulation in the markets, with the economy in recession, interest rates near zero, and a ballooning current account deficit.

Moreover, Washington will have to achieve all that without antagonizing China, the biggest holder of U.S. Treasury debt, the analysts said.

"It will be a real test. One thing is to finance a $450 billion deficit and another is to finance $2 trillion," said Chris Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi in New York.

And finally, a wonderful op-ed piece from Peter Schiff.

Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?

What he might have said was that the nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.

But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult.

"They hate us because of our freedoms" or....

In September, 2001 former-president Bush (I love saying that) stood before Congress and the American public and provided his explanation for why we were attacked:

Americans are asking, why do they hate us? They hate what we see right here in this chamber -- a democratically elected government. Their leaders are self-appointed. They hate our freedoms our freedom of religion, our freedom of speech, our freedom to vote and assemble and disagree with each other.

The truth makes far more sense: they hate us because our foreign policy has, for years, killed them in cold blood. The Christian Science Monitor from 9/27/01:

But from Jakarta to Cairo, Muslims and Arabs say that on reflection, they are not surprised by it. And they do not share Mr. Bush's view that the perpetrators did what they did because "they hate our freedoms."

Rather, they say, a mood of resentment toward America and its behavior around the world has become so commonplace in their countries that it was bound to breed hostility, and even hatred.

And the buttons that Mr. bin Laden pushes in his statements and interviews - the injustice done to the Palestinians, the cruelty of continued sanctions against Iraq, the presence of US troops in Saudi Arabia, the repressive and corrupt nature of US-backed Gulf governments - win a good deal of popular sympathy.

Specifically in regard to Israel:

From one end of the region to the other, the perception is that Israel can get away with murder - literally - and that Washington will turn a blind eye. Clearly, the US and Israel have compelling reasons for their actions. But little that US diplomats have done in recent years to broker a peace deal between Israel and the Palestinians has persuaded Arabs that the US is a fair-minded and equitable judge of Middle Eastern affairs.

Over the past year, Arab TV stations have broadcast countless pictures of Israeli soldiers shooting at Palestinian youths, Israeli tanks plowing into Palestinian homes, Israeli helicopters rocketing Palestinian streets. And they know that the US sends more than $3 billion a year in military and economic aid to Israel.

"You see this every day, and what do you feel?" asks Rafiq Hariri, the portly prime minister of Lebanon, who is not an excitable man. "It hurts me a lot. But for hundreds of thousands of Arabs and Muslims, it drives them crazy. They feel humiliated."

It appears that we have not learned our lesson. Fast-forward to 2009, we see new threats from Al-Qaeda based on our unquestioning support for Israel:

A prominent Al-Qaeda figure, Abu Yahya al-Libi, on Thursday urged Islamist militants to launch attacks in the West, naming the United States and Britain, to avenge Israel's onslaught on Gaza.

"Sacrifice what you can to deliver to the capitals of the infidel West, the criminal America, and the agent tyrants a taste of what they deliver to our brothers and our oppressed brothers and people in Palestine," Libi said in a videotape posted on the Internet, according a translation by SITE monitoring group.

Our hypocritical and unwavering support for Israel is endangering us again. Where do you think Israel got all those advanced munitions, used in an illegal manner? Why from your tax dollars, of course!

The U.S. weapons systems used by the Israelis -- including F-16 fighter planes, Apache helicopters, tactical missiles and a wide array of munitions -- have been provided by Washington mostly as outright military grants.

The administration of President George W. Bush alone has provided over 21 billion dollars in U.S. security assistance over the last eight years, including 19 billion dollars in direct military aid as freebies.

"Israel's intervention in the Gaza Strip has been fueled largely by U.S. supplied weapons paid for with U.S. tax dollars," says a background briefing released Thursday by the Arms and Security Initiative of the New York-based New America Foundation.

"The Bush administration has been unwilling to use its considerable influence -- as Israel's major military and political backer -- to dissuade the government in Tel Aviv from its pattern of claiming self-defence while perpetrating collective punishment, human rights violations and undertaking massively disproportionate attacks that harm and kill civilians," Frida Berrigan, senior programme associate at the New America Foundation, told IPS.

We can only hope that these policies will change under the Obama administration.

Dollar set to fall?

As I briefly mentioned yesterday, a dollar devaluation is not unforeseeable in the near-term. Many analysts suggest that it is highly unlikely due to its status as reserve currency, a viewpoint echoed in today's Wall Street Journal.

Unlike the pound, the dollar is being buttressed by its unique status as the world's reserve currency and the vehicle for transactions in U.S. financial markets, including Treasury bonds. That means investors often seek out the dollar as fears rise, sometimes in spite of their concerns about the U.S. economy.

Fair enough, for now. But consider the factors driving the devaluation of the pound:

The U.S. and the U.K. face very similar predicaments, from a deepening recession to a damaged financial system. Both are orchestrating massive bank bailouts and attempting to assist struggling homeowners. Both are ramping up government spending even as they rely on financing from overseas investors. And both countries have central banks that have slashed interest rates and opened the door to unconventional ways of stimulating the economy.

Essentially, a very real fear that the massive bailouts and spending in the UK will bankrupt the government itself. The UK government is dependent on financing from overseas investors to keep the government functioning, as is the US government. As the situation deteriorates in China, perhaps dumping the massive investment they have made in the US become an increasingly attractive option, especially as treasuries become riskier as the cost of the assorted bailouts and buyouts and loans and guarantees spirals. Again, from the Wall Street Journal:

While the dollar continues to benefit from its unique position in financial markets for now, it is far from clear that the resilience will last. "Right now the market is beating up on the pound, but at some point it will look for something else to pick on," says Paul Mackel, a currency strategist at HSBC in London.

The fact that the Federal Reserve stands ready to use a host of unconventional measures to flood the economy with liquidity in an effort to stimulate growth "could hurt the dollar quite badly" later this year, he says.

Fed Balance Sheet Decaying

Fed Balance Sheet Decaying

Does anyone talking about this "bad bank" realize that we already have one? It's the Federal Reserve, and it has already taken on trillions of dollars of worthless paper from banks. If you really think the bad bank is the way to solve the crisis, then just let the Fed keep doing what they're doing.

Corporate raiders turning to seeds of life

There's a tremedously important diary over at DailyKos. Please take some time and consider if you want the Monsanto corporation to literally control every seed for any food plant that's commercially available. I, for one, do not. As I argued here, there are some things that are simply too important to be left to monopoly corporations.

RAID on seeds (Life, itself) ... by Monsanto

Big Brother is listening! And watching...

Is the government listening to you? How would you know? As it turns out, you wouldn't.

The U.S. Commerce Department's security office warns that "a cellular telephone can be turned into a microphone and transmitter for the purpose of listening to conversations in the vicinity of the phone." An article in the Financial Times last year said mobile providers can "remotely install a piece of software on to any handset, without the owner's knowledge, which will activate the microphone even when its owner is not making a call."

Nextel and Samsung handsets and the Motorola Razr are especially vulnerable to software downloads that activate their microphones, said James Atkinson, a counter-surveillance consultant who has worked closely with government agencies. "They can be remotely accessed and made to transmit room audio all the time," he said. "You can do that without having physical access to the phone."

Because modern handsets are miniature computers, downloaded software could modify the usual interface that always displays when a call is in progress. The spyware could then place a call to the FBI and activate the microphone--all without the owner knowing it happened. (The FBI declined to comment on Friday.)

"If a phone has in fact been modified to act as a bug, the only way to counteract that is to either have a bugsweeper follow you around 24-7, which is not practical, or to peel the battery off the phone," Atkinson said. Security-conscious corporate executives routinely remove the batteries from their cell phones, he added.

I am uncomfortable with this technology, mostly because of the incremental way in which these changes come. At first, we are assured that it's only to be used against criminals and terrorists, but then we find out that it's used against everyone: soldiers, journalists, aid workers, even foreign leaders. Those on the right will argue, "If you're not doing anything wrong, then you shouldn't have anything to hide." Everyone else realizes that it's a clear example of the government overstepping the boundaries that once prevented us from calling our government "tyrannical". Sadly, since the advent of the Patriot Act, those boundaries are mostly gone.

It's not only cell-phones by the way. This surveillance is possible everywhere, making George Orwell's 1984 frighteningly prescient. Does your vehicle come with On-star? If so, it also comes with FBI. Does your computer have a webcam? How about the internet- ever use that? Walk down any street and keep a count of how many surveillance cameras you see. Do you have a passport? Have you ever made statements critical of governmental policy? Then you may find yourself in a situation like these Americans- entered into a database of terrorism suspects. And for nothing more than being outspoken against the death penalty, being anti-war, and/or being pro-environment. Regardless of how you feel about those issues, think about how it would apply in your case. Because unless you consistently agree with the government, then you are a potential target. These are not violent criminals being surveilled, they are ordinary citizens that disagree with the government and are expressing their dissent under the protections of the First Amendment.

I've mentioned elsewhere the legal prohibitions against the military performing law enforcement duties at home, largely ignored. And in the wake of the political conventions this year, we find out that spy satellites, military, as well as the major telecom companies were involved in "pre-emptive policing". In other words, arresting people before they've committed a crime.

Incidentally, notice in the article where they point out that, "Security-conscious corporate executives routinely remove the batteries from their cell phones." This implies one of three things:

• Corporate executives are concerned about being surveilled by the government due to criminal wrongdoing.
• Executives are worried about being surveilled by the government, even though there has been no criminal wrongdoing.
• The power to do this type of surveillance is already used by people other than the government, despite assurances from the telecoms.
  

None of these options are very palatable, but it's food for thought anyway.

UPDATE: A federal appeals court has made the right decision, and overturned part of the Patriot Act.

Because of the ruling, the government will now be forced to justify individual gag orders before a court, instead of casually wielding the power of a blanket gag as the Bush administration has done since the blindingly fast passage of the Patriot Act in Oct. 2001.

In Sept. 2007, a federal judge ruled unconstitutional provisions within the Patriot Act which allowed the government to obtain search warrants without probable cause.

How's this for "Transparency"?

Remember the early days, when the bailout was first sprung upon an unsuspecting public? We were treated to lies like this:

Henry Paulson: "We need oversight. We need transparency. I want it. We all want it."

Seemed pretty clear right? Of course, the only reason he said that was because people actually read his original three-page proposal which revealed what he really wanted (this is the full text of Section 8):

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

So now, is anyone really shocked that not even a lawsuit will force them to be transparent?

The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

...

“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press. “It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed.”

Consider also:

Bipartisan coalition of 75+ groups demand bailout transparency.

The three layers of oversight promised in the original bill is still not in place, despite spending almost all of the first $350 billion.

Economist: Paulson plan "truly idiotic"; shows a "complete leadership failure in Congress and the administration".

Some things are too important to be left to the "free market"

Amidst this implosion of financial markets, I think that it's critical to discuss a few ideas. Namely, that there are some things that are simply too important to be left to the vagaries of the market. Water and food, especially.

Since the days of Upton Sinclair, we've known that capital markets have been ineffective in guaranteeing food to consumers that is fair, clean and healthy. It's no different today- it seems as though there are new reports of tainted meat, tainted vegetables, or tainted milk.

But we are also still dealing with famine and food riots around the world. The UN's Food and Agriculture Organization reported this week that another 40 million people have been pushed into hunger this year, bringing the worldwide total to a staggering 963 million. FAO Assistant Director-General Hafez Ghanem:

For millions of people in developing countries, eating the minimum amount of food every day to live an active and healthy life is a distant dream. The structural problems of hunger, like the lack of access to land, credit and employment, combined with high food prices remain a dire reality.

Notice that he didn't implicate farming techniques, climate change, seed quality, or any other technological problems as the reason for hunger- the problems he cites are due to the failures of markets to ensure that people get fed. It's not just the UN either- Bloomberg news yesterday reported that the World Bank's consistent prioritization of free markets has been a "manmade recipe for famine [that] included corrupt governments and companies that profited on misery."

It's not just the World Bank, it's the World Bank working in concert with the IMF and the World Trade Organization (WTO) to create "open markets" that are increasingly unable to provide either farmers with a living, or consumers with food. At least 87,567 farmers in India committed suicide between 2002 and 2006, largely as a result of globalization of the food trade:

Analysts cite several factors for the suicides, including crop failure due to agrochemicals and climate change, lower prices due to U.S. farm subsidies, state restrictions on export trade, and the dumping of surplus crops in an oversaturated domestic market.

As the economic crisis is making us aware, capital markets to not always function properly in America either. Our food aid program has recently been implicated in starvation around the world, due largely to the influence of lobbyists and monopolistic corporations in charge of the food chain.

Increasingly, it's becoming clear that food and water are different. They should be basic human rights, completely independent upon one's ability to pay for them. I just hope we don't have to wait until billions are starving around the world before we figure that out.

US Policy linked to dead children in Africa

It's not just the recurring safety issues anymore. It's one thing if you want to gamble on eggs or meat from the giant Mega-mart, but please don't forget about the children dying around the world due to our policy of favoring American corporations with our food aid, rather than trying to actually feed people.

U.S. farm and shipping lobbyists have stifled efforts to simplify aid deliveries, leaving Africans to starve when they might have been saved, said Andrew Natsios, a professor at Georgetown University in Washington who led USAID, the Agency for International Development, from 2001 to 2006.

“No one can take the high moral ground against it, so they hide behind closed doors and kill it,” he said. “It’s all done behind the scenes.”

It's the same story over and over again. People everywhere are finding themselves getting taken advantage of, and nobody wonders if it's something inherent in the system that's causing it. The system is sick, the system shouldn't be saved, even if that is still possible. The system is killing us.

Cargill Inc., Archer Daniels Midland Co. and Bunge Ltd. accounted for 47 percent of 2007 commodities spending for aid, according to the U.S. Department of Agriculture. The program was created in the 1950s, partly to reduce domestic surpluses. The regulations require that almost all the peas, corn and other crops come from American sources, effectively steering the bulk of the business to the biggest food-trading companies.

The rules also stipulate that 75 percent of the food must be transported on U.S.-flagged vessels, benefiting ship operators, including Liberty Maritime Corp., based in Lake Success, New York, and Sealift Inc., of Oyster Bay, New York. In 2007, the program’s shipping contracts were worth $385 million, according to the USDA.

In all things, ask "Who benefits?" It's never the little guy, the common man; it's always the enormous corporations that feed on the suffering and injustice around the world in the name of profits. And how do they get governments to do their bidding?

ADM, the world’s largest grain processor, spent $1.78 million to lobby Congress and federal agencies though Dec. 3 this year, according to the Center for Responsive Politics, a non- partisan research group in Washington that tracks spending on campaigns and lobbying. Over the past two decades, the company’s campaign contributions amounted to $8.2 million, 91st among political donors, the center said. ADM declined to comment for this story.

Cargill, a closely held company that is the world’s largest agricultural business, spent $660,000 on lobbying this year, the center said. ADM, Cargill and Bunge lobby on other issues besides the aid programs. Cargill favors the added flexibility of local purchase, spokesman Bill Brady said in an e-mail.

Bunge, the biggest oilseed processor, devoted $395,000 to lobbying, according to the Center for Responsive Politics. The company advocates the use of U.S. crops to ensure quality, said Deb Seidel, a company spokeswoman.

Irish police probe contaminated pork scare

Irish police probe contaminated pork scare

Police are investigating how pork from ten Irish farms became contaminated with dioxins, forcing Dublin to recall all pork products from pigs slaughtered in Ireland, Irish authorities told CNN Monday.

The ten farms were found to have used pig feed sold to them by a company called Millstream Power Recycling Limited in County Carlow in the south of the country, Agriculture Department spokeswoman Martina Carney said.

The company recycles other foodstuffs to make meal which is then fed to animals.

This is part of the impetus for the growing local foods movement. The very thing that was supposed to occur with government control of the food chain is not happening- that is, the food is not safe. Thanks to billions of dollars in subsidies, it may be cheaper. But the subtitle to a Walmart documentary rings in my head more and more often these days- "the high cost of low-price". You may be able to buy cheap eggs at the grocery store, but is it "worth" it?

CNN compiled a brief list of food-related scares over the last few years, although it's nowhere near comprehensive. For instance, the salmonella outbreak this year didn't make the list, despite lasting 5 months and sickening 1,400 people. Anyway, here's the CNN list for what it's worth:

2008

In China, at least six babies are known to have died after drinking milk contaminated with melamine this year, while nearly 300,000 have been reported ill. Melamine is commonly used to make plastic products but had been added to food products to boost its protein content.

Other countries have reported excessive levels on melamine in products sourced from China. So far the list includes frozen yogurt desserts, biscuits, candies and packaged coffee-flavored drinks.

The World Health Organization says all the products were likely made from contaminated milk, and non-dairy products, for example eggs, were probably contaminated through animal-feed laced with melamine.

This month in Nigeria, more than 30 babies have died after being given a locally-made medicine to relieve teething pain called "My Pikin." The liquid syrup was found to contain diethylene glycol, a chemical found in commercial products such as resins, antifreeze, inks and glues which causes kidney problems.

Earlier this year a potentially lethal pesticide called methamidophos was found in "gyoza" meat dumplings produced in China. Ten people fell ill in Japan provoking a crisis in confidence in Chinese food exports and threatening trade relations between Japan and China.

2007

Last year, British poultry manufacturer Bernard Matthews was forced to cull almost 160,000 birds after the country's first mass outbreak of the H5N1, the human strain of avian influenza or bird flu. The H5N1 strain surfaced in South East Asia in early 2004 and later spread through Europe and Africa leading to the destruction of some 28 million birds.

Duck eggs sparked a scare in Hong Kong and several Chinese cities in 2007 when a carcinogenic dye, Sudan IV, was found to have been used to make the yolks of "red yolk" eggs even redder. The same dye was detected in chili powder the same year at a factory in China.

Cancer-causing chemicals were also found in fish from several farms in China's eastern Shandon province. They included malachite green, a topical fungicide used to treat parasites and fungal infections in fish.

2006

The Salmonella bacteria was held to blame in 2006 when 40 people fell ill after eating Cadbury chocolates. The company recalled more than one million chocolate bars in the United Kingdom, but was later fined $1.5 million for knowingly selling contaminated products.

Earlier still

The most serious food scare ever seen in the United Kingdom came during the 1980s and 1990s when a disease found in cows made the leap to humans.

Bovine Spongiform Encephalopathy, or BSE, was first detected during a post-mortem of a cow in West Sussex, England in 1986.

The human variant, Creutzfeldt-Jakob disease (vCJD), killed its first victim in 1995, prompting the European Commission to impose a worldwide export ban on British beef which was eventually lifted in 1999.

In the following years, BSE was discovered in Austria, Belgium, Canada, Czech Republic, Denmark, Falkland Islands, France, Finland, Germany, Greece, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, the Netherlands, Oman, Poland, Portugal, Slovakia, Slovenia, Spain, Switzerland and the U.S.

'Revolution, food riots in America by 2012'

'Revolution, food riots in America by 2012'
Commodity Online
The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine considering what he told Fox News this week.

Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

"We're going to see the end of the retail Christmas....we're going to see a fundamental shift take place....putting food on the table is going to be more important that putting gifts under the Christmas tree," said Celente, adding that the situation would be "worse than the great depression".

"America's going to go through a transition the likes of which no one is prepared for," said Celente, noting that people's refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.

Celente, who successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as "The Panic of 2008," adding that "giants (would) tumble to their deaths," which is exactly what we have witnessed with the collapse of Lehman
Brothers, Bear Stearns and others. He also said that the dollar would eventually be devalued by as much as 90 percent.

The prospect of revolution was a concept echoed by a British Ministry of Defence report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, "The world's middle classes might unite, using access to knowledge, resources and skills to shape
transnational processes in their own class interest," and that, "The middle classes could become a revolutionary class."

In a separate recent interview, Celente went further on the subject of revolution in America."There will be a revolution in this country," he said. "It's not going to come yet, but it's going to come down the line and we're going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen."

"The first thing to do is organize with tax revolts. That's going to be the big one because people can't afford to pay more school tax, property tax, any kind of tax. You're going to start seeing those kinds of protests start to develop."

"It's going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we're going to see many more."

"We're going to start seeing huge areas of vacant real estate and squatters living in them as well. It's going to be a picture the likes of which Americans are not going to be used to. It's going to come as a shock and with it, there's going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people's minds weren't wrecked on all these modern drugs - over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody's comprehension."

The George Washington blog has compiled a list of quotes attesting to Celente's accuracy as a trend forecaster.

"The Trends Research Institute is the Standard and Poors of Popular Culture." - The Los Angeles Times

"If Nostradamus were alive today, he'd have a hard time keeping up with Gerald Celente."- New York Post

So there you have it - hardly a nutjob conspiracy theorist blowhard now is he? The price of not heeding his warnings will be far greater than the cost of preparing for the future now.

Dr. Doom's bleak assessment

How to avoid the horrors of ‘stag-deflation’ is the title of an article Nouriel Roubini penned for the Financial Times. A careful reading of the article however, yields little such advice. He points out the standard cures for recessions have had little effect, so we're down to the last few options for saving the system. The ability of policymakers to manage the crisis is rapidly decaying, given the Fed is almost out of ammunition and massive deficit spending will imperil the very solvency of governments around the world.

Traditionally, central banks are the lenders of last resort but they are becoming the lenders of first and only resort, as banks are not lending. Central banks are becoming the only lenders in the land. With consumption by households and capital spending by corporations collapsing, governments will soon become the spenders of first and only resort as fiscal deficits surge.

The financial crisis has already become global as financial links transmitted US shocks globally. The overall credit losses are likely to be close to a staggering $2,000bn. Thus, unless financial institutions are rapidly recapitalised by governments the credit crunch will become even more severe as losses mount faster than recapitalisation.

But with governments and central banks bringing private sector losses on to their balance sheets, fiscal deficits will top $1,000bn for the US in the next two years. The Fed and the Treasury are taking a massive amount of credit risk, endangering the long-term solvency of the US government.

In the next few months, the flow of macroeconomic and earnings news will be much worse than expected. The credit crunch will get worse, with de­leveraging continuing as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, leading to further cascading falls in prices, other insolvent financial institutions going bust and a few emerging market economies entering a full-blown financial crisis.

The worst is not behind us: 2009 will be a painful year of a global recession, deflation and bankruptcies. Only very aggressive and co-ordinated policy actions will ensure the global economy recovers in 2010 rather than facing protracted stagnation and deflation.

World stability hangs by a thread

World stability hangs by a thread as economies continue to unravel - Telegraph

The working assumption of the "Great Boom" is – or was – that we live in a benign era where most societies are converging towards some form of market liberalism; where trade and capital flows are unrestricted; where governments have enough legitimacy to keep order by light touch; where a major war is unthinkable.

This illusion is now being tested.

...

"The global financial crisis has not bottomed yet. The impact is spreading globally and deepening," said Zhang Pin, head of the national development commission. "Excessive bankruptcies and business closures will cause massive unemployment and stir social unrest".

...

In the 1930s, it was not obvious to people living through debt deflation that their world was coming apart. The crisis came in pulses, each followed by months of apparent normality – like today.

The global system did not snap until September 1931. The trigger was a mutiny by Royal Navy ratings at Invergordon over pay cuts. Sailors on four battleships refused to put out to sea. They sang the Red Flag.

News that the British Empire could not uphold military discipline set off capital flight. Britain was forced off the gold standard within five days. A chunk of the world followed suit.

Nor was it obvious that Germany would go mad. Bruning persisted with deflation, blind to the danger. The result was the election of July 1932 when two parties committed to the destruction of Weimar – the KPD Communists and the Nazis – won over the half the seats in Reichstag.

We can hope that governments have acted fast enough this time – with rate cuts and a fiscal firewall – to head off such disasters. But then again, the debt excesses are much greater today. If in doubt, cleave to those countries with a deeply-rooted democracy, a strong sense of national solidarity, a tested rule of law – and aircraft carriers. The US and Britain do not look so bad after all.

To me, it's quite frightening to realize that we may be closer to large-scale civil unrest or even outright war than anyone in this country is letting on. The Telegraph is under no such illusions, which is one of the reasons I tend to follow their reporting. Although I hope this author is correct, and share his hope that "governments have acted fast enough this time" I don't have a great deal of confidence that this is the case. Especially when another piece of breaking news today is that "the U.S. military expects to have 20,000 uniformed troops inside the United States by 2011 trained to help state and local officials respond to a nuclear terrorist attack or other domestic catastrophe, according to Pentagon officials." That may not be frightening, if that were all you had read about it, but I've been following this story closely. When this story first broke in September, it was only a single brigade. The number was increased to 4,700 troops over 3 years, and now we find ourselves at 20,000 troops. Initially, the Army Times reported that

The 1st BCT’s soldiers also will learn how to use “the first ever nonlethal package that the Army has fielded,” 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.

The package is for use only in war-zone operations, not for any domestic purpose.

“It’s a new modular package of nonlethal capabilities that they’re fielding. They’ve been using pieces of it in Iraq, but this is the first time that these modules were consolidated and this package fielded, and because of this mission we’re undertaking we were the first to get it.”

Since then, they've issued this terse correction:

Correction:

A non-lethal crowd control package fielded to 1st Brigade Combat Team, 3rd Infantry Division, described in the original version of this story, is intended for use on deployments to the war zone, not in the U.S., as previously stated.

Well, I certainly feel better. So it appears to me that they've been dramatically ramping up military forces (battle-trained and used to dealing with insurgencies) in the heimat, in violation of the Posse Comitatus Act and during possibly the worst economic crisis since, or possibly including the Great Depression. Heads of state around the world are saying the things our leaders are not, and they are making their plans for dealing with civil unrest and wars. Although much of the rhetoric has been about the new New Deal that will save us from all of this nastiness, don't forget that it was a World War that finally created enough artificial demand to lift America out of the Great Depression I. The concept of World War III ought to be chilling, especially since we're not the only ones with nuclear weapons this time around.

Washing their hands while the automakers circle the drain

Can you see what's happening here? Everyone agrees that the American automakers are utter failures, and don't really deserve to exist anymore. They been mismanaged for decades, with the ultimate focus on short-term profits at the expense of the long-term business model. As such, there's simply no way for them to come back from this without major bankruptcy reorganization. Given that everyone knows this, here's what I think is happening with the automaker bailout. Every politician in Washington D.C. is hoping against hope that they go bankrupt sometime between right now and when Obama is inaugurated.

It's a win-win....everyone gets to avoid the blame. After all, there can only be blame- hundreds of thousands of job losses, cities around the country will be hit hard. However, if the automakers get bailed out, Congress will become increasingly unpopular, especially once the first $25 billion proves to be insufficient. And it will be insufficient... GM says they're burning $5 billion a month. So by asking Congress for $25 billion, of which GM is asking only $10-12 billion, that only buys them another 2 months.

If they don't get bailed out, the blame gets transferred to a lame-duck Congress, which won't really stick to the incoming members. Plus, the rhetoric can blame it all on Bush-era policies and Obama still gets a fresh start. It's about the best outcome that can be hoped for at this point- a point not lost on those in Congress and the lame-duck Bush Administration:

For now, however, with the federal emergency loan plan stalled in the Senate, lawmakers in both parties are engaged in a high-stakes game of chicken, positioning themselves to blame each other for the failure.

Senate Majority Leader Harry Reid, D-Nev., scrapped plans Wednesday for a vote on a bill to carve $25 billion in new auto industry loans out of the $700 billion Wall Street rescue fund.

It's really up to Bush's team to act, he said.

"I don't believe we need the legislation," Reid said. Treasury Secretary Henry Paulson can tap the financial industry bailout money to help auto companies, Reid said, but "he just doesn't want to do it."

Not our responsibility, countered the White House.

"If Congress leaves for a two-month vacation without having addressed this important issue ... then the Congress will bear responsibility for anything that happens in the next couple of months during their long vacation," said Dana Perino, the White House press secretary.

She said there was "no appetite" in the administration for using the financial industry bailout money to help auto companies.

It's great when elected leaders step up to the plate and make the really hard decisions, isn't it?

Why not help the homeowners?

Nouriel Roubini's back at it again- he's forecasting a long way down for residential home prices, for a cumulative drop of 40% from the peak.

Now this fall in home prices is important for 3 reasons. As long as it occurs, residential construction is going to keep on falling in absolute terms as a share of GDP. Secondly there is the huge wealth effect coming from a fall of $6 trillion of housing wealth. But most important factor I think is that right now ongoing is that with such a fall in home prices, by the end of next year about 40 percent of all households with a mortgage are going to be underwater, negative equity with the value of their homes below the value of their mortgages. So about 21 million out of the 51 million houses that have a mortgage. And there’s a huge incentive to walk away from your home, because the US mortgages are not recourse loans.

Now, not everybody is going to walk away. Let’s be even conservative. Let’s assume that only 1 out of 5 people that are underwater are going to walk away. If you do the math — I’m not going to go into the detail of it — you get additional losses for the financial system of the order of $400 billion dollars. This is on top of all the other write-downs that have already had been made through subprime-kind of a writedown. So that’s another huge loss for the financial system. This is just assuming that only 1 out of 5 people underwater are going to walk away. If it’s more like 40 percent, then the losses is another $800 billion. So you’re in a situation in which you can wipe out a good chunk of the capital of the financial system. So that’s what we are observing.

Of course, Paulson doesn't want to solve that problem, he wants to keep giving the money to the banks.

Paulson resisted pressure from lawmakers to commit to implementing a foreclosure-prevention program proposed by Federal Deposit Insurance Corp. Chairman Sheila Bair.

``There is a balance to getting money for those who need it as opposed to those who don't need it,'' Paulson told the panel. ``There's also a balance to not providing a windfall to the banks.''

Home prices fell in four out of every five U.S. cities in the third quarter, a record spurred by nationwide foreclosure sales, the National Association of Realtors said today. The financial turmoil sparked by the collapse of the U.S. subprime mortgage market has caused $996 billion of losses for banks, lenders and insurers.

So, if we're looking at further (semi-conservative) losses of $800 billion, plus the $996 billion already lost then we're pretty close to $1.8 trillion. Our entire GDP is only $13.8 trillion. If you really want to talk crazy then lets figure in the amounts already allocated, which CNBC is calculating as $4.3 trillion. By the way, that's more than the U.S. spent on WWII, on an inflation adjusted basis. So how much longer can we go on solving the problems caused by excessive debt and lax oversight by issuing new debt and handing out money without any oversight? As Naomi Klein says, it's a "multi-trillion-dollar crime scene".

Klein sees three areas of borderline illegality. The first is that rather than being used to get banks lending again, the bailout money "is instead going to bonuses, is instead going to dividends, going to salaries, going to mergers."

The second is that, without Congressional authorization, "the Treasury Department pushed through a tax windfall for the banks, a piece of legislation that allows the banks to save a huge amount of money when they merge with each other. And the estimate is that this represents a loss of $140 billion worth of tax revenue for the US government."

The third problem, which dwarfs the $700 billion bailout itself, is that "there’s another $2 trillion that’s been handed out by the Federal Reserve in emergency loans to financial institutions, to banks, that actually we don’t really know who they’re handing the money out to, because, apparently, it’s a secret."

"If the Fed has accepted distressed assets as collateral in exchange for these loans," stated Klein, "there’s a very good chance the taxpayers aren’t going to be getting this money back. ... So that’s why we’re calling this the 'trillion-dollar crime scene' or the 'multi-trillion-dollar crime scene.'"

Paulson's Op-Ed

Secretary Paulson in today's New York Times:

Recently I’ve been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren’t you addressing those problems?

The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase program and our financial system had continued to shut down, our economic situation would be far worse today.

The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.

Double-wrong again, Secretary. The answer to the first question is that you had already lost control by that point, and you knew it. Of course, it's easy to say now that you got you bailout that things would have been much worse without it, but we'll never know, will we?

Your answer to the second question, if you were telling the truth, would sound more like this: "We couldn't care less about homeowners. We are trying to get as much cash into the hands of those that caused this mess as possible. If it weren't for that meddling Sheila Bair, we could ignore the homeowners all together."

I nominate the following statement to be the one most likely to come back to bite Paulson's ass:

As policymakers face the difficult challenges ahead, they will begin with two considerable advantages: a significantly more stable banking system, one where the failure of a major bank is no longer a pressing concern; and the resources, authority and potential programs available to deal with the future capital and liquidity needs of credit providers.

"The failure of a bank is no longer a pressing concern"??? So what will he say once Citigroup goes belly up? Oh, that won't be a "failure", because the government will either dump a bunch of money into them, or help them become acquired.

Dr. Doom speaks again

Nouriel Roubini, has been known as Dr. Doom. Probably because of predictions like this one-

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

Now do you want to hear what he sees for the road ahead? Read on...

The Worst Is Not Behind Us
Nouriel Roubini

It is useful, at this juncture, to stand back and survey the economic landscape--both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:

--The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.

--The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.

--Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.

--The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth--at market prices--to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.

--The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.

--Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.

Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand--and given a very severe credit crunch.

--For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls--as is most likely--to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels). If the P/E falls to 10--as is possible in a severe recession--the S&P could be down to 600, or 35% below current levels.

And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%). Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.

--Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.

--Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.

--Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.

--Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.

--In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.

Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets. So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads).

Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.

In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis--as I have consistently predicted over the last year--became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.

A reality check is needed to assess risks--and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.

I'll stop now.

Too big to fail = too big

Dave Lindorff nails it. I think so many of us are unhappy with the explanations we've been getting- that these companies are simply "too big to fail". To me, that begs the question, why should the taxpayer be helping them to get bigger?????? The media and Congress is acting as if once these companies go bankrupt, they are completely vaporized, no trace. It's simply not true; bankruptcy would allow an orderly restructuring which is sorely needed especially in the case of the automakers. I mean, the airlines are pretty big companies, and they've been going bankrupt on and off for years.

Published on Wednesday, November 12, 2008 by CommonDreams.org

'Too Big To Fail' Has an Easy Answer: Anti-Trust or Public Control

by Dave Lindorff

The one thing we are not hearing from Congress or from incoming president Barack Obama in the current economic crisis facing the country are the words "anti-trust" and "public ownership."

From the moment the crisis first struck, with the near collapse of AIG, the mantra has been that companies like AIG, Morgan Stanley, Merrill Lynch, Citibank, etc.--and more recently General Motors Corp. and Ford--are "too big to fail." That is, it is argued that these companies are so huge that if they were to collapse into the rubble they deserve to be, it would damage the nation irreparably.

The question is, if that is genuinely the case, why were they allowed to be that big in the first place, and why aren't we rethinking that policy?

It's not as though they got that way through organic growth by being successful at what they did. Hardly. GM was the quintessential result of a merger of smaller automakers. Ford grew too, by acquiring the competition, most recently Volvo. Most, if not all of those acquisitions were first vetted and approved by the Federal Trade Commission and found to be acceptable as a matter of economics and public policy.

In the banking industry, which is regulated, the picture is even worse, with the government first opening the door to the creation of national banking companies, and then routinely approving the gobbling up of one after another regional or even national bank by another. At some point we reached the point where the giants in the industry--Citibank, JP Morgan Chase, Bank of America, Wells Fargo, etc.--were able to say, when they ran into trouble, that allowing them to fail would have dire consequences for the national economy. This kind of extortion should never have been allowed to happen.

First of all, the argument for national banks never made sense for ordinary people, and wasn't necessary for large customers either. Large corporate fundings have always been done by bank consortia, and this could have been accomplished with the nation's banking industry fragmented into small state-chartered institutions. Meanwhile, small businesses and individuals always lose when a bank is national in scale. It is much more costly to handle the banking business of small enterprises and individual families than it is to handle the business of huge corporate clients, with the result that the major banks have made it costlier and costlier for small customers to do business with them.

The answer is clear. Bigness is fundamentally bad when it comes to capitalism. There is a point where any company in any industry becomes too big for it to be socially acceptable. Big companies not only attempt to behave in a monopolistic fashion by destroying or buying up the competition, both nationally or, as in the case of a retailer like WalMart or a bank like Citibank, locally, using their huge financial power to locally underprice the competition and drive them out of business (after which they are free to gouge the local customer base). They also ride roughshod over local political interests, demanding tax breaks, zoning waivers, etc. This being the case, the government should simply not be allowing corporations to achieve such scale and market dominance.

Companies, whether banks, car makers, or media companies, should never be allowed to grow to a point that they become "too big to fail." If that can be said about any company, whether because of the assets it holds, or because of the number of people it employs, it is time to break it up.

Think of GM. If GM were ripped up into six or seven competing companies, it is certain that at least one of those smaller entities would be producing electric cars by next year. The Saturn plant already made one, the Impact, that was wildly popular (see the excellent documentary "Who Killed the Electric Car"), and if left to its own devices to sink or swim, could probably be cranking those out in volume for the 2010 model year.

Some companies would certainly fail. But that's what is supposed to happen in a capitalist system.

This piece is not meant to be a paen to capitalism. But having said that, if you're going to have capitalism, which is the ruling ideology here in the US of A, you have to let it function as intended. As soon as the government comes in and starts encouraging the establishment of monopolies or quasi-monopolies, and preventing the failure of poorly managed enterprises or dying industries, as it is doing in the case of the banking and automotive sectors, it is no longer true capitalism.

That could work, too. Many democratic countries, including Japan, Sweden, France and Germany, have the concept of shared governance of corporations, in which large corporate entities are partially owned and run by government, and of planned economies, in which certain sectors are deliberately protected and promoted by government policy. The US has moved in that direction with the investment by the government in nine of the country's largest banks, and in discussions to provide $25-50 billion in financial assistance to the major US auto companies. But in the US case, the government is studiously avoiding demanding a role in running those companies. It is by design only a "passive" investor.

This is the triumph of ideology over rationality and the public interest. I recently interviewed a number of investment strategists in the course of working on an article for an investment magazine. They all had the same advice for worried investors: invest in shares of the "magic nine" banks that are recipients of tens of billions of dollars in bail-out money from the federal government. As they all point out, the government's stake in these banks means that they will not be allowed to fail, and moreover, they are in a unique position to use their flush capital reserves to acquire, at fire sale prices, the assets of smaller banks that are being left to sink or swim in the current credit crisis and recession. That is not a free market. It's a government program to reduce the competition in the banking sector and hand all the business over to a favored few giant banks.

Now that would be okay if the government, in return for its investment, were taking a management role in those favored banks. But it is not. Congress, the Bush administration, and, so far at least, the incoming administration of Barack Obama, have not been demanding a management stake in any of the companies that are getting bail-out funding. If the government takes ownership positions at all, it is taking non-voting shares in those companies, solely in the hope of someday getting some of the invested money back by selling those shares.

This is not just a rip-off of the taxpayer. It is a craven program to enrich big investors in the bailed-out enterprises, while putting control of the nation's economic destiny increasingly into a smaller number of hands of people whose interests are not even aligned with the national intereest (these are, after all, all transnational corporations only nominally headquartered in the US).

There is, of course, another reason that companies should never be allowed to become "too big to fail." That is political clout. The US political system is already largely an owned-and-operated subisidiary of corporate America. When companies become as large as AIG or GM or Bank of America, they also gain a disproportionate influence over the political apparatus that is an order of magnitude larger than their share of the national GDP. It's not just that they have limitless money to donate to political campaigns. They also, by their size, are able to dispense political favors in virtually every congressional district, much as the Pentagon has been doing for the past half century, and also to threaten national havoc if they don't get their way.

Don't expect much in the way of scrutiny of this bailout process from the corporate media, by the way, which has been engaged in the same process of national consolidation for the past few decades. But clearly, the public needs to wake up and start demanding that if our money is going to be used to bail out these corrupt and horrifically managed enterprises, we the people need to have a controlling interest in running them, so that they are run in our interest. Better yet, we should be demanding that these bumbling colossuses be broken up into little pieces, and then left to sink or swim on their own like the rest of us.

Dave Lindorff is a Philadelphia-based journalist and columnist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006). His work is available at www.thiscantbehappening.net

What bailed-out banks spend on lobbying

What bailed-out banks spend on lobbying

THE BALANCE OF INFLUENCE Lobbying expenses for the first nine months of 2008 by some banks receiving government help: Company Lobbying amount Government investment Merrill Lynch{*} $4.6 million $25 billion Bank of America{*} $4.7 million $25 billion Citigroup $5.6 million $25 billion JPMorgan Chase $5 million $25 billion Wells Fargo $2 million $25 billion Goldman Sachs $4.2 million $10 billion Morgan Stanley $2.4 million $10 billion PNC Bank $320,000 $7.7 billion U.S. Bancorp $290,000 $6.6 Capital One $920,000 $3.6 * — Merrill Lynch is being taken over by Bank of America, and the merged bank will receive $25 billion Sources: Lobbying disclosure reports, U.S. Senate Office of Public Records, Financial Services Roundtable

Sickening. Disheartening. How can we the people compete with these types of resources? It appears that lobbying "investment" of at least $4.5 million nets a bank about $25 billion worth of bailout money. My math may be off, but I think that calculates to a return on investment (ROI) of a staggering 555456%. Unsurprisingly, members of both houses of Congress that received more money from Wall Street towards their campaigns also tended to support bailout legislation. (see here, here, here, and here).

Kevin Zeese, director of Democracy Rising and co-founder of Voters For Peace, asks:

What do Americans get in return? The deals Paulsen is making with his former Wall Street colleagues do not ask for much. Paulsen is evidently no Warren Buffet when it comes to negotiating deals but maybe that is because Paulsen is not using his own money but the taxpayers. While Buffett received a 10% dividend on his $5 billion investment in Goldman Sachs, Paulsen only got 5% for his. While the UK was able to get a seat at the board table for their injection of cash into banks, Paulsen didn’t. Nor did Paulsen demand any more stringent banking regulations or greater transparency going forward.

Nor did Paulson ensure that banks would do any lending with the money, which was the stated aim.

On top of all of this, Bloomberg reported yesterday that multiple-bailout recipient AIG will be unable to repay their bailouts under current circumstances:

``It may make sense and be pragmatic for the government to renegotiate,'' said David Havens, a UBS AG credit analyst in Stamford, Connecticut. The loan's interest rate ``makes it extraordinarily difficult for AIG to fix itself,'' he said.

What's the crippling interest rate, you ask? A whopping 14%. Boo-fucking-hoo. So you can see why they'd have problems making their payments. Of course, in 2005 this great nation of ours also passed the bankruptcy reform bill, which now protects hapless credit card issuers from well-off consumers who were taking advantage of loopholes to rack up large balances and walk away from them, at least if you believe the industry's line of bullshit. Tamara Draut, director of the economic program at Demos think tank, saw it differently and argued that "The legislation would do nothing to rein in credit card solicitations or put caps on interest rates or late fees, over-the-limit fees and other penalties" which were some of the biggest reasons consumers were forced into bankruptcy to begin with.

So to recap: if you're a consumer and have not spent millions of dollars lobbying Congress, you get no bailout, no help if you're facing foreclosure, and it's now harder for you to declare bankruptcy if you need to get a fresh start. If you're in the finance and banking industry and DID spend millions lobbying Congress, you get billions in bailout money, you get to keep issuing outsized bonuses and dividends, you get to use taxpayer money to fund your mergers and acquisitions, you get to write new "regulations" to prevent this from happening again, plus help in recouping balances from those deadbeat consumers who are having a hard time repaying your usurious loans at 30% interest. Absolutely sickening.